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Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you,

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Speaker 1: along with my co host Lisa Brahma wits. Each day

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Speaker 1: we bring you the most noteworthy and useful interviews for

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Speaker 1: you and your money. Whether at the grocery store or

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Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple

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Speaker 1: podcast or wherever you listen to podcasts, as well as

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Speaker 1: at Bloomberg dot com. Well. One of the things that

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Speaker 1: investors are looking for when they think about this pandemic

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Speaker 1: and the coronavirus is what is going to be the

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Speaker 1: role of biotech and big farm in coming up with

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Speaker 1: some treatments, ultimately a vaccine. There's some decent news out

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Speaker 1: of Gilead Sciences today. They may have on they may

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Speaker 1: be on to something to give us a sense of

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Speaker 1: kind of where we are with the healthcare system and

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Speaker 1: the biotech companies and the farmer companies. Who welcome our

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Speaker 1: good friends, San Fazelli. San Fazeli is a director research

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Speaker 1: for Bloomberg Intelligence, but more importantly his day job, he

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Speaker 1: is one of the top healthcare analysts. He's based in London.

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Speaker 1: Uh So, Sam, thanks so much for joining us. Give

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Speaker 1: us a little sense of what news was out of Guilliad.

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Speaker 1: How important is it, pipaul, I hope you're all well,

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Speaker 1: and so obviously we've got two bits of news that

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Speaker 1: have just come out. What Gillyad itself put out was

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Speaker 1: a try test that they're done to try and see

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Speaker 1: where they are. Five days of the of the drug

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Speaker 1: is as good as ten days of their drug. Obviously,

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Speaker 1: nobody wants to be going in for a daily infusion

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Speaker 1: of a drug more than they have to. So in

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Speaker 1: that study that they reported, which was in very severe patients,

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Speaker 1: apparently five days was just as good as ten days.

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Speaker 1: A lot of people are now trying to read between

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Speaker 1: the lines, look at the number of patients who recovered

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Speaker 1: or didn't recover, and trying to understand whether the drug

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Speaker 1: works from that trial. But of course it wasn't controlled,

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Speaker 1: and you know what what our motto is, if it's

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Speaker 1: not controlled, if it's not randomized, you really have to

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Speaker 1: wait until you see that data. The other bit of

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Speaker 1: news is this headline thing that we've seen now I

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Speaker 1: think Max talked about earlier on the radio to that

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Speaker 1: was that the National Institute for Allergy and Infectious Diseases

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Speaker 1: has got this trial that is randomized as apparently worked

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Speaker 1: in four hundred patients, and there's going to be some

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Speaker 1: data on that. Now that's a proper trial that's testing

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Speaker 1: ten days worth of treatment with this drug ram deservie.

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Speaker 1: So the problem is we just don't know what the

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Speaker 1: data is. Sam. Just taking a step back, I want

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Speaker 1: to understand the importance of desivier being successful. In other words,

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Speaker 1: how broadly can this be used if it's something that

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Speaker 1: has to be administered in a hospital like setting for

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Speaker 1: only the most severe patients. Is it a game changer

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Speaker 1: when it comes to the pandemic. What a great question.

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Speaker 1: At the end of the day, I think we would

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Speaker 1: all love to have a single game changer. I would

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Speaker 1: be very happy to see this drug be that single

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Speaker 1: game changer. But it's not going to help you and

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Speaker 1: I sitting at home feel secure to go out. All

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Speaker 1: we know is that any of these drugs that are

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Speaker 1: being tested or drugs that are going to help us

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Speaker 1: hopefully get better faster without suffering too much once we've

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Speaker 1: got the disease, if we get the disease. So that's

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Speaker 1: what they're all being tested for. The rush drug, the

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Speaker 1: fier drugs, the astro drug, the regeneral and Santa fe

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Speaker 1: drugs to make us feel really good in game change everything.

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Speaker 1: You still need that vaccine that gives you protection. So

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Speaker 1: let's go there, Sam. I think you know a lot

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Speaker 1: of the officials that we all hear about, whether the

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Speaker 1: government officials or health care officials, they seem to have

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Speaker 1: kind of coalesced around this twelve the eighteen months time

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Speaker 1: frame for coming up with a vaccine. To me, you know,

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Speaker 1: just having you know a little bit of experience that

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Speaker 1: seems very short, that seems like I'm more used to

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Speaker 1: a number of years give us a sense of kind

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Speaker 1: of how you think the timing of a vaccine might

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Speaker 1: play out. Right, So I have to continue to be

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Speaker 1: humble here in that I haven't been in allow but

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Speaker 1: with a prepetting my hand for twenty years. But there,

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Speaker 1: and you listen to a lot of scientists, a lot

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Speaker 1: of top scientists from the Script's Institute, from Oxford University,

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Speaker 1: and they all are very optimistic given what they know

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Speaker 1: about the virus. Not all viruses, thank god, are created equally.

