Latest / Bloomberg Intelligence / Trump Is Derailing, Perverting the Mission of the USPS: O'Brien

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Trump Is Derailing, Perverting the Mission of the USPS: O'Brien · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day,
0:06
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
0:10
Speaker 1: along with essential market moving news. Find the Bloomberg Markets
0:13
Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot com. We says over for Congress,
0:22
Speaker 1: Nancy Pelosi has called back the House because of growing
0:26
Speaker 1: controversy surrounding the USPS, the United States Postal Service. Writing
0:31
Speaker 1: on this subject today in Bloomberg Opinion, Timothy O'Brien, senior
0:36
Speaker 1: columnist for Bloomberg, And in fact it wasn't today, Tim,
0:39
Speaker 1: but it has been recently, and it's not the first
0:41
Speaker 1: time you've written on this subject. What can Congress do
0:44
Speaker 1: to throw light on what the president is doing and
0:49
Speaker 1: rain in anything that's illegal? Um? Well, Van, yeah, I
0:53
Speaker 1: think I think I should do a lot to throw
0:56
Speaker 1: light on the problem. I'm not sure how much they
0:57
Speaker 1: can do to stop it. What's going on is mail
1:01
Speaker 1: carriers hours has been reduced, Post office hours have been reduced.
1:05
Speaker 1: UM large mail sorting machines are being taken out of
1:08
Speaker 1: commission in post office hubs and all of this is
1:12
Speaker 1: slowing down mail delivery that matters in an election year.
1:16
Speaker 1: Pardon me, because uh, there's there's a strong chance we're
1:20
Speaker 1: going to have a huge surgeon mail in voting uh
1:23
Speaker 1: this year because of the pandemic. And um, it's it's
1:27
Speaker 1: pretty clear that um, this is is in is an
1:31
Speaker 1: effort to weaponize the Postal Service to slow down mail
1:35
Speaker 1: in balloting, and the President is behind that. He's done
1:39
Speaker 1: very little uh to try to stop it. He's been
1:42
Speaker 1: questioned about it, he said he has no interest in
1:44
Speaker 1: changing what's going on in the Postal Service. In fact,
1:47
Speaker 1: he said he won't even release funds of the Postal
1:50
Speaker 1: Service that would allow to speed up its operations. Um Uh.
1:55
Speaker 1: Congress is holding hearings. Congress has asked the Inspector General
1:58
Speaker 1: at the Post Office to examine this. A number of
2:02
Speaker 1: state attorneys general are are coalescing around this and planning
2:07
Speaker 1: to sue the Trump administration of the Post Office to
2:09
Speaker 1: stop these practices, but that has to wend its way
2:12
Speaker 1: through the court. So the issue here is, um, how
2:16
Speaker 1: much can really be done in real time to course
2:19
Speaker 1: correct here so voters of both parties don't get their
2:23
Speaker 1: votes um taken away from them because the post Office
2:26
Speaker 1: can't deliver their balance. I didn't even know this was
2:30
Speaker 1: a thing until it happened him. Um, it just seems
2:33
Speaker 1: like every day there's something new here, is there? This
2:36
Speaker 1: kind of goes to the bigger question. I guess that
2:38
Speaker 1: some people are raising that if the president were to
2:42
Speaker 1: lose this election, that perhaps he would not be willing
2:46
Speaker 1: to really admit that, or or he would can can
2:49
Speaker 1: contest it? Is that a material risk in your perspective,
2:54
Speaker 1: it's a very material risk, And he said as much.
2:56
Speaker 1: You know, he said in recent press appearances that we
2:59
Speaker 1: will know the results on election night. We may not
3:02
Speaker 1: know it for weeks after election night, perhaps even months.
3:05
Speaker 1: I mean that we certainly may not know an election night,
3:08
Speaker 1: and we may not know shortly after election night. But
3:11
Speaker 1: but we will find out in relatively short order, and
3:16
Speaker 1: voters will just have to get used to the facts.
