Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
Speaker 1: with my co host of Bonnie Quinn. Every business day,
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
Speaker 1: along with essential market moving news. Find the Bloomberg Markets
Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
Speaker 1: and on Bloomberg dot com. We says over for Congress,
Speaker 1: Nancy Pelosi has called back the House because of growing
Speaker 1: controversy surrounding the USPS, the United States Postal Service. Writing
Speaker 1: on this subject today in Bloomberg Opinion, Timothy O'Brien, senior
Speaker 1: columnist for Bloomberg, And in fact it wasn't today, Tim,
Speaker 1: but it has been recently, and it's not the first
Speaker 1: time you've written on this subject. What can Congress do
Speaker 1: to throw light on what the president is doing and
Speaker 1: rain in anything that's illegal? Um? Well, Van, yeah, I
Speaker 1: think I think I should do a lot to throw
Speaker 1: light on the problem. I'm not sure how much they
Speaker 1: can do to stop it. What's going on is mail
Speaker 1: carriers hours has been reduced, Post office hours have been reduced.
Speaker 1: UM large mail sorting machines are being taken out of
Speaker 1: commission in post office hubs and all of this is
Speaker 1: slowing down mail delivery that matters in an election year.
Speaker 1: Pardon me, because uh, there's there's a strong chance we're
Speaker 1: going to have a huge surgeon mail in voting uh
Speaker 1: this year because of the pandemic. And um, it's it's
Speaker 1: pretty clear that um, this is is in is an
Speaker 1: effort to weaponize the Postal Service to slow down mail
Speaker 1: in balloting, and the President is behind that. He's done
Speaker 1: very little uh to try to stop it. He's been
Speaker 1: questioned about it, he said he has no interest in
Speaker 1: changing what's going on in the Postal Service. In fact,
Speaker 1: he said he won't even release funds of the Postal
Speaker 1: Service that would allow to speed up its operations. Um Uh.
Speaker 1: Congress is holding hearings. Congress has asked the Inspector General
Speaker 1: at the Post Office to examine this. A number of
Speaker 1: state attorneys general are are coalescing around this and planning
Speaker 1: to sue the Trump administration of the Post Office to
Speaker 1: stop these practices, but that has to wend its way
Speaker 1: through the court. So the issue here is, um, how
Speaker 1: much can really be done in real time to course
Speaker 1: correct here so voters of both parties don't get their
Speaker 1: votes um taken away from them because the post Office
Speaker 1: can't deliver their balance. I didn't even know this was
Speaker 1: a thing until it happened him. Um, it just seems
Speaker 1: like every day there's something new here, is there? This
Speaker 1: kind of goes to the bigger question. I guess that
Speaker 1: some people are raising that if the president were to
Speaker 1: lose this election, that perhaps he would not be willing
Speaker 1: to really admit that, or or he would can can
Speaker 1: contest it? Is that a material risk in your perspective,
Speaker 1: it's a very material risk, And he said as much.
Speaker 1: You know, he said in recent press appearances that we
Speaker 1: will know the results on election night. We may not
Speaker 1: know it for weeks after election night, perhaps even months.
Speaker 1: I mean that we certainly may not know an election night,
Speaker 1: and we may not know shortly after election night. But
Speaker 1: but we will find out in relatively short order, and
Speaker 1: voters will just have to get used to the facts.
Speaker 1: Will take a little longer this year, but the President
Speaker 1: has already ceded the ground with the idea that the
Speaker 1: vote can't be trusted. He said that mail in balloting
Speaker 1: is riddled with fraud. That's just factually untrue. A majority
Speaker 1: of states have used it quite well for quite a
Speaker 1: long time, including Red states Republican states who stand by
Speaker 1: it as a process. So yeah, it's a material risk,
Speaker 1: and I think, like everything in the Trump era, he's
Speaker 1: he's pressing the limits of what we accept as norms
Speaker 1: around executive authority and presidential behavior and public institutions that
Speaker 1: are really challenging people to kind of wrestle these things
Speaker 1: to the ground with him. It's really interesting because it
Speaker 1: sort of puts paid to the idea that the president
Speaker 1: may not run now, or may pull out of the
Speaker 1: race if he thinks he's not going to win, or
Speaker 1: or or or this rhetoric that's going around that maybe
Speaker 1: he doesn't really want it, that he had his one
Speaker 1: term and he'll be finding something else. It seems like
Speaker 1: he really, really, really does want to win a second term.
