Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. 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. You're
Speaker 1: listening to Bloomberg Markets with Bim Fox and Lisa A.
Speaker 1: Bramowitz on Bloomberg Radio. If you're looking for international exposure
Speaker 1: when it comes to your bond portfolio, you want to
Speaker 1: ask Eric Stein. He is portfolio manager and co director
Speaker 1: of Global Fixed Income for eating Vance, the whole company
Speaker 1: helping to manage more than four hundred and thirty billion
Speaker 1: dollars of company of of customer assets, and they're of
Speaker 1: course based in Boston, home to Bloomberg one O six
Speaker 1: one Boston, Newburyport and thirty in Metro West and the
Speaker 1: South Shore. We welcome all of our listeners in Boston
Speaker 1: and around the world. And Uh, Eric, well, maybe just
Speaker 1: talk a little bit about this new fund. This is
Speaker 1: the Eaton Vance International Emerging Markets Local Income Fund and
Speaker 1: it is UH focused not only on on a quorum
Speaker 1: bonds that are outside the United States. What I'm getting
Speaker 1: at is it's in local currency, correct, correct. So you know,
Speaker 1: we've been running a local currency strategy for for US
Speaker 1: investors dating back actually the June of two thousand seven.
Speaker 1: We just launched a version of that for overseas investors,
Speaker 1: but it's dominated um it's denominated, i should say, in
Speaker 1: local currency. So there's two different types of emerging market debt.
Speaker 1: There's dollar debt, which trades that has spread to treasuries
Speaker 1: like US HIEL bonds or US corporates, and then there's
Speaker 1: locally denominated emerging market debt. And so that's debt issued
Speaker 1: let's say, by the government of Brazil, but not issued
Speaker 1: in US dollars, issued in Brazilian ray ice. And it's
Speaker 1: certainly a more volatile part of the emerging market debtast class,
Speaker 1: but I also think it's one where return potentials also greater.
Speaker 1: It's also one that relies heavily on emerging market currency
Speaker 1: performance against the dollar. And I'm wondering, you know this,
Speaker 1: this implies to me that you see a weaker dollar
Speaker 1: going forward against these emerging markets currencies. What's giving you
Speaker 1: that confidence so you're exactly right. It's certainly based on
Speaker 1: emerging market currency strength or emerging market currencies just being
Speaker 1: flat and you're earning a higher rate of interest. And
Speaker 1: if you go back to two thousand, thirteen, fourteen or fifteen,
Speaker 1: when emerging market currencies were weak and the dollar was strong,
Speaker 1: that would be a headwind for a strategy like this.
Speaker 1: So I always tell people, you know, it's it's certainly
Speaker 1: one of my favorite parts of the fixed income markets,
Speaker 1: but I caution people that if you can't have a
Speaker 1: draw down in your fixed income, this probably isn't the
Speaker 1: right sector for you. I always caution you because of
Speaker 1: the currency component. As you mentioned. The other thing we
Speaker 1: had Bloomberg Intelligence is Damien Sassauer on yesterday and he
Speaker 1: was talking about liquidity and emerging markets credit and he
Speaker 1: was saying he's watching the bid asks spreads widen out.
Speaker 1: This is sort of a measure of the difference between
Speaker 1: what the prices that people are asking for on bonds
Speaker 1: and what they're actually able to get. Um are you
Speaker 1: concerned about that? And how do you sort of plan
Speaker 1: around that in a fun like this? So I think
Speaker 1: when you know, when you talk about a bit offer spreads.
Speaker 1: I think in em credit, I think of that more
Speaker 1: a sovereign credit. You know, certainly all fixed income markets
Speaker 1: have their liquidity challenges. I think you know, on our
Speaker 1: Advanced Global Income team, we put a big focus on trading.
Speaker 1: We have a twenty four hour trading desk based not
Speaker 1: only out of Boston, but London and Singapore, and we're
Speaker 1: always looking for different liquidity sources. So the interesting thing
Speaker 1: about local markets is it's not only trading with large banks.
