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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We've

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Speaker 1: been talking a lot about consolidation among media companies, what

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Speaker 1: the tech giants could potentially do in the wake of

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Speaker 1: the A T and T decision, but also healthcare has

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Speaker 1: very much been in focus as a likely hotbed of consolidation,

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Speaker 1: and we certainly are going to see more activity there

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Speaker 1: after the Etna CVS potential tie up that still has

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Speaker 1: to go through the hoops, but is looking more likely

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Speaker 1: after this A T and T deal. Joining me now, Scott,

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Speaker 1: he has principle of c rg UH, which is a

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Speaker 1: company that focuses on private healthcare investments UH and has

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Speaker 1: about three billion dollars under management. Scott, thank you so

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Speaker 1: much for being back with us here in our eleven

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Speaker 1: three oh studios. We did get that news just a

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Speaker 1: few days ago about KKR buying Envision. You are intimately

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Speaker 1: familiar with Envision, having sold a portfolio company to that company.

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Speaker 1: Do you think that this is a good UH, A

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Speaker 1: good pairing. Thanks for having me back, Lisa, and and

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Speaker 1: I do. I think they're they're the logic is pretty

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Speaker 1: sound from a number of different perspectives. And simply, I

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Speaker 1: think if you look at public market dissaisfaction with a

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Speaker 1: lot of healthcare services company because whether it's because the

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Speaker 1: industry outlook is is challenging, or if the regulatory landscape

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Speaker 1: continues to be murky for some of these companies and

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Speaker 1: makes sense to go through that as a privately held

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Speaker 1: company UH, and then also to have a well healed

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Speaker 1: backer like KKR help them take advantage of salidation opportunities.

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Speaker 1: You know, I have to wonder whether there might be

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Speaker 1: more regulatory hurdles in healthcare that remain, even though the

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Speaker 1: A T and T court case did come out as

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Speaker 1: a victory for that company, simply because with a company

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Speaker 1: like Envision, there are some issues with UH doctors that

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Speaker 1: they put into certain centers not accepting insurance, and there

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Speaker 1: there's been a lot of you know, issues around some

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Speaker 1: of these companies, especially as the focus goes on bringing

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Speaker 1: down healthcare costs, that will always be something that needs

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Speaker 1: to be monitored. I think for companies like Envision, they'll

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Speaker 1: actually point to other companies like CBS, UM and that

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Speaker 1: type of consolidation and say, hey, they're the ones that

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Speaker 1: make our lives more challenging by driving reimbursement down or

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Speaker 1: putting pressure there. UM. So I think there will be

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Speaker 1: a lot of finger pointing in the days and months

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Speaker 1: to come. Okay, so have you actually gotten more phone

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Speaker 1: calls after the A T and T court decision of

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Speaker 1: potential companies to buy, of potential companies looking to merge. Well,

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Speaker 1: we haven't gotten more phone calls, but there's always there,

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Speaker 1: always inquiries anytime at large transactions announced UM and so

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Speaker 1: we certainly have been UM pretty active over the last

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Speaker 1: several months, even credating some of these larger transactions. But

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Speaker 1: it's just a reflection of the fact there's a lot

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Speaker 1: of investment and m and A activity in healthcare. So

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Speaker 1: what are you expecting in terms of consolidation in the

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Speaker 1: second half of this year. I think you'll see more

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Speaker 1: companies UM announced announced large acquisitions, perhaps not UM. Industry

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Speaker 1: transformational murders that have been that have been talked about

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Speaker 1: but you will see people bulk up because that's the

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Speaker 1: best way to respond to regulatory uncertainty. What kinds of

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Speaker 1: types do you think are most likely, because I mean,

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Speaker 1: we certainly have seen pharmaceutical companies either choose to specialize

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Speaker 1: in just specific drugs or you know, spin off particular arms. Uh.