Speaker 1: The other thing that's been pointed out to people in
Speaker 1: his campaign and to himself is that last time around
Speaker 1: Mielan balloting actually benefited him, and so even that isn't enough,
Speaker 1: you know, to to change his mind on what's going
Speaker 1: on here with the postal service. Now. His argument is
Speaker 1: that it's a money loser, and of course that's a
Speaker 1: winning argument for a capitalist who cares about money. How
Speaker 1: how do those who don't like what's going on defend
Speaker 1: the USPS. So it's the United States Postal Service, it's
Speaker 1: not the United States Postal business. It was mentioned in
Speaker 1: the in the Constitution as an organization that was meant
Speaker 1: to knit the country together and to make sure that
Speaker 1: Americans who lived in far fun places would always have
Speaker 1: a means of communication. Uh. And that's still true today.
Speaker 1: The Post Office loses a lot of money on traditional
Speaker 1: mail delivery because they have to deliver to remote rural communities.
Speaker 1: Seniors really rely on the service, and the post Office
Speaker 1: itself is not allowed to raise the price of stamps.
Speaker 1: That's that's set by a commission that decides what the
Speaker 1: affordable rate should be. But we also don't expect the
Speaker 1: Department of Defense to make a profit. In fact, the
Speaker 1: Department of Defense loses by that standard. The Department of
Speaker 1: Defense loses far more money annually than the post Office,
Speaker 1: roads and bridges, fire departments, police departments. Uh. The Intelligence
Speaker 1: services and the Diplomatic Corps and the White House itself
Speaker 1: are not for profit businesses their public services. Uh. That said,
Speaker 1: there's no question that the post offices operations could be
Speaker 1: streamlined and and and new thought and fresh thinking about
Speaker 1: how can do its job better is welcome. But it's
Speaker 1: a complete strong man to say this is about just
Speaker 1: making the post office a better business. It's very clear
Speaker 1: now that that this is about the post office mission
Speaker 1: being perverted and derailed in the service of a trench
Speaker 1: warfare approach to politics. Well, it's extraordinary. Tim O'Brien, thanks
Speaker 1: so much for joining us and providing some color on
Speaker 1: what is a developing story. One that's getting the interest
Speaker 1: in the of Congress right now is Speaker Pelos, who
Speaker 1: brings the house back. Timothy O'Brian, Senior Columns for Bloomberg
Speaker 1: Opinion joining us. Just a fascinating story. There's something new
Speaker 1: every day, it seems like. And it's uh the good
Speaker 1: folks of Bloomberg News and UH and Bloomberg Opinion keeping
Speaker 1: up on all of it, so we appreciate their help. Well,
Speaker 1: this market has been described as one that's being quote
Speaker 1: unquote backstopped by the US Federal Reservant for that matter,
Speaker 1: of central banks around the world. To get a sense
Speaker 1: of whether that is enough for this market going forward
Speaker 1: to welcome Nicholas, co founder Data Trek Research, Nick, thanks
Speaker 1: so much. For joining us here. So again i'd love
Speaker 1: to get your thirty foot view on what's kind of
Speaker 1: pushing this market higher. We obviously had that terrible pullback
Speaker 1: March April when the coronavirus hit, but since then with
Speaker 1: the Federal Reserve stepping in with fiscal stimulus and all
Speaker 1: the markets come roaring back, and love to get your
Speaker 1: thoughts right here right now as it relates to some
Speaker 1: of these riskier assets. Sure, the way we think about
Speaker 1: it at Data Trek is the market is discounting a
Speaker 1: very definite the bottom, not necessarily in the economy, but
Speaker 1: in corporate profits. So if you think about a forty
Speaker 1: two dollar a share earnings power number for the SMP
Speaker 1: in the back half of last year per quarter, two dollars,
Speaker 1: markets expecting we're going to get back to those levels
Speaker 1: in the next four quarters. So even though the economy
Speaker 1: is going to be sluggish, we are going to get
Speaker 1: very high levels of corporate profitability because of fiscal stimulus,
Speaker 1: because of monetary stimulus, and because of costing, we're going
Speaker 1: to get back to those numbers. And that's why the
Speaker 1: markets back to its old highs, because it doesn't care
Speaker 1: how we get that earnings number. It just cares that
Speaker 1: we do get it, and it has a very highly
Speaker 1: read confidence that we will. But Nick, it doesn't matter
Speaker 1: how much stimulus you give corporations or how lenient do
Speaker 1: you make the rules for them to get money to
Speaker 1: tie them over. If there isn't demand for their products
Speaker 1: from from customers who themselves are dropped, those earnings can't
Speaker 1: be there. Come they no very good point and that's
Speaker 1: why they change in the composition of the SMP is
Speaker 1: so important. We're actually looking at this for clients last night.
