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Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul swing you

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Speaker 1: along with my co host Lisa Brahma Waits. Each day

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

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

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

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

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Speaker 1: that Bloomberg dot com. In response to the economic impacts

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Speaker 1: from the coronavirus, the Federal Reserve is stepping up and

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Speaker 1: stepping in in a big way, supporting liquidity the market,

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Speaker 1: not just buying treasuries, but also going into the corporate

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Speaker 1: bond market to get a sense of what that means

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Speaker 1: for the credit markets. Who welcome Bob Michael. Bob is

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Speaker 1: a chief investment officer and head of Global fixed Income,

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Speaker 1: Currency and Commodities at JP Morgan Asset Management. Bob, thanks

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Speaker 1: so much for joining us. So as we take a

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Speaker 1: look at what the Fed is doing here and its

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Speaker 1: support of the markets and liquidity in the markets, what

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Speaker 1: do you make of their moves into the corporate credit market.

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Speaker 1: Good morning, Paul, I take some moves into the corporate market,

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Speaker 1: and also let's not forget into the municipal market and

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Speaker 1: into parts of the non agency mortgage market where critical

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Speaker 1: and necessary. So I applaud it um. They had to

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Speaker 1: keep those markets functioning. They couldn't allow what was happening

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Speaker 1: in those markets where they were effectively frozen with very

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Speaker 1: little trading going on because they were perceived to be

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Speaker 1: outside of any kind of central bank safety net, to

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Speaker 1: continue to operate that way. So I think it was

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Speaker 1: a good first step, Bob. The FED has said that

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Speaker 1: they are going to delve in THEO into the corporate

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Speaker 1: debt market, they have yet to actually do so, and

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Speaker 1: I think it's interesting that yesterday FED Chair J. Powell

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Speaker 1: indicated they were willing to go further, and yet they

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Speaker 1: haven't even taken the first steps when it comes to

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Speaker 1: actually implementing it. In the credit markets. Do you think

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Speaker 1: the market's gotten ahead of itself piling into junk bonds,

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Speaker 1: in particular with the expectation that they'll be back stopped

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Speaker 1: by the FED. Yeah, I think so. And when you

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Speaker 1: think about what the FED is doing, they're going to

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Speaker 1: buy UH fallen angels or companies that were rated investment

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Speaker 1: grade towards the end of March that may drop into

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Speaker 1: the high yield market. I think that's smart because those

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Speaker 1: are companies that were running basically investment grade financials before

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Speaker 1: the crisis. The crisis isn't their fault, and you're putting

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Speaker 1: too much pressure on the rating agencies. You're effectively telling

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Speaker 1: the rating agencies without being able to buy uh fallen angels,

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Speaker 1: that they could be leveling a death sentence on these companies.

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Speaker 1: So they took that away. But when we look at

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Speaker 1: their support of the high yield market, we estimate that

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Speaker 1: it will be roughly ten of the high old market. Uh.

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Speaker 1: It's not a lot. Uh. It will keep the high

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Speaker 1: yield market functioning, but it also doesn't prevent high yield

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Speaker 1: companies from defaulting. I think you're going to see a

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Speaker 1: rise in the fall rates for a prolonged period of time. So,

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Speaker 1: but here's what I'm struggling to understand. Yesterday after FED

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Speaker 1: Chair J. Powell's press conference, about half a billion dollars

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Speaker 1: flowed into h y G or at least that was

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Speaker 1: the total amount of flows yesterday into the biggest US

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Speaker 1: high old bond et F which by is the broad market,

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Speaker 1: not just fallen angels. And you said that you do

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Speaker 1: think the market's gotten a little ahead of itself. So

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Speaker 1: does that mean that you're selling high old bonds here?

