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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day, we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moving news.

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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 1: Home Depot reported last night some guidance that disappointed the street.

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Speaker 1: Let's put it that way. Their forward guidance came in.

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Speaker 1: They had the lower that and we're seeing that in

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Speaker 1: the stock today. It's off one and a half percent,

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Speaker 1: stocks off ten percent year to date. Home Depot HD

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Speaker 1: is your ticker, Drew Redding. He's a research channel to

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Speaker 1: Bloomberg Intelligence. He follows all this housing stuff. So Drew again.

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Speaker 1: You know Kritty Gupta, Tom Keene, you know Lisa Bromwitz.

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Speaker 1: During the pandemic, they were all rebuilding their apartments in

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Speaker 1: this city. They're going to Home Depot getting the lumber

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Speaker 1: and all that stuff. Now they're done. I guess, so

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Speaker 1: what's the outlook for Home Depot.

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Speaker 3: Yeah, that certainly has something to do with it. Home

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Speaker 3: Depot had an incredible run and some of the tailwinds

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Speaker 3: that they've seen over the last couple of years are

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Speaker 3: starting to dissipate. But to your point, one of the

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Speaker 3: things that's worth pointing out is, and we expected to

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Speaker 3: hear this on the calls to slow down and bake

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Speaker 3: ticket spending. Big ticket spending was a down six and

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Speaker 3: a half percent this quarter. And what's interesting is that

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Speaker 3: they highlighted one off discretionary items as having to slow down.

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Speaker 3: So when you had demand pulled forward during the pandemic,

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Speaker 3: you think of things like grills, patios, appliances, lawmowers. Those

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Speaker 3: aren't things that you're going to continue to repurchase year

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Speaker 3: after year. So they're seeing slowdown in those categories. But

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Speaker 3: at the same time, they're starting to see a softening

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Speaker 3: of demand in larger scale projects like kitchens, baths, flooring,

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Speaker 3: And the idea is that consumers are kind of trading

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Speaker 3: down and they're taking on smaller projects instead of those

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Speaker 3: large scale remodels.

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Speaker 4: Talk to us a little bit about something like the

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Speaker 4: contractor backlogs, for example, how does that factor into the

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Speaker 4: bottom line for home depot.

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Speaker 3: Yeah, so the professional market account for about forty five

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Speaker 3: percent of sales for home depot it's about twenty five

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Speaker 3: percent for lows. Now, contractors have been a key driver

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Speaker 3: of big ticket spending. There's you know, a project based

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Speaker 3: nature to the stuff they're buying. Now, contractor backlogs have

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Speaker 3: been extremely elevated, you know, over the last several quarters,

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Speaker 3: and that's because it's it's been so hard to get

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Speaker 3: labored to job site, so their backlogs have been extended.

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Speaker 3: And that's really what's kind of pushed this growth and

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Speaker 3: big ticket spending and kind of extended it over a

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Speaker 3: longer period of time. What we're starting to see now

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Speaker 3: as contractors get through those jobs, they're not being replenished

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Speaker 3: at the same rate as they were over the last

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Speaker 3: you know, couple of years. So we're starting to see

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Speaker 3: a moderation in those contractor backlogs. They're still elevated from

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Speaker 3: a historical spending, but the growth is starting to slow.

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Speaker 1: The company called out lumber, and I pulled up the

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Speaker 1: commodity lumber at boy. It is volatile. It is all

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Speaker 1: over the price, all over the place, the price of lumber.

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Speaker 1: Talk to us about lumber for home depot. Is it

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Speaker 1: a big part of their sales?

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Speaker 3: Yeah, so number is about ten percent of sales for

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Speaker 3: home depot, similar number for lows, And if you look

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Speaker 3: at the average price of lumber throughout their fiscal quarter,

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Speaker 3: it's down about somewhere between sixty and sixty five percent.

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Speaker 3: So they called out a three hundred and thirty five

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Speaker 3: basis point impact from commodity deflation in the quarter, and

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Speaker 3: lumber specifically was about two hundred and twenty basis points.

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Speaker 3: That headwind is going to persist through the remainder of

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Speaker 3: the first half, and expectations are for about one hundred

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Speaker 3: basis point intact next quarter. So lumber has certainly been volatile.

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Speaker 3: They benefit obviously on the way up, and now they're

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Speaker 3: starting to feel the pressure as prices come down pretty sharply.

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Speaker 5: Drew.

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Speaker 4: What kind of precedent does this set for the other

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Speaker 4: retailers that we still have yet to hear from. Is

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Speaker 4: this a home depot story, ors is broader?

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Speaker 3: Well? I think it's broader. I mean home depots. Certainly,

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Speaker 3: it has been in a great category within retail because

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Speaker 3: you've got homeowners who have typically have great jobs, incomes

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Speaker 3: are growing, but at the same time, the headwinds that

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Speaker 3: they're facing aren't specific to them. You've got inflation, which

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Speaker 3: is still high. That's going to impact consumers across the board.

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Speaker 3: Real wages have been under pressure for a couple of

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Speaker 3: years now, and we're seeing credit card balances starting to balloon.

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Speaker 3: They're actually above pre pandemic levels now, and that really

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Speaker 3: highlights the challenges the consumers facing now. So I do

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Speaker 3: think it's a broader issue across all of retail, the

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Speaker 3: stress the consumer's starting to feel.

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Speaker 1: Drew, thanks so much for joining us. Appreciate it as always,

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Speaker 1: Drew reading these research channels for Bloomberg Intelligence.

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Speaker 6: You're listening to the team Ken's are live program Bloomberg

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Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot com,

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Speaker 1: Michelle Noys joins us here in our Bloomberg Interactive Brokers studio.

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Speaker 1: She's a managing director for the Alternative Management Association. Shechell,

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Speaker 1: thanks so much for joining us into studio here. I

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Speaker 1: know you guys had a conference recently getting all the

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Speaker 1: alternative investment folks together. Talk to us about that conference

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Speaker 1: kind of what was a theme, what did you hear,

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Speaker 1: what did you what were people talking about?

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Speaker 5: Yeah, no, well, thrilled to be here on this beautiful

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Speaker 5: day in New York. But yes, last week we did

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Speaker 5: host our Digital Assets conference in New York for about

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Speaker 5: three hundred of our members, and it's really interesting how

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Speaker 5: digital assets is now becoming an established part of that

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Speaker 5: alternative investment landscape, and we're seeing more and more of

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Speaker 5: our traditional finance alternatives, which is a real oxingmoron when

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Speaker 5: you think about it, think about how to integrate this

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Speaker 5: new asset class into their diversified portfolios. So I think

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Speaker 5: the real takeaway for me was the number of suits

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Speaker 5: in the audience. Normally you go to cryptoconferences, you see

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Speaker 5: a lot of technologists and T shirts and hoodies. But

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Speaker 5: really the institutions were out in force last week, dedicated

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Speaker 5: to this asset class and figuring out how to make

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Speaker 5: it work through this uncertain regulatory regime we have in

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Speaker 5: the US.

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Speaker 4: And what kind of appetite is there actually for alternative

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Speaker 4: assets right now? It feels like maybe a year ago,

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Speaker 4: a year and a half ago, it was all the rage.

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Speaker 4: Now can we still say that people want that?

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Speaker 5: Yeah? I mean I think alternatives zooming out more broadly

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Speaker 5: if you look at that whole landscape of private markets.

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Speaker 5: Hedge funds really proved their worth over the last couple

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Speaker 5: of years when sixty to forty had some of their

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Speaker 5: under largest underperformance of the markets. So investors have realized

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Speaker 5: the potential. I mean, institutions were always there, and now

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Speaker 5: again their toolkit is expanding as we get things like

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Speaker 5: cryptot into that mix. But then also we've seen over

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Speaker 5: the years more retail and wealth channels coming online into

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Speaker 5: alternatives as well, so it's grown quite a bit, but

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Speaker 5: there's still a lot of scope for that, and it

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Speaker 5: feels like the world is waking.

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Speaker 1: Up to it well on the crypto space. You know,

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Speaker 1: one of the concerns I hear from market participants is

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Speaker 1: we need some regulatory certainty or the US is going

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Speaker 1: to lose its position here to other countries around the world.

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Speaker 1: What was how was regulation dealt with at your conference,

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Speaker 1: and what's the feeling right now?

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Speaker 5: Yeah, no, it's interesting. As a trade association, regulation is

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Speaker 5: always at the forefront of what AMA does. However, it's

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Speaker 5: kind of weird how much people care about it these days.

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Speaker 5: I'm not used to it being the center of attention.

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Speaker 5: And certainly that US regulatory uncertainty really was the core

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Speaker 5: theme throughout the conference. You know, really there was an

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Speaker 5: expectation that we're not really going to see anything any

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Speaker 5: clarity coming out of this administration, so we're really looking

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Speaker 5: into twenty twenty five. And the result is that for

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Speaker 5: smaller firms that you know, can't run their business in

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Speaker 5: that uncertain nature, there are a lot of folks who

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Speaker 5: are looking to relocate outside of the US, people who

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Speaker 5: never thought they would This is not you know, they

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Speaker 5: want to build this business locally and domestic, but they

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Speaker 5: end up having to find somebody or find another jurisdiction

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Speaker 5: so that they can really operate over the next couple

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Speaker 5: of years and maybe eventually come back to the US.

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Speaker 4: Is regulation a deterrent at all here?

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Speaker 5: Yeah, I mean there's just a lot of certainty. I mean,

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Speaker 5: I should say our members are very much in favor

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Speaker 5: of regulation. They just want to know what that's going

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Speaker 5: to look like. We need an effective model that they

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Speaker 5: can really future proof their business, you know, especially because

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Speaker 5: our members are the ones dealing with institutions. Crypto is

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Speaker 5: always going to exist around the world and in the US,

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Speaker 5: but if you're doing this at an institutional scale, you

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Speaker 5: really need to know what those rules are going to

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Speaker 5: look like all right.

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Speaker 1: So in the crypto space, there's a lot still a

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Speaker 1: lot of doubters, including maybe even J. P. Morgan's James

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Speaker 1: Jamie Diamond. But it can't be good for credibility when

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Speaker 1: one of your major exchanges goes to put FTX. So

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Speaker 1: how's the thinking there in terms of how damaging was

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Speaker 1: that to the crypto space?

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Speaker 5: Do you think, Yeah, there's no way to sugarcoat that.

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Speaker 5: That was a major loss of trust, breach of trust

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Speaker 5: in the markets. It certainly, you know, was an element

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Speaker 5: of fraud rather than crypto specifically, but it shows what

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Speaker 5: happens when you have centralization and a lack of regulation.

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Speaker 5: That's where fraud can flourish, you know, relative to some

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Speaker 5: of the decentralized exchanges where you do have full transparency,

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Speaker 5: still have risks, but a different value proposition. And in

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Speaker 5: December it was dire, you know, the atmosphere, the mood

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Speaker 5: super super bearish. So it is interesting to see, you know,

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Speaker 5: on a relative basis, you know, kind of how optimistic

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Speaker 5: it was. For sure, still challenges and I think there's

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Speaker 5: actually there's been some silver linings. Right, Certainly, nobody's going

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Speaker 5: to question the need for due diligence, and you know,

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Speaker 5: AIMA published a very intensive due diligence questionnaire template for

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Speaker 5: investment managers focused on digital assets back in February, and

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Speaker 5: if that were published at the height of the bull market,

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Speaker 5: you know, maybe the managers would feel less inclined to

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Speaker 5: have to provide that level of transparency. Now they're going

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Speaker 5: to the exchanges themselves, have to really focus on that

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Speaker 5: counterparty risk, and there's both been transparency as well as

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Speaker 5: some technological and infrastructure developments to reduce that counterparty risk

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Speaker 5: and settlement risk as well. So we've seen a crystallization

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Speaker 5: of that and really some market developments and some market

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Speaker 5: practices to end us in a better space.

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Speaker 1: But again, yep, so in the crypto space, I hear

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Speaker 1: term tokenization. I don't really know what that is. Can

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Speaker 1: you define what that is and kind of what are

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Speaker 1: the opportunities there?

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Speaker 5: Yeah, so tokenization seems to be the new buzzword of

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Speaker 5: the day. It's you know, you sort of look at

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Speaker 5: some earlier cycles of crypto and you know, folks who

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Speaker 5: are thinking about I recognize the potential benefits of the

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Speaker 5: blockchain technology, but maybe I don't want that speculative magic

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Speaker 5: Internet money, So what can how can I find this

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Speaker 5: How can we build in some of the benefits of

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Speaker 5: a decentralized exchange, reducing all of the intermediaries that are

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Speaker 5: needed in a financial business like this, but actually have

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Speaker 5: the value derived from real world assets which I can

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Speaker 5: you know, model and find flows. So this is sort

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Speaker 5: of where it fits where it fits in. There's been

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Speaker 5: some early innovation we've seen last year. There are a

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Speaker 5: number of private equity funds that tokenized their private vehicles

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Speaker 5: and offer them on the blockchain to end investors, you know,

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Speaker 5: very early experimentation. There's also a lot of work being

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Speaker 5: done around private assets writ large, so rather than funds

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Speaker 5: the actual loans, there's real estate that can be brought

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Speaker 5: on chain and just really thinking through in an ecosystem,

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Speaker 5: how can you make this all more efficient?

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Speaker 1: All right, Michelle, thank you so much for joining us.

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Speaker 1: Really appreciate you coming in, Shelle Noise as a managing director,

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Speaker 1: I'll turn Investment Management Association joining us here in the

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Speaker 1: Bloomberg Interactor Brokers studio.

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Speaker 6: You're listening to the tape. Can's our live program, Bloomberg

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Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio. The

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Speaker 6: tune in app, Bloomberg dot Com and the Bloomberg Business App.

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Speaker 6: You can also listen live on Amazon Alexa from our

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Speaker 6: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.

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Speaker 1: Get great to our next guest and Dryden Pence. He's

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Speaker 1: the CIO of Pence Capital Management. They are based in

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Speaker 1: Newport Peach, California. You can't. It's just such a scam,

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Speaker 1: that whole Newport Beach thing. I'm not buying it, not

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Speaker 1: at all. I'm not buying You got to be into

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Speaker 1: Bowsman that and is what I say. But Dryden joints

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Speaker 1: us here in our Bloomberg Interactive Broker Studio. We appreciate that.

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Speaker 1: We point that mister Pence is an Army veteran, so

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Speaker 1: we thank him for his service. I appreciate that, Dryden,

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Speaker 1: you make your way all the way to New York City.

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Speaker 1: We got the good weather for you. We also had

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Speaker 1: some retail sales come out this morning. I don't know,

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Speaker 1: I kind of feel like I look at the consumer.

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Speaker 1: The consumer doing pretty well. The consumer has a job

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Speaker 1: buying large. But I know there's some you know, there's

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Speaker 1: some food insecurity out there. There's some big issues out there,

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Speaker 1: but some of the macro data suggest that the consumer's

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Speaker 1: doing okay. How do you think about the consumer? How

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Speaker 1: does that impact how you guys, you know, go out

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Speaker 1: there and pickstocks and allocate capital. Absolutely.

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Speaker 7: I think the point of the matter is is nobody

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Speaker 7: told the American consumer don't fight the Fed. They're still

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Speaker 7: they have jobs. As you said, you also see people

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Speaker 7: on Social Security got an eight percent increase and inflation's

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Speaker 7: now below that. So you have twenty five percent of

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Speaker 7: the American economies on so old Security has gotten a

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Speaker 7: pay raise, and so consumers are doing pretty darn well,

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Speaker 7: and they have larger savings than they had prior to

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Speaker 7: the pandemic. And so this continued consumer strength is really

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Speaker 7: kind of powering through things. I think it's made the

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Speaker 7: Fed's job a little tougher. You know, folks are out

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Speaker 7: there spending money and they don't seem to be backing

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Speaker 7: off dramatically some but not dramatically.

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Speaker 8: I do wonder how much that will last because there's

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Speaker 8: sort of two things here. One is, yes, they've gotten

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Speaker 8: a pay rise, but their dollars don't go as far

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Speaker 8: as they used to. And the second thing is, you know,

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Speaker 8: have we really seen the full impact of all the

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Speaker 8: previous FED hikes. I mean, is that or is that

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Speaker 8: you know, a squeeze that's coming down the road.

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Speaker 7: Well, I think you are right in that. I think

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Speaker 7: that we probably have yet to see about one hundred

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Speaker 7: to one hundred and twenty five basis points of the

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Speaker 7: hikes that you know, the FED can change their decision

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Speaker 7: in over two days. The market reacts in five minutes,

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Speaker 7: but American households and businesses take six to nine months,

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Speaker 7: and so we've yet to see about one hundred and

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Speaker 7: twenty five basis points of these hikes come into the market.

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Speaker 7: And I think that's what what is really kind of

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Speaker 7: causing this movement towards a pause coming up in the

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Speaker 7: next meeting.

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Speaker 1: We've got to give it time.

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Speaker 7: We got to give the American consumer time to catch

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Speaker 7: up with the FED, otherwise they could overreach a little bit.

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Speaker 1: All right, So what do I do? I got to

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Speaker 1: put money to work here. I got a lot of

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Speaker 1: cross currents out there. I got the FED, I got

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Speaker 1: a debt ceiling. I don't know if those knuckleheads in

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Speaker 1: DC can get anything done. So what's an investor to

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Speaker 1: do here? Well, I think there's a couple things.

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Speaker 7: The first one is stay short on your fixed income,

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Speaker 7: stay short duration on space to them absolutely, because I

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Speaker 7: think I think the pause goes longer. We don't get

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Speaker 7: a pivot until sometime in twenty twenty four, so you

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Speaker 7: might as well stay short and not stretch it out.

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Speaker 7: Stretch it out. So that's the first thing. And the

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Speaker 7: other thing is is pay close attention to investing in

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Speaker 7: the no matter what, we like defense sectors because we

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Speaker 7: think that we're not going to have peace spontaneously break

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Speaker 7: out all over the world. And NATO's got increase or

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Speaker 7: spending by two percent, so that's you know, defense sector

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Speaker 7: is good. We think China's coming back, as you know,

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Speaker 7: oils come down, but I think back half of the

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Speaker 7: year we see that go back up. So and then payments.

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Speaker 7: Payments are an area where we like American Express because

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Speaker 7: it's both luxury and it's also payments, and which in

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Speaker 7: and of itself is kind of stands through the inflation thing.

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Speaker 1: You hear, you know, testimony like that, the pressure and

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Speaker 1: that just kind of brings to the forefront, you know,

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Speaker 1: the banking challenges or the stress in the marketplace from

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Speaker 1: the regional banks. How do you guys at Pence Capital

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Speaker 1: Management think about that risk as you allocate capital. Did

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Speaker 1: you were you ever in banks? If you were, did

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Speaker 1: you sell your banks? What's going on?

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Speaker 7: We had very very small positions and banks and the

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Speaker 7: issue here when you talk about the three or four

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Speaker 7: banks have been a problem. All of them had some

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Speaker 7: commonality of poor management. And it wasn't necessarily the regional

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Speaker 7: banking sector entirely, but those banks had some unique issues. However,

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Speaker 7: you can only invert yield curve for so long, and

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Speaker 7: I think that's one of the challenges that we have.

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Speaker 1: To look at.

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Speaker 7: If the yield curve stays inverted this high for a

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Speaker 7: very long period of time, you could continue to see

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Speaker 7: some weakness in the banking sector. And I think that

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Speaker 7: that's one reason why we've kind of stayed at it.

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Speaker 7: We had a very small position in it, and we

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Speaker 7: still maintained almost we'll probably like one percent.

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Speaker 8: But now looking across at other sectors, I mean, do

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Speaker 8: you feel like the pressure on credit conditions that followed

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Speaker 8: the run on those banks is that easy enough? Are

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Speaker 8: there still issues to be worked through or what's your

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Speaker 8: sense there?

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Speaker 7: Well, I think that the tightening of credit across system

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Speaker 7: is doing some of the fed's job for it, just

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Speaker 7: like early on oil prices did some of the fed's

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Speaker 7: job for it and then they went down. Now tightening

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Speaker 7: credit is doing some of the fed's job for which

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Speaker 7: again is why we think we've got a pause coming up.

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Speaker 7: And I think that, you know, transitions create turbulence. We're

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Speaker 7: transitioning to a new kind of regulatory environment. We're having

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Speaker 7: to transition to an environment where you're going to have

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Speaker 7: to understand the consequences of an inverted you'll curve for

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Speaker 7: a long time. And so I think that this has

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Speaker 7: added to the fed's activities in terms of slowing down

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Speaker 7: the economy and making credit a little more difficult. I mean,

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Speaker 7: at the beginning of last year, we had more money

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Speaker 7: going out wherever it needed to be and way way

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Speaker 7: too loose. The FED was too late, and so now

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Speaker 7: they're having to play catchup.

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Speaker 1: And this is all part of it, all right, given

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Speaker 1: that background fresh capital coming in. Are there some sectors

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Speaker 1: that you guys like right now? Are there some sector

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Speaker 1: as you're staying away from.

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Speaker 7: Sectors we like or what we call the no what

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Speaker 7: matter what sectors I mentioned defense earlier, we like those

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Speaker 7: and we like payments a lot, because you know, a

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Speaker 7: defense appropriations bill usually gets paid and people pay their

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Speaker 7: credit cards. In general, there's consume American consumers spending. So

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Speaker 7: even though inflation is going up, payment sectors or companies

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Speaker 7: like American Express are seeing a higher ticket charge. Well,

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Speaker 7: that is a creative to their earnings, and so I

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Speaker 7: think that this trend will continue. So we like those

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Speaker 7: sectors a lot. I think the fact that interest rates

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Speaker 7: are going to maybe stay higher for longer and we're

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Speaker 7: not going to see this pivot that people are expecting

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Speaker 7: near the end of the year could put some weakness

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Speaker 7: on tech companies that are interest rate sensitive. You know,

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Speaker 7: people betting on interest rates going down a lot this

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Speaker 7: year are probably going to find themselves on the wrong

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Speaker 7: side of the trade.