Speaker 1: You know, back in two thousand sixteen, technology was the SMP.
Speaker 1: The comp number now apples to Apples thirty three. And
Speaker 1: as we saw the second quarter earnings, you have a
Speaker 1: whole range of tychnical companies that are really hurting, but
Speaker 1: technology is doing extremely well. So the SMP five hundred
Speaker 1: is kind of a unique measure of corporate profitability because
Speaker 1: it is waiting those companies that have very high that
Speaker 1: was a profitability even to um showing high levels of
Speaker 1: cash flow. It values them very highly. So the F
Speaker 1: and P is not perhaps the best measure, but it's
Speaker 1: the one most folks follow, and the earnings are there
Speaker 1: for the technology sector and others that aren't as affected.
Speaker 1: So Nick, it appears that this next next round of
Speaker 1: fiscal stimulus, you know, we didn't get it, you know,
Speaker 1: before the recess. Now there's some talk about perhaps will
Speaker 1: get something in September. How critical is it for the
Speaker 1: market to get a meaningful piece of fiscal stimulus? Uh,
Speaker 1: in the relatively near term. I mean on a scale
Speaker 1: of one to ten, it's probably a fifteen or sixteen.
Speaker 1: Um it's super super critical, you know, And to Bonny's
Speaker 1: point earlier, it's it underpins that ability for aggregate earnings
Speaker 1: to improve. You know, without that, you don't get that
Speaker 1: part of the story. Look, I mean, you know, looking
Speaker 1: at past cycles, you know, every cycle bottom is a
Speaker 1: little bit different, and the biggest difference is exactly what's
Speaker 1: going to make us come off the bottom this time around?
Speaker 1: It the whole is so deep that the market saying
Speaker 1: politicians have to provide the stimulus, they have no choice
Speaker 1: as an election year, and so our uncertainty about future
Speaker 1: earnings is actually lower than traditional bottom cycle moments when
Speaker 1: there isn't that level of support. So Nick, you know,
Speaker 1: what's the biggest risk here to this to this market rally?
Speaker 1: You know, it's it's it's a great question, um. You know,
Speaker 1: to us, the biggest risk is is a hybrid of
Speaker 1: the policy political issue and the earnings issue. You know,
Speaker 1: we think back to two thousand eight, for example, really
Speaker 1: horrible quarter for UM, for the for the market, and
Speaker 1: it came in part because there was a huge change
Speaker 1: of government in Washington during the eight elections and we
Speaker 1: had a real power vacuum for several months during a
Speaker 1: period of you know, in the middle of the financial crisis.
Speaker 1: My biggest concern is we just get that's a similar
Speaker 1: kind of power vacuum around the election. It's not necessarily
Speaker 1: because of anything untoward that happens in the election, but
Speaker 1: just millions in charge in DC for a few months,
Speaker 1: just when we get into perhaps a second wave and
Speaker 1: real concerns about the state of the economy in the
Speaker 1: first half of next year. So my biggest concern is
Speaker 1: we get a power vacuum in Washington in the matter
Speaker 1: month of the year and you end up with not
Speaker 1: so much confidence around those corporations. As we discussed. Alright,
Speaker 1: So Nick, if where do you think where do you
Speaker 1: think investors should be looking in this market? Given the
Speaker 1: move we've had given that it's been. You know, the
Speaker 1: breath of this market isn't what most technicians or even
Speaker 1: fundamental analysts would like to see. Where do you see
Speaker 1: opportunities here? You know, do you take a look across
Speaker 1: some of the risk assets. You know, right now we
Speaker 1: are favoring cyclicals um selectively. So I'm talking about industrials
Speaker 1: and energy first and Foremost industrials have the most ardens
Speaker 1: leverage going into meaning they generate the most out of
Speaker 1: incremental profits from upside surprise and revenues, and energy has
Speaker 1: the biggest potential upside. On the revenue side, you have
Speaker 1: a profitability to be kind of shaky just because of
Speaker 1: commodity pricing improved of it. So circle goals to the
Speaker 1: place we're recommending people to put in current on money.
