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Speaker 1: Welcome to the Bloomberg Penl podcast on Paul Swing You.

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Speaker 1: Along with my co host Lisa Brahmas, each day we

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

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

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

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

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Speaker 1: Bloomberg dot com. I am so pleased to say we

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Speaker 1: are going to focus on emerging markets, assets and the

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Speaker 1: nations themselves with somebody who has been a pivotal player

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Speaker 1: in many of the restructuring is done throughout the developing

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Speaker 1: world over the past number of decades. Bill Rhodes, Senior

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Speaker 1: Advisor for City who helped in the nineteen eighties and

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Speaker 1: nineties negotiate a lot of the rescue financing packages in

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Speaker 1: the developing world. Currently President, chief executive officer of William

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Speaker 1: Rhodes Global Advisors. Bill, always phenomenal to have you on

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Speaker 1: the show. And I want to start with the coronavirus

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Speaker 1: and its impact, the humanitarian impact on emerging markets. We

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Speaker 1: don't talk about it that much. What do you glean

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Speaker 1: as you travel? As you talk? You know, whether it's

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Speaker 1: travel virtually or talk with your contacts as far as

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Speaker 1: how how prevalent the virus is and how damaging it's been.

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Speaker 1: First of all, it's great to be on you with

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Speaker 1: you guys, Lisa, and I think the impact is going

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Speaker 1: to be substantial on most parts of the emerging markets.

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Speaker 1: I think, UH, we're already seeing this UM in UH

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Speaker 1: in Latin America, UH, in case of Brazil, it's hitting Mexico.

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Speaker 1: And of course in Asia we've you know, we've seen

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Speaker 1: a lot of it because it started in in China,

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Speaker 1: migrated to South Korea, and I must say the South

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Speaker 1: Koreans have done the best job of getting testing out

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Speaker 1: there and controlling it. But some of the economies UH

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Speaker 1: in Southeast Asia are also being hit very hard. India, UH,

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Speaker 1: you've had a second wave in UH, in Singapore, Malaysia.

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Speaker 1: So I think that in countries like Turkey, in the

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Speaker 1: Middle East and others are being hit. So I think

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Speaker 1: this is delayed reaction. The area that people are most

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Speaker 1: concerned about at this point is Africa because they don't

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Speaker 1: have the hospitals UH and they don't have the health

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Speaker 1: systems in place. UH. And so I think that the

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Speaker 1: emerging markets are going to be hit particularly hard, much

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Speaker 1: more than the developed markets that we've seen today. So

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Speaker 1: it's interesting. Bill. Let's focus a little bit on Latin America. UM,

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Speaker 1: where is some of the big risks there? You know,

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Speaker 1: some of the issues you highlight about Africa in terms

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Speaker 1: of health care and sanitation, so once a lot of

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Speaker 1: that applies to many parts of Latin America. What are

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Speaker 1: you most concerned about? Well, I think the situation in Brazil.

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Speaker 1: It's the largest country and the president boll Conaro doesn't

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Speaker 1: want to admit that there's a problem, and he's battling

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Speaker 1: with his own uh, with his own Congress and many

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Speaker 1: of the governors, and the fear there because it's a

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Speaker 1: country of two hundred fifteen twenty million people, and the

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Speaker 1: fear there is that this thing could get out of hand.

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Speaker 1: And of course they've been going through a period of

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Speaker 1: difficulty in an economy for the last five years. UH,

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Speaker 1: And so I think this this could be a very

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Speaker 1: difficult situation. UH. You also have the impact of the

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Speaker 1: Venezuelan refugees all throughout Latin Americas, some five million of them,

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Speaker 1: which exacerbates the situation because a lot of them bring

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Speaker 1: things like millary and other things with them, and so

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Speaker 1: it's a it's a real problem. I was earlier this year,

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Speaker 1: I was in Trinidad in Guyana, where you have a

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Speaker 1: lot of Venezuelan refugees, and also northern Brazil in the

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Speaker 1: state of Roraima. Venezuela as a complete disaster area in

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Speaker 1: the sense that the health system completely has collapsed already

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Speaker 1: under Maduro, and what could happen there is could be

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Speaker 1: a real humanitarian crisis with COVID nineteen in a place

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Speaker 1: like Venezuela. So if you ask me what country I'm

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Speaker 1: most concerned about in the sense of the hit, it's

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Speaker 1: probably Venezuela as far as the impact on the most

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Speaker 1: number of people, who would be Brazil. So I'm curious

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Speaker 1: the the answer in the developing world. In the developed world,

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Speaker 1: I should say, has been to socially distance shutdown. Businesses

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Speaker 1: and governments are just flooding people with money, are trying

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Speaker 1: to in order to stave off the economic damage. What

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Speaker 1: has the response been like, both financially as well as

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Speaker 1: socially in some of these developing markets, particularly in Latin America. Well,

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Speaker 1: I think that we're still I think unfortunately at the

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Speaker 1: early stages you know, I did this op ed on

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Speaker 1: the eighth of April. UH talking about my concerns is

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Speaker 1: that the markets were underestimating the dangers of of COVID

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Speaker 1: nineteen because to me it smells somewhat of the Spanish

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Speaker 1: flu problems of eighteen nineteen and twenty, where the first

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Speaker 1: Browns gave people the feeling that it was all over

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Speaker 1: and they and the real hit came in the second round,

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Speaker 1: second and third rounds, and and so there's real concern

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Speaker 1: that the worst is yet to come. So Bill, we

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Speaker 1: haven't really necessarily it's a kind of in country by

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Speaker 1: country and even within the United States, state by state,

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Speaker 1: focusing on efforts to get this under control. Is there

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Speaker 1: a mechanism for a kind of a global response, because

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Speaker 1: I think about some of these emerging markets and I'm

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Speaker 1: just not sure they can do it on their own.