3:18
Speaker 1: Will take a little longer this year, but the President
3:20
Speaker 1: has already ceded the ground with the idea that the
3:24
Speaker 1: vote can't be trusted. He said that mail in balloting
3:27
Speaker 1: is riddled with fraud. That's just factually untrue. A majority
3:32
Speaker 1: of states have used it quite well for quite a
3:36
Speaker 1: long time, including Red states Republican states who stand by
3:40
Speaker 1: it as a process. So yeah, it's a material risk,
3:43
Speaker 1: and I think, like everything in the Trump era, he's
3:46
Speaker 1: he's pressing the limits of what we accept as norms
3:50
Speaker 1: around executive authority and presidential behavior and public institutions that
3:57
Speaker 1: are really challenging people to kind of wrestle these things
4:00
Speaker 1: to the ground with him. It's really interesting because it
4:02
Speaker 1: sort of puts paid to the idea that the president
4:05
Speaker 1: may not run now, or may pull out of the
4:07
Speaker 1: race if he thinks he's not going to win, or
4:10
Speaker 1: or or or this rhetoric that's going around that maybe
4:12
Speaker 1: he doesn't really want it, that he had his one
4:14
Speaker 1: term and he'll be finding something else. It seems like
4:17
Speaker 1: he really, really, really does want to win a second term.
4:20
Speaker 1: The other thing that's been pointed out to people in
4:22
Speaker 1: his campaign and to himself is that last time around
4:25
Speaker 1: Mielan balloting actually benefited him, and so even that isn't enough,
4:31
Speaker 1: you know, to to change his mind on what's going
4:34
Speaker 1: on here with the postal service. Now. His argument is
4:37
Speaker 1: that it's a money loser, and of course that's a
4:39
Speaker 1: winning argument for a capitalist who cares about money. How
4:44
Speaker 1: how do those who don't like what's going on defend
4:48
Speaker 1: the USPS. So it's the United States Postal Service, it's
4:53
Speaker 1: not the United States Postal business. It was mentioned in
4:56
Speaker 1: the in the Constitution as an organization that was meant
4:59
Speaker 1: to knit the country together and to make sure that
5:02
Speaker 1: Americans who lived in far fun places would always have
5:05
Speaker 1: a means of communication. Uh. And that's still true today.
5:09
Speaker 1: The Post Office loses a lot of money on traditional
5:12
Speaker 1: mail delivery because they have to deliver to remote rural communities.
5:16
Speaker 1: Seniors really rely on the service, and the post Office
5:21
Speaker 1: itself is not allowed to raise the price of stamps.
5:23
Speaker 1: That's that's set by a commission that decides what the
5:26
Speaker 1: affordable rate should be. But we also don't expect the
5:30
Speaker 1: Department of Defense to make a profit. In fact, the
5:32
Speaker 1: Department of Defense loses by that standard. The Department of
5:36
Speaker 1: Defense loses far more money annually than the post Office,
5:39
Speaker 1: roads and bridges, fire departments, police departments. Uh. The Intelligence
5:45
Speaker 1: services and the Diplomatic Corps and the White House itself
5:48
Speaker 1: are not for profit businesses their public services. Uh. That said,
5:53
Speaker 1: there's no question that the post offices operations could be
5:56
Speaker 1: streamlined and and and new thought and fresh thinking about
5:59
Speaker 1: how can do its job better is welcome. But it's
6:02
Speaker 1: a complete strong man to say this is about just
6:07
Speaker 1: making the post office a better business. It's very clear
6:10
Speaker 1: now that that this is about the post office mission
6:15
Speaker 1: being perverted and derailed in the service of a trench
6:19
Speaker 1: warfare approach to politics. Well, it's extraordinary. Tim O'Brien, thanks
6:23
Speaker 1: so much for joining us and providing some color on
6:26
Speaker 1: what is a developing story. One that's getting the interest
6:30
Speaker 1: in the of Congress right now is Speaker Pelos, who
6:33
Speaker 1: brings the house back. Timothy O'Brian, Senior Columns for Bloomberg
6:36
Speaker 1: Opinion joining us. Just a fascinating story. There's something new
6:39
Speaker 1: every day, it seems like. And it's uh the good
6:42
Speaker 1: folks of Bloomberg News and UH and Bloomberg Opinion keeping
6:45
Speaker 1: up on all of it, so we appreciate their help. Well,
6:50
Speaker 1: this market has been described as one that's being quote
6:53
Speaker 1: unquote backstopped by the US Federal Reservant for that matter,
6:56
Speaker 1: of central banks around the world. To get a sense
