WEBVTT - P&L: This Holiday May Be the Best in a Decade for Retailers 0:00:04.760 --> 0:00:08.080 Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 0:00:08.119 --> 0:00:11.159 Along with my co host Lisa Abramowitz. Each day we 0:00:11.280 --> 0:00:14.480 bring you the most important, noteworthy, and useful interviews for 0:00:14.520 --> 0:00:16.880 you and your money, whether at the grocery store or 0:00:16.920 --> 0:00:20.680 the trading floor. Find the Bloomberg P L Podcast on iTunes, 0:00:20.840 --> 0:00:29.400 SoundCloud and at Bloomberg dot com. All right, Craig Johnson, 0:00:29.440 --> 0:00:31.160 tell us what's going on in the world of Nike, 0:00:31.240 --> 0:00:35.800 and then we'll get to other stores in a second. Yeah. Um, So, anyway, 0:00:35.880 --> 0:00:37.960 Nike is having a little bit of a rebound, and 0:00:38.080 --> 0:00:40.680 not that they've been in bad shape, but Nike remains, 0:00:40.760 --> 0:00:43.480 you know, one of the two or three strongest, most 0:00:43.520 --> 0:00:46.519 recognized brands in the world, very very powerful, and so 0:00:46.600 --> 0:00:49.720 they had a you know, they had a perfectly solid 0:00:49.800 --> 0:00:53.240 quarter and uh, both profits and top line up. I 0:00:53.280 --> 0:00:56.040 think the top line was about eight percent or so. 0:00:56.040 --> 0:00:59.200 So they're they're doing okay. Um now in the meantime, 0:00:59.760 --> 0:01:02.440 uh under armor. You know, we don't do stock prices, 0:01:02.440 --> 0:01:03.880 but you know, the stock has got a pulled back 0:01:03.920 --> 0:01:06.880 for this year. But it's not that they're having any 0:01:07.000 --> 0:01:09.440 you know, great giant troubles. You know, their sales are 0:01:09.520 --> 0:01:14.000 up over profits up I think fift at their last 0:01:14.040 --> 0:01:16.959 quarter they reported maybe a month month and a half ago. 0:01:17.800 --> 0:01:20.240 And then the UH the folks whould really come on 0:01:20.360 --> 0:01:23.920 quite strong as Audi doc and UH and that brand 0:01:23.959 --> 0:01:29.880 has been as by the way people do anyway, they 0:01:29.920 --> 0:01:32.120 they they a D S let's call it that because 0:01:32.120 --> 0:01:34.639 it's called by the symbol. So they they've been doing fine. 0:01:35.360 --> 0:01:37.319 And in fact, you've had night's rebound in the in 0:01:37.360 --> 0:01:40.800 the marketplace. Customers like them, and they've they've moved their 0:01:40.880 --> 0:01:44.679 R and D effort locally in the US from Germany 0:01:44.720 --> 0:01:47.800 to be more current with a kind of US taste 0:01:47.800 --> 0:01:50.040 and interests in the preferences. And of course for those 0:01:50.080 --> 0:01:52.080 who lived in New York area, they've opened this huge, 0:01:52.120 --> 0:01:55.960 rually magnificent flagship on Fifth Abo right about about a 0:01:56.040 --> 0:01:59.520 forty six trade. It's really spectacular, quite quite something. You know, Craig, 0:01:59.600 --> 0:02:03.880 you in your in your outlook that so far, the 0:02:03.920 --> 0:02:07.520 retail UH scene seems to be the best in many years. 0:02:07.520 --> 0:02:10.120 This has been the best season for shopping in a 0:02:10.160 --> 0:02:13.560 long time. UM. And yet we're still seeing stories about 0:02:14.480 --> 0:02:17.400 stories like J J Crew, which just can't seem to 0:02:17.520 --> 0:02:20.280 get out of its death spiral. You know, what do 0:02:20.320 --> 0:02:22.720 you expect as far as the bankruptcy is going, is 0:02:23.040 --> 0:02:29.520 uh this year's positive development enough to stave off bankruptcy 0:02:29.560 --> 0:02:33.080 for some of these firms. Well, Um, what we're seeing 0:02:33.120 --> 0:02:36.920 overall is is kind of a two giant migrations in retail. 