WEBVTT - Why China's Economy Is Best Revealed Through Credit Markets 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl podcast. I'm Paul Swinge. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.319 at Bloomberg dot com. Boy. There has been a lot 0:00:21.360 --> 0:00:23.600 of news on the tape as it relates to China 0:00:23.640 --> 0:00:26.480 over the last week or so. Just today, White House 0:00:26.480 --> 0:00:29.080 trade advisor Peter Navarro expects to US and China to 0:00:29.120 --> 0:00:32.440 sign a Phase one trade deal and then quote next 0:00:32.520 --> 0:00:35.840 week or so, you've got that. Plus Bloomberg News reported uh, 0:00:35.920 --> 0:00:40.440 last week about China thinking about launching a carrier aircraft 0:00:40.440 --> 0:00:43.680 carrier sized investment bank to compete against Goldman sachs Uh 0:00:43.680 --> 0:00:48.000 and Morgan Stanley. Bloomberg News also reporting, uh, just yesterday 0:00:48.000 --> 0:00:50.800 that China is really thinking about dismantling it's great financial 0:00:50.760 --> 0:00:53.600 wall allowing Western investment banks to come into China. So 0:00:53.640 --> 0:00:55.400 a lot to kind of unpack their as it relates 0:00:55.440 --> 0:00:58.320 to China. Let's start with the trade deal and we welcome, 0:00:58.440 --> 0:01:02.360 uh Shazad Kazi, he's a managing director China beige Book International. 0:01:02.640 --> 0:01:04.480 Just thanks so much for coming to our Bloomberg Gonna 0:01:04.480 --> 0:01:07.759 Act their broker studio. Thanks. Let's just go to trade first, 0:01:07.840 --> 0:01:10.720 kind of where do you think we are with trade 0:01:10.720 --> 0:01:13.640 and kind of what the next steps? Yeah, so you 0:01:13.640 --> 0:01:16.240 know what we've seen over here is you know, a 0:01:16.240 --> 0:01:19.120 phase one trade deal. Uh seems like all but a 0:01:19.200 --> 0:01:22.600 done deal at this point. This is definitely a much 0:01:22.640 --> 0:01:26.520 smaller deal than was originally being discussed. Right. But when 0:01:26.520 --> 0:01:28.400 the President first tried to go for a larger deal, 0:01:28.400 --> 0:01:31.160 which would have from the U. S side involved um, 0:01:31.360 --> 0:01:33.920 far bigger tiref rollbacks and what we're seeing in this 0:01:33.959 --> 0:01:37.480 particular instance, Um, there really just wasn't much support for that. 0:01:37.560 --> 0:01:39.479 So when as you know, people from the White House 0:01:39.480 --> 0:01:42.280 started calling up folks on Congress start to socialize the 0:01:42.319 --> 0:01:46.640 idea with other business uh unions, associations, etcetera, there really 0:01:46.680 --> 0:01:48.600 wasn't much appetite. So what we've ended up with is 0:01:48.600 --> 0:01:51.680 a much smaller deal. Um. The upside of course on 0:01:51.680 --> 0:01:53.680 on that is that a smaller deal is also a 0:01:53.720 --> 0:01:57.800 little bit more stable. The chances of things falling apart um, 0:01:57.920 --> 0:02:01.120 for for this particular, you know, the mini mini deal, Um, 0:02:01.240 --> 0:02:03.880 are are fewer The things I think we want to 0:02:03.880 --> 0:02:06.560 watch for now is what happens in So we do 0:02:06.600 --> 0:02:09.360 think this is going to get signed, But then you know, 0:02:09.520 --> 0:02:13.840 what are the factors which may start to create problems? Um, 0:02:13.880 --> 0:02:17.000 you know, especially as we get closer to elections. So, uh, 0:02:17.040 --> 0:02:20.920 if perhaps the Democratic contender criticizes the president for the 0:02:20.960 --> 0:02:23.480 fact that this deal really didn't do much for America much, 0:02:23.560 --> 0:02:26.160 you know, all the structural issues were left out, etcetera, 0:02:26.480 --> 0:02:28.919 how does the president react to that? Um? So those 0:02:28.919 --> 0:02:31.160 are things and things to look out for. When I 0:02:31.200 --> 0:02:33.440 knew that you were coming in, I got very excited 0:02:33.480 --> 0:02:35.080 because I feel like this is sort of one of 0:02:35.080 --> 0:02:38.960 the key pieces of that is it is kind of 0:02:38.960 --> 0:02:41.880 still a conundrum, the question of how much a trade 0:02:41.880 --> 0:02:45.480 deal will offer a support to the Chinese economy and 0:02:45.520 --> 0:02:50.400 how much that tailwind will be offset by the over 0:02:50.560 --> 0:02:53.560 leveraged sectors. I'm thinking of the housing market in particular, 0:02:53.600 --> 0:02:56.640 it showing signs of weakness certain areas of the industrial 0:02:56.680 --> 0:02:59.640 sector that are tied to the housing market. Uh, certainly 0:02:59.680 --> 0:03:03.800 some regional and small banks. How much is that going 0:03:03.840 --> 0:03:06.519 to play out in a negative way that will offset 0:03:06.760 --> 0:03:10.400 the benefit from a little more trade certainty. Yeah, so 0:03:10.440 --> 0:03:12.720 I mean on on the positive side. First, right, that 0:03:12.840 --> 0:03:15.280 this stiffs a Chinese some breathing room, which they've been 0:03:15.280 --> 0:03:18.440 wanting for a long time. The manufacturing sector, really the 0:03:18.440 --> 0:03:20.440 economy as a whole over the over over the course 0:03:20.440 --> 0:03:23.600 of two thousand and nineteen, UM has been receiving a 0:03:23.639 --> 0:03:25.760 lot of credit support. A ton of it was really 0:03:25.760 --> 0:03:28.080 targeted towards the manufacturing sector, as we saw in our 0:03:28.160 --> 0:03:31.720 data repeatedly UM and and so this is much needed 0:03:31.760 --> 0:03:33.400 breathing room from them. But as you said, now we've 0:03:33.400 --> 0:03:36.800 got other issues. Domestic demand is still pretty weak, Domestic 0:03:36.920 --> 0:03:39.360 orders are are still not doing as well. The ordered 0:03:39.400 --> 0:03:42.560 order growth itself is actually uh somewhat slow in China 0:03:42.720 --> 0:03:45.920 right now. You've got a property market that hash showing 0:03:46.000 --> 0:03:49.560 signs of slowing down. Now, we ourselves saw the Chinese 0:03:49.600 --> 0:03:52.480 property markets slowing down up until November. We saw it 0:03:52.720 --> 0:03:54.360 a bit of an upturn in December, but you know, 0:03:54.440 --> 0:03:57.040 one month is not a trend, right, So some of 0:03:57.040 --> 0:03:59.400 those factors remain. If you look at that commodities is 0:03:59.440 --> 0:04:01.840 struggling right now in China, which is which is not 0:04:01.920 --> 0:04:04.640 a very positive sign for the economy. Um. Yeah, so, 0:04:04.640 --> 0:04:07.920 so lots of other factors remain. The other problem. You know, 0:04:07.920 --> 0:04:11.360 you brought up issues with being over leverage. One of 0:04:11.400 --> 0:04:13.520 the things that we're starting to pick up on is 0:04:13.720 --> 0:04:18.280 a major spike in firms which are delinquent and debt repayments. 0:04:18.720 --> 0:04:20.760 Right then, this is at a time when credit and 0:04:20.800 --> 0:04:23.880 borrowing is surging, So that really sets up to be 0:04:23.920 --> 0:04:26.080 somewhat difficult for some of these firms just struggling. They're 0:04:26.080 --> 0:04:28.080 not seeing the growth, they're not seeing the revenues, they're 0:04:28.120 --> 0:04:31.360 falling behind on debt repayments, cash flows tied in general. Um, 0:04:31.480 --> 0:04:34.400 yet they're taking out more loans alright. So given that 0:04:34.480 --> 0:04:37.400 economic backdrop, is there a scenario from your perspective, that 0:04:37.480 --> 0:04:41.000 China would move forward meaningfully with a Phase two type 0:04:41.040 --> 0:04:45.240 of negotiation or maybe they just don't have the capacity 0:04:45.360 --> 0:04:48.800 right now? You know, I think the Phase to deal 0:04:48.960 --> 0:04:51.880 was supposed to be about larger structural issues, right and 0:04:52.480 --> 0:04:55.920 those really haven't been on the table all along as 0:04:55.960 --> 0:04:58.159 it is. What we may end up seeing really is 0:04:58.200 --> 0:05:01.320 that Phase one egg it's done now, and then what 0:05:01.400 --> 0:05:04.839 we see a discussions towards perhaps Phase one B where 0:05:04.839 --> 0:05:08.359 their additional tariff rollbacks. Perhaps the Chinese made good on 0:05:08.400 --> 0:05:12.120 their purchases, you know, for agricultural purchases, services a person 0:05:12.160 --> 0:05:14.040 of other goods and services, which by the way, is 0:05:14.080 --> 0:05:16.039 going to be very difficult for them to pull off. 0:05:16.160 --> 0:05:19.640 Those numbers are pretty high. Um So any type of 0:05:19.640 --> 0:05:21.240 phase two as we think about it in terms of 0:05:21.240 --> 0:05:24.200 talking about you know, larger structural issues, I don't first 0:05:24.240 --> 0:05:26.680 see there being any kind of meaningful progress from that 0:05:26.720 --> 0:05:29.520 in and I'm wondering, you know, one thing that Paul 0:05:29.560 --> 0:05:33.400 mentioned was the opening up of the financial sector in China. 0:05:33.480 --> 0:05:35.839 We saw that rate move overnight where they change the 0:05:35.839 --> 0:05:39.360 benchmark to a more market based kind of factor rather 0:05:39.400 --> 0:05:44.080 than a state operated benchmark rate. How much do you 0:05:44.080 --> 0:05:46.320 expect that to really take hold next year? Do you 0:05:46.360 --> 0:05:48.599 expect you know a lot of foreign firms to really 0:05:48.920 --> 0:05:52.400 make bigger in roads on the rate stuff. There's just 0:05:52.440 --> 0:05:55.160 the one quick comment I'll make is you know who 0:05:55.200 --> 0:05:57.680 pays the rate? Right? Who pays these age rates that 0:05:57.680 --> 0:06:01.040 are set out their state firms have preference of borrowing access, 0:06:01.160 --> 0:06:03.919 you know, interest rates close to zero sometimes adds zero. 0:06:04.360 --> 0:06:06.600 So perhaps you have the smaller private firms who end 0:06:06.680 --> 0:06:09.120 up being you know, charged. You know, high interest rates 0:06:09.120 --> 0:06:11.799 in John are ppressive to pay something closer to the benchmark. 0:06:12.160 --> 0:06:15.000 Um So, so some of those moves, uh, you know, 0:06:15.160 --> 0:06:17.640 might be more window dressing than anything else. As far 0:06:17.680 --> 0:06:19.760 as firms moving in, I think the proof proof is 0:06:19.800 --> 0:06:21.200 in the pudding. It's it's yet to be seen. I 0:06:21.200 --> 0:06:23.159 think it's way too early to tell. The financial sector 0:06:23.200 --> 0:06:26.240 is so strategically important for Beijing. Um that the idea 0:06:26.320 --> 0:06:28.839 there's going to be you know, uh, they're about to 0:06:28.839 --> 0:06:31.039 take a major step back. It's it's a little bit 0:06:31.040 --> 0:06:33.960 difficult to buy. And just real quickly here, I'm wondering 0:06:34.080 --> 0:06:36.920 what you're seeing in terms of the credit expansion, the 0:06:36.960 --> 0:06:40.360 idea that you've talked about, how the PBSC has been 0:06:40.400 --> 0:06:43.520 pumping a lot of liquidity into the market. Has that 0:06:43.560 --> 0:06:46.360 been effective from the preliminary data that you're looking at 0:06:46.360 --> 0:06:49.279 in December in re accelerating the economy. I think what 0:06:49.440 --> 0:06:51.640 is done is staunch the bleeding a little bit for sure. 0:06:51.680 --> 0:06:53.240 You know, Q three was pretty weak. It was the 0:06:53.240 --> 0:06:56.039 weakest data all year long. November was even November data 0:06:56.120 --> 0:06:57.800 was even worse on what we were observing over the 0:06:57.880 --> 0:07:00.719 Q three period. Um So, the decen b upturn tells 0:07:00.720 --> 0:07:02.520 you that has done something or the other to help 0:07:02.560 --> 0:07:04.800 staunch the bleeding a little bit. It has provided a 0:07:04.800 --> 0:07:08.200 little bit of relief, um, you know, But but has 0:07:08.240 --> 0:07:09.800 it Is it going to lead to a sort of 0:07:09.840 --> 0:07:12.640 necessarily a turnaround the economy? I don't. I don't think 0:07:12.680 --> 0:07:14.840 so necessarily. Especially again, as I said, when we're looking 0:07:14.880 --> 0:07:17.520 at things like weakness and domestic demand, we're looking at 0:07:17.520 --> 0:07:21.480 corporate health uh, deteriorating pretty significantly. It doesn't make me 0:07:21.560 --> 0:07:25.600 very confident about a major economic rebound on the horizon. 