6:58
Speaker 1: of whether that is enough for this market going forward
7:01
Speaker 1: to welcome Nicholas, co founder Data Trek Research, Nick, thanks
7:05
Speaker 1: so much. For joining us here. So again i'd love
7:07
Speaker 1: to get your thirty foot view on what's kind of
7:10
Speaker 1: pushing this market higher. We obviously had that terrible pullback
7:14
Speaker 1: March April when the coronavirus hit, but since then with
7:18
Speaker 1: the Federal Reserve stepping in with fiscal stimulus and all
7:21
Speaker 1: the markets come roaring back, and love to get your
7:23
Speaker 1: thoughts right here right now as it relates to some
7:26
Speaker 1: of these riskier assets. Sure, the way we think about
7:30
Speaker 1: it at Data Trek is the market is discounting a
7:33
Speaker 1: very definite the bottom, not necessarily in the economy, but
7:37
Speaker 1: in corporate profits. So if you think about a forty
7:39
Speaker 1: two dollar a share earnings power number for the SMP
7:42
Speaker 1: in the back half of last year per quarter, two dollars,
7:46
Speaker 1: markets expecting we're going to get back to those levels
7:49
Speaker 1: in the next four quarters. So even though the economy
7:51
Speaker 1: is going to be sluggish, we are going to get
7:53
Speaker 1: very high levels of corporate profitability because of fiscal stimulus,
7:57
Speaker 1: because of monetary stimulus, and because of costing, we're going
8:00
Speaker 1: to get back to those numbers. And that's why the
8:02
Speaker 1: markets back to its old highs, because it doesn't care
8:05
Speaker 1: how we get that earnings number. It just cares that
8:07
Speaker 1: we do get it, and it has a very highly
8:09
Speaker 1: read confidence that we will. But Nick, it doesn't matter
8:12
Speaker 1: how much stimulus you give corporations or how lenient do
8:16
Speaker 1: you make the rules for them to get money to
8:18
Speaker 1: tie them over. If there isn't demand for their products
8:21
Speaker 1: from from customers who themselves are dropped, those earnings can't
8:25
Speaker 1: be there. Come they no very good point and that's
8:28
Speaker 1: why they change in the composition of the SMP is
8:31
Speaker 1: so important. We're actually looking at this for clients last night.
8:34
Speaker 1: You know, back in two thousand sixteen, technology was the SMP.
8:39
Speaker 1: The comp number now apples to Apples thirty three. And
8:42
Speaker 1: as we saw the second quarter earnings, you have a
8:46
Speaker 1: whole range of tychnical companies that are really hurting, but
8:48
Speaker 1: technology is doing extremely well. So the SMP five hundred
8:52
Speaker 1: is kind of a unique measure of corporate profitability because
8:55
Speaker 1: it is waiting those companies that have very high that
8:58
Speaker 1: was a profitability even to um showing high levels of
9:02
Speaker 1: cash flow. It values them very highly. So the F
9:05
Speaker 1: and P is not perhaps the best measure, but it's
9:07
Speaker 1: the one most folks follow, and the earnings are there
9:09
Speaker 1: for the technology sector and others that aren't as affected.
9:13
Speaker 1: So Nick, it appears that this next next round of
9:18
Speaker 1: fiscal stimulus, you know, we didn't get it, you know,
9:21
Speaker 1: before the recess. Now there's some talk about perhaps will
9:24
Speaker 1: get something in September. How critical is it for the
9:27
Speaker 1: market to get a meaningful piece of fiscal stimulus? Uh,
9:31
Speaker 1: in the relatively near term. I mean on a scale
9:35
Speaker 1: of one to ten, it's probably a fifteen or sixteen.
9:38
Speaker 1: Um it's super super critical, you know, And to Bonny's
9:41
Speaker 1: point earlier, it's it underpins that ability for aggregate earnings
9:47
Speaker 1: to improve. You know, without that, you don't get that
9:50
Speaker 1: part of the story. Look, I mean, you know, looking
9:53
Speaker 1: at past cycles, you know, every cycle bottom is a
9:55
Speaker 1: little bit different, and the biggest difference is exactly what's
9:58
Speaker 1: going to make us come off the bottom this time around?
10:01
Speaker 1: It the whole is so deep that the market saying
10:04
Speaker 1: politicians have to provide the stimulus, they have no choice
10:06
Speaker 1: as an election year, and so our uncertainty about future
10:09
Speaker 1: earnings is actually lower than traditional bottom cycle moments when
10:13
Speaker 1: there isn't that level of support. So Nick, you know,
10:17
Speaker 1: what's the biggest risk here to this to this market rally?