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Speaker 8: Now, let me ask you internationally, is there an area

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Speaker 8: that you like sect a region that you like, or

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Speaker 8: a sector that you like abroad that you don't like

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Speaker 8: so much here.

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Speaker 7: I think you see China opening back up and fits

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Speaker 7: and starts, but I think it's not necessarily China that

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Speaker 7: we would have an interest in. But you know, Indonesia

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Speaker 7: and those areas around that, and we think that eventually

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Speaker 7: that Europe is going to begin to, you know, come

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Speaker 7: out of this thing reasonably well. So in looking at that,

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Speaker 7: we're still looking at the fundamentals of the consumer. Where

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Speaker 7: are there consumers that have a lot of money, uh,

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Speaker 7: and they're going to spend it? So those are the

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Speaker 7: kind of the sectors that were that we're looking at.

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Speaker 7: I still would stay out of uh at this point.

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Speaker 7: I would stay out of the really deep emerging markets

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Speaker 7: of somewhere in central South America and Africa.

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Speaker 1: At this point. Yeah, it's kind of it so dread

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Speaker 1: in the army. You earned three Meritorious Service medals from

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Speaker 1: the US Africa Command, so you were stationed in Africa.

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Speaker 7: So the what I had was the command of what

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Speaker 7: they called the both Joint Transformation Command for Intelligence and

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Speaker 7: then Africa ARIS. It was our intelligence operations. I wasn't

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Speaker 7: stationed in Africa, uh per se that actually actually the

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Speaker 7: US Africa Command was in Stuttgart, Germany. Nobody, nobody in

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Speaker 7: Africa wanted us to have a base there, so it

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Speaker 7: was so we so you just tried to get.

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Speaker 1: The same time zone. So it's kind of awkward. So

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Speaker 1: what's that Because a lot of folks will come in

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Speaker 1: here and they'll talk about emerging markets, and they'll talk

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Speaker 1: about Africa. What what's kind of your view having kind

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Speaker 1: of studied it from a different angle. Of course, there's

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Speaker 1: there's two big things.

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Speaker 7: Most people have no clue how absolutely large Africa is.

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Speaker 7: You could take you could take you know, almost North

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Speaker 7: America and a couple of other places and squeeze it

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Speaker 7: in there, and it's just it's just dramatically huge.

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Speaker 1: The thing that they that they do is they have

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Speaker 1: a real.

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Speaker 7: Hard time around capital formation.

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Speaker 3: Uh.

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Speaker 7: And they also are kind of skipping generations of everybody's

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Speaker 7: bank is their phone, right, so they're skipping generations of

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Speaker 7: capital formation. Uh. And they're very creative people, but they

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Speaker 7: also have very different governance problems. And they're also getting

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Speaker 7: themselves in trouble with their infrastructure because they spend and

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Speaker 7: borrowed from this amount of money from China. China is

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Speaker 7: we're China's so far ahead of us in Africa, it's laughable.

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Speaker 7: But the problem is is these countries now have a

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Speaker 7: tremendous amount of debt that higher interestrates are going to

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Speaker 7: prevent them from being able.

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Speaker 1: To So is that a strategic mistake for the US

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Speaker 1: not to have more investment there and more of a

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Speaker 1: presence or do you think I would say so, Yeah.

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Speaker 7: I would say so we're behind. We're just you know,

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Speaker 7: you have an area of tremendous natural resources. You have

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Speaker 7: you know, one hundreds of millions of people, you have

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Speaker 7: a very rapid population growth. You have an area that

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Speaker 7: really is kind of the next two hundred years of

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Speaker 7: what we can look for. And the United States is

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Speaker 7: clearly both from an investment standpoint and from a strategic

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Speaker 7: security standpoint. Probably you know we're twenty five years late.

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Speaker 1: All Right, Dredan, thanks so much for joining us. Really

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Speaker 1: appreciate getting your perspective, which is unique to say the

437
00:21:49,760 --> 00:21:52,200
Speaker 1: least dried and Pence ceio of Pence Capital Management.

438
00:21:53,600 --> 00:21:56,960
Speaker 6: You're listening to the team Ken's are Live program Bloomberg

439
00:21:57,080 --> 00:22:00,600
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Dot, the

440
00:22:00,680 --> 00:22:03,800
Speaker 6: iHeartRadio app, and the Blowberg Business app, or listen on

441
00:22:03,880 --> 00:22:05,840
Speaker 6: demand wherever you get your podcasts.

442
00:22:07,920 --> 00:22:09,880
Speaker 1: All right, let's go check for some stocks and maybe

443
00:22:10,000 --> 00:22:12,560
Speaker 1: are working, some investments that are working, and we do

444
00:22:12,600 --> 00:22:16,320
Speaker 1: that with Alex mars c CIO of f M Investments.

445
00:22:16,320 --> 00:22:18,880
Speaker 1: He joins the center Bloomberg Interactive Brooker Studio. We appreciate

446
00:22:18,920 --> 00:22:21,159
Speaker 1: that you get a gold star for coming in and

447
00:22:21,200 --> 00:22:24,680
Speaker 1: not phoning it in. Alex talk to us about FM Investments.

448
00:22:24,680 --> 00:22:26,200
Speaker 1: What do you guys do there? How do you approach

449
00:22:26,440 --> 00:22:28,120
Speaker 1: the market? What's your view? Sure?

450
00:22:28,160 --> 00:22:30,920
Speaker 9: So FM's a multi boutique. We really specialize in finding

451
00:22:30,960 --> 00:22:33,960
Speaker 9: great portfolio managers who have a lot of great and

452
00:22:34,040 --> 00:22:37,000
Speaker 9: diversified ideas and allow them to do what they're good at.

453
00:22:37,400 --> 00:22:40,560
Speaker 1: So are you guys equities, fixed income? What asset class

454
00:22:40,600 --> 00:22:44,040
Speaker 1: do you we spend the traffic the entire risk spectrum.

455
00:22:44,040 --> 00:22:46,760
Speaker 1: We've got all sorts of equity managers from small capital,

456
00:22:46,800 --> 00:22:50,080
Speaker 1: large cap, value, growth, all flavors in between. Assets under management,

457
00:22:50,080 --> 00:22:50,960
Speaker 1: what do you guys have these days?

458
00:22:51,080 --> 00:22:54,080
Speaker 9: So with our originally merged into a company called Diffractive

459
00:22:54,119 --> 00:22:56,960
Speaker 9: Managers Groups, about twenty five billion of AUA. About fifteen

460
00:22:57,000 --> 00:22:59,160
Speaker 9: million of that is true AUM eight.

461
00:22:59,200 --> 00:23:01,360
Speaker 1: What's AUA? Assets under advisement?

462
00:23:01,880 --> 00:23:03,879
Speaker 9: Some accounts that you know we don't fully control, but

463
00:23:03,920 --> 00:23:07,120
Speaker 9: we give advice to or firms that we don't own

464
00:23:07,200 --> 00:23:10,160
Speaker 9: a majority of that the SEC won't let us claim as.

465
00:23:10,080 --> 00:23:11,679
Speaker 1: A So what are some of the strategies that you

466
00:23:11,680 --> 00:23:13,919
Speaker 1: guys like now that you know in some of the

467
00:23:14,400 --> 00:23:16,040
Speaker 1: you know, the guys you're pursuing.

468
00:23:16,119 --> 00:23:18,879
Speaker 9: So on the equity side, I really like gross strategies.

469
00:23:18,920 --> 00:23:21,600
Speaker 9: I know, whis a little counterintuitive given the way markets

470
00:23:21,600 --> 00:23:23,800
Speaker 9: have been at least last year and beginning part of

471
00:23:23,800 --> 00:23:26,119
Speaker 9: this year, a little bit of a rebound in our favor.

472
00:23:26,640 --> 00:23:28,840
Speaker 9: We've got we like small cap growth, got a strategy

473
00:23:28,840 --> 00:23:31,439
Speaker 9: there that's been doing superlatively well, and we still like

474
00:23:31,480 --> 00:23:33,600
Speaker 9: large cap growth. You know, in the long run, there's

475
00:23:33,600 --> 00:23:36,320
Speaker 9: only so many houses we can build, there's only so

476
00:23:36,359 --> 00:23:39,720
Speaker 9: much paint you can buy. But technology still evolves. The

477
00:23:39,720 --> 00:23:42,520
Speaker 9: AI movement is clearly here. It's here to stay. We've

478
00:23:42,560 --> 00:23:44,400
Speaker 9: been big into in media for a long time, and

479
00:23:44,520 --> 00:23:46,320
Speaker 9: you know, every day we hear how it's going to

480
00:23:46,320 --> 00:23:48,040
Speaker 9: be its last day, and then it seems to keep

481
00:23:48,200 --> 00:23:49,000
Speaker 9: keep pushing forward.

482
00:23:49,000 --> 00:23:51,119
Speaker 8: On the rally, let me ask you a couple of

483
00:23:51,160 --> 00:23:53,879
Speaker 8: follow up questions there about your comments on AI, because

484
00:23:54,080 --> 00:23:56,280
Speaker 8: as a tech editor, I'm very, very interested in what

485
00:23:56,359 --> 00:24:00,240
Speaker 8: people make of the vast dreams of comments we on

486
00:24:00,280 --> 00:24:03,959
Speaker 8: earnings calls about artificial intelligence. I mean, do you feel

487
00:24:03,960 --> 00:24:07,439
Speaker 8: like this is really the moment for a change in

488
00:24:07,520 --> 00:24:09,800
Speaker 8: tech that of this sort that we you know, we

489
00:24:09,800 --> 00:24:12,560
Speaker 8: saw with the introduction of the mobile phone, for example.

490
00:24:12,600 --> 00:24:15,119
Speaker 9: This feels like it's if not this, it's going to

491
00:24:15,200 --> 00:24:17,280
Speaker 9: be very soon. I mean, once you get it to

492
00:24:17,280 --> 00:24:19,560
Speaker 9: the point where my mom can go on to chat

493
00:24:19,680 --> 00:24:22,760
Speaker 9: GPT know things that I didn't know she could know,

494
00:24:23,080 --> 00:24:25,439
Speaker 9: but with such clarity and copy and past them to

495
00:24:25,480 --> 00:24:28,520
Speaker 9: a text message that I think that's that moment. So

496
00:24:28,560 --> 00:24:30,440
Speaker 9: this is that Steve Jobs moment of sitting down on

497
00:24:30,520 --> 00:24:33,800
Speaker 9: the couch and taking out an iPhone, an iPod and

498
00:24:33,840 --> 00:24:34,840
Speaker 9: a mobile device.