0:07:25.680 --> 0:07:27.520 She's that, Kazi, thank you so much for being here, 0:07:27.560 --> 0:07:29.400 Thanks so much for having me. She's that. Cazi is 0:07:29.400 --> 0:07:32.160 managing director at China beige Book International in New York, 0:07:32.200 --> 0:07:34.960 joining us here in our interactive Broger Studios. China kind 0:07:34.960 --> 0:07:37.920 of the key question mark when it comes to certainly 0:07:37.960 --> 0:07:40.920 commodity markets, which we're gonna be talking about coming up, uh, 0:07:40.920 --> 0:07:44.960 and the optimism in oil as the US and China 0:07:45.040 --> 0:07:49.000 are poised sign phase one A. I'm going to say 0:07:49.200 --> 0:07:52.080 of this trade deal because it is the beginning of 0:07:52.120 --> 0:08:10.680 a rolling series of agreements. I am sure. I'm so 0:08:10.720 --> 0:08:13.600 excited to talk about this. Paul Satellites, Yes, this is 0:08:13.680 --> 0:08:15.320 very cool. It's very cool. Well, I mean this is 0:08:15.320 --> 0:08:18.600 like what we talk about when the SpaceX Falcon UH launches. 0:08:18.880 --> 0:08:21.440 This is the purpose, right to get these satellites in 0:08:21.680 --> 0:08:26.200 and Aridium Communications is a company that has satellites attached 0:08:26.280 --> 0:08:30.280 to UH, say the recent SpaceX Falcon nine reusable rocket 0:08:30.320 --> 0:08:32.679 that went up in order to deposit them into space. 0:08:32.720 --> 0:08:36.120 And we luckily have the chief executive officer of the company, 0:08:36.160 --> 0:08:39.800 Matt Dash joining us from Washington, d C. Matt, I 0:08:39.840 --> 0:08:42.719 just want to start with how much you've seen your 0:08:42.760 --> 0:08:47.440 business grow as the emphasis on satellite, the emphasis on 0:08:47.520 --> 0:08:54.360 expanding the network infrastructure has has grown increasingly important. Well, 0:08:54.440 --> 0:08:56.360 we have a very unique network, and we've been in 0:08:56.400 --> 0:08:59.240 operations now for almost twenty years. Now that we have 0:08:59.280 --> 0:09:01.360 a brand new net work, we've really sort of seen 0:09:01.400 --> 0:09:04.720 a and even increase in what has been really a 0:09:04.840 --> 0:09:07.439 very steady and strong growth rate for the last twenty 0:09:07.480 --> 0:09:11.680 years we've been in operation, especially since we moved from 0:09:11.960 --> 0:09:15.560 voice communications moving over to data transmission, say, to this 0:09:15.600 --> 0:09:18.360 thing called the Internet of Things where everything is getting connected, 0:09:18.840 --> 0:09:23.000 We've been really growing on the basis of that. Give 0:09:23.080 --> 0:09:25.840 us a sense of what five G means for your business, 0:09:25.840 --> 0:09:30.120 if anything, Well, five G IS, you know, is the 0:09:30.160 --> 0:09:33.600 next iteration of applications that are coming to all of 0:09:33.679 --> 0:09:36.000 us around the world. And you know, one of the 0:09:36.040 --> 0:09:39.040 key areas that five G brings is connecting not just 0:09:39.200 --> 0:09:41.600 people to each other, but you know, every appliance and 0:09:41.640 --> 0:09:45.560 car and vehicle and drone. And you know, despite the 0:09:45.600 --> 0:09:48.480 fact that five G IS is very exciting, it still 0:09:48.480 --> 0:09:51.200 only operates on about ten percent of the planet surface, 0:09:51.280 --> 0:09:54.400 maybe a little bit more so the other whether you're 0:09:54.400 --> 0:09:57.600 in the oceans and the skies, on a mountain, even 0:09:57.760 --> 0:09:59.400 a lot of places here in the US, you know, 0:09:59.440 --> 0:10:02.360 it doesn't have connection that they won't have five G connections. 