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Big Tech, Markets, and Earnings (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Let's do some tech
• 0:21
  Speaker 1: talk here because there's a lot of earnings coming out
• 0:24
  Speaker 1: of Silicon Valley. We got the Bloomberg Intelligence Technology team
• 0:27
  Speaker 1: with us men Deep sing here in Bloomberg Interactive Broker
• 0:31
  Speaker 1: Studio on a rock Rona phoning and if god knows
• 0:33
  Speaker 1: where but on Rod let's start with you. You know,
• 0:36
  Speaker 1: I get it that digital ad spending slowing. We'll go
• 0:38
  Speaker 1: over that with man Deep. But Microsoft a little bit
• 0:42
  Speaker 1: weaker in their guidance that I would have anticipated, and
• 0:45
  Speaker 1: I think the street as well, judging by the stock
• 0:47
  Speaker 1: What did you take away anticipated? We were looking for
• 0:51
  Speaker 1: the slowdown somewhere from you know, sixteen percent constant guard
• 0:54
  Speaker 1: and see growth rate to let's say around ten to
• 0:56
  Speaker 1: twelve percent, and these guys said they were going to
• 0:59
  Speaker 1: be somewhere around eight nine um that was a bit
• 1:01
  Speaker 1: of a surprise to us. Now with this, you know,
• 1:04
  Speaker 1: in our view tells that enterprise spending is starting to
• 1:07
  Speaker 1: hold back. Now, this does not mean, you know, this
• 1:09
  Speaker 1: is not a good sign for all the enterprise companies,
• 1:12
  Speaker 1: both in the software world as the services world, and
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  Speaker 1: so man deep. Let's also tie in what we heard
• 1:18
  Speaker 1: from Alphabet. If I look at the shares right now,
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  Speaker 1: I see them down about seven percent. They've clawed back
• 1:25
  Speaker 1: a lot of their losses, but still seven percent loss
• 1:28
  Speaker 1: on the day. What was the biggest headline there to
• 1:31
  Speaker 1: explain this market reaction? I mean, across the board, they
• 1:34
  Speaker 1: validated the weakness on the AD side. What we heard
• 1:38
  Speaker 1: from Snapchat, Alphabet said search at revenue growth is slowing,
• 1:43
  Speaker 1: YouTube is slowing. And look, I mean except for search,
• 1:47
  Speaker 1: none of their other segments make any money. So if
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  Speaker 1: you're an investor in this dock and you're looking at this,
• 1:53
  Speaker 1: you know management saying search is slowing, but we are growing.
• 1:57
  Speaker 1: Our employee had come by t You're questioning, you know,
• 2:01
  Speaker 1: what is it that they're hiring all these people for
• 2:03
  Speaker 1: and when will that translate into profits? And I think
• 2:06
  Speaker 1: that is what they need to address. So I don't
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  Speaker 1: know if there's no reason for anybody to think that
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  Speaker 1: big text spending is anything but a short term cyclical
• 2:19
  Speaker 1: pull back right here, because I mean, this is the
• 2:21
  Speaker 1: only reason we talk to people like you and men, Deep,
• 2:23
  Speaker 1: is because your businesses that you cover continue to grow
• 2:26
  Speaker 1: all the time. That's still the case, right Yeah, yeah, definitely.
• 2:31
  Speaker 1: You know, I'll give you a very easy example. Cloud
• 2:34
  Speaker 1: is something that everybody's talking about today. Slow down in
• 2:36
  Speaker 1: that you know, if you go back and look at
• 2:39
  Speaker 1: during the pandemic, we saw a similar slowdown for four
• 2:41
  Speaker 1: waters in a row, and then the year after growth
• 2:44
  Speaker 1: rates improved, which is very unusual for these large businesses.
• 2:48
  Speaker 1: And we expect a similar trend here. The end markets
• 2:51
  Speaker 1: are so large and we are still in very very
• 2:54
  Speaker 1: early innings in this case. So even if we see
• 2:57
  Speaker 1: slowdowns in the next two to three quarters, we expect
• 2:59
  Speaker 1: a massive bounce back in the year after that. And
• 3:03
  Speaker 1: that's a true tech analyst right there, the amountsive bounce back.
• 3:07
  Speaker 1: It's not it's not just Dan Eyes. All these tech
• 3:09
  Speaker 1: analysts massive bounces. They can see the future, they can
• 3:12
  Speaker 1: I know, yeah, and it involves technology that makes sense
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  Speaker 1: to me. But I mean, Deep, I want to go
• 3:16
  Speaker 1: back to the social media names, because we still have
• 3:18
  Speaker 1: two biggies left. We got Twitter, we got Meta, both
• 3:21
  Speaker 1: interesting for their own reasons. But given what we saw
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  Speaker 1: from Snap, like you mentioned, given what we saw from
• 3:27
  Speaker 1: Alphabet most recently, are we just going to be talking
• 3:31
  Speaker 1: about ad spending? Is it going to be another gloomy
• 3:33
  Speaker 1: two reports to sit through? I think so. But look,
• 3:37
  Speaker 1: I mean to an ugs point, you know there is
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  Speaker 1: a cyclical element even in ads. Things will come back,
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  Speaker 1: the growth rates will improve. The problem for Meta specifically
• 3:46
  Speaker 1: is you know, there is a question mark around how
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  Speaker 1: sustainable their business model is, given what has transpired with
• 3:54
  Speaker 1: Apple's privacy changes, and you know TikTok taking share, so
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  Speaker 1: they have a real challenge ahead of them. I'm not
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  Speaker 1: worried about search. Search will come back. YouTube growth rates
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  Speaker 1: will be after this downturn. So there is a lot
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  Speaker 1: of cyclical element within ads. But then I think the
• 4:11
  Speaker 1: key to watch out for is what happens to Meta.
• 4:14
  Speaker 1: All right. We actually had an i p O today,
• 4:17
  Speaker 1: which is a rarity in UH mobile. I I PO
• 4:22
  Speaker 1: at twenty one per share, giving it a eight sixty
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  Speaker 1: million dollar I p O. M. Bloomberg News is reporting
• 4:30
  Speaker 1: that the Mobili has not traded yet, but it's indicated
• 4:33
  Speaker 1: to open at twenty five men deep. What is Mobile
• 4:36
  Speaker 1: I and what's the street call on this company? Well,
• 4:40
  Speaker 1: Mobile I is one of the segments within Intel, a
• 4:43
  Speaker 1: company that they bought, and it focuses predominantly around autonomous driving.
• 4:48
  Speaker 1: They make chips and they have embedded software for driving,
• 4:52
  Speaker 1: you know, level two three for autonomous driving. So very
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  Speaker 1: hot space given what we have seen from Tesla this year,
• 5:00
  Speaker 1: and it made sense that Intel went ahead and you know,
• 5:02
  Speaker 1: I p out this company. Uh. The valuation, clearly, I
• 5:06
  Speaker 1: think was pulled back from the initial discussions, and I
• 5:09
  Speaker 1: think it was priced well enough that you know, there
• 5:12
  Speaker 1: was receptivity around uh investors looking to get that initial
• 5:16
  Speaker 1: trancho of the allocation. But look, I think it's still
• 5:20
  Speaker 1: small when it comes to the capital race here. Million
• 5:23
  Speaker 1: isn't going to make a difference in Intel's fortunes. UH
• 5:26
  Speaker 1: and UH. I think what Intel wants to do is
• 5:29
  Speaker 1: really to showcase, you know, that they have exposure to
• 5:32
  Speaker 1: a top like automotive sector, which is a high growth
• 5:35
  Speaker 1: sector within semis Alright, good stuff. I'm just you know,
• 5:38
  Speaker 1: as a former banker, I'm just happy that somebody got
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  Speaker 1: a deal done. So let's see how this thing trades
• 5:43
  Speaker 1: today are right, good stuff talking technology and no two
• 5:46
  Speaker 1: better people to do it within Anaragrana and Man Deep
• 5:50
  Speaker 1: Seeing from Bloomberg Intelligence their tops tops in the business.
