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Boeing 737 Max Crisis Weighs on Deliveries · Bloomberg Intelligence

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Speaker 2: Looking at Boeing stocks, the three tenths of one percent,
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Speaker 2: but we've got a good better sense of kind of
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Speaker 2: their first quarter deliveries the lowest since mid twenty twenty one,
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Speaker 2: So not good althose you read into it. The company
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Speaker 2: delivered twenty seven aircraft in March, and that's a slight
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Speaker 2: improvement from the twenty seven delivered in January and February.
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Speaker 2: But again the combination and all the majority of these
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Speaker 2: things were the seven three seven Max jets. That's what
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Speaker 2: we mostly, I think most of us fly the States
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Speaker 2: at seven three seven Max. Well, I'm a Boeing person,
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Speaker 2: I mean I'm a United Cus are out of Newark,
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Speaker 2: and United flies the Boeing planes. And I report to
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Speaker 2: George every time I get on a plane to go anywhere.
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Speaker 2: I report to him what I'm the aircraft. I'm on
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Speaker 2: the quality of it, how full it is. So I
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Speaker 2: give him some of that primary research. George ferguson joints
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Speaker 2: as he covers the airlines the aerospace companies. Is the
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Speaker 2: first quarter here? Is this going to be the bottom
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Speaker 2: George for Boeing in terms of deliveries?
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Speaker 3: I think, yeah, for the year, I think this is
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Speaker 3: going to be the bottom. So I'd expect this was
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Speaker 3: the worst quarter. You know, the fa was in there
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Speaker 3: doing their review of Boeing's manufacturing. Boeing's got to come
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Speaker 3: up with for a plan for the FAA. Imagine that
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Speaker 3: takes some hands as well, and manufacturing probably isn't moving
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Speaker 3: very fast while they're in the middle of this process
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Speaker 3: of figuring out how to stabilize, you know, the production
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Speaker 3: of the airplanes. And so I think for the quarter
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Speaker 3: it'll be sorry. For the year, this will be the
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Speaker 3: worst quarter, and I would expect that things would get
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Speaker 3: better second, third, and fourth into.
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Speaker 1: The end of the year.
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Speaker 4: George, really nice to see you. We decided that we've
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Speaker 4: maybe met twice after.
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Speaker 5: All this time.
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Speaker 2: Well, see, there's a we have some research people in Princeton. Yeah,
2:06
Speaker 2: and they prefer the Princeton as opposed to coming to
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Speaker 2: the world's financial hub center of it all. Traffic for Princeton.
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Speaker 2: I get it. Yeah, that's how we do that.
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Speaker 4: There's a couple of ways to break it down, so
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Speaker 4: let's just take it maybe piece by piece. First of all,
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Speaker 4: supply chain stuff that like Boeing will be a part
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Speaker 4: of and Airbus will be a part of too, Like,
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Speaker 4: how are the supply chain impacting their deliveries?
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Speaker 3: Well, I mean, right now, I think the biggest problem
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Speaker 3: is up at Boeing and not in the supply chain.
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Speaker 5: So the supply chain stuff is fixed.
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Speaker 6: No, not at all.
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Speaker 3: So I meant for the number of deliveries we've seen
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Speaker 3: this quarter and the constriction in that number of deliveries,
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Speaker 3: this is all Boeing issue, right This is all Boeing's
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Speaker 3: FAA review, their manufacturing review. Their supply chain I think
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Speaker 3: is producing at a higher rate than they are right now.
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Speaker 3: So Spirit Aero Systems would be an important part of
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Speaker 3: their supply chain. They're building somewhere around thirty eight or
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Speaker 3: they were building around thirty eight seven thirty seven maxes
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Speaker 3: a month when we heard from them at the end
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Speaker 3: of the year, you know, for their four Q earnings call.
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Speaker 3: We understand from Spirit that their suppliers were even building
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Speaker 3: at higher rates than them in some cases, maybe even
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Speaker 3: up at sort of forty two numbers. And they're already
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Speaker 3: thinking about Spirit moving to a forty two number for
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Speaker 3: the Max. Again, we're talking Max, which is the highest
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Speaker 3: volume airplane. They were talking about Spirit moving to a
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Speaker 3: forty two number just prior to the Alaska you know,
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Speaker 3: door panel incident, and that's when everything sort of hit
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Speaker 3: the skids. But I think most of it hit the
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Speaker 3: skids up at Boeing, which has to do manage all
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Speaker 3: the FAA you know, inquiries and their manufacturing review.
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Speaker 2: All right, George. On Thursday, I am flying from Newark
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Speaker 2: to Durham, North Carolina on a Boeing seven thirty seven
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Speaker 2: Max eight plane. I will report into you. You can
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Speaker 2: express that primary research.
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Speaker 5: What's up your off Friday?
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Speaker 2: I'm off Friday?
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Speaker 1: Yep, yep.
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Speaker 5: I love you too, you know, bummer, So you could
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Speaker 5: care a loss? Not true at all?
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Speaker 2: Okay, George, If I guess from the company, I don't
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Speaker 2: want to go too fast. I think you know, I
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Speaker 2: can't have any more mishaps here. So it's almost like
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Speaker 2: if I'm an investor, I'm not sure I'm knocking on
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Speaker 2: the door saying, hey, you guys gotta get back to
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Speaker 2: back to thirty eight or forty kind of do it
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Speaker 2: when you can kind of thing.
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Speaker 6: Yeah, I mean, do it when you can.
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Speaker 3: But I mean in the long term interest of Boeing,
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Speaker 3: they have to increase build rates here and that's going
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Speaker 3: to drive better.
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Speaker 6: Cash flow and better products.
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Speaker 3: Okay, I mean, look, the competitor across the Atlantic, right
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Speaker 3: which has by the way, has you know, final assembly
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Speaker 3: facilities all around the world, including one in Mobile, Alabama.
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Speaker 2: Really Airbus has a thing in Mobile.
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Speaker 3: Absolutely, wow, absolutely, I don't know so, but their competitor
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Speaker 3: is operating up in the forty five range per month
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Speaker 3: for their A three twenty, the major competitor. If Boeing
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Speaker 3: wants to be in this business long term, they have
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Speaker 3: to stabilize production. You're right, but they've got to stabilize
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Speaker 3: it at much higher levels. Prior to the pandemic, they
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Speaker 3: were going close to sixty a month for the seven
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Speaker 3: thirty seven max.
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Speaker 6: It can be done.
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Speaker 3: Their job is to make sure it happens.
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Speaker 2: So what's the timeline here? When do you think, like
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Speaker 2: year end, where would you like to see them?
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Speaker 3: So year end, what we've modeled the Bloomberg intelligence is
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Speaker 3: we think Boeing will be building thirty eight seven thirty
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Speaker 3: sevens a month by four Q, which should have been
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Speaker 3: where they started this year out at thirty eight. We
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Speaker 3: think they were looking to break to forty two by
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Speaker 3: the end of the year.
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Speaker 2: So do we ever get back to the sixty? Should
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Speaker 2: they ever get back to the sixty?
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Speaker 3: Well, I mean, if you again, if you look at
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Speaker 3: their competitor, their competitor says they're shooting for seventy five
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Speaker 3: a month on the A three twenty. So if their
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Speaker 3: competitor is breaking to those kind of rates, when you
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Speaker 3: break to higher rates on your primary narrow body, you
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Speaker 3: have the opportunity to go out to your customers and
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Speaker 3: non customers, people that might be upset at Boeing and
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Speaker 3: sell more airplanes. Right So, right now, what we're seeing is,
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Speaker 3: you know, United has expressed an interest in A three twenty.
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Speaker 3: One's sort of constricted again. They've got you know, the
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Speaker 3: backlog is full. There's airlines that want all those deliveries
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Speaker 3: for the next number of years. We've seen Jet Blue
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Speaker 3: pop up and Spear airlines pop up and say, hey,
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Speaker 3: we might be willing to give up some of our
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Speaker 3: airplanes or we are willing to give up some of
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Speaker 3: our airplanes. We think that's a function of Airbus going
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Speaker 3: out to those customers saying, we have another potential customer
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Speaker 3: that would like a three twenty one's do you definitely
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Speaker 3: want everything you've got in the in the books for
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Speaker 3: the next couple of years.
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Speaker 4: How did we get this might be a very silly question,
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Speaker 4: but how did we get to the point where we
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Speaker 4: got two airplane makers?
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Speaker 5: And how does that make sense?
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Speaker 3: Well, I mean, for I mean, these are this is
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Speaker 3: not volume like automobiles, right, you sell right, I mean
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Speaker 3: a good year in this business is what a little
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Speaker 3: bit over a thousand airplanes a year?
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Speaker 6: Right, So it's not necessarily.
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Speaker 3: An industry that would support five or six manufacturers with
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Speaker 3: the right pricing and you know, in the right margins.
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Speaker 3: And then you've got to put money into R and
6:59
Speaker 3: D and development while you're you know, so you've got
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Speaker 3: to earn a decent return so you can invest for
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Speaker 3: the future.
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Speaker 6: We did have more right in the US.
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Speaker 3: We had Boeing, we had McDonald, Douglas, lockeed used to
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Speaker 3: build a commercial aircraft. But you know, I think over
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Speaker 3: time it's slimmed down to where you could make them profitable.
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Speaker 3: And at the same time, airbus was growing in Europe
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Speaker 3: because the Europeans wanted to be in this business. Right,
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Speaker 3: this is a is a good margin, you know, strong
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Speaker 3: manufacturing kind of industry which really supports great jobs. They
7:32
Speaker 3: were rising, and that meant some of the US manufacturers
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Speaker 3: had to go away to create room for a European competitor.
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Speaker 3: And what we have in the horizon someday, I think
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Speaker 3: it's probably five or six years away at least, is
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Speaker 3: the Chinese that want to be in the business. So
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Speaker 3: either the pie has to grow even maybe fifty percent larger.
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Speaker 6: Or someone's got a dwindle in that whole thing.
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Speaker 2: Right, interesting? All right, on's the next boondoggle slash air
7:59
Speaker 2: show that you.
7:59
Speaker 1: Go schedule to go to.
8:00
Speaker 5: Yeah, you go to some fun ones.
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Speaker 2: I mean, and they're not in Cleveland in December, they're not.
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Speaker 3: I just well, I just have to say, none of
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Speaker 3: these are boondogles. I work really hard, exhausted.
8:09
Speaker 6: When I come home.
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Speaker 2: All right, So what's the next one?
8:11
Speaker 6: Farnborough Airshow Farmborough.
8:13
Speaker 2: Air Show outside of London in July? What's the theme there?
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Speaker 2: I mean, if I'm boeing, can I even show my
8:19
Speaker 2: face there. I mean, what do I I can't sell stuff.
8:22
Speaker 2: I mean, even if I make an announcement I'm selling,
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Speaker 2: you know, two hundred planes to Emirates or something, I
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Speaker 2: don't I don't have the capacity to build them.
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Speaker 3: Yeah, so this year will be very interesting, right because
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Speaker 3: I think frankly, Airbus end Boeing don't have a lot
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Speaker 3: more capacity right now, so I would expect the show
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Speaker 3: would have a lot less sales.
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Speaker 6: It's a sales show, yeap. Although on the.
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Speaker 3: Wide body front, there's I think room to increase those
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Speaker 3: build rates, especially for the Boeing seven eighty seven and
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Speaker 3: the Airbus A three fifty.
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Speaker 2: There are they separate factories. Do I build my seven
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Speaker 2: thirty seven and my seven eighty seven in the same factory?
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Speaker 6: No, you build them a separate.
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Speaker 2: Factory, okay, So I okay, so I can ramp.
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Speaker 3: Yeah, And look, you know you have much lower volume
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Speaker 3: on seventy and seven builds at six a month, right,
9:03
Speaker 3: So going to nine a month, you're not asking your
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Speaker 3: suppliers to do a heck of a lot more, right,
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Speaker 3: They're going fifty percent higher, but on very low volume.
9:11
Speaker 3: But so both of those manufacturers would like to increase
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Speaker 3: the volume of those two airplanes, the three fifty and
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Speaker 3: seven eighty seven, because those would help them add to
9:20
Speaker 3: you know, better margin, better cash flow. At the rates
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Speaker 3: they're at now, their break even ish, they could get
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Speaker 3: them into the low or sorry, high single digits, low
9:29
Speaker 3: double digits. I think if they got them up to
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Speaker 3: ten or so, they're on the road to do that.
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Speaker 3: So I'd see this show being a wide body sales show.
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Speaker 4: Okay, so that's sort of the Boeing Airbus story. Before
9:39
Speaker 4: we let you go, how is general demand? Like we
9:43
Speaker 4: know from say Spirit it's not great, but that might
9:46
Speaker 4: be a spirit thing. But then you have the Delta
9:48
Speaker 4: United American. How are they doing?
9:50
Speaker 3: Oh, it's great, everything's great, it's great, but profitability isn't great.
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Speaker 6: So that means yea pricing might not be right.
9:58
Speaker 3: So you know, what we what we're seeing the TV's
10:01
Speaker 3: we're seeing is that it looks like premium demand.
10:04
Speaker 6: Is still pretty strong.
10:05
Speaker 3: Tom King, and that's gonna help Tom King's bereaving and
10:08
Speaker 3: that's gonna help, you know, the big three Delta United American.
10:12
Speaker 6: Right, but the back of the bus.
10:15
Speaker 3: If you will, right, the back of the cheap seats,
10:17
Speaker 3: those are those are in much more supply and much
10:22
Speaker 3: more competitive right now. And so if you're an airline
10:25
Speaker 3: that focuses just on economy, I think you're gonna have
10:29
Speaker 3: a harder time this earning season than you will for
10:32
Speaker 3: the Big three the Pats.
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Speaker 6: You're gonna take a lot of a lot of the
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Speaker 6: money away from the airlines this quarter.
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Speaker 3: Really, the airline business is looking to us like there's
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Speaker 3: a lot less business travel.
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Speaker 6: There's there's not a lot less.
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Speaker 3: There's ten or ten or twenty percent less business travel,
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Speaker 3: but it hurts because it's high, high price travel. So
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Speaker 3: it looks like the business may make even more of
10:53
Speaker 3: its profitability in two Q and three Q. We're not
10:56
Speaker 3: expecting great things in one Q from anybody, but again,
10:59
Speaker 3: the full server should do a little bit better. And
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Speaker 3: what we're all watching is is leisure summer demand going
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Speaker 3: to be so strong that it's going to drive profits
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Speaker 3: for the year, better profits for the year than they
11:11
Speaker 3: had last year. We feel like ticket prices might be softening.
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Speaker 3: We'll get our first glimpses as as airlines start to
11:19
Speaker 3: report and tell us what they're seeing for bookings.
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Speaker 2: Well, Alex and I have a major business trip for
11:24
Speaker 2: the month of June very it's gonna be very impactful.
11:27
Speaker 2: So we'll be doing our Uh did you get your tickets?
11:31
Speaker 5: I got to do that.
11:32
Speaker 1: Oh yeah, you got to do that.
11:33
Speaker 5: I TV. We're like book and stuff like three days before.
11:37
Speaker 4: I'm not like the long which is funny because I'm
11:39
Speaker 4: actually a long term planner.
11:41
Speaker 5: George, good to see you. Great to see for coming in.
11:44
Speaker 4: We'll probably drag you over here tomorrow to are you
11:46
Speaker 4: here tomorrow to.
11:49
Speaker 6: Go back to Princeton's.
11:52
Speaker 2: They have lunch, They have everything there exactly.
11:54
Speaker 5: We have un.
11:56
Speaker 2: Real lunch lunch stations.
11:59
Speaker 6: Proper all really.
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Speaker 4: Wants to go to Prince Boomberg Intelligence in your Aerospace,
12:03
Speaker 4: Defense and Airlines analyst George Ferguson and joining us now
12:06
Speaker 4: always a pleasure.
12:10
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12:29
Speaker 2: Okay, sorry, okay, pay attention French.
12:32
Speaker 4: They have lavendercent they have almonds. It's just anyway. My
12:35
Speaker 4: point being is that that's how we know it. It's
12:37
Speaker 4: the good hand cream place, and apparently it's billionaire owner
12:41
Speaker 4: is nearing a deal to take that skincare company private
12:44
Speaker 4: with funding help from Blackstone. And this is people familiar
12:48
Speaker 4: with the matter ending it's fourteen year run on the
12:50
Speaker 4: Hong Kong Stock Exchange.
12:52
Speaker 5: To be honest, I didn't even know. I didn't even
12:53
Speaker 5: know what traded.
12:54
Speaker 2: In Hong Kong. Not to die. I'm trying to look
12:56
Speaker 2: it up here. But it's working on you.
12:58
Speaker 5: He's working on it.
12:59
Speaker 4: He's gonna work on it, and we're going to talk
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Speaker 4: about it. Joining us now for more is David Havens,
13:03
Speaker 4: Bloomberg Intelligence, a senior credit analyst. He joins us, Okay,
13:07
Speaker 4: so do you use the hand cream?
13:10
Speaker 6: I use the soap?
13:11
Speaker 4: See soap, See soap if they give.
13:14
Speaker 7: It away at hotels.
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Speaker 1: Yes.
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Speaker 4: So is this Blackstone buying the company or is this
13:20
Speaker 4: Blackstone being kind of like a banker to the billionaire
13:23
Speaker 4: and helping them buy it out.
13:24
Speaker 6: It's the ladder.
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Speaker 7: So the way that the story reads us far is
13:27
Speaker 7: that the billionaire owner is going to take the company private,
13:31
Speaker 7: or is making efforts to take the company private Blackstone.
13:35
Speaker 7: I don't know if they will or won't. You know,
13:37
Speaker 7: it seems like the sort of thing that Blackstone might
13:39
Speaker 7: take a piece of the equity also for some of
13:42
Speaker 7: its funds, But I think the primary role that Blackstone
13:46
Speaker 7: will be playing here is providing the funding, the credit
13:49
Speaker 7: funding for the cash purchase.
13:51
Speaker 5: So what's it?
13:52
Speaker 2: Seems like Blackstone is everywhere these days, and granted they
13:55
Speaker 2: are literally everywhere. What are they doing in this marketplace?
13:59
Speaker 8: What is it?
14:00
Speaker 2: Kind of these deals here where they take a piece
14:02
Speaker 2: of the capital structure, whether it's equity or dead or
14:05
Speaker 2: they do just big deals themselves. What are they up
14:08
Speaker 2: to these days?
14:08
Speaker 7: Well, Blackstone is a trillion dollar alternative asset manager. It's
14:12
Speaker 7: the largest in the largest in the world. Or in
14:15
Speaker 7: the earlier segment, you talked about Blackstone's position in real estate.
14:18
Speaker 7: I believe they are the largest institutional investor in real
14:21
Speaker 7: estate with over three hundred billion of assets in their portfolio.
14:25
Speaker 7: They're gigantic in private equity, gigantic and private credit.
14:29
Speaker 6: They've got about.
14:30
Speaker 7: Two hundred billion dollars a dry powder that they need
14:33
Speaker 7: to put to work in order to earn fees on
14:35
Speaker 7: that money.
14:37
Speaker 2: So they've got a lot of deals. Oh yeah, I
14:40
Speaker 2: mean where is that number? Typically, I got to figure
14:42
Speaker 2: that two hundred million dollars with dry powders, probably more
14:45
Speaker 2: than they would like because they don't necessarily get paid
14:47
Speaker 2: on that lots just sitting there. They got to go
14:49
Speaker 2: out and spend it and then raise some more, which
14:51
Speaker 2: is where they get paid.
14:52
Speaker 7: Yeah, And just to put all that in context, I
14:55
Speaker 7: think that there's two to three trillion dollars a dry
14:57
Speaker 7: powder across the private multiverse, I guess we can call it.
15:03
Speaker 7: But they're going to be looking everywhere globally, and they've.
15:05
Speaker 6: Got global reach.
15:06
Speaker 7: You know, that is pretty much not many compared to
15:10
Speaker 7: their global reach. The few in the ballpark.
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Speaker 4: Maybe just going to the structure of the less of
15:15
Speaker 4: ten deal for a sec, is this unusual for Blackstone
15:19
Speaker 4: to provide the funding that like a bank would have
15:21
Speaker 4: normally done for the billionaire.
15:24
Speaker 7: It's more and more common than it used to be.
15:26
Speaker 7: And I think that you can pretty much go back
15:28
Speaker 7: to the financial crisis. You can go back to bank
15:32
Speaker 7: regulations being rewritten in the aftermath of the financial crisis,
15:36
Speaker 7: with riskway charges going up on corporate lending. So basically
15:41
Speaker 7: one of the upshots of Basle Threebouzel four dot Frank
15:46
Speaker 7: is that it's taken commercial banks, regional banks out of
15:49
Speaker 7: sort of the traditional business of lending to lending to corporations,
15:53
Speaker 7: particularly on a leverage basis, and so Blackstone KKR, the
15:58
Speaker 7: whole universe of the credit is able to step into
16:02
Speaker 7: that breach on favorable favorable funding costs without some of
16:07
Speaker 7: the regulatory overhang, and they're able to do pretty well
16:10
Speaker 7: right now.
16:12
Speaker 2: All right, folks, on the bio page, if you want
16:14
Speaker 2: to see at the bio of any guests we have,
16:16
Speaker 2: for example, you go bio in the name, and it's
16:19
Speaker 2: got career and education and all that kind of stuff.
16:21
Speaker 2: And it's also a little section there called memberships maybe
16:24
Speaker 2: where your you know, board of directors or something like that.