Speaker 1: There's also local players on shore UH and some of
Speaker 1: these countries that we invest in, So liquidity is just
Speaker 1: different than I'd say it would be in US high
Speaker 1: yel bonds or even emerging market dollar bonds. What are
Speaker 1: some of the characteristics of the bonds that would go
Speaker 1: into this portfolio. So they would be issued by governments
Speaker 1: of emerging market countries, so you know countries and let's
Speaker 1: say Latin America, Eastern Europe, Africa, Asia, UH, and they'd
Speaker 1: be issued in local currency, so Brazilian RAI ICE, Turkish lyra,
Speaker 1: Indonesian RUPEA, And we think of them as having two
Speaker 1: main risks. You have local interest rate or local duration risk,
Speaker 1: and you also have currency risk as well. Okay, But
Speaker 1: in that in that context of risk, what do you
Speaker 1: susset as parameters? Are you looking at shorter duration longer duration?
Speaker 1: I mean in debt can be funded in a variety
Speaker 1: of different ways and secured in different ways. Yes, so
Speaker 1: certainly there is duration. There's local duration to these assets.
Speaker 1: So it's okay, how do Brazilian interest rates move or
Speaker 1: Indonesian interest rates move? And sometimes there can be correlations
Speaker 1: with US interest rates. We have seen that in the past.
Speaker 1: We saw that in two thousand thirteen. I actually think
Speaker 1: what's interesting is this year here, in two thousand eighteen,
Speaker 1: despite all the volatility we've seen in US treasuries, higher
Speaker 1: US yields, negative return, let's say on the Barkley's agg
Speaker 1: you know, yield in some of these emerging market countries
Speaker 1: continue to come down. They sold off a bunch and thirteen.
Speaker 1: Their central banks have the high rates of defend currencies
Speaker 1: and now they've been able to cut rates for the
Speaker 1: past couple of years. What's your most recent high conviction
Speaker 1: bet so, So maybe one I can talk about is India.
Speaker 1: So India as a country, you know, not without risk.
Speaker 1: There's always things that that that go on sometimes that
Speaker 1: are frustrating to those of us that that's send a
Speaker 1: lot of time following India. But you know, you get
Speaker 1: seven and a half or seven points six percent on
Speaker 1: government bond yield, it's not in the index. So I
Speaker 1: think that's kind of a specialty of our whole team
Speaker 1: is looking for bonds that are not necessarily in the index.
Speaker 1: In India, despite being a really large country, isn't in
Speaker 1: the index. And real quick, what's your biggest contrarian bet
Speaker 1: biggest contrarian bet? Um? You know, we're starting to like
Speaker 1: the Philippines paso. It's actually one of the currencies in
Speaker 1: Asia that people like to short a lot, and there
Speaker 1: are certainly issues. They used to have a current account
Speaker 1: surplus and then it went to deficit. We think their
Speaker 1: important number is actually gonna be very high in the
Speaker 1: fourth quarter because of a new tax regime and people
Speaker 1: are gonna get all flustered about that and the currency
Speaker 1: is selling off, but ultimately there's some inflation there. We
Speaker 1: think the central bank, the BSP is what they call
Speaker 1: the central bank in Philippines, they'll have to raise rates
Speaker 1: that should lead the currency strength. Thank you so much
Speaker 1: for being with us. Truly a pleasure speaking with you.
Speaker 1: Eric Stein, portfolio manager and codirector of Global fixed Income
Speaker 1: at Eaton a Vance, which manages about four hundred and
Speaker 1: thirty billion dollars and is based in Boston, but he
Speaker 1: joins us here in our Bloomberg eleven three oh studios.
Speaker 1: This is Bloomberg Markets with Pim Fox and Lisa Abramowitz
Speaker 1: on Bloomberg Radio. Obamacare is getting a pretty profound test
Speaker 1: with a move by an Idaho based ensure. Here to
Speaker 1: talk about that is Max Neeson, who covers the pharmaceutical
Speaker 1: industry and all things healthcare for Bloomberg gad Fly, and
Speaker 1: he joins us here in our Bloomberg eleven three oh studios. Max,
Speaker 1: this is a fascinating story because it really goes to
Speaker 1: the heart of the issue that UH insurers are looking
Speaker 1: at whether they will be able to offer people lower
Speaker 1: cost UH insurance plans if they're healthier and they'll get
Speaker 1: less coverage, but that means higher premiums for sicker people.
