WEBVTT - Ukraine, Travel, And Markets 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:23.480 at Bloomberg dot com slash podcast. Let's spring in. Bradford 0:00:23.480 --> 0:00:27.080 Evarand's portfolio manager and senior VP at Heartland Advisors. I 0:00:27.080 --> 0:00:31.600 want to talk to you bred about balance sheets. I 0:00:31.640 --> 0:00:34.320 started my career lending money to media companies, so we 0:00:34.360 --> 0:00:37.360 always looked at net at the bat and coverage ratios 0:00:37.400 --> 0:00:39.560 and all that kind of good stuff. Now I've got 0:00:39.680 --> 0:00:43.520 interest rates rising. Is there interest rate risk out there 0:00:43.600 --> 0:00:48.240 for more companies? And maybe we're thinking about well, Paul 0:00:48.360 --> 0:00:50.280 to pleasure to be with you. Thanks for having me. Um. 0:00:50.479 --> 0:00:52.239 What I would just tell you is, you know, you 0:00:52.280 --> 0:00:55.600 know Heartland we're we're a value boutique here in Milwaukee, 0:00:55.680 --> 0:00:58.000 and I managed one of our small cap portfolios and 0:00:58.640 --> 0:01:01.840 our goal is to invest or investment cycles, and you know, 0:01:01.880 --> 0:01:04.800 we seek to invest in undervalued small cap stocks that 0:01:06.000 --> 0:01:08.560 have strong balance sheets, paid dividends and generate strong free 0:01:08.560 --> 0:01:11.320 cash flow that I will just tell you that. You know, 0:01:11.360 --> 0:01:15.160 we're in an environment where, you know, for most investors 0:01:15.400 --> 0:01:18.120 at a high level, balance sheets only matter when there's 0:01:18.200 --> 0:01:21.920 credit stress, and you know, most investors are focused on 0:01:21.959 --> 0:01:24.680 earnings and earnings growth, and you know, balance sheets matter 0:01:24.760 --> 0:01:26.800 especially when the feed is raising its race and the 0:01:26.800 --> 0:01:29.120 old the old match goes don't fight the feds. So 0:01:29.680 --> 0:01:32.039 we think, you know, our process, which you know, you 0:01:32.080 --> 0:01:34.400 know has been tested through various bowl and bear markets 0:01:34.400 --> 0:01:38.600 and through cycles, is a prudent strategy in this of 0:01:38.600 --> 0:01:41.720 our because especially in small cap space, we have a 0:01:41.720 --> 0:01:43.679 lot of companies that are improfitable. We have a lot 0:01:43.680 --> 0:01:46.120 of companies that are very shaky balance sheets, and we 0:01:46.120 --> 0:01:48.640 have a lot of companies that have very secularly challenged 0:01:48.680 --> 0:01:51.320 growth outlooks. And so our job is to weed through 0:01:51.320 --> 0:01:55.040 all that shafe and find things that are interesting and 0:01:55.120 --> 0:01:58.040 have you have investment merit through um you know, through 0:01:58.080 --> 0:02:00.240 an investment cycle that we look for between you know, 0:02:00.280 --> 0:02:03.400 two to three years. Is that the focus? Is that 0:02:03.480 --> 0:02:06.400 your professional focus? Because I noticed you were recognized as 0:02:06.440 --> 0:02:09.799 a category king manager by the Wall Street Journal. I 0:02:09.880 --> 0:02:13.800 don't know what that is. So you know, Heartland has 0:02:13.840 --> 0:02:17.359 long been known for value investing in the Heartland. Value 0:02:17.360 --> 0:02:20.440 plus one, which I do lead manages, is a dividend 0:02:20.480 --> 0:02:24.320 focused small cap fund that looks for undervalued small companies 0:02:24.360 --> 0:02:26.800 which pay dividends. And you know, we we think we 0:02:26.880 --> 0:02:30.560 think low debt has merits always because you know, low 0:02:30.639 --> 0:02:34.760 debt companies have lower volatility than their high debt counterparts. 0:02:34.760 --> 0:02:36.760 So that's an important dynamic, especially as the feed is 0:02:36.840 --> 0:02:40.760 raising rates and lowers volatility, especially in a portfolio context. 0:02:41.200 --> 0:02:44.200 You know, there's an environment also where you know, highly 0:02:44.240 --> 0:02:46.919 levered companies have much less flexibility in terms of free 0:02:46.919 --> 0:02:49.720 cash flow deployment, and especially as we're going through a 0:02:49.760 --> 0:02:53.079 downturn or I should say maybe an economic that economy 0:02:53.120 --> 0:02:56.240 that is peaking, and the feed that is is messaging 0:02:56.280 --> 0:02:59.919 an aggressive rate cycle to tame the inflationary pressures. UH 0:03:00.040 --> 0:03:02.680 having having free cash flow flexibility to buy back stock 0:03:02.680 --> 0:03:04.720 if it's under value, to service any debt you might 0:03:04.760 --> 0:03:07.600 have to maintain your dividends, and then maybe you know, 0:03:07.639 --> 0:03:11.040 look for attractive m and A opportunities when others are 0:03:11.080 --> 0:03:14.440 not is really a recipe to win. Especially you know, 0:03:14.800 --> 0:03:17.720 we often see um and we saw this the COVID 0:03:17.760 --> 0:03:19.960 crisis is balance sheets were very stress going into the 0:03:19.960 --> 0:03:22.520 COVID crisis, and that was as a result of you know, 0:03:22.600 --> 0:03:25.720 really interest rates being very low and many companies you know, 0:03:25.760 --> 0:03:29.079 feast down that low leverage to acquire companies at high valuations. 0:03:29.080 --> 0:03:31.320 And the end result of that was you know a 0:03:31.360 --> 0:03:33.720 lot of pain for investors as as as we saw 0:03:33.760 --> 0:03:36.560 the COVID recession, I can understand. I mean, how you 0:03:36.600 --> 0:03:43.080 screen for UH small cap value stocks, especially then you 0:03:43.120 --> 0:03:44.640 go look at the balance sheet and you can make 0:03:44.680 --> 0:03:46.720 that judgment. How do you know if the company is 0:03:46.720 --> 0:03:50.880 an M and a candidate, Well, we never really make 0:03:50.880 --> 0:03:53.800 an investment with that as a as you know, the 0:03:53.840 --> 0:03:56.640 necessary outcome. But usually what we find is, you know, 0:03:57.440 --> 0:04:00.880 in the in the small cap space, higher quality companies 0:04:00.920 --> 0:04:04.520 that are on the bargain bin um. They might be underloved, 0:04:04.600 --> 0:04:06.320 under followed. But if if we have managed teams that 0:04:06.320 --> 0:04:08.720 are effectively pursuing a strategy we like to call it 0:04:08.720 --> 0:04:12.680 a self help strategy, which is really where where management 0:04:12.680 --> 0:04:15.920 teams are very internally focused. They're focused on reducing costs, 0:04:15.920 --> 0:04:20.400 perhaps restructuring operations, or perhaps divesting non core assets that 0:04:20.480 --> 0:04:24.600 might be deluded to their overall organization. From a margin perspective, 0:04:24.960 --> 0:04:28.560 we usually find those self help stories as being ones 0:04:28.600 --> 0:04:31.400 where they don't need the macro economic environment really to 0:04:31.400 --> 0:04:33.720 give them tail winds to to to be successful in 0:04:33.800 --> 0:04:36.880 driving operating leverage in margin expansion. They really need to 0:04:36.920 --> 0:04:39.440 focus on on on their internal asset base and their 0:04:39.480 --> 0:04:43.000 existing operations to drive value for shareholders. And especially in 0:04:43.040 --> 0:04:44.840 an environment where perhaps the FETE is going to be 0:04:44.880 --> 0:04:47.400 on the prowel with higher interest rates, that we think 0:04:47.440 --> 0:04:49.040 that's going to be an effective place to be. And 0:04:49.080 --> 0:04:52.800 just answer your question, Uh, those self help strategies, you know, 0:04:52.839 --> 0:04:55.800 those companies that are perhaps underloved, under followed because of 0:04:55.839 --> 0:04:58.440 some self inflicted internal issue. If they are successful in 0:04:58.480 --> 0:05:01.120 pursuing that self help strategy on top of having a 0:05:01.160 --> 0:05:03.560 strong balance sheet, those companies usually become a part of 0:05:03.640 --> 0:05:06.480 large organizations over time. Andy Brad thinks so much for 0:05:06.520 --> 0:05:09.039 joining us. We really appreciated. Bradford Evans, portfolio manager and 0:05:09.080 --> 0:05:16.400 senior VP at Heartland Advisor Small Cap Value. All right, 0:05:16.440 --> 0:05:18.440 here's the conversation of the morning, at least for me. 0:05:18.920 --> 0:05:21.680 One of the questions that I've had as we look 0:05:21.720 --> 0:05:24.560 at what's unfolding in Ukraine over the last couple of 0:05:24.600 --> 0:05:27.320 months is what did the Russian people know? Did they 0:05:27.440 --> 0:05:29.240 do they know? The A that there's a war on 0:05:29.360 --> 0:05:33.479 be the conduct of the Russian military within Ukraine? And 0:05:33.520 --> 0:05:35.600 if so, what is their level of support for Mr 0:05:35.640 --> 0:05:41.080 Putin and this war? Unfortunately? Leonide Burschitski, columnist for Bloomberg Opinions, 0:05:41.120 --> 0:05:44.160 out with a column on that today. So leon and 0:05:45.360 --> 0:05:47.159 do you have a sense of what the Russian people 0:05:47.560 --> 0:05:52.880 know about what's going on in Ukraine? Well, uh, Russia 0:05:53.600 --> 0:05:57.680 has turned into a pretty close society recently, so I 0:05:57.720 --> 0:06:01.520 can only make an educated guess. But my educated guess 0:06:01.520 --> 0:06:05.120 is that they is that people inside Russia know a 0:06:05.120 --> 0:06:09.080 lot about what's going on, and they understand correctly what 0:06:09.400 --> 0:06:14.360 is going on. So they're not really taken in by 0:06:14.640 --> 0:06:19.080 the by the propaganda, even if they might say they are. 0:06:19.440 --> 0:06:24.440 So am I to assume then that they tacitly approve 0:06:25.400 --> 0:06:31.880 putting conduct in Ukraine? Well, you know, in a police state, uh, 0:06:32.160 --> 0:06:36.839 and sort of a copy of the Soviet Union that 0:06:36.920 --> 0:06:41.479 Russia has turned into. Now they're mostly business surviving, so 0:06:41.600 --> 0:06:48.120 it's not really um, you know, tacit agreement or acquiescence 0:06:48.160 --> 0:06:51.560 to what the Russian military is doing in Ukraine. It's 0:06:51.680 --> 0:06:54.880 it's you know, every man for himself and every woman. 0:06:56.040 --> 0:07:00.599 You know, people are just trying to basically avoid clashing 0:07:00.720 --> 0:07:06.160 directly with the regime mostly. Yeah, I mean it's understandable, um, right, 0:07:06.200 --> 0:07:08.400 when we see these surveys, I kind of wonder how 0:07:08.400 --> 0:07:11.600 many people were being honest. To hear from friends of 0:07:11.600 --> 0:07:14.160 mine that grew up in East Germany that they would 0:07:15.160 --> 0:07:19.000 not criticize the state publicly, not on the telephone, not 0:07:19.160 --> 0:07:23.400 at school, UM, for fear of being um, you know, 0:07:23.440 --> 0:07:27.360 punished exactly. And and this is you know, this is 0:07:27.400 --> 0:07:31.000 a time ownered Soviet instinct. Especially the older generation of 0:07:31.080 --> 0:07:34.840 Russians remember remembers how it used to be, and they 0:07:34.880 --> 0:07:38.640 would never whatever they think about what's going on, they 0:07:38.680 --> 0:07:43.200 would never publicly express those opinions or say anything on 0:07:43.240 --> 0:07:46.360 the phone or on Skype or on any method of 0:07:46.400 --> 0:07:51.160 remote communication, because they assume that even if the authorities 0:07:51.160 --> 0:07:54.720 aren't listening, they can listen in So, you know, here 0:07:54.720 --> 0:07:57.679 in the US, UM, and I guess in Western Europe 0:07:57.680 --> 0:08:00.760 as well. Younger generations don't really watch tell Vision anymore. 0:08:00.880 --> 0:08:06.600 Everyone um gets entertainment and information from the Internet. And 0:08:07.400 --> 0:08:11.560 I noticed, especially Europeans use VPNs a lot the what 0:08:11.720 --> 0:08:16.880 is that virtual personal network virtual private original private network. 0:08:17.440 --> 0:08:19.800 In your column you point out that even to Metri 0:08:19.880 --> 0:08:24.680 Pascoff uses a VPN, So does everybody in Russia have one? Uh? Well, 0:08:24.720 --> 0:08:29.320 the VPNs actually have been uh all of the top 0:08:29.400 --> 0:08:35.719 four most downloaded epps in March or VPNs in Russia. Um, 0:08:35.840 --> 0:08:39.520 and the fifth one was telegram, uh, you know, the 0:08:39.600 --> 0:08:42.760 encrypted messenger. And this allows people to get around state 0:08:42.800 --> 0:08:47.679 controls of the Internet. Basically, yes, it does. Uh. It 0:08:47.960 --> 0:08:51.679 allows them to get around state controls of both information 0:08:51.760 --> 0:08:58.160 and and and entertainment. Basically, the you know, those Western 0:08:58.200 --> 0:09:02.160 services lake Netflix that have with Russia are still accessible 0:09:02.240 --> 0:09:05.240 via VPN, so a lot of people download these to 0:09:05.320 --> 0:09:09.360 be able to, you know, watch their favorite UH TV series. 0:09:11.120 --> 0:09:14.120 You know. I've been thinking that at the very least 0:09:14.200 --> 0:09:17.480 Mr Putin will never ever be accepted back onto the 0:09:17.480 --> 0:09:19.720 world stage, will never see him at a G twenty summit. 0:09:20.200 --> 0:09:22.040 Now I'm wondering, as we go into the second and 0:09:22.120 --> 0:09:26.480 third month of this war Russia itself, are what is 0:09:26.520 --> 0:09:29.959 the feeling about Russia in terms of being part of 0:09:30.000 --> 0:09:32.400 the world community, Because it seems like at this point, 0:09:32.679 --> 0:09:34.719 based upon their behavior over the past couple of months 0:09:34.760 --> 0:09:37.920 in Ukraine that they are not welcomed in the world order. 0:09:38.440 --> 0:09:41.760 Does the average Russian even care about any of that? Well, 0:09:41.800 --> 0:09:44.800 the average Russian, as I said, it is probably business surviving. 0:09:45.400 --> 0:09:48.520 You know, those who have not left the country, those 0:09:48.520 --> 0:09:54.120 who have left the country are obviously feeling uh certain 0:09:54.240 --> 0:09:59.480 change of changing attitudes. And you know, Russians are not 0:10:00.200 --> 0:10:03.280 not welcome in many places where they used to be welcome, 0:10:03.440 --> 0:10:09.680 and they're not um you know, treated with um, you 0:10:09.760 --> 0:10:13.160 know as treason is in the same friendly way as 0:10:13.240 --> 0:10:16.640 as they used to be treated in many places. Uh. 0:10:16.840 --> 0:10:22.760 Inside Russia, people perhaps have not felt this yet, but 0:10:23.240 --> 0:10:26.800 it is a similar situation to the one that Germans 0:10:26.840 --> 0:10:31.160 found themselves in after World War Two. Yeah, I will 0:10:31.200 --> 0:10:34.560 actually even say, you know, Leonard, I was living in 0:10:34.600 --> 0:10:40.200 Berlin um around two thousand two, two thousand three, and 0:10:40.880 --> 0:10:44.360 I was welcome at all parties before the invasion of Iraq. 0:10:44.760 --> 0:10:48.040 That basically the day the US invaded Iraq, and if 0:10:48.040 --> 0:10:51.440 you recall at the time, it was without um the 0:10:51.520 --> 0:10:54.840 approval of Gerhard Schroeder and the German government. The day 0:10:54.880 --> 0:10:57.640 after that, I was like persona non grata. And it 0:10:57.679 --> 0:11:01.200 sounds silly, but it is absolutely true. I I felt 0:11:01.240 --> 0:11:04.760 it instantly. Do you feel the same kind of did 0:11:04.760 --> 0:11:07.600 you feel the same kind of turn or do your friends, 0:11:07.960 --> 0:11:11.320 um Russian friends around Berlin or in Western Europe feel 0:11:11.360 --> 0:11:14.480 the same kind of change all of a sudden, Well 0:11:14.960 --> 0:11:18.360 as somebody tried to set my daughter's school on fire, 0:11:18.679 --> 0:11:23.080 which is a biolinqual school. Uh. So you know, you 0:11:23.200 --> 0:11:27.439 get um, all sorts of people and all sorts of attitudes, 0:11:27.679 --> 0:11:35.079 and uh, you know, you get nasty reactions sometimes from 0:11:35.120 --> 0:11:39.120 some people when you speak Russian in public. Uh, you 0:11:39.240 --> 0:11:44.680 have to basically, well I can't really say take it 0:11:44.720 --> 0:11:49.319 and stride, but you have to accept it as um 0:11:49.880 --> 0:11:53.960 sort of normal retribution retribution for what the you know, 0:11:54.040 --> 0:11:56.800 the country's military is doing. I mean, as as Russians, 0:11:56.840 --> 0:11:59.720 we all bear part of the responsibility for not stopping 0:11:59.720 --> 0:12:02.600 this time Leonid, the thirty seconds left. How do you 0:12:02.640 --> 0:12:08.320 think this ends in Ukraine? H? Well, I I don't 0:12:08.320 --> 0:12:12.680 think it ends in the foreseeable future. Okay, but do 0:12:12.679 --> 0:12:15.280 you think the people, I mean, is Putin's position within 0:12:15.360 --> 0:12:18.439 Russia as strong as it ever has been. There's and 0:12:18.480 --> 0:12:21.719 there's relatively low risk that the people will overthrow him, 0:12:21.760 --> 0:12:25.319 overthrow the current the current level of repression. I don't 0:12:25.320 --> 0:12:29.880 think this is imminent in any way. All Right, lady Brushitski, 0:12:29.960 --> 0:12:32.880 thank you so much for joining us, giving us really 0:12:32.920 --> 0:12:38.080 fascinating column there for uh Bloomberg opinion, just talking about uh, 0:12:38.520 --> 0:12:40.440 you know, as someone who used to live in Russian 0:12:40.480 --> 0:12:42.640 and as a Russian now in Berlin, giving us his 0:12:42.679 --> 0:12:46.040 thoughts about what's happening in Ukraine from the Russian perspective, 0:12:46.080 --> 0:12:47.640 and again it just kind of begs a question, what 0:12:47.679 --> 0:12:50.880 did the Russian people really know? Uh? And based upon 0:12:50.880 --> 0:12:54.360 that knowledge, how supportive are they of the Russian state, 0:12:54.400 --> 0:13:00.240 the Russian Army, the Russian policy towards Ukraine. All right, 0:13:00.280 --> 0:13:03.840 let's talk about stocks here. Peter McNally joins US Series 0:13:03.880 --> 0:13:09.360 Global Lead looks at industrials, materials, energy, Third Bridge Group Limited. Uh, Peter, 0:13:09.720 --> 0:13:11.679 we had Delta come out with some numbers today, some 0:13:11.720 --> 0:13:14.800 good numbers, some good guidance. What's your call on the 0:13:14.800 --> 0:13:17.880 airline space here? Are we kind of back or are 0:13:17.880 --> 0:13:20.400 we still waiting for the business side of the of 0:13:20.400 --> 0:13:24.560 of flying to come back? Well, it's gonna be with you, guys. 0:13:24.559 --> 0:13:27.520 I mean, revenue is coming back. It has been, you know, 0:13:27.600 --> 0:13:30.719 particularly on the on the leisure side. There's still a 0:13:30.840 --> 0:13:34.920 ways to go though in business and long haul international. 0:13:35.040 --> 0:13:37.400 But what haven't come back yet have been profits, right. 0:13:37.440 --> 0:13:40.520 I mean, even though Delta in the second quarter is 0:13:40.520 --> 0:13:45.160 gonna get close close, not quite levels of revenue, it's 0:13:45.200 --> 0:13:49.240 fundamentally less profitable because costs are higher and it's both 0:13:49.320 --> 0:13:52.240 on labor which is the biggest cost, and fuel. But 0:13:52.320 --> 0:13:56.079 that's coming. I mean, Delta is managing well, Um, you 0:13:56.120 --> 0:13:59.280 know they'll be profitable most likely for the rest of 0:13:59.320 --> 0:14:02.880 the year. Um. But you know, relative to expectations, things 0:14:02.920 --> 0:14:07.360 have picked up for Delta. So what about uh, ticket 0:14:07.400 --> 0:14:09.600 prices are they able to do they have the pricing 0:14:09.640 --> 0:14:14.400 power to make up for rising fuel costs? Well, that 0:14:14.480 --> 0:14:16.719 was you know, one of the key messages I think 0:14:16.720 --> 0:14:19.240 that Delta delivered today is that they are getting you know, 0:14:19.280 --> 0:14:22.520 getting pricing. You know, it's not bringing them the whole 0:14:22.560 --> 0:14:26.240 way back, but on on a unit basis, um, they 0:14:26.280 --> 0:14:30.640 have recovered to uh actually record levels of you know, 0:14:30.840 --> 0:14:33.880 beyond where they were in twenty nineteen. There is pent 0:14:34.000 --> 0:14:37.600 up demand for travel, that is, that is fundamental and 0:14:37.800 --> 0:14:41.280 you know we're seeing it as you know, other countries 0:14:41.320 --> 0:14:45.520 open up. Um, you see the bookings in in international 0:14:45.880 --> 0:14:48.520 We've obviously been through that here in the leisure market 0:14:48.760 --> 0:14:53.160 in the United States, and you know, Delta in particular 0:14:53.200 --> 0:14:56.440 has been slow to add capacity. Now some of it 0:14:56.600 --> 0:15:00.160 in the industry is because of labor constraints, you know. 0:15:00.160 --> 0:15:02.280 We we saw Jet Blue last week, you know, actually 0:15:02.320 --> 0:15:04.960 cut some flights because uh, you know, for the summer, 0:15:05.280 --> 0:15:09.520 because they are concerned about staffing levels. Delta is managing 0:15:09.520 --> 0:15:13.600 this pretty well. Uh. They may be an outlier, um, 0:15:13.640 --> 0:15:16.400 you know, relative to the you know, to the industry, 0:15:16.440 --> 0:15:18.560 but that is something we're gonna watch, you know, through 0:15:18.640 --> 0:15:21.000 the summer. Yeah. I've just been on a couple of 0:15:21.000 --> 0:15:23.480 flights over the past couple of weeks and the load factor, 0:15:24.080 --> 0:15:26.920 as they say in the business, got to be near 0:15:27.000 --> 0:15:30.640 on My planes were were packed here. Where are we 0:15:30.720 --> 0:15:33.320 in terms of capacity? Have the airlines brought all their 0:15:33.320 --> 0:15:36.160 capacity back online? If they've taken some of those parked 0:15:36.200 --> 0:15:39.600 aircraft in the in the desert and brought him back. No, 0:15:39.840 --> 0:15:42.280 it's been it's been slow. I mean, it looks in 0:15:42.360 --> 0:15:45.280 the domestic leisure market, you know, you're basically there. But 0:15:45.560 --> 0:15:47.840 you know, Delta is still only in the mid eighties 0:15:48.360 --> 0:15:51.720 at this point in terms of capacity, and they're only 0:15:51.760 --> 0:15:54.200 adding a little bit you know here in the second quarter. 0:15:54.360 --> 0:15:58.200 Despite despite this, you know, uptick, the labor is don't 0:15:58.360 --> 0:16:03.640 be instant in the industry. You know, pilot just people 0:16:04.000 --> 0:16:08.840 servicing the planes. Well, it's you know, it's actually like 0:16:08.920 --> 0:16:10.400 a lot of things. I mean, Delta was even talking 0:16:10.400 --> 0:16:13.880 about how within the airport they're having to take over 0:16:14.040 --> 0:16:17.840 some of the operations themselves. Um, you know, the things 0:16:17.840 --> 0:16:21.240 that had you know, had normally been you know, been outsourced. 0:16:21.280 --> 0:16:24.440 But you know, Deltas hired like fifteen thousand people in 0:16:24.480 --> 0:16:28.120 the last year or so. Um, you know, they do 0:16:28.240 --> 0:16:30.400 seem to be getting out of it. But not every 0:16:30.440 --> 0:16:34.280 airline has been, let's say, as successful and hiring enough 0:16:34.320 --> 0:16:37.600 people to man all these you know, all these flights. 0:16:37.600 --> 0:16:41.040 And it began about a year ago where the airline 0:16:41.120 --> 0:16:44.600 started talking about pilot you know, and the constraints there 0:16:45.000 --> 0:16:47.480 and um, you know, labor issues are not going to 0:16:47.560 --> 0:16:50.240 go away in this industry. Peter. I've I've always felt 0:16:50.320 --> 0:16:55.280 like airlines in America don't have pricing power relative to 0:16:56.000 --> 0:16:59.360 you know history. When I was a kid, I remember 0:16:59.400 --> 0:17:02.640 flying out San Francisco to watch The Grateful Dead, and 0:17:02.680 --> 0:17:04.640 then I did it again when they had their fifty 0:17:04.680 --> 0:17:06.560 at the anniversary a few years back, and I paid 0:17:06.600 --> 0:17:09.719 the same price for the same ticket, you know, twenty 0:17:09.800 --> 0:17:12.560 years apart. So I thought that was a little bit weird. 0:17:12.640 --> 0:17:14.800 But then after having lived in Europe for a while, 0:17:14.880 --> 0:17:17.280 where I wouldn't have paid more than a hundred dollars 0:17:17.359 --> 0:17:21.760 for an international ticket, Um, I feel like there's something 0:17:22.000 --> 0:17:24.800 very different about this market. What what is the deal 0:17:24.880 --> 0:17:30.680 with the US market is just an oddly regulated pocket. Well, 0:17:30.720 --> 0:17:34.040 I mean, look, there's one thing that we learned or 0:17:34.080 --> 0:17:37.639 maybe was you know, we were reminded of through the 0:17:37.680 --> 0:17:41.399 pandemic is that investors, whether they're you know, credit or 0:17:41.440 --> 0:17:44.960 equity investors, don't stop giving airlines money, you know, and 0:17:45.160 --> 0:17:48.879 and we're able to finance this industry. We had startups, 0:17:48.880 --> 0:17:51.720 we had I p o s through the pandemic, and 0:17:51.760 --> 0:17:55.120 we've never seen a decline you know like this now. 0:17:55.160 --> 0:17:57.720 We we we've moved a lot of planes around and 0:17:58.160 --> 0:18:02.080 you know, fleets have in you know, reorganized and gotten 0:18:02.119 --> 0:18:05.679 more you know, more efficient. But you know, it is 0:18:05.720 --> 0:18:08.800 an industry that does you know, thrive on competition, and 0:18:08.840 --> 0:18:12.040 there's always new you know, new entrance you know coming in. 0:18:12.160 --> 0:18:14.320 It'll be interesting to watch you know, at the low 0:18:14.440 --> 0:18:16.880 end of the market. This fight that has emerged over 0:18:16.960 --> 0:18:19.480 spirit you know, this is the this is the ultra 0:18:19.640 --> 0:18:22.320 low cost carrier. You know that's out there, and you 0:18:22.359 --> 0:18:25.600 know to you know companies in there, they've they've been disruptive, 0:18:26.160 --> 0:18:29.840 you know, particularly in Florida, which was been been the 0:18:29.840 --> 0:18:34.320 hottest market in domestic travel, you know, since the since 0:18:34.359 --> 0:18:38.600 the recovery began nearly nearly two years ago. Good stuff, 0:18:38.600 --> 0:18:41.720 Peter McNally, thanks so much for joining us there. Timely 0:18:41.720 --> 0:18:44.160 discussion there with the good numbers coming out of Delta 0:18:44.160 --> 0:18:46.000 and they had some good guidness so about summer travel. 0:18:46.080 --> 0:18:49.000 So good to get Peter's thoughts there. He's global lead Industrials, 0:18:49.040 --> 0:18:53.680 Materials and Energy. Third Bridge Group is his gang over there, 0:18:53.720 --> 0:19:01.119 so good to get an update there. Alright, tough, tough 0:19:01.240 --> 0:19:04.200 first market for fixed income investors, and I've got a 0:19:04.200 --> 0:19:07.280 foto reserve that's hell bent on raising rates throughout this year. 0:19:07.320 --> 0:19:09.840 So what's the fixed income investor to do. Let's check 0:19:09.880 --> 0:19:12.800 in with Allie Peiffer. He does it for real, Managing 0:19:12.840 --> 0:19:15.960 director Fixed Income Coupital Markets at Raymond James ray j 0:19:16.080 --> 0:19:18.160 as we call him in the business, great little firm 0:19:18.480 --> 0:19:21.280 down there in Florida, competed against him for a long time. 0:19:21.320 --> 0:19:25.080 Good stuff, ellis UM talk to us about investing the 0:19:25.119 --> 0:19:29.560 fixed income markets these days? What do you do? That's 0:19:29.560 --> 0:19:31.720 a great question. It's it's the question I get almost 0:19:31.800 --> 0:19:35.399 every day. Good morning, UM. Well, we're saying what we 0:19:35.480 --> 0:19:37.840 found out over time is, you know, when the FED 0:19:37.960 --> 0:19:40.679 is in this kind of environment, is we like to 0:19:40.720 --> 0:19:43.679 do somewhat of a multi primed approach. One is we 0:19:43.800 --> 0:19:47.120 like cash flow in our our portfolios. As we've been 0:19:47.160 --> 0:19:51.520 telling clients to to maintain cash flow, advertising products such 0:19:51.520 --> 0:19:54.600 as mortgage backs to bring in UM cash that you 0:19:54.600 --> 0:19:57.119 can reinvest at the higher rates as the FED moves higher. 0:19:57.480 --> 0:19:59.760 We do like floaters at this point. We normally aren't 0:19:59.800 --> 0:20:02.000 big fans of floaters until the FED begins to move 0:20:02.000 --> 0:20:04.080 because that's when you actually capture most of the move 0:20:04.520 --> 0:20:07.680 from there from from the rising rates. UM, and then 0:20:07.720 --> 0:20:10.760 as far as the rest of the portfolio. Were we 0:20:10.880 --> 0:20:14.639 Barbell uh classic Barbell in a in a curve movement 0:20:14.720 --> 0:20:17.040 environment like it is, a flattening environment like it is. 0:20:17.800 --> 0:20:21.960 We like m more negatively convexed products like uh, you know, 0:20:22.000 --> 0:20:26.000 option embedded products like callables and mortgages that I mentioned earlier, 0:20:26.040 --> 0:20:28.159 and then we like more of our positive convexity on 0:20:28.160 --> 0:20:30.240 the back end of the curve where we can kind 0:20:30.240 --> 0:20:32.600 of control that risk factor a little bit. I haven't 0:20:32.640 --> 0:20:37.440 heard convexity terms since my finance class and a duke, 0:20:37.640 --> 0:20:41.040 do you not watch surveillance? Yeah, but it's up there 0:20:41.040 --> 0:20:45.880 with sitgeist among the most mentioned words on surveillance. He's 0:20:45.880 --> 0:20:47.800 got his own you know, he's got his own language. 0:20:47.840 --> 0:20:51.760 Convexity is a Faraoh thing and zeitgeist is tom Okay, 0:20:52.040 --> 0:20:54.320 I wonder what I wonder? What I wonder? At least 0:20:54.320 --> 0:20:56.520 it says just all things credit. So I don't know. 0:20:56.600 --> 0:21:00.680 So So in the corporate market do I go hire? 0:21:00.720 --> 0:21:05.000 You do I stay investment grade? What do I do? Um? 0:21:05.080 --> 0:21:07.000 Right now? I think you're you're better off on the 0:21:07.040 --> 0:21:10.320 corporate market in the in the investment grade, I think 0:21:10.400 --> 0:21:13.840 the risk is just um. You know, the FED normally 0:21:13.840 --> 0:21:16.520 doesn't end in a soft landing. We've only had one 0:21:16.880 --> 0:21:20.800 to my account, and so you know, I think the 0:21:21.400 --> 0:21:23.919 spreads of all widen across the curve. But you know, 0:21:24.080 --> 0:21:25.919 as far as an up in quality trade, I think 0:21:26.000 --> 0:21:28.920 still remains the right move at this point is there 0:21:29.080 --> 0:21:32.840 ever a time when someone who works in fixed income says, man, 0:21:32.920 --> 0:21:34.639 now is not not not a good time to be 0:21:34.680 --> 0:21:42.080 in fixed income. Yes, I have done that before. I mean, 0:21:42.119 --> 0:21:43.560 it's it is. It is one thing you have to 0:21:43.600 --> 0:21:47.000 be careful with. Obviously, in a balanced portfolio, UM, you 0:21:47.040 --> 0:21:50.439 want to be you know, probably underweight uh interest rate 0:21:50.480 --> 0:21:52.240 products at this point. But you know, we have a 0:21:52.280 --> 0:21:56.320 lot of clients who are depositories of money managers fixed 0:21:56.320 --> 0:21:59.320 income products, and it's like that they must maintain investments, 0:21:59.640 --> 0:22:03.000 and so we try to adjust their waitings accordingly in 0:22:03.119 --> 0:22:06.360 order to best fit that environment. So are your corporate 0:22:06.400 --> 0:22:09.159 clients ellis Um, do they feel like the parties over 0:22:09.200 --> 0:22:12.880 in terms of new issuance that the windows closing if 0:22:12.920 --> 0:22:16.920 not closed? Or what are you hearing from your corporate clients? Uh? No, 0:22:17.080 --> 0:22:20.119 I think I think the the product is still very 0:22:20.200 --> 0:22:22.960 violable at this point. I think we're still getting, um, 0:22:23.000 --> 0:22:26.160 you know, some some good flow. I mean, it's obviously 0:22:26.240 --> 0:22:28.320 things have changed with the with the flattening, but you know, 0:22:28.359 --> 0:22:30.240 when when you're looking at corporate credit, a lot of 0:22:30.240 --> 0:22:34.520 it gets swapped out once it's initiated. Um, that will 0:22:34.560 --> 0:22:37.119 tighten up as the fed titans. But I think there's 0:22:37.160 --> 0:22:39.359 there's still an open window at this point. I think 0:22:39.440 --> 0:22:40.960 we've got a little bit of time before we get 0:22:40.960 --> 0:22:43.000 to that close that you know what as it closes, 0:22:43.240 --> 0:22:45.040 was that it for the inversion? Do you feel like 0:22:45.119 --> 0:22:49.240 that was one and done? I do for now, um 0:22:49.359 --> 0:22:51.160 And And part of that is if you look at 0:22:51.240 --> 0:22:53.600 the you know, two S tense curve, which I've always 0:22:53.720 --> 0:22:56.879 used as is a very good measurement. I mean, all recessions, 0:22:56.880 --> 0:22:59.119 as we know, have been led by an inversion, but 0:22:59.160 --> 0:23:01.960 not all the versions was a recession. And in the 0:23:02.000 --> 0:23:04.720