Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Jason Kelly. We're here every day bringing you the latest
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Speaker 1: listen to our radio show weekdays at two pm Eastern
Speaker 1: only on Bloomberg Radio. I gotta say though, one of
Speaker 1: the stories, uh, and one of the main stories on
Speaker 1: the virus today, that's a little maybe disturbing, um, and
Speaker 1: maybe we just need to kind of understand it is
Speaker 1: about how the first US virus case came weeks before
Speaker 1: previously thought. Uh. Here with our daily coronavirus update. Drew Armstrong.
Speaker 1: He is team leader for US Healthcare Bloomberg News. As
Speaker 1: we've said repeatedly, you have got to check out all
Speaker 1: of the coverage that has been led by Drew about
Speaker 1: the virus really keeping us informed. Drew joining us once
Speaker 1: again on the phone in New York, Drew. Good to
Speaker 1: have you back with us. This story about the first
Speaker 1: case coming weeks before previously out. My daughter and I
Speaker 1: were actually having conversation about this, like, you know, people said, oh,
Speaker 1: I think I had the virus. Well, why didn't we
Speaker 1: see more cases in earlier on help us understand this?
Speaker 1: And what's the significance of this? Well, I think you
Speaker 1: know what. What you're actually seeing here is the final
Speaker 1: effect of what we've known for a long time was
Speaker 1: a really really lackluster testing situation in the United States.
Speaker 1: People complain about the testing UM not being sufficient now,
Speaker 1: but if you look back to February, when we know
Speaker 1: that we were seeing the very first trickle of identified cases,
Speaker 1: the only testing that was happening was actually being done
Speaker 1: by the CDC, State and local public health labs did
Speaker 1: not have their own tests. When they finally got those
Speaker 1: tests sent by the CDC, they didn't work. It took
Speaker 1: essentially a month for real, significant, more widespread testing to happen.
Speaker 1: And so now all of a sudden, we're looking back
Speaker 1: and we're finding more and more people who did have
Speaker 1: these infections UM and additionally finding some of these first
Speaker 1: early deaths. You know, we were also at that time
Speaker 1: in the middle of a reasonably active flue season, which
Speaker 1: may have masked some of the UM cases that may
Speaker 1: have been circulating early. So it's it's a hint at
Speaker 1: how much we don't know UM and and that amount
Speaker 1: is definitely quite significant, I think, and Drew, you know,
Speaker 1: we were talking about it in my house this morning too,
Speaker 1: because it feels like one of these things that really
Speaker 1: could dramatically change the narrative and the reality going forward.
Speaker 1: Is they're a positive read on this that basically says
Speaker 1: this was circulating a lot, This was in the population.
Speaker 1: We had a lot of people who had either mild
Speaker 1: or medium systems and as you say, may have thought
Speaker 1: they had the flu, but really they had this that
Speaker 1: will maybe portend a broader immunity or a broader ability
Speaker 1: to sort of deal with this in the short and
Speaker 1: mid term. I wish that was the case. But if
Speaker 1: you look at some of the research that's been been
Speaker 1: done out of that area, and you know, all prefaces
Speaker 1: by saying some of this, some of these studies I'm
Speaker 1: about to discuss are pretty controversial. There's been some criticism
Speaker 1: other methods, but you know, there have been findings that
Speaker 1: as many as you know, four percent of people in
Speaker 1: Santa Clara County, um in in l A H may
Speaker 1: have been UM effect by this, And there's some variances
Speaker 1: in those estimates, but they're around that, around that mark,
Speaker 1: and you know that tells you that, yes, this virus
Speaker 1: was here, it was probably circulating to some degree. If
Speaker 1: we believe that those studies are accurate. It doesn't really
Speaker 1: provide any reassurances on you know, things like herd immunity,
Speaker 1: which you need, you know, fifty six of the population
Speaker 1: to have been infected and has a level of immunity.
Speaker 1: In order to reach that. There is a tremendous amount
Speaker 1: we still don't know about that. UM. You have to
Speaker 1: have quite a bit of penetration of the virus or
Speaker 1: have a vaccine that essentially replicates that UM that process.
Speaker 1: And I don't think that there's any thinking, at least
Speaker 1: in in the places where we know about that level
Speaker 1: of penetrance UM, that we're well on our way to
Speaker 1: any kind of immunity, of widespread immunity. Here my optimism.
Speaker 1: Well see, and one of the conversations we were having
Speaker 1: is that, Okay, I mean I thought I maybe had
Speaker 1: it because some of the symptoms but maybe not as severe.
