WEBVTT - Emerging Markets Beat U.S. Junk in Upside Down World, Gaffney Says 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.159 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, 0:00:32.159 --> 0:00:35.440 the world is turning on its head. That according to 0:00:35.520 --> 0:00:39.880 Gathleen Kathleen Gaffney, co director of Diversified Fixed Income and 0:00:40.000 --> 0:00:42.639 Eating Vans, who joins us here in our eleven three 0:00:42.680 --> 0:00:46.199 Oh studios. Kathleen, thank you so much for joining us. 0:00:46.440 --> 0:00:48.839 So I want to start with this idea that the 0:00:49.040 --> 0:00:54.400 developing markets are emerging much more quickly and faster than 0:00:54.480 --> 0:00:57.880 growing faster than than developed world, which are kind of sinking. 0:00:57.920 --> 0:01:01.120 Does this mean that you like emerging markets highled debt 0:01:01.360 --> 0:01:05.480 over US junk bonds. I do selectively. We're finding good 0:01:05.520 --> 0:01:12.080 opportunities to invest in emerging market companies, and a handful 0:01:12.160 --> 0:01:16.679 of them are below investment grade, but rising stars likely 0:01:17.160 --> 0:01:20.320 to make their way onto the global stage and become 0:01:20.360 --> 0:01:23.800 investment grade down the road. Can you just give us 0:01:23.840 --> 0:01:26.440 some examples? So, that we understand exactly the kinds of 0:01:26.480 --> 0:01:31.000 companies you're talking about. Well, our focus has been primarily 0:01:31.200 --> 0:01:34.800 in Latin America. America Mobile, I know, is one of 0:01:34.840 --> 0:01:38.600 the holdings in your fund. It is so Mexican telecom, 0:01:38.720 --> 0:01:43.000 but high, higher quality. I'm talking about some of the 0:01:43.600 --> 0:01:49.400 Brazilian companies and Susano is a good example. UH, paper 0:01:49.440 --> 0:01:55.800 and pulp company. UH, low cost producer number one. Uh. 0:01:56.280 --> 0:02:01.680 They came to market earlier this year very attractive spreads. 0:02:01.680 --> 0:02:04.600 That was right after the new administration and there was 0:02:05.280 --> 0:02:08.679 a lot of fear about protectionism. We saw a fair 0:02:08.720 --> 0:02:12.160 amount of new issuance that had to come with a premium. 0:02:12.200 --> 0:02:16.520 And what's interesting in talking to management, what we saw 0:02:16.720 --> 0:02:22.519 was discipline and a drive to maintain that low cost status, 0:02:22.520 --> 0:02:26.080 but without levering up. So I'm wondering, you know a 0:02:26.080 --> 0:02:29.720 lot of people have been pouring money into emerging markets 0:02:29.840 --> 0:02:32.440 debt as well as currencies, and this could be what's 0:02:32.440 --> 0:02:34.320 been happening with the dollar earlier this year, with the 0:02:34.360 --> 0:02:39.320 dollar weakening and emerging markets currencies really strengthening. Recently, it's 0:02:39.360 --> 0:02:42.799 been the reverse. You've seen some dollar strength and UH 0:02:43.320 --> 0:02:45.440 do you think that that will continue? That the dollar 0:02:45.480 --> 0:02:49.040 will continue to strengthen as benchmark yields rise. And what's 0:02:49.040 --> 0:02:52.480 the potential consequence for emerging markets in the near term. 0:02:52.560 --> 0:02:55.200 I think you are going to see some dollar strength. 0:02:55.600 --> 0:02:59.880 The global economy is doing well, but the focus is 0:03:00.000 --> 0:03:03.360 on the US and the unwind of the balance sheet. 0:03:03.440 --> 0:03:05.760 So we've seen yields start to move up in the 0:03:05.840 --> 0:03:08.800 US is leading that is going to draw money into 0:03:08.840 --> 0:03:12.639 the US and push the dollar higher in the short term. 0:03:12.720 --> 0:03:16.040 That won't be so much of a problem for emerging 0:03:16.080 --> 0:03:21.760 markets if they have a fair amount of reserves. They 0:03:21.760 --> 0:03:23.800 got into a lot of trouble back in two thousand 0:03:23.880 --> 0:03:28.160 thirteen when they didn't have the dollar reserves. As the 0:03:28.200 --> 0:03:31.480 dollar strengthened, that's changed a lot. Yeah, there have been 0:03:31.680 --> 0:03:35.040 a pretty big build up in reserves. I have to wonder, though, 0:03:35.560 --> 0:03:38.720 you're talking about how yields should continue to rise or 0:03:38.760 --> 0:03:41.880 are have been rising in the US and UH. Earlier 0:03:41.920 --> 0:03:45.600 this week, Jeffrey Gunlock of Double Line said that the 0:03:45.920 --> 0:03:49.680 treasury market was facing its moment of truth as yields 0:03:49.680 --> 0:03:53.320 on the tenure treasury surpassed two point four percent. Do 0:03:53.440 --> 0:03:56.840 you agree? And how high could this yield go? I 0:03:56.880 --> 0:04:02.160 do agree? UH? And how high it os UH probably 0:04:02.200 --> 0:04:06.720 not too high in the near term, but the important 0:04:06.760 --> 0:04:11.320 part for the markets is that it started and we're 0:04:11.360 --> 0:04:15.680 seeing the impact of that today. UH. We're seeing it 0:04:15.760 --> 0:04:20.240 with some equities on the retail side. Mattel cut their dividend. UH. 0:04:20.279 --> 0:04:24.280 One of the trends during the period after the global 0:04:24.279 --> 0:04:28.279 financial crisis is companies haven't invested. What they've done is 0:04:28.320 --> 0:04:31.840 they is they have borrowed and they've been buying back 0:04:31.880 --> 0:04:36.440 their stocks. A dividend cut and we're seeing lots of 0:04:36.480 --> 0:04:40.800 interesting things. Is earning cycle UH could indicate that they're 0:04:40.800 --> 0:04:44.640 concerned about where their cash is and the amount of 0:04:44.640 --> 0:04:48.280 debt relative UH two revenues or their interest expense. I 0:04:48.279 --> 0:04:51.159 should say, Um, that's a warning sign. That's a signal. 0:04:51.720 --> 0:04:53.240 Do you think that there's a warning sign when it 0:04:53.279 --> 0:04:56.280 comes to high yield debt in general? Well, credit spreads 0:04:56.279 --> 0:05:00.760 are very tight. Um. You could argue that on a 0:05:00.839 --> 0:05:04.920 relative basis they could get tighter, but it's that absolute 0:05:05.000 --> 0:05:08.920 level of risk. At four percent, you're not getting compensated 0:05:08.960 --> 0:05:11.640 for a highly levered company. So if you are invested 0:05:11.720 --> 0:05:15.520 in that particular kind of company and situation, what would 0:05:15.520 --> 0:05:18.400 you suggest to people, I really think you have to 0:05:18.480 --> 0:05:25.120 define credit risk high yield more broadly. That's why we 0:05:25.200 --> 0:05:28.400 found value in emerging markets because you're able to pick 0:05:28.520 --> 0:05:31.560 up some additional yield to compensate you for the credit 0:05:31.640 --> 0:05:35.719 risk UH. You can also look at the bank loan market, 0:05:36.080 --> 0:05:39.560 convertible market. There are other ways to get that credit 0:05:39.640 --> 0:05:43.720 exposure other than just US high yield and European high yield. 0:05:43.720 --> 0:05:46.440 The yields are even worse than in the US, so 0:05:46.720 --> 0:05:50.159 it's a struggle. Our Our high yield exposure UH is 0:05:50.160 --> 0:05:53.360 fairly modest right now, Kathleen, do you think that there 0:05:53.400 --> 0:05:57.960 are certain industries within the high US hi yield universe 0:05:58.560 --> 0:06:02.279 that are on the precipice of a pretty big fall. 0:06:03.560 --> 0:06:06.640 We're seeing pressure today, that's for sure, But we which 0:06:06.720 --> 0:06:08.479 which do you think is real? Which do you think 0:06:08.520 --> 0:06:11.200 has legs. I do think that the pressure on the 0:06:11.240 --> 0:06:14.039 retail sector is real and it's going to continue because 0:06:14.040 --> 0:06:15.560 there's already been a lot of pain there. There has 0:06:15.600 --> 0:06:18.719 been a lot of pain. What's interesting is we're seeing 0:06:18.720 --> 0:06:22.680 how companies are reacting. So at the higher quality end 0:06:23.040 --> 0:06:26.000 you see CVS and Etna. But all of it is 0:06:26.040 --> 0:06:29.640 a result of the world is changing. We've got a 0:06:29.640 --> 0:06:33.680 new economy tech is really driving it and it's uh, 0:06:33.720 --> 0:06:38.160 it's going to make for some necessary decisions across industries. 