Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you,
Speaker 1: along with my co host Lisa Brahma wits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Well, we've certainly become accustomed to
Speaker 1: volatility and the financial markets UH and across the fixed
Speaker 1: income markets in particular. Here to get a sense of
Speaker 1: kind of how we should be thinking about investing in
Speaker 1: fixed income markets over the next several quarters, we welcome
Speaker 1: Mark Holman, CEO of twenty four Asset Management with about
Speaker 1: twenty three billion dollars under management. We appreciate Mark joining us. Mark,
Speaker 1: thanks so much for joining us here. So as we
Speaker 1: think about these markets here, I want to start with
Speaker 1: kind of what your backdrop is, what your construct is
Speaker 1: for the economy going forward. Is this a a kind
Speaker 1: of a a V shaped recovery here or should we
Speaker 1: be preparing for lower for longer in terms of economic activity? Yeah,
Speaker 1: I think undoubtedly I'd be going for lower for longer
Speaker 1: in terms of economic activity. I think the the end
Speaker 1: of the last cycle ending with a surprise, as they
Speaker 1: often do, but this surprise was global. When you've got
Speaker 1: a global surprise that h's every part of the globe
Speaker 1: at the same time, I think it the impact is
Speaker 1: just that much more significant, and it's going to hit
Speaker 1: the both the supply side and the demand side, and
Speaker 1: I think it just takes a lot longer to recover.
Speaker 1: These incredible aid programs that we've got around the world,
Speaker 1: whilst enormous in spise, logistically just won't reach everybody, but
Speaker 1: there's there's some long term damage to them on which
Speaker 1: in my view means we're going to be spending probably
Speaker 1: the best part of two years to get ourselves back
Speaker 1: towards a QUE for nineteen type production level. Mark I'm
Speaker 1: struck it and saw a lot of people about the
Speaker 1: disconnect in the slow recovery that a lot of economists
Speaker 1: and analysts are seeing and stock markets, which seem relatively
Speaker 1: unfazed by this whole issue, at least based on the
Speaker 1: rally that we have seen over the past month. This
Speaker 1: morning we have Goldman Sachs coming out and saying that
Speaker 1: at one point these realities are going to converge and
Speaker 1: that stocks are poised to drop about over the next
Speaker 1: three months. Do you agree. I think when you look
Speaker 1: at fundamental you have to agree that the market has
Speaker 1: really really raised ahead and then it's really pricing in.
Speaker 1: It's actually described a somewhat of a V shaped recovery.
Speaker 1: Um So I think you're fundamentally probably quite hard to
Speaker 1: justify where we are here. However, technically I don't think
Speaker 1: we're getting a full picture. The full picture does include
Speaker 1: the incredible amounts of money poured in by the FED
Speaker 1: and other institutions around the world, and we know they
Speaker 1: find these volumes of cash find their way into financial markets,
Speaker 1: and that these volumes of cash are going to be
Speaker 1: there for the foreseeable I think investors are saying, well,
Speaker 1: the FAD behind us, or the ECBs behind us, sort
Speaker 1: of Bank of Englands behind us, and if it's going
Speaker 1: to be action done in the in the US has
Speaker 1: been has been very very broad. So I think that
Speaker 1: as I've got confidence from that, and I think that
Speaker 1: liquidity in the market is making it a very very
Speaker 1: painful rally. Indeed, it's it's a squeeze so market, you know,
Speaker 1: in terms of the credit markets. Here, we're starting to
Speaker 1: see some bankruptcies and defaults kind of start trickling in
Speaker 1: across the tape here. How do you think this is
Speaker 1: going to play out? As you take a look at
Speaker 1: the credit quality out there in the markets that you
Speaker 1: look at, I mean, credit quality is no doubt going
Speaker 1: to deteriorate pretty much across the board. There'll be very
Speaker 1: very few businesses that will improve their credit quality. And
Speaker 1: while this is going on and now over the last
Speaker 1: decade or so, we've been somewhat immunized from them deteriorating
Speaker 1: credit quality by the by the actions from UH in
Speaker 1: cential banks and government. This h it is just too big.
