Latest / Bloomberg Intelligence / Mortgages, ETFs, Autos, Munis, and Aviation (Podcast)

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Mortgages, ETFs, Autos, Munis, and Aviation (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news on 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. All right, I looked
0:21
Speaker 1: at the mortgage rate, you know on the Bloomberg termoil
0:24
Speaker 1: you can do that. It's over seven percent now the
0:26
Speaker 1: average thirty year mortgage. What so I feel did you
0:29
Speaker 1: close on your tun closing later today? And I feel
0:32
Speaker 1: like I'm gaming the market with the rate I got.
0:35
Speaker 1: You locked in a good rate? Yeah, well, no, you
0:36
Speaker 1: locked in a good rate. I locked in a egregious rate.
0:39
Speaker 1: But it looks better than it does today. But let's
0:42
Speaker 1: talk about the mortgage market. Let's talk about the housing market.
0:45
Speaker 1: Erica Aidelberg, she joins us here on our Bloomberg Interactor
0:48
Speaker 1: Broker's studio ericas the mortgage back security strategist for Bloomberg Intelligence.
0:53
Speaker 1: Erica talked to us about just kind of a housing market,
0:56
Speaker 1: just the basic housing market today, Ray Tire, it seems
1:01
Speaker 1: like there's a real supply problem out there. What are
1:04
Speaker 1: you seeing? But we have had big jumps in new
1:06
Speaker 1: home sales, are pending home sales, way bigger than we
1:08
Speaker 1: were looking for. Yeah, Hi, thanks for having me, Thanks
1:12
Speaker 1: for coming. You know, the housing market is on a
1:16
Speaker 1: roller coaster. It's just you know, everybody I think who's
1:19
Speaker 1: interested in buying houses is taking close look at rates
1:23
Speaker 1: that I think there's is a lot of It feels
1:25
Speaker 1: like there's a lot of pent up demand. Whenever rates
1:27
Speaker 1: fall a little bit, and new home builders have a
1:31
Speaker 1: lot of inventory, they're probably looking to move because they
1:33
Speaker 1: have more houses under constructions. So there's you know, a
1:37
Speaker 1: lot of incentives going around to try to encourage people
1:39
Speaker 1: to still be involved in the mortgage market, which I
1:41
Speaker 1: think is why I'm sorry in the housing market, which
1:44
Speaker 1: is why I think you saw the big jump in
1:47
Speaker 1: both existing home sales and new home sales, pending home
1:51
Speaker 1: sales and new home sales. You know, as soon as
1:53
Speaker 1: rates dropped a little bit, existing home sales are still
1:56
Speaker 1: very low, but pending home sales are leading indicator for that.
2:00
Speaker 1: Let's separate all those three things. For people who don't
2:02
Speaker 1: work in the housing industry, like you do. So pending
2:06
Speaker 1: home sales is what contracts signed pending home sales is.
2:10
Speaker 1: I think, I know, I know. New home sales are
2:13
Speaker 1: contracts signed pending home sales. I'm not sure because it's
2:16
Speaker 1: a leading indicator for existing home sales. So yeah, it's
2:19
Speaker 1: before closing. So yeah, pending home sales are contract signed
2:23
Speaker 1: new home sales. New home sales are just built and sold, right,
2:26
Speaker 1: not like if Paul lived in his house for twenty
2:29
Speaker 1: years and then sells it. That's existing home sales, right.
2:31
Speaker 1: But new home sales haven't necessarily even closed. So there
2:34
Speaker 1: are a lot of cancelations on new home sales because
2:37
Speaker 1: the first time move in, right, New homesales is like yeah,
2:40
Speaker 1: new brand new home sales. Yeah, and existing home sales
2:43
Speaker 1: is on when the loans actually close the house is
2:45
Speaker 1: actually true, so existing home sales is usually related to
2:49
Speaker 1: rates a couple of months ago. Both new home sales
2:51
Speaker 1: and especially pending home sales are based more on you know,
2:55
Speaker 1: where rates are today and what type of incentives people
2:57
Speaker 1: are getting, and especially for new homes sales, they may
3:00
Speaker 1: not even close. There's a lot of cancelation. So that's
3:03
Speaker 1: really the whole thing is kind of confusing even for
3:05
Speaker 1: an analyst. But the bottom line is we've seen the
3:07
Speaker 1: numbers tick up, yeah, from the doldrums, And does that
3:14
Speaker 1: mean we've seen a bottom in housing? You know, So
3:17
Speaker 1: there's one more number we can throw in there just
3:18
Speaker 1: to confuse people. The Mortgage Banker Association does a weekly
3:22
Speaker 1: survey and they look at purchase loan applications and refi
3:26
Speaker 1: loan applications, which are of course in the basement. Purchase
3:30
Speaker 1: loan applications did tick up a little in January, which
3:32
Speaker 1: is why so many people thought that's the biggest leading indicator.
3:35
Speaker 1: That's like two months out basically, that's that's h you know,
3:39
Speaker 1: that's where you know, people were trying to lock in
3:42
Speaker 1: mortgages when the race we're a little bit lower. That's
3:44
Speaker 1: now back to twenty eight year lows. It's fallen two
3:46
Speaker 1: weeks in a row. So I think, you know, bottom
3:50
Speaker 1: line is I think that's NBA B perch if you
3:52
Speaker 1: want to bring that up. But I think bottom line
3:55
Speaker 1: is that, you know, whatever green shoots we're seeing are
3:58
Speaker 1: obviously being peated now by the higher mortgage rates. On
4:02
Speaker 1: the bright side, we're moving to the spring housing season
4:05
Speaker 1: where a lot of people get involved in the markets
4:07
Speaker 1: and then okay, so this is not even the season anyway,
4:10
Speaker 1: it's just a yeah, we can't really judge it by
4:12
Speaker 1: these numbers. I want to ask about something that I
4:15
Speaker 1: think Paul's going to be doing next year, and I
4:17
Speaker 1: think maybe a lot more people are than have been
4:20
Speaker 1: in the past decade, at least maybe longer people are
4:24
Speaker 1: getting adjustable rate mortgages because we're so high right bank
4:28
Speaker 1: rate says seven point one two percent right now, are
4:32
Speaker 1: more people going to be you said, refies are in
4:34
Speaker 1: the basement. Obviously, nobody's refinancing at seven percent. That's why
4:38
Speaker 1: city is letting go hundreds of people and get mortgage
4:40
Speaker 1: in it. But next year people may be doing just that.
4:44
Speaker 1: Are a lot of people picking up adjustable rate mortgages
4:47
Speaker 1: hoping that rates go down in the future. Adjustable rate
4:50
Speaker 1: mortgages have picked up a little bit. You know, keep
4:53
Speaker 1: in mind when you think about adjustable rate mortgage, it's
4:56
Speaker 1: not the adjustable rate mortgage of yesteryear, where you might
4:59
Speaker 1: even get a teaser rate, or at least you can reset,
5:02
Speaker 1: you know, resets annually so you get a low rate.
5:05
Speaker 1: Right now, there were like five ones, ten ones, so
5:07
Speaker 1: the rates only incrementally lower than thirty year. You can
5:11
Speaker 1: look at the bank rate. I think it's you know,
5:13
Speaker 1: maybe a hundred based points saving, right, So some people
5:15
Speaker 1: are taking those out. They don't have to reset for
5:17
Speaker 1: five years, and there's pretty serious caps on the first reset,
5:20
Speaker 1: so it's not really a risk for the mortgage market.
5:23
Speaker 1: But yeah, we are seeing a little bit of pickup
5:24
Speaker 1: and it's almost one hundred percent correlated right now with
5:27
Speaker 1: the spread between thirty year and five ones. So that's
5:30
Speaker 1: that's the math people are doing. All right, Erica, let's
5:33
Speaker 1: talk about the mortgage backed securities market, fixed income market
5:36
Speaker 1: in general. Good January, bad February. Talk to us about
5:40
Speaker 1: the MBS market. Where you're seeing opportunities risk? What are
5:43
Speaker 1: you telling your clients? Yeah, it was very interesting. We
5:46
Speaker 1: came out of a really rotten, the worst ever year
5:49
Speaker 1: in twenty twenty two. You know, it came out of
5:51
Speaker 1: the gates strong. We had the best January that I've seen,
5:54
Speaker 1: at least, you know, in history, I mean going back
5:56
Speaker 1: as far as any of our series go, both on
5:58
Speaker 1: you know, a hedge return basis as well as a
6:00
Speaker 1: bondser back you know, total return basis, and it's just
6:04
Speaker 1: been you know, dripped by drip pain since then. And
6:07
Speaker 1: what turned the market is the fact that I think
6:10
Speaker 1: every the markets have been pricing in after you know,
6:13
Speaker 1: a nice turn in CPI, what appeared to be a
6:16
Speaker 1: turn in CPI, they've been pricing in the end of
6:18
Speaker 1: FED tightening and maybe even easing by the end of
6:21
Speaker 1: the year. That's all gone out the window as soon
6:23
Speaker 1: as last month's non farm payrolls number came in way
6:27
Speaker 1: stronger than anyone expected. And other data is also you know,
6:30
Speaker 1: made us think, including isems and numbers today, that you know,
6:33
Speaker 1: we're not out of the woods yet. The Fed's probably
6:35
Speaker 1: gonna have to go a lot higher and keep rates
6:37
Speaker 1: a lot higher for a lot longer than people expected.
6:40
Speaker 1: And mortgages don't love that scenario, you know, bobs in
6:44
Speaker 1: general don't love that scenario. But it also means there's
6:47
Speaker 1: probably ongoing you know, volatility while we're trying to figure
6:50
Speaker 1: out what's actually going to happen. So as I say,
6:53
Speaker 1: mortgages have given up all of their total raid to
6:55
Speaker 1: return near to date, and a lot of their excess
6:57
Speaker 1: returned near to date as well. Thirty seconds credit quality
7:00
Speaker 1: in the NBAS market mortgage market um. Credit quality is
7:04
Speaker 1: still very strong. Delinquencies are still very low. Most people
7:08
Speaker 1: still have those two percent mortgages or three percent mortgages,
7:11
Speaker 1: So look strong. All right, My man over here's got
7:15
Speaker 1: a very low mortgage, don't you on the estate in
7:18
Speaker 1: west Chester? Yeah, yeah, it's pretty fantastic. Yeah, I'm paying
7:21
Speaker 1: glad I locked that in. Yeah, but it doesn't change
7:23
Speaker 1: the fact that my taxes are so high. I could
7:26
Speaker 1: honestly be buying like a new nine to eleven every year.
7:30
Speaker 1: Just insane. Right when you get the scat pack thing coming,
7:33
Speaker 1: and you'll be all, you'll be happy. Erica Aidelberg, mortgage
7:36
Speaker 1: backed security strategist for Bloomberg Intelligence, joining us here live
7:40
Speaker 1: in our Bloomberg Interactive Broker studio on a Friday, so
7:42
Speaker 1: that's a double start. I love to Betty Kis. I
7:48
Speaker 1: love exchange traded funds. I think, what are they thirty
7:52
Speaker 1: years old now, and they just continue to innovation. The
7:56
Speaker 1: industry continues to grow. We're talking about at least at
8:00
Speaker 1: least nine trillion dollars of funds globally, so incredible growth stories.
8:05
Speaker 1: Sylvia Jablonski joins us here a chief investment officer and
8:08
Speaker 1: co founder of defiance ETFs and you know Sylvia on
8:12
Speaker 1: the Bloomberg terminal. There's this great stories every day on
8:15
Speaker 1: ETF space. One that got my attention just recently, Jim
8:18
Speaker 1: Kramer ETFs arrives to bet on and against the CNBC
8:22
Speaker 1: host picks talk to us. So just about these specialized,
8:26
Speaker 1: super specialized kind of ETFs like a pro or con
8:30
Speaker 1: Jim Kramer ETF is that is that where the growth
8:34
Speaker 1: is as opposed to just like buying in index ETF
8:38
Speaker 1: Good morning. You know, it's it's a great question. I
8:41
Speaker 1: think it's certainly where the popularity is and where the
8:44
Speaker 1: interest is. Um. You know, my sense of it is
8:47
Speaker 1: that you kind of have the ETFs out there already
8:51
Speaker 1: that you know, a track and represent the classics sectors
8:55
Speaker 1: and investors want access to. So for example, there are
8:58
Speaker 1: you know, many many options to get SMP five hundred
9:01
Speaker 1: exposure and an ETF rapper NASDAK emerging markets you know
9:06
Speaker 1: fixed it basic fixed income products and things like that.
9:08
Speaker 1: So the second wave of products was really in the
9:12
Speaker 1: thematic space and you started to see these cool broader
9:15
Speaker 1: themes you know, like um, whether it's space or or
9:18
Speaker 1: EVS and things like that. And now you have, as
9:21
Speaker 1: you said this this Jim Kramer long, sure, I think
9:23
Speaker 1: providers are just coming trying to come out with something
9:26
Speaker 1: new that will um, you know, gather assets and will
9:29
Speaker 1: represent something that people actually want to trade. And you know,
9:31
Speaker 1: people do follow Jim Cramer and have strong opinions either
9:34
Speaker 1: way on his side. What's what's a successful ETF in
9:39
Speaker 1: terms of size, Like, what's what's considered to be a
9:41
Speaker 1: successful et kind of clothes do you need to see? Yeah? Right,
9:45
Speaker 1: well it's you know, it depends on the management fee.
9:47
Speaker 1: So if obviously the higher the fee, the lower the
9:50
Speaker 1: thresholds that you need for success. So if you have
9:53
Speaker 1: an ETF that has you know, ninety BIPs to one
9:56
Speaker 1: percent and you gather twenty million, you know that's of
10:00
Speaker 1: a decent baseline. But if you have an ETF that's
10:02
Speaker 1: priced at you know, ten twenty thirty books, you need
10:05
Speaker 1: to see hundreds and millions of assets to actually, you know,
10:08
Speaker 1: really generate a profit on that product. Because ETFs are
10:10
Speaker 1: actually pretty costly to run on the back end, we
10:13
Speaker 1: see more and more of these ETFs like the Kramer one.
10:17
Speaker 1: UM I think before that we got crews and nance
10:21
Speaker 1: tracking what not. Nancy Pelosi and Ted Cruise specifically do.
