Latest / Bloomberg Intelligence / Covid Triggering Incredible Opportunities In Fallen Angels: Mellon

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Covid Triggering Incredible Opportunities In Fallen Angels: Mellon · 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. All right, let's spend some
• 0:20
  Speaker 1: time chatting about the credit markets, and let's go out
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  Speaker 1: on the risk spectrum a little bit, talking high yield,
• 0:26
  Speaker 1: talking maybe even fallen angels. We can do that with Paul.
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  Speaker 1: Benson had a fixed income efficient BETA. The firm is Melon,
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  Speaker 1: a B and Y Melon Investment management firm. They have
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  Speaker 1: five hundred and fifty eight billion. That's with a B
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  Speaker 1: under management located in San Francisco. Paul, thanks so much
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  Speaker 1: for joining us here. You know, first of all, I
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  Speaker 1: want to talk about risk return. Talk to us a
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  Speaker 1: little bit about fallen angels. What is a fallen angel
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  Speaker 1: and what kind of activity are we seeing in that market? Yeah, no,
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  Speaker 1: this is a great topic for today. Fallen angels have
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  Speaker 1: really come onto the marketplace here, uh in in size,
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  Speaker 1: in this aftermath of the COVID UH nineteen crisis. So
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  Speaker 1: what a fallen angel is is it's just an investment
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  Speaker 1: grade bond that has been downgraded. So remember the investment
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  Speaker 1: grade sort of ends at the bottom tier at the
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  Speaker 1: triple B rating level. Downgraded below triple B, so it's
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  Speaker 1: now double B R lower that enters the high yield portion.
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  Speaker 1: So really it's just a high yield bond that once
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  Speaker 1: was an investment grade bond. And what investors are seeing
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  Speaker 1: is that these bonds have really really attractive risk return
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  Speaker 1: characteristics and making for a terrific investment in this kind
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  Speaker 1: of environment. So give us some examples of some fallen
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  Speaker 1: angels that have you know, kind of come to the
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  Speaker 1: fore here during the pandemic. So there are actually a ton.
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  Speaker 1: So what's exciting about this this pandemic? Uh, you know,
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  Speaker 1: if anything can be exciting from an investor perspective, it
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  Speaker 1: is that it's an unprecedented delusion of activity and sort
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  Speaker 1: of ratings migration perspective, and the markets really are not
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  Speaker 1: very efficient on the fixed income side at handling that
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  Speaker 1: trans transmission from investment grade investors to high yield investors.
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  Speaker 1: So you know, in typical year you might have twenty billion,
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  Speaker 1: thirty billion dollars of downgrades across a handful of bonds
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  Speaker 1: or or maybe ten or fifteen bonds. In twenty so
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  Speaker 1: far we've had we've had almost two hundred billion dollars
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  Speaker 1: of following angel downgrades. And this spans, you know, across
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  Speaker 1: more than two hundred bonds, two hundred fifty bonds UH.
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  Speaker 1: And it's not just one sector, you know, like in
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  Speaker 1: in the energy crisis in two thousands sixty and it
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  Speaker 1: was predominantly energy bonds. Now this is across everything. This
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  Speaker 1: is across consumer cyclicals, This is across banking, this is
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  Speaker 1: across capital goods, basic industry. You know, you're basically seeing
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  Speaker 1: it all here. And that actually is a real boon
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  Speaker 1: for high yield investors because a diversified play is going
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  Speaker 1: to allow you a much greater chance of success of
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  Speaker 1: harvesting that that patrol risk premium, that discount, rather than
• 3:03
  Speaker 1: you know, some idiosyncratic UH investment. So, Paul, when a
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  Speaker 1: bond gets downgraded from investment grade to UH non investment grade,
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  Speaker 1: does that mean a lot of owners of that bond
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  Speaker 1: have to sell by because of their charter they can't
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  Speaker 1: own non investment grade debt? Is that kind of how
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  Speaker 1: the play starts exactly exactly. And if you look at
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  Speaker 1: the the sort of the the the last ten years,
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  Speaker 1: you know, within the i G space investment grade space,
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  Speaker 1: you'll see that there's been a very inexorable rise in
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  Speaker 1: passive passive managers. So you know, think of not just
• 3:40
  Speaker 1: indexing traditional indexing, the growth of that uh as you
• 3:44
  Speaker 1: know fees have been pushed lower, but also areas like ets.
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  Speaker 1: A lot of these et s are very passive in nature.
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  Speaker 1: And so you've got two camps. You've got one camp
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  Speaker 1: which is traditional for example, pension plans that have strict
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  Speaker 1: guidelines and say, you know, thou shalt not invest in
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  Speaker 1: junk bonds. And so you know, if if I'm managing
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  Speaker 1: and i G portfolio for a client like that, and
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  Speaker 1: a bond gets downgraded below investigrade, it becomes a fallen angel.
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  Speaker 1: Even if I think it's a very very attractive investment
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  Speaker 1: and it's the worst possible time to sell, I don't
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  Speaker 1: have a choice. I have to sell it now. That
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  Speaker 1: becomes a real benefit for the folks. On the other side,
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  Speaker 1: if you're a high yield investor, and especially if you're
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  Speaker 1: investor focusing just on fallen angels, you can pick up
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  Speaker 1: these bonds at an incredible discount. All right, So Paul,
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  Speaker 1: give us a sense of just kind of the the
• 4:36
  Speaker 1: credit quality environment that we find ourselves in. I know,
• 4:40
  Speaker 1: is we kind of entered this pandemic in March April.
