WEBVTT - Leveraged-Loan Gloom Is Way Overdone: Eaton Vance PM 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:30.520 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. There 0:00:30.520 --> 0:00:32.760 have been a lot of gloom and doom stories written 0:00:32.760 --> 0:00:37.000 about US leveraged loans issue and has reached a record 0:00:37.080 --> 0:00:40.360 pace so far this year. The total outstanding debt has 0:00:40.400 --> 0:00:44.680 surpassed its sister assid class of US junk bonds. And oh, 0:00:44.760 --> 0:00:48.040 some people are getting worried about we covenants and other issues. 0:00:48.120 --> 0:00:50.320 Joining us now to tell us how concerned we really 0:00:50.320 --> 0:00:53.000 ought to be is Christopher Remington. He is a portfolio 0:00:53.040 --> 0:00:56.000 manager at Eaton Vance focusing on leveraged loans, which are 0:00:56.040 --> 0:00:58.720 also called bank loans, and he joins us now. Christopher, 0:00:58.800 --> 0:01:01.319 thank you so much for being with us. Do you 0:01:01.400 --> 0:01:04.280 think that the gloom and doom that we've heard, this 0:01:04.360 --> 0:01:07.120 sort of rising risks in the weaker standards? Do you 0:01:07.160 --> 0:01:09.800 think that that's an accurate portrayal of the asset class 0:01:10.760 --> 0:01:14.120 not really, Lisa, thanks for having us on UM. Certainly 0:01:14.160 --> 0:01:18.560 there's been a going storyline in the market that there's 0:01:18.600 --> 0:01:22.080 been sort of hog wild credit risk taking place, and 0:01:22.600 --> 0:01:24.479 certainly there's been an uptakeing M and A as you've 0:01:24.480 --> 0:01:27.720 alluded to earlier on your show. That's normal at this 0:01:27.760 --> 0:01:31.759 point in the cycle. Certainly, plenty of things to watch, UM, 0:01:31.840 --> 0:01:35.160 but we think that overall the sort of risk character 0:01:35.200 --> 0:01:37.640 in the market is pretty typical of what it is 0:01:37.680 --> 0:01:40.399 at this stage in the cycle. You pointed out the 0:01:40.440 --> 0:01:43.800 market is growing the so called bonanza and issuance, and 0:01:43.840 --> 0:01:46.640 you start to back out refinancings, which is just a 0:01:46.680 --> 0:01:53.160 recycling of existing paper or um um refinancing refinancings basically 0:01:53.360 --> 0:01:55.560 um the net number is much lower. The market has 0:01:55.600 --> 0:01:59.360 grown by about ten percent looking back over the past year, 0:02:00.040 --> 0:02:02.320 and that's following what had been at darth of issuance 0:02:02.360 --> 0:02:04.400 for a couple of years before that. So the markets 0:02:04.440 --> 0:02:06.400 catching up. There has been a good amount of issuance 0:02:06.480 --> 0:02:10.280 this year, but that's really just a reflection of the 0:02:10.400 --> 0:02:12.120 M and A machine and nuts on the back of 0:02:12.160 --> 0:02:15.920 what's been a pretty sound US economy, fair enough sounded 0:02:16.040 --> 0:02:18.400 US economy for now the last time we saw a 0:02:18.440 --> 0:02:20.639 boom and m and A that was funded by the 0:02:20.720 --> 0:02:24.640 leverage finance market reminds me frankly of two thousand six seven. 0:02:24.840 --> 0:02:27.000 It wasn't so pretty after that. And some people are 0:02:27.040 --> 0:02:29.880 concerned that a lot of companies are raising money in 0:02:29.919 --> 0:02:33.120 the loan market and not raising money in the bond market, 0:02:33.480 --> 0:02:36.880 and therefore there is no real advantage to being first 0:02:36.960 --> 0:02:40.400 lean to basically having get to sort of first recoveries 0:02:40.440 --> 0:02:42.960 in a bankruptcy and liquidation. What do you make of 0:02:43.000 --> 0:02:46.880 all of that, though, I wouldn't suggest there's any causality 0:02:46.919 --> 0:02:48.680 between the fact that there was a lot of issuance 0:02:48.680 --> 0:02:51.200 in the bank loan market and the great recession that 0:02:51.280 --> 0:02:54.359 ultimately followed. They did follow in time order, but one 0:02:54.400 --> 0:02:56.960 had little to do with the other. UM in the 0:02:57.120 --> 0:03:00.400 in the sort of broader context of bonds