1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:32,520 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Has 7 00:00:32,560 --> 00:00:36,199 Speaker 1: President Trump had his Nicksonian moment? To weigh in? I 8 00:00:36,200 --> 00:00:38,840 Speaker 1: want to bring an Eli Lake, a Bloomberg View columnist 9 00:00:39,440 --> 00:00:43,120 Speaker 1: who has written extensively about the latest dramas in the 10 00:00:43,240 --> 00:00:48,800 Speaker 1: President Trump administration. Eli, first take, I know a lot 11 00:00:48,800 --> 00:00:51,640 Speaker 1: of people have compared what President Trump just did with 12 00:00:51,720 --> 00:00:54,800 Speaker 1: James Comey, uh but firing him as the FBI director 13 00:00:55,120 --> 00:00:58,880 Speaker 1: to some of the developments under former President Nixon, who 14 00:00:59,000 --> 00:01:03,720 Speaker 1: was imp How is this similar and how is this different? Well, 15 00:01:03,760 --> 00:01:06,640 Speaker 1: it's similar in that James Tomy was the head of 16 00:01:06,680 --> 00:01:09,400 Speaker 1: the Bureau and was that was conducting an investigation in 17 00:01:09,480 --> 00:01:13,680 Speaker 1: the president as Archibald Cox was a special prosecutor looking 18 00:01:13,680 --> 00:01:18,760 Speaker 1: into Watergate. But that's really where the similarities end. Um. 19 00:01:18,920 --> 00:01:21,039 Speaker 1: First of all, in Watergate, we always knew what the 20 00:01:21,080 --> 00:01:24,760 Speaker 1: crime was. It was a third rate break in followed 21 00:01:24,760 --> 00:01:28,679 Speaker 1: by a series of cover ups and lying. In the 22 00:01:28,760 --> 00:01:32,000 Speaker 1: case of Russia Gate, for lack of a better word, 23 00:01:32,400 --> 00:01:34,920 Speaker 1: we're not even sure what the underlying crime is at 24 00:01:34,959 --> 00:01:38,000 Speaker 1: this point, uh, And it looks like there's a cover up, 25 00:01:38,000 --> 00:01:40,360 Speaker 1: but it's like a cover up without a crime. And 26 00:01:40,480 --> 00:01:42,440 Speaker 1: the second of all, one of the things that Nixon 27 00:01:42,480 --> 00:01:45,399 Speaker 1: did and why the Watergate break in was so troubling, 28 00:01:45,840 --> 00:01:48,720 Speaker 1: was that he was using because he used former CIA 29 00:01:48,840 --> 00:01:54,480 Speaker 1: officers and people involved with Cuba operations for that break 30 00:01:54,480 --> 00:01:57,160 Speaker 1: in as part of a kind of dirty tricks group 31 00:01:57,680 --> 00:01:59,880 Speaker 1: in UH that that did things on behalf of the 32 00:02:00,040 --> 00:02:02,320 Speaker 1: of the White House. So he was using the power 33 00:02:02,720 --> 00:02:06,880 Speaker 1: of the surveillance state against his political opposition. You could 34 00:02:07,000 --> 00:02:10,160 Speaker 1: argue that with the leak um of Flynn's conversations with 35 00:02:10,240 --> 00:02:12,560 Speaker 1: Kiss leak and a couple other things like that, the 36 00:02:12,600 --> 00:02:15,480 Speaker 1: power of the surveillance state was has been used against 37 00:02:15,560 --> 00:02:20,720 Speaker 1: Trump uh to weaponize the allegation about Russia. UM. So 38 00:02:20,840 --> 00:02:25,160 Speaker 1: that's another important distinction. UM. But the one thing that's 39 00:02:25,240 --> 00:02:27,840 Speaker 1: very similar is that you know, in some ways what 40 00:02:27,919 --> 00:02:29,760 Speaker 1: happened with Nixon and what happened with Trunk is that 41 00:02:30,040 --> 00:02:34,080 Speaker 1: these were both sort of violating traditional political norms. I 42 00:02:34,160 --> 00:02:36,160 Speaker 1: had written a column and said Comey was the most 43 00:02:36,200 --> 00:02:39,280 Speaker 1: powerful man in Washington because I couldn't imagine after he 44 00:02:39,320 --> 00:02:44,600 Speaker 1: announced an ongoing counor intelligence probe into the Trump campaign Russia, 45 00:02:44,960 --> 00:02:47,079 Speaker 1: that the president would fire him. I thought it would 46 00:02:47,080 --> 00:02:50,520 Speaker 1: be politically suicidal. Look what I know, um, well, I 47 00:02:50,520 --> 00:02:52,480 Speaker 1: mean we haven't seen the full fallout, but I think 48 00:02:52,480 --> 00:02:54,800 Speaker 1: that that this is the question you if it is 49 00:02:54,840 --> 00:02:58,040 Speaker 1: not political suicide, If if it was inaccurate to say 50 00:02:58,080 --> 00:03:01,440 Speaker 1: that this is such a dire political move that President 51 00:03:01,440 --> 00:03:04,760 Speaker 1: Trump would not embark upon it. What does this mean 52 00:03:05,080 --> 00:03:09,520 Speaker 1: for the independence of the law enforcement branch, especially at 53 00:03:09,520 --> 00:03:11,920 Speaker 1: a time when a G. Jeff Sessions turned General Jeff 54 00:03:11,960 --> 00:03:14,360 Speaker 1: Sessions has said that he would recuse himself, you know, 55 00:03:14,400 --> 00:03:17,520 Speaker 1: as as Senator Schumer was saying he would recuse himself 56 00:03:17,520 --> 00:03:20,480 Speaker 1: from the Russia probe. And then to make a move 57 00:03:20,600 --> 00:03:23,400 Speaker 1: like this and recommend that James Comey be fired as 58 00:03:23,440 --> 00:03:27,639 Speaker 1: FBI director, I mean, does this concern you? I don't 59 00:03:27,680 --> 00:03:32,240 Speaker 1: think we're there yet. The acting FBI director is a 60 00:03:32,240 --> 00:03:37,400 Speaker 1: guy named Andrew McCabe. His wife received a significant amount 61 00:03:37,400 --> 00:03:40,440 Speaker 1: of campaign contributions from Terry mccauugh the current Democratic governor 62 00:03:40,480 --> 00:03:43,280 Speaker 1: of Virginia and longtime Clinton associate and head of the 63 00:03:43,360 --> 00:03:48,000 Speaker 1: d n C UM that would suggest to me that, um, 64 00:03:48,040 --> 00:03:50,840 Speaker 1: you know that you're the first of all, the Russia 65 00:03:50,880 --> 00:03:53,320 Speaker 1: probe isn't going away, and second of all, the FBI 66 00:03:53,480 --> 00:03:56,960 Speaker 1: will continue to you know, do its investigations. And finally, 67 00:03:57,000 --> 00:03:59,200 Speaker 1: I mean, I think another big difference on water game 68 00:03:59,280 --> 00:04:02,000 Speaker 1: is that you know, you could you could, you could 69 00:04:02,040 --> 00:04:04,800 Speaker 1: be critical of elements of Archibald Cox, but really there 70 00:04:04,880 --> 00:04:07,440 Speaker 1: is a substantive case against Jim Comey that Democrats have 71 00:04:07,520 --> 00:04:10,640 Speaker 1: made and Republicans have made that is it arguable? I 72 00:04:10,680 --> 00:04:14,720 Speaker 1: think so? Um, in that respect, I mean there was 73 00:04:14,880 --> 00:04:18,039 Speaker 1: cause in the case of Comy, um most recently that 74 00:04:18,120 --> 00:04:22,480 Speaker 1: he misled Congress last week when he testified about whom 75 00:04:22,480 --> 00:04:27,440 Speaker 1: Abideen and Anthony Meaner's computer. Um, So in that respect, 76 00:04:27,680 --> 00:04:29,800 Speaker 1: you know, you could say it's a long time coming. 