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Speaker 1: We've also seen consolidation like the CVS and at now

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Speaker 1: that try to create a new paradigm in the healthcare

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Speaker 1: industry of shifting the drug store and sort of the

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Speaker 1: consumer facing arm with the health care services. Are there

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Speaker 1: any other paradigm shifts that are coming. I think what

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Speaker 1: you'll see as a continuation of, for instance, the pharmacies

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Speaker 1: where they're thinking about different ways to drive customers into

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Speaker 1: their into their storefronts, and so the more they can

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Speaker 1: control different access points in healthcare, whether it's combining with clinics,

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Speaker 1: combining with acute care facilities, combining with ambulatory centers, I

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Speaker 1: think you'll see a lot of that coming together, So

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Speaker 1: that trend will continue. And any names that you can

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Speaker 1: point to that are likely tie ups, I think not

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Speaker 1: at this time. But I think you know, you just

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Speaker 1: aren't saying I can either confirm nor did I very

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Speaker 1: political of you. Very well done. UM, I'm just wondering

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Speaker 1: as far as your firm's activity, have you been ramping

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Speaker 1: up your investments recently. We have, and particularly in healthcare services.

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Speaker 1: We recently closed a transaction with a rural urgent care

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Speaker 1: company called Fast Paced Urgent Care UM. It's owned by

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Speaker 1: Rebel Stone Capital Partners, a great private equity fir amount

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Speaker 1: of Denver and and for for that investment, we're excited

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Speaker 1: on so many levels. But part of it is to

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Speaker 1: make sure that people who don't have various options to

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Speaker 1: access healthcare have a cost effective and convenient one and

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Speaker 1: that's that's what Fast Based focused on. What's the risk here?

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Speaker 1: I mean from an investment standpoint, I'm thinking of UH

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Speaker 1: Tenant for example, or you know some of these big

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Speaker 1: UH for profit hospital chains that got laden with debt

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Speaker 1: and now are struggling. You're going to see a repeat

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Speaker 1: of that if they're not careful with their balance sheets.

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Speaker 1: Absolutely that that cycle always plays out over the course

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Speaker 1: of years and decades. But I think there are two

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Speaker 1: things you just mentioned the balance sheet. Managing the balance

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Speaker 1: sheet appropriately is should be a top priority, but also

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Speaker 1: managing the physical footprint. I think for some of these

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Speaker 1: services companies, they do tend to overexpand or over build,

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Speaker 1: and then when when volume sorts, when volume tends to stagnate,

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Speaker 1: Now they have too larger footprint and the fixed cost

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Speaker 1: burnt is too high. I don't know. I just I'm

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Speaker 1: thinking about the last mergers and acquisition cycle and it

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Speaker 1: sounded great at the time, and um it left a

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Speaker 1: lot of companies in a troubled position, but certainly does

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Speaker 1: seem like we're seeing new ways to think about the

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Speaker 1: healthcare industry with some of the mergers and acquisition. Scott Lee,

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Speaker 1: we love having you on. Thank you so much for

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Speaker 1: being with us. He is principle of c r G.

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Speaker 1: It invests in healthcare companies. It is a private company

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Speaker 1: that oversees about three billion dollars of assets. Well, it

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Speaker 1: seems like goodbye to synchronized global growth and hello to uncertainty.

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Speaker 1: Our next guest is going to try to pass through

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Speaker 1: the diverging tea leaves that we're getting from central some

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Speaker 1: both sides of the Atlantic. Are we heading toward a

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Speaker 1: less stimulative environment? Will the ECB keep us going up

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Speaker 1: for a bit longer? Bob Eisenbis is joining me now

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Speaker 1: I'm very pleased to say. He's vice chair and chief

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Speaker 1: monetary economist of Cumberland Advisors, which is based in sarah Sota, Florida.

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Speaker 1: He cut his teeth at the f O m C.

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Speaker 1: He was the advisor to the Bank's president on monetary

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Speaker 1: policy for f O m C deliberations, and he also

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Speaker 1: was director of research at the Federal Reserve Bank of Atlanta.

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Speaker 1: So a lot of insight into this central bank. Bob,

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Speaker 1: thank you so much for being with me. You know,

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Speaker 1: yesterday we heard a rather hawkish message from the Federal Reserve.

