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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Right now,

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Speaker 1: I want to bring in Danny Blanchflower, professor of economics

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Speaker 1: at Dartmouth College, has a lot of experience watching UK

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Speaker 1: politics and the potential effects of these new political developments

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Speaker 1: on the economy. And Danny, we've already heard from some

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Speaker 1: people that the more turmoil there is here in the

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Speaker 1: more uncertainty around Brexit, the slower growth will be for

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Speaker 1: the United Kingdom. Do you agree does this outcome of

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Speaker 1: the election lower growth prospects for I'm not sure that

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Speaker 1: it does. I think what it does is it lowers

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Speaker 1: the prospect of a very hard Brexit in the sense

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Speaker 1: that it weakens Theresa May's bargaining position at a time

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Speaker 1: when the UK economy is growing really slowly, and in

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Speaker 1: fact it's actually the slowest growing G seven country and

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Speaker 1: the slowest growing country in the EU twenty eight. And

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Speaker 1: I think what it does compared to say yesterday, is

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Speaker 1: it raises the power of what they call the remainders,

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Speaker 1: because May is is trying to form a government which

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Speaker 1: looks like you probably is with an agreement with the

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Speaker 1: Ulster Unionists, but that's a very fragile coalition. Um and

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Speaker 1: Anna Subri in the example, the next Tory minister, Tory

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Speaker 1: MP has said May has to consider her position. We're

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Speaker 1: not going to go along with a hard Brexit. So

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Speaker 1: I think in some sense the markets think, you know,

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Speaker 1: steady as you go. I think it takes away the

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Speaker 1: prospect of something idiotic happening. Hence the markets are probably

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Speaker 1: right to think, um, steady she goes. Well, Danny, do

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Speaker 1: you think these are the same people that were able

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Speaker 1: to predict that Britain would vote to remain in the

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Speaker 1: European Union? Yeah, I know. I mean I think I

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Speaker 1: think the polling was equally and the last three elections

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Speaker 1: we've had in the UK, the polling wasn't really right,

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Speaker 1: although you Gov seemed to have called it pretty right.

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Speaker 1: I think the thing this time, I'm not sure it's

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Speaker 1: exactly the answer to your question, Pim, but Um. The

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Speaker 1: really interesting thing this time was the exit polls had

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Speaker 1: it exactly right. I mean, the reality is that the

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Speaker 1: polling moved dramatically. This was a very terrible campaign led

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Speaker 1: by May. She started out with the twenty two point

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Speaker 1: leading on May the seventh. What do you think, What

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Speaker 1: do you think is the reason or reasons for the

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Speaker 1: precipitous decline of Theresa May's fortunes in the campaign. Yeah,

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Speaker 1: it's it's interesting. I think one of the big things

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Speaker 1: is the economy. So the economy has slowed and for

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Speaker 1: the first time in the last three real wages started

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Speaker 1: to fall again. So economic factors. I think that the

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Speaker 1: um that the fact that she called an election after

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Speaker 1: seven times saying that she wouldn't, and she campaigned horribly. Um.

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Speaker 1: Corbin actually was conducting campaigns everywhere and was having thousands

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Speaker 1: of people showing up and Thereason maybasically wouldn't speak to

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Speaker 1: anybody and so she wasn't really speaking to the people

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Speaker 1: and that became obvious. And then I think the final

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Speaker 1: straw was actually the the bombings in Manchester and London,

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Speaker 1: and it was clear that when she was the Home Secretary,

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Speaker 1: she actually fired twenty thousand policemen and the police have

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Speaker 1: made it clear that in some ways she was responsible,

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Speaker 1: not saying she was, but people have argued that that happened.

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Speaker 1: So in a sense, you called this election, you say

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Speaker 1: it's an election about me, strong and stable, um, and

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Speaker 1: it was quite clear she was none of those things,

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Speaker 1: and in the end she ended up as being weak

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Speaker 1: and unstable Danny, and just moving away from the Brexit.

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Speaker 1: In particular, you were saying that the UK is the

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Speaker 1: slowest growing economy among the G seven nations, and it

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Speaker 1: was kind of heading that direction before Brexit, right, I mean,

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Speaker 1: it wasn't entirely an outcome, no, of course. I mean,

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Speaker 1: obviously the story has been that the exchange rate fell dramatically. Um,

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Speaker 1: it picked up a bit. But what we're seeing is

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Speaker 1: two things that happened. The British public unexpectedly borrowed like

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Speaker 1: mad and continued to this save so that was a

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Speaker 1: really big that was a really big problem. And the

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Speaker 1: other problem has been that as a result of the

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Speaker 1: fall in the exchange rate, inflation starts to tick up.

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Speaker 1: So wage growth remaining about two now inflations at three

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Speaker 1: probably going to rise more so that so that that

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Speaker 1: is something that's really happened post Brexit, the Bank of

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Speaker 1: being enacted after business confidence collapse. But my suspicion is

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Speaker 1: that you know, we're going to use some more slowing God,

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Speaker 1: so you were right to worsom slowing. The economy picked up,

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Speaker 1: but in the last three months we've seen i mean,

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Speaker 1: point to percent annually. Point to growth in Q one

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Speaker 1: was a disaster. All right, Well, we're gonna leave it there,

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Speaker 1: but I want to thank you very much, Danny blanche

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Speaker 1: for our professor of economics Dartmouth College. Well, the head

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Speaker 1: of the United Kingdom is struggling to salvage her political life,

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Speaker 1: and yet markets are just hugging along, just fine. Nobody

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Speaker 1: seems to be too worried. Who is trading bonds and stock?

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Speaker 1: Stug Cioca, CEO and partner of Var Capital. I want

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Speaker 1: to bring you in, Uh. Doug is based in Leewood, Kansas,

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Speaker 1: And Doug, can you just give me some perspective. What

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Speaker 1: will it take to shake this market out of its

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Speaker 1: seemingly unshakable complacency. Yeah, thank you, Lee. So that is

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Speaker 1: the question I mean today, certainly the market is absorbing,

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Speaker 1: not deflecting, this news, and even immediately after the first

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Speaker 1: exit poll last night um that the true safety risk

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Speaker 1: off trades like gold didn't rally pounding. Your occurrencies weaken

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Speaker 1: a touch, but nothing substantive, nothing near the Brexit loads

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Speaker 1: of a year ago. And if anything, maybe the prospect

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Speaker 1: of a softer Brexit is less destabilizing and the general

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Speaker 1: heightened level of ambiguity keeps central banks engaged. And we've

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Speaker 1: got a b o E meeting next week, we have

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Speaker 1: the EC meeting ECB meeting last week, we have the

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Speaker 1: set of course that is going to come out with

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Speaker 1: the press conference after the rate decision on the fourteen.

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Speaker 1: So I think you're right. It's got a lot of

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Speaker 1: investors wondering what has to happen for the market to

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Speaker 1: experience more than a fleeting adverse impact from some of

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Speaker 1: this heightened global tension or one of these geo political events.

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Speaker 1: Great question, can we I'm wanna ask what what makes

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Speaker 1: stocks go up and down? Well? Demand certainly to me,

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Speaker 1: I mean four things right to him. Historically, you have

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Speaker 1: to have earnings growth, You've got to have some diven

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Speaker 1: in and income component to the stock ownership proposition, perhaps

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Speaker 1: some inflation, and then sentiments right whether or not there

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Speaker 1: will be a multiple expansion or contraction. And I think

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Speaker 1: a portfolio manager has to ascertain the influence these outside

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Speaker 1: events on investor attitudes. And that's the basis of assessing

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Speaker 1: that sentiment and its input in the calculation of expected returns. Sorry, glad,

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Speaker 1: I beg your pardon to continue them right. The better

