WEBVTT - The Ball Is In Comcast’s Court :Paul Sweeney 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 Abramowitz. 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 --> 0:00:32.520 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Let's 0:00:32.560 --> 0:00:36.120 turn out to one stock and one story. In particular, 0:00:36.640 --> 0:00:40.320 Century Fox shares higher right now by more than seven percent. 0:00:40.840 --> 0:00:43.519 This comes after an increased bid from Disney seventy one 0:00:43.560 --> 0:00:47.519 billion dollars to acquire those uh century Fox assets. Here 0:00:47.560 --> 0:00:50.840 to tell us more, Paul Sweeney expert when it comes 0:00:50.880 --> 0:00:54.520 to all things Internet and media related. He is our 0:00:54.560 --> 0:00:57.560 director of North American Research for Bloomberg Intelligence and our 0:00:57.600 --> 0:01:01.240 Internet analysts. Paul, what do you make of this particular 0:01:01.520 --> 0:01:04.679 move by Disney? Is this the coda? Is this the 0:01:04.800 --> 0:01:07.840 final final bid? You know, we'll have to see. The 0:01:07.840 --> 0:01:10.800 ball is definitely in Comcast court here, but you know, 0:01:10.840 --> 0:01:14.280 this is a very aggressive move by Bob Buyer and 0:01:14.520 --> 0:01:17.280 and Disney. Not only did they raise the price of 0:01:17.280 --> 0:01:21.039 their deal by approximately thirty but they also added a 0:01:21.080 --> 0:01:25.480 cash component allowing shareholders to elect between cash and stock, 0:01:25.560 --> 0:01:28.640 and that really makes the deal very compelling for sellers, 0:01:28.640 --> 0:01:31.520 particularly the Murdoch family, who may prefer to take stock 0:01:31.560 --> 0:01:34.120 and defer some of their their tax gains versus a 0:01:34.560 --> 0:01:37.120 a Comcast deal which is all cash and which would 0:01:37.600 --> 0:01:40.920 clearly result in a significant tax liability for the Murdoch 0:01:41.040 --> 0:01:43.880 So this is about as compelling a deal as Disney 0:01:43.920 --> 0:01:45.360 could have come back with. I think it's actually a 0:01:45.360 --> 0:01:48.400 little surprising how aggressive they were. So again, the ball 0:01:48.480 --> 0:01:51.560 is really in the court of Comcast and Brian Roberts, 0:01:51.600 --> 0:01:53.960 and they need to decide how much they want this asset. 0:01:54.240 --> 0:01:58.240 I'm really confused about the market response to this. Disney 0:01:58.240 --> 0:02:02.600 shares are up more than one percent, even though, uh, 0:02:02.640 --> 0:02:05.680 you know, the risk of Disney over paying, the risk 0:02:05.720 --> 0:02:08.320 of a bidding war ending up with an outcome that 0:02:08.440 --> 0:02:12.560 isn't so great is rising. Can you explain why investors 0:02:12.560 --> 0:02:16.600 are cheering this the power of cash? Um so. I 0:02:16.600 --> 0:02:19.919 think what's happening here is the original all stock deal 0:02:20.080 --> 0:02:23.240 that Disney put on the table is actually diluted to 0:02:23.280 --> 0:02:27.200 Disney shareholders per our analysis. However, as they reduced the 0:02:27.200 --> 0:02:29.720 amount of equity that they put in deal and increase 0:02:29.800 --> 0:02:32.840 the cash. Even at today's low rates, the deal becomes 0:02:32.919 --> 0:02:36.000 less and less dilutive and actually a little bit of 0:02:36.040 --> 0:02:40.800 creative here. So depending upon the elections of cash versus stock. So, um, 0:02:40.840 --> 0:02:44.440 it's actually for Disney from a near term perspective a 0:02:44.480 --> 0:02:47.079 little bit better believe it or not. And then I 0:02:47.120 --> 0:02:49.000 think it just kind of goes to I think it 0:02:49.080 --> 0:02:51.160 reflects effected. I think investors feel like this might be 0:02:51.200 --> 0:02:54.760 a knockout punch by Disney. Well, taking a look at 0:02:54.760 --> 0:02:57.360 the shares of Comcast. On the other hand, you know, 0:02:57.520 --> 0:03:00.480 Comcast investors don't seem to have liked this deal. The 0:03:00.560 --> 0:03:03.359 stock is down nearly eighteen percent so far this year 0:03:03.639 --> 0:03:07.200 today basically unchanged. Do