Speaker 1: Tell us about this place. Yeah, absolutely so. Um, what
Speaker 1: what Blue Cross in Idaho is doing is is pretty
Speaker 1: clearly in blatantly in violation of a number of of
Speaker 1: statutes in the Affordable Care Act, namely UH no, no
Speaker 1: limits on spending UM having to provide the same variety
Speaker 1: of coverage people not denying coverage for sick people for
Speaker 1: plans UM. And the issue is that if you offer
Speaker 1: that kind of insurance and a c A compliant insurance
Speaker 1: at the same time, inevitably healthy people are gonna flock
Speaker 1: to those cheaper plans, leaving sicker people in the a
Speaker 1: c A compliant plans skyrocketing premiums. So you can't really
Speaker 1: have it both ways, and and that seems to be
Speaker 1: what they're trying to do an Idaho. The question is
Speaker 1: whether it will actually happen UM, you know, due to
Speaker 1: legal threat or or action by the government. Max, could
Speaker 1: you outline what this plan would look like for someone
Speaker 1: that is shopping for health insurance. Yeah, so I think
Speaker 1: they're gonna offer UM a bunch of different plans, But
Speaker 1: the general idea basically is that you know, if you're
Speaker 1: someone who's young and healthy, you might pick a plan
Speaker 1: UM that, for example, doesn't cover certain types of drug,
Speaker 1: doesn't cover certain types of care. UM offers more kind
Speaker 1: of limited in basic skeletal care as opposed to the
Speaker 1: sort of comprehensive benefits the under the C A Okay,
Speaker 1: but but what I mean I'm looking here. For example,
Speaker 1: it says the proposed plans have a one million dollar
Speaker 1: annual per person limit to how much care the ensurer
Speaker 1: will pay for. So if you're not gonna get any,
Speaker 1: if you're not going to be ill, or you think
Speaker 1: you're not going to be ill or need more than
Speaker 1: a million dollars, what do we know what the premium is,
Speaker 1: for example, on a monthly basis um. I don't know yet,
Speaker 1: but I imagine that it would be substantially lower than
Speaker 1: something on the c A because those plans literally, you know,
Speaker 1: they have a set of ten essential health benefits that
Speaker 1: they're required to cover um things like you know, for example,
Speaker 1: maternity care. Um. Someone who doesn't want that, doesn't plan
Speaker 1: on having a kid, um, they won't be paying for that.
Speaker 1: So that's the appeal theoretically. But the problem is, you know,
Speaker 1: the idea upon a C is that you make everyone
Speaker 1: pay for that. I understand that. I mean, that's the
Speaker 1: that's the whole idea of insurance, right, I mean, you've
Speaker 1: got this bigger pool. But I'm just trying to look
Speaker 1: at it from the consumer's point of view that someone
Speaker 1: is currently faced let's say with you know, paying six
Speaker 1: or seven a month for a plan when they have
Speaker 1: a high deductible, they kind of look at it and a,
Speaker 1: g Why am I paying six seven hundred bucks a
Speaker 1: month when I've got this really high deductible. So I'll
Speaker 1: never really end up using the unless unless something well.
Speaker 1: But but of course you don't know that in the future, right,
Speaker 1: you don't know whether you're going to be ill or
Speaker 1: not well. I think that there's a big question, Max.
Speaker 1: You're talking about the legal challenge to this, and to me,
Speaker 1: that's the most interesting part because, as you said, this
Speaker 1: is im blatant violation of the Obamacare plan. Who which
Speaker 1: legal agency would be the one to go after them?
Speaker 1: And since President Trump has voiced support for this type
Speaker 1: of structure of a plan, will they go after them?
Speaker 1: So that that's really the question. Um. So, alexas are
Speaker 1: the new Secretary of Health and Human Services had said that,
Speaker 1: you know, you have to enforce the rule of law.
Speaker 1: The question is what exactly that means from him whether
Speaker 1: they'll do it because HHS, you know, is the regulatory
Speaker 1: agency that oversees this. It's their job to enforce the
Speaker 1: law of the land. Um. But you know, as we've
Speaker 1: seen in other areas, they have a certain amount of latitude,
Speaker 1: but the amount of legal risk he is really acute.