• 5:58
  Speaker 1: We are in the thick of earning season. We had
• 6:00
  Speaker 1: the US banks last week, a lot of the European
• 6:03
  Speaker 1: banks reporting numbers this week, and we want to talk
• 6:07
  Speaker 1: euro banks. We talked to John Tasy, has been covering
• 6:10
  Speaker 1: the European banking sector for decades. He joins US. He's
• 6:14
  Speaker 1: Bloomberg Intelligence senior banks analysts. So John, thanks so much
• 6:17
  Speaker 1: for joining US year. I want to talk with about
• 6:19
  Speaker 1: Deutsche Bank. It looks like, you know, they're bigger business,
• 6:22
  Speaker 1: which is their trading business. Their FICK business did actually
• 6:25
  Speaker 1: pretty well. It was just kind of the bankers didn't
• 6:27
  Speaker 1: have a lot of stuff to do during the quarter. Yeah,
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  Speaker 1: High Paul Um completely agree. Fick as expected has beaten
• 6:34
  Speaker 1: expectations pretty much across the board. And actually, if you
• 6:36
  Speaker 1: look at Barclays today, up sixty in dollar terms, so
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  Speaker 1: comfortably better than um Deutsche. But yes, the advisory very disappointing.
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  Speaker 1: And as you will know from your many years in
• 6:47
  Speaker 1: the investment banking world. What pays bonuses, It's the investment
• 6:51
  Speaker 1: banking fee. And I mean Deutsche was down eighty five,
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  Speaker 1: so um, the market's clearly looking at results through a
• 6:58
  Speaker 1: bear market lens. At the moment, prettyfficult to catch break
• 7:00
  Speaker 1: even if you look at Standard Charter or SEB or
• 7:03
  Speaker 1: something today, down four or five, even with massive revenue upgrades,
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  Speaker 1: purely because the markets worried about bad debt. It's worried
• 7:10
  Speaker 1: about cost inflation, slump in investment banking revenue. I mean,
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  Speaker 1: just the worst of any of the large Wall Street firms.
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  Speaker 1: And John, what is the light at the end of
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  Speaker 1: the tunnel for Georgia Bank? Because Paul I were talking
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  Speaker 1: about how use I mean use it's a shadow of
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  Speaker 1: its former self? Uh, how does it get there? Or
• 7:30
  Speaker 1: is that such a lofty goal at this point that
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  Speaker 1: it's not even on the radar? Well, I mean, I
• 7:35
  Speaker 1: think that you're used to looking at American banks because
• 7:38
  Speaker 1: I think think HSBC. HSBC was one of the sort
• 7:41
  Speaker 1: of global leading banks. It's trading at a discount to Europe.
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  Speaker 1: Now it's trading on five times next year's earnings with
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  Speaker 1: massive revenue upgrades. Deutsche Bank is actually more expensive on
• 7:52
  Speaker 1: p So when you say light at the end of
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  Speaker 1: the tunnel, clearly the one thing they've been waiting for
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  Speaker 1: is revenue to recover. And the NI side of it,
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  Speaker 1: the fixed income side of it's in proved. We know
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  Speaker 1: that fees advisory originations quite syctical. Last year, it was huge.
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  Speaker 1: This year it's down a lot um. But I guess
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  Speaker 1: the light at the end of the tunnel is getting
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  Speaker 1: through the next two or three years of economic pain
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  Speaker 1: in Germany, because don't forget, they've got a very large
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  Speaker 1: corporate loan book there as well. And Germany is at
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  Speaker 1: the epicenter of all the issues you've got with Ukraine, Russia,
• 8:19
  Speaker 1: the gas issues. So we're still working our way through that. Yeah, John,
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  Speaker 1: I don't think that you know, our listeners here in
• 8:25
  Speaker 1: the States have a full appreciation of how difficult the
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  Speaker 1: economic conditions are in much of Europe for a variety
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  Speaker 1: of reasons. So as you think, as you assess the
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  Speaker 1: European banks, how are you thinking about credit quality and
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  Speaker 1: right offs? And I mean, how much of a headwind
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  Speaker 1: is that going to be? Do you think? Well? I mean,
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  Speaker 1: the funny thing is it's not just about being a
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  Speaker 1: headwind at the moment because because banks have become so
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  Speaker 1: much more profitable purely mechanically, because rates have gone up,
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  Speaker 1: You've got the ECB and the Bank of England beginning
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  Speaker 1: to think, hang on us that you guys are now
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  Speaker 1: reporting double digit r oees simply on the back of
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  Speaker 1: us having to raise rates. So how do we crimp that.
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  Speaker 1: The banks are thinking, you know what, let's get ahead
• 9:00
  Speaker 1: of the curve. Let's IFRS non as the accounting standard.
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  Speaker 1: A bit boring but quite important. They're taking more reserves
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  Speaker 1: and setting aside more provisions, and they will do more
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  Speaker 1: in the fourth quarter to get ahead of this and
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  Speaker 1: also to damp reported profits. They don't want the regulators saying, right,
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  Speaker 1: we're going to put a cap on bonuses. We want
• 9:17
  Speaker 1: to put a cap on capital returns. So it's an
• 9:19
  Speaker 1: interesting trade off, a bit like you saw, um the
• 9:22
  Speaker 1: US banks being told, well, let's let's just calm down
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  Speaker 1: on the buy backs. The same as coming in Europe,
• 9:26
  Speaker 1: but but more of a revenue question. Okay, a lot
• 9:30
  Speaker 1: of gloom and doom in this conversation so far. Let's
• 9:32
  Speaker 1: get some good news in here. If we look at
• 9:34
  Speaker 1: Barclay's results on a dollar basis a U S dollar basis.
• 9:38
  Speaker 1: You did have thick up sixty three per cent equities,
• 9:43
  Speaker 1: but let's talk about thick. That seems like an undeniable
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  Speaker 1: bright spot. It was, and Barclays has been investing very heavily,
• 9:52
  Speaker 1: and obviously the dollar going the way it has has
• 9:54
  Speaker 1: really flattered that. But i'd point to the share prices down,
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  Speaker 1: and what did the call focus on? The call focused
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  Speaker 1: on the underlying outlook for credit um and the UK
• 10:04
  Speaker 1: and credit impairments and pointing to things like in the
• 10:07
  Speaker 1: US their credit card book early warnings, so thirty dead
• 10:10
  Speaker 1: delinquencies are beginning to rise quite quickly. So the market
• 10:13
  Speaker 1: is looking through all of the good news on the
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  Speaker 1: top line and focusing on are you doing good enough
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  Speaker 1: job on costs, which Barclays is at the moment, and
• 10:21
  Speaker 1: are you setting inside enough and are you being realistic
• 10:24
  Speaker 1: about where the bad debt goes? So yes, obsolutely a
• 10:27
  Speaker 1: good number, but when you look at what the market's
• 10:29
  Speaker 1: focusing on, unfortunately it looks straight through that. So Jonathan,
• 10:33
  Speaker 1: as as we are globally deal with, you know, slowing economy,
• 10:37
  Speaker 1: give us let us step back, you know, And I'd
• 10:38
  Speaker 1: love to get your view on kind of the structure
• 10:41
  Speaker 1: of the European banking market. Will there be any change
• 10:44
  Speaker 1: going forward, any m n A. I know, the cross
• 10:46
  Speaker 1: border m n A is very difficult to to do.
