WEBVTT - Eaton Vance's Peabody Sees Opportunities in High-Yield 0:00:00.080 --> 0:00:02.040 P and L is brought to you by proper Cloth, 0:00:02.120 --> 0:00:05.120 a leader in men's custom shirts, with proprietary smart sized 0:00:05.120 --> 0:00:08.720 technology and top rated customer service. Ordering a custom shirt 0:00:08.760 --> 0:00:11.680 has never been easier. Visit proper cloth dot com to 0:00:11.760 --> 0:00:19.920 order your first custom shirt today. Welcome to the Bloomberg 0:00:20.000 --> 0:00:22.599 P and L Podcast. I'm Pim Fox. Along with my 0:00:22.640 --> 0:00:25.759 co host Lisa Abramowitz. Each day we bring you the 0:00:25.800 --> 0:00:29.360 most important, noteworthy, and useful interviews for you and your money, 0:00:29.360 --> 0:00:32.360 whether at the grocery store or the trading floor. Find 0:00:32.400 --> 0:00:35.840 the Bloomberg P and L Podcast on iTunes, SoundCloud and 0:00:36.080 --> 0:00:45.720 at Bloomberg dot com. Target is in the spotlight today, 0:00:45.800 --> 0:00:48.440 or should I say on the hot seat. It shares 0:00:48.479 --> 0:00:50.879 plunging the most in more than eight years, down more 0:00:50.880 --> 0:00:54.880 than twelve per cent, after announcing plans to cut prices 0:00:55.240 --> 0:00:57.960 to get customers back in the door. I want to 0:00:58.000 --> 0:01:02.160 bring in Burt Fleckinger, man ing director at Strategic Resource Group, 0:01:02.240 --> 0:01:07.160 for more insight on what's behind the plummeting shares and 0:01:07.400 --> 0:01:11.520 the potentially UH negative outlook. But did this come as 0:01:11.520 --> 0:01:15.240 a surprise to you? No surprised Lisa's As we talked 0:01:15.280 --> 0:01:19.800 in earlier Bloomberg broadcast anyone has seen in the stores. 0:01:20.040 --> 0:01:24.760 Just problems in Syriotom for example, for Christmas Hanukah, Kwanza 0:01:24.840 --> 0:01:29.600 through Valentine's Day, finding fashion, jewelry, Department's most important department 0:01:29.600 --> 0:01:32.440 in the store, unstaff, do you have to ring a 0:01:32.440 --> 0:01:36.759 bell for service waiting for godo? Nobody comes to serve 0:01:36.800 --> 0:01:40.800 the shoppers, People walk out, go to Cole's, Walmart, Walmart, 0:01:40.840 --> 0:01:46.039 Sears Kmart and uh the company's off course and uh 0:01:46.240 --> 0:01:50.360 the new definition of being rudderless for Target retail, which 0:01:50.400 --> 0:01:53.880 is very un characteristic for the company. Well, butt, You've 0:01:53.880 --> 0:01:56.000 got a company, it's got a market cap of thirty 0:01:56.040 --> 0:01:59.720 two billion, They've got about two and a half billion 0:01:59.840 --> 0:02:05.160 in cash, their threety one thousand employees. What can Brian 0:02:05.280 --> 0:02:09.200 Cornell do in order to turn this surround? Is it worth? 0:02:09.680 --> 0:02:12.440 Is it worth what it's being priced at right now, 0:02:12.480 --> 0:02:15.480 which is fifty eight dollars a share them it's a 0:02:15.480 --> 0:02:18.640 good price right now. That Bloomberg Terminals reporting a five 0:02:18.720 --> 0:02:22.920 year low UH for Target flat over five years compared 0:02:22.919 --> 0:02:26.280 to the S and P being up over sevent same time, 0:02:26.760 --> 0:02:30.560 your present point on Target needs to UH take cash 0:02:30.600 --> 0:02:37.600 off its balance sheet, invest in capex, they're distinct disadvantage Kroger, Walmart, Coles, 0:02:38.320 --> 0:02:41.360 H and M everybody they compete with because Targets outsourced 0:02:41.720 --> 0:02:44.680 just about everything. Outsource distribution cost the goods are too 0:02:44.760 --> 0:02:48.919 high to leass present point on prices. UH. Target spacing 0:02:48.919 --> 0:02:54.080 a price war, pervasive price war of unprecedented proportions for 0:02:54.080 --> 0:02:58.160 for the next few to five years. UH, Walmart, Legal, 0:02:58.200 --> 0:03:01.079 et cetera. Because they're they're cat of goods or lower 0:03:01.120 --> 0:03:05.240 targets keeps getting higher from outsourcing. Target needs well. But 0:03:05.560 --> 0:03:07.160 hang on, Burt, But I mean I was looking at 0:03:07.160 --> 0:03:11.280 Brian Cornelli's biography. He's the chief executive