77 00:04:29,880 --> 00:04:34,040 Speaker 1: It's just you know, he was investigating Trump or not Trump, 78 00:04:34,080 --> 00:04:36,480 Speaker 1: but I guess he was. Trump said he was assured 79 00:04:36,560 --> 00:04:38,960 Speaker 1: he was not under investigation, but he was certainly investigating 80 00:04:38,960 --> 00:04:41,479 Speaker 1: his search, which, which, by the way, I mean, Eli, 81 00:04:41,560 --> 00:04:43,440 Speaker 1: we would be remiss if we didn't point out how 82 00:04:43,480 --> 00:04:47,960 Speaker 1: odd it was for President Trump to even flick at 83 00:04:48,000 --> 00:04:52,960 Speaker 1: the investigation in his letter to a former FBI director, 84 00:04:53,040 --> 00:04:57,159 Speaker 1: James Comey. Now, I mean, I don't what's so strange 85 00:04:57,200 --> 00:05:00,479 Speaker 1: about that is, if that's if, assuming it's true, why 86 00:05:00,480 --> 00:05:04,479 Speaker 1: didn't Comey say that when he announced the investigation. Yeah, 87 00:05:04,760 --> 00:05:06,880 Speaker 1: there are a lot of don't understand it. Well, one 88 00:05:06,880 --> 00:05:09,440 Speaker 1: thing I wanted to get back to with the FBI 89 00:05:09,480 --> 00:05:16,599 Speaker 1: acting director McCabe being a respected bureau employee. First of all, 90 00:05:16,760 --> 00:05:19,800 Speaker 1: is he likely to be the successor, the permanent successor 91 00:05:19,839 --> 00:05:24,440 Speaker 1: to James Comey? And also not a chance? Okay? Why 92 00:05:24,680 --> 00:05:27,000 Speaker 1: because I think I've heard that they want to get 93 00:05:27,040 --> 00:05:28,880 Speaker 1: rid of McCabe as well, and that they are looking 94 00:05:28,920 --> 00:05:31,680 Speaker 1: to I mean, Trump himself said he's gonna nominate somebody new, 95 00:05:32,279 --> 00:05:34,000 Speaker 1: So he's not. So McCabe is going to be the 96 00:05:34,000 --> 00:05:38,000 Speaker 1: acting director. But keep in mind there's an active investigation. 97 00:05:38,920 --> 00:05:43,000 Speaker 1: The active investigation continues, McCabe is going to be the 98 00:05:43,000 --> 00:05:47,120 Speaker 1: acting director, and we can expect I would imagine a 99 00:05:47,160 --> 00:05:50,960 Speaker 1: long political fight over the nomination of the next FBI director. 100 00:05:51,000 --> 00:05:54,719 Speaker 1: It's gonna consume Washington. It's got to pass the smell 101 00:05:54,800 --> 00:05:58,400 Speaker 1: test for Senate Republicans who distanced themselves from the decision 102 00:05:58,480 --> 00:06:01,520 Speaker 1: she fired Comey, and it's got a past the smell 103 00:06:01,560 --> 00:06:04,920 Speaker 1: test from Democrats who are really out for blood at 104 00:06:04,920 --> 00:06:06,960 Speaker 1: this point. And in comparing this to the satura name 105 00:06:07,040 --> 00:06:11,000 Speaker 1: asker Richard Nixon. So, in the meantime, couldn't President Trump 106 00:06:11,040 --> 00:06:17,040 Speaker 1: ostensibly fire acting FBI Director McCabe if he didn't want 107 00:06:17,120 --> 00:06:21,080 Speaker 1: him to be the one in charge? He could? I 108 00:06:21,120 --> 00:06:22,480 Speaker 1: don't know if he will. I don't know if it 109 00:06:22,480 --> 00:06:25,160 Speaker 1: would be politically why you're like, I can't make any 110 00:06:25,200 --> 00:06:31,279 Speaker 1: more statements about political suicide, right, So going forward, what 111 00:06:31,279 --> 00:06:32,720 Speaker 1: do you think is the most important thing for us 112 00:06:32,720 --> 00:06:34,440 Speaker 1: to keep keep track of to sort of get a 113 00:06:34,440 --> 00:06:37,960 Speaker 1: real sense of of what's going to happen here. Well, 114 00:06:38,000 --> 00:06:41,080 Speaker 1: I would look for some sort of statement and reporting. 115 00:06:41,080 --> 00:06:42,680 Speaker 1: I'm trying to get this myself. Is what is the 116 00:06:42,720 --> 00:06:46,160 Speaker 1: status at this point of the counterintelligence probe into Trump 117 00:06:46,240 --> 00:06:50,680 Speaker 1: and Trump campaign in Russia? I would look at, um, 118 00:06:50,839 --> 00:06:53,680 Speaker 1: what the dynamics will look like for a for for 119 00:06:53,800 --> 00:06:56,279 Speaker 1: the nomination fights for the new FBI director. And while 120 00:06:56,680 --> 00:06:59,200 Speaker 1: we just have now new information that miss McConnell sent, 121 00:06:59,279 --> 00:07:02,440 Speaker 1: there won't be a special prosecutor. Um. I do think 122 00:07:02,480 --> 00:07:04,359 Speaker 1: it makes political sense at this point to have some 123 00:07:04,440 --> 00:07:08,200 Speaker 1: sort of bipartisan special commission or something along those line. 124 00:07:08,320 --> 00:07:11,680 Speaker 1: Maybe I mean a kind of special select committee, but 125 00:07:11,920 --> 00:07:15,680 Speaker 1: something that will just allow for our country to have 126 00:07:16,000 --> 00:07:20,960 Speaker 1: a respected group bipartisan that will just sort of present 127 00:07:21,000 --> 00:07:23,120 Speaker 1: at a certain point, here are the facts about the 128 00:07:23,160 --> 00:07:25,320 Speaker 1: election we can all agree on, and let's get it 129 00:07:25,520 --> 00:07:28,720 Speaker 1: find it right. Unfortunately, we're gonna have to leave it there. 130 00:07:28,720 --> 00:07:30,840 Speaker 1: I can speak with you all morning. Eli La is 131 00:07:30,840 --> 00:07:34,040 Speaker 1: a Bloomberg View columnist talking about Trump's firing FBI Director 132 00:07:34,120 --> 00:07:48,320 Speaker 1: James Come. Well, a lot of times there, whatever there's 133 00:07:48,320 --> 00:07:51,480 Speaker 1: a blip in the market, people point their finger at 134 00:07:51,560 --> 00:07:54,640 Speaker 1: this abyss called risk parody. They say risk parody funds 135 00:07:54,640 --> 00:07:57,640 Speaker 1: are deleveraging, or risk parody funds are rotating out of something. 136 00:07:58,120 --> 00:08:00,280 Speaker 1: To sort of clarify what actually is going going on, 137 00:08:00,320 --> 00:08:02,680 Speaker 1: I want to bring in Rob Croche. He is the 138 00:08:03,200 --> 00:08:07,600 Speaker 1: senior portfolio manager at Salient Partners in Houston, Texas. Salient 139 00:08:07,760 --> 00:08:11,640 Speaker 1: overseas about fourteen billion dollars in assets. So Rob, I 140 00:08:11,680 --> 00:08:15,200 Speaker 1: want to just start with talking about why risk parody 141 00:08:15,320 --> 00:08:19,360 Speaker 1: funds are blamed for turmoil in the markets, and whether 142 00:08:19,560 --> 00:08:22,800 Speaker 1: you have seen any instances of this. Sure, well, we've 143 00:08:22,800 --> 00:08:25,840 Speaker 1: certainly seen instances of them being blamed. We haven't seen 144 00:08:25,880 --> 00:08:32,600 Speaker 1: any instances where they really did exacerbate market drawnouts. Um. 145 00:08:32,800 --> 00:08:35,600 Speaker 1: Risk parody is something that a lot of people haven't 146 00:08:35,640 --> 00:08:38,600 Speaker 1: taken the time to try to understand, and therefore it's 147 00:08:38,640 --> 00:08:41,000 Speaker 1: easy to blame it and and have it be credible. 