10:23
Speaker 1: You know, it's it's it's a great question, um. You know,
10:26
Speaker 1: to us, the biggest risk is is a hybrid of
10:29
Speaker 1: the policy political issue and the earnings issue. You know,
10:33
Speaker 1: we think back to two thousand eight, for example, really
10:36
Speaker 1: horrible quarter for UM, for the for the market, and
10:39
Speaker 1: it came in part because there was a huge change
10:41
Speaker 1: of government in Washington during the eight elections and we
10:44
Speaker 1: had a real power vacuum for several months during a
10:47
Speaker 1: period of you know, in the middle of the financial crisis.
10:50
Speaker 1: My biggest concern is we just get that's a similar
10:53
Speaker 1: kind of power vacuum around the election. It's not necessarily
10:56
Speaker 1: because of anything untoward that happens in the election, but
10:59
Speaker 1: just millions in charge in DC for a few months,
11:02
Speaker 1: just when we get into perhaps a second wave and
11:05
Speaker 1: real concerns about the state of the economy in the
11:07
Speaker 1: first half of next year. So my biggest concern is
11:10
Speaker 1: we get a power vacuum in Washington in the matter
11:13
Speaker 1: month of the year and you end up with not
11:16
Speaker 1: so much confidence around those corporations. As we discussed. Alright,
11:19
Speaker 1: So Nick, if where do you think where do you
11:22
Speaker 1: think investors should be looking in this market? Given the
11:24
Speaker 1: move we've had given that it's been. You know, the
11:27
Speaker 1: breath of this market isn't what most technicians or even
11:30
Speaker 1: fundamental analysts would like to see. Where do you see
11:32
Speaker 1: opportunities here? You know, do you take a look across
11:35
Speaker 1: some of the risk assets. You know, right now we
11:39
Speaker 1: are favoring cyclicals um selectively. So I'm talking about industrials
11:43
Speaker 1: and energy first and Foremost industrials have the most ardens
11:46
Speaker 1: leverage going into meaning they generate the most out of
11:49
Speaker 1: incremental profits from upside surprise and revenues, and energy has
11:53
Speaker 1: the biggest potential upside. On the revenue side, you have
11:56
Speaker 1: a profitability to be kind of shaky just because of
11:58
Speaker 1: commodity pricing improved of it. So circle goals to the
12:01
Speaker 1: place we're recommending people to put in current on money.
12:03
Speaker 1: It's going to be a hard way to make money, though.
12:06
Speaker 1: We think circle goals will outperform over the back half
12:08
Speaker 1: of the year, but it'll probably happen over ten random
12:11
Speaker 1: days where they're up two percents in the markets. Flat
12:13
Speaker 1: and a tough way to make money, but that's the
12:15
Speaker 1: way to outperform. We don't like the financials though. The
12:18
Speaker 1: financials are just stuck in their own private health. Yeah,
12:21
Speaker 1: that's a great way to put it, right. I mean,
12:23
Speaker 1: even Warren Buffett Is is deciding that he doesn't care
12:25
Speaker 1: about the financials anymore. It's really really interesting. Did you
12:28
Speaker 1: learn anything for the thirteen F filings? Nick, No? No
12:33
Speaker 1: from Buffets No. I mean it's it is. It's always
12:36
Speaker 1: fascinating to watch him because he's just so good at
12:38
Speaker 1: what he does. But no, not really, you it's and
12:42
Speaker 1: just more broadly from the hedge funds and what they
12:44
Speaker 1: were doing or how hedge funds made money. So, for example,
12:48
Speaker 1: I was dropped by Chris Rockell spying just a whole
12:50
Speaker 1: heap of Ali Baba and like literally that's all he did.
12:53
Speaker 1: He just made that one, if I can say, ballsy trade,
12:56
Speaker 1: and you know obviously it's paying off. Yeah. No, I
13:00
Speaker 1: mean Baba's boba is an interesting one. Evaluation is so
13:03
Speaker 1: cheap relative and China tech generally is so cheap relative
13:06
Speaker 1: to US tech that you kind of want to think
13:08
Speaker 1: there's a catch up trade. And we're certainly seeing some
13:10
Speaker 1: of the catch up trade in the broader Chinese market
13:12
Speaker 1: today with the stimulus last night. Are you seeing Nick
13:16
Speaker 1: so t extent? You're looking at more cyclical names is
13:18
Speaker 1: that suggests you're going to fund that with some of
13:20
Speaker 1: the tech names that have a performed Yes. I mean
13:24
Speaker 1: the way the way we think about it is if
13:26
Speaker 1: you if you want to underweight one sector, it's got
13:28
Speaker 1: to be financials. There's just nothing going on there, and
13:30
Speaker 1: then you can dumbell it out between the industrial's energy
13:33
Speaker 1: and the tech and have a reasonable shot of that
13:35
Speaker 1: performing that. The banks are just just in a horrible space. Nick.
13:40
Speaker 1: We will catch up with you again very soon and
13:42
Speaker 1: take the temperature of the banks and the cyclicals and
13:44
Speaker 1: lots lots of more. This market is going nowhere as
13:47
Speaker 1: as it seems anyway, it's going to just continue to
13:49
Speaker 1: go and hire Nichols as co founder of data Check Research.
13:52
Speaker 1: Fantastic notes every day, really and get in touch with
13:57
Speaker 1: Nick if if you want to subscribe to the our
14:00
Speaker 1: research once again, our thanks to Nick Cholas. I don't
14:03
Speaker 1: want to bring you a headline across the Bloomberg. Just
14:05
Speaker 1: a few moments ago, New York City gyms can open
14:09
Speaker 1: August twenty four, which is one week from today, with
14:12
Speaker 1: thirty three percent capacity, so third capacity. Yeah, and in
14:16
Speaker 1: fact it's more than New York City. It's it's it's
14:18
Speaker 1: New York State Gym's, so gym's all over the state
14:20
Speaker 1: can open August as long as people wear masks and
14:24
Speaker 1: they are not full beyond thirty three percent capacity, which
14:27
Speaker 1: was so beginners or people who haven't come to the
14:30
Speaker 1: gym in a long time quite happy for fewer people
14:33
Speaker 1: to be in the gym. Yeah. Absolutely, that's not to
14:35
Speaker 1: suggest that I myself will be going back. That might
14:38
Speaker 1: not be for coronavirus reasons, that might be for other reasons.
14:43
Speaker 1: New research suggests glaring divergences between a m D and Intel,
14:49
Speaker 1: something that maybe didn't seems so obvious before. Let's bring
14:52
Speaker 1: in a strus and senior semiconductor and harder analyst for
14:55
Speaker 1: Bloomberg Intelligence to tell us about this new research. And
14:58
Speaker 1: and you know there were are rivals. But what does
15:01
Speaker 1: this new research tell us about A m D and
15:03
Speaker 1: intell how they do their business and their products. Good
15:08
Speaker 1: morning morning, Paul, Thank you for having me. So we've
15:10
Speaker 1: done some work. That study that suggests that there's a
15:14
Speaker 1: structural landscape shift going on in the microposter industry across
15:19
Speaker 1: PCs and across servers between mb and Intel. M D
15:24
Speaker 1: appears to be on the front foot and will continue
15:28
Speaker 1: to gain share in our view through twenty and one,
15:32
Speaker 1: and in the data center their share could as much
15:35
Speaker 1: as triple from sort of the five percent range to
15:38
Speaker 1: the fi percent range. UM and Intel, on the other hand,
15:43
Speaker 1: will continue to lose share. Um Intel has a wider
15:47
Speaker 1: variety of products and certainly is larger, but that may
15:51
Speaker 1: not help it at all over the next couple of years,
15:54
Speaker 1: particularly as the cloud becomes a bigger piece of the
15:56
Speaker 1: pie and more powerful piece of the pie. So, you know,
16:01
Speaker 1: you look at the evaluations, and you look at how
16:04
Speaker 1: the stocks have performed here to date. And while it
16:07
Speaker 1: might suggest, you know, getting a lot of calls from
16:09
Speaker 1: clients about okay, is this you know, another set up
16:13
Speaker 1: for long Intel shorty m D for example, but fundamentals
16:17
Speaker 1: are suggesting exactly exactly the opposite. So on, you know,
16:22
Speaker 1: to this tech lay person, when I think chips, I
16:25
Speaker 1: think Intel. What's happened to Intel in terms of you know,
16:29
Speaker 1: losing share here? They seem to have lost kind of
16:32
Speaker 1: their you know there, I guess their new product Mojo,
16:35
Speaker 1: their technology Mojo. What's what do you think is at
16:37
Speaker 1: the route there? You know, you can attribute it to
16:41
Speaker 1: a bunch of different factors. For I mean, if you
16:43
Speaker 1: look at their technology transitions transitions from our transistor shrinkage perspective,
16:49
Speaker 1: they were late to full key n animeter, they're late
16:52
Speaker 1: to ten animeter and now seven animeters delayed. Now considered that,
16:57
Speaker 1: you know, the technology shrinkage isn't the be all. Lend
17:00
Speaker 1: All and More's law is in fact slowing. But smaller
17:04
Speaker 1: the transistors, more the transistors on the chip, more the
17:06
Speaker 1: transistors on the chip, chip is more powerful, uh, quite simplistically,
17:11
Speaker 1: and at the at the same time, more transistors on
17:14
Speaker 1: the chip produces the cost for transistion purely because of scaling.