Speaker 1: You know, the insurer is likely to get suited if
Speaker 1: they offer plans that UM sick people are inteligible before
Speaker 1: they impose this lifetime limit. Idaho is likely to get
Speaker 1: sued for allowing them to do it. And then if
Speaker 1: HHS isn't informing in enforcing the law, there's legal risk
Speaker 1: of the Trump administration as well. Okay, well, let's say
Speaker 1: they don't enforce it. Do you expect other health insurance
Speaker 1: companies to follow suit? UM at a minimum? You know,
Speaker 1: just about every insurer on the exchanges in Idaho is
Speaker 1: likely to to jump in as well, because if they
Speaker 1: don't and they only offer a c A compliant insurance UM,
Speaker 1: basically everyone's gonna get siphoned off into this third party UM,
Speaker 1: into the blue Cross plane at this point that's offering
Speaker 1: this type of insurance. So that's just a losing situation
Speaker 1: for them. They'll have to balance basically the legal risk
Speaker 1: of offering those plans against the possibility that they'll only
Speaker 1: have UM, you know, a very sick and expensive to
Speaker 1: cover population left for them. UM and be forced to
Speaker 1: jack up premiums, but maybe not be able to keep
Speaker 1: up anyway because they have no idea how to price
Speaker 1: this market because you've never seen anything like it before.
Speaker 1: Thanks very much for bringing this to our attention and
Speaker 1: giving us this detail very interesting. Max Neeson is our biotechnology,
Speaker 1: pharmaceutical and healthcare columnist for Bloomberg Gadfly, and you can
Speaker 1: follow Max on Twitter at Max Neeson and I S
Speaker 1: E and much appreciative. Coming up on a Bloomberg Markets,
Speaker 1: we're gonna be speaking with Oxo Murky as the president
Speaker 1: and the chief investment officer of Murk Investments, talk about
Speaker 1: the volatility in the value of the US dollar and
Speaker 1: whether gold would be something to buy for your portfolio.
Speaker 1: You're listening to Bloomberg Markets with Pim Fox and Lisa
Speaker 1: Abramowitz on Bloomberg Radio. Bloomberg Markets is brought to by
Speaker 1: Commonwealth Financial Network, the broker dealer r i A who
Speaker 1: has been putting relationships first since nineteen seventy nine. Find
Speaker 1: out why the industry's most satisfied advisors are head over
Speaker 1: heels about them. Visit Commonwealth dot com. We'll just taking
Speaker 1: a look at the value of gold since the beginning
Speaker 1: of the year, it has increased about four percent. Is
Speaker 1: that really a way to diversify your portfolio away from
Speaker 1: the risk of stocks and bonds. Here to help us
Speaker 1: answer this and many other questions is Axill Murky as
Speaker 1: the president and the chief investment Officer of MRK Investments,
Speaker 1: and he can be followed on Twitter at axel Mark
Speaker 1: based in San Francisco. Oxell, thanks very much for being
Speaker 1: with us. Talk a little bit about diversification and when
Speaker 1: people diversify, but really they're not doing a good job
Speaker 1: at it. Yeah, great to be with you. Well, let's
Speaker 1: answer the second part of your question. First, the markets
Speaker 1: have moved relentlessly higher, and obviously if you've done anything
Speaker 1: other than by buying the SMP, you underperformed. And so
Speaker 1: some people say they diversified to bonds, but in truth,
Speaker 1: many of them have been grabbing yield and when you
Speaker 1: when you buy junk bonds as a more extreme example
Speaker 1: of that, they tend to be highly correlated with risk assets.
Speaker 1: So it's been very, very difficult to get proper diversification.
Speaker 1: And of course why should you diversified? And volatility is low?
Speaker 1: The problem with that of causes at some point and
Speaker 1: we saw it in recent weeks. Volatility edges higher, and
Speaker 1: as that happens, people realize their misallocated and that sets
Speaker 1: in motion this grinding process that they're struggling to find diversification.
Speaker 1: And as people are realizing in recent weeks that's not
Speaker 1: so easy. Um, And you mentioned gold in the beginning.