Speaker 1: And this was back in I don't know, was that February, right,
Speaker 1: So I've had families say that they thought it about
Speaker 1: they had it around the holidays. If if, if it's
Speaker 1: the case that maybe people did have sub form of it,
Speaker 1: but not the extreme or severe case. You know, should
Speaker 1: we have expected, Drew that the numbers would have ramped
Speaker 1: up much more quickly, or does it say something about
Speaker 1: that we do have a greater immunity than we all realized,
Speaker 1: maybe to this virus. I'm not quite sure what to
Speaker 1: make of it. Well. I think what's really important to
Speaker 1: remember is that people are so um to appear to
Speaker 1: the cover just find from the virus. You know, our
Speaker 1: immune system is very good overall reacting this. There are
Speaker 1: a large number of people who are asymptomatic to it.
Speaker 1: So it doesn't have you know, anything necessarily to do
Speaker 1: as far as we know, with you know, one strain
Speaker 1: or another being milder or weaker. It's just that some
Speaker 1: people get sicker than other folks. And who gets sick
Speaker 1: and why is one of the big unanswered questions out there.
Speaker 1: I think we have some explanation of that in terms
Speaker 1: of pre existing conditions and age and all that sort
Speaker 1: of thing. Um, but you know, we still don't really
Speaker 1: have as comprehensive an answer to that as as we
Speaker 1: would like. Um. You know, so we know that that
Speaker 1: has been happening. I think you also look at the
Speaker 1: differences between you know, a place like southern California and
Speaker 1: like New York City and you guys live here. You
Speaker 1: know what it was like before we were all staying
Speaker 1: at home. You know, everyone's packed in on subways. There's
Speaker 1: just a huge amount of population density, shared surfaces, all
Speaker 1: those things. Last time and I was in l A.
Speaker 1: I spent the entire time driving around in my rental car,
Speaker 1: not a tremendous amount of you you just don't if
Speaker 1: you think about this, virus is something that transmits by
Speaker 1: people being really close to each other and touching the
Speaker 1: same stuff. The way your city is built and organized
Speaker 1: and how people interact really really matters, uh to that.
Speaker 1: And I think that that's very very important as people
Speaker 1: try to interpret why are outbreaks in some places worse
Speaker 1: than others. You know, if you think about how people
Speaker 1: live in a you know, widely dispersed suburb in a
Speaker 1: you know, in the southern part of the country, where
Speaker 1: I have, you know, relatives, You're you're already practicing social
Speaker 1: distancing just in the course of you normal life compared
Speaker 1: we do every day in New York City. Yeah. Absolutely,
Speaker 1: it's a great point and we certainly are going to
Speaker 1: be licking in that whe The responses are so tough
Speaker 1: to write in terms of every city, every state, or
Speaker 1: you know, can be very different in terms of what
Speaker 1: they're dealing with and how do you respond um to Armstrong.
Speaker 1: Thank you so much, and I do highly recommend our
Speaker 1: listeners check out all of his coverage and his team's
Speaker 1: coverage at Bloomberg dot com. His team leader for US
Speaker 1: health caret Bloomberg News on the phone in the year
Speaker 1: This is Bloomberg Business Week with Carol Masser and Jason
Speaker 1: Kelly on Bloomberg Radio. All lies on Delta this morning, obviously,
Speaker 1: and some pretty staggering numbers. Is one of those things, Carol,
Speaker 1: that you think, Wow, this is gonna be pretty bad,
Speaker 1: and then it is and you just think, this is
Speaker 1: a tough, tough business, especially for a company that by
Speaker 1: all accounts, had been doing very well over the past
Speaker 1: few years. We had spent some time held with that
Speaker 1: bastion the CEO there just last year, and he was
Speaker 1: telling obviously a very different story. George Ferguson joins a
Speaker 1: senior aerospace, defense and Airlines analyst for Bloomberg Intelligence on
Speaker 1: the phone from Princeton. All right, so, George, amid all
Speaker 1: of the numbers, what's the most important thing we need
Speaker 1: to take away from the numbers from Delta and the commentary? Oh, well,
Speaker 1: good afternoon. I think the most important number we have
Speaker 1: to take away is that they're going to push hard
Speaker 1: to get expenses down and only burn fifty million dollars
Speaker 1: a day by the beginning of May, and we think
Speaker 1: they'll consume four and a half to five and a
Speaker 1: half billion dollars during the second quarter. And so right now,
Speaker 1: really this business is all about trying to survive through
Speaker 1: the coronavirus effects here to some other side that we
Speaker 1: we don't know when you know, we've got to get
Speaker 1: people comfortable with flying again. We don't know if we
Speaker 1: need we need a vaccine, we need to we don't
Speaker 1: know if we need to put dividers between seats. But
Speaker 1: we've got to survive in order to get to the
Speaker 1: point where we can put people on airplanes and much
Speaker 1: larger size so they can make money. They say demand
Speaker 1: is bouncing along the bottom. They want to finish the
Speaker 1: end of two queue with ten billion dollars, which would
Speaker 1: let them burn that kind of cash for two more
Speaker 1: quarters and make it to the end of the year.
Speaker 1: So they've applied delta specifically for four point six billion
Speaker 1: dollar loan from the US government rescue package. But they
Speaker 1: might not accept it. I guess what's being offered because
Speaker 1: the Treasury would get some equity or at least some
Speaker 1: warrants in exchange for a loan. Should we just do that? Yeah,
Speaker 1: I think they're all using that as an option here, right.
Speaker 1: And so one of the one of the restrictions to that,
Speaker 1: to the loan, not the grant package, but the loan package,
Speaker 1: is the loan can go out five years, but for
Speaker 1: the term of the loan plus an additional year, the
Speaker 1: company cannot buy back shares, pay a dividend, and it
Speaker 1: lives with um with caps on pay. And so I
Speaker 1: think what they're all doing is they you know, they're
Speaker 1: I think it's a great thing. I guess they're looking
Speaker 1: past coronavirus and they're thinking, what if we get into
Speaker 1: a world here where things resumed somewhat close to normal.
Speaker 1: We right size the business, we're making money. We can't
Speaker 1: buy back shares, we can't pay a dividend. That might,
Speaker 1: you know, unduly restrict us. We might not be able
Speaker 1: to attract investors like another airline that could get through there.
Speaker 1: Uh and now and Delta said, look, they've got uh.
Speaker 1: I forget what timetable they gave, but I think they've
Speaker 1: got to the end of the quarter or something like
Speaker 1: that in order to actually take the loan. Um. Look,
Speaker 1: I think if things look like we think they're going
Speaker 1: to look like at the end of two Q meaning
Speaker 1: not much better, I think they will just go ahead
Speaker 1: and take those loans. And hearing what they said, George,
Speaker 1: you know from a consumer perspective, obviously an investor perspective,
Speaker 1: but just from the perspective of people like get on
Speaker 1: planes for business trips and family trips and things like that.
Speaker 1: What do you hear across the industry about how soon
Speaker 1: this industry looks at least somewhat healthy. Again, obviously that
Speaker 1: it's unknowable largely, but what are you extrapolating from what
Speaker 1: you hear from these guys? And don't you love how
Speaker 1: he's not using the word normal, because I don't think
Speaker 1: anybody expects there's normal. Yeah, I agreed. Um, So you know,
Speaker 1: I think we're all all the analyst community. I think
Speaker 1: everybody that surrounds the airlines and I'm sure inside the
Speaker 1: airlines are just not talking to us about it as
Speaker 1: much as are sort of you know, war gaming that
Speaker 1: out in our heads, like how do we get people
Speaker 1: comfortable getting back on an airplane? And even at Baster
Speaker 1: you mentioned today about a vaccine, which you know is
Speaker 1: potentially a long way off right at sometime into in
Speaker 1: the next year, and I think everybody's think about taking
Speaker 1: out seats or you know, blocking out seats or um
Speaker 1: using masks or things like that. But look, I think
Speaker 1: it's just hard to imagine demand coming back strongly before
Speaker 1: you can really get people comfortable getting in an airplane.
Speaker 1: And I think it's a vaccine because I mean, the
Speaker 1: last time I checked, the middle seat wasn't six ft
Speaker 1: wide when I you know, last time I was on
Speaker 1: an airplane. It's been a while now, but I think
Speaker 1: it's that's that's the million dollar. And you know, even
Speaker 1: if you take the middle seats out, um, you know,
Speaker 1: like a typical narrow body airplane. You've got sort of
Speaker 1: six rows three and three on each side. You know,
Speaker 1: the airlines just line at sixty six full. They typically
Speaker 1: can't make money at that level. So do you do
Speaker 1: you envision just twenty seconds that we may be a
Speaker 1: wearing like some kind of helmet or something, you know,
Speaker 1: to get on a plane. I mean, I think people
Speaker 1: are wargaming everything, and that's something that's ticking about. Maybe
Speaker 1: not an elmet, maybe the face mask that's already on
Speaker 1: the airplane. Yeah. Interesting, that interesting, Wow, amazing. All right, well,
Speaker 1: we appreciate your context as always, especially in such a
Speaker 1: busy day. George Ferguson, senior aerospace, defense and airlines analysts
Speaker 1: for Bloomberg Intelligence, joining us on the phone from New Jersey,
Speaker 1: and as he said, just huge, huge, you know, billion
Speaker 1: billion dollar questions that these guys are going to have
Speaker 1: to answer. We're all going to have to answer, right,
Speaker 1: and those international flights, which are the more expensive flights
Speaker 1: where they make money or not happening. Spain's parliament, by
Speaker 1: the way, voting to extend the lockdown through May night.
