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Energy M&A, Bitcoin ETFs, and Hertz · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller.
• 0:05
  Speaker 2: Every business day we bring you interviews from CEOs, market pros,
• 0:09
  Speaker 2: and Bloomberg experts, along with essential market moven news.
• 0:14
  Speaker 3: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
• 0:17
  Speaker 3: you listen to podcasts, and at Bloomberg dot com Slash podcast.
• 0:21
  Speaker 3: Another deal in the energy space, this time Chesapeake Energy.
• 0:25
  Speaker 3: I'm going to buy Southwestern Energy for seven point four
• 0:28
  Speaker 3: billion dollars in an all stock deal.
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  Speaker 1: So I mean crazy, which means we get the opportunity
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  Speaker 1: to speak to our good friend Vince Piazza, senior industry
• 0:36
  Speaker 1: analysts covering all the energy space for Bloomberg Intelligence. Of course,
• 0:40
  Speaker 1: the highlight of his career, former sportscaster, talk show host
• 0:43
  Speaker 1: at the famed WFUV radio station at Fordham University, which
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  Speaker 1: has launched so many legendary broadcasting careers, particularly in the
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  Speaker 1: sports biz. Vince, we'll talk radio at another time. Let's
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  Speaker 1: talk about this deal here. What's going on in your business?
• 0:57
  Speaker 4: Here?
• 0:58
  Speaker 1: It is the consolidation is fast and furious, isn't it?
• 1:02
  Speaker 4: It really is?
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  Speaker 5: And we talked about this in our outlook for twenty
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  Speaker 5: twenty four, the consolidation continues. You know, we have reached
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  Speaker 5: a maturity phase in this industry. We had the shakeout
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  Speaker 5: and now you have established players looking for increased scale
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  Speaker 5: and concentration. You're selling a commodity, there's little differentiation. The
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  Speaker 5: only way you can differentiate is by having more of
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  Speaker 5: it so that you can gain efficiencies, economies of scale,
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  Speaker 5: better productivity. And this is a prime example, Paul. Right,
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  Speaker 5: So you have two very large players getting together to
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  Speaker 5: form the third largest natural gas producer behind Chevron and Exxon.
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  Speaker 5: So this is a globally relevant producer that will have
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  Speaker 5: access via its exposure to the Hainesville shale, to Gulf
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  Speaker 5: Coast markets, Seaborn markets, and being able to push those
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  Speaker 5: flows out there in the international marketplace, which allows for
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  Speaker 5: greater diversification of selling hubs. You know, they're going to
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  Speaker 5: be exposed roughly twenty twenty five percent to that Seaborn market.
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  Speaker 5: They're going to have various selling hubs that they can
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  Speaker 5: push product through something like over two dozen. So the
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  Speaker 5: deal makes sense on paper. What I don't think most
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  Speaker 5: folks are really focusing on, and I invite you all
• 2:31
  Speaker 5: to touch base with the Jennifer Reesho's our anti trust specialist.
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  Speaker 5: This deal will get lots of scrutiny. I think a
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  Speaker 5: deal like EQT buying up Quantum assets for about four
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  Speaker 5: and a half billion, that deal took about a year
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  Speaker 5: to close. So this is a much larger deal. It's
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  Speaker 5: much more concentrated in two very important specific plays, and
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  Speaker 5: so I think that's going to get a lot more scrutiny.
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  Speaker 5: So this isn't a done deal, but on paper, it
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  Speaker 5: is a very rational approach to a commoditized marketplace.
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  Speaker 6: Yeah, you read my mind, Vince, because I was going
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  Speaker 6: to ask you what does FTC think on these you know,
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  Speaker 6: large large gas and oil deals. I got to talk
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  Speaker 6: about this whole trend of consolidation. Are we going to
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  Speaker 6: see this continue into twenty twenty four? I mean, is
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  Speaker 6: this going to be a big part of all these
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  Speaker 6: companies gaining scale.
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  Speaker 5: Yeah. As part of our outlook, we looked at gas
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  Speaker 5: in general relative to oil, and we have we have
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  Speaker 5: had all of these deals in the Permian, but gas
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  Speaker 5: deals have been rather quiet in twenty twenty three, and
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  Speaker 5: that's because of the way the benchmarks performed in twenty
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  Speaker 5: twenty three. We think that that gas the worst is
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  Speaker 5: the worst is passed that gas, we could see better
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  Speaker 5: improvement in tighter markets for twenty twenty four. We think
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  Speaker 5: the market tightness will show itself in the second half,
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  Speaker 5: so we think we will have more consolidation in a
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  Speaker 5: natural gas space. This will likely set things off. How
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  Speaker 5: EQT responds, which was the largest producer, still is the
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  Speaker 5: largest producer until this deal closes. How they respond will
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  Speaker 5: be very important. And Taro and CNX have been relatively
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  Speaker 5: absent from the M and A game. How they respond
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  Speaker 5: will be very important as well. So it will likely
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  Speaker 5: set off a mini way of decisions that many of
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  Speaker 5: these operators will have to make in order to gain
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  Speaker 5: that scale. The scale and concentration is very important when
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  Speaker 5: you're selling a commoditized asset.
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  Speaker 1: So Vince, I see the stock of Chesapeake Energy is
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  Speaker 1: actually up about six percent. You don't often or always
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  Speaker 1: see that when you Acquier makes a deal here because
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  Speaker 1: there might be some delution concerns. Why do you think
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  Speaker 1: this stock is up here? Is just a good good
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  Speaker 1: valuation aside from the strategic side to it.
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  Speaker 5: I think it's exclusively about the strategic rationale behind the deal.
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  Speaker 5: And when you think about the twenty twenty five strip,
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  Speaker 5: things should look better for natural gas, natural gas market,
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  Speaker 5: natural gas sentiment in general. So I think it's a
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  Speaker 5: vote of confidence about the deal, and I think it's
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  Speaker 5: a voted confidence for nat gas going forward. You want
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  Speaker 5: to have more assets in concentrated hands and more solid hands.
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  Speaker 1: How fragmented vince Er does this natural gas and still
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  Speaker 1: remain Are there private players out there that can be
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  Speaker 1: rolled up? Or are we looking at a handful of
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  Speaker 1: public companies that just have to figure out who's going
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  Speaker 1: to go with who?
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  Speaker 5: Yeah, So if you think about where Chesapeake came from
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  Speaker 5: and where Southwestern came from, even EQT, you saw public
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  Speaker 5: buying private as the pe firms monetize their legacy investments
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  Speaker 5: to regenerate that capital. What we're going to see now,
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  Speaker 5: I think is still a good amount of public buying private.
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  Speaker 5: But I think now we're going to see public on
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  Speaker 5: public mergers, mergers of equals, low premium consolidation as well,
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  Speaker 5: because I think the next step is investors still want
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  Speaker 5: to see free cash flow. They want to see the
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  Speaker 5: return of excess cash. We had all this investment in
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  Speaker 5: the space during shale one point zero, where a lot
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  Speaker 5: of capital was sunk in the ground to prove up
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  Speaker 5: the assets. We now have these assets proved up. It
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  Speaker 5: is a manufacturing process now, and now we've hit the
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  Speaker 5: point of maturity where there's not a lot of growth capital.