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  Speaker 1: You know, from a credit perspective, there's really concerns that
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  Speaker 1: we're going to see it, just this huge wave of defaults,
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  Speaker 1: particularly in the leverage loan business, the high yield market business.
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  Speaker 1: How we in fact seen that, you know, that's been
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  Speaker 1: the story of the year. It's people tend to panic
• 5:01
  Speaker 1: when when when things when volatility picks up, the first
• 5:05
  Speaker 1: instinct is to panic. And you know exactly what we
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  Speaker 1: saw with all the news articles, all the prognostications, even
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  Speaker 1: from the major houses, predicting you know, unprecedented uh delusion
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  Speaker 1: of defaults and that just has not materialized. And further,
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  Speaker 1: you know what really scares us a little bit is
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  Speaker 1: when you look under the hood. And that's what we're
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  Speaker 1: really good at as a quantity We're a quantitative investment manager,
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  Speaker 1: so we really dive into the details. And people are
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  Speaker 1: misinterpreting default rates by and large, they're looking at broad
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  Speaker 1: you know, Moodies SMP type speculative grade default rates, which
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  Speaker 1: have a completely different composition than what investors, institutional investors
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  Speaker 1: are actually investing in. You know, these SMP and Moodies
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  Speaker 1: default rates include these very small companies. They include floating
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  Speaker 1: rate debt, all sorts of stuff. Whereas you know, se
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  Speaker 1: of the institutional investors are focused on big, big investible
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  Speaker 1: benchmarks such as the Bloomberg Barkley's High Yield Corporate Index
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  Speaker 1: or you know, the Bambo Master to Index. These benchmarks
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  Speaker 1: have only seen about half of the default rates that
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  Speaker 1: that these sort of you know, worst case prognonctiications came
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  Speaker 1: out at and so we're looking at numbers like like,
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  Speaker 1: you know, sub four percent year to date. You know,
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  Speaker 1: this is not this is this is certainly higher than
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  Speaker 1: last year, but it's not anything to be overly concerned
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  Speaker 1: about as a high yeld investor. Very interesting, Paul, thanks
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  Speaker 1: so much for joining us. Share. This is part of
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  Speaker 1: the market we don't probably don't spend enough time on,
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  Speaker 1: but certainly some opportunities there, the fallen angels, the high
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  Speaker 1: yield credit market, the leverage loan uh business. Paul Benson
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  Speaker 1: head a fixed income efficient data at Melan, giving us
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  Speaker 1: his thoughts again on these fallen angels UH and some
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  Speaker 1: of the higher leverage loan sectors of the marketplace. Yes,
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  Speaker 1: they've been impacted by the economic downturn resulting from the pandemic,
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  Speaker 1: but probably performing better than expected, so some opportunities there
• 7:03
  Speaker 1: more to come. This is Bloomberg Now in terms of
• 7:08
  Speaker 1: a new Biden administrator, a lot of folks from wondering
• 7:10
  Speaker 1: what it means for their industries, what kind of policies
• 7:13
  Speaker 1: will the new administration come up with for for specific industries.
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  Speaker 1: One of those industries is technology. Uh, there's obviously a
• 7:20
  Speaker 1: big issue with China. There's a big issue with to
• 7:23
  Speaker 1: what extent does technology in the United States need to
• 7:27
  Speaker 1: be regulated. Victoria Espinal, President, chief executive officer of BSA,
• 7:32
  Speaker 1: the software alliance based on Washington, d C. She joins US. Now, so, Victoria,
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  Speaker 1: you know, we think about technology in the United States. Historically,
• 7:41
  Speaker 1: the US has taken a very light hand to regulating technology,
• 7:46
  Speaker 1: and one could argue that's been maybe one of the
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  Speaker 1: main catalysts for the growth and development of tech in
• 7:52
  Speaker 1: the U S. Silicon Valley and all of that. How
• 7:54
  Speaker 1: do you expect President elect Joe Biden and his administration
• 7:58
  Speaker 1: to UH to manage technology policy. Well, first of all,
• 8:03
  Speaker 1: I would saying that I don't think it's about no
• 8:05
  Speaker 1: regulation or lots of regulation. I think it's about smart regulation,
• 8:09
  Speaker 1: you know, where it's appropriate. UM. In terms of the
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  Speaker 1: Biden administration now, I'm expecting that we're going to see
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  Speaker 1: continue to see some increased scrutiny on the technology industry. UM.
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  Speaker 1: I think there are some legitimate issues that need to
• 8:24
  Speaker 1: be concerned, that that need to be addressed, and I
• 8:26
  Speaker 1: think the Biden administration will focus on that. You know,
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  Speaker 1: I will say, speaking for the enterprise software industry, which
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  Speaker 1: is the essay, we're excited to work with the administration
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  Speaker 1: on those. We feel like there are a number of
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  Speaker 1: places where laws and regulations could be updated and improved
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  Speaker 1: and modernized UM, and we are really looking for places
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  Speaker 1: where we can find solutions. There are some thorny issues
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  Speaker 1: out there, artificial intelligence, privacy, cybersecurity. So we UM you know,
• 8:54
  Speaker 1: as a as an organization, as an industry, we try
• 8:57
  Speaker 1: not to run from challenges but to try to address them.
