Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.
Speaker 1: My name is James Crumby. I'm a senior editor at
Speaker 1: Bloomberg Today's Scasa Tasos Bossos who covers credit markets for
Speaker 1: Bloomberg News in London. Check out all his recent scoops
Speaker 1: on the meltdown in the banking sector. We're delighted to
Speaker 1: have you on the show, James, thanks for having me.
Speaker 1: We're also very pleased to welcome Jody Lewie. Hey, James,
Speaker 1: how are you? Jody covers travel, leisure, casinos, and hotels,
Speaker 1: among other things, for Bloomberg Intelligence in Princeton. Companies in
Speaker 1: those industries are highly exposed to the tightening and financial
Speaker 1: conditions that's happening as we speak, and we'll be getting
Speaker 1: her insight in a little bit, but before we do.
Speaker 1: Tassos Bossos with Bloomberg News in London, you've been at
Speaker 1: the epicenter of the credit Swiss collapse. It's a Swiss bank,
Speaker 1: had been struggling for a while. All of a sudden
Speaker 1: it was gone. One of the biggest banks in the world,
Speaker 1: over half a trillion dollars in assets, participation in all
Speaker 1: the main markets globally. Can you walk us through what
Speaker 1: happened there. I mean, indeed, it is a shark for
Speaker 1: the banking community, that's what you call it GC for
Speaker 1: normal people. That's a global systemically important bank, one of
Speaker 1: the bank that's not supposed to go down that you
Speaker 1: need in order to have a financial system that is function,
Speaker 1: that's working properly. Now. The problem the Credit Swiss, though,
Speaker 1: is that they were they were involved in so many
Speaker 1: interesting things over the years, from financing of yours and
Speaker 1: the securitization of it to Archie collapse for example, and
Speaker 1: they suffered a social media storm back in late twenty
Speaker 1: twenty two. This is when they saw out those because
Speaker 1: people thought that Credit Swiss may not be around in
Speaker 1: the month's time, for example, they want to take the
Speaker 1: money out. They did manage to survive that, but they
Speaker 1: reached the point earlier this month where they said, well,
Speaker 1: the numbers that we were releasing to the investor over
Speaker 1: the years, they may have some problems, and the USSC
Speaker 1: I said that that could be the case. This is
Speaker 1: when a panic ensued that was maximized by the fact
Speaker 1: that there was already a brewing crisis in the regional
Speaker 1: banking system in the US. So a number of counterparties
Speaker 1: started getting credit insurance against Credit Swiss, that is, through
Speaker 1: some contracts called credit default swaps. This is when everyone
Speaker 1: started paying attention. They said, okay, something is wrong. Is
Speaker 1: here this bank, even though it's massively important, seems to
Speaker 1: be going past Now we have to do something, So
Speaker 1: they started taking money out of it. At some point
Speaker 1: out those reached ten billion dollars a day, and things
Speaker 1: came to a head last weekend when the Swiss authority
Speaker 1: said we need to do something. What is that a
Speaker 1: shotgun marriage between the two national champions, that is UBS
Speaker 1: and Credit Swiss. And as part of this agreement, they said,
Speaker 1: somebody needs to take a loss. Who is that going
Speaker 1: to be? That's going to be some people who hold
Speaker 1: some funky instruments called additional tier one bonds. And this
Speaker 1: is when all hell broke loose when they were written
Speaker 1: down seventeen billion of them. So before we get that
Speaker 1: there was a there's basically a shotgun marriage. Basically, UBS,
Speaker 1: the biggest or one of the biggest banks, the other
Speaker 1: biggest bank in Switzerland acquired Credit Swiss for three three
Speaker 1: billion dollars or so um. Basically of course, sale, how's
Speaker 1: that all shaking out what's going on at that point. Well,
Speaker 1: at that point, UBS said, Credit Swiss has quite a
Speaker 1: bit of um let's call it baggage. Chances are if
Speaker 1: we acquire them, we're going to be taken to court
Speaker 1: by some of their ex clients for a number of
Speaker 1: different scandals that were involved over the years. There is
Speaker 1: what in banking terms you're called a lot of accumulated
Speaker 1: bad will. So somebody needed to take a loss. Now,
Speaker 1: at first there was an issue of paying almost nothing
Speaker 1: or a very lobal price for the share of Credit Swiss.