versus as loans, 0:03:00.440 --> 0:03:04.160 I think, you know, the attractiveness of loans today. UM 0:03:04.520 --> 0:03:06.880 is certainly one that can be made in absolute sense, 0:03:06.919 --> 0:03:09.440 but really it's all about relativity. If you're the investor, 0:03:09.520 --> 0:03:11.680 you have a multiple sort of pieces to the puzzle 0:03:11.720 --> 0:03:14.440 you're trying to balance in a portfolio. You look over 0:03:14.520 --> 0:03:16.600 on the equity side of your portfolio, and you have 0:03:16.639 --> 0:03:19.680 stocked creating at all time ever highs. I think stocks 0:03:19.680 --> 0:03:21.919 have lost I'm pretty sure something like half their value 0:03:21.960 --> 0:03:25.000 twice in the last fifteen years. That does happen in 0:03:25.000 --> 0:03:28.239 a recession. Over in bonds, you have a headwind of 0:03:28.320 --> 0:03:30.640 rising interest rates, and with the FED on the move, 0:03:30.720 --> 0:03:34.560 they're relatively few places to position in fixed income land 0:03:34.600 --> 0:03:38.760 where you actually get a benefit from FED raising interest rates, 0:03:38.760 --> 0:03:40.800 and this is definitely one of those neighborhoods. So folks 0:03:40.840 --> 0:03:43.440 who are coming in to the asset class I think 0:03:43.440 --> 0:03:45.920 are doing it from the standpoint of pretty good reasons. 0:03:46.000 --> 0:03:49.320 They're searching for yield. Yield is hard to find today, 0:03:49.360 --> 0:03:53.360 but they're also searching for the absence of duration. Um. Certainly, 0:03:54.160 --> 0:03:57.320 their risks in our market credit risk, liquidity risk, but 0:03:57.400 --> 0:04:00.160 it's not bond risk, and so investors are trying to 0:04:00.200 --> 0:04:03.720 balance those things, and I think for good reason, Christopher, 0:04:03.800 --> 0:04:07.680 have you witnessed money managers pushing back on deals that 0:04:07.720 --> 0:04:11.960 are too aggressively priced? Well, I can tell you I 0:04:12.000 --> 0:04:15.119 work here at an asset manager that is indeed doing that. 0:04:15.600 --> 0:04:18.360 So there's been plenty of issuance, as you've started out 0:04:18.360 --> 0:04:20.600 the segment talking about, but there's also been plenty of 0:04:20.680 --> 0:04:24.000 deals to turn down UM. Our turndown rate here at 0:04:24.000 --> 0:04:27.440 Eaton Advance has averaged about seventy year to date, so 0:04:27.480 --> 0:04:31.440 I would characterize UM those largely coming on the back 0:04:31.480 --> 0:04:35.760 of smaller deals UM and also deals that have weaker 0:04:35.800 --> 0:04:40.039 structures UM. So I'd say the overall sort of temperature 0:04:40.040 --> 0:04:44.279 of the market is good economy generally good about average 0:04:45.160 --> 0:04:49.320 credit risk profile, but with weaker documentation, weaker structures, and 0:04:49.360 --> 0:04:51.720 that's where we're really digging in and drawing the line. So, 0:04:51.839 --> 0:04:54.000 what are some recent popular deals that you've drawn the 0:04:54.000 --> 0:04:57.040 line on? For example, was the Thompson Reuters deal one 0:04:57.040 --> 0:04:59.640 that you're buying into or staying away from? Well, that 0:04:59.680 --> 0:05:02.840 stuff only one of the big ones to date. UM. 0:05:03.000 --> 0:05:05.359 We're active in the name at the moment, so I 0:05:05.400 --> 0:05:08.320 can't speak in great detail about it, but I will 0:05:08.320 --> 0:05:11.440 tell you that that is a deal that would absolutely 0:05:12.200 --> 0:05:16.279 hit on those topics that I just mentioned. Good company, UH, 0:05:16.400 --> 0:05:20.080 somewhat weak structure, and if we are participating, it will 0:05:20.120 --> 0:05:24.839 definitely be on the more conservatively positioned UH in our portfolio. 0:05:24.960 --> 0:05:29.040 Definitely some things to watch there because of those structural issues. 