Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Diplomatic
Speaker 1: changes a foot on the Korean peninsula, as North Korea's
Speaker 1: leader Kim Jong un says that he will meet with
Speaker 1: President Donald Trump and the President apparently agreeing to that
Speaker 1: meeting sometime later this year, perhaps in early summer. Here
Speaker 1: to help us understand what is going on is Toby Harshaw.
Speaker 1: He is our Bloomberg view editor for all things related
Speaker 1: to national security, and also Jack Divine is the former
Speaker 1: acting director of this Central Intelligence Agency and founding partner
Speaker 1: and the president of the security firm the Arkin Group. Gentlemen,
Speaker 1: thank you very much for being with us that Jack Divine,
Speaker 1: I want you to come in on this and just
Speaker 1: give us your thoughts and reactions to this news. Well,
Speaker 1: I think it's first of all, hit the high note.
Speaker 1: I think it's a very positive development. I do think
Speaker 1: Kim jongan blank. But I want to say blink. It's
Speaker 1: not like a gladiator that kneels down and begs for mercy.
Speaker 1: This is a blink. We should take advantage of it.
Speaker 1: I think it would be one of the more interesting
Speaker 1: meetings of heads of state that we have seen in uh,
Speaker 1: in current memory. I think it will be to the
Speaker 1: matador and the bull trying to size each other up,
Speaker 1: and Uh, it's going to be a terribly important meeting, Toby,
Speaker 1: what are sort of both sides? Where are they in
Speaker 1: this meeting? Where are they lining up? What do they
Speaker 1: want to get? What will be considered a win? Well,
Speaker 1: I'm actually have to tell us which one is the
Speaker 1: bull and which one is the matador? I think, But
Speaker 1: I think um in terms of what they hope to
Speaker 1: gain on the world stage, UM, Kim is sort of
Speaker 1: the evident winner. I think a lot of people worry
Speaker 1: that having an American president come and meet with him
Speaker 1: will sort of legitimize him as a as a world leader, UM,
Speaker 1: will legitimize his government. UM. I don't think that's the case.
Speaker 1: I don't think it's dumb to go and meet with him.
Speaker 1: I don't think it legitimizes him, but I think in
Speaker 1: his mind it's extremely important. Um. There was a notable
Speaker 1: North Korean propaganda film a few years ago, UM that
Speaker 1: was called The Country I Saw and it has this
Speaker 1: huge triumphant ending in which Bill Clinton comes to meet
Speaker 1: with with the Supreme Leader and this was So this
Speaker 1: is just a huge thing and what the Kims have
Speaker 1: built about themselves Jack divine to Toby's point, though, what
Speaker 1: does it matter whether you know someone is a winner
Speaker 1: or a loser on a personal level or a prestige level,
Speaker 1: if indeed they are able to reach some kind of
Speaker 1: de escalation as it comes to the nuclear threat that
Speaker 1: North Korea poses. Well, I think these things are often intertwined.
Speaker 1: First of all, going back to Tobin's point, I I
Speaker 1: think we have to route that Donald Trump is the
Speaker 1: Mata door, okay, and uh, And I think the uh.
Speaker 1: The reason why I would just state that, I think
Speaker 1: Donald Trump, UM, and I think Kim Jong understands this
Speaker 1: is actually having has a stronger hand, the stronger hand
Speaker 1: being the might, the economic and military might of the
Speaker 1: United States, which you know, we can't even say in
Speaker 1: the same breath that North Korea is in the same category.
Speaker 1: So he has the mata to restore it here now
Speaker 1: having said that, we still have a major problem in
Speaker 1: that North Korea is now a nuclear force. And if
Speaker 1: we look back over the arc of the agociations, and
Speaker 1: I've been proposing to negotiations for as long as we've
Speaker 1: been speaking together here on Bloomberg, Um, but if you
Speaker 1: look over the long arc of dealing with North Korea,
Speaker 1: they have a pattern, and it's a very clear pattern.
Speaker 1: And when you're talking about deal making, Kim Jong own
Speaker 1: considers himself a deal maker. So this is why I
Speaker 1: think it's going to be a challenge for the two
Speaker 1: of them, and the national interest and the personal interests
Speaker 1: are are are intertwined. You know. It's interesting. Jack Toby
Speaker 1: was on our show the past few weeks and he
Speaker 1: said something that was very compelling, which is that China
Speaker 1: is really the big wild card here. And I'm wondering,
Speaker 1: from your perspective, Jack, what role is China playing in this?