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Speaker 1: What does that mean in terms of your positioning? Well,

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Speaker 1: it means a lot of things. I think a lot

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Speaker 1: of the market got confused when he said there would

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Speaker 1: be a new term sheet on the Men's Main Street

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Speaker 1: lending facility, and most investors took that to mean that

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Speaker 1: the leverage limit that was put in place might be

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Speaker 1: relaxed or eliminated, which we then broaden out the coverage

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Speaker 1: to more highly levered companies in a broader array of

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Speaker 1: of the universe. After all, they our employers, and I

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Speaker 1: think people initially went to that. We step back and say,

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Speaker 1: hang on, in this market, you've got to take every

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Speaker 1: company and you've got to stress it. And we do

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Speaker 1: multiple stress tests trying to think, you know, how, how

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Speaker 1: how deep could the recession go for how long? Where

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Speaker 1: does it peak? And unemployment? We do things like a

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Speaker 1: shutdown for nine months and unemployment peaking at over and

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Speaker 1: then see what a company's balance sheet could look like,

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Speaker 1: could it withstand it? Do they have access to capital?

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Speaker 1: And by the way, when you run that kind of

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Speaker 1: stress you find a lot of companies even though they

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Speaker 1: may have access to capital at that point in time,

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Speaker 1: Actually it doesn't make sense for them to do additional

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Speaker 1: borrowing because they'll realize at the other end of this

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Speaker 1: their ability to pay back all that debt won't be there.

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Speaker 1: The market's got to start to realize that just because

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Speaker 1: there's access to lending and borrowing doesn't mean companies will

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Speaker 1: continue to take on another turn of leverage. At some

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Speaker 1: point they'll realize they can't service it. So, Bob, given

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Speaker 1: you know the backdrop for your economic outlook at JP

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Speaker 1: Morgan Investment Management, asset management, how much risk are you

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Speaker 1: guys willing to take right now? A very moderate level

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Speaker 1: of risk in fixed income. The core of our portfolios

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Speaker 1: are invested along the theme of co invest with the

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Speaker 1: central banks. What they're buying, you buy. That's a pretty

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Speaker 1: good safety net, at least for liquidity around you. Then

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Speaker 1: roll up your sleeves and and look at what falls

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Speaker 1: outside of that safety net, in in the corporate space,

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Speaker 1: in the security space, in the muni space, and see

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Speaker 1: who can withstand an extended period of a shutdown UH

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Speaker 1: and high unemployment UH. And you find out that there

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Speaker 1: are some companies out there, there are some industries that can,

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Speaker 1: but there are awful lot that can't. I'm just wondering, Bob,

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Speaker 1: what's your base case. You said you're looking at potential

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Speaker 1: stress cases of nine months, just quickly here, what's your

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Speaker 1: base case for the economy? Well, our base case is

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Speaker 1: that that you don't return to normal um for a while,

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Speaker 1: and that we will see unemployment peak at over and

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Speaker 1: then as you start to get to the end of

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Speaker 1: you're down to about nine percent. Now, that may seem

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Speaker 1: great relative to a peak of over but let's not

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Speaker 1: forget that during the financial crisis, unemployment peak at ten percent,

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Speaker 1: and we know what kind of pain it was to

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Speaker 1: try to recover from that. So there's a lot of

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Speaker 1: hardship ahead. This feels to me like the second quarter

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Speaker 1: of two thousand and eight, where the first quarter was horrible.

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Speaker 1: There were policy responses um and and the market immediately

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Speaker 1: became optimistic, and then the horror of what had actually

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Speaker 1: happened starts to hit into the data. Bob Michael with

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Speaker 1: a pretty bleak assessment. Bob, You've been right many times.

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Speaker 1: It's always a pleasure speaking with you. Bob Michael, Chief

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Speaker 1: investment Officer and head of Global fixed Income, Currency and

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Speaker 1: commodities at JP Morgan Asset Management, saying invest alongside the FED,

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Speaker 1: don't go into much riskier credit, and really the idea

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Speaker 1: that this reminds him a lot of the second quarter

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Speaker 1: of two thousand and eight when people said bear Stearns

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Speaker 1: was an anomaly, and then of course in September the

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Speaker 1: levant moment. It is the story of the year and

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Speaker 1: a story that continues, and that is that big tech

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Speaker 1: continues to outperform. Facebook actually had been under pressure among

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Speaker 1: the big tech names ahead of yesterday's earnings report, but

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Speaker 1: they blew expectations out of the water and actually even

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Speaker 1: pointed to some stability and ad revenue there's airs up

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Speaker 1: four point six percent. To help make sense of all

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Speaker 1: that we've learned and the advertising model of a new era,

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Speaker 1: Laura Martin joined us now senior media analyst with Niedem

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Speaker 1: and Company. And I want to ask Laura, just starting

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Speaker 1: with the Facebook and the Google earnings or Alphabet earnings

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Speaker 1: that we've gotten, do you get this sense that the

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Speaker 1: tech giants will somehow win out from this period of

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Speaker 1: time in the long term and in terms of consolidating

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Speaker 1: viewers and consolidating ad revenue. Um the answers yes, because

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Speaker 1: of their their balance sheet strength. So, uh alphabet balance

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Speaker 1: sheet had over a hundred billion dollars of cash and

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Speaker 1: they had positive free cash flow of five point four

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Speaker 1: billion in the first quarter. Facebook, which is a much

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Speaker 1: smaller company, had seven point five billion dollars of free

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Speaker 1: cash flow and they have sixty billion dollars on the

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Speaker 1: balance sheet. Both come of nuts cash um. Both companies

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Speaker 1: are paying all of their hourly workers, all the people

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Speaker 1: who aren't coming to work, and Facebook said they're still

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Speaker 1: going to hire ten thousand people this year, which means

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Speaker 1: these companies are going to persist even if they go

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Speaker 1: into cash losses. They will not go bankrupt. They will

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Speaker 1: have access to capital, mostly their own, and therefore they

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Speaker 1: will survive when some of their competitors will go under. So, Laura,

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Speaker 1: I was looking, I was, you know, looking at some

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Speaker 1: of the guidance or some of the commentary from Facebook

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Speaker 1: last night, and they're talking about April advertising revenue being

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Speaker 1: kind of flatish for the first a few weeks of

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Speaker 1: April versus last year. I found that really hard to

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Speaker 1: believe given what's going on out there in the economy.

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Speaker 1: How do you think ad revenue for even even the

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Speaker 1: digital media companies over the next you know, several months

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Speaker 1: will look well. So I don't know if you remember

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Speaker 1: Paul back to their I p O about of their

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Speaker 1: revenue came from something called app installs, which was like

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Speaker 1: a legion. Remember Zenga Games and Farmville and all that

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Speaker 1: stuff where they would get like a buck if you

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Speaker 1: spent five bucks. Well, that's what's happened a now is

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Speaker 1: they have literally not talked about let's call that direct response,

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Speaker 1: which is what that's called. In ten quarters, all they

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Speaker 1: do is talk about advertising for small and large businesses.

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Speaker 1: So yesterday, the reason they're flat is because thirty of

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Speaker 1: their revenue is up and it is those app installs

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Speaker 1: or that direct response, and they have really downplayed that

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Speaker 1: verdict that like that kind of advertising. But that is

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Speaker 1: what's boy in them, and it's the same thing that

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Speaker 1: boyd snap right those snap also thought dr open It's

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Speaker 1: ad revenue in April was up because so much of

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Speaker 1: their revenue is up. But at Facebook, what we're seeing

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Speaker 1: is a floor created by these app installs, this direct response,

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Speaker 1: and the fact that when there's a target market, they

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Speaker 1: don't sell keywords like Google sells travel. Well if travel

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Speaker 1: disappears they can't sell a travel keyword to a jeweler

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Speaker 1: or to something, you know, a healthcare worker. But that's

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Speaker 1: not true if Facebook. If Facebook is trying to target

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Speaker 1: everybody listening to you today, all the smart people listening

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Speaker 1: to you at a and suddenly traveled like the four

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Speaker 1: Seasons in Budapest, stops advertising. That's okay. They can sell

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Speaker 1: all of us to the jeweler or two of game

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Speaker 1: app because we're the same demo. So what we're getting

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Speaker 1: is a better auction result at Facebook, whereas keywords are

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Speaker 1: siloed and therefore they're just having zeros in some categories

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Speaker 1: for keywords over at Google. So, Laura, how much of

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Speaker 1: this dominance has already been priced into Facebook. It's a

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Speaker 1: good question. I mean, the fact it's up means fifty

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Speaker 1: of us didn't really under the fifty analysts that cover it,

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Speaker 1: didn't really understand the business model. Similarly to Google, their

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Speaker 1: robustness up ten percent yesterday meant that despite the forty

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Speaker 1: people that cover Google, we didn't understand how their business

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Speaker 1: model worked. I mean, you saw YouTube was up revenue

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Speaker 1: in the first quarter. So part of what's happening is

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Speaker 1: we make assumptions based on what they disclose over ten quarters,

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Speaker 1: and then when COVID pushes on those business models and

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Speaker 1: they perform differently, we start asking questions about why that is,

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Speaker 1: and we learn more about what's underlying theo's business models,

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Speaker 1: like the fact that direct response is still thirty of

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Speaker 1: Facebook's advertising and Google is zero direct response. So laard

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Speaker 1: Lea's switch hears just a little bit and talk about

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Speaker 1: some of the big media companies that you've got that

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Speaker 1: you've been covering for so long. How do you think

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Speaker 1: this new world that we're in, maybe this new normal

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Speaker 1: that we may be going into, is going to impact

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Speaker 1: the big media companies if you changed kind of your

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Speaker 1: outlook at all. So I think what we're waiting to

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Speaker 1: see here, Paul is, as you know, TV has bought

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Speaker 1: well in advanced local spots three weeks in advanced national

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Speaker 1: spot like a year in advance. So we're actually expecting

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Speaker 1: to one to be more robust for the old media companies.

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Speaker 1: But without live sports, there's a big revenue down draft

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Speaker 1: because that's twenty um depending on the season of total advertising,

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Speaker 1: and it deferred, you know, obviously hurts YESPN most and

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Speaker 1: Fox lease because they don't really have UM Basketball, which

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Speaker 1: is the current season. So I'm looking for the impact

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Speaker 1: of live sports, which I don't think is a long

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Speaker 1: term impact. I'm looking at disconnect from the TV ecosystem,

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Speaker 1: which hurts most of these companies in their subscription revenue line.

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Speaker 1: And then I'm interested in what they say about the

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Speaker 1: upfront because normally, as you know in May, about inventory

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Speaker 1: is bought in May for the next year. Will no

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Speaker 1: one's making new season episodes, so we're not going to

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Speaker 1: have actually a false season unless people go back to work,

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Speaker 1: like actors go back to work in fall. So I'm

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Speaker 1: very interested to see with the eight billion dollars that

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Speaker 1: is normally committed in the upfront in May, if we're

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Speaker 1: not going to have programming in the new U semester,

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Speaker 1: the new fall season, I'm interested in what they say

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Speaker 1: about that. Laura, just about a minute here, But I'm

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Speaker 1: wondering whether this will shift the dominance to online advertising

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Speaker 1: in terms of spending. I know that the thirty second

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Speaker 1: ad has been resilient in terms of being and commanding

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Speaker 1: the highest price, but is that going to shift with

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Speaker 1: more of the budget going to online providers. So Facebook

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Speaker 1: specifically said they're seeing no offline budgets moving into their world.

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Speaker 1: Everything they're seeing was a pre existing budget that had

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Speaker 1: automated controls, and as CPMs have fallen by sixteen Senate, Facebook,

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Speaker 1: those budgets step up. Um Also, Google asserts that it

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Speaker 1: will hasten the you know, the adoption of digital. But

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Speaker 1: I just think it's too early to tell. And then

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Speaker 1: COVID literally happened the first week in March, right, that's

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Speaker 1: when they said they all hit a wall the first

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Speaker 1: week in March, and it's now round numbers the second

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Speaker 1: week in April. So I think it's too early to see.

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Speaker 1: I think consumer behavior might be easier to predict. Consumers

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Speaker 1: are going to use the commerce for consumers may use

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Speaker 1: digital outlets more. But on the advertiser slide, I just

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Speaker 1: don't think advertisers can react in four weeks to it's

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Speaker 1: happening in a pandemic. Laura Martin, thanks so much for

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Speaker 1: joining us. We always appreciate getting your thoughts on the

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Speaker 1: media and digital landscape. Laura Martin, senior media analysts for

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Speaker 1: Needham Company, joining us on the phone from Los Angeles.

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Speaker 1: We appreciate that. So at least I think you know

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Speaker 1: the kind of the takeaway here is, boy, these digital

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Speaker 1: media companies, they were strong going into this pandemic, and

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Speaker 1: it looks like they're coming stronger on the way out. Yeah.

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Speaker 1: I just have to wonder about consolidation. And I've read

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Speaker 1: a number of lawyers who have commented saying that they

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Speaker 1: don't think the antitrust regulators are going to be that

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Speaker 1: harsh on big tech looking to acquire competitors that might,

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Speaker 1: you know, we otherwise going out of business. Yeah, because

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Speaker 1: going into the pandemic, the big tech was clearly under

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Speaker 1: the regulatory microscope, and maybe that has been shift a

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Speaker 1: little bit, which could again be a benefit for the

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Speaker 1: big tech. Yesterday, FED Chair J. Powell sounded about as

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Speaker 1: somber as a FED chair could get. He had a

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Speaker 1: pre need doubt, a dire outlook for the US economy,

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Speaker 1: and rightly so, given the fact that ten years of

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Speaker 1: job gains has been more than wiped out in just

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Speaker 1: six weeks. Joining us now is someone with intimate knowledge

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Speaker 1: of both the Federal Reserve and the Treasure Department. Nathan Sheets,

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Speaker 1: chief economist for Pejim fixed Income Joining us now, Nathan,

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Speaker 1: so glad to have you on with all of your insights.

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Speaker 1: I want you to give us a sense of your

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Speaker 1: thoughts on the Fed's efforts to backstop corporate debt, in particular,

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Speaker 1: because FED Chair J. Powell had an opportunity yesterday to

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Speaker 1: send expectations straight and say the Fed isn't going to

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Speaker 1: delve deeper into junk he did not do that, and

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Speaker 1: in fact so that they were prepared to do more

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Speaker 1: and the net effect was more money into junk bonds.

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Speaker 1: What's your take, well, J. Powell was categorical that the

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Speaker 1: Federal Reserve is prepared to bring the full force of

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Speaker 1: its balance sheet to bear in supporting the financial markets generally.

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Speaker 1: But I think, as your questions suggests, there are remaining

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Speaker 1: questions about various pockets of the market and in uh,

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Speaker 1: in reality, how aggressive is the Federal Reserve going to be?

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Speaker 1: And I have to say that as I've seen some

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Speaker 1: of the soundings from the Federal Reserve about its core

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Speaker 1: por purchase programs, it has left me with some questions.

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Speaker 1: For example, before a company is eligible to have its

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Speaker 1: bawns purchased, even on the secondary market, it looks like

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Speaker 1: it's going to have to fill out a form and

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Speaker 1: and make a number of attestations to the Federal Reserve,

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Speaker 1: and I think it's an open question and say, how

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Speaker 1: many how many firms are going to be willing to

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Speaker 1: do this and where is it going to leave the

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Speaker 1: corporate bond markets relative to the headline that the FETE

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Speaker 1: is buying. So I think there are real questions about

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Speaker 1: the Fed's efforts in that particular space, where broadly they're committed. UH,

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Speaker 1: they'll they'll do what's necessary, they'll use all the tools,

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Speaker 1: but certain corners of the markets. I think we still

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Speaker 1: have a lot a lot to learn about how far

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Speaker 1: they're willing to go. So, Nathan, you mentioned tools in

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Speaker 1: the toolbox, what else realistically can the Fed dude going

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Speaker 1: forward if this pandemic is longer than perhaps currently anticipated.

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Speaker 1: So qualitatively, in terms of supporting the markets, I think

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Speaker 1: that they are bringing to bear uh the lion's share,

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Speaker 1: maybe maybe the totality of what they have. UH. They

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Speaker 1: are prepared to buy aggressively. They're keeping rates low. UH,

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Speaker 1: they're expanding their balance sheet in a very significant way.

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Speaker 1: But quantitatively, I think that we can see uh meaningful

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Speaker 1: further increases in the size of the balance sheet. And

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Speaker 1: then in addition, UH, the Congress is allocated over four

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Speaker 1: hundred and fifty billion dollars to the Treasury to backstop

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Speaker 1: federough Reserve facilities, and less than half of that money

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Speaker 1: has been allocated to date. And most of those facilities

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Speaker 1: that I was suggesting the corporates an example of this,

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Speaker 1: are not even up and running yet. So I would

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Speaker 1: say Job one for the Fedough Reserve is to get

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Speaker 1: these facilities up and running and then to make sure

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Speaker 1: that they are actually meeting the needs in the markets.

