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Former SBA Head Sees 20-30% of Small Businesses Failing · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day,
0:06
Speaker 1: we bring you interviews from CEO, market pros, and Bloomberg experts,
0:10
Speaker 1: along with essential market moving news. Find the Bloomberg Markets
0:13
Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot com. The Senate passed an extension
0:21
Speaker 1: of the popular paycheck Protection Program for small businesses, which
0:25
Speaker 1: was set to close down last night with more than
0:28
Speaker 1: a hundred and thirty billion in funding left over. The
0:31
Speaker 1: extension goes to August eighth. To get a latest on
0:33
Speaker 1: the p p P and where the money is going,
0:36
Speaker 1: we welcome Karen Miller. She's a senior fellow at the
0:38
Speaker 1: Harvard Business School, former Small Business administrator for President Obama
0:43
Speaker 1: from two thousand nine to two thousand thirteen. Karen, thanks
0:45
Speaker 1: so much for joining us here. So I guess the
0:48
Speaker 1: question is how effective do you think, UM, the p
0:52
Speaker 1: p P has been for small businesses in this country? Well,
0:56
Speaker 1: I think it's been very effective, and I was delighted
0:59
Speaker 1: by our midnight Surprised last night, I really UM had
1:04
Speaker 1: not anticipated that the Senate would take leadership and renew
1:09
Speaker 1: the p p P. A hundred and thirty billion dollars
1:13
Speaker 1: is a lot of money in the land is small business,
1:15
Speaker 1: and so far the results side of the p p
1:18
Speaker 1: P have actually been pretty good. I know, the headlines
1:21
Speaker 1: have been about, you know, big companies who didn't need it,
1:24
Speaker 1: who took it, but literally five million small businesses have
1:29
Speaker 1: gotten funding without which they would just not be alive today.
1:33
Speaker 1: So if we can get a little bit more out,
1:36
Speaker 1: I think we can save some more businesses. Karen, what
1:39
Speaker 1: about those those that opened and have to now reclosed
1:43
Speaker 1: because the virus is actually not going away at all.
1:46
Speaker 1: The carves deepening in the US, and not just those
1:49
Speaker 1: that we opened not to close, but those who took
1:52
Speaker 1: the money and kept people on their pay rolls and
1:55
Speaker 1: are not getting the revenue, and you know this will
1:59
Speaker 1: finish them. Well, you're exactly right. You know, the virus
2:03
Speaker 1: is not done yet. And even though you know there's
2:07
Speaker 1: been an attempt at all these reopenings, small business owners
2:12
Speaker 1: are worried, their customers are worried, and they're desperate, you know,
2:16
Speaker 1: because otherwise they're going to go out of business. So
2:19
Speaker 1: anything we can do to get money into their hands,
2:23
Speaker 1: so they can you know, survive, whether they're partially open,
2:26
Speaker 1: whether they just do take out. We just need to
2:30
Speaker 1: get them funding because as you know, small businesses have
2:33
Speaker 1: almost no cash reserves and whatever they had that's gone
2:37
Speaker 1: by now, so they are just living hand to mouth
2:41
Speaker 1: and if we can, um what I'd really like to
2:44
Speaker 1: do with this extra money is let them apply again,
2:47
Speaker 1: because the p p P extension would only go to
2:51
Speaker 1: new folks who haven't applied, and I'd like to let
2:55
Speaker 1: you know, eligible businesses get another a few weeks UH
3:00
Speaker 1: of funding if they possibly can. I think that would
3:02
Speaker 1: be helpful. Karen, what do we know about where the
3:07
Speaker 1: initial chunk of money you went to? Is there is
3:09
Speaker 1: there a good sense that there's oversight there that we
3:12
Speaker 1: kind of know where the money went, who got it,
3:14
Speaker 1: who didn't get it, and so on. Well, it's ridiculous
3:19
Speaker 1: that the SPA is not disclosing this. We disclosed everything.
3:23
Speaker 1: It's just table stakes. You know, the American people need
3:26
Speaker 1: to know where their money is used. Um, So I
3:31
Speaker 1: can't imagine why you wouldn't disclose. And now they've said
3:35
Speaker 1: they're going they're going to. What we do know is
3:38
Speaker 1: that about five million small businesses got money, most of
3:42
Speaker 1: them got small amounts, and thank goodness, we had some
3:47
Speaker 1: um new players, some tech players stepped in and helped
3:50
Speaker 1: the banks because the banks, we're really struggling to get
3:54
Speaker 1: the small players their money. They just didn't have the mechanism.
3:58
Speaker 1: So then PayPal came men and square and into it,
4:03
Speaker 1: and they put up these automated portals which still are
4:06
Speaker 1: up and allowed the sole proprietors who are eligible, they
4:11
Speaker 1: actually are eligible for p PP a seamless way without
4:15
Speaker 1: going to a bank. Maybe they didn't have a bank.
4:18
Speaker 1: So that's done a lot of good to UM the
4:21
Speaker 1: small business owner. But disturbingly, there is an underrepresentation of
4:27
Speaker 1: minority owned businesses and the p p P and that's
4:31
Speaker 1: from some survey data from Alignable, and I think that's
4:35
Speaker 1: quite worrisome. I would like to see that percentage go
4:39
Speaker 1: up because, as you know, there's a lot of inequity
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Speaker 1: and access to capital among underserved minority owned businesses and
4:47
Speaker 1: by the way, among women owned businesses, and if they
4:51
Speaker 1: fail in greater proportions, that's just going to hurt everything. Yeah, exactly,
4:55
Speaker 1: there's a lot of problems with it in many many ways.
4:57
Speaker 1: Karen talked to me, though, about what you would do
4:59
Speaker 1: if you were, say a restaurant owner, or you know,
5:02
Speaker 1: the owner of a franchise of some chain of restaurants,
5:05
Speaker 1: and you knew that in order to access this money
5:08
Speaker 1: you have to keep on sevent of your staff. But
5:10
Speaker 1: you're also pretty well aware that you're not going to
5:12
Speaker 1: be able to do of your business even in six months.
5:16
Speaker 1: Yet this is only supposed to tie you over for
5:18
Speaker 1: two months. I mean, wouldn't you much rather just pulled
5:22
Speaker 1: up shop in order not to get up the hopes
5:24
Speaker 1: of all your previous employees, all your customers, your family.
5:29
Speaker 1: So small business owners now, um really are in a dilemma.
5:35
Speaker 1: And I think what they've realized is if you want
5:39
Speaker 1: to keep your business going, you've got to maintain some
5:43
Speaker 1: relationship with your set of employees. The good news is
5:47
Speaker 1: that Congress actually passed something called the Flexibility Act a
5:50
Speaker 1: few weeks ago, and they took that seventy number down
5:54
Speaker 1: to sixt so only sixty of the money has to
5:57
Speaker 1: pay employees. They gave you more week to spread it over.
6:02
Speaker 1: And what that does is allow a business to stay
6:06
Speaker 1: closed longer and take that other of the money and
6:10
Speaker 1: pay the rent and pay for utilities and pay for
6:15
Speaker 1: debt service if they've got another loan, So it's well
6:19
Speaker 1: worth doing. And if you're a small business owner out
6:22
Speaker 1: there and Congress does get their act together and the
6:25
Speaker 1: President does sign an extension of P P P, I
6:28
Speaker 1: would go right away to one of these online portals
6:32
Speaker 1: or your bank. And uh, if you haven't gotten one
6:36
Speaker 1: of these loans, I have to say, even if you're closed,
6:40
Speaker 1: you will find it useful and your people will get
6:43
Speaker 1: paid and you'll keep your relationship with them. You'll get
6:47
Speaker 1: to pay your rent. So I think it is well
6:49
Speaker 1: worth doing. And the forgiveness aspect, they are saying they're
6:54
Speaker 1: gonna do blanket forgiveness and very small dollar loans, so
6:58
Speaker 1: I would recommend doing it. So, Karen, what have we
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Speaker 1: seen on the on the you know, um, for these
7:04
Speaker 1: small businesses, how many of them are in fact going
7:06
Speaker 1: out of business? How many do you expect to go
7:08
Speaker 1: out of business during due to this pandemic? Well, when
7:12
Speaker 1: you talk about this percentage going out of business, you know,
7:15
Speaker 1: my heart just uh, you know, rings about it because
7:19
Speaker 1: I think it's going to be very bad. My prediction
7:22
Speaker 1: is twenty tot of small businesses will fail, right, now
7:27
Speaker 1: we're seeing five to ten, but we really haven't seen
7:30
Speaker 1: the bankruptcy is come and that's going to happen in
7:34
Speaker 1: I would say two to four months will be the
7:37
Speaker 1: peak of that. And the reason the number is so
7:40
Speaker 1: high in part is sadly there are a lot of
7:43
Speaker 1: businesses operating just on the edge, and particularly we've seen
7:48
Speaker 1: in the older generation people will just pack it in.
7:52
Speaker 1: They'll just say, you know what, UM, I'm going to
7:55
Speaker 1: fold my tents. This is the time. So that is
7:58
Speaker 1: going to count for some percentage in that will come
8:00
Speaker 1: all at once, not distributed over a year or two years.
8:04
Speaker 1: And the problem with the number like twenty or thirty
8:06
Speaker 1: percent means that it's very hard to have a U
8:10
Speaker 1: shape recovery because it takes six to twelve months to
8:15
Speaker 1: get a new business started on mainstream. So Karen will
8:20
Speaker 1: be a while before the game of play. It's going
8:22
Speaker 1: to be heartbreaking and hopefully it will lead to some
8:26
Speaker 1: sort of rebirth of entrepreneurialism at some point in this country.
8:29
Speaker 1: Karen Mill's former sp A head currently senior fellow at
8:32
Speaker 1: the Harvard Business School, thank you for joining a very
8:37
Speaker 1: interesting day for Hong Kong, China. Describing Hong Kong's new
8:41
Speaker 1: security law as a sword of damocles hanging over its
8:45
Speaker 1: most strident critics. In other words, China is very pleased
8:48
Speaker 1: about it. It's not quite clear exactly what Hong Kong
8:52
Speaker 1: residents think about it. However, we did have Boris Johnson
8:55
Speaker 1: coming out today and offering citizenship to people who wish
8:58
Speaker 1: to move to Britain from Hong Kong. It's, of course
9:01
Speaker 1: former colony. Let's bring in somebody who is on the
9:03
Speaker 1: ground there right now, as well as somebody who knows
9:05
Speaker 1: a lot about all of this. Jody Schneider is senior
9:09
Speaker 1: International editor in Hong Kong. We're also welcoming Andy Brown,
9:12
Speaker 1: editorial director for Bloomberg in New Economy, Jody Easy. Details
9:16
Speaker 1: of the law came out last night, about thirty five pages.
9:20
Speaker 1: Have residents managed to digest exactly what's in it? And
9:23
Speaker 1: could you give us bullet points? Yeah? So this is
9:27
Speaker 1: of course very historic and it's coming. Uh, it's the
9:31
Speaker 1: day twenty three years ago when China took over Hong Kong.
9:36
Speaker 1: Hong Kong was handed over to China from the UK.
9:39
Speaker 1: And uh, this of course is very um. It's concerning
9:44
Speaker 1: a lot of people here because it's very um, the
9:47
Speaker 1: tough provisions in this national security I've really gone beyond
9:50
Speaker 1: what many investors and um, even pro Beijing politicians had
9:55
Speaker 1: thought was in there. Uh. There's a lot of concern
9:58
Speaker 1: about whether it's going to have a chilling of not
10:00
Speaker 1: only in descent to the city, but over free speech
10:03
Speaker 1: and uh and maybe even freedom and depressed. Of course,
10:06
Speaker 1: the business communities are concerned about what it could mean
10:09
Speaker 1: for them and if they start to see have trouble
10:12
Speaker 1: getting talent here, and also how it could affect their businesses.
10:16
Speaker 1: So what theyue language um in the law, and so
10:19
Speaker 1: it's really generating a lot of confusion about what is allowed. Um,
10:23
Speaker 1: you know, what kinds of speech are even allowed anymore here?
10:26
Speaker 1: And of course it's very suddenly kind of change. You know.
10:29
Speaker 1: One day um uh, well you could be arrested for
10:32
Speaker 1: certain kinds of things. Now you could be arrested. And
10:36
Speaker 1: the very opaque kind of system. They were already arrested today.
10:39
Speaker 1: That came with with the protests here against the law
10:43
Speaker 1: and on on the shamed over day. Um, there were
10:46
Speaker 1: already arrests that they said were made that Bagian kind
10:49
Speaker 1: of boasted came under the law including someone flying the
10:52
Speaker 1: flag UM that was proclaiming independent, but they seeking independence
10:56
Speaker 1: for Hong Kong. Andrew I was. I just happened to
10:59
Speaker 1: be in Hong Kong on this day twenty three years
11:02
Speaker 1: ago on a business trip, and I remember the handover clearly,
11:05
Speaker 1: and I remember thinking to myself this there's there's just
11:08
Speaker 1: no way this is going to end well for the
11:09
Speaker 1: folks of Hong Kong. China is going to assert full
11:11
Speaker 1: control over Hong Kong. It's just a matter of time.
11:14
Speaker 1: I'm actually quite surprised it's it's taken this long. What's
11:18
Speaker 1: the feeling, you know, as you think about the Greater
11:21
Speaker 1: China's policy strategy, what is their view towards Hong Kong?
11:25
Speaker 1: Do you think? Wellful I, I was in Hong Kong
11:28
Speaker 1: that day to UM and you obviously very precedent because
11:33
Speaker 1: I think UM quite a lot of people hoped and
11:36
Speaker 1: expected that since UM, China and the United Kingdom had
11:40
Speaker 1: signed an international agreement under which Hong Kong would retain
11:45
Speaker 1: its autonomy and retain its freedoms, retain its judicial independence,
11:50
Speaker 1: freedom of speech, UM, freedom of the press, and so on, UM,
11:54
Speaker 1: that this would continue as promised for fifty years and
11:58
Speaker 1: what we've now seen, of course, is that Hong Kong
12:01
Speaker 1: is becoming, to all intents and purposes, another Chinese city.
12:05
Speaker 1: It's going to lose its international personality. Um. And the
12:09
Speaker 1: trend is very clear now it's going to become a
12:12
Speaker 1: financial center, more financial center for China and less in
12:17
Speaker 1: international and those parts of this sort of the international
12:21
Speaker 1: mandate of Hong Kong as a as a global hub
12:24
Speaker 1: will migrate to other parts of the region of the Singapore, Tokyo,
12:29
Speaker 1: perhaps even Taipei. Who is the moral arbiter here though, Andy,
12:34
Speaker 1: I mean, is it clear that the wrong thing is happening?
12:38
Speaker 1: I was China wants Hong Kong to help it become
12:42
Speaker 1: stronger in the international financial system, for example. Isn't it
12:46
Speaker 1: doing the right thing for its citizens? Um? This is
12:51
Speaker 1: a it is a sort of Dama pleas Um. And
12:54
Speaker 1: it's not a sort of Dama please that is handing
12:57
Speaker 1: hanging over extremists in Hong Ng. It's a sort of
13:00
Speaker 1: damocles that hangs over the whole territory. As Jody says,
13:04
Speaker 1: this is way worse than anybody had predicted, not just
13:08
Speaker 1: in the fact that, um, you know, you have four
13:11
Speaker 1: new categories of crime, sedition, secession, terrorism, UM, you know,
13:17
Speaker 1: and collusion with foreign forces, which are broad enough to
13:20
Speaker 1: encompass pretty much any action or expression that the Chinese
13:26
Speaker 1: state doesn't like. UM. And also, by the way, UM
13:31
Speaker 1: has no borders, so it doesn't just apply to Hong
13:33
Speaker 1: Kong and Hong Kong residents. It applies to actions and
13:36
Speaker 1: to people anywhere in the world. So this is really
13:40
Speaker 1: China stamping its authority over Hong Kong and defiantly saying
13:45
Speaker 1: to the rest of the world, we don't care what
13:47
Speaker 1: your reaction is. Jody, what do you expect the reaction
13:52
Speaker 1: to be from the folks on the ground. We've seen protests,
13:54
Speaker 1: you know, really over the last year or so. What
13:56
Speaker 1: do you expect the response to be. Well, they obviously
14:01
Speaker 1: UM their law and come the law coming out in
14:03
Speaker 1: July one was you know, that was not coincidental. I
14:08
Speaker 1: mean it was meant to try to quell dissent. This
14:10
Speaker 1: is UH. It has been put into effect after eight
14:14
Speaker 1: months of increasingly UH anti China, viarrantly anti China and
14:19
Speaker 1: UM and somewhat violent, they got more violent protests UH,
14:22
Speaker 1: and there was this was something that embarrassed central government
14:26
Speaker 1: and UH, and they found that they didn't have any
14:29
Speaker 1: tools at that time to deal with it. Then you
14:31
Speaker 1: had the pandemic and thinks uh just uh demonstration stopped.
14:35
Speaker 1: So they were this is when they were decided to
14:39
Speaker 1: come in in this way to really quell not only
14:41
Speaker 1: the dissent, but to really try to to um, you know,
14:45
Speaker 1: take take charge in a much more um, much more
14:48
Speaker 1: significant way than they had, even though in recent years
14:51
Speaker 1: there had been more intrusions into Hong Kong's economy autonomy
14:56
Speaker 1: excuse me. So at this point the question is just, um,
15:00
Speaker 1: you know, how do companies read this, How do people
15:02
Speaker 1: read this in terms of whether you know, when they
15:05
Speaker 1: decide um that they might leave or um, if they stay,
15:09
Speaker 1: what kinds of accommodations they're going to have to make?
15:13
Speaker 1: And that's really that's the question. That's where we are.
15:16
Speaker 1: Jody Schneider, thanks so much for joining your senior international
15:18
Speaker 1: editor in co Lea of Women's Voices in Asia four
15:20
Speaker 1: Bloomberg News, and Andrew Brown, editorial director Bloomberg New Economy Form.
15:24
Speaker 1: We appreciate your thoughts. Markets rebounding pretty dramatically off of
15:32
Speaker 1: those bottoms that we experienced right at the beginning of
15:35
Speaker 1: the pandemic in March. In April, a lot of folks saying, Gee,
15:38
Speaker 1: have I missed the bounce? Is it too far? Is
15:41
Speaker 1: a market too rich? What do I do here? Jack
15:43
Speaker 1: Channes See Which, senior vice president portfolio strategists and portfolio
15:47
Speaker 1: manager for uh Nactisis Investment Managers, joins us. They have
15:52
Speaker 1: about a trillion dollars and assets under management, so they
15:55
Speaker 1: know a thing or two about the markets. Jackson, thanks
15:58
Speaker 1: so much for joining us here. Again, probably the commentary
16:02
Speaker 1: that we hear most from investors is have I missed it?
16:06
Speaker 1: The market cratered during the pandemic. Certainly we're gonna understand that,
16:11
Speaker 1: but it's had a dramatic rebound off of the bottom.
16:15
Speaker 1: What do we do here? What are you telling your clients? Yeah,
16:18
Speaker 1: so thanks for having me on this morning. Um, you know,
16:21
Speaker 1: right now I would sort of characterize the market. It's
16:24
Speaker 1: a it's a push and pull right now between fundamentals
16:27
Speaker 1: and technicals and sentiment. And you know, the fundamental backdrop
16:31
Speaker 1: is still I think a little bit squishy. But the
16:34
Speaker 1: bigger overriding factor, I think are the are the technicals
16:37
Speaker 1: in the positioning in the marketplace, And so when we
16:40
Speaker 1: have our conversations with clients and they ask those sort
16:43
Speaker 1: of same questions. To us, we're simply saying we think
16:46
Speaker 1: there's further upside, and a lot of that is simply
16:48
Speaker 1: because some of the things that we follow, meaning that
16:51
Speaker 1: the positionings that we've see with our clients, some of
16:54
Speaker 1: the internal models that we run, for example for looking
16:57
Speaker 1: at ct A exposure along short funds, um retail investors,
17:01
Speaker 1: and I mean, we've been basically seeing that outflow since
17:03
Speaker 1: the beginning of March, I started beginning of February. To us,
17:08
Speaker 1: you know, the positioning is still fairly light, and so
17:10
Speaker 1: even though we've bounced off the bottom, there's still plenty
17:13
Speaker 1: of people that I think have been caught sort of
17:15
Speaker 1: more defensively positioned, haven't really enjoyed the games that we've seen,
17:19
Speaker 1: and as a result, to us, the pain trade is
17:21
Speaker 1: still higher and these guys are gonna have to chase
17:23
Speaker 1: the market higher in here. So you know, we're telling
17:25
Speaker 1: our clients were leaning a little bit more to being
17:27
Speaker 1: still risk on and think the upside is where the
17:29
Speaker 1: market is probably going to continue to grind right now,
17:32
Speaker 1: we will convince these people to get in. And I
17:34
Speaker 1: agree with you this is a sort of a contrarian
17:37
Speaker 1: point for many. They say that particularly gen xers and
17:41
Speaker 1: and boomers for example, haven't really participated because it didn't
17:44
Speaker 1: look like the most sure of things. But will there
17:47
Speaker 1: be something that will convince them or do we have
17:49
Speaker 1: to see it like lower before they jump in. No,
17:52
Speaker 1: my guess is that, you know, the biggest the biggest
17:55
Speaker 1: impact I think to that sentiment backdrop is simply seeing
17:58
Speaker 1: other people around you making money, right, and so there's
18:02
Speaker 1: more people sort of start to kind of capitulate and
18:04
Speaker 1: put money back to work, and then you have those
18:06
Speaker 1: conversations with your friends about how well your you know,
18:09
Speaker 1: your portfolio is doing. I think that's one of the
18:11
Speaker 1: things that you're gonna start to see people get squeezed
18:13
Speaker 1: back in on. But uh, so that sentiment perspective I
18:17
Speaker 1: think matters, and then the other one, I think it
18:18
Speaker 1: is just getting a better sense in terms of feeling
18:21
Speaker 1: more safe with regard to the virus. And you know,
18:23
Speaker 1: at the end of the day, we've been sort of
18:24
Speaker 1: telling our clients listen, until we get a vaccine, you're
18:26
Speaker 1: gonna have to learn to live with this um. We're
18:29
Speaker 1: slowly learning things along the way, and I think that's
18:32
Speaker 1: gonna help. So when we start to have to sort
18:34
Speaker 1: of think about the potential for a second wave coming
18:36
Speaker 1: towards the end of the year, you know, we've learned
18:39
Speaker 1: how to deal with this, so maybe we don't have
18:41
Speaker 1: to have these draconian lockdowns, so to speak. They could
18:43
Speaker 1: be more targeted, and that's going to help people feel
18:46
Speaker 1: a little bit better about getting back into the markets
18:48
Speaker 1: because you're not going to have these severe lockdowns and
18:50
Speaker 1: have the ramifications filtering through the equity space as a result. So, Jack,
18:55
Speaker 1: what are some of the sectors that you guys are
18:57
Speaker 1: looking at right now? Yeah, so we've been basically looking
19:01
Speaker 1: at someone of a barbell approach. Um. You know, it's interesting.
19:04
Speaker 1: We still think tech is going to continue to be
19:06
Speaker 1: a leader going forward, but more recently tech seems to
19:10
Speaker 1: become more of a defensive play. Right. Um, you're seeing
19:13
Speaker 1: a lot more of the UH in the downside markets.
19:15
Speaker 1: You know, the NASA continue to outperform, and I think
19:18
Speaker 1: that's a function of that sort of stay at home
19:20
Speaker 1: economy will continue to benefit the tech side of the equation.
19:23
Speaker 1: But you know, a longer term, we still think tech
19:25
Speaker 1: is the right way to play this, UM, but we're
19:27
Speaker 1: also thinking that the reopening is going to continue. It's
19:30
Speaker 1: gonna be choppy, it's gonna be uneven UM. But as
19:33
Speaker 1: that continues to sort of move forward, that cyclical bias
19:37
Speaker 1: is going to come back and leak back into the market.
19:40
Speaker 1: So we're sort of thinking, you know, have a little
19:42
Speaker 1: bit of exposure to the cyclical side of the equation,
19:45
Speaker 1: also have a little bit of exposure to the tech side,
19:47
Speaker 1: and that sort of barbel It's trade. I think it
19:49
Speaker 1: provides you with a little bit of upside, also with
19:51
Speaker 1: a little bit of cushing to the downside. If we
19:53
Speaker 1: get a little bit of weakness to going forward, what
19:56
Speaker 1: about elsewhere? What kind of assets look cheaper now? A
19:59
Speaker 1: lot ab real assets for example, like real estate or gold. Yeah,
20:03
Speaker 1: so gold is the interesting one for us, because you know,
20:06
Speaker 1: we've been doing a little bit of digging on the
20:08
Speaker 1: back of this. When you start to talk about your
20:10
Speaker 1: traditional sixty portfolio. You know, with the ten years sitting
20:14
Speaker 1: close to seventy basis points on yield, you're not getting
20:17
Speaker 1: a ton of cushion UM. And so even if let's
20:20
Speaker 1: say rates collapsed to zero UM, I don't think there's
20:23
Speaker 1: a ton of downside or a ton of cushioning that
20:26
Speaker 1: the spreads will give you with regard to trying to
20:28
Speaker 1: opposite some of your equity risk. And so I think
20:32
Speaker 1: we started to look at gold really becoming more of
20:35
Speaker 1: that defensive posture for the portfolio. And so maybe we're
20:39
Speaker 1: thinking about replacing some of our fixed income treasury safe
20:43
Speaker 1: haven assets with gold. So maybe the sixty forty is
20:46
Speaker 1: no longer sixty for example. So um, you know, it's
20:51
Speaker 1: tough with with field as low as they already give
20:53
Speaker 1: you that sort of defensive cushion for the equity side
20:55
Speaker 1: of your portfolios. And as a result, you know, gold
20:57
Speaker 1: probably makes a little bit more sense just given the opportunities,
21:00
Speaker 1: with the lack of opportunity out there for that sort
21:02
Speaker 1: of equity offset in the typical portfolios. Jack, fascinating to
21:06
Speaker 1: speak with you. Thank you very much, and do come
21:08
Speaker 1: on again soon. Jack Switz is portfolio strategist, a manager
21:12
Speaker 1: under Texas Investment Managers. Plenty of money in assets under management,
21:16
Speaker 1: about a trillion dollars in facts Pole So there. Yeah,
21:20
Speaker 1: they're all over in every market, in every geography exactly right.
21:24
Speaker 1: So it's interesting to see, uh, you know, Jack still
21:27
Speaker 1: talking about some upside and this market given you know,
21:29
Speaker 1: the uh pop off of that bottom that we saw
21:33
Speaker 1: there in late March early April. I've got some auto
21:38
Speaker 1: sales data today. Fiat Chrysler General Motors reported their US
21:42
Speaker 1: auto sales. I guess they dropped less than expected. Let's
21:46
Speaker 1: get the details. We can do that with Kevin Tynan.
21:48
Speaker 1: He's a senior autos analyst for Bloomberg Intelligence. So, Kevin,
21:52
Speaker 1: what are some of your takeaways here as we take
21:54
Speaker 1: a look at auto sales and we take a look
21:55
Speaker 1: at perhaps a signal of how the consumer and the
21:59
Speaker 1: economy is doing right here. Yeah, and I think, um,
22:03
Speaker 1: from for me looking at the numbers, I think something
22:06
Speaker 1: like Fia Chrysler gets a little bit lost in that.
22:10
Speaker 1: That's a quarterly number, right, so nothing really happened in
22:13
Speaker 1: in April and May, and just like in the first quarter,
22:18
Speaker 1: you know, a lot happened in January and February and
22:21
Speaker 1: half of March. But I think you know what you're
22:24
Speaker 1: gonna get is pretty strong June. Um, if you break
22:28
Speaker 1: out those numbers and can see the monthly, which you
22:30
Speaker 1: can do with some of the Asia based automakers that
22:33
Speaker 1: are still reporting monthly, like HU the Hyundai brand out
22:37
Speaker 1: of Hundai Kia was plus six percent in June. So
22:40
Speaker 1: I think that's what you're getting is that this less
22:43
Speaker 1: bad of big you know, a big drop number is
22:48
Speaker 1: actually pretty decent coming out of June. I'm not sure
22:52
Speaker 1: how sustainable that is given supply issues, but um, I
22:56
Speaker 1: think there's reason for hope that we get back to
22:59
Speaker 1: normalize numbers relatively quickly. We're people spending their stimulus checks
23:04
Speaker 1: or how are they paying for Kevin or is this
23:06
Speaker 1: all going on sor the never never? And will that
23:09
Speaker 1: become a problem. Yeah, Well, it looks like Bonnie that
23:12
Speaker 1: the you know, the incentives that are being rolled out,
23:15
Speaker 1: and and I tell people this all the time. Look,
23:17
Speaker 1: incentives are about managing inventory. There is no inventory. So
23:22
Speaker 1: I think people think this might be a buyer's market
23:25
Speaker 1: because automakers want, you know, need to generate revenue. But
23:29
Speaker 1: if dealerships only have so many of a specific product,
23:32
Speaker 1: they're not really going to throw good money after bad
23:35
Speaker 1: uh and sell down supply at lower margins. So what
23:38
Speaker 1: you're getting the incentives are these long term loans or
23:43
Speaker 1: zero percent or deferred payments, which you know, it looks
23:47
Speaker 1: good and it entices the buyer into the showroom. But
23:50
Speaker 1: really all it does is create negative equity where you know,
23:53
Speaker 1: you have to own that vehicle even longer otherwise you're
23:55
Speaker 1: going to continue to owe on it. So, Kevin, where
23:58
Speaker 1: are we in terms of men facturing capacity? We know
24:02
Speaker 1: the most of the US auto plants were shut down
24:05
Speaker 1: because of the virus. They're starting to open up right now.
24:07
Speaker 1: Where are we? Yeah, not very close yet. Um you know,
24:12
Speaker 1: looked at the May numbers of production and it was
24:15
Speaker 1: like a minus you know, seventy, So we're still you know,
24:21
Speaker 1: in April was basically zero. Nothing was built in April.
24:25
Speaker 1: May was just under four hundred thousand units. But to
24:29
Speaker 1: put that in context, May of was one point five
24:32
Speaker 1: million units. So that's about how far away we are.
24:36
Speaker 1: One of the better performers was Toyota. In fact, their
24:39
Speaker 1: sales were done twenty six point seven percent. The estimate
24:42
Speaker 1: was th But the other notable thing about Toyota today
24:45
Speaker 1: is that it became the second most valuable car maker
24:48
Speaker 1: in the world behind Tesla. That might all change and
24:51
Speaker 1: as soon as trading starts up again, particularly in Japan obviously,
24:56
Speaker 1: but you know, what does that say about the whole system?
24:59
Speaker 1: Are we looking at kind of you know, legacy companies.
25:02
Speaker 1: At this point, I guess it's such a difficult topic.
25:07
Speaker 1: I mean almost I've gotten to the point, Vonnie, where
25:10
Speaker 1: I look at ranking auto companies by market cap is
25:14
Speaker 1: like ranking them alphabetically. So you know, by that measure,
25:17
Speaker 1: Aston Martin is way ahead of Tesla's so for whatever
25:21
Speaker 1: that's worth. But you know, I mean, if you're gonna
25:23
Speaker 1: pick that one measure, yeah, but you know, talk about volume,
25:28
Speaker 1: talk about profitability, talk about you know, all these other
25:31
Speaker 1: things that we used to value automakers, and it you're right,
25:35
Speaker 1: it doesn't make a whole lot of sense. Um. But
25:39
Speaker 1: you know, if I'm looking at the fundamentals and the
25:41
Speaker 1: structure of a company, you know, I still kind of
25:44
Speaker 1: like Toyota. So anyway, just Kevin, thanks so much for
25:49
Speaker 1: joining us. I note that this is gonna be something
25:51
Speaker 1: bonny for Kevin, that Teslas has a bigger market Captain Toyota,
25:55
Speaker 1: as you were mentioning, is for tried and true auto analysts.
25:57
Speaker 1: It's gotta be tough to swallow. Yeah, I mean, he
26:00
Speaker 1: didn't sound too convinced, So let's just put it that way.
26:02
Speaker 1: We'll see what happens in the in the trading for
26:04
Speaker 1: the rest of the month. Thanks for listening to the
26:07
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
26:11
Speaker 1: at Apple Podcasts or whatever a podcast platform you prefer.
26:15
Speaker 1: I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn. And
26:18
Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before
26:20
Speaker 1: the podcast, you can always catch us worldwide at Bloomberg Radio.