1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:33,080 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. The 7 00:00:33,159 --> 00:00:36,160 Speaker 1: shares a Bank of America are lower by three tenths 8 00:00:36,240 --> 00:00:40,000 Speaker 1: of a percent right now after reporting quarterly results. Here 9 00:00:40,000 --> 00:00:42,400 Speaker 1: to tell us more about those results and the banking 10 00:00:42,400 --> 00:00:45,879 Speaker 1: industry is Charles Peabody. He is the president of Portala's Partners. 11 00:00:46,159 --> 00:00:49,440 Speaker 1: Charles always a pleasure give us the details when it 12 00:00:49,479 --> 00:00:52,280 Speaker 1: comes to Bank of America and maybe just provide the 13 00:00:52,479 --> 00:00:57,960 Speaker 1: context for how the bank is performing. Sure, well it was. 14 00:00:58,040 --> 00:01:01,360 Speaker 1: It was a solid quarter um, but like other banks, 15 00:01:01,400 --> 00:01:04,000 Speaker 1: the reported earnings were probably higher than what we would 16 00:01:04,040 --> 00:01:08,120 Speaker 1: call core earnings as they included a number of unusual items. 17 00:01:08,280 --> 00:01:10,600 Speaker 1: Two that can be called out was about a two 18 00:01:10,640 --> 00:01:14,800 Speaker 1: cents share benefit from text benefits and a one cent 19 00:01:15,080 --> 00:01:19,280 Speaker 1: um you know, goose from reserve release. So that's what 20 00:01:19,319 --> 00:01:22,119 Speaker 1: you're generally seeing is that the core rains are coming 21 00:01:22,120 --> 00:01:24,680 Speaker 1: in below the report earnings, but I would say the 22 00:01:24,720 --> 00:01:28,560 Speaker 1: corens are in line with with expectations. This are these 23 00:01:28,600 --> 00:01:31,160 Speaker 1: the best core earnings were likely to see in the cycle. 24 00:01:32,319 --> 00:01:34,720 Speaker 1: They are, and I think that's why the stocks are 25 00:01:34,800 --> 00:01:38,679 Speaker 1: reacting UM in a negative fashion to these. What are 26 00:01:38,760 --> 00:01:43,160 Speaker 1: on the surface strong reported numbers is we're seeing what 27 00:01:43,240 --> 00:01:46,600 Speaker 1: I would call low quality of earnings UM. The earnings 28 00:01:46,720 --> 00:01:50,200 Speaker 1: strength is coming from large trading gains, which is a 29 00:01:50,240 --> 00:01:54,640 Speaker 1: low pe revenue source, and they're coming from reserve releases, 30 00:01:54,680 --> 00:01:56,800 Speaker 1: which you know investors aren't going to pay up for 31 00:01:56,880 --> 00:01:59,560 Speaker 1: at the end of an economic cycle, and some unusual 32 00:02:00,120 --> 00:02:04,200 Speaker 1: accounting gains. So in that context, if you have a 33 00:02:04,280 --> 00:02:08,520 Speaker 1: situation where interest rates are moving higher because of either 34 00:02:08,600 --> 00:02:13,640 Speaker 1: a strengthening US economy or increases from the Federal reserve, 35 00:02:14,320 --> 00:02:17,359 Speaker 1: that should help the net interest margin of the bank. 36 00:02:17,840 --> 00:02:21,440 Speaker 1: No matter how the bank is really run, it will 37 00:02:21,480 --> 00:02:24,480 Speaker 1: and it has um. But what what we're looking for 38 00:02:24,560 --> 00:02:26,560 Speaker 1: at this point of the economic cycle is what i'd 39 00:02:26,560 --> 00:02:30,040 Speaker 1: call the second derivative, the end of cycle dynamics. So 40 00:02:30,160 --> 00:02:33,240 Speaker 1: take your comment about higher rates, Yes, it is going 41 00:02:33,280 --> 00:02:36,600 Speaker 1: to help net interest margins in net interest income, but 42 00:02:36,720 --> 00:02:40,960 Speaker 1: we're past what I would call peak optionality in terms 43 00:02:40,960 --> 00:02:44,880 Speaker 1: of the benefits of higher rates. So, for example, um 44 00:02:44,880 --> 00:02:48,640 Speaker 1: back in two thousand and sixteen, Bank America would have 45 00:02:48,680 --> 00:02:51,280 Speaker 1: seen about a seven billion dollar boost to their net 46 00:02:51,320 --> 00:02:55,560 Speaker 1: interest income from a hundred basis point rise in interest rates. Today, 47 00:02:55,720 --> 00:02:59,320 Speaker 1: that's about three billion JP Morgan and they're called Marion 48 00:02:59,400 --> 00:03:02,640 Speaker 1: Lake the Sea Fox said that they're one point seven 49 00:03:02,680 --> 00:03:05,960 Speaker 1: billion last quarter, would be material lower from a right 50 00:03:06,720 --> 00:03:09,560 Speaker 1: rate hike, and that's down from three billion in two 51 00:03:09,600 --> 00:03:13,680 Speaker 1: thousand and sixteen, So that the optionality that the margin 52 00:03:13,840 --> 00:03:17,880 Speaker 1: is becoming less and less favorable. Add to that, issues 53 00:03:18,000 --> 00:03:22,720 Speaker 1: of credit card charge offs are they rising? They are, 54 00:03:22,919 --> 00:03:26,760 Speaker 1: and you know they're rising. You know what the analysts 55 00:03:26,760 --> 00:03:29,120 Speaker 1: are calling in a benign state, but they are rising. 56 00:03:29,480 --> 00:03:33,160 Speaker 1: And that's the other um end of cyclodynamic is usually 57 00:03:33,200 --> 00:03:37,720 Speaker 1: you see cards lead other categories in terms of deterioration, 58 00:03:38,200 --> 00:03:41,440 Speaker 1: and we are definitely seeing higher losses. Although it's been 59 00:03:42,240 --> 00:03:46,720 Speaker 1: coined in the in the phrase of you know normalization, Yes, 60 00:03:46,800 --> 00:03:49,400 Speaker 1: well that's that's it's a nice word. That's why that's 61 00:03:49,440 --> 00:03:54,760 Speaker 1: why they get to use it. Lending against inflated asset values. 62 00:03:54,840 --> 00:03:57,720 Speaker 1: Do you consider that to be a risk? I do, 63 00:03:57,840 --> 00:04:02,320 Speaker 1: and that that's more on the on the wealth management 64 00:04:02,360 --> 00:04:05,280 Speaker 1: side and on the corporate side. So in wealth management, 65 00:04:05,440 --> 00:04:08,440 Speaker 1: one of the drivers of revenues is what we call 66 00:04:08,520 --> 00:04:13,680 Speaker 1: securities based loans and jumbo mortgages and um, you know, 67 00:04:13,800 --> 00:04:16,760 Speaker 1: I think we're going to see much more volatility in 68 00:04:16,839 --> 00:04:21,800 Speaker 1: asset prices, where certain assets values could deteriorate literally overnight. 69 00:04:21,839 --> 00:04:24,200 Speaker 1: And we saw that with the stein Hoffman in the 70 00:04:24,240 --> 00:04:27,960 Speaker 1: fourth quarter. We saw that more recently with rousel Um, 71 00:04:28,080 --> 00:04:31,880 Speaker 1: the aluminum company in Russia, and how either geopolitical events 72 00:04:31,960 --> 00:04:34,880 Speaker 1: or economic events can cause the value of those assets 73 00:04:34,920 --> 00:04:39,000 Speaker 1: to change very rapidly. And yet banks have made significant 74 00:04:39,120 --> 00:04:42,880 Speaker 1: loans against these inflated asset values. And as rates move higher, 75 00:04:42,920 --> 00:04:45,479 Speaker 1: I think it's gonna be tougher to sustain these asset values. 76 00:04:46,000 --> 00:04:49,320 Speaker 1: Is it tougher for even experts to understand what's going 77 00:04:49,480 --> 00:04:52,720 Speaker 1: on at large banks because there are so many unusual 78 00:04:52,920 --> 00:04:57,560 Speaker 1: items that are reported on a quarterly basis. Yeah, this 79 00:04:57,640 --> 00:05:01,400 Speaker 1: quarter was a very messy quarter because you new accounting 80 00:05:02,200 --> 00:05:05,839 Speaker 1: adoptions that change to the values of equities. For example, 81 00:05:06,320 --> 00:05:10,720 Speaker 1: you had tax benefits, you had lone loss reserve releases, um, 82 00:05:10,960 --> 00:05:13,920 Speaker 1: you had asset sale gains there there it was a 83 00:05:13,960 --> 00:05:17,560 Speaker 1: messy quarter, and that that has made it difficult, you know, 84 00:05:18,320 --> 00:05:20,960 Speaker 1: short term to to understand what is truly core and 85 00:05:21,080 --> 00:05:24,440 Speaker 1: underlying trends. Okay, so it seems to me that you're 86 00:05:24,480 --> 00:05:27,920 Speaker 1: not just talking about the business at Bank of America 87 00:05:28,160 --> 00:05:32,440 Speaker 1: but at all major banks. Is that correct? That's correct, 88 00:05:32,440 --> 00:05:35,360 Speaker 1: But but there are some themes. For example, Bank America's 89 00:05:35,400 --> 00:05:37,480 Speaker 1: revenues were up, you know, two and a half percent 90 00:05:37,640 --> 00:05:41,320 Speaker 1: year over a year, So we're seeing low single digit 91 00:05:41,360 --> 00:05:44,520 Speaker 1: revenue growth pretty much through all these big banks except 92 00:05:44,520 --> 00:05:47,000 Speaker 1: for JP Morgan, which had much much stronger revenue growth. 93 00:05:47,440 --> 00:05:51,440 Speaker 1: You're seeing reserve releases, you know, because of improvements in 94 00:05:51,440 --> 00:05:54,919 Speaker 1: the energy portfolio and improvements in residential real estate. So 95 00:05:54,960 --> 00:05:58,120 Speaker 1: there are some common themes. Expensive control remains very tight. 96 00:05:58,160 --> 00:06:01,160 Speaker 1: They're doing a great job on expenses. And then see 97 00:06:01,160 --> 00:06:05,680 Speaker 1: income remains weak outside of trading. And that's important because 98 00:06:05,720 --> 00:06:08,440 Speaker 1: at the end of the cycle, you see a couple 99 00:06:08,440 --> 00:06:11,200 Speaker 1: of things that that says we're at the end of 100 00:06:11,200 --> 00:06:13,280 Speaker 1: the cycle. On on the trading front, you see a 101 00:06:13,400 --> 00:06:17,240 Speaker 1: rotation from thick to equity as the driver of kapital 102 00:06:17,279 --> 00:06:19,840 Speaker 1: markets revenues, and you saw that in this quarter equity 103 00:06:19,920 --> 00:06:23,039 Speaker 1: was very strong. Thick was a little weaker, although solid, 104 00:06:23,880 --> 00:06:27,239 Speaker 1: and then on the on the underwriting side, um, you see, 105 00:06:27,720 --> 00:06:30,599 Speaker 1: you know, a shift as well. So we're seeing all 106 00:06:30,640 --> 00:06:36,719 Speaker 1: the typical signs of end of cycle dynamics. So just quickly, Charles, 107 00:06:37,000 --> 00:06:39,960 Speaker 1: all things being equal, if you aren't an investor in banks, 108 00:06:40,000 --> 00:06:43,400 Speaker 1: should you just wait for a better time? I think so. 109 00:06:43,480 --> 00:06:46,040 Speaker 1: I think we're in the topping process in the stocks 110 00:06:46,040 --> 00:06:47,560 Speaker 1: in the first half of this year, and we'll enter 111 00:06:47,600 --> 00:06:49,640 Speaker 1: a bearer market in these stocks. You know, a year 112 00:06:49,640 --> 00:06:51,240 Speaker 1: and a half from now, two years from now, we'll 113 00:06:51,240 --> 00:06:55,240 Speaker 1: be down from their peaks. Thanks very much, Charles Peabody, 114 00:06:55,279 --> 00:06:59,160 Speaker 1: always a pleasure, President of Portalis Partners, talking about the 115 00:06:59,240 --> 00:07:16,440 Speaker 1: US bank industry. I'm pim Fox. My co host Lisa 116 00:07:16,480 --> 00:07:20,720 Speaker 1: Abramowitz is off today. Joining me now is Brian Egger. 117 00:07:20,840 --> 00:07:25,080 Speaker 1: He is our senior Gaming and Lodging analyst for Bloomberg Intelligence. 118 00:07:25,440 --> 00:07:29,480 Speaker 1: You can follow him on Twitter at breaking Call. And 119 00:07:29,640 --> 00:07:32,960 Speaker 1: El Dorado Resorts and the real estate company Gaming and 120 00:07:33,040 --> 00:07:36,560 Speaker 1: Leisure Properties. They are teaming up to buy carl Icons 121 00:07:36,960 --> 00:07:43,080 Speaker 1: Tropicana entertainment price tag one point eight five billion dollars. Brian, 122 00:07:43,600 --> 00:07:48,520 Speaker 1: why is carl Icon selling Tropicana Entertainment if it's such 123 00:07:48,560 --> 00:07:52,080 Speaker 1: a good business, remember that Carlican has actually been selling 124 00:07:52,160 --> 00:07:56,080 Speaker 1: his gaming interests over time. Uh. He basically had owned 125 00:07:56,080 --> 00:07:59,480 Speaker 1: Trump Entertainment Resorts and ceased the operations of the Trump 126 00:07:59,480 --> 00:08:04,800 Speaker 1: Tasha Hall back in sixteen, sold that property in seventeen. 