Western Asset Adding Junk Bonds, Local Currency EM: Buchanan

of tranquility, or almost so. The big question here is is that truly a reflection of not a lot of risk and steady as she goes? Or is this something else and perhaps the calm before a storm? And here to help us understand that is Mike buck And And he's Deputy Chief Investment Officer at Western Asset Management Co, an independent affiliate of Like Mason, which overseas four hundred and thirty three billion dollars uh and he is based in Pasadena, California, where he comes to us from. Mike,

thank you so much for being with us. What's your take here? Because we have seen a bit of spread widening, particularly in high yield credit UH and yields are rising. You are seeing some high yield bond deals getting pulled. Are we Is this sort of the precipice before a bigger weakness AILSA and thanks for having me on UM. Yeah. I think our view is that, no, it's not the

precipice before some more meaningful fall. In fact, you know, as we were watching all this volatility unfolding the equity markets UH one, we maintained that it didn't seem like this was a fundamental pullback. We couldn't find any real evidence that, you know, fundamentals were the catalyst for what was happening. It appeared to be technical. I think when we got more clarity on the short ball funds and how they were playing out in the market, it became

a little more clear what was driving that volatility. And we came in yesterday morning really hoping to put some money to work at UH meaningfully cheaper levels, and as you pointed out in your introduction, didn't quite see that. But we have seen some some weekending in price and I think that's just creating a better opportunity in a lot of these spread markets. So what are you buying

right now? Well, we're adding to high yield, and you know, high yield still at you know, three d and sixty basis points over if you look at just the generic index, that's that's almost forty basis points wider UH than where we were towards the end of January. And you know, as you pointed out with with overall rates moving higher, you know, that gets you to north of six percent. And you know, as much as we wanted it to go a little cheaper to add, we still think that's

a very good opportunity. We look at the fundamental backdrop and seem very supportive credit fundamentals. UH fourth quarter earnings are coming in very strong h so just a lot of a lot of fundamental support for adding to that position. UM also emerging markets. We think the real meaningful opportunity and spread markets right now is in local currency emerging markets. And again didn't really see you know, a meaningful sell off, but UM saw a little bit of a backup, and

I think that just made it more attractive. Mike. If yields increase, if interest rates increase, won't that put even greater pressure on companies that have to go to the high yield bond market. In order to finance their businesses. Yeah, I think at the margin, that's that's accurate. Um. You know, you do have a lot of below investment grade companies that have accessed the floating rate market, and now that short term rates libraar is essentially above all those library floors.

Every pick up in lieb or translates into you know, higher interest costs for these companies. So you do have to have a view on ultimately where you think rates are going. Our view right now is that, um. You know, if you look at what's priced into the market, you know, three hikes this year, two hikes next year, that pretty much gets you to the FEDS target their their terminal rate. Um. So we we look at where rates are currently and we think based on growth, based on inflation, Uh, there's

not a significant risk of meaningfully higher rates. Mike. I want to talk about liquidity because you said that you were hoping, you came in yesterday morning hoping to buy some discounted bonds. Uh, there weren't that many opportunities because people weren't necessarily selling them at such a big discounts. And I'm wondering, you know, how concerned are you that

you really cannot move very big blocks of bonds. And I know liquidity worries were all in vogue a couple of years ago that people stopped caring, but I'm starting

to hear about it again around the margins. What's your take on this, Well, I do think you have to be very sensitive to um, you know, liquidity in the market, and it's just a byproduct of of one the growth in the corporate credit market, uh, combined with the amount of risk capital that dealers have to commit to their their inventory, and that was typically you know, the first layer of of liquidity UM. And and just that dynamic alone tells you there's less liquidity in this market, and

we operate with that assumption. When we're pricing out a bond. We want to make sure that that we put a little more of a liquidity premium than we did, you know, let's say five or or ten years ago. UM. That being said, Uh, what we found yesterday, and you know, you only know this when you're kind of out in the market and you're you're testing levels, is that UM, the bids were actually very deep in the credit markets