17:18
Speaker 1: And if you keep prices same or you reduce it
17:21
Speaker 1: at a lower rate, you gross margins also can expand.
17:25
Speaker 1: But m D has certainly taken the upper hand in
17:28
Speaker 1: this and is as much as a node or node
17:30
Speaker 1: and a half ahead of Intel, and Intel's sort of
17:35
Speaker 1: slow in its transitions. It has a wider ice cream shop,
17:39
Speaker 1: if you may, you know it has a wider variety
17:42
Speaker 1: of flavors, wider variety of toppings and sauces and stuff
17:46
Speaker 1: that go with it. But at the end of the day,
17:48
Speaker 1: you know, you still have to have a quality venilla, strawberry,
17:51
Speaker 1: and chocolate in order to build a more fitting ices
17:55
Speaker 1: Sunday for your clients. I'm loving these analogies. And so
18:00
Speaker 1: what do customers want? Do they want the maybe a
18:05
Speaker 1: little bit more old fashioned flavor is you know, at
18:09
Speaker 1: a good price point that are very very reliable, you know,
18:13
Speaker 1: or do they want the new stuff? I mean, people
18:15
Speaker 1: were quite happy to wait for Apple to catch up
18:17
Speaker 1: with other people on on their software and so on.
18:20
Speaker 1: They didn't demand that app will be first on everything. Yeah,
18:24
Speaker 1: that's a that's a great point. So one of the
18:27
Speaker 1: that's actually a fantastic question because the cloud has upended,
18:30
Speaker 1: upended the demand for the ice cream, if you may.
18:33
Speaker 1: If you look at the variety of computing workloads that
18:37
Speaker 1: the cloud has brought to bear, everything has become large.
18:41
Speaker 1: Everything has now has scale. So you want the specialized
18:45
Speaker 1: ice cream Sunday um and the demand for that is
18:48
Speaker 1: high relative to you know, corporate I demand scale, if
18:52
Speaker 1: you may, and they vanillas, strawberry and chocolate. So if
18:56
Speaker 1: you look at what the m D has to offer,
18:58
Speaker 1: maybe it doesn't have all the flavors um in the
19:02
Speaker 1: in the ice cream shop, and maybe it's applicability to cloun.
19:07
Speaker 1: The workloads, if you may, is predominantly in the Minila
19:10
Speaker 1: chocolate and strawberry at a better place. No one listening
19:14
Speaker 1: to this segment is going to have any idea what
19:16
Speaker 1: we're talking about at this point. What about the cones?
19:19
Speaker 1: What's the cones on? But the but the ice cream
19:23
Speaker 1: machine at Intel is broken, right, So that's the that's
19:28
Speaker 1: the that's the key part. At the end of the day,
19:31
Speaker 1: three years from now, five years from now, you have
19:33
Speaker 1: to be able to turn these out upun intended UM
19:36
Speaker 1: at a better UM, with better quality, and at a
19:40
Speaker 1: better price point UM. As a result, when you build
19:44
Speaker 1: these massive servers and you know Facebook and Amazon, Microsoft
19:48
Speaker 1: are buying the servers ten thousand at a clip or
19:50
Speaker 1: fifty at a clip, you have to have better performance
19:54
Speaker 1: and better pricing. And I think the applicability of m
19:59
Speaker 1: D is in ceasing, and the applicability of Intel products
20:03
Speaker 1: is right over the next couple of years is decreasing.