you think that the if indeed 0:03:07.240 --> 0:03:10.680 Disney walks away with this, that this will be something 0:03:10.720 --> 0:03:13.840 that will be positive for Comcast? I think so in 0:03:13.919 --> 0:03:15.960 the short term. You're exactly right. The stock has been 0:03:15.960 --> 0:03:19.040 down this year. It's been underperforming given Charter, which is 0:03:19.080 --> 0:03:21.720 another big cable company, And I think the concern there 0:03:21.720 --> 0:03:24.360 with Comcast was just exactly what happened, that they would 0:03:25.160 --> 0:03:26.839 try to use their balance sheet to make a big 0:03:26.840 --> 0:03:30.440 acquisition and uh and uh, you know, really limit the 0:03:30.480 --> 0:03:32.320 amount of stock they can buy back or the amount 0:03:32.360 --> 0:03:34.520 they can invest in some of their other core businesses. 0:03:34.560 --> 0:03:37.800 And I think Comcast investors, while they're obviously very supportive 0:03:37.840 --> 0:03:39.840 of Brian Roberts and its management team, I think they 0:03:39.840 --> 0:03:43.520 feel like, UM, the Fox assets are not as critical 0:03:43.560 --> 0:03:45.760 to the future of Comcast as they might be for Disney. 0:03:45.800 --> 0:03:48.560 As a result, I don't think Comcast shareholders were quite 0:03:48.600 --> 0:03:51.960 as supportive of the Comcast management team and board as 0:03:51.960 --> 0:03:55.000 the Disney shareholders have proven to be. UM. So the 0:03:55.080 --> 0:03:57.160 question then will be, you know, A, what does Comcast 0:03:57.280 --> 0:03:59.720 do here in response to the Disney bid? And be 0:04:00.120 --> 0:04:03.600 if they lose, where does Comcast go next? UM? Do 0:04:03.720 --> 0:04:07.120 they try to copple together some assets like a Discovery Communications, 0:04:07.160 --> 0:04:08.920 like some other media companies that might be out there, 0:04:08.960 --> 0:04:12.680 like some film studios that might replicate in some way, um, 0:04:12.720 --> 0:04:16.080 the assets that they did not get with Fox. Paul Sweeney, 0:04:16.160 --> 0:04:18.160 thank you so much for being with us, and I'm 0:04:18.200 --> 0:04:21.520 sure we'll be following this on an ongoing basis as 0:04:21.520 --> 0:04:24.240 this saga continues to play out. Paul Sweeney as US 0:04:24.279 --> 0:04:27.560 director of Research and senior Media and Internet analyst for 0:04:27.680 --> 0:04:45.080 Bloomberg Intelligence. General Electric shares are down more than one 0:04:45.160 --> 0:04:48.560 percent today, following in early two percent laws yesterday after 0:04:48.600 --> 0:04:52.520 getting kicked out of the Dow Jones Index. This is 0:04:52.560 --> 0:04:56.799 a symbolic move, but it also could affect gees fortunes 0:04:56.839 --> 0:05:00.400 going forward in a fundamental way. Sarah pon Sech joins 0:05:00.480 --> 0:05:03.840 US now she's bloomber Cross Asset reporter um and this 0:05:03.880 --> 0:05:07.480 story is fascinating from so many perspectives. But first, can 0:05:07.480 --> 0:05:09.960 you just sort of paint the picture. General Electric has 0:05:10.000 --> 0:05:13.120 been in the index for a long time, storied company. 0:05:13.160 --> 0:05:15.680 Why was it kicked out? Of course, so this is 0:05:15.800 --> 0:05:18.920 pretty bitter sweet. G E was one of the original 0:05:19.000 --> 0:05:21.840 down members and now we don't have any of them. 0:05:21.880 --> 0:05:24.039 But the problem with ge is that we have been 0:05:24.080 --> 0:05:28.120 seeing it come forth with so many issues lately. I mean, 0:05:28.160 --> 0:05:31.080 it's lost half its market value in the last year. 0:05:31.240 --> 0:05:35.400 This year, it's down already last year it's down. I mean, 0:05:35.400 --> 0:05:38.200 it's been struggling with weak demand for industrial equipment. It's 0:05:38.200 --> 0:05:41.080 had cash flow problems. They're also going through an accounting 0:05:41.080 --> 0:05:43.840 probe right now. So there's just so much right now 0:05:43.880 --> 0:05:46.160 that's hurting the company. And it dropped to a point 0:05:46.200 --> 0:05:48.919 that's so low because the doubt is price weighted that 