0:02:37.200 --> 0:02:39.320 One is the migration from a channel point of view 0:02:39.360 --> 0:02:43.079 from from store based retail to online and online we're 0:02:43.120 --> 0:02:45.200 predicting is going to be about eighteen percent of total 0:02:45.240 --> 0:02:48.960 sales over the holiday season and and that's really quite something, 0:02:49.160 --> 0:02:52.160 is growing in about four plus a year of a 0:02:52.240 --> 0:02:56.440 year UM. And the second migration is internally within within 0:02:56.720 --> 0:02:59.800 within stores and there's there has been a migration away 0:02:59.800 --> 0:03:03.359 from apparel stores including J Crew, but not only J 0:03:03.520 --> 0:03:08.240 Crew UM to UH non apparel uses of spending and 0:03:08.400 --> 0:03:10.520 UH and that's just that's a long term trun it's 0:03:10.520 --> 0:03:14.200 been exacerbated to in recent years. And UM, and that 0:03:14.280 --> 0:03:16.840 means there's going to be a raft of both winners 0:03:16.840 --> 0:03:20.000 and losers in apparel land. And that's just it's the 0:03:20.040 --> 0:03:23.680 world we live in. Craig, Let's talk about bed Beth 0:03:23.720 --> 0:03:25.840 and beyond. They are going to report their results after 0:03:25.880 --> 0:03:29.119 the close of trading today. How's their business faring well. 0:03:29.360 --> 0:03:31.280 It's kind of interesting. Now there is a tale of 0:03:31.320 --> 0:03:34.720 two cities in the third quarter of being much different 0:03:34.720 --> 0:03:37.839 than in the fourth quarter. We've seen quarters to date. Um. 0:03:37.920 --> 0:03:40.320 And you know, their quarter wrapped right after the Black 0:03:40.320 --> 0:03:45.040 Friday U weekend I think in November, and the third 0:03:45.120 --> 0:03:47.440 quarter will be not that great, and they were very 0:03:47.440 --> 0:03:50.520 soft for for much of the fall um and then 0:03:50.560 --> 0:03:54.480 but things did pick up across retail. Things picked up 0:03:54.520 --> 0:03:57.680 after the election about by mid about November, mid November, 0:03:57.880 --> 0:04:00.120 and so they were able to capture because they have 0:04:00.200 --> 0:04:03.880 that you know, delayed quarter that they're going into November 0:04:03.920 --> 0:04:06.600 twenty eight UM. Uh, so they're able to capture some 0:04:06.680 --> 0:04:09.720 of the rebound then and then months to date, I mean, 0:04:09.880 --> 0:04:11.880 you know this is they're still very early into the 0:04:12.040 --> 0:04:15.600 into the Q four UM. They have been doing uh 0:04:15.640 --> 0:04:18.359 really quite well. Along with the almost the entirety of 0:04:18.360 --> 0:04:23.320 the home sector, whether it's home improvement guys like Depo 0:04:23.440 --> 0:04:26.160 and Lows or weather home furnishings. Where we've seen a 0:04:26.200 --> 0:04:30.039 lot of strength across the board, uh is restoration hardware 0:04:30.440 --> 0:04:32.960 an asterisk. I would call that a little bit of 0:04:33.000 --> 0:04:35.320 an exception that may prove the rule. They've they've had 0:04:35.360 --> 0:04:38.599 some challenges. Um. Uh. You know, we think they're getting 0:04:38.600 --> 0:04:41.480 their their ducks in a row together, but they they've 0:04:41.480 --> 0:04:43.880 been a little bit challenged for for many months now 0:04:43.960 --> 0:04:47.040 with some supply chain issues. You know. One thing I'm 0:04:47.040 --> 0:04:51.040 struck by is that in the corporate credit world, we're 0:04:51.080 --> 0:04:53.120 definitely are a lot of people think we're getting to 0:04:53.120 --> 0:04:56.640 a later stage where it's a lot of these companies 0:04:56.640 --> 0:04:59.920 are starting to build on leverage and they've already overextended. 0:05:00.560 --> 0:05:03.560 Looking into consumer credit, I'm trying to figure out as 0:05:03.600 --> 0:05:06.640 you talk about the different sectors uh, and then and 0:05:06.680 --> 0:05:10.919 then better than expected shopping season, where what does this 0:05:11.000 --> 0:05:16.400 indicate about where we are in the consumer credit cycle. Well, 0:05:16.839 --> 0:05:19.279 there we're seeing a situation where personal savings rates are 0:05:19.360 --> 0:05:23.560 still quite high, about five and a half plus percent. 0:05:23.920 --> 0:05:28.159 We think that starting to come down consumer credits. Household 0:05:28.200 --> 0:05:30.560 balance sheets are much much are the healthiest they've been 0:05:30.600 --> 0:05:34.880 in years, um, and so with incomes gradually rising over 0:05:34.920 --> 0:05:37.800 the last year or so, things are looking better now. 0:05:37.839 --> 0:05:44.520 The implications though for distressed uh that retailers, Um, that's 0:05:44.560 --> 0:05:46.880 a little bit of a different animal because there were 0:05:46.880 --> 0:05:50.320 seeing some people that are having strong performance, such as 0:05:50.560 --> 0:05:53.080 like toys or US. And then we have other folks, 0:05:53.120 --> 0:05:57.160 whether it's UH crew you mentioned, whether it's players UM 0:05:57.320 --> 0:05:59.320 and some of the other players out there that that 0:05:59.480 --> 0:06:02.880 have had UH we'll just say a few more challenges. Craig, 0:06:03.400 --> 0:06:08.320 just can we go back to UH Adidas or Audidas 0:06:08.320 --> 0:06:12.440 and their success because they've now got the number two position, 0:06:12.600 --> 0:06:16.960 they've surpassed under Armour I believe is this rebound from 0:06:17.040 --> 0:06:19.480 where they were? Is this for real? Because they noticed 0:06:19.520 --> 0:06:24.159 the Stan Smith, the heritage brands, UH partnerships with Kanye West. 0:06:24.839 --> 0:06:27.040 Is that going to mean that Adidas is going to 0:06:27.160 --> 0:06:30.279 just continue to go to another strength. Well, they have, 0:06:30.680 --> 0:06:32.760 you know, we we think they really have stepped on 0:06:32.800 --> 0:06:35.240 the gas and as you might know, they have a 0:06:35.279 --> 0:06:39.480 new CEO in there. UM over the past year and UH, 0:06:39.720 --> 0:06:42.240 we've already seen an improvement there. Now most of their 0:06:42.240 --> 0:06:44.440 strength has been you know, again on the footwear side 0:06:44.440 --> 0:06:47.039 of things under oarm Our Apparel, we think, we we 0:06:47.160 --> 0:06:50.440 believe is still very very strong. H The performance where 0:06:50.920 --> 0:06:54.680 UM but UH A d S has been has been 0:06:54.720 --> 0:06:56.720 really coming on quite strong, and we think a lot 0:06:56.720 --> 0:06:59.440 of reflection, you know, the new managements that's on board 0:06:59.760 --> 0:07:02.200 and the fact that they're becoming much more in tune 0:07:02.720 --> 0:07:05.880 with the US market. Originally some market research they've done, 0:07:05.920 --> 0:07:08.680 and now as I mentioned that they've they've cited that 0:07:08.800 --> 0:07:11.720 in an R and d UH center right here in 0:07:11.800 --> 0:07:16.360 the US versus trying to monitor the US market from 0:07:16.360 --> 0:07:18.520 back in Germany. Thank you so much for joining us. 0:07:18.560 --> 0:07:22.040 Craig Johnson, president of Customer Growth Partners, coming to us 0:07:22.040 --> 0:07:25.640 from New Canaan, Connecticut. Just want to mention Adida's shares 0:07:25.640 --> 0:07:31.080 of fifty so far this year, Nike shares down, this 0:07:31.560 --> 0:07:48.880 is bloom. The shares of FedEx are down about two 0:07:48.920 --> 0:07:52.920 and a half percent after profit at the air freight 0:07:53.000 --> 0:07:56.400 carrier that took a hit from rising investment in its 0:07:56.520 --> 0:07:59.120 ground delivery business. And here to tell us more is 0:07:59.160 --> 0:08:02.000 to teach Jin. Though he is the president of s 0:08:02.120 --> 0:08:06.520 J Consulting Group, he joins us from Swickly, Pennsylvania, So 0:08:06.680 --> 0:08:10.080 teach always a pleasure tell us about FedEx and the 0:08:10.200 --> 0:08:13.960 challenges that the company faces, not necessarily just from ups 0:08:14.720 --> 0:08:19.800 but from the likes of Amazon as well as Uber. Well, 0:08:20.120 --> 0:08:24.040 this is a very interesting time for watching this company 0:08:24.080 --> 0:08:29.160 and the industry. And as you commented, Uh, people think 0:08:29.200 --> 0:08:33.120 there's a lot of investment. The growth of Farcel business 0:08:33.400 --> 0:08:36.560 is of a kind that in my being in it 0:08:36.600 --> 0:08:39.880 for twenty plus years, I have not seen. And the 0:08:39.960 --> 0:08:44.800 peak is becoming higher and higher and more difficult because 0:08:45.520 --> 0:08:48.160 when you have packaged volume increasing in the B two 0:08:48.200 --> 0:08:51.360 B space, you don't add extra stuffs, but when you 0:08:51.440 --> 0:08:54.439 do it for consumers, you're going to new addresses, and 0:08:54.559 --> 0:08:58.520 that affects performance and productivity in service of a kind 0:08:58.559 --> 0:09:01.319 that people can't understand and who are used looking at 0:09:01.360 --> 0:09:06.319 annual statements and ten case for FedEx to have incorporated 0:09:06.360 --> 0:09:11.120 and built hundred and five facilities, and I've been involved 0:09:11.120 --> 0:09:14.640 with them, it is a remarkable edition. And if they 0:09:14.640 --> 0:09:17.840 don't do it, then they continue to risk losing the 0:09:17.920 --> 0:09:21.600 business of these big online retailers that they are handling. 0:09:21.880 --> 0:09:25.600 And people don't realize they think Amazon doesn't use few 0:09:25.640 --> 0:09:29.080 pious and FedEx. They still move millions of packages for 0:09:29.240 --> 0:09:32.760 Amazon and other online retailers. And if they're going to 0:09:33.160 --> 0:09:37.359 stay as a good option for them for these online retailers, 0:09:37.400 --> 0:09:39.959 they have to be able to handle it throughout the year, 0:09:40.240 --> 0:09:43.400 but more importantly, during a peak that is also not 0:09:43.520 --> 0:09:48.680 becoming bigger but also getting spread out over several weeks. 0:09:48.720 --> 0:09:50.839 I wanted to go back you made an interesting point. 0:09:50.920 --> 0:09:54.160 You know, people think that Amazon and other online retailers 0:09:54.880 --> 0:09:59.920 have their own channels for distributing packages other than FedEx 0:10:00.360 --> 0:10:04.920 or ups, but they are really reliant on uh these companies. 0:10:05.679 --> 0:10:08.840 What about drones? I mean, we've heard plenty about delivery 0:10:08.920 --> 0:10:11.640 drones and sort of Amazon trying to create their own 0:10:12.280 --> 0:10:15.960 horde of these flying self self flying vehicles. Is this 0:10:16.000 --> 0:10:20.040 it all threat? You know, not for at least a 0:10:20.080 --> 0:10:24.480 few years, for various reasons. I do believe that the 0:10:24.480 --> 0:10:28.640 next five years, or maybe a little longer, we will 0:10:29.280 --> 0:10:33.160 ourselves has seen them with our eyes, packages being dropped 0:10:33.160 --> 0:10:37.240 off at people or places that we know of. However, 0:10:37.760 --> 0:10:40.480 there are few limitations. One is the regulatory that moves 0:10:40.520 --> 0:10:42.880 at a very slow pace and can't keep up with 0:10:42.920 --> 0:10:45.880 the pace that twist technologies moving. But the other thing 0:10:46.000 --> 0:10:49.720 is that drones are first going to be only used 0:10:49.840 --> 0:10:53.160 in rural areas where they don't have to deal with 0:10:53.200 --> 0:10:55.400 all the wires and everything else that comes in the 0:10:55.440 --> 0:10:58.600 way of coming down to the lower level to drop 0:10:58.600 --> 0:11:01.480 a package in someone's front out. The other thing is 0:11:01.600 --> 0:11:05.280 that they are still limited in handling certain items that 0:11:05.360 --> 0:11:08.160 have to be small, that have to be lightweight, and 0:11:08.360 --> 0:11:11.360 all that is going to take time to evolve, and 0:11:11.400 --> 0:11:14.920 then some things required signature. You can't get a signature 0:11:14.920 --> 0:11:19.520 from a drone, not yet. I think that's the quote 0:11:19.520 --> 0:11:22.680 of the day. You can't get a signature from a drone. 0:11:22.800 --> 0:11:25.240 I love it. So I was just going to give 0:11:25.280 --> 0:11:28.960 you some detail, just to put this into perspective because FedEx, 0:11:29.040 --> 0:11:32.640 as you just describe this massive six hundred and fifty aircraft, 0:11:32.640 --> 0:11:37.280 a hundred and fifty thousand vehicles, moves twelve million packages 0:11:37.320 --> 0:11:40.920 a day. UPS moves even more more than eighteen million 0:11:40.960 --> 0:11:44.440 packages a day. Can you explain this saying in the 0:11:44.480 --> 0:11:50.199 world of supply chain that density equals profitability. Well, you 0:11:50.240 --> 0:11:52.400 know what that is true, There is an element of density. 0:11:52.440 --> 0:11:54.760 But when you've got in the twelve million you set 0:11:54.800 --> 0:11:58.160 for FedEx and about seventeen for UPS, that is in 0:11:58.240 --> 0:12:02.520 the normal day to February March April. During this month 0:12:02.559 --> 0:12:06.760 of December, fed X is handling seventeen million and UPS 0:12:06.840 --> 0:12:10.880 is handling millions, okay, And to put it in perspective, 0:12:11.400 --> 0:12:17.880 that is in between one billion origin destra nation points. 0:12:18.520 --> 0:12:20.880 And for people who are listening when they fly, they 0:12:20.880 --> 0:12:25.600 don't realize the airlines perform at on time when they 0:12:25.600 --> 0:12:29.160 only have to fly between four airports, that comes to 0:12:29.200 --> 0:12:32.240 only eighteen thousand days. So that is the complexity you're 0:12:32.280 --> 0:12:36.800 talking about. And they have a network that is unique, 0:12:37.080 --> 0:12:39.640 and which is why you find that other people can't 0:12:40.080 --> 0:12:42.760 create a network like that and they can't compete with them. 0:12:42.800 --> 0:12:46.280 Which is why ups, fed X and Post Office, between 0:12:46.320 --> 0:12:50.319 three of them, deliver ninety seven of all the packages 0:12:50.600 --> 0:12:53.160 for all the shippers. And it seems like there's a 0:12:53.160 --> 0:12:55.600 pretty big barrier to entry for the Amazons of the 0:12:55.640 --> 0:12:58.720 world to create their own fleet, a huge and I 0:12:58.760 --> 0:13:01.800 don't think Amazon people will talk about it. Amazon has 0:13:01.840 --> 0:13:04.480 no interest in being a transporation company because of the 0:13:04.559 --> 0:13:07.280 market that you cater to. Start to think of them 0:13:07.320 --> 0:13:12.080 as a transportation company. There be ratio, it's going to plummet, 0:13:12.400 --> 0:13:15.839 and it's start off with trading at seven dollars, it's 0:13:15.880 --> 0:13:20.760 going to trade it hundred dollars. Sat Jindell, president of 0:13:21.000 --> 0:13:25.080 s J Consulting Group from Siwickly, Pennsylvania, Thank you so 0:13:25.160 --> 0:13:38.760 much for being with us. A story caught my I 0:13:38.960 --> 0:13:43.840 from Fox that highlights the difficulties the U. S. Government 0:13:43.920 --> 0:13:47.000 is facing as it tries to tackle the massive amount 0:13:47.080 --> 0:13:52.920 of student loans outstanding, including some that perhaps were extended 0:13:53.040 --> 0:13:56.840 under fraudulent assumptions. I want to bring in Shahin Nasira Poor, 0:13:57.760 --> 0:14:01.720 Bloomberg News reporter the for US core cases and crime. 0:14:02.080 --> 0:14:04.679 He is here in our Bloomberg eleven three oh studio. 0:14:04.720 --> 0:14:07.120 Thank you for joining us. Uh, So, can you talk 0:14:07.120 --> 0:14:10.000 to us a little bit about what the core issue 0:14:10.160 --> 0:14:12.679 is here? For the US government? They have said they 0:14:12.720 --> 0:14:19.760 would forgive some student loans that were underwritten under false pretenses, right, Uh, 0:14:19.920 --> 0:14:22.800 but then they're going out they're actively pursuing uh, the 0:14:22.960 --> 0:14:26.560 debt collections from those students at this point. What's going 0:14:26.600 --> 0:14:29.200 on here? Well, thanks for having me on. It's a 0:14:29.280 --> 0:14:32.000 it's a hard it's a hard question to ask. You know. 0:14:32.040 --> 0:14:34.360 The thing that I keep coming back to is this, 0:14:35.400 --> 0:14:38.240 you know, apparent conflict of interest within the US Apartment 0:14:38.280 --> 0:14:41.240 of Education, where they are both you know, the lender 0:14:41.720 --> 0:14:44.440 um as well as a servicer. And so their job 0:14:44.520 --> 0:14:47.600 on one hand is to maximize collections and minimize the 0:14:47.640 --> 0:14:50.760 cost of the federal student loan program two taxpayers. But 0:14:50.840 --> 0:14:54.120 on the other hand they're running the largest student debt 0:14:54.160 --> 0:14:58.840 forgiveness scheme in US history. And so that that apparent 0:14:58.880 --> 0:15:02.120 conflict man infests itself in ways. You know, in one 0:15:02.160 --> 0:15:05.640 way in which where the federal government has decided that 0:15:05.680 --> 0:15:08.440 by and large, tens of thousands of you know, former 0:15:08.520 --> 0:15:11.720 students who attended schools owned by Corinthian Colleges, Inc. Were 0:15:11.880 --> 0:15:16.520 defrauded with false job placement rates and they were duped 0:15:16.560 --> 0:15:18.760 into taking out these loans, and therefore these loans should 0:15:18.760 --> 0:15:21.640 be canceled. But on the other hand, the department and 0:15:21.720 --> 0:15:25.840 the Education Department is not proactively canceling this debt. It's 0:15:25.880 --> 0:15:29.120 not proactively reaching out to these borrowers. And you could 0:15:29.200 --> 0:15:32.600 argue that if they were a private sector creditor, that 0:15:32.640 --> 0:15:36.240 their collection tactics would amount to a violation of laws 0:15:36.280 --> 0:15:39.240 banning unfair and deceptive acts and practices because they are 0:15:39.280 --> 0:15:41.880 collecting on debt that they have reason to believe need 0:15:41.920 --> 0:15:45.920 not be repaid um. And so far they're they're not 0:15:46.000 --> 0:15:49.800 really saying much about it. If you are an eligible 0:15:50.320 --> 0:15:55.360 UH borrower, what is the process by which you would 0:15:55.400 --> 0:16:01.960 have your fraudulent or allegedly fraudulent loan forgiven? What's the process? 0:16:02.000 --> 0:16:04.840 It's actually really simple. There is a form that the 0:16:04.960 --> 0:16:07.720 Education Department is created where all you need to do 0:16:07.960 --> 0:16:10.720 is fill out you know some biographical information, name, address, 0:16:10.760 --> 0:16:15.080 telephone number, etcetera. UM, you say you know, you list 0:16:15.280 --> 0:16:18.040 the campus that you attended in the program you were 0:16:18.120 --> 0:16:21.800 enrolled in in the dates of your attendants. UM, and 0:16:21.840 --> 0:16:25.160 you simply check a box where you attest to the fact, 0:16:25.200 --> 0:16:27.760 under penalty of perjury, that you relied on these job 0:16:27.800 --> 0:16:30.440 placement rates when you enrolled. You sign your name at 0:16:30.440 --> 0:16:32.280 the bottom of the form, you return it, and your 0:16:32.280 --> 0:16:34.760 loans should be forgiven. That is what the Education Department 0:16:34.760 --> 0:16:36.680 has said the process. That's how it's supposed to work. 0:16:37.480 --> 0:16:40.440 But it's not working that way. No, it's not. They 0:16:40.440 --> 0:16:42.560 are sending they've sent a few letters and a few 0:16:42.600 --> 0:16:45.320 emails to borrowers informing them of this. Right, But they 0:16:45.360 --> 0:16:47.920 also send these folks monthly bills in which there is 0:16:47.960 --> 0:16:51.560 no disclosure of any kind. Same same department, same depart Well, 0:16:51.720 --> 0:16:53.520 but you're right, and this is an important point. So 0:16:53.560 --> 0:17:00.840 Corinthian College has filed for bankruptcy after being accused of fraud. UM. 0:17:00.880 --> 0:17:04.639 If the US were to eliminate debt of all of 0:17:04.680 --> 0:17:08.959 those who are potentially eligible for debt really from justice 0:17:08.960 --> 0:17:12.800 Corinthian College, right, it could cost the federal government nearly 0:17:12.800 --> 0:17:15.639 four billion dollars. This sort of speaks to your point 0:17:15.680 --> 0:17:18.439 checking about the sort of push pull element of the 0:17:18.480 --> 0:17:21.159 same agency overseeing both the forgiveness as well as the 0:17:21.160 --> 0:17:25.600 debt collection, of managing the collection exactly. And and here's 0:17:25.800 --> 0:17:27.879 the thing about it is, you know, look, the education 0:17:27.920 --> 0:17:30.719 departments run by a lot of political appointees. If they 0:17:30.720 --> 0:17:33.440 were to forgive this debt, there would be a ton 0:17:33.600 --> 0:17:37.000 of outcry about the cost to taxpayers. And the question 0:17:37.040 --> 0:17:40.040 evitably would be, well, how did the department allow this 0:17:40.119 --> 0:17:42.240 learning to go on in the first place? Where were 0:17:42.280 --> 0:17:44.119 they when all these loans were being made? There were 0:17:44.160 --> 0:17:47.679 all these warning signs that this chain of schools was 0:17:47.720 --> 0:17:51.880 engaged in suspect behavior and suspect practices. They had previously 0:17:51.920 --> 0:17:54.880 been sued by state Attorney's General over you know, there 0:17:55.520 --> 0:17:59.120 allegedly deceptive advertising to students. And so they make all 0:17:59.119 --> 0:18:03.520 these loans, they book you know, expected revenues off these loans, 0:18:03.560 --> 0:18:05.600 and then they come back and cancel them later at 0:18:05.600 --> 0:18:09.120 this huge cost of taxpayers, and folks will inevitably say, 0:18:09.160 --> 0:18:12.000 where were you when these loans are being made? Thanks 0:18:12.080 --> 0:18:16.320 very much for enlightening us. Shaheen Nasirapor he is a 0:18:16.480 --> 0:18:21.399 US court cases and crime reporter for Bloomberg News. Much appreciated. 0:18:33.240 --> 0:18:35.720 It is my honor now to bring in Dan Fuss, 0:18:35.800 --> 0:18:39.679 vice chairman of Loomis Sales. Uh. Dan, I'm grateful for 0:18:39.760 --> 0:18:43.960 you joining us today, and I have an important question 0:18:44.000 --> 0:18:48.199 to ask you. We've been hearing from a lot of 0:18:48.240 --> 0:18:52.120 big bond fund managers, whether it's Jeff Gunlock, whether it's 0:18:52.119 --> 0:18:56.560 Mark uisil Over at Pimco, now is the time to 0:18:56.600 --> 0:19:01.879 be building cash and de risking. Do you agree? No, 0:19:03.000 --> 0:19:09.000 not completely. I understand why, you know from reading your 0:19:09.080 --> 0:19:13.800 column and others least, Um, I understand why they're doing it. 0:19:13.880 --> 0:19:19.000 I share the general view that the odds are that 0:19:19.440 --> 0:19:23.680 in the US dollar, uh, interest rates are starting their 0:19:23.760 --> 0:19:27.800 seclical rise. I agree with that, how far how long? 0:19:28.520 --> 0:19:32.840 There you get a wide spectrum of guessing, because that's 0:19:32.840 --> 0:19:36.560 all you can do about the future. But um, there's 0:19:36.640 --> 0:19:40.440 a sort of a fatal flaw if if you go 0:19:40.600 --> 0:19:44.040 to the let's build a lot of cash, and then 0:19:44.160 --> 0:19:48.479 in some cases people might say I've heard it, Uh 0:19:48.640 --> 0:19:52.040 that just in case, they'll they'll bar bellow it, and 0:19:52.240 --> 0:19:57.359 uh they'll they'll you know, buy some long whatever. Um 0:19:58.080 --> 0:20:01.120 that that gets away from the theme that you're supposed 0:20:01.160 --> 0:20:06.680 to make money. UM. As cash returns rise, and they've 0:20:06.760 --> 0:20:11.480 risen somewhat to be fair, um, it gets easier to 0:20:11.640 --> 0:20:15.879 do the short end of that because you're rolling over 0:20:15.920 --> 0:20:18.919 every three months or whatever you're doing, and your yield 0:20:19.000 --> 0:20:22.840 is going up. That's the general idea, But you have 0:20:22.960 --> 0:20:27.600 to take into account the shape of the yield curve 0:20:28.160 --> 0:20:32.399 and the dispersion the yield spreads around the old curve. 0:20:32.560 --> 0:20:36.000 And more importantly than either one of those is the 0:20:36.080 --> 0:20:39.119 fact that the world is now filling up with discount 0:20:39.240 --> 0:20:44.080 bonds as opposed to premium bonds. And that's a world 0:20:44.119 --> 0:20:49.080 of difference when you put those things together. Um. If 0:20:49.119 --> 0:20:51.720 if you're not concerned about day to day or week 0:20:51.800 --> 0:20:54.960 to week or even months to month, you say, well 0:20:55.040 --> 0:20:56.800 I'm going to do then is I'm going to go 0:20:57.000 --> 0:21:01.359 ride the old curve just like the Meuning people to Uh. 0:21:01.440 --> 0:21:05.280 And that is a very very good idea. Well, hold 0:21:05.280 --> 0:21:08.960 on a sect. So since November eighth, a lot of 0:21:08.960 --> 0:21:11.840 people we've talked to have said that they've pretty significantly 0:21:11.920 --> 0:21:16.080 changed their thesis or even started to change how they invest. 