148 00:08:41,120 --> 00:08:43,800 Speaker 1: So so help us understand it. What is risk parody? Sure? 149 00:08:43,920 --> 00:08:47,360 Speaker 1: Risk parody is an asset allocation strategy that tries to 150 00:08:47,400 --> 00:08:50,880 Speaker 1: take risk in asset classes that are really different from 151 00:08:50,920 --> 00:08:55,120 Speaker 1: each other. So rather than having six stocks and bonds, 152 00:08:55,760 --> 00:08:59,720 Speaker 1: it tries to take risks spread pretty equally across stocks 153 00:09:00,040 --> 00:09:03,640 Speaker 1: on credits, UH and sovereign debt. So you know, that's 154 00:09:03,679 --> 00:09:08,040 Speaker 1: sixty forty portfolio, sixty stocks bonds that the average investor 155 00:09:08,120 --> 00:09:12,679 Speaker 1: holds in their portfolio. That is like equity risk, and 156 00:09:12,760 --> 00:09:16,160 Speaker 1: so you know the next time stocks drawn on, it's 157 00:09:16,280 --> 00:09:19,360 Speaker 1: very clear what's going to happen to that portfolio. So 158 00:09:19,960 --> 00:09:22,280 Speaker 1: the idea is to sort of remove correlation to a 159 00:09:22,320 --> 00:09:25,200 Speaker 1: particular move up in one direction or or down in 160 00:09:25,240 --> 00:09:28,760 Speaker 1: another direction. I do have to wonder, though, what has 161 00:09:28,800 --> 00:09:31,520 Speaker 1: the track record been like have these has you have 162 00:09:31,559 --> 00:09:34,680 Speaker 1: your risk parity funds truly been uncorrelated to some of 163 00:09:34,720 --> 00:09:39,160 Speaker 1: the major markets. Sure, so anytime one market moves a lot, 164 00:09:39,240 --> 00:09:41,800 Speaker 1: you're gonna be correlated to it. But at the same time, 165 00:09:41,840 --> 00:09:44,719 Speaker 1: if you look over the long run, our beta two 166 00:09:44,760 --> 00:09:48,040 Speaker 1: stocks are beta two, bonds are beta to to credit, 167 00:09:48,080 --> 00:09:50,839 Speaker 1: our beta to two sovereign debt is exactly what it 168 00:09:50,840 --> 00:09:53,120 Speaker 1: should be. We're getting exactly a quarter of our risk 169 00:09:53,240 --> 00:09:56,480 Speaker 1: historically from each of those asset classes, and that's the goal. 170 00:09:56,760 --> 00:09:58,559 Speaker 1: We don't want to put all your eggs in one basket. 171 00:09:58,840 --> 00:10:00,720 Speaker 1: So what if it turn has been like returns have 172 00:10:00,800 --> 00:10:02,880 Speaker 1: been good. I mean, we're up four percent or so 173 00:10:03,040 --> 00:10:06,160 Speaker 1: year to date in in our mutual fund version of 174 00:10:06,240 --> 00:10:09,480 Speaker 1: risk parity um They're exactly what you would expect from 175 00:10:09,640 --> 00:10:12,800 Speaker 1: from a balanced portfolio that allocs to all the classes. 176 00:10:13,280 --> 00:10:15,760 Speaker 1: What has institutional interests been like for these types of funds. 177 00:10:16,040 --> 00:10:20,800 Speaker 1: Institutional interest it continues to uh increase in risk parity strategies. 178 00:10:20,800 --> 00:10:24,400 Speaker 1: What we're seeing is institutions recognizing that to make that 179 00:10:24,480 --> 00:10:27,240 Speaker 1: seven percent bogey that they need to make, they need 180 00:10:27,280 --> 00:10:29,600 Speaker 1: to do something different. They can't afford to double down 181 00:10:29,640 --> 00:10:32,120 Speaker 1: on stocks. We all know that stocks are are fully 182 00:10:32,160 --> 00:10:35,360 Speaker 1: priced right now. Bonds are fully priced right now, so 183 00:10:35,720 --> 00:10:37,960 Speaker 1: you know that what they've been doing is unlikely to 184 00:10:38,000 --> 00:10:40,560 Speaker 1: get them seven percent on a go forward basis. So 185 00:10:40,640 --> 00:10:42,920 Speaker 1: what should they do? Should they double down on stocks 186 00:10:43,080 --> 00:10:46,080 Speaker 1: or double down on private equity or do should they 187 00:10:46,080 --> 00:10:48,200 Speaker 1: do something a little bit different from that? And so 188 00:10:48,240 --> 00:10:52,160 Speaker 1: they've been allocating to what we see called risk miday 189 00:10:52,200 --> 00:10:56,120 Speaker 1: gaining asset classes or equity risk mitigation, And so that 190 00:10:56,200 --> 00:10:59,160 Speaker 1: doesn't mean usually when I hear equity risk mitigation, I 191 00:10:59,200 --> 00:11:02,480 Speaker 1: think lower return. But that's not what this is. This 192 00:11:02,559 --> 00:11:06,240 Speaker 1: is actually seeking return, but doing it in markets that 193 00:11:06,360 --> 00:11:10,319 Speaker 1: aren't stocks. So walk me through a meeting that you 194 00:11:10,360 --> 00:11:14,040 Speaker 1: would have with an institutional investor. I'm wondering what are 195 00:11:14,040 --> 00:11:18,880 Speaker 1: the biggest questions? Sure, so, in general, when you go 196 00:11:18,920 --> 00:11:20,920 Speaker 1: and talk to an institutional investor about a strategy like this, 197 00:11:20,960 --> 00:11:23,160 Speaker 1: you know that they're already looking at it, and so 198 00:11:23,360 --> 00:11:27,360 Speaker 1: it's really asked answering questions about what makes our implementation different. 199 00:11:27,600 --> 00:11:30,280 Speaker 1: In general, the answer is that we try to have 200 00:11:30,360 --> 00:11:33,880 Speaker 1: a more adaptive portfolio, so we have an overlay. We 201 00:11:33,880 --> 00:11:35,840 Speaker 1: don't We think spar it's a good starting place, but 202 00:11:35,920 --> 00:11:37,880 Speaker 1: we don't think it's where you end. We think that 203 00:11:37,960 --> 00:11:40,600 Speaker 1: you start from there and then you apply some common 204 00:11:40,640 --> 00:11:44,200 Speaker 1: sense approach to tilting the portfolio based on market sentiment. 205 00:11:44,840 --> 00:11:49,559 Speaker 1: And so we explained that approach uh to to potential allocators. 206 00:11:49,600 --> 00:11:51,640 Speaker 1: So how do you do that through algorithms or do 207 00:11:51,640 --> 00:11:53,720 Speaker 1: you do that through a human being looking at the 208 00:11:53,760 --> 00:11:56,040 Speaker 1: market and saying, you know, we should probably do this. 209 00:11:56,440 --> 00:11:58,800 Speaker 1: Algorithms is a scary word, but it's not nearly as 210 00:11:58,800 --> 00:12:01,720 Speaker 1: scary as that thing where we go with the human being. 211 00:12:02,200 --> 00:12:05,240 Speaker 1: You know, so computer is less scary than humans actually 212 00:12:05,800 --> 00:12:10,960 Speaker 1: kind of behaviorally, it's for sure, right, and so you 213 00:12:10,960 --> 00:12:14,160 Speaker 1: know it's it's systematic um, but it's not a it's 214 00:12:14,200 --> 00:12:18,439 Speaker 1: not some crazy black box. We use momentum. Uh. Momentum 215 00:12:18,520 --> 00:12:21,600 Speaker 1: gives us an edge over time. Momentum tells us which 216 00:12:21,600 --> 00:12:24,360 Speaker 1: asset classes are in favor right now and which asset 217 00:12:24,360 --> 00:12:26,360 Speaker 1: classes are are for sure out of favor right now, 218 00:12:26,559 --> 00:12:27,800 Speaker 1: and they help us step out of the way of 219 00:12:27,800 --> 00:12:31,000 Speaker 1: stuff that's not working. So, uh, do you end up 220 00:12:31,040 --> 00:12:33,360 Speaker 1: trading quite a bit in these funds? I mean it's 221 00:12:33,400 --> 00:12:36,400 Speaker 1: a turnover pretty pretty high. Sure, anytime you're training futures, 222 00:12:36,400 --> 00:12:38,959 Speaker 1: turnovers high relative to a sort of buy and hold 223 00:12:38,960 --> 00:12:42,040 Speaker 1: equity portfolio. But yeah, turnovers high. How do you get 224 00:12:42,120 --> 00:12:47,640 Speaker 1: diversity with a model when the implementation can be somewhat 225 00:12:47,720 --> 00:12:51,200 Speaker 1: challenging when you talk about specific corporate securities, for example, 226 00:12:51,760 --> 00:12:55,040 Speaker 1: that may not trade as frequently as say, you know, 227 00:12:55,280 --> 00:13:00,720 Speaker 1: futures or other contracts. So I just wonder theoretical models 228 00:13:01,120 --> 00:13:03,319 Speaker 1: do they ever not translate because of sort of the 229 00:13:03,360 --> 00:13:06,400 Speaker 1: liquidity concerns? For sure, when you're when you're building a 230 00:13:06,400 --> 00:13:10,960 Speaker 1: portfolio like this, liquidity's paramount um and so the credit 231 00:13:11,000 --> 00:13:13,480 Speaker 1: that we trade is a derivative contract, it's an index, 232 00:13:14,000 --> 00:13:17,240 Speaker 1: it's a swap on an index. Uh So it's something 233 00:13:17,280 --> 00:13:22,120 Speaker 1: that is totally liquid by the billions. Uh So we 234 00:13:22,120 --> 00:13:25,280 Speaker 1: we put liquidity first when you're building a portfolio like this. 235 00:13:25,960 --> 00:13:28,800 Speaker 1: Uh and you want to be adaptive, everything you're trading 236 00:13:29,080 --> 00:13:32,400 Speaker 1: has to be very liquid. So going back to sort 237 00:13:32,400 --> 00:13:34,640 Speaker 1: of how we began with the idea that whenever there's 238 00:13:34,640 --> 00:13:36,920 Speaker 1: a blip in the market, people point their fingers at 239 00:13:37,000 --> 00:13:41,200 Speaker 1: risk parity funds is having to de leverage or getting withdrawals. 