Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you.
Speaker 1: Along with my co host Lisa Brahma Waits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: that Bloomberg dot com. Well, this pandemic has created a
Speaker 1: whole new set of consumer behaviors as it relates to
Speaker 1: eating meals. A lot of more people are cooking in,
Speaker 1: but a lot more people are ordering out. To get
Speaker 1: a sense of what that means for the pizza business,
Speaker 1: we welcome Rob Lynch Robs the presidency of Papa John's Pizza. Rob,
Speaker 1: thanks so much for joining us here. Give us a
Speaker 1: sense of how your business has evolved over the past
Speaker 1: couple of months as the pandemic has really gripped the
Speaker 1: country and people have become more and more quarantined. Hi, Paul,
Speaker 1: thanks for having me. You know our business is built
Speaker 1: to help in these uncertain times. We are an off
Speaker 1: premise delivery focused business US. We do not have very
Speaker 1: many dining rooms to speak of, UM, so this is
Speaker 1: kind of what we do. And we saw the challenges
Speaker 1: that we're coming into North America. UM through our global
Speaker 1: business we have we operating over fifty countries, including China
Speaker 1: and South Korea some of the the countries that were
Speaker 1: impacted first and we started, you know, we were able
Speaker 1: to learn what it would look like and and you
Speaker 1: know what we realized is that if we were allowed
Speaker 1: to continue to operate, that we would have a big
Speaker 1: responsibility and a big demand for our services. And you know,
Speaker 1: in China we weren't able to operate as the government
Speaker 1: shut down, but in South Korea we were. And and
Speaker 1: so we took that model and we applied it to UH,
Speaker 1: you know, North America, and we we focused on making
Speaker 1: sure that we had were prepared for business continuity efforts
Speaker 1: in our supply chain, making sure that we could UH
Speaker 1: staff up to eat the incremental demand, and make sure
Speaker 1: that we had the appropriate stantitization and and and procedures
Speaker 1: in place to keep our employees safe so that we
Speaker 1: can continue to operate. And we did that and and
Speaker 1: that was a lot of the work that went on
Speaker 1: in March as we started to see UM things change
Speaker 1: and and then shortly thereafter, we implemented a new platform
Speaker 1: UH and no contact delivery, and it has made a
Speaker 1: world of difference. Has allowed our customers to feel confident
Speaker 1: that when they order food from us, that we're delivering
Speaker 1: it in a safe way, that that you know, they
Speaker 1: can get food and everyone's doing their part. People are
Speaker 1: staying home to try to fight this pandemic, and the
Speaker 1: only way people can stay home is if they have food.
Speaker 1: And you know, the frontline workers out there and the
Speaker 1: grocery stores and our delivery drivers and inside team members
Speaker 1: are doing a doing a great job making sure that
Speaker 1: that we can get through this thing and fight this
Speaker 1: terrible pandemic. So what did you to seek pre and
Speaker 1: post the quarantine. There was a sense of kind of
Speaker 1: how your sales changed once people really were in the
Speaker 1: lockdown mode. That's great question. You know, we got off
Speaker 1: to a really strong start UH in two thousand and twenty.
Speaker 1: We were up about seven percent in in the first
Speaker 1: quarter until mid March when we started seeing the initial
Speaker 1: impact of COVID nineteen and people started the pantry load
Speaker 1: a little bit, and um, you know, people really the
Speaker 1: uncertainty created a dynamic where people didn't order out and
Speaker 1: so we but we got through that and and UM
Speaker 1: and then April hit. And once we got into April,
Speaker 1: and we were about two weeks into the shelter and
Speaker 1: place orders in most states and across the country, UM,
Speaker 1: our business just took off. And you know, as we
Speaker 1: reported yesterday, we saw cops store growth. That's that's the
Speaker 1: best month in the company's history. UM. So you know,
Speaker 1: we weren't we weren't expecting that level of growth, but
Speaker 1: we've been able to UM manage it. And you know,
Speaker 1: it's amazing what happens in business when you get really busy,
Speaker 1: people get more productive, people step up to the challenge.
Speaker 1: And our team has just risen to that challenge and
Speaker 1: through their efforts out in the steel, out in our restaurants.
