Junk Market Isn't a Buy Unless it Drops Another Five Percent, Loomis' Eagan Says

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. As we have been talking about today, there has been some escalating weakness in the US hiled bond market, and here to talk about that with us is Matt Egan, vice president and portfolio manager for Loomis Sales and Company, which is based in Boston and overseas forty billion dollars. Matt, thank you so much for joining us. First, I just want to get your sense of the weakness that we're seeing.

Is this harbinger of greater pain to come? Or is this simple just some idiosyncratic stories and an opportunity to buy the dip. I think it's a little bit of both. To me, it seems like simply the buyers have stepped away from the market. It's it almost seems like anybody wanted to own high yield was already invested and on the margin. We've seen flows come out. UM. This is we're in a we're in the late expansion phase of the of the economic cycle, and you know, obviously the

next step would be a downturn. Nobody knows when that's uh, when that should be coming, but uh, you know, typically at this stage, how yield becomes a bit more choppy and you end up trading in a range. In other words, the backdrop, the fundamental backdrop, UH is pretty supportive and the range that you trade and is relatively narrow, and it tends to be driven by flows. And I think that's what we're seeing here now, is is flows that

are are pushing the market down a bit. Well, but what's behind that, right, I mean, is there is there a reason why investors are not coming in to buy and who who's pulling out? Well, we've seen flows out of the ETFs recently. Um, there's been a lot of money flowing into et f s. We've also seen a

strong bid from overseas investors. And I think, you know, towards the end of the year, maybe that allocations have been full or or just on the on the sidelines for now, UM, but we've seen you know, this thirst for yields. So while you know, hiled yield in absolute terms, that say, you know, a little over five per cents don't seem very high from historical perspective. When you look around at fixed income ass that's around the world, it is still the highest yielding, one of the highest heeling

options out there for global investors. So so given that, Matt, are you in there buying? Is this is this weakness that you see as an opportunity. We've been on this, We've been on the sidelines. Uh, you know, this is a very much a bond pickers market. You mentioned spursion and the index, and it's definitely picking up and I think that has contributed to, you know, to spooking some of some investors. We can talk a little bit about that, but um, we've been on the sidelines. You know this market.

I always say, uh, you know, high yield, the best you get is par plus half a coupon because there's a lot of call option embedded in high yield bonds and when you start trading up above pars. So if you look at the index, the price on the index is one oh one, the coupon is six, so your upside is one oh three and at that point you

get called out. So you know, when you're trading up, you know, we've come off a little bit even that your upside is maybe one oh three and on the downside, just flow driven downside, you you could go down to the mid to low nineties. So you get this negative distribution. You want to be buying on the on the dips. So, um, given that you said that you're on the sidelines, you're not coming in yet, is that correct? Not? With uh? Not?

With uh? Yeah, I wouldn't be buying the market with reserves currently we're only out as smidge So what would it take for you to come in and buy. I would like to see the market down around the level to get a little bit more so, say stay down five percent, which is a normal trading training range um for the market. Uh, you know, but again I think we would stay high quality. I would not try to reach down the credit spectrum for for for yield at this stage we've seen, you know, just on this recent

episode of weakness. What happens is those disfavorite names. It's sort of like the equity market, right, there's a lot of idiosyncratic sector and and you know, the correlations are very disparate in the equity section. It's very much like that in high yield. So you look at healthcare, you look at telecom um, you look at retail. Some of those bonds from just the third course of say September are down, uh, you know, ten to fifteen price points. Uh. So you have to really be laser focused on the

bonds that you're picking. You don't want to step into those really deteriorating f the mental credits because you'll find out a little bit about liquidity in the market where you know, apparently when there's all buyers stepping in, it seems like liquidity is available in the high market. But

it but it's a bit of a mirage. And once you see, particularly when you go to sell, I would imagine that if you try to sell it all at once, all of a sudden, the waters has a way of the tide has a way of sweeping you out with it. Thanks very much, mack Egan. He is a vice president portfolio manager for Loomas Sales, telling us about the sell

off in high yield debt. Coming up on Bloomberg. President Donald Trump is set to deliver remarks to the APEC summit that is taking place in De Nang, Vietnam, and the topic there has to do with protectionism, trade and also security threats in the guise of North Korea. Here to help us understand more about this is Ariel Cohen. He is a senior Fellow at the Atlantic Council and a principle at International Market Analysis. Ariel, thank you very