240 00:13:41,679 --> 00:13:45,040 Speaker 1: Have you seen anything from either from your competitors even 241 00:13:45,600 --> 00:13:48,160 Speaker 1: that have made you think, well, in the hands of 242 00:13:48,160 --> 00:13:53,040 Speaker 1: the wrong person, this could be a dangerous strategy. I 243 00:13:53,040 --> 00:13:55,160 Speaker 1: wish I could throw up my competitors under the bus here, 244 00:13:55,160 --> 00:13:58,559 Speaker 1: but I really can't. All Right. The truth is that 245 00:13:58,679 --> 00:14:01,880 Speaker 1: when when you're a actional portfolio manager and you're trading 246 00:14:01,920 --> 00:14:04,720 Speaker 1: a lot number one, you have to manage market impact costs, 247 00:14:04,880 --> 00:14:07,280 Speaker 1: and you have to manage trading costs, and you know, 248 00:14:07,400 --> 00:14:10,439 Speaker 1: the type of trading that's been sort of assumed of 249 00:14:10,520 --> 00:14:14,679 Speaker 1: risk parity managers during these these periods is implausible from 250 00:14:14,679 --> 00:14:19,400 Speaker 1: a trading cost perspective, And so I'm confident that risk 251 00:14:19,400 --> 00:14:22,680 Speaker 1: parity managers aren't adding insult to injury when when markets 252 00:14:22,680 --> 00:14:25,560 Speaker 1: are drawing down right now, Um, what what I think 253 00:14:25,640 --> 00:14:28,400 Speaker 1: is much scarier is discretionary managers throwing in the towel 254 00:14:28,480 --> 00:14:33,160 Speaker 1: or getting getting fearful and selling stocks. I think that 255 00:14:33,160 --> 00:14:36,480 Speaker 1: that's something much more likely to happen in a discretionary context. 256 00:14:36,800 --> 00:14:38,880 Speaker 1: Was sort of an old school equity manager than it 257 00:14:39,000 --> 00:14:41,440 Speaker 1: is a systematic risparity manager. What do you think is 258 00:14:41,440 --> 00:14:43,040 Speaker 1: going to be the biggest challenge for the rest of 259 00:14:43,080 --> 00:14:48,480 Speaker 1: the year for your risk parity funds? Fortunately, the funds 260 00:14:48,520 --> 00:14:52,320 Speaker 1: don't ask me that. You know, uh, we very much. 261 00:14:52,880 --> 00:14:56,840 Speaker 1: I can't tell the future. So we think that having 262 00:14:56,880 --> 00:14:58,560 Speaker 1: a plan and sticking to it is the way to 263 00:14:58,600 --> 00:15:02,120 Speaker 1: generate performance over time. That said, anytime the market environment 264 00:15:02,200 --> 00:15:05,960 Speaker 1: changes quickly, it can be challenging for a portfolio that's adapting. 265 00:15:06,200 --> 00:15:10,320 Speaker 1: So our portfolio today is ideally situated for the market 266 00:15:10,320 --> 00:15:12,880 Speaker 1: we're in today. As it changes, it will take us 267 00:15:12,920 --> 00:15:14,640 Speaker 1: a little a little bit of time, a couple of 268 00:15:14,720 --> 00:15:18,840 Speaker 1: days to reallocate the portfolio for the new environment. And 269 00:15:18,920 --> 00:15:21,600 Speaker 1: during those periods when when the level of risk changes 270 00:15:21,680 --> 00:15:24,640 Speaker 1: or correlations change, we can be misallocated for a couple 271 00:15:24,640 --> 00:15:27,880 Speaker 1: of days. Fortunately, periods where the market is sort of 272 00:15:27,920 --> 00:15:30,040 Speaker 1: calm and stays in the same state are much more 273 00:15:30,080 --> 00:15:34,040 Speaker 1: frequent and persistent than the sort of jumpy transitory states. 274 00:15:34,040 --> 00:15:36,800 Speaker 1: So we think that over time, being adapted to the 275 00:15:36,840 --> 00:15:40,960 Speaker 1: current environment ends up working much better than being scared 276 00:15:41,040 --> 00:15:42,880 Speaker 1: and sitting on your hands. Thank you so much for 277 00:15:42,960 --> 00:15:46,240 Speaker 1: joining us. Rub Crocha He is managing director of Quantitative 278 00:15:46,240 --> 00:15:51,360 Speaker 1: Strategies and a senior portfolio manager at Salient Partners in Houston, Texas. 279 00:15:51,400 --> 00:16:03,520 Speaker 1: Salient Partners overseas about fourteen billion dollars. We want to 280 00:16:03,560 --> 00:16:05,520 Speaker 1: take a moment to let you know about something new 281 00:16:05,560 --> 00:16:08,120 Speaker 1: from Bloomberg. Starting right now, you can use our I 282 00:16:08,320 --> 00:16:11,240 Speaker 1: O s app or our new Google Chrome extension to 283 00:16:11,240 --> 00:16:15,080 Speaker 1: scan any news story on any website, instantly revealing relevant 284 00:16:15,120 --> 00:16:17,880 Speaker 1: news and market data from Bloomberg and other sources related 285 00:16:17,880 --> 00:16:20,240 Speaker 1: to the companies and people you're reading about. So no 286 00:16:20,240 --> 00:16:22,280 Speaker 1: matter where you're reading the news, you can bring the 287 00:16:22,320 --> 00:16:25,640 Speaker 1: power of Bloomberg's news and data with you. It's pretty amazing. 288 00:16:25,880 --> 00:16:27,960 Speaker 1: Download our i O s app or search for the 289 00:16:27,960 --> 00:16:30,360 Speaker 1: Bloomberg extension on the Chrome Store to try it out. 290 00:16:30,640 --> 00:16:43,080 Speaker 1: Learn more at Bloomberg dot com slash lens. Well. As 291 00:16:43,280 --> 00:16:46,960 Speaker 1: Jay Clayton takes the helm of the Securities in Exchange 292 00:16:46,960 --> 00:16:49,720 Speaker 1: Commission of the U s UH, it is important to 293 00:16:49,760 --> 00:16:53,160 Speaker 1: realize one of his main concerns, as he has outlined 294 00:16:53,560 --> 00:16:56,560 Speaker 1: on several occasions, is the dearth of i p O 295 00:16:56,600 --> 00:16:59,840 Speaker 1: of initial public offerings in the US, talking about how 296 00:16:59,840 --> 00:17:02,280 Speaker 1: this market has been shrinking and yet we are getting 297 00:17:02,320 --> 00:17:04,760 Speaker 1: some signs that this might pick up. And not only 298 00:17:04,840 --> 00:17:07,280 Speaker 1: is it US companies I p O in here, but 299 00:17:07,440 --> 00:17:11,399 Speaker 1: European company is deciding to come to the US in 300 00:17:11,480 --> 00:17:14,520 Speaker 1: order to raise equity. Ed Hammond is here with us. 301 00:17:14,520 --> 00:17:16,680 Speaker 1: He has a deals reporter for Bloomberg News and joins 302 00:17:16,680 --> 00:17:19,720 Speaker 1: me in the Bloomberg eleven three oh studio in New York, 303 00:17:19,840 --> 00:17:22,520 Speaker 1: and can you give us a sense of why acca? 304 00:17:22,840 --> 00:17:26,199 Speaker 1: And also preta do you say? Pretamon are like? What 305 00:17:26,240 --> 00:17:27,560 Speaker 1: do you say? How do you say? Because it's a 306 00:17:27,560 --> 00:17:30,680 Speaker 1: French word, we just call it prep alright, fine, Princi 307 00:17:30,760 --> 00:17:32,639 Speaker 1: pretty bad when it comes to sort of French or 308 00:17:32,640 --> 00:17:34,960 Speaker 1: foreign pronunciation anyway, because they tend to be lazy when 309 00:17:34,960 --> 00:17:37,919 Speaker 1: it comes to foreign languages. Um, so yeah, which is 310 00:17:37,920 --> 00:17:39,600 Speaker 1: why are they coming here? We just call it PREP, 311 00:17:39,840 --> 