Speaker 1: This is Bloomberg Business Week. I'm Karl Masser and I'm
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Speaker 1: search Bloomberg clovel News. We are keeping a watch on
Speaker 1: shares of Boeing because we have seen them trading lower,
Speaker 1: definitely off there at worst levels of the session, but
Speaker 1: still done about four and a half percent. This is
Speaker 1: the company faces a new crisis after a seven thirty
Speaker 1: seven jet fell out of the sky and shina hundred
Speaker 1: thirty two people on board, renewing concerns over that best
Speaker 1: selling family of planes for the company, and as we mentioned,
Speaker 1: sending the shares tumbling. I mean, this is something that
Speaker 1: everybody's been talking about that certainly is George Ferguson is
Speaker 1: senior aerospace, defense and airlines analysts with Bloomberg and Tell Legends.
Speaker 1: George joins us on the phone from New Jersey. George,
Speaker 1: good to have you with us. Uh, some obviously a
Speaker 1: tragedy here. Um, explain though, why you think that the
Speaker 1: shares are reacting this way? Because I gotta tell you
Speaker 1: the seven thirty seven from what I've read, hundred n
Speaker 1: this is the next generation, the one that preceded the
Speaker 1: seven thirty seven Max, so completely different version of the
Speaker 1: seven thirty seven. Uh, this is among the safest airplanes
Speaker 1: out there. Yeah, agreed, Thanks thanks for having me on
Speaker 1: and ye yeah, well we're very you know, we're very
Speaker 1: mindful the fact that this is a human tragedy. Sorry
Speaker 1: for the lives that were lost. Here. The airplane, the
Speaker 1: seven hundred is very safe airplane. You know. One of
Speaker 1: the ways we think about that is that there's been
Speaker 1: over five thousand of those airplanes built, the seven thirty
Speaker 1: seven Dash eight hundred specific variants, and um, there's still
Speaker 1: in service five park. I would imagine a bunch of
Speaker 1: them would come back actually into service as we come
Speaker 1: out of the pandemic. Um. You know, it's really been.
Speaker 1: It's the mainstay of a lot of fleets around the world.
Speaker 1: We see airlines like Ryanair operating a lot of those
Speaker 1: seven thirty seven eight hundreds at twenty plus years of age.
Speaker 1: This particular airplane was about six point eight years old
Speaker 1: from the data we see, which is a fairly young airplane.
Speaker 1: But you know, there are some seven hundreds that have
Speaker 1: been flying in fleets for twenty five years. So we
Speaker 1: when we look at that, we really think, you know,
Speaker 1: this doesn't it doesn't look to be a a Boeing
Speaker 1: systemic kind of manufacturing problem. You know, there's always a
Speaker 1: lot of things that can create a crash. You can
Speaker 1: have mechanical problems, you know, maintenance issues, you can have
Speaker 1: pilot air sadly, and you know that happens everywhere around
Speaker 1: the world that get pilots sometimes just don't make the
Speaker 1: right decisions, many kind of manufacturing defects. But in this case,
Speaker 1: it's been in service too long, the fleet has been
Speaker 1: too successful too much in the air. We really think
Speaker 1: it's probably probably something more discreetly related to that airplane.
Speaker 1: So how quickly do we probably find out exactly what happened?
Speaker 1: I mean between the black box and other things. How
Speaker 1: how quickly would you expect to get more information that
Speaker 1: maybe clarifies exactly what happened. I mean, I think we'll
Speaker 1: start to see information in a couple of days. I
Speaker 1: don't think it takes a long period of time to
Speaker 1: start to get that information. UM. I would expect you know,
Speaker 1: Bowling to go there and be on site as well,
Speaker 1: to be involved, and hope, you know, the Chinese regulators
Speaker 1: I think would allow that. And um, you know, I
Speaker 1: think everybody it may become very obvious pretty quickly when
Speaker 1: they get to the black box and the scene. UM,
Speaker 1: it may not, but again I think in a couple
Speaker 1: of days you'd know. To us. The bigger challenge right
Speaker 1: here is, Um, Bowling already has a bit. You know,
Speaker 1: Bowling's Max isn't allowed to fly in China's aid. Bowing
Speaker 1: has a very delicate relationship with China right now, but
Speaker 1: the Max can't fly in China and Russia. UM, And
Speaker 1: so know that they're they need to be you know,
Speaker 1: it's an important market for them, and so that they'll
Speaker 1: I think be very cooperative and be on there, willing
Speaker 1: to be on the ground and help the Chinese figure
Speaker 1: out what has happened. Here because they don't want this,
Speaker 1: you know, they don't want this to become an issue
Speaker 1: about the airplane and the mains action. And I wonder
Speaker 1: what it means for Boeing as a company. You know,
Speaker 1: in the wake of the seven thirty seven Max tragedy