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Speaker 1: Uh and UH from there if if those needs end

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Speaker 1: up being greater, the FED has plenty of additional firepower

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Speaker 1: to bring to bear, given its balance sheet and that

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Speaker 1: war chest with the Treasury. So Nathan, let's go there

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Speaker 1: to that main Street loan program. We've got some news

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Speaker 1: today saying that the FED plans to expand the parameters

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Speaker 1: for potential applicants and and build former New York FED

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Speaker 1: president had a great column about this yesterday, talking about

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Speaker 1: how difficult it will be for the FED to thread

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Speaker 1: the needle. Here, just do if you had a chance

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Speaker 1: to look at the at the news today and kind

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Speaker 1: of give us a sense of what it means in

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Speaker 1: terms of which businesses will be able to access this.

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Speaker 1: I did see this, and I think your analogy to

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Speaker 1: threading the needle is exactly right. So, on the one hand,

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Speaker 1: moving into this space is very difficult for the FED

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Speaker 1: and that they're taking onto their balance sheet potentially a

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Speaker 1: broad range of heterogeneous collateral that they're not really that

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Speaker 1: familiar with. On the other hand, the needs in this

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Speaker 1: space are tremendous and that many of the firms that

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Speaker 1: are eligible for this facility are the high yield issuers

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Speaker 1: and high yield companies that are just absolutely being pummeled.

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Speaker 1: So then the question is how do you do line

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Speaker 1: a facility that meets their needs well at the same time,

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Speaker 1: uh it doesn't make the FAD feel too uncomfortable given

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Speaker 1: its uh it's roast tolerance. And I think what we

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Speaker 1: saw in this revision today was an effort to fine

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Speaker 1: tune it and to make it more attractive to small borrowers,

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Speaker 1: and that they cut the minimum loan size from a

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Speaker 1: million dollars down in down to five hundred thousand. It

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Speaker 1: added a new class of loans that would be eligible

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Speaker 1: and specifically companies that are deemed to be somewhat riskier.

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Speaker 1: But another concern is that for many of the larger

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Speaker 1: firms that are eligible. The maximum loan size is pretty small,

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Speaker 1: so there are there are many constraints on this thing.

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Speaker 1: We saw the fad kind of move in this direction,

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Speaker 1: but it remains to be seen how big and how

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Speaker 1: aggressive this facility is going to be. I think this,

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Speaker 1: along with the corporate program, is the big question. Mark

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Speaker 1: and Nathan, thanks so much for joining us. To really

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Speaker 1: appreciate your thoughts and commentary. Nathan Sheets, chief economists and

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Speaker 1: head of macroeconomic research at p JIM Fixed Income, joining

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Speaker 1: us here with thoughts on the FED and all the

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Speaker 1: programs that are out there at Lisa as Uh Nathan

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Speaker 1: was suggesting, it's I think right now the key issue

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Speaker 1: for the market is actually getting those programs up and running,

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Speaker 1: getting the cash into the marketplace. We will have more

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Speaker 1: on that coming during the remainder of the show. This

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Speaker 1: is Bloomberg. It's time to check in with Bloomberg Opinion.

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Speaker 1: We're joined today by Opinion commas Liam Denny giving us

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Speaker 1: some thoughts on a couple of things I want to

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Speaker 1: look at with you. Liam. First, Tesla reported some numbers

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Speaker 1: last night, the stocks up five. I'm looking at the

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Speaker 1: stock here. Boy just had an extraordinary up a hundred

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Speaker 1: percent this year just extraordinary. What are some of the

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Speaker 1: key takeaways for you, Liam from what we heard from

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Speaker 1: Elon Musk and company. Well, for me, you know, it

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Speaker 1: all comes down to the numbers, which which tend to

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Speaker 1: get obscured. Um, you know during the actual theater of

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Speaker 1: Tesla's earnings call um. This is the third quote unquote

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Speaker 1: surprise profit from Tesla in a row. The first one

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Speaker 1: was announced back in October and since Vince then, um,

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Speaker 1: you know, those three gap profits have added up to

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Speaker 1: the princely some of two million dollars. Now. In the meantime,

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Speaker 1: the company's value has surged by I think it's up

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Speaker 1: about a hundred and twenty billion dollars also, so there

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Speaker 1: is still this fundamental disconnect between Tesla's valuation and the

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Speaker 1: actual results that it's producing. And I actually think, um,

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Speaker 1: you know, the results we got carried some pretty um,

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Speaker 1: pretty serious portents of of what's going to happen in

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Speaker 1: the current quarter, all right, before we dig into what's

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Speaker 1: going to happen at current order shares a Tesla up

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Speaker 1: nearly five percent, and this comes after Elon Musk pulled

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Speaker 1: an Elon Musk when on one of his tantrums uh.