499
00:24:35,000 --> 00:24:36,360
Speaker 1: Right, this is kind of it.

500
00:24:36,840 --> 00:24:39,280
Speaker 8: But then how do you play that as an investor? Well,

501
00:24:39,280 --> 00:24:41,280
Speaker 8: I think you mentioned Nvidia, of course, but I mean

502
00:24:41,280 --> 00:24:45,600
Speaker 8: looking at you know, Microsoft versus Google versus I Amazon

503
00:24:45,880 --> 00:24:48,119
Speaker 8: or any of the other smaller companies that even some

504
00:24:48,119 --> 00:24:50,000
Speaker 8: of them have AI in their names, telling you what

505
00:24:50,040 --> 00:24:50,520
Speaker 8: they're all.

506
00:24:50,440 --> 00:24:53,200
Speaker 9: About, that may be the first indicator not to buy them.

507
00:24:54,119 --> 00:24:55,760
Speaker 9: The dot Com bust kind of proved if you had

508
00:24:55,760 --> 00:24:57,600
Speaker 9: to put dot com in the name was a sort

509
00:24:57,640 --> 00:24:59,040
Speaker 9: of a negative indicator for long.

510
00:24:58,960 --> 00:25:00,880
Speaker 1: Term easy on that dot Com. It was a very

511
00:25:00,880 --> 00:25:02,320
Speaker 1: fine era. Thank you, it's there.

512
00:25:02,480 --> 00:25:05,560
Speaker 9: There were great moments, for sure, But I think those

513
00:25:05,560 --> 00:25:08,200
Speaker 9: big names are just given how much cash they have,

514
00:25:08,400 --> 00:25:10,119
Speaker 9: they're going to hoover up all the small names who

515
00:25:10,119 --> 00:25:12,800
Speaker 9: are particularly good, and they spend all day studying them,

516
00:25:12,840 --> 00:25:15,359
Speaker 9: so it's going to be hard to really differentiate. If

517
00:25:15,400 --> 00:25:17,239
Speaker 9: you're a small cat manager and you spend a lot

518
00:25:17,240 --> 00:25:18,840
Speaker 9: of time in that space, you can do really well,

519
00:25:18,880 --> 00:25:20,720
Speaker 9: but you have to spend a lot of time with

520
00:25:20,760 --> 00:25:23,760
Speaker 9: fundamental research. But the big guys will buy up those

521
00:25:23,920 --> 00:25:26,240
Speaker 9: the really good ones that are up and coming, and

522
00:25:26,280 --> 00:25:28,400
Speaker 9: then it's like most plays, you want to sell picks

523
00:25:28,400 --> 00:25:30,639
Speaker 9: and access more so than you want to try to

524
00:25:30,680 --> 00:25:31,560
Speaker 9: own the mind.

525
00:25:31,800 --> 00:25:34,480
Speaker 1: It isn't AI being way way over using Jennifer. You

526
00:25:34,520 --> 00:25:38,560
Speaker 1: may have an opinion on this, but every single company

527
00:25:38,600 --> 00:25:40,840
Speaker 1: that comes through here and every confident, I don't care

528
00:25:40,840 --> 00:25:44,280
Speaker 1: if it's dog food, it's their leading with AI. This

529
00:25:44,320 --> 00:25:46,159
Speaker 1: is a scam to me. This is I mean, I

530
00:25:46,160 --> 00:25:49,760
Speaker 1: think a lot of people are using AI or confusing AI,

531
00:25:50,200 --> 00:25:53,359
Speaker 1: which just you know, digitizing their business or bringing some

532
00:25:53,400 --> 00:25:55,840
Speaker 1: technology into their business. So instead of having you know,

533
00:25:55,880 --> 00:25:57,680
Speaker 1: a checkout counter, I can just kind of go scan

534
00:25:57,760 --> 00:26:01,240
Speaker 1: it or making investments in AI. How do you guys

535
00:26:01,280 --> 00:26:03,200
Speaker 1: define the real stuff?

536
00:26:03,520 --> 00:26:05,639
Speaker 9: So I think you're right like this, AI is a

537
00:26:05,720 --> 00:26:08,320
Speaker 9: very convenient way to get budget right, we're doing something

538
00:26:08,320 --> 00:26:10,080
Speaker 9: in AI. So now the board's going to give me

539
00:26:10,080 --> 00:26:12,800
Speaker 9: money to do something. We look at it more on

540
00:26:12,920 --> 00:26:15,199
Speaker 9: the true cutting edge of what you see coming in

541
00:26:15,240 --> 00:26:18,200
Speaker 9: the chat GPT. The large language models things that are

542
00:26:18,200 --> 00:26:21,919
Speaker 9: really evolving within the machine beyond what the programming was.

543
00:26:22,359 --> 00:26:25,200
Speaker 9: And that's not just how do we do Like in DC,

544
00:26:25,359 --> 00:26:28,879
Speaker 9: where there's an Whole Foods run by Amazon, where I

545
00:26:29,560 --> 00:26:30,560
Speaker 9: don't see a till anymore.

546
00:26:30,640 --> 00:26:32,360
Speaker 1: I just walk in. It feels like I stole it.

547
00:26:32,480 --> 00:26:35,360
Speaker 9: That's a really clever assembly of all sorts of stuff,

548
00:26:35,600 --> 00:26:37,439
Speaker 9: But it's not AI. The AI might be in the

549
00:26:37,480 --> 00:26:40,480
Speaker 9: algorithm that actually decides did I take one or two

550
00:26:40,680 --> 00:26:41,440
Speaker 9: pieces of fruit?

551
00:26:42,240 --> 00:26:45,120
Speaker 8: But then you raise an interesting point about your experience

552
00:26:45,119 --> 00:26:46,639
Speaker 8: in that store. I mean, once you get over the

553
00:26:46,680 --> 00:26:48,560
Speaker 8: idea that no, I did not steal, that this is

554
00:26:48,600 --> 00:26:50,840
Speaker 8: the way things are supposed to go. But what it

555
00:26:50,880 --> 00:26:53,240
Speaker 8: speaks to is the idea of an efficiency that we're

556
00:26:53,240 --> 00:26:56,240
Speaker 8: all meant to be appreciating as one of the benefits

557
00:26:56,240 --> 00:26:59,120
Speaker 8: of AI. You don't have somebody working the till. I mean,

558
00:26:59,359 --> 00:27:02,280
Speaker 8: do you have sense that the efficiencies that are the

559
00:27:02,400 --> 00:27:05,359
Speaker 8: much flagged sort of benefit are really coming down the

560
00:27:05,359 --> 00:27:07,680
Speaker 8: pike anytime soon? Because there has to be a lot

561
00:27:07,680 --> 00:27:10,040
Speaker 8: of investment. There has to be a lot of confidence

562
00:27:10,040 --> 00:27:12,760
Speaker 8: in the safety of the technology, and there's going to

563
00:27:12,760 --> 00:27:14,920
Speaker 8: be regulation that says how we're going to be able

564
00:27:14,920 --> 00:27:16,800
Speaker 8: to use it, So it could be a long time coming.

565
00:27:17,160 --> 00:27:17,800
Speaker 1: I think it's well.

566
00:27:17,800 --> 00:27:20,240
Speaker 9: I think it's starting right, and certainly there's the investment,

567
00:27:20,240 --> 00:27:22,959
Speaker 9: there's no question about that. The real question is ultimately

568
00:27:22,960 --> 00:27:25,280
Speaker 9: the safety of this and that's the reason why we've

569
00:27:25,280 --> 00:27:28,159
Speaker 9: been hearing about driverless cars for what a decade, and

570
00:27:28,200 --> 00:27:31,159
Speaker 9: they're still not particularly good. If you've ever driven in one,

571
00:27:31,200 --> 00:27:33,560
Speaker 9: they sometimes will scare you a great deal. But that

572
00:27:33,640 --> 00:27:36,040
Speaker 9: has certainly started. And what most of these things need

573
00:27:36,080 --> 00:27:39,360
Speaker 9: to work is just mass adoption, even when it's not great,

574
00:27:39,520 --> 00:27:42,359
Speaker 9: to make it great enough that folks can actually mass

575
00:27:42,359 --> 00:27:44,120
Speaker 9: adopt it. So it's like the chicken in the egg,

576
00:27:44,200 --> 00:27:47,320
Speaker 9: and investment is just growing both and eventually one will

577
00:27:47,320 --> 00:27:48,080
Speaker 9: give way to the other.

578
00:27:50,040 --> 00:27:52,120
Speaker 1: All right, we're looking at and we talked. We heard

579
00:27:52,119 --> 00:27:55,080
Speaker 1: Elizabeth Warren from the Senate Banking Committee earlier just grilling

580
00:27:55,200 --> 00:27:58,560
Speaker 1: some of these bank CEOs. How do you guys think

581
00:27:58,600 --> 00:28:02,040
Speaker 1: about the banking challenges stress or crisis. I'm not sure

582
00:28:02,040 --> 00:28:03,159
Speaker 1: how you guys are characterizing it.

583
00:28:04,000 --> 00:28:06,000
Speaker 9: You know, it seems like we go from crisis to crisis,

584
00:28:06,000 --> 00:28:08,280
Speaker 9: so we need a different word because crisis is supposed

585
00:28:08,280 --> 00:28:10,080
Speaker 9: to be one of those special things that happens once

586
00:28:10,080 --> 00:28:12,679
Speaker 9: in a while, not every other week. I mean, obviously

587
00:28:12,720 --> 00:28:14,880
Speaker 9: the debt ceiling seems to be their most important one,

588
00:28:14,920 --> 00:28:17,199
Speaker 9: and we're of the view there will be a solution

589
00:28:17,320 --> 00:28:19,880
Speaker 9: whether we raise the debt ceiling or we eliminate it.

590
00:28:19,880 --> 00:28:21,560
Speaker 9: It's just how much damage are we going to do

591
00:28:21,640 --> 00:28:24,480
Speaker 9: between now and when that happens, And every day we

592
00:28:24,480 --> 00:28:25,480
Speaker 9: don't fix it, we do some.

593
00:28:25,480 --> 00:28:26,440
Speaker 1: Amount of damage.

594
00:28:26,720 --> 00:28:28,919
Speaker 9: The bank's long term those seem like some of the

595
00:28:29,000 --> 00:28:32,240
Speaker 9: reforms from two thousand and eight mostly work. They are capitalized,

596
00:28:32,240 --> 00:28:34,919
Speaker 9: they are relatively safe. There are a lot of banks

597
00:28:34,920 --> 00:28:38,520
Speaker 9: in America, four thousand banks, I mean, versus the much

598
00:28:38,520 --> 00:28:40,840
Speaker 9: smaller number you see across all of Europe, giving its

599
00:28:40,880 --> 00:28:43,920
Speaker 9: different political divisions. So I suspect you see some of

600
00:28:43,920 --> 00:28:47,240
Speaker 9: them not by crisis full together, but just by reality

601
00:28:47,280 --> 00:28:50,960
Speaker 9: of realizing does every town really need five independent banks

602
00:28:51,120 --> 00:28:52,240
Speaker 9: when they have one post office?