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  Speaker 1: And we're really excited about working with the Biden administration
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  Speaker 1: and how to find some long term solutions to some
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  Speaker 1: of the real problems that are out there, so Victoria.
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  Speaker 1: One of the problems that has really come to the
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  Speaker 1: four of the last several years has been UH China
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  Speaker 1: and technology transfers between US and China, and there's some
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  Speaker 1: concern that there might be a technology cold war developing
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  Speaker 1: between let's call it China and just broadly define the West.
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  Speaker 1: How do you expect the Biden administration What would you
• 9:27
  Speaker 1: recommend to the Biden administration as it thinks about technology
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  Speaker 1: policy visa each China. I think it's going to be
• 9:35
  Speaker 1: a major issue going forward, you know, in terms of
• 9:38
  Speaker 1: what I would expect to the Biden administration, I think
• 9:41
  Speaker 1: a Biden administration is going to be tough on China.
• 9:44
  Speaker 1: I think, you know, look, there's a whole range of
• 9:47
  Speaker 1: issues beyond the technology issues and the economic issues with China,
• 9:51
  Speaker 1: right human rights, Taiwan, the situation in Hong Kong, um.
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  Speaker 1: There have been a number of approaches the Trump administration
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  Speaker 1: has taken on the eco comics sides, tariffs and trade
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  Speaker 1: and got in the most attention, I would say, but
• 10:04
  Speaker 1: you know, other approaches including export controls, investment restrictions. Of course,
• 10:09
  Speaker 1: in the Biden administration goes in, they're going to do
• 10:11
  Speaker 1: their own assessment of what the issues are and what
• 10:14
  Speaker 1: the approaches are. I think they're going to bring a
• 10:16
  Speaker 1: lot of expertise to that assessment, but I would expect
• 10:20
  Speaker 1: that coming out of that, we're going to see two
• 10:23
  Speaker 1: differences in terms of approach. Broadly speaking, one I think
• 10:27
  Speaker 1: is I think there will be a focus on a
• 10:28
  Speaker 1: broader range of issues, so again not just economic issues,
• 10:32
  Speaker 1: but issues like human rights for example. I expect we'll
• 10:35
  Speaker 1: see more UM focus on that from them Biden administration,
• 10:39
  Speaker 1: and even in the economic issues, I think we will
• 10:44
  Speaker 1: see a focus on trying to come up with long
• 10:46
  Speaker 1: term solutions to those issues. And again it's sort of
• 10:50
  Speaker 1: a broader range of economic issues that we faced with China,
• 10:53
  Speaker 1: including UM in the technology space. The second difference I
• 10:59
  Speaker 1: expect that we will the is working with other countries
• 11:03
  Speaker 1: and building alliances. You know, the United States is not
• 11:06
  Speaker 1: the only country certainly that has concerns with China, and
• 11:10
  Speaker 1: I think the US will address is concerned directly with China,
• 11:13
  Speaker 1: but also I expect um the Biden administration will be
• 11:16
  Speaker 1: looking to build alliances and be doing that in concert
• 11:19
  Speaker 1: with other countries that also share those concerns. UM. The
• 11:24
  Speaker 1: last thing I would say is, you know, the president
• 11:27
  Speaker 1: look by then the major commitment during the campaign in
• 11:30
  Speaker 1: terms of R and D investment in technology, Um, the
• 11:35
  Speaker 1: United States, unlike China, a lot of our investment in
• 11:37
  Speaker 1: the United States comes from the private sector, and I
• 11:39
  Speaker 1: think that's appropriate. But it's also great to see that
• 11:41
  Speaker 1: this administration is going to be focused on putting public sector,
• 11:45
  Speaker 1: significant public sector of funding into basic R and D investment. UM.
• 11:50
  Speaker 1: I think that's the really important part of this interesting so, Victoria.
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  Speaker 1: I guess as it relates to China, one of the
• 11:55
  Speaker 1: more immediate things that the incoming Biden administration will need
• 11:58
  Speaker 1: to address is to talk I'm not even sure where
• 12:01
  Speaker 1: we are on the TikTok issue. Can you bring us
• 12:04
  Speaker 1: up to date? Well? Um, you know, in terms of
• 12:07
  Speaker 1: the administration, I think the lot of the administrations speak
• 12:10
  Speaker 1: for yourself, and I think what they've said is that
• 12:11
  Speaker 1: it's too early for them to say what you know.
• 12:14
  Speaker 1: I guess what I would say more generally is I
• 12:17
  Speaker 1: don't think this is an administration where policy is going
• 12:21
  Speaker 1: to be determined by any one particular company. In general,
• 12:27
  Speaker 1: I think it's going to be an administration that is,
• 12:30
  Speaker 1: as I said, looking to find ways to set global
• 12:34
  Speaker 1: standards and rain in bad actors of all different kinds.
• 12:39
  Speaker 1: Um But I think it's going to be at my
• 12:42
  Speaker 1: anticipate it will be a policy approach that it's more
• 12:44
  Speaker 1: about finding that long term, sustainable, durable framework as opposed
• 12:49
  Speaker 1: to being driven by any one particular company or one
• 12:51
  Speaker 1: particular situation. So, Victoria, I guess the other thing is
• 12:56
  Speaker 1: just kind of you know, the big U s technology companies,
• 12:59
  Speaker 1: particularly this social platforms, do you expect them to face
• 13:03
  Speaker 1: continued scrutiny, increased Scrutinyou is this something that's just gonna
• 13:06
  Speaker 1: be a factive life for the facebooks of the world
• 13:09
  Speaker 1: and others. Um? So I'll say this, you know, as
• 13:12
  Speaker 1: my organization doesn't represent Facebook, you know where the enterprise
• 13:16
  Speaker 1: B two B side of the software industry. Um But
• 13:18
  Speaker 1: I think I think it's also fair to say that
• 13:21
  Speaker 1: the tech industry, including the social media platforms, I think
• 13:24
  Speaker 1: will face increasing scrutiny. I think we're going to see
• 13:28
  Speaker 1: that in competition. I think we're going to see that
• 13:30
  Speaker 1: in accountability issues, platform accountability issues generally. I think that, um,
• 13:36
  Speaker 1: you know, that has been true for a while, so
• 13:38
  Speaker 1: that will not be new with a Biden administration, but
• 13:41
  Speaker 1: I think it I anticipate that there will be increased
• 13:45
  Speaker 1: scrutiny and a Biden administration. And again, as I was
• 13:48
  Speaker 1: saying at the beginning, and I think there are some
• 13:51
  Speaker 1: legitimate concerns that need to be addressed, and um, you know,
• 13:55
  Speaker 1: that's something I think that the Biden administration will be
• 13:58
  Speaker 1: focused on as well. Hey, Victoria, thank you so much.
• 14:01
  Speaker 1: We really appreciate your thoughts and insight. Victoria Spinel, president
• 14:04
  Speaker 1: and chief executive officer of b s A, the Software Alliance.
• 14:08
  Speaker 1: They're based in Washington, d C. Giving us some thoughts
• 14:11
  Speaker 1: about how the incoming Biden administration may think about policy
• 14:16
  Speaker 1: as it relates to technology, particularly the software companies. And again,
• 14:20
  Speaker 1: probably issue number one on day one will be the
• 14:24
  Speaker 1: relationship of U with the U S and China as
• 14:27
  Speaker 1: it relates to technology. We are waiting for a discussion
• 14:33
  Speaker 1: on Bloomberg Television between Bowing CEO Dave Calhoun and Rhiner
• 14:37
  Speaker 1: CEO Michael O'Leary. Uh. They announced the deal today for
• 14:41
  Speaker 1: some planes to be acquired by Ryan Air. Let's chat
• 14:45
  Speaker 1: with George Ferguson, Senior Aerospace, Defense and Airlines analyst for
• 14:49
  Speaker 1: Bloomberg Intelligence on what we might hear. So George talked
• 14:51
  Speaker 1: to us a little bit about this deal for Boeing,
• 14:54
  Speaker 1: uh with Ryan Air. It seems like really good news
• 14:57
  Speaker 1: for Boeing here. Yeah, thanks Paul. I think it's absolute
• 15:01
  Speaker 1: endorsement here for the Bowing Max and the sixes that
• 15:05
  Speaker 1: have taken place, and it's where, you know, where Ryan
• 15:08
  Speaker 1: Air sees that whole process. They must feel pretty comfortable
• 15:12
  Speaker 1: of the airplane's viability. We've been saying it's a viable
• 15:14
  Speaker 1: So I think they feel pretty comfortable and they're and
• 15:16
  Speaker 1: they're coming in for a nice size order seventy five.
• 15:20
  Speaker 1: I actually thought it might have been larger, and I
• 15:23
  Speaker 1: think it's not larger. Maybe a testament to the fact
• 15:26
  Speaker 1: that we heard the Bowing CEO Calhoun say they're not
• 15:29
  Speaker 1: going to buy themselves back into the market or something
• 15:31
  Speaker 1: like that. Not an exact quote, but I think maybe
• 15:34
  Speaker 1: a testament. You know, we knew Ryan Air was sort
• 15:36
  Speaker 1: of sniffing around looking for order actually for I think
• 15:39
  Speaker 1: it's been at least a year or so. They love
• 15:42
  Speaker 1: to buy airplanes cheap. I guess is that maybe um oh,
• 15:46
  Speaker 1: Larry didn't get quite the prices he wanted and sort
• 15:48
  Speaker 1: of stepped in for seventy. But looks a good endorsement,
• 15:52
  Speaker 1: good endorsement to the airplane, good news for Bowling, and
• 15:54
  Speaker 1: tell me good news for Ryan Air too. Yeah, so
• 15:57
  Speaker 1: George talked us about this seventh three of Max. You know,
• 16:00
  Speaker 1: I just speaking for myself, you know, if I were to,
• 16:04
  Speaker 1: you know, actually take a flight, which is a huge
• 16:06
  Speaker 1: if here in this pandemic world, and I walked up
• 16:09
  Speaker 1: to the gate and I looked out the window and
• 16:10
  Speaker 1: I saw seven three seven Max parked at my gate,
• 16:12
  Speaker 1: I'd have no problems getting on the plane, am I?