0:05:29.120 --> 0:05:31.800 Probably going to play out just fine, but we think 0:05:31.800 --> 0:05:34.400 there's likely an opportunity to buy it cheaper sometime down 0:05:34.440 --> 0:05:37.719 the road. Thanks very much for being with us. Christopher Remington, 0:05:38.120 --> 0:05:42.680 Director of Income Product and Portfolio Strategy, also institutional portfolio 0:05:42.720 --> 0:05:57.840 manager for floating rate loans at Eaton Fans. The topic 0:05:58.000 --> 0:06:01.960 is Brexit. Earlier today, UK Prime Minister Theresa May said 0:06:02.000 --> 0:06:05.440 that the European Union must treat the United Kingdom with 0:06:05.560 --> 0:06:09.240 respect in Brexit negotiations. In a statement in which she 0:06:09.279 --> 0:06:12.359 read at Downing Street, she said that EU leaders to 0:06:12.400 --> 0:06:15.760 reject her plan, but no alternative at this late stage 0:06:15.839 --> 0:06:19.760 of negotiations was not acceptable. Let's find out if it 0:06:19.800 --> 0:06:23.400 really is unacceptable. Ian wish Art is our European government 0:06:23.400 --> 0:06:27.800 reporter for Bloomberg News joining us from Brussels. All right, Ian, 0:06:28.400 --> 0:06:32.359 is it really unacceptable? I thought everything in these negotiations 0:06:32.640 --> 0:06:39.200 seemingly is acceptable. Accept an agreement exactly. It's either all 0:06:39.240 --> 0:06:43.880 acceptable or all unacceptable. It depends on your perspective. Really, um, 0:06:44.240 --> 0:06:47.320 the EU has made its position clear and it's pretty 0:06:47.360 --> 0:06:50.120 much stuck to its position for a year. The UK 0:06:50.240 --> 0:06:52.280 says it doesn't like it, and a year on is 0:06:52.320 --> 0:06:55.159 still saying it doesn't like it. Where do you go 0:06:55.279 --> 0:06:59.560 from there, Well, nobody really knows. Everybody still thinks that 0:06:59.560 --> 0:07:01.960 at some point and time is running out, but at 0:07:02.000 --> 0:07:05.200 some point they'll get a deal, but nobody quite knows 0:07:05.480 --> 0:07:07.800 how that will come about, because, as I say, both 0:07:07.839 --> 0:07:13.040 sides are completely talking um in different ways from different positions, 0:07:13.080 --> 0:07:16.080 and nobody seems ready to conceive even one letter to 0:07:16.120 --> 0:07:20.080 the other side. So, um, who knows what's going to happen. 0:07:20.160 --> 0:07:22.520 I think all the smart money is on an agreement 0:07:22.560 --> 0:07:25.680 being done eventually, but at the moment, both sides of 0:07:25.760 --> 0:07:28.600 doubling down, both sides of digging in. The Prime Minister 0:07:28.680 --> 0:07:31.680 woke up to newspaper headlines saying she'd been humiliated by 0:07:31.720 --> 0:07:36.120 AU leaders at the summit in Salzburg in Austria overnight. 0:07:36.240 --> 0:07:38.280 So where do we go from here? I think it's 0:07:38.280 --> 0:07:41.440 going to get very messy. Indeed, in I've got to say, 0:07:41.440 --> 0:07:44.440 it hasn't exactly been smooth sailing before this, right, I mean, 0:07:44.480 --> 0:07:47.120 it's been a mess all along, and this seems to 0:07:47.160 --> 0:07:50.240 be a sort of escalation of that. I'm just wondering 0:07:50.400 --> 0:07:53.840 does this increase the chances of a hard Brexit, and 0:07:53.840 --> 0:07:56.000 if so, to what degree? I mean, right now, the 0:07:56.000 --> 0:08:00.720 pound is plunging versus the dollar by the most since. Yeah, 0:08:00.800 --> 0:08:04.160 I mean, this is the scariest, if you like, the 0:08:04.200 --> 0:08:06.320 scariest point we've had so far in the break to 0:08:06.320 --> 0:08:10.120 the negotiations, because it's less than two months really before 0:08:10.120 --> 0:08:12.680 the deadline, the real hard dearsline where they need to 0:08:12.680 --> 0:08:14.720 get a deal, and two sides of as far apart 0:08:14.760 --> 0:08:18.760 as ever, um, you asked dip them out behind the scenes, 0:08:18.800 --> 0:08:21.600 and they all still stay on both sides that getting 0:08:21.600 --> 0:08:25.720 a deal is more likely than than not. Um, So 0:08:25.760 --> 0:08:28.480 I think we have to assume that that is the case, 0:08:28.560 --> 0:08:32.520 that behind the scenes, round the negotiating table, there is movement, 0:08:32.679 --> 0:08:36.640 discussions are being had, but politically it's very difficult to 0:08:36.640 --> 0:08:40.360 see where where the compromise is made. The speech that 0:08:40.480 --> 0:08:43.800 threason May made an hour or so ago meant that 0:08:43.880 --> 0:08:48.080 she really dug in. She really said this proposal that 0:08:48.160 --> 0:08:51.320 the EU has put forward would see the breakup of 0:08:51.360 --> 0:08:54.160 the United Kingdom and she can never let that happen. 