603
00:28:52,360 --> 00:28:56,400
Speaker 1: Right right? Alex great stuff really appreciated, Alex mars cio

604
00:28:56,680 --> 00:28:59,880
Speaker 1: of FM Investments, just giving us lots of kind of

605
00:29:00,080 --> 00:29:02,320
Speaker 1: on these markets here and we look into the markets.

606
00:29:02,320 --> 00:29:02,480
Speaker 5: Here.

607
00:29:02,800 --> 00:29:06,400
Speaker 6: You're listening to the tape cansur live program Bloomberg Markets

608
00:29:06,440 --> 00:29:09,840
Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune

609
00:29:09,880 --> 00:29:12,840
Speaker 6: in app, Bloomberg dot Com, and the Bloomberg Business App.

610
00:29:12,880 --> 00:29:15,680
Speaker 6: You can also listen live on Amazon Alexa from our

611
00:29:15,720 --> 00:29:20,760
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

612
00:29:21,560 --> 00:29:23,000
Speaker 1: I want to have a little bit to talk about

613
00:29:23,000 --> 00:29:25,320
Speaker 1: a couple of key sectors that are in the news,

614
00:29:25,360 --> 00:29:27,560
Speaker 1: a couple of players that are always in the news.

615
00:29:27,640 --> 00:29:30,440
Speaker 1: Let's talk insurance business. Most notably are good friends of

616
00:29:30,480 --> 00:29:34,360
Speaker 1: Berkshire Hathaway, what's warned buying? What's his selling? Matt Polozola,

617
00:29:34,400 --> 00:29:37,440
Speaker 1: He's a senior analyst covering the insurance business for Bloomberg Intelligence,

618
00:29:37,560 --> 00:29:41,720
Speaker 1: and they're also joining Herman Chan he covers the regional

619
00:29:41,720 --> 00:29:44,200
Speaker 1: banks here at Bloomberg Intelligence. Always in the news. We

620
00:29:44,240 --> 00:29:46,360
Speaker 1: need to get the latest there, both of them joining

621
00:29:46,400 --> 00:29:49,840
Speaker 1: us here in a Bloomberg Interactive Brokers studio. Neither of

622
00:29:49,880 --> 00:29:53,440
Speaker 1: them phoning it in. They're in the office, unlike some

623
00:29:53,480 --> 00:29:56,360
Speaker 1: of BI management, I note, but in any case, these

624
00:29:56,440 --> 00:29:59,200
Speaker 1: folks are here. We appreciate it. Matt, let's start with

625
00:29:59,200 --> 00:30:04,200
Speaker 1: you here. What's Worn buying these days? What's he selling anything?

626
00:30:04,280 --> 00:30:07,160
Speaker 1: Kind of surprised you with some of the disclosures.

627
00:30:06,680 --> 00:30:09,320
Speaker 10: So a little bit. So we knew coming into the quarter,

628
00:30:09,360 --> 00:30:11,440
Speaker 10: it's coming into the thirteen a half yesterday that they

629
00:30:11,440 --> 00:30:13,920
Speaker 10: were a net seller of about ten billion of stock

630
00:30:14,080 --> 00:30:16,600
Speaker 10: in the first quarter, but we didn't know all the details.

631
00:30:16,680 --> 00:30:19,680
Speaker 1: Now being a net seller or netbuyer. Is that ten

632
00:30:19,680 --> 00:30:21,280
Speaker 1: billion a number that jumps out of you or is

633
00:30:21,280 --> 00:30:23,480
Speaker 1: this is just normal course of business for Berkshire Hathaway.

634
00:30:23,560 --> 00:30:26,040
Speaker 10: It's a decent amount, but they've done that much before.

635
00:30:26,800 --> 00:30:30,640
Speaker 10: They've been Buffett's been kind of in this post COVID era.

636
00:30:30,760 --> 00:30:33,640
Speaker 10: He's been bearish overall, so it's been a net seller

637
00:30:33,720 --> 00:30:36,160
Speaker 10: for most of the quarters. The biggest sale was about

638
00:30:36,160 --> 00:30:40,680
Speaker 10: five point six billion of Chevron. But and why we're

639
00:30:40,680 --> 00:30:43,320
Speaker 10: here with Herman is they added Capital one stock, so

640
00:30:43,360 --> 00:30:45,520
Speaker 10: about a billion dollars of Capital one, and they sold

641
00:30:45,560 --> 00:30:46,560
Speaker 10: off some other regionals.

642
00:30:47,400 --> 00:30:50,240
Speaker 8: So what's the story there, selling capital or buying Capital

643
00:30:50,280 --> 00:30:51,800
Speaker 8: one selling some of the regional ones.

644
00:30:52,440 --> 00:30:55,440
Speaker 10: So they've they've held some of these regionals for a while,

645
00:30:55,560 --> 00:30:57,200
Speaker 10: and Buffett's been in and out of the banks, but

646
00:30:57,240 --> 00:30:58,880
Speaker 10: maybe Herman could add a little bit more and why

647
00:30:58,920 --> 00:30:59,800
Speaker 10: that's important.

648
00:30:59,520 --> 00:31:02,680
Speaker 11: Yep, Just it seems like it dove stales with what's

649
00:31:02,680 --> 00:31:08,520
Speaker 11: going on with Buffett's work with Ally, which they bought recently,

650
00:31:09,080 --> 00:31:12,440
Speaker 11: and Capital One. These are all more consumer oriented, Allies

651
00:31:12,440 --> 00:31:17,440
Speaker 11: more auto, capital One's more card business. But it just

652
00:31:17,520 --> 00:31:20,640
Speaker 11: shows I think the relative strength of the consumer. With

653
00:31:21,360 --> 00:31:24,200
Speaker 11: unemployment still low, savings rate increasing, it seems like the

654
00:31:24,200 --> 00:31:28,400
Speaker 11: credit quality for these two institutions could held up, could

655
00:31:28,400 --> 00:31:32,960
Speaker 11: hold up despite potential recessionary headwinds coming. And then with

656
00:31:33,400 --> 00:31:38,040
Speaker 11: US Bank potentially exiting out of US Bank, that's another

657
00:31:38,120 --> 00:31:41,880
Speaker 11: one that we covers a large regional having some potential

658
00:31:43,280 --> 00:31:47,960
Speaker 11: adjusted capital issues because they just bought a bank in California,

659
00:31:48,120 --> 00:31:51,120
Speaker 11: MUFG Union, so they're a bit under capitalized and are

660
00:31:51,160 --> 00:31:53,400
Speaker 11: going to be working in a period of rebuilding that

661
00:31:53,440 --> 00:31:54,240
Speaker 11: capital ratio.

662
00:31:54,560 --> 00:31:56,560
Speaker 1: I don't know, Herman, I mean for those out there

663
00:31:56,600 --> 00:31:59,680
Speaker 1: that are still skittish about the regional banks, Boy, when

664
00:31:59,720 --> 00:32:02,320
Speaker 1: I see Warren Buffett buying in, I'm like, all right,

665
00:32:02,360 --> 00:32:05,280
Speaker 1: it can't It's got to be okay, right, Yeah, it

666
00:32:05,360 --> 00:32:06,200
Speaker 1: seems that way.

667
00:32:07,560 --> 00:32:14,800
Speaker 11: Based on what we've seen from macro industry indicators, the deposits,

668
00:32:15,160 --> 00:32:18,240
Speaker 11: and the issue with deposits that hasn't really been something

669
00:32:18,320 --> 00:32:21,720
Speaker 11: that's in the news these days outside of what happened

670
00:32:22,040 --> 00:32:25,640
Speaker 11: in March with SBB. Deposit for the industry have been

671
00:32:25,680 --> 00:32:28,880
Speaker 11: really stable over the past several weeks, so the initial

672
00:32:29,000 --> 00:32:33,240
Speaker 11: fear after the first Republic failure hasn't really resonated across

673
00:32:33,240 --> 00:32:37,719
Speaker 11: the industry. Despite some of the fears with banks like

674
00:32:37,880 --> 00:32:41,160
Speaker 11: pack West and Western Alliance, these fears do seem overblown

675
00:32:41,160 --> 00:32:41,640
Speaker 11: in our view.

676
00:32:42,360 --> 00:32:45,880
Speaker 8: But we were just watching Elizabeth Warren on TV absolutely

677
00:32:46,040 --> 00:32:52,960
Speaker 8: grilling the CEO of SVB, really going at them about

678
00:32:53,000 --> 00:32:55,760
Speaker 8: their you know, all of those issues, the app run

679
00:32:55,880 --> 00:32:59,080
Speaker 8: all of it. I mean, the risk surely is that

680
00:32:59,160 --> 00:33:01,800
Speaker 8: the regulator story is not yet over.

681
00:33:02,480 --> 00:33:06,800
Speaker 11: We actually just finished a webinar with Randy Quarrel's the

682
00:33:06,840 --> 00:33:09,680
Speaker 11: former vice chairman Vision for the Federal Reserve, and the

683
00:33:09,720 --> 00:33:13,200
Speaker 11: key takeaway was that the issue is really is about

684
00:33:13,200 --> 00:33:17,720
Speaker 11: liquidity and nobody could have predicted forty two billion dollars

685
00:33:17,760 --> 00:33:21,920
Speaker 11: of deposits leaving a single institution in one day and

686
00:33:21,960 --> 00:33:25,360
Speaker 11: one hundred forty two billion dollars over the course of

687
00:33:25,360 --> 00:33:28,320
Speaker 11: a two day span that would have felt any sort

688
00:33:28,360 --> 00:33:32,240
Speaker 11: of bank within the regional bank space. So really the

689
00:33:32,600 --> 00:33:38,000
Speaker 11: regulators need to rethink the stability of deposits, particularly uninsured deposits,

690
00:33:38,040 --> 00:33:41,760
Speaker 11: and that's something that needs to be more scrutinized going forward.

691
00:33:42,240 --> 00:33:46,320
Speaker 1: So you know, I'm thinking here, matt I Warren Buffett.

692
00:33:47,640 --> 00:33:51,800
Speaker 1: He bought some occidental shares, but he says Birks's not

693
00:33:51,840 --> 00:33:54,320
Speaker 1: interested buying the whole company. Did we take him at

694
00:33:54,320 --> 00:33:55,440
Speaker 1: his word here or is.

695
00:33:55,440 --> 00:33:57,360
Speaker 10: He just so? I think so. Paul kind of broke

696
00:33:57,400 --> 00:33:58,880
Speaker 10: my heart a little because I thought he was gonna

697
00:33:58,880 --> 00:34:00,760
Speaker 10: do it. I was sitting there and he threw cold

698
00:34:00,760 --> 00:34:04,960
Speaker 10: water on it. I think he's not He will just

699
00:34:05,040 --> 00:34:07,480
Speaker 10: say I'm not going to talk about it. He won't

700
00:34:07,560 --> 00:34:09,719
Speaker 10: kind of outright lie. So at the meeting he had

701
00:34:09,760 --> 00:34:12,080
Speaker 10: said we're just not interested in buying the whole company.

