WEBVTT - Higher U.S. Yields Are Shifting The Risk-Reward in EM: Sassower 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.440 Along with my co host Lisa A. Bramowitz. Each day 0:00:11.480 --> 0:00:15.000 we bring you the most important, noteworthy, and useful interviews 0:00:15.040 --> 0:00:17.520 for you and your money, whether you're at the grocery 0:00:17.560 --> 0:00:20.560 store or the trading floor. Find the Bloomberg p m 0:00:20.680 --> 0:00:32.560 L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 0:00:32.560 --> 0:00:35.599 Today we hit a threshold that has gotten a lot 0:00:35.600 --> 0:00:39.240 of people excited. Tenure treasury yields touched kissed that three 0:00:39.280 --> 0:00:42.280 percent mark. There were bells ringing across Wall Street, and 0:00:42.280 --> 0:00:44.680 then it dipped right back down. Joining us now for 0:00:44.800 --> 0:00:48.159 some of the implications on a broad level of what 0:00:48.360 --> 0:00:52.280 higher treasury yields UH could mean. As Damien Sassaur, fixed 0:00:52.320 --> 0:00:55.840 income strategist at Bloomberg Intelligence, he joins us here in 0:00:55.960 --> 0:00:59.279 our eleven three oh studios. Damon, I want to look 0:00:59.320 --> 0:01:01.640 at this from the emerging markets point of view, because 0:01:01.640 --> 0:01:04.080 there has been so much money that has flow flooded 0:01:04.120 --> 0:01:08.200 into developing nations. So now that we're seeing higher yields 0:01:08.240 --> 0:01:11.080 in the US, what's the implication. Well, I'll tell you 0:01:11.120 --> 0:01:14.119 what's gone on here. We've seen emerging market US dollar 0:01:14.280 --> 0:01:17.440 debt come off returns of decline quite considerably year today. 0:01:17.440 --> 0:01:19.960 I think they're off of you know, two point or something, 0:01:20.000 --> 0:01:23.040 but yields have risen sharply, um. And so what that's 0:01:23.080 --> 0:01:25.000 done is it's created a bit of an anomaly. So 0:01:25.040 --> 0:01:28.080 you have em dollar debt issued by you know, all 0:01:28.080 --> 0:01:30.480 these you know, emerging market nations like Turkey, Argenta and 0:01:30.520 --> 0:01:34.000 Brazili you name it, looking rather attractive relative to their 0:01:34.040 --> 0:01:37.240 local government debt, which is denominated in local currency. I mean, basically, 0:01:38.000 --> 0:01:41.039 back up, this is important, Okay. So basically people went 0:01:41.120 --> 0:01:46.240 into emerging markets debt in local currencies betting that the 0:01:46.280 --> 0:01:50.520 dollar would continue to weaken. As US yields continue to rise, 0:01:50.560 --> 0:01:52.760 you are starting to get a bid on the dollar. 0:01:53.200 --> 0:01:56.360 And this leads to your issue, right, I mean, I 0:01:56.360 --> 0:02:00.000 mean we We've long been an advocate that investors are 0:02:00.160 --> 0:02:03.160 um perhaps you know, getting ahead of themselves in sacrificing 0:02:03.200 --> 0:02:06.720 spread risk for foreign exchange risk. And when they do that, 0:02:06.760 --> 0:02:09.639 they probably don't realize that that's inherently more risky. Is 0:02:09.720 --> 0:02:13.280 local currencies have historically exhibited much greater volatility than spreads. Right, 0:02:13.760 --> 0:02:16.840 So what you're seeing is a lot of anomalies. You're 0:02:16.840 --> 0:02:20.040 basically seeing e M dollar debt now the yields looking 0:02:20.280 --> 0:02:23.600 relatively attractive to EM locally yields probably at the you know, 0:02:24.040 --> 0:02:25.959 the gap between the two is at the tightest level 0:02:26.040 --> 0:02:28.920 since March of two thousand nine, right after the global Finalial, 0:02:29.080 --> 0:02:31.280 right at the height of the global financial crisis. And 0:02:31.280 --> 0:02:33.480 then if you look at EM dollar debt relative to 0:02:33.560 --> 0:02:35.480 US high yield, which is actually up on the year, 0:02:35.520 --> 0:02:37.440 And if you recall, you know, we have talked about 0:02:37.440 --> 0:02:41.200 this previously, the yields are now at the widest levels 0:02:41.200 --> 0:02:44.160 I've seen since TwixT so on a relative basis to 0:02:44.320 --> 0:02:48.040 US credit, it's actually looking rather attractive as well, Damien, 0:02:48.120 --> 0:02:51.880 How big is this market so EM dollar debt, sovereign 0:02:51.960 --> 0:02:56.520 quasi in corporate, I mean three to four trillion today? 0:02:56.960 --> 0:02:59.920 A lot of investments are done through exchange traded funds, 0:03:00.120 --> 0:03:02.480 or they've done to actually buying the debt. A lot 0:03:02.600 --> 0:03:04.920 is done through a TS that's exactly right, alright. So 0:03:04.960 --> 0:03:06.679 if you're buying it through an e t F or 0:03:06.680 --> 0:03:09.640 an exchange traded note or some other kind of derivative product, 0:03:09.880 --> 0:03:13.760 are you the insurance company, the pension fund, or you 0:03:13.840 --> 0:03:17.120 the trader? So if I mean if you're a e 0:03:17.200 --> 0:03:19.200 t F investor. Historically, we've been led to believe that 0:03:19.240 --> 0:03:22.200 there's a retail investors mom and pops. But increasingly, what 0:03:22.240 --> 0:03:24.320 we're realizing that a lot of institutions, a lot of 0:03:24.360 --> 0:03:26.760 fund managers use those instruments as a way of off 0:03:26.800 --> 0:03:29.200 setting risk in other areas, or perhaps you know, quickly 0:03:29.240 --> 0:03:32.000 adding to risk in certain areas and dialing it in. Okay. 0:03:32.120 --> 0:03:34.520 And they're doing this because what they want to hold 0:03:34.520 --> 0:03:36.800 the debt long term, They want to take the coupon 0:03:36.880 --> 0:03:40.520 and take the principal payment. Absolutely not, absolutely not. They're 0:03:40.560 --> 0:03:42.720 trying to get exposure to an asset class that may 0:03:42.760 --> 0:03:46.240 have a higher yield or a higher beta than another one. Okay, 0:03:46.240 --> 0:03:49.640 Just last point. The amount of money that is going 0:03:49.800 --> 0:03:54.480 into exchange traded funds that are backed by emerging market 0:03:54.560 --> 0:04:00.320 debt far out ways the actual amount of emerging market 0:04:00.360 --> 0:04:04.240 debt that's being issued. That's not true. Now Here. Now 0:04:04.280 --> 0:04:06.160 here's the interesting thing, because I see where you're headed there, 0:04:06.160 --> 0:04:08.760 and and it's something we've also talked about before, which 0:04:08.840 --> 0:04:13.040 is the liability mismatch between the underlying bonds and these 0:04:13.040 --> 0:04:15.720 et f s, which may not be as liquid as 0:04:15.800 --> 0:04:17.960 the daily liquidity you're being provided by the e t 0:04:18.200 --> 0:04:21.720 s themselves, right, especially PIM in local currency debt. Right, 0:04:22.040 --> 0:04:24.160 So you know the real risk here is that you know, 0:04:24.200 --> 0:04:26.960 you've got local government debt. That is, you know, investors 0:04:26.960 --> 0:04:29.000 can go move in and out of intro day, yet 0:04:29.000 --> 0:04:32.240 the underlying bonds don't trade that liquid and so you know, yes, 0:04:32.320 --> 0:04:34.400 if yields continue to go up in the US leads 0:04:34.440 --> 0:04:37.839 to your point, you know, we may see, uh, we 0:04:37.880 --> 0:04:39.840 may see a little pushing pull there, and we may 0:04:39.880 --> 0:04:43.480 see us reach a point where, um, you know, investors, 0:04:43.560 --> 0:04:45.000 I don't want to say they can't get their money 0:04:45.000 --> 0:04:46.599 back from an e t F. Far be from me 0:04:46.640 --> 0:04:48.560 to even you know, conceive of that. But yeah, those 0:04:48.600 --> 0:04:51.159 are those are stress signals. Those are blacks want events 0:04:51.160 --> 0:04:52.960 that we look for and that we're looking at. Yeah, 0:04:53.200 --> 0:04:55.320 I want to build on what PIM was talking about 0:04:55.360 --> 0:04:58.400 e t f s being used for quick bets on 0:04:58.520 --> 0:05:03.279 emerging markets. Is there a threshold at which, you know, 0:05:03.480 --> 0:05:06.640 US yields cross a certain point and people just yank 0:05:06.720 --> 0:05:10.520 their money out of developing markets and go back to 0:05:10.640 --> 0:05:14.039 the US. You know, to make a call on a 0:05:14.040 --> 0:05:16.760 particularly yield threshold that's going to drive investors away from. 0:05:16.800 --> 0:05:19.960 It is kind of difficult to say, you know, I 0:05:20.480 --> 0:05:22.599 don't think we've we have seen you know, fits of 0:05:22.640 --> 0:05:25.800 it for sure, and in certain environments absolutely. I think 0:05:25.839 --> 0:05:28.040 the one area right now and that's the one, you know, 0:05:28.160 --> 0:05:29.919 the one thing that you know a lot of people 0:05:29.960 --> 0:05:31.680 have kind of it's killed people in the M as 0:05:31.720 --> 0:05:34.360 the US dollar, right, the US dollar has come off 0:05:34.600 --> 0:05:37.960 you know, quite considerably in the last year, mostly because 0:05:37.960 --> 0:05:40.040 of the wand right the China remnimbi has just been 0:05:40.040 --> 0:05:42.600 on a straight shot higher. And if you saw overnight 0:05:43.000 --> 0:05:45.520 there's been talk that they may start easing rates in China, 0:05:45.600 --> 0:05:47.919 which you know is kind of taking people by surprise 0:05:47.960 --> 0:05:50.080 here today in the market because what would that mean. 0:05:50.160 --> 0:05:52.200 That might mean that growth is slowing in China, and 0:05:52.240 --> 0:05:55.240 what would that mean for all of the largest constituents 0:05:55.279 --> 0:05:57.360 et s in these industries. If if growth starts to 0:05:57.360 --> 0:05:59.920 slow in Southeast Asia and it filters into Latin America 0:06:00.040 --> 0:06:02.800 and in the Emia region because of China being the 0:06:03.240 --> 0:06:05.280 largest trading partner of emerging market, that could be a 0:06:05.360 --> 0:06:08.880 real risk and that can drive investors into the dollar, 0:06:09.000 --> 0:06:11.200 into the And when the dollar starts to rise, i 0:06:11.320 --> 0:06:14.240 M currency's tend to fall and local debt tends to 0:06:14.279 --> 0:06:16.640 get hit pretty hard, and we've seen that happen quite 0:06:16.680 --> 0:06:19.560 often in UH in recent memories. So yeah, thanks for 0:06:19.680 --> 0:06:22.440 being with us. Always a pleasure, always learned something. Damien 0:06:22.480 --> 0:06:27.120 Sassaur is fixed income strategist for Bloomberg Intelligence. Giving us 0:06:27.200 --> 0:06:30.360 the wherewithal when it comes to emerging market that always 0:06:30.560 --> 0:06:45.840 always a pleasure. A lot of people are going to 0:06:45.960 --> 0:06:50.239 dissect the key moment when you as ten year treasury 0:06:50.279 --> 0:06:53.920 yields hit that three percent mark, only to come back 0:06:54.040 --> 0:06:56.440 down here to talk about how much he cares about 0:06:56.520 --> 0:07:00.760 this sort of thresholds, this magical numbers. Ason trent Ert, 0:07:00.839 --> 0:07:05.080 Managing partner, chairman and chief executive officer of Strategious Research 0:07:05.240 --> 0:07:07.720 Partners in New York. Chason, thank you so much for 0:07:07.800 --> 0:07:10.040 being with us. How much do you care that tenure 0:07:10.080 --> 0:07:14.840 treasury yield hit three I, frankly, I only care to 0:07:14.920 --> 0:07:17.680 the extent to which I think it's a sign of 0:07:17.800 --> 0:07:20.680 a strengthening economy. I don't do you think it's that? 0:07:21.640 --> 0:07:27.000 I do? I do? I think that Listen, nominal GDP 0:07:27.160 --> 0:07:30.360 growth this year should be somewhere, in our opinion, between 0:07:30.440 --> 0:07:34.040 five and six percent, and um generally speaking, in the 0:07:34.120 --> 0:07:38.080 past tenor treasury yields are roughly a word UH nominal 0:07:38.120 --> 0:07:41.080 GDP growth is so in my opinion, we've been much 0:07:41.160 --> 0:07:43.480 lower than that for variety of reasons. A lot of 0:07:43.520 --> 0:07:47.600 it has to do with financial oppression in the propensity 0:07:47.640 --> 0:07:49.920 and the other times of banks propensity to buy treasuries. 0:07:50.440 --> 0:07:52.720 But I think to the extent to which we're normalizing 0:07:52.760 --> 0:07:55.680 interest rates, it would be natural for interest rates to 0:07:55.760 --> 0:07:58.520 move higher. Jason, I want to push back a little bit. 0:07:58.680 --> 0:08:01.720 Some people are arguing that the reason why US treasure 0:08:01.760 --> 0:08:04.040 yields are rising so rapidly on the longer end right 0:08:04.120 --> 0:08:07.000 now has to do with oil oil prices at their 0:08:07.080 --> 0:08:11.960 highest since two thousand four, and arguably that could crimp 0:08:12.120 --> 0:08:16.520 growth in the US. No, it could, um, it could, 0:08:16.560 --> 0:08:20.760 But you also I think, UM, there's also the physical stimulus, which, 0:08:21.160 --> 0:08:23.800 in my opinion, for whatever reason, I'm not quite sure 0:08:23.840 --> 0:08:28.840 why people have UM stop talking about it but or 0:08:29.200 --> 0:08:31.600 um or have written it off. But in my opinion, 0:08:31.800 --> 0:08:34.480 the fiscal stimulus that's likely to hit the economy this 0:08:34.679 --> 0:08:40.120 year UH is very large and should increase real GDP 0:08:40.280 --> 0:08:43.439 growth by fifty to seventy five basis points, so you'd 0:08:43.480 --> 0:08:47.640 have something well over well over three reel this year, 0:08:47.720 --> 0:08:51.839 plus you have somewhat stronger wages um because there was 0:08:51.880 --> 0:08:55.000 someone stronger wage growth as well, So energy would be 0:08:55.240 --> 0:08:57.520 an offset. That's shoot, your trade might be a little 0:08:57.559 --> 0:09:01.319 bit of an offset. But I think if you a 0:09:01.440 --> 0:09:04.360 counterbalance of that would be the enormous fiscal stimulus that's 0:09:04.559 --> 0:09:07.880 that's coming down the pike. So good for stock prices, Jason, 0:09:08.960 --> 0:09:10.800 I think so, I know. I certainly don't think it's 0:09:11.440 --> 0:09:16.080 inconsistent with with with stronger stock prices and maybe someone 0:09:16.160 --> 0:09:19.800 inconsistent with an expansion of earnings multiples. I think that 0:09:20.480 --> 0:09:23.600 you know that is a distinction, in my opinion. Over 0:09:23.800 --> 0:09:27.840 since the financial crisis, you've had a situation where financial 0:09:27.880 --> 0:09:31.360 assets greatly outperformed the real economy, and in my opinion, 0:09:31.520 --> 0:09:34.719 we're going back to a period now where the real 0:09:34.760 --> 0:09:38.640 economy is likely to outperform the financial assets of financial markets. 0:09:38.720 --> 0:09:40.400 There's another way of saying, you're not gonna get big 0:09:40.480 --> 0:09:44.560 multiple expansion. Earnings will grow but um, but the market 0:09:44.600 --> 0:09:47.120 will probably grow more in line with what earnings grows. 0:09:47.240 --> 0:09:50.680 Is as opposed to two thousand, fourteen, fifteen and sixteen 0:09:50.720 --> 0:09:55.520 earnings were flat on a nominal basis at around a 0:09:55.640 --> 0:09:59.520 hundred and eighteen dollars and um, and yet the market 0:09:59.640 --> 0:10:02.280 continue need to rise. And I think here you're going 0:10:02.400 --> 0:10:04.480 to different, You're going to a little bit of a 0:10:04.559 --> 0:10:08.160 different paradigm. So don't be don't be surprised if you 0:10:08.240 --> 0:10:12.720 see a flat stock market but good economic reports from 0:10:12.720 --> 0:10:15.480 the United States. Yeah, I mean, I think my own 0:10:15.520 --> 0:10:17.760 opinion is that the market will probably be up somewhere 0:10:17.800 --> 0:10:21.360 in the order of seven to eight percent this year 0:10:21.520 --> 0:10:23.959 in terms of price return, maybe another two percent for 0:10:24.200 --> 0:10:26.959 for dividends, so you might get something close to double digits, 0:10:27.320 --> 0:10:30.240 but earnings will be up much more meaningfully than that. 0:10:30.400 --> 0:10:32.760 Earnings could be up. Earnings the first quarter will be 0:10:32.880 --> 0:10:38.360 up probably somewhere around and so UM. So the idea 0:10:38.400 --> 0:10:40.800 is that earnings growth the market will be up probably 0:10:40.960 --> 0:10:42.880 around in line, if not a little bit less than 0:10:42.920 --> 0:10:46.280 what earnings growth is probably for the foreseeable future, as 0:10:46.320 --> 0:10:49.079 long as interest rates are rising. What metric are you 0:10:49.160 --> 0:10:51.599 looking at to uh to see if you're right with 0:10:51.679 --> 0:10:55.920 this thesis, Well, I think earnings are one of the 0:10:56.480 --> 0:10:59.679 earnings are probably one of the better better things to 0:11:00.000 --> 0:11:03.680 looked at, and just the performance um of the market. 0:11:04.280 --> 0:11:07.599 I think those would be the primary primary things to 0:11:07.640 --> 0:11:11.800 look at. I find there's a lot of skepticism about UM, 0:11:12.600 --> 0:11:15.800 about the potential for the economy to do better. I'm 0:11:15.800 --> 0:11:20.600 not quite sure why earnings recessions are twice as likely 0:11:20.679 --> 0:11:24.880 as as economic recessions. And while there have been earnings 0:11:24.920 --> 0:11:28.920 recessions that we're not accompanied by an economic recession, you've 0:11:28.960 --> 0:11:32.440 never had an economic recession that was accompanied by stronger 0:11:32.520 --> 0:11:37.240 earnings and so uh. In my opinion, the most meaningful 0:11:37.280 --> 0:11:41.079 thing to look at with regard to the efficacy of 0:11:41.160 --> 0:11:44.439 the fiscal stimulus that was passed would really be capital spending. 0:11:44.960 --> 0:11:47.720 And I think capital spending is just the policy legs 0:11:47.760 --> 0:11:50.839 are long and variable, and it takes a while, and 0:11:50.920 --> 0:11:54.719 I think in the immediacy of our environment, we we 0:11:54.840 --> 0:11:58.319 tend to expect things to happen all at once. And 0:11:58.600 --> 0:12:01.280 and again, the tax pack was was only past three 0:12:01.280 --> 0:12:03.080 and a half months ago, so I think it's gonna 0:12:03.080 --> 0:12:06.040 take a little time for capital spending to show up UM, 0:12:06.320 --> 0:12:09.040 and I think now you probably should so arche to 0:12:09.040 --> 0:12:12.360 see consumer spending pick up as well. Jason, you've written 0:12:12.400 --> 0:12:15.240 in the past that Donald Trump is under owned. What 0:12:15.320 --> 0:12:18.400 do you mean by that and does that still true? Well, yeah, 0:12:18.520 --> 0:12:21.680 we had written, you know, uh back to two thousand. 0:12:21.760 --> 0:12:24.920 In two thousand and eleven, we actually wrote a piece 0:12:25.040 --> 0:12:28.920 about the potential appeal of Donald Trump as a political 0:12:29.000 --> 0:12:31.200 candidate when he flirted with running, and then in two 0:12:31.280 --> 0:12:35.000 thousand and fifteen when he announced for president, we we 0:12:35.600 --> 0:12:38.800 uh suggested that he had a shot of winning, and 0:12:38.920 --> 0:12:41.480 then after he one, we suggested it would be good 0:12:41.520 --> 0:12:46.360 for the markets, and so um, you know, became less 0:12:46.400 --> 0:12:49.000 and less crazy as time went on. It's it's still 0:12:49.160 --> 0:12:51.160 you know, it seems kind of crazy. But the idea 0:12:51.160 --> 0:12:53.360 of Donald Trump being under own really we wrote that 0:12:53.520 --> 0:12:56.040 last last summer, and it had to do with the 0:12:56.080 --> 0:12:58.960 fiscal stimulus. Uh. You know, we had found that certainly 0:12:59.000 --> 0:13:01.640 the administration had a rough spot at the beginning, or 0:13:01.760 --> 0:13:04.679 continues to have some rough spots, clearly, but with regard 0:13:04.720 --> 0:13:07.959 to its legislative agenda and particularly healthcare, and I think 0:13:08.000 --> 0:13:11.120 as a result, people were quite skeptical that anything could 0:13:11.160 --> 0:13:14.920 get done as far as tax reform was concerned, and 0:13:15.240 --> 0:13:17.319 we were we were of the view that that idea 0:13:17.440 --> 0:13:19.360 was very much under owned, that there there was a 0:13:19.480 --> 0:13:23.599 very good chance of tax reform getting getting through and 0:13:23.679 --> 0:13:25.480 it and it did, and of course you also have 0:13:25.679 --> 0:13:29.880 regulatory reform, regulatory easing, particularly as it relates to the 0:13:29.960 --> 0:13:34.000 financial sector, which again in our opinion, is probably being 0:13:34.080 --> 0:13:38.320 underestimated in terms of its potential impact on the velocity 0:13:38.360 --> 0:13:40.800 of money. Uh, there's there are a lot of reserves 0:13:40.840 --> 0:13:42.760 in the system, but the velocity of money has been 0:13:42.800 --> 0:13:46.080 weak really since the financial crisis. I gotta leave it there, 0:13:46.120 --> 0:13:48.160 but thanks very much for being with As Jason Trenter 0:13:48.320 --> 0:13:53.240 is managing partner, chairman and chief executive of Strategous Research Partners. 