Leveraged Loans Offering Better Risk-Reward: Finke

rallied significantly and broadly across asset classes and geographies. Do you get a sense of where they're still maybe value? We turned to our next guest, Tom Fink Thomas, chairman and CEO of Bearings based in Charlotte, North Carolina. But Tom comes to us today from the Milk and Institute Conference in Los Angeles. Tom, thanks so much for joining us. Um As you look about globally, where do you see

opportunities right now? Well, first of all, thanks for having me on, Paul, It's been my golden be on the on the radio with you. But um, yeah, when you look at it, yes, we did have a very uh significant sell off in most markets in the fourth quarter.

Slowly that's worked its a back uh that said, I think the you can find value in any market, but I think because emerging markets equity and and and emerging market debt have been down for so long, there's probably more upside value on a general basis UH than you might expect on the more development markets. So let's talk specifics.

In particular in Asia, I know that Bearings is focused on building out the business there, and I'm just wondering which nations in particular and which businesses, how are you

going about it. So when you look at our business overall, we're fairly broadly diversified ASCID manager UM in Asia, we've actually been there through the our legacy business on the on the Bearing side, in the equity and fixed income markets and the fund markets in Hong Kong, you know, Taiwan, UH, Tokyo and Korea for a very long time UM half a century in Hong Kong. In terms of our growth, last year we UH did receive our licensing and established

a presence in Shanghai UH. But we've also been in some of the private markets and in particular direct leverage lending UH in areas like Australian Singapore UM, where we've done a lot of transactions over the last ten years. So, Tom, so, thinking about your Asia business and continuing to invest in Asia, how important to your business that the US and China

forge meaningful trade agreements. I think it's very important, you know. Frankly, I think it was an error by US UH both parties during the sixteen election to basically ignore UH TPP. You know, the reality is you need agreements to provide the basis for trade at the end of the day. And you know, is it a distraction this uncertainty between

the US and China? Sure? Are Are we hopeful that they come up with some resolution, Yes, because it probably allows more clarity for businesses to invest and if you will, get on with it. Um So, I do think it's important for the global economy and ultimately the markets. So I'm wondering, Tom, the challenge in delving into leverage lending, in particular in areas that are you know, if not emerging more susceptible to rapid investor flows at this point in the cycle. How do you go about doing it?

Are you seeing any warning signs? Well, you know, the the leverage loan market is something that was a big part of my career before they made you know, I got into more the management side, and I've seen the cycles from the late eighties. Uh, you know when the junk bond market and drugs will blew up, through the nineties and nine eleven, and of course the financial crisis. When you talk about the leverage loan in the market,

for instance, so that how your bond market. Yes, it has grown, but you also have to look at the fact that the amount of if you will enterprise value in private companies has grown dramatically. We've seen, um, you know, over thirty years many companies go private or stay private. So just the growth of a market itself doesn't mean it's overheated. That being said, we have a long recovery and long cycle. UH, it's prudent to approach the market

assuming that you know you're later in the cycle. So you just have to be more selective uh in the deals you do, UH to be prepared for what will eventually be UH an increase in default in a credit

cycle at some point. What's interesting to me, I'm wondering Tom, if you act we are seeing more opportunities in leverage lending right now because there has been so much bad press around loans and we have seen loans laking behind high yield bonds to the point where actually loans in some in some respects yield more than high old bonds, which is an unusual confluence. I mean, is this sort

of an opportunity, Yeah, it is an opportunity. In fact, the way we are built our high yield loan business, it's all integrated, right, and a lot of our strategies can move between the bond and loan market, between the US and European markets because the relative data value does EBB and flow over time. There's times that bonds are cheap to loans and and times where you know, loans

are are cheap demands based on risk return. And so it's not that we go all into one or the other, but we may overweight at a time when, for instance, you know, loans appear more attractive on a risk adjusted basis, you know, we may allocate more there. So, Tom were at the Milk and conference in Los Angeles. What has been maybe the most surprising takeaway you've had so far? There? You know, it's a great conference in part because it is not just about sitting around talking about the economy

