1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:32,120 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. So 7 00:00:32,200 --> 00:00:34,839 Speaker 1: while I was away at treasury, yields climbed. They had 8 00:00:34,840 --> 00:00:38,280 Speaker 1: their biggest five days sell off since the November since 9 00:00:38,360 --> 00:00:41,360 Speaker 1: right after the US election. And to bring in someone 10 00:00:41,400 --> 00:00:43,519 Speaker 1: who can can tell us, you know, whether this is 11 00:00:43,560 --> 00:00:46,800 Speaker 1: the beginning of a more protracted bond market route or 12 00:00:46,800 --> 00:00:49,320 Speaker 1: whether this is just a hiccup in an otherwise low 13 00:00:49,440 --> 00:00:51,879 Speaker 1: yield environment. We have Jim Bianco, who I am so 14 00:00:51,960 --> 00:00:55,280 Speaker 1: pleased to speak with. Jim Bianco is president of Bianco Research, 15 00:00:55,280 --> 00:00:58,680 Speaker 1: which is based in Chicago. Jim, what is going on here? 16 00:00:58,720 --> 00:01:01,240 Speaker 1: You know? Is this just uh, you know, rates kind 17 00:01:01,240 --> 00:01:03,440 Speaker 1: of normalizing in a a little bit more of a 18 00:01:03,520 --> 00:01:05,480 Speaker 1: choppy fashion that they have been, or is this the 19 00:01:05,520 --> 00:01:09,480 Speaker 1: beginning of something bigger? It could be the beginning of 20 00:01:09,520 --> 00:01:12,720 Speaker 1: something bigger, but I don't think. So let's talk about 21 00:01:12,800 --> 00:01:17,720 Speaker 1: what happened June, which was not that long ago, uh, 22 00:01:17,880 --> 00:01:20,640 Speaker 1: just two weeks ago the tenure yield was it two eleven? 23 00:01:21,200 --> 00:01:23,600 Speaker 1: And the next day there was a bunch of central 24 00:01:23,600 --> 00:01:26,920 Speaker 1: bankers that spoke uh Mark Kearney of the Bank of 25 00:01:26,959 --> 00:01:30,160 Speaker 1: England and Mario Dragging of the European Central Bank, and 26 00:01:30,200 --> 00:01:33,440 Speaker 1: they hinted that even they might be looking at a 27 00:01:33,480 --> 00:01:37,679 Speaker 1: period of when they're central bank stimulus of bond buying 28 00:01:37,959 --> 00:01:42,240 Speaker 1: might end. Remember now that all bonds in the world, 29 00:01:42,280 --> 00:01:45,199 Speaker 1: and developed market government bonds in the world, one third 30 00:01:45,200 --> 00:01:48,240 Speaker 1: of them are now owned by central banks. So if 31 00:01:48,320 --> 00:01:50,840 Speaker 1: all the Fed has already stopped buying, if the ECB 32 00:01:50,960 --> 00:01:52,520 Speaker 1: is gonna stop buying, in the Bank of England is 33 00:01:52,520 --> 00:01:56,560 Speaker 1: going to stop buying. The bond market responded accordingly by 34 00:01:56,600 --> 00:01:59,120 Speaker 1: seeing a rise in yields a lot. Now we've seen 35 00:01:59,120 --> 00:02:02,520 Speaker 1: the tenure, you'll go up, but your europeanials have gone 36 00:02:02,600 --> 00:02:05,440 Speaker 1: up a lot more. That ten year German Bund is 37 00:02:05,440 --> 00:02:08,920 Speaker 1: at an eighteen month high on that news, So I 38 00:02:08,960 --> 00:02:12,320 Speaker 1: think that's been the catalyst for it. The problem is 39 00:02:12,440 --> 00:02:16,280 Speaker 1: that they're assuming, they being central banks, are assuming that 40 00:02:16,440 --> 00:02:19,800 Speaker 1: inflation is going to kick back up. If it does, 41 00:02:20,520 --> 00:02:23,280 Speaker 1: then all their hawk ish talk about raising rates is 42 00:02:23,320 --> 00:02:27,960 Speaker 1: probably justified if it doesn't and these uh and inflation 43 00:02:28,040 --> 00:02:29,880 Speaker 1: stays low, and for the last several years, that has 44 00:02:29,880 --> 00:02:32,519 Speaker 1: always been the thing. Inflation confounds by being too much 45 00:02:32,919 --> 00:02:36,000 Speaker 1: lower than everybody thinks. If it stays there, then they 46 00:02:36,080 --> 00:02:39,120 Speaker 1: might be overtightening and they could be seriously impacting the 47 00:02:39,160 --> 00:02:41,960 Speaker 1: economy in a negative way. Which way do you fall 48 00:02:42,000 --> 00:02:45,040 Speaker 1: on this? I think that they're going too far. I 49 00:02:45,120 --> 00:02:47,880 Speaker 1: think that inflation is not going to pick up to 50 00:02:47,919 --> 00:02:50,400 Speaker 1: the degree that central banks say it's going to pick up. 51 00:02:50,720 --> 00:02:53,120 Speaker 1: We did a study a couple of weeks ago where 52 00:02:53,160 --> 00:02:56,920 Speaker 1: we looked at uh FED speech and usually when inflation 53 00:02:57,000 --> 00:02:59,720 Speaker 1: surprises them, they start using the words models and for 54 00:03:00,040 --> 00:03:02,560 Speaker 1: tasks a lot, meaning that O'll pay no attention to 55 00:03:02,639 --> 00:03:05,680 Speaker 1: us being wrong. Now the future, according to our model 56 00:03:05,680 --> 00:03:08,280 Speaker 1: and forecast says will be right. They've used the words 57 00:03:08,360 --> 00:03:10,440 Speaker 1: model and forecast more than they have at any point 58 00:03:10,480 --> 00:03:14,079 Speaker 1: in the last eight years. So they're really betting that 59 00:03:14,120 --> 00:03:16,440 Speaker 1: they're going to see a rise of inflation, and I 60 00:03:16,560 --> 00:03:18,600 Speaker 1: just don't see it right now. And if they intend 61 00:03:19,080 --> 00:03:21,239 Speaker 1: on reducing the balance, she at least the Federal Reserve 62 00:03:21,680 --> 00:03:24,400 Speaker 1: raising rates more, and we were to get this kind 63 00:03:24,400 --> 00:03:25,680 Speaker 1: of pull back from the e c BE in the 64 00:03:25,680 --> 00:03:28,840 Speaker 1: Bank of England, it could be very problematic for the 65 00:03:28,880 --> 00:03:32,000 Speaker 1: economies because you could wind up tightening to the point 66 00:03:32,000 --> 00:03:34,840 Speaker 1: where it actually hurts the economy, something we haven't seen 67 00:03:34,920 --> 00:03:37,880 Speaker 1: yet so far. I'm wondering, Jim, what's your take on 68 00:03:37,960 --> 00:03:41,920 Speaker 1: whether this bond market sell off happened on thin volume 69 00:03:42,000 --> 00:03:44,720 Speaker 1: and it was simply a result from a summer market 70 00:03:44,720 --> 00:03:46,600 Speaker 1: where a lot of people were out of the office 71 00:03:46,840 --> 00:03:50,160 Speaker 1: versus uh, people were positioned for this and we're waiting 72 00:03:50,200 --> 00:03:52,440 Speaker 1: for this, and and and and have been. So the 73 00:03:52,440 --> 00:03:55,320 Speaker 1: market has gotten so one sided that it can readjust 74 00:03:55,400 --> 00:03:59,680 Speaker 1: quickly and more violently. Let me make it just an 75 00:03:59,720 --> 00:04:02,760 Speaker 1: an don't for you about the thin volume. Um JP 76 00:04:02,920 --> 00:04:07,720 Speaker 1: Morgan has reported now that among their high institutional clients 77 00:04:08,280 --> 00:04:10,840 Speaker 1: that they have mobile apps for them to trade and 78 00:04:10,880 --> 00:04:14,240 Speaker 1: they have now done at trades in excessive a billion 79 00:04:14,240 --> 00:04:17,560 Speaker 1: dollars with somebody on their phone. So all those traders 80 00:04:17,560 --> 00:04:19,920 Speaker 1: that are summering in the Hampton's over the Fourth of 81 00:04:20,000 --> 00:04:22,359 Speaker 1: July weekend, they're not in the office, They've got a phone, 82 00:04:22,640 --> 00:04:24,719 Speaker 1: They've got their two buttons away from doing a trade. 83 00:04:24,800 --> 00:04:28,200 Speaker 1: And that's exactly what they have been doing, and so 84 00:04:28,279 --> 00:04:30,640 Speaker 1: I don't buy the argument that there's there's this thing 85 00:04:30,720 --> 00:04:34,640 Speaker 1: called thin summer volume. As far as where the where 86 00:04:34,680 --> 00:04:37,200 Speaker 1: the markets go, as far as the positioning goes in 87 00:04:37,279 --> 00:04:40,200 Speaker 1: the marketplace, I think it's rather neutral. We look at 88 00:04:40,240 --> 00:04:42,280 Speaker 1: things like the Commitment of Traders report, which is a 89 00:04:42,320 --> 00:04:45,240 Speaker 1: breakdown of open interest, and we see that the ten 90 00:04:45,320 --> 00:04:49,000 Speaker 1: year UH, the speculators in the ten year contract are 91 00:04:49,160 --> 00:04:51,719 Speaker 1: very very long, and that's supposed to be bearished. But 92 00:04:51,760 --> 00:04:53,760 Speaker 1: then we've got the opposite in the ear dollar, and 93 00:04:53,800 --> 00:04:56,200 Speaker 1: when you add them all up, they're kind of in 94 00:04:56,240 --> 00:04:58,840 Speaker 1: a middling kind of range. So I don't see UH 95 00:04:58,960 --> 00:05:02,400 Speaker 1: positioning as being they were extreme right now, which suggest 96 00:05:02,440 --> 00:05:05,040 Speaker 1: that this this rise and rates might have a little 97 00:05:05,080 --> 00:05:07,680 Speaker 1: bit more to run, but not much more, because if 98 00:05:07,720 --> 00:05:11,200 Speaker 1: the if it's going to continue to raise rates without inflation, 99 00:05:11,520 --> 00:05:13,040 Speaker 1: I think the market is going to start worrying that 100 00:05:13,080 --> 00:05:15,160 Speaker 1: they're gonna hurt the economy, and that could be very 101 00:05:15,200 --> 00:05:17,599 Speaker 1: supportive for interest rates. At what point do you think, 102 00:05:17,720 --> 00:05:19,839 Speaker 1: for let's say, on the tenure, what yields do you 103 00:05:19,839 --> 00:05:22,279 Speaker 1: think are going to be attractive enough to bring people 104 00:05:22,320 --> 00:05:25,320 Speaker 1: in buying in bulk. I think to forty would do it. 105 00:05:25,680 --> 00:05:27,760 Speaker 1: We're only a couple of asis points away from that 106 00:05:27,880 --> 00:05:30,720 Speaker 1: right now. I think that if you see a two 107 00:05:30,800 --> 00:05:34,120 Speaker 1: point four facts fill in the blank after that, I 108 00:05:34,160 --> 00:05:37,800 Speaker 1: think that people will start getting interested in the bond market. Jim, 109 00:05:37,800 --> 00:05:39,880 Speaker 1: you know when I when I always speak with you 110 00:05:40,040 --> 00:05:42,920 Speaker 1: or here hear your voice or read things that you're right, 111 00:05:43,000 --> 00:05:45,720 Speaker 1: I always think, Okay, Jim is in Chicago, so he's 112 00:05:45,800 --> 00:05:47,599 Speaker 1: kind of the steady eddie and all this. You know, 113 00:05:47,760 --> 00:05:51,080 Speaker 1: he kind of sees it from a perspective that many 114 00:05:51,160 --> 00:05:53,159 Speaker 1: people on the coast and so on may not be 115 00:05:53,279 --> 00:05:55,920 Speaker 1: able to see. And then I of course thought, but 116 00:05:56,120 --> 00:06:00,520 Speaker 1: Chicago was in Illinois, and you know, you've got a problem, 117 00:06:00,520 --> 00:06:02,680 Speaker 1: and I'm wondering if you could talk about just the 118 00:06:02,720 --> 00:06:10,240 Speaker 1: pensions and these problems with the budgets in particularly in Illinois, 119 00:06:10,279 --> 00:06:12,960 Speaker 1: and what you think the effects of that are going 120 00:06:13,000 --> 00:06:16,480 Speaker 1: to be in the economy Illinois on the road to ruin? 121 00:06:16,600 --> 00:06:20,320 Speaker 1: How about that? Um? And unfortunately I'll say that we're 122 00:06:20,400 --> 00:06:23,480 Speaker 1: just further along on that road than everybody else. They 123 00:06:23,480 --> 00:06:26,720 Speaker 1: all seem to be on it. Um. Real brief, here's 124 00:06:26,760 --> 00:06:30,960 Speaker 1: Illinois problem. They passed the new constitution in nineteen seventy 125 00:06:31,120 --> 00:06:34,960 Speaker 1: Section five of the new Constitution said you cannot change 126 00:06:34,960 --> 00:06:38,040 Speaker 1: a pension plan or any retirement plan that is done 127 00:06:38,040 --> 00:06:41,920 Speaker 1: by the state, city, or any municipal workers. They've tried 128 00:06:41,960 --> 00:06:45,040 Speaker 1: to amend or I'm sorry, they've tried to change the plans, 129 00:06:45,080 --> 00:06:48,760 Speaker 1: the courts have struck it down because the constitutions says 130 00:06:48,800 --> 00:06:52,279 Speaker 1: you can't change them. So we've got this giant pension 131 00:06:52,360 --> 00:06:55,760 Speaker 1: problem that cannot be changed short of a constitutional amendment. 