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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Lisa A.

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Speaker 1: Brahmoids along with Tom Keene and Jonathan Ferrell, join us

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Speaker 1: each day for insight from the best in economics, geopolitics,

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Speaker 1: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 1: Spotify and anywhere you get your podcasts, and always on

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Speaker 1: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 1: We're just seeing one narrative after another torpedoed in actuality

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Speaker 1: because of all of the different myriaded factors that are

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Speaker 1: playing into this.

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Speaker 3: It is mind spinning.

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Speaker 2: Let's try and come up with a theory with Mandy Zoo,

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Speaker 2: vice President, Global head of Derivative Markets Intelligence over at

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Speaker 2: Sea by Markets. Mandy, goodmorning to you.

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Speaker 3: Good morning. I'll take a stab at then the narrative

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Speaker 3: ping pine.

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Speaker 2: Or pickleball or whatever. But Ima wants to call it okay,

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Speaker 2: Max Katna HSBC said this morning, Lixa quotes of it.

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Speaker 2: I'll cite it right now. The Move index is the

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Speaker 2: new risky asset fear gauge. What would you say back

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Speaker 2: to that?

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Speaker 4: So certainly bond volatility is the highest across asset classes

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Speaker 4: right now, But I don't think it is the only

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Speaker 4: measure that investors are looking at. And obviously I'm not

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Speaker 4: just saying that because I worked for the c BOW,

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Speaker 4: but I would say the VIX index more so than

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Speaker 4: any other, is what traders have up on their screen.

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Speaker 4: But to be fair, you know, I think right now

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Speaker 4: we need to look across multiple asset classes, rates, equities, credit,

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Speaker 4: right We recently launched the credit VIX and decease to

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Speaker 4: give investors a better gauge to measure credit volatility. All

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Speaker 4: of these are important asset classes to watch for as

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Speaker 4: we kind of go into the potential end of cycle.

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Speaker 4: You know, as we talk about recession versus soft land, is.

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Speaker 2: There anything about the price action the most we saw

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Speaker 2: last week that would give you some indication as to

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Speaker 2: whether it's sustainable or not.

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Speaker 3: So to me, the price action of the past not

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Speaker 3: just last week, but.

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Speaker 4: The past two month has been extremely telling in terms

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Speaker 4: of what the pain points are in people's portfolio. And

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Speaker 4: it's not to the downside, right the pullback that we

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Speaker 4: saw in September. In October, we're very very orderly, and

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Speaker 4: that's because coming into the fall, the consensus investor expectation

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Speaker 4: was for a pullback, and what you really saw the

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Speaker 4: pain wasat week in the snatback rally, right, we saw

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Speaker 4: people actually scramble for that upside because they weren't positioned

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Speaker 4: for it. So if you look at for example, SMP

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Speaker 4: put call ratio hit almost one year low as people

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Speaker 4: were kind of buying those upside calls to really get

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Speaker 4: that upside exposure that.

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Speaker 3: They don't have in their portfolio.

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Speaker 1: I love this by the way, that the pain trade

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Speaker 1: is when things do too well, and that people got

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Speaker 1: knocked out because there was a rally well. I mean,

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Speaker 1: this is sort of where we are in this moment

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Speaker 1: of upside down and downside up. But my question to

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Speaker 1: you is have we washed that out? Are we done

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Speaker 1: with the positioning that causes the pain trade to be

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Speaker 1: further upside.

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Speaker 3: I don't think so.

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Speaker 4: I think the again were talking about the narrative ping palm,

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Speaker 4: but I do think the consensus and even though economists

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Speaker 4: have shifted to soft landing, I think if you talk

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Speaker 4: to investors, everyone is still so bearish and the positioning

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Speaker 4: to me, it's going to take longer to really wash

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Speaker 4: out than what we saw last week. And that's why

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Speaker 4: we're seeing that durable demand for those upside calls in

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Speaker 4: the S and P.

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Speaker 1: When we talk about upside, are we talking big tech upside?

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Speaker 1: That that basically is what people have not loved because

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Speaker 1: they've believed that higher yields might take away some of

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Speaker 1: that valuation. That people are being forced to buy those

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Speaker 1: once again.

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Speaker 4: I think part of it there certainly has been. I

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Speaker 4: think one of the distinguishing features of this year's price

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Speaker 4: action has been the incredible sector dispersion. And we talked

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Speaker 4: of the narrative ping pong, the ping pong between sector leadership.

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Speaker 4: Right last year tech down forty this year tech up,

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Speaker 4: you know, thirty forty percent. That changing sector leadership. That

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Speaker 4: high dispersion in the market is part of the reason

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Speaker 4: why volatility in the equity market and the index level

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Speaker 4: has been so muted, is because of those wild swings

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Speaker 4: that we're seeing at the sector and the stock level.

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Speaker 1: How correlated have the bond and stock moves been, in

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Speaker 1: other words.

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Speaker 5: Is they're just a direct read through.

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Speaker 1: Lower yields stocks rally, higher yields stocks meander because people

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Speaker 1: aren't positioned in them too much.

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Speaker 4: So if we zoom out from just the past week

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Speaker 4: and look at over the past year, it's been incredibly unstable,

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Speaker 4: So that's I think the key feature is the equity

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Speaker 4: bond correlation has not normalized to what people are used

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Speaker 4: to and because of the instability, I think as one

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Speaker 4: of the reasons we're seeing more and more people gravitate

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Speaker 4: toward equity specific hedges or options, right because if fixed

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Speaker 4: income is no longer diversifying your equity're risking your portfolio,

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Speaker 4: you need to look at more specific hedges, so you know,

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Speaker 4: buying those SMP puts or other types of hedges. I

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Speaker 4: think that's kind of been the trend, and that's why,

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Speaker 4: you know, option volumes have been hitting record highs all year.

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Speaker 2: A note they just caught my eye from City Andrew Hanenhorst.

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Speaker 2: He said soft patch not soft lending. There's a difference.

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Speaker 2: He says, rather than a steady slowing of job growth

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Speaker 2: and inflation, our near term projections suggests a temporary soft patch,

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Speaker 2: elevated inflation is likely to be more evident in upcoming data.

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Speaker 2: Last week's reloosening of financial conditions also argues, in his eyes,

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Speaker 2: against the moderation and activity and inflation. Mandy does that

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Speaker 2: argue that we should be much more nimble as we

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Speaker 2: work through this. At least some kind of mentioned this,

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Speaker 2: and we were quite snarky about it earlier on in

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Speaker 2: the program. It's difficult to make projections for the next

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Speaker 2: twelve months. You can't cling to a theory at the

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Speaker 2: moment when everything seems to change. It's painful. In bombs,

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Speaker 2: you'll get whip sword in one direction and the next

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Speaker 2: week whip sword in the other. Does that argue to

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Speaker 2: be nimble? And what does that look like from your perspective?

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Speaker 3: Yeah, so I alluded to earlier.

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Speaker 4: So absolutely, the heightened macro uncertainty means investors do need

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Speaker 4: to be nimble, and the way they're doing that is

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Speaker 4: through using options right. And the way that I like

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Speaker 4: to explain is if there's no uncertainty and you know

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Speaker 4: stocks are going up, you just buy the underlying, right,

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Speaker 4: you just buy the delta one instrument. It's when you're

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Speaker 4: uncertain when you want to find risk reward right. You

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Speaker 4: want to know what you're at. You're at risk of

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Speaker 4: losing if you're wrong.

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Speaker 3: That argues for using options right.

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Speaker 4: If you buy call option, you know going into the trade,

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Speaker 4: the max that you can lose is the premium pede

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Speaker 4: I think that's why. You know, again, in this uncertain

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Speaker 4: macro environment, even though it hasn't translated into higher levels

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Speaker 4: of VIX, VIX being thirty day measure of uncertainty, that

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Speaker 4: long term uncertainty has definitely led to more and more

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Speaker 4: people using options to kind of define that risk reward

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Speaker 4: to help manage that portfolio volatility.

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Speaker 2: You touched on it there, just slightly. Yes, when you

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Speaker 2: talk about volume and options, are we talking about zero

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Speaker 2: day to expire?

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Speaker 5: No?

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Speaker 4: No, no, So people often think, okay, it's everything's coming

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Speaker 4: from zero day to xpreoptions volume across all tenors or

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Speaker 4: are growing higher, but obviously zero day has been the

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Speaker 4: fastest growing segment.

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Speaker 2: You've made the argument that's not something we should worry about.

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Speaker 3: No, And because it's balanced.

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Speaker 4: So people who make the argument that zero day options

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Speaker 4: or what's driving the market, they look at the gross

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Speaker 4: volume the notional volume, and they say, well, look it's

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Speaker 4: five hundred billion a day.

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Speaker 3: Of course that's what's driving the market.

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Speaker 4: But if fifty percent of that is by fifty percent

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Speaker 4: of the customer selling, then there's that zero impact, right,

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Speaker 4: So the balance of that trading matters, and what we

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Speaker 4: see is that it's incredibly balanced and because that's the case,

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Speaker 4: there's actually very minimal market disruption.

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Speaker 2: Mandy, this was great. Always is Mandy Zoo of Cibo

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Speaker 2: and Mandy, thank you, Thank you. Michael. I literally with

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Speaker 2: the serround of table to Ryan. Michael, I wish people

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Speaker 2: could see your face as that Beast team was faking

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Speaker 2: just to get some reaction. It's going to see you can.

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Speaker 6: It's great to be here, John, Lisa good talk to

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Speaker 6: you again.

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Speaker 2: Well, thank you, buddy. You've had earnings out this morning.

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Speaker 2: We've been talking about this dividend of four hundred million euros.

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Speaker 2: We've got to talk about this relationship with Boeing. I

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Speaker 2: want to share a couple of quotes with you and

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Speaker 2: then try and get some clarity. So you said in

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Speaker 2: the last week, if anything, it's getting worse. I would

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Speaker 2: have been reasonably confident up until about a month ago

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Speaker 2: that we'd get fifty seven aircraft by the end of June.

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Speaker 2: I'm not confident. We heard from your CFO this morning

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Speaker 2: said the worst case scenario is that we'll end up

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Speaker 2: with growth of forty seven aircraft next summer instead of

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Speaker 2: fifty seven. Help me understand where things are. What did

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Speaker 2: you want and what do you think you're going to get.

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Speaker 7: Yeah, I mean our case, Boy are contracted to deliver

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Speaker 7: as fifty seven aircraft by the end of April twenty fourth,

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Speaker 7: in other words, fifty seven editional aircraft for summer twenty four.

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Speaker 7: At the moment that has slipped by the Spirit production issues,

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Speaker 7: in which it's all Boy's own production issues in Seattle.

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Speaker 7: I think now it looks like we'll get the leave

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Speaker 7: us maybe ten short by about the end of June.

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Speaker 7: We'll hopefully we get forty five fifty aircraft by the

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Speaker 7: end of June. We said the boy, we're not taking

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Speaker 7: planes in July and August because frankly we're too busy,

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Speaker 7: but we're reasonably hopeful that we'll get forty five to

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Speaker 7: fifty aircraft front they will leave us short. I think

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Speaker 7: that's inevitable at this point in time, which means we'll

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Speaker 7: have slightly slower growth next summer, but we'll still add

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Speaker 7: forty five aircraft. It'll still be enough to enable us

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Speaker 7: to grow traffic from one hundred and eighty three million

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Speaker 7: passengers this year to just over two hundred million passengers.

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Speaker 2: It's for a number you have in mind whereby you

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Speaker 2: would have to cut capacity the next summer.

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Speaker 6: There isn't.

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Speaker 7: I mean we haven't yet announced for the capacity will

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Speaker 7: be next summer. As we said this morning, we have

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Speaker 7: ninety percent of our summer twenty four capacity already on sales.

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Speaker 7: Strongforward booking is good pricing, but we can't commit to

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Speaker 7: the last ten percent until we get a better picture

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Speaker 7: from Boei. I speak weekly with Dave Calhoun. I think

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Speaker 7: he's doing a good job in difficult circumstances. I have

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Speaker 7: less faith in the management in Seattle, but I think

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Speaker 7: you know, we're working closely with them.

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Speaker 6: We have our own people in Seattle, we.

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Speaker 7: Have our own people in Spurting, Whichito and anything we

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Speaker 7: can do to expedite these deliveries will do because growth

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Speaker 7: is so strong in Europe.

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Speaker 2: What is it about the management in Seattle what they're

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Speaker 2: getting wrong?

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Speaker 7: I think there isn't enough focus there on a daily

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Speaker 7: basis on how do we get in with these aircraft out.

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Speaker 7: Everybody is kind of ringing their hands blaming Wichita. You

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Speaker 7: know a lot of the issues are in Seattle as well.

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Speaker 7: They need a more crisis I would like to see

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Speaker 7: greater crisis management in Seattle and greater.

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Speaker 6: Focus on quality control. If you.

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Speaker 7: You know, I don't understand how Wichita spirit and which

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Speaker 7: we're able to have this succession amount of production problems

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Speaker 7: if Boeing's quality control was up to speed.

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Speaker 6: Do you have options options in terms of what.

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Speaker 2: Do you do if you don't want to work with

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Speaker 2: Boeing anymore?

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Speaker 7: I no, no, no, Let's say we want to work

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Speaker 7: with Boeing. We're Boeing's biggest customer by a mile in Europe.

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Speaker 7: We're a committed Boeing customer. Now, I would buy Airbus

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Speaker 7: aircraft if they were five percent cheaper per seat than Bowing,

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Speaker 7: but Boeing continue to beat.

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Speaker 6: Airbus on pricing.

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Speaker 7: The seventy three seven Max is a phenomenal aircraft, like

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Speaker 7: we've we now this summer, we've flown one hundred and

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Speaker 7: twenty five of the Max eight aircraft. We're carrying four

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Speaker 7: percent more pastors but burning sixteen percent less fuel. You know,

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Speaker 7: they're transformative in terms of the engine and aircraft efficiency.

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Speaker 7: We've ordered three hundred Max tens, which will I was

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Speaker 7: to carry two hundred and twenty eight passengers per fight

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Speaker 7: and burn twenty percent less fuel. So they're making great aircraft.

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Speaker 7: It's just they're not making them. On time or delivering

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Speaker 7: them in time.

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Speaker 2: Is it fair to say though, this is a relationship

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Speaker 2: you're stuck with regardless of what it delivers next year.

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Speaker 6: I mean, yes, you know we're committed to Boeing.

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Speaker 7: If you look around the world, the aircraft manufacturers, I

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Speaker 7: mean airbusts are no better than Boeing at the moment.

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Speaker 7: Airbus are way behind on their deliveries too. You have

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Speaker 7: the Part and Whitney engine, which is going to be

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Speaker 7: a real crisis next summer across the A three twenty

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Speaker 7: fleet in Europe. Yeah, the Part and Whitney engine is

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Speaker 7: going to ground a significant number of Airbus aircraft next summer,

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Speaker 7: So all of the aircraft manufacturers are challenged. We're a

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Speaker 7: very proud Boeing customer. I think Boeing will get its

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Speaker 7: act together. It's just taking a bit longer than we

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Speaker 7: had originally hoped.

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Speaker 1: In the meantime, how far can you jack up prices

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Speaker 1: if capacity is constrained?

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Speaker 7: I mean I think that the real issue for at

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Speaker 7: least is not how much would we jack up prices?

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Speaker 7: How much will Loftanza or France, IAG or BA keep

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Speaker 7: jacking up prices? And the answer is a lot. You

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Speaker 7: know your control estimate. This summer, Europe's operated about ninety

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Speaker 7: four percent of pre COVID opacity. That includes US growing

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Speaker 7: by twenty five percent. So take Ryan Air away. Europe

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Speaker 7: still at less than ninety percent of pre COVID capacity.

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Speaker 6: That's not changing next year.

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Speaker 7: The aircraft manufacturers are delivering aircraft late the part and

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Speaker 7: whitneys will mean five ten percent of the airbus street

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Speaker 7: will be grounded. And consolidation Loftans will buy al Italians,

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Speaker 7: somebody else will buy Tap and there'll be even less

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Speaker 7: capacity on offer.

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Speaker 1: Okay, so this is good news for you because you

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Speaker 1: don't have to really have to try too hard to

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Speaker 1: be the lowest cost aircraft while still raising prices.

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Speaker 8: How much you're going to raise prices next year.

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Speaker 7: We're price passive, load factor active. I think what's happening

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Speaker 7: is how much Ifthansa or France Kalem will drive up fares.

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Speaker 7: I think by a double digit number next year, it'll

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Speaker 7: send even more people in the direction of Ryanair. People

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Speaker 7: want to keep flying, families want to go on holidays.

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Speaker 7: They just don't want to pay Luftansa's outrageous prices. So

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Speaker 7: I think fares that next year I mean my operating

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Speaker 7: assumptions fares will go by a low double digit percentage

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Speaker 7: again through the summer twenty four. It'll be the third

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Speaker 7: year in a row, third summer in a row, we'll

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Speaker 7: see double digit fare increases in Europe.

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Speaker 1: This is the first year in the first time that

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Speaker 1: you're initiating a dividend. Yep, it's a four hundred pounds dividend.

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Speaker 1: It is the first time. Does this mean that you

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Speaker 1: have nothing else to do with that money?

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Speaker 6: Essentially?

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Speaker 7: Yes, you know, I mean, so the first time we've

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Speaker 7: done it. We've done special difference in share buybacks. We've

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Speaker 7: done about seven billion in share buybacks and special dividends.

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Speaker 6: But you know, we're.

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Speaker 7: Clearly generating a lot of cash at the moment. We've

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Speaker 7: paid down about two billion in debt. We're down to

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Speaker 7: our last two billion in bond debt.

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Speaker 6: We'll pay that down.

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Speaker 7: Over the next three years, and we're generating more cash

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Speaker 7: that we know what to do with.

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Speaker 6: We have specifical requirements.

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Speaker 7: Firstly was to do pay increases for our people who

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Speaker 7: worked with us during COVID. Secondly was to pay down

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Speaker 7: the bonds, and thirdly is to fund aircraft deliveries. But

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Speaker 7: we're running out of the existing order. We take the

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Speaker 7: last aircraft in December twenty twenty four. The first of

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Speaker 7: the Max tens doesn't arrive Toll January twenty seven, so

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Speaker 7: we're looking.

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Speaker 6: Into two or three years.

310
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Speaker 7: So we have effectively very little uses for cash, and

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Speaker 7: I think it's a commitment on our part. We'll return

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Speaker 7: to shareholders. We won't squander it the way many other

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Speaker 7: airlines do in m and A or buying hotels or whatever,

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Speaker 7: or as Delta or as Delta would do giving monstrous

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Speaker 7: pay increases to its pilots over the next four or

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Speaker 7: five years. We need to keep our cost low, keep

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Speaker 7: our efficiency high, and keep passing on on Beata Blair

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Speaker 7: first to our customers.

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Speaker 2: Do you think scheholders then can expect more of the

320
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Speaker 2: same of the next few years.

321
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Speaker 7: I think so as long as trading continues. You know,

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Speaker 7: who knows what's going to happen in Ukraine or in

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Speaker 7: the Middle East. But as long as we get a

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Speaker 7: reasonable wind on trading, then I think we will continue

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Speaker 7: to be very cash generitive and we will return large

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Speaker 7: amounts of cash to shareholders.

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Speaker 2: It's hard to know what is going to happen in Ukraine,

328
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Speaker 2: in the Middle East. I don't expect you to give

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Speaker 2: us a protection. I do want to understand, though, Are

330
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Speaker 2: you seeing things slow down in any way, shype or

331
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Speaker 2: form when you start to see these things escalate anything,

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Speaker 2: that's all no.

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Speaker 7: I anyway, we saw the initial when Russia invade Ukraine

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Speaker 7: in February twenty twenty two, twenty two or three account

335
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Speaker 7: remember you know, there's a sudden downturn in all of

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Speaker 7: our traffic into Poland, Romania, those countries.

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Speaker 6: It recovered after two or three weeks. We've had to suspend.

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Speaker 7: We're suspending all flights. We've about thirty flights a day

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Speaker 7: into Tel Aviv. They've been suspended until Christmas. So we

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Speaker 7: do want to see those those scenarios resolve themselves. But

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Speaker 7: the ultimate underlying trend across Europe we've locked up everybody

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Speaker 7: for two years in COVID. They all want to go back,

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Speaker 7: traveling families, want to go on holidays. We've just completed

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Speaker 7: the October midterm break. We were still full, and I

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Speaker 7: think what people want is to travel more. But there's

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Speaker 7: only ninety percent of the pre COVID capacity. So in

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Speaker 7: Europe you've constrained capacity, enormous demand and that is resulting

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Speaker 7: in very strong prices, not just for Rhynder but for

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Speaker 7: all of the airlines.

350
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Speaker 2: And you're noticing getting right down. I hate to describe

351
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Speaker 2: it as tried down from Bight to ryan abbat United

352
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Speaker 2: saying anything like that.

353
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Speaker 7: Not at the moment, but you know, I think it's

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Speaker 7: inevitable if the next year or two, if consumers are

355
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Speaker 7: under pressure, I think you know you'll see the little

356
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Speaker 7: and all these are the supermarkets.

357
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Speaker 6: Ikea will do very well, in Rhine will do very well.

358
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Speaker 1: So what about using some of the cash to make

359
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Speaker 1: the experience nicer for people who might be frustrated.

360
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Speaker 7: With At least it'd be impossible to make the experience

361
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Speaker 7: on Rhinier any nicer. You know, aircraft on time flights

362
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Speaker 7: the fewest cancelations of any airline in Europe. And I

363
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Speaker 7: don't understand why people pay such ridiculous air force for

364
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Speaker 7: a horrendous experience on Lofanza. Who lose your bag, miss

365
00:15:10,240 --> 00:15:13,240
Speaker 7: your connection? On Ryanery It's efficient, it's cheap, it's.

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Speaker 6: On time, and it is below.

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Speaker 2: Like a man that four million people, once upon.

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Speaker 7: A time, did you live like I had to do

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Speaker 7: on a road show a year ago, I had to

370
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Speaker 7: fly from Frankfurt to Zurich, which is only about a

371
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Speaker 7: one and a half our flight. They stung me for

372
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Speaker 7: nine hundred euros one way in economy and I was

373
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Speaker 7: sitting at the back, in the middle seat, in front

374
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Speaker 7: of the toilet on an adleweis a three twenty.

375
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Speaker 6: I mean seven hundred years. I could fly all year

376
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Speaker 6: round on Ryanier for seven hundred euros.

377
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Speaker 2: Michael, it's got to say it, John Lisa, Michael Larry

378
00:15:43,680 --> 00:15:56,280
Speaker 2: that the Ryan A CEO I at the line up

379
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Speaker 2: joint just now had a macro credit recearch at a

380
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Speaker 2: black Rock. I matter, don't worry. We're not going to

381
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Speaker 2: be so about that. I do want to talk about

382
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Speaker 2: supply if we can start there. We've got forty eight

383
00:16:04,040 --> 00:16:06,280
Speaker 2: billion dollars a three year notes this week, we've got

384
00:16:06,280 --> 00:16:08,200
Speaker 2: forty billion dollars a ten year notes. We've got some

385
00:16:08,240 --> 00:16:11,000
Speaker 2: thirty year bonds twenty four billion dollars worth. These are big,

386
00:16:11,040 --> 00:16:14,600
Speaker 2: big numbers. That's treasury supply. What's happening with credit supply

387
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Speaker 2: going into year end?

388
00:16:16,000 --> 00:16:18,600
Speaker 9: Good morning, Thank you both for having me so. As

389
00:16:18,640 --> 00:16:20,640
Speaker 9: you know, credit supply had a bit of a flurry

390
00:16:20,680 --> 00:16:24,240
Speaker 9: of activity in September. It calmed down in October. I

391
00:16:24,320 --> 00:16:28,760
Speaker 9: do think with this tentative stability in the treasury market

392
00:16:28,960 --> 00:16:32,000
Speaker 9: that corporates, CFOs and treasures may look to move ahead

393
00:16:32,000 --> 00:16:34,760
Speaker 9: before the year end seasonal slow down. It will be

394
00:16:34,800 --> 00:16:37,400
Speaker 9: an important test for the market how this treasury supply

395
00:16:37,720 --> 00:16:42,000
Speaker 9: is digested, But as we know, the Treasury Secretary guided

396
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Speaker 9: us towards the front end of the curve and not

397
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Speaker 9: so much in duration in the refunding announcement last week.

398
00:16:47,040 --> 00:16:50,080
Speaker 9: But I actually think, if nothing else, the past several

399
00:16:50,120 --> 00:16:52,760
Speaker 9: months have shown corporates that this can be very episodic

400
00:16:52,840 --> 00:16:55,400
Speaker 9: in terms of these windows opening, and so given that

401
00:16:55,440 --> 00:16:58,240
Speaker 9: we know the maturity walls are coming up, I think

402
00:16:58,280 --> 00:17:00,840
Speaker 9: for corporates it's better to issue early rather than late.

403
00:17:00,840 --> 00:17:03,600
Speaker 9: We're expecting a big week in the IG market this week.

404
00:17:03,920 --> 00:17:06,520
Speaker 9: I think expectations are a little lower in high yield,

405
00:17:06,600 --> 00:17:08,560
Speaker 9: but I would not be surprised if we surprise to

406
00:17:08,600 --> 00:17:10,800
Speaker 9: the upside in terms of those expectations, because I think

407
00:17:10,800 --> 00:17:13,359
Speaker 9: it's just prudent for CFOs, which speaks.

408
00:17:13,000 --> 00:17:16,000
Speaker 1: To kind of the opportunism that one that he get

409
00:17:16,040 --> 00:17:18,600
Speaker 1: Desk told me about last week. He messaged me as

410
00:17:18,600 --> 00:17:20,680
Speaker 1: soon as we saw this rally and he said, everyone's

411
00:17:20,680 --> 00:17:22,560
Speaker 1: trying to come to market. I've gotten fifteen phone calls.

412
00:17:22,560 --> 00:17:24,480
Speaker 1: Everyone's basically lined up. Is this going to be bad

413
00:17:24,760 --> 00:17:27,600
Speaker 1: with credit spreads widening in the sort of counterintuitive way

414
00:17:27,640 --> 00:17:28,639
Speaker 1: because we've got more supply.

415
00:17:28,960 --> 00:17:32,000
Speaker 9: Yeah, I think the appetite is there, and I think

416
00:17:32,040 --> 00:17:35,240
Speaker 9: we've had such light supply, especially in high yield year

417
00:17:35,280 --> 00:17:37,920
Speaker 9: to date, and twenty two was a record a low

418
00:17:38,000 --> 00:17:40,720
Speaker 9: level that I think the appetite for the market is there.

419
00:17:40,920 --> 00:17:43,119
Speaker 9: I think where the real risk is is it that

420
00:17:43,880 --> 00:17:47,200
Speaker 9: lowest quality cohort of the triple C market, that kind

421
00:17:47,240 --> 00:17:49,320
Speaker 9: of lowest quality rung of high yield.

422
00:17:49,160 --> 00:17:50,800
Speaker 8: Which are triple C issuers. There.

423
00:17:50,880 --> 00:17:54,520
Speaker 9: I think we've seen some enhanced pressure where it's weak

424
00:17:54,560 --> 00:17:58,880
Speaker 9: results coupled with refinancing needs have really pressured those capital structures.

425
00:17:58,880 --> 00:17:59,520
Speaker 2: And even on.

426
00:17:59,440 --> 00:18:02,800
Speaker 9: This rally in high yield spreads that we've seen over

427
00:18:02,840 --> 00:18:05,760
Speaker 9: the past few trading sessions, triple c's have rallied, but

428
00:18:05,800 --> 00:18:07,840
Speaker 9: they've lagged on the way in And I think it's

429
00:18:07,880 --> 00:18:10,760
Speaker 9: the market telling you that there's an appetite for certain

430
00:18:10,880 --> 00:18:12,719
Speaker 9: quality cohort in the credit market.

431
00:18:13,240 --> 00:18:14,800
Speaker 8: Ig I think is there.

432
00:18:14,840 --> 00:18:17,680
Speaker 9: In most market conditions, high yield is a bit more tentative,

433
00:18:18,160 --> 00:18:20,760
Speaker 9: but for that lowest quality wrung, I think it's very

434
00:18:20,840 --> 00:18:23,200
Speaker 9: case case specific and very idiosyncratic.

435
00:18:23,320 --> 00:18:25,960
Speaker 1: Are people kind of just pricing in perfection here?

436
00:18:26,520 --> 00:18:26,760
Speaker 8: Well?

437
00:18:26,840 --> 00:18:29,000
Speaker 9: With high old spreads below four hundred, it's hard to

438
00:18:29,119 --> 00:18:32,520
Speaker 9: argue that there's much risk premium added into the market

439
00:18:32,600 --> 00:18:34,520
Speaker 9: at the moment. I think what we're seeing is a

440
00:18:34,560 --> 00:18:37,399
Speaker 9: lot more focus on selectivity from our credit investors, so

441
00:18:38,080 --> 00:18:41,600
Speaker 9: thinking about acid allocation between high yield and leverage loans,

442
00:18:42,240 --> 00:18:46,480
Speaker 9: sector selection, issuer selection. I think we're high old spreads

443
00:18:46,480 --> 00:18:49,479
Speaker 9: are at the moment. The path of least resistance is

444
00:18:49,560 --> 00:18:52,439
Speaker 9: probably a little bit wider in terms of choppiness, with

445
00:18:52,480 --> 00:18:54,000
Speaker 9: some of the headline risk ahead of us.

446
00:18:54,680 --> 00:18:56,360
Speaker 8: But again, as we've talked.

447
00:18:56,119 --> 00:19:00,240
Speaker 9: About before, where yields are, it's really difficult to see

448
00:19:00,320 --> 00:19:02,800
Speaker 9: kind of high old spreads breaking out in this range

449
00:19:02,800 --> 00:19:05,440
Speaker 9: of much wider from here, because when you every time,

450
00:19:05,480 --> 00:19:08,399
Speaker 9: we tried to reach four forty last week and we

451
00:19:08,480 --> 00:19:10,320
Speaker 9: kind of snapped back in, and so there is a

452
00:19:10,320 --> 00:19:13,320
Speaker 9: bit of a tug of war between fundamentals and technicals,

453
00:19:13,359 --> 00:19:16,119
Speaker 9: and even the most vulnerable fundamental pockets of the market

454
00:19:16,119 --> 00:19:17,720
Speaker 9: have been the best performer, Like leverage.

455
00:19:17,520 --> 00:19:20,040
Speaker 2: Loans, you mentioned the decision set between loans and say

456
00:19:20,160 --> 00:19:23,320
Speaker 2: high yield. Help our audience understand what goes into making

457
00:19:23,359 --> 00:19:25,440
Speaker 2: that kind of decision and whether that's changed in the

458
00:19:25,520 --> 00:19:26,280
Speaker 2: last few weeks.

459
00:19:26,400 --> 00:19:29,480
Speaker 9: So it has changed in the last few weeks for

460
00:19:29,560 --> 00:19:31,520
Speaker 9: a few reasons. One is, if you think we're at

461
00:19:31,520 --> 00:19:34,000
Speaker 9: the end of the rate hiking cycle, if you think

462
00:19:34,040 --> 00:19:37,680
Speaker 9: we've seen stability in long end rates, you might think

463
00:19:37,680 --> 00:19:40,239
Speaker 9: that the bulk of the loan outperformance is behind us

464
00:19:40,280 --> 00:19:42,280
Speaker 9: at this point. And indeed that yield pick up that

465
00:19:42,359 --> 00:19:45,120
Speaker 9: leverage loans were offering over high old bonds has narrowed.

466
00:19:45,560 --> 00:19:47,480
Speaker 9: So what we are seeing is a bit more interest,

467
00:19:47,640 --> 00:19:51,640
Speaker 9: say even within capital structures of investors saying Okay, well

468
00:19:51,640 --> 00:19:53,440
Speaker 9: I'm in the loan, should I rotate into the high

469
00:19:53,440 --> 00:19:57,280
Speaker 9: old bond or given the fundamental pressures of this higher

470
00:19:57,280 --> 00:20:01,639
Speaker 9: for longer rate environment that we're expecting, are loans disproportionately

471
00:20:01,880 --> 00:20:04,159
Speaker 9: impacted by that because they've been contending it with it

472
00:20:04,200 --> 00:20:06,199
Speaker 9: for a longer time. Again, we don't view fixed rate

473
00:20:06,200 --> 00:20:08,760
Speaker 9: bonds as immune from that in many instances, but I

474
00:20:08,800 --> 00:20:11,080
Speaker 9: do think on the margin, given the strong performance of

475
00:20:11,119 --> 00:20:14,880
Speaker 9: loans here to date, there is some refocusing on okay,

476
00:20:14,920 --> 00:20:16,600
Speaker 9: as the bulk of that loan performance behind us.

477
00:20:16,640 --> 00:20:18,239
Speaker 2: We read some life into that just a little bit more.

478
00:20:18,240 --> 00:20:20,000
Speaker 2: We sort of big equity move last week. If you're

479
00:20:20,000 --> 00:20:21,800
Speaker 2: looking at AG, and I know it's unique and it

480
00:20:21,880 --> 00:20:24,280
Speaker 2: is syncratic, but ultimately just give us the thirty five

481
00:20:24,280 --> 00:20:26,639
Speaker 2: thousand foot few. If you're looking down a capital structure

482
00:20:26,720 --> 00:20:29,160
Speaker 2: right now, is the bias to be higher or lower

483
00:20:29,160 --> 00:20:29,439
Speaker 2: in it?

484
00:20:29,800 --> 00:20:30,280
Speaker 8: Actually?

485
00:20:30,440 --> 00:20:32,440
Speaker 9: You know, I think the high end of the highield

486
00:20:32,440 --> 00:20:36,920
Speaker 9: market has actually outperformed the low end of the IG market.

487
00:20:37,440 --> 00:20:40,720
Speaker 9: So it's not as clear cut as saying be underweight

488
00:20:40,760 --> 00:20:43,480
Speaker 9: high yield versus IG. There are a lot of nuances there.

489
00:20:43,560 --> 00:20:45,679
Speaker 9: I do think for choice, I would prefer to be

490
00:20:45,760 --> 00:20:49,200
Speaker 9: higher in quality within high yield in IG. I think

491
00:20:49,320 --> 00:20:52,200
Speaker 9: moving down into that triple beat cohort is a relatively

492
00:20:52,720 --> 00:20:54,720
Speaker 9: nice place to be. For the most part, the vast

493
00:20:54,760 --> 00:20:58,080
Speaker 9: majority of those corporates are committed to maintaining investment grade ratings.

494
00:20:58,160 --> 00:21:00,719
Speaker 9: You are picking up a bit of a spread pickup

495
00:21:00,800 --> 00:21:03,480
Speaker 9: relative to the highest rate COHORT. I think that's important

496
00:21:03,480 --> 00:21:05,720
Speaker 9: in this current environment, especially if we don't get a

497
00:21:05,720 --> 00:21:06,800
Speaker 9: severe downturn in growth.

498
00:21:07,000 --> 00:21:09,239
Speaker 1: So I don't mean to be overly basic about this,

499
00:21:09,600 --> 00:21:11,879
Speaker 1: But when you take a step back, I do wonder

500
00:21:11,920 --> 00:21:14,080
Speaker 1: if we do get coalesce around this higher for longer

501
00:21:14,200 --> 00:21:17,199
Speaker 1: kind of idea, does it make sense that we're not

502
00:21:17,240 --> 00:21:20,119
Speaker 1: going to get any kind of major default cycle, either

503
00:21:20,200 --> 00:21:23,359
Speaker 1: in public credit or in private credit. If we're looking

504
00:21:23,480 --> 00:21:27,560
Speaker 1: at benchmark rates that are five percentage points higher than

505
00:21:27,640 --> 00:21:30,280
Speaker 1: when all of these companies were borrowing in bulk not

506
00:21:30,400 --> 00:21:31,040
Speaker 1: so long ago.

507
00:21:31,280 --> 00:21:33,479
Speaker 9: It's a great point, Lisa. So we are seeing a

508
00:21:33,480 --> 00:21:36,879
Speaker 9: modest uptick in defaults. Were it just under five percent

509
00:21:36,920 --> 00:21:39,480
Speaker 9: in the US when you combine high yield and leverage loans,

510
00:21:39,560 --> 00:21:42,040
Speaker 9: that's well off the rock bottom levels of twenty twenty

511
00:21:42,040 --> 00:21:44,320
Speaker 9: one and twenty twenty two. Do we break out to

512
00:21:44,359 --> 00:21:46,159
Speaker 9: the levels that we saw in COVID eight and a

513
00:21:46,200 --> 00:21:49,040
Speaker 9: half nine percent, I think, barring a severe downturn, I

514
00:21:49,080 --> 00:21:52,160
Speaker 9: don't see it. Part of the reason is that corporates

515
00:21:52,160 --> 00:21:54,720
Speaker 9: have entered this period in a really strong position. The

516
00:21:54,800 --> 00:21:57,960
Speaker 9: other part is that the investor appetite, to your point, John,

517
00:21:58,119 --> 00:21:58,560
Speaker 9: is there.

518
00:21:58,760 --> 00:21:59,359
Speaker 8: And then third I.

519
00:21:59,359 --> 00:22:03,040
Speaker 9: Would say, it's are actually shifting to a more balance

520
00:22:03,119 --> 00:22:05,399
Speaker 9: sheet friendly posture. So we haven't seen a lot of

521
00:22:05,400 --> 00:22:07,320
Speaker 9: debt funded M and A. We haven't seen a lot

522
00:22:07,320 --> 00:22:10,520
Speaker 9: of debt funded share buybacks. They're still investing in capex,

523
00:22:10,600 --> 00:22:13,960
Speaker 9: still investing in debt repayment in terms of uses of cash.

524
00:22:14,160 --> 00:22:16,399
Speaker 9: But I do think corporates do have some discipline. I

525
00:22:16,440 --> 00:22:19,320
Speaker 9: think the real risk is that if there's a severe

526
00:22:19,400 --> 00:22:22,880
Speaker 9: downturn in growth coupled with just a capital market's freezing

527
00:22:22,960 --> 00:22:25,879
Speaker 9: such that these corporates don't have access at any price,

528
00:22:26,240 --> 00:22:29,119
Speaker 9: I think it's difficult. As for the private credit point,

529
00:22:29,520 --> 00:22:32,399
Speaker 9: historically we look at losses between the two markets, and

530
00:22:32,520 --> 00:22:36,359
Speaker 9: private credit losses have held in better than public credit losses.

531
00:22:36,400 --> 00:22:38,960
Speaker 9: Part of that is because the enhanced flexibility that those

532
00:22:39,000 --> 00:22:39,520
Speaker 9: corporates have.

533
00:22:39,800 --> 00:22:40,920
Speaker 8: We think that holds true.

534
00:22:41,119 --> 00:22:43,560
Speaker 9: But I think the point remains we're expecting an ongoing

535
00:22:43,600 --> 00:22:47,480
Speaker 9: normalization higher in losses across all those asset classes, not extremely.

536
00:22:47,119 --> 00:22:50,040
Speaker 2: Given where we know where the maturity will is. Can

537
00:22:50,080 --> 00:22:52,440
Speaker 2: you identify what would be the least oportable time to

538
00:22:52,480 --> 00:22:55,000
Speaker 2: have any economic downsid and is that what's basically on

539
00:22:55,000 --> 00:22:55,760
Speaker 2: the horizon now?

540
00:22:56,080 --> 00:22:58,960
Speaker 9: So I think probably the biggest risk is that if

541
00:22:59,000 --> 00:23:02,600
Speaker 9: corporates try and time this opportunistically, they let the year

542
00:23:02,680 --> 00:23:05,760
Speaker 9: end play out, they think the environment will be better

543
00:23:05,800 --> 00:23:08,960
Speaker 9: in the first half of twenty twenty four and then

544
00:23:09,200 --> 00:23:13,400
Speaker 9: we have some sort of shock, whether that's geopolitical, unforeseen

545
00:23:13,680 --> 00:23:14,360
Speaker 9: risk contraction.

546
00:23:14,680 --> 00:23:15,840
Speaker 8: We're watching bank lending.

547
00:23:15,720 --> 00:23:18,280
Speaker 9: Very closely, although that has actually played out I think

548
00:23:18,280 --> 00:23:20,080
Speaker 9: a bit more benign than we would have thought.

549
00:23:20,720 --> 00:23:21,400
Speaker 3: That is the risk.

550
00:23:21,440 --> 00:23:24,320
Speaker 9: I think that if corporates try to be almost too

551
00:23:24,359 --> 00:23:27,119
Speaker 9: strategic about the timing and they cut it too close.

552
00:23:27,440 --> 00:23:29,600
Speaker 9: We saw that on the financial crisis, where some corporates

553
00:23:29,600 --> 00:23:32,320
Speaker 9: were shut out. So that's why I think, if I'm

554
00:23:32,320 --> 00:23:35,400
Speaker 9: a CFO or treasure, better to issue early rather than late.

555
00:23:35,640 --> 00:23:37,760
Speaker 2: At at least's point, maybe we get a lot more

556
00:23:37,800 --> 00:23:39,960
Speaker 2: supply in the coming weeks and months based on what

557
00:23:39,960 --> 00:23:41,520
Speaker 2: we've seen develop over the last few weeks.

558
00:23:41,600 --> 00:23:41,800
Speaker 6: Matter.

559
00:23:41,880 --> 00:23:43,560
Speaker 2: Thank you, always great. I'm out of line in that

560
00:23:43,800 --> 00:23:49,959
Speaker 2: of black Rock. Joining us now is Judy Norman, the

561
00:23:49,960 --> 00:23:53,120
Speaker 2: co director of the UCR Center on the US Politics. Judy,

562
00:23:53,119 --> 00:23:56,119
Speaker 2: always wonderful to catch out with you. You've articulated this

563
00:23:56,720 --> 00:24:00,080
Speaker 2: the pressure to articulate an endgame given what's developed for

564
00:24:00,119 --> 00:24:02,399
Speaker 2: the last couple of weeks. Do you see sense that

565
00:24:02,400 --> 00:24:04,480
Speaker 2: that pressure is ramping up once again over the weekend.

566
00:24:05,320 --> 00:24:07,760
Speaker 10: Well, I think it is John and very much from

567
00:24:07,800 --> 00:24:11,040
Speaker 10: the US increasingly on Israel, mostly behind the closed doors,

568
00:24:11,080 --> 00:24:13,719
Speaker 10: but starting a little bit more publicly as well. And

569
00:24:13,920 --> 00:24:17,600
Speaker 10: this has really been an issue since since the after

570
00:24:18,000 --> 00:24:20,240
Speaker 10: October seventh, to try and forge out what would be

571
00:24:20,280 --> 00:24:23,960
Speaker 10: next for Gaza after an Israeli operation. There are many

572
00:24:24,000 --> 00:24:27,240
Speaker 10: different options that are considered, but really none of them

573
00:24:27,320 --> 00:24:30,959
Speaker 10: seem to be very good for either Israelis or for Palestinians.

574
00:24:31,440 --> 00:24:33,000
Speaker 8: Israelis and Palestinians are not.

575
00:24:32,920 --> 00:24:34,680
Speaker 10: Looking for a reoccupation of Gaza.

576
00:24:35,359 --> 00:24:37,040
Speaker 8: Some have floated the idea.

577
00:24:36,840 --> 00:24:40,399
Speaker 10: Of the Palestinian Authority, the West Bank Governance having a

578
00:24:40,480 --> 00:24:43,720
Speaker 10: role in Gaza, but they are very weak, very illegitimate,

579
00:24:43,880 --> 00:24:46,280
Speaker 10: and also I think would not take on that role

580
00:24:46,440 --> 00:24:49,199
Speaker 10: just yet. And the US is even exploring some options

581
00:24:49,200 --> 00:24:52,480
Speaker 10: of saying having a multi national transition kind of a

582
00:24:52,600 --> 00:24:55,200
Speaker 10: group there, some kind of almost like a peacekeeping force.

583
00:24:55,280 --> 00:24:57,960
Speaker 10: But again all of these are very tentative options, and

584
00:24:58,080 --> 00:25:00,760
Speaker 10: I think crucially right now is trying to identify what

585
00:25:01,359 --> 00:25:03,199
Speaker 10: Gaza might look like after this in a way that

586
00:25:03,320 --> 00:25:06,360
Speaker 10: is not just a continued downward spiral for both GUS

587
00:25:06,400 --> 00:25:07,240
Speaker 10: ands and Israelis.

588
00:25:07,440 --> 00:25:08,800
Speaker 2: Judy, as we can all see at the moment, the

589
00:25:08,840 --> 00:25:14,040
Speaker 2: administration domestically facing pressure from all corners, Judy, from your position,

590
00:25:14,119 --> 00:25:17,760
Speaker 2: can you identify any kind of success this administration is having,

591
00:25:18,400 --> 00:25:21,719
Speaker 2: convincing the Israelis of having some kind of humanitarian pause,

592
00:25:22,080 --> 00:25:25,160
Speaker 2: convincing it Israel of changing its approached somehow. Is there

593
00:25:25,160 --> 00:25:27,280
Speaker 2: any kind of success you can identify?

594
00:25:28,320 --> 00:25:30,520
Speaker 10: Yeah, John, So, I would say the US came out

595
00:25:30,640 --> 00:25:33,080
Speaker 10: very strong in supportive Israel, and some in Israel have

596
00:25:33,119 --> 00:25:36,080
Speaker 10: called this a sort of bear hog, a public embrace

597
00:25:36,200 --> 00:25:39,040
Speaker 10: but also a private restraint and kind of some whispers

598
00:25:39,080 --> 00:25:41,400
Speaker 10: in the ear. So this has started from the beginning,

599
00:25:41,520 --> 00:25:44,639
Speaker 10: and I think most importantly Blincoln was pushing for a

600
00:25:44,840 --> 00:25:48,359
Speaker 10: humanitarian pause over the weekend that does not look forthcoming

601
00:25:48,440 --> 00:25:49,040
Speaker 10: at the moment.

602
00:25:49,560 --> 00:25:50,639
Speaker 8: Some areas where they.

603
00:25:50,520 --> 00:25:53,800
Speaker 10: Have had some success is starting to get a bit

604
00:25:53,840 --> 00:25:56,320
Speaker 10: more aid into Gaza. There are currently about one hundred

605
00:25:56,359 --> 00:25:59,720
Speaker 10: trucks now coming into the Gaza strip per day. Before

606
00:26:00,119 --> 00:26:02,360
Speaker 10: the invasion, that was about five hundred trucks a day,

607
00:26:02,400 --> 00:26:04,480
Speaker 10: so still much less than is needed, but more than

608
00:26:04,560 --> 00:26:07,080
Speaker 10: was coming in for several weeks. The other area that

609
00:26:07,119 --> 00:26:11,199
Speaker 10: they had some temporary success was getting communications reinstated in Gaza,

610
00:26:11,280 --> 00:26:13,320
Speaker 10: but I understand over the weekend there have been more

611
00:26:13,440 --> 00:26:16,360
Speaker 10: blackout so that seems a bit inconsistent. So I think

612
00:26:16,400 --> 00:26:20,320
Speaker 10: that pressure for humanitarian pauses will continue. For Israel, I

613
00:26:20,320 --> 00:26:24,200
Speaker 10: think they see that as perhaps halting the offensive, and

614
00:26:24,720 --> 00:26:27,720
Speaker 10: they're halting their overall aim of ousting Hamas. But for

615
00:26:27,760 --> 00:26:30,640
Speaker 10: others that is just seen as absolutely necessary for both

616
00:26:30,640 --> 00:26:32,840
Speaker 10: getting aid into the Strip and getting people out.

617
00:26:32,920 --> 00:26:34,000
Speaker 8: So I think Blincoln will.

618
00:26:33,920 --> 00:26:36,920
Speaker 10: Keep focusing on that, And I would note now who

619
00:26:37,040 --> 00:26:39,800
Speaker 10: suggested that if hostage is ur released, that might open

620
00:26:39,920 --> 00:26:41,760
Speaker 10: up some room for a humanitarian pause. So I think

621
00:26:41,800 --> 00:26:43,760
Speaker 10: we'll see more focus there in the coming days.

622
00:26:44,000 --> 00:26:46,840
Speaker 1: Julie, what I've found more interesting rather than Tony Blinken

623
00:26:46,880 --> 00:26:49,800
Speaker 1: going to Israel was all of the other meetings he's

624
00:26:49,840 --> 00:26:52,560
Speaker 1: had on this particular tour right now, he's in Anchora

625
00:26:52,560 --> 00:26:55,639
Speaker 1: and Turkey. There's a question over Bill Burns and his

626
00:26:55,720 --> 00:26:58,359
Speaker 1: relationship with Jordan, the head of CIA, and his tour

627
00:26:58,840 --> 00:27:01,879
Speaker 1: in the region. What is our sense right now of

628
00:27:01,960 --> 00:27:05,840
Speaker 1: some of the regional countries and their position their involvement

629
00:27:05,920 --> 00:27:09,000
Speaker 1: both in what's happening now negotiating with Hamas, but also

630
00:27:09,400 --> 00:27:13,320
Speaker 1: some solution after this conflict is over.

631
00:27:14,240 --> 00:27:16,639
Speaker 10: Sure, So I think there's a couple different facets to

632
00:27:16,680 --> 00:27:19,160
Speaker 10: this one. Is again the short term, trying to get

633
00:27:19,400 --> 00:27:22,720
Speaker 10: other Arab states to also back this idea of humanitarian pause.

634
00:27:23,040 --> 00:27:26,560
Speaker 10: Most leaders are very forthright about calling for a full ceasefire,

635
00:27:26,680 --> 00:27:28,800
Speaker 10: so of Lincoln was trying to get some space there

636
00:27:28,840 --> 00:27:32,000
Speaker 10: as well as just keeping diplomatic channels open. The second

637
00:27:32,119 --> 00:27:35,120
Speaker 10: was really in terms of trying to keep the conflict

638
00:27:35,200 --> 00:27:38,320
Speaker 10: contained and trying to avoid flare ups in other Arab

639
00:27:38,359 --> 00:27:40,880
Speaker 10: countries and in other areas, especially.

640
00:27:40,440 --> 00:27:43,000
Speaker 8: Like Iraq where US.

641
00:27:42,240 --> 00:27:44,679
Speaker 10: Troops are stationed and where there are Runi and proxy

642
00:27:44,720 --> 00:27:49,159
Speaker 10: groups operating, So trying to kind of quell any potential flare.

643
00:27:48,960 --> 00:27:51,160
Speaker 8: Ups and just further dispersal of this conflict.

644
00:27:51,359 --> 00:27:53,440
Speaker 10: And the third, as you mentioned Lisa, is again trying

645
00:27:53,480 --> 00:27:55,640
Speaker 10: to look ahead to what that endgame.

646
00:27:55,440 --> 00:27:57,640
Speaker 8: Might be and what the role of Arab states might

647
00:27:57,720 --> 00:27:58,760
Speaker 8: be within that.

648
00:27:58,880 --> 00:28:01,119
Speaker 10: Again, would Arab states be part of some kind of

649
00:28:01,480 --> 00:28:06,840
Speaker 10: multinational you know, transitional authority or force or something like that.

650
00:28:07,200 --> 00:28:09,800
Speaker 8: Again, right now, I think most Arab leaders.

651
00:28:09,480 --> 00:28:13,440
Speaker 10: Are reading the room pretty clearly with their own populations,

652
00:28:13,440 --> 00:28:16,000
Speaker 10: who are very sympathetic to the Palestinian cause and are

653
00:28:16,040 --> 00:28:18,399
Speaker 10: not going to stick out their neck too far for

654
00:28:18,960 --> 00:28:20,280
Speaker 10: what the US is pushing for.

655
00:28:20,680 --> 00:28:22,160
Speaker 8: But at the same time, you.

656
00:28:22,119 --> 00:28:24,240
Speaker 10: Know, work quite closely with the US and some of

657
00:28:24,280 --> 00:28:26,960
Speaker 10: these states with Israel as well, and so needing to

658
00:28:27,040 --> 00:28:29,200
Speaker 10: kind of find that middle ground. So a lot of

659
00:28:29,240 --> 00:28:33,440
Speaker 10: diplomacy happening that I think will be discontinuing wholeheartedly over

660
00:28:33,480 --> 00:28:34,480
Speaker 10: these next couple of days.

661
00:28:34,600 --> 00:28:38,040
Speaker 1: As President Biden lost the room with his own party

662
00:28:38,080 --> 00:28:40,160
Speaker 1: at this point, given his approach on this.

663
00:28:40,160 --> 00:28:43,960
Speaker 10: Conflict, I would say it's very clear that the Democrats

664
00:28:44,040 --> 00:28:47,200
Speaker 10: have a lot of internal divisions over this conflict, and

665
00:28:47,520 --> 00:28:50,120
Speaker 10: this isn't new to Biden, and I think he knew

666
00:28:50,160 --> 00:28:53,400
Speaker 10: with an issue as difficult as Israel Palestine, you are

667
00:28:53,480 --> 00:28:56,480
Speaker 10: probably never going to please everyone, especially in a party

668
00:28:56,640 --> 00:28:59,080
Speaker 10: like the Democrats, which are pretty split on this issue.

669
00:28:59,080 --> 00:29:00,280
Speaker 8: Now he's getting a.

670
00:29:00,200 --> 00:29:03,840
Speaker 10: Lot of very vocal criticism from many on the left,

671
00:29:03,840 --> 00:29:07,080
Speaker 10: from many progressives and for many on the pro Palestine side.

672
00:29:07,400 --> 00:29:09,120
Speaker 8: But I think he's also getting a lot.

673
00:29:08,960 --> 00:29:13,240
Speaker 10: Of support from more traditional liberal Democrats who appreciate the

674
00:29:13,280 --> 00:29:16,640
Speaker 10: solidarity that he's shown towards Israel. So in some ways,

675
00:29:16,680 --> 00:29:19,360
Speaker 10: again you're not going to please everyone. And again right

676
00:29:19,360 --> 00:29:21,720
Speaker 10: now the US is trying to find a very difficult

677
00:29:21,800 --> 00:29:24,760
Speaker 10: middle road and kind of thread this needle between supporting

678
00:29:24,840 --> 00:29:27,800
Speaker 10: Israel but also trying to minimize casualties and think ahead

679
00:29:27,840 --> 00:29:29,440
Speaker 10: to what might be next and what might be best

680
00:29:29,480 --> 00:29:29,960
Speaker 10: for the region.

681
00:29:30,080 --> 00:29:32,120
Speaker 2: It's going to be incredibly difficult for the president going

682
00:29:32,200 --> 00:29:34,080
Speaker 2: into next year journey. Just to finish on that poll

683
00:29:34,120 --> 00:29:36,760
Speaker 2: from the New York Times over the weekend, big leads

684
00:29:36,760 --> 00:29:40,560
Speaker 2: for the former president Donald Trump in Arizona, Georgia, and Michigan, Nevada,

685
00:29:40,600 --> 00:29:43,240
Speaker 2: and lead in Pennsylvania as well. Due to your thoughts

686
00:29:43,240 --> 00:29:45,920
Speaker 2: on that as it came out over the weekend, Yeah.

687
00:29:45,680 --> 00:29:47,080
Speaker 10: This is going to be a big wake up call

688
00:29:47,120 --> 00:29:49,560
Speaker 10: for Democrats and for the Biden campaign. We've been seeing

689
00:29:49,600 --> 00:29:51,640
Speaker 10: these neck and neck numbers for Biden and Trump for

690
00:29:51,680 --> 00:29:54,080
Speaker 10: quite a while. But to really drill down to the

691
00:29:54,160 --> 00:29:56,120
Speaker 10: six swing states and see that five out of the

692
00:29:56,200 --> 00:29:58,880
Speaker 10: six Trump is leading with less than a year until

693
00:29:58,880 --> 00:30:00,720
Speaker 10: the elections is quite notable.

694
00:30:00,760 --> 00:30:01,640
Speaker 8: And again, this is a.

695
00:30:01,600 --> 00:30:04,640
Speaker 10: Little bit different than past elections because both of these

696
00:30:04,960 --> 00:30:08,120
Speaker 10: both of these men are known quantities everyone and someone

697
00:30:08,160 --> 00:30:10,680
Speaker 10: like Trump, everything is out there already, so I don't

698
00:30:10,720 --> 00:30:14,240
Speaker 10: see a lot of this necessarily changing. Obviously pulls a

699
00:30:14,320 --> 00:30:17,640
Speaker 10: year out, our year out, but I think for Democrats

700
00:30:17,680 --> 00:30:19,480
Speaker 10: who thought, you know, Trump was going to be an

701
00:30:19,480 --> 00:30:22,200
Speaker 10: easy target or something like that. It's clear that Biden

702
00:30:22,280 --> 00:30:24,600
Speaker 10: has a lot of work to do, and that's you know,

703
00:30:24,840 --> 00:30:26,240
Speaker 10: it's going to be challenging for him to keep his

704
00:30:26,320 --> 00:30:28,680
Speaker 10: coalition together. So I think we'll see some different strategies

705
00:30:28,720 --> 00:30:29,640
Speaker 10: emerging pretty soon.

706
00:30:29,960 --> 00:30:32,480
Speaker 2: Hi, Judy, Thank you. Judy Norman of the US Sales

707
00:30:32,520 --> 00:30:33,840
Speaker 2: Center on US Politics.

708
00:30:33,840 --> 00:30:34,240
Speaker 6: Thank you.

709
00:30:44,640 --> 00:30:45,239
Speaker 5: Joining us now.

710
00:30:45,240 --> 00:30:48,000
Speaker 1: I'm so glad to say. Is Ashley Allen, corporate credit

711
00:30:48,160 --> 00:30:50,720
Speaker 1: research analyst at Franklin Templeton, who can weigh in maybe

712
00:30:50,720 --> 00:30:53,320
Speaker 1: I'm Birkenstacks, But more importantly, thank you so much for

713
00:30:53,360 --> 00:30:56,360
Speaker 1: being here, because to me, the big question really is

714
00:30:56,560 --> 00:31:00,160
Speaker 1: how resilient is a consumer? After people have been saying

715
00:31:00,160 --> 00:31:03,080
Speaker 1: that they're running out of their savings month after year

716
00:31:03,200 --> 00:31:05,840
Speaker 1: after month, have we reached a point where you actually

717
00:31:05,880 --> 00:31:07,120
Speaker 1: are seeing evidence of that?

718
00:31:07,800 --> 00:31:08,320
Speaker 5: Maybe?

719
00:31:08,440 --> 00:31:10,280
Speaker 11: And I think it's been maybe for a few months,

720
00:31:10,320 --> 00:31:13,240
Speaker 11: to be fair, but I think we find ourselves in

721
00:31:13,280 --> 00:31:17,440
Speaker 11: a really interesting situation right now, especially.

722
00:31:17,000 --> 00:31:18,840
Speaker 5: Following three Q earnings.

723
00:31:18,880 --> 00:31:23,320
Speaker 11: We just heard from a handful of staples companies from restaurants,

724
00:31:24,080 --> 00:31:27,400
Speaker 11: consumers are still spending, especially on some things that they'll

725
00:31:27,440 --> 00:31:29,680
Speaker 11: want to indulge in whether it's coffee, sweet treats in

726
00:31:29,720 --> 00:31:33,800
Speaker 11: the grocery store, so that the data is backward looking,

727
00:31:33,960 --> 00:31:35,960
Speaker 11: so we have to keep that in mind. But up

728
00:31:36,040 --> 00:31:38,600
Speaker 11: until this point, again, resilient has been the word that

729
00:31:38,840 --> 00:31:41,800
Speaker 11: economists are said over and over. They're still showing up

730
00:31:41,800 --> 00:31:43,760
Speaker 11: to spend on the things that make them feel good.

731
00:31:44,120 --> 00:31:46,480
Speaker 1: How much in some of the earning calls that you've

732
00:31:46,480 --> 00:31:48,480
Speaker 1: been tracking and just some of the communication that you've

733
00:31:48,520 --> 00:31:51,480
Speaker 1: had with corporate officers about what they see going forward,

734
00:31:51,480 --> 00:31:54,680
Speaker 1: how much do they see this continuing in a durable fashion,

735
00:31:54,800 --> 00:31:56,880
Speaker 1: just based on how much wages are increasing and the

736
00:31:56,880 --> 00:31:58,280
Speaker 1: fact that the label market is strong.

737
00:31:59,360 --> 00:32:01,960
Speaker 11: I don't think it's durable, at least at the same

738
00:32:02,080 --> 00:32:05,320
Speaker 11: level that we have sustained thus far. A lot of

739
00:32:05,320 --> 00:32:07,320
Speaker 11: the resilience that we've seen on the top line has

740
00:32:07,320 --> 00:32:10,680
Speaker 11: been driven by price volumes, you know, let's call them

741
00:32:10,680 --> 00:32:14,960
Speaker 11: flat plus or minus on either side, both in kind

742
00:32:15,000 --> 00:32:17,360
Speaker 11: of the restaurant space, but also in staples. If you

743
00:32:17,360 --> 00:32:21,080
Speaker 11: think about the CpG companies in the grocery store, volumes

744
00:32:21,080 --> 00:32:23,840
Speaker 11: of kind of flat line, so where they can consumers

745
00:32:23,880 --> 00:32:26,560
Speaker 11: have technically been pulling back from a volume perspective, They're

746
00:32:26,560 --> 00:32:29,920
Speaker 11: consuming less companies have just realized that they can still

747
00:32:29,960 --> 00:32:36,560
Speaker 11: benefit from taking price that likely can't continue forever going forward.

748
00:32:36,320 --> 00:32:38,520
Speaker 1: Well, a lot of people will argue that a lot

749
00:32:38,560 --> 00:32:41,920
Speaker 1: of the household balance shees look pretty good. So if

750
00:32:41,920 --> 00:32:44,320
Speaker 1: people want to lever up to get a latte, a double,

751
00:32:44,440 --> 00:32:47,320
Speaker 1: you know, mocacino, they can do that. Is that what

752
00:32:47,360 --> 00:32:51,600
Speaker 1: we're actually seeing that people are just continuing with indulgences,

753
00:32:52,040 --> 00:32:53,240
Speaker 1: but levering up to do so.

754
00:32:54,720 --> 00:32:58,120
Speaker 11: Potentially, I don't necessarily it's always a maybe, right, I

755
00:32:58,120 --> 00:33:00,960
Speaker 11: don't necessarily think that leveraging.

756
00:33:00,680 --> 00:33:02,320
Speaker 5: Up to buy their latte.

757
00:33:02,360 --> 00:33:03,480
Speaker 11: But I think if you have to look at the

758
00:33:03,480 --> 00:33:07,040
Speaker 11: bigger picture macro, if you think about millennials broadly speaking,

759
00:33:07,080 --> 00:33:09,200
Speaker 11: who maybe are waiting to buy their first home, if

760
00:33:09,240 --> 00:33:11,479
Speaker 11: you can't do that right now, I would argue that,

761
00:33:11,600 --> 00:33:14,120
Speaker 11: you know, spending seven bucks on a coffee isn't going

762
00:33:14,160 --> 00:33:17,480
Speaker 11: to impact your ability to buy a home the same

763
00:33:17,480 --> 00:33:19,320
Speaker 11: way the Fed would in.

764
00:33:19,240 --> 00:33:20,960
Speaker 5: Regards to their rate policy.

765
00:33:21,280 --> 00:33:24,320
Speaker 11: So I think from a consumer perspective, it's less so

766
00:33:24,360 --> 00:33:26,760
Speaker 11: about them leveraging up, but a bit more about the

767
00:33:26,800 --> 00:33:30,520
Speaker 11: bigger macro picture, what they are spending on and how

768
00:33:30,560 --> 00:33:32,760
Speaker 11: they're supported by jobs. To be frank as well.

769
00:33:32,880 --> 00:33:37,000
Speaker 1: So as an investor, do you recommend then consumer discretionaries

770
00:33:37,040 --> 00:33:39,720
Speaker 1: that are the small luxuries in life that people seem

771
00:33:39,760 --> 00:33:40,480
Speaker 1: pretty committed to.

772
00:33:41,800 --> 00:33:44,640
Speaker 11: Yeah, so there is something called the lipstick effect, which

773
00:33:44,640 --> 00:33:48,200
Speaker 11: we've seen before, specifically, you know, in regards to beauty,

774
00:33:48,200 --> 00:33:51,320
Speaker 11: where women will still spend on small luxuries to make

775
00:33:51,360 --> 00:33:53,760
Speaker 11: themselves filtered during times of economic stress.

776
00:33:54,120 --> 00:33:57,360
Speaker 5: I think that same the pattern.

777
00:33:57,080 --> 00:34:01,520
Speaker 11: Or thesis could easily be applied to sweet treats to

778
00:34:01,520 --> 00:34:04,840
Speaker 11: think about, you know, oreos or cookies that we like

779
00:34:04,880 --> 00:34:08,600
Speaker 11: as well as well as just the occasional splurge in

780
00:34:08,640 --> 00:34:11,239
Speaker 11: regards to dining out and whether that's at you know,

781
00:34:11,320 --> 00:34:14,720
Speaker 11: full price restaurant. Maybe you're okay spending you know, twenty

782
00:34:14,719 --> 00:34:18,080
Speaker 11: bucks on your fast food meal that one time. They

783
00:34:18,080 --> 00:34:21,480
Speaker 11: will indulge, especially during times at economic spress.

784
00:34:21,520 --> 00:34:23,080
Speaker 1: Do you buy the holozempic argument.

785
00:34:24,080 --> 00:34:27,160
Speaker 5: Not yet, it's tb D.

786
00:34:27,320 --> 00:34:29,880
Speaker 11: I do think, you know, these drugs are really powerful

787
00:34:29,920 --> 00:34:32,319
Speaker 11: for the individuals that they were originally designed to help,

788
00:34:32,320 --> 00:34:35,360
Speaker 11: maybe those with type two diabetes or who are severely

789
00:34:35,400 --> 00:34:40,640
Speaker 11: over overweight and obese. But consumer habits really die hard,

790
00:34:41,200 --> 00:34:43,160
Speaker 11: and I think that it might take more than ozembic

791
00:34:43,680 --> 00:34:47,280
Speaker 11: at least in its current form to change those patterns.

792
00:34:46,840 --> 00:34:49,080
Speaker 1: So zooming out. We were just speaking with Veronica Clark

793
00:34:49,120 --> 00:34:51,160
Speaker 1: over at City Group, and she was talking about how

794
00:34:51,200 --> 00:34:53,959
Speaker 1: they expect a soft patch now and then a reacceleration

795
00:34:54,040 --> 00:34:57,440
Speaker 1: and inflation because a lot of consumers just keep accepting

796
00:34:57,520 --> 00:34:59,280
Speaker 1: prices where they are.

797
00:34:59,520 --> 00:35:00,399
Speaker 3: Do you agree with that?

798
00:35:00,480 --> 00:35:04,720
Speaker 1: Just based on sort of a company specific kind of analysis.

799
00:35:04,840 --> 00:35:08,960
Speaker 11: I think that if consumers, if the can keep their

800
00:35:09,080 --> 00:35:11,680
Speaker 11: wage gains that we've seen recently, if they can, if

801
00:35:11,719 --> 00:35:16,000
Speaker 11: those can be persistent, there's a good chance that they

802
00:35:16,000 --> 00:35:19,399
Speaker 11: will continue to accept the price gains. I think it's

803
00:35:19,560 --> 00:35:21,120
Speaker 11: as a matter of who's going to blink first. Is

804
00:35:21,120 --> 00:35:22,880
Speaker 11: it the consumers or is it going to be the

805
00:35:22,920 --> 00:35:25,920
Speaker 11: corporations in regards to pulling back on price to drive

806
00:35:26,000 --> 00:35:28,839
Speaker 11: volumes or consumers finally going to reach a point where

807
00:35:28,840 --> 00:35:30,200
Speaker 11: they say, hey, you know what, I don't want to

808
00:35:30,200 --> 00:35:32,240
Speaker 11: spend six bucks on a box of cereal anymore.

809
00:35:32,280 --> 00:35:34,200
Speaker 5: I don't want to buy that seven dollars coffee.

810
00:35:34,480 --> 00:35:37,239
Speaker 11: But as long as they're supported by jobs and some

811
00:35:37,680 --> 00:35:41,640
Speaker 11: wage gains, I think you know they'll continue to spend.

812
00:35:41,760 --> 00:35:44,279
Speaker 1: Which raises this question when you talk to corporate executives

813
00:35:44,280 --> 00:35:47,000
Speaker 1: and they can pass along these costs. Are they then

814
00:35:47,080 --> 00:35:48,040
Speaker 1: hiring more people?

815
00:35:49,760 --> 00:35:52,640
Speaker 11: No, because at the end of the day, corporates are

816
00:35:52,640 --> 00:35:58,000
Speaker 11: also responding to markets. Broadly speaking, they're trying to recover

817
00:35:58,160 --> 00:36:01,319
Speaker 11: the margin that they lost over the past eighteen months

818
00:36:01,400 --> 00:36:04,200
Speaker 11: or so when inflation and input cost really got out

819
00:36:04,200 --> 00:36:08,360
Speaker 11: of control. Margins became compressed. At that time, profitability was hammered.

820
00:36:09,160 --> 00:36:13,000
Speaker 11: They've benefited these past few quarters from those price increases

821
00:36:13,280 --> 00:36:16,600
Speaker 11: in conjunction with falling input costs. Now, to be fair,

822
00:36:16,640 --> 00:36:22,000
Speaker 11: those costs haven't completely reverted, but profitability has been.

823
00:36:22,000 --> 00:36:22,680
Speaker 5: Strong from them.

824
00:36:22,719 --> 00:36:26,120
Speaker 11: And for the most part this is very idiosyncratic, but

825
00:36:26,560 --> 00:36:29,040
Speaker 11: companies have been rewarded when their bottom lines, of course

826
00:36:29,520 --> 00:36:32,040
Speaker 11: have expanded or reverted to pre pandemic levels.

827
00:36:32,200 --> 00:36:34,200
Speaker 1: So's it's just zooming out To wrap this all up,

828
00:36:34,239 --> 00:36:37,279
Speaker 1: I guess there's this question of whether some of the

829
00:36:37,640 --> 00:36:42,680
Speaker 1: legacy retail companies and whether the legacy service companies can

830
00:36:42,719 --> 00:36:47,160
Speaker 1: continue to operate and thrive based on their capital structures

831
00:36:47,200 --> 00:36:49,520
Speaker 1: and a borrowing costs that was a lot lower from

832
00:36:49,560 --> 00:36:51,920
Speaker 1: another era that they were going to have to refinance

833
00:36:51,960 --> 00:36:55,239
Speaker 1: at a higher rate, whether they are still incredible companies

834
00:36:55,239 --> 00:36:58,640
Speaker 1: to invest in in a current environment. Are you basically

835
00:36:58,680 --> 00:37:00,759
Speaker 1: saying that, yes, because they're able to pass along those

836
00:37:00,800 --> 00:37:04,120
Speaker 1: costs to consumers that have continued to really go for

837
00:37:04,400 --> 00:37:05,440
Speaker 1: the products that they're selling.

838
00:37:05,960 --> 00:37:08,200
Speaker 11: Yes, they've been able to pass along the cost. But

839
00:37:08,520 --> 00:37:10,920
Speaker 11: the maturity wall, broadly speaking, has been pushed out for

840
00:37:10,960 --> 00:37:15,440
Speaker 11: several corporates, including those in retail indiscretionary names, and so

841
00:37:16,160 --> 00:37:18,759
Speaker 11: you know, they have balance sheets these days in the

842
00:37:18,800 --> 00:37:22,600
Speaker 11: cash fload to support you know, the interest expense that

843
00:37:22,600 --> 00:37:25,560
Speaker 11: they have. Now, in three or four years, when their

844
00:37:25,560 --> 00:37:27,520
Speaker 11: maturity wall comes to do, we'll see where we are

845
00:37:27,600 --> 00:37:29,600
Speaker 11: and we can address it at that time. But at

846
00:37:29,600 --> 00:37:32,000
Speaker 11: the moment, balance sheets are strong, the cash is coming in,

847
00:37:32,440 --> 00:37:36,120
Speaker 11: they can make their payments, and they're passing along those

848
00:37:36,200 --> 00:37:36,840
Speaker 11: higher prices.

849
00:37:36,880 --> 00:37:39,439
Speaker 1: What are the strongest segments of retail right now?

850
00:37:41,200 --> 00:37:41,960
Speaker 5: It's a great question.

851
00:37:42,280 --> 00:37:46,800
Speaker 11: Broadly speaking, Beauty as a segment that's continuing to do well. Historically,

852
00:37:46,880 --> 00:37:49,560
Speaker 11: pet has been a segment that's been strong, but we

853
00:37:49,640 --> 00:37:51,600
Speaker 11: have seen some weakening there. It's probably a bit of

854
00:37:51,600 --> 00:37:54,520
Speaker 11: a post pandemic trend that's reversing.

855
00:37:54,840 --> 00:37:59,080
Speaker 1: But people are sick of spending their entire paycheck on fido.

856
00:37:59,200 --> 00:38:01,760
Speaker 1: Ashley Allen, thank you, Thank you so much of Franklin Templeton.

857
00:38:01,800 --> 00:38:02,719
Speaker 5: We really appreciate that.

858
00:38:03,000 --> 00:38:06,440
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859
00:38:06,520 --> 00:38:09,920
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860
00:38:09,960 --> 00:38:12,560
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861
00:38:12,600 --> 00:38:14,640
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862
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863
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864
00:38:19,640 --> 00:38:23,040
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865
00:38:23,120 --> 00:38:24,160
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