0:05:49.000 --> 0:05:51.360 it really didn't have too much weight within the Dow, 0:05:51.440 --> 0:05:54.720 and the doubts also supposed to represent the economy and 0:05:54.839 --> 0:05:57.919 the down makers, if you will feel like the economy 0:05:58.000 --> 0:06:00.479 is moving forth and maybe g E is in the 0:06:00.520 --> 0:06:02.680 next part of it. Well, just to be clear, right, 0:06:02.680 --> 0:06:05.680 the way in which the Dow Jones Industrial Leverage is 0:06:05.720 --> 0:06:09.760 put together is it is a price of and it's 0:06:09.760 --> 0:06:13.160 the sum of the actual price of all of the 0:06:13.200 --> 0:06:16.760 components and the index, and then that price is then 0:06:16.920 --> 0:06:21.000 divided by something called the Dow divisor, and that is 0:06:21.080 --> 0:06:25.120 designed to account for stock splits as well as a 0:06:25.200 --> 0:06:29.000 variety of other kind of changes in the actual stock price. 0:06:29.839 --> 0:06:34.080 And it's interesting because this is a very human decision, right, 0:06:34.160 --> 0:06:36.960 This is not something like g E reached a certain 0:06:37.000 --> 0:06:40.560 level of sales, you're out. It's not about it. It's 0:06:40.600 --> 0:06:42.839 not about that, right. It's not rules based, and like 0:06:42.920 --> 0:06:44.840 you said, it is price weighted, whereas a lot of 0:06:44.839 --> 0:06:47.840 the other industries are market cap weighted. But it's not 0:06:48.000 --> 0:06:51.080 a rules based system that either adds stocks or takes 0:06:51.120 --> 0:06:54.680 stocks out of the index. Rather, there's actually a committee 0:06:55.000 --> 0:06:57.760 that sits around and discusses which stocks should be the 0:06:57.800 --> 0:07:00.040 next one added, But this raises so many questions. It 0:07:00.160 --> 0:07:02.800 is about just you know, what is passive management and 0:07:03.040 --> 0:07:07.560 you know with index strategies, is this smart investing? I mean, 0:07:07.680 --> 0:07:11.400 given the fact that this company's shares has have absolutely tanked, 0:07:11.680 --> 0:07:15.160 is now the time to sell out and solidify losses 0:07:15.240 --> 0:07:17.320 and then bringing another name that's done really well that 0:07:17.440 --> 0:07:20.080 might not have as many games looking forward? Right. So 0:07:20.120 --> 0:07:23.000 Stephen Gendell, he wrote an opinion column for Bloomberg this morning, 0:07:23.000 --> 0:07:25.360 and he made a really interesting point saying, is it fair, 0:07:25.840 --> 0:07:27.880 uh for a committee to sit around and kind of 0:07:27.960 --> 0:07:31.280 choose what the economy is supposed to look like going forwards? 0:07:31.280 --> 0:07:33.280 And he pointed out that the DAL dropped A T 0:07:33.400 --> 0:07:35.800 and T back in and since then a T and 0:07:35.840 --> 0:07:38.480 T is we just saw the acquisition with Time Warner. 0:07:38.640 --> 0:07:41.000 And even before that, the DAL dropped Bank of America, 0:07:41.000 --> 0:07:44.760 and since then Bank of America shares are up. So 0:07:44.840 --> 0:07:47.400 it really comes down to the point of who whose 0:07:47.440 --> 0:07:49.040 choice is it to really decide who goes and who 0:07:49.080 --> 0:07:53.720 comes out. American Cotton Oil Company that was one of 0:07:53.720 --> 0:07:56.480 the original down members just to give it and it's 0:07:56.520 --> 0:07:59.080 now part of Unilever. After a variety of you know, 0:07:59.640 --> 0:08:02.560 a sires and sellers and so on. But I mean, 0:08:02.600 --> 0:08:04.960 it just reflects the ongoing change in the way that 0:08:05.040 --> 0:08:08.680 the economy is represented in the financial markets right right. 0:08:08.760 --> 0:08:12.560 And something that we've been discussing a lot is why Walgreens. 