10:26
Speaker 1: But what the Republicans do or what the Democrats doing
10:29
Speaker 1: for in terms of you know, front running their legislation
10:32
Speaker 1: to make money. Are these just a fad? I think
10:39
Speaker 1: time will tell, you know, if if they perform. For example,
10:43
Speaker 1: there was a period of time last year where um,
10:46
Speaker 1: you know, you saw that short ARCTF right where everybody
10:48
Speaker 1: became super sour on Kathy what the year prior? You know,
10:51
Speaker 1: she was sort of the here the hero of ETFs,
10:53
Speaker 1: and her ETF took off and then last year was terrible. No,
10:57
Speaker 1: this year her ETF is up twenty percent again. So
10:59
Speaker 1: um flows are kind of leaving the short arc and
11:02
Speaker 1: going into the long one. So I think it's it'll
11:04
Speaker 1: be the same thing with a long short Cramer fund.
11:06
Speaker 1: You know, if the performance is there, I think it'll
11:08
Speaker 1: generate assets, and there's enough kind of retail investors that
11:11
Speaker 1: are interested in in you know, the media of it
11:13
Speaker 1: and the publicity of it all. But you know, do
11:16
Speaker 1: I think it's going to end up in an asset
11:17
Speaker 1: manager's ETF application? You know, probably not got ETF. I
11:21
Speaker 1: think a lot of thematic ETFs have a shot too,
11:25
Speaker 1: because you know, there is this interest in disruptive technology
11:27
Speaker 1: and innovation things like that. But something like that almost
11:30
Speaker 1: feels a little bit memi and will probably you know,
11:32
Speaker 1: gather some assets in the moment and then unless performance
11:35
Speaker 1: is phenomenal or price fade away, unless the congressional stock
11:40
Speaker 1: traders are forced to disclose what they do, you know,
11:43
Speaker 1: within like ten years of their buy or self. By
11:46
Speaker 1: the way, speaking of Cruz, you have an ETF that
11:49
Speaker 1: I think Paul would like. Um, he's obsessed with hotels, planes, cruise,
11:55
Speaker 1: ships and you've got Cruz. Yeah, I mean, so we've
12:01
Speaker 1: we've we launched that ETF to really tackle the the
12:05
Speaker 1: idea that you know, post pandemic, there would be this
12:07
Speaker 1: pent up demand for people to travel. And you know,
12:09
Speaker 1: there's a very popular airline ETF out there, but there
12:11
Speaker 1: wasn't something that sort of captured the full picture with
12:15
Speaker 1: hotels and cruises and whatnot. So UM, cruise gives you
12:18
Speaker 1: just that, it gives you access to the airline, so
12:20
Speaker 1: you're getting domestic, but you're also getting that China reopen
12:23
Speaker 1: trade that East meets West, you know, um tailwin that
12:26
Speaker 1: we're going to see this year. You get cruises and
12:29
Speaker 1: we've seen the data there, a lot of the CEOs
12:31
Speaker 1: are coming out and saying that pandemic book bookings are
12:34
Speaker 1: backed up to pandemic levels. They're starting to generate revenues again.
12:37
Speaker 1: They have pricing power, and of course hotels, business travels
12:40
Speaker 1: back up. People are out there traveling. So I think
12:43
Speaker 1: in the short term, um, particularly if we don't see
12:45
Speaker 1: any kind of hard landing and we start to see
12:47
Speaker 1: some of this you know, inflationary pressure cool off, Um,
12:50
Speaker 1: you might get some gailwinds and in cruise and some
12:53
Speaker 1: of these types of names within that ETF for the
12:56
Speaker 1: next year or two, it's your highest year to date return.
13:01
Speaker 1: That ETF is up like twenty percent year to date. Yeah,
13:05
Speaker 1: in terms of the largest fund assets you operate, the
13:11
Speaker 1: five G Right Defiance, next Gen Connectivity ETF. It's also
13:16
Speaker 1: lowest fees of the of the ETFs that you operate
13:19
Speaker 1: a guess because it's so big, right, and the highest yield. Yeah.
13:24
Speaker 1: So the interesting thing about that is when we launched
13:27
Speaker 1: that ETF, we were a new fund and a new
13:31
Speaker 1: company and we wanted to come to market. We thought that,
13:34
Speaker 1: you know, we really need to make a splash. So
13:35
Speaker 1: let's let's try to come up with the most innovative
13:37
Speaker 1: product that we can and we thought to ourselves, there's
13:40
Speaker 1: no you know, great innovative product in terms of the
13:43
Speaker 1: feature of communication, and what is the feature of communication?
13:45
Speaker 1: It's really five G. So we structured the product and
13:48
Speaker 1: then we thought to ourselves, and this is also around
13:51
Speaker 1: you know, kind of it's pre covid, but it kind
13:53
Speaker 1: of dove into covid around the time that we launched,
13:57
Speaker 1: and we thought to ourselves, you know, who's going to
13:59
Speaker 1: trade this. It's going to be a kind of that
14:00
Speaker 1: younger Robin hood trader and whatnot. And so let's make
14:02
Speaker 1: it your transparent, Let's make it as cost effective as
14:04
Speaker 1: possible and try to gather assets and really start a company.
14:07
Speaker 1: And so it's really it's really our flagship fund, and
14:09
Speaker 1: it's what caught us on the map. And you know,
14:12
Speaker 1: we're super proud of that ETF today and we hope
14:14
Speaker 1: to see it. We hope to see it start to
14:16
Speaker 1: grow again as risk app type picks up in coming years. Hey, Solvia,
14:21
Speaker 1: talk to us about the trend of mutual funds converting
14:24
Speaker 1: to ETF. So I find that fascinating kind of where
14:27
Speaker 1: are we in that process and how do you think
14:29
Speaker 1: it plays out going forward. So it's interesting because I think,
14:33
Speaker 1: you know, I'm young enough where I've invested in ETFs
14:36
Speaker 1: for a really long time, and I've worked with people
14:38
Speaker 1: who were really like mutual fund believers, hardcore hutual fund believers,
14:43
Speaker 1: and thought that the ETF would would go away. I mean,
14:45
Speaker 1: it's just really hard to argue that mutual fund assets
14:49
Speaker 1: will remain where they are. ETFs are just a much
14:51
Speaker 1: better rapper. You know, they're far more efficiating, got intra
14:54
Speaker 1: day trading, combine and sell them throughout the day. You
14:57
Speaker 1: know what the intra day NAVI is what the fund
14:59
Speaker 1: is actually worth versus what you're paying for it. Um.
15:02
Speaker 1: You know, there are a lot of tax benefits to
15:04
Speaker 1: using the ETF structure. So we've seen that transition. We've
15:08
Speaker 1: seen the outflow from mutual funds into ets And not
15:11
Speaker 1: to say that, you know, you have some great actively
15:13
Speaker 1: managed mutual funds out there that are never going to
15:15
Speaker 1: go away, but I think that the ETF rappers is
15:18
Speaker 1: now you know, kind of the preferred product of choice
15:21
Speaker 1: by by investors and especially the next generation of investors.
