Latest / Bloomberg Intelligence / OPEC Can't Fix Oil Demand Destruction: KPMG's Mayor

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OPEC Can't Fix Oil Demand Destruction: KPMG's Mayor · Bloomberg Intelligence

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  Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits each day
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  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: you and your money. Whether at the grocery store or
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  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Let's take a look at the
• 0:20
  Speaker 1: oil as we think about the coronavirus clearly potentially going
• 0:24
  Speaker 1: to have a negative impact on global global growth. That
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  Speaker 1: is what the market is discounting. When you take a
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  Speaker 1: look at oil, you see that as well. W T
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  Speaker 1: I and Brent both down over from their highs, reflecting
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  Speaker 1: the concern about global growth. Opex trying to respond today
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  Speaker 1: announcing that they will they look to reduce output by
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  Speaker 1: one point five million barrels. I get the latest. We
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  Speaker 1: welcome Regina Mayor. She's the global energy head for KPMG
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  Speaker 1: based in Houston. Regina, thanks so much for joining us here.
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  Speaker 1: Give us your sense of kind of the opeque move
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  Speaker 1: here that one point five million barrel cut to output.
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  Speaker 1: It's noted that Russia Mayor man May not be supporting it.
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  Speaker 1: So you're right. The market is in free fall around
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  Speaker 1: crude price, and it's very substantial. We're seeing significant demand destruction,
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  Speaker 1: and current projections are that global demand will at least
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  Speaker 1: be flat and potentially negative, and that would be only
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  Speaker 1: the fourth time in forty years that we've seen global
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  Speaker 1: demand go negative. So OPEC is trying to take decisive
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  Speaker 1: action to stem the tide. If they do the one
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  Speaker 1: point five million barrels per day, which has not been
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  Speaker 1: agreed to by OPEC, plus and Russia being a key
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  Speaker 1: constituent there, that would reduce supply by three and a
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  Speaker 1: half percent, which would be roughly in line with flat
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  Speaker 1: demand or even slightly declined demand, which hopefully puts the
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  Speaker 1: market more imbalanced. But right now, the market seems to
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  Speaker 1: be shrugging off the decisions that were even made today,
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  Speaker 1: and they seem to be unimpressed by the actions that
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  Speaker 1: have been taken Regina. Earlier this morning, Jeff Curry of
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  Speaker 1: Goldman Sacks came on Bloomberg Surveillance and was talking about
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  Speaker 1: how he expects oil prices to fall and I'm talking
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  Speaker 1: Brent could fall to or even below barrel this year
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  Speaker 1: in terms of the expectations of growth to you agree,
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  Speaker 1: I do not agree that will will go that low,
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  Speaker 1: but I did not believe that we would be in
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  Speaker 1: this territory. So without decisive action tomorrow, it could potentially
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  Speaker 1: be forty. I would say for w T, I think
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  Speaker 1: I find it hard to see a scenario where Brent
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  Speaker 1: dives below forty. But we don't know what's happening with
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  Speaker 1: the coronavirus, and the market is incredibly jittery and not
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  Speaker 1: very rational right now. So, Regina, there was some news
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  Speaker 1: out earlier today that XN is slowing the pace of
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  Speaker 1: its flagship shale project in the Permian basin. So obviously
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  Speaker 1: this raising more concerns at the folks in the Permian
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  Speaker 1: having a tough time at these oil levels. What are
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  Speaker 1: your clients telling you right now? They're saying, it's still
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  Speaker 1: stay the course, uh, steady as we go, And I
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  Speaker 1: think the very large companies have made bold moves to
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  Speaker 1: reassure investors. We're putting we're focusing on the dividend, we're
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  Speaker 1: guaranteeing the dividend, we're focusing on value, We're keeping capex
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  Speaker 1: in line with expectations. They're hopeful that this is a
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  Speaker 1: four to six month process and we'll ultimately see ourselves
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  Speaker 1: wash out of this. And in the end, we have
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  Speaker 1: to make these these big decisions because these are long
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  Speaker 1: lead time efforts. If we stay in the Permian, there
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  Speaker 1: are players that operate more on the brink, and the
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  Speaker 1: larger players are hoping perhaps that they'll get some of
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  Speaker 1: those other players out of the market, which bodes well
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  Speaker 1: for future Permian activity. How significant will the bankruptcies and
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  Speaker 1: this shall patch be this year? I anticipate that they
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  Speaker 1: will go up. We need to see consolidation. There are
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  Speaker 1: still too many fringe players and the checkerboard of acreage
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  Speaker 1: is still too patchy. Um. The bigger players are consolidating
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  Speaker 1: and they can operate more effectively, but there are moves
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  Speaker 1: that need to be made going down into the forties
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  Speaker 1: that could drive more of the bankruptcies, and I anticipate
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  Speaker 1: that that should chick up. So Regina, overall, let's assume
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  Speaker 1: we are facing no lower demand. Um, what else can
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  Speaker 1: OPEC do on the supply front? Can they take it
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  Speaker 1: another level? And how critical is it having Russia as
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  Speaker 1: a part of this. It's absolutely critical that Russia is
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  Speaker 1: a part of it. Um. That's I think what the
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  Speaker 1: market is waiting for and I don't think that they
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  Speaker 1: can do a whole lot more, which worries me, and
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  Speaker 1: we're probably the Goldman Fort scenario comes into play because
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  Speaker 1: you can't just keep cutting cutting um. The market is
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  Speaker 1: not responding to that. What we really need to see
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  Speaker 1: is demand coming back, and some of the indicators that
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  Speaker 1: I would look for is a return to shipping. So
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  Speaker 1: we have idle manufacturing capacity, we have product that's in
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  Speaker 1: containers waiting to be shipped, we have ships there in quarantine.