0:08:12.880 --> 0:08:15.880 We've been trying to figure it out because with Walgreens 0:08:15.920 --> 0:08:18.160 you can go both ways. Of course, it is actually 0:08:18.160 --> 0:08:20.560 classified as a consumer staples company, but a lot of 0:08:20.560 --> 0:08:22.600 people do think of it as a bit of a 0:08:22.680 --> 0:08:25.200 healthcare company. So if you look at the waitings and 0:08:25.240 --> 0:08:28.280 the members of the makeup of the Dow, consumer staples 0:08:28.320 --> 0:08:31.720 hold about five point seven percent of the entire index, 0:08:31.880 --> 0:08:35.240 but healthcare, on the other hand, holds about So is 0:08:35.280 --> 0:08:39.240 this a safe way to get more at retail but 0:08:39.400 --> 0:08:42.280 not get into traditional retail. Someone I spoke with this morning, 0:08:42.280 --> 0:08:43.760 she said, you're not gonna add Mazis, You're not gonna 0:08:43.760 --> 0:08:45.440 add J C. Penny. But is it kind of a 0:08:45.440 --> 0:08:48.520 cop out? I also wonder, you know, just with respect 0:08:48.640 --> 0:08:52.200 to General Electric getting booted, how much the company shares 0:08:52.240 --> 0:08:55.240 will now decline further just to sort of a de 0:08:55.320 --> 0:08:59.160 facto response to these indexed funds that are being forced 0:08:59.200 --> 0:09:02.800 to sell the shares. And so I wonder if this 0:09:02.840 --> 0:09:05.920 sort of creates a spine, and that includes exchange traded funds, 0:09:06.440 --> 0:09:09.600 as you mentioned. But Goldman Sacks actually they came out 0:09:09.600 --> 0:09:11.880 with an interesting note. I thought it was a bit contrarian, 0:09:11.880 --> 0:09:14.120 because that's what you would think, um, But an analyst 0:09:14.200 --> 0:09:16.480 over Goldman Sachs he actually found that stocks that have 0:09:16.520 --> 0:09:20.040 been removed from the index recently have typically outperformed the 0:09:20.040 --> 0:09:22.520 rest of the doubt over the next twelve months. And 0:09:22.559 --> 0:09:25.080 some are saying, in a way, maybe this is good 0:09:25.480 --> 0:09:28.960 for g E because maybe this takes off that label 0:09:29.000 --> 0:09:33.160 of ge being that old, sturdy industrial company and maybe 0:09:33.160 --> 0:09:36.280 it allows it to move forwards. Actually, Brooks Sutherland of 0:09:36.400 --> 0:09:39.839 Bloomberg Opinion ort com and was discussing how perhaps this 0:09:39.960 --> 0:09:42.760 freees up General Electric to think more radically about how 0:09:42.800 --> 0:09:46.120 to reshape itself and perhaps to a wholesale breakup of 0:09:46.160 --> 0:09:48.760 the company and really reckoned with some of the problems 0:09:48.760 --> 0:09:50.880 that has been facing over the past few months. Yeah, 0:09:50.920 --> 0:09:52.839 I mean, we'll definitely see going forwards, and it'll be 0:09:52.880 --> 0:09:55.160 interesting to keep an eye on GEES price just because 0:09:55.200 --> 0:09:57.600 it has been torn down so much over the past 0:09:57.679 --> 0:09:59.439 year or even more a year or so. But it's 0:09:59.440 --> 0:10:02.080 gonna be good for the shares of Walgreen. Oh yeah, 0:10:02.080 --> 0:10:03.959 I mean if you look at Walgreen shares right now, 0:10:04.000 --> 0:10:06.920 Walgreen shares are trading up about almost four and a 0:10:06.960 --> 0:10:09.280 half percent, so we're seeing it reflected in the share 0:10:09.320 --> 0:10:11.880 price today and I'm sure going forwards as it's added, 0:10:11.880 --> 0:10:14.200 I think it's supposed to be effective Tuesday before the 0:10:14.200 --> 0:10:16.880 open of the market. I'm sure we'll see a bit 0:10:16.920 --> 0:10:18.840 of a of a booth there. Yeah, And just to 0:10:18.840 --> 0:10:23.080 give you the perspective, Walgreens Boots Alliance has three hundred 0:10:23.200 --> 0:10:27.920 and forty five thousand employees. Compare that to a General 0:10:27.960 --> 0:10:31.559 Electric three hundred and thirteen thousand employees, So at least 0:10:31.600 --> 0:10:33.920 in terms of a number of people work for the companies, 0:10:34.320 --> 0:10:37.680 not dissimilar. And I will just make one additional note 0:10:37.679 --> 0:10:39.480 that while we're talking about General Electric in the down 0:10:39.559 --> 0:10:42.960 Jones index, uh, there are other index related decisions that 0:10:42.960 --> 0:10:45.320 are affecting vast amounts of money right now as well. 0:10:45.360 --> 0:10:48.560 For example, with respect to Saudi Arabia and Argentina both 0:10:48.600 --> 0:10:52.920 looking for their inclusion m ms c I index, which 0:10:52.960 --> 0:10:55.240 would affect six hundred billion dollars of assets. I mean 0:10:55.240 --> 0:10:58.880 it's just these and just recently happened with China. That's 0:10:57.760 --> 0:11:02.199 rights Leather. I'm gonna leave you with that last thought. 