15:25
Speaker 1: I mean, if you ask um, like a seventeen year
15:28
Speaker 1: old about a mutual fund they but not even know
15:30
Speaker 1: what it is. What about regulation? I mean, one thing
15:34
Speaker 1: about mutual funds I know is that my four o
15:37
Speaker 1: one k is like puking mutual funds. Can you put
15:40
Speaker 1: ETFs easily in a four oh one k? Are investors limited?
15:44
Speaker 1: Because that's a big it's a big pool there. Yeah,
15:48
Speaker 1: that's the limit. That's the limit, and that's where the
15:50
Speaker 1: assets are sticky for mutual funds. So I think that
15:52
Speaker 1: UM either have been talks about this sort of you know,
15:55
Speaker 1: forever at least for the last decade that that I've
15:58
Speaker 1: been an ETFs that you know, all the retirement plans
16:00
Speaker 1: are going to open up to ETFs, and some of
16:02
Speaker 1: them have and some of them haven't. The majority have not.
16:05
Speaker 1: You know, I suspect that there's going to become a
16:08
Speaker 1: time just because there's so much user demand for it,
16:11
Speaker 1: where you'll see that open up to ETF products, at
16:14
Speaker 1: least certain ETF products, And I think, you know, I
16:18
Speaker 1: think in that case that just even further propels the
16:21
Speaker 1: EATTF asset number by the trillions and shrinks the mutual
16:26
Speaker 1: fund assets. And you see a lot of the you know,
16:28
Speaker 1: top actively managed mutual funds trying to create ETFs out
16:31
Speaker 1: of their strategies too, so they sort of know that
16:33
Speaker 1: they're not, you know, they're not kind of eroding their
16:36
Speaker 1: own assets, but they sort of realize that they have
16:38
Speaker 1: to switch over to keep their assets. Yeah, just amazing.
16:41
Speaker 1: It's one of the just greatest or most you know,
16:43
Speaker 1: impactful changes I've seen in the last decade, and I
16:46
Speaker 1: know it's been longer than that. I'm going to start.
16:49
Speaker 1: I'm gonna start dating people by your either pre ETF
16:52
Speaker 1: or posting. Yeah, yeah, you're definitely because you started on
16:55
Speaker 1: the street. Yes, before spies were coiled out, exactly, but Sylvia, no,
17:02
Speaker 1: after absolutely, Sylvia Jablonski, chief investment Officer, co founder of
17:06
Speaker 1: Defiance ETFs, and then on the Bloomberg terminal. For those
17:10
Speaker 1: of you are sitting in front of a terminal, et
17:12
Speaker 1: F go is a great function. Gives you all the
17:14
Speaker 1: good information you want about the ETF space and looking
17:18
Speaker 1: at the Defiance ones. Five G is Matt mentioned the
17:21
Speaker 1: biggest one and it's got great returns there. It's got
17:23
Speaker 1: seven hundred million dollars assets under management. All Right, we
17:29
Speaker 1: got Kevin tyin in on here. He's a senior autos
17:31
Speaker 1: analyst for Bloomberg Intelligence. No real agenda here, but I
17:36
Speaker 1: want to just start Kevin. I know Michael Dean, your
17:38
Speaker 1: colleague in London, follows Volf Volkswagen. But Volkswagen came out
17:42
Speaker 1: today saying, you know, their boosting production. Demand is still there.
17:48
Speaker 1: I want to ask you from the global auto industry,
17:51
Speaker 1: is this supply chain issue is that fixed? Well, it's better,
17:57
Speaker 1: but you know, and we've talked about this a lot,
17:59
Speaker 1: like I'm not sure how much of it was chips
18:02
Speaker 1: and supply chain and how much of it was constraining
18:06
Speaker 1: output to maintain pricing and margins. So, um, you know,
18:12
Speaker 1: automakers are are going to get back to a little
18:15
Speaker 1: bit more of that growth mode as the demand is there.
18:19
Speaker 1: But um, you know, I think it's an easier hurdle now, right,
18:22
Speaker 1: Like across in the key regions, you you don't have
18:26
Speaker 1: this um sales for sales sake kind of mindset anymore, right,
18:32
Speaker 1: Like the product portfolio is different, costs irrationalized, and it's um,
18:36
Speaker 1: you know, it's your most expensive stuff that you're putting
18:39
Speaker 1: out there, so um, you know, demand just carmakers, by
18:42
Speaker 1: the way, Kevin, you know last week I was down
18:44
Speaker 1: at the Ducati shop in Soho and the North American
18:48
Speaker 1: CEO Jason Schinnickck told me after their experience during the pandemic,
18:52
Speaker 1: they're pushing towards basically thirtyty fifty thousand dollars models rather
18:57
Speaker 1: than the entry level ten tho dollar bike used to sell.
19:00
Speaker 1: And even same thing at Harley Davidson. Right, if you
19:03
Speaker 1: look at that company, you know, this move away from
19:06
Speaker 1: volume for volume sake because they got out of a
19:08
Speaker 1: lot of difficult regions for them, you know, um international markets,
19:13
Speaker 1: and are really just focused on constraining supply, driving prices higher,
19:20
Speaker 1: you know, and just filling orders at the highest possible
19:22
Speaker 1: price and margin. So my question to you is is
19:27
Speaker 1: that a thing? Kevin? Is that a long term trend?
19:29
Speaker 1: I mean, this is an industry for it seems like
19:32
Speaker 1: my entire lifetime at least. You know, you produced seventeen
19:35
Speaker 1: million cars and you sell them, you haggle and you
19:38
Speaker 1: do all that kind of stuff. Now you're talking tell
19:41
Speaker 1: me fifteen million, and it's you stick a price or
19:44
Speaker 1: above is what you're gonna pay? Yeah, Well, here's the thing. Right,
19:47
Speaker 1: So if you look at it from a volume perspective,
19:49
Speaker 1: you're going to say where where do two and a
19:52
Speaker 1: half million units go? And do they ever come back?
19:54
Speaker 1: But the thing is at seventeen and a half million,
19:57
Speaker 1: you know, from the manufacturer's perspective, even from the dealership's perspective.
20:01
Speaker 1: You know, the average transaction price was thirty five thousand
20:04
Speaker 1: dollars in twenty twenty three. If we do fifteen million units,
20:07
Speaker 1: the average transaction price is going to be about forty
20:10
Speaker 1: nine thousand dollars. Excuse me. So when you look at
20:14
Speaker 1: the revenue pool, actually, this market is actually bigger than
20:18
Speaker 1: when it was peak volume. And that's what I think
20:21
Speaker 1: automakers are focused on that consumers aren't right, they're just
20:26
Speaker 1: saying or the markets or analysts are just saying seventeen million,
20:31
Speaker 1: seventeen and a half to fifteen is bad. But everybody
20:34
Speaker 1: else or the automakers are going, yeah, but the revenue
20:36
Speaker 1: pool is bigger by about eighty billion dollars, at least
20:39
Speaker 1: here in the US. So I think you have to
20:42
Speaker 1: layer in that one other data point above just simply volume,
20:45
Speaker 1: and say like, okay, well let's look at where how
20:47
Speaker 1: much money is this rather than how many units is this?
20:50
Speaker 1: Because you know, look a twenty thousand or an eighteen
20:53
Speaker 1: thousand dollars Chevrolet Cruise, which no longer exists, isn't the
20:56
Speaker 1: same thing as a sixty thousand dollars Silverado. Is pushing
21:00
Speaker 1: up the average selling price because uh, you know, I've
21:04
Speaker 1: I had to fight to get my last call Dodge
21:08
Speaker 1: Challenger scat pack wide body sum and the price was
21:15
Speaker 1: let's just say it, I paid too much for a
21:17
Speaker 1: car that's going to depreciate a lot um. But it's
21:21
Speaker 1: the same everywhere. I mean, the new Mustangs are super expensive.
21:25
Speaker 1: You want to get a Broncho, you're gonna pay up.
21:28
Speaker 1: And it seems like, and it makes sense, these carmakers
21:31
Speaker 1: are taking advantage of a last call for internal combustion
21:34
Speaker 1: engines to fund their loss making EV business. Well yeah,
21:38
Speaker 1: and it's so it's totally mix shift and not only
21:41
Speaker 1: car to truck, but also, like you said, right, look
21:45
Speaker 1: at that mix in that LX platform for for Stilantis
21:49
Speaker 1: Challenger and charger. Right, there's there's really no more garden
21:52
Speaker 1: variety Challengers or you know, rental fleet chargers. I mean
21:56
Speaker 1: there are, but but if you were to look at
21:59
Speaker 1: the at um penetration rate of the fire breathers, right,
22:04
Speaker 1: the scat packs the hell Cats, all that stuff. It's
22:07
Speaker 1: probably way higher than you would ever believe it could be, yea,
22:10
Speaker 1: because that's what people want, right. They don't want the
22:12
Speaker 1: garden varieties, six cylinders, want the tennis star. Sure, everybody
22:17
Speaker 1: wants the hell Create for months now. I have no
22:21
Speaker 1: idea what it is. What Okay, I'll just quickly tell you. Okay,
22:24
Speaker 1: So hell Cat and the hell Cat Red Eye and
22:27
Speaker 1: the Superstock and the Demon. These are all super charged
22:31
Speaker 1: six point two leader V eights. Okay, so they take
22:35
Speaker 1: um the inches down a little bit and slap on
22:39
Speaker 1: a power pusher. The scat pack is a six point
22:44
Speaker 1: four leader V eight, so a little bit more in
22:46
Speaker 1: inches three ninety two, but there's no forced induction, okay,
22:51
Speaker 1: so it's naturally aspirated. I give up, though, because I
22:53
Speaker 1: don't believe that you're really paying attention. All right, Kevin, Kevin,
22:58
Speaker 1: what's the when you talk to institutional investors today, what's
23:00
Speaker 1: the number one question you get about the autobiz? You know,
23:05
Speaker 1: that idea that pricing new and used is set to tumble,
23:10
Speaker 1: you know, and it really comes you know, there's a
23:13
Speaker 1: lot of inputs into that Supply versus demand is really
23:16
Speaker 1: what's going to determine it. So I don't think automakers
23:20
Speaker 1: for the most part, are going to run into an
23:22
Speaker 1: oversupply condition, unless, of course, demand goes through the floor,
23:26
Speaker 1: which I don't really see either, right, So I think
23:29
Speaker 1: the control or the power still stays in the hands
23:33
Speaker 1: of the automakers. You know, while we could see some
23:37
Speaker 1: softening demand just because of interest rates and prices and whatever,
23:41
Speaker 1: you know that fifteen million unit isn't as high a
23:44
Speaker 1: hurdle in terms of pent up demand. And I think
23:46
Speaker 1: it's the number we can easily do and do it
23:48
Speaker 1: basically at MSRP and do it very profitably. All right,
23:53
Speaker 1: everybody wins here, but the consumer, right, that's the thing,
23:56
Speaker 1: all right to me, that's a bullish call on his
23:59
Speaker 1: auto name across the sport with Kevin just well, well
24:02
Speaker 1: here here's the other thing too, Paul, is that you know,
24:04
Speaker 1: if the process is better for the consumer, everybody paying
24:07
Speaker 1: the same and they're being transparency the pricing, arguably they
24:11
Speaker 1: all right, all right, we'll see how it plays out
24:13
Speaker 1: until I replaced the BMW twenty fourteen with manual transmission.
24:17
Speaker 1: Thank you very much, Kevin Tyne and Senior Automotive analyst
24:20
Speaker 1: for Bloomberg Intelligence. He's based down in our Princeton, New
24:24
Speaker 1: Jersey office, and the cool thing about him is, like
24:26
Speaker 1: Matt Miller, he gets to test drive pretty much every
24:28
Speaker 1: single car that comes out, so he knows what he's
24:31
Speaker 1: talking about. But left talking to Kevin looking at the
24:36
Speaker 1: fixed income landscape, Well, you guys had a really good January,
24:40
Speaker 1: February not so much. Give us a sense of kind
24:43
Speaker 1: of your thoughts are here in early March about your space. Yeah, hey,
24:48
Speaker 1: good morning. You were absolutely spot on. January was amazing,
24:52
Speaker 1: February not so much. And you know, we've almost erased
24:56
Speaker 1: all the games we had to start the year. Year
24:58
Speaker 1: to dates are only up about thirty basis points. You know,
25:01
Speaker 1: the bad news is we're not predicting a lot of
25:04
Speaker 1: positive tailwinds carrying the sector into March. There's not a
25:08
Speaker 1: lot of cash coming back to investors. Primary supply continues
25:11
Speaker 1: to be really light, and you know the problem is
25:14
Speaker 1: we're really just attached to where rates are traveling, and
25:18
Speaker 1: treasuries have had a rough time. I know today looks
25:20
Speaker 1: a little better, but last time I checked, inflation isn't
25:23
Speaker 1: dead yet. So until that really gets under control, we're
25:26
Speaker 1: sort of hamstrung. All right, the good news is well,
25:29
Speaker 1: first of all, I forgot to say bam, yeah, I
25:32
Speaker 1: almost want to read the billboard again. Bam, there you go.
25:35
Speaker 1: Last time we were down at Bild America Mutual. We've
25:38
Speaker 1: got to talk to Chris Bergotti. He's the managing director
25:40
Speaker 1: Senior VP of Muni Investments over at Valley National Bank.
25:43
Speaker 1: And the good news is we have him here with
25:46
Speaker 1: us today, so Chris, we can bring you in to
25:48
Speaker 1: follow on to what Eric just said. First of all,
25:51
Speaker 1: good morning, thanks for joining us. What are your expectations
25:55
Speaker 1: in terms of inflation. It's clearly not died down over night.
26:00
Speaker 1: What are your expectations in terms of rates? The Fed
26:03
Speaker 1: is clearly rethinking any kind of pause that was thought
26:06
Speaker 1: to come. Yeah, good morning man, thanks for having me.
26:09
Speaker 1: And you know, my thoughts are basically, inflation is still
26:12
Speaker 1: going to be a little bit of challenge for the
26:15
Speaker 1: economy and the markets, and I expect net net to
26:19
Speaker 1: test those higher yields that we saw back in October,
26:22
Speaker 1: which would have put ten years at treasuries at a
26:25
Speaker 1: four thirty two and thirty year treasuries at a four
26:28
Speaker 1: thirty three, so that four forty two. I'm sorry. So
26:32
Speaker 1: that being said, you know, I'm expecting a little bit
26:35
Speaker 1: more pain to be had in the fixed income markets
26:37
Speaker 1: as a result of the inflationary environment. And we got
26:39
Speaker 1: the Fed talking about finally having to do another fifty
26:42
Speaker 1: basis point move, possibly in March. That's being put out
26:45
Speaker 1: there and has some credibility behind. It's not a good
26:47
Speaker 1: look if it has to happen. Paul pointed out, you know,
26:49
Speaker 1: once you've stepped down to twenty five, it doesn't make
26:52
Speaker 1: you look great to have to turn around and go
26:54
Speaker 1: back to fifty exactly exactly. So, Chris, I mean, what
26:58
Speaker 1: do I mean again? Flation data? I guess we can say,
27:01
Speaker 1: you know, with some certain the inflation has peaked, But
27:04
Speaker 1: is the market just telling us and the FED feder
27:08
Speaker 1: Reserve in particular, saying, yeah, but it's not coming down
27:12
Speaker 1: as fast as maybe we thought maybe towards the end
27:14
Speaker 1: of last year. Is that kind of what you think
27:16
Speaker 1: this Federal Reserve is looking at. I think it looked
27:20
Speaker 1: like there was a deceleration happening towards the end of
27:22
Speaker 1: last year, and then January data indicated that the deceleration
27:27
Speaker 1: was not decelerating at quite the same pace as we
27:30
Speaker 1: might have seen previously. So, you know, higher inflation as
27:33
Speaker 1: a challenge, and the fact that FED funds rate is
27:35
Speaker 1: still well below the core piece core CPI. It's a
27:40
Speaker 1: challenge for the markets that I don't think we've got
27:43
Speaker 1: to close that gap before we can see meaningful progress. So, Eric,
27:46
Speaker 1: as you talk to your institutional investor clients kind of
27:50
Speaker 1: what's the conversation centering on today. Is it just the
27:53
Speaker 1: FED or is there something inn immunity space specifically that
27:57
Speaker 1: maybe gets your attention gets attention to some of your clients.
28:01
Speaker 1: I think it's a combination of things. So, you know,
28:03
Speaker 1: first off, everyone is sort of vexed by the lack
28:05
Speaker 1: of primary supplying the market. You know, that's obviously a
28:08
Speaker 1: huge challenge because we're so technically driven, but you sort
28:11
Speaker 1: of compounded on top of that is just sort of
28:14
Speaker 1: this uncertainty where credit and credit spreads are going to
28:17
Speaker 1: go for the duration of the year. You know, one
28:19
Speaker 1: of the things we're paying attention to. And we had
28:21
Speaker 1: Nick Bloom from Stanford University during our podcast last month
28:24
Speaker 1: to talk about the challenges that cities are still having
28:27
Speaker 1: with a good amount of people still working from home.
28:29
Speaker 1: You know, either full time or part time on a
28:31
Speaker 1: hybrid basis. And now you just had a headline come
28:33
Speaker 1: out this morning about Amazon canceling plans for their second
28:36
Speaker 1: headquarters in Virginia as a result of sort of those trends.
28:40
Speaker 1: So definitely like something that we're keeping an eye on, Chris,
28:44
Speaker 1: in terms of you know, demand, what's it look like
28:48
Speaker 1: this year after the horrible, no good, very bad twenty
28:51
Speaker 1: twenty two and is there going to be enough to
28:54
Speaker 1: supply to satisfy it? You know, I think that's a challenge,
28:58
Speaker 1: and that's why we're seeing ratios where they are. Demand
29:01
Speaker 1: is still relatively strong. Fund flows and the ETFs have
29:05
Speaker 1: as a barometer for that are kind of flatish versus
29:09
Speaker 1: last year there was a pretty pretty decent liquidations from
29:12
Speaker 1: those types of funds, which are a good way to
29:14
Speaker 1: look at the market in terms of demand. And so
29:17
Speaker 1: you know, flatish demand versus really light supply down thirty
29:21
Speaker 1: percent so far year over year in twenty twenty two,
29:25
Speaker 1: and that's not a good dynamic to be able to
29:27
Speaker 1: have from a supply standpoint. So let's even say steady
29:31
Speaker 1: demand versus much lighter supply, there's plenty of demand to
29:34
Speaker 1: eat it up and that's why ratios are so low.
29:37
Speaker 1: And you know, one of the interesting things as a
29:39
Speaker 1: result of that is seeing is the treasury curve we
29:43
Speaker 1: know is inverted, but for the first time in forever
29:46
Speaker 1: for those that are Disney fans, the municipal ield curve inverted.
29:51
Speaker 1: And that's that's whatever happened. Yes, So that is a
29:54
Speaker 1: unique dynamic that has not happened before, and that just
29:57
Speaker 1: indicates the strong demand on the front end of the
30:00
Speaker 1: muni for vapor the first time in forever. Music they'll
30:06
Speaker 1: be fun boy, get it all here, And who's got
30:11
Speaker 1: the two year old in this studio? I guess we
30:13
Speaker 1: can tell. Hey, Eric, what little I know about the
30:16
Speaker 1: taxabotle municipal bond market I've learned from you in your research.
30:20
Speaker 1: What's the outlook for taxable muni market this year? I mean,
30:25
Speaker 1: pretty dismal from a supply standpoint, if you can imagine,
30:28
Speaker 1: we made so much volume, you know in the beginning,
30:30
Speaker 1: you know, stages of the pandemic, just because rates were
30:33
Speaker 1: so much lower, and a lot of the activity the
30:35
Speaker 1: keen in taxable muni states was refunding of tax exam bonds. Really,
30:39
Speaker 1: you know, we're trying to take economic advantage of that
30:42
Speaker 1: trade has totally gone away, and supply has gone with it.
30:44
Speaker 1: You know, you're looking down almost like seventy percent year
30:47
Speaker 1: of a year basis for supply. And again you know
30:49
Speaker 1: you're talking taxible MUNI rates tied to treasury rates. It's
30:53
Speaker 1: attractive from a buying standpoint, but the challenge is finding
30:56
Speaker 1: those bonds to buy. Why is there thirty percent decline,
31:00
Speaker 1: Chris in supply here? Is it just because interest rates
31:03
Speaker 1: have risen? Because I've I've been told that, true, they
31:07
Speaker 1: don't really care about rates exactly. They issue money, They
31:10
Speaker 1: issue bonds when they need the money. We need to
31:12
Speaker 1: get Joe Meisek in here, because he's been telling us
31:14
Speaker 1: this for years. So yeah, I thought, like, they don't
31:17
Speaker 1: even care what the rate is. Whenever they need the money,
31:20
Speaker 1: they issue the bonds. It's not like what Paul used
31:23
Speaker 1: to tell his clients, you know, get the money when
31:25
Speaker 1: you can, not when you need it. Muni's you know,
31:28
Speaker 1: towns and cities they're dumb. They don't do that. They
31:32
Speaker 1: do when they don't. I think you know, you're looking
31:34
Speaker 1: at it the way that when there's a really big shock,
31:37
Speaker 1: you know, the markets in general, and look at issuers
31:41
Speaker 1: as well. They don't like indecision, they don't like volatility,
31:44
Speaker 1: and so they just step back and say they can push,
31:46
Speaker 1: you know, kick the can down the road a little bit,
31:48
Speaker 1: and they don't need to borrow today with the higher
31:50
Speaker 1: interest rate, and they're hopeful that things can improve for
31:53
Speaker 1: them and they can borrow it better rates down the road.
31:57
Speaker 1: They might be willing to do that, and that in
31:59
Speaker 1: the phase of a challenging environment with a lot of
32:02
Speaker 1: volatility just scares them. And so just think of them
32:04
Speaker 1: not wanting to step into it when there's volatility is
32:08
Speaker 1: one way I tend to look at it. Hey, Eric,
32:12
Speaker 1: credit quality here, we've I guess since in the last
32:15
Speaker 1: several years, we've had no credit quality issues out there
32:19
Speaker 1: generally speaking. I mean, there's been so much liquidity from
32:22
Speaker 1: the federal government out there in the marketplace. Is that
32:24
Speaker 1: still the case here? I mean, do you even run
32:27
Speaker 1: recession models for some of these issuers? Oh, we have
32:31
Speaker 1: tons of models. We're running them all the time now.
32:34
Speaker 1: I mean, they did look these cities, states, counties. They've
32:37
Speaker 1: had a ton of cash the first year and a
32:39
Speaker 1: half two years of the pandemic, but they've they've sort
32:41
Speaker 1: of worked their way through that, and to sort of
32:43
Speaker 1: add on to la Chris said, you know, some of
32:45
Speaker 1: this lack of supply has been them having these stock
32:47
Speaker 1: pads of cash they hadn't really needed to access to
32:50
Speaker 1: market in times of higher rates. That's sort of running
32:53
Speaker 1: out now right. They're on the clock, and we might
32:55
Speaker 1: actually see them being forced to issue into a higher
32:58
Speaker 1: rate environment when they don't really want to, which will
33:00
Speaker 1: be you know, obviously like eighteenful situation, because it's just
33:03
Speaker 1: going to translate into you know, higher taxes to trickle through.
33:07
Speaker 1: You know, we're not predicting anything from a default standpoint,
33:10
Speaker 1: but they're always just the you know, the thread of
33:12
Speaker 1: spread widening as credits offtens through the rest of the year.
33:15
Speaker 1: Oh we even saw Illinois get upgraded a few weeks ago,
33:17
Speaker 1: So who knows what's going on up there? All right,
33:19
Speaker 1: that was fun a municipa bond round table, that is
33:22
Speaker 1: absolutely it was Max. I mean Max's been calling for
33:24
Speaker 1: that for the longest time, folks. We finally got it together.
33:27
Speaker 1: Eric Kazaski, senior municipal strategists out of prison and wait, Chris,
33:31
Speaker 1: where are you a Wayne, New Jersey? Beautiful Wayne? So
33:34
Speaker 1: if I wanted to ask, if you do you want
33:36
Speaker 1: to go to Brooklyn Bolden night and see a dead
33:37
Speaker 1: cover band. I wonder if it wasn't for the commune.
33:42
Speaker 1: There you go. Chris Bergotti, Managing Director, Senior VP of
33:44
Speaker 1: Municipal Investments at Valley National Bank, talk at all things
33:48
Speaker 1: munis there. How fun is that? Paul and I have
33:53
Speaker 1: a guest in studio who runs what I think is
33:55
Speaker 1: one of the most fascinating businesses that we've talked about
33:59
Speaker 1: in a long time. Ali ben Elmadanni joins us. He
34:02
Speaker 1: is the CEO of ABL Aviation, and this is a
34:07
Speaker 1: company that buys planes for airlines, I mean big planes,
34:12
Speaker 1: um not you know, little private jets, and then leases
34:15
Speaker 1: them back. So he has a bird's eye view of
34:19
Speaker 1: the airline industry and the crunch we're experiencing now in
34:25
Speaker 1: terms of capacity, which results of course in higher prices.
34:29
Speaker 1: How is that going to go in the coming months
34:32
Speaker 1: and years? Ali, thanks so much for joining us. Pleasure
34:34
Speaker 1: having you in the in the studio. Um, what do
34:37
Speaker 1: you how do you view the aviation industry right now?
34:39
Speaker 1: We've been talking about the bounce back in travel across hotels,
34:45
Speaker 1: cruises and airlines, We've seen planes packed to full capacity
34:49
Speaker 1: here in the US, and now we have Europe not
34:51
Speaker 1: doing as badly as we thought it would, plus China reopening.
34:55
Speaker 1: What does that mean for you? Thank you, thank you
34:57
Speaker 1: so much about you on well, a big shortage of
35:01
Speaker 1: supply of aircrafts. And you see that's all the flights
35:03
Speaker 1: that are going, knowing Europe and Americas are all full.
35:07
Speaker 1: The demand is very high. Everybody is sultling. And that's
35:10
Speaker 1: without Asia being fully opened. So just with America and Europe,
35:13
Speaker 1: there's a big demand for flying and you see it
35:16
Speaker 1: into piles of tickets going higher and all the flights
35:19
Speaker 1: being fully booked. You don't have enough supply of aircraft
35:22
Speaker 1: to all the airlines. So there's shortage and the slowdown
35:26
Speaker 1: of supply of aircrafts. Why not enough supply? Is it
35:28
Speaker 1: because the airlines stopped putting in orders over COVID? Is
35:33
Speaker 1: it because they parked aircraft that they haven't been able
35:36
Speaker 1: to get back yet? Is it? Is there some other reason?
35:39
Speaker 1: Why is there a shortage on the supply side? Because
35:41
Speaker 1: I'm sure Boeing and Airbus are willing to make as
35:43
Speaker 1: many as they can. Well, Bowling and Airbus are producing
35:46
Speaker 1: as fast as they can, but then as producing enough.
35:48
Speaker 1: There's delay on both Bowling and Airbus, which had supply
35:51
Speaker 1: chain problems, just like the carmakers. Yes, so they had
35:53
Speaker 1: a big supply changine COVID issues and they're fixing it,
35:56
Speaker 1: but there's a delay on us. In addition to that,
35:58
Speaker 1: the demand is so high. We didn't expect that the
36:00
Speaker 1: demand would be so high after COVID, and that's without
36:03
Speaker 1: even Asia being open. That's they so much demand of
36:05
Speaker 1: people flying all over the world that didn't fly for
36:08
Speaker 1: two years or three years all flying again. And I'm
36:11
Speaker 1: sure like people like you are going on vacation like before,
36:14
Speaker 1: going on much more flying on the country. And if
36:16
Speaker 1: you fly like a Vegas New York, all the flights
36:19
Speaker 1: are full and there's a big demand. Voice when you
36:21
Speaker 1: get it, when you believe it would have that supplying
36:23
Speaker 1: demand will come back into balance a little bit more.
36:25
Speaker 1: When do you think that will occur? Well, it's not
36:27
Speaker 1: happened in my personal view for the next twenty four months,
36:29
Speaker 1: because Asia is not open yet, so Evan would just
36:32
Speaker 1: America and Europe being at full speed. We see that
36:35
Speaker 1: there's a huge demand the moments. If we assume that's
36:38
Speaker 1: maybe America and Europe is going to slow down a
36:40
Speaker 1: little base. Then you have all of the demanda from
36:42
Speaker 1: Asia that's going to happen, and this will keep on going. Wow.