0:14:07.200 --> 0:14:09.400 We have been talking about what a big rash of 0:14:09.480 --> 0:14:13.960 earnings we are getting this week. The biotechnology as area 0:14:14.200 --> 0:14:18.040 is similarly seeing some pretty big earnings here with us 0:14:18.160 --> 0:14:20.760 to walk us through them. As Max Nissan, biotech, pharma 0:14:20.760 --> 0:14:23.720 and healthcare columnist for Bloomberg gad Fly, So, I want 0:14:23.760 --> 0:14:26.400 to start with the earnings. We got results already from Eli, 0:14:26.440 --> 0:14:29.640 Lily UH, and Biogen so far today they were kind 0:14:29.640 --> 0:14:32.240 of mixed. Both companies are seeing their shares down. We're 0:14:32.280 --> 0:14:35.320 expecting Amgen earnings after the bell. What stands out to 0:14:35.400 --> 0:14:38.640 you so far? Yeah? Absolutely, um So. The thing about 0:14:38.720 --> 0:14:41.680 Biogen that I think kind of sparked the negative reaction 0:14:42.320 --> 0:14:46.320 is that sales disappointed for spin Raza, which is a 0:14:46.440 --> 0:14:49.240 drug it kind of got recently approved for a rare 0:14:49.480 --> 0:14:54.640 uh a rare new neurodegenerative condition. It's been launching extraordinarily well, 0:14:54.760 --> 0:14:57.400 but in this quarter I grew sales by only a 0:14:57.520 --> 0:15:01.120 million sequentially. It's because of of a strange dynamic with 0:15:01.200 --> 0:15:04.800 that particular drug where patients start on the drug, they 0:15:04.840 --> 0:15:07.120 take a lot of it, and they graduate to a 0:15:07.240 --> 0:15:11.200 more kind of gradual intermittent dosage. This is something that 0:15:11.520 --> 0:15:13.560 was known, but to kind of just see it was 0:15:13.640 --> 0:15:16.080 a bit of a shock and in the broader context 0:15:16.160 --> 0:15:19.000 of the company where they have a declining older set 0:15:19.040 --> 0:15:21.960 of multiple scrossest drugs, it's just sort of scary to 0:15:22.040 --> 0:15:24.640 see and and puts pressure on them to maybe do 0:15:24.720 --> 0:15:27.240 a deal or find some more in the pipeline. Didn't 0:15:27.320 --> 0:15:30.640 they have a deal though, I believe with I Honest Pharmaceuticals. Yeah, 0:15:30.960 --> 0:15:34.200 so that was actually the original developer of spin Raza, 0:15:34.680 --> 0:15:36.760 and um, you know, it's a decent sized deal. It 0:15:36.840 --> 0:15:40.560 it gives them more access to that company's pipeline of medicines. 0:15:40.600 --> 0:15:43.600 But they're sort of hoping for for lightning to strike twice, 0:15:43.680 --> 0:15:46.320 you know, before spin Raza, I unders had a pretty 0:15:46.440 --> 0:15:49.560 long history of drug development failures, and um, you know, 0:15:49.640 --> 0:15:51.960 they might get another spin Raza, but that's kind of 0:15:52.280 --> 0:15:55.760 the extreme optimists case there are. The more likely is 0:15:55.840 --> 0:15:58.600 that that they'll either get nothing or or something of 0:15:58.720 --> 0:16:01.320 a little bit less value. You So, I want to 0:16:01.360 --> 0:16:03.720 talk about Eli Lily as well, because they boosted their 0:16:03.760 --> 0:16:07.280 full year revenue forecast and it was two above estimates, 0:16:07.440 --> 0:16:10.960 and yet the shares are down. I don't get it why. Um, 0:16:11.200 --> 0:16:13.480 you know, I think it might be to some extent 0:16:13.560 --> 0:16:17.520 because that beat came in large part from the company's 0:16:17.600 --> 0:16:21.120 diabetes franchise, and that's just sort of a scary thing 0:16:21.160 --> 0:16:24.200 to rely on given the amount of price pressure and 0:16:24.520 --> 0:16:28.960 competitiveness in that particular sector of the market. Also, the 0:16:29.080 --> 0:16:33.400 companies is pretty heavily our investors, at least are heavily 0:16:33.440 --> 0:16:36.440 watching an upcoming trial of one of its diabetes medicines, 0:16:36.760 --> 0:16:38.720 which is going head to head with really good data 0:16:38.800 --> 0:16:42.200 from the arrival Novo Nordis treatment. If it doesn't measure up, 0:16:42.760 --> 0:16:45.840 things will go from you know, kind of nerve wracking. 0:16:46.040 --> 0:16:50.200 It's it's truly scary for what's the company's most important franchise, 0:16:50.720 --> 0:16:54.800 UM does to Kada need the deal we're shifting to 0:16:54.880 --> 0:17:00.440 Shire and yeah, six right, I mean, why do they 0:17:00.520 --> 0:17:05.720 need to do this. I think that the CEO, Christopher Webber, 0:17:05.840 --> 0:17:09.280 is probably feeling some degree of pressure in that shares 0:17:09.400 --> 0:17:12.959 of the company are kind of flat um during his tenure, 0:17:13.480 --> 0:17:19.040 and the company lacks really any easily identifiable catalysts or 0:17:19.359 --> 0:17:22.479 drugs in the pipeline that might give it some upside. 0:17:22.600 --> 0:17:25.480 So this is kind of the biggest and boldest of 0:17:25.680 --> 0:17:28.280 of possible ways that they might go about this. Whether 0:17:28.440 --> 0:17:30.000 this is the right way to go about it is 0:17:30.200 --> 0:17:33.160 is another question, um, you know, because they're they're likely 0:17:33.240 --> 0:17:36.080 going to have to deliver an improved price even on 0:17:36.200 --> 0:17:38.919 what we've seen so far, which means an incredible amount 0:17:38.960 --> 0:17:43.679 of debt and a highly dilutive deal for for shareholders. 0:17:43.920 --> 0:17:46.000 There's a lot of risk and and it's for Shire, 0:17:46.119 --> 0:17:48.800 which you know, even though the company is at a 0:17:48.920 --> 0:17:50.960 discount to what it might have fetched in the past, 0:17:51.280 --> 0:17:53.159 there are reasons for that. There are risks to as 0:17:53.160 --> 0:17:56.480 team Ophilia franchise and to its pipeline as well. You know, 0:17:56.520 --> 0:17:59.800 it would have to really really outperform on the pipeline. 0:18:00.000 --> 0:18:03.240 I'd uh to justify this price. So so it's big risk, 0:18:03.320 --> 0:18:06.159 even if it is theoretically at least worth it to 0:18:06.320 --> 0:18:09.119 for Takeda to make a spplash. So the latest on 0:18:09.240 --> 0:18:12.480 this is that Shire is studying a new takeover bid 0:18:12.760 --> 0:18:16.160 from Takeda that already have been four snubs and another 0:18:16.280 --> 0:18:19.640 suitor that has come in uh to possibly do something 0:18:19.720 --> 0:18:23.439 here and then quickly backed up Takeda shares down, Shire 0:18:23.560 --> 0:18:26.439 shares up. I thought it was interesting Max just quickly 0:18:26.760 --> 0:18:29.440 that some of the rating agencies are looking at possibly 0:18:29.480 --> 0:18:33.280 downgrading Takeda if they did go through with this deal. Yeah, 0:18:33.280 --> 0:18:36.919 and that's not a surprise. I mean Takeda is about 0:18:37.000 --> 0:18:39.479 the same size as or a little smaller than Shire. 0:18:40.000 --> 0:18:41.960 And then in addition to the death that it would 0:18:41.960 --> 0:18:44.919 be taking on in this transaction, which could be up 0:18:45.000 --> 0:18:47.159 to even from from levels that we thought previously, if 0:18:47.160 --> 0:18:50.280 they're raising the the price, they're also taking out a 0:18:50.320 --> 0:18:54.440 substantial deadload from from Shire, which spent big on back 0:18:54.520 --> 0:18:58.280 Salta a couple of years back. So, um, it's definitely 0:18:58.400 --> 0:19:02.399 comes with some financial RISKSK And um, you know, they 0:19:02.480 --> 0:19:04.320 they may raise the price. I know, if they'll have 0:19:04.480 --> 0:19:07.119 to raise it that much to get this deal done. Um, 0:19:07.400 --> 0:19:09.359 you know at the end of the day. Shire was 0:19:09.440 --> 0:19:13.160 trading around thirty pounds just a few weeks or months ago, 0:19:13.600 --> 0:19:15.680 and this has at a substantial premium to that. So 0:19:15.760 --> 0:19:17.600 even if it's more of a stock component that they 0:19:17.680 --> 0:19:21.400 might like and becomes tricky because some people don't want 0:19:21.400 --> 0:19:24.639 to own Japanese shares, it's still a pretty good option 0:19:24.800 --> 0:19:27.159 for for Shire at least, and they can still kind 0:19:27.200 --> 0:19:29.359 of hold out hope that someone will scoop in with 0:19:29.640 --> 0:19:31.920 a better, more cash ret option and then have this 0:19:32.040 --> 0:19:33.639 kind of sitting on the back burner, which is not 0:19:33.720 --> 0:19:36.960 the worst outcome. Thanks very much. Max Neeson, Bloomberg gad Fly, 0:19:37.080 --> 0:19:54.160 commist all Things Healthcare much appreciated the shares of Alphabet, 0:19:54.200 --> 0:19:56.720 the parent company of Google. They are lower by about 0:19:56.760 --> 0:19:59.479 four and a half percent after the company reports results 0:19:59.520 --> 0:20:03.119 that exceed need analysts estimates yesterday after the market close. 0:20:03.640 --> 0:20:08.280 But seven point three billion dollars that may be giving 0:20:08.400 --> 0:20:10.959 some investors pause. That's how much the company is spending 0:20:11.400 --> 0:20:13.320 on a variety of ventures. And here to tell us 0:20:13.359 --> 0:20:16.600 more about the company is Alex were Bloomberg Gadfly calumnists 0:20:16.640 --> 0:20:20.000 covering technology. Alex thanks very much for being with us. 0:20:20.160 --> 0:20:23.720 Give us your reaction and your analysis of the report 0:20:23.880 --> 0:20:26.720 from Alphabet, it seems to be a sort of task 0:20:26.760 --> 0:20:29.680 admission that they recognize that there's the potential for headwinds 0:20:30.200 --> 0:20:34.720 coming up. They clearly see regulatory pressure being exerted on Facebook. 0:20:34.840 --> 0:20:37.760 They have a very similar model to Facebook. They can 0:20:37.840 --> 0:20:39.840 target adds that people based on the data they have 0:20:40.000 --> 0:20:44.000 on those people and so ensuring that they are owning 0:20:44.000 --> 0:20:47.360 the interaction with the customer through that their own made, 0:20:47.680 --> 0:20:50.040 self made mobile phones and some in the form of 0:20:50.080 --> 0:20:53.120 the pixel is one thing. And investing in the real 0:20:53.240 --> 0:20:57.480 infrastructure of the web, cloud computing network, cabling those sort 0:20:57.520 --> 0:21:01.240 of ideas they that helps build a backbone of data 0:21:01.280 --> 0:21:03.960 which can help support their business. Alex, can you help 0:21:04.040 --> 0:21:07.720 me understand something I can do my best? Please do? 0:21:07.840 --> 0:21:12.920 Alphabet posted the strongest sales growth in almost four years yesterday. 0:21:13.000 --> 0:21:16.560 The initial response was positive, The initial response in pre 0:21:16.680 --> 0:21:20.919 trading this morning was positive, and then close to around 0:21:21.080 --> 0:21:24.760 eight a m. The shares tanked. Why suddenly do the 0:21:24.840 --> 0:21:29.160 investors start to get nervous about alphabets spending? Because yes, 0:21:29.240 --> 0:21:32.600 they are going to be spending a substantial amount more 0:21:32.760 --> 0:21:35.360 and tripled their capital expenditure for the quarter to seven 0:21:35.400 --> 0:21:37.640 point seven billion. Why was this suddenly such a concern? 0:21:38.400 --> 0:21:40.240 I mean, this sounds like such a cop out as 0:21:40.280 --> 0:21:43.120 an answer, but I wouldn't put it. I mean, i'd 0:21:43.200 --> 0:21:45.280 wager that it's just profit taking. You know, you quite 0:21:45.320 --> 0:21:47.280 often see this with the big text docs when they 0:21:47.359 --> 0:21:50.159 have a really good quarter. UM people sense that as 0:21:50.160 --> 0:21:52.159 a good opportunity to get out, particularly they've been on 0:21:52.240 --> 0:21:55.320 a tear of late, and and you know that there's 0:21:55.320 --> 0:21:57.399 a very good chance that's what's happened with Google. I 0:21:57.400 --> 0:21:59.640 haven't seen the volumes, which probably would be more indicative 0:21:59.680 --> 0:22:01.920 of that, but I wouldn't be surprised if that is 0:22:02.000 --> 0:22:03.920 the reason. Equally, as I said, you know, Google is 0:22:04.160 --> 0:22:07.040 recognizing that down the line they do have challenges coming up, 0:22:07.280 --> 0:22:08.760 and so if I were to give the non cop 0:22:08.800 --> 0:22:10.320 out answer, it might be on that basis, but I 0:22:10.359 --> 0:22:12.840 think that's less likely. But if that's the case, isn't 0:22:12.880 --> 0:22:17.360