of Target and 0:03:11.320 --> 0:03:14.320 the chairman. I mean he was the CEO of Sam's Club. 0:03:14.400 --> 0:03:16.600 He also was the CEO of the America's Food division 0:03:16.680 --> 0:03:19.280 for PepsiCo. Is he the one that's going to make 0:03:19.280 --> 0:03:21.640 this happen or do they need new talent in the 0:03:21.760 --> 0:03:25.640 in the boardroom him? It's uh, Lisa Brownham. What's his 0:03:25.960 --> 0:03:30.480 Bloomberg hot hot seat up in Minnesota, Brian, Brian Cornell 0:03:30.520 --> 0:03:34.640 has got one more fiscal to deliver. Uh. It looks 0:03:34.760 --> 0:03:37.640 look like he's going to bring great new leadership to 0:03:37.680 --> 0:03:41.000 the company. But with John Stump, who now left on 0:03:41.040 --> 0:03:43.600 the board other board members of sleep at the switch, 0:03:44.520 --> 0:03:48.080 kind a Rip Van Winkle routine. Uh, you need new leadership, 0:03:48.120 --> 0:03:51.400 and regrettably it's almost like a Mackenzie like monarchy with 0:03:51.480 --> 0:03:56.440 the consultants half running the company and erroneous assumptions, erroneous conclusions. 0:03:56.600 --> 0:03:58.920 They need to invest in Target dot Com. They need 0:03:58.960 --> 0:04:02.160 to invest in self distribution. Uh, and they need to 0:04:02.200 --> 0:04:06.200 invest in staffing instead of cutting hours and and having 0:04:06.240 --> 0:04:10.040 shells that are too empty that impair the same store 0:04:10.080 --> 0:04:13.080 sales and operating income. You know, there's there's a quote 0:04:13.480 --> 0:04:17.479 in the Bloomberg story about Targets results from one analyst saying, 0:04:17.520 --> 0:04:20.320 we are stunned. We thought they were going the other 0:04:20.400 --> 0:04:22.960 way with higher margins stuff. I mean, this is sort 0:04:23.000 --> 0:04:25.920 of what's at stake here. Target was always thought to 0:04:25.960 --> 0:04:29.200 be the higher quality version, uh, and sort of tried 0:04:29.240 --> 0:04:32.040 to lure people who had a higher price point than 0:04:32.080 --> 0:04:35.279 say Walmart. But now Target appears to be putting Walmart 0:04:35.520 --> 0:04:37.920 and it's compete as as sort of like a competitor, 0:04:38.640 --> 0:04:40.880 or at least on that level. Is this is this 0:04:40.920 --> 0:04:44.880 strategy going to work for them? What they're doing isn't working. 0:04:44.960 --> 0:04:48.640 Lisa's as you Pam, your great producer, Sam Langon, I've 0:04:49.400 --> 0:04:53.839 discussed offline in the studio for for months. UH. Target 0:04:53.880 --> 0:04:57.680 has gone the wrong way, and also Targets probably the 0:04:57.680 --> 0:05:02.280 most vulnerable company to being organized by the ufc W, 0:05:02.560 --> 0:05:06.520 the Retail Clerks Union, UH, because even even the workers 0:05:06.600 --> 0:05:08.640 that want to take corrective action on the out of 0:05:08.720 --> 0:05:11.480 stocks are disciplined and run off. We call it the 0:05:11.560 --> 0:05:16.600 Volkman rule after Carl Volkman, who was fired for overriding 0:05:16.640 --> 0:05:21.080 an inventory management system that wouldn't order product for product 0:05:21.080 --> 0:05:24.000 that was out of stock on the shelves, and the 0:05:24.880 --> 0:05:27.960 company decided in favor of the consultants and the constructive 0:05:28.920 --> 0:05:31.800 UH students who are highly rated in terms of productivity, 0:05:31.839 --> 0:05:35.719 wound up getting sacked in the stores. And UH. You know, 0:05:35.800 --> 0:05:38.800 for for all the problems that you and Pimm have 0:05:38.920 --> 0:05:43.680 presently pointed out, least in retail, all Targets problems are 0:05:44.040 --> 0:05:47.839 self inflicted. And Brian, Brian Cornell's got a got a 0:05:47.880 --> 0:05:50.359 few quarters to FIXTS. That's not totally fair because we 0:05:50.400 --> 0:05:52.320 also have this sort of elephant in the room, right, 0:05:52.360 --> 0:05:55.599 We've got Amazon. How much is this just Amazon creating 0:05:55.600 --> 0:05:58.200 a food fight among the rest of the brick and 0:05:58.240 --> 0:06:02.440 mortars Amazon on creating a food fight. Yes, Lisa. Yet 0:06:02.560 --> 0:06:06.280 yet at the same time, Target dot