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Speaker 1: Today a dovish one from Mario Draggy. Do you think

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Speaker 1: that the markets are accurately interpreting both messages? Well? I

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Speaker 1: interpreted what Chairman Powell was saying was essentially trying to

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Speaker 1: moderate a little bit what might have been interpreted as

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Speaker 1: a more hockey statement coming from UH the f MC

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Speaker 1: based on the press release, and I think he was

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Speaker 1: pretty successful at that. But having said that, it's clear

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Speaker 1: that the ECB has been on a slightly different path,

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Speaker 1: probably about a year or so behind where the FED is,

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Speaker 1: and so maybe two years behind where the FED has

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Speaker 1: been with its quantitative easing program. So UH, I think

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Speaker 1: We're looking at a change, that's for sure, and I

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Speaker 1: think we're looking at a world that's going to be

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Speaker 1: a little bit less accommodative when it comes to policy, Bob,

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Speaker 1: I think that one of the biggest takeaways from yesterday's

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Speaker 1: FED announcement was that the Central Bank is planning to

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Speaker 1: hike rates or is leaning towards hiking rates four times

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Speaker 1: this year. And the response in markets have been very clear.

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Speaker 1: You're seeing a continued flattening of the yield curve, basically

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Speaker 1: ratcheting back longer term growth expectations. Do you think that

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Speaker 1: the FED is poised to make a policy error if

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Speaker 1: it hikes four times this year. Well, that was another

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Speaker 1: issue that came up when in the press conference, and

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Speaker 1: I think Chairman Paul is going to be pretty cautious

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Speaker 1: about rushing ahead. And we have to also consider the

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Speaker 1: fact that there are now five vacancies on the f

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Speaker 1: O m C for the board, and that was Bill

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Speaker 1: Dudley's last meeting at the this position as space Chairman

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Speaker 1: and President of the Federal Reserve Bank in New York.

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Speaker 1: So the people who are coming on board and will

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Speaker 1: come under ord whenever they do, will be uncertain as

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Speaker 1: to what their policy positions will be. So it'll be

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Speaker 1: a new ball game all the way around with the

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Speaker 1: new cast of characters. And I see Chairman Paul as

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Speaker 1: being pretty cautious. He he talked about the risks of

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Speaker 1: overshooting and wanting to be cautious. So in other words,

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Speaker 1: you don't think that they're going to make a politous

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Speaker 1: policy mistake. You think that they're going to be pretty

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Speaker 1: wary of causing the card to curve. I think, uh, well,

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Speaker 1: you know, the the issue of the curve is is

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Speaker 1: really pretty interesting because in in my view, a lot

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Speaker 1: of what's been happening has to do with quantitative easiness

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Speaker 1: persisted in the rest of the world. And when you

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Speaker 1: have the Federal reserves starting to raise interest rates and

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Speaker 1: uh you and and it's the shrinkage of its balance sheet.

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Speaker 1: It turns out that what's going to happen is the

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Speaker 1: Fed the Treasury is going to be the dominant one

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Speaker 1: who determines what the shape of the yield curve is.

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Speaker 1: The Treasury, because of the deficit finance, is going to

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Speaker 1: have to issue more securities into the market. That's going

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Speaker 1: to put downward pressure on prices. However, because of the

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Speaker 1: tractedness of US markets, funds are going to continue to

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Speaker 1: flow into the US, which is going to bid up

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Speaker 1: prices and put and contribute to potentially a flattening of

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Speaker 1: the yield curves. So which which of those two forces

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Speaker 1: are going to dominate? And I think what we're saying

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Speaker 1: right now is that the funds coming in are contributing

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Speaker 1: significantly to that flattening of the yel curve. So right now,

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Speaker 1: given the fact that the ECB has taken a little

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Speaker 1: bit more of a devish stance and that the Federal

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Speaker 1: Reserve is cautiously removing it's accommodation, do you think that

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Speaker 1: there are particular assets that look especially over priced right now? Overpriced? Well,

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Speaker 1: we we're beginning to be a little bit concerned about housing, really, yeah, Um,

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Speaker 1: particularly in certain areas. There's a shortage to supply and

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Speaker 1: there's been some upward movements and and prices there. So

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Speaker 1: that's one area I think we have to be concerned about.