Speaker 1: Gold has historically had a correlation of zero to the
Speaker 1: SMP in the long run. Um. And in the context
Speaker 1: of volatility, if I can continue here, um, gold doesn't
Speaker 1: have cash flow, and that's a good thing because when
Speaker 1: volatility rises, cash flows get discounted. More so all risk
Speaker 1: assets tend to get banged on the head. Everything else
Speaker 1: equal anyway, whereas gold in comparison does well because it
Speaker 1: doesn't have the cash flow. So when risk premier rise,
Speaker 1: gold does well. And that is the reason why every
Speaker 1: baire market since the early seventies gold has done well,
Speaker 1: with the big exception, of course, of the early eighties
Speaker 1: where real interest rates when they very high. Okay axel
Speaker 1: uh full disclosure. Gold I find incredibly confusing and I
Speaker 1: always thought of it as an inflation hedge, and exactly
Speaker 1: as you're saying, you know it should do well in
Speaker 1: times of inflation and growth, possibly even better than say
Speaker 1: a fixed income instrument, especially tied to risk your credit.
Speaker 1: And yet you really haven't seen that substantial of a
Speaker 1: rally in gold on the heels of the sell off.
Speaker 1: And yesterday we had a guest on who is saying
Speaker 1: this is because interest rates are rising in the u US,
Speaker 1: people are able to actually get more income. Uh so
Speaker 1: because it's not interest producing security. Uh, it's sort of
Speaker 1: being punished. Make make this make sense for me, please? Well,
Speaker 1: is that incredible? This this this brick, this piece shiny
Speaker 1: piece of metal that doesn't do anything, doesn't ever change.
Speaker 1: Is so confusing because it's the one thing that's constant.
Speaker 1: It's the world around it that's so confusing. And and
Speaker 1: so um and and obviously the price of gold is
Speaker 1: determined just like everything else by supply and demand, and
Speaker 1: so the question is is there reason to to have
Speaker 1: more of gold than this or that? And and clearly
Speaker 1: the other things that are also quote unquote inflation hedges,
Speaker 1: but neither of those perfect heades. People have historically said, right,
Speaker 1: buying um real estate, buying equities might be inflation hedges.
Speaker 1: And so um I tried to put it into this
Speaker 1: is volatility framework, because that one I think makes perfect sense.
Speaker 1: It doesn't have cash flow, and therefore the discounting works
Speaker 1: differently now um in the context of higher inflation. First
Speaker 1: of all, inflation is still very low and and so
Speaker 1: there's fear of it ticking up um And we're not
Speaker 1: talking about hyper inflation here, we're talking about the Federal
Speaker 1: reserve potentially being attacked more assertive. And if there's one
Speaker 1: big competition to gold, it is higher real interest rates.
Speaker 1: And so if you get compensated for holding cash while
Speaker 1: you don't need to hold something that doesn't throw off cash.
Speaker 1: And the reason why gold has held up very well anyway,
Speaker 1: in my view any way, is because people think that
Speaker 1: there's a limit to how much tightening the Federal Reserve
Speaker 1: can do, and so and when it was also seen
Speaker 1: the dollar has been weakening despite higher rates, and of
Speaker 1: course a lot of that has to do with how
Speaker 1: much has been priced in. But just for the kind
Speaker 1: of in the context of the reason about a volatility
Speaker 1: and tandem we had in the market, I take something
Speaker 1: that's kind of boring any time over something that moves
Speaker 1: a thousand points in in in a few minutes, and
Speaker 1: so it does play its role as a diversifier. But
Speaker 1: but this is an environment I think where everybody, no
Speaker 1: matter what your hold you're going to be tested. Um.
Speaker 1: Correlations are breaking down, have been breaking down, and so
Speaker 1: you're going to be tested with whatever view you have
Speaker 1: on whatever I as said. You've got to have a
Speaker 1: long term framework to think about what you want to do,
Speaker 1: how much allocate the stocks, bonds, gold, or whatever it
Speaker 1: might be. Because if you just look at any one
Speaker 1: data point, any one day, UM, I think people will
Speaker 1: be rightfully confused. Oxville. If you go back about five
Speaker 1: years and you look at the value of gold, it
Speaker 1: was trading it around sixteen hundred and five dollars four
Speaker 1: an ounce. Right now we're hundred and fifty two. What
Speaker 1: do you say to people that maybe bought gold then
Speaker 1: and now look at their holdings and say, gee, I
Speaker 1: can't buy the same amount in dollar terms that I
Speaker 1: bought back then, And the value of the US dollar
Speaker 1: may have even declined since then, so as a result,
Speaker 1: I even have less money. Is gold a means to
Speaker 1: an end or is it an end in itself? Actually
Speaker 1: just got a message from somebody who said, oh, I
Speaker 1: loaded up on too much gold and got burned during
Speaker 1: those days that you're just a reference. And so even
Speaker 1: when the price of gold goes higher, they might have
Speaker 1: to sell some of it, and uh and and you
Speaker 1: you get that from time to time. It comes down
Speaker 1: to investment process. Right. If you take take if you
Speaker 1: bought stocks in two thousand seven and two thousand eight
Speaker 1: and and and and had were fully loaded in the stocks,
Speaker 1: well you lose a lot of money, and then people
Speaker 1: tell you to double down at the bottom. That is
Speaker 1: completely irresponsible because you lost half of your net worth
Speaker 1: and you lost more than you could afford to lease do.