0:10:02.360 --> 0:10:05.960 So we're the things that make the bridge to bring 0:10:06.040 --> 0:10:09.199 those applications to the rest of the planet. I want 0:10:09.240 --> 0:10:12.000 to talk a little bit about your use of SpaceX 0:10:12.559 --> 0:10:16.400 rockets to get up to space. How important is the 0:10:16.440 --> 0:10:19.560 private sector in space exploration in your business? I mean, 0:10:19.600 --> 0:10:25.920 I just I'm wondering about what you would be using otherwise. Yeah, 0:10:25.920 --> 0:10:29.400 when we when we selected our launch program ten years ago, 0:10:29.480 --> 0:10:31.360 we were one of the first. We took a chance 0:10:31.400 --> 0:10:35.280 on SpaceX before they'd even had a successful launch. It 0:10:35.400 --> 0:10:37.920 wasn't as hard as you think, because my you know it. 0:10:38.640 --> 0:10:41.480 You know, they for eight launches, they wanted to charge 0:10:41.480 --> 0:10:43.640 for me about a half a billion dollars, which seems 0:10:43.640 --> 0:10:45.960 like a lot of money. But when the next the 0:10:46.040 --> 0:10:51.600 next available rockets, save from the Russians or from the 0:10:51.640 --> 0:10:54.719 French or from someone else, was one point to one 0:10:54.760 --> 0:10:57.320 point three billion dollars, it was less than half the cost. 0:10:57.360 --> 0:11:00.320 So it really helped help make our business case clothes. 0:11:00.360 --> 0:11:03.560 And I think they've really driven down the cost of 0:11:03.640 --> 0:11:06.840 launch for um for a lot of US satellite suppliers 0:11:06.880 --> 0:11:09.520 and have made it more possible for some of these 0:11:09.559 --> 0:11:13.440 business cases to close. So Matt Bloomberg News is reporting, 0:11:13.440 --> 0:11:15.480 I guess about ten days ago or something that Apple 0:11:15.640 --> 0:11:18.040 is said to be exploring satellites to beam data to 0:11:18.080 --> 0:11:20.640 its devices. What does that mean for your business in 0:11:20.679 --> 0:11:24.199 your company, Well, it doesn't mean too much. It's a 0:11:24.240 --> 0:11:27.240 different sort of service that they want to provide, and 0:11:27.559 --> 0:11:32.000 many of these new new satellite companies really are supplying 0:11:32.320 --> 0:11:35.360 very different services than what Oridium provides. But you know, 0:11:35.440 --> 0:11:38.880 I think we've been a successful company, and I think 0:11:38.880 --> 0:11:41.800 we've inspired others to believe it's a lot easier to 0:11:42.160 --> 0:11:46.000 have your own network in space. Uh, they'll they'll realize 0:11:46.040 --> 0:11:49.319 that it's very challenging and very expensive and takes a 0:11:49.400 --> 0:11:51.760 lot of time and effort, as as has many other 0:11:52.720 --> 0:11:55.439 billionaires and very large companies who are looking to launch 0:11:55.480 --> 0:11:59.600 their networks, whether the Amazon or SpaceX themselves and others 0:11:59.600 --> 0:12:02.439 are all looking to launch networks as well. So I 0:12:02.720 --> 0:12:04.800 wish them all well, it doesn't really mean much to us. 0:12:04.800 --> 0:12:06.720 More than anything else, They're probably going to be partners 0:12:06.720 --> 0:12:09.520 of ours because you know, we can help um sort 0:12:09.520 --> 0:12:12.200 of bridge service, especially as they're getting their networks up. 0:12:13.000 --> 0:12:15.800 So a Ridium Communications. You mentioned how it has a 0:12:15.880 --> 0:12:21.040 twenty year operating history. It was the largest American bankruptcy 0:12:21.120 --> 0:12:24.679 prior to Enron. How have you recreated the company or 0:12:24.720 --> 0:12:29.440 how's the company recreated itself over the past decade to 0:12:29.960 --> 0:12:33.000 be the successful company that it is that provides uh, 0:12:33.040 --> 0:12:37.160 you know, crucial satellite services. Yeah, it was. It was 0:12:37.160 --> 0:12:40.199 a challenging business case back in the nineties to spend 0:12:40.240 --> 0:12:43.160 six billion dollars in expect you know, to compete with 0:12:43.200 --> 0:12:46.360 cell phones right off the bat. Unfortunately, they put too 0:12:46.400 --> 0:12:48.840 much dabt on the company and couldn't service it. But 0:12:48.920 --> 0:12:51.200 over time we've just been able to generate more and 0:12:51.240 --> 0:12:54.320 more products more and more partners to take us the 0:12:54.360 --> 0:13:00.959 market and have steadily grown at ten on our subscribers 0:13:00.960 --> 0:13:03.840 over the last twenty years. So I often say we're 0:13:03.880 --> 0:13:06.960 like a thirty year overnight success story. It takes. It 0:13:07.040 --> 0:13:09.520 takes some times sometimes in the satellite business because all 0:13:09.559 --> 0:13:13.000 the capital required to make a success, but we finally 0:13:13.040 --> 0:13:15.320 got there and really are a sort of an important 0:13:15.360 --> 0:13:18.080 financial transformation right now. I just hope, I hope all 0:13:18.120 --> 0:13:20.480 these new networks they're launching can go faster and turn 0:13:20.559 --> 0:13:23.200 to their own success. I'm just looking real quickly at 0:13:23.200 --> 0:13:26.240 your stock chart mid two eighteen. Your stock just started 0:13:26.240 --> 0:13:28.360 a big ascension after being you know, kind of flatish 0:13:28.400 --> 0:13:30.080 for the prior several years. What was that big event 0:13:30.120 --> 0:13:34.120 there that turned investor sentiment around. Well, there were a 0:13:34.200 --> 0:13:36.520 number of things. One, you know, completing the three billion 0:13:36.520 --> 0:13:38.680 dollar new network and knowing that we weren't gonna have 0:13:38.760 --> 0:13:42.280 to spend that kind of money for another ten years. Uh, 0:13:42.600 --> 0:13:46.680 it meant that we could finally start generating significant cash. 0:13:46.679 --> 0:13:49.800 In fact, we're deleveraging now and we'll you know, our 0:13:49.840 --> 0:13:52.120 investors are starting to see the light that you know, 0:13:52.600 --> 0:13:55.720 the dividends and and other things are possible. Really with 0:13:55.760 --> 0:13:57.480 all the cash that we're going to be generating over 0:13:57.520 --> 0:13:59.559 the next ten years. So I think it was just 0:14:00.000 --> 0:14:05.880 the patient of that that real financial transformation we've been through. Matt, 0:14:06.000 --> 0:14:08.680 thanks so much. We appreciate your thoughts there. Matt Desh, 0:14:08.800 --> 0:14:12.200 CEO of a Ridium Communications stock symbols I R d 0:14:12.480 --> 0:14:15.200 M based in Washington, d C. It's had a long, 0:14:15.440 --> 0:14:18.320 long history, a little bit north of twenty years in 0:14:18.360 --> 0:14:21.680 the satellite business. Probably uh you know, went through that bankruptcy, 0:14:21.720 --> 0:14:23.880 as Matt said, uh you know, probably not the right 0:14:23.960 --> 0:14:27.200 capital structure for a company that needed to undergrow six 0:14:27.200 --> 0:14:29.360 billion dollars or capex just to get their network in 0:14:29.400 --> 0:14:31.920 the sky. But the coming out of the bankruptcy, the 0:14:31.920 --> 0:14:34.760 company is doing much better again just by judging by 0:14:34.800 --> 0:14:38.840 the stock price, and the real future of satellite communications 0:14:38.880 --> 0:14:42.760 going forward in the country certainly seems bright. More competition 0:14:42.800 --> 0:14:45.680 SpaceX of course from Elon Musk, and again news that 0:14:45.760 --> 0:15:02.920 maybe Apple thinking about getting into the satellite business. We've 0:15:02.960 --> 0:15:04.840 been talking about it all morning. There seems to be 0:15:04.840 --> 0:15:08.120 an increasing divergence between the bulls and the bears within 0:15:08.200 --> 0:15:11.880 the fixed income market heading into but some I'm thinking 0:15:11.920 --> 0:15:15.880 about PREAMSRA in particular, seeing lower yields ahead for the 0:15:15.920 --> 0:15:20.080 benchmark tenure, meaning lower yields, higher price given the fact 0:15:20.120 --> 0:15:23.320 that perhaps the consumer will disappoint and others coming out 0:15:23.360 --> 0:15:26.680 and saying we're gonna get fiscal stimulus that's gonna push 0:15:26.800 --> 0:15:30.480 up yields, price down. Tad Ravel joining us now chief 0:15:30.480 --> 0:15:33.880 investment officer for fixed income at TCW with a hundred 0:15:33.880 --> 0:15:37.800 and seventy five billion dollars under management, joining from Los Angeles, 0:15:37.880 --> 0:15:40.440 had I'd love to get your view on this. Where 0:15:40.480 --> 0:15:43.080 do you think this sort of balance lies. What's the 0:15:43.160 --> 0:15:49.200 bigger likelihood yields lower, yields higher in Well, I guess 0:15:49.200 --> 0:15:52.520 the starting point with that lead in is to confess 0:15:52.600 --> 0:15:55.320 that we're probably in the in the bear camp as 0:15:55.360 --> 0:15:59.000 it relates to returns in the bond market, opportunities in 0:15:59.000 --> 0:16:02.480 the bond market in terms of rates. It's our view 0:16:02.520 --> 0:16:04.840 that we're in a very late cycle type of environment. 0:16:04.920 --> 0:16:07.720 The FEDS doing everything it can through the kitchen sink 0:16:07.800 --> 0:16:11.640 and five billion dollars behind that in order to stabilize 0:16:11.640 --> 0:16:13.800 the credit markets in the second half of this year, 0:16:13.880 --> 0:16:16.880 the repo market being part of that. If if, if, 0:16:17.080 --> 0:16:18.800 if you put a gun to our heads, we'd tell 0:16:18.840 --> 0:16:20.800 you that in time, you're probably going to be in 0:16:20.840 --> 0:16:24.120 a lower yield environment simply because economic growth isn't going 0:16:24.120 --> 0:16:27.440 to support the higher rate environment, and the FED probably 0:16:27.480 --> 0:16:29.960 is going to initially try to fight it with every 0:16:30.040 --> 0:16:33.760 weapon it knows knows how to. So it's intering. Ted. 0:16:33.840 --> 0:16:36.960 What is your I guess, your fundamental economic backdrop as 0:16:36.960 --> 0:16:41.200 it relates kind of supporting your view, Well, there are 0:16:41.200 --> 0:16:43.280 many I mean, first of all, I think that if 0:16:43.400 --> 0:16:45.200 if you're looking for signs that you're in a late 0:16:45.240 --> 0:16:49.080 cycle type of environment, you could begin with manufacturing. That's uh. 0:16:49.360 --> 0:16:52.440 The data this morning from from Dallas and from Chicago 0:16:52.880 --> 0:16:56.200 is further confirmation that the manufacturing sector has been weak 0:16:56.480 --> 0:16:58.800 for at least the last six to nine months. This 0:16:58.920 --> 0:17:05.119 is further refer in the data that reveals activity as 0:17:05.160 --> 0:17:07.320 it relates to movement in and out of ports, air 0:17:07.359 --> 0:17:10.000 transport type of activity as well. You can look at 0:17:10.040 --> 0:17:12.840 corporate profit margins that have been declining for several years. 0:17:13.200 --> 0:17:16.040 You can look at an equity market, which, notwithstanding the 0:17:16.080 --> 0:17:19.080 fact that it's got complete blinders on in terms of 0:17:19.119 --> 0:17:22.960 the reality that enterprise profits have actually been fairly flat 0:17:23.200 --> 0:17:26.359 for the last couple of years. Nonetheless, stay has stayed very, 0:17:26.480 --> 0:17:28.280 very buoyant. I don't view that as a as a 0:17:28.320 --> 0:17:30.800 positive sign. I view that as a late cycle type 0:17:30.800 --> 0:17:34.560 of sign. You could throw the real estate market into 0:17:34.600 --> 0:17:37.200 it as well. The residential real estate market certainly there 0:17:37.200 --> 0:17:39.560 seems to be pushed back from the point of view 0:17:39.560 --> 0:17:42.600 of affordability. I think that's rather clear in markets as 0:17:42.640 --> 0:17:46.280 diverse as Manhattan or some parts of southern California. But 0:17:46.400 --> 0:17:49.520 luxury markets generally speaking, I think have essentially run into 0:17:49.600 --> 0:17:52.560 that to the to that wall. You've pushed prices about 0:17:52.600 --> 0:17:54.359 as far as you're gonna take it. And if you 0:17:54.400 --> 0:17:56.159 want to put the cherry on top of all of this, 0:17:56.280 --> 0:17:58.080 you take a look at the credit markets, and you 0:17:58.119 --> 0:18:01.000 look at the excesses in the leverage loan market as 0:18:01.040 --> 0:18:03.560 it relates to covenants. This is a widely reported story. 0:18:03.800 --> 0:18:06.560 It hardly bears worth going into. At this point. You're 0:18:06.560 --> 0:18:09.720 either deaf to the warnings that are out there with 0:18:09.760 --> 0:18:12.679 respect to the week underwriting in the corporate sector, or 0:18:12.760 --> 0:18:14.399 you just don't think it matters at the end of 0:18:14.400 --> 0:18:17.160 the day. So if you're deaf to it, that also 0:18:17.200 --> 0:18:20.840 means you probably did really well this year. Because the 0:18:20.680 --> 0:18:24.760 the sort of the riskiest assets. Within the credit world, 0:18:25.040 --> 0:18:27.560 particularly near the end of the year, we're outperforming. I'm 0:18:27.560 --> 0:18:30.160 thinking of even the triple cs starting to outperform UH 0:18:30.800 --> 0:18:32.960 this month. I'm trying to figure out what's going to 0:18:33.080 --> 0:18:37.840 trigger this you know, potential late cycle mess and create 0:18:38.000 --> 0:18:41.320 some kind of opportunity at least, you know, repricing that 0:18:41.440 --> 0:18:43.920 people are dying to see. I mean, honestly, they've they've 0:18:43.960 --> 0:18:45.680 been talking about this for so long, they've been hating 0:18:45.680 --> 0:18:49.200 on this rally. What's going to be the washout? Well, 0:18:49.200 --> 0:18:51.399 you never know for sure, but I think that if 0:18:51.400 --> 0:18:53.760 I were to put a couple of possible catalysts, I 0:18:53.760 --> 0:18:56.320 think one catalyst that could be put forward would be 0:18:56.359 --> 0:18:59.200 the China economy, which has been slowing for a long 0:18:59.200 --> 0:19:02.639 period of time, and while the data is always okay, 0:19:02.760 --> 0:19:05.080 so you can't really bring much in the way of 0:19:05.119 --> 0:19:08.359 precision or clarity to that type of a of a situation, 0:19:08.920 --> 0:19:11.120 I think that that's been one of the big drivers 0:19:11.160 --> 0:19:13.280 of global growth over the course of this cycle. So 0:19:13.400 --> 0:19:15.639 any type of a slowdown there is going to ripple 0:19:15.680 --> 0:19:18.720 through the global economy. UM and China for what it's worth, 0:19:18.840 --> 0:19:22.520 as UM by g d P component is about of 0:19:22.520 --> 0:19:25.159 the emerging market, so China and the e M are 0:19:25.400 --> 0:19:27.840 there's a lot of overlap there. A second place I 0:19:27.880 --> 0:19:31.199 think that it could come from is the continuation of 0:19:31.560 --> 0:19:34.040 loose fiscal policy in the US. I think those that 0:19:34.280 --> 0:19:37.000 view that as a as a good thing are not 0:19:37.040 --> 0:19:40.359 paying attention to the realities that you sooner or later 0:19:40.720 --> 0:19:44.320 run into affordability issues with respect to being able to 0:19:44.359 --> 0:19:47.800 finance trillion trillion and a half, and with any economic 0:19:47.840 --> 0:19:51.360 slowdown in the US, you would expect those those deficits 0:19:51.560 --> 0:19:54.560 potentially to move past two trillion. You would be in 0:19:54.720 --> 0:19:58.360 terror incognito with that, and that would create an interesting 0:19:58.400 --> 0:20:01.440 push pull in the terms of longer term rates would 0:20:01.440 --> 0:20:03.240 want to rise, the FED would want to fight that 0:20:03.320 --> 0:20:07.360 because of its impact on the housing market, etcetera. So uh, 0:20:07.640 --> 0:20:11.840 the the the um imprudence of fiscal policy, I think 0:20:11.880 --> 0:20:13.680 is a second and the third one is that it 0:20:13.760 --> 0:20:17.760 might just happen indogenously with respect to the continuing piling 0:20:17.800 --> 0:20:21.159 on of of leverage and credit in the corporate sector, 0:20:21.480 --> 0:20:24.240 with an awareness or at least an ultimate awareness that 0:20:24.280 --> 0:20:26.800 there isn't the ability to finance it. You alluded to 0:20:26.840 --> 0:20:29.440 triple CS. I think that was a good place to look. 0:20:29.560 --> 0:20:32.840 Is that except for the big catch up, this incredible 0:20:32.920 --> 0:20:35.640 rally that we've seen in triple seas over the last month. 0:20:36.160 --> 0:20:39.920 The situation a month ago, if we had this conversation, 0:20:40.040 --> 0:20:42.320 what I would have said and would have been wrong, obviously, 0:20:42.760 --> 0:20:46.560 is the equity markets up. Triple sees are up four percent. 0:20:46.760 --> 0:20:49.680 Tell me what's wrong with this picture? And what's wrong 0:20:49.720 --> 0:20:51.679 with the picture, of course, is that the market is 0:20:51.720 --> 0:20:55.359 becoming more intelligent and more discriminating about the kind of 0:20:55.440 --> 0:20:59.040 risk that it's sponsoring. So tad given the fact that 0:20:59.119 --> 0:21:02.320