Speaker 1: There was some pushback on that. Eventually that the price
Speaker 1: tag was raised three billion, but still somebody needed to
Speaker 1: take a loss because UBS was not going to acquire
Speaker 1: the whole capital structure of Credit Twists. You mentioned a
Speaker 1: type of debt that we've been looking at very closely,
Speaker 1: and you've broken a lot of news on eighty one.
Speaker 1: Some people refer to it as cocos that essentially became worthless.
Speaker 1: Let's start with the obvious question, what is an eighty
Speaker 1: one for? You know, the person on the street who's
Speaker 1: not following this closely. When Lehman collapsed, people thought, the
Speaker 1: regulators thought, okay, Lehman was capitalized to a certain extent,
Speaker 1: but it was overleveraged. We need to come up with
Speaker 1: some bonds that provide capital so when you are going
Speaker 1: into trouble as a bank, you can rely on that
Speaker 1: capital to stay alive. That's in very basic terms. So
Speaker 1: they try to come up with a new type of
Speaker 1: bonds that when your capital levels decline below a certain level,
Speaker 1: these bonds can be triggered. What that means is that
Speaker 1: they can be converted into equity or written to reduce
Speaker 1: your liabilities. And that was called additional Tier one because
Speaker 1: it stand just above common equity. And when it was
Speaker 1: created back in twenty ten, that was the Basil Committee,
Speaker 1: what we know as Basil three. It was hailed as
Speaker 1: the greatest innovation we've seen of a several decades in
Speaker 1: the banking market. This is what we're going to save
Speaker 1: us from future crisis. I think this is going to
Speaker 1: be the end of history for banking capital instruments. And
Speaker 1: things went well for the past thirteen years. Well, there
Speaker 1: were some wobbles along the line, some write offs in
Speaker 1: Spain for example, and there was some concerns at some
Speaker 1: point that Deutsche Bank several years ago couldn't pay coupons
Speaker 1: of these bonds. But generally speaking, things were smooth. So
Speaker 1: if these bonds essentially became worthless even after equity investors
Speaker 1: recovered something, what does that mean for the eighty one
Speaker 1: market as a whole. Well, you invest in the eighty
Speaker 1: one market with a basic assumption that you are senior
Speaker 1: to equity. So if anything wrong goes happens to the bank,
Speaker 1: you would expect story shareholders to first of all burn
Speaker 1: through entirely down to the last cent, and then be touched.
Speaker 1: And now Credit Swiss, obviously they had tens of billions
Speaker 1: of dollars in CT one capitalized. It's called that that's
Speaker 1: common equity pretty much, and you could be rather safe
Speaker 1: that nothing was going to happen to you. Now, there
Speaker 1: was a very rare trading session happening on Sunday, extraordinarily
Speaker 1: among bond holders and bond trading desks, especially in the US.
Speaker 1: And when the news came out that Ubas is going
Speaker 1: to pay something, or shareholders at least anything, this is
Speaker 1: when you saw the prices of those bonds shooting up
Speaker 1: because nobody could fathom the fact that they could take
Speaker 1: any loss, even of one cent if shareholders are getting
Speaker 1: something and this is what happened was a total shock afterwards.
Speaker 1: So did that whole market collapse? I mean, if if
Speaker 1: the credit Swiss at one bonds are worth nothing, it
Speaker 1: doesn't mean all eighty ones are worth nothing. This is
Speaker 1: what started happening on Monday morning when markets reopened in
Speaker 1: Asia and Europe, and you saw the prices of these
Speaker 1: bonds just collapse in historic terms where we're talking about
Speaker 1: like prize drops of more than ten points. You never
Speaker 1: see that whatever happens in the past. So there was
Speaker 1: a really serious fear that the one capital instrument that
Speaker 1: we had since the global financial crisis that we thought
Speaker 1: we could rely on is becoming worthless and that could
Speaker 1: have really serious repercussions for the global banking market. Really,
Speaker 1: but this is when you had regulators, for example, the
Speaker 1: European Central Bank in the Bank of England coming out
Speaker 1: to say, what the Swiss did, It's not something we
Speaker 1: will do if we are ever in their position. They
Speaker 1: wanted to calm the market, and somehow they managed to
Speaker 1: stave off at least in the immediate crisis. So it's
Speaker 1: true that different countries, different regulators will treat these bonds
Speaker 1: differently in the event of a collapse of a bank.
