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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along

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Speaker 1: with my co host of Bonnie Quinn. Every business day,

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Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,

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Speaker 1: along with essential market moving news. Find the Bloomberg Markets

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Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,

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Speaker 1: and on Bloomberg dot com. We says over for Congress,

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Speaker 1: Nancy Pelosi has called back the House because of growing

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Speaker 1: controversy surrounding the USPS, the United States Postal Service. Writing

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Speaker 1: on this subject today in Bloomberg Opinion, Timothy O'Brien, senior

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Speaker 1: columnist for Bloomberg, And in fact it wasn't today, Tim,

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Speaker 1: but it has been recently, and it's not the first

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Speaker 1: time you've written on this subject. What can Congress do

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Speaker 1: to throw light on what the president is doing and

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Speaker 1: rain in anything that's illegal? Um? Well, Van, yeah, I

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Speaker 1: think I think I should do a lot to throw

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Speaker 1: light on the problem. I'm not sure how much they

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Speaker 1: can do to stop it. What's going on is mail

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Speaker 1: carriers hours has been reduced, Post office hours have been reduced.

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Speaker 1: UM large mail sorting machines are being taken out of

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Speaker 1: commission in post office hubs and all of this is

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Speaker 1: slowing down mail delivery that matters in an election year.

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Speaker 1: Pardon me, because uh, there's there's a strong chance we're

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Speaker 1: going to have a huge surgeon mail in voting uh

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Speaker 1: this year because of the pandemic. And um, it's it's

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Speaker 1: pretty clear that um, this is is in is an

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Speaker 1: effort to weaponize the Postal Service to slow down mail

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Speaker 1: in balloting, and the President is behind that. He's done

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Speaker 1: very little uh to try to stop it. He's been

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Speaker 1: questioned about it, he said he has no interest in

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Speaker 1: changing what's going on in the Postal Service. In fact,

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Speaker 1: he said he won't even release funds of the Postal

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Speaker 1: Service that would allow to speed up its operations. Um Uh.

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Speaker 1: Congress is holding hearings. Congress has asked the Inspector General

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Speaker 1: at the Post Office to examine this. A number of

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Speaker 1: state attorneys general are are coalescing around this and planning

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Speaker 1: to sue the Trump administration of the Post Office to

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Speaker 1: stop these practices, but that has to wend its way

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Speaker 1: through the court. So the issue here is, um, how

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Speaker 1: much can really be done in real time to course

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Speaker 1: correct here so voters of both parties don't get their

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Speaker 1: votes um taken away from them because the post Office

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Speaker 1: can't deliver their balance. I didn't even know this was

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Speaker 1: a thing until it happened him. Um, it just seems

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Speaker 1: like every day there's something new here, is there? This

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Speaker 1: kind of goes to the bigger question. I guess that

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Speaker 1: some people are raising that if the president were to

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Speaker 1: lose this election, that perhaps he would not be willing

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Speaker 1: to really admit that, or or he would can can

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Speaker 1: contest it? Is that a material risk in your perspective,

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Speaker 1: it's a very material risk, And he said as much.

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Speaker 1: You know, he said in recent press appearances that we

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Speaker 1: will know the results on election night. We may not

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Speaker 1: know it for weeks after election night, perhaps even months.

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Speaker 1: I mean that we certainly may not know an election night,

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Speaker 1: and we may not know shortly after election night. But

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Speaker 1: but we will find out in relatively short order, and

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Speaker 1: voters will just have to get used to the facts.

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Speaker 1: Will take a little longer this year, but the President

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Speaker 1: has already ceded the ground with the idea that the

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Speaker 1: vote can't be trusted. He said that mail in balloting

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Speaker 1: is riddled with fraud. That's just factually untrue. A majority

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Speaker 1: of states have used it quite well for quite a

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Speaker 1: long time, including Red states Republican states who stand by

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Speaker 1: it as a process. So yeah, it's a material risk,

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Speaker 1: and I think, like everything in the Trump era, he's

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Speaker 1: he's pressing the limits of what we accept as norms

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Speaker 1: around executive authority and presidential behavior and public institutions that

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Speaker 1: are really challenging people to kind of wrestle these things

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Speaker 1: to the ground with him. It's really interesting because it

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Speaker 1: sort of puts paid to the idea that the president

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Speaker 1: may not run now, or may pull out of the

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Speaker 1: race if he thinks he's not going to win, or

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Speaker 1: or or or this rhetoric that's going around that maybe

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Speaker 1: he doesn't really want it, that he had his one

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Speaker 1: term and he'll be finding something else. It seems like

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Speaker 1: he really, really, really does want to win a second term.