Speaker 1: It's going to be a hard way to make money, though.
Speaker 1: We think circle goals will outperform over the back half
Speaker 1: of the year, but it'll probably happen over ten random
Speaker 1: days where they're up two percents in the markets. Flat
Speaker 1: and a tough way to make money, but that's the
Speaker 1: way to outperform. We don't like the financials though. The
Speaker 1: financials are just stuck in their own private health. Yeah,
Speaker 1: that's a great way to put it, right. I mean,
Speaker 1: even Warren Buffett Is is deciding that he doesn't care
Speaker 1: about the financials anymore. It's really really interesting. Did you
Speaker 1: learn anything for the thirteen F filings? Nick, No? No
Speaker 1: from Buffets No. I mean it's it is. It's always
Speaker 1: fascinating to watch him because he's just so good at
Speaker 1: what he does. But no, not really, you it's and
Speaker 1: just more broadly from the hedge funds and what they
Speaker 1: were doing or how hedge funds made money. So, for example,
Speaker 1: I was dropped by Chris Rockell spying just a whole
Speaker 1: heap of Ali Baba and like literally that's all he did.
Speaker 1: He just made that one, if I can say, ballsy trade,
Speaker 1: and you know obviously it's paying off. Yeah. No, I
Speaker 1: mean Baba's boba is an interesting one. Evaluation is so
Speaker 1: cheap relative and China tech generally is so cheap relative
Speaker 1: to US tech that you kind of want to think
Speaker 1: there's a catch up trade. And we're certainly seeing some
Speaker 1: of the catch up trade in the broader Chinese market
Speaker 1: today with the stimulus last night. Are you seeing Nick
Speaker 1: so t extent? You're looking at more cyclical names is
Speaker 1: that suggests you're going to fund that with some of
Speaker 1: the tech names that have a performed Yes. I mean
Speaker 1: the way the way we think about it is if
Speaker 1: you if you want to underweight one sector, it's got
Speaker 1: to be financials. There's just nothing going on there, and
Speaker 1: then you can dumbell it out between the industrial's energy
Speaker 1: and the tech and have a reasonable shot of that
Speaker 1: performing that. The banks are just just in a horrible space. Nick.
Speaker 1: We will catch up with you again very soon and
Speaker 1: take the temperature of the banks and the cyclicals and
Speaker 1: lots lots of more. This market is going nowhere as
Speaker 1: as it seems anyway, it's going to just continue to
Speaker 1: go and hire Nichols as co founder of data Check Research.
Speaker 1: Fantastic notes every day, really and get in touch with
Speaker 1: Nick if if you want to subscribe to the our
Speaker 1: research once again, our thanks to Nick Cholas. I don't
Speaker 1: want to bring you a headline across the Bloomberg. Just
Speaker 1: a few moments ago, New York City gyms can open
Speaker 1: August twenty four, which is one week from today, with
Speaker 1: thirty three percent capacity, so third capacity. Yeah, and in
Speaker 1: fact it's more than New York City. It's it's it's
Speaker 1: New York State Gym's, so gym's all over the state
Speaker 1: can open August as long as people wear masks and
Speaker 1: they are not full beyond thirty three percent capacity, which
Speaker 1: was so beginners or people who haven't come to the
Speaker 1: gym in a long time quite happy for fewer people
Speaker 1: to be in the gym. Yeah. Absolutely, that's not to
Speaker 1: suggest that I myself will be going back. That might
Speaker 1: not be for coronavirus reasons, that might be for other reasons.
Speaker 1: New research suggests glaring divergences between a m D and Intel,
Speaker 1: something that maybe didn't seems so obvious before. Let's bring
Speaker 1: in a strus and senior semiconductor and harder analyst for
Speaker 1: Bloomberg Intelligence to tell us about this new research. And
Speaker 1: and you know there were are rivals. But what does
Speaker 1: this new research tell us about A m D and
Speaker 1: intell how they do their business and their products. Good
Speaker 1: morning morning, Paul, Thank you for having me. So we've
Speaker 1: done some work. That study that suggests that there's a
Speaker 1: structural landscape shift going on in the microposter industry across
Speaker 1: PCs and across servers between mb and Intel. M D
Speaker 1: appears to be on the front foot and will continue
Speaker 1: to gain share in our view through twenty and one,
Speaker 1: and in the data center their share could as much
Speaker 1: as triple from sort of the five percent range to
Speaker 1: the fi percent range. UM and Intel, on the other hand,
Speaker 1: will continue to lose share. Um Intel has a wider
Speaker 1: variety of products and certainly is larger, but that may
Speaker 1: not help it at all over the next couple of years,
Speaker 1: particularly as the cloud becomes a bigger piece of the
Speaker 1: pie and more powerful piece of the pie. So, you know,
Speaker 1: you look at the evaluations, and you look at how
Speaker 1: the stocks have performed here to date. And while it
Speaker 1: might suggest, you know, getting a lot of calls from
Speaker 1: clients about okay, is this you know, another set up
Speaker 1: for long Intel shorty m D for example, but fundamentals
Speaker 1: are suggesting exactly exactly the opposite. So on, you know,
Speaker 1: to this tech lay person, when I think chips, I
Speaker 1: think Intel. What's happened to Intel in terms of you know,
Speaker 1: losing share here? They seem to have lost kind of
Speaker 1: their you know there, I guess their new product Mojo,
Speaker 1: their technology Mojo. What's what do you think is at
Speaker 1: the route there? You know, you can attribute it to
Speaker 1: a bunch of different factors. For I mean, if you
Speaker 1: look at their technology transitions transitions from our transistor shrinkage perspective,
Speaker 1: they were late to full key n animeter, they're late
Speaker 1: to ten animeter and now seven animeters delayed. Now considered that,
Speaker 1: you know, the technology shrinkage isn't the be all. Lend
Speaker 1: All and More's law is in fact slowing. But smaller
Speaker 1: the transistors, more the transistors on the chip, more the
Speaker 1: transistors on the chip, chip is more powerful, uh, quite simplistically,
Speaker 1: and at the at the same time, more transistors on
Speaker 1: the chip produces the cost for transistion purely because of scaling.
Speaker 1: And if you keep prices same or you reduce it
Speaker 1: at a lower rate, you gross margins also can expand.
Speaker 1: But m D has certainly taken the upper hand in
Speaker 1: this and is as much as a node or node
Speaker 1: and a half ahead of Intel, and Intel's sort of
Speaker 1: slow in its transitions. It has a wider ice cream shop,
Speaker 1: if you may, you know it has a wider variety
Speaker 1: of flavors, wider variety of toppings and sauces and stuff
Speaker 1: that go with it. But at the end of the day,
Speaker 1: you know, you still have to have a quality venilla, strawberry,
Speaker 1: and chocolate in order to build a more fitting ices
Speaker 1: Sunday for your clients. I'm loving these analogies. And so
Speaker 1: what do customers want? Do they want the maybe a
Speaker 1: little bit more old fashioned flavor is you know, at
Speaker 1: a good price point that are very very reliable, you know,
Speaker 1: or do they want the new stuff? I mean, people
Speaker 1: were quite happy to wait for Apple to catch up
Speaker 1: with other people on on their software and so on.
Speaker 1: They didn't demand that app will be first on everything. Yeah,
Speaker 1: that's a that's a great point. So one of the
Speaker 1: that's actually a fantastic question because the cloud has upended,
Speaker 1: upended the demand for the ice cream, if you may.
Speaker 1: If you look at the variety of computing workloads that
Speaker 1: the cloud has brought to bear, everything has become large.
Speaker 1: Everything has now has scale. So you want the specialized
Speaker 1: ice cream Sunday um and the demand for that is
Speaker 1: high relative to you know, corporate I demand scale, if
Speaker 1: you may, and they vanillas, strawberry and chocolate. So if
Speaker 1: you look at what the m D has to offer,
Speaker 1: maybe it doesn't have all the flavors um in the
Speaker 1: in the ice cream shop, and maybe it's applicability to cloun.
Speaker 1: The workloads, if you may, is predominantly in the Minila
Speaker 1: chocolate and strawberry at a better place. No one listening
Speaker 1: to this segment is going to have any idea what
Speaker 1: we're talking about at this point. What about the cones?
Speaker 1: What's the cones on? But the but the ice cream
Speaker 1: machine at Intel is broken, right, So that's the that's
Speaker 1: the that's the key part. At the end of the day,
Speaker 1: three years from now, five years from now, you have
Speaker 1: to be able to turn these out upun intended UM
Speaker 1: at a better UM, with better quality, and at a
Speaker 1: better price point UM. As a result, when you build
Speaker 1: these massive servers and you know Facebook and Amazon, Microsoft
Speaker 1: are buying the servers ten thousand at a clip or
Speaker 1: fifty at a clip, you have to have better performance
Speaker 1: and better pricing. And I think the applicability of m
Speaker 1: D is in ceasing, and the applicability of Intel products
Speaker 1: is right over the next couple of years is decreasing.
Speaker 1: On INTRONI Boston, thanks so much for joining us on
Speaker 1: Introney Boston, senior semi conductor and harder analysts, part time
Speaker 1: ice cream analyst from Blueberg Intelligence joining us here talking
Speaker 1: to us about the ostensibly the semi conductor, you know,
Speaker 1: the chip business. But I kind of, uh, kind of went.
Speaker 1: I took a different little route there with his analogy,
Speaker 1: but that works. So we got h A M D
Speaker 1: kind of hitting on all cylinders. Intel from our product perspective,
Speaker 1: some concern that's per on its research. Sally Bakewell of
Speaker 1: Bloomberg News had a story several days ago, really fascinating.
Speaker 1: Basically the gist does stimulus has helped Amazon and Visa
Speaker 1: borrow at record low rates, yet small companies faced tighter
Speaker 1: conditions threatening the recovery to dig deep on that store
Speaker 1: and the phenomena. Were welcome to have Ted Kaneig, President
Speaker 1: and CEO of Monroe Capital, UH nine point three billion
Speaker 1: dollars under under management. Ted, thanks for joining us here,
Speaker 1: so give us a sense of kind of the the
Speaker 1: mid market company out there. Is it easy or difficult
Speaker 1: for them to access capital here to try to make
Speaker 1: it through the pandemic, much less to find growth capital?
Speaker 1: Thanks for asking. It's tough. Um. You know, we we specialize.
Speaker 1: We have five hundred and eight middle market companies in
Speaker 1: our portfolio that we lend money to, everything from million
Speaker 1: or revenue up to about five million revenue. These companies
Speaker 1: are not viewed as investment grade, so they don't have
Speaker 1: the ability to go into the marketplace and issue bonds
Speaker 1: or high yield debt that the government has been backing.
Speaker 1: So these companies have really been on their own and
Speaker 1: uh left to their own devices. They rely on the
Speaker 1: asset value or the enterprise value of of their own
Speaker 1: companies in order to borrow money. And once they've borrowed
Speaker 1: capital that the banks believe, you know, as an amount
Speaker 1: sufficient to cover their assets, whether it's accounts, receivable, inventory, equipment,
Speaker 1: or real estate, they don't really have any other options.
Speaker 1: The government has not allowed these companies to have any
Speaker 1: any good options at their disposal to generate liquidity. And
Speaker 1: that's really what's causing main street America. Well, so explain
Speaker 1: that a little bit, because A, isn't that what you're for?
Speaker 1: And B should the government be funding these companies? Well,
Speaker 1: the government has put up the p p P program
Speaker 1: and what the government has done is they've injected liquidity
Speaker 1: in order to buy bonds of the very large investment
Speaker 1: grade companies. Um Woral Lender. We focus on buyouts and
Speaker 1: transactions from mid market companies. We do it based upon
Speaker 1: collateral value. We lend up to what you know these
Speaker 1: companies as a private lender, we lend up to what
Speaker 1: these companies can can can rightfully borrow, and we do
Speaker 1: it through institutional LPs. Right but still I'm still not
Speaker 1: sure about what the complaint is or arding the government.
Speaker 1: So they can apply for p p P if they
Speaker 1: meet the criteria, and they can borrow from banks if
Speaker 1: they meet the criteria, and if they don't, they also
Speaker 1: have the option of getting extra cash from you guys.