Speaker 1: I think we're going to see a material spike in
Speaker 1: the default rate. It's very very hard to predict exactly
Speaker 1: what it's going to be in the in the in
Speaker 1: the world of rated securities, we well, we know that
Speaker 1: the individual consumers are going to have problems because they
Speaker 1: won't reach them. Sm evil that problems because they won't
Speaker 1: reach them. And in the end, this does affect the
Speaker 1: larger companies too. It's been quite remarkable how quickly some
Speaker 1: of those companies have run out of money. I mean,
Speaker 1: you know, I'm gonna stick my neck out and say
Speaker 1: I wouldn't be surprised to see at global for thult
Speaker 1: rate by the end of this year approaching ten totally
Speaker 1: two and a half of the end of last year.
Speaker 1: So it's a really quite a big move. Where are
Speaker 1: you hiding mark, where are you investing? Well, it's it's
Speaker 1: tricky in the corporate world. Really, there's a long list
Speaker 1: of sectors I think you really need to try to avoid,
Speaker 1: and you know, whether it be metals, mining, energy, which
Speaker 1: are sort of late cycle names that you don't want
Speaker 1: to on late cycle sectors um. And then there's the
Speaker 1: ones which perhaps more impacted by the current situation, where
Speaker 1: you travel, leisure, retail, of course, an automotive. I think
Speaker 1: that those are the kind of areas to avoid and
Speaker 1: where you can, I think you focus on sectors that
Speaker 1: are more resilient obviously, but you know where the balance
Speaker 1: sheets to the companies are more resilient or regulated, there's
Speaker 1: more visible learning. So I would say, contrary perhaps to
Speaker 1: the to the last recession, let's look at banking, Let's
Speaker 1: look at financial insurance as an incredible way of repricing itself.
Speaker 1: The banks have got very resilient balance sheets thanks to
Speaker 1: the terrific work work done by the authorities or and
Speaker 1: utility you generally regulated much more solid balance sheet in
Speaker 1: each of these industries are all open for business today.
Speaker 1: We're all still paying the bank interest, we're all still
Speaker 1: taking our insurances that we're all still using these utilities.
Speaker 1: So they've they've got the resilient balance sheets and then
Speaker 1: they've got more visible learning. So I think that that
Speaker 1: the list of sex is pretty small, but there's they're
Speaker 1: quite broad. There's quite a few companies that you can
Speaker 1: still invest with there with a lot of confidence. Mark Holeman,
Speaker 1: thank you so much for being with us. Mark Coleman,
Speaker 1: chief executive officer of twenty four Asset Management based in London,
Speaker 1: with twenty three billion dollars of assets under management. And
Speaker 1: I'm struck by the idea that insurance companies and banks
Speaker 1: will be behavens this time around. It just sort of
Speaker 1: highlights how different this particular crisis is than the last one. Paul, Yeah, exactly.
Speaker 1: When you're thinking about the you know, the big money
Speaker 1: center banks and being bailed out and the A I. G.
Speaker 1: S of the world, and so as we've heard, you know,
Speaker 1: time and time again, this is very, very different. This
Speaker 1: is an external shock of pandemic medical issue, healthcare issue,
Speaker 1: not something endemic to the financial system per se. We've
Speaker 1: been talking a lot about the pain in the developing
Speaker 1: world as that area sees a disproportionate hit from the
Speaker 1: removal of financing from the likes of the United States
Speaker 1: and Europe. Here to speak with us, we are so
Speaker 1: pleased to say, is the seminal expert on this area.
Speaker 1: Bill Rhodes, President and chief executive officer of the William
Speaker 1: Our Rhodes Global Advisors, former City Bank chairman, also one
Speaker 1: of the key architects of the restructuring efforts in Latin
Speaker 1: America during the ninth nineties, and the author of the
Speaker 1: book Banker to the World. Bill, thank you so much
Speaker 1: for being back with us. I know that you see
Speaker 1: potentially a crisis in emerging markets that exceeds what we
Speaker 1: have seen in recent history. I want to sort of
Speaker 1: focus in on some of the hotspots, starting with Argentina.
Speaker 1: Argentina on the brink of defaulting once again. Is there
Speaker 1: a threshold for how many times a country kind default
Speaker 1: and what the consequences will be? Anyway, First of all,
Speaker 1: it's great to be on with you, Lisa. Well, Uh,
Speaker 1: I would say in a case of Argentina, they they've
Speaker 1: defaulted eight times in their history. I was structured them
Speaker 1: five times, and they're on the brink of our ninth default.
Speaker 1: They were going to declare default today and they moved
Speaker 1: it off to the two for further discussions with the creditors.
Speaker 1: But they need to make a five million dollar payment
Speaker 1: on their eight six million billion dollars of debt that
Speaker 1: they have in addition to the eighties six billion dollars
Speaker 1: of of of of normal debt in the sense of
Speaker 1: sovereign debt UH two creditors. They also have an outstanding
Speaker 1: of somewhere depending on how you look at the disbursements
Speaker 1: between forty seven and fifty billion with the International Monetary Fund.
Speaker 1: So they are they are basically UH the case that's UH,
Speaker 1: I think right at the lands point of what's going
Speaker 1: on in the American emerging markets. So, Bill, I know
Speaker 1: you've you've educated us UH in the past about how
Speaker 1: this is a little bit different this time in that
Speaker 1: the private sector owns a lot of this debt. Here
Speaker 1: is there any indication that the private sector that I
Speaker 1: mean the public sector will hold off on debt collection.
Speaker 1: Here some of these hedge funds and and and investors,
Speaker 1: I think the only ones who've agreed to hold off
Speaker 1: of a sovereign which in the in the Group of
Speaker 1: twenties said they would hold off to the poorest countries
Speaker 1: until the end of the year, but of course it's
Speaker 1: not even clear uh what that'll be after the end
Speaker 1: of the year. They haven't come up with a plan.
Speaker 1: And on the private sector, there are all sorts of
Speaker 1: discussions going on how the private sector and the public
Speaker 1: sector can work together, but at the up up to now,
Speaker 1: there's been nothing on the on the private sector. And
Speaker 1: as you point out, there's a lot of private sector
Speaker 1: debt out there, uh, not only to the sovereign, but
Speaker 1: two companies uh in uh in these various countries. So
Speaker 1: it's it's sort of a perfect storm type situation. It's
Speaker 1: the worst, I would say that situation I've ever seen
Speaker 1: in my lifetime. And everyone's grappling with how to handle
Speaker 1: it because you have this COVID nineteen problem which even
Speaker 1: the experts are not sure how to resolve it other
Speaker 1: than getting a vaccine, which it doesn't look like we're
Speaker 1: going to have until next year. Just to give you
Speaker 1: some perspective as to how deep the pain is. Just
Speaker 1: to give you a sense of the nations that have
Speaker 1: dollar bonds UH that are trading at distress levels. It
Speaker 1: includes Venezuela, Argentina, Lebanon, Ecuador, Zambia, Zambia, Surinam, going all
Speaker 1: the way through it to Nigeria and El Salvador and
Speaker 1: and a host of others. I'm just wondering what you think, bill,
Speaker 1: based on your experience, should be done for this at
Speaker 1: a time when some of these emerging markets are actually
Speaker 1: trying what developed markets are doing and printing money, they're
Speaker 1: just doing quewie, risking more inflation and further capital flight. Right,
Speaker 1: and you're talking about just dollar denominated debt, because you
Speaker 1: have two other phenomena out there. None of these countries,
Speaker 1: particularly Eastern Europe and elsewhere, and some in Africa have
Speaker 1: your dead also so um and a lot of people
Speaker 1: tend not to factor that in. And then of course
Speaker 1: you have a one belt, one road UH Chinese lending
Speaker 1: policies that are outstandings of anywhere, because they're you know,
Speaker 1: it's very obscure as to how the outstanding, what the
Speaker 1: outstandings are, and what the collection arrangements are the credit
Speaker 1: arrangements any the estimate there is anywhere from two hundred
Speaker 1: and forty billion to to five billion. And so I
Speaker 1: think what needs to be done here is the I
Speaker 1: m F and the World Bank have to sit down
Speaker 1: with a group of twenty and try and work out
Speaker 1: some sort of a plan UH, starting on the sovereign side,
Speaker 1: but also try and see if you can get an
Speaker 1: inner link with the private sector, as we did with
Speaker 1: the Brady bonds in the late nineteen eighties in the
Speaker 1: early nineties UH. And the situation here is much much
Speaker 1: worse because there it was an economic debt crisis, but
Speaker 1: you didn't have a health crisis, and so many of
Speaker 1: these countries in the emerging markets don't have decent health systems.
Speaker 1: And then in Latin America exacerbated, you have five million
Speaker 1: Venezuelan refugees UH in Latin America, and that puts at
Speaker 1: risk countries like Colombia, Ecuador, through some of the islands
Speaker 1: in the Caribbean and UH and also northern Brazil UH.
Speaker 1: And I would just say on Brazil is going through
Speaker 1: probably one of the worst periods it's had because they
Speaker 1: just got out of recession. And now they're going to
Speaker 1: go back into recession with five percent negative growth this
Speaker 1: year with the president who doesn't want to recognize that
Speaker 1: COVID nineteen is a problem. So, Bill, you mentioned that
Speaker 1: China a little bit. In China, I know that during
Speaker 1: the last financial crisis two thousand eight, two thousand nine,
Speaker 1: China was there, uh pumped a bunch of money into
Speaker 1: the world economy. Is that still the case now? Can
Speaker 1: some of these emerging markets depend upon liquidity coming from China? Well,
Speaker 1: the reason I mentioned China was you have a phenomenon
Speaker 1: that didn't exist in OH eight and O nine, which
Speaker 1: is one Belt, one road, and all of those outstandings
Speaker 1: are already there. So uh, I think China is in
Speaker 1: a much more difficult position. Plus, their debt has been
Speaker 1: allowed as a starting with their bailout, I would say
Speaker 1: of the world in two thousand and eight two thousand nine,
Speaker 1: where they put into infrastructure and brought commodities from a
Speaker 1: lot of these developing countries to the tune of eight
Speaker 1: hundred billion dollars almost a trillion dollars. And they are
Speaker 1: not going to be a factor today because their own
Speaker 1: as they were then, because of their own Uh. You
Speaker 1: know debt load that they have, and they're going to
Speaker 1: be fighting just to keep the Chinese economy in a
Speaker 1: positive growth mode this year. So the answer to your
Speaker 1: question is they will be important, but they are not
Speaker 1: going to bail us out this time, and they have
Speaker 1: their own problems with the emerging markets, which raises a
Speaker 1: question who's going to take leadership in helping the developing
Speaker 1: world get out of this mess? Well, suppose of league
Speaker 1: people think that the G twenty will get their act together,
Speaker 1: But as you know, they're very fractured. And one of
Speaker 1: the things I give credit to my old friend Gordon
Speaker 1: Brown was when he put everyone together at the London
Speaker 1: conference at the time in two thousand nine, at the
Speaker 1: time of the Great Financial Crisis, everyone agreed to work together.
Speaker 1: We don't even have an arrangement where these G twenty
Speaker 1: countries have agreed to work together on trying to find
Speaker 1: anti virals in a vaccine. So, unfortunately, we're going into
Speaker 1: a period with a very fractured leadership situation in the
Speaker 1: so called developed world and real problems with leadership in
Speaker 1: the developing world. We're speaking with Bill Rhodes, President and
Speaker 1: CEO of William R. Rhodes Global Advisors, former City Bank
Speaker 1: chairman Bill. You know, as we think about you know
Speaker 1: kind of how the the arc of how this virus
Speaker 1: has spread from China to Europe to the US. Um
Speaker 1: you know, there's varying levels of healthcare systems there. But
Speaker 1: me think about in American emerging markets in general, the
Speaker 1: health care systems in most places are just not as
Speaker 1: robust as we've seen in kind of some of the
Speaker 1: Western economies. How bad do you think it's really going
Speaker 1: to get in and just just take Latin America for example,
Speaker 1: I think it could get very bad. I think Brazil
Speaker 1: is an example because they haven't put the money in
Speaker 1: the health system. Argentina is better off in that sense.
Speaker 1: In Chile, Prue is all right to a certain point.
Speaker 1: But what's added to all of this is he's Venezuelan
Speaker 1: refugees that have been forced out of their country. So
Speaker 1: it's it's really the perfect storm that we're looking at here,
Speaker 1: and I think it's going to be very, very difficult.
Speaker 1: And then when you want to look at the COVID situation,
Speaker 1: as you already have mentioned, I think on a prior
Speaker 1: segment here is that you're starting to see new cases
Speaker 1: again in places like South Korea, which thought they had
Speaker 1: gotten rid of it, Singapore. Uh, even some case is
Speaker 1: now reappearing in China. And this is not even taking
Speaker 1: to account the so called famous second wave, which is
Speaker 1: supposed to hit us in the fall, because we won't
Speaker 1: have a vaccine by then, and it will be it's
Speaker 1: not clear if we'll have an anti viral either by then.
Speaker 1: Uh and so uh. If you want to pattern this
Speaker 1: somewhat on the Spanish flu, it was the second wave
Speaker 1: that was the most destructive, more so than the first wave.
Speaker 1: And I think that's part of the problem, the fractured leadership,
Speaker 1: even on an issue like COVID nineteen bill. We've talked
Speaker 1: a lot about how the amount of emerging market debt
Speaker 1: has tripled by some counts in the past decade or so,
Speaker 1: and I'm just wondering who's going to bear the brunt
Speaker 1: of the losses if there is a mass for structuring
Speaker 1: like the one that you're calling for an order to
Speaker 1: remedy the situation. Well, I think for governments who have lent, uh,
Speaker 1: it's much easier to a SOB, But for the private sectors,
Speaker 1: lent is going to be very, very difficult. You're gonna
Speaker 1: have a lot of bankruptcies. I think there would be
Speaker 1: some real hits uh to various institutions that have taken
Speaker 1: on all this that and you too remember, well, I've
Speaker 1: been on your show for years wondering, you know, wondering
Speaker 1: when this was going to hit because of the reach
Speaker 1: and search for yield that we've seen, and so there's
Speaker 1: so much exposure out there, uh, and a lot of
Speaker 1: this is going to come home to roots. So I
Speaker 1: think it's we're in a very difficult period. So my
Speaker 1: hope is that the G twenty can get its act together,
Speaker 1: both on a financial basis and on a health basis. Uh.
Speaker 1: And that's what I think we desperately need, or we're
Speaker 1: going to go through a very very difficult period over
Speaker 1: the next two years. Bill, thanks so much for joining us.
Speaker 1: We really appreciate your perspective. As always, when we talk
Speaker 1: about the emerging markets and some of the credit challenges arising,
Speaker 1: there's no one better to speak to than Bill Rhodes,
Speaker 1: President CE of William R. Rhodes Global Advisors, former chairman
Speaker 1: of City Bank, with tons of X variance years of
Speaker 1: experience dealing with emerging markets Latin America in particular and
Speaker 1: some of their fiscal challenges over the years. So at leasta,
Speaker 1: it just sounds like there's much more pain for the
Speaker 1: emerging markets, the company, the countries themselves, the people as
Speaker 1: well as the investors in those markets. Yeah, and just
Speaker 1: to sort of highlight how much debt these companies, companies
Speaker 1: and countries have, you know, hundreds of billions of dollars
Speaker 1: that they have incurred over recent years, and there's a
Speaker 1: question who's going to bear the losses? And some people saying, well,
Speaker 1: you know, it's time to reinvest in some of these
Speaker 1: areas because of the yields being offered. Yet you have
Speaker 1: to wonder what the capital flight will be like as
Speaker 1: the defaults really pick up lesa. You know, I grew
Speaker 1: up within a household where my parents were children of
Speaker 1: the depression, and it really impacted even you know, all
Speaker 1: through my childhood kind of how they viewed life in
Speaker 1: terms of money and you know, food security and all
Speaker 1: these things. And I think, you know, it was such
Speaker 1: a such a significant impact on their lives that really,
Speaker 1: I think impact of them their entire lives. And some
Speaker 1: folks are questioning whether this pandemic will have a similar
Speaker 1: effect on some of the young folks today and what
Speaker 1: it means for consumer behavior and will the consumer actually
Speaker 1: come back and and spend an act uh, coming out
Speaker 1: of the pandemic as they did going into the pandemic.
Speaker 1: Christopher Condent, he's a Federal Reserve reporter for Bloomberg News
Speaker 1: joining US Washington, d C. Christopher, thanks so much. I
Speaker 1: know you kind of had a really interesting story Scarred
Speaker 1: and Scared the reshaping of American consumer begins. This is really, uh,
Speaker 1: I think fascinating story. What did you find out? Thank you, Paul. Yeah,
Speaker 1: you know, um, I think we're compared to any expectations
Speaker 1: for a quick return of the American consumer, there's not
Speaker 1: a lot of evidence to support that that would be
Speaker 1: the case, simply because the consumer is getting hit on
Speaker 1: really multiple levels. This story that I wrote about addresses
Speaker 1: three levels, where first of all, the most obvious is
Speaker 1: that a lot of people are losing their income, so
Speaker 1: it's not about their willingness to spend, but their ability
Speaker 1: to spend, and that's going to be severely damaged and
Speaker 1: probably in many cases for quite a while. But then
Speaker 1: moving even beyond that, we know from past experience, and
Speaker 1: you brought up the great depression, which I also talked
Speaker 1: about in that story. Um, there is a knock on effect.
Speaker 1: It's not just for those people that lose their job
Speaker 1: and lose income, but when you see neighbors and friends
Speaker 1: and family members affected. It also we know from the
Speaker 1: past experience can affect people's spending habits. They get a
Speaker 1: little bit more cautious. Uh. And and you know what
Speaker 1: I thought was really interesting. The economists that I spoke
Speaker 1: to brought up again and again that this is the
Speaker 1: second time in the space of about twelve years where
Speaker 1: we're hearing this is the worst the session since the
Speaker 1: Great Depression, and that really can begin We don't know.
Speaker 1: This is a bit speculative, but that can really affect
Speaker 1: the psyche of people as workers, as consumers for a
Speaker 1: very long time, just as you talked about your parents.
Speaker 1: And then finally, just the other obvious thing about this,
Speaker 1: it's not just about economics for the consumer, it's about
Speaker 1: their own health. This contagion can affect you. Obviously, it
Speaker 1: can kill people, so that adds another elements of fear. Um,
Speaker 1: again we're being speculative here. We don't know how long
Speaker 1: it's gonna last. But when you talk about risks like this.
Speaker 1: It brings in the emotional side of decision making for consumers,
Speaker 1: and economists that have studied that say it's very difficult
Speaker 1: to overcome. It doesn't mean everybody's gonna stop shopping, but
Speaker 1: even at the margin, if many millions of people are
Speaker 1: affected by the US for a long period of time,
Speaker 1: that will have a great drag on our economy, Chris.
Speaker 1: Some people say that the consumer is in much better
Speaker 1: situation now than it was getting into the two thousand
Speaker 1: and eight crisis, and that the US government has supplied
Speaker 1: a big enough stimulus to offset a good deal of
Speaker 1: the mispay for a larger proportion of the US population.
Speaker 1: They point to that as one of the reasons why
Speaker 1: consumer spending may be more resilient. On the other side
Speaker 1: of this, did any of the economists you spoke with
Speaker 1: address that, Yeah, well, there's a couple of things to
Speaker 1: say there, I think, Lisa Um, it's true that on
Speaker 1: aggregate the if you look at household debt two income,
Speaker 1: it's in a much better place. But those numbers are
Speaker 1: really skewed by the upper end, the top ten percent,
Speaker 1: the top one. If you look at the middle deciles
Speaker 1: across the you know, the distribution of this data. People
Speaker 1: in the middle and even the upper to middle range.
Speaker 1: We're not in a very good position in terms of
Speaker 1: debt income before this, so those numbers are slightly misleading.
Speaker 1: I think. Second is that it's true there has been
Speaker 1: a huge amount of support being brought up by the
Speaker 1: federal government. Um, now the question is how long does
Speaker 1: that is that a sufficient enough bridge. It may help
Speaker 1: for a while, but you know, unemployment benefits even with
Speaker 1: the extension in the care Is Act going out to
Speaker 1: say thirty nine weeks for a lot of state that's
Speaker 1: gonna help a lot of people, but it won't bridge
Speaker 1: the full gap for many people who will lose their
Speaker 1: jobs for longer than that. And the six hundred supplemental
Speaker 1: amount per week that the federal government kicked in as well,
Speaker 1: that's super, but it only lasts until July one, So again,
Speaker 1: how will it really bridge the gap? And and and
Speaker 1: even then, you know, we talk about already the psychological
Speaker 1: scarring effect. If you are able to bridge the gap
Speaker 1: in your income and then you have work again, you know,
Speaker 1: we can still ask are you going to be as
Speaker 1: aggressive in your spending as you wouldn't before? So we
Speaker 1: don't really know the answers to all these questions, but
Speaker 1: it is quite worrying. Chris Condon, thank you so much
Speaker 1: for being with us. Chris Condon, us economy reporter for
Speaker 1: Bloomberg News, joining us on the consumer confidence hit from
Speaker 1: the coronavirus. And I will just say, Paul, it's really
Speaker 1: interesting to see the response to articles about the spread
Speaker 1: of the virus, with some people saying it's fear mongering
Speaker 1: and that the virus has a pretty low fatality rate
Speaker 1: and that the shutdowns also have a high fatality rate,
Speaker 1: and other people saying, well, the reason why it's not
Speaker 1: a lot higher and why we're not seeing many more
Speaker 1: deaths is because of the shutdowns and this sort of
Speaker 1: push pull in public sentiment ongoing as the US and
Speaker 1: the rest of the world considers how to reopen. Yeah. Absolutely,
Speaker 1: and I think it has a little bit to do
Speaker 1: with the kind of where in the country you reside.
Speaker 1: If you're kind of in that New York metro area,
Speaker 1: you probably have a different view than if in Middle
Speaker 1: America where you really haven't been that impacted by it.
Speaker 1: Let's gift to another one that's suffering dramatically, and that
Speaker 1: is the hospitality and lodging sector. We're looking at Marriott International,
Speaker 1: which saw its REVENU revenue per available room plunge ninety
Speaker 1: percent in April. The question is how do you batten
Speaker 1: down the hatches and gird for the future. There, Brian
Speaker 1: Ecker joining us now senior Gaming and Lodging analyst for
Speaker 1: Bloombrick Intelligence. Can you give us a sense, Brian, of
Speaker 1: just how bad the carnage is and has been this
Speaker 1: earning season versus expectations in this sector, the lodging sector. Sure,
Speaker 1: so we entered a situation where most of the major
Speaker 1: lodging companies are already effectively pre announced results and you
Speaker 1: know declines are certainly severe. If you look at revenue
Speaker 1: prevailable room, the key metric that was down about uh
Speaker 1: in the first quarter for both March, for both Mary
Speaker 1: and Hilton, but more notably in April that metric was
Speaker 1: down percent. So you still have a lot of hotels
Speaker 1: that are currently closed. There is some pace of reopening,
Speaker 1: but it's going to be gradual and mixed and phased
Speaker 1: across the world, depending upon the type of hotel. So, Brian, there,
Speaker 1: I guess the question for a lot of industries, a
Speaker 1: lot of companies is kind of consumer behavior. How is
Speaker 1: it going to be affected as we come out on
Speaker 1: the other side of this, what we see material and
Speaker 1: maybe even permanent changes in consumer behavior. I know, you
Speaker 1: do some a lot of work following them, the casinos
Speaker 1: and Macau and as Asia it starts to open up.
Speaker 1: What are some of the early feedback from the hotel's
Speaker 1: and the casino and the other consumer facing businesses there
Speaker 1: in Asia? So it's coming back slowly. I mean early
Speaker 1: indications are is the most recent monthster and we've had
Speaker 1: eighty nine to clients and at least gaming revenue in Asia.
Speaker 1: You know, the hotels also coming back slowly, but because
Speaker 1: they entered this pandemic earlier, arguably they have the potential
Speaker 1: to start to recover um somewhat sooner. I think what
Speaker 1: you're seeing within the US is again it's going to
Speaker 1: be mixed by region, where drive to limited service hotels
Speaker 1: UH in local locations probably can come back a little
Speaker 1: bit quicker, but group hotels that depend on conventions, large resorts,
Speaker 1: major gateway cities are likely to come back somewhat slower,
Speaker 1: and likewise it will be very you know, across the
Speaker 1: world in terms of US versus Europe, etcetera. So we
Speaker 1: were just talking Brian to George about the airline companies
Speaker 1: and saying he was saying that without another government bailout,
Speaker 1: it's unlikely that all of the companies will survive in
Speaker 1: the way that they are currently. What's the consolidation wave
Speaker 1: going to look like in the lodging space if things
Speaker 1: continue the way that they're expected to. Sure, so we've
Speaker 1: already had a tremendous amount of consolidation the lodging sector,
Speaker 1: just to point that out. Um, you know, there are
Speaker 1: many small independent hotels, but certainly the large chains like
Speaker 1: Marriott Hilton benefited from ample consolidation. And then you look
Speaker 1: at companies like Marriott. They just report today, you know,
Speaker 1: they do have four point three billion dollars in liquidity.
Speaker 1: So given the amount of the cash burn rate, if
Speaker 1: you will, that they face during this period of downturn,
Speaker 1: that provides them with quite a long runway for them
Speaker 1: to be able to sustain even very draconian red partic
Speaker 1: clients as large as doesn't mean there could have made
Speaker 1: some combination consolidation or even independent hotels that might try
Speaker 1: to convert their brand flag and convert to uh let's
Speaker 1: say a Marryott brand or something else. But you know,
Speaker 1: it's certainly in terms of consolidation because we've seen so
Speaker 1: much of it already. I think in terms of major chains, uh,
Speaker 1: they are at least for their part, fairly well positioned
Speaker 1: to kind of weather this downturn and come back slowly. Brian,
Speaker 1: where are we in terms of supply of rooms in
Speaker 1: the marketplace? It just feels like there's been a lot
Speaker 1: of hotels, a lot of new construction, a lot of
Speaker 1: supply added to the market. Is that are we oversupplied here?
Speaker 1: Or you think you know, given the pullbacks and demand,
Speaker 1: that the supply and demand er in decent shape. So
Speaker 1: we had seen kind of a low, single legit pace
Speaker 1: of new supply, and there were some concerns that maybe
Speaker 1: supply is growing more quickly and let's say the limited
Speaker 1: or select service segments. The reality is, because of the pandemic,
Speaker 1: you may see some openings delayed. Uh. You know what
Speaker 1: Mary at It said in their calls in terms of
Speaker 1: scheduled or plan hotel openings, they don't know if that
Speaker 1: will be down by or but it certainly will be affected. Um.
Speaker 1: But but again I think in terms of supply, it
Speaker 1: really um, at least some of the slower level of construction,
Speaker 1: they actually worked at the benefit of hotels, and you've
Speaker 1: got a decent number of hotels of construction. Those that
Speaker 1: were fair fairly well along and being built continue to
Speaker 1: work through that construction process. But UM, I think the biggers,
Speaker 1: who's how how long does it take for demand itself
Speaker 1: to recover? And then there's a question Brian, of additional
Speaker 1: spending to try to ensure that people feel confident that
Speaker 1: they are going to get sick or that these hotel
Speaker 1: rooms are clean. I mean, we've heard about some types
Speaker 1: of ventilation that are changing and different cleaning standards that
Speaker 1: can be maintained to sort of show potential clients that
Speaker 1: they are safe. What are you hearing in terms of
Speaker 1: spending on that side? So, UM, I don't know if
Speaker 1: it's a question of spending as much as protocols and practices.
Speaker 1: You know, the way that companies have approached this as
Speaker 1: they think about the process of reopening, is the likely
Speaker 1: to having um some food and beverage outlets closed or
Speaker 1: operating a limited service with a lot of pick up
Speaker 1: and take out of having in some cases of hotels
Speaker 1: are running in very lock and see a limited utilization
Speaker 1: of certain floors, having a lot of safety and queaning
Speaker 1: protocols in place for housekeeping. But the reality is because
Speaker 1: of hotels might find it practical or lose less money
Speaker 1: by opening a temperson often see rather than staying closed
Speaker 1: because they're opening with such limited occupancy in some cases
Speaker 1: in order to mitigate losses. The reality is that accommodating
Speaker 1: UH social distancing might be somewhat easier to execute given
Speaker 1: the fact that the level of ocupancy is so slow
Speaker 1: to begin with, at least during the initial stages of recovery.
Speaker 1: Brian Igger, thanks so much for joining us. We appreciate
Speaker 1: that Brian Egger covers all things hospitality, UH, end gaming
Speaker 1: for Bloomberg Intelligence. Marriott reporting some numbers today in the
Speaker 1: rev bar and the occupancy levels UH you know, obviously
Speaker 1: down significantly, Lisa, And you know, it just kind of
Speaker 1: comes back to the question we're talking with Brian Egger
Speaker 1: on the hospitality and George Ferguson on the airlines. It's
Speaker 1: kind of about consumer behavior. How will consumers come out
Speaker 1: of this on the back half of this pandemic in
Speaker 1: terms of behavior, in terms of going on planes, going
Speaker 1: to hotels, going to conferences and casinos and things like that. Yeah,
Speaker 1: at the same time, we're getting to summer, and I
Speaker 1: will say a lot of my friends and I have
Speaker 1: been talking about the fact that our kids are not
Speaker 1: going to be going to camp and there is no
Speaker 1: sign of vacation on the forefront. What do you do?
Speaker 1: Do you just stay in your home indefinitely? Do you
Speaker 1: try to get out? How do you get out? Do
Speaker 1: you stay at hotels? I mean, these are all the
Speaker 1: considerations as people start to face a very bleak number
Speaker 1: of indefinite months ahead, and it just raises a question
Speaker 1: how can hotels entice people back and what sort of
Speaker 1: the confidence level they have to get Yeah, I think
Speaker 1: and and there's a sizeable part of the population, and
Speaker 1: I think it's a growing percentage that says we need
Speaker 1: to get back out there. We need to get this
Speaker 1: economy going, we need to get out of the house
Speaker 1: and start moving again. You know, we've we've bent the
Speaker 1: curve and maybe we're at the point where it's able,
Speaker 1: we're able to get out there. So I'll have to
Speaker 1: see how that plays out. Thanks for listening to the
Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
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Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
Speaker 1: abram Woids. I'm on Twitter at Lisa abram Woids. One
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Speaker 1: I'm Bloomberg Radio m