Speaker 1: Because right now we understand that South Korea is the
Speaker 1: one sort of negotiating this meeting, We understand North Korea's stance,
Speaker 1: now we know President Trump stands, where's China. I think
Speaker 1: China is indeed a critical player, but it's not the
Speaker 1: critical player that it was years ago. There have been
Speaker 1: the distance between China and Korea is quite different than
Speaker 1: it was years ago, so they do have economic points
Speaker 1: of pressure. I was on the show. I've been pessimistic
Speaker 1: that the Chinese were going to lean as heavily on
Speaker 1: North Korea is needed needed to be the case. They've
Speaker 1: actually done more than I thought they would do. I however,
Speaker 1: on this particular occasion, I think going into these talks,
Speaker 1: we have to know what we really want to accomplish,
Speaker 1: because I know what the North Koreans are going to
Speaker 1: want to accomplish. They've reached a plateau, so they want
Speaker 1: to buy. They want to Now my view is to
Speaker 1: say that they'll stop doing um testing and stop doing
Speaker 1: development of additional nuclear weapons. Whether they do or not
Speaker 1: will be the test. Uh and that in exchange the
Speaker 1: one economic concessions. Now, you know, one of the things
Speaker 1: when you go back and look at the NEGO, they
Speaker 1: drag one for years. So I think if something's gonna
Speaker 1: happened here, it has to happen on a different timeline.
Speaker 1: I wouldn't give them only the most minimal concessions during
Speaker 1: the period, and I think the goal and I've been
Speaker 1: thinking about this so more heavily in recent days. I
Speaker 1: do believe the administration's right. It has to be the nuclearization,
Speaker 1: some effort moving in that direction, not just slowing down
Speaker 1: the process. So going into this, he's got the hell
Speaker 1: that sort up high? Toby, come on, do you agree
Speaker 1: on this? And also do you have a sense that
Speaker 1: China and Russia are playing in these negotiations at all? Um?
Speaker 1: I think that while Jack is very right and we're
Speaker 1: gonna look at this primarily right away as trading sanctioned
Speaker 1: relief for concessions on the nuclear program, it's not as
Speaker 1: as simple as even that, um were. There are all
Speaker 1: sorts of issues in play. One is their internet, intercontinental
Speaker 1: ballistic missile systems. Are we going to continue to let
Speaker 1: them develop that? There's they're horrible human rights abuses. Can
Speaker 1: we normalize relations with a country, uh, that that treats
Speaker 1: its people like this just so that we can get
Speaker 1: rid of a nuclear threat? Um? Obviously, as Jack said,
Speaker 1: there's China, UM, there's Russia. UM, there is Japan, and
Speaker 1: there is South Korea. UM. We've got you know, tens
Speaker 1: of thousands of troops. They're they're they're just such a
Speaker 1: huge flood of issues that we cannot look at it
Speaker 1: as just being about their nukes. But but Toby, do
Speaker 1: we just pushed back a little bit. I mean, this
Speaker 1: is a dynamic situation, and one consider that this is
Speaker 1: a positive, positive situation, positive element of this dynamic situation.
Speaker 1: Right now we don't know how it's going to play out,
Speaker 1: but give every chance for for the support to make
Speaker 1: this happen. I couldn't agree more. Pim, this is this
Speaker 1: is a great thing. I'm really glad. I hope it
Speaker 1: comes together. It's just it's it's the first step in
Speaker 1: a big process. And I was just gonna say again
Speaker 1: Toban's right that there's gonna be so much that goes
Speaker 1: in the negotiating and so much expertise on the details.
Speaker 1: The problem is, I'm really recommending that we not get
Speaker 1: bogged down on negotiations, on negotiations, on negotiations, and find
Speaker 1: that we're giving them economic relief and nothing's really happening,
Speaker 1: and then they decide a couple of years from now
Speaker 1: when they're ready to do another UM program to raise
Speaker 1: it to a new platform. We're looking at an empty ball.
Speaker 1: So I think we have to be really tough, and
Speaker 1: I think I think this is the right moment because
Speaker 1: I do think that the Koreans are feeling feeling the pain. Toby, Toby, uh,
Speaker 1: thank you so much and Jack, thank you so much.
Speaker 1: You both really lent some fabulous insight to this very
Speaker 1: complicated and evolving issue. Jack Divine, former acting director of
Speaker 1: the CIA and founding partner and president of the security
Speaker 1: form the ark And Group, And of course our own
Speaker 1: Toby Harshaw, Bloomberg View editor. Always fascinating to hear your insights. Uh, Pam.
Speaker 1: Definitely an evolving issue, a lot of questions. One of
Speaker 1: the biggest right now is who will be preparing President
Speaker 1: Trump for this meeting and who will be going with
Speaker 1: him to it, and not to mention where it will
Speaker 1: be held. Well, Jeffrey the Giraffe maybe calling it a day.
Speaker 1: Nol he read is our director of credit research for
Speaker 1: Bloomberg Intelligence, and Nol, I want you to come in
Speaker 1: on what's going on with toys r US and is
Speaker 1: it likely that we can just say goodbye to Jeffrey.
Speaker 1: It looks like domestically, at least in the current form
Speaker 1: in terms of the bricks and mortar stores, that does
Speaker 1: look like it's increasingly going to be the case. Uh,
Speaker 1: it didn't seem like that needed to be the case
Speaker 1: when they filed last October or so. But given the
Speaker 1: fact that they went into bankruptcy without a plan, and
Speaker 1: the way things kind of rolled through retail and change
Speaker 1: very quickly, and how contentious sort of the the bankruptcy
Speaker 1: has been between all the different stakeholders, that is looking
Speaker 1: like where we're going as we speak, you know, no,
Speaker 1: can you just elaborate a little bit on exactly what
Speaker 1: happened here? Why this fell apart? We are seeing, uh
Speaker 1: the shares of toymakers fall today, So there are broader
Speaker 1: consequences to the concept that Jeffrey the draft will go
Speaker 1: by the way of retired conception. So what happened here?
Speaker 1: What broke down? Well, I think, you know, I guess
Speaker 1: to go back to to part of what I just said,
Speaker 1: which is to say that they kind of went in
Speaker 1: without a plan. So when they filed, you know, unlike
Speaker 1: a lot of the deals, you know, when you file,
Speaker 1: you kind of go with plans, so you kind of
Speaker 1: know how long you're going to be in and how
Speaker 1: long you might take to get out here. Because they
Speaker 1: were kind of put into bankruptcy because you had a
Speaker 1: situation where the vendors basically just shut off for them.
Speaker 1: They were forced to file prematurely so they could at
Speaker 1: least get through the holiday, So nobody really anticipated them filing.
Speaker 1: And if you recollects, sort of the short term bonds
Speaker 1: went from like you know, in the nineties into the
Speaker 1: twenties like effectively overnight, so it was kind of a
Speaker 1: surp lies filing. And then as they've gotten into bankruptcy,
Speaker 1: had a very weak holiday. Uh, and you have a
Speaker 1: lot of operational dynamics that need to happen here for
Speaker 1: them to be solvent. But you have a lot of
Speaker 1: competing interests in terms of you know, you have the
Speaker 1: property companies that are very interested in preserving the value
Speaker 1: of the real estate, whereas the operational side of it
Speaker 1: really needs to get changes to the least terms in
Speaker 1: order to be profitable. So I think, you know, as
Speaker 1: the bankruptcy and folded, just given the competitive nature of
Speaker 1: the different creditor groups made it very difficult for them
Speaker 1: to sort of come to a consensus of what should
Speaker 1: a pro form Toys r US look like. And the
Speaker 1: toys are us not the only retailer facing some headwinds
Speaker 1: here Claires tell us about what's going on. So clears
Speaker 1: is it looks like it's gonna be better in the
Speaker 1: sense that you could have better in bankruptcy. Um, you know,
Speaker 1: it's going to be more along the lines of maybe
Speaker 1: what we saw with Quicksilver a couple of years ago
