Hi-Yield Opportunity In Beat-Down California Utilities (Podcast)

old bonds returns exceeding five per cent. The extra yield investors are earning to own the debt versus safer notes has compressed to the lowest in months. Joining us here is uh someone who can weigh in on whether it is time to start pairing this risk of your debt around the edges. That is Greg Han, President and Chief investment Officer and Win throw Up Capital Management normally in Indianapolis, but joining us here today in our Bloomberg Interactive Broker Studios. Greg,

what's your view on this? Is it time to sell hi yield bonds? Oh? No, we actually um right now, We're actually still buying high yield. We think there's value there. The the spreads have come in since the fourth quarter, but they're still room for it to move in volatilities down. So with spread ball down, we think that you're going to see more spread contraction. So what are some of the sectors in a high yield space that you're looking at right now? Uh, so, energy, telecom both, there's areas

there that we like. UM. We've been in the in the financial side, higher quality, the double B space on financials. Are there any sectors that you're just no matter where the vat, you're just staying away from. UM. So we'll look at anything. I mean, honestly, especially when you look in the utility space, and with what's going on Pacific Gas and Electric that that area weo we think, wait, wait, wait,

you're buying right now, not right now. So here's the thing, but look at so, look at so calid and Mission Energy. In other words, just because the other utilities that are getting slammed because of issue there, in order to get out of the bankruptcy, they've got to fix the legislation because you can't you can't leave bankruptcy and and still have that legislation in place where the utility is liable for the next fire. Because you haven't need anything, so

they got to fix it. And I think that bodes well for all the southern utilities. Basically, this is a bet. Buying the bonds of those other California utilities is a bet that California will be forced to change its legislation so that these utilities are not held responsible for all of the damages of wildfires. And that's fascinating. That is that is a I would say, a gutsy call, because you're basically waiting for Sacramento to come and kind of

make it all right for you. Well and think about it, though, in the capitalist society, can you really have publicly traded entity that is not played by the same rules as every other state in our in our form of capitalism, I don't think it makes sense. So I want to shift gears a little bit. We've seen a rash of deleveraging recently. We've seen a number of companies that are triple B rated who have agreed to pay down debt. I'm thinking of some of the big communications companies A

T and T Verizon. You're laughing. I will find out why right now. Why are you laughing? So A T and T um has the debt level of Portugal. So and if you look at the total size of a T and T S debt is the equivalent of one of the top twenty five sovereign and debted nations billion dollars or something like that, something like that. So in other words, this deleveraging is yeah, they have to do it in order to state in order to stay trip will be rated. Now really this this is a cusp credit.

Um we're going to expect to write down on the direct TV side, so they have to they have to deliver this. Wow. Interesting interesting, How about like another name it's similar to that Comcast that's that looks like a better profile. Yeah, we like Comcast and this this whole space,

this is this is amazing. So in our generation to see the shift in technology that's taking place by going to streaming and what's what's happening with all the cord cutting, this is um so to be fully integrated like Comcast Disney, this is this is gonna be interesting. So you sound pretty sanguine right now on us credit. So you well, okay, we've had a heck of a rebound, so we're we're benefiting from that. I'll be honest with you December was tough because we gave up a lot in the in

the last two weeks of the year. Well, let me tell you how tough it was. Um, I believe when you were here in December, you said, quote the financial position of the US is a disaster end quote. Have we changed as you bringing up You're absolutely no, we haven't changed. We still think it's a disaster. But and there's no So it's gonna be interesting because we're gonna come into the elections now, so two thousand twenty, we're

going to start to hear dialogue on it. The debt levels is it's not part of the dialogue that's taking place right now, but you can't ignore it. So here's my question, especially at a time when JP Morgan and now what we're seeing with Toronto Dominion Bank and Canadian Imperial Bank of Canada both out today with their results, all raising issues about deteriorating credit worthiness of some of

their borrowers. JP Morgan said that they're starting to tighten their credit uh credit conditions a little bit just to make sure that they don't deal with a lot of loss in the next downturn. What do you think could or will cause the next credit crisis and when Yes, so we and we talked about this last time too, is we're on the front end. We think we're on the front end of a potential shift in the credit cycle.

We still believe in cycles. So it's gonna it's gonna show differently this time because traditionally we'd go through the banking sector, we'd see UM, an increase in loan reserves and higher non performing loans. That actually hasn't happened. So we were starting to see the front end of it, but we think it's going to be expressed in the

public markets through leverage loans. So we're seeing you know, one of the telltale signs is as structured security issuance is up, clos are up, and um, we're seeing credit light uh loans so I'm sorry, covenant light loans that are coming to markets. So these are these are all signs the volume increase and we'll look back. I think on vintage two thousand seventeen, two thousand eighteen, and two thousand nineteen vintage structured securities could be problematic. How about

you know, we have the FED on the sidelines. We have you know, earnings were pretty much done earnings. Do you think the market is fairly discounting some of the geopolitical issues out there, whether it's spoints China today, North Korea today, Brexit yesterday, what's the market? Absolutely not. And this is the part I just I just don't understand. I'll confess this, but growing up in the in the business in the eighties and nineties, when you had geopolitical

events at moved markets. But to have Brexit, which is probably one of the single biggest events in the capital markets in the last thirty years, and there's I think Barkley's last week had a reserve set aside for it, but it's the only bank that we've seen that's put reserving against it. Corporate you know, the corporations are not set up for it. And I don't I don't think the markets are really discounting it. I think the markets

are looking at it. You know this is going to get fixed somehow, or the markets are profoundly bored by all of the discussion that's been going on for two years and then they're saying, show be something I can hook my teeth into. Otherwise forget about it. Just real quick here, emerging markets, are you bullish or bearish, So we uh, this is Lisa, this is one area we really want to go into. Its lagged the last three years, and we still think it's early. And what we're looking

for is credit flow. We're looking for credit that's flowing into the emerging economies and we're not seeing it, but we think we're on the cusp of that. So I think by the end of the year we're going to have an increase to that. We're in particular, so we're we look at the Big Four, so it's it's and we're not in there, but the Big four of China, Russia, India and Brazil, and it's I think China is gonna dictate what's gonna happen here. So interesting, very very good.

We'll take well, well, have you back when you're starting to get into your mergery markets and we'll certainly take a look at that. Greg Han, President, Chief Investment Officer, Winthrop Capital Management, based in Indianapolis, but we're fortunate to have him here in our Bloomberg Interactive Brokers studio here in New York. Thank you so much. Greg. Well, the U S and China continue to discuss discussion. It's about

possibly having discussions about trade. It is so unclear to me where we are in this process that I have to call upon our own Dr Sam Natapa, who is a frequent visitor here to our Bloomberg Interactive Broker studios. Dr Sam Natapa is president of Empire Global Ventures. All right, Sam, what what's going on? We have this deadline March one. It's gonna get kicked, the cannel get kicked with tariffs.

What are you looking for for real progress here? Well, it's very clear that President Trump needs to listen to more Kenny Rogers because he doesn't know how to hold him and he doesn't know how to fold him. We have some sense of what the deal is going to be when President Ji Jinping will come to Florida tomorrow Lago to sign this agreement. One, they're probably going to agree to hold the yuan stable and not devalue in order to make Chinese goods cheaper to come into the

US market. To the Chinese will clearly commit to buying, you know, hunting billions of dollars more of US goods. They've already committed to buy I think ten million tons more soya beans, which is about three point five billion dollars already this year. But since the US China trade deficits going to be four hundred billion dollars this year, that's less than one percent of that deficit. So what's

that really going to mean? Yesterday, Bob Lightheiser announced that there's now a mechanism by which they will handle this back and forth internally and bilaterally instead of going through the w t O. In other words, the US has a chance to reimpose sanctions if the Chinese don't do what they say they're going to do. So there's a lot of talk, and the top line thing is Donald Trump wants to lower the U s trade deficit, which

doesn't really mean anything. The things that really matter, the intellectual property issues, the force technology transfer, the protection for US companies going to do to stuff in China. None of that is being discussed and no progress will be made on that. Why are those big items not being addressed? Those are the ones that move the needle, Those are the ones that Corporate America is most concerned about. How

are they not on the agenda? To be clear, US Trade Representative Robert Lightheiser has dedicated thirty years of his career to focus on this issue. He did this on Japan first, He's doing it on China now. He's deeply focused on that issue. He is being overruled by the President of the United States who's so desperate for a headline that he will undermine the structural integrity of the US economy going forward. All right, let's listen to something

that Bob Lightheiser said. US Trade Representative Robert Lightheiser speaking in speaking yesterday in front of the Ways and Means Committee of the U s House of Representatives. Take a listen to what he had to say. I'm not PAULI Anna. I don't believe that this is going to solve all the problems between the United States and China. We have very different systems there in a process of reform or they're not. Depends on what you talked to. If they're

in the process as reform, will we'll make headway. If they're not, we're going to go right back to having problems. That was US Trade Representative Robert lighthouser Heiser speaking in front of the House Ways and Means Committee. I have to wonder say just how many allies Bob Ladheiser has among other people who could kind of force President Trump to to sort of consider his point of view a

little bit more. The US Chamber of Commerce is on his side, The American Association of Manufacturers is on his side. The problem is none of those people work in the White House, and even if they did, Donald Trump wouldn't listen to them. Well, will it be considered a victory if President Trump gets some sort of agreement that has to do with Soyabeans In other words, Well, markets rally, I mean, because that's essentially how President Trump is valuating it,

right it is. But markets are smart, and markets are going to understand that this is lipstick on a pig, and pig is, of course the number one consumed meat in all of China. So nothing's going to change, all right? Who when when you take a look at the two sides and you take a look at some of the bigger issues are out there, But we don't have to do them all at once, but piecemeal. Maybe over the

next couple of years. This China becoming increasingly incentive to make some changes that their economy slowing, maybe even slower than people believe. Isn't there growing incentive on China to actually come to the table on some of these issues. Yes, there is tremendous incentive for China to change. That doesn't mean there's incentive for them to compromise with the United States. In eighteen, the Chinese economy slow to six point six percent GDP growth, which is the lowest recorded since uh

the nineteen nineties. Over the last three months, factory activity in China is the lowest it's been in since the nineteen nineties. There's a there tremendous indicators showing that the Chinese economy is slowing and that Ji Jinping has to do something. But forgive me, the one thing is he's under tremendous domestic pressure himself. Politically. He opened the path for him to be able to run for a third and fourth term as president, but if he doesn't deliver,

that's not going to come true. So just to push back a little bit on this idea that President Trump is going to make an economic mistake on pretty big proportions if he just leaves the trade agreement at soybeans and other agricultural and other imports and exports. Isn't this just the opening salve those of ongoing discussions. Isn't the idea that the US and China can have some sort of agreement laying the groundwork for for future negotiations over

the more substantial issues. It could be if President Trump were consistent enough to hold the line, because the lesson the Chinese just learned is we're going to go through two years of economic turmoil globally and in the end will get a deal that we would have signed two years ago. Sorry, so Sam, They're going to Palm Beach, Florida and lucky them, Um, they sign a deal. Good for them. Um. What are next steps in the China

U S trade negotiations? Uh, Robert Leitheiser will again intend and try to put pressure on the Chinese to make structural changes, particularly on the intellectual property side, to technology transfer side, and the treatment of foreign companies inside China. Master card and visa cannot function in China, and that was one of the things that people were looking at in this negotiation to see if the Chinese would open

up their domestic market. They're not going to. The question is Robert Leitheiser is in a difficult position because he just got his legs cut out of from under him by his boss and the Chinese assuming they'll do that again. Well, that That's what I was gonna say, is sort of you know that seems like some of these issues are gonna have a hard time getting yourself. Can you give us a sense of why Visa MasterCard can operate in China? Uh?

This is a specific regulatory issue that both the Chinese Ministry of Finance and other Chinese regulators have uh not granted them a license to operate inside China. So that is a Chinese governmental decision. Uh. And it's we'll call it a non tariff barrier, if you will, Dr Sam Natapa, thank you so much for being here as always. Dr Sam Natapa is president of Empire Global Ventures, talking about the latest between the US and China trade negotiations, the

dollar gaining a little against the U N today. Right now, let's shift our focus to the retail sector. We've gotten a host of earnings from t j X to Macy's two j C penny and really the question becomes, are we seeing a turn in the tide? There were a lot of short sellers targeting these companies. Are they being blown out of the water and forced to offend with actually a relatively healthy retail sector. Joining us now is Evan Clark deputy Managing editor for Women's Where Daily, joining

us here in our Bloomberg Interactive Broker's studios. So, Evan, is there a big takeaway so far from all of the retail earnings we've gotten so far? Right? So, I think going into the holiday season, there was big expectations around sales, and I think that hasn't really panned out. I think sales were not quite as bad as the overall number that came out from the government, but it's they really didn't turn out the way that the industry

was hoping. So I think the overall story that we are seeing right now is that retailers are being cautious. They've spent a few years really kind of spending to ramp up their online businesses, but now they're starting to hit that kind of hit the expense line a little bit. They're cutting back there, being more cautious going forward on

how they spend their money. For instance, macy has just cut a hundred million dollars out of their expense structure, kind of reducing their top management and sort of simplifying things there. So that will help them be more flexible

should the economy turn. You know, you can win and if that that happens so Evan really over the last several years as I listened to earning his conference calls from these retailers, it's a combination of cutting costs, as you mentioned with Macy's reducing um, you know, footprint, closing stores. We heard that from J. C. Penny closing eighteen stores. What is your sense for how much more the industry has to go in terms of reducing its footprint of physical stores to deal with what is now a e

commerce growing e commerce economy. Yeah, you know, I don't the numbers I don't have off the top of my head, but the U S economy historically has had something like six times more retails space per pet capita than the next closest market, which is the UK. I think that number has come down some lately, but I think there's still a long way to go just where the right balance is. I don't think anyone really knows. But the

buzzword we get in retail right now is experience. So everyone's trying to figure out how you know, the stores and the website are very clearly you know that you've got the same brand, the same products, but they're very clearly different experiences. So when stores do get people, when retailers do get people in their stores, what do they give them, How are they keeping them there, what kind of you know, what are they doing to engage them. That's why we've seen a whole lot of food come

into retail. We're just seeing more sort of like testing with the Canada. Goose has cold rooms where it drops to minus twenty or something and you put in their jacket and see how cozy you feel. So I think that that I don't know the answer is. I think more. I think we'll see that the foot print kind of go down some more. I don't know when it ends.

And that's sort of the ten million dollar question. I think this has also been an earning this period where there's been a huge divergences between the winners and the losers. I mean, I'm looking at Macy, as you mentioned them, shares down seventeen percent so far year to date, whereas t j X, which is banked on the whole experience

of treasure hunting and finding bargains, up nearly fifteen percent. Right, And so it definitely has been uh a sort of shaking out of the of the sort of weaker players and sort of putting them aside and saying, you know, you still need to figure out what your experience is, what you're sort of claim to fame is versus the winners that are consolidating that power, right right, absolutely, So I think you mentioned the treasure hunt at t j X. I mean t j X has just been a phenomenon.

It's been growing tremendously, so it's kind of really transcended that it's initial kind of you know, business model of taking leftover goods in the market and selling it. And they've really at this national brands at a discount price and it's like new, it's new, and it's the frequency is very fast. So if you go to t J Marshals today, it's different, it's going to be different next week.

So I think that that model continues to resonate. So people want brands at a good price and like, uh, you know, an environment that is fun or engaging in some way. And I think you know, Macy's is very much uh trying to kind of figure out how they do what they do and how that works for the future.

I mean, they're they're working very hard. They've got their program where they're really trying to sharpen the sharpened fifty of their stores to kind of give give a different look to shoppers, and they just expanded that to a hundred and fifty. So so there you know the changes there. They're trying to be um, They're trying to figure out exactly where they need to go. And that's the big question in retail is exactly where do you go? What is the model of the future that kind of really works.

So I think that we see a lot of testing across the industry and kind of incrementally moving forward, I mean across the board for retail. The question is can people change fast enough? How about just the consumer as we go through here these fourth quarter numbers, what what are these results tell me about how the consumer is right now, real quickly twenty seconds right the consumer is is still strong. They still have money. They just have a lot more stuff to spend it on. They've got

you know, the new iPhones are thousand dollars. There's Netflix costs every month, so there's more places to put the money. Interesting. Thank you very much. Evan Clark, Deputy Managing editor, Woman's Where Daily, joining us here in the bluebrig interact their brokera studio in New York. Thank you so much. Well, the automobile wants both a badge of success and the

most convene. A conveyance between points A and B is falling out of favor in cities around the world as ride hailing and other new transportation options proliferate, and concerns over gridlock and pollution spark a revaluation of privately owned cars. To telp us dig into this issue is David Welch. David is our Detroit bureau chief from Bloomberg News, coming to us from Detroit, and this is I have to notice the cover story of the March fourth Bloomberg Business

Week coming out. So David, thanks so much for joining us. Are we at peak car? We're getting pretty close and uh so, here's here's what's going on. You see, in the U s we we hit record car sales two years ago. Uh well, going on three, two thou sixteen, still healthy levels, but it's been kind of slowly coming down ever since. In most companies kind of see that

happening for a while. Last year in China we saw I'd go backwards for geez, the first time since I've been covering the industry, and that's more than I care to admit. China will continue to grow kind of long term, but the year's a double digit growth, it's kind of behind us. So those are your two biggest markets. You're you're not going to get growth there. In Japan, no way.

There will be growth according to General Motors in places like Russia, India, South America, but all those are problematic. India has huge infrastructure problems when it comes to cars, Russia has political instability problems, and South America has currency instability problems. So you boil all that together and even if there is some growth, it's going to be slow. And really the bottom line is car companies to gain any kind of sales, they're gonna beating each other over

the head to gain market share. There's not a lot of organic growth out there going forward, so they've got to find other ways to show investors that they're growing the business. So I guess, David, there's a broader question here aside from some of the trouble spots as far as the growth generators, which is how much of a threat our ridesharing services. How much have people ditched their cars altogether and just shifted to the Ubers and lifts of the world. It hasn't happened in mass yet, but

it is happening. You're seeing some families that maybe have three cars go to two or two down to one. And it's not a lot, but it will happen, and especially as people continue to move to cities. Already the US more than people live in urban areas and that's supposed to get up to about and that's accelerating in China as well. And you know, if you live in a big city, having a car is just owners insurance tends to be really expensive, Parking is expensive and just

kind of tough to find. So that that's why urban dwellers of often not head cars. And it's more people move that way. Uh, they're just going to give them up and not have them. So honestly, David, David, your understatement about how difficult it is to have a car in the city, I mean, really, it's aside from alternate side of the street, parking insurance, people bashing into your fenders. Oh my gosh, sign all episodes about George trying to find a parking spot. I've I've lost years of my life,

Paul Safety exactly, so so of it. How about mass transit? Is that contributing to, um, you know, the decline of the car We saw this week in California where they ran into some trouble getting their railroad system approved as mass transit, making any inroads on the traditional auto ownership. Actually mass mass transit it's sort of one of the victims in all of this because it's more people go

to Uber and Lift and other services. People who make pretty good money have been opting for those services instead because you know, hey, look, if you take an Uber our lift, you don't have to sit on a platform when it's ten degrees out or hundred and ten degrees out and wait for a train to come by. Someone picks you up on your schedule. So people have actually left those services the same way they've they've left owning

their own car in some cases. So you see in some cities that they're actually putting in taxes on rides sharing companies like Uber and Lift and then funneling the money to public transit because it's it's become an issue that way. UM, you know you're going to see that battle play out. Public transit authorities do not want to see.

They don't want to go into a lost position because everyone's going to Uber and Lift, and then the cities themselves don't want to see terrible congestion because people are getting those cars. And look, this is one of the many mitigating factors for peak car. If people give up owning a car to take Uber, and if you're going to need more Uber and Lift and way Mow and maybe GM cruise cars and you know services we don't even know exists yet, it's more of those coming to play.

You're going they're still gonna be building those cars. They just might get Fox coned into building the hardware and you know, instead of selling the services. Fox kind of course, it's a company that makes your iPhone and Apple makes all the money off the content. So David, just real quick here, I'm wondering. So we may not be heading for peak auto, but kind are. Okay, so we are, but we're not heading for like a nose dive where autos go out of fashion and nobody drives anymore necessarily,

at least not in the next couple of years. Are we hitting their peak truck in thirty seconds? The idea of you know, perhaps are just too pricey and they're just too many of them out there. Oh well, that's a tough one. I not yet, but we're going to get there before too long. Because the average praise of vehicle is over thirty six thousand in the US. That's a lot of money for a lot of people. Yeah, all right, David Weals, thank you so much for being

with us. David Welch is our Detroit bureau chief for Bloomberg News. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa bram Woits. I'm on Twitter at Lisa bramw wits. One Before the podcast, you can always catch us worldwide on Bloomberg Radio.