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Speaker 1: Which areas in particular are you talking about, Well in

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Speaker 1: Florida for example. Down here, there's a very big shortage

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Speaker 1: of supply and and there's a shortage of new properties

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Speaker 1: coming on the market relative to demand. Even though construction

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Speaker 1: is booming, UH, there's still a shortage and it's being

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Speaker 1: exacerbated by labor shortages of labor supply and construction. And

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Speaker 1: of course you know that to the extent that that

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Speaker 1: translates into the similar situations when we saw in some

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Speaker 1: of the hot markets like Texas and out in California,

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Speaker 1: that's something at least to kick around. Is it something

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Speaker 1: that could and in a very disruptive way or is

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Speaker 1: it just something where people could get burned and lose

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Speaker 1: tempers out of their investments. No, I think it's just

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Speaker 1: a case of h I are be aware. Well, No,

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Speaker 1: I think it's more a case of the issues whether

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Speaker 1: the movement and interest rates and the increase in mortgage

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Speaker 1: rates is going to sort of dampen some of that

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Speaker 1: demand and hence moderate some of the price movements that

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Speaker 1: we've seen. What about what do you think is the

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Speaker 1: most underprise right now? Well, I don't I don't really

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Speaker 1: have a good view, to be honest with you, on

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Speaker 1: individual asset classes since UH at Cumberland we really don't

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Speaker 1: buy individual assets. We on the equity side, we're pretty

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Speaker 1: much into E T F S UH, and so you

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Speaker 1: know we're right now we've been watching financials. Financials we're

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Speaker 1: doing pretty well just recently. Uh, and so we're we're

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Speaker 1: looking more sectors than individual assets. And of course municipal

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Speaker 1: security sook pretty good right now. Interesting, So just a

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Speaker 1: real quick I'd love to get your sense about the

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Speaker 1: inflation picture, and certainly that's been a conundrum for the

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Speaker 1: Federal Reserve. We did get retail sales out today that

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Speaker 1: we're better than expected. We are seeing inflation pick up.

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Speaker 1: What's your expectation as far as wages go. Do you

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Speaker 1: think that people are going to finally see a bigger

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Speaker 1: acceleration in the increase in their paychecks. Well, people like

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Speaker 1: to see an increase in the paycheck, but I hesitate

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Speaker 1: to use and try to equate increases in wages with inflation.

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Speaker 1: I'm one of those who believes that the Phillips curve

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Speaker 1: has not been particularly useful. And what we really try

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Speaker 1: to paris is the extent to which the increases and

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Speaker 1: wages we're seeing are related to productivity and real increases.

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Speaker 1: When real wages go up, that's not inflationary, and that's

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Speaker 1: not really of great concern. And where we see wages

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Speaker 1: going up the most are in the areas where there

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Speaker 1: are scarce skills and that's really a real key increase, uh,

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Speaker 1: because these people are productive and does their skills are valued.

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Speaker 1: So uh, you really have to look under the covers

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Speaker 1: here and not just assume that all wage increases are

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Speaker 1: going to necessarily be a problem. Bob Is and Bias,

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Speaker 1: thank you so much for being with me. Bob Is

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Speaker 1: and Bias, Vice chairman and chief monetary economist at Cumberland Advisers.

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Speaker 1: It is that time when we take a look at

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Speaker 1: small and mid cap stock staples. Sim Bloomberg Stocks editor

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Speaker 1: columnist and Bloggert m Life go on the Bloomberg joining me. Now.

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Speaker 1: We have seen a similar path in a small mad

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Speaker 1: cap stocks today as as their larger cap brethren, right

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Speaker 1: more or less, I mean, just not much in the

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Speaker 1: way of direction. The Russell two thousand index down a

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Speaker 1: tenth of repercent, the S and P five hundred up

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Speaker 1: less than a tenth of a percent, So not a

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Speaker 1: whole lot of movement to talk about. That said, the

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Speaker 1: Russell's biggest game by far belongs to a stock we

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Speaker 1: discussed last hour, Lisa Etsy, whose name is also it's

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Speaker 1: ticker E T s Y. The online market places up

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Speaker 1: almost thirty three percent at c raise this year's revenue

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Speaker 1: projection to reflect the higher transaction fe on sales. Company

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Speaker 1: also unveiled plans for premium services aimed at sellers. An instance,

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Speaker 1: Therapeutics took her I n s y has risen eight percent.

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Speaker 1: The drug makers sent a nasal spray to treat allergic reactions,

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Speaker 1: showed promise in an early trial. The spray would be

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Speaker 1: an alternative to the injection EpiPen made by Milan. Milend shares,

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Speaker 1: by the way, are lower by four and a half percent.

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Speaker 1: The russell steepest drop belongs to Taylor Brands ticker t

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Speaker 1: l r D. This is a company that owns the

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Speaker 1: men Men's Warehouse and joseph a Bank clothing retailers. Shares

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Speaker 1: it down about twenty three and a half percent. Physical

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Speaker 1: first quarter results showed the company was less profitable based

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Speaker 1: on gross margin, and the upholstery fabric maker Colpe, who's

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Speaker 1: ticker is also its name CULP, has dropped fifteen percent.

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Speaker 1: Earnings failed to meet analysts estimates for the fourth straight quarter.

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Speaker 1: Tables and Bloomberg Sax editor columnist M Blogger and M

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Speaker 1: Live go on the Bloomberg Thank You as always. Uh,

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Speaker 1: that was really interesting and Etsy is a really fascinating

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Speaker 1: move today. Right now, let us shift back to that

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Speaker 1: whole Comcast Disney rivalry. Comcast I picked the antie with

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Speaker 1: respect to bidding up for twenty one century Fox, basically

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Speaker 1: saying to Disney, your move, joining me now, Jerry Smith,

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Speaker 1: who covers all things having to do with these companies

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Speaker 1: and entertainment for Bloomberg News, joining me here in the

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Speaker 1: eleven three oh studios. So what do you think Disney

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Speaker 1: is going to come back with here? Well, they have

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Speaker 1: to come up with a higher bid or is certainly

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Speaker 1: a more attractive bid for Foxes board and Foxes shareholders

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Speaker 1: than what Comcast has offered. Um, I mean one key differences.

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Speaker 1: Comcast has offered all cash bid where Disney was offering stock.

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Speaker 1: So there is you know, analysts are saying Disney is

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Speaker 1: likely to add some cash to a renewed offer. But

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Speaker 1: you know, Comcasts and Disney both seemed to be very

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Speaker 1: very keen on getting these Fox assets. So a lot

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Speaker 1: of people think we may see a bidding war here.

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Speaker 1: So can you give us a sense of exactly what

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Speaker 1: Comcast is after here? They made it sixty billion dollar

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Speaker 1: bid above the one that Disney had made. What are

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Speaker 1: they what are they hoping for? Why do they want

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Speaker 1: Century so badly? Well, what's interesting is is these a

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Speaker 1: lot of this isn't the entire Fox. For For one thing,

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Speaker 1: Fox News for example, and the Fox Broadcast channel are

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Speaker 1: not part of this deal. For Comcast and for Disney,

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Speaker 1: but especially Comcast, they're very interested in actually the international assets.

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Speaker 1: Uh there's Fox, Um, you know, there's Star India. UM,

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Speaker 1: there's the Sky, which is a pay TV provider in Europe. UM.

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Speaker 1: So for Comcast, they're looking at the US television market.

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Speaker 1: They're seeing people cutting the core, that business is starting

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Speaker 1: the slow and they're looking at these Fox assets. I

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Speaker 1: think about of the revenue that are of these assets

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Speaker 1: that are for sale actually come from outside the United States.

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Speaker 1: And that's really why podcast Finds is so attractive. Our

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Speaker 1: Comcast and Disney going after the same Fox assets. Yes,

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Speaker 1: so it's the exact same sort of reasoning behind what

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Speaker 1: they're going after. Yeah, Disney has been a little more

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Speaker 1: explicit since they've already had a deal or thought they

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Speaker 1: had to deal with Fox in December. They've been very

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Speaker 1: explicit about how they want to build a directed consumer business.

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Speaker 1: They want to really compete head on with Netflix. Uh.

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Speaker 1: They already have an ESPN streaming service. They're going to

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Speaker 1: launch another one next year that's gonna have Disney films,

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Speaker 1: and they're looking at these Fox assets everything from um,

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Speaker 1: you know, the scripted cable channel f x UM to

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Speaker 1: a lot of the film assets, and they're looking at

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Speaker 1: this as a way to supply these streaming services that

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Speaker 1: they want to build. So Disney is very um, they've

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Speaker 1: really laid out their rationale for this. Uh. You know.