00:17:43,159 Speaker 1: So I'll start with prep. Um. It's obviously huge in 312 00:17:43,160 --> 00:17:45,600 Speaker 1: the UK. It's this kind of store of the high street, 313 00:17:46,720 --> 00:17:49,920 Speaker 1: very very popular sandwich shop. I think it may be 314 00:17:50,040 --> 00:17:51,520 Speaker 1: maxed out in terms of what it can do in 315 00:17:51,520 --> 00:17:55,119 Speaker 1: the UK with growth. Obviously, cec Us is potentially a 316 00:17:55,160 --> 00:17:59,560 Speaker 1: huge market for this whole um grab and go as 317 00:17:59,600 --> 00:18:02,480 Speaker 1: they call concept. I think is is obviously huge here. 318 00:18:02,560 --> 00:18:06,240 Speaker 1: You have tons of competition, but actually nothing quite like Prep, 319 00:18:06,320 --> 00:18:07,919 Speaker 1: both in terms of the menu and also just the 320 00:18:07,920 --> 00:18:10,359 Speaker 1: style of the place. Unlike a lot of US sandwich 321 00:18:10,359 --> 00:18:12,080 Speaker 1: shops that you go into, you know, whether it's your 322 00:18:12,200 --> 00:18:15,360 Speaker 1: your Jersey mix or your Subway. In Prep, you don't 323 00:18:15,359 --> 00:18:18,040 Speaker 1: actually see them making the sandwiches. It's all pre prepared food. 324 00:18:18,320 --> 00:18:19,960 Speaker 1: You just literally go in and you kind of grab 325 00:18:20,040 --> 00:18:22,240 Speaker 1: your baguette or your you know, you roll out of 326 00:18:22,280 --> 00:18:24,359 Speaker 1: the fridge, go up to the counter, pay for it 327 00:18:24,359 --> 00:18:26,080 Speaker 1: and leave. So you don't have that thing of sort 328 00:18:26,119 --> 00:18:28,320 Speaker 1: of like you do here where you you know, you 329 00:18:28,320 --> 00:18:30,040 Speaker 1: would order something and they actually build it up for 330 00:18:30,040 --> 00:18:31,560 Speaker 1: you in the store. But why would you need an 331 00:18:31,560 --> 00:18:33,480 Speaker 1: I p O in order to expand? I mean, is 332 00:18:33,520 --> 00:18:35,640 Speaker 1: it just basically to get some more capital in dollars 333 00:18:35,800 --> 00:18:37,800 Speaker 1: or is it something else? Yeah, I think it's to 334 00:18:37,840 --> 00:18:39,879 Speaker 1: get some more capital. I mean, like the private ecty 335 00:18:39,880 --> 00:18:42,199 Speaker 1: owners of this for a while have been have been 336 00:18:42,240 --> 00:18:44,439 Speaker 1: looking at for an exit. I think there was some 337 00:18:44,480 --> 00:18:46,639 Speaker 1: discussion around whether or not they would sell it. Obviously, 338 00:18:46,680 --> 00:18:49,119 Speaker 1: some of that has been reported in terms of potential buyers. 339 00:18:49,200 --> 00:18:50,480 Speaker 1: I think an I P over them is it's an 340 00:18:50,480 --> 00:18:52,840 Speaker 1: obvious way for them to get you know, get it 341 00:18:52,880 --> 00:18:55,800 Speaker 1: out there, obviously exit the business over time. I think 342 00:18:55,800 --> 00:18:58,879 Speaker 1: this is is also a reasonably good time to take 343 00:19:00,240 --> 00:19:02,879 Speaker 1: like this in particularly sort of consumer rounds public that 344 00:19:02,920 --> 00:19:04,800 Speaker 1: seems to be deep appetite for it, and they're actually 345 00:19:04,800 --> 00:19:09,800 Speaker 1: benchmarking against um Starbucks obviously but also against shake Shack, 346 00:19:09,880 --> 00:19:12,040 Speaker 1: which was one of the biggest sort of success stories 347 00:19:12,080 --> 00:19:14,840 Speaker 1: of the public markets in recent years. Interesting, so it 348 00:19:14,840 --> 00:19:18,840 Speaker 1: could be chucked up to a private equity UH exit 349 00:19:19,000 --> 00:19:21,399 Speaker 1: strategy as much as anything else. What about acces, It 350 00:19:21,480 --> 00:19:24,640 Speaker 1: said that it intends to do an initial public offering 351 00:19:24,840 --> 00:19:29,879 Speaker 1: of its US operations. Why now, again, I think, you know, 352 00:19:29,920 --> 00:19:33,480 Speaker 1: there is a sense that the public markets are reasonably 353 00:19:34,000 --> 00:19:35,720 Speaker 1: robust at the moment. We went through a long period 354 00:19:35,760 --> 00:19:37,720 Speaker 1: where they were not wherever. You know, obviously everyone was 355 00:19:37,800 --> 00:19:39,400 Speaker 1: very panicked and you saw a lot of ip as 356 00:19:39,440 --> 00:19:41,280 Speaker 1: being pulled. But I think the other thing that's driving is, 357 00:19:41,320 --> 00:19:43,640 Speaker 1: and we're seeing this across all sextes, really is there 358 00:19:43,720 --> 00:19:47,240 Speaker 1: is a concern that we have some volatility down the road. 359 00:19:47,240 --> 00:19:50,320 Speaker 1: And obviously, you know, it's not necessarily that we're at 360 00:19:50,359 --> 00:19:52,280 Speaker 1: the top of the cycle, but there's certainly a sense 361 00:19:52,320 --> 00:19:53,600 Speaker 1: that you know, if you are if you are going 362 00:19:53,640 --> 00:19:55,359 Speaker 1: to do something, now is probably a good moment to 363 00:19:55,359 --> 00:19:58,000 Speaker 1: do it, because it's unlikely to get better from here 364 00:19:58,040 --> 00:19:59,960 Speaker 1: on out, both in terms of the kind of valuations 365 00:20:00,000 --> 00:20:01,840 Speaker 1: people can expect, but also the appetite in the public 366 00:20:01,880 --> 00:20:03,800 Speaker 1: markets also in the M and A market, So we 367 00:20:03,800 --> 00:20:05,440 Speaker 1: see a lot of the same trades happening in m 368 00:20:05,440 --> 00:20:08,480 Speaker 1: and A, where not people are necessarily rushing to do deals, 369 00:20:08,520 --> 00:20:11,800 Speaker 1: but certainly people are keen to execute stuff now because 370 00:20:11,800 --> 00:20:13,600 Speaker 1: there's a sense that, hey, you know what, in a year, 371 00:20:13,880 --> 00:20:16,639 Speaker 1: maybe the opportunity has gone Yeah, well I'm talking about 372 00:20:16,680 --> 00:20:19,920 Speaker 1: g LS, T Mobile and Sprint now might be back on. Yeah. 373 00:20:20,160 --> 00:20:22,199 Speaker 1: So we've we've had this period obviously, this sort of 374 00:20:22,200 --> 00:20:25,399 Speaker 1: perday period where none of the carriers could speak to 375 00:20:25,400 --> 00:20:27,399 Speaker 1: each other because it was a spectrum launching going on. 376 00:20:27,480 --> 00:20:30,000 Speaker 1: I think that in the last week and so now 377 00:20:30,119 --> 00:20:32,240 Speaker 1: there is this expectation that, look, these guys are going 378 00:20:32,280 --> 00:20:34,560 Speaker 1: to be back in dialogue, that there are any number 379 00:20:34,560 --> 00:20:37,040 Speaker 1: of combinations that could happen in the space. TEAMO Sprint 380 00:20:37,080 --> 00:20:40,920 Speaker 1: obviously was one that has been attempted before unsuccessfully, and 381 00:20:41,200 --> 00:20:44,119 Speaker 1: therefore there's a sense of, look, maybe now with the 382 00:20:44,160 --> 00:20:47,600 Speaker 1: expectation that we have a looser regulatory environment under Trump, 383 00:20:47,680 --> 00:20:50,120 Speaker 1: certainly a looser enter trust environment, maybe this could come back. 384 00:20:50,119 --> 00:20:52,359 Speaker 1: I think that one thing to say on that is 385 00:20:52,400 --> 00:20:55,919 Speaker 1: this deal was previously kind of was was deboggamed by 386 00:20:55,960 --> 00:20:58,520 Speaker 1: the government of the day, and it's actually been something 387 00:20:58,520 --> 00:21:00,960 Speaker 1: that has been a really, really good thing for consumers 388 00:21:00,960 --> 00:21:03,360 Speaker 1: because you've seen prices come way off by having these 