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  Speaker 5: So it's really sucking out that excess cash, growing at
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  Speaker 5: a more modest space, controlling your expenses because you have
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  Speaker 5: that scale, because you have that concentration, and generating that
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  Speaker 5: free cash flow that right now in general is in
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  Speaker 5: the high to high a single digits to low team
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  Speaker 5: for the industry, and giving back that capital to the
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  Speaker 5: investor base. That is not really an issue, and a
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  Speaker 5: lot of the maturities have been pushed out, so leverage
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  Speaker 5: isn't merely a concern.
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  Speaker 6: Haven's before you go, I have to ask APA's kal
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  Speaker 6: on purchase.
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  Speaker 1: I read j aricle.
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  Speaker 6: You said, it's not all it's cracked.
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  Speaker 1: Up to be.
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  Speaker 5: Yeah. So it's interesting because usually when you consolidate, and
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  Speaker 5: you consolidate for scale, you are buying up near acreage
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  Speaker 5: or near assets. In this case, the assets seem to
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  Speaker 5: be somewhat diffuse from where APA is historically located. So
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  Speaker 5: I think this that deal was done to generate cash flow.
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  Speaker 5: As a cash flow bridge for APA to get past
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  Speaker 5: this period of uncertainty when their longer term, their longer
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  Speaker 5: cycle assets come online.
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  Speaker 1: Evin's always going to talk to you. That's a deal
• 8:00
  Speaker 1: flow in your space. We appreciate you giving us some
• 8:02
  Speaker 1: time here as we try to piece it all together.
• 8:04
  Speaker 1: Vince Piazza, he's a senior energy analyst at Bloomberg Intelligence.
• 8:09
  Speaker 1: Another deal in the natural gas space, the shale space.
• 8:13
  Speaker 1: So we stay on top of it. The good analysts,
• 8:15
  Speaker 1: the research channels go and keep on top of it
• 8:17
  Speaker 1: as well.
• 8:19
  Speaker 4: You're listening to the team.
• 8:20
  Speaker 7: Ken's our live program, Bloomberg Markets weekdays at ten am
• 8:24
  Speaker 7: Eastern on Bloomberg dot com, the iHeartRadio app and the
• 8:27
  Speaker 7: Bloomberg Business app, or listen on demand wherever you get
• 8:30
  Speaker 7: your podcasts.
• 8:33
  Speaker 1: James Safer joins us here and this is the guy
• 8:36
  Speaker 1: to speak to. He, along with Eric baltunis at Bloomberg Intelligence,
• 8:40
  Speaker 1: the leading research on ETF's period for as long as
• 8:45
  Speaker 1: we've been doing this at Bloomberg Intelligence, these are the
• 8:47
  Speaker 1: folks that really are on top of it, and they've
• 8:49
  Speaker 1: been on top of this Bitcoin ETF because it's such
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  Speaker 1: a big deal in the world of ETFs. James, thanks
• 8:54
  Speaker 1: so much for joining us. I know you're super busy
• 8:56
  Speaker 1: here today. When we have eleven new bitcoin ETFs hit
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  Speaker 1: the market, I don't know what to look at. Which
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  Speaker 1: one should I look at? Which ones are important? What
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  Speaker 1: are you guys looking at?
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  Speaker 8: So I'm looking at all of them, Okay, I want
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  Speaker 8: to see how all of them are doing. The thing
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  Speaker 8: is everyone's going to try to figure out what happened
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  Speaker 8: with flows right problem is we don't know what's happening
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  Speaker 8: with flows right now. I'm sure there's some trading desks
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  Speaker 8: and the authorized participants in the banks, that these brokerages,
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  Speaker 8: they know what's happening with flows, but we won't see
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  Speaker 8: it till after market clothes today that said, what we
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  Speaker 8: can watch is volume, and that's what I'm watching. We're
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  Speaker 8: right around two billion dollars already and traded in all
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  Speaker 8: eleven of these ETFs. It's being led by GBDC from Grayscale,
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  Speaker 8: and then I BIT from black Rock, and then you
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  Speaker 8: have Fidelity and ARC are following suit. Now I think
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  Speaker 8: there's no what like I said, there's no way to
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  Speaker 8: know which way the flows are going in this volume.
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  Speaker 8: It's significant, this is a huge launch, but I have
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  Speaker 8: my guesses.
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  Speaker 1: And the guess is we'll pay for the guests.
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  Speaker 8: Yeah. Yeah, I'm fairly confident that this money. GBDC, they
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  Speaker 8: are trading with the tightest spread too. That's something else
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  Speaker 8: I'm watching, trying to see who's trading the tightest on
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  Speaker 8: that bidass spread. GBDC is trading very tight, So we're
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  Speaker 8: most of these other ones, there's no there's no one
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  Speaker 8: really trading out of line. But I think GVTC is
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  Speaker 8: seeing significant outflows. I've called for GVTC to see outflows
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  Speaker 8: in my research because they left their fee at one
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  Speaker 8: point five percent. All these other guys are at zero,
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  Speaker 8: So there's significant capital in there. Might be locked up
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  Speaker 8: with cap gains, but there's a lot of it that's
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  Speaker 8: going to be leaving because they don't want to be
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  Speaker 8: paying that fee anymore.
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  Speaker 6: So how much money are these eleven likely to generate?
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  Speaker 8: How much money generate is in flows or it generates
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  Speaker 8: in revenue?
• 10:22
  Speaker 4: Yeah?
• 10:23
  Speaker 1: Coming in, I mean like we don't. Yeah, Like, are
• 10:26
  Speaker 1: they gonna all go out there and start buying bitcoin
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  Speaker 1: kind of thing?
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  Speaker 9: Yeah, I mean.
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  Speaker 8: That's exactly what's happening, right, They are going to be
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  Speaker 8: They're gonna be buying bitcoin. This money that's coming in.
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  Speaker 8: It's the question is figuring out how much of it
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  Speaker 8: is new money buying bitcoin versus shifting around like we're
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  Speaker 8: seeing likely right now with greyscale, money's pouring out. As
• 10:40
  Speaker 8: far as how much money's being made, most the only
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  Speaker 8: one making real money right now is greys Scale, who's
• 10:45
  Speaker 8: are charging I fee, but they're seeing money pour out
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  Speaker 8: everyone else for the most part, most of them are
• 10:48
  Speaker 8: offering zero fee waivers, so it's literally free to hold
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  Speaker 8: these things for the next six months. So there everyone's
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  Speaker 8: doing everything they can to get assets for the long
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  Speaker 8: term play to keep those assets and then earn fees
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  Speaker 8: on them. And even the fees of the long term
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  Speaker 8: they're really low. They're competitive with other ETFs in the
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  Speaker 8: US landscape.
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  Speaker 1: How big is this for I mean you guys, you
• 11:07
  Speaker 1: and Eric and your team, they have a team. I'm like,
• 11:09
  Speaker 1: we have to have a team for ETFs and they're like, yeah, yes,
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  Speaker 1: so we built a team.
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  Speaker 9: How big is this.
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  Speaker 1: Bitcoin thing in the overall scheme of kind of ETFs.