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Speaker 1: the underlying sentiment, the more the optimism, the bigger the

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Speaker 1: benefits of doubt, the more likely multiple expanded, the prices

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Speaker 1: go up. And you know, the equal and opposite impact

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Speaker 1: exists if there is weaker sentiment, and that Trump trades

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Speaker 1: the best example, and he had a positive outlook on

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Speaker 1: the prospects of a pro business presidency. But now right

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Speaker 1: instead of debating functional fiscal policy, we're dissecting things like

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Speaker 1: conversations in the intelligence community whether President Trump is or

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Speaker 1: isn't going to invoke executive privilege. Stocks or may attaining

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Speaker 1: a bid despite at best neutrality and sentiment. And mostly

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Speaker 1: that's on the heels of what was a really strong

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Speaker 1: earnings quarter in Q one and some considerable financial engineering.

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Speaker 1: But for the broad markets push forward for stock to

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Speaker 1: go higher, we need more than the apathy that least

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Speaker 1: have mentioned to emanate from some of these geopolitical events

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Speaker 1: justicause if I if you are able to produce nine

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Speaker 1: and a quarter percent returns on an annual basis for

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Speaker 1: your customers, you'd be a hero. Correct, correct? Okay, so

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Speaker 1: that SMP five is up nine and a quarter percent

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Speaker 1: this year, why wouldn't people just take the money off

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Speaker 1: the table and wait? Yeah, I think that is absolutely

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Speaker 1: a strong consideration. Other than right, you're still talking about

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Speaker 1: a look back period where you not only returns to

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Speaker 1: returns have to be even better than that to catch

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Speaker 1: up with what historically markets have been able to produce.

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Speaker 1: But I think that fear of missing out is very strong.

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Speaker 1: These animal spirits that have pulled forward maybe someone x

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Speaker 1: the latter part of this year's gains are still represented.

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Speaker 1: You do get even and I hate to call its fleeting.

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Speaker 1: It just was a little bit off the radar. Things

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Speaker 1: like this God Frank deluction that took place yesterday. You

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Speaker 1: get the idea of how much better things could possibly be.

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Speaker 1: So that is keeping people engage as opposed to just

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Speaker 1: taking profits and sitting the rest of the year out. Doug,

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Speaker 1: I have to wonder, you know, are we really observing

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Speaker 1: complacency or are we really just simply witnessing the effects

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Speaker 1: of one point two trillion dollars of asset purchases by

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Speaker 1: the Bank of Japan and the European Central Bank. I mean, yes,

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Speaker 1: the FED has stopped its asset purchases, are stopped expanding

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Speaker 1: its balance sheet, I should say, but they are being

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Speaker 1: offset quite dramatically by other central banks. Yeah. I think

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Speaker 1: there's there's a strong under current, Lisa. I think that

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Speaker 1: it's it's buoying prices, but at the same time, prices

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Speaker 1: within the absence of of of corroboration, of that um

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Speaker 1: of that sponsorship make at these levels the profect of

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Speaker 1: of a of a swift destabilizing higher. So you can say, yeah,

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Speaker 1: we like the process. This money is coming in. It's

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Speaker 1: coming off the sidelines. There's been a lot of idle cash,

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Speaker 1: not just internationally but domestically on the sidelines. If it

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Speaker 1: doesn't get that reinforcement as it enters the market, this

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Speaker 1: is one of our big issues with a big path

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Speaker 1: of trade that's been on for the last eighteen months,

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Speaker 1: then that's going to be the first money that leaves.

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Speaker 1: So that might be the first step, but it's not

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Speaker 1: enough of a consistent um march toward allowing these prices

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Speaker 1: to continue in that fashion. Well, so then my question

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Speaker 1: is we do have some small hints that the Bank

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Speaker 1: of Japan the e c B are straying to prepare

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Speaker 1: how they're going to unwind some of this stimulus. What

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Speaker 1: do they have to do or what could they do

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Speaker 1: that would potentially derail this certain complacency that we've been

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Speaker 1: talking about. Yeah, I mean, they're they're floating all of

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Speaker 1: these trial balloons, and what they have to do is

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Speaker 1: is going to be described as very delicately as they

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Speaker 1: moved down that path, we actually are now given drag

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Speaker 1: these Outlook, you could make the case that we are

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Speaker 1: on a globalized, globally synchronized monetary policy tightening, but it's

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Speaker 1: implementation is going to be so delicate and not unlike

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Speaker 1: the FED saying hey, at some point we're gonna have

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Speaker 1: to begin to work down the bounty. Yeah, we're not

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Speaker 1: going to reinvest some of the maturing proceeds of these bonds.

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Speaker 1: These are trial balloons that are being floated, not unlike

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Speaker 1: polling that has taken place politically to understand the reactivity

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Speaker 1: function of the market based on that job owningtion worked out. Yeah, exactly, exactly,

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Speaker 1: So you know, the market, it will always move in

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Speaker 1: advance of the FED if they I'm sorry about just

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Speaker 1: the Fed of any essential banks, if it feels like

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Speaker 1: their intentions are sincere. But when you look at our

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Speaker 1: us bondo market is a great example. The fetes raised

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Speaker 1: rates three times in this In this this, this regime

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Speaker 1: shifts right, so to speak, from being um being very

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Speaker 1: accommodative to flat to now tightening, and the bond markets rallies.

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Speaker 1: My market is even rallied since the FED is about

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Speaker 1: working down the balance sheet. So we've seen this massive

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Speaker 1: curve flat name because even though the short is coming up,

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Speaker 1: there's not a lot of inflation in the market, which

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Speaker 1: puts FED in a very difficult position. But the bond

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Speaker 1: market will not necessarily have its moves dictated by the FED.

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Speaker 1: They may corroborate and enhance a direction that the market

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Speaker 1: is already predetermined or established as the proper path. How's

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Speaker 1: this for inflation in the equity market? Doug that TESLA

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Speaker 1: is now valued greater than BMW. Yeah, I mean, come on, yeah,

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Speaker 1: I mean this is the market that we live in,

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Speaker 1: and no one is I mean, it's like the emperor

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Speaker 1: has no clothes. You can keep making money in it,

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Speaker 1: I guess. But that's a hope and a dream. It's

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Speaker 1: not based on anything factual. It's not I mean, and

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Speaker 1: certainly in TESTA was a specific example, is very aspirational

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Speaker 1: in nature. Certainly the way they are commandeering attention and

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Speaker 1: the way that their innovation is exploded, their multiple and

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Speaker 1: people's interest in aligning with them, the fact that they

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Speaker 1: name their new car that you to take on this

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Speaker 1: pre eminence that the BMW three had at that point

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Speaker 1: in time. Just to support your example, Yes, without making

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Speaker 1: a comparison to the two companies on a on evaluation basis,

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Speaker 1: I do think the aspirational nature of the market that

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Speaker 1: has been so pronounced in the growth areas is something

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Speaker 1: that could end up having a come up in that um. Again,

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Speaker 1: if you're looking at just the general landscape, having some

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Speaker 1: balance and portfolio and not being too heavily one side.

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Speaker 1: We've got to leave it here. I want to thank

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Speaker 1: you very much, Doug Sioca. He is the chief executive

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Speaker 1: officer and the partner at Cavar Capital Partners based in Leewood, Kansas. Well,

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Speaker 1: let's turn our attention now to Apple and it's new iPhone.

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Speaker 1: We have John Butler. He is a senior telecom analyst

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Speaker 1: for Bloomberg Intelligence. He covers the services and equipment business

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Speaker 1: and he can be followed on Twitter at on Underscore

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Speaker 1: Butler five. Alright, John, Underscore Butler. What's this about Apple's

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Speaker 1: new iPhone? And it's not gonna be able to take

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Speaker 1: advantage of all those new high speed links that mobile

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Speaker 1: carriers are offering. Well, it all goes into down to

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Speaker 1: the core, if you will, of what's inside the iPhone.