20:06
Speaker 1: On INTRONI Boston, thanks so much for joining us on
20:08
Speaker 1: Introney Boston, senior semi conductor and harder analysts, part time
20:12
Speaker 1: ice cream analyst from Blueberg Intelligence joining us here talking
20:15
Speaker 1: to us about the ostensibly the semi conductor, you know,
20:18
Speaker 1: the chip business. But I kind of, uh, kind of went.
20:21
Speaker 1: I took a different little route there with his analogy,
20:23
Speaker 1: but that works. So we got h A M D
20:25
Speaker 1: kind of hitting on all cylinders. Intel from our product perspective,
20:28
Speaker 1: some concern that's per on its research. Sally Bakewell of
20:33
Speaker 1: Bloomberg News had a story several days ago, really fascinating.
20:37
Speaker 1: Basically the gist does stimulus has helped Amazon and Visa
20:41
Speaker 1: borrow at record low rates, yet small companies faced tighter
20:45
Speaker 1: conditions threatening the recovery to dig deep on that store
20:49
Speaker 1: and the phenomena. Were welcome to have Ted Kaneig, President
20:53
Speaker 1: and CEO of Monroe Capital, UH nine point three billion
20:57
Speaker 1: dollars under under management. Ted, thanks for joining us here,
21:01
Speaker 1: so give us a sense of kind of the the
21:04
Speaker 1: mid market company out there. Is it easy or difficult
21:09
Speaker 1: for them to access capital here to try to make
21:12
Speaker 1: it through the pandemic, much less to find growth capital?
21:17
Speaker 1: Thanks for asking. It's tough. Um. You know, we we specialize.
21:20
Speaker 1: We have five hundred and eight middle market companies in
21:22
Speaker 1: our portfolio that we lend money to, everything from million
21:28
Speaker 1: or revenue up to about five million revenue. These companies
21:31
Speaker 1: are not viewed as investment grade, so they don't have
21:34
Speaker 1: the ability to go into the marketplace and issue bonds
21:37
Speaker 1: or high yield debt that the government has been backing.
21:41
Speaker 1: So these companies have really been on their own and
21:44
Speaker 1: uh left to their own devices. They rely on the
21:47
Speaker 1: asset value or the enterprise value of of their own
21:51
Speaker 1: companies in order to borrow money. And once they've borrowed
21:55
Speaker 1: capital that the banks believe, you know, as an amount
21:58
Speaker 1: sufficient to cover their assets, whether it's accounts, receivable, inventory, equipment,
22:03
Speaker 1: or real estate, they don't really have any other options.
22:06
Speaker 1: The government has not allowed these companies to have any
22:10
Speaker 1: any good options at their disposal to generate liquidity. And
22:13
Speaker 1: that's really what's causing main street America. Well, so explain
22:18
Speaker 1: that a little bit, because A, isn't that what you're for?
22:21
Speaker 1: And B should the government be funding these companies? Well,
22:26
Speaker 1: the government has put up the p p P program
22:29
Speaker 1: and what the government has done is they've injected liquidity
22:32
Speaker 1: in order to buy bonds of the very large investment
22:35
Speaker 1: grade companies. Um Woral Lender. We focus on buyouts and
22:39
Speaker 1: transactions from mid market companies. We do it based upon
22:42
Speaker 1: collateral value. We lend up to what you know these
22:46
Speaker 1: companies as a private lender, we lend up to what
22:48
Speaker 1: these companies can can can rightfully borrow, and we do
22:53
Speaker 1: it through institutional LPs. Right but still I'm still not
22:57
Speaker 1: sure about what the complaint is or arding the government.
23:01
Speaker 1: So they can apply for p p P if they
23:06
Speaker 1: meet the criteria, and they can borrow from banks if
23:09
Speaker 1: they meet the criteria, and if they don't, they also
23:12
Speaker 1: have the option of getting extra cash from you guys.
23:16
Speaker 1: So well, I'm just lost. Just explained the problem of
23:20
Speaker 1: the government. What's what's happening is that the government has
23:26
Speaker 1: been buying in order to provide liquidity into the market.
23:30
Speaker 1: They've been buying um corporate bonds. They've been on a
23:34
Speaker 1: corporate bond buying program for quite a while, and that's
23:36
Speaker 1: part of the U. S. Treasury and UH that provides
23:39
Speaker 1: capital to the company. Lenders like us need the same liquidity.