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Speaker 1: During the Tesla earnings call talking about some of the

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Speaker 1: stay at home orders. We have a clip of that.

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Speaker 1: Why don't you take a listen to say that they

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Speaker 1: cannot leave their house, um, and they will be arrested

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Speaker 1: if they do. This is this is a this is

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Speaker 1: a this is fascist, This is not democratic, This is

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Speaker 1: not freedom. Give people back the god freedom. That was

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Speaker 1: Elon Musk coming out against orders that have been said

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Speaker 1: to save possibly thousands, if not millions of lives in

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Speaker 1: order to prevent the spread of the pandemic. I don't

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Speaker 1: want you to weigh in necessarily on your views and

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Speaker 1: social distancing and some of the policies. I'll save you that, Liam,

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Speaker 1: But I do want to get a sense of what

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Speaker 1: we can expect it from Tesla going forward, whether it

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Speaker 1: really does have the hope of the entire auto industry

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Speaker 1: at a time when oil prices are plunging. Well, I

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Speaker 1: think the first thing to say is, you know, if

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Speaker 1: I was running a company that have been built on

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Speaker 1: the back of billions of dollars of subsidy and was

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Speaker 1: pivoting strongly to a market run by the Chinese Communist Party,

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Speaker 1: I'm not sure I would necessarily wrap myself in the

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Speaker 1: flag of libertarianism. Um. I think what this speaks to

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Speaker 1: is really anxiety at Tesla because it is very much

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Speaker 1: a momentum company and a momentum stock. And I think

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Speaker 1: any car manufacturer will tell you that if you have

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Speaker 1: a plant where the utilization suddenly drops to zero, that

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Speaker 1: starts with a serious impact on your profits in cash

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Speaker 1: flow pretty quickly. Now, going back to the first quarter results,

434
00:25:51,840 --> 00:25:56,000
Speaker 1: it's worth remembering that Tesla didn't really shut down its

435
00:25:56,080 --> 00:25:59,000
Speaker 1: main Fremont factory until the very last week of March.

436
00:26:00,040 --> 00:26:02,000
Speaker 1: So when we look at the cash burn, which was

437
00:26:02,080 --> 00:26:06,199
Speaker 1: something like million dollars, you have to remember that that

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00:26:06,280 --> 00:26:08,480
Speaker 1: was in the context of a quarter where actually the

439
00:26:08,520 --> 00:26:12,200
Speaker 1: plant was running virtually all of it. So I think

440
00:26:12,640 --> 00:26:16,360
Speaker 1: in the second quarter, particularly with the lockdowns being extended

441
00:26:16,400 --> 00:26:19,720
Speaker 1: into next month, um, we're going to see some really

442
00:26:19,760 --> 00:26:24,359
Speaker 1: serious cash burn in the second quarter results. And so

443
00:26:24,480 --> 00:26:29,440
Speaker 1: I think, Um, you know, Musque's comments about fascism really

444
00:26:30,160 --> 00:26:32,919
Speaker 1: speak to a deep need on the part of the

445
00:26:32,960 --> 00:26:36,760
Speaker 1: company to actually get that plant reopened. So that's kind

446
00:26:36,760 --> 00:26:38,359
Speaker 1: of where I wanted to go. Liam. Is there any

447
00:26:38,440 --> 00:26:41,359
Speaker 1: sense of when that plant will be reopened? It's not

448
00:26:41,400 --> 00:26:43,480
Speaker 1: like they have plants all over the world, like some

449
00:26:43,520 --> 00:26:46,560
Speaker 1: of the big three automakers, for example, they can kind

450
00:26:46,600 --> 00:26:50,239
Speaker 1: of shift production. They're kind of dependent pretty you know,

451
00:26:50,680 --> 00:26:54,000
Speaker 1: significantly on that Freemont plant. Yeah, that's true. I mean