389 00:21:03,400 --> 00:21:06,000 Speaker 1: two carriers as separate carriers, You've you've actually seen the 390 00:21:06,000 --> 00:21:09,920 Speaker 1: consumer benefit hugely. So I think making the argument now 391 00:21:10,480 --> 00:21:12,479 Speaker 1: putting them together and going from what you have of 392 00:21:12,520 --> 00:21:14,879 Speaker 1: like four carriers to three is going to be somehow 393 00:21:14,920 --> 00:21:16,840 Speaker 1: good for the U S. Consumer is gonna be a 394 00:21:16,920 --> 00:21:19,560 Speaker 1: very very difficult sol right, But I guess that then 395 00:21:19,600 --> 00:21:22,120 Speaker 1: My question is do the people who would be approving 396 00:21:22,160 --> 00:21:25,320 Speaker 1: the deal or not in government care about that? I mean, 397 00:21:25,400 --> 00:21:28,760 Speaker 1: is that part of the discussion, because frankly, the company 398 00:21:28,800 --> 00:21:33,960 Speaker 1: has cited potential willingness to allow this kind of deal 399 00:21:34,000 --> 00:21:36,840 Speaker 1: in the US administration currently. Yeah, and that's you know, 400 00:21:36,920 --> 00:21:39,199 Speaker 1: that's that's something that I think we are seeing a 401 00:21:39,200 --> 00:21:41,760 Speaker 1: lot of companies they feel that there is a much 402 00:21:41,800 --> 00:21:46,439 Speaker 1: more business friendly environment, particularly among the regulators U and 403 00:21:46,480 --> 00:21:48,600 Speaker 1: I think there's gonna, you know, someone who's going to 404 00:21:48,680 --> 00:21:51,000 Speaker 1: try a big deal and it will be a test case. Obviously, 405 00:21:51,040 --> 00:21:54,919 Speaker 1: under Obama that was it was a fairly tough antitrust environment. 406 00:21:54,920 --> 00:21:56,480 Speaker 1: We saw lots and lots of deals get blocked, not 407 00:21:56,600 --> 00:21:58,520 Speaker 1: to be all the kind of big health insurers who 408 00:21:58,520 --> 00:22:02,720 Speaker 1: tried to merge and were pulled apart Staples Office depot. Similarly, um, 409 00:22:02,760 --> 00:22:05,040 Speaker 1: I think there is an expectation it will be slightly 410 00:22:05,119 --> 00:22:07,840 Speaker 1: easier to get these big deals done, but it's also 411 00:22:07,880 --> 00:22:09,520 Speaker 1: there's a lot of uncertainty. There's also a lot of 412 00:22:09,640 --> 00:22:12,280 Speaker 1: jobs in d C that are not filled that would 413 00:22:12,280 --> 00:22:14,119 Speaker 1: affect these kind of deals. So I think until you 414 00:22:14,200 --> 00:22:16,720 Speaker 1: see some more of those jobs filled and therefore some 415 00:22:16,720 --> 00:22:19,359 Speaker 1: more clarity around exactly how the antitrust environment is going 416 00:22:19,400 --> 00:22:21,639 Speaker 1: to be, it's going to be difficult for someone to 417 00:22:21,680 --> 00:22:23,760 Speaker 1: pull the trigger on a huge deal like this, especially 418 00:22:23,760 --> 00:22:26,080 Speaker 1: one that's already been blocked. And just going back to 419 00:22:26,119 --> 00:22:28,200 Speaker 1: the I p o s real quick, do you get 420 00:22:28,200 --> 00:22:30,240 Speaker 1: a sense that the volume of I p o is 421 00:22:30,280 --> 00:22:32,240 Speaker 1: will continue to accelerate through the rest of the year. 422 00:22:33,760 --> 00:22:36,399 Speaker 1: I think, barring any sort of shocks to the system, 423 00:22:36,400 --> 00:22:39,240 Speaker 1: and obviously there is under this administration is potential for 424 00:22:39,320 --> 00:22:41,399 Speaker 1: a large number of shocks to the system, I think 425 00:22:41,480 --> 00:22:43,440 Speaker 1: we probably will see a decent run of I p 426 00:22:43,560 --> 00:22:45,240 Speaker 1: o s through the rest of the year. There's certainly 427 00:22:45,280 --> 00:22:47,400 Speaker 1: a lot that we hear in the pipeline things being 428 00:22:47,400 --> 00:22:50,000 Speaker 1: talked about. There are also things that people looked at 429 00:22:50,080 --> 00:22:52,119 Speaker 1: last year got quite close to doing in some cases 430 00:22:52,160 --> 00:22:54,040 Speaker 1: and pulled, and I think there will be in you know, 431 00:22:54,080 --> 00:22:56,120 Speaker 1: there is an expectation that those things come back. There's 432 00:22:56,119 --> 00:22:58,160 Speaker 1: also a ton of you know, what we call dual 433 00:22:58,200 --> 00:22:59,879 Speaker 1: track processes out there at the moment, where people like 434 00:23:00,080 --> 00:23:02,200 Speaker 1: you know, private exity owners are exploring a sort of 435 00:23:02,240 --> 00:23:04,200 Speaker 1: an I P O simultaneous to an M and a exit, 436 00:23:04,240 --> 00:23:05,800 Speaker 1: and it will be interesting to see which of those 437 00:23:05,840 --> 00:23:08,520 Speaker 1: gets favored. Thank you so much for joining me. Ed 438 00:23:08,600 --> 00:23:10,879 Speaker 1: Hammond is a deals reporter for Bloomberg News, and he 439 00:23:10,960 --> 00:23:14,760 Speaker 1: joins us in our Bloomberg eleven three oh studio. Pretta 440 00:23:15,400 --> 00:23:18,720 Speaker 1: Brett mona, I'm gonna be practicing that. Just prepped, just 441 00:23:18,800 --> 00:23:32,359 Speaker 1: prep Just stick with Prett right now. However, I want 442 00:23:32,400 --> 00:23:35,160 Speaker 1: to take a look at the media world with Paul Sweeney, 443 00:23:35,240 --> 00:23:38,920 Speaker 1: US director of Research and senior Media and Internet analyst 444 00:23:39,000 --> 00:23:41,520 Speaker 1: for Bloomberg Intelligence. He joins us in the Bloomberg eleven 445 00:23:41,560 --> 00:23:43,240 Speaker 1: three oh studio in New York. Thank you so much. 446 00:23:43,760 --> 00:23:45,960 Speaker 1: I want to start with time you were telling me 447 00:23:46,040 --> 00:23:50,960 Speaker 1: offline about a rather interesting moment on the earnings call. 448 00:23:51,119 --> 00:23:54,960 Speaker 1: The rather the call with analysts after they reported earnings 449 00:23:55,200 --> 00:23:59,520 Speaker 1: where Leon Cooperman of Omega got on and had some 450 00:23:59,560 --> 00:24:01,440 Speaker 1: interesting wants to tell us about them. Yeah, Time I 451 00:24:01,560 --> 00:24:05,200 Speaker 1: reported earnings this morning and they were below analysts expectations 452 00:24:05,200 --> 00:24:08,280 Speaker 1: and the stock was very weak. And this is a 453 00:24:08,320 --> 00:24:11,560 Speaker 1: company that has been under m and a speculation really 454 00:24:11,600 --> 00:24:13,639 Speaker 1: for the last several months. And uh, they kind of 455 00:24:13,680 --> 00:24:16,680 Speaker 1: called off the process uh last week, and the stock 456 00:24:16,880 --> 00:24:18,960 Speaker 1: dropped from near twenty dollars a share down to words 457 00:24:18,960 --> 00:24:21,760 Speaker 1: trading today in the thirteen's range. So Leon Cooperman, a 458 00:24:22,119 --> 00:24:25,800 Speaker 1: large shareholder of Time, Inc. Really challenged management on the 459 00:24:25,840 --> 00:24:30,639 Speaker 1: call to provide a detailed uh financial uh strategic um 460 00:24:31,000 --> 00:24:33,960 Speaker 1: kind of forecast or plan for the company, uh, to 461 00:24:34,080 --> 00:24:38,359 Speaker 1: show shareholders mainly himself includcluding himself, how they would create 462 00:24:38,520 --> 00:24:41,760 Speaker 1: value going forward that would cause them to you know, 463 00:24:41,800 --> 00:24:43,720 Speaker 1: kind of turn away from potential deals that might have 464 00:24:43,760 --> 00:24:45,800 Speaker 1: been in the eighteen to twenty dollar range. Again, the 465 00:24:45,800 --> 00:24:48,199 Speaker 1: stocks in the thirteen dollar trading range today. So he 466 00:24:48,280 --> 00:24:50,760 Speaker 1: really got on the call and challenged and called that management, 467 00:24:50,920 --> 00:24:53,800 Speaker 1: challenged them to you know, give us some detailed forecast 468 00:24:53,880 --> 00:24:56,320 Speaker 1: because they walked away from potentially a much higher price 469 00:24:56,400 --> 00:24:58,159 Speaker 1: where the stock is trading now. And he said, I'm 470 00:24:58,200 --> 00:25:01,359 Speaker 1: pretty angry, didn't he? Yeah, you know, he's basically saying listen, no, 471 00:25:01,560 --> 00:25:04,360 Speaker 1: here's my recommendation to you. Um, you know, I'm sure 472 00:25:04,400 --> 00:25:06,680 Speaker 1: he's not happy about the company not getting a deal 473 00:25:06,720 --> 00:25:08,840 Speaker 1: done and what again, could have been eighteen and twenty 474 00:25:09,240 --> 00:25:12,399 Speaker 1: of share So he's feeling the pain and he's just saying, listen, guys, 475 00:25:12,440 --> 00:25:14,239 Speaker 1: because you walked away, you really owe it to your 476 00:25:14,240 --> 00:25:18,000 Speaker 1: shareholders to come back with some detailed plans about how 477 00:25:18,040 --> 00:25:21,199 Speaker 1: you intend to uh increase value going forward. Right, And 478 00:25:21,200 --> 00:25:23,480 Speaker 1: they have been trying to sell some of their print 479 00:25:23,480 --> 00:25:26,199 Speaker 1: products and some of their assets and sort of focus 480 00:25:26,280 --> 00:25:28,360 Speaker 1: more on the online business. But they've got a lot 481 00:25:28,359 --> 00:25:30,879 Speaker 1: of competition and this has sort of been the strategy 482 00:25:30,960 --> 00:25:34,160 Speaker 1: for others, including ESPN. And we really have to talk 483 00:25:34,160 --> 00:25:36,960 Speaker 1: about ESPN because they just recently fired a whole host 484 00:25:37,000 --> 00:25:40,800 Speaker 1: of their uh, their personalities, right, in order to shore 485 00:25:40,880 --> 00:25:44,000 Speaker 1: up profitability. Disney reported earnings after the Bell Disney, of course, 486 00:25:44,000 --> 00:25:47,840 Speaker 1: as a parent company of ESPN. What did we learn 487 00:25:47,960 --> 00:25:51,160 Speaker 1: about the progress of espns finances and what the path 488 00:25:51,240 --> 00:25:53,600 Speaker 1: forward is? Well, the company reported, you know, very good 489 00:25:53,600 --> 00:25:56,800 Speaker 1: earnings beat expectations. Um, you know, in the parks business 490 00:25:56,920 --> 00:25:59,719 Speaker 1: and the and the film business continue to perform very well. 491 00:25:59,800 --> 00:26:03,159 Speaker 1: Let's you know, two big businesses for them. The third business, however, 492 00:26:03,240 --> 00:26:05,000 Speaker 1: is really what's the focus of investors, and that's the 493 00:26:05,040 --> 00:26:08,600 Speaker 1: cable network business. Uh, specifically the ESPN. And in fact, 494 00:26:08,680 --> 00:26:11,080 Speaker 1: I think thirteen out of the fifteen analyst questions on 495 00:26:11,119 --> 00:26:14,000 Speaker 1: the call, we're about ESPN. So that's that's clearly the 496 00:26:14,040 --> 00:26:18,439 Speaker 1: focus of the marketplace. And unfortunately, uh, ESPN, like most 497 00:26:18,560 --> 00:26:22,840 Speaker 1: cable networks, continues to lose subscribers as consumers cut the 498 00:26:22,920 --> 00:26:25,320 Speaker 1: chord and maybe go for skinny bundles or maybe just 499 00:26:25,760 --> 00:26:29,399 Speaker 1: get their content from the internet directly. So uh you know, 500 00:26:29,560 --> 00:26:31,960 Speaker 1: so over the last five or six years, ESPNS lost 501 00:26:31,960 --> 00:26:35,760 Speaker 1: almost ten million subscribers. Um. And that's really a challenge 502 00:26:35,800 --> 00:26:38,320 Speaker 1: for them because they have a very high fixed cost base. 503 00:26:38,680 --> 00:26:41,040 Speaker 1: And fixed costs are all the rights fees they pay 504 00:26:41,119 --> 00:26:43,359 Speaker 1: to the NFL and the NBA and uh you know 505 00:26:43,400 --> 00:26:46,320 Speaker 1: for basketball and football and so on, and uh. Yet, um, 506 00:26:46,520 --> 00:26:48,880 Speaker 1: you know, if they're losing subscribers, that means they're advertising 507 00:26:48,880 --> 00:26:50,880 Speaker 1: revenues canna be under pressure. That means they're affiliate few 508 00:26:50,880 --> 00:26:53,280 Speaker 1: revenues can be under pressure, and that really puts Uh. 509 00:26:53,320 --> 00:26:55,119 Speaker 1: When you have a fixed cost like that, that really 510 00:26:55,119 --> 00:26:57,880 Speaker 1: cramps your margins, and that's what investors are concerned about. Yeah, 511 00:26:57,880 --> 00:27:00,240 Speaker 1: so what's what are they saying as far as going forward, Well, 512 00:27:00,240 --> 00:27:03,040 Speaker 1: the real challenge for them going forward is to ensure 513 00:27:03,119 --> 00:27:06,080 Speaker 1: that ESPN is on most, if not all, of the 514 00:27:06,119 --> 00:27:09,639 Speaker 1: skinny bundles and virtual cable networks that are being created 515 00:27:09,640 --> 00:27:11,440 Speaker 1: out in the marketplace, so that they can still get 516 00:27:11,480 --> 00:27:14,920 Speaker 1: paid uh, no matter where consumers go. So that's challenge 517 00:27:15,000 --> 00:27:17,000 Speaker 1: number one, and they seem to be having some success there. 518 00:27:17,320 --> 00:27:20,119 Speaker 1: The second issue though, is um they really need to 519 00:27:20,200 --> 00:27:23,240 Speaker 1: articulate to investors that they have a strategy to take 520 00:27:23,440 --> 00:27:26,760 Speaker 1: ESPN direct to consumers to bypass the pay TV bundle, 521 00:27:27,280 --> 00:27:30,479 Speaker 1: much like Hbo, for example, goes to consumers with Hbo 522 00:27:30,520 --> 00:27:32,280 Speaker 1: now you don't need a cable subscription, you can just 523 00:27:32,320 --> 00:27:34,520 Speaker 1: go online and so it's an over the top service 524 00:27:34,560 --> 00:27:37,720 Speaker 1: like a Netflix. Uh, and this would be ESPN would 525 00:27:37,720 --> 00:27:40,840 Speaker 1: be kind of the Netflix for sports. Now. ESPN has 526 00:27:40,880 --> 00:27:43,760 Speaker 1: been reluctant to launch such such a product because that 527 00:27:43,920 --> 00:27:47,320 Speaker 1: would really be a competitive threat to their existing partners, 528 00:27:47,320 --> 00:27:50,240 Speaker 1: the cable companies and satellite companies that carry ESPN and 529 00:27:50,320 --> 00:27:53,720 Speaker 1: which pay you know, over six dollars per subscriber per month. 530 00:27:53,800 --> 00:27:57,440 Speaker 1: So ESPN is really running a kind of a tight 531 00:27:57,560 --> 00:28:00,760 Speaker 1: rope because they don't want to cannibalize uh their existing 532 00:28:01,480 --> 00:28:04,080 Speaker 1: cash flow stream coming from their existing distribution, but they 533 00:28:04,119 --> 00:28:06,280 Speaker 1: recognize at the same time that they have to go 534 00:28:06,359 --> 00:28:08,879 Speaker 1: direct a consumer to to reach some of these younger consumers. 535 00:28:09,080 --> 00:28:11,439 Speaker 1: That's where they're consuming the media, and ESPN needs to 536 00:28:11,480 --> 00:28:14,760 Speaker 1: be there. Uh So, talking about sort of the challenge 537 00:28:14,760 --> 00:28:18,040 Speaker 1: of adapting to the new now, we would also need 538 00:28:18,119 --> 00:28:20,719 Speaker 1: to really look at Tribune, which also reported earnings this 539 00:28:20,760 --> 00:28:24,080 Speaker 1: morning that trails that trailed estimates. What's the problem with them? 540 00:28:24,080 --> 00:28:27,640 Speaker 1: I mean, aren't they selling off Sinclair? The Tribune finances. 