Speaker 1: So you've got to pay down your risk profile. So similarly,
Speaker 1: if you loaded up on too much of anything, including
Speaker 1: gold on the top and haven't diversified as as prices
Speaker 1: were moving, well, odds are that you lost more than
Speaker 1: you could afford to lose. But that doesn't make the
Speaker 1: investment in bad investment. It means that you don't have
Speaker 1: a discipline to rebalance your portfolio and and to to
Speaker 1: understand the risks and and what happened in gold at
Speaker 1: the time, volatility was too low and people weren't the
Speaker 1: way of the risk. While anybody who buys anything, including gold,
Speaker 1: should be aware these things can be very volatile and
Speaker 1: people only realize that on the way down when volatility
Speaker 1: spikes and doesn't make the investment worth But it does
Speaker 1: remind people that the human and I'm not following the process.
Speaker 1: And notably they didn't take chips off the table now
Speaker 1: either um during the the bull market and hopefully they
Speaker 1: got the wake up call of Laton in the market.
Speaker 1: Shield axell Mark, thank you so much for joining us.
Speaker 1: A pleasure having you on. Axel Mark is President, chief
Speaker 1: investment officer of Mark Investments in San Francisco, California. It's
Speaker 1: not gold that's confusing, it's the world around it. Let's
Speaker 1: turn to farming equipment Deer and Company, which focuses on
Speaker 1: supplying farmers and their infrastructure. Their shares are up nearly
Speaker 1: four percent after beating estimates with their earnings. Karen yubile
Speaker 1: Heart joins us now our industrials analysts for Bloomberg Intelligence.
Speaker 1: Always full of insight. Karen, We're so happy to have
Speaker 1: you here. So what's going on here? I just sort
Speaker 1: of set the stage for why why the outlook in
Speaker 1: general for farming is turning up? Uh, you know, it's
Speaker 1: it's largely replacement demand. Um. They are in both construction
Speaker 1: and agg and medals are surging um so and the
Speaker 1: construction business is surging. But you know, grain commodity prices
Speaker 1: have not really done anything. But the farmers have not bought,
Speaker 1: particularly the large farmers for about three years, and they
Speaker 1: there's the technology has changed a lot. Um. You know,
Speaker 1: their equipment is getting a little old, and I think
Speaker 1: they've just and they have enough confidence to get out
Speaker 1: there and start buying. Well, the company already said, what
Speaker 1: sales are up like the quarter? Yeah, yeah, um, And
Speaker 1: well there's two things happening there. The end markets are
Speaker 1: not up that much, but deer underproduced for three years,
Speaker 1: so they get a kick, uh, an extra kick from
Speaker 1: ramping back up to uh, you know, retail demand. So
Speaker 1: internally they're going to do a lot better than the
Speaker 1: end market this year. So what's the breakdown for deer
Speaker 1: as far as where they get their rev new if
Speaker 1: you look at construction versus farming, and which is the
Speaker 1: brighter spot heading into the rest of the year. Uh,
Speaker 1: you know, from a margin perspective, you want dear, you
Speaker 1: want add to grow and because that's eight percent of
Speaker 1: deer um right now on a sales basis. Well, it's
Speaker 1: actually seventy after Vertican and it's still um, you know,
Speaker 1: about sixty of earnings. And the one thing they did
Speaker 1: say is large equipment is doing much better than they expected,
Speaker 1: and that's margin they don't they you know, they'll make
Speaker 1: a ten percent margin this year and at in um
Speaker 1: construction and they'll do you know of fourteen percent margin
Speaker 1: in agg so you know, because of the big stuff. Well,
Speaker 1: they talked about agriculture and turf equipment sales. I think
Speaker 1: they were up something like eighteen to but then even
Speaker 1: more so construction and forestry equipment posting increase of nearly
Speaker 1: sixty that's the that's the merger um. But it's still up.