702
00:34:12,080 --> 00:34:13,680
Speaker 10: So I don't think he would say that and then

703
00:34:13,760 --> 00:34:15,640
Speaker 10: not mean it. I think he would probably have said,

704
00:34:16,080 --> 00:34:18,520
Speaker 10: you know, maybe there's more to see or something like that.

705
00:34:18,600 --> 00:34:19,719
Speaker 10: So I don't think he's in.

706
00:34:20,000 --> 00:34:24,080
Speaker 1: Half a trillion of cash on the balance sheet. He's

707
00:34:24,120 --> 00:34:26,279
Speaker 1: got some debt, but let's call it four hundred million

708
00:34:26,360 --> 00:34:30,680
Speaker 1: net cash. Realistically, what does he do with this thing?

709
00:34:30,880 --> 00:34:32,239
Speaker 10: So I think that's I think it's a little too

710
00:34:32,320 --> 00:34:34,600
Speaker 10: much cash. I think they have about one hundred and

711
00:34:34,680 --> 00:34:35,360
Speaker 10: thirty billion.

712
00:34:35,400 --> 00:34:37,520
Speaker 1: I think I'm talking fa So I'm just going cash

713
00:34:37,520 --> 00:34:37,919
Speaker 1: in the quiva.

714
00:34:37,960 --> 00:34:39,640
Speaker 10: I'm not sure what we got out, okay, but let's

715
00:34:39,640 --> 00:34:42,440
Speaker 10: just say it's a hundred say a hundred thirty billion, okay,

716
00:34:42,480 --> 00:34:45,560
Speaker 10: Still a lot they keep. They keep a reserve for

717
00:34:45,680 --> 00:34:48,920
Speaker 10: large insurance losses, which would still leave them over one

718
00:34:48,960 --> 00:34:53,560
Speaker 10: hundred billion dollars of cash. You know, it's tough occidental

719
00:34:53,680 --> 00:34:55,560
Speaker 10: falls off. I don't know what else they do. They

720
00:34:55,600 --> 00:34:58,600
Speaker 10: bought Alleghany for twelve billion dollars, closed last year, and

721
00:34:58,640 --> 00:35:00,960
Speaker 10: it barely moves the needle for him the companies. So yeah,

722
00:35:01,000 --> 00:35:04,120
Speaker 10: they have the curse of too much cash that they

723
00:35:04,160 --> 00:35:07,640
Speaker 10: can't even move the needle, and sorry, they are going

724
00:35:07,640 --> 00:35:10,040
Speaker 10: to keep building it up. It was Buffett. Basically, it said,

725
00:35:10,040 --> 00:35:12,160
Speaker 10: we want to build up cash even more at.

726
00:35:12,040 --> 00:35:14,800
Speaker 8: The meeting, the curse of too much cash.

727
00:35:14,840 --> 00:35:15,680
Speaker 10: I don't have that curse.

728
00:35:15,800 --> 00:35:17,640
Speaker 8: Yeah, so I should have such problems.

729
00:35:17,800 --> 00:35:18,600
Speaker 1: Oh I see, yep.

730
00:35:19,120 --> 00:35:21,520
Speaker 8: But I mean, what if you're gonna put all your

731
00:35:21,560 --> 00:35:23,520
Speaker 8: money in cash and sort of what's the point.

732
00:35:23,760 --> 00:35:26,239
Speaker 10: Well, you know, the interesting thing was the yield on

733
00:35:26,280 --> 00:35:28,880
Speaker 10: the cash went up so much that they were generating

734
00:35:28,960 --> 00:35:32,920
Speaker 10: fifty million dollars before the dries and interest rates. Now

735
00:35:32,920 --> 00:35:36,360
Speaker 10: they're generating five billion dollars a year on that cash

736
00:35:36,440 --> 00:35:39,360
Speaker 10: pre tax. But I mean that meaningfully adds to their earning.

737
00:35:39,440 --> 00:35:41,759
Speaker 10: So I actually think they come out of you know,

738
00:35:41,840 --> 00:35:45,240
Speaker 10: the first quarter actually more comfortable holding cash.

739
00:35:45,480 --> 00:35:47,080
Speaker 1: All right, let me just know for Tom from the

740
00:35:47,120 --> 00:35:50,640
Speaker 1: sixth floor, FA is correct. It was cash of one

741
00:35:50,719 --> 00:35:54,719
Speaker 1: hundred and twenty nine million, short term investments three hundred

742
00:35:54,719 --> 00:35:56,520
Speaker 1: and sixty one backs, So you put it all together.

743
00:35:56,880 --> 00:35:59,960
Speaker 1: That's it. So once again global data comes through for Bloomberg.

744
00:36:00,160 --> 00:36:05,160
Speaker 1: That data is correct. That's important, Herman. I don't know.

745
00:36:06,560 --> 00:36:08,960
Speaker 1: Have we had that portfolio manager that you and I

746
00:36:09,000 --> 00:36:11,600
Speaker 1: have talked about in the past that's just stepped up

747
00:36:11,600 --> 00:36:13,880
Speaker 1: and said, I'm buying these regional banks.

748
00:36:14,200 --> 00:36:16,560
Speaker 11: It seems like there have been some news reports recently

749
00:36:16,600 --> 00:36:18,879
Speaker 11: about folks coming in. Michael Burry was one of them.

750
00:36:19,000 --> 00:36:23,200
Speaker 11: So folks are nibbling and you've seen Green lay Capital

751
00:36:23,360 --> 00:36:26,719
Speaker 11: buy some of the banks like New Your Community and

752
00:36:26,760 --> 00:36:29,600
Speaker 11: for Citizens, the banks that won the bidding process for

753
00:36:30,239 --> 00:36:34,759
Speaker 11: the failed banks and SBB and signature so there is

754
00:36:34,840 --> 00:36:39,040
Speaker 11: some optimism there if I had the margins. So that's

755
00:36:39,200 --> 00:36:41,400
Speaker 11: really something that we really like to see.

756
00:36:41,920 --> 00:36:44,520
Speaker 8: Can I bring it over to the debt ceiling talks? Sure,

757
00:36:44,719 --> 00:36:49,600
Speaker 8: because nibbling ahead of a resolution seems a little punchy.

758
00:36:50,440 --> 00:36:51,160
Speaker 1: Yeah.

759
00:36:51,880 --> 00:36:54,759
Speaker 11: I mean, you look at the regional banks, and they're

760
00:36:54,800 --> 00:36:58,760
Speaker 11: trading at less than tangible book value on an adjusted basis.

761
00:36:58,800 --> 00:37:01,160
Speaker 11: So all of the bank news, I feel like, is

762
00:37:01,200 --> 00:37:05,480
Speaker 11: already priced in in terms of weaker earnings, lower loan growth,

763
00:37:05,560 --> 00:37:11,000
Speaker 11: unstable deposits, higher capital ratios, FDIC assessments rising, So everything

764
00:37:11,080 --> 00:37:14,000
Speaker 11: seems to be baked in at this point, and it's

765
00:37:14,360 --> 00:37:19,640
Speaker 11: it's we're near trough levels historically for regional big valuations.

766
00:37:19,680 --> 00:37:21,759
Speaker 1: I'll put up that. All right. We got Pazzola here,

767
00:37:21,800 --> 00:37:24,440
Speaker 1: so we got to talk natural disasters. He's our natural

768
00:37:24,440 --> 00:37:27,359
Speaker 1: disaster guy, not a walking natural disaster. He just covers

769
00:37:27,360 --> 00:37:31,040
Speaker 1: the insurance companies. So, Matt, we're either in or very

770
00:37:31,040 --> 00:37:34,480
Speaker 1: close to hurricane season. What are your companies telling you?

771
00:37:34,520 --> 00:37:35,839
Speaker 1: Are they bracing for a tough year.

772
00:37:36,280 --> 00:37:38,279
Speaker 10: We're always bracing for a tough year. I think I

773
00:37:38,320 --> 00:37:41,040
Speaker 10: think the early forecaster are slightly above average season, but

774
00:37:41,120 --> 00:37:45,240
Speaker 10: I don't know how how worthwhile those forecasts are capital

775
00:37:45,280 --> 00:37:50,200
Speaker 10: position good reinsurance, your favorite sub sector, insurance for insurance

776
00:37:50,239 --> 00:37:54,680
Speaker 10: companies is kind of near all time high prices. So

777
00:37:55,000 --> 00:37:57,200
Speaker 10: it's gonna be a tough market in Florida. If we

778
00:37:57,320 --> 00:37:59,520
Speaker 10: have a lot of activity in Florida, it's gonna be

779
00:37:59,640 --> 00:38:03,040
Speaker 10: real interesting from a pricing perspective. So I think that's

780
00:38:03,080 --> 00:38:04,799
Speaker 10: probably a thing to keep an eye on going into

781
00:38:04,880 --> 00:38:05,440
Speaker 10: Hurricane So, I.

782
00:38:05,440 --> 00:38:07,200
Speaker 1: Mean, all these people moving down to Florida, don't they

783
00:38:07,280 --> 00:38:09,240
Speaker 1: know they can't get insured? Or can they get insured?

784
00:38:09,840 --> 00:38:14,440
Speaker 10: They can, It's going to be very expensive. It's pricey

785
00:38:14,480 --> 00:38:18,040
Speaker 10: to get insurance there. The state is ensuring a lot

786
00:38:18,080 --> 00:38:20,400
Speaker 10: of these people now, so it's falling on the taxpayer,

787
00:38:20,440 --> 00:38:22,240
Speaker 10: so they're actually paying for it themselves.

788
00:38:22,920 --> 00:38:25,239
Speaker 1: I mean, I don't know, go ahead, I can't take it.

789
00:38:26,400 --> 00:38:27,800
Speaker 8: I've got more disaster questions.

790
00:38:27,840 --> 00:38:29,919
Speaker 1: Actually, no, we got forty seconds.

791
00:38:29,960 --> 00:38:31,960
Speaker 8: Not so much a disaster, but a drought. I mean,

792
00:38:31,960 --> 00:38:34,520
Speaker 8: we're seeing a lot of impact on food prices from

793
00:38:34,840 --> 00:38:38,120
Speaker 8: tough growing conditions. Is that something that you're seeing reflected

794
00:38:38,160 --> 00:38:40,240
Speaker 8: and reinsurance valuations.

795
00:38:40,400 --> 00:38:44,160
Speaker 10: Not sincessarily in valuations. I think crop insurances is backstop

796
00:38:44,160 --> 00:38:46,920
Speaker 10: by the federal government so there's a little volatility in

797
00:38:46,960 --> 00:38:49,160
Speaker 10: those results for companies, but that probably would be the

798
00:38:49,160 --> 00:38:52,560
Speaker 10: way we see it. And sorry, wildfires in California, so yep,

799
00:38:52,640 --> 00:38:53,160
Speaker 10: keep an eye on.

800
00:38:53,160 --> 00:38:55,840
Speaker 1: There's wild fires in Canada now is blowing smoke to

801
00:38:55,880 --> 00:38:58,560
Speaker 1: the east coast. That kind of got my attention last

802
00:38:58,560 --> 00:39:00,239
Speaker 1: weekend they were saying that. So interesting to all right,

803
00:39:00,239 --> 00:39:03,799
Speaker 1: Matt Paalazola, our disasters guy senior analy's covering all the

804
00:39:03,800 --> 00:39:06,520
Speaker 1: insurance stuff in Herman chan I tell you his sector

805
00:39:06,520 --> 00:39:08,759
Speaker 1: has been a disaster recently, but he covers the regional banks.

806
00:39:08,760 --> 00:39:11,640
Speaker 1: Hopefully the worst has passed for the regional banks. We

807
00:39:11,680 --> 00:39:13,040
Speaker 1: appreciate those gentlemen coming in.

808
00:39:13,320 --> 00:39:16,440
Speaker 6: You're listening to the tape Cats are live program Bloomberg

809
00:39:16,520 --> 00:39:20,080
Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the

810
00:39:20,160 --> 00:39:23,399
Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

811
00:39:23,440 --> 00:39:26,239
Speaker 6: You can also listen live on Amazon Alexa from our

812
00:39:26,239 --> 00:39:31,320
Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

813
00:39:32,239 --> 00:39:34,800
Speaker 1: All right, here we go. The Federal Trade Commission suit

814
00:39:34,840 --> 00:39:37,880
Speaker 1: to block am Jen's twenty seven point eight billion dollars

815
00:39:37,880 --> 00:39:40,920
Speaker 1: deal to buy Horizon Therapeutics. Tuesday arguing that the tie

816
00:39:40,960 --> 00:39:44,799
Speaker 1: up would stifle competition for the developments of treatments for

817
00:39:44,920 --> 00:39:49,600
Speaker 1: serious illnesses. Horizon Therapeutic stock is down about fifteen percent

818
00:39:49,680 --> 00:39:53,040
Speaker 1: on the news. Amgens down just slightly. Let's break down

819
00:39:53,040 --> 00:39:55,360
Speaker 1: what's going on here, both from the you know, the

820
00:39:55,360 --> 00:39:58,200
Speaker 1: stock perspective and from the antitrust perspective. And guess what,

821
00:39:58,360 --> 00:40:01,120
Speaker 1: We've got people that do that here at Intelligence. Jenry,

822
00:40:01,520 --> 00:40:04,759
Speaker 1: senior litigation analyst for Bloomberg Intelligence, joined us on. Mark

823
00:40:04,760 --> 00:40:08,280
Speaker 1: englischert He's a senior equity research analyst with Bloomberg Intelligence

824
00:40:08,320 --> 00:40:12,120
Speaker 1: covering that space there. So Jen, let's start with you here.

825
00:40:12,400 --> 00:40:15,200
Speaker 1: I mean, this was a nice deal. Everybody was making money.

826
00:40:15,239 --> 00:40:18,799
Speaker 1: Bankers are getting paid, lawyers are getting paid. But the

827
00:40:18,840 --> 00:40:20,359
Speaker 1: FTC said, no, what's going on?

828
00:40:20,920 --> 00:40:21,120
Speaker 3: You know?

829
00:40:21,360 --> 00:40:23,359
Speaker 12: I think Mark and I have been talking about this

830
00:40:23,480 --> 00:40:25,680
Speaker 12: and I kept saying to him, one of these days,

831
00:40:25,680 --> 00:40:27,399
Speaker 12: the FTC is going to come after one of these

832
00:40:27,400 --> 00:40:29,840
Speaker 12: farm deals with a new and novel theory and nobody's

833
00:40:29,880 --> 00:40:31,480
Speaker 12: going to be expecting it. And I thought it would

834
00:40:31,520 --> 00:40:33,759
Speaker 12: be Pfeiser Siegen, but they were ahead of me. And

835
00:40:33,800 --> 00:40:36,880
Speaker 12: here it is with Amgen Horizon. They have been signaling

836
00:40:36,920 --> 00:40:39,640
Speaker 12: now actually for years that they don't like the way

837
00:40:39,800 --> 00:40:43,080
Speaker 12: for the consolidation in the pharm industry generally, and the

838
00:40:43,120 --> 00:40:46,040
Speaker 12: way the FTC has traditionally assessed these deals, and that

839
00:40:46,080 --> 00:40:49,280
Speaker 12: it needs to think more holistically and in a broader

840
00:40:49,320 --> 00:40:52,239
Speaker 12: fashion about that total competitive impact these deals could have.

841
00:40:52,560 --> 00:40:54,799
Speaker 12: And it looks like that's what they've done here. You know,

842
00:40:54,840 --> 00:40:58,319
Speaker 12: they don't like apparently the way Amgen has bundled some

843
00:40:58,400 --> 00:41:01,760
Speaker 12: of its products off in huge rebates to the pharmacy

844
00:41:01,760 --> 00:41:04,880
Speaker 12: benefit managers to list those products which are perhaps more

845
00:41:04,920 --> 00:41:07,480
Speaker 12: expensive than rivals. And they think that it will do

846
00:41:07,600 --> 00:41:09,680
Speaker 12: that with two of Horizon's drugs. That is a very

847
00:41:09,719 --> 00:41:11,719
Speaker 12: new and novel theory we've never seen before in a

848
00:41:11,719 --> 00:41:12,279
Speaker 12: pharma deal.

849
00:41:13,120 --> 00:41:15,400
Speaker 8: What do you make of that argument, though? Do you

850
00:41:15,400 --> 00:41:17,120
Speaker 8: think it makes some sense? Can you sort of see

851
00:41:17,120 --> 00:41:18,040
Speaker 8: the rationale?

852
00:41:18,480 --> 00:41:19,799
Speaker 12: You know, I think that it's going to be a

853
00:41:19,800 --> 00:41:21,960
Speaker 12: difficult argument to win in court. Let me put it

854
00:41:22,000 --> 00:41:25,160
Speaker 12: that way. Sure it makes rationale if they have we

855
00:41:25,239 --> 00:41:27,920
Speaker 12: don't know yet what evidence they have from Amgen, right,

856
00:41:28,160 --> 00:41:30,399
Speaker 12: we haven't seen the complaint. It's still sealed, so we've

857
00:41:30,400 --> 00:41:32,959
Speaker 12: only seen the press release. What I'd like to see

858
00:41:33,040 --> 00:41:36,520
Speaker 12: is whether they have some evidence some documents that they

859
00:41:36,560 --> 00:41:39,600
Speaker 12: got through the investigation for Amgen saying this is our strategy.

860
00:41:39,840 --> 00:41:41,480
Speaker 12: You know, we think we can do this and we

861
00:41:41,520 --> 00:41:44,400
Speaker 12: can push out these other rivals by bundling these Horizon

862
00:41:44,680 --> 00:41:46,719
Speaker 12: products with our own blockbuster products.

863
00:41:47,640 --> 00:41:48,120
Speaker 1: It does.

864
00:41:48,200 --> 00:41:50,560
Speaker 12: But on the other hand, when you take this sort

865
00:41:50,600 --> 00:41:52,799
Speaker 12: of about face, this kind of right turn in the

866
00:41:52,840 --> 00:41:55,600
Speaker 12: traditional way in which you assess a deal, you really

867
00:41:55,640 --> 00:41:57,839
Speaker 12: have a harder time in court because the judges aren't

868
00:41:57,840 --> 00:42:00,440
Speaker 12: in the same place that the FTC is, thinking we

869
00:42:00,480 --> 00:42:04,360
Speaker 12: need a newer, more holistic approach, and Amgen may be

870
00:42:04,440 --> 00:42:07,719
Speaker 12: willing to enter into a behavioral remedy saying we won't

871
00:42:07,719 --> 00:42:09,680
Speaker 12: bundle these drugs and we'll keep them separate.

872
00:42:09,960 --> 00:42:12,480
Speaker 1: Hey, Mark, how big of an issue is this for Amgen?

873
00:42:12,520 --> 00:42:14,080
Speaker 1: If they were not to get this deal? How much

874
00:42:14,120 --> 00:42:16,640
Speaker 1: did they do they need Horizon? What do you think

875
00:42:16,760 --> 00:42:20,319
Speaker 1: their fallback position is if they don't get Horizon on

876
00:42:20,360 --> 00:42:20,759
Speaker 1: this deal.

877
00:42:22,000 --> 00:42:26,200
Speaker 13: Yeah, I mean, in the old FTC world, my snap

878
00:42:26,880 --> 00:42:29,200
Speaker 13: answer would be they would just go look for another deal,

879
00:42:29,800 --> 00:42:33,400
Speaker 13: right because they do. They do need some more revenue

880
00:42:33,440 --> 00:42:36,920
Speaker 13: and they need it quickly. You know, as Jen just

881
00:42:37,000 --> 00:42:39,680
Speaker 13: laid out. However, we could be entering into a new

882
00:42:41,080 --> 00:42:46,239
Speaker 13: sort of reality perhaps for the biopharma you know, deal

883
00:42:46,280 --> 00:42:49,440
Speaker 13: making space. But I think, you know, bigger picture, Amgen

884
00:42:49,640 --> 00:42:55,200
Speaker 13: is this by every metric, largest most successful US biotech company.

885
00:42:55,239 --> 00:42:57,959
Speaker 13: But they do have a growth problem. You know, there's

886
00:42:58,000 --> 00:43:01,239
Speaker 13: some attribute attributes that's sort of they share with some

887
00:43:01,320 --> 00:43:04,919
Speaker 13: of their large pharma brethren in that regard. They're trying

888
00:43:04,920 --> 00:43:08,560
Speaker 13: to grow off a massive base of you know, call

889
00:43:08,640 --> 00:43:13,879
Speaker 13: it twenty five billion dollars of revenue they have. They're

890
00:43:13,920 --> 00:43:17,920
Speaker 13: looking at some patent expertise out through the end of

891
00:43:17,960 --> 00:43:21,239
Speaker 13: the decade. My colleague Michael Shaw and I did an

892
00:43:21,239 --> 00:43:24,880
Speaker 13: analysis looking at biotech and pharma, and for US biotech,

893
00:43:24,880 --> 00:43:29,520
Speaker 13: Amgen is clearly the most exposed there potential for seven

894
00:43:29,520 --> 00:43:32,920
Speaker 13: and a half billion of erosion for some key drugs

895
00:43:32,960 --> 00:43:37,719
Speaker 13: like prolia o, tesla Emberl, et cetera. The other thing

896
00:43:37,719 --> 00:43:40,160
Speaker 13: I would just say is that Amgen about a year

897
00:43:40,200 --> 00:43:44,080
Speaker 13: a little over a year ago, laid out some fairly

898
00:43:44,160 --> 00:43:49,920
Speaker 13: ambitious top line revenue growth goals. They weren't guidanced, but

899
00:43:50,000 --> 00:43:54,400
Speaker 13: you know, they talked about mid single digit keeger for

900
00:43:54,440 --> 00:43:57,080
Speaker 13: the revenue, you know, for the twenty twenty two to

901
00:43:57,120 --> 00:44:00,560
Speaker 13: twenty thirty time period, and that's a So that's a

902
00:44:00,600 --> 00:44:05,760
Speaker 13: fairly ambitious sort of stake that they put in the ground.