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Speaker 1: Also another thing here is is Hulu. Whoever wins this

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Speaker 1: is gets a controlling stake in Hulu, which is, you know,

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Speaker 1: one of the few companies that's actually trying to compete

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Speaker 1: with Netflix. Okay, so can you explain one thing to me?

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Speaker 1: I found the market moving. The market reaction to this

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Speaker 1: bid on Comcasts behalf to be really strange. All three

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Speaker 1: companies that are involved, their share prices went up. This

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Speaker 1: doesn't make sense to me because you think, if you know,

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Speaker 1: Disney and Comcast get into a bidding war, they're gonna

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Speaker 1: have to spend more money or incur more debt or

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Speaker 1: whatever else to buy the Fox assets. Sure, I understand

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Speaker 1: why Fox would be up. But why would Disney and

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Speaker 1: Comcast be up? I was equally perplexed by that, And

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Speaker 1: I don't have a great answer for you, because I've

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Speaker 1: been looking at Comcast stock in recent weeks and they've

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Speaker 1: been sort of telegraphing the fact that they're going to

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Speaker 1: make a bigger bid for Fox's assets, and their investors

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Speaker 1: haven't been crazy about that. Their shares have been going down,

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Speaker 1: and then for their shares to to jump this morning

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Speaker 1: after they put out this bid after the markets closed. Uh,

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Speaker 1: it's a little confounding, But I mean, the only thing

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Speaker 1: I can possibly say is that Comcast investors must look

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Speaker 1: at this and think that they're very comfortable with the

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Speaker 1: amount of debt the Comcast is taking on because they

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Speaker 1: are going to be one of the largest borrowers in

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Speaker 1: corporate America after this if they do get the deal

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Speaker 1: to go through, as well as a hundred fifty billion

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Speaker 1: dollars of debt if this deal goes through. Right, they

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Speaker 1: also are looking at Sky, which is sort of, you know,

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Speaker 1: a separate bid, separate to the Fox bids. So, uh,

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Speaker 1: you know, perhaps Comcast investors have had a change of

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Speaker 1: heart and they're looking at the reassuring comments that Comcast

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Speaker 1: made last night saying, you know we're going to deliver

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Speaker 1: and this debt is not going to be an issue

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Speaker 1: for us. Well, I I can imagine that that would

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Speaker 1: be comforting words, but the shares are up two point

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Speaker 1: six percent, so found it very confusing. This is it's

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Speaker 1: a head scratcher. I've got to say that doesn't totally

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Speaker 1: explain it to me. Jerry Smith, thank you so much

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Speaker 1: for being with me. Really an interesting story and just

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Speaker 1: fascinating that all three companies are seeing a pop in

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Speaker 1: their share prices, even though we are heading into what

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Speaker 1: will most likely be a bidding war between Comcast and

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Speaker 1: Disney over twenty first century Fox with our stibulus, with

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Speaker 1: our inflation, whether the FED and the ECB. Here to

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Speaker 1: give us a sense of how he's viewing things is

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Speaker 1: Eric Stein, co director of Global Income at Eton Vance

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Speaker 1: here in the eleven three oh studios with us. Came

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Speaker 1: all the way from Boston. Thank you for being with us,

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Speaker 1: Thanks for having me so Eric, I'm struggling to make

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Speaker 1: sense of what we heard out of the FED and

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Speaker 1: we heard out of the e c B. It seems

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Speaker 1: like they're now going in opposite directions. Certainly seems like

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Speaker 1: that over the past twenty four hours. I think, you know,

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Speaker 1: when you think from a medium term perspective, I'm not

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Speaker 1: sure that has to be the case, but in the

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Speaker 1: short term, it certainly seems that way. The Fed was

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Speaker 1: certainly more hawkish than than people were expecting. You know,

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Speaker 1: a lot of people focus on that median dot. If

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Speaker 1: we're up to me, and they have said this before,

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Speaker 1: I would just scrap the dot plot and get away.