16:27
Speaker 2: If you're a member Council Foreign Relations, you would list
16:30
Speaker 2: it there, David havens under memberships includes Netflix and Sam's
16:35
Speaker 2: Wholesale Club.
16:37
Speaker 5: I love that you did that. That's awesome.
16:38
Speaker 2: That's a few other memberships too, right, that's very proud,
16:42
Speaker 2: very prestigious. Uhould be very very proud, David. I'm surprised
16:46
Speaker 2: we haven't seen more private equity back to IPOs. I mean,
16:49
Speaker 2: I got a market. It's up twenty five percent since October.
16:52
Speaker 2: Back when I was on the street, I could push
16:54
Speaker 2: out a gajillion deals with that kind of backdrop. Why
16:57
Speaker 2: are the private equity guys maybe not pushing Are they
17:00
Speaker 2: about down round valuations or because I got to think
17:03
Speaker 2: it's been a foul of a couple of years here
17:06
Speaker 2: for new deals, I would think they'd want to lock
17:08
Speaker 2: up or unlock some of these things.
17:09
Speaker 7: Yeah, No, I think absolutely, And I think that what's
17:12
Speaker 7: happened is you're going to see a lot more of
17:14
Speaker 7: these realizations as they're called, you know, taking place.
17:17
Speaker 6: But we're not.
17:18
Speaker 7: We're let's we're only about a year off from the
17:20
Speaker 7: regional banking crisis in the US and the failure of
17:23
Speaker 7: credit Swiss, you know, so we saw some pretty significant
17:26
Speaker 7: tectonic temblers in the world of banking, and that I
17:31
Speaker 7: think put things on pause for a period of time.
17:34
Speaker 7: But I think that we're pretty much coming out of it.
17:36
Speaker 7: And if you look at equity valuations, the markets are obviously,
17:38
Speaker 7: you know, doing extremely well. Might be concentrated in a
17:41
Speaker 7: few names, but the market's generally doing well. And if
17:43
Speaker 7: you look at the credit market, the high grade credit
17:46
Speaker 7: index in the US is eighty six basis points right now,
17:50
Speaker 7: maybe one to two percent of the time. Over the
17:52
Speaker 7: past twenty or thirty years, it's been under one hundred
17:54
Speaker 7: basis points. We're near record tights six basis points away
17:58
Speaker 7: since nineteen ninety nine. So markets I think are ready
18:01
Speaker 7: and receptive. So it's just a case of I think
18:03
Speaker 7: getting these things prepped and ready to sort of send
18:07
Speaker 7: out the door. And they may not be IPOs, they
18:09
Speaker 7: might be sales to other private investors.
18:11
Speaker 5: Right, secondaries.
18:12
Speaker 4: Right, I feel like I've read a lot about how
18:15
Speaker 4: that's huge now because the exit market has just not
18:17
Speaker 4: been around. Where do you think the issues and the
18:20
Speaker 4: cracks come in, whether you're looking at private equity or
18:22
Speaker 4: private credit. Because the narrative is like, look, it's ten
18:25
Speaker 4: year investments. Okay, it's a tough few years, but it's
18:28
Speaker 4: going to be okay because we got like seven five
18:30
Speaker 4: more years to make it up, et cetera. But everybody
18:32
Speaker 4: says that, but then everyone warns about it, and I'm
18:34
Speaker 4: trying to understand who's going to be left holding.
18:37
Speaker 5: The I don't know what are they holding? The bag,
18:39
Speaker 5: the empty bag, the non Sam's club bag.
18:42
Speaker 7: Right, So I think that a year ago there is
18:46
Speaker 7: an awful lot of concern that private credit would have
18:51
Speaker 7: serious problems. That hasn't occurred if you look at the
18:54
Speaker 7: default rates within business development company portfolios. So these are
18:59
Speaker 7: public private lenders that are part of the affiliated with
19:01
Speaker 7: the Blackstone KKR companies like that areas. If you look
19:05
Speaker 7: at their performance, they've had virtually no defaults, So things
19:10
Speaker 7: haven't fallen apart. I think that what you're seeing is
19:12
Speaker 7: that there's an awful lot of cash out there leftover
19:15
Speaker 7: from the leftover from the pandemic. When you talk about
19:20
Speaker 7: risks going forward, monetary tightening is having I guess a
19:25
Speaker 7: negative influence in that there's less money supply out there,
19:28
Speaker 7: but it's just not showing up in terms of the
19:31
Speaker 7: performance of the companies that have been lent.
19:33
Speaker 6: To thus far.
19:34
Speaker 2: What's the capital raising environment like for a lot of
19:38
Speaker 2: the funds you cover, both equity and for private credit.
19:41
Speaker 2: Can I go out there and just is it still
19:44
Speaker 2: I can go out there and pretty much raise any
19:45
Speaker 2: money if I'm a Blackstone or Apollo or KKR.
19:48
Speaker 7: Yeah, if I have it right. I think that Blackstone
19:52
Speaker 7: raised one point one billion dollars for a b credit,
19:54
Speaker 7: which is the largest business development company. It's got about
19:58
Speaker 7: fifty billion dollars of assets. It's a privately traded company,
20:03
Speaker 7: but I think they raised one point one billion in
20:05
Speaker 7: December or January, which I think was their biggest month ever.
20:09
Speaker 7: And if you look at b Ret, which is I
20:11
Speaker 7: think the largest reate out there, they had a lot
20:15
Speaker 7: of redemption requests a year ago. Those redemption requests I
20:19
Speaker 7: think have dropped precipitously, So there's a lot of money
20:23
Speaker 7: out there that needs to find a home. And if
20:25
Speaker 7: you look at the total returns on private credit at Blackstone,
20:30
Speaker 7: for example, I think it was up fourteen percent last year,
20:33
Speaker 7: which compares extremely well to just about anything else out there.
20:36
Speaker 7: So people are always.
20:38
Speaker 5: Chasing You're great, You're really it's great, we love you.
20:42
Speaker 5: What else you're watching?
20:44
Speaker 7: Well, you know, I cover all sorts of financial thing imagigs.
20:50
Speaker 7: They are not non bank thing ima jigs. And one
20:53
Speaker 7: of the areas which I think is really interesting is
20:56
Speaker 7: what's going on between the private world, private debt, private credit,
21:01
Speaker 7: alternative asset management, and life insurance. And you know, that's
21:05
Speaker 7: a forty trillion dollar addressable market for the alternative asset managers.
21:11
Speaker 7: You've seen companies like Apollo and Kkar via a theme
21:16
Speaker 7: and Global Atlantic owning some of the top annuity in
21:23
Speaker 7: life insurance companies in the United States. So that's an
21:26
Speaker 7: area which I think we're going to see a lot
21:28
Speaker 7: more convergence over the next couple of years. And then
21:30
Speaker 7: you were talking in the earlier segment about office also
21:33
Speaker 7: and about how real estate is not all created equal.
21:36
Speaker 7: Office is an area that we're going to continue to
21:38
Speaker 7: keep a very close eye on because there is a
21:43
Speaker 7: real secular shift on top of what was a cyclical
21:46
Speaker 7: shift apartments, warehouses, you know, health properties, life sciences.
21:51
Speaker 2: I'm interesting to see for some of these big office
21:53
Speaker 2: properties trade in the urban centers and big big discounts
21:56
Speaker 2: I think. David Havens, thanks so much for joining us.
21:58
Speaker 2: David Havens, he's a senior credit analyst for Bloomber Intelligence.
22:00
Speaker 2: Joining us live here in our Bloomberg Interactive Brokers studio.
22:06
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
22:10
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22:12
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22:16
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22:20
Speaker 4: Waiting for CPI A thirty tomorrow. Will it be a
22:23
Speaker 4: big market uber and if not, what else are we
22:25
Speaker 4: waiting for?
22:26
Speaker 5: Waiting then for earnings. They're gonna kick off on Friday.
22:29
Speaker 4: So let's get the take now with Rubin Jmenision, his
22:32
Speaker 4: generalist portfolio manager over TCW's fixed income group. He joins
22:36
Speaker 4: us from Los Angeles, California. Rubin, what do you think
22:40
Speaker 4: the pain trade is into tomorrow's CPI?
22:44
Speaker 8: Good morning, Thanks for having me on.
22:46
Speaker 9: Well, we think the CPI tomorrow, Well, the big pain
22:50
Speaker 9: trade is as we've seen in the beginning of the year.
22:53
Speaker 9: We have seen we may see some some some increase
22:57
Speaker 9: in CPI for deriven by seasonal factor or driven by
23:00
Speaker 9: some other quirks of inflation calculation.
23:03
Speaker 8: But generally speaking, as we look at the inflation inflation matrix.
23:09
Speaker 9: Over a longer term, we see that the trend is
23:11
Speaker 9: one of the declining or this acceleration of inflation. So
23:16
Speaker 9: as we look at PC, looked we got PC about
23:19
Speaker 9: a week ago or so.
23:20
Speaker 8: The PC core PC he read was about two.
23:23
Speaker 9: Point eight percentage two point eight percent year over year,
23:27
Speaker 9: And while that's above the target that the Fed has,
23:31
Speaker 9: but that marks the fourteenth year over year decline in
23:34
Speaker 9: a row. And as we look at the core pc
23:37
Speaker 9: X shelter. As we know, shelter is one of the
23:39
Speaker 9: notorious lagging indicators of the inflation calculation. That was about
23:45
Speaker 9: two point one percent, much closer to the inflav to
23:48
Speaker 9: the Fed inflation expectation, and again that marks more than
23:51
Speaker 9: a year of declining year over year reads of that
23:55
Speaker 9: of that may measure all.
23:56
Speaker 2: Right, So Rubin, let's I guess one of the first
23:59
Speaker 2: questions people have its like, what's this economy going to do?
24:02
Speaker 2: And what's this federal reserve going to do? It feels
24:05
Speaker 2: like the soft landing is being fairly well negotiated by
24:08
Speaker 2: the Federal Reserve and that more than more than not,
24:12
Speaker 2: there will be some rate cuts this year. Do you
24:13
Speaker 2: guys agree with that?
24:16
Speaker 8: We do agree with that.
24:18
Speaker 9: We moreover, we do think that the rate cut where
24:21
Speaker 9: we will see more rate cuts than what's currently being
24:23
Speaker 9: priced in. So generally, as we look at the market,
24:26
Speaker 9: we think that the market is being priced for perfection.
24:29
Speaker 9: You know, we have very very gradual rate cuts priced in.
24:32
Speaker 9: You look at the credit markets, corporate credit markets, they
24:35
Speaker 9: are at cycle tights. Spreads are at cycle tights right now,
24:39
Speaker 9: which means that the compensation that corporate bond investors receive
24:43
Speaker 9: for holding corporate bonds is at the lowest level we've
24:46
Speaker 9: seen in this cycle, and that's a lot of oplimism
24:49
Speaker 9: that's being priced into the market. We at TCW are
24:53
Speaker 9: less optimistic about the prospects of the economy. We think,
24:57
Speaker 9: in fact that a lot of that optimism that we
24:59
Speaker 9: see in the market is perhaps extrapolation of the strong
25:03
Speaker 9: resilient twenty twenty three that we've seen. But we think
25:06
Speaker 9: that one should use a lot of caution when extrapolating
25:09
Speaker 9: from the strong resilient twenty twenty three into twenty twenty four,
25:13
Speaker 9: because there were some significant tailwinds that helped growth in
25:17
Speaker 9: twenty twenty three that we don't think are going to
25:20
Speaker 9: be nearly as powerful for twenty twenty four.
25:25
Speaker 8: Growth enhanced, the growth will prove yes.
25:28
Speaker 4: So what do you think, where will the data become
25:31
Speaker 4: weaker and where will we see that reflected. It seems
25:36
Speaker 4: like we can kind of pick the narrative and find
25:38
Speaker 4: the data right like the NFIB for example, at lowest
25:40
Speaker 4: level since twenty twenty one, right expecting sales to fall
25:45
Speaker 4: like it doesn't look great, But then you take a
25:46
Speaker 4: look at the jobs number, and then it looks great.
25:50
Speaker 8: Yes, you're absolutely right.
25:52
Speaker 9: The data has been coming in mixed, and you know,
25:55
Speaker 9: we had some very strong payroll data, but NFIB Business
25:58
Speaker 9: Optimist number this morning was very was very very was
26:03
Speaker 9: not as good. Was actually pretty bad across across the board,
26:07
Speaker 9: whether you look at the credit condition for small businesses,
26:09
Speaker 9: whether you look at hiring plans, and if you if
26:12
Speaker 9: you do believe that the small businesses employee about forty
26:15
Speaker 9: percent of your workforce, that's pretty significant.
26:18
Speaker 8: So we already see some cracks in the data.
26:21
Speaker 9: You know, you know, the the some of the tailwinds
26:25
Speaker 9: that they talked about that that were powerful in twenty
26:27
Speaker 9: twenty three and perhaps the first quarter of twenty twenty
26:30
Speaker 9: four as well as the data is coming in helped prolong.
26:34
Speaker 8: The cycle, so to speak.
26:35
Speaker 9: So but we do still see cracks, especially in areas
26:38
Speaker 9: that are highly exposed to high that are more interest
26:43
Speaker 9: rates sensitive. So when we look at on consumer side,
26:46
Speaker 9: for example, we look at the delinquency rates, and there
26:49
Speaker 9: are higher across the almost across the board, and in
26:52
Speaker 9: many many cases delinquency rates that we see are higher
26:55
Speaker 9: than pre pandemic levels. Is you remember in twenty twenty three,
26:59
Speaker 9: the store was that the links rates are rising, but
27:02
Speaker 9: they're rising to pre pandemic normal to pre pandemic levels,
27:05
Speaker 9: so they're normalizing to pre pandemic.
27:08
Speaker 8: That is no longer the.
27:09
Speaker 9: Case because in many cases, especially at the you know,
27:13
Speaker 9: for the bottom cohores of income distribution spectrum, we do
27:18
Speaker 9: see that those linkal s rates are way higher than
27:21
Speaker 9: pre pandemic levels and rising. When we look at the
27:24
Speaker 9: corporate sector, we do see that the segments that are
27:27
Speaker 9: most sensitive to interest rates, bank loans that reset the
27:30
Speaker 9: rate on a quarterly basis.
27:32
Speaker 8: They see their default rates increasing. There.