452
00:26:54,040 --> 00:26:56,879
Speaker 1: the Chinese plant is getting back up and running, but

453
00:26:56,920 --> 00:27:01,399
Speaker 1: that's that's a new plant. It can't offset what's happening

454
00:27:01,400 --> 00:27:05,080
Speaker 1: in the US anytime soon. UM. As for when the

455
00:27:05,119 --> 00:27:07,560
Speaker 1: other plant opens, I mean, right now, your guess is

456
00:27:07,600 --> 00:27:11,560
Speaker 1: as good as mine. Right, it depends on when California

457
00:27:11,800 --> 00:27:16,160
Speaker 1: lifted stay at home orders. Um. And then of course

458
00:27:16,200 --> 00:27:17,919
Speaker 1: it will take a little time for the plant to

459
00:27:17,960 --> 00:27:21,879
Speaker 1: get back up to speed. And then with we we

460
00:27:21,920 --> 00:27:24,480
Speaker 1: shouldn't ignore the other side of this, which is demand.

461
00:27:24,560 --> 00:27:29,600
Speaker 1: I mean, these are high priced items in a US

462
00:27:29,680 --> 00:27:32,480
Speaker 1: economy with you know, thirty million people of far for

463
00:27:32,560 --> 00:27:40,679
Speaker 1: unemployment as the deep damage is being inflicted on incomes worldwide. UM.

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00:27:40,800 --> 00:27:43,760
Speaker 1: So I think you know, this isn't something that's going

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00:27:43,800 --> 00:27:47,440
Speaker 1: to go away quickly. Liam about twenty seconds here, I'm

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00:27:47,480 --> 00:27:50,440
Speaker 1: just wondering shifting gears to the oil majors. Do you

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00:27:50,480 --> 00:27:53,400
Speaker 1: think that any of the major oil companies will preserve

468
00:27:53,440 --> 00:27:58,639
Speaker 1: their dividend after this route? I think the US companies

469
00:27:58,840 --> 00:28:04,040
Speaker 1: will try the hardest to preserve it because you know,

470
00:28:04,160 --> 00:28:07,880
Speaker 1: after a decade of really poor returns, it's it's it's

471
00:28:07,920 --> 00:28:11,440
Speaker 1: really the only thing that investors have to hang onto now.

472
00:28:11,440 --> 00:28:15,760
Speaker 1: The the UK majors had the highest dividend yields of

473
00:28:16,320 --> 00:28:18,560
Speaker 1: all of them, and so I had a really strong

474
00:28:18,640 --> 00:28:22,680
Speaker 1: signal to cut. All the companies are facing a very

475
00:28:22,800 --> 00:28:27,360
Speaker 1: challenging environment or whether they're having to balance spending versus dividends,

476
00:28:27,400 --> 00:28:30,040
Speaker 1: but I think the US companies will hold out the longest.

477
00:28:30,640 --> 00:28:32,520
Speaker 1: Liam Denning, thank you so much for taking the time

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00:28:32,560 --> 00:28:35,800
Speaker 1: to day Liam Denning, energy Mining and Commodities columnist with

479
00:28:36,000 --> 00:28:42,120
Speaker 1: Bloomberg Opinion, talking about that Elon Musk doing Elon Musk, Yeah, yeah,

480
00:28:42,160 --> 00:28:46,040
Speaker 1: putting it yet putting it frankly into a more serious

481
00:28:46,080 --> 00:28:48,720
Speaker 1: perspective here, which is it speaks to his desperation. This

482
00:28:48,880 --> 00:28:52,800
Speaker 1: is a momentum company, and the momentum for now is

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Speaker 1: still with us. Thanks for listening to the Bloomberg Penl podcast.

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Speaker 1: You can subscribe and listen to interviews at Apple Podcast

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00:29:00,560 --> 00:29:03,560
Speaker 1: or whatever podcast platform you prefer. I'm Paul Sweeney, I'm

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00:29:03,560 --> 00:29:06,280
Speaker 1: on Twitter at pt Sweeney. I'm Lisa Abram Woits I'm

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00:29:06,280 --> 00:29:09,160
Speaker 1: on Twitter at Lisa Abram wohits one before the podcast.

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Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio