The White House's Impact on the Corporate Community

We have a defender, someone who can explain what's going on, put it into perspective, and argue that perhaps markets have gotten a little over their skis with their hatred of the retail sector. Rick Helfin Fine, thank you so much for joining us. Rick Helfnbine is President, chief executive officer of American Apparel and Footwear Association, which is based in Washington, d C. And is a cheerleader for these beating up

retailers that are seeing so much pain. So let's just start broadly, Rick, why do you think that traders have perhaps gotten a little ahead of themselves with selling some of these shares and bonds of retailers. Well, that's pretty easy to answer. You know, when you hear there's a hurricane warning in Florida and nobody wants to fly down there. You know, you don't want to fly into an apocalypse. And people have been talking down on retail for months

now and form a whole host of reasons. You know, you go back to two thousand and eight. The first sign of coming out of a recession is a boost in retail sales. And when you see that, which we did in two thousand, retail stocks start flying up because people have a little money in their pocket, they go buy some new clothes and that's that's just the way it works. So now we're in the mature part of the cycle. And the mature part of the cycle is

look a look at the numbers. Consumer confidence sixteen year high, gasolene. These are things we look at. Two dollars and forty cents a gallon, Unemployment four point six pc, the GDP at two point six percent. These are all indicators that people are buying. Remember, two thirds of our economy is based on consumer spending. On consumer spending, but that includes consumer spending on services as well as good So there has been a pretty big shift towards services and experiences

rather than buying a new outfit, right. I mean, this has been one big driver of some of the pessimism around retail. That's true, But then you also look at the amount of goods coming into the country and you say, you know, because we can read these import numbers, we can look at domestic manufacturing, we look at the amount of apparel and foot where that's coming in the country.

There really hasn't been slowdown. People are buying product. The question is the new shopper, how's the new shopper buying?

And that's what's affecting brick and mortar retail sales. So let's talk about brick and mortar because embedded in a lot of the results that we have been seeing and some of the pessimism is this very uncomfortable period where brick and mortar has to spend a lot of money to adapt to the online world, to distribution services to online networks um while also dealing with lower margins on those sales and higher competition from people who can see

marketplaces that are more comprehensive. This is what people are worried about. What do you say to them, Well, the worry is real, but the reality is nobody's walking around naked. I mean really, realistically speaking, today you have to look at who's your customer, you know, that's the big thing. Who's buying the goods. And the millennial customers age eighteen to thirty four of them will compare a shop or plan with their phones now will still go on a

store to buy. So that's part of what's driving the price pressure down because there is price comparison. So the market is changing and retailers are adapting. And you know, I know there was a lot of noise this morning about foot Locker. You know, maybe they just didn't like what's in the foot Lockers store. But foot Locker is

going to do just fine well. But in fairness, we have seen a pretty broad based disappointment when it comes to athletic where both what you wear when you go work out as well as what you wear when you want to look like you're working out even if you're not. Um. So, you know, this is something that is raising concerns that are we seeing the death of ath leisure as one analyst put it, or you know, what's going on here? Is this a sea change in the way people shop

at an entire industry? Uh? You know, are you saying that you don't expect as many brick and mortar retailers to go to business as UH are currently kind of talking about it. You get into the numbers. We've had eighteen bankruptcy so far this year, and that would be in half the year, whereas two thousand and eight we had eighteen for the whole year. So clearly there's a lot of people going out of business. We have too many stores, that's quite obvious. We have too many malls.