541 00:28:27,680 --> 00:28:31,160 Speaker 1: The Tribune is one of the big television broadcasting companies 542 00:28:31,160 --> 00:28:33,120 Speaker 1: that they spun off their new newspapers. So the Tribune 543 00:28:33,160 --> 00:28:38,240 Speaker 1: company is really the the the the TTV business. Sinclair 544 00:28:38,320 --> 00:28:40,200 Speaker 1: just announced this week that Sinclair is going to buy 545 00:28:40,240 --> 00:28:42,880 Speaker 1: Tribune at at a big, big price. So, um the 546 00:28:42,920 --> 00:28:45,320 Speaker 1: TV stations this is an odd numbered year, which means 547 00:28:45,360 --> 00:28:48,480 Speaker 1: there's no political advertising revenue, so all the TV station 548 00:28:48,480 --> 00:28:51,719 Speaker 1: groups have very difficult comparisons. Um So, but I think 549 00:28:51,800 --> 00:28:54,400 Speaker 1: you know, the Sinclair sees a tremendous amount of value 550 00:28:54,400 --> 00:28:59,120 Speaker 1: and Tribunes very large market stations um, which demand very 551 00:28:59,200 --> 00:29:02,920 Speaker 1: high political advertising every other year. Uh, and which have 552 00:29:03,040 --> 00:29:06,120 Speaker 1: you know, very valuable TV spectrum. So Sinclair has putting 553 00:29:06,120 --> 00:29:09,520 Speaker 1: together a group that, with the Tribune stations, will reach 554 00:29:09,720 --> 00:29:13,720 Speaker 1: seventy of the US population by far the biggest TV 555 00:29:13,800 --> 00:29:16,120 Speaker 1: station group out there. So they think they can create 556 00:29:16,160 --> 00:29:18,160 Speaker 1: a lot of value with that. So I think the 557 00:29:18,440 --> 00:29:20,720 Speaker 1: results were a little disappointing today, but it doesn't change 558 00:29:20,720 --> 00:29:22,440 Speaker 1: the fact that Tribune owns, you know, some of the 559 00:29:22,480 --> 00:29:25,160 Speaker 1: best TV stations in the business. Well, but probably they're 560 00:29:25,200 --> 00:29:27,400 Speaker 1: the best way to get an insight on the cord 561 00:29:27,440 --> 00:29:31,080 Speaker 1: cutting phenomenon and whether people really are getting rid of 562 00:29:31,080 --> 00:29:34,760 Speaker 1: their televisions in favor of just going online. Do we 563 00:29:34,800 --> 00:29:37,320 Speaker 1: get any better sense of what that is like? Yeah, 564 00:29:37,360 --> 00:29:40,560 Speaker 1: So it's it seems like an industry the about you know, 565 00:29:40,640 --> 00:29:43,320 Speaker 1: two to three percent of the paid TV subscribers are 566 00:29:43,360 --> 00:29:47,120 Speaker 1: leaving every year, um and um. So that's that's that's 567 00:29:47,120 --> 00:29:50,280 Speaker 1: a problem. And and so if you're a cable networker 568 00:29:50,480 --> 00:29:53,000 Speaker 1: or broadcast or to a lesser extent, that is a 569 00:29:53,000 --> 00:29:55,720 Speaker 1: big issue because you know that directly impact your top 570 00:29:55,760 --> 00:29:58,959 Speaker 1: line in terms of the affiliate fees that you receive 571 00:29:59,160 --> 00:30:01,520 Speaker 1: as revenue from the Comcast of the world and the 572 00:30:01,520 --> 00:30:04,360 Speaker 1: direct TVs of the world. UM. So that's a big issue. 573 00:30:04,400 --> 00:30:06,240 Speaker 1: And so what the cable networks are trying to do 574 00:30:06,280 --> 00:30:09,520 Speaker 1: in particular is trying to make sure that they follow 575 00:30:09,600 --> 00:30:11,880 Speaker 1: wherever their consumers are going, if they're going to a 576 00:30:11,880 --> 00:30:14,080 Speaker 1: skinny bundle or if they're going to Netflix, or if 577 00:30:14,080 --> 00:30:16,720 Speaker 1: they're going anywhere they're going. UM. They need to make 578 00:30:16,720 --> 00:30:19,760 Speaker 1: sure that that they're programming is on that offering, uh, 579 00:30:19,760 --> 00:30:22,720 Speaker 1: and that they get paid for it. Um. And secondarily, 580 00:30:22,960 --> 00:30:24,920 Speaker 1: they need to think about do I have a Netflix 581 00:30:24,920 --> 00:30:27,040 Speaker 1: solution in my back pocket? Can I have Do I 582 00:30:27,080 --> 00:30:30,000 Speaker 1: have programming that's compelling enough to go direct to consumers 583 00:30:30,000 --> 00:30:32,640 Speaker 1: that they will pay me, you know, five ten dollars 584 00:30:32,640 --> 00:30:35,680 Speaker 1: a month to get my programming, whether it's VICOM programmers, 585 00:30:35,720 --> 00:30:39,360 Speaker 1: Time Warner programming, or in a case of sports ESPN. 586 00:30:39,480 --> 00:30:42,480 Speaker 1: So it's really unclear as to how that's going to 587 00:30:42,560 --> 00:30:45,640 Speaker 1: shake out. That's what's hurting. UM. That uncertainty is what's 588 00:30:45,640 --> 00:30:48,080 Speaker 1: what's hurting TV stocks and media stocks in general, which 589 00:30:48,120 --> 00:30:49,800 Speaker 1: have been week over the past couple of weeks as 590 00:30:50,120 --> 00:30:52,680 Speaker 1: we started to see the cord cutting concerns. You know, 591 00:30:53,240 --> 00:30:56,520 Speaker 1: resurface really with the Comcast earnings and the Charter earnings 592 00:30:56,520 --> 00:30:58,600 Speaker 1: and the Time Warner kick Cable earning, So a lot 593 00:30:58,680 --> 00:31:01,280 Speaker 1: of those issues kind of resurfaced a little bit. So 594 00:31:01,560 --> 00:31:04,400 Speaker 1: that's the challenge facing the media sector. Would ESPN be 595 00:31:04,400 --> 00:31:08,360 Speaker 1: better off alone? Both for Disney's sake and ESPN um 596 00:31:08,480 --> 00:31:10,120 Speaker 1: You know, there's a lot of people. It's funny because 597 00:31:10,320 --> 00:31:12,440 Speaker 1: as recently as a couple of years ago, by far 598 00:31:12,520 --> 00:31:14,400 Speaker 1: the most valuable part of the Walt Disney Company and 599 00:31:14,440 --> 00:31:17,480 Speaker 1: the reason most investors owned it was because of ESPN. 600 00:31:17,760 --> 00:31:20,280 Speaker 1: Now it's become a little bit of an albatross around 601 00:31:20,280 --> 00:31:22,200 Speaker 1: the neck of the company, particularly given the other two 602 00:31:22,200 --> 00:31:24,920 Speaker 1: businesses are performing so so well, the theme parks and 603 00:31:25,040 --> 00:31:27,800 Speaker 1: the film to uh and the movie studio. So yeah, 604 00:31:27,800 --> 00:31:30,440 Speaker 1: I think there's definitely been some calls recently that maybe 605 00:31:30,440 --> 00:31:32,960 Speaker 1: you spin it out to be a stand alone, standalone entity. 606 00:31:33,200 --> 00:31:35,360 Speaker 1: There's not a lot of synergy between ESPN and the 607 00:31:35,400 --> 00:31:38,400 Speaker 1: rest of the Walt Disney Company, which, you know, you 608 00:31:38,560 --> 00:31:41,360 Speaker 1: may make that kind of reasonable. Paul Sweeney, thank you 609 00:31:41,360 --> 00:31:43,240 Speaker 1: so much for joining us. Paul Sweeney as US director 610 00:31:43,240 --> 00:31:46,200 Speaker 1: of Research and senior Media and Internet Analystic Bloomberg Intelligence 611 00:31:48,520 --> 00:31:51,040 Speaker 1: Thanks for listening to the Bloomberg p n L podcast. 612 00:31:51,400 --> 00:31:55,240 Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 613 00:31:55,400 --> 00:31:58,880 Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm 614 00:31:58,920 --> 00:32:02,920 Speaker 1: on Twitter at Pam Fox. I'm on Twitter at Lisa Abramo. 615 00:32:03,040 --> 00:32:05,640 Speaker 1: It's one before the podcast. You can always catch us 616 00:32:05,680 --> 00:32:07,240 Speaker 1: worldwide on Bloomberg Radio