Speaker 1: You know, our customer service scores for a thousand bases
Speaker 1: point over the last six weeks. UM. People really appreciate
Speaker 1: the fact and the extra care that we're taking and
Speaker 1: the extra efforts were making to bring them you know, pizza,
Speaker 1: and you know pizza. It's not just sustenance. It's actually
Speaker 1: a little bit of a return to normalcy. You know,
Speaker 1: it's a little bit of of of that joy that
Speaker 1: they you know that they're looking for as they um
Speaker 1: stay home for for weeks on end. So it's been
Speaker 1: a really rewarding thing. Our company morale, especially the folks
Speaker 1: out in the restaurants, has never been higher. And UM,
Speaker 1: it's really been a privilege and an honor to help
Speaker 1: outdoor and these show engine time. All right, So talk
Speaker 1: about to us about your employees, your your team members
Speaker 1: here as I'm guessing as you ramped up, you mean
Speaker 1: I talked about same store sales growth and uh in April,
Speaker 1: you need some more folks on the ground delivering the pizzas,
Speaker 1: making the pizzas delivering them. Give us a sense of
Speaker 1: how you're kind of ramping up and taking care of
Speaker 1: those folks on the ground. Yeah, you know, it's it's
Speaker 1: it's a really unfortunate outcome of this whole situation as
Speaker 1: these UM high levels of unemployment and and the way
Speaker 1: it's impacting our communities and impacting our country. And you know,
Speaker 1: we've we've tried to do our part. We've actually hired
Speaker 1: over twelve thousand people in the last six weeks, UM
Speaker 1: to try to make sure that we have the staff
Speaker 1: in place to UM take care of our communities and Frankly,
Speaker 1: it's it's been it's been an interesting situation. We have
Speaker 1: people who, um, you know, we're we're in other jobs
Speaker 1: that had nothing to do with food service that are
Speaker 1: now all coming in and working in our restaurants. And
Speaker 1: it's been a great dynamic, uh, them coming in and
Speaker 1: bringing their talents and their passion and and like I said,
Speaker 1: morale has never been higher. These folks are are coming
Speaker 1: in not just because they think, you know, I need
Speaker 1: a paycheck and deliver in pizza. I mean, we try
Speaker 1: really try to reinforce and I think it's really resonated
Speaker 1: that these are essential services. These are and you know,
Speaker 1: this work is important. This work is making a difference,
Speaker 1: is allowing the folks to stay home that need to
Speaker 1: stay home. And so, um, the twelve thousand people we've
Speaker 1: hired over the last six weeks have come in. Our
Speaker 1: retention has been great, and we're we're we're looking for more.
Speaker 1: I mean, we need, we need more people because the
Speaker 1: business continues to thrive and and we want to continue
Speaker 1: to get through these times and help out as much
Speaker 1: as we can. Rob talked to us a little about
Speaker 1: the supply chain. Are you be able to get all
Speaker 1: the ingredients you need to keep your process going. We've
Speaker 1: heard some reports out that you know, maybe dairy there
Speaker 1: might be some sup light chain issues me to pork
Speaker 1: things like that. You know, one of the great things
Speaker 1: about this company is UM it is a vertically integrated company.