36:45
Speaker 1: So this kind of goes the Airbus and Boeing. That's
36:49
Speaker 1: the production site we're talking about earlier, all the stories
36:52
Speaker 1: at the beginning of the pandemic airlines taking the planes
36:55
Speaker 1: and parking them in the desert in Arizona or whatever.
36:58
Speaker 1: By the way, which airlines do you supply a at
37:01
Speaker 1: abl We have few Alnes and do us who have
37:03
Speaker 1: a making airlines? We have Delta, we have Alaska, as
37:06
Speaker 1: we supply in Europe. We have Lifton's Air francel in Israel,
37:11
Speaker 1: so different airlines as we provided. As an aside, I'll
37:14
Speaker 1: tell you that for years Paul thought that the picture
37:18
Speaker 1: of the man on the tail of an Alaska airliner
37:21
Speaker 1: was Jerry Garcia the Great Debt, and then he realized
37:25
Speaker 1: eventually that it was an Escama. Yes, well into my adulthood,
37:29
Speaker 1: I thought that, which is an amazing all right, I
37:32
Speaker 1: park a plane in the desert. Why can't I just
37:36
Speaker 1: if the man picks up, just go start it up
37:38
Speaker 1: again and put it back, Which they all did write
37:39
Speaker 1: a lot of your customers during COVID said listen, uh,
37:42
Speaker 1: you know that we're releasing planes from you. We're gonna
37:44
Speaker 1: park them in Arizona for a while, some of them
37:45
Speaker 1: in buckets. But you need to make those aircuffs air
37:47
Speaker 1: water again, so like to make its air water, it
37:50
Speaker 1: takes time. You have to have a check in what
37:53
Speaker 1: we call an l facilities, so mantenance over whole facility.
37:56
Speaker 1: But there's no spots, like there's a shortage of spots
37:59
Speaker 1: in all those but there's a delay. Everybody is going
38:01
Speaker 1: back to those amables to have those aircrafts airwards. You
38:03
Speaker 1: or to have those checks, and there's not enough space
38:06
Speaker 1: for all those aircrafts. So you have I mean, you're
38:09
Speaker 1: basically sitting pretty right now in terms of your business.
38:12
Speaker 1: You're a happy man. Not well. Yes, if you have
38:16
Speaker 1: naked aircraft, you can lease them at a high powers today,
38:19
Speaker 1: but you have to remember that there's in a case
38:21
Speaker 1: of answer state that's happened in the last few months
38:23
Speaker 1: that will have an impact on the leasers and the
38:25
Speaker 1: cost of financing that has not been implemented yet. So
38:28
Speaker 1: the least rates of all those leasers that have been
38:30
Speaker 1: leased to airlines is not seeing yet, so you have
38:34
Speaker 1: to adjust for those new ancestais environments, for this new
38:37
Speaker 1: cost of financing. And that's just happening now. So it's
38:39
Speaker 1: just starting, so I would be a happy man into amount.
38:42
Speaker 1: How do you anticipate, how does the industry anticipate they're
38:46
Speaker 1: reopening a China to impact kind of just the global
38:49
Speaker 1: aviation market and over what time frame? Well, the moments
38:52
Speaker 1: that we are going to have a full opening of Asia,
38:54
Speaker 1: not only Channel as Asia. You are going to see
38:56
Speaker 1: all those people like what's happened in America, what's happening
38:58
Speaker 1: in Europe. The first thing you did when COVID was
39:01
Speaker 1: the way it said, I want to go on the
39:02
Speaker 1: flight to Piace. I want to go to see Venice.
39:04
Speaker 1: I want to see what I couldn't see anymore. Because
39:06
Speaker 1: COVID is gone, you're going to have the same thing
39:08
Speaker 1: from Asian people as I want to see New York,
39:11
Speaker 1: I want to see Vegas like there's no more you
39:13
Speaker 1: can finally go back to Tokyo for example, exactly. So
39:16
Speaker 1: then you are going to have big demand, and that
39:18
Speaker 1: demand you need to supply aircraft for that. You need
39:20
Speaker 1: to supply good roots for that and there will be
39:23
Speaker 1: a huge demand for it. In terms of one are
39:25
Speaker 1: the other things that you care about? I mean fuel prices,
39:29
Speaker 1: they haven't gone up substantially yet. I've been watching at
39:32
Speaker 1: least you know, Brent crude and it hasn't been boosted
39:35
Speaker 1: so much by the reopening in China yet. Well, it's happens.
39:39
Speaker 1: But you have to remember that the cost of most airlines,
39:41
Speaker 1: one sort of the cost is fueled, and some of
39:43
Speaker 1: them did hedge, some of them did hedge. But as
39:46
Speaker 1: long as the fuel stays where it is, we have
39:49
Speaker 1: enough demand to make sure that airlines in very good health.
39:52
Speaker 1: So airlines are very very happy today. If you look
39:54
Speaker 1: at the ticket prices versus before COVID, it's almost three
39:57
Speaker 1: times where it's used to be. So that's due to
39:59
Speaker 1: the demand supply issue. What's the biggest challenge right now
40:02
Speaker 1: for your business? The costs of finance in the cost
40:06
Speaker 1: of debt because of a is going and the inflation
40:08
Speaker 1: is going to be one of the big issues. Are
40:10
Speaker 1: you a big borrower? Are you have a lot of
40:12
Speaker 1: debt to finance your aircraft? Well before ants in case,
40:17
Speaker 1: we used to boil lots of money to finance aircrafts.
40:20
Speaker 1: I know in the last twelve months with the ants
40:22
Speaker 1: in case while doing most of our aircrafts, that's one
40:24
Speaker 1: hundred percents equity and with the ideas to back lover
40:27
Speaker 1: lets on. Where do you get the equity? Well, one
40:30
Speaker 1: of our biggest partners, the Japanese Big House in Japan,
40:33
Speaker 1: is one of eques partners, and we have two partners
40:35
Speaker 1: here in the US. Interesting, Okay, it is a fascinating business.
40:39
Speaker 1: I have to say, uh, And we could spend like
40:42
Speaker 1: an hour talking with you about this. So I hope
40:44
Speaker 1: you come back or we could go so so Ali
40:48
Speaker 1: has just moved to Marrakesh, if we can share that,
40:51
Speaker 1: and Paul is like on eBookers right now booking his
40:54
Speaker 1: next flight. I honestly really want to go there, and
40:57
Speaker 1: you can go there from my brother just went there.
41:00
Speaker 1: I think it would be a great place to take
41:01
Speaker 1: a motorcycle trip, like I want to go there, get
41:03
Speaker 1: a BMW like a GS twelve fifty and just ride
41:06
Speaker 1: around Morocco. I would love to have you though, love
41:07
Speaker 1: to have you Mudcas. I love you a great when
41:09
Speaker 1: I get there, exactly. Ali ben Lemnadi, CEO of ABL Aviation,
41:17
Speaker 1: Thanks for listening. To the Bloomberg Markets podcast. You can
41:20
Speaker 1: subscribe and listen to interviews of Apple Podcasts or whatever
41:24
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
41:28
Speaker 1: at Matt Miller nineteen seventy three. And I'm false Sweeney.
41:31
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
41:34
Speaker 1: can always catch us worldwide at Bloomberg Radio