• 16:15
  Speaker 1: Am I the exception or how do you think this
• 16:19
  Speaker 1: plane is going to be uh kind of embraced by
• 16:21
  Speaker 1: the airlines as well as in the passengers. Yeah, you know,
• 16:26
  Speaker 1: I think that, Um, I think that the public has
• 16:29
  Speaker 1: sort of a short memory on some of these things,
• 16:32
  Speaker 1: and I think there are some people that would be
• 16:34
  Speaker 1: concerned about flying the Max given the history. I think that,
• 16:38
  Speaker 1: you know, really some of their concerns you put to
• 16:41
  Speaker 1: bed by the fact that the f a A and
• 16:43
  Speaker 1: European regulators have really poured over the airplane to make
• 16:46
  Speaker 1: sure it's safe. They really don't want egg in their
• 16:48
  Speaker 1: face with it with another problem with the airplane, and
• 16:50
  Speaker 1: we're now going to have simulator training for the pilots
• 16:53
  Speaker 1: transitioning from the seven three seven eight to the max
• 16:56
  Speaker 1: which I think should also give people comfort. I think
• 16:58
  Speaker 1: you'll see advertising campaign around some of those you know,
• 17:02
  Speaker 1: some of that training. Um. And look again, I think
• 17:05
  Speaker 1: that there there'll be a short memory and you know,
• 17:07
  Speaker 1: sort of Brian Air buying here and have this airplane
• 17:11
  Speaker 1: feathered into their fleet out in one Americans starts to fly.
• 17:15
  Speaker 1: I think at the end of the year here, you know,
• 17:17
  Speaker 1: given the news around the pandemic, I think it'll get
• 17:20
  Speaker 1: lost and I think there won't be as much reticence
• 17:22
  Speaker 1: to fly the airplane had there not been sort of
• 17:24
  Speaker 1: the backdrop of a lot more bigger news stories right
• 17:27
  Speaker 1: right now. So, George, I think the last time we chatted,
• 17:29
  Speaker 1: one of the discussion points was China. UM, it's really important,
• 17:33
  Speaker 1: uh that China certify the seven three seven max A.
• 17:37
  Speaker 1: It's a huge market. B Uh, it's an economy that's
• 17:40
  Speaker 1: actually growing. They're they're out of their lockdown and there
• 17:43
  Speaker 1: people are beginning to travel. Any sense of when we'll
• 17:47
  Speaker 1: get the green light from China as relates to the
• 17:50
  Speaker 1: seven three seven Max. Yeah, I mean I'm hearing that
• 17:53
  Speaker 1: the you know, potentially we could see something like that
• 17:56
  Speaker 1: in the new year. I mean I think that Bill
• 17:58
  Speaker 1: the Chinese will want to find a way to do
• 18:03
  Speaker 1: the write word is embrace the Biden administration as they
• 18:07
  Speaker 1: come in. They'd love to be, I think, in the
• 18:09
  Speaker 1: good graces of the Biden administrations to change a tone
• 18:12
  Speaker 1: hopefully from the Trump administration for the Chinese when it
• 18:15
  Speaker 1: comes to trade. And I think you'll see it closer
• 18:18
  Speaker 1: to Joe Biden present elect Biden coming into power. But
• 18:22
  Speaker 1: so I would expect it sometime earlier next year. And
• 18:25
  Speaker 1: it's it is a core market, super important for about
• 18:28
  Speaker 1: talk to us, George, you know about boweing here, maybe
• 18:31
  Speaker 1: a little bit of a post mortem here, we've got
• 18:32
  Speaker 1: the a little bit of a hindsight here. It just
• 18:36
  Speaker 1: it feels like they didn't manage the process. Well I'm
• 18:40
  Speaker 1: not sure you know what else they could have done,
• 18:42
  Speaker 1: but it just feels like they didn't manage the process. Well,
• 18:44
  Speaker 1: what's the what's the feeling among you know, you aviation
• 18:47
  Speaker 1: geeks that you know look at the stuff all the time. Yes,
• 18:51
  Speaker 1: So I do think they I do think you know,
• 18:54
  Speaker 1: perhaps a little bit of Hubris took over at Boeing,
• 18:58
  Speaker 1: a little bit of marketing uh and managing financial statements
• 19:04
  Speaker 1: private was prioritized over engineering. And you know, I think
• 19:08
  Speaker 1: Calhoun's job is really to make sure that he resets
• 19:10
  Speaker 1: that um, you know, resets that uh. You know that
• 19:15
  Speaker 1: environment at Boeing where the focuses on solid engineering. You
• 19:19
  Speaker 1: try to keep the Hubris down UM. And so you know,
• 19:23
  Speaker 1: it feels like as they've moved the airplane through the
• 19:27
  Speaker 1: recertification process, it feels like they're getting that back in order.