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Speaker 1: The other thing that's been pointed out to people in

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Speaker 1: his campaign and to himself is that last time around

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Speaker 1: Mielan balloting actually benefited him, and so even that isn't enough,

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Speaker 1: you know, to to change his mind on what's going

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Speaker 1: on here with the postal service. Now. His argument is

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Speaker 1: that it's a money loser, and of course that's a

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Speaker 1: winning argument for a capitalist who cares about money. How

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Speaker 1: how do those who don't like what's going on defend

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Speaker 1: the USPS. So it's the United States Postal Service, it's

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Speaker 1: not the United States Postal business. It was mentioned in

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Speaker 1: the in the Constitution as an organization that was meant

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Speaker 1: to knit the country together and to make sure that

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Speaker 1: Americans who lived in far fun places would always have

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Speaker 1: a means of communication. Uh. And that's still true today.

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Speaker 1: The Post Office loses a lot of money on traditional

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Speaker 1: mail delivery because they have to deliver to remote rural communities.

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Speaker 1: Seniors really rely on the service, and the post Office

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Speaker 1: itself is not allowed to raise the price of stamps.

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Speaker 1: That's that's set by a commission that decides what the

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Speaker 1: affordable rate should be. But we also don't expect the

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Speaker 1: Department of Defense to make a profit. In fact, the

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Speaker 1: Department of Defense loses by that standard. The Department of

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Speaker 1: Defense loses far more money annually than the post Office,

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Speaker 1: roads and bridges, fire departments, police departments. Uh. The Intelligence

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Speaker 1: services and the Diplomatic Corps and the White House itself

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Speaker 1: are not for profit businesses their public services. Uh. That said,

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Speaker 1: there's no question that the post offices operations could be

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Speaker 1: streamlined and and and new thought and fresh thinking about

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Speaker 1: how can do its job better is welcome. But it's

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Speaker 1: a complete strong man to say this is about just

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Speaker 1: making the post office a better business. It's very clear

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Speaker 1: now that that this is about the post office mission

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Speaker 1: being perverted and derailed in the service of a trench

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Speaker 1: warfare approach to politics. Well, it's extraordinary. Tim O'Brien, thanks

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Speaker 1: so much for joining us and providing some color on

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Speaker 1: what is a developing story. One that's getting the interest

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Speaker 1: in the of Congress right now is Speaker Pelos, who

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Speaker 1: brings the house back. Timothy O'Brian, Senior Columns for Bloomberg

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Speaker 1: Opinion joining us. Just a fascinating story. There's something new

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Speaker 1: every day, it seems like. And it's uh the good

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Speaker 1: folks of Bloomberg News and UH and Bloomberg Opinion keeping

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Speaker 1: up on all of it, so we appreciate their help. Well,

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Speaker 1: this market has been described as one that's being quote

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Speaker 1: unquote backstopped by the US Federal Reservant for that matter,

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Speaker 1: of central banks around the world. To get a sense

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Speaker 1: of whether that is enough for this market going forward

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Speaker 1: to welcome Nicholas, co founder Data Trek Research, Nick, thanks

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Speaker 1: so much. For joining us here. So again i'd love

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Speaker 1: to get your thirty foot view on what's kind of

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Speaker 1: pushing this market higher. We obviously had that terrible pullback

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Speaker 1: March April when the coronavirus hit, but since then with

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Speaker 1: the Federal Reserve stepping in with fiscal stimulus and all

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Speaker 1: the markets come roaring back, and love to get your

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Speaker 1: thoughts right here right now as it relates to some

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Speaker 1: of these riskier assets. Sure, the way we think about

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Speaker 1: it at Data Trek is the market is discounting a

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Speaker 1: very definite the bottom, not necessarily in the economy, but

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Speaker 1: in corporate profits. So if you think about a forty

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Speaker 1: two dollar a share earnings power number for the SMP

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Speaker 1: in the back half of last year per quarter, two dollars,

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Speaker 1: markets expecting we're going to get back to those levels