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Speaker 1: I think that's very correct. Well, I can't. And what

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Speaker 1: I advocated my up ed was sort of a recreation

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Speaker 1: of the spirit of Gordon Brown when he put together

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Speaker 1: UH the G twenty Countries um as a response to

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Speaker 1: the global economic crisis at that time when he was

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Speaker 1: Prime Minister in two thousand nine, was heading the G

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Speaker 1: twenty and I think the I m F, World Bank

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Speaker 1: were all involved in that, but I think this is

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Speaker 1: much more serious. And you see they're talking about uh

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Speaker 1: suspension of debt payments. Uh, you know for the most

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Speaker 1: needy country these UH, the I m F, the World Bank,

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Speaker 1: and UH, the G twenty has talked about that through

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Speaker 1: the end of the year. But that's not going to

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Speaker 1: be sufficient. And then you have you have the aid

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Speaker 1: that for instance, the Europeans and the US have been

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Speaker 1: giving these countries drive along and they're now in this

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Speaker 1: strap situation. We're speaking with our good friend Bill Rhodes.

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Speaker 1: Bill as a president CEO of William Rhodes Global Advisors,

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Speaker 1: whose former chairman at City Bank. We're talking about the

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Speaker 1: outsized effect likely to have on emerging markets from the

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Speaker 1: coronavirus and Bill, does there really need to be a

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Speaker 1: global response to help out some of these emerging markets

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Speaker 1: which may have, you know, limited capabilities to kind of

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Speaker 1: take care of their own populations. I think, without a

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Speaker 1: doubt there needs to be something more done than the

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Speaker 1: G twenty is done. I think the I m F

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Speaker 1: and World Bank are looking at announcing additional programs, although

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Speaker 1: they are now talking about programs that they've never done before,

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Speaker 1: and so you have to have a united response through

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Speaker 1: the G twenty rather than a one off type situation.

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Speaker 1: And uh, then just to change it for a moment,

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Speaker 1: when you take a look at the EU and U

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Speaker 1: and the e C, you know, it's the situation that

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Speaker 1: the EU is going through. Who have been major suppliers

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Speaker 1: of aid to a lot of these countries, they are

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Speaker 1: in a difficult situation themselves. I mean Spain's had over

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Speaker 1: twenty one deaths, Italy very similar, and they are struggling

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Speaker 1: to keep the EU together and talking about a rescue

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Speaker 1: package for those countries of a trillion to a trillion

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Speaker 1: and a half euros. Uh. And this type of thing

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Speaker 1: will also help the emerging markets because uh, that will

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Speaker 1: push I think the G twenty to do more if

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Speaker 1: their own economies are being taken care of to help

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Speaker 1: the emerging markets. But this is the most difficult period

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Speaker 1: I can remember for the emerging markets in my lifetime,

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Speaker 1: in your lifetime, I mean more even in the Latin

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Speaker 1: American crisis. More even in the Latin American crisis, Asian

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Speaker 1: financial crisis, uh, any of them. Because this is coming

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Speaker 1: out of nowhere and a lot of these countries uh

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Speaker 1: leaves you and I have discussed with Paul in the past.

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Speaker 1: Um have borrowed very heavily in foreign currencies uh to

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Speaker 1: support their economies and with a strong dollar, Uh, this

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Speaker 1: is gonna be a real problem. So I think you're

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Speaker 1: gonna have a wave of debt restructurings are also going

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Speaker 1: to hit the emerging markets, and they're going to be

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Speaker 1: very very difficult because the creditors themselves have problems. So

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Speaker 1: we're in for a very very difficult strain period, uh,

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Speaker 1: you know, with without a doubt. And then of course

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Speaker 1: a number of these countries are royal exporters that has

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Speaker 1: oil up uh, you know Brazil, I could run through them,

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Speaker 1: a number of countries in Africa and they're going to

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Speaker 1: be hard hit because of the collapse in the price

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Speaker 1: the price of crude, the price of oil. So all told,

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Speaker 1: it's going to be very difficult period for the emerging

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Speaker 1: markets in the immediate future. There's also a question of

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Speaker 1: China's role in financing some of the developing worlds. We've heard.

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Speaker 1: I mean, they don't report the numbers, but there are

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Speaker 1: billions of dollars of loans that China has extended throughout

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Speaker 1: that entire world. How does that complicate efforts to restructure

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Speaker 1: some of these debts. I think it's a very important point, Leads,

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Speaker 1: because you know, the one Belt of One Road UH

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Speaker 1: program which Shijunping has been pushing for the last seven

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Speaker 1: or eight years, has led hundreds of billions of dollars

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Speaker 1: to these countries, and a lot of the terms are

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Speaker 1: not clear. And one of the concerns is UH is

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Speaker 1: how the Chinese are going to push these countries to repay,

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Speaker 1: and so far the Chinese haven't announced any sort of

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Speaker 1: program of debt forgiveness. They're talking about taking assets in

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Speaker 1: these countries or stretching it out. The other thing, which

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Speaker 1: since you mentioned China, which I think we have to

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Speaker 1: keep in mind, is remembering the great recession the country

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Speaker 1: and you have to give them their due. That helped

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Speaker 1: pull the world out of what could have been a

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Speaker 1: great depression was China because they pushed anywhere from eight

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Speaker 1: hundred billion to a threeion dollars UH into the markets.