Speaker 1: Is that right? That is correct, But the problem is
Speaker 1: that you thought you had a certain degree of certainty
Speaker 1: in the past that at least everyone is going to
Speaker 1: follow the same rules, and this is not what happened
Speaker 1: with Switzerland, and this is why people were rather concerned
Speaker 1: about whether they can trust any authority really across the
Speaker 1: major banking jurisdictions. So given that is this is still
Speaker 1: still a viable market, you know, do we think that
Speaker 1: this market survives? Broadly speaking, it should because well, frankly speaking,
Speaker 1: there's no alternatives right now. You can't just move to
Speaker 1: a different type of capital instrument because there's no regulation
Speaker 1: that allows you to do so. For now, what investors
Speaker 1: are doing they are pretty much blacklisting Swiss banks. They
Speaker 1: have created what's what's called the premium, a yield premium
Speaker 1: for Swiss banks. So if a Swiss bank would want
Speaker 1: to issue another additional tier one that will have to
Speaker 1: pay up quite a lot. At this stage they can't
Speaker 1: possibly issue that. Nobody will want to buy that. But
Speaker 1: at least in the secondary market you see a large
Speaker 1: price gap between Swiss eighty ones and eighty ones from
Speaker 1: other restrictions and that will most likely remain the case
Speaker 1: for the forsueable future. Do you expect litigation as well?
Speaker 1: Oh yes, I mean lawyers have already smelled blood in
Speaker 1: the water. There was already some calls to day by
Speaker 1: some large legal firms trying to drop up interest because
Speaker 1: at this stage eighty one bond holders have absolutely nothing
Speaker 1: to lose, and if anything, they have a lot of
Speaker 1: game because they believe that the lawyers on their side.
Speaker 1: There was even a presentation by Credit Swiss on March
Speaker 1: the fourteen, that's like five days before they collapsed, before
Speaker 1: these eighty ones were written down, that said that you
Speaker 1: guys are senior to shareholders and that is they're in
Speaker 1: black and white. So these bondholders believe they have the
Speaker 1: law on their sides. They do have already some law
Speaker 1: firms that are willing to represent them, so just a
Speaker 1: matter of time. Well, they're broader credit market implications from
Speaker 1: this and that the investors in the riskiest types of
Speaker 1: bonds are getting pretty badly burned here, does that make
Speaker 1: them more risk averse? That cuts off funding to other
Speaker 1: companies and borrowers that need to get funding right now,
Speaker 1: That is true and that's going to have a very bad,
Speaker 1: very bad repercussions for the bank lending market, because if
Speaker 1: your cost of capital is increasing in general, then you're
Speaker 1: going to be you're going to be tightening your own
Speaker 1: lending standards. This is something that a number of people
Speaker 1: have mentioned as a potential risk because it means that
Speaker 1: it's like several bank hikes by central banks, for example,
Speaker 1: happening all at once in one day. Because eighty ones
Speaker 1: used to be a cheap way of having up your
Speaker 1: balance sheets and then being able to lend onto corporate clients,
Speaker 1: normal people. If that's becoming much more expensive, then you
Speaker 1: have to tighten your lending standards. That's going to have
Speaker 1: a second effect impact on put much. To be comma,
Speaker 1: I've got to ask on the point that you know,
Speaker 1: invest want to litigate here. It was pretty clear from
Speaker 1: the paperwork. Maybe it's very deep on page one hundred
Speaker 1: and fifty of the perspectives, but it was clear that
Speaker 1: this is what this is what would happen in the
Speaker 1: event of a collapse, and it was also apparently on
Speaker 1: the Swiss regulators website. I mean, this is information that
Speaker 1: was available. Why is everyone surprised now and why they
Speaker 1: why do they think they've got a chance to litigate. Well,
Speaker 1: I'm not going to go into the legal details. Also
Speaker 1: because a number of people who are bit unclear about
Speaker 1: that this was a risk factor and not a m
Speaker 1: Some of the detractors would say, some of the people
Speaker 1: who wanted to litigate, what that means is that you
Speaker 1: were just being told what may happen in case, you know,
Speaker 1: a resolution or any other intervention had to take place,
Speaker 1: didn't tell you what will definitely happen. So they believe
Speaker 1: there's the belief that because that was just a risk factor,
Speaker 1: they can litigate against that. And also, yes, that was
Speaker 1: a fine print, the larger print, as I mentioned before
Speaker 1: the presentation that came out a few days before the collapse,
Speaker 1: that was actually quite unequivocal as well. At the end
Speaker 1: of the day, though bondholder is not lawmakers, lawmakers are
Speaker 1: actual lawmakers. And what they did was they tweaked the
Speaker 1: rules in the weekend in order to allow a shotgun
Speaker 1: marriage to happen. And I guess you have good ahead
Speaker 1: with that or just trying to see the government and
Speaker 1: that's going to be a rather difficult proposition. So before
Speaker 1: we talk to Jody Lurie at Bloomberg Intelligence about the
Speaker 1: impact that the banking cresis is having on US companies,
Speaker 1: and you know all of that call out, what's the
Speaker 1: big takeaway for you here, Teslas? It may be too
Speaker 1: soon to say because we're still kind of in the
Speaker 1: eye of the storm. But what are the lessons learned?
Speaker 1: Is it simply another case of by everywhere for credit
Speaker 1: markets investors need to read the small print or is
Speaker 1: there something more nuanced and sophisticated we can pull from
Speaker 1: the wreckage right now? Well, the problem with a two
Speaker 1: ones so eighty ones became very popular among European investors
Speaker 1: during the era of zero interest rates. So when you
Speaker 1: were getting nothing or even negative interest rates on senior bonds,
Speaker 1: these junior bonds were paying you six seven, eight nine percent,
Speaker 1: so you wanted to believe that there isn't going to
Speaker 1: be any negative avecome from that. You just even get
Speaker 1: the bonds, get the nine percent coople every year and
Speaker 1: hopefully get called five years time. What it means got
Speaker 1: out of it is that, first of all, as you
Speaker 1: said before, everyone needs to read the fine print, even
Speaker 1: if it is a risk factor. Take it seriously. When
Speaker 1: you see a ten percent Cooper Normalscent Coopers credit risk
Speaker 1: issued last year. Well, you have to think that it
Speaker 1: comes with a certain risk. You don't just get it
Speaker 1: for free. And whenever a band goes into trouble, just
Speaker 1: think of the seniority ladder, even a two ones. Yes,
Speaker 1: I know that they're seeing into equity, but when it
Speaker 1: comes to death, they were like rock bottom. So if
Speaker 1: anything goes wrong, chances are you can be here as well.
Speaker 1: Prot Us from Bloomberg News, thanks so much for joining us.
Speaker 1: This is a really fascinating story with broad implications, and
Speaker 1: we look forward to reading all of your scoops on
Speaker 1: the Bloomberg terminal and of course at Bloomberg dot com.
Speaker 1: Thank you. Switching gears here a bit. As I mentioned earlier,
Speaker 1: we're very fortunate to have Jody Lewie from Bloomberg Intelligence.
Speaker 1: You get to cover all the fun stuff. Thanks for
Speaker 1: being on the show. Thank you for having me, James,
Speaker 1: I'm so excited to be here. The companies you look at,
Speaker 1: let's talk about how they're acted by what's going on
Speaker 1: in the banking sector. I mean, it's not just credit sweets.
Speaker 1: As TESSAs mentioned, several regional banks also blew up over
Speaker 1: the last few weeks. That doesn't help at all. How's
Speaker 1: this crisis playing out? Sure, So, just for an aside,
Speaker 1: I mean the process of reading Treasury Gitner's book on
Speaker 1: stress testing and on the two thousand and eight events,
Speaker 1: and it's interesting to listen to Tassos and the parallels
Speaker 1: of words that he's using that were words that we
Speaker 1: used as everyday jargon in two thousand and eight. And
Speaker 1: I think the clear issue here is the question of
Speaker 1: whether this issue with credit sweets as well as the
Speaker 1: regional banks becomes more of a lack of a better word,
Speaker 1: contagent for the general market if it reaches from Wall
Speaker 1: Street to Main Street, and what that echo effect has
Speaker 1: on sectors like mine where it's more directly associated with
Speaker 1: consumers and what consumers like to do when they feel
Speaker 1: more comfortable in the economy. These companies U cover. I mean,
Speaker 1: we should probably talk about which companies and which sectors
Speaker 1: a bit more detail. But they are seeing a big
Speaker 1: revival in demand as people get back to what they
Speaker 1: were doing before the pandemic. And at the same time,
Speaker 1: a lot of them have a ton of debt that
Speaker 1: got suddenly got a lot more expensive to refinance into
Speaker 1: services as rates jumped. What sectors and companies are the
Speaker 1: most exposed to a list and why? Sure, James, So
Speaker 1: I think I think we need to take a step
Speaker 1: back and think about two thousand and twenty. So in
Speaker 1: two thousand and twenty, the companies in my sect sector,
Speaker 1: so we're talking the cruise lines, we're talking the theme parks,
Speaker 1: we're talking the hotels and the restaurants, they issued eighty
Speaker 1: five billion in two thousand and twenty in debt alone
Speaker 1: in the US markets. You compare that two and twenty
Speaker 1: one and it was forty nine billion, and then in
Speaker 1: twenty twenty two is thirty six billion. So these are
Speaker 1: large scale amounts as compared to pre pandemic levels that
Speaker 1: were only small margins of what we saw in two
Speaker 1: thousand and twenty and onward. So these companies have been
Speaker 1: pretty dependent on the capital markets to help finance their
Speaker 1: operations while people have sort of backed off from what
Speaker 1: they normally do. As we've seen people return to normalcy,
Speaker 1: we've seen fewer and fewer companies come to market because
Speaker 1: they're able to finance their operations with cash flows, as
Speaker 1: companies should do. But you take the cruise lines, for example,
Speaker 1: they're still heavily dependent on the capital markets to fill
Speaker 1: in cash gaps, as they get more people on the ships,
Speaker 1: as they get back to normalcy, as they start generating
Speaker 1: cash flow, and I think we're probably a year out
Speaker 1: before these companies feel really comfortable with their operational standpoint
Speaker 1: to finance their business without use of the capital markets.
Speaker 1: But they all said, you said they'd borrowed a ton
Speaker 1: during you know, when they really needed the money, and
Speaker 1: that money eventually comes to you. Are they building themselves
Speaker 1: into a massive putting to a massive problem with the
Speaker 1: maturity will eventually? So the maturity wall is definitely a
Speaker 1: question that we have. In twenty twenty four and two
Speaker 1: twenty five, you see a large spike in maturities, particularly
Speaker 1: the high yield market, particularly in the consumer discretionary area,
Speaker 1: which is where my companies fall. And a lot of
Speaker 1: the companies have already started tapping the debt markets before
Speaker 1: the SVB and credit suites fallout, so a lot of
Speaker 1: them have locked in financing in advance of this. However,
Speaker 1: we are seeing that there's probably a separation between the
Speaker 1: companies that are in good standing and the companies that
Speaker 1: are still a little bit more in the transitional period.
Speaker 1: By that, I mean you take a company in like Marriott,
Speaker 1: and they've already repaid all of their debt that they
Speaker 1: borrowed during the pandemic, So they they took down their
Speaker 1: whole entire credit line. Now they've repaid it, they brought
Speaker 1: themselves back to pre pandemic credit ratings of triple B flat,
Speaker 1: and they've tapped the capital market the excuse me, the
Speaker 1: commercial paper markets in order to anancer business. And you
Speaker 1: hear commercial paper markets, you get concerned because it's short
Speaker 1: term financing. However, when a company reaches a certain credit quality,
Speaker 1: when a company is in good standing and they feel comfortable,
Speaker 1: they feel comfortable using the commercial paper markets as opposed
Speaker 1: to using something like their longer term vehicle like a revolver,
Speaker 1: to finance any sort of cash gaps that they have.
Speaker 1: So you take a company like Marriott, you pair that
Speaker 1: with a company like Carnival Cruise Lines that has thirty
Speaker 1: five thirty six billion of debt outstanding. They've paired back
Speaker 1: their short term debt maturities significantly, but they still have
Speaker 1: thirty three billion in long term debt outstanding that they'll
Speaker 1: need to address over the next few years. Right, So
Speaker 1: the ones that are most exposed other than cruise lines,
Speaker 1: who are you most worried about him? So, I think
Speaker 1: when we think about any sort of contagion risk or
Speaker 1: any sort of broader sort of market eco effects, I
Speaker 1: think you have a couple of different areas that you
Speaker 1: could see this as problematic. Firsus the casinos. If we
Speaker 1: talk more broadly of a recession, which has been a
Speaker 1: discussion point since the beginning of this year, you could
Speaker 1: definitely see the casinos feeling a little bit stretched or
Speaker 1: a little bit pressured by lack of financing, lack of
Speaker 1: market liquidity, lack of the ability to access the capital markets,
Speaker 1: as well as consumers pulling back on their on their spending.
Speaker 1: Separate from that, a sort of niche area that we've
Speaker 1: been trying monitor is the relationships that things like hotels
Speaker 1: have with their counterparties. And by that we mean the reets,
Speaker 1: we mean the hotel owners and franchisees. Those are the
Speaker 1: companies that might be caught off guard by regional bank
Speaker 1: issues that you might not necessarily see otherwise with such
Speaker 1: large companies. Similarly, you might see something happen with companies
Speaker 1: such as McDonald's that rely so heavily on the franchise business,
Speaker 1: so their franchisees depend on regional banks more so than
Speaker 1: you'd see at these large scale companies that work with
Speaker 1: the largest investment banks out there. Okay, and the winners
Speaker 1: other than are there any other companies that are in
Speaker 1: good shapes to kind of withstand all these pressures that
Speaker 1: we're seeing right now. So I think you have to
Speaker 1: think about it from a standpoint of brand. I think
Speaker 1: you have to think about it from a standpoint of
Speaker 1: companies that have really put themselves in good standing. The
Speaker 1: theme parks that have been doing pretty well over the
Speaker 1: past year year and a half, and that's because people
Speaker 1: have been wanting to go and do and the companies
Speaker 1: have taken advantage of that by bringing down their debtload
Speaker 1: having cash put away. They have been spending their cash
Speaker 1: on shareholders, but I think that they'd probably opt to
Speaker 1: squirrel away some cash if they thought that it weren't
Speaker 1: so easy to do that. If you look at the
Speaker 1: rental card companies, they're an interesting sort of situation because
Speaker 1: they have a combination of better credit quality, lower leverage,
Speaker 1: but they also have created an exposure for themselves by
Speaker 1: way of risk vehicles and by that we mean those
Speaker 1: are the vehicles that they're buying outright that they're going
Speaker 1: to have to offload themselves, as opposed to the program
Speaker 1: vehicles that they can give back to the autos. So
Speaker 1: I think there's pockets of opportunity. I think it's really
Speaker 1: a question of company by company basis. If you look
Speaker 1: at something that Kilton, they've been doing very well for themselves,
Speaker 1: but they also don't care to bring down their debtload
Speaker 1: as much as Marriott does. So you have these sort
Speaker 1: of opportunities both in high yield and in investment grade.
Speaker 1: And I think it's really a question of individual companies
Speaker 1: and also managements policies towards ratcheting in or bringing in
Speaker 1: any sort of shareholder spending that they're doing, as well
Speaker 1: as being a little bit more prudent on capex if
Speaker 1: times get tough, if purse strings get get a little tighter.
Speaker 1: So we came into this year and everyone was talking
Speaker 1: about the Year of the bond, because last year was
Speaker 1: so terrible for the fixed income. Everyone was really excited
Speaker 1: about these sectors that got so beaten up, including these
Speaker 1: consumer sectors that we're talking about here. The bonds have
Speaker 1: rallied quite a lot in the first two months of
Speaker 1: the year. Obviously the banking crisis didn't help, but there's
Speaker 1: still pretty tight you know, based on history, is the
Speaker 1: risk all these risks? Are they properly priced in right now?
Speaker 1: You're thinking too credit monkeys. I think you have two
Speaker 1: sides of the coin at the moment, James. I think
Speaker 1: on the one side, you have consumers that are still
Speaker 1: very much spending. Consumers want to spend, and they're not
Speaker 1: spending on goods, they're spending on services. So that's a
Speaker 1: really good thing for my sector. That means that people
Speaker 1: who have been stuck inside, who are tired of looking
Speaker 1: at their same house and now office as they return
Speaker 1: to the office, want to go and do. They want
Speaker 1: to go on lavish vacations. They want to go on cruises.
Speaker 1: They want to do things that they didn't feel comfortable
Speaker 1: doing before we had vaccines, before we made COVID A
Speaker 1: sort of common problem. Not that people don't really appreciate
Speaker 1: getting COVID at this point as much as they didn't
Speaker 1: appreciate it a year ago. But I think people are
Speaker 1: just fatigued by the general sentiment of a pandemic, and
Speaker 1: so people are going and doing, and we're seeing that
Speaker 1: in the data. Still, we're seeing that people are still
Speaker 1: wanting to go and do. So that's a really positive situation. Now,
Speaker 1: the other side of the coin is in the event
Speaker 1: of a recession, or in the event of an uptick
Speaker 1: and unemployment rate, in a situation where we have runaway inflation,
Speaker 1: or a situation where we have just a pullback in
Speaker 1: general of people saying, Okay, I don't really know what's
Speaker 1: going on with these banks. I don't really know what's
Speaker 1: going on with my own personal savings situation and my
Speaker 1: own personal spending account. So I'm gonna stop spending on
Speaker 1: these lab vish vacations. And I think that's where you
Speaker 1: sort of see the problem. Similarly, businesses and business spending
Speaker 1: and conferences have started to really boom recently, and if
Speaker 1: we if we see that cut short, that could be
Speaker 1: problematic form my area. So I'm a credit guy, which
Speaker 1: generally means I'm pretty pretty negative, you know, pretty pessimistic.
Speaker 1: Sorry for that, but you know, you mentioned contagion, and
Speaker 1: just just to end, not to end on a loan note,
Speaker 1: but but after so many years of easy money and
Speaker 1: cheap borrowing, and you know, money slashing around the system.
Speaker 1: Suddenly it's getting a lot more expensive. Suddenly the consumers
Speaker 1: under a lot more pressure because of inflation. You know,
Speaker 1: there are so many to me, you know, potential negatives
Speaker 1: out there. Should we expect a lot more distress and
Speaker 1: defaults or does this all blow over? So I think
Speaker 1: that that the default situation is always that's always a problem.
Speaker 1: And you, like me, James, I'm always looking at the
Speaker 1: boogeyman over my shoulder, and I always sort of wonder
Speaker 1: what the next shooter drop is. Not to mix metaphors,
Speaker 1: but I will say that that on the one hand,
Speaker 1: I'm optimistic about my my sector, which you know I
Speaker 1: always called pause too. But I think that really, when
Speaker 1: you're talking about financing, it's been expensive for my sector,
Speaker 1: you know, for over a year now. I mean you
Speaker 1: look at some of the cruise lines and they had
Speaker 1: to issue double digit bonds a year ago to finance
Speaker 1: their operations. And so I don't necessar necessarily think that
Speaker 1: right now is going to be different than what they've
Speaker 1: already been faced with for a year now that they've
Speaker 1: already had to digest. I think the bigger question is
Speaker 1: if there's a massive pullback in market liquidity, meaning the
Speaker 1: ability for companies to access the capital markets. What does
Speaker 1: that mean for these companies? Will they have to get
Speaker 1: creative in other ways? Will we start seeing a large
Speaker 1: segments of their business, the non core portion of their
Speaker 1: business gets sold off. We already saw with the casinos
Speaker 1: that they got creative to increase their liquidity as they're
Speaker 1: waiting for things like China to open up again, so
Speaker 1: that Macau was operational, and so what we saw was
Speaker 1: things like sale leasebacks, meaning they sold off their actual
Speaker 1: property and now they're just the property manager. We saw
Speaker 1: that with the hotels as well, that a lot of
Speaker 1: them are asset light, which is a little bit worrisome
Speaker 1: when you think about it from a standpoint of if
Speaker 1: they needed to get creative with their balanchies, how would
Speaker 1: they do that. I mean, the brand is only worth
Speaker 1: so much, So we are constantly viewing this as a
Speaker 1: what's next and what could these companies do to get
Speaker 1: creative to sort of fill in any cash gaps in
Speaker 1: the event of a significant market pullback and the inability
Speaker 1: for companies to finance operations. Let's hope you're right on
Speaker 1: the sunnier outlook that I have very important to keep
Speaker 1: on top of those sectors. Very important to keep on
Speaker 1: top of those sectors right now, not just for those
Speaker 1: who like going on cruises. Thank you, Jody sure Thing.
Speaker 1: Read all Josie's and Jody's analysis on the Bloomberg Terminal.
Speaker 1: Thank you very much, Jody Lourie at Bloomberg Intelligence. I
Speaker 1: look forward to catching up again very soon. And thanks
Speaker 1: again to Tassos Bossels from Bloomberg News. Read all of
Speaker 1: his scoops on the terminal and at Bloomberg dot Com.
Speaker 1: Keep an eye on the bank story right now. No
Speaker 1: matter what part of the market you're in, Tassos and
Speaker 1: his team will continue to break a lot of news
Speaker 1: about that incoming weeks. I'm James Crombie. It's been a
Speaker 1: pleasure having you. See you next week on the Credit Edge.