• 10:50
  Speaker 1: How do you think that European banking sector may evolve
• 10:53
  Speaker 1: just structurally going forward? Well, consolidation cross border is needed,
• 10:57
  Speaker 1: but we're still a long way from that. I mean,
• 10:59
  Speaker 1: if you think the most things the ECB is debating
• 11:02
  Speaker 1: at the moment isn't the seventy basis point rate high,
• 11:04
  Speaker 1: which they almost certainly will do. It's what do you
• 11:07
  Speaker 1: do with the two trillion euros of loans that you
• 11:10
  Speaker 1: made to the banks during the crisis, because at the
• 11:12
  Speaker 1: moment they're now making money for the bank's handover fist
• 11:16
  Speaker 1: and if you're Italy, the Italian banking sector needs that.
• 11:19
  Speaker 1: If you're Deutsche Bank or if your BMP and you've
• 11:22
  Speaker 1: got hundreds of billions of these loans, you're being given
• 11:24
  Speaker 1: free money. But the ECB has to make a change,
• 11:27
  Speaker 1: and so as with the sovereign crisis, it's faced with
• 11:30
  Speaker 1: the what do we do about Italy where there's still
• 11:34
  Speaker 1: a lot of risk and stop the largest banks just
• 11:38
  Speaker 1: being given free money. So I think consolidation cross border
• 11:42
  Speaker 1: is still a long way away. Um. The likes of
• 11:45
  Speaker 1: b MP will be at the forefront of it, but
• 11:47
  Speaker 1: it's still gonna be more piecemeal. And I suspect we've
• 11:49
  Speaker 1: got more domestic M and A over the next year
• 11:51
  Speaker 1: or two. Particularly is would you buy a bank right now,
• 11:54
  Speaker 1: even on a depress multiple if you know that bad
• 11:56
  Speaker 1: debt is going to go up and you don't know
• 11:57
  Speaker 1: how much The answers no and John before we let
• 12:01
  Speaker 1: you go, I am I am curious to hear in
• 12:03
  Speaker 1: your opinion how much reorganization we should expect to see
• 12:07
  Speaker 1: in the next couple of months. I mean to pick
• 12:09
  Speaker 1: on Deutsche Bank a little bit more. There's been a
• 12:11
  Speaker 1: lot of shuffling around there. Have we seen most of it?
• 12:14
  Speaker 1: Or do you think there's more to come as we
• 12:16
  Speaker 1: had into these hard winter months. Well, I mean, it's
• 12:19
  Speaker 1: difficult to say with Deutscha, but obviously we've got credit
• 12:21
  Speaker 1: Swiss the next day or two. And that's the interesting
• 12:24
  Speaker 1: that we get a Reheork tomorrow. Right. The question is
• 12:27
  Speaker 1: a right, we'll be on standby for us tomorrow. John.
• 12:30
  Speaker 1: Have they have they raised enough money to avoid a
• 12:32
  Speaker 1: capital raise? Um? And the other issue they will have.
• 12:35
  Speaker 1: Is it's one thing making cost promises, but in an
• 12:38
  Speaker 1: environment where you've got so little visibility on revenue and
• 12:40
  Speaker 1: clients are probably showing away, how do you present a
• 12:44
  Speaker 1: credible plan? So Deutsche where it was three years ago,
• 12:47
  Speaker 1: Credit Swiss is at the moment. That's good stuff. I
• 12:50
  Speaker 1: remember those Deutsche Bank days. And again tomorrow, I guess
• 12:53
  Speaker 1: is when we get the plan from Credit Swiss. So
• 12:56
  Speaker 1: again another plan, Jonathan Tyson, you start senior banks analyst
• 12:59
  Speaker 1: covers all the European a lot of the global banks.
• 13:02
  Speaker 1: He's based in London and he does a great job.
• 13:06
  Speaker 1: So we always appreciate getting a few minutes of his time.
• 13:09
  Speaker 1: So there at Bloomberg Intelligence. So again some pretty decent
• 13:12
  Speaker 1: numbers from some of the European banks. But again it
• 13:15
  Speaker 1: all comes down um as it does for a lot
• 13:17
  Speaker 1: of industries, particularly this quarter, are on their guidance, and
• 13:20
  Speaker 1: I think their guidances cautious at best. I'm not even
• 13:23
  Speaker 1: say cautiously optimistic. They've got some challenging economic times ahead,
• 13:27
  Speaker 1: particularly in your exacerbated in large part by the war
• 13:30
  Speaker 1: in Ukraine. So we'll stay on top of all those
• 13:32
  Speaker 1: europaining banks, all right, Katie are you a homeowner. I'm not.
• 13:38
  Speaker 1: I have visions of beings. Okay, it's kind of tough
• 13:43
  Speaker 1: out there. I think the US thirty year fixed mortgage
• 13:46
  Speaker 1: right top seven percent. That's the highest since two thousand one,
• 13:50
  Speaker 1: that's reported by Bloomberg. That's a far cry from I
• 13:54
  Speaker 1: think Matt got his mortgage, you know, less than a
• 13:57
  Speaker 1: year ago. Three and a quarter. Maybe is that amazing
• 14:01
  Speaker 1: that jump in such a short timeframe. Uh so that's
• 14:05
  Speaker 1: a big deal. And then we have new home sales today,
• 14:07
  Speaker 1: and I guess you see it in that number, those numbers,
• 14:10
  Speaker 1: six hundred three thousand new home sales. Uh that's better
• 14:13
  Speaker 1: than the consensus of five thousand, but that's below last
• 14:16
  Speaker 1: month five thousand. So it's starting to really slow the
• 14:22
  Speaker 1: growth in new home sales here at the time. Maybe
• 14:24
  Speaker 1: it's good for people like me. I mean, I'm not
• 14:27
  Speaker 1: imminently looking to purchase a home, but I know some
• 14:29
  Speaker 1: people that are, and they're just waiting for the market
• 14:31
  Speaker 1: to turn enough. Or it makes sense again, all right,
• 14:34
  Speaker 1: let's talk to somebody who does this for a living,
• 14:37
  Speaker 1: Erica Heidelberg. She's a mortgage backed security strategist for Bloomberg
• 14:41
  Speaker 1: Intelligence Erequity make that that new home sales data we
• 14:44
  Speaker 1: got today, how did you read it? Well, you know,
• 14:47
  Speaker 1: it looks like we're continuing. I think a lot of
• 14:49
  Speaker 1: people didn't expect last month's little surge to last because
• 14:54
  Speaker 1: mortgage wits are going up, and if anything, the new
• 14:57
  Speaker 1: home sales number is probably still a lagging indicator because
• 15:00
  Speaker 1: rates have risen a lot this month as well. Overall,
• 15:04
  Speaker 1: we're down around eighteen per night year every year, and
• 15:06
  Speaker 1: I think that's not to be unexpected. At the same time,
• 15:09
  Speaker 1: we are seeing new homes under construction going up, so
• 15:14
  Speaker 1: there's a continued kind of stabilization and prices and new
• 15:18
  Speaker 1: home sales, but that may not last as well. And
• 15:21
  Speaker 1: let's talk about what US mortgage rates are doing. I
• 15:25
  Speaker 1: have to imagine that's trickling through into some of that
• 15:28
  Speaker 1: new home sales data. US mortgage rate it's topping seven percent.
• 15:32
  Speaker 1: That's the contract rate on a thirty year fixed mortgage.
• 15:36
  Speaker 1: What's the ceiling here? It seems like it's lifted every
• 15:39
  Speaker 1: single week. You know. It's it's really quite related obviously
• 15:43
  Speaker 1: to where treasuries are going. And I know that our
• 15:46
  Speaker 1: economics and our Treasury team both expect that Treasury shood
• 15:50
  Speaker 1: be leveling out soon because even though we do expect
• 15:54
  Speaker 1: sure rates to continue to have to rise to fight inflation,
• 15:57
  Speaker 1: I think the economy will start to slow in response,
• 16:00
  Speaker 1: and therefore that will start putting a limit on how
• 16:02
  Speaker 1: high treasury als will get. And mortgage spreads are also
• 16:06
  Speaker 1: very wide treasuries right now, we actually think they're probably
• 16:10
  Speaker 1: wider than fundamentals suggest. I think there's just a lot
• 16:13
  Speaker 1: of digestion going on as the TED pulls out of
• 16:16
  Speaker 1: the market. But even take into account kind of you know,
• 16:19
  Speaker 1: where we take the bed holdings as the percentage of
• 16:22
  Speaker 1: the market will be, we think spreads are probably a
• 16:24
  Speaker 1: little wide. So we're seeing some strong buy just in
• 16:27
  Speaker 1: the past couple of days by mortgage investors who say
• 16:30
  Speaker 1: spreads are wide enough. Um, so, you know, presuming the
• 16:34
  Speaker 1: money and the dry powder is there to kind of
• 16:37
  Speaker 1: stabilize the mortgage market, it's it's looks promising at least
• 16:40
  Speaker 1: the last in the most ucent trading sessions. That's kind
• 16:44
  Speaker 1: of where I wanted to go, h Erica. In the
• 16:46
  Speaker 1: kind of the market you cover, the NBS market, I'm
• 16:48
  Speaker 1: looking at the Bloomberg u S MBS index total return
• 16:53
  Speaker 1: and year to date minus fifteen point three percent, and
• 16:56
  Speaker 1: don't worry, you have lots of company in that type
• 16:58
  Speaker 1: of performance across the fixed incomes specter segment. Do your
• 17:03
  Speaker 1: clients you talk to are any of them saying, boy,
• 17:06
  Speaker 1: this is A it's historic in terms of underperformance, and
• 17:10
  Speaker 1: B can't get that much worse? Maybe now is the time? Um? Yeah, well,
• 17:16
  Speaker 1: I definitely have a lot of clients talking to me
• 17:17
  Speaker 1: and saying, you know, at what point are spreads wide enough?
• 17:22
  Speaker 1: And of course I can't fully answer that question because
• 17:26
  Speaker 1: there's always unknowns and we're not really allowed to do that,
• 17:30
  Speaker 1: but I will say that when we run aggressions and
• 17:33
  Speaker 1: look at where spreads are relative to fundamental economic variables
• 17:37
  Speaker 1: as well as the housing market variables, and even you know,
• 17:40
  Speaker 1: our expectations for FED holdings as a present of the index,
• 17:44
  Speaker 1: spreads look wide. Now. One of the things is keeping
• 17:47
  Speaker 1: spreads wide is the fact that volatility both in terms
• 17:51
  Speaker 1: of return, so you know, from a fear versus reed standpoint, um,
• 17:55
  Speaker 1: but also just in terms of how it affects mortgage
• 17:58
  Speaker 1: valuations because there's make into convexity and the mortgage sector inherently,
• 18:03
  Speaker 1: so high levels of spread volatile the actually do reduce
• 18:06
  Speaker 1: the value of the mortgage overall fundamentally. But that being said,
• 18:10
  Speaker 1: even taking those into account, spreads look wider than they should,
• 18:14
  Speaker 1: wider than our models think they should. So then it
• 18:17
  Speaker 1: just becomes a matter of who who can fill the
• 18:20
  Speaker 1: fens um void as as they step out of the market.
• 18:24
  Speaker 1: Right Well, Erica, that's what I wanted to ask you.
• 18:26
  Speaker 1: How much of that maybe unjustified spread wideness can we
• 18:31
  Speaker 1: just blame on the FED pulling back from the market.
• 18:35
  Speaker 1: I think we can blame the bulk of it on that,
• 18:37
  Speaker 1: but we also complain the high volatility overall in the
• 18:40
  Speaker 1: market and uncertainty about the direction of rage and the
• 18:43
  Speaker 1: magnizument of FED tightening policies which has related all the
• 18:48
  Speaker 1: unknowns about inflation. So you know, it's not as as
• 18:51
  Speaker 1: you guys said. It's it's not only mortgages that are
• 18:54
  Speaker 1: into performing to perform. Obviously, equities of end to perform.
• 18:58
  Speaker 1: So it's a global asset class um risk off phenomena.
• 19:04
  Speaker 1: But at the same time, I will add the interesting
• 19:07
  Speaker 1: fact that as of this month, mortgages and an access
• 19:12
  Speaker 1: return basis, which is considering hedge returns, are actually the
• 19:15
  Speaker 1: worst performing sector in the Bloomberg Aggregate Bond Index, so
• 19:20
  Speaker 1: we we've taken that dubious crown and have been corporates
• 19:23
  Speaker 1: until September. So you know that also points of the
• 19:26
  Speaker 1: fact that mortgage mortgage cheapening maybe overdone even relative to
• 19:31
  Speaker 1: the other risk products. Seconds Erica, what's the credit risk
• 19:35
  Speaker 1: for mortgages right now? I'm getting that question a lot.
• 19:40
  Speaker 1: My opinion is it's very low. Letting standards very high,
• 19:43
  Speaker 1: and the amount of equity most homeowners have in their
• 19:46
  Speaker 1: homes is very strong. So I'm not a concern for
• 19:49
  Speaker 1: me at this point, but obviously we will be looking
• 19:51
  Speaker 1: for any science pointing in the other direction. Alright, great,
• 19:54
  Speaker 1: great stuff. I'm so glad we have somebody like Erica
• 19:57
  Speaker 1: Ittelberg with us because the only thing I know about
• 19:59
  Speaker 1: the mortgage securities market is that what I learned in
• 20:02
  Speaker 1: the Great Financial Crisis. I'm probably everybody else there, which
• 20:04
  Speaker 1: is why we had to get smart quickly on that.
• 20:07
  Speaker 1: And it's a very complex business. But fortunately have pros
• 20:10
  Speaker 1: like Erica Heidelberg, mortag back security strategist for Bloomberg Intelligence. Yes,
• 20:15
  Speaker 1: we have an MBS strategist at Bloomberg Intelligence because it's
• 20:18
  Speaker 1: a huge market Uh. It touches pretty much everybody out there,
• 20:23
  Speaker 1: the housing market. Uh. And it is certainly interest rate
• 20:26
  Speaker 1: sense that to say the least. And we're seeing that
• 20:28
  Speaker 1: in the performance as John was just mentioning some disappointing
• 20:34
  Speaker 1: tech numbers last evening. More to come reports after the
• 20:37
  Speaker 1: closed today. Waiting on the market here, but we've seen
• 20:41
  Speaker 1: SMP and doubt turn positive, so go figure maybe this
• 20:44
  Speaker 1: market wants to move a little higher. We check in
• 20:46
  Speaker 1: with somebody who does this stuff for a living. Quincy Crosby,
• 20:48
  Speaker 1: chief global strategist at LPL Financial as a publicly traded
• 20:53
  Speaker 1: company on the NASDAC. You can put lp l A
• 20:56
  Speaker 1: the ticker into your Bloomberg terminal. Check that out. Uh, Quincy,
• 21:00
  Speaker 1: thanks so much for joining us here. What do you
• 21:01
  Speaker 1: make of this market? Bloomberg News is out reporting on
• 21:05
  Speaker 1: on a Goldman sax called Golden Sex as US equity
• 21:08
  Speaker 1: bottom conditions are not there yet. Do you agree with
• 21:11
  Speaker 1: that or how do you think about it? Well, you know,
• 21:14
  Speaker 1: statistically it's probably not in What you now have is
• 21:18
  Speaker 1: the market transitioning from you know, concerns over inflation to recession.
• 21:23
  Speaker 1: I mean, you you've seen much made of the three
• 21:26
  Speaker 1: months Treasury note inverting with the ten year hasn't pretty
• 21:31
  Speaker 1: pretty strong track records that excellent track record predicting a recession.
• 21:35
  Speaker 1: The question will be what kind of recession, and that
• 21:40
  Speaker 1: is going to affect how the market reacts, because you know,
• 21:43
  Speaker 1: if if market starts discounting uh and and concerns over
• 21:50
  Speaker 1: over earnings, that's going to matter for whether or not
• 21:53
  Speaker 1: we've reached the bottom. Quincy, I want to get your
• 21:57
  Speaker 1: thoughts on the concept of bad news being good news
• 22:01
  Speaker 1: as we, you know, continue this conversation about earnings. That
• 22:05
  Speaker 1: mantra has typically applied to economic data, but I mean
• 22:08
  Speaker 1: many have made the case that when you see lower
• 22:11
  Speaker 1: ad revenue, especially for some of these tech companies, that's
• 22:14
  Speaker 1: a read on the economy, that's a read of cooling demands.
• 22:18
  Speaker 1: Maybe that's good news in the eyes of the Federal Reserve.
• 22:21
  Speaker 1: What are your thoughts on that? Well, yeah, absolutely, I
• 22:24
  Speaker 1: mean the market has been taking the data and then
• 22:28
  Speaker 1: you know, filtering it through the perspective from the FED,
• 22:33
  Speaker 1: and it's exactly that the bad news is good news
• 22:36
  Speaker 1: because what the market is hoping for is that the
• 22:39
  Speaker 1: FED begins a transition. I mean, I do most want
• 22:43
  Speaker 1: the FED to stop or to pause, but you know,
• 22:46
  Speaker 1: most likely it'll be a transition to a lower rate
• 22:50
  Speaker 1: and less hawkish rhetoric as it moves towards the towards
• 22:54
  Speaker 1: the terminal rate. But that's what the market wants. In
• 22:57
  Speaker 1: the market understands that the more the these the economy slowing,
• 23:03
  Speaker 1: especially because it's become much more embedded in the broader economy,
• 23:06
  Speaker 1: the labor market for example, then the said understands his
• 23:10
  Speaker 1: campaign is working. So that's why, right, bad news is
• 23:15
  Speaker 1: good news. Good news at this point is bad news,
• 23:18
  Speaker 1: so Quincy. Last night, Microsoft, like many other companies, called
• 23:23
  Speaker 1: out the stronger US dollar as as a headwind and
• 23:26
  Speaker 1: impacting their reported results. As a professional investor, Quincy, do
• 23:29
  Speaker 1: you look past, you know, the swings and currencies and
• 23:33
  Speaker 1: try to focus more on the underlying business or do
• 23:35
  Speaker 1: you have to take the reported numbers as they are?
• 23:37
  Speaker 1: How do you how do you deal with that? Well,
• 23:39
  Speaker 1: you know, you're you're always looking at guides. You've heard
• 23:41
  Speaker 1: that over and over again that when we're going through
• 23:44
  Speaker 1: the earning season and listening to the guidance, and you
• 23:47
  Speaker 1: could see a number of analysts, especially Microsoft, and said, hey,
• 23:50
  Speaker 1: this is this is a buying opportunity. The stronger dollar
• 23:54
  Speaker 1: has been an important headwind, There's no doubt about it,
• 23:57
  Speaker 1: particularly amid about back drop of a weaker demand as
• 24:02
  Speaker 1: the global economy flows down. But that is going to change.
• 24:06
  Speaker 1: I mean that you're looking ahead three months and expectations
• 24:11
  Speaker 1: are that the dollar will have weekend because the FED
• 24:16
  Speaker 1: eases off, and that is very helpful for UM, for
• 24:19
  Speaker 1: the you know, the global footprint for a good portion
• 24:25
  Speaker 1: of the S and p if. I've heard at the multinationals.
• 24:27
  Speaker 1: So there's no doubt about it. The guidance is crucial.
• 24:31
  Speaker 1: Isn't as if Microsoft came in with a you know,
• 24:34
  Speaker 1: terrible guidance the end of the Earth guardance. You know,
• 24:36
  Speaker 1: it wasn't that at all, but it missed in terms
• 24:39
  Speaker 1: of the guidance, and that should change. Similarly, we're waiting
• 24:43
  Speaker 1: tonight you hear from Apple, and Apple, you know, has
• 24:46
  Speaker 1: a major fourth print globally. The dollar is going to matter.
• 24:50
  Speaker 1: And so Quincy put this onto a portfolio for us,
• 24:53
  Speaker 1: what's your highest conviction position at the moment, Well, right now,
• 24:58
  Speaker 1: where we tend to be more conserve rid of at
• 25:00
  Speaker 1: this point, and we like healthcare and energy has been
• 25:04
  Speaker 1: a top performer healthcare is moving in that direction. That
• 25:07
  Speaker 1: has moved in that direction, including its riskier UH compatriot,
• 25:12
  Speaker 1: which is biotech. On moving on moving UH A nice
• 25:17
  Speaker 1: nice games for the advisors. Another thing that we're looking at,
• 25:21
  Speaker 1: and that's important, and that is move in um UM industrials.
• 25:27
  Speaker 1: It's like green shoots. A lot of that has to
• 25:30
  Speaker 1: do with the defense component of industrials. The defense stocks
• 25:34
  Speaker 1: very important for for the overall industrials. They're moving inch
• 25:39
  Speaker 1: by inch higher. The other thing that we're looking at
• 25:41
  Speaker 1: is the bond market. We've been saying for some time now,
• 25:45
  Speaker 1: the bond market has come back and offering UH investors
• 25:49
  Speaker 1: a return, a return that they haven't seen in a
• 25:52
  Speaker 1: long time. And to take advantage of that, the short
• 25:55
  Speaker 1: duration we're moving a little bit longer, but investment grade
• 25:59
  Speaker 1: short duration again moving a little bit longer. This is
• 26:01
  Speaker 1: going to help until the market realizes that the rates
• 26:05
  Speaker 1: are going to come down as recession fears are introduced,
• 26:09
  Speaker 1: and then obviously the rates will start to pull back.
• 26:13
  Speaker 1: All right, Quincy, thank you so much for joining us.
• 26:15
  Speaker 1: Always love getting your perspective there. Quincy Crosby, chief Global
• 26:19
  Speaker 1: Strategist for LPL Financial NASTAC traded company lp l A
• 26:23
  Speaker 1: is the ticker symbol there. Just talking about earnings and
• 26:26
  Speaker 1: kind of how the markets digesting those earnings. And you know,
• 26:29
  Speaker 1: when I was an analyst, I tend to try to
• 26:33
  Speaker 1: look through some of the fluctuations on FX and try
• 26:36
  Speaker 1: to look at the underlying business to say, hey, how
• 26:38
  Speaker 1: are things going. But again, it can have big moves
• 26:40
  Speaker 1: in the currencies, can have big moves on some of
• 26:42
  Speaker 1: these multinational UH companies, And we're really seeing it, uh,
• 26:46
  Speaker 1: you know, in a big way this quarter again Microsoft
• 26:49
  Speaker 1: last night Apple as Quincy was mentioning huge global company
• 26:53
  Speaker 1: after the clothes tonight along with the Facebook slash Meta.
• 27:00
  Speaker 1: Let's get fright to our next guest, Brian Whalen. He's
• 27:02
  Speaker 1: a co c I O and generalist portfolio Manigmate TCW
• 27:06
  Speaker 1: Fixed Income Group. Ah. He went to some college in
• 27:10
  Speaker 1: Connecticut that's best known for its pizza. But what really
• 27:13
  Speaker 1: gets my attention he was a former VP at Donaldson,
• 27:15
  Speaker 1: Lufkin and Jenrette and Flux that don't know that was
• 27:18
  Speaker 1: one of the premier firms on the street before Credit
• 27:21
  Speaker 1: Swiss bought it and kind of destroyed it. But what's
• 27:24
  Speaker 1: really good about the d l J people as they
• 27:26
  Speaker 1: trained some of the best analysts on Wall Street. So
• 27:29
  Speaker 1: keep that in mind, Brian, I got double digit declines
• 27:32
  Speaker 1: everywhere I look in the fixed income space. People are
• 27:35
  Speaker 1: telling me this has never happened before, So of course
• 27:38
  Speaker 1: I want to jump in with both feet and start
• 27:40
  Speaker 1: buying everything. What do you think of my strategy? I
• 27:43
  Speaker 1: like it. You had me at the intro and and
• 27:45
  Speaker 1: now you've got me with the support for the bond market.
• 27:47
  Speaker 1: Completely agree. We're at such a different place right now.
• 27:50
  Speaker 1: I mean, you know, we started a year of the
• 27:52
  Speaker 1: ten years at one and a half percent. You know,
• 27:54
  Speaker 1: you look at your your kind of standard bond fund
• 27:56
  Speaker 1: today you're looking at a yield of somewhere between five
• 27:59
  Speaker 1: and a half and six percent ends. Um. You know,
• 28:01
  Speaker 1: there's there's plenty of opportunities around, not only just the yield,
• 28:04
  Speaker 1: but you know, the potential opportunities you can get in credit.
• 28:07
  Speaker 1: Not to say there won't be more, but it's a
• 28:09
  Speaker 1: different conversation about the bond market today, and not only
• 28:11
  Speaker 1: get the yield, you know, but there's a strong argument
• 28:13
  Speaker 1: to be to be made that you know, bonds can
• 28:16
  Speaker 1: be what they're supposed to be in your portfolio, which
• 28:18
  Speaker 1: is a diversifier versus other assets like equities. It's amazing
• 28:22
  Speaker 1: to me how quickly uh tina went away. There is
• 28:26
  Speaker 1: no alternative now. It almost feels like there's too many alternatives.
• 28:30
  Speaker 1: There's so much opportunity, uh so many juicy yields in
• 28:33
  Speaker 1: the bond market. I mean, where do you see the
• 28:35
  Speaker 1: most opportunity at this point? Yeah, good question, you know,
• 28:39
  Speaker 1: for for us this first, you know, the first ten
• 28:42
  Speaker 1: months of the year, it's been a kind of we've
• 28:44
  Speaker 1: called it a high quality sell off. You know, so
• 28:46
  Speaker 1: where have you seen most of the repricing. You've seen
• 28:49
  Speaker 1: it obviously in treasury rates. We just talked about that,
• 28:52
  Speaker 1: and then other higher quality, larger parts of the bond
• 28:55
  Speaker 1: market like agency mortgage backed securities, like investment grade corporate bonds.
• 28:59
  Speaker 1: You know, those have kind of repriced the most and
• 29:01
  Speaker 1: looked the most attractive at this point. But you know,
• 29:04
  Speaker 1: if our outlook is right, and it's you know, it
• 29:06
  Speaker 1: seems to becoming more consensus, which is that we're clearly
• 29:09
  Speaker 1: heading into a deep slow down and recession, you're probably
• 29:12
  Speaker 1: gonna want to keep some powder dry for credit opportunities,
• 29:15
  Speaker 1: meaning that you know, areas of the bond market like
• 29:18
  Speaker 1: leverage and dance, you know, high yield leverage loans. Parts
• 29:21
  Speaker 1: of the bond market where you're exposed to kind of
• 29:23
  Speaker 1: lower quality uh types of borrowers in the commercial real
• 29:27
  Speaker 1: estate area or the residential mortgage area, You're gonna want
• 29:29
  Speaker 1: to keep that powder dry because you know, those parts
• 29:32
  Speaker 1: of the market really have not repriced. The spreads of
• 29:35
  Speaker 1: the prices you see in those parts of the market
• 29:37
  Speaker 1: are not reflective of a recession. And so that's you know,
• 29:40
  Speaker 1: with regards to our strategies, we've you know, we've jumped
• 29:43
  Speaker 1: with both feet into the former into the kind of
• 29:45
  Speaker 1: higher quality parts of the market, um, but still being
• 29:48
  Speaker 1: cautious on the lower quality parts. So you know, I
• 29:52
  Speaker 1: spent a couple of years earlier in my career that
• 29:55
  Speaker 1: v Chase Manhattan Banks, so doing credit analysis. So I've
• 29:58
  Speaker 1: got some chops there. I'm just an equity, simple equity guy.
• 30:01
  Speaker 1: But my question is, you know, I'm concerned if we
• 30:05
  Speaker 1: go into this recession about credit quality. UM. So you're
• 30:09
  Speaker 1: suggesting that is in fact a risk, and that is
• 30:11
  Speaker 1: suggestive that maybe focusing on quality right now as opposed
• 30:14
  Speaker 1: to maybe trying to grab for some extra yield. Yeah,
• 30:18
  Speaker 1: I mean, look, you know, when we look at, let's
• 30:19
  Speaker 1: feel good like corporate balance sheets, you know, they're actually
• 30:22
  Speaker 1: not as levered as we saw them in late two
• 30:25
  Speaker 1: thousand and nineteen. And part of that is, you know,
• 30:27
  Speaker 1: it's the upside inflation. Right, you know, debt is a
• 30:29
  Speaker 1: nominal problem. And so when you have inflation, uh and
• 30:32
  Speaker 1: debt stays relatively constant, your ability to service that that
• 30:35
  Speaker 1: actually looks it looks fairly healthy right now. It doesn't
• 30:39
  Speaker 1: look bad. That said, if we enter a recession, they'll
• 30:42
  Speaker 1: certain be some you know some uh, you know, some
• 30:45
  Speaker 1: things that go bang in the financial markets that will
• 30:48
  Speaker 1: dry up liquidity, and you will see that reflected in
• 30:51
  Speaker 1: wider spreads, higher yields in those parts of the corporate
• 30:54
  Speaker 1: bond market. It doesn't necessarily mean we're going to see
• 30:57
  Speaker 1: the faults the same types of the fault levels that
• 30:59
  Speaker 1: we saw in the Great Financial Crisis or you know,
• 31:02
  Speaker 1: during the kind of the two thousand one two thousand
• 31:04
  Speaker 1: two tech bubble burst. But there could be a period
• 31:06
  Speaker 1: of time and it could last, you know, months where
• 31:09
  Speaker 1: you know, the high yield market is priced like that
• 31:11
  Speaker 1: and now and now that would be a buying opportunity
• 31:13
  Speaker 1: because you could get prices reflective of a high default cycle,
• 31:17
  Speaker 1: but in reality, over the ensuing to three years, you
• 31:19
  Speaker 1: may not get or most likely will not get, those
• 31:22
  Speaker 1: types of peak default rates, and that will lead to
• 31:24
  Speaker 1: the very good returns. Fry. Let's wrap the FED into
• 31:28
  Speaker 1: this as we count down to next week's meeting. I'm
• 31:30
  Speaker 1: gonna ask you a version of a question I'm obsessed
• 31:32
  Speaker 1: with this morning, which the idea that bad news is
• 31:36
  Speaker 1: good news. You have, you know, signs of cooling economic data,
• 31:40
  Speaker 1: and I know you're a credit guy, but you look
• 31:42
  Speaker 1: at what we're seeing in the corporate earnings results, the
• 31:45
  Speaker 1: impact of a higher dollar, slowing ADS demands. When you
• 31:49
  Speaker 1: add all that together, what do you think it means
• 31:51
  Speaker 1: for the FED? And what do you think that means
• 31:53
  Speaker 1: for the fixing communiverse at large? I think the I
• 31:57
  Speaker 1: think that we think the FED is going to go
• 31:58
  Speaker 1: as far as the mark it allows them, meaning that
• 32:01
  Speaker 1: you know, if this you know, it's been fairly surprisingly
• 32:04
  Speaker 1: orderly kind of year to date, like we haven't really
• 32:07
  Speaker 1: I mentioned those bangs in the financial market, we haven't
• 32:09
  Speaker 1: seen them. So you know, the Fed's gonna get They're
• 32:11
  Speaker 1: gonna try to get well north of four percent, you know,
• 32:13
  Speaker 1: the market's got it priced in somewhere between a four
• 32:15
  Speaker 1: and a half and a five percent funds right. You know,
• 32:18
  Speaker 1: what might stop them from getting there is something that
• 32:20
  Speaker 1: goes you know, really goes bang. Um. It's kind of
• 32:22
  Speaker 1: the equivalent or even larger of that kind of UK
• 32:25
  Speaker 1: pension LBI problem. You know we were here in the States.
• 32:28
  Speaker 1: You know, that may cause them to kind of stop
• 32:31
  Speaker 1: or you know, let's say, you know, unemployment jumping up
• 32:33
  Speaker 1: surprisingly or a little more quickly, you know than the
• 32:36
  Speaker 1: markets anticipating. But long story short, the modern market right
• 32:40
  Speaker 1: now is allowing them, you know, it's kind of pricing
• 32:42
  Speaker 1: and allowing them to get north of four and a
• 32:44
  Speaker 1: half percent. And if they're giving it to them, they're
• 32:46
  Speaker 1: going to take it. All right, good stuff as always
• 32:49
  Speaker 1: Brian Well and coc I go in generalist portfolio manager
• 32:51
  Speaker 1: TCW Fixed Income Group and manage like two billion dollars.
• 32:55
  Speaker 1: How do you even do that? Looking at the Bowing today,
• 33:01
  Speaker 1: the stocks down about two and a half percent. They
• 33:02
  Speaker 1: reported some numbers. I kind of went through it. It It
• 33:04
  Speaker 1: kind of looked like a mixed bag. Revenue, uh EPs
• 33:08
  Speaker 1: missed estimates. On the one hand, all that are they
• 33:10
  Speaker 1: hand had a ton of free cash flow, and I
• 33:12
  Speaker 1: know that's what analysts and investors for Boeing focus on
• 33:16
  Speaker 1: a lot. So let's break it down with George Ferguson.
• 33:18
  Speaker 1: He's a senior aerospace, defense and airline analysts for Bloomberg Intelligence,
• 33:22
  Speaker 1: has been doing this stuff for decades and of course
• 33:25
  Speaker 1: the highlight of his life is easy proud graduate of
• 33:27
  Speaker 1: the Penn State University. Uh, George, kind of a mixed
• 33:31
  Speaker 1: bag there for bowing. What did you take away from it? Yeah,
• 33:34
  Speaker 1: so thanks for having me on you. I mean the
• 33:36
  Speaker 1: takeaway was that even though cash was cash and global services,
• 33:41
  Speaker 1: I think we're the two standouts in the quarter and
• 33:43
  Speaker 1: a really ugly muddy quarter. Um, cash wasn't as good
• 33:49
  Speaker 1: as uh as it look. You know, the cash generation
• 33:52
  Speaker 1: was largely driven by a tax refund and then um
• 33:57
  Speaker 1: some pre payments on airplanes actually accounts receivable going up yere,
• 34:03
  Speaker 1: which I think is has a lot to do with
• 34:05
  Speaker 1: the defense businesses that they took charges on, but there's
• 34:08
  Speaker 1: some other moneys in there. So you know, when when
• 34:10
  Speaker 1: I look at cash floy like core cash flow like
• 34:13
  Speaker 1: you generated from operations, You don't generate it from working
• 34:16
  Speaker 1: account changes and tax refunds that were just it's just
• 34:21
  Speaker 1: not not not good, just doesn't not good, not good. Uh.
• 34:26
  Speaker 1: Let's let's move from cash flow and talk about the
• 34:29
  Speaker 1: seven thirty seven delivery goal cut again. Uh. It reduced
• 34:35
  Speaker 1: its forecast for deliveries uh to about three seventy five
• 34:40
  Speaker 1: for this year. Again, just another cut there. How surprising
• 34:44
  Speaker 1: was this? Are are you pretty used to seeing these
• 34:46
  Speaker 1: cuts at this point? Yeah? I think we are unfortunately
• 34:49
  Speaker 1: getting used to seeing these cuts. And you know the
• 34:52
  Speaker 1: noise we heard about next year wasn't good either, uh.
• 34:56
  Speaker 1: And I think that's really the challenge, right. I think
• 34:58
  Speaker 1: UM build rates have to be higher than you know,
• 35:02
  Speaker 1: they're not even achieving the thirty one they say is
• 35:05
  Speaker 1: their stated rate UM. But I think they even have
• 35:07
  Speaker 1: to get above thirty one to keep the company healthy,
• 35:10
  Speaker 1: to generate cash, to absorb all that overhead, and to
• 35:13
  Speaker 1: keep their supplier base in decent shape. And I think
• 35:16
  Speaker 1: everyone is scratching their heads about this. Hey, it's the
• 35:20
  Speaker 1: engine makers that can't get US engines. You know. The
• 35:24
  Speaker 1: Boeing management kept going through a number of analysts and
• 35:27
  Speaker 1: the call question that you know multiple times, and you know,
• 35:32
  Speaker 1: when we look at Airbus, they're building eight to ten
• 35:35
  Speaker 1: more airplanes a month and they're getting engines, So what's
• 35:39
  Speaker 1: what's the difference? Right? What's going on? So I guess
• 35:43
  Speaker 1: you know, one of the issues is then seven the Dreamliner,
• 35:47
  Speaker 1: which is one of my favorite aircraft in the sky. Um,
• 35:52
  Speaker 1: how's that doing? So I know it's not just a
• 35:54
  Speaker 1: seven thirty seven then we have to worry about. But
• 35:56
  Speaker 1: I know there's some issues with the seven eight seven
• 35:58
  Speaker 1: as well. Yeah, so seven, you know, they they've got
• 36:00
  Speaker 1: the FAA to sign off on on the six on
• 36:03
  Speaker 1: those and they're starting to move them out of inventory,
• 36:06
  Speaker 1: which is you know, that's a that's absolutely a positive story.