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  Speaker 8: So we we like to look at this and we
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  Speaker 8: like the media tends to cover like ninety five percent
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  Speaker 8: of what is in your Sorry, let me restart.
• 11:29
  Speaker 9: Yeah, the media tends to look at stuff.
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  Speaker 8: It's five percent of your portfolio, but the media spends
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  Speaker 8: ninety five percent of it.
• 11:34
  Speaker 9: And that's what's happening here with bitcoin, right.
• 11:35
  Speaker 8: Like we think these bitcoin ETFs could get to something
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  Speaker 8: like one to two percent of overall ETF assets four
• 11:40
  Speaker 8: or five years from now crypto ETFs in general. But
• 11:43
  Speaker 8: that's it. That said, this is really interesting, it is fascinating.
• 11:46
  Speaker 8: There's politics at play, there's a lot of money at play.
• 11:49
  Speaker 8: There's a lot of big names at play. I mean
• 11:50
  Speaker 8: I just mentioned black Rock my shares in Vesco.
• 11:53
  Speaker 1: Well, like one of the things that we've been talking about,
• 11:55
  Speaker 1: like gold, how many gold atfs are there?
• 11:58
  Speaker 9: I mean gold is gold is gold?
• 12:00
  Speaker 1: How he differentiate one ETF versus another? So how many
• 12:02
  Speaker 1: goldietfs are there? I don't know the exact number of
• 12:05
  Speaker 1: the top of my head. It's somewhere around eight or nine, okay,
• 12:07
  Speaker 1: so you'd be surprised.
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  Speaker 9: And a lot of them.
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  Speaker 8: So State Street is the main one they offer GLD,
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  Speaker 8: but Blackrock also one has one IAU and each of
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  Speaker 8: those have a sibling that charges a quarter of what
• 12:16
  Speaker 8: the other one charges. So GLDM mini shares and IAU
• 12:20
  Speaker 8: M also mini shares essentially, and they just undercut themselves
• 12:23
  Speaker 8: because they have enough liquidity in the other products. And
• 12:25
  Speaker 8: then they offer this cheaper portfolio diversifire that people can
• 12:28
  Speaker 8: use and only charge like ten bases points to hold it.
• 12:31
  Speaker 6: My mind is blown, right, So the SEC approval, this
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  Speaker 6: is not the SEC giving that, you know, stamp of
• 12:39
  Speaker 6: approval to bitcoin.
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  Speaker 1: Correct?
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  Speaker 4: Yes?
• 12:41
  Speaker 9: Correct?
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  Speaker 8: I mean if you read the letters from some of
• 12:43
  Speaker 8: the Democratic Commissioners yesterday after they approved this thing, and
• 12:47
  Speaker 8: Chairman Gary Gensler he kind of approved this thing tongue
• 12:49
  Speaker 8: in cheeks that the courts were forcing us. But at
• 12:51
  Speaker 8: the end of the day, what they were saying is true.
• 12:53
  Speaker 8: It's the reason why we've been saying the SEC shouldn't
• 12:56
  Speaker 8: have been denying the Bitcoin ETFs in the most recent
• 12:58
  Speaker 8: denials because the SEC is not a merit regulator. Their
• 13:01
  Speaker 8: job is not to say whether an investment has merit.
• 13:03
  Speaker 8: Their job is to make sure that the proper disclosures
• 13:05
  Speaker 8: are made and let investors decide whether it has merits.
• 13:08
  Speaker 8: So they aren't supposed to be the ones dictating whether
• 13:10
  Speaker 8: there's value here. Let the end investors choose, which is
• 13:13
  Speaker 8: what's happening here and why I think it's right that
• 13:15
  Speaker 8: these things are now trading.
• 13:16
  Speaker 1: So just to be clear, because Rich Truman, my intrepid producer,
• 13:20
  Speaker 1: pointed out earlier, what did Gary Ginstler do from a
• 13:23
  Speaker 1: vote perspective that Gary Ginster the chairman of the SEC.
• 13:26
  Speaker 1: Did he vote for this against us? Did he vote
• 13:28
  Speaker 1: for it with like a big asterisk next to it
• 13:31
  Speaker 1: or what happened?
• 13:32
  Speaker 8: Yeah, I guess the way to think about it what
• 13:33
  Speaker 8: he's voted with an asterisk. So the way that the
• 13:35
  Speaker 8: SEC is set up is it's by a five member commission, right,
• 13:38
  Speaker 8: so typically it's two Democrats, two Republicans and a chairman
• 13:41
  Speaker 8: and the person who appoints the chairman as the president.
• 13:44
  Speaker 8: So typically, right now, it's run by the Democrats. Okay,
• 13:47
  Speaker 8: so what happened here is the two Democrats dissented on
• 13:50
  Speaker 8: this decision, the two Republicans agreed with it, and Gary
• 13:52
  Speaker 8: Gensler was the deciding vote that got this pushed through.
• 13:55
  Speaker 9: I think it was all a political move.
• 13:57
  Speaker 8: The Democrats didn't want to have to do this, They
• 13:58
  Speaker 8: didn't really have much of a choice as far as unconcerned,
• 14:00
  Speaker 8: so by Gary being the siding vote saying yeah, I
• 14:03
  Speaker 8: know we have to do this based in the courts
• 14:04
  Speaker 8: and these other things, but we really don't like it.
• 14:06
  Speaker 9: We didn't want to do it.
• 14:07
  Speaker 1: I hate to get into politics when we're talking money,
• 14:09
  Speaker 1: which is my preferred thing to talk about. But why
• 14:11
  Speaker 1: would the Democrats not want this?
• 14:14
  Speaker 5: Yeah?
• 14:14
  Speaker 8: They, I mean Elizabeth Warren specifically is since she's raising
• 14:17
  Speaker 8: an anti crypto army, she hates that.
• 14:19
  Speaker 9: She hates the cryptocrowd. I mean, I understand some of it.
• 14:21
  Speaker 8: There's been a lot of fraud, a lot of manipulation,
• 14:23
  Speaker 8: a lot of bad okay bad at space, So I
• 14:26
  Speaker 8: get why they don't like it, but that's not the
• 14:28
  Speaker 8: entire space. And like I said, the SEC shouldn't be
• 14:30
  Speaker 8: a merit regular that they shouldn't be deciding whether there's
• 14:32
  Speaker 8: merit and an investment. They should worry.
• 14:34
  Speaker 1: The SEC was also saying we regulate securities and we
• 14:37
  Speaker 1: don't think this is a security right. It's also one
• 14:40
  Speaker 1: of their arguments.
• 14:41
  Speaker 8: Correct, but we have I mean, gold is not a
• 14:42
  Speaker 8: security either, it's a commodity. So bitcoin technically is going
• 14:45
  Speaker 8: to be regulated, is regulard by the CFTC. But still
• 14:48
  Speaker 8: the bitcoin ETFs are regulated by the SEC because ETFs
• 14:51
  Speaker 8: are securities.
• 14:51
  Speaker 9: Which brings me to another point.
• 14:53
  Speaker 8: One of the reasons why these are so important is
• 14:54
  Speaker 8: many of these institutions they can't hold anything but securities
• 14:57
  Speaker 8: or bonds, what have you.
• 14:59
  Speaker 9: This puts them in rapper.