and the e M markets. UM. You know, it seemed like a lot of people had the same view or or or we're trying to do the same thing that we were, which was put money to work at more attractive levels. So I do think if if, if we had wanted to sell that, um, the bids were there, albeit at maybe at lower prices, and we would have been able to move substantial size. But to me, it seemed like more more investment professionals were lining up on the bidside, wanting to be buyers at lower levels as

opposed to wanting to sell it at higher levels. Where's the biggest opportunity left in credit? I mean specific sectors or even companies. Yeah, I mean I think there's there's still a few within developed market credit. We do like the high yield space, and I know that maybe a little bit of a contrarian view, but our assessment really is that ultimately fundamentals drive valuations, and fundamentals we see improving, we see UH leverage metrics going lower, we see UH,

we see cash flow generation improving. We think tax reform is going to be a little bit of an added tail wind. And like I said earlier, at three sixty basis points over treasuries, I think, um, that's that's that's a reasonable. I mean not not a table pounder, but a reasonable relative value anomaly. UM, I do think in it within high yield. Uh. You know, you can focus on some of the strong double bees that have a a reasonable chance to move to investment grade. I think

in names like Freeport, McMoRan, H. Williams. You know, those are names that UM, we think can definitely get to I G. And if they do, you've you've got probably another thirty to forty basis points of spread tightening there. I just want to give you about twenty seconds that you talked about emerging markets. What about Argentina, the Republic

of Argentina. We like Argentina. We think that UM, you know that you're just you're starting with such a high nominal rate almost fifteen percent on their local currency tenure. UM that even when you factor in the inflation, and by the way, we think inflation is trending lower there. UM, you look at the real yield and that looks very compelling when you compare it to the real yields that you're getting in most developed markets. Thanks very much for

being with us. Mike Buchanan is Deputy Chief Investment Officer for Western Asset Management. They are an independent affiliate of leg Mason helping to manage more than four hundred and thirty billion dollars. Joining us from Pasadena, California. Tesla a company to surely draw some passionate responses, whether people are afford it or against it. Here to talk about what to expect for the earnings which we should get after the bell. Today's Alan Boum Auto Analysts and principle Aboum

and Associates. Alan, thank you so much for being with us. How much are we really going to learn about? The burning question? And no, it is not the space rocket that was launched yesterday. It is can Tesla actually produce the cars they have promised? Yeah, I mean the answer is they can. The obvious question is when, uh and so uh you know, the the idea of are they going to hit their goals at the end of this

quarter and at the end of the next quarter. Each of those have been put off several times and obviously that's the burning question as you as you mentioned for the earnings called this afternoon because this is obviously a future stock, you know, it's based on where this company is going. Um, and so that's the issue, ar if,

that's the issue. Is it likely that they're going to announce any management changes at Tesla because there has been a rotating senior executive panel when it comes to actually producing this model three. Yeah, there have been a lot of changes, and actually I'm more interested in this probably wouldn't get much coverage in the in the call today. On the operational side. Uh, you know if some quarters there even a year or two ago. Uh, Tesla brought

in some manufacturing experts. Uh that got them uh some progress obviously, but those are the kinds of things that that they need to do. UM. I've always said that Tesla understood, unlike a lot of it startup EV competitors, UH, that it was an auto company. UM. And it has over a long period of time for AUDI in key technical professionals. Uh, there's obviously been a fair amount of churn there. Um. And uh what they're trying to do is obviously very difficult. So they need that kind of

help and uh those kind of questions need to be answered. Allan, I don't understand how anyone tries to actually value these shares. I should just point out that the broad SMP index is up lesson two percent, Tesla shares up about ten and a half percent just so far this year, following a forty game last year. How are you evaluating this company? Well, clearly you can't do it on the fundamental This is

a momentum stock. This is an emotional stock. I'm not gonna sit here and say, well, based on the expectation of failed production profits, we're gonna see this. Um. The market is determining this stock. And obviously that's the ridiculous and true statement. Um. But the point being is how can they move forward? As obviously they continue to miss the targets. Now, the flip side of that is the

Model three is different, um. And what I mean by that is, Um, you know, the bolt is out there, the leaf has been redone and we're gonna have a second version of it later this year. And I would argue that just doesn't matter because the Model three, the Model Esque, the Model X, they are viewed in a different spectrum than those vehicles. Now, what does matter, perhaps is as Audi as Poors, as BMW, uh as uh

as Daimler start to put out models. Um. And yes those are luxury brands, and Tesla is trying to move down market, if you will, But it's still viewed in that luxury mill you and so the that has the potential to be a problem. I just don't see the bolts or the leaf uh as as a competitor. Really, why not, because it's because of the way the product is viewed. What Tesla has done is not only did they create an electric car, obviously and and but they created a good car from a from a non uh,

environmental perspective. It was is fun to drive the S and the X, the three. It's obviously going to be different, but it is still viewed within that that genre of being Okay, this is something special and uh. Of course, you know, if you can't make the car, or if the quality isn't awful, then you're gonna lose some of that specialness if you will. But I just see it as still being has the opportunity to be viewed in

that positive light. Thank you very much. Alan Boum, auto analyst and a principle at Boum and Associates, giving us a preview of Testa the shares of trunk they are higher right now by more than twenty six percent. After agreeing to sell the Los Angeles Times for five hundred million dollars, this begins a new chapter in the newspapers

one hundred and thirty six year old history. Here to tell us about this another media events his Porter bib managing partner Media Tech Capital Partners, and he can be followed on Twitter at Porter three. Al Right, Porter, what do you make of this sale to a local investor? And? Um, the future of the San Diego Union Tribune and the l A Times, Well, the l A Times and and perhaps the San Diego Tribune, We're both going to implode

over the dysfunctional Trunk management. And so this is a lifesaver for the papers and for the community, and having a local owner is a huge benefit. The real issue, though, is the price. Half of half a billion dollars is twice what Jeff Be's was paid for the Washington Post. This is cash twenty in cash and pension liabilities. Yeah, but he's a the buyer is a shareholder, major shareholder in Trunk. So, Uh, he had to have some insight

into what he was doing. Um, I think if he, if he is smart, and he lets the editorial and management staff of the two papers, uh do their thing. Uh, there's a great opportunity because clearly the l A Times is one of the three great newspapers along with the Washington Post in the New York Times that will survive in the United States and globally. I think there's a big question. And we've actually seen the Washington Post in New York Times gain traction with getting subscribers actually pay

digital subscribed. That's what I'm saying, digital subscribers. I should have said the digital parks. But but you know, the actually pay for the content and the l a times UH needs to provide. Yeah, they're they're offering a dollar ninety nine for six months subscription. It's not that's not

one but one dollar nine. But with respect to subscriptions, we also got results from Disney last night, and I thought that it was interesting what they're doing with ESPN, looking to create some kind of UH special service that you can pay for almost five dollars a month for. What is this and does that make ESPN more valuable or is this just more noise? Well, ESPN, like everything else on cable UH and and traditional television distribution UM, the legendary media that we used to know UM, has

been losing customers. And when they lose customers or viewers in this case, they lose advertising revenue. So the Disney is adopting over the top two revenue stream. They want subscription money and they want advertising, and they will do that because an awful lot of people subscribe to cable right now for two reasons. HBO and ESPN and all

the live sports that ESPN can provide on cable. And if if you can save eight ninety d plus dollars on your cable subscription and spend only five or ten or fifteen for HBO and for ESPN, your way ahead of the game. And that they're targeting the millennials who are already over the top and not they're not cord cutters, their cord nevers. And that's the future. Tell me about the future of Viacom. They're going to be releasing their

results tomorrow before the market opens. Uh, tell me about the challenges that Viacom faces and the h I guess it's a maybe they could even make it into a movie. Viacom and CBS and the red Stone Family that that that's something Viacom could do, because Paramount could use some some new down in their their film side. I think we're not in an apocalypse, but we're in a sea change train in sition period two thousand and eighteen is going to go down as as the end of legacy

media and the real beginning of digital media. And Vehicom has to combine with CBS. Not for any other reason than that's what Sherry Redstone really wants to do. She's put her foot down. Less moonves is is the stumbling block because he wants unfettered, absolute control of the combined companies or he won't play. He did try to buy CBS three years ago and he couldn't persuade the Ridstones to sell it to him. So he may or may

not be part of the picture going forward. But what is is the next shoe to drop is Verizon steps in and buys the combined Vehcom and CBS. And Sherry knows that if CBS, which is Verizon's real target, um doesn't. If CBS gets bought by Verizon, she'll never get rid of Vehicom and it'll just die. I want to I want to pick up on something that you said digital media they need to transform to that. What is that and what is the uh sort of premier model of

who's doing it right? Well, Disney has a good start, but you have to give Netflix as the pioneer. They have done it better than anybody. They've got a ninety million subscribers in the United States right now. They've kept the price low. If you remember three or four years ago, Netflix tried to increase the monthly subscription and the bottom fell out of their subscriber base. So keeping the price low. Uh,

That's that's half the secret. The other secret is having terrific content and lots of it and refreshing the content. That's why Netflix is spending eight billion dollars creating new content this year. Twenty one century. Fox is going to report their results after the market closes today. What are

your thoughts about the Murdoch empire. Well, Uh, Rupert has one last team and that's to be the largest shareholder in Disney, which he will be um he and his family and his and his family trust when the Disney Fox deal billion dollar deal, that's right, and and what he will be left with is what he what he knows and loves, which is news and sports. And by the way, he's still trying to get control of Sky in the UK and the government that the parliamentary regulators

have said there's no way, Jose. They want Disney to buy those assets and to own all of Sky, which Disney wants to do as well. Bob Iger mentioned that in his earning school yesterday, So just a real quick what's the m and a deal that hasn't happened yet that we're going to be talking about later this year. The real issue is what happens to the cable companies, because they're going to lose the cable business over the

next five years. The flips eye of that whole story, though, is that they are the largest Internet service providers and they will get more and more entrenched in providing a faster, better, and unfortunately more expensive access to the Internet. So in other words, Verizon and others other Verizon already has that Comcast Charter spectrum. The uh look, look what all Tiss has come up with. This is the future of the cable industry. They have eliminated the cable box. They've got

voice controlled. It've eliminated the remote control, so that you can just say channel five verbally the way you would to Alexa or Google Assistant, and that changes the channel on your TV. That's the future of of the cable industry. But it's really all targeted at Internet and over the top. Porter, bb thank you so much for being with us. Always a pleasure. Porter, managing partner at Media Tech Capital Partners in New York, joining us here in our eleven three

oh studios. The shares of Win Resorts are hired by nearly ten percent. The former chief executive of the company, Steven Wynn, he owns a little bit more than eleven and a half percent. Former wife Lane Win owning about nine and a quarter percent. What's next for the company that has his name on the door? Here to tell us more? Brian Eggar are senior Gaming and Lodging analyst for a Bloomberg Intelligence Brian, thanks very much for being with us in coming in so all right, give us

the details about Win Resorts. When you've got someone whose name is literally on the door uh and owns almost twelve percent of the company, and he's no longer going to be running it's next. So the successor CEO, a guy named Matt Maddox, had previously been president. He was chief financial officer before that. UH, fairly well known and well respected by the street. Clearly not known for the developing of all the UH of all the famous casinos for which Win is known going back to the days

of the gold Nugget and mirage. Nevertheless, I think there was some expectation that we'd see a succession here, given the allegations that came out on February and the subsequent scrutiny by both the Bord of Directors and Win itself and several gaming regulators. So not entirely unexpected. Not expected, but a lot of people were talking about the cult of personality amid a lot of the allegations, and you know he had that, so you know, will there be

something lost without that? I think you could argue there is a win premium associated with the valuation and with the stock having retreated from the low two hundreds before this scandal broke two more recently mid one sixties today back to the one seventies um much of at has been taken to account of the way we do the math. If you lob one multiple point off of the valuation of the Ibadat cash flow in either Vegas or Macau, it reduces the value of when by anywhere from three

percent to five percent. Much of that has happened. The reason the stock is up today is with the resolution of succession. Uh it does away some concerns that regulators might have had about suitability of Mr Wynn himself and perhaps reduces the risk associated with them pursuing their midnightteen, mid twenty nineteen opening of a casino in Boston Harbor, which is a really important project for the company. Brian, why didn't the boards suspend Steve Win prior to this? Uh?

This announcement? I mean, you know, when the investigation was going on, So basically the day this news broken was originally discussed in the media when Resorts set up a special committee of outside directors to investigate the allegations, parallel to the investigations being done by gaming regulators in Massachusetts as well as Nevada. Uh. And this is really the outcome of of that that process of reviewing the allegations

and coming to them. But it wasn't made. If it hadn't been made public and splashed across all of the media, do you think they would really have been investigating. I mean, it was a seven and a half million dollar payment, right, one could argue, and we have looked at this in our own written research that the board itself, from a governor's perspective, has to be held to a greater dey

of accountability. We've looked at things like age, tenure, gender of the board itself, so no doubt the board itself will be subject to ongoing scrutiny. I admit Steve wins resignation itself does not completely address what the board should HULD not have been doing well. But on that point, is there some kind of legal liability that's hanging over the company as a whole since some of these allegations

were known inside the company, right? I think what needs to be determined is what wet allegations were known, at what time they were known, and I don't have the

answered to that. What I will tell you is that what regulators were concerned about, and very much the board I think has been responsive to the risk of regulatory license UH being removed, is the suitability of Mr Wynn in particular, or not only the allegations themselves, but whether or not with respect to the legal settlement that he had made with at least one individual, whether or not that legal settlement was suitably disclosed. So the Massachusetts Gaming

Commission is going to continue to look at this. I think you're actually having a meeting today and in the process of doing this, they still have to um address these issues. My assumption is that Win's departure goes a long way towards addressing some of those concerns, but ultimately the Gaming Commission itself still has to determine whether or

not it's comfortable with suitability. We think the likely is they will proceed and the project will proceed, but I think the everyone involved in that application process is still going to be held accountable for what they did or did not disclose. Any idea of what the role of his ex wife, Elaine Win will play. At the time of his departure, UH, Steve when himself had voting control over the shares the nine percent of shares in when resorts owned by Elaine Win. Steve Win, as you pointed out,

still owns twelve percent of it. Some of the details surrounding his departure and the relationship with the company still have to be worked out, but what we do know is he has gone and Matt Maddox, former president, takes over as CEO both of the Las Vegas operation and the Becau operation, whether where there had also been concerns about the renewal of a gaming license there which expires ino.

Is there some kind of way to handicap the monetary value of any potential investigation, including the one that regulators are meeting about today. I don't think that's something that's readily quantifiable. What we have endeavored to quantify is both the value of the wind premium multiple assigned to both the Las Vegas and co operations, and also the value of the Massachusetts property, which we estimate probably was probably about tem per cent of the enterprise value of this company.

Uh And certainly, again, if you're ask me why is the stock up today, for example, I would say that's probably because the risk of a forfeiture of that license is greatly mitigated, if not completely eliminated by When stepping down, Brian Egger, thank you so much for being here with us to sort of break down and understand the story from a bigger picture point of view. Brian Egger, senior Gaming and Lodging analyst with Bloomberg Intelligence, joining us here

in our eleven three oh studios. Thanks for listening to the Bloomberg p m 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 bo