much for being with us. Um. I wonder if you could just sort of set us up for what you believe will result from this APEC meeting, because simultaneously with the meeting taking place in Da Nang, wonderful irony that Uh, the U S S. Ronald Reagan, the U S S. Theodore Roosevelt, and the U S S Nimits three aircraft carriers are holding military exercises in the Western Pacific. And

that's unusual, is it not? Uh? It is, and it isn't taking into account our deteriorating situation in the Korean Peninsula. I am not sure Mr Trout resolved anything going forward visa in North Korea. And for clear reasons, the Chinese

influence in Pyongyang is limited. The relationship between Presidency and Kim John On is pretty bad, and there's only so much and I can do to change Kim's mind, and Kim's mind has hell bent on achieving deliverable nuclear warhead on a ballistic missile that can hit at least western United States, if not all of the United States. And that's where we're going with that. Having said that, on trade, also,

unfortunately pretty little was achieved. So once we walked away from tit TIP Trans Pacific Trade Agreement, we are no longer leading on trade in the Pacific, and we are in a whole visa the China in trade three billion dollars and signing memoranda of understanding of this trip and the Secretary of Commerce and it's nine billion, the memorand of understanding donative TOI billion. Nevertheless, this is um a

drop in the bucket. This is very little in terms of changing the dynamic of this trade around and walking away from the gaping deficit between the United States and China. Ariel, can you just give us a sense of what's been accomplished with a President Trump's trip overseason? And I would ask that not only in substantive terms, but also in sort of soft relationships that the US can build on. Absolutely. Uh, in terms of relationships with Japan. Uh, his strengths in

the relationship. We probably are going to be supportive in the rearmament of Japan and possible to make a buck of that. Possibly us UM made your military gear corporations are going to sell technology or sell systems to the Japanese. In terms of South Korea, Uh, you saw a hundred and eighty degrees turned around in so when President Trump was not sounding belly coost but his instincts are to threaten to use force visa in North Korea. Will he

across the red line? Will he use force? I do not know, but he wants to look like he is going to use force to bring Kim to the negotiating table. China can help by redheading up sanctions even more. Whether it's going to be effective or not, we don't know. In the past, the majority of economic sanctions against countries failed. The case everybody quotes in South Africa, but I would argue it was too generous. It was a specific case. So we are in a very precarious situation. Uh. In

the Korean peninsula. This is why the three aircraft battle groups are there. And in terms of trade, Uh, you heard what I said. I'm not terribly impressed it's better than nothing, and I hope we will be in the position to move the don on that. But we're coming to this UH negotiating table visa EA China as a beggar. Um Our imports either not competitive or blocked by non economic means by China, um Our I P is being

ripped off. And on Koreer, we're coming asking China. We have an ask on career, we have an ask on South China. See we have an ask on trade. What is the Chinese ask? Here's the answer, Ariel. Just to give us your quick thoughts though on the relationship. I'd like to know between China and South Korea in the military context, because those FAD missiles that are being deployed, they're made by Lockheed Martin and we might see themselves quite a bit more of them now, I hope. So

we need missile defense. We need missile defense on the current peninsula. We need missile defense that can intercept i C b MS international intercontinental bolitic missiles. In the US we have altogether three thirty six missiles that can intercept, give or take, and that is totally totally insufficient against a possible North Korean attack. I've written about that we need many more UH intercept interceptors in the US as well. Yeah, Ariel Cohen, thank you so much for joining US. Arial.

Cohen is a senior fellow at the Atlantic Council, also a principle with International Market Analysis in Washington, d C. Talking about President Trump's trip to China, this is well, for the holidays, a lot of people are going to want different technological gadgets. And here to tell us what the most popular among them is Steve Koenig, Senior director of market research for the Consumer Technology Association, which is based in Washington, but is here in our Bloomberg eleven

three studios right now with us. Steve, So, what do people want? Do they want drones? Do they want Apple watches? Do they want I don't know, brain readers? What what's hot this year? Well, good morning, and consumers want it all. Tech is really become a mainstay for holiday. In fact, UH, this year, we're expecting a hundred and seventy million adults across the US will be looking for some type of technology product to give or given to themselves as a

holiday gift. And you mentioned drones and everything. Yes, I mean certainly that long tail of all these connected products, smart home, robotic vacuums. There's so much innovation out there that's really inspiring and exciting folks. But sometimes it's just the good old products like TVs, anything with a screen. Uh, these products do really well, whether it's the the wish list or the gift list. Him. You know, I'm just remembering.

I went on vacation once and saw somebody set up a drone and they were so excited, and it took a while for them to set it up, and then they started using it and it got caught in a tree promptly, and they needed a ladder, an old fashioned ladder to get it out of the tree and retrieve it. Are you getting a drone this year? No? I I don't think a drone would be great flying around the

streets of Manhattan. But having said that, let's talk about what's on the screen, because I note that the screens that you talk about could be larger, they could be small, right, I want to know about the large screens first. Are we talking about things like, uh, you know, in any c I mean, is there any particular model or any particular technology. Is it backlit l C D S and oh, lead, what what kind of stuff is popular? Well, four K

TVs are really front and center. TVs are a perennial holiday tech gift, and a lot of people look to holiday time to to upgrade their flagship display or just add to the TVs in their home. But this year we're seeing, really, on balance, just a massive wave of four K t vs, four K HDR TVs that deliver just an incredible entertainment experience. And as usual, the deals

for these TVs are better than ever. The best deal that I've heard of so far this season is going to be a best buy, and that's a fifty four K TV for one seventy nine in store only. So that just kind of underscores the kinds of deals right television, that's right, And if you want to go bigger, of course, Uh, there are lots of deals out there heard of like up to seventy inch TVs for under two thousand dollars. I hope my husband is not listening to this. I

don't want that in my home. Do you mean for this? Okay? So all right, So having said that, what about all the accessories that go with this, whether it is the sound bar and the uh, you know, base enhancer for audio, and what about things like even home theater equipment as well. Holiday is all about deals, and so it doesn't really matter what tech segment or category. Wherever you're looking, you're

gonna find some amazing deals. You know, in store with the proverbial door busters that that we often hear about, but also online and yeah, audio is certainly part of that. We we always we see these bundling deals that that the retailers put together really curating packages, uh, for like say home theater. So yeah, those deals are going to be out there in abundance. When you talk about deals, I think about the other side and some of the retailers that are selling these as well as some of

the electronics makers. Does the fact that you are seeing such good deal as a d seventy nine dollars for a fifty inch television, do you get the sense that they're hurting that that they're having to slash prices that much to get people in the door. Well, actually, our forecast call for a one percent gain in tech spending over the holiday quarter, so we look at the entire fourth quarter for holiday one percent gain up to nine

billion dollars uh. And that may sound you know, lackluster, but it's actually quite healthy when you consider we had three point eight percent gain in spending in TwixT up to nine billion. So it's hard to repeat that kind of gain year over year over year. But yeah, the deals are out there, but still people are planning to spend more on tech this year. Just quickly give you twenty seconds. You said that you're a car guy. What

in the car do you want? Well, I'll start with a new car because my car is about I drive a truck and it's about thirteen years old. But yeah, I'm really excited by a lot of the the advanced UH driver assistance features, you know, adaptive cruise control, blind spot detection, forward collision avoidance, a lot of these safety features that are that are helping us drive safer and avoid those nasty collisions. But also all the connectivity in the car so I can bring all my content in Wilders.

It's great. If it would only give us all free parking, right, thanks very much for being televisions. My husband would totally want that. Steve Koenick, thanks very much, Senior director, Market Research, Consumer Technology Association, based in Washington, d C. Yesterday we got news that dropped on the market like a bomb shell. It was revealed that the Department of Justice was saying that it would not prove the merger between A T and T and Time Warner unless A T and T

agreed to subsequently subsequently sell CNN. Here to discuss this, whether there's any precedent for this, whether this is likely to go through is Jennifer Re litigation analysts for Bloomberg Intelligence, as well as Paul Sweeney, US director of Research and senior Media and Internet analyst for Bloomberg Intelligence. Paul, let's start with you what happened here? Uh, you know, big surprise. We saw a Time Warner trade off over six percent yesterday,

down another couple of percent today. So the market and particularly art traders clearly or not expecting, uh this type of news here. So uh, you know, as Jen can talk about more detailed, you know, the d o J kind of kind of dropped the bombshell, as you mentioned, and said, you know, they're really gonna take a much harder look at this transaction than the market had had

been anticipating. And uh, you know, I think the market felt like this deal looked an awful lot like Comcast acquisition of NBC Universal, and that was approved with some minor modifications. So the marketplace fell like that was kind of the expectation, and that was kind of built into the timing. Uh, and now the timing remains, as the company's CFO mentioned, kind of uncertain, and so that really

brought a lot of our pain out there. Jennifer, as an expert in the world of antitrust law, I know that Mr Sweeney, he's trying to be a little bit diplomatic here, and you know, because he's because we don't know what's going to happen. But I'm wondering, from the legal perspective, what is different about this particular situation compared

to all the other situations that you've seen. That is the question, I mean, that's the question that d o J would have to grapple with if they actually go to court to try to suit a block this deal, because there is a very long history, very strong precedents for this kind of deal um in the same space, as well as other vertical deals in different spaces that raise the same kinds of concerns and and possible harms, in which behavioral concessions were just fine to fix these problems. Jennifer,

let's just zoom out, mean is this legal? Is this okay? I mean, let's say that the real issue here is that President Trump, uh and this is just delving into the conspiracy theories. This is what everybody talks about when they're not on air, which is that President Trump doesn't like CNN and basically instructed the Department of Justice not to sign off on this agreement unless CNN was was sort of left out of this deal. First of all, is that a plausible reading of this or is that

vastly misinterpreting the issue number one and number two? If that is the case, is it legal? Well start by saying, I certainly think it's plausible. And the reason I think it's plausible is because this is such a departure. It's it's, it's and and this is something that there's sort of bipartisan agreement on amongst both Democratic and Republican um antitrust practitioners and officials that this kind of deal doesn't generally cause significant harm, and usually that harm you can fix

with the behavioral remedy. But here's the difficulty that the complexity of this is that there is an argument in court, There is an argument period, that there is some harm that can be caused by this deal. If there was no harm, you would need no remedy at all. So when you look at Comcast NBCU, these are probably the same kind of harms they're thinking about and grappling with now,

and you needed a remedy there um. So you can go into court and you can say, well, well, there is a harm here, and we do have concerns and we are trying to protect consumers, and that is what we're supposed to do under the antitrust laws. The question is going to be why what's different about this? As Pim already raised, why don't these behavioral remedies which the parties appear to be willing to agree with. What is a behavior What is an example of a behavioral remedy.

It's it's making commitments and signing onto an agreement that you will behave in a certain way. So for for example, not discriminate against your rivals, not try to try to try to use your leverage by owning great content or owning a lot of distribution to somehow raise the costs of your rivals who are trying to get their content on your distribution or harm other distributors that you compete with by using your own content. It's really just don't

discriminate license on fair terms. So, Paul, given the market risk sponse, do you get the sense that people are taking this seriously and thinking, Wow, this deal really may not go through. I think what the markets telling us here is that at the very least there's going to be delay in the closing of this deal. It is not going to close by a year end. It looks

like it's gonna be pushed into um. You know, I think most investors that I've spoken to over the last couple of days continue believe that the deal will close with modest modifications, if any, but that this may go to court, which then pushes the timing out of this deal out well into, if not beyond, And that is

what we're seeing in the art spreads today. Jennifer, just quickly, let's say you were a lawyer at the Department of Justice and you didn't receive any telephone call or communication, but you knew the perspective and attitude of people in the executive branch. Could that influence you well, certainly, And that's another complication here. This may not have been a direct communication, but it just could be a desire to you know. Yeah, alright, well we're gonna be following this.

And just to give you an update, the shares of A T and T they're higher right now by one and a quarter percent. Shares of Time Warner they are down by more than one and a quarter per cent. Thank you very much for joining us. Jennifer ree any Trust, the analyst for Bloomberg Intelligence, and of course Paul Sweeney, us director of Research and our senior media and Internet

analyst for Bloomberg Intelligence. And I will just add you know, I've seen conflicting reports about what the motivation was and how this is being spun, so it is there still is a lot of question about what exactly is going on here in the d J stands yes, and well, we won't know until we know. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at

pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.