WEBVTT - A Generational Opportunity in Distressed Debt 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.480 at Bloomberg dot com slash podcast. Let's talk distress debt. 0:00:22.600 --> 0:00:25.840 One would think that after the sixteen months we've just 0:00:25.960 --> 0:00:29.920 experienced with the global pandemic and the global economic disruption, 0:00:30.440 --> 0:00:33.120 that there would be plenty of distress debt. Paul Trigg Yanni. 0:00:33.360 --> 0:00:35.599 He's a managing director and head of distress debt Ford 0:00:35.600 --> 0:00:38.440 investco joins us. Paul, thanks so much for taking the 0:00:38.520 --> 0:00:42.600 time here talk to us about the distress debt market. 0:00:42.880 --> 0:00:45.320 Are there opportunities out there? Are you seeing more distress 0:00:45.400 --> 0:00:48.320 debt or the the federal reserve backstoff? Pretty much everything? 0:00:49.440 --> 0:00:52.000 So thanks for having me. Yes. I think generally speaking, 0:00:52.000 --> 0:00:55.320 over the last twelve d eighteen months, we have we've 0:00:55.360 --> 0:01:00.000 really seen a generational opportunity and distress debt investing um. 0:01:00.040 --> 0:01:04.680 Most companies twelve eighteen months ago had pretty severe revenue 0:01:04.680 --> 0:01:09.759 shortfalls supply chains in many cases were we're pretty severely disrupted, 0:01:09.800 --> 0:01:14.760 and in all companies were broadly affected across most geographies, 0:01:15.319 --> 0:01:17.039 and so there was there was really plenty to do 0:01:17.080 --> 0:01:20.720 in terms of looking for distressed opportunities. If you fast 0:01:20.760 --> 0:01:22.880 forward to where we are today, we think many of 0:01:22.880 --> 0:01:26.640 the larger companies have had access to liquidity, whether that 0:01:26.720 --> 0:01:30.520 be through the public equity and credit markets rallying, or 0:01:31.080 --> 0:01:35.080 the federals are backstop as as as you as you mentioned, UM. 0:01:35.400 --> 0:01:37.679 The caveat to that is that the small cap space, 0:01:37.760 --> 0:01:40.880 which is a large focus for US, has really been 0:01:40.959 --> 0:01:44.600 left behind. In many ways. These smaller companies don't have 0:01:44.680 --> 0:01:47.600 the same level of access to capital. Many of them 0:01:47.600 --> 0:01:51.120 are private, UM, and many of the lending facilities that 0:01:51.160 --> 0:01:54.880 were put in place really have not allowed many of 0:01:54.880 --> 0:01:59.040 these smaller private businesses, several of which are are private 0:01:59.040 --> 0:02:02.400 equity owned, to access that liquidity. So it's it's still 0:02:02.480 --> 0:02:05.760 quite a robust opportunity for small companies, Paul. How much 0:02:05.760 --> 0:02:10.360 has the market view changed? I remember, UM, last year 0:02:10.440 --> 0:02:15.079 we heard a lot of economists warning about these cascading bankruptcies. 0:02:15.200 --> 0:02:18.519 It was going to be catastrophic, and it doesn't look 0:02:18.560 --> 0:02:21.760 like that really happened. No, I think it's I think 0:02:22.160 --> 0:02:24.440 in our view that's correct, particularly in the in the 0:02:24.520 --> 0:02:27.919 large cap market. I think many of those companies were 0:02:27.919 --> 0:02:31.519 able to get get capital through various different means. UM. 0:02:31.560 --> 0:02:34.079 The equity markets, obviously, as we all know, have come back, 0:02:34.160 --> 0:02:37.520 the public credit markets have come back, and so UM 0:02:38.080 --> 0:02:41.080 in large part, the large cap distressed opportunity, which was 0:02:41.720 --> 0:02:47.280 significant twelve eighteen months ago, seems relatively small today. But 0:02:47.520 --> 0:02:49.920 that having been said, if you look at the private 0:02:50.040 --> 0:02:54.240 universe of smaller companies UM, again, if you were to 0:02:54.240 --> 0:02:56.800 take sort of lower middle market or small cap companies 0:02:56.800 --> 0:02:59.960 that are generally leveraged buyouts or management buyouts owned by 0:03:00.000 --> 0:03:05.160 private equity firms, UM, they're still pretty significant opportunity there. 0:03:05.160 --> 0:03:08.079 And you still are seeing a significant amount of defaults 0:03:08.400 --> 0:03:11.560 UM in in sub five million dollar companies and and 0:03:11.600 --> 0:03:16.160 a significant amount of reorganizations. Many of those companies because 0:03:16.160 --> 0:03:20.160 their private have less access to capital. The direct lending 0:03:20.240 --> 0:03:23.400 and private credit universe has not has not stepped into 0:03:23.400 --> 0:03:26.720 finance distressed companies. And if you look, for example, at 0:03:27.360 --> 0:03:29.440 what we put in place in the US in terms 0:03:29.440 --> 0:03:32.919 of the main street lending facility that that ended the 0:03:33.000 --> 0:03:36.920 year less than one percent utilized, which was fairly significantly 0:03:36.960 --> 0:03:42.040 underutilized obviously because it effectively barred private equity owned companies 0:03:42.080 --> 0:03:46.080 from borrowing. So UM it's really been a very different 0:03:46.120 --> 0:03:50.480 story in in the small cab universe in terms of bankruptcies, Paul, 0:03:50.520 --> 0:03:53.360 what sectors are you guys doing some of your most 0:03:53.400 --> 0:03:57.440 work right now? So the the the interesting point about 0:03:57.560 --> 0:03:59.920 the smaller cap segment is that it tends to be 0:04:00.080 --> 0:04:02.440 more diverse. If you look at large cap distress, it's 0:04:02.480 --> 0:04:04.520 tended in the last five seven years to be very 0:04:04.560 --> 0:04:07.960 focused around retail and energy UM, and that's probably not 0:04:08.000 --> 0:04:11.720 surprising given what's gone on in those two industries. The 0:04:11.760 --> 0:04:14.160 small cap space over time, if you look over the 0:04:14.200 --> 0:04:17.200 last two decades, has been pretty pretty diverse in terms 0:04:17.200 --> 0:04:20.720 of industry focus. So we're looking at companies in general 0:04:20.720 --> 0:04:25.240 industrials and the healthcare sector, UM, in consumer sectors, in 0:04:25.240 --> 0:04:28.839 in small financial businesses. So it's it's it's really across 0:04:28.880 --> 0:04:32.400 the board, UM a very diversified opportunity set in terms 0:04:32.440 --> 0:04:35.160 of the smaller end of the market. What have you 0:04:35.200 --> 0:04:36.920 look at it the other way around? I mean you're 0:04:37.000 --> 0:04:42.880 used to obviously trying to find UM areas that the 0:04:42.920 --> 0:04:47.320 market sees as distressed, but you think, you know, maybe 0:04:47.360 --> 0:04:51.359 not may may not fail. Are there industry groups, for example, 0:04:51.400 --> 0:04:55.400 that you think it's been given too much credit? UM? 0:04:55.560 --> 0:04:58.200 So we I think we were initially very cautious in 0:04:58.279 --> 0:05:02.080 some of those industry groups UM that were particularly COVID impacted. 0:05:02.120 --> 0:05:03.880 And so maybe one way to think about it was 0:05:04.680 --> 0:05:07.000 UM that there's really been sort of the direct COVID 0:05:07.040 --> 0:05:10.559 impacted industries UM. And you can think about UM theater 0:05:10.680 --> 0:05:14.960 change for example, or you can think about shopping malls 0:05:15.000 --> 0:05:18.320 and things like that where social distancing norms changed over 0:05:18.320 --> 0:05:20.960 the last twelve to eighteen months, or airlines for example, 0:05:21.600 --> 0:05:25.919 UM and so obviously UM this pandemic has had a 0:05:26.000 --> 0:05:28.040 sort of beginning of middle and hopefully an end here 0:05:28.080 --> 0:05:31.279 and so people have seen their way through UH distress 0:05:31.320 --> 0:05:33.320 and are looking forward a year or two in terms 0:05:33.320 --> 0:05:36.760 of normalization of those UM we still remain pretty cautious 0:05:36.800 --> 0:05:40.960 on on those areas. I think the larger funds and 0:05:41.040 --> 0:05:43.640 larger cap dis stress market has has shown quite a 0:05:43.640 --> 0:05:46.320 bit of interest in those, and we're still fairly cautious 0:05:46.360 --> 0:05:48.960 on that part of the market. Again, those are those 0:05:48.960 --> 0:05:52.360 are larger companies than we generally focus on um. So 0:05:52.800 --> 0:05:55.200 that's our thoughts there A. Paul, thanks so much for 0:05:55.279 --> 0:05:57.279 joining us. Really appreciate getting your thoughts here on this 0:05:57.520 --> 0:06:01.480 interesting segment of the fixed income markt Pltrigg and he's 0:06:01.480 --> 0:06:05.640 a managing director and head of Distress Credit at Investco. 