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Speaker 1: They want to try, I think they to me, I

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Speaker 1: think they totally need to do it, because the market

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Speaker 1: is just obsessed with the dot plot. And so moving

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Speaker 1: from a media of three hikes in eighteen to four hikes, um,

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Speaker 1: you know, move move markets somewhat. But certainly, you know, J.

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Speaker 1: Powell seems less concerned about any of the headwinds, whether

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Speaker 1: they be in dollar strength, they're coming from emerging markets

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Speaker 1: or things like that. And so, you know, a lot

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Speaker 1: of times I get the question, is there still a

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Speaker 1: Powell put? I think there is. I just think it's

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Speaker 1: far It's more it's farther out of the money. Let's say,

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Speaker 1: in the green span Bernaki or yell and put. One

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Speaker 1: of the biggest controversies right now is are we seeing

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Speaker 1: the beginnings of real inflation acceleration in the US or

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Speaker 1: is this sort of a head fake with respect to

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Speaker 1: the stimulus that Trump passed with the tax cuts, uh,

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Speaker 1: plus what we're seeing with oil prices. What's your take

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Speaker 1: on that? So, I think when I think about inflation,

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Speaker 1: I think it's really structural verse cyclical. There's a lot

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Speaker 1: of structural forces that suppress inflation. So you know, demographics

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Speaker 1: or let's call it the Amazon effect, things that are

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Speaker 1: just keeping prices lower progress US, so many things that

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Speaker 1: keep prices lower. But from a cyclical perspective, you see

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Speaker 1: tightness in the labor market, higher commodity prices. As you mentioned,

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Speaker 1: you have this very very significant fiscal stimulus coming through

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Speaker 1: monetary policy. Despite the seven FED rate increases we've had

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Speaker 1: had over the past three years, still very accommodated by

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Speaker 1: any historic measure. And so I think, you know, you

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Speaker 1: have started to see inflation pick up a little bit.

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Speaker 1: You have started to see a little bit of wage pressure.

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Speaker 1: So to me, it's really cyclical verse structural when thinking

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Speaker 1: about inflation pressure. Okay, well, if it is a cyclical

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Speaker 1: kind of inflation pressure started to pick up, then I

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Speaker 1: guess that speaks to where the yield curve is right,

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Speaker 1: because it's flattening longer term growth expectations. Longer term inflation

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Speaker 1: expectations continue to come down despite the positive retail data,

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Speaker 1: despite the c p I and pp I readings that

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Speaker 1: we've gotten out this week. Yeah. So, I mean to me,

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Speaker 1: if if the market was really expecting a lot of inflation,

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Speaker 1: you'd see it in the back end um back end

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Speaker 1: neeld cover would be selling off that kind of relatively anchored,

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Speaker 1: which is where it's been for for some time. And

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Speaker 1: you know, I think ultimately it's really a question of

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Speaker 1: how tolerant is the FED of slightly higher inflation. And

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Speaker 1: there's there's this big debate, you know, how steep is

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Speaker 1: the Phillips curve, but how tolerant is the FED of

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Speaker 1: somewhat higher inflation. I think they actually are a little

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Speaker 1: more tolerant of somewhat higher inflation despite the more hawkish

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Speaker 1: um you know message that came from yesterday, but you

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Speaker 1: still remains to be seen. Scott Minor of Guggenheim yesterday

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00:25:22,880 --> 00:25:25,480
Speaker 1: said that the current shape of the yield curve was

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Speaker 1: consistent with an economic downturn starting in the second half

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Speaker 1: of next year. Do you agree? I don't know if

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Speaker 1: I'd go that far, I'd certainly say that, you know,

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Speaker 1: if the yield curve or steeper, I would think that

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Speaker 1: would be better uman than a flatter or even inverted

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Speaker 1: yield curve. You know, there's a lot of debate of

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Speaker 1: whether or not. You know, there's the there's the minute

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Speaker 1: the yield curve goes one basis point inverted, is that

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Speaker 1: signal imminent recession? Is that signal of FED stop stopping

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Speaker 1: their hiking cycle. I don't think it's that cut and dry,

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Speaker 1: but certainly, you know, I'd rather see a steeper yield

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Speaker 1: curve than a flatter yield curve from a growth signaling perspective. Okay,

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Speaker 1: So given the backdrop right now, where are you seeing