Speaker 1: So well, I'm just lost. Just explained the problem of
Speaker 1: the government. What's what's happening is that the government has
Speaker 1: been buying in order to provide liquidity into the market.
Speaker 1: They've been buying um corporate bonds. They've been on a
Speaker 1: corporate bond buying program for quite a while, and that's
Speaker 1: part of the U. S. Treasury and UH that provides
Speaker 1: capital to the company. Lenders like us need the same liquidity.
Speaker 1: I need that liquidity to make loans to a lot
Speaker 1: of the companies, and in times like this, many LPs,
Speaker 1: whether they're pension funds or endowments or foundations, don't have
Speaker 1: the ability to fund um into the investments. So have
Speaker 1: there been many are you saying that many of your
Speaker 1: portfolio companies are at risk all or have gone bankrupt.
Speaker 1: That is us a fact, not bankrupt because of business interruptions.
Speaker 1: A lot of middle market companies UM, particularly those in
Speaker 1: the areas of leisure, hotel, airlines, restaurants, UM, have had
Speaker 1: significant challenges. That's due to closure. It's not due to
Speaker 1: bad businesses, not due to bad management. It's just due
Speaker 1: to the economy being closed to them. When the economy
Speaker 1: opens up, you know, those companies that are still around,
Speaker 1: hopefully we'll turn it around, but it's getting its covering
Speaker 1: the bridge from here to there. Where the commercial banks
Speaker 1: and all of this they're they're the primary lender to
Speaker 1: these types of companies. How are they performing? Are they
Speaker 1: making their balance? It's available. Uh, it's hard, you know.
Speaker 1: And in times of stress, banks tend to look inward
Speaker 1: and they don't tend to put money to work. UM.
Speaker 1: This is no different than the last crisis. Right now,
Speaker 1: banks are very concerned about their portfolios. They look at
Speaker 1: the bank stocks across the board are down, losses are up.
Speaker 1: The market believes that there's more losses to come in
Speaker 1: banks portfolios, So banks do not tend to be very aggressive.
Speaker 1: If you look at what's happening in the government right now.
Speaker 1: The government's trying to push the main street lending program,
Speaker 1: and the way that program works is banks are required
Speaker 1: to underwrite a portion of those loans, call it five percent.
Speaker 1: Banks have not embraced the government's main street lending program
Speaker 1: because they don't want to take the exposure right now
Speaker 1: of lending to these companies. Yeah, I mean, it's a
Speaker 1: it's a horrible situation. But for some of the companies,
Speaker 1: would you blame them? I mean, what percentage of the
Speaker 1: portfolio companies you deal with do you think will be
Speaker 1: around any year's time. That's a great question. You know,
Speaker 1: I can't blame the lenders. I mean, I'm in the
Speaker 1: same position. You know, We've got to make sure we
Speaker 1: don't lose money for our shareholders in our investors. So
Speaker 1: it's a it's a fine balance between you know, making
Speaker 1: uh good loans and being responsible to your shareholders and
Speaker 1: your investors and then providing relief. You know, right now
Speaker 1: there's a liquidity need. A lot of these companies don't
Speaker 1: have places to go to get the liquidity need. You know,
Speaker 1: the p p P programs were basically um payroll protection
Speaker 1: for employees, and you know, those were ninety day programs
Speaker 1: to cover payroll. Many of those programs now that that
Speaker 1: program came out in May, many of those programs in
Speaker 1: you know, August, September and hour we're going to come
Speaker 1: to an end. And there's a lot of outcry on
Speaker 1: these smaller companies that took the p p P program
Speaker 1: that now we're in trouble. Yeah, And I mean some
Speaker 1: restaurant ours were saying this even before they took p
Speaker 1: PP loans. Some of them didn't even take it because
Speaker 1: of this, you know, I mean, there was no guarantee
Speaker 1: that business is going to be back to normal three
Speaker 1: months later. And if there wasn't, why would you rehire
Speaker 1: people that were then going to have to go again.
Speaker 1: Ted kind of get President and CEO of Monroe Acompatal,
Speaker 1: Thank you for joining. Thanks for listening to Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
Speaker 1: or whatever a podcast platform you prefer. I'm Bonnie Quinn.
Speaker 1: I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney.
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
Speaker 1: can always catch us worldwide at Bloomberg Radio,