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Speaker 1: So Qualcom is one of the main chip suppliers to

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Speaker 1: the smartphone industry, and they make what's called the modem.

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Speaker 1: It's that chip that talks to the network and receives

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Speaker 1: information data back from the network and onto ultimately onto

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Speaker 1: the screen of your phone. And Apple uh dual sources.

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Speaker 1: They get chips from Qualcom and from Intel. Qualcom is

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Speaker 1: way ahead of Intel in terms of the download speeds

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Speaker 1: that can support on the phone up to a gigabit

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Speaker 1: per second or a billion ones and zeros per second

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Speaker 1: of information over the phone, and Intel's running at about

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Speaker 1: half the at right. And so what Apple typically does

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Speaker 1: is they'll build the phones, they'll throttle down that Qualcom

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Speaker 1: chip to be on par with the Intel chip, so

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Speaker 1: it levels the playing field. All iPhone users are equal

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Speaker 1: under that equation. And so the concern is that maybe

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Speaker 1: this could spill over and impact sales of the iPhone eight.

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Speaker 1: I say, no way, I just don't see it because

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Speaker 1: in our day to day lives, Lacy, you look like

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Speaker 1: you want to Well, yeah, I'm just I'm confuous because

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Speaker 1: I think a lot of people are using their phones

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Speaker 1: more and more. I see it everywhere I go for

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Speaker 1: streaming movies or TV shows or YouTube videos and all

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Speaker 1: of these other applications that are better when you have

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Speaker 1: higher speed networks. Absolutely true, But I'll offer this. You

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Speaker 1: can measure the download speeds on your phone with an

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Speaker 1: app from the FCC, and the highest rate that I

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Speaker 1: get in New York City is fifty five megabits per second.

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Speaker 1: So on that gigabit speed we're talking about. So I

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Speaker 1: think I think the news is getting ahead of itself here.

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Speaker 1: I don't think people will care or frankly, even notice

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Speaker 1: the difference. And the other thing I'd say is once

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Speaker 1: networks get fully loaded, they get crowded with people, those

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Speaker 1: theoretical download speeds go right out the window. You don't

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Speaker 1: really get that gigabit per second rate that you might

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Speaker 1: get in the lab with the single user on the network.

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Speaker 1: So practically speaking, speeds are moving up into the right,

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Speaker 1: but they're not moving at the rate that the marketers

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Speaker 1: want you to believe, John, what, what should we take

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Speaker 1: away from the fact that Qualcom has a better, faster

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Speaker 1: chip than Intel? And why is Apple even bothering to

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Speaker 1: use the Intel chips? Why don't they just get more

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Speaker 1: Qualcom chips? I know they're in litigation, but why don't

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Speaker 1: they just get the real better chip? Well, Number one,

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Speaker 1: they are in litigation and they're very unhappy partners right now,

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Speaker 1: so that's it's a bit of a risk. But Apple

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Speaker 1: is known to always dual source, which is a very

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Speaker 1: smart thing um, because anything can happen with chip makers.

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Speaker 1: We've seen earthquakes in Japan really derail a lot of vendors,

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Speaker 1: not just Apple. Well, why not get Intel to make

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Speaker 1: a faster chip. Well, Intel's trying to make a faster

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Speaker 1: chip and they're actually running behind, which is what fueled

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Speaker 1: this news story that came out on Bloomberg about um

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Speaker 1: Intel basically being late to the game with a gigabit

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Speaker 1: per second chip. My argument, I go back to the

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Speaker 1: fact that when you're talking speeds that high gigabit per second,

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Speaker 1: if you cut it in half, I don't think people

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Speaker 1: are gonna notice or care. I just don't. So what's

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Speaker 1: Apple's new iPhone going to offer them that's going to

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Speaker 1: be so terrific that it will offset the inevitably snarky

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Speaker 1: counter ads that you're going to get from Samsung saying well,

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Speaker 1: we're fast and we've got secure. Actually Apple got better

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Speaker 1: security probably, but say like where we've got the up,

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Speaker 1: you know, up and coming speed, you can count on

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Speaker 1: the ads for sure. But the one thing I'll say

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Speaker 1: is Apple typically lags all its competitors on hardware specs.

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Speaker 1: That's not where they play. They play in the ecosystem,

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Speaker 1: and it's very sticky. It's very hard for someone who's

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Speaker 1: an Apple user to move to Android number one. But

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Speaker 1: there's real appeal there. You know. They continue, for example,

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Speaker 1: to evolve Apple Pay so now they have peer to

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Speaker 1: peer payments similar to Venmo that's coming with iOS leven.

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Speaker 1: Apple Music is increasingly moving beyond music into video um

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Speaker 1: and just the ecosystem in general is very broad and

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Speaker 1: very strong, and and that's where I think that's Apple's Wheelhouse.

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Speaker 1: Really that's where they they far exceed their competitors. John,

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Speaker 1: I want to get your thoughts on what's going on

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Speaker 1: at Verizon Communications. Uh, the stock is down about thirteen

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Speaker 1: percent so far this year. It trades about forty six

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Speaker 1: dollars and cents. This is a stock that last year

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Speaker 1: same time was fifty four bucks. So now you're fifty

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Speaker 1: four bucks. You down the forty six, you're still getting

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Speaker 1: your five percent dividend. What is the strategy at Verizon

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Speaker 1: and why are they're laying off people? Yeah, well, the

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Speaker 1: layoffs are related to the Yahoo emerging Yahoo in a

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Speaker 1: o L. There's a lot of redundant jobs. They're in

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Speaker 1: engineering and marketing and so forth, So that was expected.

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Speaker 1: I think broadly, taking a step back from that merger

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Speaker 1: and looking at where Verizons headed, they don't have as

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Speaker 1: well defined as strategy as a T and T for example,

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Speaker 1: which is making some really bold moves into content. Uh,

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Speaker 1: they have a really bright future there in my view.

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Speaker 1: I mean, there's a lot of risk they need to execute,

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Speaker 1: but I think they made the right moves. Verizons just

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Speaker 1: seems to be foundering a little bit. They're trying to

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Speaker 1: find the right next step they've committed hard on five G,

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Speaker 1: which is I think a good move, but the margins

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Speaker 1: lying content that's my bad. So thank you so much

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Speaker 1: for joining us. John Butler, always wonderful speaking with you.

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Speaker 1: John Butler senior Telecom Services and Equipment analyst for Bloomberg Intelligence,

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Speaker 1: and he joins us here in our Bloomberg eleven three

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Speaker 1: oh studio talking about how the speed just might not

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Speaker 1: matter since you actually can't get it practically, certainly not

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Speaker 1: in any crowded place. Well, I think of the at

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Speaker 1: one point almost bounce in the shares of this company

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Speaker 1: in the past three days after it came out that

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Speaker 1: it's looking to potentially go private, whether from the Nordstrom

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Speaker 1: family or some private equity firms that are supposedly quote

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Speaker 1: kicking the tires on Nordstrom right now. Jenn Gnelli is

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Speaker 1: a high yield analyst focusing on the retail and gaming

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Speaker 1: industries at City Group, and UH has some good perspective

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Speaker 1: just generally about the retail industry and what could make

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Speaker 1: Nordstrom attractive or not and what kind of debt could

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Speaker 1: end up getting piled on. Jenna, I want to start

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Speaker 1: with the value here. How much of Nordstrom is a

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Speaker 1: retail story and how much is a real estate story.

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Speaker 1: Hi guys, well thanks for having me on today. I

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Speaker 1: appreciate it. UM. I think you you know, you jumped

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Speaker 1: into write of what the heart of the big differentiating

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Speaker 1: points is here. You know, most retailers that we look

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Speaker 1: at in our universe, whether it's high yield or even

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Speaker 1: in high grade, they don't own a lot of their

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Speaker 1: real estate. But for those that do, it's been a

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Speaker 1: huge resource resource in terms of enhancing liquidity, whether for

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Speaker 1: massive sales, engaging in sale. These facts, um are in

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Speaker 1: some cases securing lower costs of capital. So we've seen that,

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Speaker 1: you know in our coverage universe J C. Penny Toys,

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Speaker 1: r us uh, Neiman, Marcus, Bontan Stores, um. But broadly,

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Speaker 1: I mean these are a few and far between. So

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Speaker 1: in the case of Nordstrom, UM, you know, we we

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Speaker 1: don't cover, but we actually applied the same METHODOLO that

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Speaker 1: we use in our NEEME and markets real estate valuation.

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Speaker 1: You know, we came up with an estimate that it

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Speaker 1: could be worth around you know, six billion dollars six

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Speaker 1: billion dollars UM. I'm sure there are a lot of

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Speaker 1: different estimates out there, but just to give context, that's

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Speaker 1: almost the size of their market cap. So six million

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Speaker 1: dollars in other words, is the value of the real

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Speaker 1: estate You're saying right exactly of the combination of the

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Speaker 1: owned and ground least real estate that they have. And

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Speaker 1: you know, assuming certain cap rates, UM lease values per

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Speaker 1: square foot, etceter. Are making some assumptions, but um, applying

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Speaker 1: again the same methodology that we've seen in other high

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Speaker 1: yield retailers, UM, it comes out to a really large

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Speaker 1: number of relative to the size of their market cap.

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Speaker 1: So um. You know, when you're thinking about multiples in

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Speaker 1: the space potential purchase prices for those that do own

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Speaker 1: their own real estate, it has to be factored in

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Speaker 1: relative to just thinking about traditional multiples and what those

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Speaker 1: might you know, be. We've seen that those that own

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Speaker 1: do command to hire multiple So with with that real

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Speaker 1: estate value, help Nordstrom go private without having to incur

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Speaker 1: the kind of debt loads that we've seen way down

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Speaker 1: the Jim Borees of the world and the other LBO

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Speaker 1: targets that have been going out a business or going bankrupt,

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Speaker 1: I should say I as a result, yeah, I mean, look,

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Speaker 1: that's a good question. I think what we've seen more

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Speaker 1: likely is just the ability to use that real estate.

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Speaker 1: Maybe you know, you could again engage in asset sales

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Speaker 1: all these backs to shore up liquidity ahead of time

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Speaker 1: so you don't have to take on as much leverage

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Speaker 1: UM in that you know, financing transaction. Another way that

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Speaker 1: it's used is it really to secure a lower cost

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Speaker 1: of capital. So you could do uh, you know, a

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Speaker 1: prop code type facility, or you could do just a

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Speaker 1: real estate term loan where you get um, you know

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Speaker 1: j C. Penny is a great example. They use their

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Speaker 1: real estate uh to you know, get pretty attractive rates

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Speaker 1: relative to what it could have been UM on on

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Speaker 1: their term loan UM because of the value of the

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Speaker 1: real estate that they owned. So I think it would

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Speaker 1: be you know more in the form of that I

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Speaker 1: get securing lower cost of financing, but certainly allow them

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Speaker 1: um would you know real estate allows them to UM

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Speaker 1: manage that leverage a little bit more than those that don't.

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Speaker 1: And I think you know, you compared it to a

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Speaker 1: Jim Burie or some of the other stress retailers. Um

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Speaker 1: they didn't necessarily start out with that type of high leverage,

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Speaker 1: but not owning some of their real estate had certainly

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Speaker 1: um you know it's a limited flexibility, but it's certainly

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Speaker 1: it enhances the quility for those that do. Jenna wonder

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Speaker 1: if you could just make a little bit simpler it

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Speaker 1: can how much debt could could Nordstrom take on given

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Speaker 1: their current financial situation about fifteen billion in sales, they

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Speaker 1: did net about five hundred and forty million, They got

431
00:24:33,520 --> 00:24:36,119
Speaker 1: free cash flow of over seven hundred and seventy million,

432
00:24:37,000 --> 00:24:39,160
Speaker 1: only two point seven on the balance sheet two point

433
00:24:39,240 --> 00:24:41,280
Speaker 1: seven billion, right, and a market cap of seven and

434
00:24:41,280 --> 00:24:44,280
Speaker 1: a half billion, right exactly. So I mean, look, how

435
00:24:44,400 --> 00:24:47,760
Speaker 1: much leverage can you put on a retailer today? Um,

436
00:24:48,560 --> 00:24:51,160
Speaker 1: there's a lot of hesitation in the market to finance

437
00:24:51,200 --> 00:24:55,440
Speaker 1: these transaction. There's more skepticism around new retail deals coming

438
00:24:55,480 --> 00:24:57,679
Speaker 1: to market that I will say. And even for retail

439
00:24:57,720 --> 00:25:00,040
Speaker 1: deals that we've seen come recently within a lot a

440
00:25:00,119 --> 00:25:02,960
Speaker 1: month or so, you can still put um five to

441
00:25:03,080 --> 00:25:06,440
Speaker 1: six times leverage on a retailer that's in the right

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00:25:06,560 --> 00:25:09,880
Speaker 1: category and has the right story, and you know, they're

443
00:25:09,880 --> 00:25:12,800
Speaker 1: put the potential to de lever from wherever they're they're

444
00:25:12,840 --> 00:25:15,440
Speaker 1: starting point is. So you know, what would that apply

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00:25:15,560 --> 00:25:17,440
Speaker 1: to your point? I mean, Nordstrom has about two point

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00:25:17,520 --> 00:25:20,040
Speaker 1: seven billion dollars of growth debt right now. If they

447
00:25:20,119 --> 00:25:22,920
Speaker 1: were to lever up to that five to six times

448
00:25:23,000 --> 00:25:26,080
Speaker 1: leverage contexts, that would assume, you know, roughly about seven

449
00:25:26,119 --> 00:25:30,560
Speaker 1: billion total net debt um on the existing capital structure.

450
00:25:31,000 --> 00:25:33,520
Speaker 1: So it's manageable. I mean, I think when you look

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00:25:33,680 --> 00:25:36,280
Speaker 1: at where yields are in the high yield space for

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00:25:36,359 --> 00:25:39,359
Speaker 1: a single B type reeler with that type of leverage

453
00:25:39,400 --> 00:25:42,800
Speaker 1: in the five times you're looking at six to seven percent,

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00:25:42,920 --> 00:25:45,399
Speaker 1: it depends also what you're willing to pay. Well, we

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00:25:45,480 --> 00:25:47,679
Speaker 1: got to leave it there, but very interesting giving us

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00:25:47,720 --> 00:25:50,560
Speaker 1: these details is Chenna Ginnelli, the high yield analyst for

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00:25:50,720 --> 00:25:52,840
Speaker 1: City Bank. We're talking about norths from the shares up

458
00:25:52,840 --> 00:25:58,119
Speaker 1: about three and a quarter percent right now. Thanks for

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00:25:58,200 --> 00:26:00,639
Speaker 1: listening to the Bloomberg P and L pod asked. You

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00:26:00,720 --> 00:26:04,480
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

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00:26:04,640 --> 00:26:08,080
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

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00:26:08,119 --> 00:26:11,639
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa

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00:26:11,720 --> 00:26:14,840
Speaker 1: abramowits one before the podcast. You can always catch us

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00:26:14,880 --> 00:26:16,440
Speaker 1: worldwide on BLUEBIRG Radio