Speaker 1: We we own and operate our own supply chain, and
Speaker 1: so we have really great relationships with our raw material
Speaker 1: supplier and our ingredients suppliers. And so once again we
Speaker 1: saw how things were transpiring in Asia and then in Europe,
Speaker 1: and so we got out in front of it. What
Speaker 1: we have great leadership in our supply chain and they
Speaker 1: went out to our suppliers and procured a lot of
Speaker 1: inventory heading into UM the pandemic. So we we significantly
Speaker 1: increased our inventories. We had to go out and get
Speaker 1: incremental storage space to make sure we could get enough
Speaker 1: that that if we did see a disruption to our
Speaker 1: supply chain, UM we were going to be able to
Speaker 1: to persevere through those disruptions. We also went out and
Speaker 1: and worked with new suppliers to try and create redundancies
Speaker 1: in our supply chain and make sure that if something
Speaker 1: happened to our core group of suppliers, we had backups
Speaker 1: and those two initiatives have really paid dividends. We've seen
Speaker 1: no business impact from UM ingredients UM challenges in the
Speaker 1: supply chain right now. A lot of a lot of
Speaker 1: protein suppliers are are challenged. But we have been able to,
Speaker 1: you know, make sure that we have access to all
Speaker 1: the pepperoni and sauces that we need for those are
Speaker 1: the biggest proteins in our business UM and and we've
Speaker 1: We've got plenty of it and we're operating at a
Speaker 1: high level. Rob How do you think this is going
Speaker 1: to play once we get to the other side of
Speaker 1: this it relates to your business. Are you Are you
Speaker 1: guys thinking about how consumer behavior may be changing, either
Speaker 1: positive or negative for your business? You know, this is
Speaker 1: we We've faced UM multiple economic challenges over the last
Speaker 1: twenty years. If you talk about the dot com bubble,
Speaker 1: you talk about the the banking and real estate bubble
Speaker 1: back in two thousand and eight, and you know, I
Speaker 1: think when those happened, people said, you know, the world
Speaker 1: is never going to be the same again, and and
Speaker 1: then the economy were cut or recovered, and I think
Speaker 1: we kind of went back to normal. This is a
Speaker 1: this is a health price. I think this is this
Speaker 1: is going to be different. I think that until we
Speaker 1: have UH and the ability through a vaccine or you know,
Speaker 1: even better a cure um to to give people confidence
Speaker 1: in their personal safety and the safety of their families,
Speaker 1: people are going to, you know, regardless of how latent
Speaker 1: the virus becomes. And you know, we we flattened that curve,
Speaker 1: I think people are still going to have a concern
Speaker 1: about going out into social environments and and being in
Speaker 1: close proximity to people that they don't know, and and
Speaker 1: and people that could potentially present a risk to them,
Speaker 1: and that you know, that's a sad thing. Um. You know.
Speaker 1: I hope that we can get past that, but I
Speaker 1: do think that until there's there's a way to give
Speaker 1: them confidence, we're going to see that. And so I
Speaker 1: think the dynamic that's in place right now, that's happening
Speaker 1: right now where people are ordering almost everything um through
Speaker 1: digital channels and it's showing up at their door and
Speaker 1: and they are consuming either goods or services or food
Speaker 1: at home, I think that's gonna that's gonna permeate for
Speaker 1: a while. I think there's gonna be a tale on this,
Speaker 1: regardless of whether or not states open back up or
Speaker 1: countries open back up and and um, you know, I
Speaker 1: hope that we can get past that because I love
Speaker 1: the fact that we've got a great entrepreneurial dynamic in
Speaker 1: the food service industry and we've got a lot of
Speaker 1: people depending on um customers coming back to their restaurants
Speaker 1: in their dining rooms, and so I hope that we
Speaker 1: get past that as quickly as possible. But you know,
Speaker 1: as long as people are are continuing to rely on
Speaker 1: delivery and show and staying home more often, will be
Speaker 1: there to help about That's my discussion with Papa John
Speaker 1: CEO Rob Lynch, really talking about the business, how it's changed.
Speaker 1: They had just a surge in delivery activity in April,
Speaker 1: not surprisingly, but it's up the strongest month in the
Speaker 1: company's history. So they're you know, they're hiring more workers,
Speaker 1: more delivery folks to kind of meet the demand. But
Speaker 1: really interesting to see how the changing dynamics in the
Speaker 1: food services business is benefiting certain companies, particularly the ones
Speaker 1: that really are focused on delivery, like like Papa John.