We have fifteen hundred walls at the peak. We have about eleven hundred walls today. We may have eighties six hundred doors closing this year. But we have too many square foot per person in the United States. And with this size and shift to the internet adjustment. So you said we have eleven hundred malls in the US. Where do you think that number will be five new years from now? I think a thousand. I think we have been another thousand walls to go to pare down to

probably where we should be. We're overmalled, we're overstored, and you have this rise of the Internet. However, keep in mind one thing about the rise of the Internet. It's only eight point five of all the sales. So people are still shopping brick and mortar. That's why I believe the market is clearly oversold in the last week. You know, look at look at people going into the stores. Look at Nordstrom up, look at Target up, look at Walmart up, look at Gap up. So let's not focus on the

bid news. Let's assume that all these retailers are going into a period of adjustment and they will come out of it just fine. Nobody's walking around naked. Rick Healfonbyne, thank you so much for joining us. Truly a pleasure to hear what you have to say. Rick Healfnbine is president, chief executive officer at American Apparel and Footwear Association, which is based in Washington, d C. Another share that we

are watching today is that of Infocis. That's the I I T company and outsourcing provider who shares fell as much as thirteen percent today, wiping three and a half billion dollars from the company's market value. This came, of course, after it's chief executive officer v Shall seek a resigned even though many had really herald hit him as the driver A lot of a lot of the companies gains over the past few years. Here to discuss what the

road is ahead is anorag Grana. He's our senior analyst of software and I T Services for Bloomberg Intelligence and he joins us in our Bloomberg eleven three oh studios. Now, Anora, can you just give us a sense of why the CEO resigned and why it's being perceived so negatively by

the market. This company has a very interesting history. Prior to Vichal taking over as the CEO, all the you know, older CEOs were founding members of the company, and you know, there was a lot of pressure that the last couple of CEOs didn't do the job as well as uh, you know, other publicly traded companies. So they brought in a new guy that didn't was not a founder uh from SAP. He did a good job. He's done a lot of interesting things in the company since he came over.

Employe atriction has dropped, sales has improved, the overall perception of emphasis is also improved in the industry. And then but you know, one of the founding members has always been nudging and bothering the board about you know, constantly interfering with the way he's been running it, so he just got sick of it and said, I'm quitting. So why did one of the founders do that If he's doing such a good job, if he's created so much market value. It seems a lot like some cultural differences

between the two. Now, remember this is a forty billion dollar company or around forty billion dollar company without the drop, and you know a lot of the complaints were, well, why are you paying so much so much? Why are you taking charter jets? How much? Not not him? I mean they had paid you know, the CFO a little bit higher than what the founder thought was appropriate. And it was basically constant interference from these founders as to how the business should be run that made it, you know,

you know, made him said that, you know, enough is enough. Well, let's talk a little bit about the business of a process, right, because right now it is a promising time for a lot of the services that they provide. But they're trying to transfer over to more web services and provide software solutions. Perhaps it is a little bit away from their original wheelhouse, right, Can you give us a sense of what the big

challenges are? So if you look at this industry, has been dominated by you know these three or four major companies taught a consulting services in Force, Cognizance, web pro Um, and all of them do similar kind of products and services, but the bulk of their revenue comes from a lot of legacy I T work, application maintenance and software development, and the industry is moving more towards artificial intelligence software

oriented tools. And you know this guy at Emphasis his background as he came from SAP, so he has done a lot of new changes ever since he came as the CEO, which is where the space has to go. Um. So if the place is kind of commoditized and you don't have a good leadership, just in this case, and you know in an influsis it might give chance for others to take shared away from the company, which is I think one of the reasons why you see the

stocks dropping quite a bit. I see. So in other words, the co founders looking at this company the way he created it, which was providing providing outsourcing services, helping with your company with your company's computer system from AFAR, which is also sort of challenged right now given the HB one visas and the emphasis are not outsourcing as much at least in the US. Right well, publicly they have said that they don't you know, find any fault with

his strategy and execution. They are more quite concerned about some of the corporate governance issues. And now, I mean the company has had an investigation to see you know, there were any as there's some visible ragley allegations about a particular acquisition, and they went through as this whole round of um, you know, going through an investigation and

they didn't find anything. It is those kinds of issues the founders are more um you know, problematic or issue have issues with rather than the running of the company. What about this idea of this emphasis on a more nationalistic approach to business and how this could affect in persus it. You know, they have said that they will be hiring a lot more people in the US, and

that's just part and parcel of what they do. Um. In fact, if you do have to do emerging technologies for your clients, you do need more people on site, which is you know, which is what all of these companies are doing at this point. Um. But the bigger issue in this particular cases, who can come Now? I mean, I mean you really cannot have a non founder is the CEO of a company at this point, because whoever comes will face the same exact scrutiny from the founders.

They're going to start looking at every move this person makes, who they hire, what kind of pay goes in. So it's going to be very difficult for them to find a SEEO. At this point. Have the founders said anything, Yeah, they're still complaining. I mean I just saw that there is a there is another letter that they have sent out blasting the board, and I mean they might have to, you know, either either you know, in my my view, either the founders will have to sit down and decide.

Either they come and run the way they wanted and they completely rechange the board and the management team and everything, or they get rid of their you know, the stake that they have and then let the let the other shareholders on this company. This is really interesting to me because there's a lot of money at stake, because, as you said, a forty billion dollar company, and clearly the market has retraced some of the losses from earlier. Now the shares are only down only down a little more

than eight percent. But you know, you raise a lot of very important issues just about the path forward at a time when this is a very competitive space, when they do have to make a lot of investments and a lot of decisions sooner than later. Uh, and they now are facing a leadership void and a very aggressive co founder. Fascinating story. Ana Grana senior Analystic Software and I T Services here at Bloomberg Intelligence and he joins

us in our eleven three oh studios right now. I am so pleased to be speaking with Mike Buchanan, Deputy Chief investment Officer at Western Asset Management. It oversees four hundred and thirty three billion dollars and is based in Pasadena, California. Mike,

thank you so much for joining me. I want to focus a little bit on what we've been hearing from a growing number of big asset management firms, which is, we are getting concerned about the overvaluation of US high yield bonds and we are reducing allocations to this debt. Where do you stand on this? Well, first of all, Lisa,

thanks for having me on. And yeah, you're right. I mean that's something that um, we we hear a lot from our clients, from consultants, concern that when you look at the corporate credit markets, and it's not just hi yield but investment grade as well. You just look at spreads, you look at yields. Valuations overall seem you know, somewhat compressed. And our view is that, Um, it's not necessarily indicative of a market that's that's over bought or it's certainly

not in bubble territory. I think you have to put it in context. You have to think about what is the fundamental backdrop that's supporting these valuations. And it's very important to to marry those two. And when we look at that, what we see our fundamentals that we think are still very strong, Uh, the most part moving in the right direction. Um, And I think you know, valuations uh, certainly not table pounding. We're finding opportunities, and in high

yield we're finding opportunities and investment grade. But to be fair back to your question, we have been reducing our our allocations just on opportunity. We're finding some other areas where we think, uh, you have better risk adjusted returns, so skewing our multisector portfolios in that direction. Like where where are you seeing better opportunities? Well, I think, uh, local emerging market, currency, debt is probably our our highest conviction idea right now. UM. And you know it's you

think about a world that is where yields scarce. UM. You certainly can get a lot of yield in emerging market local currency debt. UM. And I think there's a lot of macro forces that are that are behind you and should result in some tightening of these spreads or these yields relative to developed market. Um. You're starting to see growth now for the first time and in really three years in Russia and Brazil as an example, positive

growth there after two consecutive years of contraction. Uh. Some of the inflationary pressures in those economies UH and and and even broader emerging markets seem to be uh subsidying. It's going to give their central banks a little more flexibility on policy. And UH. You know, I think you're also seeing a little more of a bias towards policy discipline and reform. UH. So we really like take advantage

of of a lot of those opportunities. And that's where you know, as we reduce some of these credit positions that I mentioned earlier, that's where a lot of that money is going. In correspondences before this segment. You also noted that a sector specific wager, you're looking at investment grade credit in the financial metals and mining and energy sectors as well as rising star opportunities in high yield. Are there specific names that you're targeting within that rising

star category UH that you really believe in strongly? Yeah, I think that's a real interesting trade in high yield right now. You know, people don't look at the the shift and composition UH in terms of ratings in the market UM as much as we think they should right now, and you're definitely seeing less triple c issuance, You're seeing

more double b issuance. The double B market within high yield is now the largest portion UH in terms of rating UH category within the high old market, and we think there's an inordinate number of those double bees that we think have a reasonable chance to make it to investment grade within the next year to year and a half.

Specific names, yeah, I mean they're they're you know, kind of broad based, but I can throughout, you know, like Haynes Brands is a good example, Park aerospace, even in some of the you know, sectors that seem like they're UH somewhat stressed. You mentioned Metals and Mining, Freeport mcmaran.

There on the energy side, Williams Pipeline Company. Uh, there is really I think the bigger message is there's just a very large number of these that our research teams identified, and we think you'll get not only a decent amount of income just from coupon clip there, but you'll also get some total return from spread compression as they make that jump from double B to triple B. Let's talk Tesla. You didn't buy those bonds, did you. Well, we did

not participate in that deal. And you know, so it wasn't because it's not a great company, but um, it's really as a fixed income manager. Uh, you know, we saw some things there that just didn't really uh compel us to to to to participate in that deal. Didn't think it offered a lot of relative value, and we thought there were some risks there. But you did go for Amazon. Amazon just sold the sixteen billion dollar offering. Did you even buy the forty year bonds? We did.

We We bought Amazon um across most maturities. Uh. And you know, it's interesting at least you look at those two deals on the surface, they look somewhat similar. Um, you know, there are obviously two great companies with tremendous management teams, very proactive vision and in great leadership. The difference being free cash flow generation. Tesla, you know, kind of a different part of its its life cycle, still

burning cash, no free cash flow generation. It's going to take at least three years um to get there, and you certainly have execution risk and you know, a little over five percent yield. We thought there were better UH opportunities in the high old market, but you go over to Amazon. Amazon, you know, really a pristine balance sheet.

They are generating a lot of free cash flow over ten billion UH per annum by our estimates, great liquidity profile, over twenty billion of cash and liquid securities on the balance sheet. Triple A balance sheet. Even though the ratings are are somewhat odd at B double A one double A minus, we probably think it's closer to a high single A you know, double A type company. So um, yeah, we we really like the Amazon deal. Thought it was

priced right and took advantage of that. And Mike, just to give you some kudos, the bonds are trading up in the days after trading, so it seems like others agree with you. I want to ask you about cash holdings, because there have been a series of articles talking about a reduced amount of dry powder or cash in investment grade and high yield bond funds, and I'm wondering where you stand on that and whether you've been also eating into your cash piles in order to take advantage of

some of these opportunities. Yeah, I mean, are we we manage our cash in accordance with what we see as opportunity in the market. And yeah, right now, Like I said, that's it's not a table pounder in either investment grade or high yield. So we're operating with, you know, a little bit more cash than maybe we traditionally have, UM to take advantage of you know, maybe pullbacks or some

new issue opportunities. Um. But I think the also, I mean, just kind of speaking beyond Western asset management and maybe perhaps looking at some of our competitors, you've had a tremendous amount of investment grade new issuance recently. And it's not just the Amazon deal. You've had uh, some very high profile you know, the A T and T issue and B A T. You know, these are big, big issues. So UM, a lot of that cash has probably been deployed,

speaks to the leaner cash positions. Mike Buchanan, Always a pleasure. I love speaking with you. Mike bi canon as deputy Chief Investment Officer for Western Asset Management, which has four d and thirty three billion dollars out of management and is based in Pasadena, California. Always fascinating to hear what looks good and what doesn't for that behemoth money manager.

Right now, I am trying to wrap my head around what it means to be a responsible investor and to get a better sense of it from somebody who knows best because he helped found the whole movement. Is John Stroyer, chief executive officer of Calvert Research and Management, which was acquired by Eaton Vance earlier this year and is based

in Bethesda, Maryland. John, I was reading some notes earlier, and uh, evidently Calvert helped found this concept, this United Nations Principles for Responsible Investment that now counts seventeen hundred large investors in more than seventy trillion dollars in assets. What does this mean? Great? Well, first of all, thanks for having me on the show and your question, what does it mean to be a responsible investor is a

very important one day answer. First and foremost, what it means to be responsible investor is to get the right amount of return for the risk you're taking. Some performance is a big part of what we think about day in and day out. The second big part of our process is understanding how companies are impacting the environment and how companies are impacting society. But again, it's critical that we find the companies that are able to do a great job for people in planet and do it in

a way that works for financially motivated investors. So is your job to essentially come up with a framework of what's responsible to give to some of these investors and say, here, if you want to sleep well at night, if you want to feel like you're doing the right thing with respect to human rights, with respect to global warming, with respect to whatever it is that you think is super important, here's a basket of stuff to buy you bet. And

the question really is what matters to which companies. In other words, a company that's in the utility sector, we need to really focus on their greenhouse gas emissions, their percentage of power generated from renewable sources, what they're doing visa v fossil fossil fuels, those are very very important considerations a company in the tech sector, it's a different set of issues. We want to understand their ability to create well being for a diverse workforce, their issues around

Internet privacy and security. So you said it right. We want to give clients the answers in terms of here are the companies that are really making a positive difference. But it means different things to different companies, and that's where our big research platform and industry leading team of

analysts really come into play figuring that all out. Can you give some perspective on how much this sector has grown over the past few years, just in terms of now well, As you said, Calvert was one of the founding signatories of the United Nations Principles Responsible Investing in twenty six. At that time there were thirteen of us representing just a few billions, a few hundred billion dollars

in assets. Today, seventeen hundred large investors have signed on seventy trillion dollars um in in assets under management worldwide. But what does that mean? Seventy trillion dollars in assets? Does that mean as far as companies that are adhering to these principles. This is their total a U gasset owners, so large pension funds and other investment management firms who have said this matters. We think it matters to understand how a company is impacting people in the planet in

our investment process. But let's talk about it from a financial advisor and a client's perspective. What do we know there today? There's still a pretty big gap between the investors who have put their hands up and said, hey, I'm interested in responsible investing, versus the financial advisors who are comfortable with their level of expertise in talking about it.

About seventy three percent of investors and Eaton Van his most recent ATOMICS survey have said that they're really interested and responsible investing, but only about twenty three percent of financial advisors have said this is a meaningful part of my business. So we know that advisors are catching up. They're developing expertise or learning about products and ways to serve these clients. But still, one of the most interesting parts about this movement is its investor lad it's interesting.

Uh and and just real quick, you noted before the segment that President Trump has actually given some steam to this movement. Can you just encapsulate that in thirty seconds? Sure. I think we're all looking to companies to solve some of our most pressing social and environmental challenges today, more

so than we're looking to the federal government. UM. I could leave it at that, but I'd also observe over the past couple of days, a lot of CEOs have stepped up and said, we're going to disassociate ourselves with these business counsels that the president put put together, and this is part of it. These are these are companies

saying we're going to continue to press forward. We're going to work hard to solve the challenges that the population of the United States needs to have solved, environmental challenges, equality challenges, social challenges, and we're going to do what sort of on our own. So I think that the Trump administration has made it clear the companies, more so today relative to government, are responsible for our environmental and

social outcomes. Thank you very much, John Stroyer, chief executive officer of Calvert Research and Management, owned by Eaton Vans and based in Bethesda, Maryland. 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 Abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio