1 00:00:02,920 --> 00:00:10,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,840 --> 00:00:15,000 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:15,040 --> 00:00:17,520 Speaker 1: Eastern on Affo car Playing and broud Otto with the 4 00:00:17,520 --> 00:00:21,400 Speaker 1: Bloomberg Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:24,000 Speaker 1: or watch us live on YouTube. 6 00:00:25,160 --> 00:00:28,520 Speaker 2: Looking at Boeing stocks, the three tenths of one percent, 7 00:00:28,560 --> 00:00:30,360 Speaker 2: but we've got a good better sense of kind of 8 00:00:30,360 --> 00:00:36,080 Speaker 2: their first quarter deliveries the lowest since mid twenty twenty one, 9 00:00:36,320 --> 00:00:40,479 Speaker 2: So not good althose you read into it. The company 10 00:00:40,479 --> 00:00:44,040 Speaker 2: delivered twenty seven aircraft in March, and that's a slight 11 00:00:44,120 --> 00:00:47,480 Speaker 2: improvement from the twenty seven delivered in January and February. 12 00:00:48,159 --> 00:00:50,319 Speaker 2: But again the combination and all the majority of these 13 00:00:50,320 --> 00:00:52,159 Speaker 2: things were the seven three seven Max jets. That's what 14 00:00:52,280 --> 00:00:55,040 Speaker 2: we mostly, I think most of us fly the States 15 00:00:55,040 --> 00:00:58,040 Speaker 2: at seven three seven Max. Well, I'm a Boeing person, 16 00:00:58,200 --> 00:01:00,760 Speaker 2: I mean I'm a United Cus are out of Newark, 17 00:01:01,040 --> 00:01:03,440 Speaker 2: and United flies the Boeing planes. And I report to 18 00:01:03,440 --> 00:01:06,119 Speaker 2: George every time I get on a plane to go anywhere. 19 00:01:06,160 --> 00:01:09,040 Speaker 2: I report to him what I'm the aircraft. I'm on 20 00:01:09,920 --> 00:01:12,640 Speaker 2: the quality of it, how full it is. So I 21 00:01:12,680 --> 00:01:14,800 Speaker 2: give him some of that primary research. George ferguson joints 22 00:01:14,840 --> 00:01:18,640 Speaker 2: as he covers the airlines the aerospace companies. Is the 23 00:01:18,640 --> 00:01:20,440 Speaker 2: first quarter here? Is this going to be the bottom 24 00:01:20,480 --> 00:01:24,080 Speaker 2: George for Boeing in terms of deliveries? 25 00:01:24,600 --> 00:01:26,120 Speaker 3: I think, yeah, for the year, I think this is 26 00:01:26,160 --> 00:01:28,120 Speaker 3: going to be the bottom. So I'd expect this was 27 00:01:28,160 --> 00:01:30,680 Speaker 3: the worst quarter. You know, the fa was in there 28 00:01:30,720 --> 00:01:34,200 Speaker 3: doing their review of Boeing's manufacturing. Boeing's got to come 29 00:01:34,240 --> 00:01:36,640 Speaker 3: up with for a plan for the FAA. Imagine that 30 00:01:36,680 --> 00:01:40,800 Speaker 3: takes some hands as well, and manufacturing probably isn't moving 31 00:01:40,920 --> 00:01:43,720 Speaker 3: very fast while they're in the middle of this process 32 00:01:43,959 --> 00:01:48,080 Speaker 3: of figuring out how to stabilize, you know, the production 33 00:01:48,160 --> 00:01:50,919 Speaker 3: of the airplanes. And so I think for the quarter 34 00:01:50,960 --> 00:01:52,760 Speaker 3: it'll be sorry. For the year, this will be the 35 00:01:52,760 --> 00:01:55,280 Speaker 3: worst quarter, and I would expect that things would get 36 00:01:55,320 --> 00:01:57,440 Speaker 3: better second, third, and fourth into. 37 00:01:57,240 --> 00:01:57,840 Speaker 1: The end of the year. 38 00:01:57,960 --> 00:02:00,200 Speaker 4: George, really nice to see you. We decided that we've 39 00:02:00,240 --> 00:02:01,680 Speaker 4: maybe met twice after. 40 00:02:01,480 --> 00:02:02,080 Speaker 5: All this time. 41 00:02:02,520 --> 00:02:06,640 Speaker 2: Well, see, there's a we have some research people in Princeton. Yeah, 42 00:02:06,720 --> 00:02:09,640 Speaker 2: and they prefer the Princeton as opposed to coming to 43 00:02:09,680 --> 00:02:15,080 Speaker 2: the world's financial hub center of it all. Traffic for Princeton. 44 00:02:15,280 --> 00:02:19,120 Speaker 2: I get it. Yeah, that's how we do that. 45 00:02:19,160 --> 00:02:20,720 Speaker 4: There's a couple of ways to break it down, so 46 00:02:20,800 --> 00:02:23,120 Speaker 4: let's just take it maybe piece by piece. First of all, 47 00:02:23,160 --> 00:02:25,280 Speaker 4: supply chain stuff that like Boeing will be a part 48 00:02:25,320 --> 00:02:27,280 Speaker 4: of and Airbus will be a part of too, Like, 49 00:02:27,320 --> 00:02:30,480 Speaker 4: how are the supply chain impacting their deliveries? 50 00:02:31,160 --> 00:02:33,880 Speaker 3: Well, I mean, right now, I think the biggest problem 51 00:02:33,919 --> 00:02:35,840 Speaker 3: is up at Boeing and not in the supply chain. 52 00:02:35,960 --> 00:02:37,280 Speaker 5: So the supply chain stuff is fixed. 53 00:02:37,520 --> 00:02:38,280 Speaker 6: No, not at all. 54 00:02:38,320 --> 00:02:40,640 Speaker 3: So I meant for the number of deliveries we've seen 55 00:02:40,840 --> 00:02:44,120 Speaker 3: this quarter and the constriction in that number of deliveries, 56 00:02:44,160 --> 00:02:46,359 Speaker 3: this is all Boeing issue, right This is all Boeing's 57 00:02:46,840 --> 00:02:51,400 Speaker 3: FAA review, their manufacturing review. Their supply chain I think 58 00:02:51,440 --> 00:02:54,480 Speaker 3: is producing at a higher rate than they are right now. 59 00:02:54,480 --> 00:02:57,000 Speaker 3: So Spirit Aero Systems would be an important part of 60 00:02:57,040 --> 00:03:00,880 Speaker 3: their supply chain. They're building somewhere around thirty eight or 61 00:03:00,919 --> 00:03:04,160 Speaker 3: they were building around thirty eight seven thirty seven maxes 62 00:03:04,200 --> 00:03:06,760 Speaker 3: a month when we heard from them at the end 63 00:03:06,800 --> 00:03:09,079 Speaker 3: of the year, you know, for their four Q earnings call. 64 00:03:09,400 --> 00:03:13,400 Speaker 3: We understand from Spirit that their suppliers were even building 65 00:03:13,520 --> 00:03:16,880 Speaker 3: at higher rates than them in some cases, maybe even 66 00:03:16,960 --> 00:03:19,640 Speaker 3: up at sort of forty two numbers. And they're already 67 00:03:19,680 --> 00:03:23,080 Speaker 3: thinking about Spirit moving to a forty two number for 68 00:03:23,160 --> 00:03:25,480 Speaker 3: the Max. Again, we're talking Max, which is the highest 69 00:03:25,560 --> 00:03:28,360 Speaker 3: volume airplane. They were talking about Spirit moving to a 70 00:03:28,400 --> 00:03:33,040 Speaker 3: forty two number just prior to the Alaska you know, 71 00:03:33,639 --> 00:03:36,280 Speaker 3: door panel incident, and that's when everything sort of hit 72 00:03:36,280 --> 00:03:37,760 Speaker 3: the skids. But I think most of it hit the 73 00:03:37,800 --> 00:03:41,160 Speaker 3: skids up at Boeing, which has to do manage all 74 00:03:41,200 --> 00:03:45,360 Speaker 3: the FAA you know, inquiries and their manufacturing review. 75 00:03:45,600 --> 00:03:48,440 Speaker 2: All right, George. On Thursday, I am flying from Newark 76 00:03:48,480 --> 00:03:51,000 Speaker 2: to Durham, North Carolina on a Boeing seven thirty seven 77 00:03:51,120 --> 00:03:54,040 Speaker 2: Max eight plane. I will report into you. You can 78 00:03:54,120 --> 00:03:55,520 Speaker 2: express that primary research. 79 00:03:55,680 --> 00:03:56,680 Speaker 5: What's up your off Friday? 80 00:03:56,680 --> 00:03:57,320 Speaker 2: I'm off Friday? 81 00:03:58,160 --> 00:03:58,840 Speaker 1: Yep, yep. 82 00:04:00,320 --> 00:04:03,360 Speaker 5: I love you too, you know, bummer, So you could 83 00:04:03,360 --> 00:04:05,360 Speaker 5: care a loss? Not true at all? 84 00:04:05,520 --> 00:04:09,520 Speaker 2: Okay, George, If I guess from the company, I don't 85 00:04:09,560 --> 00:04:12,720 Speaker 2: want to go too fast. I think you know, I 86 00:04:12,760 --> 00:04:15,920 Speaker 2: can't have any more mishaps here. So it's almost like 87 00:04:16,520 --> 00:04:18,560 Speaker 2: if I'm an investor, I'm not sure I'm knocking on 88 00:04:18,640 --> 00:04:20,080 Speaker 2: the door saying, hey, you guys gotta get back to 89 00:04:20,279 --> 00:04:22,480 Speaker 2: back to thirty eight or forty kind of do it 90 00:04:22,520 --> 00:04:23,680 Speaker 2: when you can kind of thing. 91 00:04:23,839 --> 00:04:25,159 Speaker 6: Yeah, I mean, do it when you can. 92 00:04:25,240 --> 00:04:27,560 Speaker 3: But I mean in the long term interest of Boeing, 93 00:04:28,080 --> 00:04:31,240 Speaker 3: they have to increase build rates here and that's going 94 00:04:31,320 --> 00:04:32,160 Speaker 3: to drive better. 95 00:04:32,000 --> 00:04:33,760 Speaker 6: Cash flow and better products. 96 00:04:33,800 --> 00:04:37,080 Speaker 3: Okay, I mean, look, the competitor across the Atlantic, right 97 00:04:37,320 --> 00:04:39,320 Speaker 3: which has by the way, has you know, final assembly 98 00:04:39,400 --> 00:04:42,480 Speaker 3: facilities all around the world, including one in Mobile, Alabama. 99 00:04:42,680 --> 00:04:45,160 Speaker 2: Really Airbus has a thing in Mobile. 100 00:04:44,800 --> 00:04:48,039 Speaker 3: Absolutely, wow, absolutely, I don't know so, but their competitor 101 00:04:48,240 --> 00:04:51,320 Speaker 3: is operating up in the forty five range per month 102 00:04:51,360 --> 00:04:54,600 Speaker 3: for their A three twenty, the major competitor. If Boeing 103 00:04:54,640 --> 00:04:57,800 Speaker 3: wants to be in this business long term, they have 104 00:04:57,880 --> 00:05:00,680 Speaker 3: to stabilize production. You're right, but they've got to stabilize 105 00:05:00,720 --> 00:05:03,080 Speaker 3: it at much higher levels. Prior to the pandemic, they 106 00:05:03,080 --> 00:05:05,520 Speaker 3: were going close to sixty a month for the seven 107 00:05:05,560 --> 00:05:06,440 Speaker 3: thirty seven max. 108 00:05:06,520 --> 00:05:07,600 Speaker 6: It can be done. 109 00:05:07,880 --> 00:05:09,760 Speaker 3: Their job is to make sure it happens. 110 00:05:10,200 --> 00:05:12,240 Speaker 2: So what's the timeline here? When do you think, like 111 00:05:12,400 --> 00:05:14,360 Speaker 2: year end, where would you like to see them? 112 00:05:14,440 --> 00:05:17,120 Speaker 3: So year end, what we've modeled the Bloomberg intelligence is 113 00:05:17,200 --> 00:05:20,000 Speaker 3: we think Boeing will be building thirty eight seven thirty 114 00:05:20,040 --> 00:05:23,680 Speaker 3: sevens a month by four Q, which should have been 115 00:05:23,760 --> 00:05:26,680 Speaker 3: where they started this year out at thirty eight. We 116 00:05:26,720 --> 00:05:28,720 Speaker 3: think they were looking to break to forty two by 117 00:05:28,760 --> 00:05:29,400 Speaker 3: the end of the year. 118 00:05:29,760 --> 00:05:32,520 Speaker 2: So do we ever get back to the sixty? Should 119 00:05:32,560 --> 00:05:33,599 Speaker 2: they ever get back to the sixty? 120 00:05:33,720 --> 00:05:34,880 Speaker 3: Well, I mean, if you again, if you look at 121 00:05:34,880 --> 00:05:37,920 Speaker 3: their competitor, their competitor says they're shooting for seventy five 122 00:05:37,960 --> 00:05:40,320 Speaker 3: a month on the A three twenty. So if their 123 00:05:40,360 --> 00:05:43,960 Speaker 3: competitor is breaking to those kind of rates, when you 124 00:05:44,080 --> 00:05:46,960 Speaker 3: break to higher rates on your primary narrow body, you 125 00:05:47,000 --> 00:05:49,680 Speaker 3: have the opportunity to go out to your customers and 126 00:05:49,760 --> 00:05:52,680 Speaker 3: non customers, people that might be upset at Boeing and 127 00:05:52,760 --> 00:05:55,680 Speaker 3: sell more airplanes. Right So, right now, what we're seeing is, 128 00:05:56,120 --> 00:05:58,479 Speaker 3: you know, United has expressed an interest in A three twenty. 129 00:05:58,520 --> 00:06:02,080 Speaker 3: One's sort of constricted again. They've got you know, the 130 00:06:02,120 --> 00:06:05,960 Speaker 3: backlog is full. There's airlines that want all those deliveries 131 00:06:06,000 --> 00:06:08,760 Speaker 3: for the next number of years. We've seen Jet Blue 132 00:06:08,800 --> 00:06:11,279 Speaker 3: pop up and Spear airlines pop up and say, hey, 133 00:06:11,680 --> 00:06:13,240 Speaker 3: we might be willing to give up some of our 134 00:06:13,279 --> 00:06:14,919 Speaker 3: airplanes or we are willing to give up some of 135 00:06:14,960 --> 00:06:17,840 Speaker 3: our airplanes. We think that's a function of Airbus going 136 00:06:17,839 --> 00:06:21,520 Speaker 3: out to those customers saying, we have another potential customer 137 00:06:21,520 --> 00:06:23,640 Speaker 3: that would like a three twenty one's do you definitely 138 00:06:23,640 --> 00:06:26,200 Speaker 3: want everything you've got in the in the books for 139 00:06:26,200 --> 00:06:27,240 Speaker 3: the next couple of years. 140 00:06:27,760 --> 00:06:29,960 Speaker 4: How did we get this might be a very silly question, 141 00:06:30,040 --> 00:06:31,440 Speaker 4: but how did we get to the point where we 142 00:06:31,520 --> 00:06:33,400 Speaker 4: got two airplane makers? 143 00:06:34,320 --> 00:06:35,440 Speaker 5: And how does that make sense? 144 00:06:36,000 --> 00:06:38,640 Speaker 3: Well, I mean, for I mean, these are this is 145 00:06:38,680 --> 00:06:43,120 Speaker 3: not volume like automobiles, right, you sell right, I mean 146 00:06:43,120 --> 00:06:45,880 Speaker 3: a good year in this business is what a little 147 00:06:45,880 --> 00:06:47,920 Speaker 3: bit over a thousand airplanes a year? 148 00:06:48,080 --> 00:06:50,520 Speaker 6: Right, So it's not necessarily. 149 00:06:50,080 --> 00:06:54,520 Speaker 3: An industry that would support five or six manufacturers with 150 00:06:54,600 --> 00:06:57,120 Speaker 3: the right pricing and you know, in the right margins. 151 00:06:57,120 --> 00:06:59,080 Speaker 3: And then you've got to put money into R and 152 00:06:59,160 --> 00:07:01,680 Speaker 3: D and development while you're you know, so you've got 153 00:07:01,720 --> 00:07:03,919 Speaker 3: to earn a decent return so you can invest for 154 00:07:04,000 --> 00:07:04,560 Speaker 3: the future. 155 00:07:05,040 --> 00:07:07,000 Speaker 6: We did have more right in the US. 156 00:07:07,040 --> 00:07:09,600 Speaker 3: We had Boeing, we had McDonald, Douglas, lockeed used to 157 00:07:09,600 --> 00:07:13,720 Speaker 3: build a commercial aircraft. But you know, I think over 158 00:07:13,760 --> 00:07:17,360 Speaker 3: time it's slimmed down to where you could make them profitable. 159 00:07:17,400 --> 00:07:20,360 Speaker 3: And at the same time, airbus was growing in Europe 160 00:07:20,520 --> 00:07:22,840 Speaker 3: because the Europeans wanted to be in this business. Right, 161 00:07:22,880 --> 00:07:27,160 Speaker 3: this is a is a good margin, you know, strong 162 00:07:27,240 --> 00:07:32,920 Speaker 3: manufacturing kind of industry which really supports great jobs. They 163 00:07:32,960 --> 00:07:36,400 Speaker 3: were rising, and that meant some of the US manufacturers 164 00:07:36,400 --> 00:07:40,200 Speaker 3: had to go away to create room for a European competitor. 165 00:07:40,520 --> 00:07:43,400 Speaker 3: And what we have in the horizon someday, I think 166 00:07:43,440 --> 00:07:45,760 Speaker 3: it's probably five or six years away at least, is 167 00:07:45,800 --> 00:07:47,880 Speaker 3: the Chinese that want to be in the business. So 168 00:07:47,960 --> 00:07:52,640 Speaker 3: either the pie has to grow even maybe fifty percent larger. 169 00:07:53,000 --> 00:07:55,600 Speaker 6: Or someone's got a dwindle in that whole thing. 170 00:07:55,680 --> 00:07:59,200 Speaker 2: Right, interesting? All right, on's the next boondoggle slash air 171 00:07:59,240 --> 00:07:59,760 Speaker 2: show that you. 172 00:07:59,840 --> 00:08:00,840 Speaker 1: Go schedule to go to. 173 00:08:00,920 --> 00:08:02,320 Speaker 5: Yeah, you go to some fun ones. 174 00:08:02,160 --> 00:08:04,960 Speaker 2: I mean, and they're not in Cleveland in December, they're not. 175 00:08:05,120 --> 00:08:06,600 Speaker 3: I just well, I just have to say, none of 176 00:08:06,600 --> 00:08:09,520 Speaker 3: these are boondogles. I work really hard, exhausted. 177 00:08:09,080 --> 00:08:09,720 Speaker 6: When I come home. 178 00:08:10,440 --> 00:08:11,720 Speaker 2: All right, So what's the next one? 179 00:08:11,800 --> 00:08:13,760 Speaker 6: Farnborough Airshow Farmborough. 180 00:08:13,320 --> 00:08:16,720 Speaker 2: Air Show outside of London in July? What's the theme there? 181 00:08:16,760 --> 00:08:19,120 Speaker 2: I mean, if I'm boeing, can I even show my 182 00:08:19,160 --> 00:08:22,080 Speaker 2: face there. I mean, what do I I can't sell stuff. 183 00:08:22,480 --> 00:08:25,840 Speaker 2: I mean, even if I make an announcement I'm selling, 184 00:08:25,920 --> 00:08:28,440 Speaker 2: you know, two hundred planes to Emirates or something, I 185 00:08:28,520 --> 00:08:30,120 Speaker 2: don't I don't have the capacity to build them. 186 00:08:30,200 --> 00:08:32,400 Speaker 3: Yeah, so this year will be very interesting, right because 187 00:08:32,440 --> 00:08:35,600 Speaker 3: I think frankly, Airbus end Boeing don't have a lot 188 00:08:35,600 --> 00:08:38,640 Speaker 3: more capacity right now, so I would expect the show 189 00:08:38,640 --> 00:08:39,920 Speaker 3: would have a lot less sales. 190 00:08:39,960 --> 00:08:42,719 Speaker 6: It's a sales show, yeap. Although on the. 191 00:08:42,679 --> 00:08:45,880 Speaker 3: Wide body front, there's I think room to increase those 192 00:08:45,880 --> 00:08:48,640 Speaker 3: build rates, especially for the Boeing seven eighty seven and 193 00:08:48,679 --> 00:08:50,000 Speaker 3: the Airbus A three fifty. 194 00:08:49,920 --> 00:08:52,000 Speaker 2: There are they separate factories. Do I build my seven 195 00:08:52,080 --> 00:08:54,280 Speaker 2: thirty seven and my seven eighty seven in the same factory? 196 00:08:54,520 --> 00:08:55,680 Speaker 6: No, you build them a separate. 197 00:08:55,480 --> 00:08:57,600 Speaker 2: Factory, okay, So I okay, so I can ramp. 198 00:08:57,800 --> 00:09:00,440 Speaker 3: Yeah, And look, you know you have much lower volume 199 00:09:00,480 --> 00:09:02,840 Speaker 3: on seventy and seven builds at six a month, right, 200 00:09:03,120 --> 00:09:05,720 Speaker 3: So going to nine a month, you're not asking your 201 00:09:05,840 --> 00:09:08,520 Speaker 3: suppliers to do a heck of a lot more, right, 202 00:09:08,800 --> 00:09:11,160 Speaker 3: They're going fifty percent higher, but on very low volume. 203 00:09:11,520 --> 00:09:14,080 Speaker 3: But so both of those manufacturers would like to increase 204 00:09:14,440 --> 00:09:16,720 Speaker 3: the volume of those two airplanes, the three fifty and 205 00:09:16,720 --> 00:09:19,599 Speaker 3: seven eighty seven, because those would help them add to 206 00:09:20,440 --> 00:09:23,120 Speaker 3: you know, better margin, better cash flow. At the rates 207 00:09:23,160 --> 00:09:25,920 Speaker 3: they're at now, their break even ish, they could get 208 00:09:25,920 --> 00:09:29,320 Speaker 3: them into the low or sorry, high single digits, low 209 00:09:29,400 --> 00:09:31,400 Speaker 3: double digits. I think if they got them up to 210 00:09:31,480 --> 00:09:33,640 Speaker 3: ten or so, they're on the road to do that. 211 00:09:33,720 --> 00:09:36,520 Speaker 3: So I'd see this show being a wide body sales show. 212 00:09:37,400 --> 00:09:39,920 Speaker 4: Okay, so that's sort of the Boeing Airbus story. Before 213 00:09:39,960 --> 00:09:43,400 Speaker 4: we let you go, how is general demand? Like we 214 00:09:43,440 --> 00:09:46,520 Speaker 4: know from say Spirit it's not great, but that might 215 00:09:46,559 --> 00:09:48,440 Speaker 4: be a spirit thing. But then you have the Delta 216 00:09:48,640 --> 00:09:50,640 Speaker 4: United American. How are they doing? 217 00:09:50,800 --> 00:09:54,480 Speaker 3: Oh, it's great, everything's great, it's great, but profitability isn't great. 218 00:09:54,760 --> 00:09:57,800 Speaker 6: So that means yea pricing might not be right. 219 00:09:58,160 --> 00:10:01,160 Speaker 3: So you know, what we what we're seeing the TV's 220 00:10:01,200 --> 00:10:04,520 Speaker 3: we're seeing is that it looks like premium demand. 221 00:10:04,200 --> 00:10:05,400 Speaker 6: Is still pretty strong. 222 00:10:05,520 --> 00:10:08,480 Speaker 3: Tom King, and that's gonna help Tom King's bereaving and 223 00:10:08,480 --> 00:10:12,760 Speaker 3: that's gonna help, you know, the big three Delta United American. 224 00:10:12,880 --> 00:10:15,360 Speaker 6: Right, but the back of the bus. 225 00:10:15,320 --> 00:10:17,520 Speaker 3: If you will, right, the back of the cheap seats, 226 00:10:17,840 --> 00:10:22,880 Speaker 3: those are those are in much more supply and much 227 00:10:22,880 --> 00:10:25,720 Speaker 3: more competitive right now. And so if you're an airline 228 00:10:25,760 --> 00:10:29,680 Speaker 3: that focuses just on economy, I think you're gonna have 229 00:10:29,679 --> 00:10:32,480 Speaker 3: a harder time this earning season than you will for 230 00:10:32,559 --> 00:10:34,440 Speaker 3: the Big three the Pats. 231 00:10:34,440 --> 00:10:35,680 Speaker 6: You're gonna take a lot of a lot of the 232 00:10:35,679 --> 00:10:37,480 Speaker 6: money away from the airlines this quarter. 233 00:10:38,200 --> 00:10:41,080 Speaker 3: Really, the airline business is looking to us like there's 234 00:10:41,080 --> 00:10:42,360 Speaker 3: a lot less business travel. 235 00:10:42,760 --> 00:10:45,120 Speaker 6: There's there's not a lot less. 236 00:10:45,120 --> 00:10:47,440 Speaker 3: There's ten or ten or twenty percent less business travel, 237 00:10:47,640 --> 00:10:50,720 Speaker 3: but it hurts because it's high, high price travel. So 238 00:10:50,800 --> 00:10:53,280 Speaker 3: it looks like the business may make even more of 239 00:10:53,280 --> 00:10:56,520 Speaker 3: its profitability in two Q and three Q. We're not 240 00:10:56,600 --> 00:10:59,640 Speaker 3: expecting great things in one Q from anybody, but again, 241 00:10:59,640 --> 00:11:01,719 Speaker 3: the full server should do a little bit better. And 242 00:11:01,760 --> 00:11:05,720 Speaker 3: what we're all watching is is leisure summer demand going 243 00:11:05,760 --> 00:11:08,760 Speaker 3: to be so strong that it's going to drive profits 244 00:11:08,840 --> 00:11:11,319 Speaker 3: for the year, better profits for the year than they 245 00:11:11,360 --> 00:11:15,800 Speaker 3: had last year. We feel like ticket prices might be softening. 246 00:11:16,559 --> 00:11:19,160 Speaker 3: We'll get our first glimpses as as airlines start to 247 00:11:19,200 --> 00:11:20,840 Speaker 3: report and tell us what they're seeing for bookings. 248 00:11:20,880 --> 00:11:24,360 Speaker 2: Well, Alex and I have a major business trip for 249 00:11:24,520 --> 00:11:27,439 Speaker 2: the month of June very it's gonna be very impactful. 250 00:11:27,440 --> 00:11:30,560 Speaker 2: So we'll be doing our Uh did you get your tickets? 251 00:11:31,600 --> 00:11:32,240 Speaker 5: I got to do that. 252 00:11:32,320 --> 00:11:33,200 Speaker 1: Oh yeah, you got to do that. 253 00:11:33,440 --> 00:11:37,079 Speaker 5: I TV. We're like book and stuff like three days before. 254 00:11:37,840 --> 00:11:39,520 Speaker 4: I'm not like the long which is funny because I'm 255 00:11:39,520 --> 00:11:40,640 Speaker 4: actually a long term planner. 256 00:11:41,000 --> 00:11:44,080 Speaker 5: George, good to see you. Great to see for coming in. 257 00:11:44,160 --> 00:11:46,000 Speaker 4: We'll probably drag you over here tomorrow to are you 258 00:11:46,000 --> 00:11:46,600 Speaker 4: here tomorrow to. 259 00:11:49,679 --> 00:11:50,720 Speaker 6: Go back to Princeton's. 260 00:11:52,600 --> 00:11:54,560 Speaker 2: They have lunch, They have everything there exactly. 261 00:11:54,640 --> 00:11:55,200 Speaker 5: We have un. 262 00:11:56,720 --> 00:11:59,160 Speaker 2: Real lunch lunch stations. 263 00:11:59,200 --> 00:12:00,960 Speaker 6: Proper all really. 264 00:12:00,800 --> 00:12:03,800 Speaker 4: Wants to go to Prince Boomberg Intelligence in your Aerospace, 265 00:12:03,840 --> 00:12:06,559 Speaker 4: Defense and Airlines analyst George Ferguson and joining us now 266 00:12:06,640 --> 00:12:07,680 Speaker 4: always a pleasure. 267 00:12:10,280 --> 00:12:14,160 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 268 00:12:14,240 --> 00:12:17,760 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 269 00:12:17,800 --> 00:12:20,959 Speaker 1: Auto with the Bloomberg Business. You can also listen live 270 00:12:21,040 --> 00:12:24,240 Speaker 1: on Amazon Alexa from our flagship New York station. Just 271 00:12:24,280 --> 00:12:27,840 Speaker 1: say Alexa play Bloomberg eleven thirty. 272 00:12:29,559 --> 00:12:32,120 Speaker 2: Okay, sorry, okay, pay attention French. 273 00:12:32,200 --> 00:12:35,360 Speaker 4: They have lavendercent they have almonds. It's just anyway. My 274 00:12:35,400 --> 00:12:37,440 Speaker 4: point being is that that's how we know it. It's 275 00:12:37,480 --> 00:12:41,400 Speaker 4: the good hand cream place, and apparently it's billionaire owner 276 00:12:41,720 --> 00:12:44,600 Speaker 4: is nearing a deal to take that skincare company private 277 00:12:44,640 --> 00:12:48,240 Speaker 4: with funding help from Blackstone. And this is people familiar 278 00:12:48,320 --> 00:12:50,560 Speaker 4: with the matter ending it's fourteen year run on the 279 00:12:50,600 --> 00:12:52,200 Speaker 4: Hong Kong Stock Exchange. 280 00:12:52,200 --> 00:12:53,719 Speaker 5: To be honest, I didn't even know. I didn't even 281 00:12:53,760 --> 00:12:54,559 Speaker 5: know what traded. 282 00:12:54,360 --> 00:12:56,360 Speaker 2: In Hong Kong. Not to die. I'm trying to look 283 00:12:56,360 --> 00:12:58,480 Speaker 2: it up here. But it's working on you. 284 00:12:58,880 --> 00:12:59,400 Speaker 5: He's working on it. 285 00:12:59,400 --> 00:13:00,720 Speaker 4: He's gonna work on it, and we're going to talk 286 00:13:00,760 --> 00:13:03,240 Speaker 4: about it. Joining us now for more is David Havens, 287 00:13:03,440 --> 00:13:07,720 Speaker 4: Bloomberg Intelligence, a senior credit analyst. He joins us, Okay, 288 00:13:07,760 --> 00:13:08,880 Speaker 4: so do you use the hand cream? 289 00:13:10,160 --> 00:13:11,000 Speaker 6: I use the soap? 290 00:13:11,520 --> 00:13:15,080 Speaker 4: See soap, See soap if they give. 291 00:13:14,920 --> 00:13:15,760 Speaker 7: It away at hotels. 292 00:13:16,160 --> 00:13:16,319 Speaker 1: Yes. 293 00:13:17,760 --> 00:13:20,280 Speaker 4: So is this Blackstone buying the company or is this 294 00:13:20,320 --> 00:13:23,240 Speaker 4: Blackstone being kind of like a banker to the billionaire 295 00:13:23,280 --> 00:13:24,319 Speaker 4: and helping them buy it out. 296 00:13:24,480 --> 00:13:25,079 Speaker 6: It's the ladder. 297 00:13:25,240 --> 00:13:27,920 Speaker 7: So the way that the story reads us far is 298 00:13:27,960 --> 00:13:31,240 Speaker 7: that the billionaire owner is going to take the company private, 299 00:13:31,320 --> 00:13:35,319 Speaker 7: or is making efforts to take the company private Blackstone. 300 00:13:35,760 --> 00:13:37,920 Speaker 7: I don't know if they will or won't. You know, 301 00:13:37,960 --> 00:13:39,920 Speaker 7: it seems like the sort of thing that Blackstone might 302 00:13:39,960 --> 00:13:42,720 Speaker 7: take a piece of the equity also for some of 303 00:13:42,760 --> 00:13:46,880 Speaker 7: its funds, But I think the primary role that Blackstone 304 00:13:46,880 --> 00:13:49,600 Speaker 7: will be playing here is providing the funding, the credit 305 00:13:49,640 --> 00:13:51,080 Speaker 7: funding for the cash purchase. 306 00:13:51,240 --> 00:13:52,640 Speaker 5: So what's it? 307 00:13:52,679 --> 00:13:55,600 Speaker 2: Seems like Blackstone is everywhere these days, and granted they 308 00:13:55,640 --> 00:13:59,360 Speaker 2: are literally everywhere. What are they doing in this marketplace? 309 00:13:59,400 --> 00:14:00,320 Speaker 8: What is it? 310 00:14:00,360 --> 00:14:02,840 Speaker 2: Kind of these deals here where they take a piece 311 00:14:02,840 --> 00:14:05,160 Speaker 2: of the capital structure, whether it's equity or dead or 312 00:14:05,240 --> 00:14:08,160 Speaker 2: they do just big deals themselves. What are they up 313 00:14:08,160 --> 00:14:08,800 Speaker 2: to these days? 314 00:14:08,920 --> 00:14:12,280 Speaker 7: Well, Blackstone is a trillion dollar alternative asset manager. It's 315 00:14:12,320 --> 00:14:15,160 Speaker 7: the largest in the largest in the world. Or in 316 00:14:15,200 --> 00:14:18,320 Speaker 7: the earlier segment, you talked about Blackstone's position in real estate. 317 00:14:18,360 --> 00:14:20,880 Speaker 7: I believe they are the largest institutional investor in real 318 00:14:21,000 --> 00:14:24,720 Speaker 7: estate with over three hundred billion of assets in their portfolio. 319 00:14:25,560 --> 00:14:28,920 Speaker 7: They're gigantic in private equity, gigantic and private credit. 320 00:14:29,000 --> 00:14:30,600 Speaker 6: They've got about. 321 00:14:30,280 --> 00:14:33,320 Speaker 7: Two hundred billion dollars a dry powder that they need 322 00:14:33,360 --> 00:14:35,400 Speaker 7: to put to work in order to earn fees on 323 00:14:35,440 --> 00:14:35,920 Speaker 7: that money. 324 00:14:37,440 --> 00:14:40,160 Speaker 2: So they've got a lot of deals. Oh yeah, I 325 00:14:40,160 --> 00:14:42,640 Speaker 2: mean where is that number? Typically, I got to figure 326 00:14:42,640 --> 00:14:45,000 Speaker 2: that two hundred million dollars with dry powders, probably more 327 00:14:45,040 --> 00:14:47,680 Speaker 2: than they would like because they don't necessarily get paid 328 00:14:47,680 --> 00:14:49,720 Speaker 2: on that lots just sitting there. They got to go 329 00:14:49,760 --> 00:14:51,680 Speaker 2: out and spend it and then raise some more, which 330 00:14:51,680 --> 00:14:52,440 Speaker 2: is where they get paid. 331 00:14:52,720 --> 00:14:55,040 Speaker 7: Yeah, And just to put all that in context, I 332 00:14:55,040 --> 00:14:57,440 Speaker 7: think that there's two to three trillion dollars a dry 333 00:14:57,480 --> 00:15:02,280 Speaker 7: powder across the private multiverse, I guess we can call it. 334 00:15:03,280 --> 00:15:05,720 Speaker 7: But they're going to be looking everywhere globally, and they've. 335 00:15:05,560 --> 00:15:06,360 Speaker 6: Got global reach. 336 00:15:06,680 --> 00:15:10,680 Speaker 7: You know, that is pretty much not many compared to 337 00:15:10,720 --> 00:15:13,040 Speaker 7: their global reach. The few in the ballpark. 338 00:15:13,080 --> 00:15:15,920 Speaker 4: Maybe just going to the structure of the less of 339 00:15:15,920 --> 00:15:19,400 Speaker 4: ten deal for a sec, is this unusual for Blackstone 340 00:15:19,440 --> 00:15:21,400 Speaker 4: to provide the funding that like a bank would have 341 00:15:21,400 --> 00:15:22,960 Speaker 4: normally done for the billionaire. 342 00:15:24,000 --> 00:15:26,120 Speaker 7: It's more and more common than it used to be. 343 00:15:26,200 --> 00:15:28,480 Speaker 7: And I think that you can pretty much go back 344 00:15:28,480 --> 00:15:32,440 Speaker 7: to the financial crisis. You can go back to bank 345 00:15:32,480 --> 00:15:36,040 Speaker 7: regulations being rewritten in the aftermath of the financial crisis, 346 00:15:36,080 --> 00:15:41,840 Speaker 7: with riskway charges going up on corporate lending. So basically 347 00:15:41,920 --> 00:15:45,360 Speaker 7: one of the upshots of Basle Threebouzel four dot Frank 348 00:15:46,000 --> 00:15:49,560 Speaker 7: is that it's taken commercial banks, regional banks out of 349 00:15:49,680 --> 00:15:53,880 Speaker 7: sort of the traditional business of lending to lending to corporations, 350 00:15:53,920 --> 00:15:58,680 Speaker 7: particularly on a leverage basis, and so Blackstone KKR, the 351 00:15:58,800 --> 00:16:02,400 Speaker 7: whole universe of the credit is able to step into 352 00:16:02,440 --> 00:16:07,360 Speaker 7: that breach on favorable favorable funding costs without some of 353 00:16:07,400 --> 00:16:10,840 Speaker 7: the regulatory overhang, and they're able to do pretty well 354 00:16:10,880 --> 00:16:11,200 Speaker 7: right now. 355 00:16:12,040 --> 00:16:14,600 Speaker 2: All right, folks, on the bio page, if you want 356 00:16:14,600 --> 00:16:16,640 Speaker 2: to see at the bio of any guests we have, 357 00:16:16,720 --> 00:16:19,000 Speaker 2: for example, you go bio in the name, and it's 358 00:16:19,040 --> 00:16:21,840 Speaker 2: got career and education and all that kind of stuff. 359 00:16:21,880 --> 00:16:24,440 Speaker 2: And it's also a little section there called memberships maybe 360 00:16:24,480 --> 00:16:27,680 Speaker 2: where your you know, board of directors or something like that. 361 00:16:27,720 --> 00:16:30,000 Speaker 2: If you're a member Council Foreign Relations, you would list 362 00:16:30,040 --> 00:16:35,800 Speaker 2: it there, David havens under memberships includes Netflix and Sam's 363 00:16:35,800 --> 00:16:36,840 Speaker 2: Wholesale Club. 364 00:16:37,160 --> 00:16:38,760 Speaker 5: I love that you did that. That's awesome. 365 00:16:38,960 --> 00:16:42,480 Speaker 2: That's a few other memberships too, right, that's very proud, 366 00:16:42,600 --> 00:16:46,200 Speaker 2: very prestigious. Uhould be very very proud, David. I'm surprised 367 00:16:46,280 --> 00:16:49,760 Speaker 2: we haven't seen more private equity back to IPOs. I mean, 368 00:16:49,800 --> 00:16:52,680 Speaker 2: I got a market. It's up twenty five percent since October. 369 00:16:52,680 --> 00:16:54,200 Speaker 2: Back when I was on the street, I could push 370 00:16:54,200 --> 00:16:57,040 Speaker 2: out a gajillion deals with that kind of backdrop. Why 371 00:16:57,080 --> 00:16:59,760 Speaker 2: are the private equity guys maybe not pushing Are they 372 00:17:00,160 --> 00:17:03,440 Speaker 2: about down round valuations or because I got to think 373 00:17:03,800 --> 00:17:05,960 Speaker 2: it's been a foul of a couple of years here 374 00:17:06,040 --> 00:17:08,160 Speaker 2: for new deals, I would think they'd want to lock 375 00:17:08,240 --> 00:17:09,600 Speaker 2: up or unlock some of these things. 376 00:17:09,800 --> 00:17:12,560 Speaker 7: Yeah, No, I think absolutely, And I think that what's 377 00:17:12,560 --> 00:17:14,159 Speaker 7: happened is you're going to see a lot more of 378 00:17:14,200 --> 00:17:16,960 Speaker 7: these realizations as they're called, you know, taking place. 379 00:17:17,640 --> 00:17:18,040 Speaker 6: But we're not. 380 00:17:18,600 --> 00:17:20,560 Speaker 7: We're let's we're only about a year off from the 381 00:17:20,600 --> 00:17:23,119 Speaker 7: regional banking crisis in the US and the failure of 382 00:17:23,160 --> 00:17:26,080 Speaker 7: credit Swiss, you know, so we saw some pretty significant 383 00:17:26,119 --> 00:17:31,119 Speaker 7: tectonic temblers in the world of banking, and that I 384 00:17:31,200 --> 00:17:33,920 Speaker 7: think put things on pause for a period of time. 385 00:17:34,200 --> 00:17:36,040 Speaker 7: But I think that we're pretty much coming out of it. 386 00:17:36,080 --> 00:17:38,800 Speaker 7: And if you look at equity valuations, the markets are obviously, 387 00:17:38,880 --> 00:17:41,199 Speaker 7: you know, doing extremely well. Might be concentrated in a 388 00:17:41,200 --> 00:17:43,720 Speaker 7: few names, but the market's generally doing well. And if 389 00:17:43,720 --> 00:17:46,960 Speaker 7: you look at the credit market, the high grade credit 390 00:17:46,960 --> 00:17:49,800 Speaker 7: index in the US is eighty six basis points right now, 391 00:17:50,119 --> 00:17:52,320 Speaker 7: maybe one to two percent of the time. Over the 392 00:17:52,320 --> 00:17:54,919 Speaker 7: past twenty or thirty years, it's been under one hundred 393 00:17:54,920 --> 00:17:58,320 Speaker 7: basis points. We're near record tights six basis points away 394 00:17:58,359 --> 00:18:01,440 Speaker 7: since nineteen ninety nine. So markets I think are ready 395 00:18:01,440 --> 00:18:03,840 Speaker 7: and receptive. So it's just a case of I think 396 00:18:03,880 --> 00:18:07,440 Speaker 7: getting these things prepped and ready to sort of send 397 00:18:07,440 --> 00:18:09,399 Speaker 7: out the door. And they may not be IPOs, they 398 00:18:09,440 --> 00:18:12,280 Speaker 7: might be sales to other private investors. 399 00:18:11,840 --> 00:18:12,800 Speaker 5: Right, secondaries. 400 00:18:12,880 --> 00:18:15,080 Speaker 4: Right, I feel like I've read a lot about how 401 00:18:15,119 --> 00:18:17,439 Speaker 4: that's huge now because the exit market has just not 402 00:18:17,560 --> 00:18:20,280 Speaker 4: been around. Where do you think the issues and the 403 00:18:20,320 --> 00:18:22,639 Speaker 4: cracks come in, whether you're looking at private equity or 404 00:18:22,640 --> 00:18:25,159 Speaker 4: private credit. Because the narrative is like, look, it's ten 405 00:18:25,240 --> 00:18:28,080 Speaker 4: year investments. Okay, it's a tough few years, but it's 406 00:18:28,080 --> 00:18:29,920 Speaker 4: going to be okay because we got like seven five 407 00:18:30,000 --> 00:18:32,400 Speaker 4: more years to make it up, et cetera. But everybody 408 00:18:32,440 --> 00:18:34,680 Speaker 4: says that, but then everyone warns about it, and I'm 409 00:18:34,720 --> 00:18:37,440 Speaker 4: trying to understand who's going to be left holding. 410 00:18:37,119 --> 00:18:39,639 Speaker 5: The I don't know what are they holding? The bag, 411 00:18:39,760 --> 00:18:41,920 Speaker 5: the empty bag, the non Sam's club bag. 412 00:18:42,359 --> 00:18:46,280 Speaker 7: Right, So I think that a year ago there is 413 00:18:46,480 --> 00:18:50,639 Speaker 7: an awful lot of concern that private credit would have 414 00:18:51,040 --> 00:18:54,199 Speaker 7: serious problems. That hasn't occurred if you look at the 415 00:18:54,200 --> 00:18:58,440 Speaker 7: default rates within business development company portfolios. So these are 416 00:18:59,359 --> 00:19:01,840 Speaker 7: public private lenders that are part of the affiliated with 417 00:19:01,880 --> 00:19:05,840 Speaker 7: the Blackstone KKR companies like that areas. If you look 418 00:19:05,840 --> 00:19:10,160 Speaker 7: at their performance, they've had virtually no defaults, So things 419 00:19:10,200 --> 00:19:12,800 Speaker 7: haven't fallen apart. I think that what you're seeing is 420 00:19:12,840 --> 00:19:15,760 Speaker 7: that there's an awful lot of cash out there leftover 421 00:19:15,880 --> 00:19:19,920 Speaker 7: from the leftover from the pandemic. When you talk about 422 00:19:20,000 --> 00:19:25,800 Speaker 7: risks going forward, monetary tightening is having I guess a 423 00:19:25,840 --> 00:19:28,840 Speaker 7: negative influence in that there's less money supply out there, 424 00:19:28,880 --> 00:19:31,399 Speaker 7: but it's just not showing up in terms of the 425 00:19:31,400 --> 00:19:33,440 Speaker 7: performance of the companies that have been lent. 426 00:19:33,280 --> 00:19:33,880 Speaker 6: To thus far. 427 00:19:34,680 --> 00:19:38,560 Speaker 2: What's the capital raising environment like for a lot of 428 00:19:38,560 --> 00:19:41,639 Speaker 2: the funds you cover, both equity and for private credit. 429 00:19:41,840 --> 00:19:44,159 Speaker 2: Can I go out there and just is it still 430 00:19:44,280 --> 00:19:45,679 Speaker 2: I can go out there and pretty much raise any 431 00:19:45,680 --> 00:19:48,200 Speaker 2: money if I'm a Blackstone or Apollo or KKR. 432 00:19:48,640 --> 00:19:51,440 Speaker 7: Yeah, if I have it right. I think that Blackstone 433 00:19:52,119 --> 00:19:54,720 Speaker 7: raised one point one billion dollars for a b credit, 434 00:19:54,760 --> 00:19:58,560 Speaker 7: which is the largest business development company. It's got about 435 00:19:58,560 --> 00:20:02,880 Speaker 7: fifty billion dollars of assets. It's a privately traded company, 436 00:20:03,160 --> 00:20:05,000 Speaker 7: but I think they raised one point one billion in 437 00:20:05,400 --> 00:20:08,359 Speaker 7: December or January, which I think was their biggest month ever. 438 00:20:09,359 --> 00:20:11,879 Speaker 7: And if you look at b Ret, which is I 439 00:20:11,920 --> 00:20:15,280 Speaker 7: think the largest reate out there, they had a lot 440 00:20:15,320 --> 00:20:19,920 Speaker 7: of redemption requests a year ago. Those redemption requests I 441 00:20:19,920 --> 00:20:23,600 Speaker 7: think have dropped precipitously, So there's a lot of money 442 00:20:23,640 --> 00:20:25,320 Speaker 7: out there that needs to find a home. And if 443 00:20:25,359 --> 00:20:30,600 Speaker 7: you look at the total returns on private credit at Blackstone, 444 00:20:30,640 --> 00:20:33,000 Speaker 7: for example, I think it was up fourteen percent last year, 445 00:20:33,000 --> 00:20:36,800 Speaker 7: which compares extremely well to just about anything else out there. 446 00:20:36,880 --> 00:20:38,240 Speaker 7: So people are always. 447 00:20:38,040 --> 00:20:41,560 Speaker 5: Chasing You're great, You're really it's great, we love you. 448 00:20:42,600 --> 00:20:43,399 Speaker 5: What else you're watching? 449 00:20:44,880 --> 00:20:49,680 Speaker 7: Well, you know, I cover all sorts of financial thing imagigs. 450 00:20:50,560 --> 00:20:53,320 Speaker 7: They are not non bank thing ima jigs. And one 451 00:20:53,359 --> 00:20:56,080 Speaker 7: of the areas which I think is really interesting is 452 00:20:56,440 --> 00:21:01,399 Speaker 7: what's going on between the private world, private debt, private credit, 453 00:21:01,480 --> 00:21:05,720 Speaker 7: alternative asset management, and life insurance. And you know, that's 454 00:21:05,720 --> 00:21:10,160 Speaker 7: a forty trillion dollar addressable market for the alternative asset managers. 455 00:21:11,000 --> 00:21:16,200 Speaker 7: You've seen companies like Apollo and Kkar via a theme 456 00:21:16,520 --> 00:21:23,399 Speaker 7: and Global Atlantic owning some of the top annuity in 457 00:21:23,440 --> 00:21:26,800 Speaker 7: life insurance companies in the United States. So that's an 458 00:21:26,840 --> 00:21:28,200 Speaker 7: area which I think we're going to see a lot 459 00:21:28,240 --> 00:21:30,399 Speaker 7: more convergence over the next couple of years. And then 460 00:21:30,400 --> 00:21:33,000 Speaker 7: you were talking in the earlier segment about office also 461 00:21:33,400 --> 00:21:36,080 Speaker 7: and about how real estate is not all created equal. 462 00:21:36,920 --> 00:21:38,840 Speaker 7: Office is an area that we're going to continue to 463 00:21:38,920 --> 00:21:42,680 Speaker 7: keep a very close eye on because there is a 464 00:21:43,080 --> 00:21:46,359 Speaker 7: real secular shift on top of what was a cyclical 465 00:21:46,480 --> 00:21:51,280 Speaker 7: shift apartments, warehouses, you know, health properties, life sciences. 466 00:21:51,640 --> 00:21:53,840 Speaker 2: I'm interesting to see for some of these big office 467 00:21:53,840 --> 00:21:56,520 Speaker 2: properties trade in the urban centers and big big discounts 468 00:21:56,560 --> 00:21:58,080 Speaker 2: I think. David Havens, thanks so much for joining us. 469 00:21:58,119 --> 00:22:00,560 Speaker 2: David Havens, he's a senior credit analyst for Bloomber Intelligence. 470 00:22:00,640 --> 00:22:04,800 Speaker 2: Joining us live here in our Bloomberg Interactive Brokers studio. 471 00:22:06,280 --> 00:22:10,160 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 472 00:22:10,240 --> 00:22:12,919 Speaker 1: weekdays at ten am Eastern on Apple car Play and 473 00:22:12,920 --> 00:22:16,000 Speaker 1: Android Auto with the Bloomberg Business app. Listen on demand 474 00:22:16,000 --> 00:22:19,680 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 475 00:22:20,760 --> 00:22:23,320 Speaker 4: Waiting for CPI A thirty tomorrow. Will it be a 476 00:22:23,320 --> 00:22:25,520 Speaker 4: big market uber and if not, what else are we 477 00:22:25,600 --> 00:22:26,000 Speaker 4: waiting for? 478 00:22:26,160 --> 00:22:29,000 Speaker 5: Waiting then for earnings. They're gonna kick off on Friday. 479 00:22:29,040 --> 00:22:32,480 Speaker 4: So let's get the take now with Rubin Jmenision, his 480 00:22:32,640 --> 00:22:36,760 Speaker 4: generalist portfolio manager over TCW's fixed income group. He joins 481 00:22:36,840 --> 00:22:40,480 Speaker 4: us from Los Angeles, California. Rubin, what do you think 482 00:22:40,520 --> 00:22:42,600 Speaker 4: the pain trade is into tomorrow's CPI? 483 00:22:44,800 --> 00:22:46,440 Speaker 8: Good morning, Thanks for having me on. 484 00:22:46,920 --> 00:22:50,280 Speaker 9: Well, we think the CPI tomorrow, Well, the big pain 485 00:22:50,359 --> 00:22:53,160 Speaker 9: trade is as we've seen in the beginning of the year. 486 00:22:53,240 --> 00:22:57,479 Speaker 9: We have seen we may see some some some increase 487 00:22:57,520 --> 00:23:00,800 Speaker 9: in CPI for deriven by seasonal factor or driven by 488 00:23:00,800 --> 00:23:03,639 Speaker 9: some other quirks of inflation calculation. 489 00:23:03,840 --> 00:23:08,680 Speaker 8: But generally speaking, as we look at the inflation inflation matrix. 490 00:23:09,440 --> 00:23:11,919 Speaker 9: Over a longer term, we see that the trend is 491 00:23:11,920 --> 00:23:16,360 Speaker 9: one of the declining or this acceleration of inflation. So 492 00:23:16,640 --> 00:23:19,000 Speaker 9: as we look at PC, looked we got PC about 493 00:23:19,000 --> 00:23:19,840 Speaker 9: a week ago or so. 494 00:23:20,440 --> 00:23:23,280 Speaker 8: The PC core PC he read was about two. 495 00:23:23,080 --> 00:23:26,560 Speaker 9: Point eight percentage two point eight percent year over year, 496 00:23:27,040 --> 00:23:31,040 Speaker 9: And while that's above the target that the Fed has, 497 00:23:31,160 --> 00:23:34,000 Speaker 9: but that marks the fourteenth year over year decline in 498 00:23:34,000 --> 00:23:36,760 Speaker 9: a row. And as we look at the core pc 499 00:23:37,000 --> 00:23:39,479 Speaker 9: X shelter. As we know, shelter is one of the 500 00:23:39,600 --> 00:23:45,040 Speaker 9: notorious lagging indicators of the inflation calculation. That was about 501 00:23:45,040 --> 00:23:47,960 Speaker 9: two point one percent, much closer to the inflav to 502 00:23:48,000 --> 00:23:51,439 Speaker 9: the Fed inflation expectation, and again that marks more than 503 00:23:51,480 --> 00:23:54,919 Speaker 9: a year of declining year over year reads of that 504 00:23:55,040 --> 00:23:56,960 Speaker 9: of that may measure all. 505 00:23:56,920 --> 00:23:59,600 Speaker 2: Right, So Rubin, let's I guess one of the first 506 00:23:59,640 --> 00:24:02,879 Speaker 2: questions people have its like, what's this economy going to do? 507 00:24:02,880 --> 00:24:05,200 Speaker 2: And what's this federal reserve going to do? It feels 508 00:24:05,320 --> 00:24:08,640 Speaker 2: like the soft landing is being fairly well negotiated by 509 00:24:08,640 --> 00:24:12,199 Speaker 2: the Federal Reserve and that more than more than not, 510 00:24:12,280 --> 00:24:13,840 Speaker 2: there will be some rate cuts this year. Do you 511 00:24:13,840 --> 00:24:14,960 Speaker 2: guys agree with that? 512 00:24:16,800 --> 00:24:17,760 Speaker 8: We do agree with that. 513 00:24:18,359 --> 00:24:21,080 Speaker 9: We moreover, we do think that the rate cut where 514 00:24:21,080 --> 00:24:23,560 Speaker 9: we will see more rate cuts than what's currently being 515 00:24:23,600 --> 00:24:26,200 Speaker 9: priced in. So generally, as we look at the market, 516 00:24:26,280 --> 00:24:28,960 Speaker 9: we think that the market is being priced for perfection. 517 00:24:29,480 --> 00:24:32,280 Speaker 9: You know, we have very very gradual rate cuts priced in. 518 00:24:32,760 --> 00:24:35,760 Speaker 9: You look at the credit markets, corporate credit markets, they 519 00:24:35,840 --> 00:24:39,359 Speaker 9: are at cycle tights. Spreads are at cycle tights right now, 520 00:24:39,600 --> 00:24:43,119 Speaker 9: which means that the compensation that corporate bond investors receive 521 00:24:43,240 --> 00:24:46,560 Speaker 9: for holding corporate bonds is at the lowest level we've 522 00:24:46,560 --> 00:24:49,440 Speaker 9: seen in this cycle, and that's a lot of oplimism 523 00:24:49,520 --> 00:24:53,080 Speaker 9: that's being priced into the market. We at TCW are 524 00:24:53,280 --> 00:24:57,320 Speaker 9: less optimistic about the prospects of the economy. We think, 525 00:24:57,320 --> 00:24:59,199 Speaker 9: in fact that a lot of that optimism that we 526 00:24:59,280 --> 00:25:02,960 Speaker 9: see in the market is perhaps extrapolation of the strong 527 00:25:03,160 --> 00:25:06,280 Speaker 9: resilient twenty twenty three that we've seen. But we think 528 00:25:06,280 --> 00:25:09,320 Speaker 9: that one should use a lot of caution when extrapolating 529 00:25:09,440 --> 00:25:13,640 Speaker 9: from the strong resilient twenty twenty three into twenty twenty four, 530 00:25:13,680 --> 00:25:17,600 Speaker 9: because there were some significant tailwinds that helped growth in 531 00:25:17,640 --> 00:25:20,560 Speaker 9: twenty twenty three that we don't think are going to 532 00:25:20,600 --> 00:25:24,640 Speaker 9: be nearly as powerful for twenty twenty four. 533 00:25:25,160 --> 00:25:27,880 Speaker 8: Growth enhanced, the growth will prove yes. 534 00:25:28,080 --> 00:25:31,640 Speaker 4: So what do you think, where will the data become 535 00:25:31,840 --> 00:25:35,959 Speaker 4: weaker and where will we see that reflected. It seems 536 00:25:36,000 --> 00:25:38,080 Speaker 4: like we can kind of pick the narrative and find 537 00:25:38,080 --> 00:25:40,879 Speaker 4: the data right like the NFIB for example, at lowest 538 00:25:40,920 --> 00:25:45,320 Speaker 4: level since twenty twenty one, right expecting sales to fall 539 00:25:45,359 --> 00:25:46,920 Speaker 4: like it doesn't look great, But then you take a 540 00:25:46,920 --> 00:25:48,680 Speaker 4: look at the jobs number, and then it looks great. 541 00:25:50,560 --> 00:25:52,720 Speaker 8: Yes, you're absolutely right. 542 00:25:52,720 --> 00:25:55,359 Speaker 9: The data has been coming in mixed, and you know, 543 00:25:55,400 --> 00:25:58,119 Speaker 9: we had some very strong payroll data, but NFIB Business 544 00:25:58,119 --> 00:26:03,480 Speaker 9: Optimist number this morning was very was very very was 545 00:26:03,520 --> 00:26:06,960 Speaker 9: not as good. Was actually pretty bad across across the board, 546 00:26:07,000 --> 00:26:09,480 Speaker 9: whether you look at the credit condition for small businesses, 547 00:26:09,480 --> 00:26:12,680 Speaker 9: whether you look at hiring plans, and if you if 548 00:26:12,680 --> 00:26:15,280 Speaker 9: you do believe that the small businesses employee about forty 549 00:26:15,280 --> 00:26:17,880 Speaker 9: percent of your workforce, that's pretty significant. 550 00:26:18,119 --> 00:26:20,959 Speaker 8: So we already see some cracks in the data. 551 00:26:21,560 --> 00:26:25,040 Speaker 9: You know, you know, the the some of the tailwinds 552 00:26:25,080 --> 00:26:27,359 Speaker 9: that they talked about that that were powerful in twenty 553 00:26:27,440 --> 00:26:30,760 Speaker 9: twenty three and perhaps the first quarter of twenty twenty 554 00:26:30,760 --> 00:26:34,440 Speaker 9: four as well as the data is coming in helped prolong. 555 00:26:34,040 --> 00:26:35,240 Speaker 8: The cycle, so to speak. 556 00:26:35,280 --> 00:26:38,600 Speaker 9: So but we do still see cracks, especially in areas 557 00:26:38,640 --> 00:26:42,960 Speaker 9: that are highly exposed to high that are more interest 558 00:26:43,040 --> 00:26:46,400 Speaker 9: rates sensitive. So when we look at on consumer side, 559 00:26:46,400 --> 00:26:49,200 Speaker 9: for example, we look at the delinquency rates, and there 560 00:26:49,240 --> 00:26:52,600 Speaker 9: are higher across the almost across the board, and in 561 00:26:52,720 --> 00:26:55,560 Speaker 9: many many cases delinquency rates that we see are higher 562 00:26:55,600 --> 00:26:59,520 Speaker 9: than pre pandemic levels. Is you remember in twenty twenty three, 563 00:26:59,600 --> 00:27:02,040 Speaker 9: the store was that the links rates are rising, but 564 00:27:02,080 --> 00:27:05,680 Speaker 9: they're rising to pre pandemic normal to pre pandemic levels, 565 00:27:05,720 --> 00:27:07,480 Speaker 9: so they're normalizing to pre pandemic. 566 00:27:08,000 --> 00:27:09,080 Speaker 8: That is no longer the. 567 00:27:09,040 --> 00:27:12,960 Speaker 9: Case because in many cases, especially at the you know, 568 00:27:13,320 --> 00:27:18,119 Speaker 9: for the bottom cohores of income distribution spectrum, we do 569 00:27:18,200 --> 00:27:21,320 Speaker 9: see that those linkal s rates are way higher than 570 00:27:21,640 --> 00:27:24,119 Speaker 9: pre pandemic levels and rising. When we look at the 571 00:27:24,119 --> 00:27:27,120 Speaker 9: corporate sector, we do see that the segments that are 572 00:27:27,119 --> 00:27:30,639 Speaker 9: most sensitive to interest rates, bank loans that reset the 573 00:27:30,720 --> 00:27:32,720 Speaker 9: rate on a quarterly basis. 574 00:27:32,560 --> 00:27:35,680 Speaker 8: They see their default rates increasing. There. 575 00:27:35,840 --> 00:27:38,159 Speaker 9: They went from sub two percent in a couple of 576 00:27:38,200 --> 00:27:41,160 Speaker 9: years ago to mid single digits depending on how you measure, 577 00:27:41,200 --> 00:27:44,359 Speaker 9: and that there's a measure defaults. So they're on the 578 00:27:44,440 --> 00:27:47,080 Speaker 9: rise as well, and we think that will continue as 579 00:27:47,160 --> 00:27:51,879 Speaker 9: we see, you know, the monetary policy lacks dissipate and 580 00:27:52,000 --> 00:27:54,560 Speaker 9: monitary policy continue to weigh on the economic growth. 581 00:27:54,720 --> 00:27:56,760 Speaker 2: So Rubin, I mean, I'm an equity guy, but I 582 00:27:56,760 --> 00:27:58,239 Speaker 2: look at the two year treasury and I can get 583 00:27:58,240 --> 00:28:01,480 Speaker 2: four point seventy three percent work my money there or 584 00:28:01,960 --> 00:28:05,040 Speaker 2: do I take some credit risk and think about that? 585 00:28:05,040 --> 00:28:06,040 Speaker 2: How do you guys think about that? 586 00:28:07,359 --> 00:28:09,520 Speaker 9: Well, we do like the front end of the curve, 587 00:28:09,680 --> 00:28:13,119 Speaker 9: So we're overweight duration, and a big fraction of our 588 00:28:13,200 --> 00:28:15,040 Speaker 9: overweight is in the front end of the curve in 589 00:28:15,119 --> 00:28:17,160 Speaker 9: two years and five years, because we do think that's 590 00:28:17,200 --> 00:28:20,000 Speaker 9: an attract that those are attractive rates. That being said, 591 00:28:20,440 --> 00:28:23,720 Speaker 9: credit we think is very very optimistically priced. We don't 592 00:28:23,760 --> 00:28:27,760 Speaker 9: think investors get a ton of compensation or forget being 593 00:28:27,800 --> 00:28:30,960 Speaker 9: in corporate credit, but we do think that the securitized 594 00:28:31,040 --> 00:28:34,840 Speaker 9: markets agency mbs for instance, and some segments of non 595 00:28:34,880 --> 00:28:38,200 Speaker 9: agency securitized credit are very attractively priced. So we are 596 00:28:38,240 --> 00:28:43,280 Speaker 9: currently expressing some overweights in those areas as we think 597 00:28:43,320 --> 00:28:46,400 Speaker 9: that those are more attractive, far more attractive than corporate credit, 598 00:28:47,240 --> 00:28:50,880 Speaker 9: which is as I mentioned at cycle tights in IG 599 00:28:51,000 --> 00:28:52,400 Speaker 9: and in high yield as well. 600 00:28:52,760 --> 00:28:54,480 Speaker 4: So if you like the front end, is that a 601 00:28:54,520 --> 00:28:57,080 Speaker 4: pure yield play or is that a price appreciation play 602 00:28:57,200 --> 00:28:58,200 Speaker 4: or honestly. 603 00:28:57,800 --> 00:29:02,440 Speaker 9: Both, well, it's both. We do think we'll see some 604 00:29:02,480 --> 00:29:05,280 Speaker 9: price appreciate. Gilds are attractive, as we know, but we 605 00:29:05,400 --> 00:29:07,760 Speaker 9: think that we'll get some price appreciation as well because 606 00:29:07,800 --> 00:29:09,760 Speaker 9: we do think that the rates will will come down, 607 00:29:10,200 --> 00:29:12,160 Speaker 9: especially more so in the front end of the curve. 608 00:29:12,200 --> 00:29:14,440 Speaker 9: We do expect a bulls deepening of the curve where 609 00:29:14,560 --> 00:29:16,960 Speaker 9: where by the front end of the you know, the 610 00:29:17,520 --> 00:29:21,440 Speaker 9: lower tenors, the shorter tenors will come down more than 611 00:29:21,480 --> 00:29:23,360 Speaker 9: the belly and the and the long end of the curve. 612 00:29:23,640 --> 00:29:24,760 Speaker 8: So we think you'll get both. 613 00:29:24,760 --> 00:29:27,719 Speaker 9: You'll get a price appreciation and obviously you're clipping a 614 00:29:27,840 --> 00:29:32,240 Speaker 9: very high yield uh while holding the short treasury bonds. 615 00:29:33,280 --> 00:29:35,640 Speaker 4: All right, Rubin, thanks very much. I really appreciate Rubin 616 00:29:35,920 --> 00:29:37,840 Speaker 4: hoven asci And Okay, I'm going to get it. 617 00:29:38,160 --> 00:29:40,440 Speaker 5: Homan Is, Did I get it? Did I sort of 618 00:29:40,480 --> 00:29:40,800 Speaker 5: get it? 619 00:29:41,120 --> 00:29:42,440 Speaker 8: Yes? Yes, you did? 620 00:29:43,240 --> 00:29:46,520 Speaker 5: Nice? All right, he joins us. 621 00:29:46,520 --> 00:29:49,880 Speaker 4: There he's a general's portfolio manager at tc w's fixed 622 00:29:49,960 --> 00:29:50,840 Speaker 4: income group. 623 00:29:50,920 --> 00:29:55,000 Speaker 2: Those those people tc W, every person we get smart. 624 00:29:54,840 --> 00:29:56,160 Speaker 4: Super smart smart. 625 00:29:56,560 --> 00:29:56,680 Speaker 8: Uh. 626 00:29:57,200 --> 00:29:59,320 Speaker 4: And you know you raised the point about you know 627 00:29:59,320 --> 00:30:02,280 Speaker 4: you're the equity The ampity risk premium is like nothing 628 00:30:02,440 --> 00:30:04,800 Speaker 4: over bonds, right, It's just like, how do you buy 629 00:30:04,800 --> 00:30:07,080 Speaker 4: equities then when you can get a two year yielding 630 00:30:07,120 --> 00:30:09,560 Speaker 4: almost five percent? And we talk a lot about how 631 00:30:09,560 --> 00:30:11,280 Speaker 4: all that money and money market funds is going to 632 00:30:11,360 --> 00:30:12,120 Speaker 4: go somewhere? 633 00:30:12,720 --> 00:30:15,560 Speaker 2: How about how about New Jersey municipal bonds? 634 00:30:15,600 --> 00:30:18,640 Speaker 5: Oh about on a deep teas for Friday. 635 00:30:18,360 --> 00:30:22,640 Speaker 2: Tuesday, but just get you're ready municipals on Friday. 636 00:30:22,760 --> 00:30:27,080 Speaker 5: So yeah, it's true. I mean slowly he'll convert me. 637 00:30:29,640 --> 00:30:33,560 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 638 00:30:33,640 --> 00:30:37,160 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 639 00:30:37,160 --> 00:30:40,320 Speaker 1: Auto with the Bloomberg Business. You can also listen live 640 00:30:40,440 --> 00:30:43,600 Speaker 1: on Amazon Alexa from our flagship New York station Just 641 00:30:43,680 --> 00:30:46,280 Speaker 1: Say Alexa playing Bloomberg eleven thirty. 642 00:30:47,600 --> 00:30:49,720 Speaker 4: We strive to bring you the best from Bloomberg Intelligence. 643 00:30:49,720 --> 00:30:52,680 Speaker 4: We cover two thousand companies one hundred and thirty industries worldwide. 644 00:30:52,680 --> 00:30:55,120 Speaker 4: We also strive to bring you the best from Bloomberg News, 645 00:30:55,480 --> 00:30:57,880 Speaker 4: and to do that we go to Sheridan Prasso. She's 646 00:30:57,920 --> 00:31:01,960 Speaker 4: Bloomberg News Senior Investigations a writer and she joins us 647 00:31:02,000 --> 00:31:05,400 Speaker 4: from Washington, d C. Her her story is the Big 648 00:31:05,440 --> 00:31:09,360 Speaker 4: Take story on Bloomberg. She co authored about how countries 649 00:31:09,680 --> 00:31:12,920 Speaker 4: from Central Asia to South America are building their own 650 00:31:13,240 --> 00:31:16,960 Speaker 4: killer tech based on Iranian designs. 651 00:31:17,040 --> 00:31:17,640 Speaker 5: This does not. 652 00:31:17,760 --> 00:31:21,120 Speaker 4: Feel like a feel good story, Sheridan, thank you so 653 00:31:21,200 --> 00:31:22,000 Speaker 4: much for joining us. 654 00:31:22,040 --> 00:31:22,920 Speaker 5: Really appreciate it. 655 00:31:22,960 --> 00:31:25,200 Speaker 4: Walk us through your stories about and what you learned 656 00:31:25,200 --> 00:31:26,600 Speaker 4: in this investigation process. 657 00:31:27,840 --> 00:31:30,080 Speaker 10: Hi, So thanks for having me. We had we took 658 00:31:30,120 --> 00:31:34,080 Speaker 10: a look at how US technology flows are going into 659 00:31:34,240 --> 00:31:37,400 Speaker 10: Iran's drone program, and what we found is just an 660 00:31:37,400 --> 00:31:41,440 Speaker 10: incredible proliferation of Iranian drones now spreading throughout the world 661 00:31:41,480 --> 00:31:44,280 Speaker 10: in ways that surprised even me from when I first 662 00:31:44,320 --> 00:31:47,320 Speaker 10: started looking into this. You know, we obviously know about 663 00:31:47,440 --> 00:31:51,240 Speaker 10: Iran's drone proliferation in the Middle East context, right through Syria, 664 00:31:51,320 --> 00:31:55,560 Speaker 10: I Rock, including now into Yama and Yemen, and then 665 00:31:56,200 --> 00:31:58,840 Speaker 10: in the Middle East, you know, conflict in Gaza now 666 00:31:58,920 --> 00:32:02,640 Speaker 10: as well, we're seeing kind of use of Iranian drones 667 00:32:02,960 --> 00:32:06,400 Speaker 10: in the periphery of that conflict as well. But what 668 00:32:06,560 --> 00:32:09,840 Speaker 10: also was surprising to us we found is that Iranian 669 00:32:09,920 --> 00:32:14,360 Speaker 10: drones are now being manufactured in Russia. There's a program 670 00:32:14,440 --> 00:32:18,920 Speaker 10: for six thousand Iranian drones there that are starting to 671 00:32:18,960 --> 00:32:22,360 Speaker 10: turn up now in the battlefields of Ukraine. They're increasing 672 00:32:22,400 --> 00:32:25,400 Speaker 10: proliferation in places like Central Asia and in South America 673 00:32:25,400 --> 00:32:28,440 Speaker 10: as well, so it really is quite an enormous spread 674 00:32:28,760 --> 00:32:29,440 Speaker 10: around the world. 675 00:32:31,400 --> 00:32:34,320 Speaker 2: How is the technology, how advanced is the technology? Is 676 00:32:34,360 --> 00:32:36,680 Speaker 2: just a model airplane with a lawnmower engine on the 677 00:32:36,720 --> 00:32:38,640 Speaker 2: back or are they going something. 678 00:32:38,840 --> 00:32:44,920 Speaker 10: Further it essentially is, and it's fairly low tech. But 679 00:32:45,680 --> 00:32:49,880 Speaker 10: what's been really successful about these programs is that they're 680 00:32:49,920 --> 00:32:54,280 Speaker 10: increasingly developing them and learning from experiences on the battlefield, 681 00:32:54,360 --> 00:32:58,000 Speaker 10: for example in Ukraine. So what is now believed to 682 00:32:58,000 --> 00:33:03,280 Speaker 10: be the case is that Iran learned from the way 683 00:33:03,360 --> 00:33:06,880 Speaker 10: that Iranian drones were now being able to get into 684 00:33:06,960 --> 00:33:09,920 Speaker 10: Ukraine had increased their effectiveness in the Middle East context. 685 00:33:09,960 --> 00:33:13,560 Speaker 10: So it's increasingly battlefield experience and more and more use 686 00:33:13,600 --> 00:33:17,120 Speaker 10: of these drones that are allowing them to make more 687 00:33:18,000 --> 00:33:21,560 Speaker 10: deadly strikes. Actually in these conflicts. We're seeing them, especially 688 00:33:22,000 --> 00:33:25,240 Speaker 10: in the Red Sea. And also there was the particular 689 00:33:25,320 --> 00:33:29,600 Speaker 10: case of the three servicemen who were killed in Jordan 690 00:33:30,000 --> 00:33:34,560 Speaker 10: earlier this year. It was a fairly low tech small drone, 691 00:33:34,640 --> 00:33:37,360 Speaker 10: but what it was able to do is we learned 692 00:33:37,520 --> 00:33:40,440 Speaker 10: in the course of this reporting that it was kind 693 00:33:40,480 --> 00:33:44,600 Speaker 10: of drafting in behind a US drone that was attempting 694 00:33:44,600 --> 00:33:46,800 Speaker 10: to land at the same time. And those drafting techniques 695 00:33:46,800 --> 00:33:49,560 Speaker 10: are something that they've been working on improving in the 696 00:33:49,680 --> 00:33:54,880 Speaker 10: Russian and Ukrainian context. So this kind of learning growing 697 00:33:55,000 --> 00:34:00,240 Speaker 10: proliferating technology using low tech technology, but actually improving its 698 00:34:00,240 --> 00:34:02,160 Speaker 10: effectiveness is actually proving very deadly. 699 00:34:02,600 --> 00:34:03,600 Speaker 5: What can we do about this? 700 00:34:05,120 --> 00:34:08,600 Speaker 10: So the US has export controls where we try to 701 00:34:08,640 --> 00:34:12,600 Speaker 10: stop US technology from going into these drones and into 702 00:34:12,640 --> 00:34:16,120 Speaker 10: the manufacturing of these drones. The issue, though, is that 703 00:34:16,840 --> 00:34:19,799 Speaker 10: Iran in particular has become a master of circumventing, you know, 704 00:34:19,840 --> 00:34:24,000 Speaker 10: over forty years of sanctions. There are very developed networks 705 00:34:24,040 --> 00:34:26,319 Speaker 10: where front companies from all over the world are able 706 00:34:26,360 --> 00:34:30,719 Speaker 10: to acquire this low tech technology at uh. A lot 707 00:34:30,760 --> 00:34:33,400 Speaker 10: of our export controls are aimed at stopping sort of 708 00:34:33,440 --> 00:34:35,560 Speaker 10: the higher end you know, chips now going to China 709 00:34:35,600 --> 00:34:40,480 Speaker 10: for example, for their AI, but in fact the proliferation 710 00:34:40,600 --> 00:34:42,920 Speaker 10: of kind of lower tech you know, you need like 711 00:34:43,239 --> 00:34:45,839 Speaker 10: maybe a few hundred low tech chips, the kind that 712 00:34:46,280 --> 00:34:49,400 Speaker 10: go into your you know, lawnmower or you or blender 713 00:34:49,440 --> 00:34:52,480 Speaker 10: or any kind of regular household equipment. That low tech 714 00:34:52,520 --> 00:34:55,279 Speaker 10: stuff is actually what's powering the drones as well. And 715 00:34:55,320 --> 00:34:58,080 Speaker 10: a lot of that is just available, it's recycled from 716 00:34:58,200 --> 00:35:02,520 Speaker 10: old products, it's uh available from suppliers in Asia. China 717 00:35:02,600 --> 00:35:06,520 Speaker 10: in particular has not been willing to enforce our US 718 00:35:06,520 --> 00:35:11,680 Speaker 10: export controls against Russia, for example, So there's actually a 719 00:35:11,800 --> 00:35:14,680 Speaker 10: very big loophole, particularly in Asia, for US tech flowing 720 00:35:14,719 --> 00:35:18,719 Speaker 10: now into Russia into a run drone program in Russia. 721 00:35:18,920 --> 00:35:21,000 Speaker 10: So there are a bunch of concerted efforts now to 722 00:35:21,040 --> 00:35:22,080 Speaker 10: try to make that stop. 723 00:35:22,680 --> 00:35:26,040 Speaker 2: Sheridan, Do we know how effective these drones are? 724 00:35:28,040 --> 00:35:31,439 Speaker 10: So they've been very deadly in particular instances. What we've 725 00:35:31,480 --> 00:35:35,680 Speaker 10: seen is a halt to I forget the percentage, maybe 726 00:35:35,719 --> 00:35:39,319 Speaker 10: more than fifty percent of shipping in the Red Sea 727 00:35:39,480 --> 00:35:42,520 Speaker 10: has been halted by some drone attacks in the past 728 00:35:42,520 --> 00:35:46,520 Speaker 10: few months. We've saw the deadly attack in Lebanon and 729 00:35:46,560 --> 00:35:49,600 Speaker 10: several other very effective drone strikes as well, and so 730 00:35:49,960 --> 00:35:53,960 Speaker 10: it's really cause for alarm in Washington. You know, we're 731 00:35:54,000 --> 00:35:56,400 Speaker 10: wondering how far this is going to go, how effective 732 00:35:57,040 --> 00:36:00,080 Speaker 10: this is, our efforts at stopping it are going to be. 733 00:36:00,560 --> 00:36:03,640 Speaker 10: You know, we're considering kind of how do you actually 734 00:36:04,440 --> 00:36:08,600 Speaker 10: get US companies to stop allowing their technology to go there. 735 00:36:08,600 --> 00:36:12,160 Speaker 10: And the companies that we talked to, for example, Texas Instruments, 736 00:36:12,200 --> 00:36:15,759 Speaker 10: Analog Devices, a lot of their stuff at least eighty 737 00:36:15,760 --> 00:36:18,640 Speaker 10: percent of the drones that are turning up in Ukraine 738 00:36:18,960 --> 00:36:22,320 Speaker 10: or containing this US technology from in particularly these companies 739 00:36:22,600 --> 00:36:25,759 Speaker 10: and a few others as well. How do you get 740 00:36:25,760 --> 00:36:29,880 Speaker 10: that to stop and therefore decrease Iran's ability to proliferate. 741 00:36:30,000 --> 00:36:31,879 Speaker 10: And that's the biggest question right now. 742 00:36:31,920 --> 00:36:33,040 Speaker 5: What did those companies say. 743 00:36:34,239 --> 00:36:37,359 Speaker 10: The companies say that that we ad by by US 744 00:36:37,360 --> 00:36:40,960 Speaker 10: export controls. We have our insisted our suppliers do so 745 00:36:41,040 --> 00:36:43,800 Speaker 10: as well. The issue is that there's so many loopholes, 746 00:36:43,800 --> 00:36:46,080 Speaker 10: and in particular Hong Kong is proving to be a 747 00:36:46,200 --> 00:36:50,120 Speaker 10: very difficult place. It used to be maybe ten, twelve, 748 00:36:50,239 --> 00:36:52,839 Speaker 10: fifteen years ago, we had much better relations with Hong Kong. 749 00:36:53,280 --> 00:36:56,600 Speaker 10: They would have been a lot closer to Western interests. 750 00:36:56,600 --> 00:36:58,920 Speaker 10: And now with the changes that have happened in Hong 751 00:36:59,000 --> 00:37:02,399 Speaker 10: Kong and the last three four years, we have seen 752 00:37:02,520 --> 00:37:05,000 Speaker 10: less willingness on the part of Hong Kong officials to 753 00:37:06,120 --> 00:37:09,960 Speaker 10: actually enforce US export controls, particularly going towards Russia, and 754 00:37:10,000 --> 00:37:15,800 Speaker 10: so we've seen a big uptick in proliferation from equipment 755 00:37:15,840 --> 00:37:19,400 Speaker 10: going via Hong Kong into Russia, for example. It is 756 00:37:19,520 --> 00:37:23,120 Speaker 10: much better though at enforcing UN sanctions against Iran, and 757 00:37:23,160 --> 00:37:25,200 Speaker 10: so it has successfully stopped a lot of technology going 758 00:37:25,200 --> 00:37:27,120 Speaker 10: to run. But still there are quite a few kind 759 00:37:27,160 --> 00:37:30,480 Speaker 10: of leaks in the dam basically, so it's happening all 760 00:37:30,480 --> 00:37:31,640 Speaker 10: around all right. 761 00:37:31,640 --> 00:37:34,400 Speaker 4: Shardon, thanks a lot, We really appreciate it. Sharon impress 762 00:37:34,440 --> 00:37:37,640 Speaker 4: so Bloomberg News Senior Investigations a writer, and I highly 763 00:37:37,680 --> 00:37:39,360 Speaker 4: recommend that everyone read her piece. 764 00:37:39,960 --> 00:37:40,759 Speaker 5: You can find the. 765 00:37:40,719 --> 00:37:43,959 Speaker 4: Story on Bloomberg and at Bloomberg dot com, slash Big Take, 766 00:37:44,320 --> 00:37:46,960 Speaker 4: check out the Bloomberg Big Take podcast at Bloomberg dot 767 00:37:47,000 --> 00:37:48,520 Speaker 4: com and wherever you. 768 00:37:48,440 --> 00:37:50,680 Speaker 5: Get your podcasts. I love how like, how do you 769 00:37:50,719 --> 00:37:52,160 Speaker 5: get turned on to all these stories? 770 00:37:52,239 --> 00:37:54,239 Speaker 4: Right? Because you're investigative reporter, it can go to so 771 00:37:54,239 --> 00:37:56,520 Speaker 4: many different directions. But what an amazing piece of work 772 00:37:56,520 --> 00:38:00,440 Speaker 4: and something that isn't We're working on it like an 773 00:38:00,440 --> 00:38:02,200 Speaker 4: easy quick fix. 774 00:38:02,080 --> 00:38:04,480 Speaker 2: No no, and on this story that there is the 775 00:38:04,480 --> 00:38:07,840 Speaker 2: Big Take podcast hosted co hosted by David Gura, and 776 00:38:07,920 --> 00:38:09,960 Speaker 2: they're featuring this story. So you can go check out 777 00:38:10,000 --> 00:38:11,920 Speaker 2: that podcast. Just fascinating stuff. 778 00:38:13,400 --> 00:38:17,280 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 779 00:38:17,360 --> 00:38:20,880 Speaker 1: weekdays at ten am Eastern on applecard Play and Android 780 00:38:20,920 --> 00:38:23,680 Speaker 1: Auto with the Bloomberg Business app. You can also listen 781 00:38:23,800 --> 00:38:26,920 Speaker 1: live on Amazon Alexa from our flagship New York station, 782 00:38:27,280 --> 00:38:30,040 Speaker 1: Just Say Alexa Play Bloomberg eleven thirty. 783 00:38:31,239 --> 00:38:32,759 Speaker 2: A lot of folks are saying, you know, as I 784 00:38:32,800 --> 00:38:34,560 Speaker 2: look at the market here off a half a one percent, 785 00:38:34,640 --> 00:38:37,440 Speaker 2: is Jonas's reporting that what this market needs is a 786 00:38:37,600 --> 00:38:42,360 Speaker 2: you know, a more I guess bigger pullback, maybe five percent, 787 00:38:42,360 --> 00:38:44,160 Speaker 2: ten percent, something like that, that that would not be 788 00:38:44,239 --> 00:38:46,600 Speaker 2: the worst thing for this market, but we have not 789 00:38:46,800 --> 00:38:50,239 Speaker 2: seen that in some time. Again, SMP up more than 790 00:38:50,280 --> 00:38:53,080 Speaker 2: twenty five percent off of those October lows. Let's check 791 00:38:53,120 --> 00:38:56,760 Speaker 2: in with a professional now, Nancy Daoud. She is private 792 00:38:56,800 --> 00:39:00,920 Speaker 2: wealth advisor at Amorprice Financial, joining us from Miami, Florida 793 00:39:01,000 --> 00:39:03,640 Speaker 2: via zoom. Nancy, thanks so much for joining us here. 794 00:39:04,120 --> 00:39:06,239 Speaker 2: I mean, what are you telling your clients here? Is 795 00:39:06,280 --> 00:39:09,160 Speaker 2: it just up up in a way here for risk assets? 796 00:39:10,280 --> 00:39:14,160 Speaker 11: Well, that's a great question, because you know, everybody wants 797 00:39:14,200 --> 00:39:17,000 Speaker 11: to talk about how great the market is, and what 798 00:39:17,120 --> 00:39:21,000 Speaker 11: I'm what we're really telling our clients is essentially to 799 00:39:21,040 --> 00:39:24,440 Speaker 11: be very very cautious because people get too used to 800 00:39:24,520 --> 00:39:27,600 Speaker 11: this and they expect it to just continue forever. And 801 00:39:27,760 --> 00:39:33,200 Speaker 11: up markets don't last, and neither do down markets, you know, obviously, 802 00:39:33,640 --> 00:39:36,840 Speaker 11: And I think this is the opportunity for us to 803 00:39:36,880 --> 00:39:38,920 Speaker 11: sit down with our clients and talk about well, what 804 00:39:39,000 --> 00:39:42,600 Speaker 11: are your shorter term cash needs, because there's no better 805 00:39:42,680 --> 00:39:45,359 Speaker 11: time to just take some money off the table and 806 00:39:46,080 --> 00:39:49,960 Speaker 11: board it for those immediate cash needs, anything in the 807 00:39:50,000 --> 00:39:53,759 Speaker 11: one to the next one to three years, this is 808 00:39:54,160 --> 00:39:56,600 Speaker 11: the time to do it. And I believe also that 809 00:39:56,600 --> 00:39:58,759 Speaker 11: that's probably what we're seeing. I mean, we saw a 810 00:39:58,800 --> 00:40:01,960 Speaker 11: couple of days of downturns in the last week, and 811 00:40:02,640 --> 00:40:05,560 Speaker 11: of course now that's happening again. I think a good 812 00:40:05,640 --> 00:40:08,680 Speaker 11: chunk of that could very well be some profit taking. 813 00:40:09,760 --> 00:40:11,880 Speaker 2: Yeah, absolutely, but we just you know, a lot of 814 00:40:11,880 --> 00:40:15,279 Speaker 2: folks again expect to see more pronounced profit taking than 815 00:40:15,320 --> 00:40:18,160 Speaker 2: what we've seen recently. And one of the issues is, 816 00:40:18,239 --> 00:40:20,600 Speaker 2: you know, for by and large, this is a market 817 00:40:20,640 --> 00:40:23,040 Speaker 2: really in twenty twenty three and continuing to some degree 818 00:40:23,040 --> 00:40:26,000 Speaker 2: this year, has really been led by those big tech names. 819 00:40:26,000 --> 00:40:29,400 Speaker 2: I know there's some laggards like Apple, like Tesla, but 820 00:40:29,440 --> 00:40:31,440 Speaker 2: the big tech names have still been kind of leading 821 00:40:31,480 --> 00:40:34,120 Speaker 2: the way. Is that still going to be the case? 822 00:40:34,160 --> 00:40:36,680 Speaker 2: Is that you're do you think tech is still the 823 00:40:36,760 --> 00:40:37,840 Speaker 2: leader in this market? 824 00:40:39,200 --> 00:40:44,080 Speaker 11: Well, longer term, certainly, yes, But just more recently it's 825 00:40:44,120 --> 00:40:46,400 Speaker 11: been nice to see a broadening of the market a 826 00:40:46,480 --> 00:40:51,520 Speaker 11: little bit. We've seen financials do really well, healthcare continues 827 00:40:51,520 --> 00:40:56,120 Speaker 11: to do well. Energy obviously is catching up a bit, 828 00:40:56,280 --> 00:41:00,000 Speaker 11: and mostly because of the geopolitical environment that we're in, 829 00:41:00,040 --> 00:41:03,000 Speaker 11: and we're seeing a little bit of the broadening of 830 00:41:03,040 --> 00:41:06,920 Speaker 11: the market, which helps in that sentiment a little bit. 831 00:41:06,960 --> 00:41:10,719 Speaker 11: You'd never want just one sector to dominate, you know, 832 00:41:10,760 --> 00:41:14,040 Speaker 11: to make or break the market. But longer term, certainly 833 00:41:14,120 --> 00:41:18,520 Speaker 11: technology is the next boom, or the AI really is 834 00:41:18,560 --> 00:41:20,480 Speaker 11: the next boom. And if you're in it for the 835 00:41:20,520 --> 00:41:24,080 Speaker 11: longer term, meaning seven to ten years or longer, what 836 00:41:24,320 --> 00:41:26,200 Speaker 11: opportunity do. 837 00:41:26,160 --> 00:41:28,600 Speaker 4: You feel in the shorter term? Do you feel confident 838 00:41:29,120 --> 00:41:32,080 Speaker 4: that the broadening out will continue throughout this earning season. 839 00:41:33,640 --> 00:41:37,160 Speaker 11: Well, you know, I think there's quite a few variables 840 00:41:37,160 --> 00:41:41,160 Speaker 11: that may or may not affect that, and that's the 841 00:41:41,200 --> 00:41:44,279 Speaker 11: persistent inflation. I mean, getting to two percent, I think 842 00:41:44,400 --> 00:41:47,000 Speaker 11: is going to be a lot tougher than everyone thinks 843 00:41:47,920 --> 00:41:51,000 Speaker 11: because the progression or the progress that we've made in 844 00:41:51,000 --> 00:41:53,880 Speaker 11: the last couple of years has been, you know, pretty 845 00:41:53,920 --> 00:41:56,560 Speaker 11: much on track, but it's always that home stretch that 846 00:41:56,640 --> 00:42:01,960 Speaker 11: takes a little longer and with a significant more I 847 00:42:02,000 --> 00:42:06,239 Speaker 11: know everybody's been very bullish about rate cuts happening you know, 848 00:42:06,719 --> 00:42:09,840 Speaker 11: next month, or we don't believe that that's going to 849 00:42:09,920 --> 00:42:12,560 Speaker 11: happen anytime soon, and if it does, it won't be 850 00:42:12,680 --> 00:42:15,560 Speaker 11: until the latter part of the year. I mean, we're 851 00:42:15,560 --> 00:42:19,279 Speaker 11: seeing mortgage rates actually going up at this time, and 852 00:42:20,200 --> 00:42:23,239 Speaker 11: the reality is sinking in, you know, and that is 853 00:42:23,280 --> 00:42:28,520 Speaker 11: that although inflation is no longer increasing or going up 854 00:42:29,040 --> 00:42:32,600 Speaker 11: as much, you know, this is the new normal. Prices 855 00:42:32,640 --> 00:42:35,800 Speaker 11: are the way they are now. They are not going back, 856 00:42:36,560 --> 00:42:39,040 Speaker 11: and there's a little bit of an adjustment to that. 857 00:42:39,760 --> 00:42:43,000 Speaker 2: Yeah, Hey, Nancy, my co host here, Alex is a 858 00:42:43,080 --> 00:42:45,759 Speaker 2: expert in the field of all things energy. What do 859 00:42:45,800 --> 00:42:48,560 Speaker 2: you think about that sector right now with Brent crude 860 00:42:48,560 --> 00:42:50,360 Speaker 2: at you know, close to ninety dollars a barrel. 861 00:42:52,000 --> 00:42:56,920 Speaker 11: Well, typically we always see energy as an opportunity during 862 00:42:57,480 --> 00:43:01,360 Speaker 11: a time of geopolitical risk, which we certainly have right now. 863 00:43:02,200 --> 00:43:08,200 Speaker 11: So since October when the Israel the Middle East war started, 864 00:43:08,880 --> 00:43:12,440 Speaker 11: then we begin to buy some energy or ETFs mainly, 865 00:43:13,040 --> 00:43:16,279 Speaker 11: and that's that's when we saw a big uptick, but 866 00:43:16,360 --> 00:43:20,080 Speaker 11: then it kind of came down. Now it's really pulling 867 00:43:21,280 --> 00:43:24,440 Speaker 11: going up again. So this is you know, oil prices 868 00:43:24,480 --> 00:43:27,160 Speaker 11: are always something to watch during a time when there's 869 00:43:27,239 --> 00:43:30,719 Speaker 11: a lot of geopolitical risk and we have a war 870 00:43:30,760 --> 00:43:34,160 Speaker 11: in Europe and we have some going on in Southeast Asia. 871 00:43:34,200 --> 00:43:35,600 Speaker 11: I mean, it's it's on every front. 872 00:43:36,000 --> 00:43:39,480 Speaker 4: So based on that, I mean, I appreciate that the 873 00:43:39,480 --> 00:43:41,080 Speaker 4: oil trade is there for that. Do you think the 874 00:43:41,160 --> 00:43:43,520 Speaker 4: gold is moving along the same lines as that or 875 00:43:43,520 --> 00:43:44,959 Speaker 4: do you think gold is moving on its own because 876 00:43:45,000 --> 00:43:46,719 Speaker 4: no one kind of really gets what's going on there. 877 00:43:48,080 --> 00:43:52,239 Speaker 11: Well, that's hard to predict, but it doesn't appear that 878 00:43:52,320 --> 00:43:56,279 Speaker 11: they're moving together. I think they're probably kind of on 879 00:43:56,360 --> 00:43:58,160 Speaker 11: its own. Gold is probably on its own a bit. 880 00:43:58,760 --> 00:44:01,759 Speaker 4: Yeah, it's interesting when we talk about save Haven's Paul right, Yeah, 881 00:44:01,960 --> 00:44:04,640 Speaker 4: is that what's happening? Okay, we're going to play stuff, 882 00:44:04,640 --> 00:44:06,520 Speaker 4: but we're going to go save Haven as gold or 883 00:44:06,560 --> 00:44:07,120 Speaker 4: is it something? 884 00:44:08,080 --> 00:44:08,319 Speaker 6: Yeah? 885 00:44:08,360 --> 00:44:10,600 Speaker 2: And you know the central banks that we had a 886 00:44:10,600 --> 00:44:12,680 Speaker 2: guest this morning, Tom Keenan and I and really talking 887 00:44:12,680 --> 00:44:14,880 Speaker 2: about the central banks around the world kind of concerted 888 00:44:15,520 --> 00:44:19,520 Speaker 2: buying there, including China NATSI just lastly broke real quick, 889 00:44:19,760 --> 00:44:21,480 Speaker 2: what are you looking for in earnings? We're going to 890 00:44:21,520 --> 00:44:24,399 Speaker 2: get earnings kicking off in Earnest this week here. 891 00:44:26,080 --> 00:44:29,360 Speaker 11: We're expecting to see more of the same, it wouldn't 892 00:44:29,400 --> 00:44:33,120 Speaker 11: be unusual to see a little bit of some pullback 893 00:44:33,280 --> 00:44:37,880 Speaker 11: or you know, not maybe not as strong. But you know, 894 00:44:37,920 --> 00:44:41,320 Speaker 11: it's interesting that it's always about expectations. If we expect 895 00:44:41,360 --> 00:44:43,840 Speaker 11: earnings to be really strong and they come up weaker, 896 00:44:44,239 --> 00:44:48,400 Speaker 11: the market reacts violently. And if the market if I'm sorry, 897 00:44:48,400 --> 00:44:52,520 Speaker 11: if earnings are expected to be weak and they come 898 00:44:52,520 --> 00:44:56,200 Speaker 11: out really strong, the market, you know, reacts violently also. 899 00:44:56,560 --> 00:44:59,640 Speaker 11: So it really all has to do with expectations, not 900 00:44:59,680 --> 00:45:02,600 Speaker 11: so much much about the real numbers. And you know, 901 00:45:03,160 --> 00:45:07,640 Speaker 11: when we put together portfolios and make recommendations for clients, 902 00:45:08,160 --> 00:45:11,440 Speaker 11: it's really about the math, not about sentiment. You've got 903 00:45:11,480 --> 00:45:13,359 Speaker 11: to always go back to the math because the math 904 00:45:13,400 --> 00:45:14,640 Speaker 11: are always rules in the end. 905 00:45:14,840 --> 00:45:17,000 Speaker 2: Yep, Nancy, thank you so much for joining us at 906 00:45:17,080 --> 00:45:21,600 Speaker 2: Nancy Dude President. She's a private wealth advisor at Amerorprise Financial. 907 00:45:22,080 --> 00:45:26,600 Speaker 1: This is the Bloomberg Intelligence Podcast, available on apples, Spotify, 908 00:45:26,800 --> 00:45:29,720 Speaker 1: and anywhere else you will get your podcasts. Listen live 909 00:45:29,800 --> 00:45:33,400 Speaker 1: each weekday ten am to noon Eastern on Bloomberg dot com, 910 00:45:33,520 --> 00:45:36,920 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 911 00:45:37,040 --> 00:45:40,200 Speaker 1: You can also watch us live every weekday on YouTube 912 00:45:40,239 --> 00:45:42,120 Speaker 1: and always on the Bloomberg Terminal