0:11:02.880 --> 0:11:12.000 You know why the US leather company was an original 0:11:12.040 --> 0:11:16.200 member of the TAO. The Thanks very much, Sarah Ponzac, 0:11:16.520 --> 0:11:37.240 Bloomberg News, Cross Asset Reporter. All about general electric investing 0:11:37.320 --> 0:11:41.000 in small and mid cap stocks, that's the specialty of 0:11:41.000 --> 0:11:43.520 our next guest, Eric Kubi. He is the chief investment 0:11:43.520 --> 0:11:48.160 officer for north Star Investment Management. They are based in Chicago. 0:11:48.520 --> 0:11:50.959 Eric joins us though in our eleven three oh studios. Eric, 0:11:51.000 --> 0:11:52.960 thank you very much for being with us. All right, 0:11:53.000 --> 0:11:54.640 step up to the plate and tell us how do 0:11:54.720 --> 0:11:57.440 you define small and mid cap stocks? And tell us 0:11:57.720 --> 0:12:01.640 about the north Star dividend fun This is the symbol 0:12:02.040 --> 0:12:06.480 is n s d v X right, great, well, thanks 0:12:06.480 --> 0:12:10.560 for having me here. Um, So we define, uh, small 0:12:10.640 --> 0:12:13.839 cap stocks as actually being companies that have market caps 0:12:13.920 --> 0:12:17.640 under two and a half billion dollars. The definition changes. 0:12:17.720 --> 0:12:20.360 I know, uh, when I first got into business, a 0:12:20.400 --> 0:12:22.439 small cap stock probably had a market cap under a 0:12:22.480 --> 0:12:25.040 hundred million dollars. So you you have to keep moving 0:12:25.080 --> 0:12:28.920 with the times, um. But we focus actually on the 0:12:29.000 --> 0:12:31.600 smaller end of the small cap stocks. The billion dollar 0:12:32.080 --> 0:12:35.959 in under area. Alright. So you know, this is a 0:12:36.080 --> 0:12:39.199 very important interview to be having right now because the 0:12:39.320 --> 0:12:41.280 rust of two thousand, which is often viewed as a 0:12:41.360 --> 0:12:45.000 proxy for smaller companies in the US, has been on 0:12:45.200 --> 0:12:48.160 a terar. It has more returned more than twice as 0:12:48.240 --> 0:12:51.160 much as the SMP five hundred and uh nearly three 0:12:51.160 --> 0:12:53.520 times as much as the Dow Jones Industrial Index. So 0:12:53.760 --> 0:12:57.000 I have to wonder, you know, right now many investors 0:12:57.000 --> 0:13:00.720 are viewing small cap stocks as a haven in from 0:13:00.800 --> 0:13:05.040 trade tensions because these companies are less exposed to any 0:13:05.120 --> 0:13:07.560 economic impacts. Do you think that this is an accurate 0:13:07.600 --> 0:13:10.959 bet so to a certain extent, Yeah, I mean, I 0:13:11.360 --> 0:13:15.000 think that there are certain characteristics of small cap companies 0:13:15.160 --> 0:13:19.160 which make them a haven from from what is concerning 0:13:19.200 --> 0:13:23.000 the market right now. Most small cap companies don't do 0:13:23.200 --> 0:13:26.440 much international business, so they're not going to be that 0:13:26.520 --> 0:13:30.120 affected now. They're not immune because their supply chain still 0:13:30.960 --> 0:13:34.160 is affected. Um and so I don't think that it's 0:13:34.360 --> 0:13:36.880 a safe haven per se, but I do think it's 0:13:36.880 --> 0:13:40.080 a good place to go into. The other aspect is 0:13:40.120 --> 0:13:43.680 the dollar. The dollar has strengthened quite a bit. Again, 0:13:43.720 --> 0:13:46.760 that's typically good for small cap companies. That shows the 0:13:47.000 --> 0:13:50.760 domestic economy is strong, and also they're not exporting, so 0:13:50.800 --> 0:13:54.319 the strong dollar doesn't hurt them. Again, largely, I think 0:13:54.360 --> 0:13:58.000 what's happening is a rotation. Two thousand seventeen was the 0:13:58.080 --> 0:14:01.000 year of the large cap growth stock. The entire year, 0:14:01.080 --> 0:14:06.120 twelve months in a row, uninterrupted