132 00:06:56,200 --> 00:06:59,359 Speaker 1: I won't go to the the mechanics to that, but 133 00:06:59,440 --> 00:07:02,040 Speaker 1: let's just say that a constitutional amendment in Illinois all 134 00:07:02,040 --> 00:07:06,040 Speaker 1: but impossible. So that's the first problem that Illinois has. 135 00:07:06,080 --> 00:07:08,960 Speaker 1: The second problem that Illinois has been at that point 136 00:07:09,120 --> 00:07:11,960 Speaker 1: is that they have been raising taxes to try and 137 00:07:12,000 --> 00:07:14,920 Speaker 1: meet this pension problem. They've been driving people out of 138 00:07:14,960 --> 00:07:18,360 Speaker 1: the state. The state of Illinois has the largest exodus 139 00:07:18,360 --> 00:07:20,600 Speaker 1: of people in the country. The city of Chicago has 140 00:07:20,640 --> 00:07:23,360 Speaker 1: the largest exodus of any major city of people in 141 00:07:23,400 --> 00:07:27,040 Speaker 1: the country. We've just raised the taxes again. The Illinois 142 00:07:27,080 --> 00:07:30,960 Speaker 1: Policy Institute says that, congratulations, Illinois, you've got the highest 143 00:07:30,960 --> 00:07:33,080 Speaker 1: tax rate in the country. Now, all in tax rate 144 00:07:33,080 --> 00:07:35,160 Speaker 1: in the country. That's gonna drive more people out of 145 00:07:35,200 --> 00:07:37,520 Speaker 1: the state that's going to lower the number of people 146 00:07:37,560 --> 00:07:40,160 Speaker 1: that pay taxes. That's why I mean by Illinois on 147 00:07:40,160 --> 00:07:43,480 Speaker 1: the road to ruin. Now, what fixes this? Well, when 148 00:07:43,520 --> 00:07:46,920 Speaker 1: the Illinois voters decide what they want to be. Do 149 00:07:46,960 --> 00:07:49,440 Speaker 1: they do they want to be a quasi socialist state 150 00:07:49,520 --> 00:07:52,559 Speaker 1: and continue to just raise taxes and raise taxes and 151 00:07:52,760 --> 00:07:54,720 Speaker 1: they don't care if they drive everybody out, or do 152 00:07:54,760 --> 00:07:58,120 Speaker 1: they want to correct this by electing politicians that will 153 00:07:58,480 --> 00:08:02,720 Speaker 1: pass the constitutional amendment to start start fixing this problem. 154 00:08:02,880 --> 00:08:05,560 Speaker 1: The Illinois voters haven't decided yet, and that's why we 155 00:08:05,560 --> 00:08:07,760 Speaker 1: will remain on the road of ruin until they do 156 00:08:07,840 --> 00:08:12,760 Speaker 1: decide what they want to do. Thank No, but Jim Bianco, 157 00:08:12,920 --> 00:08:14,480 Speaker 1: I mean, you know, as they say, tell us how 158 00:08:14,520 --> 00:08:17,080 Speaker 1: you really feel. No, but Jim Bianco, You're you're highlighting 159 00:08:17,160 --> 00:08:20,280 Speaker 1: so many very pertinent issues, and we want to thank 160 00:08:20,280 --> 00:08:22,840 Speaker 1: you for doing so. Jim Bianco is the president and 161 00:08:22,920 --> 00:08:25,480 Speaker 1: the founder of Bianco Research, and yes, he is based 162 00:08:25,520 --> 00:08:41,040 Speaker 1: in Chicago. There's a holiday coming up, Lisa of Romwitz. 163 00:08:41,160 --> 00:08:45,000 Speaker 1: It's only happening online though it's ending in the Amazon world, 164 00:08:45,400 --> 00:08:49,680 Speaker 1: and it's called Amazon Prime Day. And this apparently is 165 00:08:49,880 --> 00:08:53,400 Speaker 1: a moment in Internet experience that people have waited for 166 00:08:53,440 --> 00:08:56,760 Speaker 1: all year. But we've got someone who has to do 167 00:08:56,880 --> 00:08:59,440 Speaker 1: this for a living, just Hendra Warrel. He is our 168 00:08:59,480 --> 00:09:04,400 Speaker 1: Global Internet and Consumer Electronics Analyst for Bloomberg Intelligence and 169 00:09:04,480 --> 00:09:08,400 Speaker 1: he joins us from our nine sixty studio in San Francisco. 170 00:09:08,520 --> 00:09:11,199 Speaker 1: Je Tendra, thank you very much for making time for us. 171 00:09:11,240 --> 00:09:15,400 Speaker 1: And have you got the countdown clock or something to 172 00:09:15,480 --> 00:09:19,640 Speaker 1: this retail experience? Tell tell people who are not familiar 173 00:09:19,640 --> 00:09:22,240 Speaker 1: with it or whose eyes are rolling into the rhead 174 00:09:22,520 --> 00:09:25,960 Speaker 1: what this is all about. So basically this is a 175 00:09:26,000 --> 00:09:29,320 Speaker 1: third year that Amazon is doing this. Essentially, what they 176 00:09:29,320 --> 00:09:31,960 Speaker 1: want to do is for all their Prime members, make 177 00:09:32,400 --> 00:09:35,440 Speaker 1: you know, products available, deep discounts so that you know, 178 00:09:35,559 --> 00:09:38,840 Speaker 1: more people are aware of this prime membership service and 179 00:09:38,880 --> 00:09:41,959 Speaker 1: they attract more Prime members you know long term. Now, 180 00:09:41,960 --> 00:09:45,680 Speaker 1: what we have seen last year two years basically every 181 00:09:45,679 --> 00:09:47,920 Speaker 1: time they have a Prime Day one day, they always 182 00:09:47,960 --> 00:09:52,359 Speaker 1: have like a you know, sales exceeding sort of expectations 183 00:09:52,360 --> 00:09:54,880 Speaker 1: on the Prime Day, which reflects on the prey guidance 184 00:09:54,960 --> 00:09:59,280 Speaker 1: being higher than expectations, but also a surgeon prime memberships. 185 00:09:59,400 --> 00:10:02,920 Speaker 1: So what you can expect here is deals, more Prime 186 00:10:02,920 --> 00:10:06,880 Speaker 1: members and um, you know, them selling more Equit devices 187 00:10:06,920 --> 00:10:09,400 Speaker 1: to you this year to Tendra. How big are the 188 00:10:09,480 --> 00:10:13,920 Speaker 1: discounts and who takes the cut in profits? Does Amazon 189 00:10:14,320 --> 00:10:17,960 Speaker 1: pass on the cut and profits to the suppliers, the 190 00:10:18,160 --> 00:10:21,400 Speaker 1: stores that supply uh the goods? Or is it just 191 00:10:21,800 --> 00:10:24,520 Speaker 1: them taking the hit and taking the loss. See, the 192 00:10:24,559 --> 00:10:27,720 Speaker 1: goal here is not just chasing sales and profitability on 193 00:10:27,760 --> 00:10:31,400 Speaker 1: this day. The goal here is to broadcast the brand globally, right, 194 00:10:31,760 --> 00:10:35,160 Speaker 1: so attracting more prime members. So it's it's less to 195 00:10:35,160 --> 00:10:37,800 Speaker 1: do with profits and more to do it just the acquisition. 196 00:10:37,920 --> 00:10:39,920 Speaker 1: I know, I understand that, I understand that, but I'm 197 00:10:39,960 --> 00:10:42,920 Speaker 1: wondering if they discount things heavily, right, how does that? 198 00:10:43,200 --> 00:10:45,640 Speaker 1: You know, are they basically taking a loss with the 199 00:10:45,679 --> 00:10:47,680 Speaker 1: amount that they're discounting it, or are they just they're 200 00:10:47,679 --> 00:10:50,080 Speaker 1: discounting it a little bit and they're still on certain 201 00:10:50,120 --> 00:10:52,800 Speaker 1: categories on certain categories. That would be true. But if 202 00:10:52,840 --> 00:10:55,319 Speaker 1: you actually look at you know, the stuff that they 203 00:10:55,360 --> 00:10:58,240 Speaker 1: sell the most or or hope to sell the most, 204 00:10:58,360 --> 00:11:01,800 Speaker 1: is Amazon's own products, which obviously you know they're taking 205 00:11:01,840 --> 00:11:04,400 Speaker 1: a loss on it as it is, so you know, 206 00:11:04,400 --> 00:11:06,120 Speaker 1: it's safe to assume that they would be taking a 207 00:11:06,120 --> 00:11:09,640 Speaker 1: loss on that. But the goal here is more penetration 208 00:11:09,720 --> 00:11:12,439 Speaker 1: of you know, these devices like Amazon Echo and henceforth, 209 00:11:12,720 --> 00:11:16,079 Speaker 1: the more tuned customers are to the whole Amazon ecosystem. 210 00:11:16,640 --> 00:11:20,760 Speaker 1: So if I said to the Alexa or the Echo 211 00:11:21,200 --> 00:11:25,760 Speaker 1: machine in the living room, tell me the dollar amount 212 00:11:25,880 --> 00:11:31,160 Speaker 1: of sales that Amazon does on these days, what would 213 00:11:31,160 --> 00:11:36,120 Speaker 1: the response be? They don't disclose this number. What do 214 00:11:36,160 --> 00:11:38,160 Speaker 1: you think it is? What kind of sales numbers are 215 00:11:38,160 --> 00:11:42,160 Speaker 1: we talking about? So right now we will be probably 216 00:11:42,200 --> 00:11:45,560 Speaker 1: approaching a billion dollars in gm re because you know, 217 00:11:46,240 --> 00:11:49,559 Speaker 1: they have thirty hours this year versus twenty four, be 218 00:11:49,720 --> 00:11:52,400 Speaker 1: they have more Prime members. How did they get how 219 00:11:52,400 --> 00:11:55,160 Speaker 1: did they squeeze those hours? Who did they call to 220 00:11:55,280 --> 00:11:59,000 Speaker 1: get those extra hours? Well, they also expanded the number 221 00:11:59,000 --> 00:12:00,920 Speaker 1: of countries over here, and they want to make sure 222 00:12:01,000 --> 00:12:03,800 Speaker 1: that you know, all these deals attract as many Prime 223 00:12:03,840 --> 00:12:08,080 Speaker 1: and Echo customers as possible. So, but what's interesting is 224 00:12:08,280 --> 00:12:12,520 Speaker 1: with the Echo devices, like you have exclusive deals on 225 00:12:12,600 --> 00:12:14,840 Speaker 1: them as well, and deep discounts on the Echo product 226 00:12:14,880 --> 00:12:17,680 Speaker 1: as well. So Amazon clearly wants, you know, more and 227 00:12:17,720 --> 00:12:20,280 Speaker 1: more people to buy these Echo devices and rely more 228 00:12:20,320 --> 00:12:22,360 Speaker 1: on it so that you know, they stay away from 229 00:12:22,360 --> 00:12:27,320 Speaker 1: shopping elsewhere. Why don't all retailers do this, have their 230 00:12:27,360 --> 00:12:30,440 Speaker 1: own holiday, not Black Friday, but have their own holiday 231 00:12:30,480 --> 00:12:33,160 Speaker 1: that they managed to create manufacturing. I mean, Hallmark basically 232 00:12:33,160 --> 00:12:35,719 Speaker 1: did that for like Mother's Day and Valentine's Day, right, 233 00:12:35,720 --> 00:12:37,640 Speaker 1: So I mean, why why don't we see more of this? 234 00:12:38,800 --> 00:12:41,320 Speaker 1: It's interesting because you know what we have seen all 235 00:12:41,360 --> 00:12:45,240 Speaker 1: the last three years, it's been reactionary uh stances from 236 00:12:45,240 --> 00:12:49,120 Speaker 1: other players. So Walmart had something similar last year in 237 00:12:49,200 --> 00:12:52,280 Speaker 1: response to Prime, but like this year, they are not 238 00:12:52,360 --> 00:12:55,280 Speaker 1: doing it. But why aren't they doing it? Um? Well, 239 00:12:55,679 --> 00:12:58,040 Speaker 1: maybe maybe one of the reasons it is probably their 240 00:12:58,080 --> 00:13:01,600 Speaker 1: discounts are more flexible throughout the year versus Amazon. It's 241 00:13:01,640 --> 00:13:04,120 Speaker 1: it's a little bit more rigid on that stance. And 242 00:13:04,160 --> 00:13:06,720 Speaker 1: also they don't have members you know for Prime members 243 00:13:06,760 --> 00:13:10,080 Speaker 1: as for Prime Member, Prime Member, Prime Days, Prime Members only, 244 00:13:10,520 --> 00:13:14,239 Speaker 1: so they don't have this sort of membership loyalty program 245 00:13:14,240 --> 00:13:16,480 Speaker 1: going on across the board. And I think that's something 246 00:13:16,480 --> 00:13:21,400 Speaker 1: that they couldn't do. They're buying an annual annuity stream 247 00:13:21,440 --> 00:13:23,200 Speaker 1: and whatever they were, right, I mean, and they just 248 00:13:23,200 --> 00:13:25,440 Speaker 1: had to figure out a way to finance what they have. 249 00:13:25,960 --> 00:13:28,920 Speaker 1: The stock is up one in a quarter percent. Right now, 250 00:13:29,840 --> 00:13:34,200 Speaker 1: Amazon shares trading just under a thousand dollars a share 251 00:13:34,320 --> 00:13:39,360 Speaker 1: nine dollars a share for for Amazon. So who who 252 00:13:39,360 --> 00:13:44,479 Speaker 1: takes the hit from all this? Walmart? Oh well, Walmart 253 00:13:44,600 --> 00:13:47,280 Speaker 1: interestingly didn't do it this year, like you know, have 254 00:13:47,400 --> 00:13:51,240 Speaker 1: a reactionary sort of response, but not Walmart as much. 255 00:13:51,280 --> 00:13:54,520 Speaker 1: But like you could see the other source, uh, you 256 00:13:54,559 --> 00:13:57,280 Speaker 1: know sort of do take a hit from traffic being 257 00:13:57,280 --> 00:13:59,599 Speaker 1: the worded away from them. But it's not about a 258 00:13:59,679 --> 00:14:02,160 Speaker 1: hit one day. It's about it hit on like what 259 00:14:02,240 --> 00:14:04,960 Speaker 1: it means for the next year, you know. So, like 260 00:14:05,000 --> 00:14:08,040 Speaker 1: I said, they have twenty two million more Prime members 261 00:14:08,080 --> 00:14:11,160 Speaker 1: now coming into Prime Day versus it was last year, 262 00:14:11,280 --> 00:14:15,800 Speaker 1: So more people are attuned to this ecosystem, more likely 263 00:14:15,840 --> 00:14:18,760 Speaker 1: they want to stick to it. It's like a cable company, right, 264 00:14:18,760 --> 00:14:26,120 Speaker 1: They've got more people paying a year. Absolutely believe it's 265 00:14:26,160 --> 00:14:29,680 Speaker 1: absolutely But but what's interesting is that, I mean, it 266 00:14:29,720 --> 00:14:32,280 Speaker 1: doesn't really cover your free shipping and all the goods 267 00:14:32,280 --> 00:14:34,560 Speaker 1: you get out of it. So what Amazon wants to 268 00:14:34,560 --> 00:14:38,000 Speaker 1: do is essentially rely more on third party sellers through 269 00:14:38,040 --> 00:14:41,440 Speaker 1: their Fulfillment by Amazon program uh, to sell it to 270 00:14:41,560 --> 00:14:44,760 Speaker 1: Prime members. So that's how they try to recuperate. Uh 271 00:14:44,800 --> 00:14:47,640 Speaker 1: you know all the costs that or some of the 272 00:14:47,680 --> 00:14:50,720 Speaker 1: costs at least for now to um to give you 273 00:14:50,800 --> 00:14:54,080 Speaker 1: the free shipping and all these services to tender world. 274 00:14:54,160 --> 00:14:55,720 Speaker 1: Thank you so much for joining us and gonna let 275 00:14:55,720 --> 00:14:58,000 Speaker 1: you go and get started to get up your wish 276 00:14:58,000 --> 00:15:00,960 Speaker 1: list for Amazon Prime to turn as our global Internet 277 00:15:00,960 --> 00:15:04,440 Speaker 1: and consumer Electronics analyst for Bloomberg Intelligence joining us from 278 00:15:04,600 --> 00:15:20,080 Speaker 1: San Francisco. Well, there is a market that isn't covered 279 00:15:20,400 --> 00:15:23,680 Speaker 1: very much, but is vast and is of great importance 280 00:15:23,720 --> 00:15:25,600 Speaker 1: to really the heart of the U S economy, and 281 00:15:25,640 --> 00:15:28,040 Speaker 1: that is middle market lending. I want to bring in 282 00:15:28,160 --> 00:15:30,440 Speaker 1: Andy Stoyerman. He is head of middle market lending and 283 00:15:30,520 --> 00:15:34,120 Speaker 1: head of late stage lending for Gallop Capital, its dollars 284 00:15:34,320 --> 00:15:38,280 Speaker 1: under management based in Chicago. Andy, I want to talk 285 00:15:38,280 --> 00:15:40,400 Speaker 1: about just the state of the market right now, because 286 00:15:40,400 --> 00:15:45,080 Speaker 1: in the first half of broadly syndicated loans saw an 287 00:15:45,160 --> 00:15:48,600 Speaker 1: unprecedented amount of issuance, and a lot of this was repricing. 288 00:15:48,640 --> 00:15:51,760 Speaker 1: People try Our company is trying to get lower rates 289 00:15:51,960 --> 00:15:54,680 Speaker 1: on their loans. Right now, we're starting to see some 290 00:15:54,760 --> 00:15:59,240 Speaker 1: softness in the broader, bigger loan market. What about the 291 00:15:59,280 --> 00:16:02,520 Speaker 1: middle market, The middle market always is immune to what's 292 00:16:02,560 --> 00:16:05,080 Speaker 1: going on the syndicated market. We do say if they 293 00:16:05,080 --> 00:16:07,240 Speaker 1: have a flu, we get a cold. But middle markets 294 00:16:07,240 --> 00:16:11,080 Speaker 1: more relationship blending, and our clients really don't have a choice. 295 00:16:11,200 --> 00:16:13,320 Speaker 1: They don't really have a syndicated option, they don't have 296 00:16:13,360 --> 00:16:16,720 Speaker 1: a non syndicated option. So middle market has some spread 297 00:16:16,720 --> 00:16:19,120 Speaker 1: compression when the large market has spread compression, which is 298 00:16:19,120 --> 00:16:22,080 Speaker 1: happening now. But we're more immune and we tend to 299 00:16:22,080 --> 00:16:25,280 Speaker 1: be more relationship lending, so clients tend to pick us 300 00:16:25,280 --> 00:16:28,560 Speaker 1: and work with us even when markettions change. What kind 301 00:16:28,560 --> 00:16:32,320 Speaker 1: of how much higher are the rates on these loans? 302 00:16:32,360 --> 00:16:36,120 Speaker 1: Say on average then on broadly syndicated loans, they could 303 00:16:36,160 --> 00:16:37,800 Speaker 1: be anywhere from about a hundred to a hundred and 304 00:16:37,800 --> 00:16:39,680 Speaker 1: twenty five basis points. And if you're one of the 305 00:16:39,720 --> 00:16:42,640 Speaker 1: leader arrangers, you get to keep most of the upfront fees. 306 00:16:42,960 --> 00:16:45,440 Speaker 1: Were in a syndicated market, the investment bank keeps the 307 00:16:45,440 --> 00:16:48,480 Speaker 1: outfront fees and the retail market takes a very low 308 00:16:48,480 --> 00:16:50,400 Speaker 1: o I D. So we actually get a premium in 309 00:16:50,400 --> 00:16:54,720 Speaker 1: our spread because we're the underwriter and holder. I want 310 00:16:54,800 --> 00:16:58,240 Speaker 1: you to just use if you can, the here's the image. 311 00:16:58,280 --> 00:17:01,320 Speaker 1: The image is you have a pet and you have 312 00:17:01,440 --> 00:17:03,560 Speaker 1: to go and you need to let's say, have it 313 00:17:03,640 --> 00:17:06,280 Speaker 1: cared for, and you get the bill and you just 314 00:17:06,359 --> 00:17:09,800 Speaker 1: are in shock, but you pay it. Can you tell 315 00:17:09,880 --> 00:17:13,280 Speaker 1: us about that and a loan that you put together 316 00:17:13,400 --> 00:17:16,840 Speaker 1: and how that kind of exemplifies not only your role, 317 00:17:17,400 --> 00:17:21,399 Speaker 1: but specifically the kinds of businesses and the people involved 318 00:17:21,480 --> 00:17:27,120 Speaker 1: in the businesses, the owners, the operators. Sure Golf Capital 319 00:17:27,400 --> 00:17:29,920 Speaker 1: works with middle market companies in the United States. Middle 320 00:17:29,920 --> 00:17:32,600 Speaker 1: market companies really are the growth engine. That's where both 321 00:17:32,760 --> 00:17:36,000 Speaker 1: changes happen because larger companies are kind of too bureaucratic. 322 00:17:36,480 --> 00:17:39,080 Speaker 1: We do like the pet space. We found over time 323 00:17:39,119 --> 00:17:41,320 Speaker 1: that people actually like their pets, sometimes more than their children, 324 00:17:41,560 --> 00:17:43,240 Speaker 1: and we'll feed their pets better food than they feed 325 00:17:43,280 --> 00:17:46,720 Speaker 1: their children. So it's actually a pretty recession resistant elements. 326 00:17:46,720 --> 00:17:49,679 Speaker 1: So we we've worked well. In the vetman, I'm sorry, 327 00:17:51,240 --> 00:17:53,679 Speaker 1: it's proven to be true. We we could see it. 328 00:17:53,760 --> 00:17:57,280 Speaker 1: I just want you to get the vet care so 329 00:17:57,640 --> 00:18:02,000 Speaker 1: people bring. Veterinary care is has been recession resistant. We 330 00:18:02,040 --> 00:18:04,000 Speaker 1: have data going back fifteen years when we've done our 331 00:18:04,080 --> 00:18:08,119 Speaker 1: first Veterinarians have two issues, right, they have issues of 332 00:18:08,160 --> 00:18:10,840 Speaker 1: scale because they need to kind of grow their business 333 00:18:10,840 --> 00:18:12,960 Speaker 1: and they have generational change issues, which is how do 334 00:18:13,040 --> 00:18:16,720 Speaker 1: I monetize what I've created? So the private equity market 335 00:18:16,760 --> 00:18:20,359 Speaker 1: has been great at creating these super companies where they 336 00:18:20,400 --> 00:18:24,159 Speaker 1: consolidate all the operations get more efficient, so sometimes pricing 337 00:18:24,200 --> 00:18:27,840 Speaker 1: goes down better care referral sources. But also the owners 338 00:18:27,880 --> 00:18:30,280 Speaker 1: of these businesses actually get to cash out and change 339 00:18:30,280 --> 00:18:34,000 Speaker 1: their generational wealth. So our company we did was called 340 00:18:34,040 --> 00:18:37,000 Speaker 1: pet Fet. Pet FETs one of the larger consolidators. And 341 00:18:37,040 --> 00:18:39,520 Speaker 1: this is an example how we did a middle market 342 00:18:39,520 --> 00:18:43,040 Speaker 1: deal and didn't go syndicated. Seven hundred million dollar facility 343 00:18:43,600 --> 00:18:45,880 Speaker 1: in prior years would have been done the larger syndicated 344 00:18:45,920 --> 00:18:48,199 Speaker 1: loan market. And just to be just this was this 345 00:18:48,280 --> 00:18:53,200 Speaker 1: headquartered in in um Uh, Connecticut. Headquartered in Connecticut. But 346 00:18:53,200 --> 00:18:56,640 Speaker 1: but their operations are national and they're building clusters nationally 347 00:18:56,800 --> 00:18:59,919 Speaker 1: and their owned by a pension plan, by a pen 348 00:19:00,040 --> 00:19:03,000 Speaker 1: and plan and other lenders like like ourselves. Well, I 349 00:19:03,000 --> 00:19:05,240 Speaker 1: want to pick up on the idea that a pension 350 00:19:05,720 --> 00:19:10,480 Speaker 1: plan owns this company Ontario Teachers Pension Plan. This I 351 00:19:10,520 --> 00:19:12,840 Speaker 1: thought was interesting and this is a new development where 352 00:19:12,880 --> 00:19:16,800 Speaker 1: you're seeing an increasing number of pensions invest directly in 353 00:19:17,040 --> 00:19:19,840 Speaker 1: smaller companies in order to capture those higher yields that 354 00:19:19,880 --> 00:19:24,160 Speaker 1: you were saying, we're uh north of one percentage point 355 00:19:24,240 --> 00:19:28,960 Speaker 1: higher than more broadly syndicated loans. Um, how much are 356 00:19:28,960 --> 00:19:31,000 Speaker 1: you seeing this as a trend and is it good 357 00:19:31,080 --> 00:19:33,520 Speaker 1: or is it bad? So we've seen pension plans in 358 00:19:33,560 --> 00:19:36,879 Speaker 1: two places. One we've seen them as buyers of businesses 359 00:19:36,920 --> 00:19:39,560 Speaker 1: where they've decided not to invest in private equity funds 360 00:19:40,119 --> 00:19:42,320 Speaker 1: and pay the carrying the promote to private equity funds 361 00:19:42,320 --> 00:19:44,720 Speaker 1: and they build their own teams. And then we've seen 362 00:19:44,720 --> 00:19:48,159 Speaker 1: as direct direct lenders where they have huge obligations and 363 00:19:48,200 --> 00:19:50,920 Speaker 1: they see the direct loans that we're making and giving 364 00:19:50,920 --> 00:19:53,040 Speaker 1: to our investors and I'd like to participate, and someone 365 00:19:53,160 --> 00:19:55,760 Speaker 1: have the scale to get their teams together. So there 366 00:19:55,800 --> 00:20:00,000 Speaker 1: are it's a delicate balance into when you say scale 367 00:20:00,080 --> 00:20:02,480 Speaker 1: to get their teams together. Does that mean that they 368 00:20:02,480 --> 00:20:07,040 Speaker 1: are hiring people who are specialists in direct lending to 369 00:20:07,280 --> 00:20:10,840 Speaker 1: go out on behalf of them and source opportunities or 370 00:20:10,880 --> 00:20:14,080 Speaker 1: does this mean that uh, they're getting sort of investment 371 00:20:14,760 --> 00:20:17,360 Speaker 1: thecs together in order to invest. No, they're doing both. 372 00:20:17,359 --> 00:20:19,639 Speaker 1: They actually have full teams, their marketing to the private 373 00:20:19,640 --> 00:20:22,560 Speaker 1: equity universe as if they were Gollop Capital. So they're 374 00:20:22,560 --> 00:20:26,480 Speaker 1: out there using their balance sheet, using their pension plan 375 00:20:27,040 --> 00:20:29,040 Speaker 1: and going out and sourcing loans on their own. Does 376 00:20:29,040 --> 00:20:32,000 Speaker 1: this make it difficult for you? You know there, it 377 00:20:32,080 --> 00:20:34,200 Speaker 1: does make it more difficult, But there is a scale, 378 00:20:34,560 --> 00:20:37,720 Speaker 1: there is tenures. So Gallop capitalsman in business for twenty years. 379 00:20:38,119 --> 00:20:39,920 Speaker 1: It takes a long time to queue. In this business. 380 00:20:40,440 --> 00:20:41,800 Speaker 1: One of the things that people don't talk about. You 381 00:20:41,840 --> 00:20:44,159 Speaker 1: have to provide companies that revolvers the lines of credit. 382 00:20:44,600 --> 00:20:47,440 Speaker 1: Having that operation is very time consuming, expensive and it's 383 00:20:47,440 --> 00:20:51,359 Speaker 1: a big organization. They tend to do more the junior capital. 384 00:20:51,400 --> 00:20:54,879 Speaker 1: Pension plans second lean high yield bonds and tend to 385 00:20:54,880 --> 00:20:58,560 Speaker 1: buy into our loans, probably more than than to arrange 386 00:20:58,560 --> 00:21:01,480 Speaker 1: and lead themselves because that difficult, real, real quick. Which 387 00:21:01,520 --> 00:21:05,159 Speaker 1: pension plans have the biggest teams devoted to direct lending 388 00:21:05,720 --> 00:21:10,280 Speaker 1: um Ontario Teachers was there's a group called PSP. There 389 00:21:10,320 --> 00:21:12,680 Speaker 1: are there are pension plans all of the United States. 390 00:21:12,680 --> 00:21:14,800 Speaker 1: They're all doing it. They're family offices that are doing 391 00:21:14,800 --> 00:21:17,560 Speaker 1: it too, high net worth individuals and family offices. So 392 00:21:17,600 --> 00:21:20,239 Speaker 1: the Canadian market has been one of the largest. If 393 00:21:20,280 --> 00:21:22,280 Speaker 1: you look at all the Canadian pension plans, they've been 394 00:21:22,600 --> 00:21:27,000 Speaker 1: the most aggressive, you know, really in our market. That 395 00:21:27,160 --> 00:21:31,720 Speaker 1: is amazing. They really so they're investing in the United 396 00:21:31,760 --> 00:21:37,880 Speaker 1: States to fund their future liabilities for their retirees. Yes, 397 00:21:38,800 --> 00:21:42,719 Speaker 1: not our own pension plans. Some invest through us. Well 398 00:21:43,200 --> 00:21:45,320 Speaker 1: what a trend. All right, well done, Thanks very much 399 00:21:45,359 --> 00:21:48,919 Speaker 1: for being here illuminating an interesting topic. Andy's Storyaman He 400 00:21:49,080 --> 00:21:51,200 Speaker 1: is the head of middle market lending and the head 401 00:21:51,240 --> 00:21:53,840 Speaker 1: of late stage lending. He does it all at Gallup 402 00:21:53,920 --> 00:22:11,200 Speaker 1: Capital twenty billion under management based in Chicago. This is Bloomberg. Well, 403 00:22:11,240 --> 00:22:14,520 Speaker 1: in the past week alone, the biggest emerging markets e 404 00:22:14,640 --> 00:22:16,720 Speaker 1: t F debt e t F I should say, which 405 00:22:16,720 --> 00:22:20,200 Speaker 1: trades unto the ticker e m B, has lost about 406 00:22:20,280 --> 00:22:24,159 Speaker 1: one almost one billion dollars of assets through withdrawals. And 407 00:22:24,240 --> 00:22:29,760 Speaker 1: this comes after many, many weeks of consecutive and record inflows. 408 00:22:29,840 --> 00:22:32,360 Speaker 1: Here to help us understand whether this is the beginning 409 00:22:32,680 --> 00:22:35,800 Speaker 1: of some kind of bigger route with an emerging markets 410 00:22:35,840 --> 00:22:39,200 Speaker 1: debt is Damien Sassaur. He's are fixed income strategist focus 411 00:22:39,280 --> 00:22:42,359 Speaker 1: on emerging markets for Bloomberg Intelligence, and he joins us 412 00:22:42,359 --> 00:22:45,120 Speaker 1: here in our Bloomberg eleven three oh Studios, Damien, thank 413 00:22:45,160 --> 00:22:47,560 Speaker 1: you so much for joining us. So we have seen 414 00:22:47,600 --> 00:22:51,600 Speaker 1: this weakness, which is a little bit surprising, simply because 415 00:22:51,640 --> 00:22:54,480 Speaker 1: there were so many big investors who were saying that 416 00:22:54,600 --> 00:22:58,119 Speaker 1: right now emerging markets debt is in better shape simply 417 00:22:58,160 --> 00:23:01,520 Speaker 1: because these economies are doing better and even a bit 418 00:23:01,560 --> 00:23:04,320 Speaker 1: of of of a benchmark rate increase in the US 419 00:23:04,400 --> 00:23:07,960 Speaker 1: won't really shake it. What's behind the latest weakness and 420 00:23:08,000 --> 00:23:10,199 Speaker 1: kind of continue, Well, I think the latest weakness, as 421 00:23:10,240 --> 00:23:12,879 Speaker 1: we were discussing, it's it's been macro factors, right, I 422 00:23:12,880 --> 00:23:15,280 Speaker 1: think six of spread movement for the better part of 423 00:23:15,280 --> 00:23:18,080 Speaker 1: the past two years. An emerging market debt is related 424 00:23:18,119 --> 00:23:21,960 Speaker 1: to oil US yields and China China consumption, So you 425 00:23:21,960 --> 00:23:23,919 Speaker 1: know that explains the bulk of it. I mean, we 426 00:23:24,040 --> 00:23:27,320 Speaker 1: just hiked on June fourteen, and since that point, the 427 00:23:27,440 --> 00:23:30,280 Speaker 1: meaning that the Federal Reserve raised indust rates again on 428 00:23:30,680 --> 00:23:33,199 Speaker 1: in June, and since then we have seen this weakness 429 00:23:33,240 --> 00:23:37,000 Speaker 1: precisely we are we are the Bloomberg Barkley's Emerging market 430 00:23:37,040 --> 00:23:40,000 Speaker 1: hard currency aggregate benchmark indexes down one point oh five 431 00:23:40,080 --> 00:23:43,359 Speaker 1: percent since the date of the uh the FED rate hikes. 432 00:23:43,359 --> 00:23:45,120 Speaker 1: So so yeah, look, I mean it's still at five 433 00:23:45,119 --> 00:23:47,400 Speaker 1: points percent year to date. I mean it rose nine 434 00:23:47,440 --> 00:23:49,600 Speaker 1: percent last year. So maybe you know, call it what 435 00:23:49,680 --> 00:23:52,040 Speaker 1: you will, you know, um now that um, you know, 436 00:23:52,119 --> 00:23:54,399 Speaker 1: maybe profit taking. Maybe you know you're just seeing people, 437 00:23:54,480 --> 00:23:56,720 Speaker 1: you know, the markets are maybe a little bit over extended, etcetera. 438 00:23:56,800 --> 00:23:59,399 Speaker 1: But but look fundamentally, and this is what we look at. 439 00:23:59,440 --> 00:24:02,760 Speaker 1: I think there's something bigger going on beneath the surface. Right, 440 00:24:02,800 --> 00:24:07,080 Speaker 1: We've got em credit quality degradation, and we have tighter 441 00:24:07,080 --> 00:24:09,880 Speaker 1: spread perturn of leverage, meaning the spread premiere that creditors 442 00:24:09,880 --> 00:24:14,199 Speaker 1: require per unit of growth leverage has compressed by thirteen 443 00:24:14,200 --> 00:24:16,080 Speaker 1: point four percent year to date. So you're just like 444 00:24:16,720 --> 00:24:20,320 Speaker 1: that just to trans so in other words, that a 445 00:24:20,400 --> 00:24:24,560 Speaker 1: left turn or right. So investors are basically getting much 446 00:24:24,720 --> 00:24:30,080 Speaker 1: less compensation correct for extra debt that emerging markets companies 447 00:24:30,119 --> 00:24:32,639 Speaker 1: are building up relative to their income. In other words, 448 00:24:32,800 --> 00:24:36,480 Speaker 1: they're becoming more levered and people are accepting less uh 449 00:24:37,040 --> 00:24:41,640 Speaker 1: less an income. And that's exactly right. You you said 450 00:24:41,640 --> 00:24:45,400 Speaker 1: it perfectly so so um, and it's not uniform, right, 451 00:24:45,440 --> 00:24:48,119 Speaker 1: I mean, the level of leverage that is going up 452 00:24:48,119 --> 00:24:50,960 Speaker 1: an emerging market, it's not going up across the board. 453 00:24:51,000 --> 00:24:54,080 Speaker 1: It's going up across most sectors, although you know, our 454 00:24:54,119 --> 00:24:57,640 Speaker 1: analysis finds that mining and utility issues leverages actually uh 455 00:24:57,760 --> 00:25:00,359 Speaker 1: the client um and it's not going to up across 456 00:25:00,400 --> 00:25:03,639 Speaker 1: all regions. In fact, um well, in the Asia Pacific 457 00:25:03,680 --> 00:25:05,879 Speaker 1: region it's gone up quite considerably, but in Central and 458 00:25:05,960 --> 00:25:09,160 Speaker 1: Eastern Europe leverage is actually declining. So you know, it's 459 00:25:09,320 --> 00:25:12,280 Speaker 1: it's it's about these pockets, you know, these idiosyncratic regions 460 00:25:12,280 --> 00:25:14,680 Speaker 1: and countries and sectors and and and and that kind 461 00:25:14,720 --> 00:25:17,760 Speaker 1: of lends you to where you know the opportunities are 462 00:25:17,880 --> 00:25:20,439 Speaker 1: and quite frankly, where the risks are. Let me just 463 00:25:20,480 --> 00:25:23,640 Speaker 1: try to put this into a picture for myself, Damien, 464 00:25:23,680 --> 00:25:28,560 Speaker 1: because if you were brave enough after the November presidential 465 00:25:28,560 --> 00:25:32,040 Speaker 1: election to go in and buy e m B, which 466 00:25:32,119 --> 00:25:35,480 Speaker 1: is as we're describing the e t F, that is 467 00:25:35,520 --> 00:25:38,919 Speaker 1: the proxy for how people feel about emerging market debt. 468 00:25:39,480 --> 00:25:41,600 Speaker 1: If you were lucky enough to do that, you would 469 00:25:41,600 --> 00:25:45,400 Speaker 1: be getting in and around one oh six, and I'm 470 00:25:45,400 --> 00:25:47,280 Speaker 1: just going to tell you something about June. This is 471 00:25:47,320 --> 00:25:50,400 Speaker 1: the beginning of June, emerging debt e t F saw 472 00:25:50,440 --> 00:25:54,479 Speaker 1: the largest weekly inflows in more than four years, adding 473 00:25:54,520 --> 00:25:57,919 Speaker 1: one point four billions. So that was the beginning of 474 00:25:58,160 --> 00:26:02,400 Speaker 1: last month. So may be when you're a smart investor 475 00:26:02,640 --> 00:26:05,919 Speaker 1: and you read that and you say, oh, largest weekly 476 00:26:06,000 --> 00:26:09,439 Speaker 1: inflow in more than four years. I'm getting out. I 477 00:26:09,480 --> 00:26:12,280 Speaker 1: got in at one oh six, and now I can 478 00:26:12,320 --> 00:26:16,280 Speaker 1: get out of at one sixteen. Great, thank you. I'll 479 00:26:16,320 --> 00:26:18,880 Speaker 1: buy it back when it goes to one oh three 480 00:26:19,040 --> 00:26:21,840 Speaker 1: or one thirteen. And Pam, let me just expand on that. 481 00:26:21,920 --> 00:26:25,440 Speaker 1: Thirteen billion has found its way into emerging market debt 482 00:26:25,480 --> 00:26:29,280 Speaker 1: e t F in seventeen, and that's equal to thirty 483 00:26:28,480 --> 00:26:32,160 Speaker 1: percent of EM debt e t F assets under management. 484 00:26:32,200 --> 00:26:34,800 Speaker 1: I mean, that's an extraordinary number of few that either 485 00:26:34,800 --> 00:26:38,120 Speaker 1: speaks to the marketing, the sales, or the actual underlying 486 00:26:38,600 --> 00:26:41,159 Speaker 1: because how do you even know what's in this? Do 487 00:26:41,240 --> 00:26:44,119 Speaker 1: most people know what's well? Yeah, well, now, over se 488 00:26:44,880 --> 00:26:47,560 Speaker 1: of the thirty four billion in the five largest emerging 489 00:26:47,640 --> 00:26:50,240 Speaker 1: market that e t F s are U S dollar bonds, 490 00:26:50,400 --> 00:26:53,679 Speaker 1: right their hard currency emerging market. Um, yeah, but I 491 00:26:53,720 --> 00:26:57,639 Speaker 1: got right here. Russia is the largest holding in e 492 00:26:57,760 --> 00:27:03,680 Speaker 1: m B right, you gotta you gotta Russia, Uruguay, poland Peru. 493 00:27:03,840 --> 00:27:06,360 Speaker 1: It's interesting how so much of this has also connected 494 00:27:06,400 --> 00:27:08,320 Speaker 1: to politics. Because I was looking at this list that 495 00:27:08,400 --> 00:27:11,639 Speaker 1: you have in the story, which gives a really detailed 496 00:27:11,920 --> 00:27:15,480 Speaker 1: reckoning for each individual country. Why don't to just share 497 00:27:15,520 --> 00:27:18,800 Speaker 1: some highlights with of that. Well, I mean Mexico, Turkey 498 00:27:18,800 --> 00:27:20,919 Speaker 1: and so on. Well, you know, Mexico is an interesting one. 499 00:27:20,920 --> 00:27:22,520 Speaker 1: I mean, let's start with Russia, right, I mean the 500 00:27:22,520 --> 00:27:24,720 Speaker 1: thing with Russia is, I think you know, people are 501 00:27:25,119 --> 00:27:27,080 Speaker 1: looking at Russia and they look at emerging markets, and 502 00:27:27,080 --> 00:27:28,439 Speaker 1: what do you look at? You look at growth, you 503 00:27:28,440 --> 00:27:31,119 Speaker 1: look at effectively, what is the forward earnings potential of 504 00:27:31,160 --> 00:27:35,520 Speaker 1: the country itself, and sometimes you ignore the basic fundamentals. 505 00:27:35,640 --> 00:27:38,560 Speaker 1: Leverage in Russia is low relative to just about any 506 00:27:38,560 --> 00:27:41,879 Speaker 1: country on the planet, predominantly because it's been sanctioned by 507 00:27:41,920 --> 00:27:43,200 Speaker 1: the U S and the EU, and so it hasn't 508 00:27:43,240 --> 00:27:46,680 Speaker 1: been able to tap the international capital markets for some time. 509 00:27:46,720 --> 00:27:48,600 Speaker 1: I mean, they have, but just not not the way 510 00:27:48,640 --> 00:27:50,159 Speaker 1: you would you would have you would have thought, and 511 00:27:50,480 --> 00:27:53,440 Speaker 1: you know, so, yeah, I mean they actually have low leverage, 512 00:27:53,680 --> 00:27:57,120 Speaker 1: but on a forward basis, just extrapolating that out, their 513 00:27:57,200 --> 00:28:00,240 Speaker 1: growth potential is not nearly what it is or what 514 00:28:00,280 --> 00:28:03,119 Speaker 1: it once was, given the sanctions and given what's going 515 00:28:03,160 --> 00:28:05,679 Speaker 1: on with geo political risk in Russia. Right, So you know, 516 00:28:05,760 --> 00:28:08,640 Speaker 1: and and let's compare that to Mexico. Our analysis looking 517 00:28:08,640 --> 00:28:13,240 Speaker 1: at spread Perturn finds that Mexico um corporates and quasi 518 00:28:13,280 --> 00:28:17,240 Speaker 1: sovereign issuers are actually being valued well below what their 519 00:28:17,240 --> 00:28:19,160 Speaker 1: credit rating. Their trip will be. Credit rating now says 520 00:28:19,160 --> 00:28:22,000 Speaker 1: they're actually being valued as a double B. So yeah, 521 00:28:22,080 --> 00:28:25,960 Speaker 1: that's great information. Go along, Mexico, watch out if you're 522 00:28:25,960 --> 00:28:29,800 Speaker 1: in Russia. Thanks very much, Damian Sasaur, fixed income strategist, 523 00:28:29,920 --> 00:28:35,920 Speaker 1: Bloomberg Intelligence. Thanks for listening to the Bloomberg P and 524 00:28:36,000 --> 00:28:39,040 Speaker 1: L podcast. You can subscribe and listen to interviews at 525 00:28:39,080 --> 00:28:43,560 Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm 526 00:28:43,560 --> 00:28:47,000 Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on 527 00:28:47,040 --> 00:28:50,360 Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You 528 00:28:50,360 --> 00:29:00,560 Speaker 1: can always catch us worldwide on Bloomberg Radio