• 36:09
  Speaker 1: The challenges that the SEV seven doesn't make much margins,
• 36:14
  Speaker 1: so you know, the contribution to profit isn't isn't large,
• 36:17
  Speaker 1: But there's a lot of money in inventory that I think,
• 36:20
  Speaker 1: you know, Boeing needs that cash, needs to needs to
• 36:22
  Speaker 1: get it into the into the balance. She shipp those
• 36:24
  Speaker 1: airplanes and that's going to give them some comfort going forward.
• 36:28
  Speaker 1: Um you know. So, I mean again, I think seventy
• 36:30
  Speaker 1: seven improving story, but just not not a lot of
• 36:32
  Speaker 1: profitability in that program. And so when you think about
• 36:36
  Speaker 1: Bowing and the different struggles that the company is dealing with,
• 36:41
  Speaker 1: supply chain issues, labor shortages. What do you think is
• 36:44
  Speaker 1: the biggest hurdle that the C suite is talking about
• 36:48
  Speaker 1: right now? You know, I think that, Um, I'm not
• 36:52
  Speaker 1: going to limit it to one story. I'm gonna go
• 36:54
  Speaker 1: for two. First, I think they should be talking every
• 36:58
  Speaker 1: single day again about what it's going to take to
• 37:00
  Speaker 1: get seven thirty seven max production up UH and sustained
• 37:05
  Speaker 1: at a higher level so they can generate profits. And
• 37:09
  Speaker 1: they should be talking each and every and actually, part
• 37:12
  Speaker 1: of that discussion is going to be they've got to
• 37:14
  Speaker 1: be going to the White House and trying to figure
• 37:15
  Speaker 1: out what is going on with China trying to either
• 37:18
  Speaker 1: going to open or not open. And if it's not
• 37:20
  Speaker 1: going to open for them, they got to go sell
• 37:22
  Speaker 1: those airplanes that they've already built and get that cash
• 37:25
  Speaker 1: again into their coffers. And the second thing is that
• 37:29
  Speaker 1: defense business. That defense business has rolled over. Now we
• 37:32
  Speaker 1: look in we're not going to generate cash in that
• 37:35
  Speaker 1: business that was you know, that is supposed to be
• 37:38
  Speaker 1: one of the stabilizing factors at this company and now
• 37:41
  Speaker 1: it's and you know, now it's not performing for them.
• 37:44
  Speaker 1: And they've got to get into that defense business, get
• 37:47
  Speaker 1: these charges behind them, get that supply chain right size,
• 37:51
  Speaker 1: even potentially go to Congress and talk about adjusting some
• 37:54
  Speaker 1: of these fixed price contract because it's not just Boing
• 37:58
  Speaker 1: this losing money a fixed price contracts. Everybody's having a
• 38:01
  Speaker 1: problem with it. They've got to work that issue hard.
• 38:04
  Speaker 1: That's an important part of this business. Uh, George, you
• 38:07
  Speaker 1: mentioned China. What is the state of Boeing's relationship with China?
• 38:12
  Speaker 1: Can they in fact are they allowed to sell this
• 38:14
  Speaker 1: China just not buying? What's going on? So China has
• 38:17
  Speaker 1: approved the Max to fly in the country, but they
• 38:20
  Speaker 1: are not taking delivers of the airplanes. And so of
• 38:24
  Speaker 1: seven thirty seven Maxes that have been built in and
• 38:27
  Speaker 1: are sitting on the tarmac out and you know, out
• 38:30
  Speaker 1: at different bowing facilities around the world. So as near
• 38:33
  Speaker 1: as we can tell, this looks like part of a
• 38:37
  Speaker 1: you know, part of the US China trade fight that
• 38:41
  Speaker 1: bowing is kind of stuck in the middle of um
• 38:44
  Speaker 1: there's a hunderd and thirty eight airplanes waiting to be
• 38:47
  Speaker 1: delivered into China. And you know what part of what's
• 38:50
  Speaker 1: boosting air buses deliveries is the fact that they're still
• 38:52
  Speaker 1: delivering into China um and that's giving them eight to
• 38:56
  Speaker 1: ten a month again, So Bowing's got to go to
• 38:59
  Speaker 1: the White House, I think, and start getting this figured out,
• 39:01
  Speaker 1: like where are we in relations with China on trade? Interesting?
• 39:06
  Speaker 1: All right, let's switch heres just real quickly to the airlines.
• 39:08
  Speaker 1: What's the top line story? What's the story here for
• 39:10
  Speaker 1: the airlines that we know, like consumers, they came back,
• 39:13
  Speaker 1: maybe they paused a little bit. Is where are we
• 39:16
  Speaker 1: in terms of demand there on that for the airlines? Yeah?
• 39:18
  Speaker 1: I mean demand has continued to improve and revenues have
• 39:23
  Speaker 1: looked very good during earning season. Costs are still elevated.
• 39:27
  Speaker 1: They're not getting twenty levels of profitability. Wasn't the toptick?
• 39:32
  Speaker 1: Was the top tick? So will they will managements tell you, hey,
• 39:35
  Speaker 1: it's great, revenues are coming in. We think there's a
• 39:38
  Speaker 1: huge amount of demand for air travel there clearly is.
• 39:41
  Speaker 1: But the question is why can't they get us back
• 39:43
  Speaker 1: to margins that look like against labor costs, it's fuel costs.
• 39:48
  Speaker 1: So my sense is there's still some weakness at the
• 39:51
  Speaker 1: low end of leisure and business isn't back fully. So business,
• 39:54
  Speaker 1: we think it is about back and the low end
• 39:57
  Speaker 1: of leisure I think is going to struggle with higher inflation,
• 40:02
  Speaker 1: and especially because we go into you know, economic slowdown,
• 40:06
  Speaker 1: whatever you think is coming just over the hill, that's
• 40:08
  Speaker 1: going to be the challenge for them. All right, Good stuff,
• 40:10
  Speaker 1: George Ferguson, He covers the airlines, He covers the airspace
• 40:14
  Speaker 1: and defense companies all tied in, of course. George Ferguson,
• 40:17
  Speaker 1: Senior aerospace and Defense analysts at Bloomberg Intelligence, calling in
• 40:20
  Speaker 1: from our Princeton office. Thanks for listening to the Bloomberg
• 40:26
  Speaker 1: Markets podcast. You can subscribe and listen to interviews with
• 40:29
  Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.
• 40:34
  Speaker 1: I'm on Twitter at Matt Miller, three pen On fall
• 40:38
  Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
• 40:41
  Speaker 1: you can always catch us worldwide at Bloomberg Radio.