0:08:54.480 --> 0:08:57.199 Now the EU is saying that's the only proposal we're 0:08:57.240 --> 0:08:59.480 prepared to offer. So where do you go from here? 0:08:59.480 --> 0:09:03.280 I mean, it's it's not easy to see where any 0:09:03.320 --> 0:09:07.440 optimism comes from. So it's also very obvious that are 0:09:07.480 --> 0:09:11.440 hard Brexit, that no deal, that a really messy divorce 0:09:11.840 --> 0:09:17.920 is also entirely possible. Ian worship. Is there any conversation 0:09:18.360 --> 0:09:22.880 about the negotiating style and tactics, I mean number one, 0:09:23.320 --> 0:09:30.040 negotiating in public, Number two drawing these seemingly firm arguments, 0:09:30.120 --> 0:09:32.760 but then not having any wiggle room to actually have 0:09:32.840 --> 0:09:37.640 a negotiation, and then to talk about Northern Ireland when 0:09:38.120 --> 0:09:42.480 Teresa May's government depends on the support of Northern Ireland 0:09:42.520 --> 0:09:47.280 members of Parliament. Correct, exactly, everywhere you look, there's there's 0:09:47.280 --> 0:09:51.080 pitfalls and obstacles and and dead ends. Um, it's quite 0:09:51.080 --> 0:09:53.679 clear that both sides over the past eighteen months two 0:09:53.760 --> 0:09:56.880 years have made mistakes, most of them as mistakes have 0:09:56.960 --> 0:10:00.320 been made by the UK side. Most of the things 0:10:00.360 --> 0:10:04.040 that the UK said it would never would never accept, 0:10:04.280 --> 0:10:08.480 they have accepted. So the EU clearly has the upper 0:10:08.480 --> 0:10:12.079 hand and has had throughout the entire process. Now we're 0:10:12.120 --> 0:10:14.480 coming right to the crunch, and as you say, it's 0:10:14.520 --> 0:10:18.040 all about now the Irish border, it's all about Northern Ireland. 0:10:18.480 --> 0:10:21.480 What the EU says it wants to do to protect 0:10:21.520 --> 0:10:24.680 its own integrity as they call it, to the Single Market, 0:10:24.720 --> 0:10:28.319 which means protecting the flow of goods and customers controls 0:10:28.640 --> 0:10:33.559 into its own single markets depends on getting something arranged 0:10:33.600 --> 0:10:36.920 for Northern Ireland. What it says it once the UK 0:10:37.120 --> 0:10:41.200 into reason May is saying she can never accept he's 0:10:41.200 --> 0:10:44.040 a red line, but something has got to give in 0:10:44.480 --> 0:10:46.680 just twenty seconds here when you go to the pub 0:10:46.920 --> 0:10:50.120 or when you walk around and just the average person 0:10:50.360 --> 0:10:52.680 on the streets of London, how concerned are they about this? 0:10:52.720 --> 0:10:56.120 How much are they following that details? They're not following 0:10:56.120 --> 0:10:59.160 the details at all. Really what they want to know 0:10:59.280 --> 0:11:01.160 what they want to is there going to be a 0:11:01.160 --> 0:11:03.560 deal or isn't there going to be a deal? Is 0:11:03.600 --> 0:11:06.320 breg A going to happen or isn't Brexit going to happen? 0:11:06.440 --> 0:11:09.040 And even those of us who speak to the people 0:11:09.080 --> 0:11:13.439 who know can't really stay for short what the outcome 0:11:13.440 --> 0:11:15.680 will be. And that's the scary thing about the Brexit 0:11:15.720 --> 0:11:18.160 process at the moment. I wish thank you so much 0:11:18.160 --> 0:11:20.280 for joining us in wish or does the European government 0:11:20.320 --> 0:11:33.800 reporter for Blueberg News a big question and angst in 0:11:33.880 --> 0:11:38.400 markets these days? At what point will the rising benchmark 0:11:38.640 --> 0:11:42.200 rates in the United States damp in interest and risk 0:11:42.280 --> 0:11:44.760 your assets. And here to answer the question is Tony Sheer, 0:11:45.080 --> 0:11:48.400 director of Research and co portfolio manager at SMED Capital Management, 0:11:48.440 --> 0:11:51.240 with the two point three billion dollars of assets under management. 0:11:51.800 --> 0:11:54.920 So I'm just wondering, Tony. We've been hearing about this 0:11:55.080 --> 0:11:56.920 that at once, at some point people are going to 0:11:57.000 --> 0:12:00.240 go back into government debt and avoid the risk kier 0:12:00.280 --> 0:12:03.920 assets that they've basically been forced into during financial oppression. 0:12:04.200 --> 0:12:08.439 We're not seeing that yet. When will it occur? It's 0:12:08.480 --> 0:12:12.160 a great question. It's been years as cheap money has 0:12:12.480 --> 0:12:16.199 been flowing around, whether it's private equity money or whether 0:12:16.240 --> 0:12:19.280 it's just the as you say, riskier assets that have 0:12:19.360 --> 0:12:22.520 gotten away with not having to show real earnings or 0:12:22.600 --> 0:12:25.760 free cash flow, and that has gone on for quite 0:12:25.760 --> 0:12:28.760 a long time. As yields go up, you'll have something 0:12:28.800 --> 0:12:31.880 to compete with that, right And so, you know, we 0:12:31.920 --> 0:12:33.920 don't know when, but we do think that the economy 0:12:33.960 --> 0:12:35.800 is going to be far more resilient and the next 0:12:35.840 --> 0:12:39.080 several years than even the consensus right now would tell you. 0:12:38.920 --> 0:12:41.240 You listen to Jamie Diamond talked about the five percent 0:12:41.320 --> 0:12:43.040 on the tenure a couple of years out from now, 0:12:43.280 --> 0:12:47.480 and if that's driven by economic growth, we do we 0:12:47.559 --> 0:12:49.720 think you think that there's gonna be five percent treasury 0:12:49.760 --> 0:12:53.000 yields in a couple of years. It's historically not not 0:12:53.160 --> 0:12:56.280 asking a lot, actually, right, I mean we just are 0:12:56.320 --> 0:12:59.240 in a tenure look back where that looks like a 0:12:59.280 --> 0:13:01.480 really big number right now, but you go back into 0:13:01.480 --> 0:13:03.920 a longer term time frame, it's really not asking a lot. 0:13:04.120 --> 0:13:05.599 And so no, we don't think. So we're at a 0:13:05.640 --> 0:13:07.839 four point something percent four point two I think with 0:13:07.880 --> 0:13:10.800 the last print on GDP right now, with unemployment lower 0:13:10.960 --> 0:13:13.360 lower than that, how long is that going to persist 0:13:13.440 --> 0:13:16.640 without yields eventually starting to reflect some upside on the 0:13:16.679 --> 0:13:19.640 longer term treasury bond? Tony, I gotta ask you about 0:13:19.679 --> 0:13:22.240 one group of stocks that has been leading the market higher, 0:13:22.240 --> 0:13:25.280 and that's technology. I want to know about this idea 0:13:25.320 --> 0:13:29.040 of financial euphoria and why you believe where if you 0:13:29.080 --> 0:13:34.079 believe that holding technology and growth stocks could permanently damage 0:13:34.640 --> 0:13:39.319 investors long term success. From a letter from Smeat Capital Anyway, 0:13:40.000 --> 0:13:44.679 great question. The short answer is yes, absolutely, All manias 0:13:44.720 --> 0:13:48.320 and euphorias don't end well. You know, the Internet changed 0:13:48.360 --> 0:13:51.559 our lives coming out of nine until eighteen years later 0:13:51.600 --> 0:13:54.000 to today. It changed your life. But when most of 0:13:54.000 --> 0:13:58.080 the capitalization went towards those ideas, right, you know, you 0:13:58.200 --> 0:14:01.560 lost your shirt in the subs went three years. Whereas 0:14:01.559 --> 0:14:04.480 the under capitalization that was going on in value stocks 0:14:04.480 --> 0:14:07.240 and ever forgotten about, you know, the old economy type stocks. 0:14:07.520 --> 0:14:10.080 You didn't just do relatively well, you did nominally well 0:14:10.120 --> 0:14:12.360 in the next couple of years. Right, you could, you 0:14:12.360 --> 0:14:16.040 could just absolutely beat the mother you'd rather let's say, 0:14:16.040 --> 0:14:18.520 and I'm not picking on one stock for any reason, 0:14:18.520 --> 0:14:20.360 but I mean, you'd rather go with the McDonald's and 0:14:20.400 --> 0:14:25.600 a Coca Cola then you would Facebook or Amazon dot Com? 0:14:25.920 --> 0:14:30.320 Uh as absolutely? Okay? The you know, I we wrote 0:14:30.320 --> 0:14:33.320 a piece here recently about that mania, and we went 0:14:33.360 --> 0:14:36.120 back to two thousand eleven, just as a case in point, 0:14:36.480 --> 0:14:39.240 when no one was really thinking about fang stocks. That 0:14:39.320 --> 0:14:40.800 was a point in time where we were looking at 0:14:40.840 --> 0:14:43.520 another recession, in that case, a double dip recession. And 0:14:43.600 --> 0:14:46.960 what you were thinking about then was g l D. Right, gold, 0:14:47.280 --> 0:14:49.760 the gold dt F had more money sucked into it, 0:14:49.880 --> 0:14:53.040 and the sp wise, the broad market et F at 0:14:53.080 --> 0:14:56.160 seventy eight billion dollars. Okay, you fast forward to today, 0:14:56.160 --> 0:14:57.920 the g l D has twenty nine billion in it 0:14:58.080 --> 0:15:00.400 and the spy has two ninety bill in in it. 0:15:00.720 --> 0:15:02.920 You should have been taking risk back then, but you 0:15:02.960 --> 0:15:06.400 were buying bonds and gold was up for that year. 0:15:06.520 --> 0:15:09.080 The market that SMP had an inter year down draft 0:15:09.120 --> 0:15:12.080 of nineteen and a half percent, and people were scared, right, 0:15:12.200 --> 0:15:14.440 But you should have been taking risk then. Fast forward 0:15:14.440 --> 0:15:17.680 to today, no one is thinking or caring about that stuff. 0:15:17.720 --> 0:15:20.280 They're only thinking about the things. So you've got, in 0:15:20.320 --> 0:15:24.400 our view, massive, massive over capitalization in in a very 0:15:24.600 --> 0:15:27.480 narrow set of stocks, and that's been exacerbated by the 0:15:27.520 --> 0:15:29.760 amount of money that's gone into passive. There is the 0:15:29.880 --> 0:15:32.520 agnostic money that owns this stuff that they don't know 0:15:32.920 --> 0:15:35.520 really what they own or how poorly exposed they are. 0:15:35.680 --> 0:15:38.280 So let's talk about your portfolio. How have you adjusted 0:15:38.280 --> 0:15:42.120 it most recently in terms of stocks, bonds, and within stocks, 0:15:42.240 --> 0:15:45.840 the types of stocks. Great questions. So I mean for us, 0:15:45.960 --> 0:15:49.360 what this offers, what this capital and misallocation offers us 0:15:49.800 --> 0:15:51.840 is some cheap stocks that have been left for dead 0:15:51.880 --> 0:15:55.560 and really forgotten about in comparison to the over excitement 0:15:55.560 --> 0:15:58.520 and fang. So we've been adding to our position in 0:15:58.600 --> 0:16:02.320 Walgreens Boots Alliance for instance. Uh, you know, we've been 0:16:02.360 --> 0:16:05.840 adding to Target Kroger. We've been adding to some of 0:16:05.840 --> 0:16:07.800 the cheaper stocks that no one cares about a newer 0:16:07.880 --> 0:16:12.400 name for us, to Discovery Communications. And if you aren't Netflix, okay, 0:16:12.680 --> 0:16:16.160 you get discounted in old media land. Almost across the board, 0:16:16.160 --> 0:16:18.840 Discoveries incredibly cheap. We think it offers. They just did 0:16:18.840 --> 0:16:22.600 a deal with Hulu. They did is gonna now offer 0:16:22.720 --> 0:16:27.160 their content on the Hulu website or that's right, And 0:16:27.160 --> 0:16:28.880 that's exactly what they said they were going to do 0:16:28.880 --> 0:16:30.840 when they did the deal with Scripts Networks when they 0:16:30.840 --> 0:16:33.800 when they combined, right, they're gonna bring the discovery channels 0:16:34.080 --> 0:16:37.200 excuse me to uh to the same over the top 0:16:37.240 --> 0:16:39.960 platforms as Script Networks has had. So real quick. What 0:16:40.000 --> 0:16:44.240 about bonds versus stocks? Well, I mean yields we think 0:16:44.280 --> 0:16:46.760 are going to be rising here. So you don't like bonds, No, 0:16:46.880 --> 0:16:49.440 we don't like bonds. Okay, you don't like any bonds? 0:16:49.440 --> 0:16:52.360 And how long if you not like bonds, well, you're 0:16:52.360 --> 0:16:56.520 like approximately a decade were an equity we're an equity manager. 0:16:56.600 --> 0:16:58.040 But no, we do think that we're going to be 0:16:58.120 --> 0:17:00.040 in a in a well we think also in we 0:17:00.080 --> 0:17:02.480 haven't talked about inflation. We think inflation but also economic 0:17:02.520 --> 0:17:04.800 growth is gonna drive rates higher, so you don't want 0:17:04.840 --> 0:17:09.360 to be, you know, owning bonds. High quality, value oriented 0:17:09.400 --> 0:17:11.000 equities we think are going to be a place that 0:17:11.040 --> 0:17:13.240 you can win, not just relatively but nominally as well. 0:17:13.440 --> 0:17:15.639 Well done, Thanks very much for coming in and sharing 0:17:15.640 --> 0:17:18.320 your thoughts with us. Tony Sheer is director of Research 0:17:18.400 --> 0:17:21.960 co portfolio manager for Smeeed Capital Management, helping to manage 0:17:22.080 --> 0:17:25.680 more than two point two billion dollars. They're based in Seattle, 0:17:26.320 --> 0:17:31.600 talking about adding to positions in Walgreen's Boots Alliance, Target, Kroger, 0:17:32.080 --> 0:17:47.840 and Discovery Networks. David Neilman is a serial airline entrepreneur, 0:17:48.080 --> 0:17:54.119 founder of Jet Blue Airways, also a founder of Morris Airways, 0:17:54.160 --> 0:17:59.880 also founder of west Jet Airways. Also he is going 0:18:00.040 --> 0:18:03.320 to have a new airline, a low cost airline, and 0:18:03.359 --> 0:18:05.720 here to tell us all about it is George ferguson 0:18:05.880 --> 0:18:08.720 Bloomberg Intelligence, his own expert when it comes to all 0:18:08.760 --> 0:18:13.960 things aerospace and defense. This is an interesting story, George, 0:18:14.080 --> 0:18:17.240 that David Neilman is going to be taking those A 0:18:17.600 --> 0:18:21.480 two twenty jets that were developed by Bombardier formerly known 0:18:21.520 --> 0:18:24.040 as the C series, and he wants to start a 0:18:24.080 --> 0:18:30.720 new airline called Moxie. Does the world need Moxie? Well, so, 0:18:31.680 --> 0:18:33.800 I think principally he will be flying US routes. And 0:18:33.880 --> 0:18:37.159 I can't only speak for the entire world, although I 0:18:37.200 --> 0:18:40.560 try sometimes, but I think the US doesn't necessarily need 0:18:40.600 --> 0:18:44.199 another airline. We have a lot of capacity, fairs are 0:18:44.280 --> 0:18:48.879 under pressure, margins are falling for airlines. Um, he's going 0:18:48.920 --> 0:18:50.680 to try to wedge Moxie in here. I think it's 0:18:50.680 --> 0:18:52.480 going to be difficult to make a lot of money 0:18:52.480 --> 0:18:54.399 with Maxie, all right, But this is the founder of 0:18:54.480 --> 0:18:57.040 jet Blue, so he has some experience and jet Blue 0:18:57.080 --> 0:18:59.640 has done pretty well, right, I mean, they've done uh, 0:19:00.080 --> 0:19:02.239 gotten a lot of market share, and they have a 0:19:02.280 --> 0:19:05.720 model that is being emulated by others. I'm just wondering. 0:19:06.080 --> 0:19:08.679 I mean, I personally would kind of enjoy it if 0:19:08.720 --> 0:19:13.440 somebody offered even lower fares out there. What's the problem. Yeah, 0:19:13.480 --> 0:19:16.560 you know, I think everybody wants lower fares. I think 0:19:16.600 --> 0:19:20.119 that's a that's a good thing. So again, but the 0:19:20.160 --> 0:19:22.199 more you cut fairs and more Abiales cuts fars, the 0:19:22.200 --> 0:19:25.760 more difficult it is to make a profit in this business. 0:19:26.240 --> 0:19:29.199 But George, hold on a second, because actually prices have 0:19:29.280 --> 0:19:31.080 been going up steadily. I don't know if you've noticed 0:19:31.080 --> 0:19:32.520 at him, I don't know if you've noticed it, but 0:19:32.560 --> 0:19:34.879 it's been going up pretty dramatically. And now you have 0:19:34.960 --> 0:19:37.480 to pay for your overhead luggage and you have to 0:19:37.480 --> 0:19:40.560 pay for uh the oxygen that you breathe. So, I 0:19:40.560 --> 0:19:43.560 mean they have succeeded in increasing priss but believe it 0:19:43.640 --> 0:19:46.800 or not, airlines are still less