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Speaker 1: And what I heard one virologist say, you know, if

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Speaker 1: this was on the scale of HIV being a genius,

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Speaker 1: this is one of flunked high school. IM glad to

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Speaker 1: hear that with the immune system. I love that comment.

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Speaker 1: So if that is true and our technologies will work,

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Speaker 1: you know, with the with the everything that's been thrown

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Speaker 1: at developing a vaccine, with all these companies ranging from

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Speaker 1: biotechs to the big shots in vaccine business visor Glaxo,

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Speaker 1: Santa Fe and merk Um, I hope that they are right.

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Speaker 1: But you still have to get everything has to work

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Speaker 1: out for this to be to be a successful at

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Speaker 1: that top sort of time frame. Sam, there's also a

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Speaker 1: question of the pipeline of production here and how quickly

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Speaker 1: once there is a vaccine it can get mass produced

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Speaker 1: and distribute it to enough people to get some sort

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Speaker 1: of herd immunity. What do we know on that front

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Speaker 1: in terms of the cooperation internationally with say what's going

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Speaker 1: on in Oxford where they're starting human trials. So Oxford

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Speaker 1: seems to be doing some interesting stuff here and that

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Speaker 1: they're they're not really necessarily interested in being a vaccine

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Speaker 1: company themselves, you know, just an announcement today that the

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Speaker 1: Serium Institute of India is going to produce their vaccine

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Speaker 1: and they're thinking of, well, if we're gonna do that,

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Speaker 1: we're gonna keep it for India. I'm assuming that vaccine,

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Speaker 1: if it's successful, would be available to whoever wants to

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Speaker 1: take it on and manufacture it. So I wouldn't be

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Speaker 1: surprised to see more countries or more companies from different

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Speaker 1: countries coming up and saying, right, we'll have a go

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Speaker 1: at that. But at the end of the day, with

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Speaker 1: regards to national politics versus um vaccines and who manufactures,

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Speaker 1: what I think what we should have to do is

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Speaker 1: just wait and see who can actually get that stuff

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Speaker 1: done and then worry about how it's going to get

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Speaker 1: spread out during If you think about the volumes that

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Speaker 1: these companies are talking about, we'll have like two billion

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Speaker 1: doses of vaccine next year if you add Johnson and

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Speaker 1: Johnson to collect so to stand off for you to

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Speaker 1: fighter is a big numbers. So I don't think there

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Speaker 1: would be a shortage really, So, Sam, what are some

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Speaker 1: of the next milestones we should be on the lookout for.

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Speaker 1: Is it just company by company putting out kind of

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Speaker 1: their tests or is there anything more I guess maybe

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Speaker 1: centralized that we should be looking for. No. So, from

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Speaker 1: the treatment of vaccine side of things that we're talking about,

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Speaker 1: we have In the next two to three months, there

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Speaker 1: will be lots of data boys coming out starting hopefully

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Speaker 1: with the data, the actual data safety and efficacy and

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Speaker 1: safety against safety. Remember, these are a lot of these

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Speaker 1: vaccines are going to have to go into people who

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Speaker 1: are not sick. He can't give them the risk of

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Speaker 1: an ailment um for Within the next two to three months,

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Speaker 1: we'll hear a lot of proof of concept is the

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Speaker 1: best phrase to call it for vaccines. Fires are very

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Speaker 1: cleanly described some of the methods that are going to

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Speaker 1: use to figure out whether they think something that they've

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Speaker 1: got is UM protective potentially UM. And then you've got

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Speaker 1: the drugs that will read that. Rush will have read

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Speaker 1: that in early summer June time for their Actemra drug.

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Speaker 1: You've got that severe that will have some data maybe

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Speaker 1: later today or certainly in the next few weeks. Then

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Speaker 1: you've got asked to Zeneca with cal Quin's. Then you've

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Speaker 1: got Friday with this antivirals. So there's quite a lot

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Speaker 1: of news that I think we'll be sitting here on

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Speaker 1: a weekly basis, hopefully talking to each other about successes. Well,

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Speaker 1: hopefully we will get a chance to speak with you

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Speaker 1: again soon. Sam Fazli Had of the E M E.

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Speaker 1: A Bloomberg intelligence effort, as well as a senior pharmaceutical analyst,

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Speaker 1: really helpful insights to understand the progress being made looking

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Speaker 1: for that silver bullet to allow life to return to normal.

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Speaker 1: There's a huge discrepancy between the economic data that we're

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Speaker 1: getting and the market action that we're seeing, with stocks

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Speaker 1: posting one of its biggest twenty five day rallies in history.

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Speaker 1: I want to bring this to you from City Groups

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Speaker 1: Matt King. The gap between markets and data is the

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Speaker 1: largest on record. With limitless liquidity meets spiraling insolvency, there's

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Speaker 1: bound to be a long term price. Joining us now

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Speaker 1: to weigh in on what we can expect going forward.

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Speaker 1: Lisa shall It joins us now fantastic name, chief investment

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Speaker 1: Officer of Wealth Management from Morgan Stanley with two and

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Speaker 1: a half trillion dollars of assets under management. Lisa I

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Speaker 1: wanted to start there because a lot of people say

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Speaker 1: the only reason that markets are gaining is because the

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Speaker 1: FED is printing money. Do you agree? Well, certainly, you

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Speaker 1: know FED liquidity has been absolutely key to these markets

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Speaker 1: really over the last quite frankly eleven years um since

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Speaker 1: you know, the financial crisis. UH and and liquidity was

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Speaker 1: operative in in the search that we saw in January

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Speaker 1: to the February nineteenth high UH and it's probably you know,

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Speaker 1: playing a key part in in building confidence in supporting

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Speaker 1: virtually every corner of the global fixed income market. UH

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Speaker 1: and that obviously helps stocks. But really from our perspective,

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Speaker 1: what we've seen over the last four or five days

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Speaker 1: is really a reaction um to what markets always positively

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Speaker 1: react to, and that is upside surprise. And the upside

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Speaker 1: surprise yere appears to be the pace at which UH,

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Speaker 1: the US is going to reopen on most of the

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Speaker 1: base case scenarios. UM. You know that we had seen

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Speaker 1: when this crisis first hit and we locked down in March,

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Speaker 1: where that the entire second quarter would be really decimated.

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Speaker 1: I know here at Morgan Stanley we were looking for

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Speaker 1: you know, second quarter GDP to annualize it down, you know,

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Speaker 1: just horrific numbers. But I think, um, you know, and

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Speaker 1: and not really have have worked at people coming back

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Speaker 1: to work until the June you know and July timeframes.

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Speaker 1: The fact that we're now having folks even like Clomo

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Speaker 1: talking about potential reopening even in parts of New York

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Speaker 1: State by May fis Keith. I do believe it is

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Speaker 1: an upside surprise of the market, and that's part of

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Speaker 1: what you're seeing. And as a result, you're seeing sector

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Speaker 1: rotation underneath the surface, meaning the stocks that are leading

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Speaker 1: are not simply those safe, defensive, secular growth stocks, but

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Speaker 1: we are seeing some recovery in some of those you know,

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Speaker 1: really damaged cyclical names, uh and small caps um that

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Speaker 1: perhaps um, you know, we haven't seen much action in

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Speaker 1: for quite a while, so at least I know the uh,

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Speaker 1: we're in the midst of earning season here, are there

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Speaker 1: any valid takeaways here or assist as a quarter and

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Speaker 1: maybe even next quarter you just kind of you know,

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Speaker 1: flushed down the toilet and really try to look towards

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Speaker 1: the back end of this year. And so, you know,

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Speaker 1: in terms of what the market is looking through, I

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Speaker 1: think the market is absolutely positively looking through the macro

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Speaker 1: economic data. But these earnings data, I think is being

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Speaker 1: really scrubbed and scrutinized by analysts. Not so much for

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Speaker 1: our people making or missing the numbers, uh, you know,

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Speaker 1: on on the margin by pennies, right, But what people

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Speaker 1: are really looking for is what how resilient are the margins,

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Speaker 1: are the profit margin structures, and so what might we

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Speaker 1: expect and how are we going to pound our calculators.

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Speaker 1: While it's great, the sentiment is driving you know, enthusiasm

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Speaker 1: at the minute, uh, and we've had, you know, the

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Speaker 1: upside surprises that maybe we will in fact reopen sooner

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Speaker 1: than people thought. Um, we're gonna have to at some

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Speaker 1: point reconcile. Uh, you know the level of the market

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Speaker 1: meaning you know, hundred or even three thousand on the

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Speaker 1: s SP five hundred with where earnings are going, uh,

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Speaker 1: and that price earnings ratio. So it's very fascinating because

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Speaker 1: we've seen prices rebound from the March three low by

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Speaker 1: about thirty percent, but we've seen earnings estimate to drop

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Speaker 1: right from expectations of potential growth of ten percent year

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Speaker 1: over year back in January UM two profits that that

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Speaker 1: now look like they're going to drop by tent So

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Speaker 1: that means huge multiple expansion. So I think analysts are

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Speaker 1: scrutinizing UM the the earnings this quarter quite closely and

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Speaker 1: trying to nail down what is the SMP fire profit

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Speaker 1: outlook for this year? Is it one four? Is it

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Speaker 1: one thirty, is it one fifty? You know what is it?

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Speaker 1: So that we can get a sense of you know,

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Speaker 1: what is the valuation in this market? What is that

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Speaker 1: to the ratio? So, Lisa, just about a minute here,

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Speaker 1: I'm wondering what you're advising clients to do to sort

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Speaker 1: of hold a sixty forty type portfolio. Get more defensive,

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Speaker 1: get more aggressive. UM. So our advice in this in

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Speaker 1: this UM time has been very clear. UM. We want

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Speaker 1: our clients out of indicase like the SMP fire, which

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Speaker 1: are passive, which we think are too concentrated in in

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Speaker 1: the largest megacap five TEX stocks. We want them to

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Speaker 1: be active stock pickers, and we want that stock picking

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Speaker 1: to be concentrated in cyclical value and small cap sectors

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Speaker 1: like financials, like industrials like material um and and even

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Speaker 1: UH energy. UM, it's time for stock picking, and it

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Speaker 1: is time to go where you're getting paid to take

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Speaker 1: these risks because the stocks are very cheap. Lisa Charatte,

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Speaker 1: thank you so much for joining us. As always, we

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Speaker 1: appreciate your thoughts and commentary. Lisa Chalotte, chief Investment Officer,

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Speaker 1: Wealth Management at Morgan Stanley joining us on the phone. Uh,

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Speaker 1: and you know interesting Lisa talking about analysts really are

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Speaker 1: looking at these earnings and trying to get a sense

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Speaker 1: of what this market can earn uh in one because

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Speaker 1: you know, you could really make the argument that the

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Speaker 1: market is expensive or cheap. So it's uh. Investors are

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Speaker 1: really trying to dig down and get a sense of

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Speaker 1: whether the earnings growth rate year over year is that flat,

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Speaker 1: is a minus ten percent kind of where the market is,

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Speaker 1: where the SMP earnings all right now or is it

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Speaker 1: maybe even uh something worse, And so trying evaluation uh

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Speaker 1: does matter uh, certainly for this market. Well, this is

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Speaker 1: the week that many of the tech bell Weather names

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Speaker 1: report their quarterly numbers. We had some better than expected

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Speaker 1: results from Google last night, stock trading up about eight

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Speaker 1: percent today, so to had a sense of what's going

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Speaker 1: on in the world a big tech we welcome David Garrity,

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Speaker 1: chief market strategist for Laibol and Company, also a partner

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Speaker 1: at bt block joining us. David, thanks so much for

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Speaker 1: joining us. Let's start with Google last night, some decent numbers,

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Speaker 1: but Ruth Poor at the CFL warned that March was

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Speaker 1: an ugly quarter for ad revenue in in April as well,

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Speaker 1: so are you a little surprised by the performance of

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Speaker 1: the stock today. Um, to the extent of the revenue

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Speaker 1: numbers actually came in better than what the street has

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Speaker 1: been expecting, and the fact that they're good indications that

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Speaker 1: non search ad related segments we're putting up solid growth.

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Speaker 1: I mean, you're looking at YouTube up in revenue terms

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Speaker 1: year over year, Google's cloud operations up. You know, this

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Speaker 1: says that there's growth for Google for alphabet despite the

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Speaker 1: fact that you know, in March, search and display at

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Speaker 1: revenue dropped more than and obviously April doesn't look to

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Speaker 1: be much better, if at all. Okay, so things are

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Speaker 1: really rough for Google on the AD side, they were

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Speaker 1: able to compensate with their cloud spending their YouTube traffic.

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Speaker 1: I'm struggling to understand the lift that that has given,

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Speaker 1: apparently to Facebook shares, which report after the bell there

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Speaker 1: shares up five point nine percent. Where's their cloud that

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Speaker 1: can offset the decline and ad ever revenue? Yeah, no, no, no,

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Speaker 1: Obviously Facebook is not involved in the cloud computing market,

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Speaker 1: um to the extent that a Google or an Amazon

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Speaker 1: or Microsoft are, So you know, to that extent, Facebook

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Speaker 1: really is going to have to live or die. Um,

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Speaker 1: in large part based upon its advertising revenues, which you

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Speaker 1: know certainly they're involved in the same market as alphabet

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Speaker 1: Google's operations. And if we look at sort of how

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Speaker 1: pricing on ad inventory on Facebook properties, Facebook and Instagram

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Speaker 1: we're developing over the course of um you know, in

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Speaker 1: the year to date, you've seen numbers breakdown appreciably and

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Speaker 1: we're looking in a situation here where April pricing levels

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Speaker 1: are worse than March. Okay, so what does that mean?

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Speaker 1: I mean, how long can these tech giants continue to

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Speaker 1: gain in an environment where their main source of revenue

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Speaker 1: is plummeting? Now? I mean, I would argue it's it's

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Speaker 1: going to be that investors are going to have to

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Speaker 1: be stock pickers when it comes to looking at tech,

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Speaker 1: and they're going to have to look at the companies

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Speaker 1: that have diversified operations and a range of markets, not

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Speaker 1: so much companies that are more pure plays in specific markets,

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Speaker 1: such as Facebook is with respect to consumer um advertising.

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Speaker 1: You know clearly where the situation here where in Facebook

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Speaker 1: is probably gonna try and your up investors by pointing

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Speaker 1: to its recent investment in geo platforms, the five point

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Speaker 1: seven billion dollars they spent last week. Um, you know,

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Speaker 1: this is going to build on Facebook's already big position

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Speaker 1: in the world's second biggest internet market in India. But

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Speaker 1: you know, really, we think it's gonna be hard for

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Speaker 1: Facebook to get people's attention, investors, tension to move away

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Speaker 1: from the fact that they're going to have weak revenue. Um,

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Speaker 1: you know, it's expected that it's possible that Facebook may

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Speaker 1: show their first quarterly year on your revenue decline. So, David, So,

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Speaker 1: as we think about Facebook and Google on in terms

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Speaker 1: of advertising perspective, there's a school thought out there that says, yeah,

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Speaker 1: we know that digital media has been taken share from

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Speaker 1: traditional media, whether it's broadcast or cable television. Uh, do

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Speaker 1: you think that trend may accelerate here during this unusual

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Speaker 1: time we're seeing here. No, I would certainly indicate that

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Speaker 1: that's likely the case. And looking away from the tech sector,

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Speaker 1: looking at uh, you know, the global leading advertising company

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Speaker 1: or advertising agency, you know, WPP Group, I mean there

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Speaker 1: came up with their results and certainly you know, they

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Speaker 1: were showing the same evaporation in terms of the end

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Speaker 1: markets and their customers inclination to spend that Certainly, you know,

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Speaker 1: Google was picking up. So you know, from that standpoint,

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Speaker 1: we think that those means that show the best ability

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Speaker 1: to target individual consumers at scale, in which certainly is

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Speaker 1: what digital does, are going to be prospering in this environment.

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Speaker 1: So when we look at Google and let me look

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Speaker 1: at Facebook act to close today, you know we're seeing,

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Speaker 1: you know, the best houses in a bad neighborhood, all right,

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Speaker 1: So you see the potential for Facebook to have a

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Speaker 1: serious hit and Google to face worse times ahead. I

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Speaker 1: want to shift gears a little bit to the ones

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Speaker 1: that are doing really well. And I'm thinking of Amazon

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Speaker 1: and Microsoft. We just look at the tech giants and

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Speaker 1: I'm trying to understand how big they will be allowed

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Speaker 1: to get. I'm wondering, as we're expecting a wave of

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Speaker 1: consolidation in this era of the haves and the have nots,

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Speaker 1: do you expect a wave of of sort of tie

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Speaker 1: ups and mergers and acquisitions that perhaps wouldn't have been

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Speaker 1: allowed before this had all happened. I think to the

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Speaker 1: extent that you know, regulators, in this environment you become

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Speaker 1: more concerned about trying and other authorities within the government

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Speaker 1: more concerned about trying to maintain employment levels that yeah,

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Speaker 1: the pace of consolidation across the range of sectors is

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Speaker 1: entirely possible. When we look at Amazon's share of retail

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Speaker 1: spending in the US, you know, it's still at a

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Speaker 1: level where it's so low that it wouldn't necessarily represents

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Speaker 1: an issue from an antitrust perspective. Now that said, there

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Speaker 1: have been investigations have been opened, um in a number

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Speaker 1: of different areas looking at Amazon's anti competitive practices where

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Speaker 1: you have third party vendors who are selling products off

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Speaker 1: the Amazon platforms, and yet Amazon is being accused of

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Speaker 1: taking that consumer data and using it to develop or

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Speaker 1: their customer data and using that to develop through and

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Speaker 1: competing Amazon product. So it's interesting here. I mean, we're

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Speaker 1: gonna get Amazon after the close later this week. Boy,

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Speaker 1: this is a stock that's out or near it's all

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Speaker 1: time high. Seems like, uh, the silver lining this pandemic

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Speaker 1: is playing right into the hands of Amazon. What do

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Speaker 1: you expect to hear from Amazon when they do report, David,

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Speaker 1: I think Amazon, Um, you know, certainly they've been talking

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Speaker 1: about what they've been doing to expand their footprint, talking

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Speaker 1: about how they've been hiring people within their warehouse operations.

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Speaker 1: I mean I would hope from a labor perspective that

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Speaker 1: Amazon would be talking more significantly about what they're doing

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Speaker 1: to provide, you know, substantial protection for these workers health.

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Speaker 1: Although I would probably say that, you know, when we

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Speaker 1: look at Amazon versus meat packing plants, you know, Amazon

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Speaker 1: is coming out as a stellar performer, whereas obviously people

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Speaker 1: in the beat packing plants are getting seriously ill. But

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Speaker 1: away from that, I think that you know, Amazon has

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Speaker 1: a chance maybe to talk about some of the areas

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Speaker 1: where they want to expand, potentially in terms of looking

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Speaker 1: at healthcare, new markets. Um. So you know, there's certainly

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Speaker 1: an environment here where Amazon as one of the leading

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Speaker 1: technology but he has the opportunity to accelerate its advance

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Speaker 1: in this downturn in the new markets and gain share

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Speaker 1: in its existing businesses. David Garritty, thank you so much

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Speaker 1: for being with us. David Garritty, chief market strategist at

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Speaker 1: laid Law and Company, also a partner at bt block,

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Speaker 1: joining us to talk big tech in this pivotal week

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Speaker 1: for big tech, and Paul just following up on the

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Speaker 1: antitrust point. I think that this is something a growing

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Speaker 1: number of people are talking about, the wave of consolidation,

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Speaker 1: and there was a story on Bloomberg Law yesterday UH

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Speaker 1: speaking to antitrust attorneys who expect the government to relax

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Speaker 1: some of the regulations in order to preserve the jobs. Basically,

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Speaker 1: if a bigger, better capitalized company wants to buy up

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Speaker 1: a smaller one, they will be more amenable to that

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Speaker 1: idea based on the idea that it will be better

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Speaker 1: for the economy. I just wonder, especially with these tech behemoths,

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Speaker 1: I wonder what that means for the landscape going forward

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Speaker 1: in terms of how much more dominance the biggest players

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Speaker 1: will have. I read something I can remember which analyst

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Speaker 1: was on Wall Street on the cell side, suggesting that

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Speaker 1: the pandemic one of the silver linings is that it

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Speaker 1: takes the big tech risk of regulation, puts it on

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Speaker 1: the back burner because the government has a lot more

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Speaker 1: things focusing on right now. Silver lining perhaps if you

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Speaker 1: are a long shareholder in those stocks starting to get

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Speaker 1: earnings coming out of Industrial America, GE and Boeing UH.

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Speaker 1: To help us chat through some of these, we turned

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Speaker 1: to our good friend Brooks Sutherland. She's a deal's and

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Speaker 1: industrials calumnist for Bloomberg Opinion. She joins us on the

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Speaker 1: phone from Kansas. So, Brook, let's start with Bowing. You know,

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Speaker 1: the concern here is, first you had to seven thirty

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Speaker 1: seven max. Now, obviously you've got the pandemic, which is

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Speaker 1: basically shut down aviation. What is the overall impact going

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Speaker 1: to be on Bowing. I know they're cutting their workforce,

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Speaker 1: they're they're they're getting some loans, but this sounds like

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Speaker 1: it could really be fundamentally challenging for Bowing, not just

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Speaker 1: in the nearer term, but maybe the intermediate long term

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Speaker 1: as well. Noway, I think that's absolutely the case. I mean,

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Speaker 1: the CEO Dave caljoun Is said he doesn't expect to

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Speaker 1: get back to nineteen levels of travel demand, and you

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Speaker 1: know for maybe as long as three years, and then

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Speaker 1: you know, at that point to see growth for new airplanes,

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Speaker 1: we may still be waiting another couple of years. And

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Speaker 1: I think you're seeing that reality in the production cuts

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Speaker 1: that they announced today, which are pretty severe, and of

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Speaker 1: course follow Airbuses decision to cut its own production by

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Speaker 1: about a third. Um. You know, I don't think that

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Speaker 1: they would be taking these kinds of job actions if

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Speaker 1: not for you know, the very stark situation that we're

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Speaker 1: facing over m you know, a longer period um, you know,

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Speaker 1: to going credit with everything that happened with the seven

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Speaker 1: thirty seven n they kept their workforce largely intact, and

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Speaker 1: so to see them taking this kind of stuff, I

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00:24:45,720 --> 00:24:49,119
Speaker 1: think really speaks to the real crisis that we're facing

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Speaker 1: in the aviation industry right now. Brook. I keep going

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00:24:52,880 --> 00:24:56,760
Speaker 1: back to this meme or this idea that chief executive

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Speaker 1: officers don't want to let a good crisis go to waste,

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00:24:59,680 --> 00:25:02,960
Speaker 1: and they take moves that they may otherwise have wanted

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Speaker 1: to make beforehand, but might have been less politically expedient,

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Speaker 1: and now can be sort of washed into the fold

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Speaker 1: of the crisis. And I'm wondering if that's also one

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00:25:13,040 --> 00:25:15,919
Speaker 1: way to view the cuts that we're seeing Boeing as

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00:25:16,000 --> 00:25:19,159
Speaker 1: well as clients of Boeing saying, do you know what

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Speaker 1: we're gonna go with air Bus, especially after everything with

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00:25:21,600 --> 00:25:26,120
Speaker 1: seven thirty seven max Jet debacle. Yeah, So a couple

447
00:25:26,160 --> 00:25:27,600
Speaker 1: of things on that front. I mean, I think if

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00:25:27,600 --> 00:25:30,719
Speaker 1: you look at the industrial sector more broadly, I've actually

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00:25:30,760 --> 00:25:33,600
Speaker 1: been very surprised at the degree to which companies are

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00:25:33,680 --> 00:25:37,280
Speaker 1: using furloughs rather than layoffs. Um And I think that

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00:25:37,320 --> 00:25:39,800
Speaker 1: speaks to a you know, these companies have got a

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00:25:39,800 --> 00:25:41,600
Speaker 1: lot of costs, a lot of jobs over the past

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Speaker 1: couple of years, including very recently in response to the

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Speaker 1: US China trade war. UM. I think they don't want

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00:25:46,520 --> 00:25:49,280
Speaker 1: to be seen as um, you know, boogeymen, given the

456
00:25:49,359 --> 00:25:51,760
Speaker 1: nature of the crisis that we're facing in the in

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00:25:51,800 --> 00:25:54,480
Speaker 1: the pandemic that's happening. But they're also want to be

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00:25:54,560 --> 00:25:57,600
Speaker 1: prepared for when demand comes back to life. UM. And

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00:25:57,640 --> 00:25:59,600
Speaker 1: I do think some of those other sectors could see

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00:25:59,640 --> 00:26:02,679
Speaker 1: that happen a lot faster than in the aviation sector. Now.

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00:26:02,680 --> 00:26:05,440
Speaker 1: I don't think these cuts that Bowing is making UM

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00:26:05,440 --> 00:26:07,720
Speaker 1: would be you know, cuts that they would have made

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00:26:07,720 --> 00:26:10,640
Speaker 1: if if not for the coronavirus crisis. I think it's

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00:26:10,760 --> 00:26:14,520
Speaker 1: very clearly a response to the demand that is falling off.

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Speaker 1: But in terms of aircraft decisions, certainly, the you know,

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Speaker 1: fact that the seven thirty seven max grounding has persisted

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Speaker 1: for more than a year does open up more options

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00:26:23,840 --> 00:26:26,840
Speaker 1: to airlines who are reviewing their order books. Those are

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00:26:26,880 --> 00:26:29,760
Speaker 1: more easy to cancel at this point than an order

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00:26:29,800 --> 00:26:32,000
Speaker 1: for airbus jets. So if you think about the longer

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00:26:32,080 --> 00:26:34,800
Speaker 1: term here and what the competitive dynamic looks like it

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00:26:34,880 --> 00:26:37,560
Speaker 1: certainly does seem to me at least that when we

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Speaker 1: come out the other side of this and we start

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Speaker 1: talking about growth again, Airbus isn't a much better position

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00:26:42,800 --> 00:26:45,960
Speaker 1: to capitalize on that than Bowing is. Right now, Brook,

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00:26:46,000 --> 00:26:48,560
Speaker 1: let's spend a minute or so on g E. I

477
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Speaker 1: know the story isn't so much about EPs or revenue,

478
00:26:51,200 --> 00:26:55,240
Speaker 1: it's more about free cash flow. What's the key takeaway there? Yeah,

479
00:26:55,240 --> 00:26:58,240
Speaker 1: I'm not a great number. More than a two billion

480
00:26:58,359 --> 00:27:00,800
Speaker 1: burned in free cash flow this quarter, and they say

481
00:27:00,800 --> 00:27:04,159
Speaker 1: about one billion of that is because of the coronavirus.

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00:27:04,440 --> 00:27:07,280
Speaker 1: So where GE gets hit hit hit here, excuse me, um,

483
00:27:07,359 --> 00:27:11,040
Speaker 1: is they primarily make money through their aviation business. And

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00:27:11,040 --> 00:27:13,240
Speaker 1: the way that the aviation business does that is by

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00:27:13,320 --> 00:27:17,400
Speaker 1: servicing and providing spare parts to airplanes. So with all

486
00:27:17,440 --> 00:27:20,640
Speaker 1: of these airplanes grounded, GE no longer needs to do that.

487
00:27:20,720 --> 00:27:23,000
Speaker 1: And what you're concerned about there over the long term

488
00:27:23,080 --> 00:27:25,439
Speaker 1: is the tas of retirements. They've seen a lot of

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00:27:25,480 --> 00:27:28,720
Speaker 1: airlines come out and say we're moss following these older,

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00:27:28,800 --> 00:27:32,200
Speaker 1: costlier jets. That changes the longer term economics for g

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00:27:32,280 --> 00:27:35,119
Speaker 1: e s aftermarket business. And you have to wonder, you know,

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00:27:35,320 --> 00:27:37,600
Speaker 1: what does that cash flow look like when it does

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00:27:37,640 --> 00:27:39,840
Speaker 1: start coming back. And I will say g is probably

494
00:27:39,880 --> 00:27:42,760
Speaker 1: better position than some other companies here because it's engines

495
00:27:43,160 --> 00:27:46,879
Speaker 1: are primarily on younger, narrow body planes and those are

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00:27:46,880 --> 00:27:48,439
Speaker 1: the planes that are going to be most likely to

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00:27:48,440 --> 00:27:51,199
Speaker 1: stick around and most likely to come back relatively quickly.

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00:27:51,240 --> 00:27:54,399
Speaker 1: But certainly they have a lot of challenges here in

499
00:27:54,480 --> 00:27:56,359
Speaker 1: the near term, and you know, it does sort of

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00:27:56,400 --> 00:27:58,920
Speaker 1: put the brakes on the turnaround effort that was starting

501
00:27:58,960 --> 00:28:02,720
Speaker 1: to show fruition for CEO Larry cold brook Sutherland. Thank

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00:28:02,760 --> 00:28:05,640
Speaker 1: you so much for joining us. Enjoy Kansas brook Sutherland

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00:28:05,720 --> 00:28:10,600
Speaker 1: deals an industrials columnist for Bloomberg Opinion. Uh talking about

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00:28:10,640 --> 00:28:13,199
Speaker 1: that in Boeing and GE I thought it was so interesting.

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Speaker 1: She's saying that there are a lot of these industrial

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Speaker 1: giants are choosing furloughs as that are expecting to bring

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00:28:18,280 --> 00:28:21,600
Speaker 1: everyone back on the other side, or perhaps are recognizing

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00:28:21,640 --> 00:28:25,679
Speaker 1: the political pressure to be perhaps I don't know, a

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00:28:25,680 --> 00:28:28,240
Speaker 1: little bit more amenable to keeping jobs giving it the

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Speaker 1: state of the current economy. Thanks for listening to the

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00:28:32,080 --> 00:28:34,680
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen

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00:28:34,720 --> 00:28:38,080
Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.

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00:28:38,480 --> 00:28:41,240
Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa

514
00:28:41,240 --> 00:28:43,880
Speaker 1: Abram Woyd's I'm on Twitter at Lisa Abram Woyds One.

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00:28:44,120 --> 00:28:46,719
Speaker 1: Before the podcast, you can always catch us worldwide. I'm

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00:28:46,720 --> 00:28:47,560
Speaker 1: Bloomberg Radio