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Speaker 1: in the next four quarters. So even though the economy

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Speaker 1: is going to be sluggish, we are going to get

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Speaker 1: very high levels of corporate profitability because of fiscal stimulus,

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Speaker 1: because of monetary stimulus, and because of costing, we're going

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Speaker 1: to get back to those numbers. And that's why the

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Speaker 1: markets back to its old highs, because it doesn't care

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Speaker 1: how we get that earnings number. It just cares that

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Speaker 1: we do get it, and it has a very highly

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Speaker 1: read confidence that we will. But Nick, it doesn't matter

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Speaker 1: how much stimulus you give corporations or how lenient do

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Speaker 1: you make the rules for them to get money to

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Speaker 1: tie them over. If there isn't demand for their products

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Speaker 1: from from customers who themselves are dropped, those earnings can't

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Speaker 1: be there. Come they no very good point and that's

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Speaker 1: why they change in the composition of the SMP is

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Speaker 1: so important. We're actually looking at this for clients last night.

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Speaker 1: You know, back in two thousand sixteen, technology was the SMP.

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Speaker 1: The comp number now apples to Apples thirty three. And

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Speaker 1: as we saw the second quarter earnings, you have a

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Speaker 1: whole range of tychnical companies that are really hurting, but

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Speaker 1: technology is doing extremely well. So the SMP five hundred

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Speaker 1: is kind of a unique measure of corporate profitability because

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Speaker 1: it is waiting those companies that have very high that

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Speaker 1: was a profitability even to um showing high levels of

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Speaker 1: cash flow. It values them very highly. So the F

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Speaker 1: and P is not perhaps the best measure, but it's

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Speaker 1: the one most folks follow, and the earnings are there

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Speaker 1: for the technology sector and others that aren't as affected.

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Speaker 1: So Nick, it appears that this next next round of

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Speaker 1: fiscal stimulus, you know, we didn't get it, you know,

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Speaker 1: before the recess. Now there's some talk about perhaps will

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Speaker 1: get something in September. How critical is it for the

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Speaker 1: market to get a meaningful piece of fiscal stimulus? Uh,

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Speaker 1: in the relatively near term. I mean on a scale

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Speaker 1: of one to ten, it's probably a fifteen or sixteen.

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Speaker 1: Um it's super super critical, you know, And to Bonny's

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Speaker 1: point earlier, it's it underpins that ability for aggregate earnings

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Speaker 1: to improve. You know, without that, you don't get that

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Speaker 1: part of the story. Look, I mean, you know, looking

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Speaker 1: at past cycles, you know, every cycle bottom is a

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Speaker 1: little bit different, and the biggest difference is exactly what's

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Speaker 1: going to make us come off the bottom this time around?

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Speaker 1: It the whole is so deep that the market saying

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Speaker 1: politicians have to provide the stimulus, they have no choice

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Speaker 1: as an election year, and so our uncertainty about future

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Speaker 1: earnings is actually lower than traditional bottom cycle moments when

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Speaker 1: there isn't that level of support. So Nick, you know,

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Speaker 1: what's the biggest risk here to this to this market rally?

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Speaker 1: You know, it's it's it's a great question, um. You know,

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Speaker 1: to us, the biggest risk is is a hybrid of

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Speaker 1: the policy political issue and the earnings issue. You know,

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Speaker 1: we think back to two thousand eight, for example, really

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Speaker 1: horrible quarter for UM, for the for the market, and

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Speaker 1: it came in part because there was a huge change

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Speaker 1: of government in Washington during the eight elections and we

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Speaker 1: had a real power vacuum for several months during a

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Speaker 1: period of you know, in the middle of the financial crisis.