Speaker 1: That was a headline that just crossed the Bloomberg This
Speaker 1: is Bloomberg Business Week with Carol Masser and Jason Kelly
Speaker 1: on Bloomberg Radio. We've talked a lot about the moves
Speaker 1: in the oil market and the reasons why we've seen
Speaker 1: such dramatic drops. But Bloomberg Business Week Economics editor Peter Corey,
Speaker 1: he writes this week in the magazine that the historic
Speaker 1: crash and oil prices that we saw on Monday to
Speaker 1: below zero, believe it or not, can be explained with
Speaker 1: one wonky word. Charlie Pellett said it. We've got Peter
Speaker 1: joining us on the phone from New Jersey, So Peter,
Speaker 1: good to have you here with us. I feel like
Speaker 1: your story is one of those stories everybody. We've talked
Speaker 1: a lot about the energy markets, but you really explain
Speaker 1: it well why we are in today's current situation. It's
Speaker 1: not like this is something that just happened, uh, seemingly overnight.
Speaker 1: It was kind of long and coming. Tell us a
Speaker 1: little bit about what you wrote about. Well, first, thank
Speaker 1: that Charlie Pellett for that great segue. What a setup. Yes,
Speaker 1: in tosticity is one of those terms that you've learned
Speaker 1: intro econ, which is the idea that for certain products,
Speaker 1: their prices, the demand and supply do not adjust very
Speaker 1: much in response to a change in the price. And
Speaker 1: oil is a perfect example that in the short term,
Speaker 1: so like, look on the demand side, COVID nineteen pandemic,
Speaker 1: the price of gasoline is plunged, But how many people
Speaker 1: are filling up their tanks these days? Practically nobody because
Speaker 1: we're not driving and so we're not The demand for
Speaker 1: gasoline has not responded to the falling prices. Uh. Meanwhile,
Speaker 1: on the supply side, you're not seeing supply falling in
Speaker 1: response to the decline in price. Uh somewhat, yes, Uh.
Speaker 1: You see, you know, across the shale fields, producers cutting back,
Speaker 1: but Saudi Arabian Russia are still producing far more than
Speaker 1: the market will bear. That cuts and production have not
Speaker 1: matched the decline in demand. Now, usually what happens in
Speaker 1: a case like that is that that you just mora
Speaker 1: olil goes into inventory. That's kind of the buffer. What
Speaker 1: was happening now is we've run out of room to store,
Speaker 1: and that's why we're getting these extreme moves. Well, and
Speaker 1: that storage, as you point out in your story, I'm
Speaker 1: glad you brought that up, because that seems to be
Speaker 1: or it is, and it's not that it seems to be.
Speaker 1: I mean, that's really what's happening here, that this has
Speaker 1: gone on for so long there's literally no place to
Speaker 1: to put it. It's one of these things where I'm
Speaker 1: sure that people look at the complexities of the financial
Speaker 1: system and global trading and things like that and they say, well,
Speaker 1: surely it can't be that simple, and it kind of
Speaker 1: actually is, except that geopolitics obviously have entered into this
Speaker 1: as well. You mentioned Russian Saudi Arabia, So what are
Speaker 1: we to do about this? And can I just can
Speaker 1: I just jump in for a second, because part of
Speaker 1: this too is it's usually futures contracts, right Peter, that
Speaker 1: are traded, and you don't you never expect to actually
Speaker 1: take the physical delivery of oil. That's not usually how
Speaker 1: the markets work, the futures markets, but that's what's right.
Speaker 1: So it depends. There are different rules for different contracts.
Speaker 1: For the Brent crude, which is you know, North Sea
Speaker 1: that's settled in cash. The vast majority of contracts for
Speaker 1: West Texas Intermediate on the Nymex are also settled in cash.
Speaker 1: But if you own a contract to receive oil and
Speaker 1: you have not managed to sell it before the deadline,
Speaker 1: then you have to take it. And of course the
Speaker 1: joke is like where you gonna put in your garage?
Speaker 1: So what ends up happening is that the seller will
Speaker 1: arrive at a punitive deal with you. You'd have to
Speaker 1: pay through the nose to wriggle out of the contract
Speaker 1: because you're basically violating its terms. And that's why we
Speaker 1: saw oil on Monday go to negative thirty six something
Speaker 1: dollars of barrel. This was people who were totally desperate
Speaker 1: to get out of their contract so they wouldn't be
Speaker 1: put into that squeeze. And so, so what happens next year?
Speaker 1: I mean you, as you often point out to us,
Speaker 1: you're not an economist, but you do. You are an
Speaker 1: expert business Week, You are an expert on on the
Speaker 1: world of economics. I mean, I guess synthesized this into
Speaker 1: the rest of what we're seeing because also, by the way,
Speaker 1: we're in the midst of a global pandemic. Yeah, so,
Speaker 1: like the June contract. I talked to the guy named
Speaker 1: Steve Short I quote him in my story from Pennsylvania,
Speaker 1: has been in the market for years. He was looking
Speaker 1: at how how much higher the price of June oil
Speaker 1: was than May oil saying that can't last. June has
Speaker 1: got to come down, and he's right, it has come down.
Speaker 1: And as I would not be surprised if as we
Speaker 1: get closer to the expiration of the June contract, we're
Speaker 1: gonna see much of the same kind of craziness, because
Speaker 1: it's very unlikely that between now and then, which would
Speaker 1: be the beginning of May, we're gonna yeah, the desert
Speaker 1: of late in May. We're good that we will see
Speaker 1: the change in the supply demand conditions. We're not going
Speaker 1: to see people buying a lot more gasoline because COVID
Speaker 1: is not going away, and it's just gonna be really,
Speaker 1: really difficult for producers to cut their production enough to
Speaker 1: stop putting it into storage. So is this the beginning
Speaker 1: of the end of the oil market. No, obviously got
Speaker 1: the end of the oil market. We're gonna have oil um,
Speaker 1: but it's the beginning beginning the It's not only the
Speaker 1: beginning of the end, it's the end for a lot
Speaker 1: of speculators here getting wiped out here. They made some
Speaker 1: really bad decisions, and a lot of them are, by
Speaker 1: the way, people who decided to go into exchange trading
Speaker 1: funds because they figured ah, yeah, oil prices gotta go
Speaker 1: off from here. They're getting killed as the one contract
Speaker 1: rolls over into another. So maybe I should ask is
Speaker 1: it the end of the oil age? In the oil age?
Speaker 1: Now that's the more profound question. Well, you know in
Speaker 1: a way that we've accelerated the transition out of the
Speaker 1: oil age, um, which was coming anyway right uh. Um,
Speaker 1: And once this happens, we're certainly gonna have still demand
Speaker 1: for oil. But this is waking people up to the
Speaker 1: fact that, um, you don't want to be investing a
Speaker 1: lot in new oil production that when this kind of
Speaker 1: thing can come along and slam you. Well. And it's
Speaker 1: interesting too, you know that E T F element of it.
Speaker 1: We talked about that at the top of the show
Speaker 1: with their own Critty Gupta who follows these markets so closely.
Speaker 1: I mean, I also I love the kicker quote in
Speaker 1: your story. I just want to read it. Uh. Some
Speaker 1: might consider an event that happens point to five of
Speaker 1: the time to be too improbable to worry about. However,
Speaker 1: I ask yourself this, I cannot get this image out
Speaker 1: of my head. How well will you sleep tonight if
Speaker 1: you know that once every year to someone is going
Speaker 1: to wake you up by dropping a tarantula on your face. Wow,
Speaker 1: that is that is scary as heck. Yeah, that's a
Speaker 1: lot of people these days feel like that tarantula just
Speaker 1: landed on their face. It sounds like it's happening more
Speaker 1: often though, Man, yeah, more than a year or two.
Speaker 1: But I do think but it does speak to to
Speaker 1: a broader thing that I think we're all thinking about,
Speaker 1: which is, are we entering a new era of much
Speaker 1: more I don't know regular uncertainty, if that's such a thing, Peter,
Speaker 1: and I know it's something that that you spend a
Speaker 1: lot of time thinking about from an economics perspective, because
Speaker 1: there there's academics and then there's reality. Yeah, I have
Speaker 1: to say that very few people saw that we would
Speaker 1: have oil negative something dollars a barrel. So there's an
Speaker 1: example of a black Swan event. Um. I tend to
Speaker 1: shy away from the idea that there's more uncertainty now
Speaker 1: than there ever has been, because I think it's a
Speaker 1: it's a lot of because we don't know what's going
Speaker 1: to happen next. You know, you look back in history
Speaker 1: and say, well, it was obviously we're gonna have a
Speaker 1: nine eleven or or whatever else it wasn't at the time.
Speaker 1: It came with a shock to us. All right, we
Speaker 1: gotta go. Sorry, Peter, we love you, thank you so much.
Speaker 1: A journal now, but you let me drive? Oh no, no,
Speaker 1: no, no no please, I'll do drivel exprest. I want to
Speaker 1: drive all just drive baby, good question, trying the drive
Speaker 1: to the globe Commune to thanks, We'll drying us to
Speaker 1: Dawn Bloomberg Radio. All right, it's time for a special
Speaker 1: edition of Drive to the Close at double Shot, because
Speaker 1: this guy deserves it. Henry Cornell, Founder, senior partner of
Speaker 1: Cornell Capital, longtime investor, a globally minded guy, and full disclosure,
Speaker 1: a friend of mine, so happy to have him on
Speaker 1: the line from Long Island. Henry, how are you. I
Speaker 1: am fine, miss Kelly. It's very nice to speak with you.
Speaker 1: I look forward to seeing you live at some point soon.
Speaker 1: I know I know well and also full disclosure, he
Speaker 1: has an amazing taste in wine, and he and I
Speaker 1: have been able to share a glass over the year
Speaker 1: class or maybe more than in the glass. But in
Speaker 1: any case, Henry, first of all, trust your well and
Speaker 1: your family and all of that, your employees. What's it
Speaker 1: like running a firm right now. Well, I can tell
Speaker 1: you my kids, and I've got five of them, ages
Speaker 1: seven to fourteen. I think this is an early summer
Speaker 1: vacation with just a drop of teleschool thrown in to
Speaker 1: keep them in line. So, you know, that is an
Speaker 1: interesting day to day. And then, clearly, like many many people,
Speaker 1: we are working remotely, and the idea of creating some
Speaker 1: level of efficiency when you're going call to call to
Speaker 1: call to call all day long is pretty hard. And
Speaker 1: then you know, we have an office in New York
Speaker 1: and then one in China, and so getting on with
Speaker 1: our folks over there and just keeping it up. I
Speaker 1: feel like I should have bought stock in a T
Speaker 1: and T because we're on the phones all day every day,
Speaker 1: and Zoom and Blue Jeans and every one of these services. Well,
Speaker 1: it's interesting, you know, I'm curious about your thoughts on
Speaker 1: the economy me and what it looks like afterwards, Henry,
Speaker 1: because I think that's the thing we're trying to figure out.
Speaker 1: We're hearing about how the airlines are going to have
Speaker 1: to operate. You know, sporting events. Don't expect any kind
Speaker 1: of big sporting events for a long time. Education. You know,
Speaker 1: what's your expectations about the US economy, which has proven
Speaker 1: itself so resilient through so much Well, I think I
Speaker 1: would you know, key off of your last comment, I
Speaker 1: am an optimist by nature. I always think of the
Speaker 1: glass is half empty, but I'm actually genuinely optimistic. This
Speaker 1: is different than anything I've experienced in my lifetime, from
Speaker 1: the first oil shock in the early seventies when I
Speaker 1: was in college to seven. This is a social you know,
Speaker 1: fallout that is just hard to imagine. And I can
Speaker 1: tell you when I go to the local supermarket, people
Speaker 1: are wrapped up like mummies and they're depressed, and it's
Speaker 1: a bad version of Night of the Living debt. However,
Speaker 1: saying that I was in the York City this weekend
Speaker 1: because I just needed to have a few meetings in person,
Speaker 1: and when you went to Central Park, spring was in
Speaker 1: the air. People were out social distancing somewhat appropriately. And
Speaker 1: I'm hopeful that this year is going to be getting
Speaker 1: back to what the new normal is, and that I
Speaker 1: believe next year you will see a real bounce. I
Speaker 1: think the pent up demand of people who just want
Speaker 1: to get back to work, want to get on with
Speaker 1: their lives and enjoy themselves a bit and be productive
Speaker 1: is ingrained in our country, and I think we'll get
Speaker 1: back there, but this is definitely gonna be a huge
Speaker 1: punch in the nose. Henry've only got about a minute
Speaker 1: left before we bring you back and continue the conversation.
Speaker 1: But in that minute, what are your colleagues in China say?
Speaker 1: They say things are recovering. People are going to restaurants,
Speaker 1: people are actually traveling a bit. Factories are open. We
Speaker 1: own a number of factories in China, and it was
Speaker 1: slow getting backed up to producing level, but right now
Speaker 1: we're actually experiencing. I wouldn't call it a resurgence capital are,
Speaker 1: but a resurgence lower R and I think the social
Speaker 1: norms pre virus will continue to grow there. So I'm
Speaker 1: taking a little bit of a key off of what's
Speaker 1: happening in China with how I know things can recover here.
Speaker 1: I want to get back to Henry Cornell, founder and
Speaker 1: senior partner at Cornell Capital, on the phone from Long Island,
Speaker 1: New York. So, Henny, one thing I want to ask you.
Speaker 1: There's a story in Bloomberg Business Week magazine this week,
Speaker 1: uh and it talks about Wuhan reopening and what's involved,
Speaker 1: and it talks about use of robots, and you know,
Speaker 1: meeting rooms that are kept to a capacity of just
Speaker 1: a handful of people. You don't use elevators, you use stairs. Um,
Speaker 1: there's a lot of changes. Is that going to be
Speaker 1: our world as well as we get back to I
Speaker 1: certainly think so for a period of time. I'll give
Speaker 1: you an example. I flew to Chicago last week to
Speaker 1: have a meeting that I just didn't want to do
Speaker 1: over Bloomberg not Bloomberg sorry blue Jeans. And you have
Speaker 1: to teach me how to use it because I'm somewhat
Speaker 1: technologically inefficient. But we we flew and we went to
Speaker 1: hotel by the airport, and you know that. I asked
Speaker 1: the lady at the desk and she said, on a
Speaker 1: good day where seven percent occupied. And so they gave
Speaker 1: us the ballroom. I'm not I kid you not. And
Speaker 1: it was for three people on my side in one
Speaker 1: person and we literally sat at a table that was
Speaker 1: twenty twenty and it was certainly much better than being
Speaker 1: on the telephone. But I think those types of things
Speaker 1: until people feel safe and protocols are in place, and
Speaker 1: hopefully infections go down and vaccinations are arriving. You're you're
Speaker 1: just going to see some strange changes. But the interesting
Speaker 1: thing is how people have innovated during this period of
Speaker 1: time because they want to get on with their life.
Speaker 1: And I think that's the important part here. People. There
Speaker 1: are some who are hiding in their foxholes, but I
Speaker 1: think people are really trying to figure out how to
Speaker 1: get on with it. And I think that's that's the
Speaker 1: important thing, which also underscores my own optimism for how
Speaker 1: we will get back to stasis at some point, hopefully soon. Well,
Speaker 1: and as you're demonstrating with that story, Henry, I mean
Speaker 1: there are some things, especially in your world, where you
Speaker 1: are entering into a long term relationship and private equity.
Speaker 1: If you're doing a deal with someone, I mean it
Speaker 1: is it's intimate in a lot of ways and important
Speaker 1: and as I said, sort of long term that requires
Speaker 1: a certain type of interaction. I mean, you've experienced this
Speaker 1: over many decades in this business, and I do wonder, um,
Speaker 1: you know what this portends for a business like private
Speaker 1: equity that is so relationship reliant. Well, I think every
Speaker 1: business has a very powerful element of personal relationship. We're
Speaker 1: not special or different, but clearly when you're about to
Speaker 1: commit capital to someone, you want to look them in
Speaker 1: the eye, shake their hand, oh my god, and actually
Speaker 1: have a meal with them, and just make sure that
Speaker 1: you're all on the same comic wavelength in order to
Speaker 1: continue to do business together. Because even in the best
Speaker 1: of times, doing things profitably as hard work. And so
Speaker 1: I do think people will need to get back there.
Speaker 1: But I also see the technology that is seems to
Speaker 1: have come to the forefront here will certainly be more
Speaker 1: in use than it has. I mean, I've used video
Speaker 1: teleconferencing because it is efficient than flying somewhere for just
Speaker 1: an hour meeting, but at the end of the day,
Speaker 1: there's nothing like the personal touch. I do wonder in
Speaker 1: the world of private equity and you, as you pointed
Speaker 1: out at the early part of our conversation, Henry, you've
Speaker 1: seen cycles, You've seen crises. You've seen emerging markets like
Speaker 1: China in the late eighties, in China, Japan, all across
Speaker 1: Asian the late eighties, early nineties. You practice a form
Speaker 1: of private equity. I think it's fair to say, and
Speaker 1: keep me honest here, that's a little bit different than
Speaker 1: maybe what we would ascribe to a black Stone or
Speaker 1: at KKR. You know, they use a lot of leverage,
Speaker 1: and you know ten dollar deals. You're practicing a more
Speaker 1: sort of bespoken and maybe even sort of purer version
Speaker 1: to some extent. Where do you see opportunity here for
Speaker 1: that type of model, whether it's sectors or whether it's
Speaker 1: specific dislocations in this type of environment. Well, our firm
Speaker 1: strategy has been to effectively invest in US companies and
Speaker 1: take them to Asia. I lived in Asia for twelve
Speaker 1: years from a D eight to two thousand. A number
Speaker 1: of my partners are veterans of that era as well,
Speaker 1: and that is poor to us. And the other part
Speaker 1: is we are genuinely low leverage in our portfolio. We
Speaker 1: have no subordinated securities, no mezzanine debt, only senior positions.
Speaker 1: And before the virus, our average leverage was three point
Speaker 1: eight times. That protects us in an environment like that.
Speaker 1: And I think the portfolio we have will have oppert
Speaker 1: tunities from competitors where we can help to arrescue finance,
Speaker 1: do a merger, um and and basically help people get
Speaker 1: out of this. You know, we're not um, shall we
Speaker 1: say vulture investors at all, we try to be constructive.
Speaker 1: We want to protect franchises, and you know, this opportunity,
Speaker 1: since we are and I'm knocking on what as I
Speaker 1: say this in a reasonably good position, allows us to
Speaker 1: actually be very constructive in conversations. And I'll tell you
Speaker 1: in the last three weeks phone has been ringing off
Speaker 1: the hook in a very good way. And we're having
Speaker 1: lots of conversations, which is why some of those conversations
Speaker 1: I want in person. So I hopped on a plane
Speaker 1: last week as opposed to you know, doing it over
Speaker 1: the phone. So you've made investments in over the last
Speaker 1: couple of weeks, We've made conversations over the last few weeks, UM,
Speaker 1: and things are in the in what they call the pipeline. UM,
Speaker 1: these are these are very positive positive things. You know.
Speaker 1: There are so many industries that Jason, I've been talking
Speaker 1: out Henry about, whether it's the restaurant industry, watching very
Speaker 1: closely retail, which has been was troubled. Safe to say
Speaker 1: going into this, what's the fallout that you see that
Speaker 1: will be the result of this cal That's really tough.
Speaker 1: One one of my oldest friends is one of the
Speaker 1: largest owners of various franchises in the United States, and
Speaker 1: this is the toughest thing he's ever gone through, because
Speaker 1: you literally have a mandate to shut your business, and
Speaker 1: how you pay your rent, how you pay the electric
Speaker 1: bill which still comes in, and how you maintain your
Speaker 1: employees is going to be very, very hard. And then
Speaker 1: you know, there are articles in the papers today even
Speaker 1: some of the great restaurateurs in New York City like
Speaker 1: Danny Myers and and you know, and others like that
Speaker 1: they're going to have to have restaurants that are for
Speaker 1: arguments sake, full as opposed to capacity. Those numbers just
Speaker 1: don't work, and so it's it's tough. I wish I
Speaker 1: had a crisp silver bullet response to that. But no,
Speaker 1: from hotels to restaurants to any leisure activity. You guys
Speaker 1: mentioned sporting events. You know, I'm an old bonks boy,
Speaker 1: so I've got tickets at Yankee Stadium. I can't wait
Speaker 1: to get to the stadium. But God knows how many
Speaker 1: people are going to be allowed in right well, and
Speaker 1: or even if we'll see baseball. I mean, I think
Speaker 1: it's I think we're hard pressed to imagine, uh seeing
Speaker 1: each other running into each other at Yankee stadium this year,
Speaker 1: Henry Jason, break my heart right now. I'm sorry. Maybe
Speaker 1: maybe you'll have to get on a plane to Arizona
Speaker 1: or Florida to uh to see the Arizona has been
Speaker 1: offering up right, come on over exactly exactly all right, Well,
Speaker 1: look forward to catching up with you again before too long,
Speaker 1: hopefully in person, hopefully over a glass of wine. Henry
Speaker 1: Cornell really appreciate it. Founder and senior partner at Cornell Capital.
Speaker 1: And as we describe, you know someone who just has
Speaker 1: truly global experience, you know, for a number of decades
Speaker 1: and in real time, you know, working with his partners
Speaker 1: there in China cre and I guess I have to
Speaker 1: I do appreciate his optimism, certainly when I see a
Speaker 1: headline crossing the Bloomberg that talks about Californi when you're
Speaker 1: recording eight six COVID nineteen death since Tuesday, and that
Speaker 1: is up six point eight percent, and that's not what
Speaker 1: we want to be seeing. We want to see those numbers,
Speaker 1: certainly the percentage increases going down. Thanks for listening to
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