23:43
Speaker 1: I need that liquidity to make loans to a lot
23:46
Speaker 1: of the companies, and in times like this, many LPs,
23:50
Speaker 1: whether they're pension funds or endowments or foundations, don't have
23:54
Speaker 1: the ability to fund um into the investments. So have
23:59
Speaker 1: there been many are you saying that many of your
24:01
Speaker 1: portfolio companies are at risk all or have gone bankrupt.
24:05
Speaker 1: That is us a fact, not bankrupt because of business interruptions.
24:11
Speaker 1: A lot of middle market companies UM, particularly those in
24:15
Speaker 1: the areas of leisure, hotel, airlines, restaurants, UM, have had
24:23
Speaker 1: significant challenges. That's due to closure. It's not due to
24:25
Speaker 1: bad businesses, not due to bad management. It's just due
24:28
Speaker 1: to the economy being closed to them. When the economy
24:31
Speaker 1: opens up, you know, those companies that are still around,
24:33
Speaker 1: hopefully we'll turn it around, but it's getting its covering
24:37
Speaker 1: the bridge from here to there. Where the commercial banks
24:41
Speaker 1: and all of this they're they're the primary lender to
24:43
Speaker 1: these types of companies. How are they performing? Are they
24:46
Speaker 1: making their balance? It's available. Uh, it's hard, you know.
24:50
Speaker 1: And in times of stress, banks tend to look inward
24:54
Speaker 1: and they don't tend to put money to work. UM.
24:57
Speaker 1: This is no different than the last crisis. Right now,
25:01
Speaker 1: banks are very concerned about their portfolios. They look at
25:04
Speaker 1: the bank stocks across the board are down, losses are up.
25:08
Speaker 1: The market believes that there's more losses to come in
25:11
Speaker 1: banks portfolios, So banks do not tend to be very aggressive.
25:16
Speaker 1: If you look at what's happening in the government right now.
25:18
Speaker 1: The government's trying to push the main street lending program,
25:21
Speaker 1: and the way that program works is banks are required
25:24
Speaker 1: to underwrite a portion of those loans, call it five percent.
25:29
Speaker 1: Banks have not embraced the government's main street lending program
25:32
Speaker 1: because they don't want to take the exposure right now
25:34
Speaker 1: of lending to these companies. Yeah, I mean, it's a
25:36
Speaker 1: it's a horrible situation. But for some of the companies,
25:40
Speaker 1: would you blame them? I mean, what percentage of the
25:43
Speaker 1: portfolio companies you deal with do you think will be
25:45
Speaker 1: around any year's time. That's a great question. You know,
25:49
Speaker 1: I can't blame the lenders. I mean, I'm in the
25:51
Speaker 1: same position. You know, We've got to make sure we
25:54
Speaker 1: don't lose money for our shareholders in our investors. So
25:58
Speaker 1: it's a it's a fine balance between you know, making
26:02
Speaker 1: uh good loans and being responsible to your shareholders and
26:06
Speaker 1: your investors and then providing relief. You know, right now
26:10
Speaker 1: there's a liquidity need. A lot of these companies don't
26:12
Speaker 1: have places to go to get the liquidity need. You know,
26:16
Speaker 1: the p p P programs were basically um payroll protection
26:21
Speaker 1: for employees, and you know, those were ninety day programs
26:25
Speaker 1: to cover payroll. Many of those programs now that that
26:28
Speaker 1: program came out in May, many of those programs in
26:30
Speaker 1: you know, August, September and hour we're going to come
26:32
Speaker 1: to an end. And there's a lot of outcry on
26:35
Speaker 1: these smaller companies that took the p p P program
26:39
Speaker 1: that now we're in trouble. Yeah, And I mean some
26:43
Speaker 1: restaurant ours were saying this even before they took p
26:45
Speaker 1: PP loans. Some of them didn't even take it because
26:47
Speaker 1: of this, you know, I mean, there was no guarantee
26:49
Speaker 1: that business is going to be back to normal three
26:51
Speaker 1: months later. And if there wasn't, why would you rehire
26:54
Speaker 1: people that were then going to have to go again.
26:56
Speaker 1: Ted kind of get President and CEO of Monroe Acompatal,
26:59
Speaker 1: Thank you for joining. Thanks for listening to Bloomberg Markets podcast.
27:03
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
27:07
Speaker 1: or whatever a podcast platform you prefer. I'm Bonnie Quinn.
27:10
Speaker 1: I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney.
27:13
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
27:15
Speaker 1: can always catch us worldwide at Bloomberg Radio,