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Speaker 1: Because their financial system was very strong on commodities, UH

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Speaker 1: in particular benefited construction UH. This is why Brazil and

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Speaker 1: a number of the emerging market countries were able to

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Speaker 1: get through because they were able to sell their commodities

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Speaker 1: to China. The Chinese, because of their high debtload, are

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Speaker 1: no longer in the position themselves to pull the world out,

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Speaker 1: So we can't look any for any particular savior at

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Speaker 1: this point. That's why the work of the G twenty

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Speaker 1: needs to be UH needs to be worked out in

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Speaker 1: an orderly fashion because no one country is going to

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Speaker 1: pull us out. So Bill, I kind of always when

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Speaker 1: I think about emerging markets, you know, people tell me

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Speaker 1: the I m F is there, but I always feel

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Speaker 1: like the I m F is fairly limited in their resources,

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Speaker 1: and it will come down to the G twenty or

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Speaker 1: maybe even the United States of America. How do you

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Speaker 1: think the US will What do you think the U

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Speaker 1: s will have to do here as we think about

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Speaker 1: the emerging markets in terms of support. Well, it's that's

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Speaker 1: a good question because it's not clear where Trump stands

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Speaker 1: on this, where President Trump stands on this, And you're

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Speaker 1: right about the I m F, even with the additional

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Speaker 1: resources they're trying to put in UH. One of the

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Speaker 1: suggestions had been they go back to the idea of

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Speaker 1: having a special drawing rights, But so far the G

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Speaker 1: seven countries haven't agreed to that, including the United States,

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Speaker 1: which which would beef up uh their ability to help

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Speaker 1: these countries. Uh So the United States is very key.

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Speaker 1: The two countries, let's say, the three entities are key

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Speaker 1: to the revival of the emerging markets are the United States, China,

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Speaker 1: and the EU. Pul Rhodes, thank you so much for

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Speaker 1: being with us. We always love hearing your insights. A

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Speaker 1: really important time to be getting them. Banker to the

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Speaker 1: World Bill Rhodes, author of the book That is A

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Speaker 1: Banker to the World. I recommend you read it. It

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Speaker 1: is a fascinating read. He is also the president, chief

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Speaker 1: executive officer of William Rose Global Advisors and a senior

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Speaker 1: advisor to a group. I mean, it's really, uh an

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Speaker 1: amazing perspective to have Paul, given his the restructions that

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Speaker 1: he's been involved with in a number of different places.

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Speaker 1: Right now, we are looking at emerging market currencies that

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Speaker 1: have been clawbered. I mean, this has been a really

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Speaker 1: rough year for them as the dollar has remained ascending,

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Speaker 1: although you are seeing a little bit of a reprieve

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Speaker 1: from that now, so at least I'm looking at gold.

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Speaker 1: We've been spending a lot of time looking at oil

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Speaker 1: or the past few days, but gold just continues to

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Speaker 1: march higher, up another one point three percent today to

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Speaker 1: seven dollars per ounce. A very good looking chart as well.

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Speaker 1: Everett Millman, precious metals strategist for Gainesville Coins, joins us

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Speaker 1: on the phone based in Gainesville, Florida. So every thanks

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Speaker 1: so much for joining us here. Give us the story

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Speaker 1: behind this nice looking chart for gold. Yeah, thanks for

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Speaker 1: having me on. Paul um. Well, the conventional wisdom over

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Speaker 1: the past two decades or so has been don't fight

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Speaker 1: the Fed, right it. In this case, not fighting the

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Speaker 1: Fed means having exposure to gold. Um. The huge heap

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Speaker 1: of stimulus that has come from the Federal Reserve and

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Speaker 1: other central banks is definitely a tail wind for gold

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Speaker 1: right now, and the amount of that stimulus and added

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Speaker 1: liquidity are only expected to grow in the coming months. Um. So,

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Speaker 1: we've seen really a repricing of assets in terms of

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Speaker 1: relative value to one another, and gold has emerged from

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Speaker 1: that as the biggest beneficiary. Now. If you consider that

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Speaker 1: the last time that the dollar, the d X Y

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Speaker 1: index was consistently around a hundred as it is right now,

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Speaker 1: back in two thousand seventeen, gold was trading below hundred.

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Speaker 1: Uh so we've rallied quite a bit in a short

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Speaker 1: amount of time. Gold has definitely picked up some ground

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Speaker 1: on the dollar and on other assets. But I wouldn't

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Speaker 1: be at all surprised to see some near term weakness

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Speaker 1: given how fast this rally has come. That's interesting near

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Speaker 1: term weakness. I was looking at some reports a lot

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Speaker 1: of people bullish over the medium term Bank of America

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Speaker 1: raising it's eighteen month gold priced tar get to three

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Speaker 1: thousand dollars and ounce, which is more above where it

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Speaker 1: is currently trading. I'm just wondering, Everett. A lot of

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Speaker 1: people think of gold as a hedge against risk off

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Speaker 1: periods of time. It has not behaved in a predictable

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Speaker 1: manner on a day to day basis. In that way,

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Speaker 1: it also is considered a hedge against inflation, and right now,

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Speaker 1: inflation is nowhere to be found in interest rate traders

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Speaker 1: projections if you take a lookout five ten years. So

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Speaker 1: what's the argument for gold on a theoretical level, right? Um,

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Speaker 1: We've absolutely seen that these intra day moves have been

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Speaker 1: rather noisy. It's been a bit of a roller coaster ride,

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Speaker 1: and I think that has to do with some of

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Speaker 1: the patterns we've seen that are in parallel to UM.

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Speaker 1: What the Federal Reserve dating two thousand eight to try

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Speaker 1: and rescue the economy, they followed a very similar playbook

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Speaker 1: in terms of scope and scale, and we've seen that

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Speaker 1: volatility has been elevated and gold has traded in a

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Speaker 1: wider range all that huge draft of stimulus, at some

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Speaker 1: point down the road we would expect to be rather

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Speaker 1: inflationary and that would be gold positive UM. But as

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Speaker 1: I said, the near term weakness is still a possible

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Speaker 1: concern given this wide volatility UM. Remember that as recently

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Speaker 1: the last summer less than a year ago, gold futures

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Speaker 1: hadn't cracked above thirteen sixty an ounces in almost seven years,

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Speaker 1: So these these are levels that we haven't seen in

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Speaker 1: quite a while. I think there will be some consolidation

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Speaker 1: following that. And something else that I've been taking note

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Speaker 1: of is that algorithmic traders and some automatic rebalancing in

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Speaker 1: portfolios during these risk off situations could trigger some more

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Speaker 1: sell off and gold UM. And the most recent data

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Speaker 1: from the CMME shows that a significant amount of activity

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Speaker 1: in gold futures UM, as much as possibly two thirds

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Speaker 1: has been driven by the algos and that suggests that

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Speaker 1: the volatile swings for gold may not be over UM.

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Speaker 1: One of the lessons that we've learned from two thousand

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Speaker 1: eight is that gold tends to shine brightest once the

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Speaker 1: economy starts recovering from a crisis like this. So I

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Speaker 1: think once we get some recipite from the coronavirus pandemic

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Speaker 1: or on the other side of this, that is when

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Speaker 1: I will be most bullish for gold over the medium term.

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Speaker 1: So Everett, I look at the year to day performance

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Speaker 1: spot gold up about twelve and a half percent. Then

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Speaker 1: I look at another metal, silver, and I thought I'd

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Speaker 1: see something similar, but no, it's off almost here today.

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Speaker 1: What's the story on silver? We could see at least

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Speaker 1: for a short period of time, silver kind of decoupling

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Speaker 1: from gold. UM as we look at the gold of

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Speaker 1: silver ratio is still well above one ten I think

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Speaker 1: close to one thirteen UM. That's obviously a historical extreme,

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Speaker 1: but it's been pretty durable, this gap between gold and silver,

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Speaker 1: and it challenges some of our assumptions about whether or

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Speaker 1: not silver will continue to follow gold in terms of

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Speaker 1: safe haven demand. We may not see silver prices catch

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Speaker 1: up with gold until later this year. Because of its

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Speaker 1: sensitivity to the health of the industrial sector, that really

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Speaker 1: doesn't bode well for silver until the global economy start

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Speaker 1: to reopen um. So that is what I'll be looking

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Speaker 1: for in terms of silver, you know, reclaiming some of

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Speaker 1: its precious metal status because otherwise right now it has

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Speaker 1: behaved much like an industrial metal. Interesting, Everett, as we

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Speaker 1: talk about oil, and really the focus in the commodity

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Speaker 1: space has been on oil and how the physical presence

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Speaker 1: of it is not desired right now. How is the

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Speaker 1: physical commodity of gold and silver trading in comparison with

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Speaker 1: futures contracts. That is a fantastic question. Um. We've seen

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Speaker 1: that those physical markets over the counter market have become

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Speaker 1: a bit on moored um from paper trading, and that's

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Speaker 1: because you do have two different sets of motivations for

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Speaker 1: those market participants. UM. In gold futures, on one side,

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Speaker 1: you have a lot of institutional players. They are basically

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Speaker 1: chasing the short term price dynamics of gold. But in

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Speaker 1: the physical market you have almost the opposite motivation. You

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Speaker 1: have retail buyers who um, they want to buy and

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Speaker 1: hold physical to keep for the long term. So this

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Speaker 1: spread that we've seen between future and spot prices, it

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Speaker 1: is unusually wide. It means that arbitralge is not functioning

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Speaker 1: normally and price discoveries perhaps a bit impaired. But two

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Speaker 1: things should help alleviate that and we should see that

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Speaker 1: spread come back into a more normal range. Once the

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Speaker 1: reopening of several government mints in Canada, Western Australia, the

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Speaker 1: RAM refinery in South Africa, and as of yesterday the

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Speaker 1: West Point branch of the U S Mint is also

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Speaker 1: resuming operations. And then secondly, the flexible CME gold futures

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Speaker 1: contracts should also clear up some of those logistical backlogs

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Speaker 1: that are causing that gap between futures and spot. Everett Milman,

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Speaker 1: thank you so much for being with us, and all

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Speaker 1: my best to you. Everett Milman, precious metal specialist at

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Speaker 1: Gainesville Coins. Talking about the future of gold in the

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Speaker 1: near as well as the medium term at least, I'm

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Speaker 1: looking at some of these airline stocks. We've been talking

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Speaker 1: about them really since the beginning of the crisis. Really

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Speaker 1: one of the first groups to get hit and get

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Speaker 1: hit the hardest delta year to date. These are all

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Speaker 1: year to date numbers Delta down, six, United down, seventy,

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Speaker 1: American down, nearly sevent of just getting decimated. We had

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Speaker 1: some numbers out of Delta. Let's get the latest. We

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Speaker 1: welcome Bloomberg Intelligent Senior aerospace analyst George Ferguson has been

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Speaker 1: covering the space for decades. George, thanks so much for

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Speaker 1: joining us. What did we learn here from Delta with

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Speaker 1: the numbers? A good morning. I think what we learned

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Speaker 1: is that, UM, the way forward is very unclear, I

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Speaker 1: think is what we learned. And they burned a bit

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Speaker 1: more cash than we had expected, working very very hard

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Speaker 1: to bring down cash burn every day. They think they

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Speaker 1: can get themselves to fifty million dollars of cash burn

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Speaker 1: per day by the beginning of May, which I thought

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Speaker 1: it was quite interesting. UM, and they confirmed when asked

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Speaker 1: about Ford lookings, they confirm that we continue, I think,

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Speaker 1: in the direct quote from Delta management, we continue to

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Speaker 1: bounce along the bottom about five of what we did

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Speaker 1: last year. You know that that's the that's a number

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Speaker 1: of people at flying this year, just people that absolutely

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Speaker 1: have to fly. Demand is about zero. So demand zero.

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Speaker 1: The question is and when and when? The discussion on

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Speaker 1: the earnings call is not about earnings at all, but

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Speaker 1: just how they can stay alive for the foreseeable future.

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Speaker 1: Do we have a sense of how long the big

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Speaker 1: airlines can continue to bleed cash until the economy gets

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Speaker 1: back up to at least even half pace or a

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Speaker 1: fraction of what it once was. Yeah, so Delta, Delta

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Speaker 1: did actually, you know, give their their give a sense

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Speaker 1: for how long they thought they could survive. And I

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Speaker 1: actually thought that was actually also something quite interesting. They

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Speaker 1: thought they could survive until the end of the year

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Speaker 1: or you know, we'd have to dig deeper into some

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Speaker 1: of those assumptions. They definitely have to raise some more money, uh,

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Speaker 1: just to hit their target for where they want to

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Speaker 1: be for cash at the end of the second quarter.

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Speaker 1: But you know, yeah, I think in the next for

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Speaker 1: two Q and three Q, the discussion is really going

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Speaker 1: to be at all the major airlines about how much

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Speaker 1: they can get cash burned down. I'm gonna say they

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Speaker 1: told us thirty three percent of their employees that to

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Speaker 1: make sure that number was right, took voluntary leave, right,

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Speaker 1: So they're really trying to lay off that labor costs

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Speaker 1: pretty hard and get cash burned down. Remember, Delta, though,

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Speaker 1: was one of the one of the better position airlines

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Speaker 1: going into the downturn. They were investment grade. They've been

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Speaker 1: digging through the balance sheet to find anything and everything

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Speaker 1: that they could use for collateral for loans um and

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Speaker 1: so that means that if they can survive an end

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Speaker 1: of the year, others others can't. So George, give us

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Speaker 1: a sense, just a snapshot, how the industry did in

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Speaker 1: terms of fiscal stimus, getting money, uh support from the government.

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Speaker 1: What they've gotten and what maybe they're still trying to get. Yes,

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Speaker 1: so Delta said they gotta I think it was two

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Speaker 1: point seven billion dollars then already. I mean, really where

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Speaker 1: we are? And I think it's very interesting as you

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Speaker 1: look at the industry. You know, the government has provided

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Speaker 1: them grants and they provided them an opportunity for loans,

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Speaker 1: and the grants are really just support the payment of

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Speaker 1: employees for the next two quarters. And so everyone is

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Speaker 1: lined up to take the grants. Why wouldn't you, um

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Speaker 1: and the but the loans and again those are discovered

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Speaker 1: employee costs. The loans they could take out for five

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Speaker 1: years um. But for those five years plus an additional

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Speaker 1: year a year after the loans has been paid off,

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Speaker 1: they can't pay dividends, they can't buy back shares, and

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Speaker 1: they have to limit employer compensate sorry, employee compensation, especially

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Speaker 1: for highly compensated employees. People over three million dollars get

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Speaker 1: sort of specific caps, and so we're sort of seeing

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Speaker 1: a number of them. It looks like Southwest, it looks

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Speaker 1: like Delta, it looks like United contemplate these loans from

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Speaker 1: the government but not takes them yet. They have time

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Speaker 1: to take them, and I think they're trying to figure

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Speaker 1: out again how bad this downturn is going to be,

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Speaker 1: because none of us really know whether they can weather

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Speaker 1: the storm without these loans, whether there's other loan opportunities

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Speaker 1: in the marketplace so they don't have to hem themselves

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Speaker 1: in with those you know, returned to return cash to

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Speaker 1: shareholder sort of options as well as employee compensation. So

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Speaker 1: there's more money coming, potentially billion loans to the industry.

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Speaker 1: I'm not sure they all want to take it. George Ferguson,

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Speaker 1: thank you so much for being with us. I'm sure

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Speaker 1: a year ago, if we thought that we would be

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Speaker 1: having this conversation, it would have thought I have been

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Speaker 1: a fictitious or absolutely out of the question, and yet

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Speaker 1: here we are George Fergusons, here are Space defense and

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Speaker 1: Airlines analyst for Bloomberg Intelligence. Delta, which has been one

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00:24:06,040 --> 00:24:10,440
Speaker 1: of the stronger players, consistently shares down six per cent

434
00:24:10,840 --> 00:24:13,600
Speaker 1: year to date, even as they say they can survive

435
00:24:13,760 --> 00:24:15,679
Speaker 1: through the end of the year, and presumably at some

436
00:24:15,760 --> 00:24:18,840
Speaker 1: point there will be a resurgence in global demand for travel,

437
00:24:18,880 --> 00:24:26,040
Speaker 1: although for right now it's basically nothing. Right now, let's

438
00:24:26,160 --> 00:24:29,159
Speaker 1: switch gears and talk about those markets. We can do

439
00:24:29,240 --> 00:24:33,159
Speaker 1: that with Samir Samana. Samir, senior global market strategist for

440
00:24:33,160 --> 00:24:36,560
Speaker 1: Wells Fargo Investment Institute. Wells Fargo has at one point

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00:24:36,920 --> 00:24:42,359
Speaker 1: six trillion dollars under management. He's based in San Francis, St. Louis. Actually, Samir,

442
00:24:42,400 --> 00:24:46,000
Speaker 1: thanks so much for joining us. So let's just start.

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00:24:46,480 --> 00:24:49,560
Speaker 1: You know, the markets have been extraordinarily volatile. Let's just

444
00:24:49,600 --> 00:24:52,919
Speaker 1: start with oil. What did you make of the performance

445
00:24:53,000 --> 00:24:56,920
Speaker 1: of oil and the tremendous volatility, the negative pricing that

446
00:24:56,960 --> 00:25:00,919
Speaker 1: we've seen in oil this week? Sure, you know oil,

447
00:25:01,160 --> 00:25:03,360
Speaker 1: you know, at least the front month contract that went

448
00:25:03,440 --> 00:25:05,919
Speaker 1: negative for you know, very brief period of time was

449
00:25:05,960 --> 00:25:10,159
Speaker 1: really impacted by you know, storage shortages that then, you know,

450
00:25:10,240 --> 00:25:13,640
Speaker 1: lead to a lot of futures holders basically realizing that

451
00:25:13,680 --> 00:25:16,320
Speaker 1: you know, they're gonna either have to take physical delivery

452
00:25:16,480 --> 00:25:18,440
Speaker 1: or they need to you know, probably get out of

453
00:25:18,440 --> 00:25:21,840
Speaker 1: the contract, which is what led to um those negative prices.

454
00:25:22,119 --> 00:25:24,399
Speaker 1: You know. I think oil, you know, some of the

455
00:25:24,400 --> 00:25:26,600
Speaker 1: out month contracts, is probably one of the few markets

456
00:25:26,600 --> 00:25:30,280
Speaker 1: released right now, UM that most accurately reflects kind of

457
00:25:30,280 --> 00:25:33,480
Speaker 1: what's going on with COVID nineteen and just how quickly

458
00:25:34,160 --> 00:25:36,920
Speaker 1: stoppage and economic activity that we've seen that will only

459
00:25:37,000 --> 00:25:41,080
Speaker 1: slowly resume. Now again it should trade at positive levels,

460
00:25:41,080 --> 00:25:43,119
Speaker 1: but I think it is telling you, um that the

461
00:25:43,160 --> 00:25:47,880
Speaker 1: recovery will be you know, neither swift, um and uh

462
00:25:47,960 --> 00:25:50,480
Speaker 1: you know you know the divot won't be all that

463
00:25:50,520 --> 00:25:54,280
Speaker 1: shallow alright, so severe, let's let's start there. What are

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00:25:54,320 --> 00:25:55,920
Speaker 1: the good folks at Wells Fargo? What's kind of your

465
00:25:55,920 --> 00:26:00,159
Speaker 1: base case for kind of how this economy will shake out? Mean,

466
00:26:00,200 --> 00:26:05,040
Speaker 1: I don't hear the V recovery spoken about too much recently.

467
00:26:05,600 --> 00:26:07,520
Speaker 1: I think most people are kind of thinking about some

468
00:26:07,640 --> 00:26:11,320
Speaker 1: kind of U shaped recovery or might last several quarters

469
00:26:11,920 --> 00:26:14,439
Speaker 1: or maybe even something even more dire. What what's the

470
00:26:14,440 --> 00:26:17,920
Speaker 1: folks that was farther thinking. Sure, so we would say,

471
00:26:18,000 --> 00:26:19,960
Speaker 1: you know, the second quarter will probably be the worst

472
00:26:20,160 --> 00:26:23,080
Speaker 1: quarter from a growth standpoint, and then that third quarter

473
00:26:23,160 --> 00:26:25,960
Speaker 1: will be you know, verty bad, but maybe not as

474
00:26:26,000 --> 00:26:28,879
Speaker 1: bad as the second quarters. Things slowly start to come

475
00:26:28,920 --> 00:26:32,680
Speaker 1: back online UM, and then hopefully by the fourth quarter

476
00:26:32,680 --> 00:26:34,680
Speaker 1: of this year, in first quarter next year, there's some

477
00:26:34,680 --> 00:26:37,600
Speaker 1: stability and you know, we think there will be some payback,

478
00:26:37,840 --> 00:26:40,680
Speaker 1: you know, especially on the you know, the earnings front

479
00:26:40,760 --> 00:26:43,840
Speaker 1: for corporations UM by the end of next year. So

480
00:26:43,920 --> 00:26:46,399
Speaker 1: hopefully that's how it works, you know. As far as

481
00:26:46,440 --> 00:26:49,560
Speaker 1: whether it takes a U shape or you know, I've

482
00:26:49,560 --> 00:26:52,400
Speaker 1: heard some people refer to it as a swoosh UM.

483
00:26:52,560 --> 00:26:54,280
Speaker 1: You know, it's still kind of to be seen. It.

484
00:26:54,440 --> 00:26:56,760
Speaker 1: It will depend, you know, mainly on how quickly teams

485
00:26:56,760 --> 00:26:59,399
Speaker 1: come back online, you know, whether there's a reduction the

486
00:26:59,440 --> 00:27:03,680
Speaker 1: fall of new cases and one of these additional stoppages UM.

487
00:27:03,800 --> 00:27:06,880
Speaker 1: But I think probably the takeaway is UM second quarter

488
00:27:06,880 --> 00:27:08,640
Speaker 1: will probably be the worst of it, and then we'll

489
00:27:08,680 --> 00:27:11,600
Speaker 1: start to see hopefully a slow recovery by the end

490
00:27:11,640 --> 00:27:13,440
Speaker 1: of this year that will pick up steam in the

491
00:27:13,520 --> 00:27:18,040
Speaker 1: next year. Interesting. So we we've had a really sharp rebound.

492
00:27:18,119 --> 00:27:19,960
Speaker 1: Just talking about the US equity markets here, a really

493
00:27:20,000 --> 00:27:23,280
Speaker 1: sharp rebound off of that what was about at you know,

494
00:27:23,720 --> 00:27:27,200
Speaker 1: peak to trough pull back that we saw back in March.

495
00:27:27,280 --> 00:27:30,400
Speaker 1: Do you think it's the snapback rally has been too

496
00:27:30,520 --> 00:27:33,440
Speaker 1: much too soon, or do you kind of figure it's

497
00:27:33,480 --> 00:27:35,520
Speaker 1: kind of the beginning of a bottoming process for the

498
00:27:35,520 --> 00:27:38,439
Speaker 1: equity markets. So it's a little of both. You know,

499
00:27:38,520 --> 00:27:40,159
Speaker 1: we would say, you know, this is part of the

500
00:27:40,200 --> 00:27:42,040
Speaker 1: bottom of process. You tend to have kind of the

501
00:27:42,040 --> 00:27:44,080
Speaker 1: big draw down, and then you tend to have and

502
00:27:44,280 --> 00:27:47,280
Speaker 1: equally spectacular and kind of snap back, right, which which

503
00:27:47,320 --> 00:27:49,439
Speaker 1: kind of sucks everybody back in and makes them think that,

504
00:27:49,480 --> 00:27:51,640
Speaker 1: you know, well, the initial draw down was the one

505
00:27:51,680 --> 00:27:54,080
Speaker 1: that you know, maybe wasn't right, and you know, we're

506
00:27:54,160 --> 00:27:56,240
Speaker 1: kind of off to the races. And what folks will

507
00:27:56,280 --> 00:27:59,040
Speaker 1: realize in the coming months and quarters is that the

508
00:27:59,080 --> 00:28:02,159
Speaker 1: bottoming process is more of a marathon than a sprint.

509
00:28:02,600 --> 00:28:04,439
Speaker 1: And what you tend to have as kind of the

510
00:28:04,480 --> 00:28:07,240
Speaker 1: second and the longer phase of the bottoming process is

511
00:28:07,280 --> 00:28:09,200
Speaker 1: the one where you spend quite a bit of time

512
00:28:09,680 --> 00:28:12,760
Speaker 1: in a wide vollical range trying to figure out one

513
00:28:13,280 --> 00:28:15,879
Speaker 1: what the exact economic and earnings outlook looks like, and

514
00:28:15,880 --> 00:28:18,920
Speaker 1: then to what valuation level or multiple you may want

515
00:28:18,920 --> 00:28:20,760
Speaker 1: to pay on those earnings. So we would kind of

516
00:28:20,760 --> 00:28:23,120
Speaker 1: settle in here, and we think, you know, right here

517
00:28:23,160 --> 00:28:27,240
Speaker 1: in the hundred undred that we've seen the last few days,

518
00:28:27,320 --> 00:28:29,679
Speaker 1: it's probably the upper end of the range. It's probably

519
00:28:29,680 --> 00:28:32,720
Speaker 1: pretty close to fair value. So here we would be

520
00:28:32,760 --> 00:28:37,119
Speaker 1: pulling back on lower quality areas like energy, materials, industrials,

521
00:28:37,480 --> 00:28:41,160
Speaker 1: um emerging market equities, developed market equities, small cap equities.

522
00:28:41,440 --> 00:28:44,040
Speaker 1: This is the time to kind of pair back if

523
00:28:44,040 --> 00:28:45,960
Speaker 1: you were lucky enough to get in close to the lows,

524
00:28:46,080 --> 00:28:49,440
Speaker 1: and then you kind of wait until we see hopefully

525
00:28:49,720 --> 00:28:52,840
Speaker 1: in our opinion of level at least out of hundred,

526
00:28:52,880 --> 00:28:55,680
Speaker 1: because before you know, we get below we're not sure

527
00:28:55,720 --> 00:28:58,720
Speaker 1: we see a whole lot of value in chasing these markets,

528
00:28:58,720 --> 00:29:01,880
Speaker 1: and and really, um, as you get closer to fifty,

529
00:29:01,920 --> 00:29:03,680
Speaker 1: that's where you maybe want to kind of pick up

530
00:29:03,800 --> 00:29:06,720
Speaker 1: steam in terms of buying areas such as information technology,

531
00:29:07,080 --> 00:29:12,320
Speaker 1: communication services, consumer discretionary financials, and then large heaven MidCap

532
00:29:12,320 --> 00:29:15,680
Speaker 1: equities in the US. All right, Sam, so we've seen

533
00:29:15,920 --> 00:29:19,600
Speaker 1: the Federal Reserve be fairly aggressive. I would call it

534
00:29:19,920 --> 00:29:22,600
Speaker 1: on some of their movements here in terms of injecting

535
00:29:22,640 --> 00:29:25,520
Speaker 1: liquidity into the marketplace, we're starting to get we've we've

536
00:29:25,520 --> 00:29:27,400
Speaker 1: gotten some fiscal steaming. This looks like we're gonna get

537
00:29:27,440 --> 00:29:30,240
Speaker 1: another package in the next uh several days. Is this

538
00:29:30,440 --> 00:29:33,880
Speaker 1: something that the markets have to have? An absent and

539
00:29:33,960 --> 00:29:37,840
Speaker 1: aggressive fiscal stimulus. You're less confident in the ability of

540
00:29:37,840 --> 00:29:40,240
Speaker 1: the market to kind of bottom here and maybe start building.

541
00:29:41,160 --> 00:29:43,960
Speaker 1: You know, I appreciate what the Southern and Congress have done.

542
00:29:44,000 --> 00:29:46,600
Speaker 1: It probably removes some of the left tail, some of

543
00:29:46,680 --> 00:29:50,280
Speaker 1: the downside scenarios that could play out are probably removed

544
00:29:50,360 --> 00:29:53,760
Speaker 1: by their actions, by their swift actions. Um. That being said,

545
00:29:53,960 --> 00:29:56,960
Speaker 1: you know again, you know they can't quite you know,

546
00:29:57,080 --> 00:30:00,360
Speaker 1: manufacture of vaccine out of thin air, or make folks

547
00:30:00,520 --> 00:30:03,080
Speaker 1: go out after work or go out on weekends. I mean,

548
00:30:03,200 --> 00:30:05,560
Speaker 1: it is a great example right where you know, there's

549
00:30:05,640 --> 00:30:08,240
Speaker 1: good data now that shows during the week you know,

550
00:30:08,320 --> 00:30:11,760
Speaker 1: things are back to where they were, you know, prior

551
00:30:11,840 --> 00:30:14,520
Speaker 1: to the coronavirus. But then when you look at weekend

552
00:30:14,600 --> 00:30:17,440
Speaker 1: levels of activity, they're only you know a tent for

553
00:30:17,800 --> 00:30:20,840
Speaker 1: you know of where they were pre coronavirus. And what

554
00:30:20,920 --> 00:30:23,880
Speaker 1: that shows you is you know, people are are you

555
00:30:24,080 --> 00:30:27,400
Speaker 1: willing to go to work in order to get a paycheck,

556
00:30:27,720 --> 00:30:30,520
Speaker 1: But what they're not willing to do is spend discretionary

557
00:30:30,600 --> 00:30:34,200
Speaker 1: time or money outside the home quite yet. And that's

558
00:30:34,480 --> 00:30:36,040
Speaker 1: you know, what makes a large part of the U.

559
00:30:36,120 --> 00:30:39,240
Speaker 1: S economy and so um, the FED will support offset prices.

560
00:30:39,320 --> 00:30:41,360
Speaker 1: They will help provide a little bit of a bridge

561
00:30:41,400 --> 00:30:43,800
Speaker 1: to the other side of this. Um. That being said,

562
00:30:44,040 --> 00:30:45,880
Speaker 1: you know, much of that volatility will come from what

563
00:30:46,000 --> 00:30:48,520
Speaker 1: we see as just again a real impairment in the

564
00:30:48,560 --> 00:30:51,800
Speaker 1: short run in terms of consumption. Hey, Samir, thank you

565
00:30:51,840 --> 00:30:54,720
Speaker 1: so much for joining us. To really appreciate your commentary

566
00:30:54,800 --> 00:30:58,200
Speaker 1: and your thoughts. Samir Samana, Senior Global market strategist at

567
00:30:58,240 --> 00:31:03,280
Speaker 1: Wells Fargo Institute. Thanks for listening to the Bloomberg P

568
00:31:03,360 --> 00:31:05,880
Speaker 1: and L podcast. You can subscribe and listen to interviews

569
00:31:05,960 --> 00:31:09,080
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. I'm

570
00:31:09,120 --> 00:31:12,160
Speaker 1: Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa Abram.

571
00:31:12,240 --> 00:31:14,520
Speaker 1: Why it's I'm on Twitter at Lisa Abram woits one

572
00:31:14,760 --> 00:31:17,360
Speaker 1: before the podcast. You can always catch us worldwide. I'm

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00:31:17,400 --> 00:31:18,200
Speaker 1: Bloomberg Radio