1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:21,800 Speaker 1: at Bloomberg dot com slash podcast. Let's do some tech 7 00:00:21,840 --> 00:00:24,040 Speaker 1: talk here because there's a lot of earnings coming out 8 00:00:24,079 --> 00:00:27,840 Speaker 1: of Silicon Valley. We got the Bloomberg Intelligence Technology team 9 00:00:27,880 --> 00:00:30,920 Speaker 1: with us men Deep sing here in Bloomberg Interactive Broker 10 00:00:31,000 --> 00:00:33,760 Speaker 1: Studio on a rock Rona phoning and if god knows 11 00:00:33,760 --> 00:00:36,479 Speaker 1: where but on Rod let's start with you. You know, 12 00:00:36,560 --> 00:00:38,920 Speaker 1: I get it that digital ad spending slowing. We'll go 13 00:00:38,960 --> 00:00:42,440 Speaker 1: over that with man Deep. But Microsoft a little bit 14 00:00:42,479 --> 00:00:45,440 Speaker 1: weaker in their guidance that I would have anticipated, and 15 00:00:45,479 --> 00:00:47,360 Speaker 1: I think the street as well, judging by the stock 16 00:00:47,560 --> 00:00:51,680 Speaker 1: What did you take away anticipated? We were looking for 17 00:00:51,720 --> 00:00:54,760 Speaker 1: the slowdown somewhere from you know, sixteen percent constant guard 18 00:00:54,800 --> 00:00:56,800 Speaker 1: and see growth rate to let's say around ten to 19 00:00:56,840 --> 00:00:58,960 Speaker 1: twelve percent, and these guys said they were going to 20 00:00:59,000 --> 00:01:01,560 Speaker 1: be somewhere around eight nine um that was a bit 21 00:01:01,560 --> 00:01:04,040 Speaker 1: of a surprise to us. Now with this, you know, 22 00:01:04,120 --> 00:01:07,080 Speaker 1: in our view tells that enterprise spending is starting to 23 00:01:07,120 --> 00:01:09,640 Speaker 1: hold back. Now, this does not mean, you know, this 24 00:01:09,720 --> 00:01:12,679 Speaker 1: is not a good sign for all the enterprise companies, 25 00:01:12,720 --> 00:01:16,000 Speaker 1: both in the software world as the services world, and 26 00:01:16,040 --> 00:01:18,480 Speaker 1: so man deep. Let's also tie in what we heard 27 00:01:18,760 --> 00:01:21,920 Speaker 1: from Alphabet. If I look at the shares right now, 28 00:01:22,240 --> 00:01:25,280 Speaker 1: I see them down about seven percent. They've clawed back 29 00:01:25,280 --> 00:01:28,319 Speaker 1: a lot of their losses, but still seven percent loss 30 00:01:28,360 --> 00:01:31,800 Speaker 1: on the day. What was the biggest headline there to 31 00:01:31,840 --> 00:01:34,840 Speaker 1: explain this market reaction? I mean, across the board, they 32 00:01:34,959 --> 00:01:38,440 Speaker 1: validated the weakness on the AD side. What we heard 33 00:01:38,480 --> 00:01:43,440 Speaker 1: from Snapchat, Alphabet said search at revenue growth is slowing, 34 00:01:43,600 --> 00:01:46,880 Speaker 1: YouTube is slowing. And look, I mean except for search, 35 00:01:47,080 --> 00:01:50,040 Speaker 1: none of their other segments make any money. So if 36 00:01:50,040 --> 00:01:53,080 Speaker 1: you're an investor in this dock and you're looking at this, 37 00:01:53,480 --> 00:01:56,840 Speaker 1: you know management saying search is slowing, but we are growing. 38 00:01:57,200 --> 00:02:00,400 Speaker 1: Our employee had come by t You're questioning, you know, 39 00:02:01,120 --> 00:02:03,080 Speaker 1: what is it that they're hiring all these people for 40 00:02:03,280 --> 00:02:06,000 Speaker 1: and when will that translate into profits? And I think 41 00:02:06,080 --> 00:02:09,160 Speaker 1: that is what they need to address. So I don't 42 00:02:09,160 --> 00:02:12,919 Speaker 1: know if there's no reason for anybody to think that 43 00:02:13,720 --> 00:02:18,280 Speaker 1: big text spending is anything but a short term cyclical 44 00:02:19,000 --> 00:02:21,200 Speaker 1: pull back right here, because I mean, this is the 45 00:02:21,200 --> 00:02:23,600 Speaker 1: only reason we talk to people like you and men, Deep, 46 00:02:23,680 --> 00:02:26,280 Speaker 1: is because your businesses that you cover continue to grow 47 00:02:26,360 --> 00:02:31,000 Speaker 1: all the time. That's still the case, right Yeah, yeah, definitely. 48 00:02:31,000 --> 00:02:33,959 Speaker 1: You know, I'll give you a very easy example. Cloud 49 00:02:34,080 --> 00:02:36,720 Speaker 1: is something that everybody's talking about today. Slow down in 50 00:02:36,800 --> 00:02:39,000 Speaker 1: that you know, if you go back and look at 51 00:02:39,040 --> 00:02:41,799 Speaker 1: during the pandemic, we saw a similar slowdown for four 52 00:02:41,880 --> 00:02:44,560 Speaker 1: waters in a row, and then the year after growth 53 00:02:44,639 --> 00:02:48,240 Speaker 1: rates improved, which is very unusual for these large businesses. 54 00:02:48,600 --> 00:02:51,520 Speaker 1: And we expect a similar trend here. The end markets 55 00:02:51,520 --> 00:02:54,200 Speaker 1: are so large and we are still in very very 56 00:02:54,240 --> 00:02:57,320 Speaker 1: early innings in this case. So even if we see 57 00:02:57,360 --> 00:02:59,560 Speaker 1: slowdowns in the next two to three quarters, we expect 58 00:02:59,560 --> 00:03:03,040 Speaker 1: a massive bounce back in the year after that. And 59 00:03:03,080 --> 00:03:07,240 Speaker 1: that's a true tech analyst right there, the amountsive bounce back. 60 00:03:07,639 --> 00:03:09,720 Speaker 1: It's not it's not just Dan Eyes. All these tech 61 00:03:09,760 --> 00:03:12,400 Speaker 1: analysts massive bounces. They can see the future, they can 62 00:03:12,520 --> 00:03:14,679 Speaker 1: I know, yeah, and it involves technology that makes sense 63 00:03:14,720 --> 00:03:16,600 Speaker 1: to me. But I mean, Deep, I want to go 64 00:03:16,639 --> 00:03:18,680 Speaker 1: back to the social media names, because we still have 65 00:03:18,720 --> 00:03:21,680 Speaker 1: two biggies left. We got Twitter, we got Meta, both 66 00:03:21,800 --> 00:03:24,960 Speaker 1: interesting for their own reasons. But given what we saw 67 00:03:25,080 --> 00:03:27,799 Speaker 1: from Snap, like you mentioned, given what we saw from 68 00:03:27,919 --> 00:03:31,040 Speaker 1: Alphabet most recently, are we just going to be talking 69 00:03:31,040 --> 00:03:33,320 Speaker 1: about ad spending? Is it going to be another gloomy 70 00:03:33,600 --> 00:03:36,960 Speaker 1: two reports to sit through? I think so. But look, 71 00:03:37,120 --> 00:03:39,560 Speaker 1: I mean to an ugs point, you know there is 72 00:03:39,560 --> 00:03:42,560 Speaker 1: a cyclical element even in ads. Things will come back, 73 00:03:42,600 --> 00:03:46,600 Speaker 1: the growth rates will improve. The problem for Meta specifically 74 00:03:46,840 --> 00:03:50,280 Speaker 1: is you know, there is a question mark around how 75 00:03:50,360 --> 00:03:54,040 Speaker 1: sustainable their business model is, given what has transpired with 76 00:03:54,160 --> 00:03:57,720 Speaker 1: Apple's privacy changes, and you know TikTok taking share, so 77 00:03:57,840 --> 00:04:00,640 Speaker 1: they have a real challenge ahead of them. I'm not 78 00:04:00,680 --> 00:04:03,800 Speaker 1: worried about search. Search will come back. YouTube growth rates 79 00:04:03,800 --> 00:04:08,720 Speaker 1: will be after this downturn. So there is a lot 80 00:04:08,760 --> 00:04:11,640 Speaker 1: of cyclical element within ads. But then I think the 81 00:04:11,720 --> 00:04:13,960 Speaker 1: key to watch out for is what happens to Meta. 82 00:04:14,440 --> 00:04:17,679 Speaker 1: All right. We actually had an i p O today, 83 00:04:17,800 --> 00:04:22,480 Speaker 1: which is a rarity in UH mobile. I I PO 84 00:04:22,640 --> 00:04:27,600 Speaker 1: at twenty one per share, giving it a eight sixty 85 00:04:27,600 --> 00:04:30,520 Speaker 1: million dollar I p O. M. Bloomberg News is reporting 86 00:04:30,520 --> 00:04:33,160 Speaker 1: that the Mobili has not traded yet, but it's indicated 87 00:04:33,160 --> 00:04:36,600 Speaker 1: to open at twenty five men deep. What is Mobile 88 00:04:36,640 --> 00:04:40,320 Speaker 1: I and what's the street call on this company? Well, 89 00:04:40,440 --> 00:04:43,800 Speaker 1: Mobile I is one of the segments within Intel, a 90 00:04:43,839 --> 00:04:48,920 Speaker 1: company that they bought, and it focuses predominantly around autonomous driving. 91 00:04:48,960 --> 00:04:52,359 Speaker 1: They make chips and they have embedded software for driving, 92 00:04:52,400 --> 00:04:56,760 Speaker 1: you know, level two three for autonomous driving. So very 93 00:04:56,760 --> 00:04:59,760 Speaker 1: hot space given what we have seen from Tesla this year, 94 00:05:00,040 --> 00:05:02,760 Speaker 1: and it made sense that Intel went ahead and you know, 95 00:05:02,839 --> 00:05:06,560 Speaker 1: I p out this company. Uh. The valuation, clearly, I 96 00:05:06,600 --> 00:05:09,320 Speaker 1: think was pulled back from the initial discussions, and I 97 00:05:09,320 --> 00:05:12,000 Speaker 1: think it was priced well enough that you know, there 98 00:05:12,120 --> 00:05:16,200 Speaker 1: was receptivity around uh investors looking to get that initial 99 00:05:16,560 --> 00:05:20,839 Speaker 1: trancho of the allocation. But look, I think it's still 100 00:05:20,880 --> 00:05:23,919 Speaker 1: small when it comes to the capital race here. Million 101 00:05:23,960 --> 00:05:26,680 Speaker 1: isn't going to make a difference in Intel's fortunes. UH 102 00:05:26,720 --> 00:05:29,120 Speaker 1: and UH. I think what Intel wants to do is 103 00:05:29,200 --> 00:05:32,560 Speaker 1: really to showcase, you know, that they have exposure to 104 00:05:32,680 --> 00:05:35,880 Speaker 1: a top like automotive sector, which is a high growth 105 00:05:35,880 --> 00:05:38,320 Speaker 1: sector within semis Alright, good stuff. I'm just you know, 106 00:05:38,360 --> 00:05:40,200 Speaker 1: as a former banker, I'm just happy that somebody got 107 00:05:40,200 --> 00:05:43,000 Speaker 1: a deal done. So let's see how this thing trades 108 00:05:43,080 --> 00:05:46,880 Speaker 1: today are right, good stuff talking technology and no two 109 00:05:46,920 --> 00:05:50,400 Speaker 1: better people to do it within Anaragrana and Man Deep 110 00:05:50,440 --> 00:05:54,400 Speaker 1: Seeing from Bloomberg Intelligence their tops tops in the business. 111 00:05:58,120 --> 00:06:00,560 Speaker 1: We are in the thick of earning season. We had 112 00:06:00,600 --> 00:06:03,719 Speaker 1: the US banks last week, a lot of the European 113 00:06:03,720 --> 00:06:07,760 Speaker 1: banks reporting numbers this week, and we want to talk 114 00:06:07,839 --> 00:06:10,520 Speaker 1: euro banks. We talked to John Tasy, has been covering 115 00:06:10,600 --> 00:06:14,000 Speaker 1: the European banking sector for decades. He joins US. He's 116 00:06:14,000 --> 00:06:17,440 Speaker 1: Bloomberg Intelligence senior banks analysts. So John, thanks so much 117 00:06:17,440 --> 00:06:19,320 Speaker 1: for joining US year. I want to talk with about 118 00:06:19,320 --> 00:06:22,440 Speaker 1: Deutsche Bank. It looks like, you know, they're bigger business, 119 00:06:22,440 --> 00:06:25,200 Speaker 1: which is their trading business. Their FICK business did actually 120 00:06:25,200 --> 00:06:27,159 Speaker 1: pretty well. It was just kind of the bankers didn't 121 00:06:27,160 --> 00:06:29,960 Speaker 1: have a lot of stuff to do during the quarter. Yeah, 122 00:06:30,040 --> 00:06:34,520 Speaker 1: High Paul Um completely agree. Fick as expected has beaten 123 00:06:34,560 --> 00:06:36,760 Speaker 1: expectations pretty much across the board. And actually, if you 124 00:06:36,800 --> 00:06:40,360 Speaker 1: look at Barclays today, up sixty in dollar terms, so 125 00:06:40,560 --> 00:06:45,000 Speaker 1: comfortably better than um Deutsche. But yes, the advisory very disappointing. 126 00:06:45,080 --> 00:06:47,680 Speaker 1: And as you will know from your many years in 127 00:06:47,760 --> 00:06:51,880 Speaker 1: the investment banking world. What pays bonuses, It's the investment 128 00:06:51,880 --> 00:06:54,320 Speaker 1: banking fee. And I mean Deutsche was down eighty five, 129 00:06:55,360 --> 00:06:58,520 Speaker 1: so um, the market's clearly looking at results through a 130 00:06:58,560 --> 00:07:00,920 Speaker 1: bear market lens. At the moment, prettyfficult to catch break 131 00:07:00,960 --> 00:07:03,400 Speaker 1: even if you look at Standard Charter or SEB or 132 00:07:03,440 --> 00:07:07,920 Speaker 1: something today, down four or five, even with massive revenue upgrades, 133 00:07:08,200 --> 00:07:10,560 Speaker 1: purely because the markets worried about bad debt. It's worried 134 00:07:10,560 --> 00:07:16,160 Speaker 1: about cost inflation, slump in investment banking revenue. I mean, 135 00:07:16,240 --> 00:07:19,040 Speaker 1: just the worst of any of the large Wall Street firms. 136 00:07:19,120 --> 00:07:22,280 Speaker 1: And John, what is the light at the end of 137 00:07:22,280 --> 00:07:24,560 Speaker 1: the tunnel for Georgia Bank? Because Paul I were talking 138 00:07:24,600 --> 00:07:27,200 Speaker 1: about how use I mean use it's a shadow of 139 00:07:27,200 --> 00:07:30,760 Speaker 1: its former self? Uh, how does it get there? Or 140 00:07:30,800 --> 00:07:33,240 Speaker 1: is that such a lofty goal at this point that 141 00:07:33,320 --> 00:07:35,800 Speaker 1: it's not even on the radar? Well, I mean, I 142 00:07:35,840 --> 00:07:38,120 Speaker 1: think that you're used to looking at American banks because 143 00:07:38,200 --> 00:07:41,280 Speaker 1: I think think HSBC. HSBC was one of the sort 144 00:07:41,280 --> 00:07:45,760 Speaker 1: of global leading banks. It's trading at a discount to Europe. 145 00:07:45,800 --> 00:07:49,040 Speaker 1: Now it's trading on five times next year's earnings with 146 00:07:49,160 --> 00:07:52,120 Speaker 1: massive revenue upgrades. Deutsche Bank is actually more expensive on 147 00:07:52,240 --> 00:07:54,080 Speaker 1: p So when you say light at the end of 148 00:07:54,080 --> 00:07:56,160 Speaker 1: the tunnel, clearly the one thing they've been waiting for 149 00:07:56,320 --> 00:07:58,840 Speaker 1: is revenue to recover. And the NI side of it, 150 00:07:58,880 --> 00:08:01,000 Speaker 1: the fixed income side of it's in proved. We know 151 00:08:01,160 --> 00:08:04,840 Speaker 1: that fees advisory originations quite syctical. Last year, it was huge. 152 00:08:04,880 --> 00:08:07,600 Speaker 1: This year it's down a lot um. But I guess 153 00:08:07,640 --> 00:08:09,560 Speaker 1: the light at the end of the tunnel is getting 154 00:08:09,560 --> 00:08:11,800 Speaker 1: through the next two or three years of economic pain 155 00:08:11,840 --> 00:08:13,880 Speaker 1: in Germany, because don't forget, they've got a very large 156 00:08:13,880 --> 00:08:16,560 Speaker 1: corporate loan book there as well. And Germany is at 157 00:08:16,600 --> 00:08:19,400 Speaker 1: the epicenter of all the issues you've got with Ukraine, Russia, 158 00:08:19,480 --> 00:08:23,480 Speaker 1: the gas issues. So we're still working our way through that. Yeah, John, 159 00:08:23,520 --> 00:08:25,040 Speaker 1: I don't think that you know, our listeners here in 160 00:08:25,080 --> 00:08:27,440 Speaker 1: the States have a full appreciation of how difficult the 161 00:08:27,480 --> 00:08:31,360 Speaker 1: economic conditions are in much of Europe for a variety 162 00:08:31,400 --> 00:08:33,800 Speaker 1: of reasons. So as you think, as you assess the 163 00:08:33,800 --> 00:08:37,280 Speaker 1: European banks, how are you thinking about credit quality and 164 00:08:37,440 --> 00:08:39,480 Speaker 1: right offs? And I mean, how much of a headwind 165 00:08:39,559 --> 00:08:41,800 Speaker 1: is that going to be? Do you think? Well? I mean, 166 00:08:41,840 --> 00:08:43,560 Speaker 1: the funny thing is it's not just about being a 167 00:08:43,559 --> 00:08:46,079 Speaker 1: headwind at the moment because because banks have become so 168 00:08:46,120 --> 00:08:49,000 Speaker 1: much more profitable purely mechanically, because rates have gone up, 169 00:08:49,200 --> 00:08:51,400 Speaker 1: You've got the ECB and the Bank of England beginning 170 00:08:51,400 --> 00:08:52,880 Speaker 1: to think, hang on us that you guys are now 171 00:08:52,920 --> 00:08:56,040 Speaker 1: reporting double digit r oees simply on the back of 172 00:08:56,120 --> 00:08:58,480 Speaker 1: us having to raise rates. So how do we crimp that. 173 00:08:58,880 --> 00:09:00,760 Speaker 1: The banks are thinking, you know what, let's get ahead 174 00:09:00,760 --> 00:09:03,520 Speaker 1: of the curve. Let's IFRS non as the accounting standard. 175 00:09:03,559 --> 00:09:07,120 Speaker 1: A bit boring but quite important. They're taking more reserves 176 00:09:07,120 --> 00:09:09,360 Speaker 1: and setting aside more provisions, and they will do more 177 00:09:09,440 --> 00:09:11,720 Speaker 1: in the fourth quarter to get ahead of this and 178 00:09:11,760 --> 00:09:15,240 Speaker 1: also to damp reported profits. They don't want the regulators saying, right, 179 00:09:15,280 --> 00:09:17,000 Speaker 1: we're going to put a cap on bonuses. We want 180 00:09:17,000 --> 00:09:19,520 Speaker 1: to put a cap on capital returns. So it's an 181 00:09:19,520 --> 00:09:22,040 Speaker 1: interesting trade off, a bit like you saw, um the 182 00:09:22,160 --> 00:09:24,480 Speaker 1: US banks being told, well, let's let's just calm down 183 00:09:24,480 --> 00:09:26,960 Speaker 1: on the buy backs. The same as coming in Europe, 184 00:09:26,960 --> 00:09:29,959 Speaker 1: but but more of a revenue question. Okay, a lot 185 00:09:30,000 --> 00:09:32,560 Speaker 1: of gloom and doom in this conversation so far. Let's 186 00:09:32,559 --> 00:09:34,600 Speaker 1: get some good news in here. If we look at 187 00:09:34,600 --> 00:09:38,319 Speaker 1: Barclay's results on a dollar basis a U S dollar basis. 188 00:09:38,360 --> 00:09:42,280 Speaker 1: You did have thick up sixty three per cent equities, 189 00:09:43,200 --> 00:09:46,439 Speaker 1: but let's talk about thick. That seems like an undeniable 190 00:09:46,640 --> 00:09:52,040 Speaker 1: bright spot. It was, and Barclays has been investing very heavily, 191 00:09:52,160 --> 00:09:54,000 Speaker 1: and obviously the dollar going the way it has has 192 00:09:54,080 --> 00:09:57,480 Speaker 1: really flattered that. But i'd point to the share prices down, 193 00:09:58,040 --> 00:09:59,920 Speaker 1: and what did the call focus on? The call focused 194 00:10:00,000 --> 00:10:04,240 Speaker 1: on the underlying outlook for credit um and the UK 195 00:10:04,600 --> 00:10:07,000 Speaker 1: and credit impairments and pointing to things like in the 196 00:10:07,080 --> 00:10:10,199 Speaker 1: US their credit card book early warnings, so thirty dead 197 00:10:10,200 --> 00:10:13,080 Speaker 1: delinquencies are beginning to rise quite quickly. So the market 198 00:10:13,120 --> 00:10:15,400 Speaker 1: is looking through all of the good news on the 199 00:10:15,440 --> 00:10:17,880 Speaker 1: top line and focusing on are you doing good enough 200 00:10:17,920 --> 00:10:20,760 Speaker 1: job on costs, which Barclays is at the moment, and 201 00:10:21,240 --> 00:10:23,959 Speaker 1: are you setting inside enough and are you being realistic 202 00:10:24,000 --> 00:10:27,719 Speaker 1: about where the bad debt goes? So yes, obsolutely a 203 00:10:27,800 --> 00:10:29,600 Speaker 1: good number, but when you look at what the market's 204 00:10:29,600 --> 00:10:33,200 Speaker 1: focusing on, unfortunately it looks straight through that. So Jonathan, 205 00:10:33,440 --> 00:10:36,520 Speaker 1: as as we are globally deal with, you know, slowing economy, 206 00:10:37,000 --> 00:10:38,880 Speaker 1: give us let us step back, you know, And I'd 207 00:10:38,880 --> 00:10:41,520 Speaker 1: love to get your view on kind of the structure 208 00:10:41,600 --> 00:10:44,640 Speaker 1: of the European banking market. Will there be any change 209 00:10:44,800 --> 00:10:46,640 Speaker 1: going forward, any m n A. I know, the cross 210 00:10:46,640 --> 00:10:50,000 Speaker 1: border m n A is very difficult to to do. 211 00:10:50,640 --> 00:10:53,559 Speaker 1: How do you think that European banking sector may evolve 212 00:10:53,640 --> 00:10:57,400 Speaker 1: just structurally going forward? Well, consolidation cross border is needed, 213 00:10:57,440 --> 00:10:59,080 Speaker 1: but we're still a long way from that. I mean, 214 00:10:59,120 --> 00:11:02,320 Speaker 1: if you think the most things the ECB is debating 215 00:11:02,360 --> 00:11:04,840 Speaker 1: at the moment isn't the seventy basis point rate high, 216 00:11:04,840 --> 00:11:07,320 Speaker 1: which they almost certainly will do. It's what do you 217 00:11:07,400 --> 00:11:10,720 Speaker 1: do with the two trillion euros of loans that you 218 00:11:10,800 --> 00:11:12,560 Speaker 1: made to the banks during the crisis, because at the 219 00:11:12,600 --> 00:11:15,720 Speaker 1: moment they're now making money for the bank's handover fist 220 00:11:16,320 --> 00:11:19,520 Speaker 1: and if you're Italy, the Italian banking sector needs that. 221 00:11:19,600 --> 00:11:22,079 Speaker 1: If you're Deutsche Bank or if your BMP and you've 222 00:11:22,120 --> 00:11:24,800 Speaker 1: got hundreds of billions of these loans, you're being given 223 00:11:24,840 --> 00:11:27,760 Speaker 1: free money. But the ECB has to make a change, 224 00:11:27,920 --> 00:11:30,600 Speaker 1: and so as with the sovereign crisis, it's faced with 225 00:11:30,640 --> 00:11:34,520 Speaker 1: the what do we do about Italy where there's still 226 00:11:34,559 --> 00:11:38,320 Speaker 1: a lot of risk and stop the largest banks just 227 00:11:38,720 --> 00:11:42,880 Speaker 1: being given free money. So I think consolidation cross border 228 00:11:42,960 --> 00:11:45,040 Speaker 1: is still a long way away. Um. The likes of 229 00:11:45,080 --> 00:11:47,040 Speaker 1: b MP will be at the forefront of it, but 230 00:11:47,080 --> 00:11:49,240 Speaker 1: it's still gonna be more piecemeal. And I suspect we've 231 00:11:49,240 --> 00:11:51,719 Speaker 1: got more domestic M and A over the next year 232 00:11:51,800 --> 00:11:54,240 Speaker 1: or two. Particularly is would you buy a bank right now, 233 00:11:54,280 --> 00:11:56,320 Speaker 1: even on a depress multiple if you know that bad 234 00:11:56,320 --> 00:11:57,520 Speaker 1: debt is going to go up and you don't know 235 00:11:57,559 --> 00:12:01,600 Speaker 1: how much The answers no and John before we let 236 00:12:01,640 --> 00:12:03,560 Speaker 1: you go, I am I am curious to hear in 237 00:12:03,559 --> 00:12:06,640 Speaker 1: your opinion how much reorganization we should expect to see 238 00:12:07,040 --> 00:12:09,360 Speaker 1: in the next couple of months. I mean to pick 239 00:12:09,440 --> 00:12:11,720 Speaker 1: on Deutsche Bank a little bit more. There's been a 240 00:12:11,760 --> 00:12:14,680 Speaker 1: lot of shuffling around there. Have we seen most of it? 241 00:12:14,800 --> 00:12:16,720 Speaker 1: Or do you think there's more to come as we 242 00:12:16,760 --> 00:12:19,679 Speaker 1: had into these hard winter months. Well, I mean, it's 243 00:12:19,679 --> 00:12:21,680 Speaker 1: difficult to say with Deutscha, but obviously we've got credit 244 00:12:21,720 --> 00:12:24,120 Speaker 1: Swiss the next day or two. And that's the interesting 245 00:12:24,160 --> 00:12:27,719 Speaker 1: that we get a Reheork tomorrow. Right. The question is 246 00:12:27,920 --> 00:12:30,120 Speaker 1: a right, we'll be on standby for us tomorrow. John. 247 00:12:30,559 --> 00:12:32,880 Speaker 1: Have they have they raised enough money to avoid a 248 00:12:32,920 --> 00:12:35,480 Speaker 1: capital raise? Um? And the other issue they will have. 249 00:12:35,640 --> 00:12:37,920 Speaker 1: Is it's one thing making cost promises, but in an 250 00:12:38,040 --> 00:12:40,400 Speaker 1: environment where you've got so little visibility on revenue and 251 00:12:40,480 --> 00:12:44,360 Speaker 1: clients are probably showing away, how do you present a 252 00:12:44,360 --> 00:12:47,160 Speaker 1: credible plan? So Deutsche where it was three years ago, 253 00:12:47,200 --> 00:12:50,240 Speaker 1: Credit Swiss is at the moment. That's good stuff. I 254 00:12:50,240 --> 00:12:53,200 Speaker 1: remember those Deutsche Bank days. And again tomorrow, I guess 255 00:12:53,360 --> 00:12:55,400 Speaker 1: is when we get the plan from Credit Swiss. So 256 00:12:56,040 --> 00:12:59,280 Speaker 1: again another plan, Jonathan Tyson, you start senior banks analyst 257 00:12:59,360 --> 00:13:02,720 Speaker 1: covers all the European a lot of the global banks. 258 00:13:02,720 --> 00:13:06,160 Speaker 1: He's based in London and he does a great job. 259 00:13:06,160 --> 00:13:08,880 Speaker 1: So we always appreciate getting a few minutes of his time. 260 00:13:09,040 --> 00:13:12,760 Speaker 1: So there at Bloomberg Intelligence. So again some pretty decent 261 00:13:12,920 --> 00:13:15,160 Speaker 1: numbers from some of the European banks. But again it 262 00:13:15,160 --> 00:13:17,640 Speaker 1: all comes down um as it does for a lot 263 00:13:17,679 --> 00:13:20,520 Speaker 1: of industries, particularly this quarter, are on their guidance, and 264 00:13:20,559 --> 00:13:23,600 Speaker 1: I think their guidances cautious at best. I'm not even 265 00:13:23,760 --> 00:13:27,280 Speaker 1: say cautiously optimistic. They've got some challenging economic times ahead, 266 00:13:27,360 --> 00:13:30,719 Speaker 1: particularly in your exacerbated in large part by the war 267 00:13:30,800 --> 00:13:32,880 Speaker 1: in Ukraine. So we'll stay on top of all those 268 00:13:32,960 --> 00:13:38,760 Speaker 1: europaining banks, all right, Katie are you a homeowner. I'm not. 269 00:13:38,960 --> 00:13:43,680 Speaker 1: I have visions of beings. Okay, it's kind of tough 270 00:13:43,679 --> 00:13:46,760 Speaker 1: out there. I think the US thirty year fixed mortgage 271 00:13:46,840 --> 00:13:50,360 Speaker 1: right top seven percent. That's the highest since two thousand one, 272 00:13:50,480 --> 00:13:54,480 Speaker 1: that's reported by Bloomberg. That's a far cry from I 273 00:13:54,480 --> 00:13:57,720 Speaker 1: think Matt got his mortgage, you know, less than a 274 00:13:57,840 --> 00:14:01,520 Speaker 1: year ago. Three and a quarter. Maybe is that amazing 275 00:14:01,559 --> 00:14:05,719 Speaker 1: that jump in such a short timeframe. Uh so that's 276 00:14:05,720 --> 00:14:07,600 Speaker 1: a big deal. And then we have new home sales today, 277 00:14:07,600 --> 00:14:10,200 Speaker 1: and I guess you see it in that number, those numbers, 278 00:14:10,480 --> 00:14:13,920 Speaker 1: six hundred three thousand new home sales. Uh that's better 279 00:14:13,960 --> 00:14:16,920 Speaker 1: than the consensus of five thousand, but that's below last 280 00:14:16,960 --> 00:14:21,920 Speaker 1: month five thousand. So it's starting to really slow the 281 00:14:22,040 --> 00:14:24,280 Speaker 1: growth in new home sales here at the time. Maybe 282 00:14:24,400 --> 00:14:26,680 Speaker 1: it's good for people like me. I mean, I'm not 283 00:14:27,120 --> 00:14:29,280 Speaker 1: imminently looking to purchase a home, but I know some 284 00:14:29,280 --> 00:14:31,320 Speaker 1: people that are, and they're just waiting for the market 285 00:14:31,360 --> 00:14:34,720 Speaker 1: to turn enough. Or it makes sense again, all right, 286 00:14:34,800 --> 00:14:36,760 Speaker 1: let's talk to somebody who does this for a living, 287 00:14:37,200 --> 00:14:41,440 Speaker 1: Erica Heidelberg. She's a mortgage backed security strategist for Bloomberg 288 00:14:41,520 --> 00:14:44,640 Speaker 1: Intelligence Erequity make that that new home sales data we 289 00:14:44,720 --> 00:14:47,640 Speaker 1: got today, how did you read it? Well, you know, 290 00:14:47,680 --> 00:14:49,720 Speaker 1: it looks like we're continuing. I think a lot of 291 00:14:49,720 --> 00:14:54,360 Speaker 1: people didn't expect last month's little surge to last because 292 00:14:54,400 --> 00:14:57,160 Speaker 1: mortgage wits are going up, and if anything, the new 293 00:14:57,160 --> 00:15:00,360 Speaker 1: home sales number is probably still a lagging indicator because 294 00:15:00,720 --> 00:15:04,200 Speaker 1: rates have risen a lot this month as well. Overall, 295 00:15:04,280 --> 00:15:06,760 Speaker 1: we're down around eighteen per night year every year, and 296 00:15:06,800 --> 00:15:09,800 Speaker 1: I think that's not to be unexpected. At the same time, 297 00:15:09,840 --> 00:15:13,680 Speaker 1: we are seeing new homes under construction going up, so 298 00:15:14,200 --> 00:15:18,440 Speaker 1: there's a continued kind of stabilization and prices and new 299 00:15:18,440 --> 00:15:21,760 Speaker 1: home sales, but that may not last as well. And 300 00:15:21,840 --> 00:15:25,680 Speaker 1: let's talk about what US mortgage rates are doing. I 301 00:15:25,720 --> 00:15:28,400 Speaker 1: have to imagine that's trickling through into some of that 302 00:15:28,480 --> 00:15:32,440 Speaker 1: new home sales data. US mortgage rate it's topping seven percent. 303 00:15:32,600 --> 00:15:35,960 Speaker 1: That's the contract rate on a thirty year fixed mortgage. 304 00:15:36,520 --> 00:15:39,120 Speaker 1: What's the ceiling here? It seems like it's lifted every 305 00:15:39,120 --> 00:15:43,800 Speaker 1: single week. You know. It's it's really quite related obviously 306 00:15:43,840 --> 00:15:46,120 Speaker 1: to where treasuries are going. And I know that our 307 00:15:46,240 --> 00:15:50,680 Speaker 1: economics and our Treasury team both expect that Treasury shood 308 00:15:50,680 --> 00:15:54,480 Speaker 1: be leveling out soon because even though we do expect 309 00:15:54,480 --> 00:15:57,320 Speaker 1: sure rates to continue to have to rise to fight inflation, 310 00:15:57,720 --> 00:16:00,000 Speaker 1: I think the economy will start to slow in response, 311 00:16:00,200 --> 00:16:02,360 Speaker 1: and therefore that will start putting a limit on how 312 00:16:02,440 --> 00:16:05,800 Speaker 1: high treasury als will get. And mortgage spreads are also 313 00:16:06,080 --> 00:16:10,400 Speaker 1: very wide treasuries right now, we actually think they're probably 314 00:16:10,560 --> 00:16:13,400 Speaker 1: wider than fundamentals suggest. I think there's just a lot 315 00:16:13,440 --> 00:16:16,520 Speaker 1: of digestion going on as the TED pulls out of 316 00:16:16,560 --> 00:16:19,240 Speaker 1: the market. But even take into account kind of you know, 317 00:16:19,360 --> 00:16:22,000 Speaker 1: where we take the bed holdings as the percentage of 318 00:16:22,040 --> 00:16:24,920 Speaker 1: the market will be, we think spreads are probably a 319 00:16:24,920 --> 00:16:27,400 Speaker 1: little wide. So we're seeing some strong buy just in 320 00:16:27,400 --> 00:16:30,480 Speaker 1: the past couple of days by mortgage investors who say 321 00:16:30,520 --> 00:16:34,400 Speaker 1: spreads are wide enough. Um, so, you know, presuming the 322 00:16:34,440 --> 00:16:37,000 Speaker 1: money and the dry powder is there to kind of 323 00:16:37,000 --> 00:16:40,520 Speaker 1: stabilize the mortgage market, it's it's looks promising at least 324 00:16:40,520 --> 00:16:44,280 Speaker 1: the last in the most ucent trading sessions. That's kind 325 00:16:44,280 --> 00:16:46,400 Speaker 1: of where I wanted to go, h Erica. In the 326 00:16:46,480 --> 00:16:48,400 Speaker 1: kind of the market you cover, the NBS market, I'm 327 00:16:48,440 --> 00:16:52,680 Speaker 1: looking at the Bloomberg u S MBS index total return 328 00:16:53,280 --> 00:16:56,200 Speaker 1: and year to date minus fifteen point three percent, and 329 00:16:56,240 --> 00:16:58,400 Speaker 1: don't worry, you have lots of company in that type 330 00:16:58,440 --> 00:17:03,640 Speaker 1: of performance across the fixed incomes specter segment. Do your 331 00:17:03,680 --> 00:17:06,359 Speaker 1: clients you talk to are any of them saying, boy, 332 00:17:06,440 --> 00:17:10,240 Speaker 1: this is A it's historic in terms of underperformance, and 333 00:17:10,440 --> 00:17:15,960 Speaker 1: B can't get that much worse? Maybe now is the time? Um? Yeah, well, 334 00:17:16,000 --> 00:17:17,800 Speaker 1: I definitely have a lot of clients talking to me 335 00:17:17,840 --> 00:17:22,080 Speaker 1: and saying, you know, at what point are spreads wide enough? 336 00:17:22,600 --> 00:17:25,840 Speaker 1: And of course I can't fully answer that question because 337 00:17:26,640 --> 00:17:30,120 Speaker 1: there's always unknowns and we're not really allowed to do that, 338 00:17:30,480 --> 00:17:33,280 Speaker 1: but I will say that when we run aggressions and 339 00:17:33,320 --> 00:17:37,679 Speaker 1: look at where spreads are relative to fundamental economic variables 340 00:17:37,760 --> 00:17:40,359 Speaker 1: as well as the housing market variables, and even you know, 341 00:17:40,680 --> 00:17:44,280 Speaker 1: our expectations for FED holdings as a present of the index, 342 00:17:44,520 --> 00:17:47,800 Speaker 1: spreads look wide. Now. One of the things is keeping 343 00:17:47,840 --> 00:17:51,800 Speaker 1: spreads wide is the fact that volatility both in terms 344 00:17:51,840 --> 00:17:55,640 Speaker 1: of return, so you know, from a fear versus reed standpoint, um, 345 00:17:55,720 --> 00:17:58,480 Speaker 1: but also just in terms of how it affects mortgage 346 00:17:58,560 --> 00:18:03,560 Speaker 1: valuations because there's make into convexity and the mortgage sector inherently, 347 00:18:03,600 --> 00:18:06,800 Speaker 1: so high levels of spread volatile the actually do reduce 348 00:18:06,840 --> 00:18:10,320 Speaker 1: the value of the mortgage overall fundamentally. But that being said, 349 00:18:10,359 --> 00:18:14,760 Speaker 1: even taking those into account, spreads look wider than they should, 350 00:18:14,880 --> 00:18:17,760 Speaker 1: wider than our models think they should. So then it 351 00:18:17,840 --> 00:18:20,560 Speaker 1: just becomes a matter of who who can fill the 352 00:18:20,600 --> 00:18:24,080 Speaker 1: fens um void as as they step out of the market. 353 00:18:24,480 --> 00:18:26,639 Speaker 1: Right Well, Erica, that's what I wanted to ask you. 354 00:18:26,720 --> 00:18:31,560 Speaker 1: How much of that maybe unjustified spread wideness can we 355 00:18:31,600 --> 00:18:33,960 Speaker 1: just blame on the FED pulling back from the market. 356 00:18:35,119 --> 00:18:37,560 Speaker 1: I think we can blame the bulk of it on that, 357 00:18:37,640 --> 00:18:40,399 Speaker 1: but we also complain the high volatility overall in the 358 00:18:40,440 --> 00:18:43,560 Speaker 1: market and uncertainty about the direction of rage and the 359 00:18:43,640 --> 00:18:48,119 Speaker 1: magnizument of FED tightening policies which has related all the 360 00:18:48,200 --> 00:18:51,280 Speaker 1: unknowns about inflation. So you know, it's not as as 361 00:18:51,720 --> 00:18:54,359 Speaker 1: you guys said. It's it's not only mortgages that are 362 00:18:54,400 --> 00:18:58,760 Speaker 1: into performing to perform. Obviously, equities of end to perform. 363 00:18:58,880 --> 00:19:04,000 Speaker 1: So it's a global asset class um risk off phenomena. 364 00:19:04,520 --> 00:19:07,879 Speaker 1: But at the same time, I will add the interesting 365 00:19:07,960 --> 00:19:12,240 Speaker 1: fact that as of this month, mortgages and an access 366 00:19:12,280 --> 00:19:15,840 Speaker 1: return basis, which is considering hedge returns, are actually the 367 00:19:15,880 --> 00:19:20,400 Speaker 1: worst performing sector in the Bloomberg Aggregate Bond Index, so 368 00:19:20,640 --> 00:19:23,679 Speaker 1: we we've taken that dubious crown and have been corporates 369 00:19:23,720 --> 00:19:26,440 Speaker 1: until September. So you know that also points of the 370 00:19:26,480 --> 00:19:31,000 Speaker 1: fact that mortgage mortgage cheapening maybe overdone even relative to 371 00:19:31,040 --> 00:19:35,520 Speaker 1: the other risk products. Seconds Erica, what's the credit risk 372 00:19:35,680 --> 00:19:39,720 Speaker 1: for mortgages right now? I'm getting that question a lot. 373 00:19:40,080 --> 00:19:43,760 Speaker 1: My opinion is it's very low. Letting standards very high, 374 00:19:43,960 --> 00:19:46,440 Speaker 1: and the amount of equity most homeowners have in their 375 00:19:46,480 --> 00:19:49,439 Speaker 1: homes is very strong. So I'm not a concern for 376 00:19:49,520 --> 00:19:51,879 Speaker 1: me at this point, but obviously we will be looking 377 00:19:51,880 --> 00:19:54,760 Speaker 1: for any science pointing in the other direction. Alright, great, 378 00:19:54,760 --> 00:19:57,040 Speaker 1: great stuff. I'm so glad we have somebody like Erica 379 00:19:57,040 --> 00:19:59,359 Speaker 1: Ittelberg with us because the only thing I know about 380 00:19:59,359 --> 00:20:02,040 Speaker 1: the mortgage securities market is that what I learned in 381 00:20:02,320 --> 00:20:04,920 Speaker 1: the Great Financial Crisis. I'm probably everybody else there, which 382 00:20:04,960 --> 00:20:07,119 Speaker 1: is why we had to get smart quickly on that. 383 00:20:07,240 --> 00:20:10,680 Speaker 1: And it's a very complex business. But fortunately have pros 384 00:20:10,720 --> 00:20:15,520 Speaker 1: like Erica Heidelberg, mortag back security strategist for Bloomberg Intelligence. Yes, 385 00:20:15,640 --> 00:20:18,920 Speaker 1: we have an MBS strategist at Bloomberg Intelligence because it's 386 00:20:18,920 --> 00:20:23,040 Speaker 1: a huge market Uh. It touches pretty much everybody out there, 387 00:20:23,160 --> 00:20:26,440 Speaker 1: the housing market. Uh. And it is certainly interest rate 388 00:20:26,520 --> 00:20:28,080 Speaker 1: sense that to say the least. And we're seeing that 389 00:20:28,119 --> 00:20:34,000 Speaker 1: in the performance as John was just mentioning some disappointing 390 00:20:34,000 --> 00:20:37,840 Speaker 1: tech numbers last evening. More to come reports after the 391 00:20:37,840 --> 00:20:41,040 Speaker 1: closed today. Waiting on the market here, but we've seen 392 00:20:41,280 --> 00:20:43,960 Speaker 1: SMP and doubt turn positive, so go figure maybe this 393 00:20:44,000 --> 00:20:45,679 Speaker 1: market wants to move a little higher. We check in 394 00:20:46,320 --> 00:20:48,760 Speaker 1: with somebody who does this stuff for a living. Quincy Crosby, 395 00:20:48,840 --> 00:20:53,159 Speaker 1: chief global strategist at LPL Financial as a publicly traded 396 00:20:53,160 --> 00:20:56,240 Speaker 1: company on the NASDAC. You can put lp l A 397 00:20:56,440 --> 00:21:00,280 Speaker 1: the ticker into your Bloomberg terminal. Check that out. Uh, Quincy, 398 00:21:00,320 --> 00:21:01,679 Speaker 1: thanks so much for joining us here. What do you 399 00:21:01,760 --> 00:21:05,320 Speaker 1: make of this market? Bloomberg News is out reporting on 400 00:21:05,320 --> 00:21:08,320 Speaker 1: on a Goldman sax called Golden Sex as US equity 401 00:21:08,320 --> 00:21:11,879 Speaker 1: bottom conditions are not there yet. Do you agree with 402 00:21:11,960 --> 00:21:14,560 Speaker 1: that or how do you think about it? Well, you know, 403 00:21:14,680 --> 00:21:18,600 Speaker 1: statistically it's probably not in What you now have is 404 00:21:18,600 --> 00:21:23,119 Speaker 1: the market transitioning from you know, concerns over inflation to recession. 405 00:21:23,200 --> 00:21:26,160 Speaker 1: I mean, you you've seen much made of the three 406 00:21:26,200 --> 00:21:30,800 Speaker 1: months Treasury note inverting with the ten year hasn't pretty 407 00:21:31,000 --> 00:21:35,920 Speaker 1: pretty strong track records that excellent track record predicting a recession. 408 00:21:35,960 --> 00:21:39,480 Speaker 1: The question will be what kind of recession, and that 409 00:21:40,000 --> 00:21:43,800 Speaker 1: is going to affect how the market reacts, because you know, 410 00:21:43,840 --> 00:21:50,080 Speaker 1: if if market starts discounting uh and and concerns over 411 00:21:50,280 --> 00:21:53,840 Speaker 1: over earnings, that's going to matter for whether or not 412 00:21:53,920 --> 00:21:57,520 Speaker 1: we've reached the bottom. Quincy, I want to get your 413 00:21:57,520 --> 00:22:01,080 Speaker 1: thoughts on the concept of bad news being good news 414 00:22:01,119 --> 00:22:05,200 Speaker 1: as we, you know, continue this conversation about earnings. That 415 00:22:05,440 --> 00:22:08,720 Speaker 1: mantra has typically applied to economic data, but I mean 416 00:22:08,920 --> 00:22:11,639 Speaker 1: many have made the case that when you see lower 417 00:22:11,680 --> 00:22:14,440 Speaker 1: ad revenue, especially for some of these tech companies, that's 418 00:22:14,440 --> 00:22:18,280 Speaker 1: a read on the economy, that's a read of cooling demands. 419 00:22:18,880 --> 00:22:21,679 Speaker 1: Maybe that's good news in the eyes of the Federal Reserve. 420 00:22:21,800 --> 00:22:24,679 Speaker 1: What are your thoughts on that? Well, yeah, absolutely, I 421 00:22:24,720 --> 00:22:28,600 Speaker 1: mean the market has been taking the data and then 422 00:22:28,960 --> 00:22:32,560 Speaker 1: you know, filtering it through the perspective from the FED, 423 00:22:33,119 --> 00:22:36,879 Speaker 1: and it's exactly that the bad news is good news 424 00:22:36,920 --> 00:22:39,920 Speaker 1: because what the market is hoping for is that the 425 00:22:39,960 --> 00:22:43,600 Speaker 1: FED begins a transition. I mean, I do most want 426 00:22:43,600 --> 00:22:45,919 Speaker 1: the FED to stop or to pause, but you know, 427 00:22:46,000 --> 00:22:49,800 Speaker 1: most likely it'll be a transition to a lower rate 428 00:22:50,040 --> 00:22:54,680 Speaker 1: and less hawkish rhetoric as it moves towards the towards 429 00:22:54,760 --> 00:22:57,520 Speaker 1: the terminal rate. But that's what the market wants. In 430 00:22:57,520 --> 00:23:02,360 Speaker 1: the market understands that the more the these the economy slowing, 431 00:23:03,200 --> 00:23:06,640 Speaker 1: especially because it's become much more embedded in the broader economy, 432 00:23:06,960 --> 00:23:10,639 Speaker 1: the labor market for example, then the said understands his 433 00:23:10,760 --> 00:23:15,000 Speaker 1: campaign is working. So that's why, right, bad news is 434 00:23:15,040 --> 00:23:18,919 Speaker 1: good news. Good news at this point is bad news, 435 00:23:18,960 --> 00:23:23,040 Speaker 1: so Quincy. Last night, Microsoft, like many other companies, called 436 00:23:23,040 --> 00:23:26,240 Speaker 1: out the stronger US dollar as as a headwind and 437 00:23:26,280 --> 00:23:29,679 Speaker 1: impacting their reported results. As a professional investor, Quincy, do 438 00:23:29,720 --> 00:23:33,280 Speaker 1: you look past, you know, the swings and currencies and 439 00:23:33,320 --> 00:23:35,919 Speaker 1: try to focus more on the underlying business or do 440 00:23:35,920 --> 00:23:37,600 Speaker 1: you have to take the reported numbers as they are? 441 00:23:37,640 --> 00:23:39,520 Speaker 1: How do you how do you deal with that? Well, 442 00:23:39,560 --> 00:23:41,880 Speaker 1: you know, you're you're always looking at guides. You've heard 443 00:23:41,920 --> 00:23:44,399 Speaker 1: that over and over again that when we're going through 444 00:23:44,440 --> 00:23:47,000 Speaker 1: the earning season and listening to the guidance, and you 445 00:23:47,040 --> 00:23:50,760 Speaker 1: could see a number of analysts, especially Microsoft, and said, hey, 446 00:23:50,800 --> 00:23:54,080 Speaker 1: this is this is a buying opportunity. The stronger dollar 447 00:23:54,200 --> 00:23:57,879 Speaker 1: has been an important headwind, There's no doubt about it, 448 00:23:57,960 --> 00:24:02,239 Speaker 1: particularly amid about back drop of a weaker demand as 449 00:24:02,280 --> 00:24:06,280 Speaker 1: the global economy flows down. But that is going to change. 450 00:24:06,359 --> 00:24:11,400 Speaker 1: I mean that you're looking ahead three months and expectations 451 00:24:11,480 --> 00:24:15,800 Speaker 1: are that the dollar will have weekend because the FED 452 00:24:16,000 --> 00:24:19,719 Speaker 1: eases off, and that is very helpful for UM, for 453 00:24:19,760 --> 00:24:25,199 Speaker 1: the you know, the global footprint for a good portion 454 00:24:25,240 --> 00:24:27,800 Speaker 1: of the S and p if. I've heard at the multinationals. 455 00:24:27,840 --> 00:24:31,320 Speaker 1: So there's no doubt about it. The guidance is crucial. 456 00:24:31,600 --> 00:24:34,119 Speaker 1: Isn't as if Microsoft came in with a you know, 457 00:24:34,520 --> 00:24:36,639 Speaker 1: terrible guidance the end of the Earth guardance. You know, 458 00:24:36,720 --> 00:24:39,440 Speaker 1: it wasn't that at all, but it missed in terms 459 00:24:39,520 --> 00:24:43,240 Speaker 1: of the guidance, and that should change. Similarly, we're waiting 460 00:24:43,280 --> 00:24:46,600 Speaker 1: tonight you hear from Apple, and Apple, you know, has 461 00:24:46,680 --> 00:24:49,720 Speaker 1: a major fourth print globally. The dollar is going to matter. 462 00:24:50,760 --> 00:24:53,680 Speaker 1: And so Quincy put this onto a portfolio for us, 463 00:24:53,800 --> 00:24:58,199 Speaker 1: what's your highest conviction position at the moment, Well, right now, 464 00:24:58,240 --> 00:25:00,440 Speaker 1: where we tend to be more conserve rid of at 465 00:25:00,440 --> 00:25:03,520 Speaker 1: this point, and we like healthcare and energy has been 466 00:25:04,160 --> 00:25:07,520 Speaker 1: a top performer healthcare is moving in that direction. That 467 00:25:07,640 --> 00:25:12,359 Speaker 1: has moved in that direction, including its riskier UH compatriot, 468 00:25:12,800 --> 00:25:17,119 Speaker 1: which is biotech. On moving on moving UH A nice 469 00:25:17,280 --> 00:25:21,360 Speaker 1: nice games for the advisors. Another thing that we're looking at, 470 00:25:21,440 --> 00:25:27,919 Speaker 1: and that's important, and that is move in um UM industrials. 471 00:25:27,920 --> 00:25:30,040 Speaker 1: It's like green shoots. A lot of that has to 472 00:25:30,080 --> 00:25:34,720 Speaker 1: do with the defense component of industrials. The defense stocks 473 00:25:34,880 --> 00:25:38,960 Speaker 1: very important for for the overall industrials. They're moving inch 474 00:25:39,040 --> 00:25:41,520 Speaker 1: by inch higher. The other thing that we're looking at 475 00:25:41,600 --> 00:25:44,920 Speaker 1: is the bond market. We've been saying for some time now, 476 00:25:45,280 --> 00:25:49,879 Speaker 1: the bond market has come back and offering UH investors 477 00:25:49,880 --> 00:25:52,560 Speaker 1: a return, a return that they haven't seen in a 478 00:25:52,560 --> 00:25:55,680 Speaker 1: long time. And to take advantage of that, the short 479 00:25:55,760 --> 00:25:58,960 Speaker 1: duration we're moving a little bit longer, but investment grade 480 00:25:59,040 --> 00:26:01,720 Speaker 1: short duration again moving a little bit longer. This is 481 00:26:01,760 --> 00:26:05,560 Speaker 1: going to help until the market realizes that the rates 482 00:26:05,600 --> 00:26:09,240 Speaker 1: are going to come down as recession fears are introduced, 483 00:26:09,280 --> 00:26:12,200 Speaker 1: and then obviously the rates will start to pull back. 484 00:26:13,160 --> 00:26:14,959 Speaker 1: All right, Quincy, thank you so much for joining us. 485 00:26:15,280 --> 00:26:18,960 Speaker 1: Always love getting your perspective there. Quincy Crosby, chief Global 486 00:26:19,080 --> 00:26:22,840 Speaker 1: Strategist for LPL Financial NASTAC traded company lp l A 487 00:26:23,720 --> 00:26:26,639 Speaker 1: is the ticker symbol there. Just talking about earnings and 488 00:26:26,720 --> 00:26:29,679 Speaker 1: kind of how the markets digesting those earnings. And you know, 489 00:26:29,680 --> 00:26:32,960 Speaker 1: when I was an analyst, I tend to try to 490 00:26:33,000 --> 00:26:36,080 Speaker 1: look through some of the fluctuations on FX and try 491 00:26:36,080 --> 00:26:38,320 Speaker 1: to look at the underlying business to say, hey, how 492 00:26:38,359 --> 00:26:40,920 Speaker 1: are things going. But again, it can have big moves 493 00:26:40,920 --> 00:26:42,720 Speaker 1: in the currencies, can have big moves on some of 494 00:26:42,720 --> 00:26:46,200 Speaker 1: these multinational UH companies, And we're really seeing it, uh, 495 00:26:46,400 --> 00:26:49,000 Speaker 1: you know, in a big way this quarter again Microsoft 496 00:26:49,359 --> 00:26:53,479 Speaker 1: last night Apple as Quincy was mentioning huge global company 497 00:26:53,640 --> 00:27:00,280 Speaker 1: after the clothes tonight along with the Facebook slash Meta. 498 00:27:00,520 --> 00:27:02,960 Speaker 1: Let's get fright to our next guest, Brian Whalen. He's 499 00:27:02,960 --> 00:27:06,639 Speaker 1: a co c I O and generalist portfolio Manigmate TCW 500 00:27:06,880 --> 00:27:10,040 Speaker 1: Fixed Income Group. Ah. He went to some college in 501 00:27:10,240 --> 00:27:13,080 Speaker 1: Connecticut that's best known for its pizza. But what really 502 00:27:13,119 --> 00:27:15,360 Speaker 1: gets my attention he was a former VP at Donaldson, 503 00:27:15,520 --> 00:27:18,480 Speaker 1: Lufkin and Jenrette and Flux that don't know that was 504 00:27:18,520 --> 00:27:21,040 Speaker 1: one of the premier firms on the street before Credit 505 00:27:21,119 --> 00:27:23,840 Speaker 1: Swiss bought it and kind of destroyed it. But what's 506 00:27:24,080 --> 00:27:26,000 Speaker 1: really good about the d l J people as they 507 00:27:26,000 --> 00:27:29,080 Speaker 1: trained some of the best analysts on Wall Street. So 508 00:27:29,200 --> 00:27:32,400 Speaker 1: keep that in mind, Brian, I got double digit declines 509 00:27:32,600 --> 00:27:35,440 Speaker 1: everywhere I look in the fixed income space. People are 510 00:27:35,440 --> 00:27:38,439 Speaker 1: telling me this has never happened before, So of course 511 00:27:38,520 --> 00:27:40,160 Speaker 1: I want to jump in with both feet and start 512 00:27:40,200 --> 00:27:43,439 Speaker 1: buying everything. What do you think of my strategy? I 513 00:27:43,520 --> 00:27:45,199 Speaker 1: like it. You had me at the intro and and 514 00:27:45,200 --> 00:27:47,879 Speaker 1: now you've got me with the support for the bond market. 515 00:27:47,920 --> 00:27:50,560 Speaker 1: Completely agree. We're at such a different place right now. 516 00:27:50,600 --> 00:27:52,560 Speaker 1: I mean, you know, we started a year of the 517 00:27:52,560 --> 00:27:54,359 Speaker 1: ten years at one and a half percent. You know, 518 00:27:54,440 --> 00:27:56,800 Speaker 1: you look at your your kind of standard bond fund 519 00:27:56,840 --> 00:27:58,960 Speaker 1: today you're looking at a yield of somewhere between five 520 00:27:59,000 --> 00:28:01,399 Speaker 1: and a half and six percent ends. Um. You know, 521 00:28:01,400 --> 00:28:04,719 Speaker 1: there's there's plenty of opportunities around, not only just the yield, 522 00:28:04,760 --> 00:28:06,960 Speaker 1: but you know, the potential opportunities you can get in credit. 523 00:28:07,040 --> 00:28:09,040 Speaker 1: Not to say there won't be more, but it's a 524 00:28:09,040 --> 00:28:11,200 Speaker 1: different conversation about the bond market today, and not only 525 00:28:11,240 --> 00:28:13,679 Speaker 1: get the yield, you know, but there's a strong argument 526 00:28:13,760 --> 00:28:16,000 Speaker 1: to be to be made that you know, bonds can 527 00:28:16,040 --> 00:28:18,640 Speaker 1: be what they're supposed to be in your portfolio, which 528 00:28:18,680 --> 00:28:22,560 Speaker 1: is a diversifier versus other assets like equities. It's amazing 529 00:28:22,600 --> 00:28:25,879 Speaker 1: to me how quickly uh tina went away. There is 530 00:28:26,080 --> 00:28:30,040 Speaker 1: no alternative now. It almost feels like there's too many alternatives. 531 00:28:30,080 --> 00:28:33,280 Speaker 1: There's so much opportunity, uh so many juicy yields in 532 00:28:33,320 --> 00:28:35,800 Speaker 1: the bond market. I mean, where do you see the 533 00:28:35,840 --> 00:28:39,840 Speaker 1: most opportunity at this point? Yeah, good question, you know, 534 00:28:39,960 --> 00:28:42,320 Speaker 1: for for us this first, you know, the first ten 535 00:28:42,360 --> 00:28:44,640 Speaker 1: months of the year, it's been a kind of we've 536 00:28:44,680 --> 00:28:46,840 Speaker 1: called it a high quality sell off. You know, so 537 00:28:46,920 --> 00:28:49,160 Speaker 1: where have you seen most of the repricing. You've seen 538 00:28:49,200 --> 00:28:51,480 Speaker 1: it obviously in treasury rates. We just talked about that, 539 00:28:52,240 --> 00:28:54,960 Speaker 1: and then other higher quality, larger parts of the bond 540 00:28:55,000 --> 00:28:59,240 Speaker 1: market like agency mortgage backed securities, like investment grade corporate bonds. 541 00:28:59,240 --> 00:29:01,720 Speaker 1: You know, those have kind of repriced the most and 542 00:29:01,800 --> 00:29:04,080 Speaker 1: looked the most attractive at this point. But you know, 543 00:29:04,160 --> 00:29:06,200 Speaker 1: if our outlook is right, and it's you know, it 544 00:29:06,240 --> 00:29:09,240 Speaker 1: seems to becoming more consensus, which is that we're clearly 545 00:29:09,280 --> 00:29:12,720 Speaker 1: heading into a deep slow down and recession, you're probably 546 00:29:12,720 --> 00:29:15,920 Speaker 1: gonna want to keep some powder dry for credit opportunities, 547 00:29:15,920 --> 00:29:18,040 Speaker 1: meaning that you know, areas of the bond market like 548 00:29:18,200 --> 00:29:21,040 Speaker 1: leverage and dance, you know, high yield leverage loans. Parts 549 00:29:21,040 --> 00:29:23,000 Speaker 1: of the bond market where you're exposed to kind of 550 00:29:23,400 --> 00:29:27,120 Speaker 1: lower quality uh types of borrowers in the commercial real 551 00:29:27,240 --> 00:29:29,680 Speaker 1: estate area or the residential mortgage area, You're gonna want 552 00:29:29,680 --> 00:29:32,200 Speaker 1: to keep that powder dry because you know, those parts 553 00:29:32,200 --> 00:29:35,040 Speaker 1: of the market really have not repriced. The spreads of 554 00:29:35,080 --> 00:29:37,240 Speaker 1: the prices you see in those parts of the market 555 00:29:37,720 --> 00:29:40,360 Speaker 1: are not reflective of a recession. And so that's you know, 556 00:29:40,720 --> 00:29:43,560 Speaker 1: with regards to our strategies, we've you know, we've jumped 557 00:29:43,560 --> 00:29:45,880 Speaker 1: with both feet into the former into the kind of 558 00:29:45,920 --> 00:29:48,680 Speaker 1: higher quality parts of the market, um, but still being 559 00:29:48,720 --> 00:29:52,560 Speaker 1: cautious on the lower quality parts. So you know, I 560 00:29:52,920 --> 00:29:54,880 Speaker 1: spent a couple of years earlier in my career that 561 00:29:55,000 --> 00:29:58,880 Speaker 1: v Chase Manhattan Banks, so doing credit analysis. So I've 562 00:29:58,880 --> 00:30:01,680 Speaker 1: got some chops there. I'm just an equity, simple equity guy. 563 00:30:01,720 --> 00:30:05,480 Speaker 1: But my question is, you know, I'm concerned if we 564 00:30:05,520 --> 00:30:09,200 Speaker 1: go into this recession about credit quality. UM. So you're 565 00:30:09,200 --> 00:30:11,240 Speaker 1: suggesting that is in fact a risk, and that is 566 00:30:11,520 --> 00:30:14,680 Speaker 1: suggestive that maybe focusing on quality right now as opposed 567 00:30:14,720 --> 00:30:18,080 Speaker 1: to maybe trying to grab for some extra yield. Yeah, 568 00:30:18,160 --> 00:30:19,720 Speaker 1: I mean, look, you know, when we look at, let's 569 00:30:19,720 --> 00:30:22,520 Speaker 1: feel good like corporate balance sheets, you know, they're actually 570 00:30:22,600 --> 00:30:25,120 Speaker 1: not as levered as we saw them in late two 571 00:30:25,160 --> 00:30:27,000 Speaker 1: thousand and nineteen. And part of that is, you know, 572 00:30:27,000 --> 00:30:29,040 Speaker 1: it's the upside inflation. Right, you know, debt is a 573 00:30:29,040 --> 00:30:32,120 Speaker 1: nominal problem. And so when you have inflation, uh and 574 00:30:32,240 --> 00:30:34,960 Speaker 1: debt stays relatively constant, your ability to service that that 575 00:30:35,160 --> 00:30:39,120 Speaker 1: actually looks it looks fairly healthy right now. It doesn't 576 00:30:39,160 --> 00:30:42,520 Speaker 1: look bad. That said, if we enter a recession, they'll 577 00:30:42,560 --> 00:30:45,160 Speaker 1: certain be some you know some uh, you know, some 578 00:30:45,200 --> 00:30:48,200 Speaker 1: things that go bang in the financial markets that will 579 00:30:48,280 --> 00:30:51,200 Speaker 1: dry up liquidity, and you will see that reflected in 580 00:30:51,320 --> 00:30:54,800 Speaker 1: wider spreads, higher yields in those parts of the corporate 581 00:30:54,800 --> 00:30:57,560 Speaker 1: bond market. It doesn't necessarily mean we're going to see 582 00:30:57,560 --> 00:30:59,800 Speaker 1: the faults the same types of the fault levels that 583 00:30:59,840 --> 00:31:02,000 Speaker 1: we saw in the Great Financial Crisis or you know, 584 00:31:02,080 --> 00:31:04,040 Speaker 1: during the kind of the two thousand one two thousand 585 00:31:04,080 --> 00:31:06,880 Speaker 1: two tech bubble burst. But there could be a period 586 00:31:06,880 --> 00:31:09,000 Speaker 1: of time and it could last, you know, months where 587 00:31:09,320 --> 00:31:11,360 Speaker 1: you know, the high yield market is priced like that 588 00:31:11,560 --> 00:31:13,560 Speaker 1: and now and now that would be a buying opportunity 589 00:31:13,600 --> 00:31:16,840 Speaker 1: because you could get prices reflective of a high default cycle, 590 00:31:17,160 --> 00:31:19,800 Speaker 1: but in reality, over the ensuing to three years, you 591 00:31:19,840 --> 00:31:22,680 Speaker 1: may not get or most likely will not get, those 592 00:31:22,720 --> 00:31:24,760 Speaker 1: types of peak default rates, and that will lead to 593 00:31:24,880 --> 00:31:28,200 Speaker 1: the very good returns. Fry. Let's wrap the FED into 594 00:31:28,240 --> 00:31:30,560 Speaker 1: this as we count down to next week's meeting. I'm 595 00:31:30,560 --> 00:31:32,840 Speaker 1: gonna ask you a version of a question I'm obsessed 596 00:31:32,880 --> 00:31:36,240 Speaker 1: with this morning, which the idea that bad news is 597 00:31:36,320 --> 00:31:40,080 Speaker 1: good news. You have, you know, signs of cooling economic data, 598 00:31:40,080 --> 00:31:42,080 Speaker 1: and I know you're a credit guy, but you look 599 00:31:42,120 --> 00:31:45,240 Speaker 1: at what we're seeing in the corporate earnings results, the 600 00:31:45,280 --> 00:31:49,480 Speaker 1: impact of a higher dollar, slowing ADS demands. When you 601 00:31:49,520 --> 00:31:51,520 Speaker 1: add all that together, what do you think it means 602 00:31:51,520 --> 00:31:53,400 Speaker 1: for the FED? And what do you think that means 603 00:31:53,440 --> 00:31:57,440 Speaker 1: for the fixing communiverse at large? I think the I 604 00:31:57,560 --> 00:31:58,840 Speaker 1: think that we think the FED is going to go 605 00:31:58,880 --> 00:32:01,320 Speaker 1: as far as the mark it allows them, meaning that 606 00:32:01,400 --> 00:32:04,240 Speaker 1: you know, if this you know, it's been fairly surprisingly 607 00:32:04,400 --> 00:32:06,880 Speaker 1: orderly kind of year to date, like we haven't really 608 00:32:07,040 --> 00:32:09,040 Speaker 1: I mentioned those bangs in the financial market, we haven't 609 00:32:09,080 --> 00:32:11,320 Speaker 1: seen them. So you know, the Fed's gonna get They're 610 00:32:11,320 --> 00:32:13,200 Speaker 1: gonna try to get well north of four percent, you know, 611 00:32:13,240 --> 00:32:15,480 Speaker 1: the market's got it priced in somewhere between a four 612 00:32:15,520 --> 00:32:18,080 Speaker 1: and a half and a five percent funds right. You know, 613 00:32:18,320 --> 00:32:20,520 Speaker 1: what might stop them from getting there is something that 614 00:32:20,560 --> 00:32:22,800 Speaker 1: goes you know, really goes bang. Um. It's kind of 615 00:32:22,800 --> 00:32:25,280 Speaker 1: the equivalent or even larger of that kind of UK 616 00:32:25,440 --> 00:32:28,440 Speaker 1: pension LBI problem. You know we were here in the States. 617 00:32:28,600 --> 00:32:30,600 Speaker 1: You know, that may cause them to kind of stop 618 00:32:31,480 --> 00:32:33,800 Speaker 1: or you know, let's say, you know, unemployment jumping up 619 00:32:33,800 --> 00:32:36,840 Speaker 1: surprisingly or a little more quickly, you know than the 620 00:32:36,880 --> 00:32:40,600 Speaker 1: markets anticipating. But long story short, the modern market right 621 00:32:40,640 --> 00:32:42,880 Speaker 1: now is allowing them, you know, it's kind of pricing 622 00:32:42,880 --> 00:32:44,600 Speaker 1: and allowing them to get north of four and a 623 00:32:44,640 --> 00:32:46,600 Speaker 1: half percent. And if they're giving it to them, they're 624 00:32:46,600 --> 00:32:48,760 Speaker 1: going to take it. All right, good stuff as always 625 00:32:49,320 --> 00:32:51,920 Speaker 1: Brian Well and coc I go in generalist portfolio manager 626 00:32:51,960 --> 00:32:55,840 Speaker 1: TCW Fixed Income Group and manage like two billion dollars. 627 00:32:55,840 --> 00:33:01,280 Speaker 1: How do you even do that? Looking at the Bowing today, 628 00:33:01,320 --> 00:33:02,840 Speaker 1: the stocks down about two and a half percent. They 629 00:33:02,880 --> 00:33:04,800 Speaker 1: reported some numbers. I kind of went through it. It It 630 00:33:04,960 --> 00:33:08,360 Speaker 1: kind of looked like a mixed bag. Revenue, uh EPs 631 00:33:08,480 --> 00:33:10,560 Speaker 1: missed estimates. On the one hand, all that are they 632 00:33:10,560 --> 00:33:12,040 Speaker 1: hand had a ton of free cash flow, and I 633 00:33:12,080 --> 00:33:16,000 Speaker 1: know that's what analysts and investors for Boeing focus on 634 00:33:16,000 --> 00:33:18,120 Speaker 1: a lot. So let's break it down with George Ferguson. 635 00:33:18,200 --> 00:33:22,480 Speaker 1: He's a senior aerospace, defense and airline analysts for Bloomberg Intelligence, 636 00:33:22,480 --> 00:33:25,080 Speaker 1: has been doing this stuff for decades and of course 637 00:33:25,120 --> 00:33:27,600 Speaker 1: the highlight of his life is easy proud graduate of 638 00:33:27,720 --> 00:33:31,080 Speaker 1: the Penn State University. Uh, George, kind of a mixed 639 00:33:31,120 --> 00:33:34,320 Speaker 1: bag there for bowing. What did you take away from it? Yeah, 640 00:33:34,400 --> 00:33:36,800 Speaker 1: so thanks for having me on you. I mean the 641 00:33:36,840 --> 00:33:40,960 Speaker 1: takeaway was that even though cash was cash and global services, 642 00:33:41,000 --> 00:33:43,560 Speaker 1: I think we're the two standouts in the quarter and 643 00:33:43,640 --> 00:33:49,000 Speaker 1: a really ugly muddy quarter. Um, cash wasn't as good 644 00:33:49,000 --> 00:33:52,200 Speaker 1: as uh as it look. You know, the cash generation 645 00:33:52,280 --> 00:33:57,600 Speaker 1: was largely driven by a tax refund and then um 646 00:33:57,720 --> 00:34:03,719 Speaker 1: some pre payments on airplanes actually accounts receivable going up yere, 647 00:34:03,720 --> 00:34:05,280 Speaker 1: which I think is has a lot to do with 648 00:34:05,320 --> 00:34:08,120 Speaker 1: the defense businesses that they took charges on, but there's 649 00:34:08,120 --> 00:34:10,799 Speaker 1: some other moneys in there. So you know, when when 650 00:34:10,840 --> 00:34:12,719 Speaker 1: I look at cash floy like core cash flow like 651 00:34:13,280 --> 00:34:16,960 Speaker 1: you generated from operations, You don't generate it from working 652 00:34:16,960 --> 00:34:21,080 Speaker 1: account changes and tax refunds that were just it's just 653 00:34:21,239 --> 00:34:26,240 Speaker 1: not not not good, just doesn't not good, not good. Uh. 654 00:34:26,320 --> 00:34:29,200 Speaker 1: Let's let's move from cash flow and talk about the 655 00:34:29,200 --> 00:34:35,200 Speaker 1: seven thirty seven delivery goal cut again. Uh. It reduced 656 00:34:35,200 --> 00:34:40,239 Speaker 1: its forecast for deliveries uh to about three seventy five 657 00:34:40,360 --> 00:34:44,040 Speaker 1: for this year. Again, just another cut there. How surprising 658 00:34:44,640 --> 00:34:46,600 Speaker 1: was this? Are are you pretty used to seeing these 659 00:34:46,600 --> 00:34:49,520 Speaker 1: cuts at this point? Yeah? I think we are unfortunately 660 00:34:49,520 --> 00:34:52,359 Speaker 1: getting used to seeing these cuts. And you know the 661 00:34:52,400 --> 00:34:56,160 Speaker 1: noise we heard about next year wasn't good either, uh. 662 00:34:56,200 --> 00:34:58,040 Speaker 1: And I think that's really the challenge, right. I think 663 00:34:58,200 --> 00:35:02,239 Speaker 1: UM build rates have to be higher than you know, 664 00:35:02,239 --> 00:35:05,200 Speaker 1: they're not even achieving the thirty one they say is 665 00:35:05,200 --> 00:35:07,680 Speaker 1: their stated rate UM. But I think they even have 666 00:35:07,719 --> 00:35:10,480 Speaker 1: to get above thirty one to keep the company healthy, 667 00:35:10,520 --> 00:35:13,360 Speaker 1: to generate cash, to absorb all that overhead, and to 668 00:35:13,440 --> 00:35:16,919 Speaker 1: keep their supplier base in decent shape. And I think 669 00:35:16,960 --> 00:35:20,440 Speaker 1: everyone is scratching their heads about this. Hey, it's the 670 00:35:20,480 --> 00:35:23,920 Speaker 1: engine makers that can't get US engines. You know. The 671 00:35:24,000 --> 00:35:27,120 Speaker 1: Boeing management kept going through a number of analysts and 672 00:35:27,160 --> 00:35:32,040 Speaker 1: the call question that you know multiple times, and you know, 673 00:35:32,080 --> 00:35:35,279 Speaker 1: when we look at Airbus, they're building eight to ten 674 00:35:35,360 --> 00:35:39,000 Speaker 1: more airplanes a month and they're getting engines, So what's 675 00:35:39,080 --> 00:35:43,440 Speaker 1: what's the difference? Right? What's going on? So I guess 676 00:35:43,719 --> 00:35:47,600 Speaker 1: you know, one of the issues is then seven the Dreamliner, 677 00:35:47,600 --> 00:35:52,040 Speaker 1: which is one of my favorite aircraft in the sky. Um, 678 00:35:52,200 --> 00:35:54,400 Speaker 1: how's that doing? So I know it's not just a 679 00:35:54,440 --> 00:35:56,000 Speaker 1: seven thirty seven then we have to worry about. But 680 00:35:56,000 --> 00:35:58,040 Speaker 1: I know there's some issues with the seven eight seven 681 00:35:58,040 --> 00:36:00,799 Speaker 1: as well. Yeah, so seven, you know, they they've got 682 00:36:00,800 --> 00:36:03,160 Speaker 1: the FAA to sign off on on the six on 683 00:36:03,239 --> 00:36:06,040 Speaker 1: those and they're starting to move them out of inventory, 684 00:36:06,040 --> 00:36:09,280 Speaker 1: which is you know, that's a that's absolutely a positive story. 685 00:36:09,719 --> 00:36:14,520 Speaker 1: The challenges that the SEV seven doesn't make much margins, 686 00:36:14,560 --> 00:36:17,640 Speaker 1: so you know, the contribution to profit isn't isn't large, 687 00:36:17,680 --> 00:36:20,200 Speaker 1: But there's a lot of money in inventory that I think, 688 00:36:20,280 --> 00:36:22,719 Speaker 1: you know, Boeing needs that cash, needs to needs to 689 00:36:22,760 --> 00:36:24,640 Speaker 1: get it into the into the balance. She shipp those 690 00:36:24,680 --> 00:36:27,680 Speaker 1: airplanes and that's going to give them some comfort going forward. 691 00:36:28,400 --> 00:36:30,080 Speaker 1: Um you know. So, I mean again, I think seventy 692 00:36:30,120 --> 00:36:32,480 Speaker 1: seven improving story, but just not not a lot of 693 00:36:32,480 --> 00:36:36,680 Speaker 1: profitability in that program. And so when you think about 694 00:36:36,760 --> 00:36:40,920 Speaker 1: Bowing and the different struggles that the company is dealing with, 695 00:36:41,120 --> 00:36:44,000 Speaker 1: supply chain issues, labor shortages. What do you think is 696 00:36:44,040 --> 00:36:47,959 Speaker 1: the biggest hurdle that the C suite is talking about 697 00:36:48,040 --> 00:36:52,600 Speaker 1: right now? You know, I think that, Um, I'm not 698 00:36:52,640 --> 00:36:54,239 Speaker 1: going to limit it to one story. I'm gonna go 699 00:36:54,280 --> 00:36:58,360 Speaker 1: for two. First, I think they should be talking every 700 00:36:58,400 --> 00:37:00,400 Speaker 1: single day again about what it's going to take to 701 00:37:00,440 --> 00:37:05,919 Speaker 1: get seven thirty seven max production up UH and sustained 702 00:37:05,960 --> 00:37:09,120 Speaker 1: at a higher level so they can generate profits. And 703 00:37:09,160 --> 00:37:12,080 Speaker 1: they should be talking each and every and actually, part 704 00:37:12,080 --> 00:37:14,239 Speaker 1: of that discussion is going to be they've got to 705 00:37:14,280 --> 00:37:15,600 Speaker 1: be going to the White House and trying to figure 706 00:37:15,600 --> 00:37:18,160 Speaker 1: out what is going on with China trying to either 707 00:37:18,280 --> 00:37:20,560 Speaker 1: going to open or not open. And if it's not 708 00:37:20,600 --> 00:37:22,720 Speaker 1: going to open for them, they got to go sell 709 00:37:22,760 --> 00:37:25,720 Speaker 1: those airplanes that they've already built and get that cash 710 00:37:25,960 --> 00:37:29,000 Speaker 1: again into their coffers. And the second thing is that 711 00:37:29,120 --> 00:37:32,800 Speaker 1: defense business. That defense business has rolled over. Now we 712 00:37:32,920 --> 00:37:35,600 Speaker 1: look in we're not going to generate cash in that 713 00:37:35,680 --> 00:37:38,360 Speaker 1: business that was you know, that is supposed to be 714 00:37:38,400 --> 00:37:41,879 Speaker 1: one of the stabilizing factors at this company and now 715 00:37:41,920 --> 00:37:44,759 Speaker 1: it's and you know, now it's not performing for them. 716 00:37:44,960 --> 00:37:47,520 Speaker 1: And they've got to get into that defense business, get 717 00:37:47,560 --> 00:37:50,839 Speaker 1: these charges behind them, get that supply chain right size, 718 00:37:51,080 --> 00:37:54,160 Speaker 1: even potentially go to Congress and talk about adjusting some 719 00:37:54,239 --> 00:37:58,680 Speaker 1: of these fixed price contract because it's not just Boing 720 00:37:58,680 --> 00:38:01,560 Speaker 1: this losing money a fixed price contracts. Everybody's having a 721 00:38:01,600 --> 00:38:03,799 Speaker 1: problem with it. They've got to work that issue hard. 722 00:38:04,160 --> 00:38:07,640 Speaker 1: That's an important part of this business. Uh, George, you 723 00:38:07,680 --> 00:38:12,439 Speaker 1: mentioned China. What is the state of Boeing's relationship with China? 724 00:38:12,520 --> 00:38:14,400 Speaker 1: Can they in fact are they allowed to sell this 725 00:38:14,560 --> 00:38:17,960 Speaker 1: China just not buying? What's going on? So China has 726 00:38:17,960 --> 00:38:20,759 Speaker 1: approved the Max to fly in the country, but they 727 00:38:20,760 --> 00:38:24,279 Speaker 1: are not taking delivers of the airplanes. And so of 728 00:38:24,360 --> 00:38:27,560 Speaker 1: seven thirty seven Maxes that have been built in and 729 00:38:27,640 --> 00:38:30,520 Speaker 1: are sitting on the tarmac out and you know, out 730 00:38:30,560 --> 00:38:33,759 Speaker 1: at different bowing facilities around the world. So as near 731 00:38:33,800 --> 00:38:36,800 Speaker 1: as we can tell, this looks like part of a 732 00:38:37,040 --> 00:38:41,160 Speaker 1: you know, part of the US China trade fight that 733 00:38:41,200 --> 00:38:44,319 Speaker 1: bowing is kind of stuck in the middle of um 734 00:38:44,719 --> 00:38:47,480 Speaker 1: there's a hunderd and thirty eight airplanes waiting to be 735 00:38:47,520 --> 00:38:50,279 Speaker 1: delivered into China. And you know what part of what's 736 00:38:50,280 --> 00:38:52,719 Speaker 1: boosting air buses deliveries is the fact that they're still 737 00:38:52,760 --> 00:38:56,200 Speaker 1: delivering into China um and that's giving them eight to 738 00:38:56,280 --> 00:38:59,719 Speaker 1: ten a month again, So Bowing's got to go to 739 00:38:59,800 --> 00:39:01,839 Speaker 1: the White House, I think, and start getting this figured out, 740 00:39:01,840 --> 00:39:06,040 Speaker 1: like where are we in relations with China on trade? Interesting? 741 00:39:06,080 --> 00:39:08,360 Speaker 1: All right, let's switch heres just real quickly to the airlines. 742 00:39:08,719 --> 00:39:10,640 Speaker 1: What's the top line story? What's the story here for 743 00:39:10,640 --> 00:39:13,279 Speaker 1: the airlines that we know, like consumers, they came back, 744 00:39:13,520 --> 00:39:16,360 Speaker 1: maybe they paused a little bit. Is where are we 745 00:39:16,440 --> 00:39:18,719 Speaker 1: in terms of demand there on that for the airlines? Yeah? 746 00:39:18,800 --> 00:39:22,880 Speaker 1: I mean demand has continued to improve and revenues have 747 00:39:23,000 --> 00:39:27,239 Speaker 1: looked very good during earning season. Costs are still elevated. 748 00:39:27,560 --> 00:39:31,920 Speaker 1: They're not getting twenty levels of profitability. Wasn't the toptick? 749 00:39:32,880 --> 00:39:35,759 Speaker 1: Was the top tick? So will they will managements tell you, hey, 750 00:39:35,800 --> 00:39:38,120 Speaker 1: it's great, revenues are coming in. We think there's a 751 00:39:38,200 --> 00:39:41,120 Speaker 1: huge amount of demand for air travel there clearly is. 752 00:39:41,160 --> 00:39:43,279 Speaker 1: But the question is why can't they get us back 753 00:39:43,320 --> 00:39:48,120 Speaker 1: to margins that look like against labor costs, it's fuel costs. 754 00:39:48,640 --> 00:39:51,560 Speaker 1: So my sense is there's still some weakness at the 755 00:39:51,600 --> 00:39:54,760 Speaker 1: low end of leisure and business isn't back fully. So business, 756 00:39:54,800 --> 00:39:57,400 Speaker 1: we think it is about back and the low end 757 00:39:57,440 --> 00:40:01,480 Speaker 1: of leisure I think is going to struggle with higher inflation, 758 00:40:02,160 --> 00:40:05,800 Speaker 1: and especially because we go into you know, economic slowdown, 759 00:40:06,080 --> 00:40:08,520 Speaker 1: whatever you think is coming just over the hill, that's 760 00:40:08,520 --> 00:40:10,720 Speaker 1: going to be the challenge for them. All right, Good stuff, 761 00:40:10,719 --> 00:40:14,040 Speaker 1: George Ferguson, He covers the airlines, He covers the airspace 762 00:40:14,080 --> 00:40:17,240 Speaker 1: and defense companies all tied in, of course. George Ferguson, 763 00:40:17,320 --> 00:40:20,759 Speaker 1: Senior aerospace and Defense analysts at Bloomberg Intelligence, calling in 764 00:40:20,880 --> 00:40:26,240 Speaker 1: from our Princeton office. Thanks for listening to the Bloomberg 765 00:40:26,360 --> 00:40:29,759 Speaker 1: Markets podcast. You can subscribe and listen to interviews with 766 00:40:29,800 --> 00:40:34,600 Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. 767 00:40:34,880 --> 00:40:38,719 Speaker 1: I'm on Twitter at Matt Miller, three pen On fall 768 00:40:38,760 --> 00:40:41,680 Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast, 769 00:40:41,719 --> 00:40:44,200 Speaker 1: you can always catch us worldwide at Bloomberg Radio.