Speaker 1: So it was a great interview. Yeah, it was really
Speaker 1: to hear him talk about his business and trying to
Speaker 1: balance the growth of the business was trying to protect
Speaker 1: the workers as well. It's hard to put into perspective
Speaker 1: data that really defies historical precedent, and that is the
Speaker 1: position that we are charged with at this point, looking
Speaker 1: at report after report that shows millions of Americans losing
Speaker 1: their jobs in record speed. This morning we got more
Speaker 1: initial jobless claims, another three point one seven million individ
Speaker 1: jules filed for claims. The question is how quickly will
Speaker 1: this recover, how much damage and for how long will
Speaker 1: this make its mark on the economy? Joining us now
Speaker 1: Danielle D. Martino Booth, chief executive officer and director of
Speaker 1: Intelligence at Quill Intelligence, also former advisor at the Dallas Fed,
Speaker 1: a Bloomberg opinion columnist, and the author of the book
Speaker 1: fed Up at Insiders take on why the Federal Reserve
Speaker 1: is bad for America. Danielle, I would love your sense
Speaker 1: right now as we watch a demolition of more than
Speaker 1: a decade of job creation in less than two months,
Speaker 1: do you get a sense of how quickly these jobs
Speaker 1: can be brought back on? Well, you know it's interesting, Um,
Speaker 1: we look, we look on the outside of the country
Speaker 1: in in this episode, I think to figure out what's
Speaker 1: going to happen in the future. And you know what,
Speaker 1: whether we want to dispute the data on the virus
Speaker 1: coming out of China is one thing. But the lowness
Speaker 1: with which the supply chain is coming back online and
Speaker 1: the reticence on the part of consumers, bearing in mind
Speaker 1: China is six consumption, it's kind of I think it's
Speaker 1: a misconception that that China is this um manufacturing state.
Speaker 1: It's not a consumptions versus our two thirds consumption um.
Speaker 1: But the reticence that consumers are showing, I think should
Speaker 1: teach us something about potentially what's going to happen with
Speaker 1: our own consumers here in the United States. That's going
Speaker 1: to determine whether or not we have a second wave,
Speaker 1: a first derivative, if you will, of of of layoffs
Speaker 1: in this country, not directly in leisure and hospitality and
Speaker 1: in restaurants and in things that were impacted singularly by COVID,
Speaker 1: but more so because of demand destruction and companies feeling
Speaker 1: that they have to cut costs um some of those
Speaker 1: high skilled workers that nobody wanted to let go up.
Speaker 1: We used to talk about skill shortages three months ago. UM,
Speaker 1: so I think that's what it's going to come down to,
Speaker 1: is whether or not there's a sense of demand us
Speaker 1: struction that allows for this next wave of layoffs white
Speaker 1: collar workers, higher income to come through. So I'm literally
Speaker 1: combing through warre notices on a state by state basis
Speaker 1: every day. So, Danielle, that kind of goes to kind
Speaker 1: of kind of economic forecasting here we've seen just in
Speaker 1: the last week or so, um Morgan Stanley Goldman sashes
Speaker 1: kind of suggesting of, you know, kind of we're experiencing
Speaker 1: a bottom in the economy, and there even though they're
Speaker 1: both forecasting kind of dire dire GDP numbers in the
Speaker 1: second quarter, they're both looking for a pretty solid rebound
Speaker 1: in the third and fourth quarter. Is that something that
Speaker 1: might be a little prematurity think, you know, I really
Speaker 1: think that it is premature, And I'm not saying that
Speaker 1: they could be right. We could have this you and
Speaker 1: I think at this point you're talking about a you.
Speaker 1: You're just talking about you that you would see in
Speaker 1: the regular alphabet as opposed to a long drawn out you. Um.
Speaker 1: We we could see that it's feasible that we've a
Speaker 1: lot of demand come back online in the third and
Speaker 1: the fourth quarter, but I think a lot of it's
Speaker 1: going to depend on people's attitude. I mean, I'm I'm
Speaker 1: in Dallas, Texas, are our stay at home has been lifted.
Speaker 1: I know that that there are people that are frequenting
Speaker 1: restaurants and going about their business and not wearing masks
Speaker 1: and uh. And then there are people like me who
Speaker 1: are still sheltering in place by choice. So I think
Speaker 1: it's going to depend on how consumers react and whether
Speaker 1: or not their incomes are sustained. I'll be looking really
Speaker 1: closely at hours worked tomorrow as well. Danielle. There's a
Speaker 1: question about whether this time is different than previous episodes
Speaker 1: of mass job losses simply because of how big the
Speaker 1: safety net is. Because the United States has been sending
Speaker 1: checks too American households with previous incomes below a certain amount,
Speaker 1: and given the unemployment benefits that have been boosted, and
Speaker 1: this has led some to predict that demand destruction won't
Speaker 1: be as deep as people are predicting. Basically, people will
Speaker 1: have money in their pockets to go and spend when
Speaker 1: the social distancing restrictions are lifted. How much do you
Speaker 1: buy into that argument, Well, I think that's you know,
Speaker 1: there have been some great stories about UM owners of
Speaker 1: small businesses who have received PPP loans and gotten severe
Speaker 1: backlash from their employees because their employees are like, no, no no, no,
Speaker 1: no no, we want those unemployment we we we we
Speaker 1: we want to be on unemployment insurance. We're going to
Speaker 1: make more money with that extra six dollars a week. UM.
Speaker 1: So there's something to be said about people wanting to
Speaker 1: stay on the sidelines because they're going to be drawing
Speaker 1: a higher income. We saw when the first round of
Speaker 1: stimulus checks went out that there was a spike in
Speaker 1: in TV sales, in in in wide screen TV scale.
Speaker 1: I mean, it's it's a fact of life that Americans
Speaker 1: like to consume. If they have the means with which
Speaker 1: to do this, Uh, that's great. That what I'm focused
Speaker 1: on more is is whether or not they're going to
Speaker 1: be able to go up the assumption ladder, if they're
Speaker 1: going to sustain their lifestyles, or whether or not we're
Speaker 1: going to be able to bring airbnb S work force
Speaker 1: back online, and we're going to be able to bring
Speaker 1: Uber's force workforce back online again, especially Silicon Valley. To
Speaker 1: see these big employers relent, I think it's unique and
Speaker 1: we should be following that closely. Danielle de Martino Booth,
Speaker 1: thank you so much for being with us. Danielle de
Speaker 1: Martino Booth, the chief executive officer and director of Intelligence
Speaker 1: at Quill Intelligence, former advisor at the Dallas Fed in
Speaker 1: a Bloomberg opinion columnist, really important right now to understand
Speaker 1: the scope of job losses. We had UH deal cash
Speaker 1: Kari speaking this morning and talking about how devastating the
Speaker 1: job losses are going to be, saying, I'll take a
Speaker 1: long time for the economy to recover, saying the number
Speaker 1: tomorrow will probably be around sixteen or seventeen percent with
Speaker 1: respect to the unemployment rate, but he said, I think
Speaker 1: the real numbers probably around twenty three or twenty four percent.
Speaker 1: It's devastating, and really the question is how quickly can
Speaker 1: you get those people back into the labor force. You know,
Speaker 1: we talk about the economic impacts, uh, you know, resonating
Speaker 1: from the global pandemic. We talked about some of the
Speaker 1: big public companies that have been certainly reporting over this
Speaker 1: past earning season, but you think about it, it's really
Speaker 1: the small and mid sized businesses that are really being impacted,
Speaker 1: UH directly, and they have less of a cushion to
Speaker 1: get a sense of how the small and midsized market,
Speaker 1: the middle market, if you will, is performing. We really
Speaker 1: fortunately speak with Randy Swimmer. He's a founder and head
Speaker 1: of origination in capital markets at Churchill Asset Management, which
Speaker 1: is UH an affiliate of Novin. He's also the publisher
Speaker 1: of the Lead Left UM. So we're really happy to
Speaker 1: have Randy with us. So, Randy, give us a sense here.
Speaker 1: I know you guys spend a lot of time working
Speaker 1: with kind of middle market types of companies, and i'd
Speaker 1: love to get a sense of kind of we're you know,
Speaker 1: we're six seven, eight weeks into this pandemic, the economic impact,
Speaker 1: the job lost, the loss of demand. What are you
Speaker 1: seeing in your portfolio of companies? Yeah, I'm Paula and Lisa.
Speaker 1: Thanks for having me back. It's been a wild sixty days. Uh.
Speaker 1: You're absolutely right, and we'd love to roll the clock back,
Speaker 1: but look, all we can do is move forward. UM.
Speaker 1: What we're seeing generally is that I think that the
Speaker 1: portfolio companies and there's no better way actually of judging
Speaker 1: the impact on these companies. Been looking at not only
Speaker 1: our portfolio companies, but those across the middle market and
Speaker 1: direct lenders who who serviced those businesses, and you can
Speaker 1: kind of divide them into three groups. The first group
Speaker 1: is sort of the front line businesses. Those are the
Speaker 1: travel and retail, leisure, restaurants and so forth that have
Speaker 1: been most directly hit and those, as we've seen UM
Speaker 1: are are pretty much shut for business in many cases. UM.
Speaker 1: You can just walk through your neighborhoods and see that
Speaker 1: the restaurants are uh, you know, deliver only or pick
Speaker 1: up only, and so their businesses way down. The next
Speaker 1: would be services businesses that supplied those frontline businesses and
Speaker 1: their impacted perhaps less so UM. And then we have
Speaker 1: businesses that seem to be you know, uh, fairly intact.
Speaker 1: They tend to be in the service sector areas UM
Speaker 1: that that we focus on more defensive businesses in UM I,
Speaker 1: for example, keeping the back offices going while we're all
Speaker 1: working at home UM and those businesses seem to be
Speaker 1: doing pretty well. And that's pretty much the kinds of
Speaker 1: companies that we've been financing over the last ten years,
Speaker 1: ten twelve years, so UM. But in general, UH, it's
Speaker 1: it's pretty significant, and you've seen that reflected in UH
Speaker 1: the unemployment numbers that's just come out. Randy. We've had
Speaker 1: a lot of conversations about the dry powder that's been raised,
Speaker 1: or some of the UH funds that have been raised
Speaker 1: over the past few years to invest in small and
Speaker 1: midsized companies. We've talked also about some excessive risk taking.
Speaker 1: But I'm wondering at this point what would it take
Speaker 1: for private debt managers to unleash that dry capital into
Speaker 1: a market that's desperate for it, especially as we see
Speaker 1: that about fifty of US small businesses surveyed by the
Speaker 1: Human Resource Management Society think that they're going to be
Speaker 1: out of business in six months if the shutdowns continue. Right,
Speaker 1: So you've identified clearly the need, and now the question
Speaker 1: for those of us who are on the front line
Speaker 1: of financing is what are what can we expect in
Speaker 1: terms of the next three to six months in terms
Speaker 1: of performance of those businesses. Now, there's some of those
Speaker 1: UH for example, that we know, like restaurants and fitness
Speaker 1: centers that have been completely shoved down. It seems like
Speaker 1: we are starting nationwide UH to see signs of those
Speaker 1: ins of businesses state by states opening up with definite
Speaker 1: limitations UH. And so it's not all opening up at
Speaker 1: once and you're not seeing all the customers flooding back.
Speaker 1: There's going to be social distancing. It's going to be
Speaker 1: a slow open rather than a quick one. Um. And
Speaker 1: so what's what finance folks like ourselves are looking at
Speaker 1: is try to get some conviction around where revenues it
Speaker 1: could be, because if you're going to extend credit to
Speaker 1: these businesses, you want to have a fair sense of
Speaker 1: when they are going to be opened up, when they're
Speaker 1: going to start generating revenues, when they're going to generate
Speaker 1: cash flows, and what level are we going to be seeing.
Speaker 1: For example, the restaurant business, is that going to be
Speaker 1: back up to where it was? We don't think. So
Speaker 1: that's not a business sector that we we financed. But
Speaker 1: I think for those who do you know, are we
Speaker 1: going to seet of what we had in January? Is
Speaker 1: so those numbers are very hard to tell. The other
Speaker 1: thing that's going on is even the sectors like health care,
Speaker 1: which you know we do a lot of some of
Speaker 1: the physician focused practices, and you probably have seen this
Speaker 1: in your daily lives. You can't just walk into your
Speaker 1: doctor's officer an appointment. You have to do. There's telemedicine,
Speaker 1: you can do a lot by phone. So what's the
Speaker 1: impact of those businesses. They're clearly going to be coming back,
Speaker 1: just as Jim's are gonna be coming back some restaurants.
Speaker 1: But to answer your question, there are going to be
Speaker 1: some businesses that, um, it's gonna be very hard to
Speaker 1: get conviction over how they're going to be doing. But
Speaker 1: once that starts to happen, and once we start to
Speaker 1: see America going back to work and we get since
Speaker 1: that these companies are coming back, then you can model
Speaker 1: uh performance on those companies and actually figure out whether
Speaker 1: or not they're going to pay your mom's back too short.
Speaker 1: Randy Swimmer, thank you so much for being with us.
Speaker 1: We'll have to have you back to discuss this as
Speaker 1: time goes on and we get a clear sense of
Speaker 1: some of those future revenue of flows as you were
Speaker 1: talking about. Randy Swimmer, founder and a head of origination
Speaker 1: and capital markets at Churchill Asset Management and affiliate of
Speaker 1: New Vine, also so publisher of the Lead Left. If
Speaker 1: you don't receive it, you should. It is a great
Speaker 1: compilation of all things having to do with the middle
Speaker 1: market lending space. Uh the absolute authority when it comes
Speaker 1: to that. Well, the discussion here is it relates to
Speaker 1: the pandemic seems to be switching over or migrating and
Speaker 1: revolving over to when the US economy can open up,
Speaker 1: how should we open up? And a lot of that
Speaker 1: is predicated upon the virus itself and as our second wave,
Speaker 1: and and so on and so forth, and those are
Speaker 1: relying upon a lot of models from healthcare, from scientists.
Speaker 1: The real sense, though, is a lot of uncertainty. Barry
Speaker 1: rid Holts Bloomberg opinion columnists and host of Masters in
Speaker 1: Business on Bloomberg. Rady is also the chairman and chief
Speaker 1: investment officer Ridholts Wealth Management. He joins us on the
Speaker 1: phone here, Barry, So, Barry, thanks so much for joining us.
Speaker 1: But as we think about this reopening, we're really kind
Speaker 1: of flying blind army because we've never experienced this before.
Speaker 1: To say the very least, the closest thing we had
Speaker 1: was the pandemic um just about a century ago, the
Speaker 1: so called Spanish flu, and the technology, the medical technology
Speaker 1: that existed then was so different than today. They had
Speaker 1: a lockdown and you could see in the history books
Speaker 1: the cities and states that followed the lockdown suffered a
Speaker 1: much less substantial second wave. And so we're gonna run
Speaker 1: another rerun experiment that was done a century ago to
Speaker 1: see which states um really get hit by a second wave,
Speaker 1: which states flattened the curve, and which don't it. It's
Speaker 1: unfortunately going to be a experiment with real life consequences. Barry,
Speaker 1: you recently wrote a column about how models can never
Speaker 1: get things quite right. And when I talked to economists,
Speaker 1: we've spoken with a number of thinkers and investors who
Speaker 1: basically say, we're flying blind. We don't know what to expect.
Speaker 1: And yet by X, y and z, how can people
Speaker 1: be investing with any conviction right now based on the
Speaker 1: level of unknowables right now out there. So that's a
Speaker 1: deeply philosophical question. And I'll try and you can count
Speaker 1: on me, Perry any time, all right, I'll let me
Speaker 1: let me walk out on you a bit. So we
Speaker 1: use models constantly. You use models all the time. And
Speaker 1: the underlying premise of all these mathematical depictions of the
Speaker 1: world are simply that, hey, the future is likely to
Speaker 1: look very similar to the past, and as long as
Speaker 1: there aren't any radical changes going forward, we can rely
Speaker 1: on our models. Uh, some models, And I use the
Speaker 1: example of Netflix. Hey, when when Netflix uses its model
Speaker 1: to say, based on your viewing habits against what's the
Speaker 1: rest of our hundred and sixty seven million subscribers, like
Speaker 1: we're going to predict you're gonna like this. If that
Speaker 1: model goes wrong, well who cares? You wasted ninety minutes.
Speaker 1: But in other circumstances, when things that have never happened
Speaker 1: before happened, the models just effectively lose their mind and
Speaker 1: you end up with things like negative oil prices or hey,
Speaker 1: tomorrow is the BLS BLS um Employment Situation Report. There
Speaker 1: has never been a period in history where thirty million
Speaker 1: people filed first time unemployment claims in a month. So
Speaker 1: whatever comes out of that BLS model I suspect is
Speaker 1: going to be not exactly precisely depicting reality, because that's
Speaker 1: the sort of input that breaks models. Alright, So barry
Speaker 1: the models. Okay, limited applicability here in this these unprecedented times.
Speaker 1: So our investors just simply supposed to just kind of
Speaker 1: look past this quarter's earnings, look past the second quarter
Speaker 1: GDP number, look past the unemployment data, and just kind
Speaker 1: of focus on put a multiple amount. There are lots
Speaker 1: of variables, the biggest being how soon do we have
Speaker 1: a treatment and beyond that, how soon do we have
Speaker 1: a vaccine if you live with a high risk person,
Speaker 1: an older person, someone with immunosuppression, or any other co morbidities. Um,
Speaker 1: And there is a treatment that comes out, and we're
Speaker 1: starting to see lots and lots of promising research. Well,
Speaker 1: as soon as that comes out, this is pretty much
Speaker 1: behind us, or or the process of putting this behind
Speaker 1: us really ramps really ramps up. And there was just
Speaker 1: a piece in the Washington Post yesterday about the antibodies
Speaker 1: found in Lama blood seemed to be smaller than human
Speaker 1: antibodies and effectively stopping the virus. So who knows what
Speaker 1: what will finally be the magic bullet Once that happens,
Speaker 1: we could start looking at two and philosophically, to to
Speaker 1: go back to Lisa's question, the uncertainty issue is always
Speaker 1: a misnomer because the future is always uncertain, and during
Speaker 1: normal times we do a nice job of lying to
Speaker 1: ourselves that we think we have some visibility, we think
Speaker 1: we know, um, what the future holds. Go back and
Speaker 1: look at any of the corporate guides from any year
Speaker 1: over the past one. They are always wrong. They are
Speaker 1: always incrementally readjusting as they get closer and closer to
Speaker 1: that date. It's just when a period like this happens,
Speaker 1: we find it harder to liar to ourselves and we
Speaker 1: have to admit we have no idea what the future
Speaker 1: looks like. All right, Barry Barry rit Holds, founder of
Speaker 1: rit Holt's Wealth Management. We've moved from the philosophical, let's
Speaker 1: go to the practical, and when we see right now
Speaker 1: is clearly a profound shift or perhaps an acceleration in
Speaker 1: the trend away from old business, the old economy. It's
Speaker 1: the new economy, which is much more reliant to online activity.
Speaker 1: I'm just wondering how you're advising your clients to invest
Speaker 1: around that, given the fact that that's being priced in
Speaker 1: in spades right now. So we don't think that these
Speaker 1: sort of external events should cause people to fully um
Speaker 1: rejigger their portfolio. You should have a financial plan. It
Speaker 1: should assume a certain amount of risk and a certain target,
Speaker 1: and you want to stay with that. If you look
Speaker 1: at the changes in valuation between the US and and overseas,
Speaker 1: all right, if you've been very overexposed to overseas and
Speaker 1: you want to throw all that back, you can do that.
Speaker 1: If you've been under exposed to the growth sector, to technology,
Speaker 1: you can make a change in that direction. I don't
Speaker 1: see any sort of inflation on the horizon, but a
Speaker 1: number of people have been making that claim. And just
Speaker 1: as a little bit of an insurance policy, if you
Speaker 1: want to buy the Treasury inflation protected securities, the tip
Speaker 1: spawns uh that that certainly could make sense to a portfolio.
Speaker 1: I think we're more likely to see deflation than inflation.
Speaker 1: But hey, you know you don't complain every year when
Speaker 1: your house doesn't burn down and you already paid for
Speaker 1: fire insurance. So those are the sort of things a
Speaker 1: little trimming you could do around your portfolio. But think
Speaker 1: back to events like September eleventh or the eighty seven crash.
Speaker 1: Those aren't the sort of things that weren't a wholesale
Speaker 1: um redo of a portfolio. They should just make you think, hey,
Speaker 1: am I properly positioned for when we get past this
Speaker 1: externality And and a lot of people are discovering that
Speaker 1: they weren't properly positioned heading into it, and this is
Speaker 1: as good a time as any to Readjust Hey Verry,
Speaker 1: thanks so much for joining us as always. Barry ridd Holts,
Speaker 1: Bloomberg Opinion columnists and host of Masters in Business on
Speaker 1: Bloomberg Radio. Also founder, chairman and chief investment Officer Rid
Speaker 1: Holts Wealth Management, joining us on the phone. Thanks for
Speaker 1: listening to the Bloomberg P and L podcast. You can
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. Paul Sweeney, I'm on Twitter at
Speaker 1: pt Sweeney. I'm Lisa abram Woyit's I'm on Twitter at
Speaker 1: Lisa abram woits one before the podcast. You can always
Speaker 1: catch us worldwide. I'm Bloomberg Radio.