• 19:30
  Speaker 1: You know. Look, I think it's a constant challenge. They
• 19:33
  Speaker 1: are one of the pre eminent airplane builders in the world,
• 19:35
  Speaker 1: you know, one of the two compared to air MUTH
• 19:38
  Speaker 1: and I think they really have to manage that that
• 19:40
  Speaker 1: culture going forward. So it feels like it's gotten better
• 19:43
  Speaker 1: and it looks like they've really got a good job
• 19:44
  Speaker 1: in re certification. I think Calhoun and his success are
• 19:48
  Speaker 1: really need to think about keeping that engineering culture forefront
• 19:52
  Speaker 1: at the company. And I think they got to start
• 19:54
  Speaker 1: thinking about their next product, you know, and that's another
• 19:57
  Speaker 1: engineering challenge, so I know, and the other again aviation geek,
• 20:01
  Speaker 1: you guys take your yearly pilgrimage to either you know,
• 20:05
  Speaker 1: London or Paris for the annual air shows, which is,
• 20:07
  Speaker 1: you know, just a scam in and of itself in
• 20:09
  Speaker 1: my opinion, But you guys do it every year. What
• 20:12
  Speaker 1: happens at the next time, when post pandemic you guys
• 20:15
  Speaker 1: meet in Paris and or London. What's Boeing's position going
• 20:20
  Speaker 1: to be in terms of, you know, selling the seven
• 20:22
  Speaker 1: thirty seven Max. Are they going to be able to
• 20:24
  Speaker 1: successfully uh put some more these planes into the fleet? Well?
• 20:29
  Speaker 1: So I think today was again, you know, a big
• 20:32
  Speaker 1: endorsement there for their delay to sell the airplane. Um,
• 20:35
  Speaker 1: I don't know anything about a scam, but it's a
• 20:38
  Speaker 1: big cocktail party, is what I think. Look, there's still
• 20:43
  Speaker 1: there's still a heck of a lot of orders in
• 20:46
  Speaker 1: the backlog, and I think really their job is to
• 20:49
  Speaker 1: go out and touch those customers and and get them
• 20:52
  Speaker 1: happy about the airplane and wanting to take those orders
• 20:55
  Speaker 1: in the backlog, because the beauty is they don't have
• 20:57
  Speaker 1: to sell the plane. It's already sold. You've got a
• 21:00
  Speaker 1: good death back, all right, George, thanks so much. We
• 21:04
  Speaker 1: appreciate it. As always, I look forward to you making
• 21:06
  Speaker 1: your pilgrimage over to London and Paris. George Ferguson's senior Aerospace,
• 21:09
  Speaker 1: Defense and Airlines Animals for Bloomberg Intelligence. It is time
• 21:16
  Speaker 1: for Bloomberg Opinion. We're joined today by Near case Or,
• 21:19
  Speaker 1: founder of Unison Advisors and a Bloomberg Opinion columnists. Near
• 21:22
  Speaker 1: thanks so much for joining us. I know you and
• 21:25
  Speaker 1: Tim O'Brien and Bloomberg Opinion out with a column today
• 21:28
  Speaker 1: where you're you're talking about what Congress should consider as
• 21:31
  Speaker 1: it does move forward slowly on a fourth round of
• 21:35
  Speaker 1: physical stimulus. What are some of your key takeaways that
• 21:37
  Speaker 1: you think Congress really needs to think about here? Well, um,
• 21:41
  Speaker 1: good morning, Paul, thanks for having me. Um. We're um.
• 21:44
  Speaker 1: You know, we think that more stimulus is probably necessary.
• 21:48
  Speaker 1: You know, the economy is improving, markets are up. It
• 21:50
  Speaker 1: looks like there's light at the end of the tunnel,
• 21:52
  Speaker 1: so to speak, with a vaccine coming, but there's still
• 21:55
  Speaker 1: a lot of suffering and it's not clear what the
• 21:56
  Speaker 1: timing around that is going to be. So more similar,
• 21:59
  Speaker 1: more stimulus is probably appropriate and probably and around the
• 22:02
  Speaker 1: size that they're thinking about, but there's an it's another
• 22:05
  Speaker 1: opportunity to sort of step back and ask what is
• 22:07
  Speaker 1: the point of the stimulus? What are we trying to accomplish?
• 22:09
  Speaker 1: You know, if if you just pull them back the
• 22:12
  Speaker 1: lens a bit, uh, you know, we will have spent
• 22:14
  Speaker 1: If if this package is roughly a trillion dollars, we
• 22:16
  Speaker 1: will have already spent uh, you know, roughly two point
• 22:19
  Speaker 1: seven trillion with the Cares Act for a total of
• 22:22
  Speaker 1: roughly four trillion dollars. And four trillion dollars could do
• 22:25
  Speaker 1: a lot of things. I mean, you could build infrastructure,
• 22:28
  Speaker 1: it could bolster education and public health, um, and and
• 22:31
  Speaker 1: we're suggesting that we just take a step back and
• 22:33
  Speaker 1: maybe give some bigger thought to the impact that that
• 22:37
  Speaker 1: kind of money could have on the entire economy, not
• 22:40
  Speaker 1: just certain segments of it. So it's interesting here, I
• 22:43
  Speaker 1: think you know, some of the issues here, the concerns
• 22:45
  Speaker 1: here that discussion points here are how much should go
• 22:48
  Speaker 1: to individuals versus how much should go to maybe industries
• 22:53
  Speaker 1: and companies to support employment and growth, how much should
• 22:57
  Speaker 1: go to states and municipalities. How do you think Congress
• 23:01
  Speaker 1: is thinking about this? And where where where do you
• 23:03
  Speaker 1: think they will allocate some of uh this upcoming stimulus? Well,
• 23:08
  Speaker 1: you know, based on what they've said, UM, it sounds
• 23:10
  Speaker 1: like this. UM. We'll see what the final details are,
• 23:13
  Speaker 1: but it sounds like this latest round and relief is
• 23:16
  Speaker 1: going to be UM and gets going to go to
• 23:18
  Speaker 1: supplemental unemployment insurance for unemployed American It will go to
• 23:22
  Speaker 1: small business, state and local governments that are obviously badly hurting. UM.
• 23:26
  Speaker 1: And then and then some money sprinkled around for various
• 23:29
  Speaker 1: things including public health and some other and some other initiatives,
• 23:32
  Speaker 1: UM and UM, which is all fine, but it sort
• 23:35
  Speaker 1: of continues this UM, this sort of uh, you know,
• 23:38
  Speaker 1: crisis relief approach that we've had really since the two
• 23:40
  Speaker 1: thousand and eight financial crisis, where we're just really sticking
• 23:43
  Speaker 1: fingers in a damn and just plugging whatever holes are there.
• 23:46
  Speaker 1: And while that is necessary to some extent, UM, it
• 23:50
  Speaker 1: does put us in a situation where we have various
• 23:53
  Speaker 1: groups with you know, within the economy that are fighting
• 23:56
  Speaker 1: over over money. You know, in two thousand and eight,
• 23:59
  Speaker 1: it was mostly Wall Street and corporate America that got
• 24:01
  Speaker 1: the money, and you know, we're living with the ramifications
• 24:04
  Speaker 1: of that to some extent today. UM. You know, today,
• 24:06
  Speaker 1: appropriately more of the money should go to individuals that
• 24:09
  Speaker 1: are suffering from this pandemic at small business that are
• 24:12
  Speaker 1: also suffering. But but what they really ought to think
• 24:15
  Speaker 1: about is is there a way to spend this money
• 24:16
  Speaker 1: in a way that improves the entire economy as a whole.
• 24:20
  Speaker 1: And you know what, some of the some of the
• 24:22
  Speaker 1: data that we cite in the piece is instructive. I
• 24:24
  Speaker 1: think if you, if you take a look at this
• 24:26
  Speaker 1: economy from a longer, longer term perspective, what you see
• 24:29
  Speaker 1: is that for for decades we've had lower economic growth.
• 24:33
  Speaker 1: We have a situation where a half of households in
• 24:35
  Speaker 1: America don't make a living wage. We have, roughly, by
• 24:37
  Speaker 1: credible westments forty five million Americans that are food and secure,
• 24:41
  Speaker 1: and that speaks not only to the problems with the pandemic,
• 24:44
  Speaker 1: it speaks to a larger systematic problem of this functioning
• 24:47
  Speaker 1: of the economy. And what we're saying is what we
• 24:50
  Speaker 1: need is robust investment in education and infrastructure and public health,
• 24:54
  Speaker 1: and that kind of money we believe will will go
• 24:57
  Speaker 1: to the benefit of everyone, both business, big and s
• 25:00
  Speaker 1: all an individual. So near it's you know, you talk
• 25:03
  Speaker 1: about the food and insecure I'm glad you brought that
• 25:05
  Speaker 1: up because you know, we still have you know, roughly
• 25:07
  Speaker 1: ten million workers that have yet to recover their jobs
• 25:10
  Speaker 1: that were lost during the pandemic. We've got. We see
• 25:12
  Speaker 1: every night on the news these incredibly long lines of
• 25:16
  Speaker 1: cars going to food banks and so on. So it
• 25:19
  Speaker 1: seems like the near term immediate need is so pronounced
• 25:24
  Speaker 1: that it might be tough to kind of think about
• 25:26
  Speaker 1: some of those longer term investment areas, whether it's education
• 25:31
  Speaker 1: or skills and things like that. How do you again,
• 25:33
  Speaker 1: how do you try to How do you think Congress
• 25:35
  Speaker 1: is thinking about that balance? Well, that's fair, and I
• 25:39
  Speaker 1: think the way that they are thinking about it again
• 25:41
  Speaker 1: is just let's take care of the immediate problem. But
• 25:44
  Speaker 1: but I would suggest that it's helpful to try to
• 25:48
  Speaker 1: connect the dots. It's not clear to me, and I
• 25:50
  Speaker 1: don't think we should take for granted that once this
• 25:53
  Speaker 1: pandemic passes that these problems that we're seeing, that all
• 25:56
  Speaker 1: these ten million jobs um will will be back, and
• 25:58
  Speaker 1: that food and security will will will improve. It's possible
• 26:02
  Speaker 1: that this pandemic has caused sort of longer lasting systemic
• 26:05
  Speaker 1: problems to the economy, the roots of which were already
• 26:08
  Speaker 1: in place before the pandemic came. The pandemic just just
• 26:11
  Speaker 1: sort of brought them to the floor, right, And if
• 26:12
  Speaker 1: that's the case, I don't think it's gonna be enough
• 26:14
  Speaker 1: to spend a trillion dollars on supplemental un employment insurance
• 26:17
  Speaker 1: and and help uh too, small business and the like.