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Speaker 1: My biggest concern is we just get that's a similar

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Speaker 1: kind of power vacuum around the election. It's not necessarily

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Speaker 1: because of anything untoward that happens in the election, but

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Speaker 1: just millions in charge in DC for a few months,

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Speaker 1: just when we get into perhaps a second wave and

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Speaker 1: real concerns about the state of the economy in the

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Speaker 1: first half of next year. So my biggest concern is

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Speaker 1: we get a power vacuum in Washington in the matter

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Speaker 1: month of the year and you end up with not

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Speaker 1: so much confidence around those corporations. As we discussed. Alright,

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Speaker 1: So Nick, if where do you think where do you

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Speaker 1: think investors should be looking in this market? Given the

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Speaker 1: move we've had given that it's been. You know, the

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Speaker 1: breath of this market isn't what most technicians or even

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Speaker 1: fundamental analysts would like to see. Where do you see

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Speaker 1: opportunities here? You know, do you take a look across

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Speaker 1: some of the risk assets. You know, right now we

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Speaker 1: are favoring cyclicals um selectively. So I'm talking about industrials

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Speaker 1: and energy first and Foremost industrials have the most ardens

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Speaker 1: leverage going into meaning they generate the most out of

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Speaker 1: incremental profits from upside surprise and revenues, and energy has

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Speaker 1: the biggest potential upside. On the revenue side, you have

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Speaker 1: a profitability to be kind of shaky just because of

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Speaker 1: commodity pricing improved of it. So circle goals to the

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Speaker 1: place we're recommending people to put in current on money.

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Speaker 1: It's going to be a hard way to make money, though.

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Speaker 1: We think circle goals will outperform over the back half

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Speaker 1: of the year, but it'll probably happen over ten random

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Speaker 1: days where they're up two percents in the markets. Flat

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Speaker 1: and a tough way to make money, but that's the

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Speaker 1: way to outperform. We don't like the financials though. The

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Speaker 1: financials are just stuck in their own private health. Yeah,

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Speaker 1: that's a great way to put it, right. I mean,

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Speaker 1: even Warren Buffett Is is deciding that he doesn't care

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Speaker 1: about the financials anymore. It's really really interesting. Did you

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Speaker 1: learn anything for the thirteen F filings? Nick, No? No

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Speaker 1: from Buffets No. I mean it's it is. It's always

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Speaker 1: fascinating to watch him because he's just so good at

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Speaker 1: what he does. But no, not really, you it's and

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Speaker 1: just more broadly from the hedge funds and what they

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Speaker 1: were doing or how hedge funds made money. So, for example,

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Speaker 1: I was dropped by Chris Rockell spying just a whole

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Speaker 1: heap of Ali Baba and like literally that's all he did.

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Speaker 1: He just made that one, if I can say, ballsy trade,

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Speaker 1: and you know obviously it's paying off. Yeah. No, I

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Speaker 1: mean Baba's boba is an interesting one. Evaluation is so

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Speaker 1: cheap relative and China tech generally is so cheap relative

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Speaker 1: to US tech that you kind of want to think

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Speaker 1: there's a catch up trade. And we're certainly seeing some

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Speaker 1: of the catch up trade in the broader Chinese market

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Speaker 1: today with the stimulus last night. Are you seeing Nick

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Speaker 1: so t extent? You're looking at more cyclical names is

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Speaker 1: that suggests you're going to fund that with some of

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Speaker 1: the tech names that have a performed Yes. I mean

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Speaker 1: the way the way we think about it is if

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Speaker 1: you if you want to underweight one sector, it's got

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Speaker 1: to be financials. There's just nothing going on there, and

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Speaker 1: then you can dumbell it out between the industrial's energy

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Speaker 1: and the tech and have a reasonable shot of that

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Speaker 1: performing that. The banks are just just in a horrible space. Nick.

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Speaker 1: We will catch up with you again very soon and

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Speaker 1: take the temperature of the banks and the cyclicals and

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Speaker 1: lots lots of more. This market is going nowhere as

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Speaker 1: as it seems anyway, it's going to just continue to

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Speaker 1: go and hire Nichols as co founder of data Check Research.

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Speaker 1: Fantastic notes every day, really and get in touch with

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Speaker 1: Nick if if you want to subscribe to the our

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Speaker 1: research once again, our thanks to Nick Cholas. I don't

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Speaker 1: want to bring you a headline across the Bloomberg. Just

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Speaker 1: a few moments ago, New York City gyms can open

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Speaker 1: August twenty four, which is one week from today, with

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Speaker 1: thirty three percent capacity, so third capacity. Yeah, and in

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Speaker 1: fact it's more than New York City. It's it's it's

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Speaker 1: New York State Gym's, so gym's all over the state

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Speaker 1: can open August as long as people wear masks and

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Speaker 1: they are not full beyond thirty three percent capacity, which

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Speaker 1: was so beginners or people who haven't come to the

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Speaker 1: gym in a long time quite happy for fewer people

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Speaker 1: to be in the gym. Yeah. Absolutely, that's not to

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Speaker 1: suggest that I myself will be going back. That might

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Speaker 1: not be for coronavirus reasons, that might be for other reasons.

