WEBVTT - Surveillance: Twitter Is Improving, Sena Says 0:00:00.040 --> 0:00:02.640 Who you put your trust in matters. Investors have put 0:00:02.680 --> 0:00:07.040 their trust and independent registered investment advisors to the two 0:00:07.040 --> 0:00:10.680 and four trillion dollars. Why learn more and find your 0:00:10.760 --> 0:00:26.360 independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 0:00:26.760 --> 0:00:30.480 I'm Tom Keene with David Gura. Daily we bring you 0:00:30.520 --> 0:00:35.560 insight from the best in economics, finance, investment, and international relations. 0:00:35.960 --> 0:00:40.559 Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and 0:00:40.640 --> 0:00:48.160 of course, on the Bloomberg. David Gurry here with Tom 0:00:48.240 --> 0:00:51.520 Keene on Bloomberg Surveillant's Good morning, everybody. It's a Thursday, 0:00:51.960 --> 0:00:54.160 October and a lot of news, suffice to say this morning, 0:00:54.240 --> 0:00:56.880 let's tick through some of it. Twitter expected to release 0:00:56.920 --> 0:00:59.280 third quarter earnings this morning at seven o'clock. Wall Street 0:00:59.320 --> 0:01:00.800 Time will bring you those numbers as they crossed the 0:01:00.800 --> 0:01:02.800 Bloomberg and I want to bring in Paul Sweeney. He's 0:01:02.800 --> 0:01:05.840 the head of North American research at Bloomberg Intelligence. Paul, 0:01:05.880 --> 0:01:07.560 A lot to talk about here, but give us what 0:01:07.560 --> 0:01:08.840 you're gonna be keeping an eye on here when the 0:01:08.880 --> 0:01:11.640 numbers cross. Well, I think for Twitter it's um just 0:01:11.680 --> 0:01:14.479 a question of is there any evidence whatsoever that Jack 0:01:14.520 --> 0:01:16.760 Dorsey has been able to find the secret sauce that 0:01:16.800 --> 0:01:19.920 will try to reinvigorate the user growth at the company, 0:01:19.959 --> 0:01:22.600 which could give investors some lifeline to kind of hang 0:01:22.640 --> 0:01:24.679 on too, to see about whether there will be any 0:01:24.760 --> 0:01:27.600 kind of revenue growth in the future for this company. Really, 0:01:27.600 --> 0:01:30.399 over the last uh several quarters, we haven't seen any 0:01:30.840 --> 0:01:33.920 evidence that they've been able to find a product fixed, 0:01:34.120 --> 0:01:37.800 a technology fix, a marketing fix that can reignite user 0:01:37.840 --> 0:01:40.679 growth there. And so the really question is if they 0:01:40.800 --> 0:01:43.080 can't do that, what does the company do? It just 0:01:43.120 --> 0:01:45.440 went through a round of m and a speculation and 0:01:45.480 --> 0:01:48.040 a lot of the potential buyers walked away. So investors 0:01:48.040 --> 0:01:49.560 are really left with, you know, what what do I 0:01:49.640 --> 0:01:51.240 do with this name? All right? Those numbers crossing the 0:01:51.280 --> 0:01:54.400 Bloomberg now looking at third quarter revenues six and sixteen 0:01:54.800 --> 0:01:58.400 million dollars, third quarter adjusted earnings preciere thirteen since the 0:01:58.480 --> 0:02:01.360 estimate was nine cents, and an announcement here the Twitter 0:02:01.400 --> 0:02:04.120 is cutting up to nine percent of jobs. Will continue 0:02:04.160 --> 0:02:07.160 to go through those those numbers series. There's one statistic here, 0:02:07.240 --> 0:02:12.960 David that just sticks out. In fall Sweeney advertising revenue, 0:02:13.160 --> 0:02:17.520 an increase of six percent year over year is Twitter 0:02:17.560 --> 0:02:19.760 and industrial company. I was gonna say that kind of 0:02:19.800 --> 0:02:22.640 sounds like a radio company or a TV company. Uh, 0:02:22.800 --> 0:02:24.160 you know we're used to seeing you know, you think 0:02:24.200 --> 0:02:27.359 about it. Uh, Internet advertising in general is growing about fifteen. 0:02:28.400 --> 0:02:32.320 Advertising on social media is growing upwards of thirty and 0:02:32.360 --> 0:02:35.000 so you see numbers coming out across Facebook and Snapchat 0:02:35.080 --> 0:02:37.919 just put out some more numbers in terms of and 0:02:37.960 --> 0:02:39.880 they're putting up some huge numbers. So when you see 0:02:40.080 --> 0:02:42.079 a six percent number out of Twitter, that just really 0:02:42.120 --> 0:02:45.799 tells the story. What is that? What's been the fallout 0:02:45.840 --> 0:02:48.040 from Twitter putting itself up on the block and having 0:02:48.080 --> 0:02:50.440 all the suitors walk away here, What's what's the what's 0:02:50.480 --> 0:02:52.919 the company's next step in light of that happening. Yeah, 0:02:52.960 --> 0:02:55.920 that was extraordinarily disappointing for them. I mean they actually 0:02:56.000 --> 0:02:57.880 kind of engaged in the process a little bit. They 0:02:57.960 --> 0:03:00.800 hired some advisors. Uh, they put out a little bit 0:03:00.840 --> 0:03:03.200 of a process out there, so a number of players 0:03:03.200 --> 0:03:04.880 were able to look at it. So it's clearly from 0:03:04.880 --> 0:03:08.160 their perspective disappointing that that no one really stepped up 0:03:08.160 --> 0:03:10.680 here is interesting. When salesforce dot Com was reported to 0:03:10.720 --> 0:03:14.359 be the leading bidder, Their stocked sank dramatically, and a 0:03:14.440 --> 0:03:16.840 lot of their very big investors went right to the 0:03:16.880 --> 0:03:18.720 CEO and said, this is not a transaction. We want 0:03:18.760 --> 0:03:21.760 you to do up six right now and very early 0:03:21.800 --> 0:03:24.480 trading post. There's a sentence in here which goes to 0:03:24.520 --> 0:03:28.080 your decades of experience. In light of the reorganization of 0:03:28.120 --> 0:03:32.360 the company's salesforce, the company is not providing specific revenue 0:03:32.360 --> 0:03:35.160 guidance for the fourth quarter and for the full year 0:03:35.200 --> 0:03:37.920 two thousand and sixteen. How does the sell side guy 0:03:38.000 --> 0:03:41.680 do his job if he's not getting top of line guidance. Well, 0:03:41.720 --> 0:03:43.440 they have to go back and do some roll up 0:03:43.440 --> 0:03:45.120 to sleeves and try to figure out what's going on here. 0:03:45.120 --> 0:03:46.960 And I suspect that you're gonna see estimates come down 0:03:47.000 --> 0:03:49.920 on the street. Typically analysts will take the most conservative 0:03:50.320 --> 0:03:53.480 view they can. UM, and you know so and again 0:03:53.480 --> 0:03:55.240 it's it's it's not so much about the numbers for 0:03:55.240 --> 0:03:57.960 this company. Almost at this point, UM, I think the 0:03:58.080 --> 0:04:01.080 next you know question for investors and and and for 0:04:01.240 --> 0:04:03.440 management is there is there a price, any price, that 0:04:03.480 --> 0:04:05.400 you will sell this company. And I think when the 0:04:05.440 --> 0:04:07.840 initial round of M and A speculation came around the 0:04:07.880 --> 0:04:10.680 stock was much higher level UM and you know, you 0:04:10.680 --> 0:04:12.640 could have been a twenty billion dollar price tag to 0:04:12.680 --> 0:04:15.120 get this company. Uh. Now the stock is down around 0:04:15.120 --> 0:04:18.359 twelve billion dollars in terms of equity valuation UM and 0:04:18.400 --> 0:04:20.720 so I think at some point there may be a 0:04:20.720 --> 0:04:23.719 buyer here, simply because there aren't that many social media 0:04:23.760 --> 0:04:27.000 platforms out there that are up and running, uh and 0:04:27.040 --> 0:04:29.359 that have the impact that Twitter does in fact have 0:04:29.440 --> 0:04:32.520 in the marketplace. So I think it's some price this 0:04:32.560 --> 0:04:34.800 will be of interest to either tech buyer like a 0:04:34.800 --> 0:04:39.159 Google or you know, some somebody else. Color for us, 0:04:39.400 --> 0:04:42.160 the hype and hyperbole with you and your team measure 0:04:42.240 --> 0:04:45.440 every day with the fact that this company makes twenty 0:04:45.480 --> 0:04:48.800 eight cents in the dollar adjusted EBITDAL margin off of 0:04:48.839 --> 0:04:53.160 gap revenue to be somewhere in the vicinity of a 0:04:53.160 --> 0:04:55.080 lot of our listeners are going, wait a minute, these 0:04:55.120 --> 0:04:58.880 guys are coining money. Amazon isn't. Why is Twitter dog 0:04:58.960 --> 0:05:02.039 of dogs? It's uh yeah, simply, Uh, this is a 0:05:02.080 --> 0:05:04.640 tech company. And if you're a tech investor, uh, you're 0:05:04.680 --> 0:05:06.680 looking for top line growth. It's as simple as that. 0:05:06.760 --> 0:05:09.760 And and most tech investors feel like we can grow 0:05:09.800 --> 0:05:12.080 our way into profitability. What we're looking for, and what 0:05:12.120 --> 0:05:15.159 we're paying for is unit growth um and it's top 0:05:15.200 --> 0:05:18.240 line revenue growth and so and you know, uh, Twitter 0:05:18.279 --> 0:05:19.600 had this coming out of the I P O and 0:05:19.640 --> 0:05:21.880 we saw the stock trade. Well, Facebook still has it, 0:05:22.000 --> 0:05:24.720 Google still has it, Amazon still has it. But this 0:05:24.800 --> 0:05:26.240 is a name that's kind of run out of steam. 0:05:26.800 --> 0:05:30.760 Qualit Calm. Money's cheap. I think if I add eighty 0:05:30.800 --> 0:05:34.279 billion in fifty billion, I get over a tenth of 0:05:34.279 --> 0:05:38.599 a trillion dollars just two big mergers. I mean, it's 0:05:38.640 --> 0:05:41.680 just chasing the low interest rates. The money's here, let's go. 0:05:41.760 --> 0:05:43.640 Let's go to your end, isn't it. Yeah. I think 0:05:43.760 --> 0:05:45.480 you know this qual Calm deal, the A T and 0:05:45.520 --> 0:05:48.080 T Time Warner deal. It's interesting here. I think these 0:05:48.120 --> 0:05:51.960 are real transactions. These are strategic transactions. Uh you know, 0:05:52.000 --> 0:05:54.400 in the case of a T and T really recognizing 0:05:54.440 --> 0:05:58.040 that they need to put a content uh pipe into 0:05:58.200 --> 0:06:00.560 their distribution system. And I think in a case for Qualcom, 0:06:00.600 --> 0:06:02.840 they're looking for distribution away from the phone market. So 0:06:02.880 --> 0:06:06.039 these are strategic driven trip transactions. But you're right, they're 0:06:06.040 --> 0:06:08.840 absolutely fueled in very large part by the low cost 0:06:08.880 --> 0:06:10.400 of capital. In the case of a T and t 0:06:11.120 --> 0:06:13.560 half of that transaction will be funded by debt. And 0:06:13.600 --> 0:06:16.120 you know, it's just amazing that JP Morgan and Bank 0:06:16.120 --> 0:06:18.480 of American Maryland stepped up with a forty billion dollar 0:06:18.560 --> 0:06:21.680 bridge alone, the biggest to be done in the marketplace. 0:06:21.880 --> 0:06:24.200 UH So they feel very confident that they can refinance 0:06:24.240 --> 0:06:26.880 that money on that. That's you know, the bridge loans 0:06:26.880 --> 0:06:29.360 carry very big fees because they are the banks are 0:06:29.360 --> 0:06:32.080 assuming a lot of market risk, so they will get 0:06:32.120 --> 0:06:34.440 paid on on the fees on the bridgeland. Plus you 0:06:34.480 --> 0:06:36.840 know they will be part of the uh the group 0:06:36.839 --> 0:06:38.800 that will underwrite the bonds that will put in more 0:06:38.800 --> 0:06:41.080 permanent financing to take out. In the old days, it 0:06:41.160 --> 0:06:43.599 was a six percent business, So you made six percent 0:06:43.640 --> 0:06:46.599 on onether and six percent of forty gazillions a lot 0:06:46.640 --> 0:06:49.480 of money. It's not six, but it's still do they 0:06:49.480 --> 0:06:53.040 make a stick in the parlance, do they make I'm 0:06:53.040 --> 0:06:54.680 not sure exactly what fees are gonna get here, but 0:06:54.680 --> 0:06:57.840 these are very profitable instruments for the banks. When they 0:06:57.839 --> 0:07:00.560 step up and put capital, they absolutely will get paid for, 0:07:00.839 --> 0:07:03.320 particularly now that they have to put so much capital 0:07:03.320 --> 0:07:05.560 side on their bouncy from a regulatory perspective, So they 0:07:05.560 --> 0:07:09.160 will certainly price their capital accordingly. And these are still 0:07:09.279 --> 0:07:12.360 very uh attractive deals for the banks, but because they 0:07:12.400 --> 0:07:13.960 are assuming a lot of risk here in case of 0:07:14.040 --> 0:07:16.040 JP Morgan to be of a but you know they 0:07:16.080 --> 0:07:18.720 will also make fees on the back end by doing 0:07:18.720 --> 0:07:20.880 coming to the bond market and taking out this this bridge. 0:07:20.920 --> 0:07:22.400 So well, not a whole lot of room here for 0:07:22.400 --> 0:07:24.840 consolidation in the social media space, as you say, the 0:07:24.960 --> 0:07:27.520 same thing holds truing the semiconductor space and that right, yeah, 0:07:27.560 --> 0:07:29.640 I think so. Um you know on Entrini of Austin, 0:07:29.680 --> 0:07:32.480 who cover semis for US, has been extraordinarily busier the 0:07:32.520 --> 0:07:34.600 past couple of years has just been a tremendous amount 0:07:34.600 --> 0:07:37.720 of consolidation in that space. Um So, you know, again 0:07:37.880 --> 0:07:40.520 a lot of strategic driven tran transactions here. It's not 0:07:40.560 --> 0:07:42.960 just because of cheap money. Um So when when you 0:07:42.960 --> 0:07:45.040 when you start to see the private equity players come 0:07:45.080 --> 0:07:47.440 into the marketplace, that's when you know that these are 0:07:47.480 --> 0:07:50.720 more financially driven deals versus strategic. Real quick here snap 0:07:50.760 --> 0:07:54.400 announcing it's going public yesterday, the parent company of Snapchat. 0:07:54.800 --> 0:07:56.720 Why now, and what do you make the numbers? Yeah, 0:07:56.720 --> 0:07:58.840 it's the numbers over that we're seeing. Uh, you know, 0:07:58.840 --> 0:08:00.560 there's not a lot of public numbers out on Snapchat, 0:08:00.560 --> 0:08:02.960 but what we've seen are just some extraordinary growth rates 0:08:02.960 --> 0:08:04.800 in terms of, you know, the kind of the metrics 0:08:04.840 --> 0:08:07.240 that investors are used to seeing from these social sites. Uh, 0:08:07.400 --> 0:08:11.280 user growth, daily user growth, mobile user growth, and then 0:08:11.360 --> 0:08:14.360 top line advertising. So the valuations that Bloomberg News reported 0:08:14.440 --> 0:08:18.560 yesterday of thirty five billion dollars huge valuations because their 0:08:18.680 --> 0:08:21.400 last private round, I think about six months ago value 0:08:21.440 --> 0:08:24.160 the company at eighteen billion dollars. So again the valuation 0:08:24.240 --> 0:08:26.400 numbers in Silicon Valley, if you still are putting up 0:08:26.400 --> 0:08:28.800 the top line growth, you can get the valuation. You're 0:08:28.800 --> 0:08:34.720 working a strange we do. Mr Graham and Mr Dodd 0:08:34.720 --> 0:08:37.880 and Mr Coddle wouldn't know this world. Yeah, they they 0:08:38.040 --> 0:08:39.640 don't think they were aware of, you know, kind of 0:08:39.640 --> 0:08:42.120 the capital that would be a massed at in Silicon 0:08:42.200 --> 0:08:44.679 Valley searching for the next big They wouldn't be snapping 0:08:45.880 --> 0:08:49.800 Mr Rubens starting over to Carlisle Group looking for another raise. 0:08:50.080 --> 0:08:52.880 Here as they say, Paul Sweeney, thank you so much. 0:08:53.000 --> 0:09:09.559 Just brilliant here with Twitter, David Gurroud's a great deal 0:09:09.520 --> 0:09:11.640 of seth masters with us, would they be alligned spur 0:09:11.679 --> 0:09:14.120 Instein uh in the in the idea that we've been 0:09:14.120 --> 0:09:17.199 talking about yields and yield dynamics into two thousand seventeen, 0:09:17.360 --> 0:09:21.560 and it's an interesting linkage of everything we talked about 0:09:21.600 --> 0:09:25.440 in economics and over into foreign exchange and over almost 0:09:25.440 --> 0:09:27.840 into our politics as well. Absolutely seth looking at your 0:09:27.880 --> 0:09:29.720 most recent note ALIGNE stood out to me. You said, 0:09:29.720 --> 0:09:31.960 you've got to have only the bond exposure you need 0:09:32.320 --> 0:09:35.120 nothing more easier said than done. That's a pretty difficult 0:09:35.160 --> 0:09:37.480 thing to figure out, it really is, and of course 0:09:37.480 --> 0:09:40.080 it very much depends on exactly what your objectives might be. 0:09:40.600 --> 0:09:42.880 I think the problem is in the past, it wasn't 0:09:42.920 --> 0:09:45.839 such a sensitive variable. You could afford to take a 0:09:45.920 --> 0:09:49.000 little bit more exposure and things that were safe, especially 0:09:49.040 --> 0:09:52.000 in bonds, and still get a reasonable yield and not 0:09:52.160 --> 0:09:54.760 have to worry a lot about risk. But today having 0:09:54.800 --> 0:09:57.400 too much in bonds can be a big risk for people, 0:09:57.480 --> 0:09:59.800 both because the yields are so low you're not getting 0:09:59.840 --> 0:10:02.560 a lot there, and because with interest race likely to 0:10:02.640 --> 0:10:05.560 rise over the next several years, you have price risk too. 0:10:06.160 --> 0:10:09.160 Looking at these super long term bonds, fifty year bonds 0:10:09.200 --> 0:10:11.840 in Italy hundred your bonds in Spain. What do you 0:10:11.880 --> 0:10:14.360 make of that? Is that trend going to to continue? Well, 0:10:14.400 --> 0:10:17.480 I think those issuers are selling those bonds now because 0:10:17.520 --> 0:10:20.959 they can, and from their perspective it's rational. The question 0:10:21.000 --> 0:10:23.640 is the buyers and why are they doing this. I 0:10:23.679 --> 0:10:26.040 think in some cases their institutions that are trying to 0:10:26.080 --> 0:10:27.719 lock in a long term mas set to match a 0:10:27.720 --> 0:10:30.920 long term liability, or at least that's what their their 0:10:30.960 --> 0:10:33.800 intention is. The risk of this creates for everybody else 0:10:33.840 --> 0:10:38.160 is that those issues go into the indices. And now 0:10:38.200 --> 0:10:41.760 if you're if you buy a bondy TF, you're getting 0:10:42.160 --> 0:10:45.319 a decent amount of exposure to very very long duration. 0:10:45.559 --> 0:10:47.360 The duration of all of the bonding disease has been 0:10:47.360 --> 0:10:49.520 creeping up over the last few years, especially outside of 0:10:49.520 --> 0:10:51.760 the US, but here in the US two at a 0:10:51.800 --> 0:10:54.880 time when we would say it actually makes sense to 0:10:55.000 --> 0:10:57.559 be on the shorter side a little bit of the 0:10:57.640 --> 0:11:00.000 duration spectrum. So we think that this is a great 0:11:00.000 --> 0:11:02.360 an example of why you don't necessarily, as an investor, 0:11:02.840 --> 0:11:05.839 necessarily benefit just from being passive just looking at the 0:11:06.200 --> 0:11:08.760 bond space overall. Going into the ECB meeting last week, 0:11:08.800 --> 0:11:11.800 there was a lot of talk of bond scarcity. How's 0:11:11.800 --> 0:11:14.160 that playing out in your world? I think that the 0:11:14.760 --> 0:11:16.680 fact that there is bond scarcity in some parts of 0:11:16.679 --> 0:11:19.760 the world where central banks are buying up, literally vacuuming 0:11:19.840 --> 0:11:24.240 up almost everything that there is, especially the Eurozone and 0:11:24.400 --> 0:11:27.000 uh in Japan, that that's one of the reasons why 0:11:27.040 --> 0:11:30.000 yields have remained so incredibly low. There are also, I 0:11:30.000 --> 0:11:32.320 think some investors who are still much more worried about 0:11:32.360 --> 0:11:36.640 deflation risk than inflation risk. But when the sentiment changes, 0:11:37.000 --> 0:11:39.520 I think that we will start to see a shift 0:11:39.679 --> 0:11:42.559 in the investor behavior. And we know that many of 0:11:42.559 --> 0:11:44.360 the central banks are now trying to figure out how 0:11:44.400 --> 0:11:48.040 to extract extricate themselves from this posture. And it's interesting, 0:11:48.040 --> 0:11:51.160 your south is not only the great bull market and 0:11:51.160 --> 0:11:53.920 bonds price up, yield down in the extraordinary years of 0:11:53.920 --> 0:11:56.040 ONA and in twelve, and certainly this year looks to 0:11:56.080 --> 0:12:00.440 be the same. You look at where bonds are turning 0:12:00.559 --> 0:12:05.280 just looking at one major bund index from the Lehman bottom, 0:12:05.440 --> 0:12:08.520 or you look at the Bloomberg Barclays Global Aggregate Index, 0:12:08.720 --> 0:12:12.200 you know, the old Lehman index. I mean, most people 0:12:12.240 --> 0:12:16.560 don't realize the bullmarket in bonds is equivalent or superior 0:12:17.160 --> 0:12:20.640 to the bullmarket inequities. Right. Well, the the total it turns, 0:12:20.640 --> 0:12:23.320 of course to aren't as high as the bullmark in equities, 0:12:23.320 --> 0:12:25.360 but then again you wouldn't expect that. But you're absolutely 0:12:25.400 --> 0:12:28.280 right in terms of it's how unusual it is. Um 0:12:28.320 --> 0:12:30.160 it is extremely unusual, and it's been going on for 0:12:30.160 --> 0:12:32.360 a very long time. It's been if you really think 0:12:32.360 --> 0:12:35.280 about it, it's been about a thirty five year bull market, 0:12:35.840 --> 0:12:39.800 and it's mathematically impossible for it to continue. Because okay, 0:12:41.280 --> 0:12:43.920 what is your advice to an institutional portfolio forget about 0:12:43.920 --> 0:12:47.440 a retail clients and our retail listeners who are in 0:12:47.520 --> 0:12:50.480 financial repression. What do the pros do? Do they buy 0:12:50.600 --> 0:12:54.559 dividend paying stocks prefers? Well, I think that they that's 0:12:54.559 --> 0:12:57.440 what they have been doing, and that's a trap because 0:12:58.040 --> 0:13:01.120 here's the problem. If you buy a stock because it 0:13:01.160 --> 0:13:03.920 has yield, that means you're buying a bond like stock 0:13:03.960 --> 0:13:07.800 that tends to have more inflation interest rate sensitivity than 0:13:07.880 --> 0:13:10.520 the average stock. And I totally understand why people might 0:13:10.520 --> 0:13:13.520 do that because the yield on stocks today is higher 0:13:13.520 --> 0:13:15.880 than the yield on most bonds, and there are many 0:13:15.880 --> 0:13:18.040 stocks that have yields that are in the four four 0:13:18.040 --> 0:13:20.880 and a half percent range. But the problem you will 0:13:20.920 --> 0:13:24.640 have is when in fact interest rates begin to move up, 0:13:25.120 --> 0:13:27.560 those are the stocks that will be most at risk. 0:13:28.280 --> 0:13:31.920 And here's the way to think about that. Um. In general, 0:13:32.200 --> 0:13:35.640 stocks have to be sensitive to interest rates because the 0:13:35.679 --> 0:13:39.280 interest rate is essentially the way you discount future cash 0:13:39.280 --> 0:13:43.040 flows from any investment. So in the case of a 0:13:43.080 --> 0:13:47.240 stock that is mostly trading on its earnings and how 0:13:47.320 --> 0:13:51.760 much you value those earnings, that effect is significant, but 0:13:51.840 --> 0:13:54.800 not determinative. If a stock is trading on its yield, though, 0:13:54.840 --> 0:13:57.600 how much of those are paid out, then it's all 0:13:57.640 --> 0:13:59.880 about what that interest rate is. And if the interstrate 0:14:00.080 --> 0:14:03.240 was even a slight it up, many of these yielding 0:14:03.520 --> 0:14:06.160 box will get crushed. Seth, thank you so much, Seth. 0:14:06.160 --> 0:14:16.880 Maisters who maybe this morning greatly greatly appreciated Who you 0:14:16.960 --> 0:14:20.400 put your trust in matters. Investors have put their trust 0:14:20.440 --> 0:14:24.000 in independent registered investment advisors to the two and of 0:14:24.080 --> 0:14:27.520 four trillion dollars. Why they see their roles to serve, 0:14:27.800 --> 0:14:31.120 not sell. That's why Charles Schwab is committed to the 0:14:31.240 --> 0:14:37.360 success over seven thousand independent financial advisors who passionately dedicate 0:14:37.400 --> 0:14:42.200 themselves to helping people achieve their financial goals. Learn more 0:14:42.680 --> 0:14:54.120 and find your independent advisor dot com. David Bring in 0:14:54.920 --> 0:14:58.360 Iron Jersey. He helps us out pretty much every six 0:14:58.360 --> 0:15:00.720 weeks or so with our FED showing interest rate that's 0:15:00.760 --> 0:15:02.600 coming up. By the way, we should say, there's a 0:15:02.600 --> 0:15:05.000 meeting on the horizon, right, Yeah, they haven't. I don't go. 0:15:05.120 --> 0:15:07.080 They won't let me go to the there's a meeting, 0:15:07.360 --> 0:15:10.000 but Bloomberg doesn't let me go to the meeting meetings 0:15:10.040 --> 0:15:14.840 to get ready for the show. Just keep the spontaneity up. Anyways, 0:15:14.840 --> 0:15:17.480 I Jerseys here, here's a portfolio manager at Oppenheimer Funds. 0:15:17.440 --> 0:15:18.800 As you say, we talked to him a lot about 0:15:19.040 --> 0:15:21.200 US treasuries. He's going to talk about Brazil a little 0:15:21.200 --> 0:15:23.680 bit to them. Excited to hear your thoughts on on 0:15:23.680 --> 0:15:26.080 that as well. Actually, let's let's start there. Let's look 0:15:26.080 --> 0:15:29.240 look at emerging markets. And we've had a change of 0:15:29.280 --> 0:15:31.720 power here. We have an interim president Michelle Timmerson. He's 0:15:31.720 --> 0:15:34.680 not going to run in two thousand and eighteen. Uh, 0:15:34.800 --> 0:15:37.120 there's been the political crisis. They say that now they 0:15:37.120 --> 0:15:39.520 say that. Now I was gonna say, we'll see what 0:15:39.560 --> 0:15:41.960 happens there. But he's made a lot of promises about 0:15:41.960 --> 0:15:43.800 cleaning things up, and there's a lot of cleaning up 0:15:43.840 --> 0:15:46.080 to do. Are you optimistic that that's going to happen 0:15:46.400 --> 0:15:48.960 down in Brazilian? Yeah, we are. Um. You know, one 0:15:48.960 --> 0:15:50.640 of the things that that we look at when we 0:15:50.640 --> 0:15:53.240 look at the politics of the situation is what's the 0:15:53.320 --> 0:15:56.080 likelihood that you're going to have a friendlier congress where 0:15:56.080 --> 0:15:57.640 they're going to be able to get their fiscal house 0:15:57.640 --> 0:16:00.080 in order. Um. There is there is some optim is 0:16:00.120 --> 0:16:01.960 hum that that that's going to happen. Some of the 0:16:01.960 --> 0:16:04.240 promises that were made might be a little bit of 0:16:04.240 --> 0:16:06.440 a stretch, but if they can get most of the 0:16:06.440 --> 0:16:09.400 way there, then that's very positive for them. Um. And 0:16:09.400 --> 0:16:12.760 And you know, from a bond market's perspective, it's things 0:16:12.800 --> 0:16:15.520 like what's going on with inflation. Inflation is coming down there, 0:16:15.800 --> 0:16:17.840 what's going on with bond issue once? Will they be 0:16:17.880 --> 0:16:19.960 able to actually hit their fiscal targets? We think they'll 0:16:19.960 --> 0:16:22.960 come close. Um. So, so all of those things make 0:16:23.000 --> 0:16:26.240 the environment for buying bonds that are still trading at 0:16:26.280 --> 0:16:29.680 double digits UM pretty pretty attractive. Now. It's not for 0:16:29.680 --> 0:16:31.400 the faint of heart, you don't want to you know, 0:16:31.560 --> 0:16:33.880 jump in with both feet, UM. So you need to 0:16:33.920 --> 0:16:36.040 manage risks and and make it part of a larger 0:16:36.080 --> 0:16:41.120 portfolio UM, which is uh, you know, diversified um broadly speaking. 0:16:41.160 --> 0:16:43.080 But but we do like Brazil and we do think 0:16:43.080 --> 0:16:45.800 that uh, you know, we're overweight in both our emerging 0:16:45.800 --> 0:16:49.240 markets local debt fund and our and our international bond funds. Well, 0:16:49.320 --> 0:16:53.520 let's return to the interimness of this presidency. As an investor, 0:16:53.560 --> 0:16:56.520 does that make things easier or harder? If this guy 0:16:56.560 --> 0:16:58.600 is able to right the ship knowing that he's gonna 0:16:58.600 --> 0:17:00.120 be out in two thousand eighteen, doesn't that interes do 0:17:00.240 --> 0:17:03.000 some some new uncertainty? Yeah, it does because you don't 0:17:03.000 --> 0:17:05.640 know necessarily who's going to be the next who's gonna 0:17:05.640 --> 0:17:09.119 be the next leader. There's no air apparent necessarily, so 0:17:09.119 --> 0:17:11.080 so we watch those things. But you know, it is 0:17:11.640 --> 0:17:13.960 it is the elections two years away, so we're still 0:17:14.000 --> 0:17:16.520 looking for at least a little bit of stability in 0:17:16.520 --> 0:17:18.480 the interim. And like I said before, you know, you 0:17:18.520 --> 0:17:20.760 never know, if all of a sudden he becomes very popular, 0:17:21.160 --> 0:17:24.080 there is the possibility that there could be a um, 0:17:24.160 --> 0:17:26.600 you know, that we could know, at least one candidate 0:17:26.600 --> 0:17:29.639 who might run for run for office, and and quite frankly, 0:17:29.720 --> 0:17:32.480 it's you know, will we see stability in places like Congress? 0:17:32.720 --> 0:17:35.760 Is corruption over in Brazil? You know, it's it's hard 0:17:35.800 --> 0:17:38.320 to know that without being in the inner workings. But 0:17:38.320 --> 0:17:39.960 but at least there are some positives. You know. One 0:17:40.000 --> 0:17:42.080 of the things that we've always liked about Brazil is 0:17:42.119 --> 0:17:46.159 that the governmental institutions continue to be a positive and 0:17:46.160 --> 0:17:48.280 they continue to operate the way you're supposed to. I mean, 0:17:48.280 --> 0:17:51.560 you don't have a president, you know, the the Justice 0:17:51.600 --> 0:17:56.040 Department um going after a sitting president with weak institutions. 0:17:56.320 --> 0:17:59.480 So because they're strong institutions, we think that Brazil is 0:17:59.480 --> 0:18:02.920 likely to get through this in decent order. You mentioned inflation. 0:18:03.000 --> 0:18:06.760 What else are central bank policymakers wrestling with in Brazil 0:18:06.840 --> 0:18:10.920 right now? Well, well, both growth and inflation. You know, 0:18:10.960 --> 0:18:12.600 one of the one of the issues that they had 0:18:12.640 --> 0:18:15.000 for a while, and one of the reasons why they 0:18:15.000 --> 0:18:17.160 had been hiking interest rates was to try and fight 0:18:17.200 --> 0:18:19.800 inflation and get inflation down and to try and make 0:18:19.800 --> 0:18:23.000 sure that the real which really their currency, the Brazilian real, 0:18:23.520 --> 0:18:26.159 was the kind of the big stabilizer and really was 0:18:26.240 --> 0:18:29.520 the instrument that was hard hardest hit by the politics 0:18:29.560 --> 0:18:32.399 of Brazil. Um, you know now that you have a 0:18:32.440 --> 0:18:35.520 situation where the politics is over now the central bank 0:18:35.560 --> 0:18:38.640 and focus more on growth and inflation. Inflation is coming down. 0:18:38.680 --> 0:18:40.960 Inflation was double digits, it's likely to be you know, 0:18:41.040 --> 0:18:44.399 highest single digits now. But um, but that means that 0:18:44.440 --> 0:18:46.439 you've already had one rate cut and you're likely to 0:18:46.440 --> 0:18:48.640 get more and that should bring interest rates lower. How 0:18:48.680 --> 0:18:50.640 do you and this is so great with your experience 0:18:50.640 --> 0:18:52.680 a credit suite. See now you're over with a good 0:18:52.720 --> 0:18:57.719 international people at Oppenheimer Funds. How does an investor know 0:18:58.080 --> 0:19:02.080 that his manager is managing the currency risk? If you 0:19:02.119 --> 0:19:07.160 look at the Brazilian equity markets, it's stunning the difference 0:19:07.200 --> 0:19:12.240 if you're in Brazil real or in US dollars. Yeah, so, 0:19:12.240 --> 0:19:14.800 so you know that's that's a choice and a preference. Um. 0:19:14.880 --> 0:19:17.880 You know there are um, some investors who fully hedge 0:19:17.920 --> 0:19:21.080 their portfolio as other investors who don't. UM. In our 0:19:21.720 --> 0:19:25.639 in our international bond fund, we actively manage our currency exposure. 0:19:25.720 --> 0:19:28.359 So UM, we say, okay, what is the dollar cycle? 0:19:28.440 --> 0:19:30.680 So we first look, okay, what's the dollar broadly doing? 0:19:31.000 --> 0:19:32.920 And then if we think that the dollar is going 0:19:32.920 --> 0:19:35.520 to be appreciating against most currencies as it as it 0:19:35.600 --> 0:19:38.400 quite frankly has for the last couple of years, um, 0:19:38.520 --> 0:19:40.840 then we say, okay, well, which currencies are likely to 0:19:40.880 --> 0:19:42.680 do the best and worst? Because one of the things 0:19:42.720 --> 0:19:45.880 about currencies in particular is that it's a relative game. Uh. 0:19:45.920 --> 0:19:47.520 You know, you can say, oh, the dollar is gonna 0:19:47.520 --> 0:19:49.720 do great, but then you know, I'm you know, this 0:19:49.960 --> 0:19:52.280 might be that one currency out there that actually does 0:19:52.359 --> 0:19:55.320 better than against the dollar. So so you need to 0:19:55.359 --> 0:19:57.120 make sure that you do your homework, that you look 0:19:57.160 --> 0:19:59.160 at every country, You look at all of the crosses, 0:19:59.200 --> 0:20:02.119