through January uninterrupted large 0:14:06.160 --> 0:14:08.840 cap growth stocks. And since then there's been a rotation 0:14:09.240 --> 0:14:11.960 into small cap companies, mainly into the Russell two thousand, 0:14:12.520 --> 0:14:15.280 because people like to index, and I don't think that 0:14:15.280 --> 0:14:17.880 that's really the right way to do it because within 0:14:17.920 --> 0:14:20.240 the index, you know, there's a lot of companies that 0:14:20.240 --> 0:14:23.560 aren't benefiting from the corporate tax cut, that aren't benefiting 0:14:23.600 --> 0:14:26.800 from the strong dollar. But so we like, we like 0:14:26.880 --> 0:14:29.440 more specific small cap companies. But it's the easy trade, 0:14:29.480 --> 0:14:31.600 is the Russell two thousand. People like the easy trade. 0:14:31.760 --> 0:14:34.000 All Right, I'm gonna ask Lisa to check your footwear 0:14:34.240 --> 0:14:36.760 right now, because I want you to talk about a 0:14:36.760 --> 0:14:39.360 company that I know is in the portfolio. This is 0:14:39.480 --> 0:14:44.560 Rocky Brands out of Nelsonville, Ohio. How did you find 0:14:44.600 --> 0:14:47.200 nelson How did you find uh Rocky Brands? That? Do 0:14:47.280 --> 0:14:53.920 you want my report? Okay, come on. They're they're pretty classic, alright, 0:14:55.160 --> 0:14:59.600 black office shoes, no boots today. All right. So we 0:14:59.680 --> 0:15:02.320 found Rocky the same way we find most of our companies, 0:15:02.360 --> 0:15:05.480 which is we screen. We're screening for companies in our 0:15:05.520 --> 0:15:09.640 market cap arena that are had nice dividend yields. We 0:15:09.800 --> 0:15:12.040 when we bought Rocky, it was over three percent. That's 0:15:12.040 --> 0:15:15.120 our dividend screen was over three and it was trading 0:15:15.120 --> 0:15:22.040 extraordinarily cheaply versus book value versus their earnings. UH and UH, 0:15:22.320 --> 0:15:24.800 what's happened is their business has gone It's had a 0:15:24.880 --> 0:15:28.440 terrific year. All of their markets are doing really well, 0:15:29.040 --> 0:15:34.280 outdoor work, Western and military. They also do um a 0:15:34.360 --> 0:15:39.119 great business with UH with companies. About two million employees 0:15:39.200 --> 0:15:42.240 have to wear protected footwear in the country, and they've 0:15:42.240 --> 0:15:46.000 got a great system for delivering the right footwear that 0:15:46.120 --> 0:15:48.000 companies need to buy for their employees. So it's been 0:15:48.120 --> 0:15:51.960 terrific company having a fantastic year. If you go down 0:15:52.000 --> 0:15:55.080 the list, some of the other names that you identify, McGrath, 0:15:55.160 --> 0:16:00.320 rent Corps, Brooks Automation, BG Staffing, among others. Just want 0:16:00.320 --> 0:16:02.160 to get your sense real quick. We have about a 0:16:02.160 --> 0:16:05.240 minute here on just the U S economy. From the 0:16:05.280 --> 0:16:10.720 small business perspective, are you hearing from leaders of the 0:16:10.760 --> 0:16:14.000 companies that we are peaking and that their profits and 0:16:14.040 --> 0:16:16.840 potential are peaking, or that this is the beginning of 0:16:17.040 --> 0:16:21.360 another sort of leg up in this business cycle. Small 0:16:21.360 --> 0:16:24.360 business optimisms at all time high. When I talk to 0:16:24.480 --> 0:16:29.000 company managements, they sound very enthusiastic about the near and 0:16:29.160 --> 0:16:34.120 intermediate term. Uh, there is some concern about the you 0:16:34.120 --> 0:16:36.080 know again, some of the tearoffs, how that's going to 0:16:36.120 --> 0:16:38.640 affect them, what's going to happen to the consumer if 0:16:38.680 --> 0:16:42.440 there is inflation. But we talked to CEOs all the time, 0:16:42.520 --> 0:16:46.560 and uniformly they feel great about the future, very positive, 0:16:47.080 --> 0:16:49.200 and they can hire people and they and they're looking 0:16:49.240 --> 0:16:51.120 to hire people. And b G Staffing, which is a 0:16:51.160 --> 0:16:54.680 temporary help firm, is doing a good job of helping 0:16:54.720 --> 0:16:58.320 companies find people to hire. So employment is terrific and 0:16:58.360 --> 0:17:01.080 they're looking to hire people all. Eric kubi thank you 0:17:01.080 --> 0:17:03.280 so much for joining us. Eric Kuby is chief investment 0:17:03.280 --> 0:17:07.240 officer at north Star Investment Management, which is based in Chicago. 0:17:07.320 --> 0:17:10.920 But he checked out here to a sultry New York 0:17:10.960 --> 0:17:15.520 City where we're enjoying some really Uh maybe maybe he 0:17:15.600 --> 0:17:19.360 trecked wearing his Rocky brand boots. Yeah. Maybe, although if 0:17:19.359 --> 0:17:21.040 you have to take those off and then then then 0:17:21.080 --> 0:17:23.520 lay them back up again when you're going through security, 0:17:24.000 --> 0:17:25.800 it might be in might PN conference, I always used 0:17:25.800 --> 0:17:42.240 slip on there is a profound dissonance in markets these days. 0:17:42.359 --> 0:17:46.879 If you look at the political headlines crossing UH highlights 0:17:46.960 --> 0:17:51.280 a deep polarization of several nations and a sense of 0:17:51.480 --> 0:17:54.240 high drama. If you look at the markets, the drama 0:17:54.440 --> 0:17:57.879 is not. They're joining us to talk about uh, you know, 0:17:57.960 --> 0:18:01.360 just how to view tariff hawk and other sort of 0:18:01.680 --> 0:18:04.959 uh policy driven news that we've been getting. From an 0:18:04.960 --> 0:18:08.080 investing standpoint. Is Mark Freeman, chief investment officer at Westwood 0:18:08.280 --> 0:18:10.440 Holdings Group, and he joins us here in our eleven 0:18:10.480 --> 0:18:14.080 three oh studios. So at what point, Mark, do you 0:18:14.160 --> 0:18:19.280 start to change your allocations in light of the tariff 0:18:19.280 --> 0:18:21.240 discussions that we've been getting in the back and forth 0:18:21.280 --> 0:18:24.600 between Jun Ping and and Donald Trump. Yeah. Well, first, 0:18:24.760 --> 0:18:26.960 great to be with you. Um, I think you raised 0:18:26.960 --> 0:18:30.080 a real key point, certainly for investors. I think ultimately 0:18:30.080 --> 0:18:33.800 what we have to differentiate in this in this areas 0:18:33.880 --> 0:18:36.719 is that ultimately, when do these issues tariffs obviously your 0:18:36.760 --> 0:18:39.960 front and foremost. But when do these issues move from 0:18:40.000 --> 0:18:42.480 being what I would say, impacting the multiple, which is 0:18:42.520 --> 0:18:46.040 a confidence gauge, and impacting on that, but moved from 0:18:46.119 --> 0:18:49.919 that to being an earnings factor, because that's ultimately it's 0:18:49.960 --> 0:18:52.600 when it becomes a much more significant issue for the market. 0:18:52.960 --> 0:18:55.520 Right now, we're seeing it from a volatility standpoint, and 0:18:55.520 --> 0:18:58.080 that's why when I say it impacts the multiple, you're 0:18:58.080 --> 0:19:01.080 seeing volatility or changes in in that. But when it 0:19:01.119 --> 0:19:04.080 becomes a much more fundamental issue is when you actually 0:19:04.080 --> 0:19:06.879 start to see it impact either actual or earnings or 0:19:06.920 --> 0:19:10.320 perhaps even more importantly, the market's expectation for for what 0:19:10.480 --> 0:19:13.520 future earnings will be. That that's that that's when it 0:19:13.560 --> 0:19:17.199 becomes an important issue. Okay, So just so so that 0:19:17.560 --> 0:19:20.600 we're clear here, it's about the difference between what investors 0:19:20.600 --> 0:19:23.600 are willing to pay for every dollar of earnings, that's 0:19:23.600 --> 0:19:27.480 what they're willing to pay, versus the actual performance of 0:19:27.520 --> 0:19:29.679 the company. So there are two kind of different things 0:19:30.160 --> 0:19:33.440 exactly right. Okay from there, all right, now, I want 0:19:33.480 --> 0:19:36.520 to get to the point about cash because I know 0:19:36.600 --> 0:19:40.399 you you you help manage the Westwood UH Fund. This 0:19:40.520 --> 0:19:43.600 is w h G I X right, and this is 0:19:43.640 --> 0:19:48.320 the Westwood Income Opportunities Fund. Do you recommend people hold 0:19:48.359 --> 0:19:50.840 onto a decent