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00:26:00,640 --> 00:26:03,040
Speaker 1: the biggest opportunities and fixed income? So you know, I

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Speaker 1: still think there's opportunities in floating rate bank loans, given

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Speaker 1: that there's hold on a second, This is I want

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Speaker 1: to I want to really go here because the leverage

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00:26:11,520 --> 00:26:15,000
Speaker 1: loan market has expanded at a dramatic pace relative to

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00:26:15,040 --> 00:26:17,920
Speaker 1: the high old bond market and now is actually larger

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Speaker 1: than the high old bond market. It has grown by

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Speaker 1: almost what past seven or eight years. So what about

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Speaker 1: all the people who are saying there's lots of froth here. Yes,

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Speaker 1: so look at Eaton Vance were actually probably one of

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Speaker 1: the biggest managers of floating rate loans. Is not what

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Speaker 1: I do day to day. We have a very big

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Speaker 1: team that's solely focused on that. But from talking to

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Speaker 1: that team, you know, certainly when money comes into the

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Speaker 1: asset class, do standards get loosened somewhat? Yes, our standards

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Speaker 1: as bad as as certain people are out there saying,

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Speaker 1: I would argue no, it's also nice that it's a

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Speaker 1: floating rate component of the asset class, and so you

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Speaker 1: continue to see inflows into the asset class. Um does

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00:26:56,440 --> 00:26:58,760
Speaker 1: that mean that ultimately from you know, at some point

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00:26:58,800 --> 00:27:00,720
Speaker 1: in time it will be time to how to revisit

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Speaker 1: you know how you think about that versus high yield?

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Speaker 1: But you know, right now I think of that, let's say,

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00:27:05,040 --> 00:27:07,920
Speaker 1: is at least being more attractive than than than high

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00:27:08,000 --> 00:27:09,919
Speaker 1: yield on a relative basis. I think of in the

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00:27:09,960 --> 00:27:14,520
Speaker 1: treasury space, tips um duration hedge tips as being you know, attractive.

479
00:27:14,560 --> 00:27:17,120
Speaker 1: I think there's certain parts of emerging markets that are attractive.

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00:27:17,160 --> 00:27:19,800
Speaker 1: Obviously been beat up a lot over the past two

481
00:27:19,840 --> 00:27:21,760
Speaker 1: months or so, So I still think there's some value

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00:27:22,200 --> 00:27:24,919
Speaker 1: across fixed income. But I really like the flexibility of

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Speaker 1: going along and short, which we can do in some

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00:27:26,800 --> 00:27:29,919
Speaker 1: of our strategies. Really just a real quick twenty seconds,

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Speaker 1: what's the most overpriced asset right now? Maybe German buns.

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Speaker 1: You're not buying the negative zero point six and and

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00:27:39,800 --> 00:27:41,879
Speaker 1: the and they've they've rallied today obviously with the more

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00:27:41,960 --> 00:27:45,440
Speaker 1: dubbish than expected ECB. But from a longer term perspective,

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00:27:45,480 --> 00:27:48,360
Speaker 1: you know, there's certain value if the if the Eurozone

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Speaker 1: whatever break up. There's reasons why buns are priced where

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Speaker 1: they are getting ECB policy, given fears in the Eurozone.

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Speaker 1: But just from a pure valuation perspective, I would put

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Speaker 1: German buns right there. Yeah, it's hard to stomach um

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Speaker 1: for seaving less than nothing before your income investments, twisting

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00:28:03,960 --> 00:28:07,960
Speaker 1: kind of logic and uh and uh words on their head.

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Speaker 1: Eric Stein, co director of Global Income at Eaton Vance,

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Speaker 1: thank you so much for being here, Thanks for having me,

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Speaker 1: Thanks for listening to the Bloomberg P and L podcast.

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00:28:19,760 --> 00:28:23,639
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

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00:28:23,760 --> 00:28:27,240
Speaker 1: or whatever podcast platform you prefer I'm pim Fox. I'm

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00:28:27,280 --> 00:28:30,800
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa

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00:28:30,840 --> 00:28:34,000
Speaker 1: Abramoids One before the podcast, you can always catch us

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00:28:34,040 --> 00:28:35,600
Speaker 1: worldwide on Bloomberg Radio