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Speaker 1: New research suggests glaring divergences between a m D and Intel,

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Speaker 1: something that maybe didn't seems so obvious before. Let's bring

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Speaker 1: in a strus and senior semiconductor and harder analyst for

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Speaker 1: Bloomberg Intelligence to tell us about this new research. And

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Speaker 1: and you know there were are rivals. But what does

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Speaker 1: this new research tell us about A m D and

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Speaker 1: intell how they do their business and their products. Good

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Speaker 1: morning morning, Paul, Thank you for having me. So we've

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Speaker 1: done some work. That study that suggests that there's a

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Speaker 1: structural landscape shift going on in the microposter industry across

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Speaker 1: PCs and across servers between mb and Intel. M D

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Speaker 1: appears to be on the front foot and will continue

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Speaker 1: to gain share in our view through twenty and one,

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Speaker 1: and in the data center their share could as much

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Speaker 1: as triple from sort of the five percent range to

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Speaker 1: the fi percent range. UM and Intel, on the other hand,

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Speaker 1: will continue to lose share. Um Intel has a wider

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Speaker 1: variety of products and certainly is larger, but that may

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Speaker 1: not help it at all over the next couple of years,

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Speaker 1: particularly as the cloud becomes a bigger piece of the

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Speaker 1: pie and more powerful piece of the pie. So, you know,

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Speaker 1: you look at the evaluations, and you look at how

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Speaker 1: the stocks have performed here to date. And while it

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Speaker 1: might suggest, you know, getting a lot of calls from

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Speaker 1: clients about okay, is this you know, another set up

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Speaker 1: for long Intel shorty m D for example, but fundamentals

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Speaker 1: are suggesting exactly exactly the opposite. So on, you know,

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Speaker 1: to this tech lay person, when I think chips, I

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Speaker 1: think Intel. What's happened to Intel in terms of you know,

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Speaker 1: losing share here? They seem to have lost kind of

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Speaker 1: their you know there, I guess their new product Mojo,

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Speaker 1: their technology Mojo. What's what do you think is at

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Speaker 1: the route there? You know, you can attribute it to

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Speaker 1: a bunch of different factors. For I mean, if you

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Speaker 1: look at their technology transitions transitions from our transistor shrinkage perspective,

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Speaker 1: they were late to full key n animeter, they're late

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Speaker 1: to ten animeter and now seven animeters delayed. Now considered that,

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Speaker 1: you know, the technology shrinkage isn't the be all. Lend

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Speaker 1: All and More's law is in fact slowing. But smaller

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Speaker 1: the transistors, more the transistors on the chip, more the

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Speaker 1: transistors on the chip, chip is more powerful, uh, quite simplistically,

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Speaker 1: and at the at the same time, more transistors on

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Speaker 1: the chip produces the cost for transistion purely because of scaling.

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Speaker 1: And if you keep prices same or you reduce it

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Speaker 1: at a lower rate, you gross margins also can expand.

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Speaker 1: But m D has certainly taken the upper hand in

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Speaker 1: this and is as much as a node or node

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Speaker 1: and a half ahead of Intel, and Intel's sort of

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Speaker 1: slow in its transitions. It has a wider ice cream shop,

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Speaker 1: if you may, you know it has a wider variety

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Speaker 1: of flavors, wider variety of toppings and sauces and stuff

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Speaker 1: that go with it. But at the end of the day,

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Speaker 1: you know, you still have to have a quality venilla, strawberry,

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Speaker 1: and chocolate in order to build a more fitting ices

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Speaker 1: Sunday for your clients. I'm loving these analogies. And so

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Speaker 1: what do customers want? Do they want the maybe a

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Speaker 1: little bit more old fashioned flavor is you know, at

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Speaker 1: a good price point that are very very reliable, you know,

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Speaker 1: or do they want the new stuff? I mean, people

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Speaker 1: were quite happy to wait for Apple to catch up

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Speaker 1: with other people on on their software and so on.

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Speaker 1: They didn't demand that app will be first on everything. Yeah,

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Speaker 1: that's a that's a great point. So one of the

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Speaker 1: that's actually a fantastic question because the cloud has upended,

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Speaker 1: upended the demand for the ice cream, if you may.

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Speaker 1: If you look at the variety of computing workloads that

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Speaker 1: the cloud has brought to bear, everything has become large.

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Speaker 1: Everything has now has scale. So you want the specialized

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Speaker 1: ice cream Sunday um and the demand for that is

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Speaker 1: high relative to you know, corporate I demand scale, if

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Speaker 1: you may, and they vanillas, strawberry and chocolate. So if

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Speaker 1: you look at what the m D has to offer,

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Speaker 1: maybe it doesn't have all the flavors um in the

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Speaker 1: in the ice cream shop, and maybe it's applicability to cloun.

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Speaker 1: The workloads, if you may, is predominantly in the Minila

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Speaker 1: chocolate and strawberry at a better place. No one listening

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Speaker 1: to this segment is going to have any idea what

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Speaker 1: we're talking about at this point. What about the cones?

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Speaker 1: What's the cones on? But the but the ice cream

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Speaker 1: machine at Intel is broken, right, So that's the that's

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Speaker 1: the that's the key part. At the end of the day,

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Speaker 1: three years from now, five years from now, you have

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Speaker 1: to be able to turn these out upun intended UM

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Speaker 1: at a better UM, with better quality, and at a

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Speaker 1: better price point UM. As a result, when you build

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Speaker 1: these massive servers and you know Facebook and Amazon, Microsoft

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Speaker 1: are buying the servers ten thousand at a clip or

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Speaker 1: fifty at a clip, you have to have better performance

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Speaker 1: and better pricing. And I think the applicability of m

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Speaker 1: D is in ceasing, and the applicability of Intel products

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Speaker 1: is right over the next couple of years is decreasing.

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Speaker 1: On INTRONI Boston, thanks so much for joining us on

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Speaker 1: Introney Boston, senior semi conductor and harder analysts, part time

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Speaker 1: ice cream analyst from Blueberg Intelligence joining us here talking

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Speaker 1: to us about the ostensibly the semi conductor, you know,

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Speaker 1: the chip business. But I kind of, uh, kind of went.

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Speaker 1: I took a different little route there with his analogy,

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Speaker 1: but that works. So we got h A M D

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Speaker 1: kind of hitting on all cylinders. Intel from our product perspective,

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Speaker 1: some concern that's per on its research. Sally Bakewell of

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Speaker 1: Bloomberg News had a story several days ago, really fascinating.

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Speaker 1: Basically the gist does stimulus has helped Amazon and Visa

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Speaker 1: borrow at record low rates, yet small companies faced tighter

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Speaker 1: conditions threatening the recovery to dig deep on that store

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Speaker 1: and the phenomena. Were welcome to have Ted Kaneig, President

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Speaker 1: and CEO of Monroe Capital, UH nine point three billion

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Speaker 1: dollars under under management. Ted, thanks for joining us here,

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Speaker 1: so give us a sense of kind of the the

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Speaker 1: mid market company out there. Is it easy or difficult

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Speaker 1: for them to access capital here to try to make

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Speaker 1: it through the pandemic, much less to find growth capital?

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Speaker 1: Thanks for asking. It's tough. Um. You know, we we specialize.

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Speaker 1: We have five hundred and eight middle market companies in

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Speaker 1: our portfolio that we lend money to, everything from million

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Speaker 1: or revenue up to about five million revenue. These companies

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Speaker 1: are not viewed as investment grade, so they don't have

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Speaker 1: the ability to go into the marketplace and issue bonds

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Speaker 1: or high yield debt that the government has been backing.

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Speaker 1: So these companies have really been on their own and

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Speaker 1: uh left to their own devices. They rely on the

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Speaker 1: asset value or the enterprise value of of their own

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Speaker 1: companies in order to borrow money. And once they've borrowed

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Speaker 1: capital that the banks believe, you know, as an amount

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Speaker 1: sufficient to cover their assets, whether it's accounts, receivable, inventory, equipment,

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Speaker 1: or real estate, they don't really have any other options.

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Speaker 1: The government has not allowed these companies to have any

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Speaker 1: any good options at their disposal to generate liquidity. And

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Speaker 1: that's really what's causing main street America. Well, so explain

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Speaker 1: that a little bit, because A, isn't that what you're for?

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Speaker 1: And B should the government be funding these companies? Well,

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Speaker 1: the government has put up the p p P program

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Speaker 1: and what the government has done is they've injected liquidity

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Speaker 1: in order to buy bonds of the very large investment

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Speaker 1: grade companies. Um Woral Lender. We focus on buyouts and

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Speaker 1: transactions from mid market companies. We do it based upon

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Speaker 1: collateral value. We lend up to what you know these

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Speaker 1: companies as a private lender, we lend up to what

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Speaker 1: these companies can can can rightfully borrow, and we do

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Speaker 1: it through institutional LPs. Right but still I'm still not

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Speaker 1: sure about what the complaint is or arding the government.

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Speaker 1: So they can apply for p p P if they

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Speaker 1: meet the criteria, and they can borrow from banks if

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Speaker 1: they meet the criteria, and if they don't, they also

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Speaker 1: have the option of getting extra cash from you guys.

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Speaker 1: So well, I'm just lost. Just explained the problem of

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Speaker 1: the government. What's what's happening is that the government has

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Speaker 1: been buying in order to provide liquidity into the market.

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Speaker 1: They've been buying um corporate bonds. They've been on a

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Speaker 1: corporate bond buying program for quite a while, and that's

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Speaker 1: part of the U. S. Treasury and UH that provides

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Speaker 1: capital to the company. Lenders like us need the same liquidity.

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Speaker 1: I need that liquidity to make loans to a lot

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Speaker 1: of the companies, and in times like this, many LPs,

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Speaker 1: whether they're pension funds or endowments or foundations, don't have

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Speaker 1: the ability to fund um into the investments. So have

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00:23:59,119 --> 00:24:01,479
Speaker 1: there been many are you saying that many of your

432
00:24:01,520 --> 00:24:04,920
Speaker 1: portfolio companies are at risk all or have gone bankrupt.

433
00:24:05,160 --> 00:24:11,360
Speaker 1: That is us a fact, not bankrupt because of business interruptions.

434
00:24:11,760 --> 00:24:15,159
Speaker 1: A lot of middle market companies UM, particularly those in

435
00:24:15,240 --> 00:24:22,360
Speaker 1: the areas of leisure, hotel, airlines, restaurants, UM, have had

436
00:24:23,119 --> 00:24:25,800
Speaker 1: significant challenges. That's due to closure. It's not due to

437
00:24:25,880 --> 00:24:28,159
Speaker 1: bad businesses, not due to bad management. It's just due

438
00:24:28,200 --> 00:24:31,000
Speaker 1: to the economy being closed to them. When the economy

439
00:24:31,080 --> 00:24:33,560
Speaker 1: opens up, you know, those companies that are still around,

440
00:24:33,920 --> 00:24:37,200
Speaker 1: hopefully we'll turn it around, but it's getting its covering

441
00:24:37,240 --> 00:24:41,000
Speaker 1: the bridge from here to there. Where the commercial banks

442
00:24:41,040 --> 00:24:43,240
Speaker 1: and all of this they're they're the primary lender to

443
00:24:43,320 --> 00:24:45,879
Speaker 1: these types of companies. How are they performing? Are they

444
00:24:46,160 --> 00:24:50,040
Speaker 1: making their balance? It's available. Uh, it's hard, you know.

445
00:24:50,240 --> 00:24:54,399
Speaker 1: And in times of stress, banks tend to look inward

446
00:24:54,840 --> 00:24:57,239
Speaker 1: and they don't tend to put money to work. UM.

447
00:24:57,800 --> 00:25:00,760
Speaker 1: This is no different than the last crisis. Right now,

448
00:25:01,200 --> 00:25:04,399
Speaker 1: banks are very concerned about their portfolios. They look at

449
00:25:04,440 --> 00:25:08,119
Speaker 1: the bank stocks across the board are down, losses are up.

450
00:25:08,520 --> 00:25:11,560
Speaker 1: The market believes that there's more losses to come in

451
00:25:11,640 --> 00:25:16,520
Speaker 1: banks portfolios, So banks do not tend to be very aggressive.

452
00:25:16,520 --> 00:25:18,439
Speaker 1: If you look at what's happening in the government right now.

453
00:25:18,880 --> 00:25:21,480
Speaker 1: The government's trying to push the main street lending program,

454
00:25:21,880 --> 00:25:24,880
Speaker 1: and the way that program works is banks are required

455
00:25:24,920 --> 00:25:28,560
Speaker 1: to underwrite a portion of those loans, call it five percent.

456
00:25:29,160 --> 00:25:32,359
Speaker 1: Banks have not embraced the government's main street lending program

457
00:25:32,400 --> 00:25:34,200
Speaker 1: because they don't want to take the exposure right now

458
00:25:34,520 --> 00:25:36,920
Speaker 1: of lending to these companies. Yeah, I mean, it's a

459
00:25:36,920 --> 00:25:40,400
Speaker 1: it's a horrible situation. But for some of the companies,

460
00:25:40,800 --> 00:25:43,080
Speaker 1: would you blame them? I mean, what percentage of the

461
00:25:43,359 --> 00:25:45,320
Speaker 1: portfolio companies you deal with do you think will be

462
00:25:45,400 --> 00:25:49,280
Speaker 1: around any year's time. That's a great question. You know,

463
00:25:49,359 --> 00:25:51,000
Speaker 1: I can't blame the lenders. I mean, I'm in the

464
00:25:51,080 --> 00:25:54,440
Speaker 1: same position. You know, We've got to make sure we

465
00:25:54,480 --> 00:25:57,920
Speaker 1: don't lose money for our shareholders in our investors. So

466
00:25:58,280 --> 00:26:02,119
Speaker 1: it's a it's a fine balance between you know, making

467
00:26:02,400 --> 00:26:06,760
Speaker 1: uh good loans and being responsible to your shareholders and

468
00:26:06,840 --> 00:26:10,000
Speaker 1: your investors and then providing relief. You know, right now

469
00:26:10,080 --> 00:26:12,879
Speaker 1: there's a liquidity need. A lot of these companies don't

470
00:26:12,960 --> 00:26:16,280
Speaker 1: have places to go to get the liquidity need. You know,

471
00:26:16,359 --> 00:26:21,639
Speaker 1: the p p P programs were basically um payroll protection

472
00:26:21,800 --> 00:26:25,160
Speaker 1: for employees, and you know, those were ninety day programs

473
00:26:25,240 --> 00:26:28,720
Speaker 1: to cover payroll. Many of those programs now that that

474
00:26:28,840 --> 00:26:30,840
Speaker 1: program came out in May, many of those programs in

475
00:26:30,920 --> 00:26:32,560
Speaker 1: you know, August, September and hour we're going to come

476
00:26:32,600 --> 00:26:35,840
Speaker 1: to an end. And there's a lot of outcry on

477
00:26:35,960 --> 00:26:38,600
Speaker 1: these smaller companies that took the p p P program

478
00:26:39,840 --> 00:26:42,879
Speaker 1: that now we're in trouble. Yeah, And I mean some

479
00:26:43,000 --> 00:26:45,320
Speaker 1: restaurant ours were saying this even before they took p

480
00:26:45,440 --> 00:26:47,560
Speaker 1: PP loans. Some of them didn't even take it because

481
00:26:47,600 --> 00:26:49,920
Speaker 1: of this, you know, I mean, there was no guarantee

482
00:26:49,920 --> 00:26:51,520
Speaker 1: that business is going to be back to normal three

483
00:26:51,560 --> 00:26:54,600
Speaker 1: months later. And if there wasn't, why would you rehire

484
00:26:54,680 --> 00:26:56,520
Speaker 1: people that were then going to have to go again.

485
00:26:56,840 --> 00:26:59,080
Speaker 1: Ted kind of get President and CEO of Monroe Acompatal,

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00:26:59,240 --> 00:27:03,320
Speaker 1: Thank you for joining. Thanks for listening to Bloomberg Markets podcast.

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00:27:03,520 --> 00:27:06,800
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts

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00:27:07,000 --> 00:27:10,160
Speaker 1: or whatever a podcast platform you prefer. I'm Bonnie Quinn.

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00:27:10,359 --> 00:27:13,040
Speaker 1: I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney.

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00:27:13,040 --> 00:27:15,639
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you

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00:27:15,720 --> 00:27:18,080
Speaker 1: can always catch us worldwide at Bloomberg Radio,