profitable this year than 0:19:46.840 --> 0:19:50.959 they were in and the reason is fuel prices are 0:19:51.080 --> 0:19:57.000 rising like and fares are rising to three so there, 0:19:57.000 --> 0:19:59.600 so they don't have the pricing power to compensate for 0:19:59.640 --> 0:20:02.919 that eising costs. Can you make me go into a 0:20:02.960 --> 0:20:05.639 little bit of the thinking behind using that A to 0:20:05.880 --> 0:20:08.560 twenty jet, that C series jet, I mean, it only 0:20:08.600 --> 0:20:12.000 holds about a hundred and fifty travelers, and most of 0:20:12.119 --> 0:20:15.320 the low cost carriers, as I understand, they're going with 0:20:15.440 --> 0:20:19.440 something like the airbus. You got it. And that's why 0:20:19.440 --> 0:20:21.520 I think it's very interesting about this too, right is 0:20:21.560 --> 0:20:25.240 that uh So, David Neilman has worked before with UM 0:20:25.240 --> 0:20:26.880 with air Bus, and I think there's a little bit 0:20:26.920 --> 0:20:30.200 of some of the old the Airbus getting the band 0:20:30.240 --> 0:20:33.800 back together. Um, and they really need to build some 0:20:34.560 --> 0:20:37.400 demand for this A to twenty. And I think they're 0:20:37.400 --> 0:20:41.399 hoping that Neilman can build a fleet of these because 0:20:41.400 --> 0:20:43.000 we think that they give him a deal on the 0:20:43.040 --> 0:20:46.960 sixty aircraft. You think, my guess, My guess is they did. Um. 0:20:46.960 --> 0:20:49.520 I think that's a big difference. Uh. Sort of in 0:20:49.560 --> 0:20:52.600 moving this airplane from Bombardier to air buses, you now 0:20:52.680 --> 0:20:54.840 have deeper pockets. I think as you launch an airplane, 0:20:54.880 --> 0:20:56.199 you have to be ready to take a little bit 0:20:56.240 --> 0:20:59.960 of pain less profitability, a bunch of discounting, and that's 0:21:00.040 --> 0:21:04.160 what this does. He wants to fly from tertiary airports 0:21:04.280 --> 0:21:08.680 in America or maybe secondary tertiary, So you could argue 0:21:08.680 --> 0:21:11.320 that you need that smaller size because he's flying from 0:21:11.359 --> 0:21:14.879 places like Trenton, you know where windsor Locks, Connecticut in 0:21:14.920 --> 0:21:17.240 places like that. Well, you're not gonna be able to 0:21:17.400 --> 0:21:20.200 fill a hundred and fifty or a hundred and seventy 0:21:20.240 --> 0:21:23.160 sea airplanes. But the rest of the little cost world 0:21:23.280 --> 0:21:25.600 is going to much bigger airplanes as they try to 0:21:25.640 --> 0:21:28.000 defray the cost of higher pilot salaries in the front 0:21:28.480 --> 0:21:32.760 and those higher fuel expenses. Lisa Abrama it's just wants 0:21:33.240 --> 0:21:37.320 more leg room and wants to not be charged for 0:21:37.560 --> 0:21:41.160 the oxygen that she uses on the plane. Yeah. Also, 0:21:41.200 --> 0:21:42.400 I mean there are there are a list of things 0:21:42.440 --> 0:21:44.320 that I would like. I would like the free snacks 0:21:44.359 --> 0:21:46.520 to come back, because I know that in some places 0:21:46.640 --> 0:21:50.200 that's not acceptable. I also the whole idea of support 0:21:50.240 --> 0:21:53.480 pets that are like huge peacocks that take up They 0:21:53.600 --> 0:21:55.800 got rid of that, they got rid of the peak 0:21:57.080 --> 0:22:00.320 not not not a big fan of that. And yeah, no, 0:22:00.440 --> 0:22:02.359 I think that there are some issues. There's some issues 0:22:02.359 --> 0:22:04.280 that need to be addressed. I think Lisa wants, ever 0:22:04.440 --> 0:22:06.680 wants to get those wings you know that they used 0:22:06.680 --> 0:22:11.399 to give out when you traveled on in there. I 0:22:11.400 --> 0:22:14.040 think they still have them. All Right, George, I want 0:22:14.040 --> 0:22:16.040 to talk to you about some news that was made 0:22:16.080 --> 0:22:19.080 this week with the Emirates and Eddie had Uh. These 0:22:19.400 --> 0:22:23.679 two pretend these airline rivals exactly, and there is some 0:22:23.720 --> 0:22:26.679 talk that perhaps are going to be combining perhaps not. 0:22:26.840 --> 0:22:29.600