Speaker 1: If you take out Vertican, it's still about twenty percent.
Speaker 1: But if you look at CATS numbers, which come out monthly,
Speaker 1: they're up thirty percent in in overall in every region
Speaker 1: is up at least um and both construction of mining
Speaker 1: construction matters more to deer is up, are both surging
Speaker 1: so um. You could see it in CATS numbers a
Speaker 1: couple of weeks ago, and it's flowing through deer seeing
Speaker 1: in construction as well, so expert and it's still up
Speaker 1: a lot so with construction. I mean, we just got
Speaker 1: housing starts that were the strongest in several years. Um.
Speaker 1: What's driving the sort of optimism on that side? You know,
Speaker 1: housing has been pretty good for a while. Um, and
Speaker 1: I do you know jobs, um, a little bit more money, um,
Speaker 1: you know, and just an overall more optimistic outlook about
Speaker 1: the US economic growth I think is helping. And Deer
Speaker 1: is very sensitive to housing, um, even more so than
Speaker 1: Cat so and I just want to mention you keep
Speaker 1: talking about the Verton acquisition. This was the German company, right,
Speaker 1: and about a four point six billion dollar yes, and
Speaker 1: they and they have very high margins and the road
Speaker 1: machinery and Deer wasn't really in that business and they
Speaker 1: have like a fourteen fifteen percent operating margin. Deer doesn't
Speaker 1: break ten in their construction, So good from an end
Speaker 1: market perspective, a regional perspective, as well as margins for
Speaker 1: that business. What's the for for dear, what's the breakdown
Speaker 1: with international sales versus domestic sales and how much of
Speaker 1: a boost are they getting from sort of the I
Speaker 1: hate saying this because it's such cliche synchronized global growth,
Speaker 1: but that's what everybody says, well, it's true, So what's
Speaker 1: going on? Um, they get about two thirds UM of
Speaker 1: their sales in North America now pro forma with Vertkin,
Speaker 1: that's gonna that's gonna go down, you know some because
Speaker 1: you know, Verkan has much larger exposure outside, so we'll
Speaker 1: probably be more like fifty five UM north America. So
Speaker 1: they actually have a pretty high North American exposure, which
Speaker 1: is good tax rate wise, right, so they'll get a benefit.
Speaker 1: Do we hear it? A thing about dividend changes? Well,
Speaker 1: that came up because they're relative to their sixty cents
Speaker 1: to share right now. It's it's about um, it's under
Speaker 1: their payout goal based on consensus, and the CFO basically said, oh,
Speaker 1: we're talking about it, we're reviewing it because it's one,
Speaker 1: I mean one one point four percent. That's not going
Speaker 1: to get anybody interested. And with the cash flow, they
Speaker 1: raised their cash flow expectations because things are doing, you know,
Speaker 1: doing better than they expected. So I would expect they'll
Speaker 1: do something with the dividend this year. All right, we'll
Speaker 1: have to look for that because they haven't raised it
Speaker 1: in a while. I think it was like fifty one
Speaker 1: cents to share for quite a long period and sixty
Speaker 1: cents to share, so right now, as I said, one
Speaker 1: point four, and then they went into the downturn and
Speaker 1: they were conserving cash. Right now, they can let it fly.
Speaker 1: Let it fly. There you go. I like that all right,
Speaker 1: thanks very much, Like Karen, let him fly along with
Speaker 1: the synchronized global growth that's g G and let it fly.
Speaker 1: Karen Jubile heard are industrials analysts for Bloomberg Intelligence. Shares
Speaker 1: of Deer and Company. They are higher right now by
Speaker 1: more than four percent. Thanks for listening to the Bloomberg
Speaker 1: P and L podcast. You can subscribe and listen to
Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa Abramowits one before the podcast. You
Speaker 1: can always catch us worldwide on Bloomberg Radio.