27:35
Speaker 9: They went from sub two percent in a couple of
27:38
Speaker 9: years ago to mid single digits depending on how you measure,
27:41
Speaker 9: and that there's a measure defaults. So they're on the
27:44
Speaker 9: rise as well, and we think that will continue as
27:47
Speaker 9: we see, you know, the monetary policy lacks dissipate and
27:52
Speaker 9: monitary policy continue to weigh on the economic growth.
27:54
Speaker 2: So Rubin, I mean, I'm an equity guy, but I
27:56
Speaker 2: look at the two year treasury and I can get
27:58
Speaker 2: four point seventy three percent work my money there or
28:01
Speaker 2: do I take some credit risk and think about that?
28:05
Speaker 2: How do you guys think about that?
28:07
Speaker 9: Well, we do like the front end of the curve,
28:09
Speaker 9: So we're overweight duration, and a big fraction of our
28:13
Speaker 9: overweight is in the front end of the curve in
28:15
Speaker 9: two years and five years, because we do think that's
28:17
Speaker 9: an attract that those are attractive rates. That being said,
28:20
Speaker 9: credit we think is very very optimistically priced. We don't
28:23
Speaker 9: think investors get a ton of compensation or forget being
28:27
Speaker 9: in corporate credit, but we do think that the securitized
28:31
Speaker 9: markets agency mbs for instance, and some segments of non
28:34
Speaker 9: agency securitized credit are very attractively priced. So we are
28:38
Speaker 9: currently expressing some overweights in those areas as we think
28:43
Speaker 9: that those are more attractive, far more attractive than corporate credit,
28:47
Speaker 9: which is as I mentioned at cycle tights in IG
28:51
Speaker 9: and in high yield as well.
28:52
Speaker 4: So if you like the front end, is that a
28:54
Speaker 4: pure yield play or is that a price appreciation play
28:57
Speaker 4: or honestly.
28:57
Speaker 9: Both, well, it's both. We do think we'll see some
29:02
Speaker 9: price appreciate. Gilds are attractive, as we know, but we
29:05
Speaker 9: think that we'll get some price appreciation as well because
29:07
Speaker 9: we do think that the rates will will come down,
29:10
Speaker 9: especially more so in the front end of the curve.
29:12
Speaker 9: We do expect a bulls deepening of the curve where
29:14
Speaker 9: where by the front end of the you know, the
29:17
Speaker 9: lower tenors, the shorter tenors will come down more than
29:21
Speaker 9: the belly and the and the long end of the curve.
29:23
Speaker 8: So we think you'll get both.
29:24
Speaker 9: You'll get a price appreciation and obviously you're clipping a
29:27
Speaker 9: very high yield uh while holding the short treasury bonds.
29:33
Speaker 4: All right, Rubin, thanks very much. I really appreciate Rubin
29:35
Speaker 4: hoven asci And Okay, I'm going to get it.
29:38
Speaker 5: Homan Is, Did I get it? Did I sort of
29:40
Speaker 5: get it?
29:41
Speaker 8: Yes? Yes, you did?
29:43
Speaker 5: Nice? All right, he joins us.
29:46
Speaker 4: There he's a general's portfolio manager at tc w's fixed
29:49
Speaker 4: income group.
29:50
Speaker 2: Those those people tc W, every person we get smart.
29:54
Speaker 4: Super smart smart.
29:56
Speaker 8: Uh.
29:57
Speaker 4: And you know you raised the point about you know
29:59
Speaker 4: you're the equity The ampity risk premium is like nothing
30:02
Speaker 4: over bonds, right, It's just like, how do you buy
30:04
Speaker 4: equities then when you can get a two year yielding
30:07
Speaker 4: almost five percent? And we talk a lot about how
30:09
Speaker 4: all that money and money market funds is going to
30:11
Speaker 4: go somewhere?
30:12
Speaker 2: How about how about New Jersey municipal bonds?
30:15
Speaker 5: Oh about on a deep teas for Friday.
30:18
Speaker 2: Tuesday, but just get you're ready municipals on Friday.
30:22
Speaker 5: So yeah, it's true. I mean slowly he'll convert me.
30:29
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30:33
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30:37
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30:40
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30:43
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30:47
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30:49
Speaker 4: We cover two thousand companies one hundred and thirty industries worldwide.
30:52
Speaker 4: We also strive to bring you the best from Bloomberg News,
30:55
Speaker 4: and to do that we go to Sheridan Prasso. She's
30:57
Speaker 4: Bloomberg News Senior Investigations a writer and she joins us
31:02
Speaker 4: from Washington, d C. Her her story is the Big
31:05
Speaker 4: Take story on Bloomberg. She co authored about how countries
31:09
Speaker 4: from Central Asia to South America are building their own
31:13
Speaker 4: killer tech based on Iranian designs.
31:17
Speaker 5: This does not.
31:17
Speaker 4: Feel like a feel good story, Sheridan, thank you so
31:21
Speaker 4: much for joining us.
31:22
Speaker 5: Really appreciate it.
31:22
Speaker 4: Walk us through your stories about and what you learned
31:25
Speaker 4: in this investigation process.
31:27
Speaker 10: Hi, So thanks for having me. We had we took
31:30
Speaker 10: a look at how US technology flows are going into
31:34
Speaker 10: Iran's drone program, and what we found is just an
31:37
Speaker 10: incredible proliferation of Iranian drones now spreading throughout the world
31:41
Speaker 10: in ways that surprised even me from when I first
31:44
Speaker 10: started looking into this. You know, we obviously know about
31:47
Speaker 10: Iran's drone proliferation in the Middle East context, right through Syria,
31:51
Speaker 10: I Rock, including now into Yama and Yemen, and then
31:56
Speaker 10: in the Middle East, you know, conflict in Gaza now
31:58
Speaker 10: as well, we're seeing kind of use of Iranian drones
32:02
Speaker 10: in the periphery of that conflict as well. But what
32:06
Speaker 10: also was surprising to us we found is that Iranian
32:09
Speaker 10: drones are now being manufactured in Russia. There's a program
32:14
Speaker 10: for six thousand Iranian drones there that are starting to
32:18
Speaker 10: turn up now in the battlefields of Ukraine. They're increasing
32:22
Speaker 10: proliferation in places like Central Asia and in South America
32:25
Speaker 10: as well, so it really is quite an enormous spread
32:28
Speaker 10: around the world.
32:31
Speaker 2: How is the technology, how advanced is the technology? Is
32:34
Speaker 2: just a model airplane with a lawnmower engine on the
32:36
Speaker 2: back or are they going something.
32:38
Speaker 10: Further it essentially is, and it's fairly low tech. But
32:45
Speaker 10: what's been really successful about these programs is that they're
32:49
Speaker 10: increasingly developing them and learning from experiences on the battlefield,
32:54
Speaker 10: for example in Ukraine. So what is now believed to
32:58
Speaker 10: be the case is that Iran learned from the way
33:03
Speaker 10: that Iranian drones were now being able to get into
33:06
Speaker 10: Ukraine had increased their effectiveness in the Middle East context.