• 15:00
  Speaker 8: That now institutions, advisors and more people can can play
• 15:03
  Speaker 8: with bitpoint, they can't touch the underlying stuff for the
• 15:05
  Speaker 8: most part.
• 15:05
  Speaker 1: All right, So you and Eric are gonna come out
• 15:07
  Speaker 1: with some research tonight after the close that I have
• 15:11
  Speaker 1: what what are you guys like really tracking what's going
• 15:14
  Speaker 1: to be? I don't know what what's your call here?
• 15:17
  Speaker 1: We're ten forty eight am. It's just been a good
• 15:19
  Speaker 1: day for DTF biz and crypto.
• 15:21
  Speaker 9: It's been an obscenely good day.
• 15:22
  Speaker 8: I mean, we're probably I mean I haven't been at
• 15:24
  Speaker 8: my desk for a while looking at the volumes, but
• 15:25
  Speaker 8: I'm guessing we're over two billion in trading volume at
• 15:27
  Speaker 8: this point. I mean, that is a monster day. That's
• 15:30
  Speaker 8: not something you really.
• 15:31
  Speaker 1: That's a monster day for an ETF launch kind of
• 15:33
  Speaker 1: how you're phrasing it.
• 15:34
  Speaker 8: Yes, exactly, it even still like for a brand new ETF.
• 15:38
  Speaker 8: It's it's exceptionally well. I mean, even if you take
• 15:40
  Speaker 8: GBTC out which is trust that was trading over the
• 15:42
  Speaker 8: counter is now a ETF. These are still having very
• 15:45
  Speaker 8: big trading days. Like even if these things were only
• 15:48
  Speaker 8: trading this number two billion for the entire day after
• 15:51
  Speaker 8: we take out Gradescale, I would say that's a successful day.
• 15:54
  Speaker 8: I said, if they get over over a billion, over
• 15:56
  Speaker 8: two billion, I think that's a pretty successful day.
• 15:58
  Speaker 9: We're only uh, we're only an hour and change into
• 16:01
  Speaker 9: this day, so all.
• 16:02
  Speaker 1: Right, see how it goes. All right, we'll follow your
• 16:04
  Speaker 1: research folks, big on the terminal for terminal users, get
• 16:07
  Speaker 1: the research all on the EETF business James Seifert ETF
• 16:11
  Speaker 1: research channels for Bloomberg Intelligence. Thanks for taking the time,
• 16:13
  Speaker 1: but coming into our studio again. Some big ones I'm following, Grayscale,
• 16:17
  Speaker 1: Bitcoin Trust, GBTC, the I shares one ib it. That's
• 16:22
  Speaker 1: what I'm looking at.
• 16:23
  Speaker 5: This is Bloomberg.
• 16:24
  Speaker 7: You're listening to the tape catch are live program Bloomberg
• 16:27
  Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 16:31
  Speaker 7: tune in app, Bloomberg dot com.
• 16:33
  Speaker 4: And the Bloomberg Business app.
• 16:34
  Speaker 7: You can also listen live on Amazon Alexa from our
• 16:37
  Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
• 16:43
  Speaker 1: Let's talk about this market here. We're just talking with
• 16:45
  Speaker 1: Jess mettin there, but let's think about kind of where
• 16:48
  Speaker 1: we go in twenty twenty four after that stellar you know,
• 16:50
  Speaker 1: ten eleven week run there. At the end of twenty
• 16:52
  Speaker 1: twenty three, we got a professional in the Bloomberg Interactive
• 16:54
  Speaker 1: Broker studio. Joe Mazzoli's a managing director of trader Education
• 16:58
  Speaker 1: at Charles Schwab. Joe, again, that last finish we had
• 17:03
  Speaker 1: there in twenty twenty three, I haven't seen anything. I've
• 17:04
  Speaker 1: been doing this a long time. I haven't seen anything
• 17:06
  Speaker 1: like that in a while. What did you guys at
• 17:08
  Speaker 1: Schwab make of that performance? You're so both in the
• 17:11
  Speaker 1: equity markets and in the fixed income market.
• 17:14
  Speaker 4: You know, for me, there's one word rotation.
• 17:16
  Speaker 10: I think that that was a big change from what
• 17:21
  Speaker 10: we saw basically all at twenty twenty three. When you
• 17:23
  Speaker 10: think about the fact that in March of twenty twenty
• 17:26
  Speaker 10: three yet you know, the financial meltdown if you will,
• 17:29
  Speaker 10: that's when megacap just really caught a bit right. Everybody said,
• 17:33
  Speaker 10: we want to move into companies that have high free
• 17:35
  Speaker 10: cash flow. We feel a little bit more comfortable with that.
• 17:39
  Speaker 10: I mean people are looking at these megacaps as almost
• 17:41
  Speaker 10: like a I don't want to say a hedge, but
• 17:42
  Speaker 10: maybe a safe haven. And then as you get towards
• 17:45
  Speaker 10: the end of the year, what happens. You get a
• 17:48
  Speaker 10: dubbish fed if you will, you get CPI that's come
• 17:51
  Speaker 10: down quite a bit, and then people say, hey, we
• 17:53
  Speaker 10: can feel more comfortable rolling back into maybe some of
• 17:57
  Speaker 10: the sectors that hadn't performed as well. And that's exactly
• 18:00
  Speaker 10: what we saw from our clients.
• 18:01
  Speaker 6: Now, new Year, new things that you guys are launching.
• 18:04
  Speaker 6: I want to get into that Schwab Trading Activity index.
• 18:07
  Speaker 6: So what exactly does this offer?
• 18:09
  Speaker 1: What data comes out for December?
• 18:12
  Speaker 10: Yeah, it's a it's a cool name, stacks Y, right,
• 18:14
  Speaker 10: people remember that one, stacks.
• 18:15
  Speaker 4: I like that one.
• 18:17
  Speaker 10: Basically, stacks is it's a behavioral index, right. So we're
• 18:21
  Speaker 10: looking at kind of what our clients are doing. They're
• 18:24
  Speaker 10: trading activity in their accounts. So what's interesting is we
• 18:27
  Speaker 10: use like a you know, we have millions of clients, right,
• 18:29
  Speaker 10: so we look at a sample size and we say
• 18:31
  Speaker 10: where are the net buys versus what are the nets cells?
• 18:34
  Speaker 10: And we use that to come up with a medium
• 18:36
  Speaker 10: a median excuse me, sample, and that gives us a number,
• 18:39
  Speaker 10: generates a number. So right now, for December, we generated
• 18:42
  Speaker 10: number forty four and a half and the range traditionally
• 18:46
  Speaker 10: is around thirty to seventy thirty five to seventy, so
• 18:49
  Speaker 10: it's actually a moderately low end, but it is a
• 18:52
  Speaker 10: step up from what we saw in November. And interestingly enough,
• 18:55
  Speaker 10: you know, you might have thought that given the strength
• 18:58
  Speaker 10: that we saw in December, that would be higher. But
• 19:01
  Speaker 10: I think when you look at the equities that were
• 19:03
  Speaker 10: bought and that were sold, it makes it makes it different.
• 19:06
  Speaker 10: So we had net buyer, excuse me, we had net buyers,
• 19:09
  Speaker 10: but the equities that were bought were Pfizer, Ali Baba
• 19:13
  Speaker 10: really okay video and the ones that were sold, you know,
• 19:16
  Speaker 10: these were the ones that were a little bit that
• 19:17
  Speaker 10: had already moved up your apples, your metas you know
• 19:21
  Speaker 10: these are, and even Tesla.
• 19:24
  Speaker 4: So there was a rotation.
• 19:25
  Speaker 10: And like I said, the rotation that we saw within
• 19:28
  Speaker 10: our clients kind of mimicked what you saw in the
• 19:30
  Speaker 10: overall market.
• 19:31
  Speaker 1: So what are you telling your clients these days? I mean,
• 19:35
  Speaker 1: you know, Tom King has a nice expression.
• 19:37
  Speaker 9: The courage to be in the markets.
• 19:38
  Speaker 1: You know, what do you see from your retail clients?
• 19:40
  Speaker 1: Are they in the market? You feel like they're fully
• 19:43
  Speaker 1: invested their cash? I hear nothing I hear about is
• 19:45
  Speaker 1: there's six train dollars of cash on the sidelines. What
• 19:48
  Speaker 1: do you see at your place?
• 19:50
  Speaker 10: Is now you know we had you know, the old saying,
• 19:52
  Speaker 10: right time in the market versus timing the market.
• 19:54
  Speaker 4: Yep.
• 19:54
  Speaker 10: That's hard for me because I'm a trader, right and
• 19:56
  Speaker 10: for me, you know, I like to look at different indicators,
• 19:59
  Speaker 10: and that's kind of how I look at the stacks.
• 20:01
  Speaker 4: Right.
• 20:01
  Speaker 10: If you're if you're a short term trader or you know,
• 20:04
  Speaker 10: a day trader, stacks probably doesn't help you a lot
• 20:06
  Speaker 10: by looking at sentiment. But if you're an investor and
• 20:09
  Speaker 10: you think about, what are all the tools that I
• 20:11
  Speaker 10: have in my toolbox? Right, you got your fundamental analysis,
• 20:14
  Speaker 10: you got your technical analysis, Well now you have that
• 20:16
  Speaker 10: sentiment analysis that helps. So you know what we're what
• 20:20
  Speaker 10: we're telling clients right now is you know, be patient.
• 20:22
  Speaker 10: I think we expect some volatility throughout the year, and
• 20:25
  Speaker 10: I think a lot of that has to do with
• 20:27
  Speaker 10: the fact that you know, in the in the fixed
• 20:29
  Speaker 10: income market send five or six cuts. We don't see
• 20:33
  Speaker 10: that many. We see about three to four. So as
• 20:35
  Speaker 10: you get closer to that March date, what's going to
• 20:38
  Speaker 10: happen if it.
• 20:39
  Speaker 4: Doesn't look like the Fed's going to cut.
• 20:40
  Speaker 10: Does that start to creep volatility back into the fixed
• 20:44
  Speaker 10: income market, which you saw last year in turn, you know,
• 20:47
  Speaker 10: created equity volatility as well.
• 20:49
  Speaker 6: Joe, I got to touch on CPI on that came ount.
• 20:52
  Speaker 6: Do you think from the from the figures that came
• 20:54
  Speaker 6: out from it, I mean, is that showing that it's
• 20:56
  Speaker 6: going to take a little bit longer for these rate.
• 20:58
  Speaker 9: Cuts to happen.
• 20:59
  Speaker 10: Yeah, well, I mean, in my opinion, think about it
• 21:02
  Speaker 10: this way. I don't think anybody ever thought that it
• 21:04
  Speaker 10: was going to be a straight lined, down right straight
• 21:06
  Speaker 10: line down to two percent.
• 21:07
  Speaker 4: It's a bumpy road, but we've.
• 21:09
  Speaker 10: Made a lot of progress, I think instead of you know,
• 21:11
  Speaker 10: we're not talking deflation, we're talking disinflation. But it's gonna
• 21:15
  Speaker 10: take some time. I noticed that on the FED watch tool,
• 21:18
  Speaker 10: you know, you went from about a sixty five percent
• 21:20
  Speaker 10: chance of a cut in March down to fifty nine
• 21:22
  Speaker 10: percent or sixty percent. They're still pricing in a lot
• 21:24
  Speaker 10: of cuts, and I just I just don't know if
• 21:27
  Speaker 10: you're gonna get that. Maybe you get that in March,
• 21:29
  Speaker 10: but I think that the Fed's probably gonna say, if
• 21:31
  Speaker 10: we make this cut in March, let's play wait and
• 21:33
  Speaker 10: see and let's see what happens from there.
• 21:35
  Speaker 1: So the story today, Joe for us here at Bloomberg
• 21:38
  Speaker 1: Radio and TV is the Bitcoin ETFs.
• 21:41
  Speaker 9: Yeah.
• 21:41
  Speaker 1: So as now there's eleven ETFs that if people want
• 21:44
  Speaker 1: to get exposure to. I'm going to call it this
• 21:46
  Speaker 1: asset class. I'm not sure what Gary Gensel would agree,
• 21:51
  Speaker 1: but and ETFs have been such a growth story. I mean,
• 21:53
  Speaker 1: nobody knows it better than the good folks at Schwab.
• 21:57
  Speaker 1: How does what are your clients? How do you think
• 21:59
  Speaker 1: they're going to react to this opportunity, this investment opportunity.
• 22:02
  Speaker 4: Yeah, I mean I think they'll be demand. I do.
• 22:04
  Speaker 10: I think they'll be demand for the ETF, especially when
• 22:06
  Speaker 10: you think about client accounts. Right, if you want to
• 22:09
  Speaker 10: trade futures, you have to have a certain level of
• 22:12
  Speaker 10: you know, we call it level three, right, that gives
• 22:14
  Speaker 10: you permission to trade futures. So if you have the
• 22:17
  Speaker 10: ability to do that through an ETF. It opens up
• 22:19
  Speaker 10: a lot more possibilities for IRA accounts, you know, for
• 22:21
  Speaker 10: clients who don't have margin trading ability, So I think
• 22:25
  Speaker 10: there will be demand there. What I also question is, also,
• 22:30
  Speaker 10: you know, where does bitcoin fit within an investment portfolio.
• 22:34
  Speaker 10: I think this idea that in twenty two and twenty
• 22:37
  Speaker 10: three it was meant to be, you know, a hedge,
• 22:40
  Speaker 10: or it was meant to be an alternative asset. I mean,
• 22:43
  Speaker 10: basically what it did was it became a levered asset
• 22:45
  Speaker 10: of the Nasdaq. Right, So I don't know exactly where
• 22:48
  Speaker 10: it fits, but you know, that's up to the clients
• 22:50
  Speaker 10: to decide.
• 22:51
  Speaker 6: So speaking of where things fit, I mean, so we
• 22:53
  Speaker 6: talk about CPI, we talk about bitcoin. We can't forget
• 22:55
  Speaker 6: jobless claims came out today lower than expected. So where
• 22:58
  Speaker 6: does the labor or get fit into the picture.
• 23:00
  Speaker 10: Well, it's interesting because even though you got a good
• 23:02
  Speaker 10: print on last Friday for non farm payrolls, even though
• 23:06
  Speaker 10: you got jobless claims below, look at the revisions. The
• 23:09
  Speaker 10: revisions are actually moving in the wrong direction. So I
• 23:12
  Speaker 10: think that's something to kind of keep an eye on.
• 23:14
  Speaker 10: You know, you can look at that headline flash number
• 23:16
  Speaker 10: and it and it paints a rosy picture. But when
• 23:19
  Speaker 10: you look at the revisions and when you look at
• 23:21
  Speaker 10: kind of the the the we don't look at just
• 23:23
  Speaker 10: that number. We look at the momentum, and we look
• 23:25
  Speaker 10: at you know, what's happening over the last six months
• 23:28
  Speaker 10: or so. You're starting to see the jolts. Numbers come down, right,
• 23:31
  Speaker 10: job openings are less uh even, and even though you're
• 23:34
  Speaker 10: getting jobless claims that are better than expected, it's still
• 23:37
  Speaker 10: moving in a different direction. One thing I would keep
• 23:40
  Speaker 10: an eye on. I'd absolutely watch this is the you know,
• 23:43
  Speaker 10: the low, the low tick that we saw in unemployment
• 23:45
  Speaker 10: with three point four percent. If it gets to three
• 23:48
  Speaker 10: point nine percent, when you get that, that that half
• 23:50
  Speaker 10: a percent move, that's that that that trough to peak
• 23:53
  Speaker 10: or peak to trough, whoever however you want to look
• 23:55
  Speaker 10: at it, that's an indicator that maybe things aren't as
• 23:58
  Speaker 10: rosy as we believe.
• 24:00
  Speaker 1: How about volatility? Real quick, I got the VIX here
• 24:02
  Speaker 1: at thirteen. Are you surprised by the low vall shot? Yeah?
• 24:05
  Speaker 10: I mean it's interesting because with everything that we've seen
• 24:10
  Speaker 10: in the market in twenty three and heading into twenty four,
• 24:14
  Speaker 10: I would think, you know, given tomorrow you know, being
• 24:17
  Speaker 10: kind of the big day for the bank earnings. Ye,
• 24:20
  Speaker 10: you would have seen a lot more hedging in some
• 24:23
  Speaker 10: of those names, or even in the XLF. Well, one
• 24:26
  Speaker 10: of the things that I'm looking at right now is
• 24:27
  Speaker 10: that XLF is trading at an implied volatility in like
• 24:29
  Speaker 10: the tenth percentile, meaning ninety percent of the time it
• 24:33
  Speaker 10: trades at a higher ball. There's just not a lot
• 24:35
  Speaker 10: of hedger stepping into the market. Could that have something
• 24:37
  Speaker 10: to do with the zero DTE options. It's a possibility.
• 24:40
  Speaker 1: Yeah. Interesting. All right, I got to ask you, Loan Tree, Colorado.
• 24:44
  Speaker 1: Are you based in loan.
• 24:45
  Speaker 10: Tree com Now I'm a Bay Area guy, you're a
• 24:47
  Speaker 10: Bay Area A Bay Area guy live in Danville, California.
• 24:50
  Speaker 1: Okay, because I looked at it's just on the bio.
• 24:52
  Speaker 1: Did they there's a schwab way in Loan Tree, Colorado?
• 24:55
  Speaker 4: There's a schwab way.
• 24:56
  Speaker 9: Yeah, so did they?
• 24:56
  Speaker 1: The SHWUB relocate some people from the Bay Area to
• 24:59
  Speaker 1: Denver area.
• 25:00
  Speaker 10: So there's a big group in Denver. There's a big
• 25:02
  Speaker 10: group down in Fort Worth. And you know, we still
• 25:05
  Speaker 10: have our office in San Francisco.
• 25:06
  Speaker 1: That how San Francisco these days.
• 25:09
  Speaker 4: San Francisco.
• 25:09
  Speaker 10: San Francisco, you know, you're just not getting a lot
• 25:11
  Speaker 10: of people come downtown anymore.
• 25:13
  Speaker 4: It's a little sad.
• 25:14
  Speaker 1: Yeah, I mean, just you know, when people still a
• 25:16
  Speaker 1: beautiful city and it's a great city. And I'm thinking,
• 25:18
  Speaker 1: at some point, man, it's gonna turn. I don't know
• 25:22
  Speaker 1: when that's gonna be, but I know there's a lot
• 25:24
  Speaker 1: of issues there. But I always tell my friends that
• 25:26
  Speaker 1: are coming in from overseas, you know, we're gonna come
• 25:28
  Speaker 1: in for with the family for four or five weeks
• 25:30
  Speaker 1: to see us. I say, Okay, you can go to
• 25:32
  Speaker 1: New York and go to Bigas, go to mi Own, whatever.
• 25:34
  Speaker 1: Have to go to San Francisco and have to go
• 25:36
  Speaker 1: to the Bay Area. Yeah, I still think that's a case.
• 25:38
  Speaker 1: But it's amazing what happened there. I mean, so the
• 25:41
  Speaker 1: commercial real estate, Like, we have issues here in New
• 25:43
  Speaker 1: York City, but there's a lot of other states. But
• 25:46
  Speaker 1: if you're in the Bay Area downtown, it's pretty dead.
• 25:50
  Speaker 10: Right, it's pretty dead. And it also depends upon what
• 25:52
  Speaker 10: time you go down there. Right, I'm working market hours.
• 25:54
  Speaker 10: I'm getting in at four thirty five in the morning.
• 25:57
  Speaker 10: It's a different site than maybe you know, seven or
• 25:59
  Speaker 10: eight when everybody else is getting in, so it looks
• 26:02
  Speaker 10: a little bit different. You know, I have hopes. I
• 26:04
  Speaker 10: have hopes for the Bay Area. You know, like I said,
• 26:06
  Speaker 10: I live out there. It's beautiful area. It's just it
• 26:09
  Speaker 10: it needs we need an influx of people. Promise people
• 26:12
  Speaker 10: are leaving California. Yeah, exactly.
• 26:14
  Speaker 1: Well you can dump a snow up in Tahoe, so
• 26:16
  Speaker 1: I'm sure you're hitting up there all right, jims Ohl,
• 26:18
  Speaker 1: thanks so much, thanks for joining. Sarah Jomzol is a
• 26:20
  Speaker 1: managing director of Trader Education at Charles Schwab. They've got
• 26:25
  Speaker 1: the Schwab Trading Activity Index stacks. It's launching this week
• 26:29
  Speaker 1: and Schwap clients can access it under stacks on the
• 26:32
  Speaker 1: Think or Swim platform.
• 26:34
  Speaker 5: How cool is that.
• 26:35
  Speaker 7: You're listening to the tape Canser live program Bloomberg Markets
• 26:39
  Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune
• 26:43
  Speaker 7: in app, Bloomberg dot Com, and.
• 26:44
  Speaker 4: The Bloomberg Business App.
• 26:46
  Speaker 7: You can also listen live on Amazon Alexa from our
• 26:48
  Speaker 7: flagship New York station, Just say Alexa, play Bloomberg eleven
• 26:52
  Speaker 7: thirty domin Equity.
• 26:55
  Speaker 1: So I'm very optimistic and I think the stock's always
• 26:57
  Speaker 1: going up in that kind of thing. But I make
• 26:59
  Speaker 1: a big exception to that with our next guest, Jody Lorii.
• 27:03
  Speaker 1: She's a credit analyso Bloomberg Intelligence. She writes great research,
• 27:06
  Speaker 1: good stuff, cool sector she covers, and we're glad to
• 27:09
  Speaker 1: get a few minutes of her time. Hey, Jody Hurts,
• 27:13
  Speaker 1: I did not see this coming. They say they're going
• 27:16
  Speaker 1: to sell twenty thousand evs in a shift back to
• 27:19
  Speaker 1: guess powered cars. What's going on there? What's it mean for.
• 27:22
  Speaker 4: The credit.
• 27:25
  Speaker 11: I'm so glad that you like me as an exception
• 27:27
  Speaker 11: to credit analysts. So, yeah, Hurts is a name speaking
• 27:33
  Speaker 11: of like dislike. I feel like Hurts is a name
• 27:35
  Speaker 11: that people either love or love to hate. And so
• 27:38
  Speaker 11: it really just depends on which side of the coin
• 27:39
  Speaker 11: you're on. That said, it's sort of an interesting scenario.
• 27:44
  Speaker 11: So you have a relatively new CEO who came in.
• 27:47
  Speaker 11: They take a big stance of we're gonna buy a
• 27:49
  Speaker 11: ton of electric vehicles to outfit our fleet. We're going
• 27:52
  Speaker 11: to invest in charging stations, we're going to make you know,
• 27:55
  Speaker 11: the rental car system work for EV and you know,
• 28:01
  Speaker 11: they had very aggressive sort of plans with that and
• 28:03
  Speaker 11: hummed along, and then third quarter happened and they said, well, actually,
• 28:07
  Speaker 11: the damage and collision related to EV isn't as efficient
• 28:12
  Speaker 11: as your traditional internal combustion engine cars. And so now
• 28:16
  Speaker 11: they're backpedaling and they're saying, all right, we're going to
• 28:18
  Speaker 11: sell off a third of our fleet, a global fleet.
• 28:21
  Speaker 11: They didn't necessarily say from where, but we're going to
• 28:23
  Speaker 11: sell it off over the next year, and we are
• 28:25
  Speaker 11: going to take that money and put a portion of
• 28:26
  Speaker 11: it into internal combustion engine. So it is a little
• 28:29
  Speaker 11: bit of a backtrack, kind of an interesting scenario, to
• 28:32
  Speaker 11: say the least, not necessarily something that gives as much
• 28:36
  Speaker 11: confidence from a bond perspective.
• 28:38
  Speaker 6: Now they're talking about because of elevated costs. That's a reasoning,
• 28:41
  Speaker 6: but dig into to some of those costs and what
• 28:44
  Speaker 6: are we talking about.
• 28:46
  Speaker 11: Sure, So they talked a little bit about it on
• 28:48
  Speaker 11: the third quarter call, and then they mentioned it a
• 28:51
  Speaker 11: little bit in their press release today that the damage
• 28:56
  Speaker 11: and collision is a little bit higher than they expected,
• 28:58
  Speaker 11: and so it's eating into and cash flows, and so
• 29:02
  Speaker 11: to benefit from the cash flow generation that they're seeing
• 29:06
  Speaker 11: because guess what, used car prices are still in general
• 29:09
  Speaker 11: relatively high as compared to what they were a few
• 29:11
  Speaker 11: years ago. They aren't getting that same value when it
• 29:15
  Speaker 11: comes to ev right, and I think part of that
• 29:18
  Speaker 11: speaks to the fact that the EV market is so
• 29:20
  Speaker 11: much younger. We don't really know how to model out
• 29:22
  Speaker 11: appreciation the same way that we do for cars that
• 29:24
  Speaker 11: have been around for fifty sixty years. And so I
• 29:27
  Speaker 11: think that's really what it comes down to, is that
• 29:29
  Speaker 11: they have this element of growing pains as a result
• 29:32
  Speaker 11: of the fact that it's still relatively new industry. They
• 29:34
  Speaker 11: took a bold stance related to it, and something that
• 29:37
  Speaker 11: we like to highlight. Both Hurts and Evis have been
• 29:40
  Speaker 11: doing this over the past few years, more a function
• 29:42
  Speaker 11: of their counterparties than necessarily them, but they've taken on
• 29:46
  Speaker 11: more of what you call risk vehicles as opposed to
• 29:49
  Speaker 11: program vehicles. What risk vehicles are is the companies go
• 29:53
  Speaker 11: and buy vehicles and take the risk of selling them
• 29:56
  Speaker 11: in the aftermarket, as compared to program vehicles, where they
• 30:00
  Speaker 11: work with a GM, a forward, you name it. They
• 30:03
  Speaker 11: buy a certain amount of vehicles and then they have
• 30:06
  Speaker 11: a commitment to basically put those vehicles back at a
• 30:10
  Speaker 11: declared price, and so you don't have that put element
• 30:13
  Speaker 11: as much for their fleet as they used to have.
• 30:17
  Speaker 11: We've seen that sort of a road over time for
• 30:19
  Speaker 11: both companies.
• 30:21
  Speaker 1: So what's the meaning for the credit here? I mean,
• 30:24
  Speaker 1: I'm looking at the FA function quite frankly, the data
• 30:26
  Speaker 1: is a little wacky. I'm not sure kind of give
• 30:28
  Speaker 1: us a sense of where the leverage is and kind of,
• 30:31
  Speaker 1: you know, kind of what the forecast is. What are
• 30:33
  Speaker 1: the credit folks think about hurts credit?
• 30:37
  Speaker 11: Sure, So leverage is actually relatively low if you look
• 30:40
  Speaker 11: at it as a company leverage or corporate leverage standpoint,
• 30:43
  Speaker 11: you have to when you look at these companies, it's
• 30:45
  Speaker 11: it's sort of complicated because they have their vehicles which
• 30:48
  Speaker 11: are financed with asset b X securities, right, and then
• 30:51
  Speaker 11: you have the corporate leverage which is financing other operations
• 30:55
  Speaker 11: and other elements of business. And so Hertz's leverage is
• 30:59
  Speaker 11: relatively low, much lower than it was historically. It's blow
• 31:02
  Speaker 11: two times, but it has been creeping up each quarter.
• 31:06
  Speaker 11: And so you know, they come out of bankruptcy, they
• 31:09
  Speaker 11: wipe the slate clean, they have a nice balance sheet,
• 31:11
  Speaker 11: and they taped the det markets. They started to give
• 31:15
  Speaker 11: back to shareholders and they did all this all the
• 31:18
  Speaker 11: while that the used car market was particularly good, and
• 31:21
  Speaker 11: they had all these tremendous tailwinds. Now, used car prices
• 31:24
  Speaker 11: have been going down, not two levels what they were
• 31:27
  Speaker 11: in twenty twenty or earlier, but they have been going down.
• 31:31
  Speaker 11: And those tailwinds that they benefited from in twenty twenty two,
• 31:35
  Speaker 11: where they have record EBITAH levels, it's sort of eroding
• 31:39
  Speaker 11: and so we don't necessarily see the top line activities.
• 31:44
  Speaker 11: So the revenue element, the consumer piece of rental cars
• 31:49
  Speaker 11: being negative. We actually see that as a relatively big
• 31:51
  Speaker 11: tailwind this year, particularly as there's more business travel at
• 31:56
  Speaker 11: the same time. It's the sort of functions related to
• 31:59
  Speaker 11: outfitting your fleet, getting rid of your fleet, rotating your fleet.
• 32:02
  Speaker 11: That's always the piece that that can bring some troubles.
• 32:06
  Speaker 6: Now, I want to take this to the Paul. You're
• 32:09
  Speaker 6: you're a travel guy in your jet setter, so I
• 32:11
  Speaker 6: want to take this to the lead your outlook for travel.
• 32:15
  Speaker 6: Have you ever done a cruisewall?
• 32:16
  Speaker 9: No, No, he's okay.
• 32:18
  Speaker 6: But apparently the rise in leading dire activity is helping
• 32:21
  Speaker 6: the cruise market. Is that is that correct?
• 32:25
  Speaker 11: That is very correct? That is spot on. So you know,
• 32:28
  Speaker 11: people like to joke rising tides lift all boats, but
• 32:31
  Speaker 11: here I would say it's true. You know, the cruise
• 32:34
  Speaker 11: lines are the names that I think there are a
• 32:36
  Speaker 11: lot of people who sort of wrote them off for
• 32:38
  Speaker 11: dead a few years ago. They've been this tremendous turnaround story,
• 32:41
  Speaker 11: repaying their debt load, bringing you know, improving their balance sheets,
• 32:45
  Speaker 11: focusing on credit quality and you know, ratings improvements, and
• 32:50
  Speaker 11: and they've been saying all the right things. They've been
• 32:52
  Speaker 11: trying to time the market as they can. Some have
• 32:55
  Speaker 11: been a little bit more successful than others in terms
• 32:57
  Speaker 11: of pricing. But that said, they're all committed to deleveraging
• 33:01
  Speaker 11: into this year, and we're seeing that booking rates are
• 33:03
  Speaker 11: also still pretty positive. Consumers are latching onto the narrative
• 33:07
  Speaker 11: around cruises, and so I think it's still there's still
• 33:11
  Speaker 11: a lot of momentum around the cruise industry, at least
• 33:14
  Speaker 11: going into this year.
• 33:15
  Speaker 1: Yeah, one of my clearest memories of the early days
• 33:17
  Speaker 1: of the pandemic was the cruise companies rushing out to
• 33:23
  Speaker 1: the corporate bond market, and because they knew probably better
• 33:26
  Speaker 1: than anybody that their business was going to be shut down,
• 33:29
  Speaker 1: they probably didn't know what, we'd shut down for this long,
• 33:31
  Speaker 1: but they needed the cash does to survive. So just
• 33:34
  Speaker 1: take for example, I'm looking at Royal Caribbean aid at
• 33:36
  Speaker 1: the end of nineteen eleven point seven billion dollars a
• 33:38
  Speaker 1: total debt. By the end of twenty twenty h was
• 33:40
  Speaker 1: twenty billion of total debts, almost double their debtload as
• 33:43
  Speaker 1: they kind of loaded up. Where's the leverage of this
• 33:46
  Speaker 1: cruise industry? Where is it now? Where are you guys
• 33:50
  Speaker 1: in the credit space kind of think it should.
• 33:52
  Speaker 11: Be right, So where it should be. It's always you know,
• 33:58
  Speaker 11: as a credit alland as you say, the lowest possible
• 34:00
  Speaker 11: you can do while while being a good level of
• 34:02
  Speaker 11: investment grade. So but that said, outside of that, I mean,
• 34:08
  Speaker 11: you know, if you look at a name like Royal
• 34:09
  Speaker 11: Caribbean or like a Carnival. So Carnival, they had their
• 34:12
  Speaker 11: peak debt level was about thirty five thirty six billion.
• 34:15
  Speaker 11: They've now brought it down to below thirty billion, and
• 34:18
  Speaker 11: so that's a tremendous you know, sort of cut into
• 34:23
  Speaker 11: their debt load. And so it's less of an issue
• 34:27
  Speaker 11: related to refinancing their debt to push out the maturities
• 34:29
  Speaker 11: more so actually bringing down the debtload because what they
• 34:32
  Speaker 11: have currently is not sustainable even with their large fleet.
• 34:36
  Speaker 11: That said, you know, I think management is looking to
• 34:40
  Speaker 11: get somewhere below three seventy five if I had to guess.
• 34:43
  Speaker 11: The only reason why I say that is because that's
• 34:45
  Speaker 11: where the raiders have guided historically what they need to
• 34:49
  Speaker 11: stay investment grade. Both Royal and Carnival have communicated that
• 34:53
  Speaker 11: they want to be investment grade Royal by twenty twenty five,
• 34:56
  Speaker 11: Carnival by twenty twenty six.
• 34:59
  Speaker 4: I think, you know, we've.
• 35:00
  Speaker 11: Modeled out all scenarios where they could make it there.
• 35:03
  Speaker 11: They could take a little longer to get there. I
• 35:04
  Speaker 11: think it's really dependent on a few things. Number one,
• 35:07
  Speaker 11: the fact that the consumer still has an apptite to
• 35:10
  Speaker 11: go on cruises. But more so, you know, geopolitical risks
• 35:14
  Speaker 11: different sort of ways that there can be a monkey
• 35:16
  Speaker 11: wrench in this whole process. And so provided they can
• 35:20
  Speaker 11: still sort of maneuver these regional issues such as Russia.
• 35:25
  Speaker 11: You know, Saint Petersburg was a big port, and then
• 35:28
  Speaker 11: you had Tel Aviv, which was a big port in Haifa,
• 35:30
  Speaker 11: and so they had to sort of design around those
• 35:34
  Speaker 11: situations and are constantly adjusting I mean they adjust for
• 35:39
  Speaker 11: weather all the time, but now they're adjusting for weather
• 35:41
  Speaker 11: and geopolitical risk.
• 35:43
  Speaker 1: Jody, always a pleasure to speak with you. Jody Lori
• 35:45
  Speaker 1: credit analysts of Bloomberg Intelligence. She follows to travel, the
• 35:48
  Speaker 1: leisure lodgeing, gaming restaurants from the fixed income perspective. She
• 35:52
  Speaker 1: knows those industries backwards and forward. So we love chatting
• 35:55
  Speaker 1: with her. And again, that news that kind of jumped
• 35:57
  Speaker 1: out at a lot of people this morning was Hurts
• 35:59
  Speaker 1: to sell one third of their EV fleet in a
• 36:02
  Speaker 1: shift back to Guess powered cards.
• 36:06
  Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
• 36:09
  Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
• 36:13
  Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 36:17
  Speaker 2: at Matt Miller nineteen seventy three.
• 36:19
  Speaker 1: And I'm Faul Sweeney. I'm on Twitter at pt Sweeney.
• 36:21
  Speaker 1: Before the podcast, you can always catch us worldwide at
• 36:24
  Speaker 1: Bloomberg Radio