0:21:16.160 --> 0:21:22.119 Have you not since November eight? Uh? Actually, uh, we 0:21:22.240 --> 0:21:26.920 sort of unfortunately beat the rush uh and build up 0:21:27.520 --> 0:21:31.600 some cash. I'm talking now in reference to the mutual 0:21:31.640 --> 0:21:37.560 funds because we're anticipating withdrawals. Is this indexation thing and 0:21:37.680 --> 0:21:42.119 et F goes on UM, so we we built it 0:21:42.240 --> 0:21:46.040 for that. And but the rest of the portfolio is 0:21:46.760 --> 0:21:50.560 the basic structure of it is shorter and it used 0:21:50.560 --> 0:21:53.560 to be ex the cash shorter iteration in other words, 0:21:53.600 --> 0:21:57.920 looking for a shorter maturity of the shorter and average maturity. No, 0:21:58.440 --> 0:22:02.520 I'm going to confuse uh all the cf A students 0:22:02.560 --> 0:22:06.359 with this. Do you have to be careful on using 0:22:06.520 --> 0:22:11.880 duration when you're in a period of time where interest 0:22:11.960 --> 0:22:16.320 rates are are moving rather strong or you know, directionally, 0:22:16.440 --> 0:22:19.240 it may not be a lot of uh, you know, 0:22:19.560 --> 0:22:23.480 a multi your move. But if your rates are trending 0:22:23.600 --> 0:22:27.320 up and you're pretty sure the central bank has the 0:22:27.400 --> 0:22:33.439 same idea or trending down, UM, then you you have 0:22:33.520 --> 0:22:38.240 to say, whoops win Uh. Duration that's fine for liability matching. 0:22:38.280 --> 0:22:42.320 But let's use average maturity and let's look at our 0:22:42.359 --> 0:22:50.119 dispersion around the mean uh. And essentially to put into 0:22:51.040 --> 0:22:55.840 math forms, UH, what we're doing is we're fattening the 0:22:55.920 --> 0:23:00.720 middle uh, just like the waist lines around Christmas time 0:23:00.800 --> 0:23:03.040 there with all the good ease. So otherwise you like 0:23:03.119 --> 0:23:07.800 the sort of five to ten year treasury No, oh yeah, 0:23:07.880 --> 0:23:10.920 you can do it with treasuries you have now treasuries, 0:23:11.359 --> 0:23:14.119 you don't have any excess spread. So you like it 0:23:14.160 --> 0:23:18.080 for like five to ten year corporates. Yes, and uh, 0:23:18.119 --> 0:23:23.880 if it's a taxable account with a high incriminal tax. Uh, 0:23:23.960 --> 0:23:27.480 you know, once you had the state onto it. Uh. 0:23:28.000 --> 0:23:32.440 You do the same thing in muni's and uh it's 0:23:32.480 --> 0:23:35.960 easier to see over there. But you do the same 0:23:36.000 --> 0:23:39.160 thing in corporates. And you you know your fear when 0:23:39.280 --> 0:23:42.240 rates go up as you say, oh my god, we're 0:23:42.280 --> 0:23:44.840 at the end of all the credit cycles now, you know, 0:23:45.760 --> 0:23:48.880 and get the parachutes out we go. No, no, no, 0:23:49.240 --> 0:23:52.040 you don't do that. You do have to be much 0:23:52.080 --> 0:23:57.720 more careful on the credit side. That's a given you 0:23:57.840 --> 0:24:02.119 have to be because people who are financing are going 0:24:02.160 --> 0:24:05.520 to have more trouble as rates go up if they're 0:24:05.560 --> 0:24:10.919 not a fairly strong uh you know business and uh, 0:24:11.200 --> 0:24:16.120 but if they've handled refinance already and the basic business 0:24:16.320 --> 0:24:20.120 is a good business, not dependent on borrowing a ton 0:24:20.160 --> 0:24:25.440 of money at lower rates, it's an important qualifier. Um, 0:24:25.640 --> 0:24:29.639 then your best place to be is with the most 0:24:29.680 --> 0:24:34.040 spread and call protection. And uh, this is where high 0:24:34.119 --> 0:24:37.159 yield comes into play. Normally, high yield, when rates have 0:24:37.200 --> 0:24:39.919 gone down quite a bit, is a loser's game because 0:24:40.240 --> 0:24:42.719 if it works, you get called, and if it doesn't, 0:24:42.720 --> 0:24:47.439 you get stuck. Uh and uh, Now you're in a 0:24:47.520 --> 0:24:52.280 different setting because an early call gets more and more 0:24:52.359 --> 0:24:57.000 expensive if you're buying this stuff, saying the eighties or 0:24:57.040 --> 0:24:59.879 low nineties in the issue, who decides to call it 0:25:00.040 --> 0:25:02.920 one oh four? Well, that's all right, you're not shedding 0:25:02.960 --> 0:25:05.760 any tears. You wish you hadn't done that because you 0:25:05.840 --> 0:25:08.520