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  Speaker 1: Once we start to see the supply chains move more
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  Speaker 1: effectively and we see travel restrictions lifted and some of
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  Speaker 1: the self quarantine activity uh run be taken off, then
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  Speaker 1: demand comes back, and that I think will be the
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  Speaker 1: thing that booies the oil price for the longer period.
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  Speaker 1: There's a question about the elasticity of the market, just
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  Speaker 1: how quickly oil producers can ramp up production if things
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  Speaker 1: get back to normal. Is there concerned that there could
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  Speaker 1: be a whip saw here with the oil prices diving
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  Speaker 1: and then jerking way back up as people start to
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  Speaker 1: uh generate some of the same trade and the same
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  Speaker 1: travel that they had before and without the inventories the
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  Speaker 1: oil production supply chain and production process cannot move as
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  Speaker 1: agilely and as quickly as that. So while some may
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  Speaker 1: say they're slowing down production, I don't actually see that
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  Speaker 1: having a material effect on declining production. To have that
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  Speaker 1: whip saw effect. If they could, they belly would, But
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  Speaker 1: it's not. It's not. You're not able to respond to
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  Speaker 1: that rapidly, So I don't see that forecast. Regina Mayor,
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  Speaker 1: thank you so much for being with us. Regina Mayor,
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  Speaker 1: Global Energy head at KPMG based in Houston. Let's talk
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  Speaker 1: about volatility. Looking at the VIX index right here, thirty
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  Speaker 1: six point zero seven. That's up four points today. This
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  Speaker 1: thing just recently a few weeks ago, down around twelve thirteen.
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  Speaker 1: Incredibly higher risk being priced into the market. And we
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  Speaker 1: talked about market volatility. Is absolutely nobody better to do
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  Speaker 1: it with than Nick call Us, co founder Data Trek Research.
• 6:09
  Speaker 1: He joins us here in a Bloomberg Interactive Broker studio. Nick,
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  Speaker 1: thanks so much for joining us. Are you how are
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  Speaker 1: you thinking about the volatility in this market? Is whether
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  Speaker 1: you should be buying or selling? Here? At most people
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  Speaker 1: it just scares the heck out of them. Well, it
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  Speaker 1: is scary, and that's a very very logical response, at
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  Speaker 1: least an emotional one. If you look at the vix
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  Speaker 1: spect and look at where it kind of levels out
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  Speaker 1: and where it creates a buying opportunity to three levels
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  Speaker 1: that really matter forty two, fifty and fifty eight, because
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  Speaker 1: that's three four and five standard deviations from the long
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  Speaker 1: run mean. I hope Tom Keene is listening. So those
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  Speaker 1: are the levels, and it's worked beautifully so far. On Friday,
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  Speaker 1: during that really cataclysmic low around to one or two pm,
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  Speaker 1: it hit forty nine right on top of four standard deviations,
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  Speaker 1: and so that was so far the bottom. So what
• 6:53
  Speaker 1: we're telling clients is, if you want to trade this
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  Speaker 1: this this tape, look for those levels and don't even
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  Speaker 1: try until forty two and pr to kind of stick
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  Speaker 1: your toe and even deeper at It's interesting. For a
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  Speaker 1: long time, the low interest rate environment was said to
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  Speaker 1: be dampening volatility. Not so this time. No, Because the
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  Speaker 1: low estreating environment was coincided with a low volatility of
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  Speaker 1: GDP growth, a low volatility of unemployment. Those numbers were
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  Speaker 1: getting better or at least flat for a long period
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  Speaker 1: of time, and now we have this shock that says
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  Speaker 1: we have no idea what happens next, and then implied
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  Speaker 1: volatility rises because the volatility of future economic reports going
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  Speaker 1: to be volatile as well. So, Nick, what did you
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  Speaker 1: make of the Fed rate cut intra meeting rate cut
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  Speaker 1: earlier this week? Panic or wise? You know, it comes
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  Speaker 1: down to, I think you got to read the Beige
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  Speaker 1: Book yesterday, because the Beige Book had fifty you want
• 7:44
  Speaker 1: to say, fifty seven mentions of coronavirus or COVID nineteen,
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  Speaker 1: which is higher than the thirty eight mentions that Tariff
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  Speaker 1: scott last year when they began to become a real issue.
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  Speaker 1: And I think you know, chairp How is a big
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  Speaker 1: fan of that Beige Book. He reads it and so
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  Speaker 1: I think he probably looked at the draft over the
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  Speaker 1: weekend and said this is going to be just as
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  Speaker 1: bad or worse as the trade war. And that's what
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  Speaker 1: engendered this, this fifty basis point cut. Right now we're
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  Speaker 1: seeing Fed funds futures price in another fifty basis point
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  Speaker 1: rate cut later this month. What will that do in
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  Speaker 1: terms of stock valuations, in terms of volatility? I mean,
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  Speaker 1: the feels like the answer is very very little. I
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  Speaker 1: think it's the case where you know, the FED is
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  Speaker 1: on the ship and guiding it and it sees the
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  Speaker 1: iceberg ahead, and maybe it's too late to swerve, or
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  Speaker 1: maybe it's not that you gotta try. You gotta turn
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  Speaker 1: the wheel as hard as you can and hope you
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  Speaker 1: miss it, or I hope it's more of a grazing blow.
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  Speaker 1: I think that's the best that can hope for, and
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  Speaker 1: I think realistically they know that. So Nick, you know,
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  Speaker 1: one of the things at least I talk a lot
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  Speaker 1: about is, you know, the interest rate market in a
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  Speaker 1: two year point zero point five eight on the two year,
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  Speaker 1: the ten year back below one. What does this tell you?
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  Speaker 1: You tell you that question, as our clients have asked
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  Speaker 1: that question more often than what does the volatility means?
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  Speaker 1: They view the volatility is sort of a function of
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  Speaker 1: the virus, and that's probably right. They view the move
• 9:05
  Speaker 1: in the ten years, perhaps we're learning something more structural,
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  Speaker 1: and they worry that America has kind of seen its
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  Speaker 1: best days, that economic growth is going to be very slow,
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  Speaker 1: structural GDP growth will be slower, inflation is going to
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  Speaker 1: be non existent. We're gonna end up like Europe and Japan.
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  Speaker 1: And that is the big warrior. My counter argument is
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  Speaker 1: that we're not going to end up that way. That
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  Speaker 1: we still have, you know, a fairly strong economy, a
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  Speaker 1: really strong tech sector, and all the things that create
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  Speaker 1: long term economic growth. But it is a huge source
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  Speaker 1: of concern, far more than I would have thought going
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  Speaker 1: right to that point with tech. What are the levels
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  Speaker 1: at which you buy oh? So the you know, the
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  Speaker 1: way we look at it is tech is the most
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  Speaker 1: volatile part of the market, and so you have to
• 9:47
  Speaker 1: basically think about where the market can go and how
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  Speaker 1: bad it can get. And they are not to go
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  Speaker 1: back to the standard deviation math, but a five percent
• 9:53
  Speaker 1: down day is a five standard deviation move. That is
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  Speaker 1: the kind of levels where you get real panic, and
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  Speaker 1: we outside of oh eight, we've never really seen it
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  Speaker 1: for a very long period of time. So the bottom
• 10:04
  Speaker 1: line is, if you want to trade tech, you wait
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  Speaker 1: for a big, big down day, a down five percent
• 10:08
  Speaker 1: day on the SMP where tech is down seven, eight,
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  Speaker 1: nine percent, and that's the kind of low that you
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  Speaker 1: can safely nibble away at. So if it goes down
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  Speaker 1: nine percent more from here at Facebook in a day,
• 10:19
  Speaker 1: Google in a day, you're in there buying interesting. So
• 10:24
  Speaker 1: as we think about the market here. I mean, are
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  Speaker 1: you thinking about we are in fact in a you know,
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  Speaker 1: you know, not a stagflation, but a lower growth for longer.