Speaker 1: where two planes went down in a very short period
Speaker 1: of time, the subsequent grounding of those seven thirty seven
Speaker 1: Max aircraft, including still in China. When when a lay
Speaker 1: person sees that a seven thirty seven went down and
Speaker 1: doesn't understand the nuance, is that the type of issue
Speaker 1: that that could affect the way that people make decisions
Speaker 1: about how they travel and what they travel on. Yeah,
Speaker 1: I mean, I think short term potentially, I'm actually a
Speaker 1: little bit surprised at the even the market losing the
Speaker 1: US today and some of the people I've talked to
Speaker 1: who don't realize that the Max are two different, you know,
Speaker 1: two different different airplanes. So I think it's important what
Speaker 1: we find over time is that, um, it's stages, you know,
Speaker 1: I think it's in early days it's very front of
Speaker 1: mine and then you know, in a couple of weeks
Speaker 1: in a fade away. But again, if you're bowing, you
Speaker 1: prefer never to have these these kind of you can't
Speaker 1: prevent them, but you prefer not to have. Hey, George,
Speaker 1: bigger picture if we just you know, step back for
Speaker 1: a second and I think about what's going on with
Speaker 1: the Russian invasion war in Ukraine, and we keep seeing,
Speaker 1: you know, what China will say or not say about
Speaker 1: what's going on, what the US will say or not
Speaker 1: say about what's going on, and the moves that you know,
Speaker 1: various NATO nations, including the US, are are taking to
Speaker 1: support Ukraine. It's just a reminder how complicated this is.
Speaker 1: And you just talked about Boeing and how important that
Speaker 1: Chinese market is. Just give us some context why companies
Speaker 1: may make some moves, particularly with Russia, but you know,
Speaker 1: are hesitant to some extent because of a market like China.
Speaker 1: It's it's crucial to Boeing's growth going forward. And just
Speaker 1: got about forty seconds. Yeah, totally. You know, before the pandemic,
Speaker 1: China was probably more than ten airplanes a month of
Speaker 1: the seven thirty seven. That's why there's potting them flying there.
Speaker 1: Bowing wants to go to thirty one. Seven thirty seven's
Speaker 1: a month, and I didn't think they can sustain it
Speaker 1: unless they get China to reaccept the max. And it's
Speaker 1: probably worth eight airplanes a month out of thirty one.
Speaker 1: So you know, what's that something between twenty five and
Speaker 1: it's in a very important market. It's massive, and it
Speaker 1: just reminds us how complicated all of this is and
Speaker 1: how troubling. UM, George, thank you so much, really appreciate
Speaker 1: the analysis. George Ferguson joining us on the phone in
Speaker 1: New Jersey. He's senior Aerospace, Defense and Airlines analyst for
Speaker 1: Bloomberg Intelligence. That's our in house group of analysts. And
Speaker 1: just a reminder, we mentioned BOKU shares are down just
Speaker 1: down about three percent at their lows, they were down
Speaker 1: to more than six percent. Surprising to see moves like this,
Speaker 1: but as George said, there's a lot of nuance here. Yeah,
Speaker 1: and just remember it's an overall downward market. But Boeing
Speaker 1: definitely reacting to that news. This is Bloomberg, Great you,
Speaker 1: This is Bloomberg Business Week with Carol Masser and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. So among the
Speaker 1: COVID headlines on our radar, the B A two subvariant
Speaker 1: of O Macron driving up cases in Europe now accounts
Speaker 1: for about infections here in the United States, where indoor
Speaker 1: mask and vaccine requirements have largely been rolled back. That
Speaker 1: is true even in our office space. The glass dividers,
Speaker 1: the plastic dividers, they came down, they did. I did
Speaker 1: go to Broadway this weekend for the first time since
Speaker 1: the pandemic and they had masking in effect. Vaccination required
Speaker 1: as well. We had to show our vaccine but it
Speaker 1: was packed. It was Yeah, it was totally packed. But
Speaker 1: we all wear masks, right, So that's kind of our
Speaker 1: new reality, all right. So that's going on Mainland China,
Speaker 1: Shanghai reporting a record number of new cases after authorities
Speaker 1: expanded a mass testing program, and Dr Anthony Faucci tim
Speaker 1: saying a likely rise in US COVID nineteen cases probably
Speaker 1: will not amount to a full scale surge or prompt
Speaker 1: renewal of widespread restriction. So that's today's environment. Also thinking
Speaker 1: about what all this means for healthcare workers. That's why
Speaker 1: we have a great voice. Dr Imont abuse Aide, the
Speaker 1: co founder and CEO of Incredible Health. It's a marketplace
Speaker 1: for connecting hospitals to nursing talent for nurses and hospitals
Speaker 1: to really find one another to actually work. So Dr
Speaker 1: Abuzaide has some great insight into how these hospitals are doing. Uh,
Speaker 1: she joins us on the phone from San Francisco. Dr Opposide,
Speaker 1: how are you. I'm doing well. Thank you so much
Speaker 1: for having me today. Yeah, it's good to have you
Speaker 1: back with us. Um Okay, I want to start with
Speaker 1: with with burnout here from from healthcare workers, because Carol
Speaker 1: went over all the headlines we've all been thinking about
Speaker 1: COVID in the different places where we are. What do
Speaker 1: you see on Incredible health platform thanks to a survey
Speaker 1: that you did in terms of of of burnout for
Speaker 1: nurses and and how much are how concerned are you
Speaker 1: about it? Yeah? So we just launched our third annual
Speaker 1: State of Nursing Report and we you know, it includes
Speaker 1: data from tem per cent at US nurses or four
Speaker 1: hundred thousand nurses. So what we're seeing is that over
Speaker 1: the next twelve months, about one third of nurses UH
Speaker 1: plans to quit their jobs and the number one reasons
Speaker 1: it is burnout and there high stress environment. Of nurses
Speaker 1: are citing burnout as the number as the reason why
Speaker 1: they want to leave their current roles. So I am curious,
Speaker 1: then are they leaving because they just had it and
Speaker 1: they're stopping work completely, or they also because it's a
Speaker 1: tight labor market they know they can leave and they
Speaker 1: can find other jobs. It's actually both. So we definitely
Speaker 1: have a percent of nurses roughly about that are thinking
Speaker 1: about permanently leaving the professional together. Uh. You know, that's
Speaker 1: of course going to exacerbate our ongoing nursing shortage that
Speaker 1: we're that we've been facing even before COVID. Uh. And
Speaker 1: then but then the majority really are just looking for
Speaker 1: a different role within nursing that will you know, hopefully
Speaker 1: be less stressful, have better staffing, and therefore they won't
Speaker 1: get overworked as much. In some ways, that is a
Speaker 1: little bit wishful thinking, um, because every hospital right that
Speaker 1: we work with, at least right now is understaffed and
Speaker 1: is um you know those nurses are are are working
Speaker 1: over time as well. UM. But you know, you know,
Speaker 1: sometimes you think the grass is green. Are right? Incredible too,
Speaker 1: because we tie back to what we heard from FED
Speaker 1: chair J Powell about the labor shortage and the labor
Speaker 1: crunch and the idea of workforce participations still not to
Speaker 1: levels Carol where they were before the pandemic. And I
Speaker 1: think to myself, Okay, it's it's it's it's every single
Speaker 1: industry here. And if healthcare workers continue to be overburdened,
Speaker 1: even if hospitals aren't overflowing right now, then that's a
Speaker 1: huge issue for next time. Hospitals do take on a
Speaker 1: large number of people. Yeah, exactly, so what does that mean?
Speaker 1: So what that means that what I mean, what we're
Speaker 1: seeing on the hospital side is that actually, yeah, patients
Speaker 1: demand continues to increase, right um in COVID of course
Speaker 1: creates more patient numbers, but there's also many patients that
Speaker 1: have delayed care throughout the last two years of the pandemic.
Speaker 1: And so and then many of the hospital and health
Speaker 1: systems that we work with are expanding. They're adding more
Speaker 1: locations and more units and so all that requires more staff. Um,
Speaker 1: Are they paying more? Are they paying more for the
Speaker 1: workers that they can get? They are. Yes. We have
Speaker 1: seen a hundred and increase in in offering up sign
Speaker 1: on bonuses when it comes to nurse compensation. UM. We've
Speaker 1: also seen in you know, in the state of Texas alone,
Speaker 1: sign on bonuses have doubled in terms of the amount
Speaker 1: um from fifty five eight hundred to ten thousand, seven
Speaker 1: hundred dollars average being the sign on bonus in the
Speaker 1: state of Texas UM and then the state of Florida
Speaker 1: has had the biggest increase in in in uh in
Speaker 1: in employers offering sign on bonuses. So we are definitely
Speaker 1: seeing compensation increase. You know, it worries me because I
Speaker 1: feel like this is a supply and demand story that
Speaker 1: the demand is only get increase for nursing care as
Speaker 1: we all get older, lived longer, and then the supply
Speaker 1: is not there, So you do wonder about what that
Speaker 1: squeeze will mean UM going forward, we get very briefly
Speaker 1: dr abbusated, how much higher do you see wages going
Speaker 1: in the next year? Very briefly, over the next twenty
Speaker 1: four months, we definitely predict wage inflation going up at
Speaker 1: least another five to seven percent. That's a lot and
Speaker 1: that we'll see play out certainly in those inflationary numbers.
Speaker 1: Drymon Aboz, thank you so much, co founder CEO. She
Speaker 1: is of incredible health once again joining us on the
Speaker 1: phone from San Francisco. I mean, that's the reality of
Speaker 1: the job market. The healthcare situation I think is certainly special,
Speaker 1: not an anomaly, in that I think there are people,
Speaker 1: as she just said, that are just so burned out
Speaker 1: post pandemic. Yeah, they go and switch careers as a
Speaker 1: result of what happened over the last two years. Well,
Speaker 1: and that survey also talks about verbal and physical assault
Speaker 1: by a patient or a member of a patient's family.
Speaker 1: To that a lot of members see this is Bloomberg Radio.
Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. Well, fascinating
Speaker 1: story online at Bloomberg Business Week about Silicon Valley's wealthiest
Speaker 1: Russian who built his wealth making lucrative pets on a
Speaker 1: few names that you know Airbnb, Ali Baba, Twitter, Facebook,
Speaker 1: and a lot more. He Now, though Tim is distancing
Speaker 1: himself from President Putin, we're talking about none other than
Speaker 1: Urie Milner. You may know from firms such as Digital
Speaker 1: Sky Technology is also known as DST. Max Chafkin, his
Speaker 1: features editor at Bloomberg Business Week. He joins us on
Speaker 1: the phone from Queens, New York. The story by the Way,
Speaker 1: by Sarah McBride. It's now on the Bloomberg terminal. You
Speaker 1: can also read it at Bloomberg dot com. Slash business
Speaker 1: Week also joining us as Joel Weber editor at Bloomberg
Speaker 1: Business Week. He's with us right now in the Bloomberg
Speaker 1: Interactive Broker's studio, Joel. Uh. Jurie Milner a name very
Speaker 1: familiar to people across Silicon Valley. Uh. He's been involved
Speaker 1: in some of the most as Carol mentioned, the names
Speaker 1: that uh, many people are familiar with if they use smartphones. Uh, Airbnb,
Speaker 1: Facebook and more. Living under a rock, Yeah, exactly who
Speaker 1: is he? Uh? Really prominent venture capital uh and has
Speaker 1: long been, as you mentioned, involved in a lot of
Speaker 1: startups that have gone on and had great success, which
Speaker 1: obviously made him very wealthy. Um, the wealthiest Russian in
Speaker 1: Silicon Valley actually, and obviously you know, all things Russia
Speaker 1: right now are of great interest. And so when Sarah
Speaker 1: reached out and said, hey, um, I'm talking to to Uri,
Speaker 1: we said, what's he's saying? And that's for hours. Yeah,
Speaker 1: We've got a lot of great access and and and
Speaker 1: the and Max who edited the story, I think did
Speaker 1: a great job pointing out you know this, this risk
Speaker 1: for for Urie and all this, and how quick he
Speaker 1: is to attempt to put some distance between he imputin,
Speaker 1: although not maybe as much distance as one would think. So, so, Max,
Speaker 1: what what jumped out to you and her reporting? Yeah,
Speaker 1: I mean what's interesting about Yuri? So it's it's not
Speaker 1: just that Youuri Milner is this really important venture capitalist
Speaker 1: um you know, you know, he's like right up there
Speaker 1: with like, say, you think about the most important bcs
Speaker 1: in the last twenty years. It's like Mark and Rees
Speaker 1: and Peter Keel uh and probably you're a Milner UM
Speaker 1: and and and what. But it's not just that he's
Speaker 1: um made a lot of money and made a lot
Speaker 1: of investments in companies you've heard of. It's that he's
Speaker 1: kind of put himself at the center of Silicon Valley.
Speaker 1: You know. He bought this UM hundred million dollar house
Speaker 1: UM in Los Altos, you know, which is really hard
Speaker 1: of Silicon Valley has you know, fun spent hundreds of
Speaker 1: millions of dollars funding sort of tech focused philanthropy. You know,
Speaker 1: his events have been sort of hot tickets, not just
Speaker 1: among among tech types but also in Hollywood and so
Speaker 1: but of course, basically the seed funding here, as Joel
Speaker 1: is alluding to, um comes from uh, basically sources connected
Speaker 1: to to the Kremlin. So um, there there was some
Speaker 1: money early on from Alisher Usmanoff, who is a sort
Speaker 1: of a metals magnet, basically a pro Putin oligar. Another
Speaker 1: investment in Twitter. There was money from you know, Russian
Speaker 1: state controlled bank BT beats UM and and and the
Speaker 1: thing that's pretty interesting here is Milner has spent as
Speaker 1: as he told Sarah, basically years trying to put some
Speaker 1: distance between himself and the Kremlin. And and in fact,
Speaker 1: you know, he shared actually a lot of sort of
Speaker 1: new information. I mean, he hasn't seen Uzmanoff in five years,
Speaker 1: he hasn't been to Russian eight years. Um. So so
Speaker 1: he's basically making the case like, look, yes, um, there
Speaker 1: is a lot of money that I had early on
Speaker 1: that was connected to to Vladimir Putin and the Kremlin.
Speaker 1: But it's been a very long time since I've taken
Speaker 1: any money from those guys. And really, you know what,
Speaker 1: this has nothing to do with me. What I did
Speaker 1: find so interesting, Max, are uh the number of people
Speaker 1: who like came to bat for him. You mentioned, uh,
Speaker 1: some of the folks who he you know, when you
Speaker 1: think of the most important Silicon Valley venture capitalist, right
Speaker 1: Peter Tielmark and Trees uh and by the way, all
Speaker 1: three of them involved in early relatively early in Facebook.
Speaker 1: So that'ser Ata least that's something there too. But who
Speaker 1: who did Sarah speak to you that really went to
Speaker 1: bat for for euriamil there? Yeah, I mean there's um.
Speaker 1: You know, the story has comments from Ryan Peterson, the
Speaker 1: the CEO of Flex Sports, Max Levchin, who's a you know,
Speaker 1: well known Ukrainian American UM who's also you know, pretty
Speaker 1: close to Jeri Milner UM. And you know, there are
Speaker 1: others that we we didn't include in the story. I mean,
Speaker 1: the the the kind of Techily has definitely um circled
Speaker 1: the wagons to some extent, and they said like, look
Speaker 1: this this guy really has nothing to do UM with
Speaker 1: with what's happening in Russia. And and of course you
Speaker 1: know there is some there's some truth to that, right
Speaker 1: he didn't he hasn't made his money in the same
Speaker 1: way that many of these other um, you know, Russian
Speaker 1: billionaires made their money UM and and and he really
Speaker 1: has had some business on the other hand right there
Speaker 1: that you know, you could imagine this. This does kind
Speaker 1: of um, you know, color some of some of the
Speaker 1: stuff that's happened in recent years, and it's definitely gonna
Speaker 1: be a challenge he has to work through as he
Speaker 1: raises money for subsequent funds. All Right, I'm gonna just
Speaker 1: take us away for a moment, because one of the
Speaker 1: things that jumped out when I was reading and and
Speaker 1: all this is, you know, disisting from Vladimir Putin, but
Speaker 1: that investment in SpaceX, like that he got out of
Speaker 1: kind of early. Well and exactly, yeah, that's that's previously reported. Um. Yeah,
Speaker 1: and as we say in the story, in twirteen, Urie
Speaker 1: Millner UH put about ten million bucks into SpaceX. Now
Speaker 1: that would not be a hugely consequential thing, except that
Speaker 1: at that same time SpaceX was basically going around bragging
Speaker 1: about how, unlike other UM major defense contractors UM, including
Speaker 1: like the main one that the Air Force was using
Speaker 1: UM to to launch rockets UH, SpaceX did not buy
Speaker 1: Russian engines, and they in fact followed the lawsuit against
Speaker 1: UH at the Department of Defense saying that that their
Speaker 1: competitors were in effect funding, you know, the Russian defense industry,
Speaker 1: and and so so this was not disclosed, and Milner
Speaker 1: actually left, um, you know, basically exited investment. Two years
Speaker 1: later he told us that, you know, it had nothing
Speaker 1: to do with with this kind of concern over um,
Speaker 1: you know, Russian money. That was just entirely about you know,
Speaker 1: his his own judgment of the border directors. But it
Speaker 1: isn't it is an interesting wrinkle. It's also interesting and
Speaker 1: it wasn't previously disclosed. He doubled his money on that
Speaker 1: one from ten million, and I'm guessing it would be
Speaker 1: a whole lot more had he held onto it, right,
Speaker 1: So yeah, and also helping potentially fight Putin in the
Speaker 1: war since SpaceX has been rather helpful over there to
Speaker 1: all right, Well it's a great story, uh, and breaking
Speaker 1: some news there as well. Max Chapkin, thank you so much,
Speaker 1: really appreciate it. As we mentioned Sarah McBride writing that story.
Speaker 1: This is Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio watching shares of
Speaker 1: Berkshire Hathaway certainly today because uh, mr Buffett has been
Speaker 1: doing some deal something he hasn't been doing it some time.
Speaker 1: Berkshire Hathaway putting money to work, this time Tim buying
Speaker 1: Allegheny for liven point six billion in cash. As we said,
Speaker 1: you know, Warren Buffett has really shied away from doing
Speaker 1: dealmaking in the last few years, which is something he's
Speaker 1: so known for. He's got he's got the cash to
Speaker 1: do it. The company is gonna acquire all out Any
Speaker 1: and Allegheny shares eight forty eight dollars and two cents
Speaker 1: each in cash. It's a premium to the insures average
Speaker 1: stock price over the last thirty days. Matthew Palazola is
Speaker 1: Property and Casualty insurance senior analyst. He also covers Berkshire Hathaway,
Speaker 1: so a perfect voice to have on this afternoon with
Speaker 1: Bloomberg Intelligence. U, Matt take us into this deal here.
Speaker 1: Carol mentioned that it's kind of a you know, back
Speaker 1: to what Berkshire has done, but you know, hasn't done
Speaker 1: in a few years. What sticks out to you about
Speaker 1: this deal because you write that Buffets buying a mini me? Yeah,
Speaker 1: I mean I've always looked at Allegheny as kind of
Speaker 1: a mini Berkshire Hathaway. In two thousand twelve, they started
Speaker 1: buying other businesses like Berkshire does with using the insurance
Speaker 1: float to buy these non financials businesses and generate a
Speaker 1: return off them. It's only in recent years where those
Speaker 1: businesses have started to give a nice return. But uh,
Speaker 1: it was very complimentary to the insurances, and it was
Speaker 1: kind of a surprising deal for me because I wouldn't
Speaker 1: have thought they would have bought a mini me. I
Speaker 1: thought they would buy something else use that because they
Speaker 1: have so much money that why not just put it
Speaker 1: to work or what I thought. One I thought the
Speaker 1: next somebody they were gonna buy is gonna be something
Speaker 1: we never heard of, or I never heard of some
Speaker 1: company that makes you know, unique parts for machines that's
Speaker 1: the only one in the world, or something like that.
Speaker 1: Um buying an insurance company, I was completely surprised because
Speaker 1: they have ten seventy billion dollars of insurance premiums themselves.
Speaker 1: Alleghany has about ten seven to ten right, so it's
Speaker 1: very small. So I was I was surprised they would
Speaker 1: want to do something, you know, in their in their
Speaker 1: kind of lane. But the Alleghany business is actually very complementary.
Speaker 1: There's there's small parts of it, like small commercial insurance.
Speaker 1: A lot of companies are getting into Um and this
Speaker 1: excess and surplus or specialty lines insurance where pricing is
Speaker 1: really good. So it's actually a nice little bolt on
Speaker 1: for their insurance business. Why is this classic buffet classic buffet?
Speaker 1: Because you know, he had recently talked about the market.
Speaker 1: Nothing was interesting to him, so I was very surprised
Speaker 1: for him to do anything right. And when you look
Speaker 1: at the gaming stock, it never actually recovered all the
Speaker 1: way back from its pandemic low, so it never even
Speaker 1: reached where it was pre pandemic. Uh. In addition, they
Speaker 1: did pay on a price to book basis a little
Speaker 1: bit more, but it was trading at the same price
Speaker 1: to book in two thousand nineteen, so I actually think
Speaker 1: it's a great value deal. So you kind of see
Speaker 1: this unique asset trading at a good price and pick
Speaker 1: it up. Okay, So that back to the like you know,
Speaker 1: Graham and Dodd value investing. When it for buffett Um,
Speaker 1: what does uh Berkshire Hath Theway do with it? So
Speaker 1: Berkshire's m O is they buy companies and they let
Speaker 1: them run. They buy the managers, they buy the teams,
Speaker 1: they let it go. I'd be very surprised if you
Speaker 1: have a ginormous insurance business that you just have another
Speaker 1: little insurance business on the side. But I think that's
Speaker 1: what's That's what I'm asking the question. I mean, are
Speaker 1: there I hate to use the term synergies because classically,
Speaker 1: when you have an acquisition of a company, you see
Speaker 1: it being folded into another company. You know, it doesn't
Speaker 1: make sense to actually buy a company if you're not
Speaker 1: going to if you know, one and one doesn't equal three, right.
Speaker 1: But in the in Buffett's case, how what does he
Speaker 1: typically do? So I don't think he doesn't. He hates
Speaker 1: the word synergies and they never buy anything for synergy.
Speaker 1: But I hate it too because I hate when executives
Speaker 1: use it because it's because it justs and it just
Speaker 1: means laoffs. Right, Yeah, they're not They're not going to
Speaker 1: take costs out. It's not a cost play. It's not
Speaker 1: a synergy play. It's a great company, uh that they
Speaker 1: got at a decent price. The CEO of Allegheny used
Speaker 1: to work for Buffett, so uh, he had even said
Speaker 1: I'm glad to have him on board. So they're not
Speaker 1: going to chop out the management team or anything like that. Matt.
Speaker 1: The deal includes a ghost shop period, so they ensure
Speaker 1: can solicit consider other acquisition proposals for twenty five days.
Speaker 1: Do we have to be concerned that somebody else might
Speaker 1: come in here? It was a decent premium right and
Speaker 1: the ship prices I think trading around there, it's training
Speaker 1: around that. I don't I don't think so. I don't
Speaker 1: see a natural buyer necessarily want that. Then why not
Speaker 1: just be one and done? I think it had to
Speaker 1: do it for for governance reasons. Okay, was Alleghany on
Speaker 1: your radar as as you know at Bloomberg Intelligence in
Speaker 1: one of the companies that you cover. We didn't cover it,
Speaker 1: but definitely on our radar as as kind of a
Speaker 1: sizeable company out there. It's mostly a reinsurance company, which
Speaker 1: is insurance for insurance companies. UM, so we paid attention
Speaker 1: to it in that way, but we we actually didn't
Speaker 1: cover it. Was like insurance reinsurance, like how many levels
Speaker 1: do we go down? Matures the reinsurance, the retro reinsurers
Speaker 1: come on, who insures the retro reinsures? Well, I just
Speaker 1: get about a minute here and I'm thinking, you know,
Speaker 1: we're not quite sure what the outlook is. Everybody's been
Speaker 1: thrown into a tizzy because of J. Powell maybe being
Speaker 1: more aggressive, you know, insurance business and a rising rate environment.
Speaker 1: Good bad? Like, how do we think about this going forward? Good?
Speaker 1: I mean, the interest rates will help investment income as
Speaker 1: long as you have this kind of Goldilock scenario of
Speaker 1: not too much inflation, interest rates going up, that's good
Speaker 1: for insurance companies. All right, we're gonna leave it there.
Speaker 1: I really appreciate it. Matt Palazola, of course, of our
Speaker 1: Bloomberg intelligence team. Yeah, I bet you let me drive.
Speaker 1: Oh no, no, no no, no, all right, please, I'll do
Speaker 1: the right I want to drive. A good question. This
Speaker 1: is the drive to the Globe on Bluebird Radio. All Right,
Speaker 1: just got about ten and a half minutes left in
Speaker 1: today's trading session. We've been bouncing around, certainly on the
Speaker 1: equity trade. Uh, we're near our worst levels of the session.
Speaker 1: But bonds man, no doubt about it. Uh, selling off
Speaker 1: and yields moving up. That has been pretty consistent here, Tim.
Speaker 1: Let's get into it with Abbe Desponde, founder and ce
Speaker 1: IO at Center Stone Investors, joined us on the phone
Speaker 1: from New York City. Abbe, how are you all right?
Speaker 1: How you doing doing well, thanks, we gotta talk Powell.
Speaker 1: I mean, fifty basis points essentially back on the table
Speaker 1: right now. The Central Bank is prepared to raise interest
Speaker 1: rates at its next meeting by half a percentage point
Speaker 1: if needed, deploying that more aggressive tone towards curbing inflation
Speaker 1: then he used just a few days earlier, Carol gave
Speaker 1: us an update on the equity market in the bond
Speaker 1: market as a result. What are your takeaways from what
Speaker 1: you heard from Powell today? I mean everyone has an
Speaker 1: opinion about about this, and most people think that wait,
Speaker 1: I was a little nervous where you were going to
Speaker 1: go with that. Well, I'll say something that's probably not
Speaker 1: uh shared by a lot of people, which is they
Speaker 1: don't have the ability to go as high as they
Speaker 1: as people think they're going to go a three percent,
Speaker 1: four percent or whatever. And the main reason is because
Speaker 1: the debt to GDP ratio is it climbs highers, it
Speaker 1: has climbed higher since the two thousands make financial crisis.
Speaker 1: It's required lower and lower peak rates in order to
Speaker 1: really install the economy. I mean, the last rate hike
Speaker 1: cycle ended it two and a half percent short then,
Speaker 1: and debt to GDP is now higher than it was
Speaker 1: in two thousand eighteen. So if they can get much
Speaker 1: higher than two, I'd be shocked. Are you saying, because
Speaker 1: the servicing and the cost or what yeah, I mean
Speaker 1: in the the normous amount of leverage, it takes less
Speaker 1: and less an interest hype to really spread the pain
Speaker 1: across a large part of the economy. So wait, so
Speaker 1: I just want to sure I understand this. I'm a
Speaker 1: little slow on a Monday. Uh. But obviously what you're
Speaker 1: saying is that the debt to GDP ratio is higher
Speaker 1: than it was, and as the Fed raises rates, right,
Speaker 1: the cost of servicing that debt will go up and
Speaker 1: that will be problematic. It is, and it's not just
Speaker 1: in the said but you know corporate Uh, corporations are
Speaker 1: highly indebted, much more so than they they've ever been UM.
Speaker 1: And you know, you can see already the credit indicators
Speaker 1: are starting to even with a twenty five basis point
Speaker 1: federal funds federal funds rate, you can see the credit
Speaker 1: markets already starting to kind of you know, smiff out
Speaker 1: some potential problem. Credit yields are hot, or how yield
Speaker 1: spreads or you know four percentage points or something like that.
Speaker 1: And you know, don't forget now half or more of
Speaker 1: the corporate bond market is around junk or worse rated,
Speaker 1: So it's an enormous problem. And you also have you know,
Speaker 1: some of the other kind of factors here of mortgage
Speaker 1: rates are not three percent or for an ad percent
Speaker 1: now on the bank rate martyrs. So there's plenty of already, um,
Speaker 1: you know, head winds building that are just going to
Speaker 1: prevent the FED from getting anywhere close to that three
Speaker 1: or four percent numbers, my guess. And what we're left
Speaker 1: the is with a you know, people have been wondering
Speaker 1: for for a long time, when is the US going
Speaker 1: to have negative interest rates? Well, you're gonna have them soon.
Speaker 1: Can have negative real interest rates by um, well, they're
Speaker 1: already negative and they're gonna peek out at negative. Can
Speaker 1: I just ask you something in terms of the corporate
Speaker 1: debt that you said that we're that you know, corporations
Speaker 1: are also highly indebted. But help me explain something or
Speaker 1: help me understand something here too, because we've talked about
Speaker 1: a lot of corporate debt restructuring, especially as rates were low, right,
Speaker 1: we saw companies tapping debt markets to restructure that debt.
Speaker 1: You're ing though that debt will come um true or
Speaker 1: what will be, they'll have to reservice it, you're saying
Speaker 1: soon and that, and they'll be forced to do higher rates.
Speaker 1: And so that's problematic because I'm a most problematic Yeah.
Speaker 1: But also the fact that such a large part of
Speaker 1: the corporate debt market is that John, and when you're
Speaker 1: talking about junk bonds, you're talking about default rates of
Speaker 1: you know, four percent just in a on average over
Speaker 1: a long period of time. So as the economy slows,
Speaker 1: there's a larger part of the economy that is exposed
Speaker 1: to potential default and that you know, of course is
Speaker 1: a self reinforcing cycle potentially on the downside as the
Speaker 1: economy slows down. So all of these factors kind of
Speaker 1: prevent the Fed from raising rates, you know, to the
Speaker 1: degree that would be required to offset the inflation rates,
Speaker 1: in other words, to get to that four or five rate,
Speaker 1: which would be kind of where inflation probably is in May, June, July.
Speaker 1: It's just gonna be very difficult for them to get there.
Speaker 1: So that, you know, the good and bad of that
Speaker 1: is that, you know, those that are expecting a bear
Speaker 1: market stocks go down or whatever. I don't think it's
Speaker 1: going to happen. That it could get people could get
Speaker 1: that fear. But um, more than likely that said, it's
Speaker 1: going to be prevented from raising rates to the extent
Speaker 1: that it would cause a major major stock I mean
Speaker 1: stocks can still go down, but not like a you know, wipeout.
Speaker 1: So what does this mean for inflation? Uh, Inflation remains
Speaker 1: a cyclical phenomena at this point, Um, except for you know,
Speaker 1: the horrific things going on in Europe and the effect
Speaker 1: on oil food prices. You know, for the different parts
Speaker 1: of the world, the inflation matters in different ways. In
Speaker 1: the United States are basically a self sufficient economy as
Speaker 1: far as food, so it comes out of the pocketbooks
Speaker 1: of US uh, you know, households, but it goes into
Speaker 1: the pocketbooks of chemical producers and farmers and what have
Speaker 1: you that does not and also food in the United
Speaker 1: States and developed markets. You know, it's a small portion
Speaker 1: of the total bill of the product that you pay.
Speaker 1: Everything else is marketing and transportation and brand building and
Speaker 1: all that stuff. If you're in Northern Africa, we prices
Speaker 1: go up by your cost of eating went up three
Speaker 1: that's a major problem for those parts of the world,
Speaker 1: So inflation is going to affect different parts of the
Speaker 1: world in different ways. Um And I don't think anything
Speaker 1: that I've just said is really revolutionary or all that original.
Speaker 1: It's just kind of reflecting that the realities from what's
Speaker 1: happening in Ukraine, so all kind of games that inflation
Speaker 1: is a little bit more sticky. Yeah, then I would
Speaker 1: have thought even you know, six months ago, I thought
Speaker 1: it is much more of just a sickle phenomena because
Speaker 1: of the supply issues in the shutdowns. But there's there's
Speaker 1: some tail ones here. You gave us some really smart
Speaker 1: things to think aboutespecially in a week we're going to
Speaker 1: hear from a lot of fit speakers. Already heard from
Speaker 1: j Powell today as we as we've discussed all we've
Speaker 1: got to run. But hopefully we get to back real soon.
Speaker 1: I'llbe desponde. He's found and chief investment officer Centerstone Investors,
Speaker 1: on the phone from New York City. I thought that
Speaker 1: was you know, you do wonder what will maybe prevent
Speaker 1: the FED from being as aggressive? Um or every meeting
Speaker 1: they're going to go and they're going to see what
Speaker 1: the world is like. Right if he says the FED
Speaker 1: isn't able to raise interest rates as much as they
Speaker 1: want to, then what does it mean for prices and
Speaker 1: stable prices right? And does that does that correct? Maybe
Speaker 1: as demand you know, ultimately goes down, we will see.
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