amount of cash now or do you 0:19:50.880 --> 0:19:53.679 want to be fully invested? Well, I think in this 0:19:53.800 --> 0:19:56.760 environment and our view is as we go forward, that volatility, 0:19:56.760 --> 0:19:59.920 which has been largely absent prior coming into this year, 0:20:00.160 --> 0:20:03.320 but that volatility will normalize. And that's just another way 0:20:03.320 --> 0:20:06.639 of saying returned back to where it was prior to 0:20:06.760 --> 0:20:09.960 the UH, prior to the to the Great Financial Crisis 0:20:09.960 --> 0:20:12.439 and that. But basically the volatility going forward will be higher. 0:20:12.560 --> 0:20:15.080 So whether it's issues like this or some other items 0:20:15.240 --> 0:20:17.440 from there, we expect volatility to go back to more 0:20:17.480 --> 0:20:21.680 normalized level. Under that assumption, we would advocate holding at 0:20:21.720 --> 0:20:25.240 least some cash. Now we can define what is significant 0:20:25.359 --> 0:20:28.640 or how much that is for us, that's typically between 0:20:28.760 --> 0:20:31.560 say six two maybe ten percent cash. We view that 0:20:31.600 --> 0:20:33.520 as just be it so, and what that allows you 0:20:33.560 --> 0:20:35.879 to do is to be opportunistic. It's not it's not so, 0:20:35.960 --> 0:20:38.160 you just keep it and it's there. But I think 0:20:38.200 --> 0:20:40.120 the other thing that that's that at the margin, which 0:20:40.119 --> 0:20:42.480 now starting to matter and which is very different where 0:20:42.480 --> 0:20:44.280 we've been roughly from the last decade, is now the 0:20:44.359 --> 0:20:47.119 rate of return on cash has actually moved up. I 0:20:47.119 --> 0:20:48.440 mean that is one of the things that the FED, 0:20:48.480 --> 0:20:51.320 from a tightening standpoint, has has probably impacted the most 0:20:51.400 --> 0:20:54.000 is actually the rate on cash and is that continues 0:20:54.280 --> 0:20:57.080 If that continues to drift up, which it seems most 0:20:57.119 --> 0:20:59.280 likely that FED is very much committed to continuing to 0:20:59.359 --> 0:21:02.320 raise rates, then that's another. So now the opportunity cost 0:21:02.680 --> 0:21:06.000 is diminishing on that front. But I think in this 0:21:06.119 --> 0:21:09.880 environment and allowing to be opportunistic makes sense. I ask 0:21:09.920 --> 0:21:11.960 a lot of people this, and I'd love to get 0:21:11.960 --> 0:21:14.399 your response to it. Almost the last time that you 0:21:15.000 --> 0:21:18.199 made it significant change to your allocations in your portfolios. 0:21:18.720 --> 0:21:21.840 Oh goodness. Um, well, in terms of our specific income 0:21:21.840 --> 0:21:25.480 opportunity strategy, we use up to eight different asset classes 0:21:25.520 --> 0:21:28.920 and those are changing literally on a quarterly basis. It's 0:21:28.960 --> 0:21:31.480 ultimately driven though by the market environment and where we're 0:21:31.480 --> 0:21:34.679 seeing opportunities and where things perhaps are getting repriced, and 0:21:34.680 --> 0:21:38.480 so it's moving. It shifts, uh, incrementally, you know, on 0:21:38.520 --> 0:21:40.920 a quarterly basis, even on sometimes on a weekly basis, 0:21:41.000 --> 0:21:44.040 but but over time it does change rather significantly. So 0:21:44.160 --> 0:21:47.080 what's been the most recent significant change that you made 0:21:47.080 --> 0:21:49.440 an allocation. I think one of the things is actually 0:21:49.560 --> 0:21:51.840 is is a couple of a couple of different areas. 0:21:52.080 --> 0:21:54.760 One look, there is being some repricing on the short 0:21:54.840 --> 0:21:56.639 end of the Yeld curve, and so we're using that 0:21:56.760 --> 0:21:59.280 implementing some of our cash we've had, our higher cash balance. 0:21:59.320 --> 0:22:01.440 We can now use that to add some incremental yield 0:22:02.040 --> 0:22:04.640 for that UM in another part of the capital structure 0:22:04.640 --> 0:22:07.200 of the preferred market. And so there we're not to 0:22:07.200 --> 0:22:09.399 get too technical, but where we can use what we 0:22:09.440 --> 0:22:12.119