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  Speaker 1: Is that kind of your base case here over the
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  Speaker 1: next several years? It is strongtly the base case for
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  Speaker 1: at least the next year or two. You know. I
• 10:40
  Speaker 1: think there were early on back in January, which feels
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  Speaker 1: like a thousand years ago, there was a hope this
• 10:44
  Speaker 1: is going to be a V bottom kind of event.
• 10:47
  Speaker 1: We look at Chinese pollution and traffic congestion data to
• 10:51
  Speaker 1: get a sense of how quickly the Chinese economy is
• 10:53
  Speaker 1: coming back online. The good news is morning and evening
• 10:56
  Speaker 1: rush hour in the five biggest cities is now getting
• 10:58
  Speaker 1: back to normal. And in Shenzen, which is really important
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  Speaker 1: for tech, it's back to normal. Pollution is getting back
• 11:02
  Speaker 1: to normal. But we can traffic still very slow. Midday
• 11:05
  Speaker 1: traffic still very slow. So this isn't going to be
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  Speaker 1: a V bottom. It's going to be a slow grinding
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  Speaker 1: improvement of higher not just for the US but everywhere
• 11:12
  Speaker 1: in the world. I was reading a Project Syndicate column
• 11:14
  Speaker 1: by Harvard professor kind of throw Off last night, and
• 11:17
  Speaker 1: he was talking about how This is fundamentally different from
• 11:20
  Speaker 1: other issues that the Fed and Central banks globally have
• 11:23
  Speaker 1: dealt with. And when we talk about, you know, the
• 11:25
  Speaker 1: idea of rate repression, we talk about no inflation. This
• 11:30
  Speaker 1: time he was arguing, could be different because the disruption
• 11:33
  Speaker 1: is on the supply side, not the demand side. When
• 11:37
  Speaker 1: you have a disruption and supplies the demand is still there,
• 11:40
  Speaker 1: that means prices get bit up and we could end
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  Speaker 1: up in a nineteen seventies like situation. Do you give
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  Speaker 1: any credence to that idea super smart guy, so you
• 11:49
  Speaker 1: can't just blow it off. But I'll tell you, I'll
• 11:50
  Speaker 1: give you, you know, two anecdotes. The first is the
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  Speaker 1: China traffic One. China consumer is not back. There is
• 11:55
  Speaker 1: no consumer demand in China to speak of, for all
• 11:58
  Speaker 1: the obvious reasons. Walking across town from from the West
• 12:01
  Speaker 1: side of Manhattan this morning, I was able to jaywalk
• 12:04
  Speaker 1: across Park Avenue in the middle of the day because
• 12:06
  Speaker 1: there was no traffic for a block and a half.
• 12:10
  Speaker 1: It just says that normal midtown traffic, which is usually
• 12:12
  Speaker 1: quite heavy, is extremely light in New York and that
• 12:15
  Speaker 1: could be a function of tourism, which is obviously down.
• 12:18
  Speaker 1: It could be a function of work from home. But
• 12:20
  Speaker 1: I can tell you haven't lived in New York my
• 12:21
  Speaker 1: whole life as you have. Looks very light out there.
• 12:24
  Speaker 1: It's not quite back to oh eight levels, but it
• 12:26
  Speaker 1: is light. What is your sense of how long will
• 12:30
  Speaker 1: take the cycle through the U S economy? I mean,
• 12:32
  Speaker 1: because it's the V is probably out of the discussion,
• 12:35
  Speaker 1: as you were suggesting. Yeah, the V feels like it's
• 12:38
  Speaker 1: off the table for now, and it feels like it's
• 12:40
  Speaker 1: three to six months, three months being kind of dragging
• 12:44
  Speaker 1: your way down towards the bottom of whatever happens, and
• 12:46
  Speaker 1: then three months coming back. And I think there's a
• 12:49
  Speaker 1: piece of this that really revolves around holiday and Christmas
• 12:51
  Speaker 1: as well, both from the supply and the demand side,
• 12:54
  Speaker 1: because if you do get an economic shock, then you
• 12:56
  Speaker 1: do have a different picture going into holiday and as
• 12:58
  Speaker 1: well as the elections. So unfortunately, this touches on every
• 13:01
  Speaker 1: single topic investors care about. Nicholas, thank you so much
• 13:04
  Speaker 1: for being with us. Nicholas is co founder of data
• 13:07
  Speaker 1: Check Research, joining us here in our interactive broker studios.
• 13:22
  Speaker 1: We are looking at markets pulling back a little bit
• 13:24
  Speaker 1: from their earlier lasses still solidly in the red and
• 13:28
  Speaker 1: the question for a lot of people is not just
• 13:30
  Speaker 1: when do I buy the dip, but when do I
• 13:31
  Speaker 1: even get involved? How do I even understand when to
• 13:34
  Speaker 1: make allocation shifts into response to this news, Barry red
• 13:37
  Speaker 1: Holds joins us now Bard Holds, founder of Widholds Wealth
• 13:40
  Speaker 1: Management and a Bloomberg opinion columnist. Barry, I know what
• 13:42
  Speaker 1: your advice is, sixty forty, keep it in long term boom.
• 13:47
  Speaker 1: But I have a question for you, based on what
• 13:49
  Speaker 1: is going on currently right and that is how much
• 13:52
  Speaker 1: do we have to bring down our earnings and our
• 13:55
  Speaker 1: dividend expectations for the S and P five hundred at
• 13:58
  Speaker 1: this point given what we're seeing with respect to some
• 14:01
  Speaker 1: of the guidance that we're getting out of airlines, out
• 14:03
  Speaker 1: of entertainment companies, out of gaming companies, Sure anything involving
• 14:08
  Speaker 1: travel tourism go down the list. The more challenging aspect
• 14:13
  Speaker 1: that's easy airlines kind of to zero. They're they're gonna
• 14:16
  Speaker 1: have their profits, are gonna be for the quarter, are
• 14:20
  Speaker 1: going to really be pressured. The bigger question that I
• 14:23
  Speaker 1: think we have a hard time answering is what about
• 14:26
  Speaker 1: the global supply chain. Already there have been rumors of
• 14:30
  Speaker 1: an inability to replace iPhones from Verizon and A T
• 14:34
  Speaker 1: and T because the shipments are down. So the bad
• 14:38
  Speaker 1: news is, we don't know how severe this is going
• 14:42
  Speaker 1: to be, and we don't know how long it's gonna last.
• 14:46
  Speaker 1: The good news is every time we've seen one of
• 14:49
  Speaker 1: these over the past century, it has its impact, it lasts,
• 14:53
  Speaker 1: say a couple of quarters, and then on the other side,
• 14:56
  Speaker 1: with things go back to normal. Today we have a
• 14:59
  Speaker 1: double bled sword. On the one hand, we can develop
• 15:03
  Speaker 1: tests to see if you're positive or negative much quicker
• 15:06
  Speaker 1: than we have were able to do before, and theoretically
• 15:09
  Speaker 1: will come up with a vaccine for those of us
• 15:11
  Speaker 1: who actually believe in things like science and vaccines, much
• 15:14
  Speaker 1: more quickly than we used to. The flip side of
• 15:17
  Speaker 1: that is technology spreads information and misinformation about this, which
• 15:22
  Speaker 1: leads to panic and fear. I don't think you would
• 15:25
  Speaker 1: have seen a week like last week half a century ago,
• 15:29
  Speaker 1: because the relentless drumbeat of panic and fear and info
• 15:36
  Speaker 1: and miss info just didn't exist in that same way,
• 15:41
  Speaker 1: and so we would not have had that immediate emotional response.
• 15:44
  Speaker 1: You still may have ended up down twelve, but it
• 15:46
  Speaker 1: would have been over a couple of quarters as we
• 15:49
  Speaker 1: actually saw it work its way into earnings instead of
• 15:53
  Speaker 1: work its way into the fear of earnings. Barry, what
• 15:56
  Speaker 1: did you make of the Fed's action earlier this week
• 15:59
  Speaker 1: the fifty base? His point cut was that panic? To you?
• 16:02
  Speaker 1: Was that then looking too much at the markets? Or
• 16:05
  Speaker 1: do you think the underlining data supported it? You know,
• 16:09
  Speaker 1: the data suggests that we're going to have a demand
• 16:14
  Speaker 1: side slowdown. That's all the all the different sectors at
• 16:19
  Speaker 1: least was talking about. That's there. Nothing at all is
• 16:23
  Speaker 1: suggested suggesting if only rates were lower, I would go
• 16:28
  Speaker 1: to Disneyland. If only rates were lower, I could go
• 16:31
  Speaker 1: to the Facebook Developers Conference, or the New York Auto
• 16:35
  Speaker 1: Show or anywhere else, any of these other big events
• 16:38
  Speaker 1: that are being canceled. So it seems that we have
• 16:42
  Speaker 1: developed this unfortunate habit of responding to situations with a
• 16:48
  Speaker 1: monetary solution when it really calls for a fiscal solution.
• 16:53
  Speaker 1: And the old joke is to the man whose only
• 16:55
  Speaker 1: tool is a hammer, everything looks like a nail. We
• 16:58
  Speaker 1: seem to have a band in the traditional Keynesian response
• 17:03
  Speaker 1: to diminish demands for goods and services. Hey, when the
• 17:07
  Speaker 1: private sector slows down, the government should step in uh
• 17:12
  Speaker 1: with either tax cuts or or spending or both to
• 17:15
  Speaker 1: temporarily replace that demands, assuming you want to cushion the
• 17:20
  Speaker 1: blow of the slowing economy caused by this sure and
• 17:24
  Speaker 1: we can talk about what they should do. What they
• 17:26
  Speaker 1: are doing and what they're expected to do is another story.
• 17:29
  Speaker 1: And currently looking at Fed funds futures just more aggressively
• 17:33
  Speaker 1: pricing in lower rates sooner to full rate cuts currently
• 17:38
  Speaker 1: being priced into Fed fund futures for the meeting on
• 17:41
  Speaker 1: March eighteen, in less than three weeks, coming up after
• 17:45
  Speaker 1: their five fifty basis point emergency rate cut, the first
• 17:47
  Speaker 1: that they've done inter meeting since two thousand and eight
• 17:50
  Speaker 1: and since the crisis. Then it raises a question what
• 17:54
  Speaker 1: does it do? Does its support equity valuations anymore, especially
• 17:58
  Speaker 1: if the response is to something that we cannot evaluate
• 18:02
  Speaker 1: right now in its face. We don't know how much
• 18:04
  Speaker 1: it's going to bring down earnings, We don't know the
• 18:06
  Speaker 1: relative valuation case at this point. Is this the time
• 18:09
  Speaker 1: when we see that relationship lower rates pushing up this
• 18:13
  Speaker 1: sort of risk to you know, they search for for yields.
• 18:16
  Speaker 1: This this flight to risk is that connection broken. I'm
• 18:21
  Speaker 1: not sure if it's broken. What what seems to be
• 18:24
  Speaker 1: going on? And this is I have access to the
• 18:29
  Speaker 1: same information that you do. I'm not speaking to fit insiders.
• 18:32
  Speaker 1: I don't know what they're talking about. I do recall
• 18:36
  Speaker 1: them saying a long time ago, I think it was January,
• 18:40
  Speaker 1: that they're concerned about negative interest rates. We heard that
• 18:43
  Speaker 1: throughout Well, if you want negative interest rates in the
• 18:48
  Speaker 1: United States, hey keep cutting uh federal funds rates. If
• 18:52
  Speaker 1: you drive that low enough, eventually your worst nightmare will
• 18:56
  Speaker 1: be here, which is negative interest rates. So I don't understand.
• 19:00
  Speaker 1: Are they responding to presidential pressure? Does the Fed have
• 19:05
  Speaker 1: the same sort of unhealthy obsession with how high the
• 19:09
  Speaker 1: stock market is that the president does. It's hard to judge.
• 19:12
  Speaker 1: From the outside. It looked like panick to me. And
• 19:18
  Speaker 1: it also looked like the wrong um prescription. You know,
• 19:23
  Speaker 1: an aspirin isn't gonna cure um a common cold, and
• 19:28
  Speaker 1: and this sort of viral infection is going to have
• 19:31
  Speaker 1: an ongoing impact on demand that we have no idea
• 19:35
  Speaker 1: how big it's going to be cutting rates, talk about
• 19:38
  Speaker 1: pushing on a string. How are cutting rates going to
• 19:41
  Speaker 1: have a positive impact on this, it's it's really really surprised.
• 19:44
  Speaker 1: You know. I was speaking with Jim Bianca earlier this morning.
• 19:46
  Speaker 1: I love his world well, and one thing he said
• 19:49
  Speaker 1: is that there is actually a fundamental plumbing issue that
• 19:53
  Speaker 1: as people the repost side or and I mean that
• 19:56
  Speaker 1: that's well known free how long over a year now,
• 20:00
  Speaker 1: but that basically, uh, that that people have been pulling
• 20:03
  Speaker 1: their cash out of markets. That basically cutting rates will
• 20:07
  Speaker 1: help ameliorate some of the plumbing issues. If you have
• 20:11
  Speaker 1: a problem with the repo market because of a lack
• 20:13
  Speaker 1: of liquidity, as we learned in the aftermath of eight
• 20:16
  Speaker 1: oh nine, the solution is to flood that market with
• 20:19
  Speaker 1: additional liquidity. I don't think rates make all that much
• 20:23
  Speaker 1: of a difference. I think they have an ability. The
• 20:26
  Speaker 1: FED has an ability to take a market that is
• 20:29
  Speaker 1: I don't want to say frozen, but creaky. Remember the
• 20:33
  Speaker 1: eight seven crash was caused by plumbing issues, uh, within
• 20:37
  Speaker 1: the market structure. I mean literally, Um, this is really
• 20:42
  Speaker 1: a much more narrow little niche hopefully less systemic than
• 20:48
  Speaker 1: what we saw in eight seven. But the FED is
• 20:50
  Speaker 1: aware of it. We know how to fix it. We
• 20:53
  Speaker 1: just did this a decade ago. None of it has
• 20:55
  Speaker 1: to do with rates that by any historical measure, are
• 20:59
  Speaker 1: incredibly low and very accommodative. So I don't understand the
• 21:04
  Speaker 1: FED and their hammer. Everything apparently is in now. Barry Ridholtz,
• 21:08
  Speaker 1: thanks so much for joining us. As always, Buries a
• 21:11
  Speaker 1: Bloomberg opinion columnist. He's also host of Master's in Business
• 21:15
  Speaker 1: on Bloomberg Radio. When we talk about the disruptions to
• 21:25
  Speaker 1: business in the wake of the coronavirus outbreak, we really
• 21:28
  Speaker 1: have to focus on the airline industry, in particular the
• 21:31
  Speaker 1: fact that there is a new estimate that more than
• 21:33
  Speaker 1: a hundred billion dollars of revenue will be taken off
• 21:36
  Speaker 1: the top line of airlines given the coronavirus outbreak. And
• 21:40
  Speaker 1: for more details, Brendan Case joins US now Industrial, Aerospace
• 21:44
  Speaker 1: and Chemicals Team leader for Bloomberg. Brendan how are airlines
• 21:47
  Speaker 1: responding to this so far? What they're doing is moving
• 21:51
  Speaker 1: very quickly to cut costs. UM United and Jet Blue
• 21:56
  Speaker 1: have announced that they're going to trim flights in the
• 21:59
  Speaker 1: short term. UM and I think we'll probably see a
• 22:01
  Speaker 1: lot more of that. Jet Blue was in fact very
• 22:04
  Speaker 1: explicit about the need to preserve cash, which it's certainly
• 22:08
  Speaker 1: not a phrase that you would have expected the airline
• 22:10
  Speaker 1: industry to be using just a couple of months ago. Um.
• 22:13
  Speaker 1: This is an industry that has been consistently making a
• 22:17
  Speaker 1: lot of money after all of the consolidation that it
• 22:20
  Speaker 1: went through over the last decade UM, and now all
• 22:24
  Speaker 1: of a sudden it's facing uh, you know, a very
• 22:27
  Speaker 1: very big crisis. So Brendan, it's interesting here how much
• 22:31
  Speaker 1: can and how quickly can these airlines cut their costs
• 22:35
  Speaker 1: to offset uh slowing demand on from consumers. Well, they
• 22:41
  Speaker 1: can certainly do things like pair their flight schedules. They
• 22:46
  Speaker 1: can they can stop flying some planes um and and
• 22:49
  Speaker 1: and they'll have a bit of a cost break on
• 22:51
  Speaker 1: on jet fuel, which which also because of coronavirus, has
• 22:55
  Speaker 1: been going down quite a lot in price UM. But
• 22:58
  Speaker 1: what they can't do is rest onto a situation where, um,
• 23:02
  Speaker 1: where people just aren't flying. And we don't have a
• 23:04
  Speaker 1: whole lot of of of great data about about that yet. UM.
• 23:09
  Speaker 1: But you know, this is an industry that has said
• 23:11
  Speaker 1: that it's ready for something like a recession, which would
• 23:15
  Speaker 1: you know, entail certainly a consistent sluggishness in demand. But
• 23:21
  Speaker 1: I think what people are are wondering about now is
• 23:23
  Speaker 1: just how sharp the drop in bookings will be over
• 23:27
  Speaker 1: the next the next few weeks, in few months. Is
• 23:30
  Speaker 1: anyone talking about actual insolvencies. That seems like a little
• 23:36
  Speaker 1: far fetched, especially in the US. Certainly in Europe you're
• 23:39
  Speaker 1: already seeing it with with Flyby going into administration today.
• 23:44
  Speaker 1: In Great Britain. There's also certainly other carriers such as
• 23:47
  Speaker 1: Norwegian and Alatalia that have been financially weak in recent months.
• 23:53
  Speaker 1: In the US, though, um, you've got that, You've got
• 23:55
  Speaker 1: an industry that is dominated by four or five really
• 23:59
  Speaker 1: big carriers um and at this point it seems like barring,
• 24:05
  Speaker 1: you know, a situation that drags on and on. Um,
• 24:09
  Speaker 1: you've got companies that that in theory at least should
• 24:13
  Speaker 1: have the sort of the wherewithal to to to to
• 24:17
  Speaker 1: web of the crisis. But again it depends on it
• 24:19
  Speaker 1: depends on how it shapes up. So Brenda, we've been
• 24:22
  Speaker 1: seeing headlines really over the last week or so about
• 24:24
  Speaker 1: corporations severely curtailing business travel. Have the airlines also seeing
• 24:31
  Speaker 1: material cancelations just from consumers, vacation goers, that type of thing.
• 24:36
  Speaker 1: That's one of the questions that were very keen to
• 24:38
  Speaker 1: learn more about. UM. Certainly their comments about a sharp
• 24:41
  Speaker 1: drop in demand over the last twenty four hours would
• 24:44
  Speaker 1: indicate that that's the case. UM. We don't have a
• 24:48
  Speaker 1: whole lot of insight about that, though certainly you know
• 24:50
  Speaker 1: we're in we're in the spring break timetable, and the
• 24:53
  Speaker 1: airlines are already already getting ready, uh for the summer,
• 24:58
  Speaker 1: the summer travel season. UM, But we don't have a
• 25:02
  Speaker 1: whole bunch of data on that so far. The way,
• 25:04
  Speaker 1: we do have data on the business cutbacks that you mentioned,
• 25:08
  Speaker 1: which which last night, by the way, UM, you know
• 25:11
  Speaker 1: Boeing joined those ranks, boat Bowing said it would it
• 25:14
  Speaker 1: would curtail a lot of non essential travel and and
• 25:18
  Speaker 1: rely more on on video meetings. UM. And so there
• 25:21
  Speaker 1: you have. You know, what are the airline industry's biggest
• 25:23
  Speaker 1: suppliers saying there's gonna be less travel for our guys too, Brennan.
• 25:27
  Speaker 1: We've seen the share price of some of these airlines
• 25:30
  Speaker 1: absolutely tumble. How much more does it have to go?
• 25:33
  Speaker 1: When you speak to analysts, UM, you know, there was
• 25:36
  Speaker 1: a no doubt this morning from Bernstein that was saying
• 25:40
  Speaker 1: that it seems like the shares have may be sold
• 25:43
  Speaker 1: off a little bit too much if you if you
• 25:46
  Speaker 1: posit that this will be a relatively temporary disruption. Um.
• 25:52
  Speaker 1: The big question though, is you know, if you have
• 25:55
  Speaker 1: a situation, let's say three or six months from now,
• 25:58
  Speaker 1: where people are staying home, schools or clothes, nobody's flying. Uh,
• 26:03
  Speaker 1: it's really anybody's guess how bad it could get. Brendan,
• 26:06
  Speaker 1: is there any indication from the companies that are considering layoffs? Um, well,
• 26:12
  Speaker 1: they haven't used that word yet, but United did freeze hiring.
• 26:18
  Speaker 1: It also halted any pay increases for management employees until July,
• 26:25
  Speaker 1: and so certainly you're starting to see some indications that
• 26:28
  Speaker 1: things could head in that direction if it gets bad enough. Brendon,
• 26:32
  Speaker 1: thanks so much for joining us. We appreciate it. Brendan
• 26:34
  Speaker 1: Casey's Industrial, Aerospace and Chemicals team leader for Bloomberg News,
• 26:38
  Speaker 1: joining us on the phone. Thanks for listening to the
• 26:40
  Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
• 26:42
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• 26:46
  Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
• 26:49
  Speaker 1: Abram Woyd's I'm on Twitter at Lisa A. Bramwoit's one
• 26:52
  Speaker 1: before the podcast. You can always catch us worldwide on
• 26:54
  Speaker 1: Bloomberg Radio