33:09
Speaker 10: So it's increasingly battlefield experience and more and more use
33:13
Speaker 10: of these drones that are allowing them to make more
33:18
Speaker 10: deadly strikes. Actually in these conflicts. We're seeing them, especially
33:22
Speaker 10: in the Red Sea. And also there was the particular
33:25
Speaker 10: case of the three servicemen who were killed in Jordan
33:30
Speaker 10: earlier this year. It was a fairly low tech small drone,
33:34
Speaker 10: but what it was able to do is we learned
33:37
Speaker 10: in the course of this reporting that it was kind
33:40
Speaker 10: of drafting in behind a US drone that was attempting
33:44
Speaker 10: to land at the same time. And those drafting techniques
33:46
Speaker 10: are something that they've been working on improving in the
33:49
Speaker 10: Russian and Ukrainian context. So this kind of learning growing
33:55
Speaker 10: proliferating technology using low tech technology, but actually improving its
34:00
Speaker 10: effectiveness is actually proving very deadly.
34:02
Speaker 5: What can we do about this?
34:05
Speaker 10: So the US has export controls where we try to
34:08
Speaker 10: stop US technology from going into these drones and into
34:12
Speaker 10: the manufacturing of these drones. The issue, though, is that
34:16
Speaker 10: Iran in particular has become a master of circumventing, you know,
34:19
Speaker 10: over forty years of sanctions. There are very developed networks
34:24
Speaker 10: where front companies from all over the world are able
34:26
Speaker 10: to acquire this low tech technology at uh. A lot
34:30
Speaker 10: of our export controls are aimed at stopping sort of
34:33
Speaker 10: the higher end you know, chips now going to China
34:35
Speaker 10: for example, for their AI, but in fact the proliferation
34:40
Speaker 10: of kind of lower tech you know, you need like
34:43
Speaker 10: maybe a few hundred low tech chips, the kind that
34:46
Speaker 10: go into your you know, lawnmower or you or blender
34:49
Speaker 10: or any kind of regular household equipment. That low tech
34:52
Speaker 10: stuff is actually what's powering the drones as well. And
34:55
Speaker 10: a lot of that is just available, it's recycled from
34:58
Speaker 10: old products, it's uh available from suppliers in Asia. China
35:02
Speaker 10: in particular has not been willing to enforce our US
35:06
Speaker 10: export controls against Russia, for example, So there's actually a
35:11
Speaker 10: very big loophole, particularly in Asia, for US tech flowing
35:14
Speaker 10: now into Russia into a run drone program in Russia.
35:18
Speaker 10: So there are a bunch of concerted efforts now to
35:21
Speaker 10: try to make that stop.
35:22
Speaker 2: Sheridan, Do we know how effective these drones are?
35:28
Speaker 10: So they've been very deadly in particular instances. What we've
35:31
Speaker 10: seen is a halt to I forget the percentage, maybe
35:35
Speaker 10: more than fifty percent of shipping in the Red Sea
35:39
Speaker 10: has been halted by some drone attacks in the past
35:42
Speaker 10: few months. We've saw the deadly attack in Lebanon and
35:46
Speaker 10: several other very effective drone strikes as well, and so
35:49
Speaker 10: it's really cause for alarm in Washington. You know, we're
35:54
Speaker 10: wondering how far this is going to go, how effective
35:57
Speaker 10: this is, our efforts at stopping it are going to be.
36:00
Speaker 10: You know, we're considering kind of how do you actually
36:04
Speaker 10: get US companies to stop allowing their technology to go there.
36:08
Speaker 10: And the companies that we talked to, for example, Texas Instruments,
36:12
Speaker 10: Analog Devices, a lot of their stuff at least eighty
36:15
Speaker 10: percent of the drones that are turning up in Ukraine
36:18
Speaker 10: or containing this US technology from in particularly these companies
36:22
Speaker 10: and a few others as well. How do you get
36:25
Speaker 10: that to stop and therefore decrease Iran's ability to proliferate.
36:30
Speaker 10: And that's the biggest question right now.
36:31
Speaker 5: What did those companies say.
36:34
Speaker 10: The companies say that that we ad by by US
36:37
Speaker 10: export controls. We have our insisted our suppliers do so
36:41
Speaker 10: as well. The issue is that there's so many loopholes,
36:43
Speaker 10: and in particular Hong Kong is proving to be a
36:46
Speaker 10: very difficult place. It used to be maybe ten, twelve,
36:50
Speaker 10: fifteen years ago, we had much better relations with Hong Kong.
36:53
Speaker 10: They would have been a lot closer to Western interests.
36:56
Speaker 10: And now with the changes that have happened in Hong
36:59
Speaker 10: Kong and the last three four years, we have seen
37:02
Speaker 10: less willingness on the part of Hong Kong officials to
37:06
Speaker 10: actually enforce US export controls, particularly going towards Russia, and
37:10
Speaker 10: so we've seen a big uptick in proliferation from equipment
37:15
Speaker 10: going via Hong Kong into Russia, for example. It is
37:19
Speaker 10: much better though at enforcing UN sanctions against Iran, and
37:23
Speaker 10: so it has successfully stopped a lot of technology going
37:25
Speaker 10: to run. But still there are quite a few kind
37:27
Speaker 10: of leaks in the dam basically, so it's happening all
37:30
Speaker 10: around all right.
37:31
Speaker 4: Shardon, thanks a lot, We really appreciate it. Sharon impress
37:34
Speaker 4: so Bloomberg News Senior Investigations a writer, and I highly
37:37
Speaker 4: recommend that everyone read her piece.
37:39
Speaker 5: You can find the.
37:40
Speaker 4: Story on Bloomberg and at Bloomberg dot com, slash Big Take,
37:44
Speaker 4: check out the Bloomberg Big Take podcast at Bloomberg dot
37:47
Speaker 4: com and wherever you.
37:48
Speaker 5: Get your podcasts. I love how like, how do you
37:50
Speaker 5: get turned on to all these stories?
37:52
Speaker 4: Right? Because you're investigative reporter, it can go to so
37:54
Speaker 4: many different directions. But what an amazing piece of work
37:56
Speaker 4: and something that isn't We're working on it like an
38:00
Speaker 4: easy quick fix.
38:02
Speaker 2: No no, and on this story that there is the
38:04
Speaker 2: Big Take podcast hosted co hosted by David Gura, and
38:07
Speaker 2: they're featuring this story. So you can go check out
38:10
Speaker 2: that podcast. Just fascinating stuff.
38:13
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
38:17
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38:31
Speaker 2: A lot of folks are saying, you know, as I
38:32
Speaker 2: look at the market here off a half a one percent,
38:34
Speaker 2: is Jonas's reporting that what this market needs is a
38:37
Speaker 2: you know, a more I guess bigger pullback, maybe five percent,
38:42
Speaker 2: ten percent, something like that, that that would not be
38:44
Speaker 2: the worst thing for this market, but we have not
38:46
Speaker 2: seen that in some time. Again, SMP up more than
38:50
Speaker 2: twenty five percent off of those October lows. Let's check
38:53
Speaker 2: in with a professional now, Nancy Daoud. She is private
38:56
Speaker 2: wealth advisor at Amorprice Financial, joining us from Miami, Florida
39:01
Speaker 2: via zoom. Nancy, thanks so much for joining us here.
39:04
Speaker 2: I mean, what are you telling your clients here? Is
39:06
Speaker 2: it just up up in a way here for risk assets?
39:10
Speaker 11: Well, that's a great question, because you know, everybody wants
39:14
Speaker 11: to talk about how great the market is, and what
39:17
Speaker 11: I'm what we're really telling our clients is essentially to
39:21
Speaker 11: be very very cautious because people get too used to
39:24
Speaker 11: this and they expect it to just continue forever. And
39:27
Speaker 11: up markets don't last, and neither do down markets, you know, obviously,
39:33
Speaker 11: And I think this is the opportunity for us to
39:36
Speaker 11: sit down with our clients and talk about well, what
39:39
Speaker 11: are your shorter term cash needs, because there's no better
39:42
Speaker 11: time to just take some money off the table and
39:46
Speaker 11: board it for those immediate cash needs, anything in the
39:50
Speaker 11: one to the next one to three years, this is
39:54
Speaker 11: the time to do it. And I believe also that
39:56
Speaker 11: that's probably what we're seeing. I mean, we saw a
39:58
Speaker 11: couple of days of downturns in the last week, and
40:02
Speaker 11: of course now that's happening again. I think a good
40:05
Speaker 11: chunk of that could very well be some profit taking.
40:09
Speaker 2: Yeah, absolutely, but we just you know, a lot of
40:11
Speaker 2: folks again expect to see more pronounced profit taking than
40:15
Speaker 2: what we've seen recently. And one of the issues is,
40:18
Speaker 2: you know, for by and large, this is a market
40:20
Speaker 2: really in twenty twenty three and continuing to some degree
40:23
Speaker 2: this year, has really been led by those big tech names.
40:26
Speaker 2: I know there's some laggards like Apple, like Tesla, but
40:29
Speaker 2: the big tech names have still been kind of leading
40:31
Speaker 2: the way. Is that still going to be the case?
40:34
Speaker 2: Is that you're do you think tech is still the
40:36
Speaker 2: leader in this market?
40:39
Speaker 11: Well, longer term, certainly, yes, But just more recently it's
40:44
Speaker 11: been nice to see a broadening of the market a
40:46
Speaker 11: little bit. We've seen financials do really well, healthcare continues
40:51
Speaker 11: to do well. Energy obviously is catching up a bit,
40:56
Speaker 11: and mostly because of the geopolitical environment that we're in,
41:00
Speaker 11: and we're seeing a little bit of the broadening of
41:03
Speaker 11: the market, which helps in that sentiment a little bit.
41:06
Speaker 11: You'd never want just one sector to dominate, you know,
41:10
Speaker 11: to make or break the market. But longer term, certainly
41:14
Speaker 11: technology is the next boom, or the AI really is
41:18
Speaker 11: the next boom. And if you're in it for the
41:20
Speaker 11: longer term, meaning seven to ten years or longer, what
41:24
Speaker 11: opportunity do.
41:26
Speaker 4: You feel in the shorter term? Do you feel confident
41:29
Speaker 4: that the broadening out will continue throughout this earning season.
41:33
Speaker 11: Well, you know, I think there's quite a few variables
41:37
Speaker 11: that may or may not affect that, and that's the
41:41
Speaker 11: persistent inflation. I mean, getting to two percent, I think
41:44
Speaker 11: is going to be a lot tougher than everyone thinks
41:47
Speaker 11: because the progression or the progress that we've made in
41:51
Speaker 11: the last couple of years has been, you know, pretty
41:53
Speaker 11: much on track, but it's always that home stretch that
41:56
Speaker 11: takes a little longer and with a significant more I
42:02
Speaker 11: know everybody's been very bullish about rate cuts happening you know,
42:06
Speaker 11: next month, or we don't believe that that's going to
42:09
Speaker 11: happen anytime soon, and if it does, it won't be
42:12
Speaker 11: until the latter part of the year. I mean, we're
42:15
Speaker 11: seeing mortgage rates actually going up at this time, and
42:20
Speaker 11: the reality is sinking in, you know, and that is
42:23
Speaker 11: that although inflation is no longer increasing or going up
42:29
Speaker 11: as much, you know, this is the new normal. Prices
42:32
Speaker 11: are the way they are now. They are not going back,
42:36
Speaker 11: and there's a little bit of an adjustment to that.
42:39
Speaker 2: Yeah, Hey, Nancy, my co host here, Alex is a
42:43
Speaker 2: expert in the field of all things energy. What do
42:45
Speaker 2: you think about that sector right now with Brent crude
42:48
Speaker 2: at you know, close to ninety dollars a barrel.
42:52
Speaker 11: Well, typically we always see energy as an opportunity during
42:57
Speaker 11: a time of geopolitical risk, which we certainly have right now.
43:02
Speaker 11: So since October when the Israel the Middle East war started,
43:08
Speaker 11: then we begin to buy some energy or ETFs mainly,
43:13
Speaker 11: and that's that's when we saw a big uptick, but
43:16
Speaker 11: then it kind of came down. Now it's really pulling
43:21
Speaker 11: going up again. So this is you know, oil prices
43:24
Speaker 11: are always something to watch during a time when there's
43:27
Speaker 11: a lot of geopolitical risk and we have a war
43:30
Speaker 11: in Europe and we have some going on in Southeast Asia.
43:34
Speaker 11: I mean, it's it's on every front.
43:36
Speaker 4: So based on that, I mean, I appreciate that the
43:39
Speaker 4: oil trade is there for that. Do you think the
43:41
Speaker 4: gold is moving along the same lines as that or
43:43
Speaker 4: do you think gold is moving on its own because
43:45
Speaker 4: no one kind of really gets what's going on there.
43:48
Speaker 11: Well, that's hard to predict, but it doesn't appear that
43:52
Speaker 11: they're moving together. I think they're probably kind of on
43:56
Speaker 11: its own. Gold is probably on its own a bit.
43:58
Speaker 4: Yeah, it's interesting when we talk about save Haven's Paul right, Yeah,
44:01
Speaker 4: is that what's happening? Okay, we're going to play stuff,
44:04
Speaker 4: but we're going to go save Haven as gold or
44:06
Speaker 4: is it something?
44:08
Speaker 6: Yeah?
44:08
Speaker 2: And you know the central banks that we had a
44:10
Speaker 2: guest this morning, Tom Keenan and I and really talking
44:12
Speaker 2: about the central banks around the world kind of concerted
44:15
Speaker 2: buying there, including China NATSI just lastly broke real quick,
44:19
Speaker 2: what are you looking for in earnings? We're going to
44:21
Speaker 2: get earnings kicking off in Earnest this week here.
44:26
Speaker 11: We're expecting to see more of the same, it wouldn't
44:29
Speaker 11: be unusual to see a little bit of some pullback
44:33
Speaker 11: or you know, not maybe not as strong. But you know,
44:37
Speaker 11: it's interesting that it's always about expectations. If we expect
44:41
Speaker 11: earnings to be really strong and they come up weaker,
44:44
Speaker 11: the market reacts violently. And if the market if I'm sorry,
44:48
Speaker 11: if earnings are expected to be weak and they come
44:52
Speaker 11: out really strong, the market, you know, reacts violently also.
44:56
Speaker 11: So it really all has to do with expectations, not
44:59
Speaker 11: so much much about the real numbers. And you know,
45:03
Speaker 11: when we put together portfolios and make recommendations for clients,
45:08
Speaker 11: it's really about the math, not about sentiment. You've got
45:11
Speaker 11: to always go back to the math because the math
45:13
Speaker 11: are always rules in the end.
45:14
Speaker 2: Yep, Nancy, thank you so much for joining us at
45:17
Speaker 2: Nancy Dude President. She's a private wealth advisor at Amerorprise Financial.
45:22
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