Speaker 1: Jimboury a year ago, where creditors are kind of it's
Speaker 1: going in with a plan. Right, So you had another
Speaker 1: LBO story severely over leveled, but you have a company
Speaker 1: that generates decent cash flow, has a decent little business,
Speaker 1: and creditors sort of have a plan of what this
Speaker 1: thing should look like on the other side. So this one,
Speaker 1: at least, you know, from the looks of it right now,
Speaker 1: probably is you know, it could go in maybe being
Speaker 1: bankruptcy for six months, get quickly turned around, they hand
Speaker 1: the keys over to the creditors, uh, and then it
Speaker 1: emerges on the other side, maybe a little bit smaller
Speaker 1: than what it is right now, but still a functioning operation. No,
Speaker 1: who's next on this retail death Well, how long is
Speaker 1: the list? I don't know so well, I mean, so
Speaker 1: I guess you know one of the companies that have
Speaker 1: been on the list that isn't anymore would have been
Speaker 1: Nemon Marcus right, so they had a reasonably good quarter
Speaker 1: that they reported today. Bonti has already gone. In Sears
Speaker 1: is is you know, the living dead of sorts. Um
Speaker 1: they're they're you know, they're definitely there, right, I mean,
Speaker 1: liquidity wise, operational wise, they're there. I think, um, you know,
Speaker 1: you also have names like Jake Crewe, but I think
Speaker 1: Jay Cruise get liquidity to navigate the intermediate terms. So
Speaker 1: if you just had to pick one out of out
Speaker 1: of the group, I think Sears is the one that
Speaker 1: obviously faces the you know, a very very weak operating climate,
Speaker 1: and they're running out of assets to sell to sort
Speaker 1: of stave off at next stage. Um So, so I
Speaker 1: think they're They're probably at the front of the queue
Speaker 1: at this point. No Hubert, thank you so much for
Speaker 1: joining us. Always a pleasure. No Hubert is director of
Speaker 1: credit research for Bloomberg Intelligence, The Walking Dead of retailers.
Speaker 1: Just In Woyd blank find is preparing to step down
Speaker 1: as Goldman Sachs Chief executive as soon as the end
Speaker 1: of the year. This according to The Wall Street Journal.
Speaker 1: Just crossing moments ago to get some perspective on what
Speaker 1: this would mean for the bank. I want to bring
Speaker 1: in Michael Moore, US finance team leader. Michael, what's your
Speaker 1: reaction to this and who is the likely successor to
Speaker 1: Lloyd Blank? Find sure? I think UM not hugely shocking,
Speaker 1: and you know, Lloyd's UM exit has been kind of
Speaker 1: forecast for a few years now, and if this is
Speaker 1: indeed the year, it would make some sense. He's been
Speaker 1: in the top job for a dozen years now and UH,
Speaker 1: at the end of twenty sixteen they named two uh
Speaker 1: CO presidents below him, Harvey Shortz and David Solomon. UH
Speaker 1: those are seen as the two likely successors, and now
Speaker 1: they've had UM a little more than a year in
Speaker 1: those UM top jobs kind of overseeing the firm with Lloyd,
Speaker 1: So I think UM this would be seen as a
Speaker 1: fairly UM you know, smooth handoff to one of them.
Speaker 1: Although Michael, this does raise some questions about the timing
Speaker 1: of this because Goldman Sachs has had some pretty big plans,
Speaker 1: but reviving it's bond trading unit has been pretty aggressive
Speaker 1: with consumer lending through its Marcus platform that it started
Speaker 1: a couple of years ago. UH, do you have any
Speaker 1: insights on why now UM you know, I think, Um,
Speaker 1: you know, I think, as you mentioned, they are kind
Speaker 1: of having this pivot um they um into more of
Speaker 1: the consumer business. The trading business has struggled. But if
Speaker 1: they you see the return of volatility this year, that
Speaker 1: may help them kind of get on firmer footing in
Speaker 1: their main business. Um. So um that that could be
Speaker 1: seen as a time to step down. Michael, just hang
Speaker 1: on because I want to bring in Tad Ravel. He
Speaker 1: is the chief investment officer for tc W based in
Speaker 1: Los Angeles, helping you manage more than a d eighty
Speaker 1: billion dollars. Tad, thanks very much for being with us.
Speaker 1: What are your what's your reaction to this breaking news
Speaker 1: that we might see Lloyd blank find stepped down as
Speaker 1: the head of Golden Sacks by the end of the year. Well, Um,
Speaker 1: I don't think that it is all that surprising in
Speaker 1: light of the naming of the two com uh CO
Speaker 1: presidents that occurred a year or so ago. Um. At
Speaker 1: a personal level, I've met Lloyd in a a smaller
Speaker 1: intimate type of setting. Always found him to be very amiable,
Speaker 1: very humble. Um. There's probably some background about him actually
Speaker 1: that many of the listeners might not be aware of
Speaker 1: his father was was a postman, and he initially, uh,
Speaker 1: as he described it, sort of bumbled into his role
Speaker 1: at Goldman Sachs by virtue of the fact that he
Speaker 1: had he had worked in a commodities firm um sometime prior,
Speaker 1: but actually started his career as an attorney. But he's
Speaker 1: had a really good run, and he's obviously built a
Speaker 1: incredible powerhouse of an operation. Well he as you mentioned,
Speaker 1: he has spent thirty six years at Goldman Sachs and
Speaker 1: as you mentioned, previously a gold salesman in the commodity division,
Speaker 1: then ran the firm's trading of business. Named chief executive
Speaker 1: in two thousand and six when Hank Paulson became the
Speaker 1: Treasury Secretary. Yeah, exactly so, Dad, I'm wondering your perspective
Speaker 1: on sort of the fixed income trading environment since Goldman
Speaker 1: Sachs was one of the leaders, has been one of
Speaker 1: the leaders in that area and has actually doubled down
Speaker 1: on their debt trading unit, even as revenues have flagged
Speaker 1: over the years on a year over year basis. I'm
Speaker 1: wondering going forward, do you think that we are heading
Speaker 1: into a better environment for trading revenues and that Goldman
Speaker 1: Sachs stands to benefit from that, or do you think
Speaker 1: that we're going to be in a very different environment
Speaker 1: due to electronification other kinds of streamlining. Well, I think
Speaker 1: at in the recent past, the issue with respect to
Speaker 1: poor trading revenues across the entirety of the industry has
Speaker 1: really been reflective of to UH two dynamics. One has
Speaker 1: been the incredibly low level of volatility that has persisted
Speaker 1: in financial markets to low for longer, and the engineering
Speaker 1: of this low volatility on the part of the central
Speaker 1: banks and the DoD Frank legislation that essentially drove large
Speaker 1: financial firms more or less out of the role of
Speaker 1: proprietary trading, and have they have been forced to over
Speaker 1: the course of this cycle to agent risk, but not
Speaker 1: to principal risk. And as a consequence of these two dynamics,
Speaker 1: we've had a very low level of transaction volumes for
Speaker 1: a long time. Going forward, I think that we can
Speaker 1: see several things happening. There seems to be some movement
Speaker 1: in the direction of relaxation of the financial regulations, particularly
Speaker 1: the vocal rule, which ought to help um. Secondly, we
Speaker 1: are seemed to be transitioning to a higher volic atility
Speaker 1: type of environment, and the the thrust as it relates
Speaker 1: to electronic trading. That's a process that's been around for
Speaker 1: a very long period of time, and the Wall Street
Speaker 1: firms have demonstrated almost an endless ability to adapt and
Speaker 1: the inventive and to make money as long as there's
Speaker 1: actually an opportunity for them to do that. Ted, tell
Speaker 1: us your thoughts right now on investing in fixed income.
Speaker 1: Do you think we're going to get a repricing of
Speaker 1: corporate bonds? Are there things that are worth buying right now? Well,
Speaker 1: we've been thinking that there ought to have been a
Speaker 1: repricing of corporate bonds for quite some time. UM where
Speaker 1: we continue to exist in this environment in which risk
Speaker 1: appetites are, in our opinion, exuberantly large. UM. The when
Speaker 1: you examine, for instance, the corporate asset class, several of
Speaker 1: your takeaways will be the observation of very high levels
Speaker 1: of leverage. So when you look at the total stock
Speaker 1: of debt, for instance, on the part of investment grade companies,
Speaker 1: and look at the relationship between that totality of debt
Speaker 1: as compared with their actual earnings, what one will take
Speaker 1: away is that you are at the highest levels of
Speaker 1: leverage of debt to EBA DHAH, since at least two
Speaker 1: thousand and two, you are above where we were back
Speaker 1: in two thousand and seven. If you want to look
Speaker 1: at it through other metrics, for instance, the amount of
Speaker 1: compensation that the investor earns per turn of leverage on
Speaker 1: the underlying business, you've come away with the same observation.