127 00:08:04,840 --> 00:08:08,320 Speaker 1: It's not reopening. So basically what this does is carl 128 00:08:08,320 --> 00:08:12,320 Speaker 1: Aicon gets a billion eight five in proceeds and ends 129 00:08:12,360 --> 00:08:16,520 Speaker 1: up effectively divesting his casino interests, which turns them over 130 00:08:16,520 --> 00:08:18,640 Speaker 1: at Eldorado Resorts, which has the advantage of be able 131 00:08:18,680 --> 00:08:21,440 Speaker 1: to get all these cost savings and synergies from doing 132 00:08:21,440 --> 00:08:24,680 Speaker 1: this deal. Why are they able to cut costs when 133 00:08:24,760 --> 00:08:28,600 Speaker 1: carl Icon is not, Well, it's basically because El Dorado 134 00:08:28,680 --> 00:08:32,319 Speaker 1: has an existing base of operations, partly through the acquisition 135 00:08:32,880 --> 00:08:36,160 Speaker 1: of Alfpre Casinos last year. So with a larger base 136 00:08:36,200 --> 00:08:40,560 Speaker 1: of operations, you can basically reduce combined corporate overhead, get 137 00:08:40,559 --> 00:08:43,200 Speaker 1: eventual marketing synergies. And what they hope to do with 138 00:08:43,200 --> 00:08:46,920 Speaker 1: this deal is reduced the costs at the Tropicana Entertainment 139 00:08:47,080 --> 00:08:50,120 Speaker 1: entity by about forty million dollars and basically take their 140 00:08:50,120 --> 00:08:52,840 Speaker 1: purchase multiple down to like the five to five and 141 00:08:52,840 --> 00:08:56,600 Speaker 1: a half times Ebadar range, which is quite attractive. So 142 00:08:56,760 --> 00:08:59,600 Speaker 1: it does make sense for El Dorado and gives them 143 00:08:59,640 --> 00:09:04,360 Speaker 1: some cost savings opportunities Gaming and Leisure properties. This is 144 00:09:04,400 --> 00:09:08,640 Speaker 1: the partner with El Dorado Resorts that is making this 145 00:09:08,720 --> 00:09:13,000 Speaker 1: deal there, that's just a real estate investment trust. They 146 00:09:13,000 --> 00:09:16,120 Speaker 1: have been on the acquisition trail as well. They bought 147 00:09:16,120 --> 00:09:19,600 Speaker 1: Pinnacle Entertainment back in sixteen, right, that was nearly a 148 00:09:19,640 --> 00:09:22,520 Speaker 1: two billion dollar deal, right, So basically they own the 149 00:09:22,559 --> 00:09:24,520 Speaker 1: real state of both Pen National Gaming and most of 150 00:09:24,520 --> 00:09:28,360 Speaker 1: Pinnical Entertainment properties. Pinnacle itself as being acquired by Pen 151 00:09:28,440 --> 00:09:31,880 Speaker 1: National Gaming in terms of the operations in the second 152 00:09:31,880 --> 00:09:34,280 Speaker 1: half of this year. But as you mentioned Gaming Leisure 153 00:09:34,320 --> 00:09:37,360 Speaker 1: properties as a reets, uh, they have the real estate 154 00:09:37,360 --> 00:09:40,320 Speaker 1: assets here. So basically the way this deal works is 155 00:09:40,400 --> 00:09:44,000 Speaker 1: that Eldorado is paying about sixty million dollars for the 156 00:09:44,040 --> 00:09:48,440 Speaker 1: operations and that Gaming and Leisure is paying about a 157 00:09:48,480 --> 00:09:51,600 Speaker 1: billion two for the underlying real estate. So you're really 158 00:09:51,640 --> 00:09:54,439 Speaker 1: having kind of a separating the real state from the 159 00:09:54,480 --> 00:09:57,800 Speaker 1: operations in this combined transaction. All right, So where does 160 00:09:57,840 --> 00:10:00,199 Speaker 1: all this money come from? And is it money? In 161 00:10:00,200 --> 00:10:02,640 Speaker 1: other words, why would you want to be buying if 162 00:10:02,679 --> 00:10:06,200 Speaker 1: someone is supposedly as smart as carl Icon is selling right. 163 00:10:06,200 --> 00:10:08,160 Speaker 1: So there's no doubt that Atlantic City has been a 164 00:10:08,280 --> 00:10:11,360 Speaker 1: challenging market. UH. The two casinos opening up the summer, 165 00:10:11,400 --> 00:10:14,800 Speaker 1: the Ocean resort UH and the hard rock properties I 166 00:10:14,840 --> 00:10:17,360 Speaker 1: think could galvanized tourism. But they also come at a 167 00:10:17,400 --> 00:10:20,959 Speaker 1: time I adding capacity to an already crowded Northeast gaming market. 168 00:10:21,000 --> 00:10:22,880 Speaker 1: So I think the way El Dorado thinks about this 169 00:10:23,360 --> 00:10:27,199 Speaker 1: in Atlantic City, which again is only of the cash 170 00:10:27,200 --> 00:10:30,280 Speaker 1: flow of Tropicana Entertainment, is they probably increased the but 171 00:10:30,400 --> 00:10:32,839 Speaker 1: dire fermenting some cost savings. They don't deny the fact 172 00:10:33,160 --> 00:10:36,280 Speaker 1: that that particular market is challenging. Now this could change 173 00:10:36,320 --> 00:10:41,200 Speaker 1: if UH the Supreme Court authorizes understructured sports betting across 174 00:10:41,240 --> 00:10:43,760 Speaker 1: the country, in New Jersey and elsewhere, that could create 175 00:10:43,760 --> 00:10:47,720 Speaker 1: a traffic driver that heretofore has not existed in Atlantic City. 176 00:10:47,720 --> 00:10:50,439 Speaker 1: Based on your knowledge of the industry, do you believe 177 00:10:50,559 --> 00:10:53,880 Speaker 1: that that is what many investors are betting on, this 178 00:10:54,080 --> 00:10:57,640 Speaker 1: unrestricted sports betting. That's certainly a part of what the 179 00:10:58,040 --> 00:11:00,920 Speaker 1: m and a interest in both Pennsylvania UH and New 180 00:11:01,000 --> 00:11:03,079 Speaker 1: Jersey has been about been about. Now if you look 181 00:11:03,080 --> 00:11:05,880 Speaker 1: Atlantic City, they had about twelve casinos a peak there, 182 00:11:05,920 --> 00:11:08,280 Speaker 1: down to seven this summer will be up to nine 183 00:11:08,320 --> 00:11:11,320 Speaker 1: again with two new openings. So we've shaken that market 184 00:11:11,360 --> 00:11:14,000 Speaker 1: out already. We've cut it almost in half, and it's 185 00:11:14,080 --> 00:11:17,200 Speaker 1: much healthier today, albeit on a much smaller scale. Two 186 00:11:17,200 --> 00:11:19,520 Speaker 1: new properties opening the summer depends on whether or not 187 00:11:19,600 --> 00:11:23,439 Speaker 1: they'll drive enough traffic to the city through entertainment to 188 00:11:23,800 --> 00:11:27,600 Speaker 1: galvanized tourism and increase overall results. But there's no question 189 00:11:27,880 --> 00:11:30,600 Speaker 1: the Northeast mid Atlantic gave market has become quite crowded 190 00:11:30,640 --> 00:11:33,559 Speaker 1: with all the expansion throughout the mid Atlantic and Northeast. 191 00:11:34,120 --> 00:11:35,960 Speaker 1: On a scale of I'll do this on a scale 192 00:11:35,960 --> 00:11:39,280 Speaker 1: of one to ten. If the if the court does 193 00:11:39,440 --> 00:11:44,920 Speaker 1: not allow sports betting, how challenged is this market in 194 00:11:44,920 --> 00:11:47,400 Speaker 1: the Northeast on a scale of one to tend and 195 00:11:47,559 --> 00:11:51,400 Speaker 1: being it's really challenge. It's a challenging market compared to 196 00:11:51,400 --> 00:11:54,600 Speaker 1: any prior time period. You've now got twelve casinos with 197 00:11:54,640 --> 00:11:57,840 Speaker 1: ten more to come in Pennsylvania. Uh, You've got six 198 00:11:57,880 --> 00:12:00,240 Speaker 1: casinos in Maryland. You've got more casinos in the New 199 00:12:00,320 --> 00:12:03,080 Speaker 1: York States. So it's a crowded market. I think sports 200 00:12:03,080 --> 00:12:07,280 Speaker 1: betting would certainly give some incremental tourism to places like 201 00:12:07,440 --> 00:12:10,680 Speaker 1: Pennsylvania Atlantic City. But Atlantic City is now just one 202 00:12:10,720 --> 00:12:14,320 Speaker 1: of several destinations in the Mid Atlantic, which is why 203 00:12:14,440 --> 00:12:16,839 Speaker 1: about half the casinos they have already shut down. Now 204 00:12:16,880 --> 00:12:19,000 Speaker 1: we we we'll see what happens next. But I do 205 00:12:19,080 --> 00:12:21,720 Speaker 1: think the Supreme Court is likely to allow for sports betting. 206 00:12:22,000 --> 00:12:24,560 Speaker 1: I do think that's beneficial to Atlantic City. But I 207 00:12:24,600 --> 00:12:28,040 Speaker 1: certainly think Eldorado Resorts has its eyes open in terms 208 00:12:28,040 --> 00:12:31,480 Speaker 1: of the historical challenges there. All right, I can't let 209 00:12:31,480 --> 00:12:33,640 Speaker 1: you go with that giving giving us the lowdown on 210 00:12:33,720 --> 00:12:36,680 Speaker 1: Wind Resorts and what's happening with the Steve Win Empire. 211 00:12:37,360 --> 00:12:39,760 Speaker 1: So Win Resorts, which by the way, did pre announce 212 00:12:39,800 --> 00:12:42,360 Speaker 1: at least January febru results they're having a good quarter, 213 00:12:42,800 --> 00:12:45,080 Speaker 1: doesn't detract from the fact that company has a number 214 00:12:45,120 --> 00:12:47,960 Speaker 1: of challenges. A lot of the recent drama has centered 215 00:12:48,000 --> 00:12:51,800 Speaker 1: around the fate of their property in Boston Win Boston Harbor, 216 00:12:51,960 --> 00:12:55,000 Speaker 1: which could be renamed it could be sold to another operator. 217 00:12:55,040 --> 00:12:58,319 Speaker 1: There were speculation last week that either MGM Resorts or 218 00:12:58,320 --> 00:13:01,240 Speaker 1: another company might try to take over that license. Uh 219 00:13:01,320 --> 00:13:03,760 Speaker 1: and so, because of the ongoing questions. Even with Steve 220 00:13:03,800 --> 00:13:07,600 Speaker 1: when having sold his stock, resigned the CEO UH and 221 00:13:07,720 --> 00:13:10,360 Speaker 1: Nonger being either an officer or board member, they're still 222 00:13:10,360 --> 00:13:14,000 Speaker 1: ongoing scrutiny of the suitability of the other officers and 223 00:13:14,040 --> 00:13:17,960 Speaker 1: directors as it relates to that Massachusetts gaming license. I 224 00:13:17,960 --> 00:13:19,839 Speaker 1: have a feeling you're gonna be very busy and you're 225 00:13:19,840 --> 00:13:21,520 Speaker 1: gonna keep us at the date on all of this. 226 00:13:21,920 --> 00:13:25,400 Speaker 1: Thank you very much. Brian Edgar are expert, really whenever 227 00:13:25,559 --> 00:13:28,600 Speaker 1: it comes to gaming and lodging. Senior Gaming and Lodging 228 00:13:28,600 --> 00:13:32,240 Speaker 1: analyst for Bloomberg Intelligence. Remember to follow him on Twitter 229 00:13:32,400 --> 00:13:36,600 Speaker 1: at breaking Call at Agronomics. Now believe it or not, 230 00:13:37,320 --> 00:13:42,120 Speaker 1: that's breaking news. Yes, anomics. We thought that sounded better, 231 00:13:42,160 --> 00:13:44,240 Speaker 1: so and it does. And I'm going to follow you 232 00:13:44,320 --> 00:14:01,240 Speaker 1: right now as a result of that. And is the 233 00:14:01,320 --> 00:14:05,400 Speaker 1: stock market overvalued or undervalued? Let's find out. Let's ask 234 00:14:05,480 --> 00:14:08,160 Speaker 1: Jack Ablin. He is the founding partner in chief investment 235 00:14:08,240 --> 00:14:12,320 Speaker 1: officer for Crescent Wealth Advisers based in Chicago, and you 236 00:14:12,360 --> 00:14:16,480 Speaker 1: can follow Jack on Twitter at Jack Ablin. That's a 237 00:14:16,600 --> 00:14:21,640 Speaker 1: B L I n R I Jack Ablin. Overvalued or undervalued? 238 00:14:21,920 --> 00:14:26,760 Speaker 1: Make the case actually near term it's it's undervalued. If 239 00:14:26,800 --> 00:14:30,640 Speaker 1: you look at one of the route force measures that 240 00:14:30,680 --> 00:14:33,600 Speaker 1: I like to use, it's just a total return of 241 00:14:33,680 --> 00:14:38,680 Speaker 1: the stock market against the cumulative growth of dividends and 242 00:14:38,720 --> 00:14:43,240 Speaker 1: earnings UM. It shows that the market is probably about 243 00:14:43,760 --> 00:14:48,600 Speaker 1: five to seven percent undervalued. If you assume that the 244 00:14:48,720 --> 00:14:51,480 Speaker 1: earnings were expecting for the next four quarters and the 245 00:14:51,520 --> 00:14:54,200 Speaker 1: dividends were expecting for the next four quarters will will 246 00:14:54,240 --> 00:14:56,960 Speaker 1: play out UM. So near term, I think that's a 247 00:14:57,120 --> 00:14:59,920 Speaker 1: that's a good thing because we did start the year 248 00:15:00,280 --> 00:15:03,920 Speaker 1: about eighteen percent overvalued, and I think between the market 249 00:15:03,960 --> 00:15:07,920 Speaker 1: coming down and earnings expectations coming up UM, things have 250 00:15:08,480 --> 00:15:10,400 Speaker 1: kind of settled out in your term. Long term that's 251 00:15:10,400 --> 00:15:13,400 Speaker 1: a different matter. You know, if you look at the 252 00:15:13,720 --> 00:15:18,240 Speaker 1: Shiller's Index relative earnings over the last ten years, or 253 00:15:18,240 --> 00:15:21,080 Speaker 1: if you look at a price to sales ratio UM, 254 00:15:21,160 --> 00:15:26,160 Speaker 1: that would suggest negative returns for the next annually for 255 00:15:26,200 --> 00:15:31,280 Speaker 1: the next three years. What is competing for investors money? 256 00:15:31,600 --> 00:15:35,720 Speaker 1: Is it bonds? Because I'm looking at the twelvemonth dividend 257 00:15:35,800 --> 00:15:39,360 Speaker 1: yield on the SMP five, we're just under two percent. 258 00:15:39,440 --> 00:15:41,400 Speaker 1: Let's one point nine four percent, but let's call it 259 00:15:41,440 --> 00:15:44,080 Speaker 1: just under two percent. Heck, you can do that in 260 00:15:44,120 --> 00:15:48,920 Speaker 1: a one year treasury, Yeah, that's it. UM. You can 261 00:15:49,040 --> 00:15:51,480 Speaker 1: in fact that you know, two years starting to get 262 00:15:51,520 --> 00:15:57,200 Speaker 1: pretty compelling as a quote unquote money market alternative UM. 263 00:15:57,240 --> 00:16:01,000 Speaker 1: But UM interest rates longer terms still seem to be 264 00:16:01,000 --> 00:16:04,080 Speaker 1: below where they ought to be long term. So if 265 00:16:04,080 --> 00:16:06,800 Speaker 1: you look at the tenure treasury at two point eight 266 00:16:06,840 --> 00:16:10,600 Speaker 1: and change, historically, that ten year tends to track nominal 267 00:16:10,640 --> 00:16:14,920 Speaker 1: GDP UH. And last time we calculated nominal GDP at 268 00:16:14,920 --> 00:16:17,560 Speaker 1: the end of the last year, UH, that number was 269 00:16:17,600 --> 00:16:21,200 Speaker 1: about four point one. So clearly we have another hundred 270 00:16:21,200 --> 00:16:23,920 Speaker 1: basis points or so to move to the upside um 271 00:16:23,960 --> 00:16:25,960 Speaker 1: to get to what it will call kind of long 272 00:16:26,120 --> 00:16:29,400 Speaker 1: term fair value UM. And I think that can unfortunately 273 00:16:29,400 --> 00:16:33,600 Speaker 1: constrains the Fed UH quite honestly, because what we find 274 00:16:33,680 --> 00:16:36,760 Speaker 1: is that that tenure treasury isn't really tethered to FED policy. 275 00:16:37,000 --> 00:16:39,920 Speaker 1: It's probably more closely linked to what's going on in 276 00:16:39,960 --> 00:16:42,640 Speaker 1: Europe and Japan, and they're still pedal to the metal. 277 00:16:43,120 --> 00:16:45,720 Speaker 1: Well but chack, let's let me, let's just make the case. Right. 278 00:16:45,760 --> 00:16:47,600 Speaker 1: Someone comes along and says, you know, I understand what 279 00:16:47,640 --> 00:16:50,480 Speaker 1: you're saying. This all makes perfect sense. But you know, 280 00:16:50,520 --> 00:16:53,400 Speaker 1: if I can get more than two in a treasury 281 00:16:53,400 --> 00:16:56,880 Speaker 1: and not pay state and local taxes on it. Uh. 282 00:16:57,200 --> 00:17:00,520 Speaker 1: Then and that's money good. Then you tell of me, well, 283 00:17:00,600 --> 00:17:02,440 Speaker 1: you know, maybe I'm going to get a pop when 284 00:17:02,440 --> 00:17:05,680 Speaker 1: it comes to the stock market. What kind of returns 285 00:17:05,720 --> 00:17:08,040 Speaker 1: are you looking for in stocks in order to make 286 00:17:08,080 --> 00:17:12,120 Speaker 1: that more appealing? Yeah? I think that it's a good 287 00:17:12,200 --> 00:17:15,160 Speaker 1: question because near term, you know, we can maybe get 288 00:17:15,640 --> 00:17:21,040 Speaker 1: single digit uh gains um if you and and that's 289 00:17:21,119 --> 00:17:24,879 Speaker 1: cumulative um for the next twelve months. So nothing really 290 00:17:25,200 --> 00:17:29,320 Speaker 1: exciting here at home. Um. I don't think necessarily the 291 00:17:29,320 --> 00:17:31,360 Speaker 1: bottom is going to fall out unless, of course, all 292 00:17:31,400 --> 00:17:35,320 Speaker 1: of the data supporting the stock market falls by the wayside. 293 00:17:35,359 --> 00:17:38,680 Speaker 1: But the economy appears to be pretty strong, So yeah, 294 00:17:38,720 --> 00:17:41,520 Speaker 1: I don't think that the stock market is certainly a 295 00:17:41,520 --> 00:17:46,520 Speaker 1: table pounding near term by um. But um, you know, 296 00:17:46,600 --> 00:17:49,159 Speaker 1: I think bonds still have to get a little more interesting, 297 00:17:49,720 --> 00:17:55,000 Speaker 1: uh yield wise relative to longer term benchmarks to to 298 00:17:55,359 --> 00:17:58,399 Speaker 1: you know, uh, really prompt us to shift out of 299 00:17:58,440 --> 00:18:00,679 Speaker 1: equities and into more of a bond focus. All right, 300 00:18:00,720 --> 00:18:03,840 Speaker 1: So there specific industry groups that you would be looking 301 00:18:03,920 --> 00:18:10,360 Speaker 1: to for greater capital appreciation. Yeah, I think that in 302 00:18:10,359 --> 00:18:13,679 Speaker 1: this environment where we're taking what is a you know, 303 00:18:13,800 --> 00:18:16,480 Speaker 1: call it a two percent donkey and beating it into 304 00:18:16,560 --> 00:18:20,119 Speaker 1: a three percent or four percent racehorse, depending on how 305 00:18:20,200 --> 00:18:25,399 Speaker 1: much we can accomplish with tax the tax reform, plus 306 00:18:25,440 --> 00:18:30,080 Speaker 1: some infrastructure, maybe something else. Then I think that the 307 00:18:30,080 --> 00:18:37,359 Speaker 1: they value oriented sectors, the industrial, financials, basic materials, Darius, 308 00:18:37,600 --> 00:18:41,320 Speaker 1: even energy UM could take more of a leadership role 309 00:18:41,520 --> 00:18:45,240 Speaker 1: versus tech UM. I think the first quarter, what we're 310 00:18:45,320 --> 00:18:48,080 Speaker 1: trying to do is adjust to the new tax regime 311 00:18:48,720 --> 00:18:52,359 Speaker 1: UM and UM. You know, there are some bigger beneficiaries. 312 00:18:52,400 --> 00:18:58,320 Speaker 1: Their financials certainly a huge beneficiary UM, but also technology 313 00:18:58,440 --> 00:19:02,320 Speaker 1: probably benefiting from both says and maybe the increased investment. 314 00:19:02,640 --> 00:19:05,600 Speaker 1: But I think once we kind of play out the 315 00:19:05,640 --> 00:19:09,560 Speaker 1: first quarter results and look beyond here to the rest 316 00:19:09,560 --> 00:19:12,640 Speaker 1: of the year, then I think UM investors are gonna 317 00:19:12,680 --> 00:19:17,119 Speaker 1: want to look at the the economic environment, and I 318 00:19:17,160 --> 00:19:20,440 Speaker 1: think the value oriented sectors will tend to lead the mark. Okay, 319 00:19:20,480 --> 00:19:22,240 Speaker 1: but all right, so and and Jack, you know I 320 00:19:22,240 --> 00:19:24,240 Speaker 1: always challenge you on this. Let's say someone comes to 321 00:19:24,240 --> 00:19:27,000 Speaker 1: you and says, boy, you know I have Netflix bought 322 00:19:27,119 --> 00:19:31,919 Speaker 1: Netflix because my family spends all their time glued to Netflix. 323 00:19:31,960 --> 00:19:35,960 Speaker 1: I'm paying the monthly subscription, the stock is up sixty 324 00:19:36,640 --> 00:19:39,760 Speaker 1: year to date. Does Jack Ablin say take a little 325 00:19:39,800 --> 00:19:44,080 Speaker 1: off the table and put some into energy industrials and financials? 326 00:19:44,400 --> 00:19:47,360 Speaker 1: What do you say, stay with what's working. If this 327 00:19:47,440 --> 00:19:49,520 Speaker 1: is the kind of market that we're in and we're 328 00:19:49,520 --> 00:19:53,199 Speaker 1: getting sixty year to date returns on a stock that 329 00:19:53,359 --> 00:19:58,560 Speaker 1: is burning through cash, it's that kind of market. Yeah. 330 00:19:58,640 --> 00:20:00,880 Speaker 1: And the funny thing about net Flex and I will say, 331 00:20:00,920 --> 00:20:03,000 Speaker 1: you know, let's let's just you know, if we didn't 332 00:20:03,040 --> 00:20:06,040 Speaker 1: have to take taxes in the consideration, which is I 333 00:20:06,080 --> 00:20:09,840 Speaker 1: think keeping a lot of investors probably glued into some 334 00:20:09,880 --> 00:20:12,000 Speaker 1: of the names that have been working over the last 335 00:20:12,040 --> 00:20:15,200 Speaker 1: couple of years. But if taxes weren't a consideration, I 336 00:20:15,200 --> 00:20:16,960 Speaker 1: would say, yeah, let's take some of that off the 337 00:20:17,000 --> 00:20:21,160 Speaker 1: table and let's diversified into into areas of the market 338 00:20:21,200 --> 00:20:25,399 Speaker 1: that would benefit if we do get increased economic growth 339 00:20:25,440 --> 00:20:28,640 Speaker 1: here at home. Remember the reason why, in many respects, 340 00:20:28,680 --> 00:20:32,919 Speaker 1: the reason why investors love Netflix and they probably like 341 00:20:33,080 --> 00:20:36,120 Speaker 1: Amazon for the same reason is that those are all 342 00:20:36,200 --> 00:20:39,880 Speaker 1: weather stocks. You know, Netflix is going to add subscribers 343 00:20:39,880 --> 00:20:41,760 Speaker 1: and they're going to continue to push the bottom line 344 00:20:41,760 --> 00:20:45,160 Speaker 1: no matter what goes on. Uh in the economic environment, 345 00:20:45,160 --> 00:20:48,280 Speaker 1: no matter what kind of tweets that we hear or headlines. 346 00:20:48,640 --> 00:20:50,919 Speaker 1: Whereas you know, it takes a lot of courage to 347 00:20:51,000 --> 00:20:54,560 Speaker 1: buy say, uh, you know a Kroger or uh, you 348 00:20:54,600 --> 00:20:58,760 Speaker 1: know something you know another the banks nowadays or some 349 00:20:58,880 --> 00:21:02,720 Speaker 1: of the other industrial um that really do rely on 350 00:21:02,960 --> 00:21:07,840 Speaker 1: improving economic conditions right. Uh. What what is the one 351 00:21:07,880 --> 00:21:12,359 Speaker 1: investment you would not touch right now, jack boy? And 352 00:21:12,440 --> 00:21:16,040 Speaker 1: not touch? Probably I would say gold. Um. Gold is 353 00:21:16,119 --> 00:21:21,520 Speaker 1: just not behaving the way uh the that um it 354 00:21:21,600 --> 00:21:26,080 Speaker 1: has in the past. Historically it's been a great diversifier 355 00:21:26,160 --> 00:21:28,560 Speaker 1: that zigged when everything else has zagged, and it just 356 00:21:28,680 --> 00:21:33,040 Speaker 1: hasn't worked out this year. Um. And I think they're 357 00:21:33,080 --> 00:21:39,800 Speaker 1: probably other alternatives perhaps um maybe even energy or maybe 358 00:21:39,840 --> 00:21:44,920 Speaker 1: even master limited partnerships could serve that that purpose, uh 359 00:21:44,960 --> 00:21:47,360 Speaker 1: and do it in a way that gold can't. Remember, 360 00:21:47,800 --> 00:21:51,920 Speaker 1: gold gets undermined, if you will, when rates go up 361 00:21:52,160 --> 00:21:56,400 Speaker 1: because financial assets and real assets are are kind of competitive. 362 00:21:56,680 --> 00:21:58,720 Speaker 1: We got to leave it there, Jack Avelin. He is 363 00:21:58,800 --> 00:22:04,560 Speaker 1: founding partner chief investment officer Crescent Wealth Advisors. Follow him 364 00:22:04,640 --> 00:22:22,560 Speaker 1: on Twitter. In a note to clients, Scott Minor, the 365 00:22:22,880 --> 00:22:25,919 Speaker 1: head of investing for Googgenheim has said that there's a 366 00:22:26,000 --> 00:22:30,000 Speaker 1: chance of a sharp procession and decline in stocks that 367 00:22:30,200 --> 00:22:33,560 Speaker 1: is looming. He says the worst of the damage would 368 00:22:33,560 --> 00:22:39,440 Speaker 1: start in late into and he specifically called out corporate 369 00:22:39,560 --> 00:22:43,199 Speaker 1: bond defaults. He said that increases are likely as the 370 00:22:43,200 --> 00:22:46,280 Speaker 1: Federal Reserve raises interest rates and companies struggle to pay 371 00:22:46,320 --> 00:22:49,800 Speaker 1: off record debt levels. Here to help us understand the 372 00:22:49,960 --> 00:22:52,760 Speaker 1: role of corporate debt in this market is David Chain. 373 00:22:52,880 --> 00:22:57,000 Speaker 1: He is the managing partner for Kennedy Lewis Investment Management 374 00:22:57,359 --> 00:22:59,879 Speaker 1: and also joining me here in our eleven three oh 375 00:23:00,000 --> 00:23:04,000 Speaker 1: studio is a shri not Ragin. He is our Bloomberg 376 00:23:04,200 --> 00:23:07,960 Speaker 1: debt reporter. Gentlemen, thanks very much for being with us. David, 377 00:23:08,320 --> 00:23:10,960 Speaker 1: why don't you begin and give us your thoughts on 378 00:23:11,200 --> 00:23:15,000 Speaker 1: the role that corporate debt is currently playing and it's 379 00:23:15,520 --> 00:23:18,280 Speaker 1: size in the marketplace so that we can understand how 380 00:23:18,320 --> 00:23:22,040 Speaker 1: important it really is. Absolutely, thank you very much. UM. 381 00:23:22,960 --> 00:23:26,040 Speaker 1: Corporate debt markets today are larger than they've ever been historically. 382 00:23:26,480 --> 00:23:29,040 Speaker 1: Total corporate debt today is of GDP. It's an all 383 00:23:29,080 --> 00:23:31,720 Speaker 1: time high. Uh so something that we obviously need to 384 00:23:31,720 --> 00:23:36,119 Speaker 1: pay attention to. UM. Fiscal policy recent fiscal policy in 385 00:23:36,160 --> 00:23:39,160 Speaker 1: terms of tax changes will continue to pressure the FED 386 00:23:39,160 --> 00:23:42,800 Speaker 1: to raise rates. So we do see pressure as it 387 00:23:42,840 --> 00:23:48,120 Speaker 1: relates to rising rates that will ultimately affect UM much 388 00:23:48,119 --> 00:23:50,480 Speaker 1: of the corporate debt market today. When you look at 389 00:23:50,520 --> 00:23:54,320 Speaker 1: the overall yields today, they're they're they're quite compressed relative 390 00:23:54,359 --> 00:23:58,239 Speaker 1: to historical standards. So we do see that as we 391 00:23:58,280 --> 00:24:01,280 Speaker 1: look out in this specifically in the HYO market, we 392 00:24:01,280 --> 00:24:04,520 Speaker 1: do see UM some of the maturity wall issues and 393 00:24:04,840 --> 00:24:09,160 Speaker 1: you know early two thousand twenties, combined with tax changes 394 00:24:09,200 --> 00:24:11,800 Speaker 1: that are are being implemented in terms of the interest 395 00:24:11,800 --> 00:24:15,720 Speaker 1: deductibility for some of the more levered UH corporates out there, 396 00:24:15,760 --> 00:24:20,399 Speaker 1: we do see some real disruption coming. I think UM 397 00:24:20,600 --> 00:24:24,000 Speaker 1: been from my perspective, when you see the likes of 398 00:24:24,119 --> 00:24:27,560 Speaker 1: Guggenheim and Pimco and tc W send out warning flares, 399 00:24:27,760 --> 00:24:29,480 Speaker 1: it's kind of important for us to sit up and 400 00:24:29,480 --> 00:24:33,040 Speaker 1: take notice. These are big players in the corporate debt market, 401 00:24:33,119 --> 00:24:35,640 Speaker 1: and effectively the tries are coming from inside the house, 402 00:24:35,960 --> 00:24:38,280 Speaker 1: and that is why I think everyone's trying to figure 403 00:24:38,280 --> 00:24:41,680 Speaker 1: out that. When Scott says maybe the next recession, which 404 00:24:41,680 --> 00:24:43,920 Speaker 1: could be well months down the line eighteen months down 405 00:24:43,920 --> 00:24:46,480 Speaker 1: the line could be driven by corporate debt. That's reason 406 00:24:46,520 --> 00:24:48,879 Speaker 1: to be wired about it. Because also remember that since 407 00:24:48,920 --> 00:24:51,200 Speaker 1: the last recession, in the ten years that have elapsed, 408 00:24:51,800 --> 00:24:55,000 Speaker 1: we have seen an explosion in the corporate credit market. 409 00:24:55,080 --> 00:24:57,480 Speaker 1: And I think this is probably the time in the cycle. 410 00:24:57,560 --> 00:25:00,000 Speaker 1: And maybe David could address this. Is you know where 411 00:25:00,040 --> 00:25:03,360 Speaker 1: we see maybe with the smaller companies already issues are 412 00:25:03,480 --> 00:25:06,119 Speaker 1: starting to pick up. Are we seeing a uptick in 413 00:25:06,200 --> 00:25:09,000 Speaker 1: Chapter eleven filings? And is that what sort of gives 414 00:25:09,040 --> 00:25:11,199 Speaker 1: us a broader signal to what might come down the 415 00:25:11,240 --> 00:25:14,800 Speaker 1: pike in a year or two from now. Yeah? Absolutely, Uh, 416 00:25:15,200 --> 00:25:17,359 Speaker 1: we definitely see that. We're starting to see if you 417 00:25:17,400 --> 00:25:19,920 Speaker 1: look at the rolling three months Chapter eleven filings over 418 00:25:19,920 --> 00:25:21,879 Speaker 1: the last several months, you're starting to see an uptick, 419 00:25:22,440 --> 00:25:25,600 Speaker 1: especially as it relates to smaller companies. Um. I just 420 00:25:25,640 --> 00:25:27,679 Speaker 1: note that when you look at the new issue market 421 00:25:27,680 --> 00:25:30,240 Speaker 1: for high old in the last month or so, you've 422 00:25:30,280 --> 00:25:35,280 Speaker 1: seen at least twelve to fifteen corporates where they've issued 423 00:25:35,320 --> 00:25:37,639 Speaker 1: paper where paper is trading below a hundred cents on 424 00:25:37,680 --> 00:25:40,320 Speaker 1: the dollar. Uh So the new issue market is starting 425 00:25:40,320 --> 00:25:42,680 Speaker 1: to get a little shaky. Um. And then I think 426 00:25:42,680 --> 00:25:45,920 Speaker 1: as it relates to UM sectors that are in secular 427 00:25:45,960 --> 00:25:50,680 Speaker 1: decline UM, whether that be wireless UM, auto rental companies 428 00:25:50,760 --> 00:25:54,359 Speaker 1: and autos in general, you know, retail, hospitals, etcetera. Uh. 429 00:25:54,400 --> 00:25:56,600 Speaker 1: There's a huge amount of debt in each of those sectors. 430 00:25:56,600 --> 00:25:59,880 Speaker 1: So you've got a secular decline happening. At the same time, 431 00:25:59,880 --> 00:26:02,000 Speaker 1: they're going to be trying to figure out how to 432 00:26:02,000 --> 00:26:05,520 Speaker 1: refinance their structure and uh and and then again deal 433 00:26:05,560 --> 00:26:08,240 Speaker 1: with some of these interest deductibility issues that I mentioned 434 00:26:08,520 --> 00:26:11,800 Speaker 1: coming in their early two thousand twenties. Well, David, you 435 00:26:11,800 --> 00:26:15,200 Speaker 1: you at Kennedy Lewis, you raised two hundred and fifty 436 00:26:15,240 --> 00:26:19,840 Speaker 1: million dollars in November. Right, that's for fund. That fund 437 00:26:19,920 --> 00:26:24,280 Speaker 1: is destined for distressed debt. Right. Yes, we define ourselves 438 00:26:24,280 --> 00:26:29,760 Speaker 1: as opportunistic credit managers, which includes a component includes distressed debt. 439 00:26:29,760 --> 00:26:32,040 Speaker 1: That's right, Okay, And you've got five years to invest 440 00:26:32,160 --> 00:26:36,919 Speaker 1: this money. So are you waiting? We are. We are 441 00:26:36,960 --> 00:26:39,960 Speaker 1: waiting to a large degree. But two Uh, we we 442 00:26:40,040 --> 00:26:42,320 Speaker 1: do have some sectors that we identified that we think 443 00:26:42,320 --> 00:26:45,320 Speaker 1: are very attractive. Now. UM. We are focused on the 444 00:26:45,320 --> 00:26:48,880 Speaker 1: middle market space where there's less UM we think competition 445 00:26:49,520 --> 00:26:54,840 Speaker 1: UH for players like ourselves that can deliver capital structure solutions. UM. 446 00:26:55,000 --> 00:26:56,520 Speaker 1: So some of the sectors that we like and that 447 00:26:56,560 --> 00:27:00,400 Speaker 1: we're focused on are the animal care sector as well. Uh. 448 00:27:00,600 --> 00:27:03,359 Speaker 1: You know, the power markets in Texas. There's been a 449 00:27:03,520 --> 00:27:05,720 Speaker 1: real disruption in the power markets in Texas. We we 450 00:27:05,800 --> 00:27:08,680 Speaker 1: think this supply demand and balance in Texas is coming 451 00:27:08,680 --> 00:27:11,440 Speaker 1: into play and UM and so a lot of the 452 00:27:11,520 --> 00:27:14,280 Speaker 1: high cost coal companies that are coming out