0:06:07.880 --> 0:06:09.920 I want to bring in now Mira Panda. As we said, 0:06:09.960 --> 0:06:14.120 she's a global market strategist at JP Morgan Asset Management. 0:06:14.240 --> 0:06:18.039 And the reason I almost forgot tomorrow is Job's Day. 0:06:18.480 --> 0:06:22.040 It's a non far forget. This is like Tom's monthly highlights. 0:06:22.640 --> 0:06:25.960 Well it is. It's I've always called it the Granddaddy 0:06:25.960 --> 0:06:28.680 of all economic statistics. It's it's a big deal and 0:06:28.720 --> 0:06:30.520 there's a lot of volatility around it. A lot of 0:06:30.560 --> 0:06:34.360 times people stopped trading for a moment while it comes out. Um, Amira, 0:06:34.600 --> 0:06:36.760 welcome to the program. Thanks so much for joining us. 0:06:36.839 --> 0:06:39.720 Let us get your insight on on what to expect here. 0:06:39.760 --> 0:06:44.720 You know, we've had some big misses, but obviously things 0:06:44.760 --> 0:06:48.040 are going in the right direction. Yeah, absolutely, and thanks 0:06:48.040 --> 0:06:51.839 for having me. So. We're forecasting about six hundred thousand 0:06:51.880 --> 0:06:54.480 jobs were added in June, so pretty much in line 0:06:54.520 --> 0:06:58.120 with what we saw back in May. Slightly above but 0:06:58.279 --> 0:07:01.120 we're probably going to see continued strength and areas like leisure, 0:07:01.360 --> 0:07:05.040 hospitality broad based within the services. As those areas of 0:07:05.040 --> 0:07:09.200 the economy really come back, could potentially see um some 0:07:09.480 --> 0:07:12.360 seasonal effects on the negative side in terms of education 0:07:12.400 --> 0:07:15.400 as teachers adjournal for the summer. But given the layoffs 0:07:15.400 --> 0:07:18.200 we've already seen that space, those challenges are are well 0:07:18.280 --> 0:07:21.080 understood and could be less of a headwind around and 0:07:21.120 --> 0:07:23.760 I'd say that overall that could bring our unemployment rates 0:07:23.760 --> 0:07:27.000 from about five point eight percent down to about five 0:07:27.040 --> 0:07:29.920 point five percent, in line with the decline last month. 0:07:30.320 --> 0:07:33.760 So ultimately the risk here in the jobs reporters probably 0:07:33.760 --> 0:07:36.680 really to the downside, and not because the economy is 0:07:36.720 --> 0:07:40.040 not creating jobs, but just because we can't feel them 0:07:40.240 --> 0:07:44.080 at a rapid enough clip. So mirror as we think 0:07:44.120 --> 0:07:46.840 about the jobs market, that brings us to potential for 0:07:46.920 --> 0:07:50.280 wage inflation we haven't had. You know, there was a 0:07:50.280 --> 0:07:51.920 period in the market, you know, it's called it a 0:07:52.000 --> 0:07:54.880 month or two ago where inflation was really a concern 0:07:55.080 --> 0:07:57.360 for this market. Seems to have faded a little bit. 0:07:57.360 --> 0:07:59.720 Where are you in terms of thinking about inflation in 0:07:59.720 --> 0:08:02.280 this market, whether it's transitory, whether there really is some 0:08:02.400 --> 0:08:06.080 of longer risk concerns. Ultimately, I'd think about it on 0:08:06.240 --> 0:08:09.480 the basis and then the kind of three to five 0:08:09.600 --> 0:08:13.560 year basis, and I think from perspective, the higher inflation 0:08:13.680 --> 0:08:17.920 numbers we're seeing now probably are mostly transitory. We're seeing 0:08:17.960 --> 0:08:21.440 some of those base effects play out, higher energy prices 0:08:21.560 --> 0:08:25.240 versus last year, higher services on a on a month 0:08:25.280 --> 0:08:27.720 over month basis, as services kind of start to come 0:08:27.720 --> 0:08:31.280 back um evidence of supply chain issues. But look, we've 0:08:31.280 --> 0:08:33.600 already seen a lot of commodity prices peek out. I 0:08:33.640 --> 0:08:36.439 think that some of these things will play out over 0:08:36.480 --> 0:08:39.480 the course of the year. But I mean, as you say, 0:08:39.520 --> 0:08:42.440 with some of the higher wage pressures will probably in 0:08:42.480 --> 0:08:46.160 for an environmentment of slightly structurally higher inflation over to 0:08:46.160 --> 0:08:49.160 say that three to five year timeline, Let's think maybe 0:08:49.160 --> 0:08:52.000 two to three percent inflation as opposed to the sort 0:08:52.040 --> 0:08:55.120 of two percent or sub two percent inflation we've been 0:08:55.120 --> 0:08:58.720 seeing kind of pre COVID post financial crisis. It's no 0:08:58.800 --> 0:09:01.200 big deal. Me and Paul are children of the seventies. 0:09:01.800 --> 0:09:05.400 We know what real inflation is like, and that wasn't 0:09:05.400 --> 0:09:08.760 even like real inflation. It's always interesting. Somebody today brought 0:09:08.800 --> 0:09:11.480 up the Weimar Republic, and I was like, dude, that 0:09:11.559 --> 0:09:14.560 was really bad. The seventies were not even there yet, 0:09:14.640 --> 0:09:17.280 So we're worried about three or four percent. It's n 0:09:17.360 --> 0:09:19.839 b D. The labor shortages, are they going to be 0:09:19.880 --> 0:09:22.760 a problem for the market or um just add to 0:09:22.920 --> 0:09:28.320 upward pressure in such an odd environment in that there's 0:09:28.320 --> 0:09:31.280 about nine point three million job openings, but there's also 0:09:31.320 --> 0:09:34.320 about nine point three million people unemployed. So the labor 0:09:34.360 --> 0:09:38.280 shortage challenge is an interesting one that we're seeing across 0:09:38.320 --> 0:09:42.199 small business surveys, consumer surveys that people just can't still openings. 0:09:42.480 --> 0:09:44.200 And I think in the short run that's probably going 0:09:44.240 --> 0:09:46.760 to continue to push up wages because we are seeing 0:09:46.800 --> 0:09:51.000 companies either offer you know, bonuses to submit applications, bonuses 0:09:51.040 --> 0:09:55.360 after you know, two months time, higher wages. We're seeing 0:09:55.360 --> 0:09:58.120 that in a month over months basis. But the question 0:09:58.200 --> 0:09:59.679 is how long or a thousand to start for a 0:09:59.760 --> 0:10:03.800 June your analyst, Yeah, exactly so. But what we are 0:10:03.880 --> 0:10:05.679 kind of seeing from a broader perspective is that a 0:10:05.720 --> 0:10:09.920 lot of states are taking away those UH enhanced supplements 0:10:09.920 --> 0:10:12.960 to unemployment benefits. In fact, about half of states have 0:10:13.240 --> 0:10:15.959 throughout the month of June and a few more in July, 0:10:16.600 --> 0:10:18.960 so by the time we get to September when the 0:10:19.000 --> 0:10:21.400 rest will also expire, and you know, people should be 0:10:21.840 --> 0:10:24.400 um kind of coming back off the sidelines, combined with 0:10:24.440 --> 0:10:27.480 the fact that um, hopefully kids will be back in 0:10:27.559 --> 0:10:30.520 person full time at school, so people who have childcare 0:10:30.600 --> 0:10:33.839 challenges should also have a bit of luck there and 0:10:34.320 --> 0:10:37.320 be able to get back into the labor force. Amara, 0:10:37.360 --> 0:10:39.840 thank you so much for joining us to really appreciate it. 0:10:39.840 --> 0:10:43.440 A mere appendant. She's global market strategist at JP Morgan 0:10:43.559 --> 0:10:47.240 Esset Management, joining us on the phone from New York. 0:10:48.320 --> 0:10:51.000 Max Chafkin joins us. He's a calumnist for Bloomberg Business Week. 0:10:51.040 --> 0:10:54.400 He's actually Matt in our Bloomberg Interactive Broker studio here 0:10:54.400 --> 0:10:57.000 in New York. And the story he has as a 0:10:57.080 --> 0:11:01.640 junior Microsoft engineer figured out a nearly perfect bitcoin generation scheme. 0:11:01.679 --> 0:11:04.000 So notes right down your alley, met and part of 0:11:04.000 --> 0:11:08.240 the heist issue, Yeah, exactly ten dollars okay, so it's 0:11:08.280 --> 0:11:11.040 part of it's big take, right, but it's also Max 0:11:11.200 --> 0:11:15.120 is this also in the Business Week heist issue? Yep, 0:11:15.240 --> 0:11:19.280 yep for for for this week, we've got a full issue. 0:11:19.559 --> 0:11:22.440 There's actually no news in the issue, it's only stories 0:11:22.880 --> 0:11:28.079 about um sort of crimes, scams. Um, it's it's our 0:11:28.559 --> 0:11:31.480 as you say, be treating issue. So we've got this 0:11:31.559 --> 0:11:33.959 really fun one about a it's kind of a weird 0:11:34.000 --> 0:11:36.360 digital currency scam. We're talking about this a lot of 0:11:36.520 --> 0:11:38.240 tier of crime, it seems like. So it tells US's 0:11:38.280 --> 0:11:41.360 not weird. It's awesome. Yeah, So this is we were 0:11:41.360 --> 0:11:44.079 we the writer Austin car and I we're joking about 0:11:44.080 --> 0:11:47.320 this as as the you know, Ultimate Xbox the Ultimate 0:11:47.400 --> 0:11:51.880 video game cheat. This was a basically a junior employee 0:11:51.880 --> 0:11:54.959 at Microsoft whose job was to test the store where 0:11:54.960 --> 0:11:57.800 people buy stuff on Microsoft's website, and he figured out 0:11:57.800 --> 0:12:01.120 a way to get basically an unlimited number Xbox gift cards. 0:12:01.120 --> 0:12:04.840 If you're a gamer, these cards contain codes and you 0:12:04.880 --> 0:12:06.800 can use them to buy games, you can buy content, 0:12:06.840 --> 0:12:10.960 you can also buy you know, stuff like I am 0:12:11.000 --> 0:12:15.120 an Xbox fanatic. My gamer tag is shower fan. If 0:12:15.120 --> 0:12:19.079 anybody wants to challenge me, from Halo to Call of 0:12:19.160 --> 0:12:22.760 Duty to Red Dead Redemption, I have easily spent thousands 0:12:22.760 --> 0:12:28.040 of the okay, but I've also always wanted to be 0:12:28.120 --> 0:12:30.040 part of a heist. And this is a pretty awesome 0:12:30.040 --> 0:12:32.800 one because the guy actually guess what like ten million bucks, right, 0:12:32.840 --> 0:12:35.240 and he spends it on cool stuff. Oh yeah, he 0:12:35.280 --> 0:12:38.520 gets ten million bucks. He uh flips these five by 0:12:38.559 --> 0:12:41.560 five codes on a website called packs full, which is 0:12:41.760 --> 0:12:44.120 a site where people trade these things. This is something 0:12:44.120 --> 0:12:45.960 I didn't know about it, but it's a it's a 0:12:46.000 --> 0:12:48.800 really robust market. In fact, he was selling so many 0:12:48.840 --> 0:12:51.600 of these codes, you know, thousands of them, that he 0:12:51.679 --> 0:12:55.520 was manipulating the price of of xbox currency, according to 0:12:55.600 --> 0:12:57.880 I R. S. When they, you know, came after him, 0:12:58.200 --> 0:13:01.560 then he turned that into bitcoin. He put his bitcoin 0:13:01.640 --> 0:13:05.520 through a crypto money laundry thing, spits out some clean coin, 0:13:05.640 --> 0:13:09.080 and then, as you say, starts buying cool stuff. When 0:13:09.120 --> 0:13:11.680 the Feds caught up to him, you know, they found 0:13:11.720 --> 0:13:14.240 him in his you know, seven figure late lakefront house 0:13:14.480 --> 0:13:17.439 somewhere some nice part of washing the Pacific Northwest. It's 0:13:17.480 --> 0:13:19.800 some place amazing, by the way. Fun fact, I used 0:13:19.840 --> 0:13:24.600 packs full a few years back. I went two weeks 0:13:24.760 --> 0:13:28.200 without spending US dollars. Well, I only spent bitcoin. Was 0:13:28.240 --> 0:13:31.360 my was my challenge, and I had to get stuff 0:13:31.640 --> 0:13:34.439 um from game stop. I had to buy gas, I 0:13:34.480 --> 0:13:36.520 had to buy food, and so packs full is really 0:13:36.520 --> 0:13:39.040 helpful because I could take my bitcoin and get gift 0:13:39.120 --> 0:13:41.880 cards for the stuff I needed, and that's part of 0:13:41.880 --> 0:13:44.079 the way I made it through these two weeks. Yeah, 0:13:44.080 --> 0:13:46.560 and one of the points, I mean, it's so wonderful 0:13:46.679 --> 0:13:48.440 we talk to such an expert here I have said. 0:13:50.640 --> 0:13:53.520 But but one of the interesting things, the points that 0:13:53.960 --> 0:13:55.520 we make in this piece is that, you know, we 0:13:55.559 --> 0:14:00.240 think about digital currencies being bitcoin, you know, ethereum whatever, um. 0:14:00.320 --> 0:14:03.080 These gift cards are their own kind of digital currency. 0:14:03.160 --> 0:14:04.480 And then they've been around for a really long time 0:14:04.480 --> 0:14:08.280 and they're actually really important to big companies, including Microsoft, 0:14:08.280 --> 0:14:10.520 but also of course Apple and you know, and others. 0:14:10.559 --> 0:14:13.360 So it's kind of a sort of nice reminder that 0:14:13.440 --> 0:14:15.000 you know, you think of you think of one one 0:14:15.000 --> 0:14:16.679 side of crypto and on the other side you have 0:14:16.760 --> 0:14:18.800 sort of the real economy. But they're you know, they're 0:14:18.840 --> 0:14:21.560 all together and and mashed up in interesting ways. So 0:14:21.640 --> 0:14:24.960 you make a great point about, um, why companies love 0:14:25.080 --> 0:14:27.920 these gift cards so much, And I hadn't ever thought 0:14:27.920 --> 0:14:31.200 about it before, but the fact is, so many people 0:14:31.240 --> 0:14:34.400 get these gift cards, actual physical cards, not just the 0:14:34.400 --> 0:14:36.880 five by five codes, and they have them lying around 0:14:36.960 --> 0:14:39.400 and they forget about them, and that turns into millions 0:14:39.560 --> 0:14:41.800 or even maybe hundreds of millions of dollars with the 0:14:41.840 --> 0:14:45.200 revenue that a company gets without ever having to give 0:14:45.240 --> 0:14:48.720 out products. Yeah, and there's been some regulation here. You know. 0:14:48.920 --> 0:14:51.360 A few years back, Congress uh made a rule saying 0:14:51.400 --> 0:14:53.720 you couldn't have the gift The gift cards had to 0:14:53.800 --> 0:14:55.880 last I think for at least five years. But but 0:14:55.920 --> 0:14:59.280 at some point these things expire their fees. And the 0:14:59.320 --> 0:15:01.440 other interesting thing that that's brought up in this story. 0:15:01.880 --> 0:15:04.200 You know, Microsoft can give out the gift cards as 0:15:04.240 --> 0:15:06.320 like a marketing spence and then it only has to 0:15:06.440 --> 0:15:10.760 book that, uh, if somebody actually redeems them. Otherwise it's 0:15:10.800 --> 0:15:12.840 just you know, they just give them out. They don't 0:15:12.880 --> 0:15:15.360 do anything with it. So it's basically free money for 0:15:15.400 --> 0:15:18.080 a lot of these big companies. So Max, how did 0:15:18.080 --> 0:15:21.040 they catch this guy? Seems like you talk about bitcoin, 0:15:21.120 --> 0:15:27.000 you can't trace that, presumably, although now there's maybe that's 0:15:27.040 --> 0:15:29.520 kind of what we just it's the most traceable currency 0:15:29.560 --> 0:15:33.000 that there is. So yeah, they didn't. It had nothing 0:15:33.000 --> 0:15:34.960 to do with the crypto thing. That's not how they 0:15:35.000 --> 0:15:38.400 caught him. They caught him because he was basically using 0:15:38.520 --> 0:15:42.560 his colleagues passwords, which which worked for a while. Basically, 0:15:42.880 --> 0:15:45.680 his colleagues had really bad passwords. As he's saying the story, 0:15:45.960 --> 0:15:48.280 you know, one of them was you know, secret one 0:15:48.320 --> 0:15:51.520 to three. So he was he was guessing these passwords. 0:15:51.960 --> 0:15:56.120 He was using a kind of a VPN situation where 0:15:56.120 --> 0:15:59.200 it looked like his traffic was coming from a different continent. 0:15:59.480 --> 0:16:03.080 But he's easy the same computer that he was logging 0:16:03.120 --> 0:16:06.320 on with. So so he's logged on into his work computer. Uh, 0:16:06.360 --> 0:16:07.920 and then he logs on as a criminal. It's the 0:16:07.960 --> 0:16:09.920 same computer. They were able to find him. The other 0:16:09.960 --> 0:16:12.920 thing he did was he shipped one of his stolen 0:16:13.400 --> 0:16:15.960 graphics cards. He used the he's the codes of biographics cards, 0:16:16.160 --> 0:16:19.000 shipped it to a previous address, and they connected it 0:16:19.040 --> 0:16:21.520 to him. Basically was a big data project, I mean, 0:16:21.800 --> 0:16:25.000 really interesting in this story, the kind of scope of 0:16:25.120 --> 0:16:28.760 Microsoft's security operation. I mean, they were the real ones 0:16:28.800 --> 0:16:31.000 who broke this case. Then they turned it over to 0:16:31.040 --> 0:16:35.800 the federal government. But but they're the ones who initially fingered, uh, 0:16:36.920 --> 0:16:38.760 the purp here, and then the Feds picked up the 0:16:38.760 --> 0:16:40.920 capes that they did their own investigation, and then they 0:16:40.920 --> 0:16:44.760 prosecuted the guy had a stolen a copy of Microsoft 0:16:44.880 --> 0:16:49.640 Office essentially and registered it to his startup. So that 0:16:49.720 --> 0:16:53.360 wasn't very smart, right exactly? So yeah, they if he 0:16:53.400 --> 0:16:55.040 had just done the crypto, I think he could have 0:16:55.040 --> 0:16:57.720 gotten away with it for a while longer. Alright. That 0:16:57.920 --> 0:16:59.480 a lot of cool stuff. And he was planning on 0:16:59.520 --> 0:17:03.600 getting a seaplane, a ski shalet, a yacht. He has 0:17:03.920 --> 0:17:06.040 a great list in the story of the stuff he's 0:17:06.080 --> 0:17:08.440 gonna get with his next ten million. But I mean, 0:17:08.480 --> 0:17:11.600 when you're doing a good hist you gotta have a seaplane, exactly. 0:17:11.880 --> 0:17:13.879 All right, Max Chapkin, thanks so much for joining us. 0:17:14.000 --> 0:17:16.399 Max is a calumnist for Bloomberg Business Week. Joining us 0:17:16.400 --> 0:17:18.920 here on a Bloomberg and exacortive broker's studio. And again 0:17:18.960 --> 0:17:21.879 the big big take stories. These are fascinating stories. This 0:17:21.960 --> 0:17:24.840 isn't give me two hundred words on Microsoft. These are 0:17:24.920 --> 0:17:30.200 deep dives, deeply reported, really interesting stories. Uh. And again 0:17:30.280 --> 0:17:32.960 check out the Bloomberg Business Week for the heist issue, 0:17:32.960 --> 0:17:35.240 and of course for all these big take stories. You 0:17:35.280 --> 0:17:39.800 can find them at Bloomberg dot com. All right, let's 0:17:39.800 --> 0:17:42.199 get over to built Smeat right now. Chief Investment Officers 0:17:42.240 --> 0:17:45.800 Meat Capital Management, I love to talk to Bill and 0:17:45.880 --> 0:17:50.400 Cole as well about value investing, their principal investors out 0:17:50.400 --> 0:17:55.320 of Phoenix, Arizona. And Bill, you've got some interesting plays 0:17:55.320 --> 0:17:58.960 that you think are are undervalued. UM in the pharma's side, 0:17:59.000 --> 0:18:02.800 am Jen murk Visor, and I wonder why you think 0:18:03.160 --> 0:18:07.080 the markets haven't given the valuations to these investments that 0:18:07.119 --> 0:18:11.160 you think they deserve. Well, thank you for having us, 0:18:11.200 --> 0:18:15.080 and and we think that first of all, the relative 0:18:15.240 --> 0:18:20.040 values are incredible compared to the last twenty years. They're 0:18:20.080 --> 0:18:23.080 they're the cheapest relative to the rest of the stocks 0:18:23.080 --> 0:18:25.959 in the SMP they've been in twenty years. The second 0:18:26.000 --> 0:18:30.320 thing is anecdotal. We have a cardiologist in our building 0:18:30.520 --> 0:18:35.200 in Phoenix, and since people got vaccinated, it's standing room 0:18:35.280 --> 0:18:37.920 only in the waiting room to get in there, and 0:18:38.119 --> 0:18:40.920 that is not yet reflected in the price of these 0:18:41.040 --> 0:18:45.359 medicine stocks. So part of it it seems Bill, you know, 0:18:45.440 --> 0:18:48.679 it's just kind of I would think that pharmaceutical stocks 0:18:48.720 --> 0:18:51.480 now I think about them a lot more. With COVID nineteen, 0:18:51.520 --> 0:18:53.280 I think about him in a good way. I'm not 0:18:53.320 --> 0:18:56.440 sure if that translates into higher stock prices, but part 0:18:56.440 --> 0:18:58.800 of it seems to be just perception. These companies maybe 0:18:58.800 --> 0:19:04.879 don't market themselves correctly. Yeah, that they've made the last 0:19:04.960 --> 0:19:08.119 five to teen years one of the biggest pr errors 0:19:08.119 --> 0:19:10.960 and advertising errors in history. But it looks like they're 0:19:10.960 --> 0:19:13.520 already to rectify that. Now. I noticed Lily's running a 0:19:13.520 --> 0:19:16.600 commercial where they teach people about a bunch of different 0:19:16.600 --> 0:19:19.320 medicines they make, and at the end of it, it 0:19:19.440 --> 0:19:23.480 comes on and the tagline is Eli Lily a medicine company. 0:19:23.720 --> 0:19:28.480 Right if Nancy Reagan said just say no to drugs, cannabis, 0:19:28.880 --> 0:19:33.560 cannabis stores sell drugs. Uh, these people sell medicine. And 0:19:33.640 --> 0:19:37.920 now that people have been touched their lives, even even 0:19:38.520 --> 0:19:42.600 very healthy people have now been positively benefited by these vaccines, 0:19:42.640 --> 0:19:45.959 they now realize that these folks make medicine and and 0:19:46.400 --> 0:19:49.520 ultimately that won't switch things over in a day, but 0:19:49.760 --> 0:19:52.480 at some point in time, their earnings will be better 0:19:52.520 --> 0:19:55.160 than a lot of other people, and their prices will 0:19:55.200 --> 0:19:58.600 have started cheap, and it will be a successful three 0:19:58.600 --> 0:20:03.040 to five year uh outlook investment. Now I'll stand up 0:20:03.080 --> 0:20:05.720 for the for the weed here. Um. You know, liquor 0:20:05.760 --> 0:20:07.959 stores sell drugs too, and a lot of people use 0:20:08.000 --> 0:20:10.359 cannabis as medicine. I know you guys are a pretty 0:20:10.359 --> 0:20:12.719 conservative shop, but have you ever invested have you ever 0:20:12.720 --> 0:20:17.720 thought about investing in cannabis? No? I will say though, 0:20:17.760 --> 0:20:23.200 I had a back massage at a reputable place called 0:20:23.240 --> 0:20:27.560 hand in Stone, and she offered me for extra money, uh, 0:20:27.680 --> 0:20:29.840 and oil that that she thought would be good for 0:20:29.960 --> 0:20:35.800 the muscles that were bothering me CBD cannabinoid oils. I 0:20:35.800 --> 0:20:37.800 want to ask you also about something else, Bill, because 0:20:38.040 --> 0:20:42.240 I love Phoenix. I love hanging out, having dinner in Scottsdale, 0:20:42.280 --> 0:20:44.680 going out to Sedona. Um, if I could get on 0:20:44.800 --> 0:20:47.080 the course and play at TPC, that would be amazing 0:20:47.119 --> 0:20:51.400 as well. We've seen housing prices skyrocket all over the country. 0:20:51.400 --> 0:20:56.240 What's real estate like down there? Well, it's been pretty nutty. Uh. 0:20:56.320 --> 0:21:01.120 But what what what everyone needs to understand is it 0:21:01.200 --> 0:21:05.920 is in the DNA of Americans going back to their 0:21:05.960 --> 0:21:09.240 great great great grandparents who came to the East Coast 0:21:09.800 --> 0:21:13.240 and then constantly for the last two hundred years have 0:21:13.480 --> 0:21:18.480 arbitrage land values. So people are like shocked. It's like, Okay, 0:21:18.520 --> 0:21:22.320 there's ninety million millennials. They're gonna want what six million 0:21:22.600 --> 0:21:26.280 gen xers wanted. That means thirty more humans, and they 0:21:26.280 --> 0:21:29.280 were delayed in this whole process until COVID hit and 0:21:29.320 --> 0:21:33.320 the pandemic UH brought the need for a home to 0:21:33.400 --> 0:21:38.520 the forefront. So now, the first arbitrage was Los Angeles 0:21:38.760 --> 0:21:42.840 to Las Vegas and Phoenix. That the next arbitrage after 0:21:42.880 --> 0:21:47.480 that is the you know, the Spokens and Reno's and 0:21:47.480 --> 0:21:50.520 and we're those have already exploded. So just think of 0:21:50.560 --> 0:21:53.120 anywhere across the country where it's a pleasant place to live. 0:21:53.480 --> 0:21:56.360 There's a hundred thousand people there, and there's water and WiFi. 0:21:56.760 --> 0:21:59.160 We're gonna build a ton of homes in those places 0:21:59.200 --> 0:22:02.640 because that's what the land arbitrage dictates. And the market 0:22:02.680 --> 0:22:05.800 share of our home builders, which would be Dr Horton 0:22:06.000 --> 0:22:11.040 Lennar and NBR Ryan Holmes, is nine times what it 0:22:11.160 --> 0:22:14.879 was seven years ago. So a disapportionately large part of 0:22:15.040 --> 0:22:18.520 the homes being built will be built by us. All right, hey, Bill, 0:22:18.640 --> 0:22:22.400