Speaker 1: If you look at what's happening in the M and
Speaker 1: A market, you can see that private equity has been
Speaker 1: pushing the envelope in terms of looking for um uh
Speaker 1: loose looseness in terms of covenant quality, protections for the investor,
Speaker 1: and obviously discretion for the equity sponsor. So the list
Speaker 1: kind of goes on and on. The there are plenty
Speaker 1: of yellow flags and maybe the beginning of some red
Speaker 1: flags that have been out there for some time. So
Speaker 1: you're supposed to be, I think, quite cautious about moving
Speaker 1: into the more cyclically exposed areas of the corporate as
Speaker 1: UM asset class, and particularly those areas that also evince
Speaker 1: financial leverage as well. All right, just real quick, which
Speaker 1: asset class and fixed income are your most bullish on? Well,
Speaker 1: I don't know that there's any asset class out there
Speaker 1: actually that you should be actually bullish on. I think
Speaker 1: that where you're supposed to focus your attention is to
Speaker 1: be disciplined, say short term in terms of maturity, and
Speaker 1: focus on higher quality type of asset classes, um the
Speaker 1: kind that we would describe as bendable and not breakable.
Speaker 1: Tadra Val, chief investment officer at TCW focused unfixed income
Speaker 1: TCW managing about hundred eighty billion dollars. Just to reiterate,
Speaker 1: Goldman Sachs chief executive Lloyd blank Find preparing to step
Speaker 1: down as soon as later this year, capping twelve years
Speaker 1: at the home of one of the biggest US banks. Indeed, well,
Speaker 1: it might not be that quick for Signa to acquire
Speaker 1: express Script as it has proposed. Evidently, antitrust regulators are
Speaker 1: very interested in seeing what this deal would actually look like.
Speaker 1: Here to join us as Max Nissan, biotech, pharma and
Speaker 1: healthcare columnist for Bloomberg gad Fly. Max, let's just start
Speaker 1: with how realistic is it that this deal is going
Speaker 1: to go through? Uh? You know, I I think it
Speaker 1: has a pretty decent shot, although it'll be the kind
Speaker 1: of one of the first real big tests of what
Speaker 1: any trust looks like under the Trump administration. UM, you
Speaker 1: know it's it's not a horizontal consolidation. Really, it's you know,
Speaker 1: an insurer teaming up with the PBM. Signa has a
Speaker 1: PBM pharmacy benefits pharmacy benefit manager, but a relatively small one.
Speaker 1: I guess the question is if you are you're concentrating
Speaker 1: too much general healthcare market power in the hands of
Speaker 1: just a few companies, especially when you add in the
Speaker 1: fact that this will be the second of two very
Speaker 1: large ensure PBN mergers are the first being at non CBS,
Speaker 1: So the fact that both of these are arriving at
Speaker 1: the same time might increase the level of scrutiny from
Speaker 1: an industry point of view. Max How do PBMs make money?
Speaker 1: How to physician pharmacy benefit management companies earned their keep?
Speaker 1: There are a couple of different ways. UM. The first
Speaker 1: is that they take a cut of the rebates that
Speaker 1: they negotiate on behalf of their clients. So example, for example,
Speaker 1: if you have two diabetes drugs, you pick one of
Speaker 1: them because they give you a bigger discount. They take
Speaker 1: a slice of that discount and send the rest onto
Speaker 1: their client. UM. They also take a piece of the
Speaker 1: spread between the manufacturer's price and what a pharmacy pays.
Speaker 1: And they also collect fees for for certain services um
Speaker 1: that they provide for clients, which is basically trying to
Speaker 1: manage drug spend in other ways. So if you use
Speaker 1: their prefer drug list, you pay a higher fee for example.