Com at uh 0:06:06.800 --> 0:06:10.800 stupidly outsourced Target dot Com fulfillment to Amazon for nearly 0:06:10.839 --> 0:06:13.640 a decade. So Target dot Com is way underdeveloped that 0:06:13.720 --> 0:06:18.880 areas growing quickly. But Target got complacent in basic apparel 0:06:18.920 --> 0:06:22.279 and fashion, especially for boys and girls and young women 0:06:22.279 --> 0:06:25.400 and men. And even uh, Target and Sears with lands 0:06:25.480 --> 0:06:28.599 and have better basic fashion as does Walmart for the 0:06:28.640 --> 0:06:32.240 first time in fifty years, and many key categories in apparel, 0:06:32.720 --> 0:06:37.000 and Uh that's self inflicted from Target. To Opportunity or 0:06:37.160 --> 0:06:41.479 stay away bird flicking show for all Chinese sign pim 0:06:42.080 --> 0:06:46.480 opportunity and danger. I'd bet on opportunity, okay, and as 0:06:46.480 --> 0:06:49.640 well as with the bonds too for Target. Uh, definitely 0:06:49.720 --> 0:06:55.520 with the bonds. I would bet against the bonds for Bergdorf, Neiman, Marcus, 0:06:55.520 --> 0:06:59.240 Grouper and MG. I would bet on the bonds for 0:06:59.360 --> 0:07:02.359 Target at divis are going to come in. Uh, the 0:07:02.400 --> 0:07:05.320 consultants are going to go out. You'll have better leadership, 0:07:05.360 --> 0:07:09.400 better business, better bond prices, better equity prices. Yeah, I'm 0:07:09.400 --> 0:07:14.160 looking at the Target two point nine percent bonds. Uh. 0:07:14.200 --> 0:07:16.400 There are a mirror one hundred and two point three 0:07:16.480 --> 0:07:19.240 cents on the dollar total discount. But this is an 0:07:19.240 --> 0:07:22.320 a UH and A minus rated company. This is a 0:07:22.320 --> 0:07:24.880 company that has a study revenue stream. So that's why 0:07:24.920 --> 0:07:27.280 you're saying they're going to be able to repay their debt. 0:07:27.480 --> 0:07:31.160 That's not the issue. Yeah, And this is also this 0:07:31.280 --> 0:07:35.000 is also a company that's neutralized Christmas hank quans and 0:07:35.040 --> 0:07:39.440 no merchandizing signs, no real good merchandizing activity. And as 0:07:39.480 --> 0:07:42.640 we've discussed, more vacuum cleaners in the ads in Christmas 0:07:42.680 --> 0:07:46.480 and hanak and quansa items during the key holiday selling period. UH, 0:07:46.520 --> 0:07:50.320 companies clearly gone the wrong way. And with a lot 0:07:50.320 --> 0:07:56.000 of merchants getting sacked and the consultants making the refreshed decisions, 0:07:56.400 --> 0:08:01.800 that that's a perscription UH for sick company getting sicker. 0:08:01.840 --> 0:08:04.640 But at least, as you and Tim said, it's fundamentally 0:08:04.680 --> 0:08:07.680 a strong company founded by the great Dayton family and 0:08:08.760 --> 0:08:11.120 there's still large shareholders in one way or the other 0:08:11.160 --> 0:08:13.880 in the honor of founder George Draper Dayton and the 0:08:14.360 --> 0:08:17.880 late Great Bruce Bliss Daton who passed away within the 0:08:17.960 --> 0:08:21.200 last year. UH. This this company will come back I'd 0:08:21.200 --> 0:08:23.880 be much more worried about nord uh than than I 0:08:23.920 --> 0:08:27.360 would be Target Uh. But Target Target we're gonna have 0:08:27.400 --> 0:08:29.720 to talk about. We're gonna you know, it's interesting you 0:08:29.720 --> 0:08:31.680 talk about North because we want to get your views 0:08:31.720 --> 0:08:34.200 on it. We're gonna have to leave that for another time. 0:08:34.280 --> 0:08:38.160 Because NORDSTN reported results recently and they exceeded analyst estimates. 0:08:38.160 --> 0:08:40.840 The stock moved higher. So I'm interested to hear what 0:08:40.920 --> 0:08:44.680 worked flicking share of Strategic Resource Group has to say 0:08:44.679 --> 0:09:00.640 about that. It's been yet another stellar by of months 0:09:00.679 --> 0:09:04.319 for US high yield bonds. Yields on the deck can 0:09:04.400 --> 0:09:07.360 no longer be considered high. They are low yield bonds 0:09:07.360 --> 0:09:10.960 at five point six percent, the lowest UH since two 0:09:11.000 --> 0:09:14.600 thousand fourteen. Has this market gone too far? I want 0:09:14.600 --> 0:09:17.160 to bring in Henry Peabody, co manager of the Eaton 0:09:17.280 --> 0:09:20.600 Vance Multisector bond Fund. He is the expert in all 0:09:20.640 --> 0:09:23.680 things fixed income. Henry, I'm so glad that you're here. Uh, Henry, 0:09:23.720 --> 0:09:25.120 what do you think? Do you think that the bond 0:09:25.200 --> 0:09:27.480 that the US hi yield bond market has gone too far? 0:09:28.280 --> 0:09:33.200 Probably has um thinking about yields in the mid fives, 0:09:33.520 --> 0:09:37.760 thinking about default rates, UM expected real returns, it's not 0:09:37.960 --> 0:09:41.319 too compelling. Fortunately, this is a market that active can 0:09:41.320 --> 0:09:45.200 do reasonably well in UM. For US, we see opportunities 0:09:45.240 --> 0:09:47.840 in US high yield UM. Not the broad market, but 0:09:47.880 --> 0:09:51.160 certainly a few UM. But spreading what well, you know, 0:09:51.200 --> 0:09:54.840 we're watching the retail sector fairly closely. UM. I can't 0:09:54.880 --> 0:09:58.400 say that we're UH diving in, but we're watching it 0:09:58.480 --> 0:10:00.920 fairly closely. So just to put this into perspective, a 0:10:00.960 --> 0:10:03.199 lot of people have been talking about a retailer recession, 0:10:03.240 --> 0:10:06.360 and we heard Bert Flickints share earlier on this program 0:10:06.360 --> 0:10:09.679 and analyst of the retail sector saying he thinks Nordstrums 0:10:10.040 --> 0:10:13.160 could potentially be in real trouble and that the bonds 0:10:13.160 --> 0:10:17.280 could be in real trouble. Do you agree, No, not necessarily, UM. 0:10:17.360 --> 0:10:20.760 We're still very early on in this process. UM. It's 0:10:20.760 --> 0:10:22.600 going to take a little while for this to settle out. 0:10:22.640 --> 0:10:26.599 You think about energy and you know, post OPAC Thanksgiving 0:10:26.640 --> 0:10:28.880 of a couple of years ago, and it takes off 0:10:28.880 --> 0:10:30.520 of us to shake out. So it's it's a slow 0:10:30.559 --> 0:10:34.720 moving process and one that you need to UM follow closely, 0:10:34.800 --> 0:10:39.880 establish starter positions UH and watches spreads evolve, but hard 0:10:39.920 --> 0:10:43.560 to make a distinct call on that credit per se today. Well, 0:10:43.679 --> 0:10:46.240 what would you be looking for? What are the characteristics? 0:10:46.840 --> 0:10:48.840 You know? I think you look for companies that have 0:10:49.040 --> 0:10:55.680 good online presence, UM, good uh footprints in good regions, 0:10:55.720 --> 0:10:58.080 with good product suites. But how about if you could 0:10:58.080 --> 0:11:01.559 just give me some number, like what kind of numbers 0:11:01.559 --> 0:11:03.840 are you looking for? You're looking for a certain amount 0:11:03.840 --> 0:11:06.520 of cash flow? Or because I mean all every company 0:11:06.559 --> 0:11:09.000 I know looks for exactly the things that you're describing. 0:11:09.040 --> 0:11:11.360 No one wants to be, you know, the old shoe. 0:11:11.880 --> 0:11:15.920 What what are the financial characteristics that you deem a 0:11:15.960 --> 0:11:18.640 winner as opposed to someone you want to stay away from. Well, 0:11:18.679 --> 0:11:20.600 I think that's going to evolve, and I think what 0:11:20.640 --> 0:11:24.079 we look for in any position is a good liquidity runway. 0:11:24.080 --> 0:11:28.080 You need a company that can weather a challenging environment. 0:11:28.120 --> 0:11:31.960 You need liquidity, UM. You need assets that are will 0:11:32.000 --> 0:11:35.200 it that a company is willing to protect good assets UM. 0:11:35.240 --> 0:11:38.040 Potentially salable assets if those in the case of retail, 0:11:38.040 --> 0:11:41.000 if that's a real estate UM. So you need a 0:11:41.040 --> 0:11:45.480 company with a relative mode from a competitive standpoint. But 0:11:45.559 --> 0:11:48.840 that's all gonna evolve over the next year or two. 0:11:48.920 --> 0:11:51.480 As this situation. Does you know, Henry and a lot 0:11:51.480 --> 0:11:55.120 of people talk about rich valuations in the higher bond market. 0:11:55.160 --> 0:11:57.520 I have to think about the Carlyles and the black 0:11:57.559 --> 0:11:59.760 Stones and the Kkrs of the worlds that have been 0:12:00.040 --> 0:12:03.440 seeing money for distress debt funds uh and have a 0:12:03.520 --> 0:12:07.280 record amount of dry powder on their books. Won't this 0:12:08.000 --> 0:12:12.559 prevent the higher bond market from falling too far? Or 0:12:12.920 --> 0:12:14.640 is it? Is it bad to read too much into 0:12:14.679 --> 0:12:17.640 this sort of stash of cash. Well, you saw that 0:12:17.679 --> 0:12:20.480 with energy, right, You saw a great deal of capital 0:12:20.520 --> 0:12:23.320 being raised in the private equity space for energy, and 0:12:23.360 --> 0:12:26.800 there were fewer transactions because of that. Uh. You saw 0:12:26.840 --> 0:12:29.280 that valuations between the band and the office side never 0:12:29.320 --> 0:12:32.320 actually reached a clearing point. But by the same token, 0:12:32.360 --> 0:12:35.120 you did see a great deal of capital availability. So 0:12:35.160 --> 0:12:38.080 these companies were able to access the capital they need 0:12:38.120 --> 0:12:41.439 and come around the other side. So does private equity 0:12:41.920 --> 0:12:45.240 put a floor underneath it at the margin? Yeah? Okay? 0:12:45.400 --> 0:12:48.800 So um, what's eaten vances sort of base case scenario 0:12:48.920 --> 0:12:52.120 for ten year treasuries for the end of the year. Well, 0:12:52.360 --> 0:12:54.200 it's important to point out that we don't have a 0:12:54.320 --> 0:12:58.360 top down view form from an economist personally then I 0:12:58.400 --> 0:13:00.800 think you need to think about the tenure out as 0:13:01.320 --> 0:13:04.400 a reflection of nominal growth. And so if you believe 0:13:04.520 --> 0:13:08.120 that Trump is going to achieve nominal growth in the 0:13:08.520 --> 0:13:11.120 four percent range, then you need to think about a 0:13:11.120 --> 0:13:14.559 four pressure towards a four percent Okay, so if that happens, 0:13:14.600 --> 0:13:16.920 if there is pressure towards a four percent ten year yield, 0:13:17.360 --> 0:13:20.680 what would that do to HILD bonds. Well, you'd have 0:13:20.760 --> 0:13:23.599 to My guess is with the front end of the 0:13:23.640 --> 0:13:26.200 curve coming up at the same time, you would likely 0:13:26.240 --> 0:13:29.800 see negative convexity. You'd see this market extend. You would 0:13:29.800 --> 0:13:33.040 see HI yield extend away from being priced to call 0:13:33.400 --> 0:13:36.080 and more to being priced to maturity. So you would 0:13:36.080 --> 0:13:41.000 see uh duration extend performance be fairly soft. Um. That 0:13:41.040 --> 0:13:43.360 would be in the context of better growth, which should 0:13:43.400 --> 0:13:47.520 see spreads contract, so other words, losses, but they'd be tempered. Yeah, 0:13:47.559 --> 0:13:50.080 I think that's a fair fair assessment um in the 0:13:50.520 --> 0:13:54.240 multi sector bond income fun right, Uh, what kind of 0:13:54.280 --> 0:13:56.920 cash position are you holding right now? We're about seven 0:13:56.960 --> 0:14:01.160 or eight percent today? Is that considered high? That's a 0:14:01.200 --> 0:14:03.960 little higher than it has been, but we've been as 0:14:04.040 --> 0:14:08.680 high as twenty UM in mid fourteen. We were, um, 0:14:08.760 --> 0:14:11.160 when there was are you looking for reasons to get 0:14:11.200 --> 0:14:13.440 into cash right now? Are you going after? I noticed 0:14:13.440 --> 0:14:17.600 you've got Australian Queensland government bonds, you got bonds from Brazil, Canada, 0:14:17.840 --> 0:14:19.840 and you do have a bunch of energy debt in 0:14:19.880 --> 0:14:21.800 there as well. Sure we have. We still have some 0:14:22.120 --> 0:14:24.560 legacy energy and materials positions that are doing very well. 0:14:24.560 --> 0:14:27.040 But we've been looking more towards the e M side 0:14:27.480 --> 0:14:31.200 over the past handful of months. Um. We think we've 0:14:31.240 --> 0:14:32.960 owned Brazil for a while and that was a good 0:14:32.960 --> 0:14:35.600 performer for us last year. But there's been some good 0:14:36.000 --> 0:14:39.840 corporate issuance recently that, um, you know, we think offers 0:14:39.880 --> 0:14:42.080 a good deal of return over the next handful of years. 0:14:42.120 --> 0:14:47.480 We think that dollar strength is probably reaching uh high, Um, 0:14:47.640 --> 0:14:49.360 you hope, So if that's going to get paid in 0:14:49.440 --> 0:14:52.320 Canadian dollars. I was looking today one thirty two against 0:14:52.360 --> 0:14:55.200 the Luna dollar strengthening. Yeah, the dollar has been strong, 0:14:55.320 --> 0:14:59.480 but our non dollar positions have actually benefited us this year. Um. 0:15:00.000 --> 0:15:03.000 Aller has rolled over against most major currencies since the 0:15:03.040 --> 0:15:05.600 beginning of the year. We had that rally post election 0:15:05.640 --> 0:15:08.160 in a fade since then, all right, I want to 0:15:08.200 --> 0:15:09.960 thank you very much for coming in and spending time 0:15:09.960 --> 0:15:12.120 with us. Henry Peabody as co manager of the Eaton 0:15:12.200 --> 0:15:25.680 Vance Multisector Bond Fund. P and L is brought to 0:15:25.720 --> 0:15:28.440 you by proper Cloth, the leader in men's custom shirts. 0:15:28.640 --> 0:15:31.640 At proper cloth dot com, ordering custom shirts has never 0:15:31.680 --> 0:15:34.920 been easier. Create your custom shirt size by answering ten 0:15:35.000 --> 0:15:38.600 easy questions, select from over five fabrics to suit your 0:15:38.640 --> 0:15:41.840 personal taste. Shirts start from eighty five dollars and are 0:15:41.840 --> 0:15:45.640 delivered in just two weeks with proper Cloths perfect fit guarantee. 0:15:45.840 --> 0:15:49.280 Remakes are completely free and expert staff are standing by 0:15:49.320 --> 0:15:53.320 to help. For premium quality, perfect fitting shirts, visit proper 0:15:53.360 --> 0:16:04.440 cloth dot com Custom shirts made Smarter. There was a 0:16:04.480 --> 0:16:08.000 great scroup that came out overnight by Bloomberg News is 0:16:08.080 --> 0:16:11.720 Laura Keller along with a couple of her colleagues talking 0:16:11.720 --> 0:16:13.760 about how c l s A, the brokerage which is 0:16:13.800 --> 0:16:18.520 owned by China Citic Securities, dismissed ninety US based employees 0:16:18.520 --> 0:16:21.840 on Monday. This is basically them closing their US equity 0:16:21.920 --> 0:16:24.800 research team and for more, I want to bring in Laura, 0:16:25.040 --> 0:16:28.520 who joins us now in our Bloomberg eleven three, Oh, studio, Laura, 0:16:28.720 --> 0:16:31.560 First of all, just sort of give us a sense 0:16:31.600 --> 0:16:34.040 how long has c L s A been in the 0:16:34.120 --> 0:16:36.880 business of US equity research and how big of a 0:16:36.880 --> 0:16:40.040 departure is this for them? Right, So, Lisa, they've been 0:16:40.040 --> 0:16:42.760 here since about two thousand nine, so it's definitely some 0:16:43.320 --> 0:16:45.120 franchise that's been here for a while. When is that 0:16:45.200 --> 0:16:48.000 eight years? Um? And they're I mean, they're not small, 0:16:48.080 --> 0:16:50.560 but they're not one of our huge, sort of bold brackets. 0:16:50.560 --> 0:16:53.240 Of course. So they had about um, I guess it 0:16:53.240 --> 0:16:55.920 would be around a hundred sixty people in the US. 0:16:56.280 --> 0:16:58.920 Were some very well known ones, yes, very well known. 0:16:59.120 --> 0:17:02.360 Mike Mayo is really sort of their star guy. Um. 0:17:02.400 --> 0:17:05.439 They also had um some tech analysts as well, obvious 0:17:05.480 --> 0:17:08.240 Silver and McGuire we mentioned in our story. And Mike 0:17:08.320 --> 0:17:13.119 Mayo of course being this very prominent, very outspoken bank analyst. 0:17:13.480 --> 0:17:16.040 Today he's at the JP Morgan conference. He he actually 0:17:16.040 --> 0:17:18.680 called himself a free agent, um, since he's not working 0:17:18.680 --> 0:17:20.720 at c L s A anymore, and he was dismissed 0:17:20.720 --> 0:17:24.240 along with ninety others um as you mentioned, h late 0:17:24.240 --> 0:17:27.119 in the day, we understand called into a meeting around 0:17:27.119 --> 0:17:30.520 four fifteen aftermarket clothes and let let known that they 0:17:30.560 --> 0:17:32.960 would be no longer working there. UM. And we have 0:17:33.040 --> 0:17:36.000 this image as well, uh and our story of Mike 0:17:36.080 --> 0:17:39.800 Mayo walking home with this box um of things, you know, 0:17:39.920 --> 0:17:43.480 presumably from his his desk in his office there. Can 0:17:43.520 --> 0:17:47.480 you explain why did c ls A decide to do this? So, 0:17:47.600 --> 0:17:49.359 I mean c ls A has had a lot of 0:17:49.440 --> 0:17:52.080 trouble with this um Us business, but also with their 0:17:52.080 --> 0:17:55.399 equities brokerage. I mean they were bought UM by a 0:17:55.520 --> 0:17:59.119 Chinese firm, Civic Securities in two thousand, goes all the 0:17:59.119 --> 0:18:01.720 way back to Creditly right, yes, and they bought it 0:18:01.760 --> 0:18:04.920 from that French bank UM. So they actually had tried 0:18:04.960 --> 0:18:08.320 to sell um CIDEC had tried to sell these guys 0:18:08.720 --> 0:18:12.000 and they weren't I guess presumably able to find a buyer. 0:18:12.240 --> 0:18:14.639 So they've had some trouble since. Back then. You know, 0:18:14.680 --> 0:18:17.199 we had reported UM. One of our Asian colleagues, I 0:18:17.200 --> 0:18:20.560 think it was Kathy Chan in UM September reported that 0:18:20.600 --> 0:18:23.320 the bank actually pulled this sort of it's a very 0:18:23.400 --> 0:18:27.359 unusual thing where they asked people to voluntarily take unpaid 0:18:27.400 --> 0:18:30.159 vacations of up to ten days and that's they were 0:18:30.200 --> 0:18:32.240 just trying to save money, and this is something that 0:18:32.280 --> 0:18:35.159 they have done three other times when they've gotten in trouble. 0:18:35.560 --> 0:18:38.719 But I mean that's a very unusual measure, UM, and 0:18:38.800 --> 0:18:41.439 really not something you do unless you're having a lot 0:18:41.480 --> 0:18:43.679 of issues on the revenue side and even on the 0:18:43.680 --> 0:18:46.040 cost side. Well, but c LA say, this might be 0:18:46.560 --> 0:18:49.320 an idiosyncratic issue, but it does sort of come at 0:18:49.320 --> 0:18:53.560 a time when on a broader level, research firms across 0:18:53.720 --> 0:18:56.399 or research units I should say across Wall Street have 0:18:56.520 --> 0:18:59.199 been cut significantly. And part of this has to do 0:18:59.280 --> 0:19:02.600 with new rules that are going to go into effect 0:19:02.200 --> 0:19:06.960 the third of January in two thousand eighteen that require 0:19:07.320 --> 0:19:12.600 banks to charge investment firms for any research they provide them. 0:19:12.680 --> 0:19:17.080 I mean, does this play into c LSA's decision at all? UM, 0:19:17.119 --> 0:19:20.479 I don't think, Lisa from According to the CEO that UM, 0:19:20.640 --> 0:19:23.760 Jonathan Sloan UM Kathy Chan had talked with him and 0:19:24.160 --> 0:19:27.560 he said, no, this is not a result of those rules, 0:19:27.560 --> 0:19:30.000 those my fed roles that you were talking about, UM, 0:19:30.000 --> 0:19:32.640 this has nothing to do with those. What he said 0:19:32.840 --> 0:19:36.800 was that they want to really just you know, have 0:19:36.960 --> 0:19:40.200 execution only framework in the US. That's what he said, UM, 0:19:40.240 --> 0:19:42.119 And and really focus on those parts of the business. 0:19:42.200 --> 0:19:44.920 Nothing to do with these new rules, although I will say, 0:19:44.960 --> 0:19:47.280 I mean, just on a broader level of competition for 0:19:47.440 --> 0:19:50.200 research has been amped up in a pretty dramatic way, 0:19:50.960 --> 0:19:53.560 with the worth of it being called into question. There 0:19:53.600 --> 0:19:56.199 was a Financial Times article that came out over the 0:19:56.200 --> 0:19:59.359 weekend talking about how different firms are bandying about what 0:19:59.400 --> 0:20:02.040 the costs scheme will be for this type of research, 0:20:02.040 --> 0:20:05.200 with some banks proposing ten thousand dollars a phone call 0:20:05.400 --> 0:20:09.159 for with for for a chance to talk with their 0:20:09.200 --> 0:20:13.240 senior analysts, um and and basically investment firms saying no way. 0:20:13.520 --> 0:20:18.040 So it's a huge departure from every which way that 0:20:18.160 --> 0:20:20.719 they normally have conducted business. I mean, normally you have 0:20:20.760 --> 0:20:24.400 a big investor who can just call his his you know, 0:20:24.720 --> 0:20:28.000 his sales up, yes, but also his equity analyst and 0:20:28.640 --> 0:20:31.400 talk about ideas. You know, if he's I've even heard too. 0:20:31.440 --> 0:20:33.040 You know, if you're a dead investor, but you want 0:20:33.040 --> 0:20:35.120 to talk a little bit on equities, you copy your 0:20:35.240 --> 0:20:37.960 your debt representative, maybe the analysts on that side, and 0:20:38.200 --> 0:20:40.920 he can bring in the conversation for you a sell 0:20:41.000 --> 0:20:43.720 side person on the equity side. So it's a charge 0:20:43.760 --> 0:20:46.439 for that conversation. I mean, I'm just not sure what 0:20:46.520 --> 0:20:48.760 kind of mechanism you start to get into. And I 0:20:48.760 --> 0:20:51.520 mean it's almost like billable hours for lawyers or something. 0:20:51.720 --> 0:20:55.040 Certainly seems that way. Thank you very much, Laura Keller, 0:20:55.280 --> 0:20:58.199 financial reporter for Bloomberg. You've been keeping us up to 0:20:58.240 --> 0:21:01.040 date on this story and of course the ongoing changes 0:21:01.080 --> 0:21:17.199 to equity research. Before I buy any mobile device, I 0:21:17.280 --> 0:21:20.080 check in with one person, John Butler. He's our senior 0:21:20.119 --> 0:21:24.400 Telecom Services and Equipment analyst for Bloomberg Intelligence. He provides 0:21:24.520 --> 0:21:29.280 unique and real time research for the telecoms industry, and 0:21:29.359 --> 0:21:32.360 he's here in the studio joining us. Now. Thanks very much. 0:21:33.680 --> 0:21:37.440 Well that's great, Gray of different phones in front of him. Well, 0:21:37.560 --> 0:21:40.840 he wishes, he wish he's getting as many as pim. Right. Well, 0:21:40.960 --> 0:21:42.880 I'm not gonna go there. That's not let's not talk 0:21:42.960 --> 0:21:45.480 about those problems. UM, I want you to talk about 0:21:45.520 --> 0:21:48.600 Mobile World Congress taking place in Barcelona. You say it's 0:21:48.600 --> 0:21:51.560 a zoo you go to CS Consumer Electronics show in 0:21:51.600 --> 0:21:56.160 Las Vegas. Uh. I was reading the reports from Barcelona, 0:21:56.320 --> 0:21:59.760 and I thought that Nokia was the one that grabbed 0:21:59.760 --> 0:22:02.360 the head lines for something that I frankly did not 0:22:02.560 --> 0:22:06.720 expect they really did. They're not even making handsets anymore. 0:22:06.800 --> 0:22:11.959 They actually have a partnership with HMD, which is a 0:22:12.359 --> 0:22:15.639 longtime partner there is, and they're manufacturing the phone and 0:22:15.720 --> 0:22:19.280 licensing the brand. And they came out with the old 0:22:19.320 --> 0:22:23.080 candy bar that the thirty three ten has been updated, 0:22:23.920 --> 0:22:27.199 complete with the popular game Snake if you remember that 0:22:27.240 --> 0:22:30.800 one from back in two thousand is when that was 0:22:30.880 --> 0:22:34.159 originally launched. Yes, and it sold over a hundred and 0:22:34.160 --> 0:22:37.480 twenty five million units, which back then was really a 0:22:37.520 --> 0:22:40.840 big deal. So it was a huge hit. Everyone who 0:22:40.880 --> 0:22:44.879 had had wireless service at that point at least considered 0:22:44.920 --> 0:22:47.920 buying one if they didn't known one. So the Nokia 0:22:48.000 --> 0:22:50.960 thirty three ten is back, it's updated, it's got a 0:22:51.000 --> 0:22:58.480 color screen. But it's why you think I can I 0:22:58.520 --> 0:23:01.040 think people are you know, if you look at even 0:23:01.119 --> 0:23:03.359 TV these days, a lot of there's a lot of 0:23:03.400 --> 0:23:05.840 retro stuff showing up, and I think it's sort of 0:23:05.840 --> 0:23:09.119 playing into that trend. But I for Nokia, I really 0:23:09.160 --> 0:23:12.320 think it's about reminding people that the brand is back, 0:23:12.480 --> 0:23:19.159 so they I mean, this is not a smartphone. No, 0:23:19.400 --> 0:23:22.800 I actually I don't know what the price is they 0:23:22.840 --> 0:23:26.000 say it's going to be something under like it'll be 0:23:26.160 --> 0:23:30.040