903
00:44:05,840 --> 00:44:09,600
Speaker 13: Seeing how you know, they managed two percent annual growth

904
00:44:09,680 --> 00:44:13,839
Speaker 13: in twenty twenty one, a little over one percent in

905
00:44:13,880 --> 00:44:16,040
Speaker 13: twenty twenty two, and if you look at their twenty

906
00:44:16,080 --> 00:44:21,200
Speaker 13: twenty three guidance, which excludes Horizon, it's implying only about

907
00:44:21,239 --> 00:44:24,279
Speaker 13: a percent and a half of growth. So they have

908
00:44:24,320 --> 00:44:24,880
Speaker 13: some work to do.

909
00:44:28,160 --> 00:44:32,440
Speaker 1: So, Jenny, if you were advising the players in this deal,

910
00:44:32,480 --> 00:44:34,680
Speaker 1: would you tell them to fight the FTC here?

911
00:44:35,719 --> 00:44:36,160
Speaker 6: You know, I.

912
00:44:36,120 --> 00:44:38,640
Speaker 12: Probably would because this is new. This is a new

913
00:44:38,680 --> 00:44:41,920
Speaker 12: approach by the FTC, and to some extent, the FTC

914
00:44:42,200 --> 00:44:45,120
Speaker 12: is hoping when it takes some of these novel approaches

915
00:44:45,160 --> 00:44:47,400
Speaker 12: to file a suit that they're just going to outlast

916
00:44:47,440 --> 00:44:49,479
Speaker 12: the parties and they're going to force an abandonment because

917
00:44:49,480 --> 00:44:51,680
Speaker 12: they also know they have a challenge in court. But

918
00:44:51,760 --> 00:44:54,080
Speaker 12: they have actually been very successful in the last two

919
00:44:54,120 --> 00:44:58,040
Speaker 12: years in pushing abandonments after they've sued. So if I

920
00:44:58,080 --> 00:45:00,520
Speaker 12: were the companies, I would probably fight it. But then again,

921
00:45:00,520 --> 00:45:03,560
Speaker 12: they have other deal considerations about which I might not

922
00:45:03,640 --> 00:45:06,279
Speaker 12: be aware, in which they just don't have that kind

923
00:45:06,320 --> 00:45:08,359
Speaker 12: of time because it can take a year.

924
00:45:09,200 --> 00:45:11,520
Speaker 8: One question I'm wondering about is, you know, you mentioned

925
00:45:11,520 --> 00:45:15,440
Speaker 8: the Pfizer deal earlier, and then there's also Mark Prometheus Biosciences.

926
00:45:15,920 --> 00:45:19,840
Speaker 8: What does this FTC action tell you about those deals?

927
00:45:20,080 --> 00:45:22,840
Speaker 12: Well, it suggests they're going to get scrutinized very carefully,

928
00:45:23,840 --> 00:45:26,520
Speaker 12: and if there is any hint of any kind of

929
00:45:27,200 --> 00:45:30,600
Speaker 12: competition problem, whether it be an overlap in marketed drugs,

930
00:45:30,680 --> 00:45:33,600
Speaker 12: or an overlap in their pipelines, or a pipeline overlapping

931
00:45:33,640 --> 00:45:36,319
Speaker 12: with a marketed drug, or even something like this where

932
00:45:36,360 --> 00:45:39,000
Speaker 12: they haven't liked past conduct and they think it'll extend

933
00:45:39,080 --> 00:45:41,840
Speaker 12: to the target company, that they should expect a challenge

934
00:45:41,840 --> 00:45:44,879
Speaker 12: because this FTC is just simply not settling cases right now.

935
00:45:45,600 --> 00:45:49,600
Speaker 1: Hey, Mark, as we think about your space, big pharma biotech,

936
00:45:50,200 --> 00:45:52,120
Speaker 1: you know, I've always joked that my next life I

937
00:45:52,120 --> 00:45:53,560
Speaker 1: want to come back as an M and a banker

938
00:45:53,560 --> 00:45:57,040
Speaker 1: in healthcare because there's this deal after deal after deal

939
00:45:57,160 --> 00:46:00,480
Speaker 1: and mega deals, big size, and it never seems to end.

940
00:46:01,000 --> 00:46:02,880
Speaker 1: Do you think when you're talking to your companies that

941
00:46:02,960 --> 00:46:06,640
Speaker 1: maybe they're concerned here that as general suggesting maybe there's

942
00:46:06,719 --> 00:46:09,000
Speaker 1: kind of a new regulatory outlook for this space.

943
00:46:10,760 --> 00:46:15,000
Speaker 13: I think that's definitely something that I'm assuming is being

944
00:46:15,040 --> 00:46:18,560
Speaker 13: discussed today. I mean, this is clearly just you know,

945
00:46:19,000 --> 00:46:23,640
Speaker 13: this is the first tangible evidence of kind of this

946
00:46:24,440 --> 00:46:28,200
Speaker 13: tougher if you want to use that for a that

947
00:46:28,440 --> 00:46:32,680
Speaker 13: term FTC. We've heard a lot of rhetoric from FTC,

948
00:46:33,280 --> 00:46:36,200
Speaker 13: but I think that has largely on the part of

949
00:46:36,400 --> 00:46:41,839
Speaker 13: you know, I would say both large biopharma companies and

950
00:46:41,960 --> 00:46:47,600
Speaker 13: investors has been you know, sort of rationalized away as

951
00:46:47,640 --> 00:46:50,120
Speaker 13: being merely rhetoric, but that you know, this is the

952
00:46:50,160 --> 00:46:54,640
Speaker 13: first time that we've seen tangible evidence that FTC is

953
00:46:54,680 --> 00:46:58,640
Speaker 13: willing to kind of go beyond that and take action,

954
00:47:00,840 --> 00:47:05,000
Speaker 13: you know, So I think, you know, until this is resolved,

955
00:47:06,239 --> 00:47:08,160
Speaker 13: I think there is likely to be a bit of

956
00:47:08,200 --> 00:47:13,200
Speaker 13: a chilling effect on deal making across the sector, no question.

957
00:47:14,239 --> 00:47:16,399
Speaker 8: Just to follow up on that, how much of this

958
00:47:16,520 --> 00:47:19,400
Speaker 8: new approach do you think is a fallout from the

959
00:47:19,400 --> 00:47:21,960
Speaker 8: pandemic or is it just that there's a new sheriff

960
00:47:22,000 --> 00:47:23,280
Speaker 8: in town looking to make their mark.

961
00:47:25,560 --> 00:47:28,040
Speaker 12: I guess I can answer that one. You know, I

962
00:47:28,040 --> 00:47:30,160
Speaker 12: think it's not really about the pandemic. I think it's

963
00:47:30,160 --> 00:47:32,560
Speaker 12: a new sheriff in town with a new perspective and

964
00:47:32,600 --> 00:47:36,600
Speaker 12: a new view who believes that FTC and DJ have

965
00:47:36,640 --> 00:47:39,680
Speaker 12: been two lacks generally across many industries for many years

966
00:47:39,680 --> 00:47:42,680
Speaker 12: in allowing consolidation, and their role now is to try

967
00:47:42,680 --> 00:47:48,719
Speaker 12: to stem that tide, particularly in sensitive industries like pharmaceuticals, agriculture, airlines,

968
00:47:49,560 --> 00:47:54,080
Speaker 12: consumer facing, where people complaining about prices and quality and innovation.

969
00:47:55,160 --> 00:47:58,680
Speaker 1: Hey, Mark, just real quick, thirty seconds. Where's the real

970
00:47:58,719 --> 00:48:01,360
Speaker 1: weakness in Amgen here in terms of its offerings.

971
00:48:03,320 --> 00:48:07,040
Speaker 13: It's hard to point to one specific flaw. I mean,

972
00:48:07,080 --> 00:48:09,080
Speaker 13: they are rolling out some new products. They have a

973
00:48:09,200 --> 00:48:14,120
Speaker 13: very interesting one for a mutationally sort of directed set

974
00:48:14,160 --> 00:48:16,959
Speaker 13: of lung cancer. They have an asthma product. They haven't

975
00:48:17,000 --> 00:48:21,120
Speaker 13: exactly been rocketing to blockbuster status, and they just have

976
00:48:21,320 --> 00:48:23,800
Speaker 13: some you know, they have a core, a very solid

977
00:48:23,880 --> 00:48:28,600
Speaker 13: but core products that are suffering from some net price

978
00:48:28,640 --> 00:48:32,560
Speaker 13: erosion and have have patent you know, ticking patent clocks.

979
00:48:33,120 --> 00:48:37,239
Speaker 1: Yeah, it's yeah, that's the issue that we've heard that

980
00:48:37,280 --> 00:48:40,040
Speaker 1: before from some of these bigger companies, bigger farmer companies,

981
00:48:40,239 --> 00:48:42,240
Speaker 1: and that's why they need to grow the via acquisition

982
00:48:42,320 --> 00:48:44,520
Speaker 1: of some of these biotechs. So that's kind of been

983
00:48:44,520 --> 00:48:46,920
Speaker 1: a playbook. We'll see if that changes from a reguatory perspective.

984
00:48:47,000 --> 00:48:51,600
Speaker 1: Jennifer Reeve, senior litigation analyst, and you know, we appreciate

985
00:48:51,600 --> 00:48:55,440
Speaker 1: getting that background there. And Mark Engelsjerd senior equity research analysts,

986
00:48:55,480 --> 00:48:58,520
Speaker 1: both of them with Bloomberg Intelligence, appreciate getting the roundtable

987
00:48:58,520 --> 00:49:01,239
Speaker 1: opportunity there with you two lists as we break down

988
00:49:01,320 --> 00:49:04,880
Speaker 1: kind of Amgen's deal here with Horizon at risk to

989
00:49:04,880 --> 00:49:05,520
Speaker 1: say the least.

990
00:49:06,280 --> 00:49:09,399
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can

991
00:49:09,440 --> 00:49:13,200
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

992
00:49:13,280 --> 00:49:17,000
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

993
00:49:17,239 --> 00:49:19,160
Speaker 2: at Matt Miller nineteen seventy three.

994
00:49:19,600 --> 00:49:22,040
Speaker 1: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney.

995
00:49:22,080 --> 00:49:24,759
Speaker 1: Before the podcast, you can always catch us worldwide at

996
00:49:24,760 --> 00:49:26,520
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