0:06:38.760 --> 0:06:40.560 Thank you for coming in and spending time with us. 0:06:40.640 --> 0:06:44.080 Kathleen Gaffney is the co director of Diversified Fixed Income 0:06:44.400 --> 0:06:47.760 for Eaton Vents and helps to manage over three hundred 0:06:47.839 --> 0:06:50.600 billion dollars of assets. Based in Boston, of course, home 0:06:50.640 --> 0:06:54.960 to Bloomberg one oh six one Boston, Newburyport and Metro 0:06:55.040 --> 0:07:09.200 West and the South Shore. Well, it is a huge 0:07:09.360 --> 0:07:13.720 day in tech shares today. The Nasdaq one hundred indexes 0:07:14.280 --> 0:07:17.640 up two and a half percent, but Alphabet and Amazon 0:07:17.800 --> 0:07:22.120 are experiencing much bigger share price pops after beating analyst 0:07:22.280 --> 0:07:25.280 estimates when they were ported earnings after the bell yesterday. 0:07:25.360 --> 0:07:29.080 Shara o Vda, Bloomberg Gadfly columnist joins us here now 0:07:29.120 --> 0:07:32.520 and Shia. We were joking this morning that the expectation 0:07:32.560 --> 0:07:36.320 on the street was for three cents per share for Amazon, 0:07:36.400 --> 0:07:40.240 and they beat that. Yeah, I mean, how good is this? Yeah? 0:07:40.520 --> 0:07:43.880 Profit doesn't matter at Amazon. Basically, it defies all the 0:07:44.280 --> 0:07:49.440 logic of typical investing. Um, my favorite statistic is looking 0:07:49.520 --> 0:07:53.040 at Amazon's operating profit, which they seem to try to 0:07:53.120 --> 0:07:57.200 make as as low as possible. So the profit margin 0:07:57.960 --> 0:08:02.480 in this quarter was zero row point seven nine, which 0:08:02.520 --> 0:08:06.600 is as almost as close to zero as possible. Um, 0:08:06.640 --> 0:08:10.280 what's the cash flow? Like, the cash flow is better, 0:08:10.960 --> 0:08:14.840 but it's actually um that's actually shrinking too. I mean 0:08:15.200 --> 0:08:20.640 Amazon has been in this period of intense spending. There's 0:08:20.640 --> 0:08:22.600 still like cash loves more than seven and a half 0:08:22.680 --> 0:08:27.920 billion last year, that is correct, although those yes, okay, 0:08:28.160 --> 0:08:31.280 And I'm assuming that many people see brown boxes show 0:08:31.360 --> 0:08:33.720 up at their homes every day. Many people see brown 0:08:33.760 --> 0:08:36.080 boxes show I mean they look and they might actually 0:08:36.080 --> 0:08:39.840 include medication, prescription medication in the future, plus your order 0:08:39.880 --> 0:08:43.320 from Whole Food. It is possible that Amazon, I mean 0:08:43.360 --> 0:08:48.000 Amazon already delivers groceries um through Amazon Fresh, but it's 0:08:48.040 --> 0:08:51.200 likely they're getting more seriously into that business now that 0:08:51.240 --> 0:08:55.200 they bought Okay, So to just step back for a second. 0:08:55.360 --> 0:08:57.360 It's all about a story, right, I mean, when you've 0:08:57.400 --> 0:09:01.360 invest in a company, particularly stock, it's about the story 0:09:01.440 --> 0:09:04.400 that you can tell investors to get them excited about 0:09:04.440 --> 0:09:06.920 the future. And that may be why the stock is 0:09:07.000 --> 0:09:11.040 up twelve percent today. Amazon is, i would argue, the 0:09:11.080 --> 0:09:14.839 most ambitious company, certainly in the technology industry right now. 0:09:14.840 --> 0:09:16.920 You can make an argument that they're the most ambitious 0:09:16.960 --> 0:09:20.040 company in the world right now. And the fact is 0:09:20.440 --> 0:09:26.960 they are dominating two huge categories of spending, both retail 0:09:27.360 --> 0:09:31.440 electronic commerce, where they're basically all the growth in in 0:09:31.600 --> 0:09:35.240 retail spending right now, and also cloud computing, where they've 0:09:35.280 --> 0:09:41.800 turned this Amazon web business company from zero to eighteen 0:09:41.840 --> 0:09:45.040 billion and annual revenue and it's really a disruptive force. 0:09:45.200 --> 0:09:47.360 And and groceries, you know, it's eight hundred billion a 0:09:47.440 --> 0:09:50.040 year and spending in the US alone. Well, let's talk 0:09:50.080 --> 0:09:54.120 about groceries, because they purchased whole foods, and whole foods 0:09:54.559 --> 0:09:57.400 sort of is in the industry that typically has low margins, 0:09:57.400 --> 0:09:59.959 which is grocery stores, and yet it has higher margin. 0:10:00.000 --> 0:10:04.120 And then most of Amazon's businesses, including their core business, 0:10:04.200 --> 0:10:08.440 and meanwhile their margins went down for whole foods as 0:10:08.960 --> 0:10:12.480 Amazon cut prices. At what point does this matter that 0:10:12.520 --> 0:10:15.160 they've gained market share by cutting prices to the point 0:10:15.240 --> 0:10:18.400 where their margins are razor thin. Is that enough of 0:10:18.400 --> 0:10:21.160 a strategy to get them, uh to fit their capital 0:10:21.200 --> 0:10:23.960 structure later on? Yeah, I mean, I think two Pim's point, 0:10:24.160 --> 0:10:27.080 it's not really about where the margins are today. It's 0:10:27.160 --> 0:10:32.320 whether Amazon can leverage its acquisition of Whole Foods to 0:10:32.520 --> 0:10:36.200 grab a bigger slice of one of the largest spending 0:10:36.240 --> 0:10:40.800 categories in the world, which is food shopping. And look, 0:10:40.800 --> 0:10:45.520 if Amazon can become a major player in um in groceries, 0:10:46.200 --> 0:10:50.120 that again, it opens another multi billion dollar annual revenue 0:10:50.160 --> 0:10:52.960 opportunity for this company. It's a big question whether they 0:10:53.000 --> 0:10:55.840 can succeed. They haven't been very successful in groceries for 0:10:55.920 --> 0:11:00.000 ten years, but they now have kind of this pretty small, 0:11:00.000 --> 0:11:02.959 aren't asset to help them get there. I just keep 0:11:03.040 --> 0:11:07.040 thinking of one word, borders. Remember borders books. Amazon has 0:11:07.080 --> 0:11:10.880 a way of competing that really has changed the landscape 0:11:10.920 --> 0:11:15.120 for a variety of industries. That's not news. I think 0:11:15.160 --> 0:11:17.880 the big question now that people have is should they 0:11:17.960 --> 0:11:21.000 add to their holdings? In other words, you described it. 0:11:21.960 --> 0:11:25.400 The numbers don't really add up in the way that 0:11:25.480 --> 0:11:29.960 many investors are taught. Yet the stock keeps moving higher. 0:11:30.400 --> 0:11:33.040 So is it is it a trap? Or is this 0:11:33.720 --> 0:11:36.880 as long as Jeff Bezos is in charge. I mean, 0:11:36.880 --> 0:11:40.400 they're buying aircraft, they're they're launching rockets. I mean, this 0:11:40.480 --> 0:11:42.120 is an amazing As you said, this could be the 0:11:42.120 --> 0:11:44.880 most ambitious company around. Yeah. I mean, look, this company 0:11:44.920 --> 0:11:48.400 has a track record of investing in things that seem 0:11:48.520 --> 0:11:53.000 insane for a long time and then making them into successes. 0:11:53.040 --> 0:11:57.160 So that's why you're seeing the stock price shoot up, 0:11:57.440 --> 0:11:59.599 um even though they turned in you know, kind of 0:12:00.000 --> 0:12:02.480 any profits. I want to bring in David Garritty he 0:12:02.600 --> 0:12:05.040 chief executive officer of g v A Research, which is 0:12:05.080 --> 0:12:07.680 based in Brooklyn, and David, I want to get your 0:12:07.760 --> 0:12:11.559 take about whether you would recommend that people buy at 0:12:11.600 --> 0:12:16.080 this point given the fact that valuations are already pretty high. Uh, 0:12:16.120 --> 0:12:19.160 and it's sort of unclear where they go from here. 0:12:19.800 --> 0:12:21.920 I think the thing coming off of the results yesterday 0:12:21.920 --> 0:12:25.200 for Amazon probably were most impressed investors on the margin 0:12:25.840 --> 0:12:28.440 is the fact that the integration of Whole Foods was 0:12:28.480 --> 0:12:31.920 actually profitable in the quarter. Company actually made twenty one 0:12:31.960 --> 0:12:35.520 million dollars on the revenues that Whole Foods contributed, to 0:12:35.600 --> 0:12:40.120 the extent that Amazon, by extrapolation, can do an effective 0:12:40.160 --> 0:12:45.000 job integrating acquisitions onto its platform. We look at the 0:12:45.080 --> 0:12:48.200 valuation on Amazon stock and we all recoil and shock, 0:12:49.000 --> 0:12:50.960 But what we have here is a very high priced 0:12:50.960 --> 0:12:54.800 currency which could be used for acquisitions to the extent 0:12:54.880 --> 0:12:59.120 that Amazon decides to accelerate and take a buy versus 0:12:59.160 --> 0:13:03.120 build approach in going into new areas. Obviously, we've seen 0:13:03.160 --> 0:13:09.120 concerns or possible speculation raised yesterday that Amazon was going 0:13:09.160 --> 0:13:13.200 to get more significantly involved in the distribution of pharmaceuticals. 0:13:13.280 --> 0:13:17.040 Drugs UH certainly a very high margin, certainly attractive area. 0:13:17.600 --> 0:13:20.120 And if we're now looking at Amazon as being a 0:13:20.120 --> 0:13:24.680 company that not only offers very high organic growth, but 0:13:24.800 --> 0:13:28.960 it's an effective acquirer, then we see a possible path 0:13:29.040 --> 0:13:34.240 here where growth could perhaps even accelerate. Echo. Tell me 0:13:34.280 --> 0:13:38.200 about Echo and Alexa well, to the extent that we 0:13:38.240 --> 0:13:42.520 saw prime subscriber revenues or subscription revenues rise by fifty 0:13:43.080 --> 0:13:46.880 year over a year, typically prime buyers tend to have Alexa, 0:13:47.160 --> 0:13:50.280 they tend to have Echo, and to that extent, there 0:13:50.320 --> 0:13:53.760 tends to be more data capture of those higher income 0:13:53.800 --> 0:13:58.120 households on margin, which certainly means that if we're looking 0:13:58.120 --> 0:14:03.040 at a world where there is monetization of data as 0:14:03.080 --> 0:14:06.719 a way to drive shareholder value, it certainly seems that 0:14:06.800 --> 0:14:10.840 Amazon is clearly in the vanguard in the forefront in 0:14:10.920 --> 0:14:14.040 that area. We may not necessarily be comfortable with it 0:14:14.480 --> 0:14:20.400 from the standpoint of personal privacy, but investors are obviously 0:14:20.520 --> 0:14:23.400 very interested in what this says about the company's ability 0:14:23.480 --> 0:14:30.000 to tailor offerings in the future. Two consumers, real quick. Uh, 0:14:30.200 --> 0:14:32.560 we didn't really get into Google too much, But does 0:14:32.560 --> 0:14:34.640 this get give you a sense sure that they are 0:14:34.680 --> 0:14:37.960 successful at selling ads and have that pressure, Uh, that 0:14:37.960 --> 0:14:41.280 that sort of monopoly At this point, I mean, Google 0:14:41.400 --> 0:14:46.400 is both growing insanely quickly and has very fat profit margins, 0:14:46.440 --> 0:14:49.480 and it seems like an impossible combination. They keep hitting 0:14:49.480 --> 0:14:53.120 it out of the park. Well, shares of Google are 0:14:53.200 --> 0:14:55.960 up more than six and a half percent right now. 0:14:56.000 --> 0:14:58.360 Thanks very much here over there, our Gadfly columnists when 0:14:58.360 --> 0:15:00.800 it comes to all things technology. Our thanks also to 0:15:00.840 --> 0:15:16.800 David Garretty, the chief executive of g v A Research. Well, 0:15:17.240 --> 0:15:19.840 everyone may be getting ready for Halloween, and in order 0:15:19.880 --> 0:15:22.720 to have Halloween you need costumes and party supplies. And 0:15:22.760 --> 0:15:24.680 here to help us tell us about the industry is 0:15:24.760 --> 0:15:28.040 Jim Harrison. He's the chief executive of Party City. They're 0:15:28.040 --> 0:15:30.680 based in New Jersey, and Jim is in our studio 0:15:30.920 --> 0:15:33.200 in New York. Jim, thanks very much for being here. 0:15:33.400 --> 0:15:35.880 I noticed you're wearing your orange tie and the black suit. 0:15:35.960 --> 0:15:38.440 Is that already because you're getting into the holiday spirit 0:15:38.440 --> 0:15:40.560 here for Halloween. I've been in the holiday spirit for 0:15:40.600 --> 0:15:42.600 at least thirty days as we've been building our stores 0:15:42.640 --> 0:15:45.240 an inventory, and right now is it's getting really hot 0:15:45.320 --> 0:15:49.000 in the stores. Over the next six days, seven percent 0:15:49.080 --> 0:15:52.320 of our retail sales will occur. Annual sales wi occur 0:15:52.360 --> 0:15:55.040 in the next six days. The interesting thing about our business, 0:15:55.040 --> 0:15:57.040 that's about half our business is retail. The only half 0:15:57.080 --> 0:15:59.760 is consumer products. The consumer products business is a lotless 0:15:59.800 --> 0:16:02.120 long be It's fair to me in birthdays in America 0:16:02.160 --> 0:16:04.600 every year, nice and smooth, and a season or a 0:16:04.600 --> 0:16:06.840 celebration every month. So what does your house look like? 0:16:06.920 --> 0:16:11.840 Describe how you've decorated it. Uh, we've got tombstones, We've 0:16:11.880 --> 0:16:15.360 got pumpkins, We've got skeleton saying from trees. We've got 0:16:15.440 --> 0:16:17.880 lights to go on at night and a doorbell that 0:16:18.520 --> 0:16:23.440 plays creeping music. Wow, you're that family. Are the guy 0:16:23.480 --> 0:16:26.080 you don't live next to? Right? All right? But having 0:16:26.120 --> 0:16:28.160 said that, let's talk a little bit about the business 0:16:28.240 --> 0:16:30.280 right now. I mean, the stock has not been doing 0:16:30.320 --> 0:16:33.760 real well. It's down about so far this year. What 0:16:33.960 --> 0:16:36.480 have been the challenges and what are you doing. The 0:16:36.480 --> 0:16:38.840 biggest challenge we have is really getting our story out. 0:16:38.880 --> 0:16:41.120 I mean, with our name being Party City, folks put 0:16:41.200 --> 0:16:44.000 us in a retail box and they think of us 0:16:44.040 --> 0:16:46.800 as solelyer retailer. And as a result, that retail prism 0:16:46.840 --> 0:16:49.720 has really created a pallor if we would over our stock, 0:16:50.200 --> 0:16:52.720 only of our four di million dollars of b d 0:16:52.800 --> 0:16:56.840 A comes solely from our retail business on a standalone 0:16:56.880 --> 0:16:59.720 basis comes from our wholesale business. And then the remainder 0:16:59.760 --> 0:17:03.360 is the vertical model because we UH provide a roughly 0:17:03.960 --> 0:17:06.159 what's in our own stores. In that world, we have 0:17:06.200 --> 0:17:08.879 the ability to make a manufacturing profit, a wholesale profit, 0:17:08.920 --> 0:17:12.120 and a retail profit. So is what we called either 0:17:12.200 --> 0:17:15.760 a double or a triple. I mean we have two 0:17:15.800 --> 0:17:19.399 layers in origin and of the triple is only of 0:17:19.440 --> 0:17:22.439 the eighty is actually triples. Where we manufacture, we have 0:17:22.480 --> 0:17:26.280 nine manufacturing plants around the globe. We make costumes. We 0:17:26.359 --> 0:17:29.560 make our own uh Latex balloons in Waysia, but we 0:17:29.600 --> 0:17:32.840 also domestically manufactured lots of product. We have a sixty 0:17:33.200 --> 0:17:36.639 worldwide marketshare and metallic balloons we make those Minneapolis. We 0:17:36.680 --> 0:17:39.240 manufactured plates, cups, and napkins here in the United States, 0:17:39.320 --> 0:17:41.840 the extrude plate cups and bowls up in Rhode Island. 0:17:42.200 --> 0:17:44.439 We do injection mold to plastics down in New Mexico. 0:17:45.000 --> 0:17:46.960 So we do a lot of manufacturing. So our products 0:17:46.960 --> 0:17:49.760 go not just to the party industry, but the movie theaters, 0:17:49.840 --> 0:17:53.040 to supporting your arenas, to restaurants and bars and stuff 0:17:53.080 --> 0:17:56.600 like that. I'm wonder and does Party City sell goods 0:17:56.640 --> 0:18:00.280 through Amazon? And uh, you know, at some point could 0:18:00.320 --> 0:18:03.720 you imagine not having a physical brick and mortar store 0:18:04.119 --> 0:18:07.040 and just focus in the manufacturing. So that's really two questions. 0:18:07.119 --> 0:18:08.639 Let me start with the first question in terms of 0:18:08.680 --> 0:18:12.040 Amazon on the party side of the business. Uh, our 0:18:12.080 --> 0:18:15.080 products is so generally available on marketplace. Amazon does not 0:18:15.640 --> 0:18:17.439 bring in their the party goods per se, and if 0:18:17.440 --> 0:18:20.160 they did, they would be from us because we basically 0:18:20.160 --> 0:18:22.240 held all the i p as well as the broadest 0:18:22.240 --> 0:18:26.360 selection of anybody in the marketplace in terms of our 0:18:26.400 --> 0:18:30.200 stores and opening stores. We Uh. Recent surveys have shown 0:18:30.359 --> 0:18:33.520 this this recent season on a number of surveys, anywhere 0:18:33.520 --> 0:18:37.600 from six consumers want to go to a store to 0:18:37.640 --> 0:18:41.040 buy their Halloween goods thirty five will look online for inspiration, 0:18:41.359 --> 0:18:45.040 but sixty plus percent anywhere from sixty five want to 0:18:45.040 --> 0:18:47.480 actually go into stores. And if you think about even 0:18:47.520 --> 0:18:50.960 Halloween and our business, we're a collection business on party side. 0:18:51.280 --> 0:18:52.920 So if having a brattle shower, you're gonna buy a 0:18:52.960 --> 0:18:54.840 bunch of stuff, are you are in the two bucks 0:18:55.720 --> 0:18:58.440 coordinated icon and imagery, and you're gonna make a house 0:18:58.520 --> 0:19:02.480 festive and decorative. So it's a discutionary purchased lots excuse. 0:19:02.800 --> 0:19:05.679 On the Halloween side, our point differentiations. We call it 0:19:05.720 --> 0:19:07.280 mix it, match up, make it your own. So if 0:19:07.280 --> 0:19:10.080 you wanted to be Spider Girl, for instance, you could 0:19:10.119 --> 0:19:12.960 go to Party City and have twenty different Spider Girl 0:19:13.000 --> 0:19:15.880 outfits that you could construct with all the accessories and 0:19:15.880 --> 0:19:19.800 and separates that we provide Amazon. Other folks on the 0:19:19.800 --> 0:19:22.199 web will Mark. They provide costume in a bag. We 0:19:22.240 --> 0:19:24.560 do costumes a bag, but it's a relatively small part 0:19:24.560 --> 0:19:26.640 of it. Whole home we're offering Spider Woman. You think 0:19:26.640 --> 0:19:30.880 I should do that? Yes, by all means, I want 0:19:30.880 --> 0:19:34.000 to know about a purchase that you did recently of 0:19:34.080 --> 0:19:37.119 a company called grand Mark, and I just so that 0:19:37.280 --> 0:19:40.520 may offer a way to expand the conversation A little 0:19:40.520 --> 0:19:42.800 bit sure. So grand Mark is a company in Mexico. 0:19:42.880 --> 0:19:46.040 They're a distributor. They're essentially very similar to our wholesale 0:19:46.040 --> 0:19:47.960 business here in the US in terms of going to 0:19:47.960 --> 0:19:51.199 the broader market. They also have a manufacturing footprint and 0:19:51.320 --> 0:19:53.800 it's basically income papers. So a lot of products that 0:19:53.840 --> 0:19:56.919 we currently sourced from China, lead of banners, stickers, gift bags, 0:19:56.920 --> 0:19:59.120 gift wrap, we're actually starting to make ourselves and are 0:19:59.200 --> 0:20:01.720 now our own fact tree in in Monterey. Okay, my 0:20:01.800 --> 0:20:04.240 quick question there was then the whole trade issue. Are 0:20:04.240 --> 0:20:07.800 you concerned about any of the issues related to trade, 0:20:07.960 --> 0:20:10.159 NAFTA and so on. It's once again, we're dealing with 0:20:10.200 --> 0:20:12.760 such a nominal price point that it's not really an issue. 0:20:13.440 --> 0:20:15.879 What's the biggest challenge right now for Party City? The 0:20:15.880 --> 0:20:18.080 biggest challenge for Party Sort Serria now is making sure 0:20:18.119 --> 0:20:19.600 that we stay ahead of the curve in terms of 0:20:19.600 --> 0:20:22.360 the consumer. The consumer today, especially the younger consumers, looking 0:20:22.359 --> 0:20:25.639 for experiential and so having a house party is maybe 0:20:25.680 --> 0:20:27.600 not number one on their list. They want to go 0:20:27.640 --> 0:20:29.840 to a theater, they want to go to restaurant, they 0:20:29.880 --> 0:20:31.360 want to go on a cruise, they want they want 0:20:31.359 --> 0:20:34.159 to experience as part of that celebration. So we're building 0:20:34.160 --> 0:20:36.800 out what we call our Alternative Markets Group to get 0:20:36.880 --> 0:20:39.240 in front of that curve, so that we're going into 0:20:39.240 --> 0:20:41.919 the cruise ships and into the restaurants and providing the 0:20:41.960 --> 0:20:44.480 products that will make those celebrations special. So do you 0:20:44.520 --> 0:20:48.159 also have people that kind of cultivate what that experience 0:20:48.200 --> 0:20:51.480 would be for the cruise or for the restaurant or 0:20:51.480 --> 0:20:54.760 whatever else. Right, So it comes comes into the numbers 0:20:54.720 --> 0:20:58.040 different ways. One in terms of creating environmental decorations, that's kits. 0:20:58.119 --> 0:21:02.600 In terms of creating for the celebrations themselves, creating a 0:21:02.680 --> 0:21:05.040 suite of products and men use that consumers can go 0:21:05.119 --> 0:21:09.040 on select, and then we use our e commerce capabilities 0:21:09.040 --> 0:21:12.359 actually to ship directly to U two restaurants or wherever. 0:21:12.920 --> 0:21:15.399 Thank you so much for joining us, and a picture 0:21:15.440 --> 0:21:18.359 of your home. It's sound. Jim Harrison, chief executive officer 0:21:18.400 --> 0:21:21.640 of Party City gearing up and has been gearing up 0:21:21.680 --> 0:21:24.199 for the past thirty days for Halloween. Thank you so 0:21:24.280 --> 0:21:39.960 much for joining us. Healthcare CVS Health Corp. Is reportedly 0:21:40.040 --> 0:21:44.600 considering a blockbuster buyout of health Ensure Etna, and here 0:21:44.640 --> 0:21:47.280 to talk about what this deal would mean for the 0:21:47.359 --> 0:21:51.760 broader healthcare industry as well as how exactly CVS would 0:21:51.800 --> 0:21:55.000 pay for. This is Max Neeson, Max Newson, Bloomberg gad Flight, 0:21:55.040 --> 0:21:58.359 columnists covering all things health related. Uh Max, thank you 0:21:58.400 --> 0:22:00.000 so much for joining us. So can you give us 0:22:00.040 --> 0:22:02.320 the sense, first of all, of what the logic is 0:22:02.359 --> 0:22:05.200 behind this tie up and how likely it is at 0:22:05.200 --> 0:22:08.160 this point. Yeah. So there's kind of a two part 0:22:08.240 --> 0:22:12.120 logic to this. The first is generally in healthcare UM 0:22:12.160 --> 0:22:16.000 you know, vertical consolidation has benefits IF CVS, which in 0:22:16.000 --> 0:22:20.320 addition to running pharmacies, is a pharmacy benefit manager, owns 0:22:20.320 --> 0:22:22.919 and ensure UM you know, all those things that you're 0:22:22.960 --> 0:22:25.520 Insure wants you to do to make to make your 0:22:25.560 --> 0:22:29.439 healthcare cheaper. H use a mail order pharmacy, go to 0:22:29.520 --> 0:22:32.320 a cheap clinic instead of the doctor. It can push 0:22:32.440 --> 0:22:37.000 all of those ETNA enrollees to its businesses. So there's 0:22:37.000 --> 0:22:39.480 that kind of direct benefit. And there's also the fact 0:22:39.560 --> 0:22:43.040 that there aren't that many other places for CBS to expand, 0:22:43.359 --> 0:22:47.760 uh it expressed scripts and United Health already control the 0:22:47.840 --> 0:22:51.000 vast majority of the pharmacy benefit industry. There's not that 0:22:51.040 --> 0:22:52.800 much expense. You could do there, and we saw with 0:22:52.840 --> 0:22:55.280 Walgreens and right Aid you can't buy that many more 0:22:55.280 --> 0:22:58.160 pharmacies without running into any trust issues. So I mean 0:22:58.200 --> 0:23:00.800 it does make sense in that sense, all right, Max. 0:23:00.840 --> 0:23:02.240 So I'm trying to get my head around this. But 0:23:02.240 --> 0:23:04.119 at least right now I know that the investors and 0:23:04.200 --> 0:23:06.440 CVS and not too thrilled about this deal because the 0:23:06.480 --> 0:23:10.680 stock is down nearly four percent. CVS already has a 0:23:10.680 --> 0:23:15.680 contract with another insurer, Anthem, correct, Yeah, so that that's 0:23:15.720 --> 0:23:18.679 something they just signed. Anthem is starting a PBMs of 0:23:18.720 --> 0:23:22.919 its own, but it's letting letting CVS run a substantial 0:23:22.960 --> 0:23:25.200 portion of it. That was just a week ago that 0:23:25.240 --> 0:23:26.840 they signed that, So that it's obviously going to be 0:23:26.880 --> 0:23:30.919 a complicating factor right and right now. The leverage that 0:23:31.000 --> 0:23:36.119 a CVS has in order to negotiate drug prices is 0:23:36.200 --> 0:23:41.679 why because they have a lock on business directly tied 0:23:41.880 --> 0:23:44.760 to whatever the insurance company is that we provider that 0:23:44.800 --> 0:23:48.360 you have. Yeah, so they have a big set of clients, 0:23:48.440 --> 0:23:53.160