Speaker 1: So it's all those things. So the theory here, at least,
Speaker 1: this is what's being proposed to clients, is that mergers
Speaker 1: of this type will lead to signia, for example, passing
Speaker 1: along any savings to customers. You're laughing, I see, um,
Speaker 1: but you know, could that be true? I mean, could
Speaker 1: they have a certain negotiating power to get down pricing
Speaker 1: and strip out any sort of excess roles that get
Speaker 1: sort of uh lost in the shuffle and make it
Speaker 1: cheaper you know, at least theoretically anytime that you add
Speaker 1: scale um. And in this case, you have you know,
Speaker 1: a single company managing kind of the totality of a
Speaker 1: person's medical care both you know, the medical part which
Speaker 1: nets and the drug benefit. So um, theoretically, now that
Speaker 1: you don't have two different companies taking a slice of
Speaker 1: that profit, perhaps you'll see some savings and more passed
Speaker 1: on to the customer, to clients or two consumers. But um,
Speaker 1: I think kind of the arc of the health care
Speaker 1: universe is generally towards more inflation and taking the pretty
Speaker 1: close to the same amount. We'll see. Maybe maybe I'm
Speaker 1: just a bit of a skeptic, but I don't imagine
Speaker 1: that that there will be a tremendous amount of savings inaggregate. Okay,
Speaker 1: let's play Devil's advocate. If there are savings to be had,
Speaker 1: they have to come from someone or I mean a person,
Speaker 1: but some company or some industry group that is currently
Speaker 1: enjoying that money. Who is going to get hurt by this? Uh,
Speaker 1: probably drug makers on one side, and then potentially people
Speaker 1: who contract with insurers and PBMs on the other because
Speaker 1: there's even potentially less competition. Now you have just a
Speaker 1: couple of very large vendors, and um, you know, all
Speaker 1: will certainly be price competitive with each other in areas
Speaker 1: where they intersect. Um, when there are fewer there's less
Speaker 1: of a large so large corporations, for example, that use
Speaker 1: a pharmacy benefit manager in order to manage part of
Speaker 1: the healthcare costs of their workforce potentially and that's why
Speaker 1: you see you know, the the Amazon Berkshire JP Morgan thing, UM,
Speaker 1: them taking to attempting to take a little bit of
Speaker 1: that power back by running some of these things themselves
Speaker 1: instead of contracting out to one of these new giant companies.
Speaker 1: You know, one question that I have a lot of
Speaker 1: people say, there's gonna be plenty more consolidation in the
Speaker 1: healthcare space. Uh. The consolidations that we have seen are
Speaker 1: the proposed ones are somewhat different in each case. CVS
Speaker 1: for example, and now that is a healthcare company and
Speaker 1: a drug store operator. And then here you have a PBM,
Speaker 1: aformacy benefit manager getting acquired uh by signa a healthcare company.
Speaker 1: What's the optimal combination for cost savings? UM, you know,
Speaker 1: I think the one that I would point to is
Speaker 1: is having the most potential And we'll see if this
Speaker 1: is actually realized. Because I'm talking about CVS at and
Speaker 1: up because they are raising so much debt that's going
Speaker 1: to constrain their buildOn to actually spend to get the
Speaker 1: most out of it. But since they're combining UM, you know,
Speaker 1: and and insure uh, CVS all so owns the largest
Speaker 1: pharmacy benefit manager in the country, and the drug store,
Speaker 1: the physical location where they have clinics. Um, they control
Speaker 1: kind of the potentially broadest swath of healthcare. And how
Speaker 1: important is it that they're actually getting data on the
Speaker 1: health of their clients in real time as they go
Speaker 1: to clinics and managing their drugs. I mean, is that
Speaker 1: sort of the understated benefit as well? Yeah, I think
Speaker 1: that's hugely important. I mean, the more data that you have,
Speaker 1: the more effectively you can design plans and price them
Speaker 1: and interventions. Um, you know, all of these things can
Speaker 1: can contribute to controlling costs over time. I will see
Speaker 1: if that actually, you know, manifests as uh, you know,
Speaker 1: cost savings to the healthcare system as opposed to cost
Speaker 1: savings for CVS and better margin. But um, there's definitely
Speaker 1: potential for that. I want to thank you very much
Speaker 1: for joining us, Max Neeson as always illuminating and thoughtful.
Speaker 1: Max Neeson is our Bloomberg Dad Fly columnists for all
Speaker 1: things related to healthcare, and of course this is a
Speaker 1: topic that is of interest not only to people who
Speaker 1: access to healthcare system, but to those who are investing
Speaker 1: in it. Thanks very much. Thanks for listening to the
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
Speaker 1: I'm on Twitter at Lisa Abramo. It's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio