Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanovk. We're here every day bringing
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Speaker 1: Searched Bloomberg Global News lots of headlines when it comes
Speaker 1: to COVID and the pandemic. UK government Tim This is positive.
Speaker 1: They are lifting the restrictions that opposed. But in England
Speaker 1: back in December when the o maicron variant caused a
Speaker 1: record spike and infections that now show signs of easing.
Speaker 1: So a peak coming down, that's good. We're certainly seeing
Speaker 1: that here in New York City, but we should note
Speaker 1: that cases are still soaring elsewhere in Europe. France reporting
Speaker 1: a set a record of nearly four d and sixty
Speaker 1: five thousand new infections. Italy and Germany also registered all
Speaker 1: time highs. Switzerland decided to extend a work from home
Speaker 1: order to the end of February as cases search of
Speaker 1: different stories playing out. But we're learning more about how
Speaker 1: quickly hopefully on the cron can peak exactly. Fingers crossed.
Speaker 1: Dr David Kim is back with US, chief Executive of
Speaker 1: Physician Enterprise of at Providence Health. The first known US
Speaker 1: case of COVID nineteen was confirmed in Washington State at
Speaker 1: Providence Regional Medical Center and Everett that was pack in
Speaker 1: early January. There are massive hospital system and Dr Kim
Speaker 1: joins us on the phone in Irvine, California. Dr Kim
Speaker 1: so glad to have you back with Tim and myself
Speaker 1: here on Bloomberg. How are you and what are you seeing.
Speaker 1: I'm doing well and we are seeing a lot of
Speaker 1: what you are mentioning already that the COVID is uh
Speaker 1: the omicron is very infectious, and we're seeing it in
Speaker 1: fact people much more easily than the previous variants, and
Speaker 1: we're seeing our hospitalizations rise as a result of that.
Speaker 1: Um Although the rate of the percentage of people that
Speaker 1: are winding up in the I c U is much
Speaker 1: lower relative to the previous surges with omicron, and we
Speaker 1: were seeing milder disease. Okay, so that's a lot of
Speaker 1: good news. What what can you tell us? And and
Speaker 1: forgive me, but I like to ask this to everybody
Speaker 1: who has an idea of what's going on in in hospitals. Uh,
Speaker 1: who is that? Who is hospitalized right now? And are
Speaker 1: they vaccinated versus unvaccinated versus boosted? What can you tell
Speaker 1: us about who is actually getting very sick with covid
Speaker 1: um So there's there's different ways to answer that question.
Speaker 1: I would say who's getting hospitalized? We're seeing both vaccinated
Speaker 1: and unvaccinated people wind up in the hospital, and that
Speaker 1: is different with omicron because we saw the delta virus affected.
Speaker 1: Hospitalization is much less in people who are vaccinated. However,
Speaker 1: and what we're seeing is that people who are unvaccinated
Speaker 1: being hospitalized are getting much sicker. So the percentage of
Speaker 1: people that are going to the IIC you that do
Speaker 1: get very sick with omicron tend to be people who
Speaker 1: have not been vaccinated or boosted. Can you believe we're
Speaker 1: still talking about this and living this? Dr Kim, Yeah,
Speaker 1: day is like a year these days and you know,
Speaker 1: depending on how you look at it, this is the third, fourth,
Speaker 1: or fifth surge we've had over the past two years.
Speaker 1: It is it has been a remarkable time. And healthcare.
Speaker 1: How do you balance normal health care with pandemic healthcare.
Speaker 1: It's difficult, right. Not only are there constraints in the
Speaker 1: hospital because of the COVID patients, but there is a
Speaker 1: bit of a shift in the mindset of patients of
Speaker 1: when do they feel comfortable going to the hospital um.
Speaker 1: And some of that has been positive and thinking through
Speaker 1: telehealth and the evolution of being able to get health
Speaker 1: care in new and novel ways, but some of it
Speaker 1: is concerning that people who need care aren't getting it
Speaker 1: and where um, there is a concern that once COVID
Speaker 1: is over, we're going to start seeing people who delayed care,
Speaker 1: who are going to need care. We're going to see
Speaker 1: more significant consequences of that. It's so it's so interesting
Speaker 1: that you said that, I mean a year ago, Carol
Speaker 1: remembers this. I hadn't been to the dentist any year
Speaker 1: because of because of COVID, and finally I finally gotten
Speaker 1: appointment for with a with a physician today for a
Speaker 1: check out. But it was so difficult to get an
Speaker 1: appointment because all these healthcare workers, so many of them
Speaker 1: have gotten sick, so many of them are overworked. So
Speaker 1: it seems like the system is kind of being pulled
Speaker 1: from both ends here. Doctor. Oh yeah, the staffing issue,
Speaker 1: I would say is almost as much of a concern
Speaker 1: as the as the COVID itself. That so much of
Speaker 1: our constraints these days are because people are getting sick
Speaker 1: and they can't work or they're just tired, you know.
Speaker 1: And we see record numbers of people leaving healthcare as
Speaker 1: as an employment option because of the past two years
Speaker 1: and the and the strains that COVID has put on
Speaker 1: the system, and then the people who work in the system.
Speaker 1: So what are the changes that need to be made?
Speaker 1: I mean, your your your CEO of Physician Enterprise at
Speaker 1: Providence Health Systems. So so you're making these decisions, and
Speaker 1: you're looking closely at the data about people who are
Speaker 1: staying and people who are leaving. What needs to change
Speaker 1: in order to make sure that our health care workers
Speaker 1: in the US do not get burned out? I think
Speaker 1: that's the that's the million dollar or the billion dollar
Speaker 1: question we are really thinking through. How do we keep
Speaker 1: hearts in minds engage, and how do we keep people
Speaker 1: close to their initial calling of why they went into
Speaker 1: healthcare in the first place, and why, how we can
Speaker 1: keep healthcare from being a commoditized industry but really be
Speaker 1: a place where people can fulfill the mission of why
Speaker 1: they chose a career to help others in their communities.
Speaker 1: And the more we can continue to bring that back
Speaker 1: into the why of why people came into healthcare and
Speaker 1: why they come to work every day, I think, the
Speaker 1: more we can think about how we can sustain them
Speaker 1: through what is a very very difficult time. How do
Speaker 1: we do that, though, like you said, you've got to
Speaker 1: figure it out. What are your thoughts on that? Is
Speaker 1: it a case of pay? Is it a case of respect?
Speaker 1: Is it I love? I don't love. But I think
Speaker 1: about how you said commoditized, you know, um in terms
Speaker 1: of health care workers. UM, I certainly don't think of that.
Speaker 1: When I go to see somebody as like a commodity.
Speaker 1: I think about, you're an expert, you went had a
Speaker 1: lot of education. You know you've got to you know,
Speaker 1: you're taking care of our health. Absolutely, we call those
Speaker 1: sacred encounters, and it is the reason why it's so
Speaker 1: fulfilling to be in healthcare to have those moments of
Speaker 1: connection and relationship and intimacy almost with with sharing your
Speaker 1: life and thinking about your health. How we do that,
Speaker 1: I think is this multiple fold. Some of it is
Speaker 1: through programmatic work around keeping people focused on the purpose
Speaker 1: and the mission of why. Some of it around creating
Speaker 1: a work environment, whether that's compensation or cultural work, or
Speaker 1: a sense of community that we can really get our
Speaker 1: arms around how to make people feel part of something
Speaker 1: and and connected to the purpose of what we're trying
Speaker 1: to accomplish together. And part of it is practical is
Speaker 1: sending people to workshifts that don't burn them out in
Speaker 1: so that they can find adequate time to rest, and
Speaker 1: equipping them with tools so that they can check out
Speaker 1: when their home and not be thinking about work all
Speaker 1: the time. All about wellness that has been a big
Speaker 1: theme of this pandemic. Dr Kim David Kim, Chief Executive
Speaker 1: Physician Enterprise at Providence Health, Thank you so much, Bloomberg.
Speaker 1: You're listening to Bloomberg Business Week with Carol Masser and
Speaker 1: Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. President Biden
Speaker 1: Marking one year in office, we're going to hear from
Speaker 1: the president, I guess in about an hour or so
Speaker 1: on that. In the meantime. In the upcoming issue of
Speaker 1: Bloomberg Business Week, Bloomberg News white house reporter Jenny Leonard
Speaker 1: writes about how one year in tim the president finds
Speaker 1: himself boxed in when it comes to China. Jenny Leonard
Speaker 1: is white house reporter for Bloomberg News. She joins us
Speaker 1: on the phone from Washington, d C. Also joining us
Speaker 1: is Joel Webber, editor at Bloomberg Business Week. He joins
Speaker 1: us on the access line from Brooklyn. Joel, it's so
Speaker 1: interesting during at this point in the Trump administration, we'd
Speaker 1: probably be talking about a trade war perhaps it maybe
Speaker 1: perhaps in the second year of the Trump administration. Up
Speaker 1: What exactly, though, is the policy that the Biden administration
Speaker 1: has towards China right now? Well, that's the whole point
Speaker 1: of the story, my friend. So it's a really interesting
Speaker 1: moment because if I rewound the clock and we were
Speaker 1: at this moment, like you said, in the Trump administration,
Speaker 1: I think I had done multiple trade war uh covers already,
Speaker 1: and you know, here we are, um uh when almost
Speaker 1: one year in knocking on that door for the Biden administration,
Speaker 1: and I think, as Jenny is about to tell you,
Speaker 1: it looks pretty much like the same framework. That's exactly
Speaker 1: what I was. Yeah, we haven't really even talked about
Speaker 1: trade forever. Um, I just forgot all about it. So
Speaker 1: Jenny remind us where do things stand in and what
Speaker 1: is the Biden administration's uh policies on trade with China? Especially,
Speaker 1: looked like, yeah, you got it right, Joel. It does
Speaker 1: look a lot like you know, where Trump left office.
Speaker 1: And a lot of Democrats fear that that's sort of
Speaker 1: a weakness going into the mid term election because China,
Speaker 1: of course is something that energizes with voters. Of course
Speaker 1: it takes a backseat to COVID and the economy right now. Uh,
Speaker 1: but Biden hasn't really in the first year in office,
Speaker 1: put his own stamp on China policy. And even his
Speaker 1: allies say, hey, you know, I think you I think
Speaker 1: we're we know where you're hinting at wanting to do,
Speaker 1: but we don't really know for sure, So why don't
Speaker 1: you tell us? Um, the Biden administration has been meticulously
Speaker 1: reviewing sort of what they inherited. Right if you guys,
Speaker 1: remember the trade war sort of ended with the Phase
Speaker 1: one deal inherited that those negotiations are still ongoing. Uh,
Speaker 1: the Chinese have fallen short on their commitments, which we
Speaker 1: knew going into this administration. Um, and there's really no
Speaker 1: timeline for when those negotiations should result in any sort
Speaker 1: of outcome. So UM to sum it up, I would say,
Speaker 1: you know, they really need to hit the gas to
Speaker 1: to show something in the mid terms because Democrats are
Speaker 1: getting a little anti that Republicans sends a little weakness here,
Speaker 1: you know, Jenny, what's the right China policy? I mean
Speaker 1: I talked to the Cisco CEO Tech Robbins earlier. China
Speaker 1: we know so important to global company companies, But what's
Speaker 1: the right balance when it's safe to say world leaders,
Speaker 1: US leaders don't agree with Chinese social policies, but they
Speaker 1: also don't want to lose access to the China's you know,
Speaker 1: massive market potential that that continues to be out there.
Speaker 1: So what is the right policy with China? Yeah, I
Speaker 1: think you hit the nail on the head there on
Speaker 1: exactly what you know any government or any U S
Speaker 1: government is trying to balance and where the different sort
Speaker 1: of voices come in when the different principles from agencies
Speaker 1: are discussing it, right, So you you would have you know,
Speaker 1: in thinking back to the Trump administration, you would of
Speaker 1: course have you know the more HACKISHENDVERSH sides, you know, Treasury, U, SCR, Commerce,
Speaker 1: all these different entities that here from different stakeholders. And
Speaker 1: I think the Biden administration is hearing exactly the same things.
Speaker 1: Even if a has become more and more difficult to
Speaker 1: deal with, even as supposedly you know, there's less interest
Speaker 1: in investing in China, We're still seeing how intertwined the
Speaker 1: economies are. And I think you've seen at least the
Speaker 1: Commerce Secretary be very vocal, uh in this Biden administration
Speaker 1: saying decoupling is not an option, that is not something
Speaker 1: that is possible, that is not something that's desirable. If anything,
Speaker 1: we need to slow that down China as much as
Speaker 1: we can, but we need to run faster. And so
Speaker 1: that's been the Biden administration's focus, you know, getting the
Speaker 1: Rescue plan pass getting the infrastructure plan passed, and you know,
Speaker 1: of course now working on their third big plan, the
Speaker 1: Build Back Better Plan, which is stalled. Um, so there
Speaker 1: isn't really anything in the immediate term, and definitely nothing
Speaker 1: that they can show in the biladult sense where they say, hey,
Speaker 1: we're competing with China in a smarter way. Jenny, we
Speaker 1: got to talk about the politics of this, because here
Speaker 1: we are, it's midterm elections coming up in November. We
Speaker 1: are expecting to hear from the president to really give
Speaker 1: a speech about his first year in office at four
Speaker 1: o'clock today Wall Street Time. How are Republicans though, using
Speaker 1: the President's policy towards China, the administration's policy towards China,
Speaker 1: as a way to criticize him. So I think, um,
Speaker 1: Republicans are are definitely you know, seizing the moment that
Speaker 1: Biden for now, and they might prove us wrong, you know,
Speaker 1: in two months. But for now, Biden has adopted and
Speaker 1: kept in place Trump's policies, which, of course, uh you
Speaker 1: remember the Republican Congress has pushed him. There. There's a
Speaker 1: lot of you know, China Hawks in Congress that are
Speaker 1: maybe gearing up for presidential runs themselves in two that
Speaker 1: are running for re election to their Senate seats or
Speaker 1: House seats in two Uh. So they feel emboldened knowing
Speaker 1: that the Biden administration is sort of boxed in leaving
Speaker 1: in place the policies that you know, they sort of
Speaker 1: pushed the Trump administration to go for UH and and
Speaker 1: they are seeing you know, the this boxed in situation
Speaker 1: for Biden too that I think they're sort of relishing
Speaker 1: a little bit that Biden is, you know, maybe unable
Speaker 1: to do much on China that could hurt the U.
Speaker 1: S economy even more. Uh when you think about tariffs, right,
Speaker 1: so currently we have tariffs in place. Um, everyone knows that,
Speaker 1: you know, taking off Harris will probably leave Biden even
Speaker 1: more vulnerable to criticism from Republicans. But adding more tariffs
Speaker 1: to it, if that is your enforcement tool, is maybe
Speaker 1: not something they want to go down. It's it's not
Speaker 1: really a pass they want to you know, go down.
Speaker 1: And so Republicans see the current reality for Biden and
Speaker 1: you know, probably enjoying watching him sort of figure out
Speaker 1: his way out of this box. Okay, we spent a
Speaker 1: lot of time learning uh cast of characters in the
Speaker 1: Trump administration who would love to tip their cards and
Speaker 1: talk about how negotiations were going. We've heard nothing about
Speaker 1: who's leading the charge of the American side, and the
Speaker 1: Biden administration. Who are the players real quick Jenny, Yeah,
Speaker 1: certainly a different casts of characters, and they're way less
Speaker 1: likely to tell us how it's going. Um it's the
Speaker 1: chief negotiator here is Katherine tie of the US Trade Representative.
Speaker 1: She's been in touch with the Chinese, uh, only twice
Speaker 1: in the first year in office. Her deputy, Sarah Bianchi,
Speaker 1: who handles China issues, has been in touch with the
Speaker 1: Chinese also a couple of times, although the agency decided
Speaker 1: not to disclose that. So um uh interesting there. And
Speaker 1: then you know, of course Tresure Secretary Yellen and Commerce
Speaker 1: Secretary are also key players here. Yeah. Aho, a lot
Speaker 1: of top names there in the administration, he thinks so much.
Speaker 1: Bloomberg News White House reporter Jenny Leonard from d C,
Speaker 1: of course, along with Bloomberg Business Week at or Jill
Speaker 1: Webber from Brooklyn. That story in the upcoming issue of
Speaker 1: Bloomberg Business Week magazine. It's online on the Bloomberg that
Speaker 1: magazine out lead this week. This is Bloomberg Business Week
Speaker 1: with Carol Masser and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. So we had a bunch of big banks
Speaker 1: report over the last week, and Tim, we had what
Speaker 1: Morgan in b of a today coming out with numbers. Yeah,
Speaker 1: we've far already heard from Goldman Sachs, We've heard from
Speaker 1: JP Morgan Chase. Uh. We're also starting to hear from
Speaker 1: the regional banks as well, right, and I know that's
Speaker 1: something that's certainly always on the radar of our next guest,
Speaker 1: Anton Shuts is back with us. He's president and chief
Speaker 1: investment officer at Mendon Capital Advisors. On the phone in Florida. Anton,
Speaker 1: Good to have you here, Happy New Year. How are you.
Speaker 1: I'm doing well? Thanks about yourself doing okay? You know,
Speaker 1: taken one day at a time as as we do. Um.
Speaker 1: Good to hear though and kind of get into earnings
Speaker 1: because I really love when we start to hear, certainly
Speaker 1: from the financials and from leaders overall the big banks.
Speaker 1: How do you see it, not only the numbers today,
Speaker 1: but the numbers we got last week. How are the
Speaker 1: banks doing? I mean, compensation is one of those things
Speaker 1: increased costs showing up big time. Well, it's compensation, it's technology,
Speaker 1: and you know it's a it's a real difference in
Speaker 1: strategy between a number of these companies. You know, if
Speaker 1: you think about um, you know, JP Morgan investing twelve
Speaker 1: billion dolls in financial technology, right, I mean that's more
Speaker 1: than all the disruptors combined, probably right, investing in new
Speaker 1: new innovation and research. I mean, they certainly can win
Speaker 1: the game, but you know it comes at a cost.
Speaker 1: It's amazing they can earn the amount of money they
Speaker 1: earned while spending twelve billion dollars. Yeah, Anton, what does
Speaker 1: that look like? Because when we talked to fintech companies
Speaker 1: for example, you know I talked to Chris Britt, the
Speaker 1: CEO of Chime yesterday. It's a twenty five billion dollar
Speaker 1: fint it doesn't call itself a bank, though it offers
Speaker 1: banking services. It's it's just got a massive, massive private
Speaker 1: market valuation. Is the idea for for JP Morgan to
Speaker 1: invest in products like like that? Because help me understand
Speaker 1: what what these fintech investments are. Well, I mean they're
Speaker 1: they're obviously trying to make themselves more efficient. They're trying
Speaker 1: to improve their delivery process. They're trying to improve their
Speaker 1: ability to provide compliance, which is you know, it's very
Speaker 1: expensive and if you look at the core processors the
Speaker 1: five serves. Jack Henry's the f I s is those
Speaker 1: are very expensive cores and you know all the banks
Speaker 1: using them. At the end of the day, if you
Speaker 1: can find a way to deliver all of your products
Speaker 1: that even exists your customers right cheaper, then you get
Speaker 1: to eliminate some of those very expensive U and capital
Speaker 1: costs that are very bay. You can't get people to
Speaker 1: come to work anyway. And obviously if you if you
Speaker 1: can get people to come to work, you've got to
Speaker 1: pay them more. So part of part of the money
Speaker 1: spent on the innovation is not just a new products, right,
Speaker 1: It's it's and how do you deliver those products. That's
Speaker 1: how you provide compliance for that deliberate and I think
Speaker 1: that you know, we'll learn a lot more about that
Speaker 1: compliance as the regulators get more involved in unregulated you know,
Speaker 1: uh sin tex right, the banks are very regulated. We
Speaker 1: just saw so far this morning. It's gonna become a
Speaker 1: lot more regulated as now you know, it's got approval
Speaker 1: to become a bank. And when one of the first
Speaker 1: things right and said, well wait a second, you know,
Speaker 1: on the crypto side, you guys got to back off
Speaker 1: a bit. You know, we've got to get to understand
Speaker 1: you better. As a thank Anton in terms of the
Speaker 1: financial space, and you've been investing in in these types
Speaker 1: of names for a long time. Um, you liked off
Speaker 1: in the regional space. But is fintech and the newer
Speaker 1: upstarts starting to get you know, garner any more of
Speaker 1: your attention or potentially some of your thoughts about well,
Speaker 1: you know what we should be putting and committing money there. Well,
Speaker 1: I really like banks that have fintech embedded in him.
Speaker 1: So you talked about these private market valuations, but obviously
Speaker 1: some of the public evaluations and a lot of those
Speaker 1: comanies don't earn money. And and I'm a traditional value investor,
Speaker 1: of course, I'm always looking for, you know, what creates value.
Speaker 1: And if I can find banks that are fintech embedded
Speaker 1: in the more managements that are leaning forward, that are
Speaker 1: going to create a better mouse trap. You know, for instance,
Speaker 1: in New York and New York community that's really embraced
Speaker 1: you know, fintech and blotching technology, or a signature bank
Speaker 1: also headquartered in New York has done a lot of it,
Speaker 1: or or a silver Gate or a Triumph or we've
Speaker 1: talked about Live Oak Bank before. You know, these banks
Speaker 1: all have fintech embedded in them. They're all using it
Speaker 1: to liver they're investing in it, and they're part of
Speaker 1: the future. And I think that as we start looking
Speaker 1: at that stable coins and and who's going to have
Speaker 1: that ability to really get approval from the regulators, it's
Speaker 1: going to be the banking system. Is it going to
Speaker 1: be more regional bankers banks or the big banks? I
Speaker 1: think the big banks will eventually get because it does
Speaker 1: seem like the regional banks are leading in that right now.
Speaker 1: They are. It's it's you know, part of that's the
Speaker 1: decision trade, right I mean. J K. Morten's a really
Speaker 1: large organization and they literally think said they invested a
Speaker 1: hundred fin tax last year parsing them, getting them, you know,
Speaker 1: to the to the market, getting them distributed through that
Speaker 1: very large organization. It's harder to do that if you're
Speaker 1: smaller entergy. It's a lot faster to bring something to
Speaker 1: market and you can test things out with some customers
Speaker 1: and get it going without a very large, um, you know,
Speaker 1: bureaucracy to say the least. And obviously some of those
Speaker 1: banks are better getting things to market, but it's a
Speaker 1: lot easier if you're a multibillion dollar bank rather than
Speaker 1: a multi trillion dollar bank. And what do you think
Speaker 1: the banking environment is going to be like for some
Speaker 1: of the names that that you hold onto, whether it's
Speaker 1: a live oak, whether there it's an equity bank shares,
Speaker 1: first bank shares. I mean, it's going to be a
Speaker 1: better environment because of a higher rates that we're starting
Speaker 1: to see certainly come through the system. Um, how do
Speaker 1: you see it? Well, all, you know, higher rates, everybody
Speaker 1: always talks about how great those are. Yes, absolutely a
Speaker 1: good you occur higher Um, you know, short term interest
Speaker 1: rates are good for almost all banks, and you've got
Speaker 1: the raise rates quite a bit before you start creating
Speaker 1: credit issues out there will just obviously the other side
Speaker 1: of that. But I think the thing that's that's really
Speaker 1: important here is there was so much stimulus put into
Speaker 1: their customers hands that loan growth really didn't exist a
Speaker 1: ton other than some of those faster growing markets like
Speaker 1: Tennessee or Texas or Florida, um, nationally, So now you've
Speaker 1: got the loan growth coming back. You've seen some good
Speaker 1: loan growth numbers out there across the guys that are reported,
Speaker 1: and I think that's really critical. So, yeah, higher rates
Speaker 1: matter and will matter, and they're not all in the
Speaker 1: estimates yet, but loan growth is really what you know,
Speaker 1: what drives earnings ship right, all right, so we'll we're
Speaker 1: watching out for that. Anton, thank you so much. We
Speaker 1: really always appreciate the perspective you have in the informed perspective.
Speaker 1: Anton Shows, President and chief investment officer at Mendon Capital Advisors,
Speaker 1: on the phone in Florida. You're listening to brook Radio. Yeah,
Speaker 1: but you let drive? Oh no, no, no no, non, please,
Speaker 1: i'vels I want to drive. It's a good question. This
Speaker 1: is the drive to the clothes on Bloomberg Radio. We're
Speaker 1: driving to the close, just about ten minutes left in
Speaker 1: today's trading session, and Tim, as Charlie mentioned, we are
Speaker 1: near our lows at this session on those major equity averages.
Speaker 1: I'm curious what our next guest has to say because
Speaker 1: he runs a fund, the Rational Dynamic Brands Fund. We've
Speaker 1: talked with him before, and over the last three years
Speaker 1: it's up on average annually, putting that fund in the
Speaker 1: eighty nine percentile according to Bloomberg Data, so it's been
Speaker 1: an outperformer. We're talking about Eric Clark, portfolio manager at
Speaker 1: Rational Dynamic Brands Fund, He joins us now on the
Speaker 1: phone once again from San Diego. Eric, how are you.
Speaker 1: I'm good, Kevin Carroll, how are you. We're doing well.
Speaker 1: We're doing well. Look, the story today obviously is about
Speaker 1: what's happening on the NASDAC has it down in correction
Speaker 1: territory more than ten percent below its peak from November
Speaker 1: nineteenth of last year. How are you reading into this?
Speaker 1: You know, I I think there's there's that short term
Speaker 1: noise surrounding interest rates and the FED and how aggressive
Speaker 1: they're going to be with rating, with with rate increases,
Speaker 1: as well as withdrawing some accommodation and maybe even outright
Speaker 1: selling a bond. You know, I have my own personal
Speaker 1: view that the FED is not willing to tank the
Speaker 1: markets in the economy just to try to reduce inflation.
Speaker 1: So I think they're more taught trying to talk it down. Um.
Speaker 1: But you know that that has an effect on high
Speaker 1: multiple stocks and it's been a very popular part of
Speaker 1: the market, and so I just see that de risking
Speaker 1: happening until there's some realization that the FED is probably
Speaker 1: not going to be as aggressive and people are much
Speaker 1: more wrong footed about where their positionings are, but it's
Speaker 1: certainly been a painful you know, a couple of months
Speaker 1: for sure for how data stocks. All right, so what
Speaker 1: is it, Eric? For some of the names in your portfolio.
Speaker 1: We've often talked about investments that you've got in an alphabet,
Speaker 1: and Microsoft and Netflix and Apple and Amazon and more,
Speaker 1: a lot of those well known tech bass tech names
Speaker 1: excuse me, that have certainly provided support to the equity
Speaker 1: markets of the last couple of years. You still like them?
Speaker 1: I do, I absolutely do. I mean, you know, we
Speaker 1: have certainly shifted up the portfolio in quality. You know,
Speaker 1: big profits, lots of free cash flow, great balance sheets,
Speaker 1: the ability to buy back stock. But you know, add
Speaker 1: to the dividend growth those kind of businesses which frankly
Speaker 1: have kind of underperformed over the last couple of years.
Speaker 1: We you know, it wasn't that long ago when we
Speaker 1: had the companies without profits and lots of growth were
Speaker 1: really what drove the bus. Now, you know, we're more
Speaker 1: focused on the stable, predictable growers with great balance sheets,
Speaker 1: that have good pricing power and have a lot of
Speaker 1: brand loves. So it's a very highly recognizable portfolio currently.
Speaker 1: So help me out. Microsoft up, it was up last year.
Speaker 1: Oh it was up. Um. Speaking of healthy balance sheets,
Speaker 1: it has a lot on its balance sheet are a
Speaker 1: little bit less as it buys Activision. Do you want
Speaker 1: to change your holdings at all because of this or
Speaker 1: do you like Microsoft even more want to add to
Speaker 1: the position. Well, I would love to add, probably a
Speaker 1: little bit lower than where it is today because it
Speaker 1: really hasn't had, you know, a real deep sell off yet.
Speaker 1: I did find the potential acquisition of Activision pretty interesting,
Speaker 1: and using Activision's cash as as part of that. So interesting, good, interesting, interesting,
Speaker 1: good interesting, and scratching my head. Okay, yeah, no, I
Speaker 1: think I like that just moves further into gaming and
Speaker 1: also with the potential of what the metaverse could look
Speaker 1: like at some point. So I mean that I p
Speaker 1: and and staff and engineers. They're hard to come by,
Speaker 1: so in some ways they're buying the infrastructure to too
Speaker 1: key building their video business, you know, their gaming business
Speaker 1: and whatever the metaverse looks like over time. Okay, well,
Speaker 1: speaking of the metaverse, we're not there yet when it
Speaker 1: comes to Netflix, but that company reporting earnings after the
Speaker 1: bell tomorrow increasingly getting into games. What are you looking
Speaker 1: for from Netflix? You know? Last quarter, they told us
Speaker 1: that they were going to be spending aggressively on content.
Speaker 1: So anybody that's surprised that free cash flow is down
Speaker 1: when they report tomorrow, I just you know, you just
Speaker 1: didn't pay attention to last quarter. Bigger picture though, we
Speaker 1: still think, you know, let's say they have two million
Speaker 1: subscribers around the world. We think they have five million plus.
Speaker 1: They got twenty nine billion in revenue. Now that's gonna
Speaker 1: equate to maybe a hundred billion in revenue. So I mean,
Speaker 1: I think this is the brand when people around the
Speaker 1: world start to search for content. It used to be
Speaker 1: the cable channel that you opened up. Now I think
Speaker 1: it's Netflix first, and then if you can't find what
Speaker 1: you want, you go other places. So it's still the
Speaker 1: dominant brand. And you know, if if the if the
Speaker 1: market you know right now the markets that kind of
Speaker 1: sell everything mode, So if the response is lower, I'm
Speaker 1: going to buy more for sure. What name have you
Speaker 1: most recently been adding to. Well, we have been adding
Speaker 1: because of the market volatility. We've been adding some stable,
Speaker 1: predictable um type of you know, defenses. So we added
Speaker 1: pretty aggressively, you know, next Terra Energy, not not everybody
Speaker 1: knows what next Era Energy is. It's the old Florida
Speaker 1: Power and Light. But so it's a public utility, but
Speaker 1: they also have a renewable energy business that's high growth,
Speaker 1: and so that that you know, they have it's a
Speaker 1: public utility with great, stable revenues, great dividend growth. It's
Speaker 1: you know, increased their dividends consecutive years plus. So that
Speaker 1: and maybe a United Health. I thought the quarter was great,
Speaker 1: you know, reported this morning. The stock you know, has
Speaker 1: been selling off ever since the print. But again, I
Speaker 1: think we're more in the sell everything mode and those
Speaker 1: kind of stable, predictable businesses I really like in this
Speaker 1: you know, in this next you know, six month period,
Speaker 1: along with some of the more higher beta stuff. So
Speaker 1: so definitely the defense and even a Sherwin Williams. I
Speaker 1: still really like the housing trade, particularly as interest rates
Speaker 1: get to the top end of the range. Hey, Eric,
Speaker 1: what about Amazon? Just in the last minute so that
Speaker 1: we have with you, the company's down more than six
Speaker 1: percent year to data was only higher by two point
Speaker 1: three percent. What's going on with Amazon? Well, it's a
Speaker 1: big yawn, and I mean it's been a kind of
Speaker 1: a two year yawn after a really strong two thousand.
Speaker 1: But you know, they have had so many spending cycles
Speaker 1: that lead to higher revenue growth and higher free cash
Speaker 1: flow periods, So you know, you have to accumulate the
Speaker 1: stock when they're in high spin mode to get the
Speaker 1: benefit of the ramp when the revenue comes back and
Speaker 1: the free cash flow goes back. So whether it's this
Speaker 1: quarter or next, are going to see all of a
Speaker 1: sudden the free cash flow vault back up and people
Speaker 1: are going to be surprised in this box is going
Speaker 1: to catch a good like it has for the last years,
Speaker 1: just quickly twenty seconds. Has Amazon become a dividend company
Speaker 1: at some point a dividend pay or they don't need to.
Speaker 1: I don't think it's part of their their philosophy and
Speaker 1: their mentality and that there's a lot of those that do.
Speaker 1: But I just don't see Amazon becoming back. All right,
Speaker 1: We're gonna leave it on that note. Always love talking
Speaker 1: with you. You get into the specifics, you get into
Speaker 1: the names that are in your portfolio and explain why.
Speaker 1: So thank you so much for that. Eric Clark, he's
Speaker 1: portfolio manager at Rational Dynamic Brands Fund, joining us on
Speaker 1: the phone from San Diego as we mentioned his doc
Speaker 1: has been excuse me, his fund has been an our performer,
Speaker 1: up on average annually, and we've got it in the
Speaker 1: eighty nine percent according to Bloomberg. Thanks for listening to
Speaker 1: Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or
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