of the 453 00:27:14,320 --> 00:27:16,440 Speaker 1: market there, they just can't compete with natural gas where 454 00:27:16,480 --> 00:27:18,439 Speaker 1: it is. So we do like UM some sectors there, 455 00:27:18,440 --> 00:27:20,640 Speaker 1: and we are putting dollars to work in. What kind 456 00:27:20,640 --> 00:27:22,840 Speaker 1: of yield does it have to offer you in order 457 00:27:22,880 --> 00:27:26,439 Speaker 1: to be attractive for for our fund in particular, we 458 00:27:26,520 --> 00:27:29,520 Speaker 1: are targeting at one point five times money multiple over 459 00:27:29,520 --> 00:27:32,000 Speaker 1: a five year period of time, which equates to roughly 460 00:27:32,000 --> 00:27:35,080 Speaker 1: a mid teens yield. Uh. And we are finding those 461 00:27:35,119 --> 00:27:39,160 Speaker 1: opportunities in those sectors. But help us understand one thing 462 00:27:39,280 --> 00:27:42,440 Speaker 1: David wouldn't uh, and maybe this is the reason for it. 463 00:27:42,480 --> 00:27:44,479 Speaker 1: When we talk to the bigger distress films right now, 464 00:27:44,520 --> 00:27:47,359 Speaker 1: all of them are complaining about how there's so little 465 00:27:47,400 --> 00:27:50,320 Speaker 1: to do. Is that a reason why we're seeing sort 466 00:27:50,359 --> 00:27:54,480 Speaker 1: of an uptick in almost manufactured events. You know, the 467 00:27:54,560 --> 00:27:57,720 Speaker 1: CDs clash which involves Blackstone, a bunch of hatge funds, 468 00:27:57,720 --> 00:28:01,200 Speaker 1: even Goldman that has gripped everyone in them Okay, Windstream 469 00:28:01,280 --> 00:28:03,879 Speaker 1: and all the scenarios like that where people are making 470 00:28:04,080 --> 00:28:07,000 Speaker 1: arcin legal arguments to win returns. Is that just a 471 00:28:07,080 --> 00:28:10,040 Speaker 1: result of there's very little else to do, so you 472 00:28:10,080 --> 00:28:13,639 Speaker 1: have to make stuff for yourself right now? Yeah, I 473 00:28:13,960 --> 00:28:17,000 Speaker 1: believe that's that's that's partially the case. Absolutely. I think 474 00:28:17,119 --> 00:28:21,719 Speaker 1: you know a lot of the large uh cap credit 475 00:28:21,760 --> 00:28:25,200 Speaker 1: players UM have found that, you know, they need to 476 00:28:25,240 --> 00:28:28,240 Speaker 1: be focused on um what we call, you know, sort 477 00:28:28,240 --> 00:28:31,720 Speaker 1: of binary outcomes on technicalities right with you know, focused 478 00:28:31,720 --> 00:28:35,399 Speaker 1: on loopholes within legal documents. UM. You know, they're forced 479 00:28:35,400 --> 00:28:37,480 Speaker 1: to put a lot more dollars to work in any 480 00:28:37,520 --> 00:28:42,960 Speaker 1: one particular situation. And there's not large scale distress okay, 481 00:28:43,000 --> 00:28:45,240 Speaker 1: that's happening in the market today, so those opportunities are 482 00:28:45,520 --> 00:28:48,040 Speaker 1: fewer and far between, and then therefore they're they're forced 483 00:28:48,080 --> 00:28:51,880 Speaker 1: to focus on these the CDs issues that we've we've 484 00:28:51,920 --> 00:28:54,800 Speaker 1: seen in names like Habnanian. Just to go back to 485 00:28:54,840 --> 00:28:57,480 Speaker 1: your point earlier that the total amount of corporate debt 486 00:28:57,520 --> 00:29:02,120 Speaker 1: outstanding is greater than us g EP. That's that's correct, 487 00:29:02,120 --> 00:29:05,760 Speaker 1: including investment grade and high Okay, if you get a 488 00:29:05,760 --> 00:29:08,840 Speaker 1: big move in interest rates, that's gonna make a lot 489 00:29:08,840 --> 00:29:12,360 Speaker 1: of that paper much less attractive, even if those debts 490 00:29:12,360 --> 00:29:17,000 Speaker 1: are wonderful and the companies continue to pay. That's that's 491 00:29:17,000 --> 00:29:19,960 Speaker 1: absolutely right. And we've seen that already this year with 492 00:29:20,000 --> 00:29:23,360 Speaker 1: respect to investment grade returns as well as high yield returns, 493 00:29:23,360 --> 00:29:26,480 Speaker 1: they're both negative on the year. Okay. The reason I 494 00:29:26,480 --> 00:29:28,720 Speaker 1: go there is because a lot of times you have 495 00:29:28,760 --> 00:29:31,640 Speaker 1: to separate whether someone wants to be an investor and 496 00:29:31,680 --> 00:29:36,680 Speaker 1: hold the paper versus whether there is an intrinsic problem 497 00:29:36,760 --> 00:29:41,960 Speaker 1: with the company that has borrowed the money. In today's marketplace, 498 00:29:42,040 --> 00:29:44,280 Speaker 1: you can have a bunch of people Russian for the 499 00:29:44,320 --> 00:29:48,000 Speaker 1: exits and the company is still fine. That's right. That 500 00:29:48,040 --> 00:29:51,600 Speaker 1: makes it must make it difficult for you. Well, I 501 00:29:51,640 --> 00:29:53,360 Speaker 1: think I think in some ways we see that as 502 00:29:53,360 --> 00:29:56,360 Speaker 1: an opportunity. I mean, we have outflows in high yield 503 00:29:56,600 --> 00:29:58,880 Speaker 1: UH year to date this this year that we haven't 504 00:29:58,920 --> 00:30:01,640 Speaker 1: seen in man years. So you know, we do get 505 00:30:01,680 --> 00:30:03,800 Speaker 1: a baby with the bathwater scenario and some and that's 506 00:30:03,800 --> 00:30:05,239 Speaker 1: when you come in and We try and be an 507 00:30:05,240 --> 00:30:07,520 Speaker 1: open tunistic We focus on the areas that we think 508 00:30:07,560 --> 00:30:09,680 Speaker 1: we have core expertise, on the sectors that we think 509 00:30:09,720 --> 00:30:12,120 Speaker 1: we're good at, and that's when we come in. Thanks 510 00:30:12,240 --> 00:30:16,600 Speaker 1: very much, David Shane, Managing Partner, Kennedy Lewis Investment Management. 511 00:30:16,840 --> 00:30:19,719 Speaker 1: By thanks also to shreet not Rain. He is our 512 00:30:19,800 --> 00:30:28,000 Speaker 1: Bloomberg debt reporter. Thanks for listening to the Bloomberg P 513 00:30:28,120 --> 00:30:31,120 Speaker 1: and L podcast. You can subscribe and listen to interviews 514 00:30:31,120 --> 00:30:35,200 Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 515 00:30:35,600 --> 00:30:39,160 Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm 516 00:30:39,200 --> 00:30:42,480 Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast. 517 00:30:42,520 --> 00:30:45,120 Speaker 1: You can always catch us worldwide on Bloomberg Radio