• 26:20
  Speaker 1: I think the question is going to be how do
• 26:22
  Speaker 1: we get more jobs? How do we get how do
• 26:25
  Speaker 1: we improve training for workers, how do we um how
• 26:28
  Speaker 1: do we improve the wages of of of working American?
• 26:32
  Speaker 1: And it seems to me that that's going to take
• 26:33
  Speaker 1: a sort of a longer term vision and a longer
• 26:36
  Speaker 1: term investment in things like education, infrastructure. So near give
• 26:40
  Speaker 1: us a sense of kind of how this timing might
• 26:42
  Speaker 1: play out. I know we're in this lame duck session here.
• 26:44
  Speaker 1: Do we expect something to come out of this lame
• 26:47
  Speaker 1: duck Congress now? And then after President Elect Biden is
• 26:52
  Speaker 1: sworn in on January with a new Congress that there
• 26:55
  Speaker 1: may be something bigger, broader that maybe you're you're thinking about. Well,
• 27:00
  Speaker 1: I think they understand that it's going to have to
• 27:03
  Speaker 1: be soon. It's probably gonna have to be this year
• 27:05
  Speaker 1: if they want to have something passed um and if
• 27:08
  Speaker 1: they don't get it done, then it's probably gonna get
• 27:10
  Speaker 1: kicked into the next administration. In terms of what can
• 27:12
  Speaker 1: happen and under a Biden administration, I think it really
• 27:15
  Speaker 1: depends on what happens in Georgia. Um. You know, if
• 27:18
  Speaker 1: the Republican hold the Senate, then I think you're looking
• 27:20
  Speaker 1: at a stimulus package to the extent you ever get
• 27:22
  Speaker 1: one um that looks roughly like the one we're talking
• 27:25
  Speaker 1: about today. On the other hand, if the Democrats take
• 27:27
  Speaker 1: a Senate um and they you know, they hold the
• 27:29
  Speaker 1: White House and Congress, then I think it opens up.
• 27:33
  Speaker 1: I think it opens it up to to a much
• 27:35
  Speaker 1: broader initiative to the except that they want to do
• 27:37
  Speaker 1: it something that's more new deal left, you know. But
• 27:40
  Speaker 1: it really depends on whether they'll have the votes exactly. So,
• 27:43
  Speaker 1: I mean, you know, infrastructure, there seems to be something
• 27:46
  Speaker 1: that is bipartisan that seems to be the party line
• 27:49
  Speaker 1: here that infrastructure is in fact bipartisan. Is that money
• 27:53
  Speaker 1: well spent? Do you think if we can move down
• 27:56
  Speaker 1: that road and maybe get my you know, gateway project
• 27:59
  Speaker 1: done so I can take to train into the city
• 28:00
  Speaker 1: and a with a safe tunnel that would be nice wood.
• 28:04
  Speaker 1: And then yeah, I mean infrastructure I think is one
• 28:06
  Speaker 1: of those things that that everyone can benefit from. Obviously,
• 28:09
  Speaker 1: we need infrastructure and at various realms, um, you know,
• 28:12
  Speaker 1: in order to to sort of lay the foundation for
• 28:15
  Speaker 1: business and for commerce and all for all that obviously,
• 28:18
  Speaker 1: but also infrastructures jobs program as well. So I mean,
• 28:21
  Speaker 1: you have ten million Americans right now that have lost
• 28:23
  Speaker 1: their jobs, are looking for work, and um. You know,
• 28:25
  Speaker 1: in a big, ambitious infrastructure project from the federal government
• 28:29
  Speaker 1: is a high is hiring opportunity for millions of Americans UM.
• 28:33
  Speaker 1: And potentially to to to to provide them not only
• 28:36
  Speaker 1: with training, but good paying jobs, um. And and not
• 28:38
  Speaker 1: to mention all the knock on effects from having improved
• 28:40
  Speaker 1: infrastructure and transportation in WiFi, and you know, we can
• 28:44
  Speaker 1: think of many applications. So infrastructures is a great example
• 28:47
  Speaker 1: of a program where the money that you spend is
• 28:50
  Speaker 1: not so much relief as it is investment UM. And
• 28:53
  Speaker 1: that investment, you know, we can we can look back
• 28:55
  Speaker 1: to the nineties, thirties and nineteen forty for ambitious, big
• 28:58
  Speaker 1: government projects that paved the way for the prosperity UM.
• 29:02
  Speaker 1: That all Americans have joined the fifties sixties UM in
• 29:05
  Speaker 1: early nineteen seventies, and we can have that again. Hey Near,
• 29:08
  Speaker 1: thanks so much for joining us. We appreciate it as always.
• 29:11
  Speaker 1: Neil Case, our founder of Unison Advisors. Any Bloomberg Opinion comms.
• 29:15
  Speaker 1: You can read all of Near's at work on Bloomberg
• 29:18
  Speaker 1: dot com, slash Opinion or O P I N go
• 29:21
  Speaker 1: on the terminal. We'll have more coming up. This is
• 29:24
  Speaker 1: Bloomberg Markets. Thanks for listening to Bloomberg Markets podcast. You
• 29:30
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
• 29:34
  Speaker 1: whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on
• 29:37
  Speaker 1: Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on
• 29:40
  Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
• 29:43
  Speaker 1: catch us worldwide at Bloomberg Radio