and the markets. And um I was on a panel with a lot smarter people than me yesterday and uh uh, and we followed Madame Legarde and one she was fabulous listened to and and just just very impressive views. But what was interesting is we moved from talking about what you would expect markets and and economies and things like that, really started talking about the issues of workforce and about education and you know, in essence, I think the skills gap is underscores a lot of the challenges of the

future and and how do you deal with that. So there's there's a number of panels focused on that, and I think that's a very relevant and important topic. Tell thank thank you so much for being with us, and best of luck to you throughout the rest of the conference. Tompan chairman and chief executive officer of Bearings, which oversees

three d and billion dollars from Cholotte, North Carolina. Last week, City Group CEO Michael Corbett said one thing that's keeping him up most at night is the widening income gap in the United States, saying that it has led not just the US but around the world, and said that it has led to increasingly polarized politics. The question is what do you do about that? And right now joining us here in our Interactive Broker Studios is Nell Abernathy,

vice president of Strategy and Policy at the Roosevelt Institute. Now, you just put out a new report, New Rules for the Century, Corporate Power, Public Power, and the future of the American economy. Digging into some of these issues before we get into the details, why is it important to bridge the gap the inequality the income inequality gap right now?

Thanks so much for having me. That's a great question, and I think we've seen that there are people all around the world, but focusing even on the US, who feel very disconnected from the growth that's occurring that we see in the headline numbers, GDP growth, stock market growth, and in the reality is these actually aren't reflecting the real experience that Americans have who are trying to put their kids through college, get health insurance, stay on health insurance,

pay for housing. And that's becoming not only an economic problem, but a political problem as well. So, what created or how did this income equality become so pronounced, and maybe what current policies, whether the government policies are, you know, corporate policies that are supporting this or sustaining this issue. We argue and this most recent report that we need to fundamentally rethink our approach to markets and our approach

to government. We need markets to do what they can do well, create jobs, innovate, provide valuable goods and services. But that's not how markets are functioning today. Due to this market fundamentalism, where we thought if we just let markets do what they do, they'll take care of everything. We've really created an enormous set of opportunities for corporations and the wealthy to extract value instead of create value. So what can you do about it? We talk about

antitrust policy. Let's reduce the power of corporations over workers and their competitors. We talk about corporate governance reform. Let's ensure that firms aren't only focused on returning funds to their shareholders. Let's talk about labor policy reform and ensure that workers can actually bargain for some of the shaff profits they're creating. In practical terms, does this mean breaking up the big tech companies and limiting share buybacks? Is

that you're calling for? Absolutely? Those are two examples of the kinds of things that would address the roots of the problem. One thing a lot of people have pushed backs, and so that share buy backs is simply that the reason why companies are buying back shares is because they don't have better projects to invest in, and if they were just to invest in other things, it would make

for a bad business model. So I think that argument looks at ending share buy backs in a vacuum, and I would argue it's only one tool of the many that we need to promote. So for example, Yeah, if you don't need to compete to stay innovative as a firm, why would you be investing. But if you have a competition policy that forces firms to actually invest in innovate, then you won't need to you you will have to put money into investment in order to maintain long term viability.

So we head towards the election, a lot of the Democratic candidates Senator Warren for example, Bernie Sanders, have talked about, you know, radically altering the tax structure, the tax policy of this country to in part to address this income inequalities.

That's something that your report dealt with absolutely. I think that we need to start thinking about taxes the way they've talked about, as well as not simply about raising revenue, but actually structuring economic policy and incentivizing different kinds of behaviors. And right now, our tax structure again incentivizes a lot of extractive corporate behaviors and and speculation and tax dodging

or evasion. And so we can think about how we come up with a pro growth, pro investment, pro democracy tax policy. So just to give us a sense of how feasible some of these proposals are, can you give the sense of what your contacts are with politicians and how mainstream these views are versus sort of up more on the left leaning side of the Democratic Party. Absolutely, these policies are actually becoming increasingly mainstream, and I think

that's because two reasons. First, the crisis is such that people will understand the kinds of tweaks around the edges are just not gonna work. But also, this is not a radical view of government. This is a level of government intervention and regulation that Franklin Roosevelt would be very comfortable with, that was common in American politics before the nineties. And so we're really not talking about, uh, some kind

of either market fundamentalism or government does everything approach. It's a both, And it sounds like this, let me ask you, is this more of a public private type of cooperative type move or do you think the government needs to take a much heavier hand here in implementing some of these changes. So we argue in this report that we need to tackle reforms long two levels. One is restructuring

markets so that markets do what they do well. And the other then is a more robust version of public power or public intervention where the government actually does some things better than markets, and that's something we've forgotten. We default to thinking that markets are always going to be more effective than government, and there are some things that

government can actually do more effectively. So when you talk about I want to go to the antitrust issues that you raise, because this is something that we've heard from other guests, the idea that perhaps people should look at breaking up or at least limiting the growth, particularly in

technology or say Amazon. And I'm just wondering, what do you say to people who argue that these companies have lower costs and improved the quality of life for people who can have easier access to goods, cheaper access to them, uh, as well as you know, more media and other things. Absolutely, so I think there are two important things to remember about antitrust policy. One, it's not simply about breaking things up. That is one option that in certain industries does make

sense in others. For example, with platforms, where you see the kind of benefits that come from having a large network, you wouldn't necessarily break up that network. You might just impose some kind of oversight to make sure, for example, they can't sell all your data to add buyers um. Second of all, one of the challenges we've seen in antitrust policy is that everything is defined by the value

to the consumer. And what we're what most reformers are arguing is we need to consider more than just consumers. We also need to consider competitors and workers. And it doesn't make a lot of sense if you can get cheap goods, if there's no other no job for you, no opportunities to build well through starting your own business, and a really dysfunctional democracy. Interesting, No, Lapathy, thank you so much for joining us nell as the vice president

Strategy and Policy for the Roosevelt Institute. Joining us live here in our Bloomberg Interactive Broker studio. Well, we continue to get more data points on big tech. This week, we had Google report disappointing numbers. After the closed last night and tonight after the clothes we have Apple reporting results. So to get more details on what is going on with the world with big tech, we bring in David Garrity. David's a chief market strategist for laid law and Companies,

also a partner at bt Block. He joins us in our Bloomberg Interactive Broker studio. David, thanks so much for being with us. Let's start with Google. How concerned are you with that slowing revenue growth story there? Well, it's been a marketing deceleration. I mean, if you look at the progression a year ago, the company was growing its

revenues by about six percent year every year. Fourth quarter of two thousand and eighteen that was this last quarter was seventeen, so you basically have seen you know, eleven

percentage points of deceleration year of year. Obviously, if you took this five percent declined quarter over quarter and annualized that, you would say that you're actually starting to see accelerating deceleration in terms of the growth and to the extent that the market tends to, you know, operate off of the second derivative in terms of looking at how prices go accelerating deceleration. I know exactly what he means. Yes,

I do too, actually, but it just does. A second derivative would call it as em topic to the downside. Look at that not necessarily a pretty picture. One thing that I'm curious about is who's stealing the share right Because Facebook, we saw increase their share marginally of the ad revenue, and this is sort of the big deceleration with respect to Google, particularly a YouTube platform. Not a lot of answers as to why what was behind the decline in the ad spending on YouTube in Google's results,

Alphabet's results. I'm just wondering, is it really a Facebook winning Amazon winning Google the big loser here? Well, I would certain they say it seems to be shaking out

that way. We could talk about who has the stickier audience, and we could say that, you know, Facebook, despite the issues that have been raised around it and which will continue to dog the company going forward, hasn't yet really seen the rate of attrition off of their platform to potentially lose uh an annuity stream, if you will, of online advertising revenue. Google really is, we know, never really been all that successful in building a social media platform. Yes,

YouTube has been a wonderful franchise for them. You know, one can argue about the quality of the content on the site, um, but you know, Google necessary hasn't had that stickiness. Amazon, we know consumers are going to at least on a daily basis and perhaps even more frequently than that. So you know, I look most significantly at Amazon's growth in online advertising revenue of thirty four percent year every year, basically double the rate we're seeing of

the seventeen percent for Google. As Amazon, clearly this is a game that they're gonna win. I think that they take it first from Google Facebook second. It's interesting. One of the uh concerns I think I've heard from investors really over the last couple of reporting periods, but certainly after yesterday, is the lack of disclosure by Google for some of their other businesses that investors feel like A their big businesses and B we think they're good growth stories.

I'm thinking the cloud business, um, YouTube, and they're concerned they're just not getting any disclosure from the company. Help concerning is that to you? Well, it's always been concerning ever since the company went public back in two thousand four. They came out with this mantra of do no evil, you know, followed by an investor relations uh mantra of saying trust us. Uh. Well, clearly what's going on here in all this opacity is not something that's encouraging to investors.

You know. Certainly we have great uncertainty is to when do we actually see the payoff from these new initiatives, whether it's way most self driving cars, um, you know, that could be five to ten years or more out in the future, and they may not necessarily be successful in this regard. So clearly we see billions of dollars you know, going you not really a well defined opportunity. So I want to shift gears a little bit because

we did get off bed after the bell yesterday. Today, after the bell, we're going to get Apple a lot of people looking for some sort of gauge on the smartphone market and also just how well Apple is diversifying into services and even uh and I know you're gonna get excited media and what could potentially happen there. So I'm just curious, what are you looking for? What do

you think could potentially be the biggest surprise today? I mean, certainly the big thing that the company is going to have to address is the expectation of a ninetent decline

year of year and smartphone sales. And then certainly that in many ways is driven by you know, weakness in the Chinese economy, but also the fact that consumers have gotten to a point where the affordability of a handset um has gotten to the point where people are saying, look, if I don't necessarily feel confident about my spending, this is a durable good and I'm just gonna hold on to what I have longer. So you know, clearly, at the end of the day, it says for Apple, you know,

they better see accelerating growth in term of services. I think the streaming media announcement that they had earlier, uh certainly plays into see an acceleration and services growth as we go out towards. But you know, Apple is a stock up from its lows u most recently, you know, certainly in a position to continue to return cash to investors. This is the point of the year, will receive their dividend decision being made typically something that serves to sustain

the stock. So you know, unlike obviously Google, where there's opacity, certainly when you look at Apple, despite the fact that they narrowed the scope of their disclosure around what actual iPhone shipments they were making. Uh, certainly provides better relative disclosure. Do you think they should be more Apple should be more aggressive returning cash? They've got over two or billion

dollars worth of cash. Um. I you know, certainly they've got the wherewithal if that's a decision that they wish to make. But one might argue that, you know, in contrast to other names, one could say that Apple has done a far better job in terms of providing clarity around the expected expected returns on their investment, as well as a better I think return on invested capital overall. David Garritty, thank you so much as always for being

with us. David Garrity, chief market strategist for laid Law and Company, also partner at bt Block. Well, it has been a big earnings day from big Pharma today. We had Mark, Eli, Lily and fires Are all reported earnings this morning. To get the latest returned to Sam Fazelli. Sam is director of research for Bloomberg Intelligence. He joins us on the phone from London. Sam, thanks so much

for joining us. It seems like, your company's had a pretty good quarter here, most beating estimates, raising some estimates. What's the bottom line? Yeah, so high Pool and Lisa the three companies reported today in and in order of performance, Uh, Lily then Fisa, then Mark Mark having the best beats on sales and EPs for the first quarter and basically

underlying business is doing well. But in all three cases called, there were some issues and questions that would raise some angst um for US at least, so angst I want to talk about Eli Lily in particular, because that seemed to have the one small miss at least when it came to revenues, I believe, and I'm trying to figure out how important it is that their actual prices declined in certain drugs. Yeah, so that's that's obviously the focus

over here when we're looking at these numbers. Um. You know, drug pricing US drug pricing is an issue that everyone's focused on, So it's not surprising that everyone's highper sensitive to when a company says that they had lower net

realized pricing. On the call, they did actually say that part of the issue for this big drug that they have with analyzing it over about four billion dollars Trulicity for diabetes, and that's obviously a big, big growth driver for them, and and and a significant chunk of their

overall revenues. So everyone's very very focused on it. And they said that actually what one of the key drivers of that missing consensus in this first quarter was inventory down downturn in the first quarter, so one assumes that that would return back to normal into Q. The problem for Lily is to a degree, it's really high PE. So at the moment the sitting despite the share price drop, at the second highest PE multiple evaluation amongst large pharma.

So that doesn't leave much room for error. So switching gears to Mark. When I when I think of Mark, I think of the drug Truda. What happened with that drug this quarter? Is that's still the growth driver for this company? Oh yeah, absolutely so, I mean these are we're only playing at the margins and that drugs analyzing it pretty close to ten billion dollars a year, and it is a revolutionary drug for the treatment of cancer,

as I'm sure you've heard me say before. The the the anomally there is that it did miss versus consensus for the first quarter slightly. Um, we have a little um uh sales scenario that we've set up, and it actually met our sales expectations for first quarter. But the key issue is that both for consensus in terms of US sales and our numbers, they were lighter. So that was one issue that I think people kind of highlighted.

But to be honest, their their growth across the board in international markets China up fifty eight percent UM, including the impact of currency. Um, that's phenomenal that that really has driven top line and their beat and their rays is pretty high quality. You mentioned the currency effect there.

Can you just give us a sense of which of the big pharmacy giants pharmaceutical giants that reported earning US this morning have the biggest currency in hacked and really how much credence to give this or how much a weight to give this? Yeah, I mean I wouldn't you know. Currency we try an old scratch beyond that, at the end of the day is completely out of their control. Um, so that you have the the the stronger US dollar

has impacted all of them. Now different companies like what different level of exposure to x US versus US, So at the end of the day, really not something that I'm particularly bothered by because come and come twelve months time, it all analyzes and it goes the other direction. So it's really not operational, so not not necessarily a major focus. So Sam one of the major focuses. However, it's just

the pressure on drug prices. I know. You know, certain sectors of the healthcare space have just been crushed this year, health insurers, as you know, you see political rhetoric ratchet up that you know, more regulation and uh, how have the big farmer companies whether and their stocks, whether they pressure and the concern about high drug prices. You know, I think they've actually done pretty well. We did have a wobble a week or two ago when the and

care for All idea was surfaced. I have to say again by UH presidential candidate m Bernie Saunders, but that is not a new proposal, certainly not from a new proposal from him. It's something that has come up before. We don't think that's got meaningful legs on it in terms of future um reality, given the variety of pushes and pulls in the Congress and Senate, etcetera. In terms of Democrats versus um Republicans. At the end of the day.

There is pressure on existing pressure on US drug prices from the payers, and the companies are competing with each other. So the way they are dealing with it is by coming up with more and more innovative therapies, things that are treating diseases not just with symptomatic relief, but actually making a patient live much longer than they did before. Examples of gene therapy and that sort of thing. Sam Fazli,

thank you so much for being with us. Sam Fazli, director of research for Bloomberg Intelligence, joining us from London. Thanks for listening to the Bloomberg P and 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 abram Woyits I'm on Twitter at Lisa abram Woits One. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio