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Rail Company Earnings, Regional Banks Report, Super Bowl in Vegas · Bloomberg Intelligence

0:01
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0:16
Speaker 2: We had a lot of the train companies reporting some earning,
0:18
Speaker 2: so that means we have to check in with Lee Clasgow.
0:20
Speaker 2: He covers all the transportations stuff for US trains, trucks, ships,
0:25
Speaker 2: the whole thing, air freight, does it all for Bloomberg Intelligence.
0:29
Speaker 2: So a Lee, thanks for much for joining us here again.
0:32
Speaker 2: Export coal that's the dirty stuff, will send that to
0:34
Speaker 2: the Europe the clean stuff out of the Powder River
0:36
Speaker 2: basin in Wyoming, which I've been to, by the way,
0:39
Speaker 2: that stays here. What are you hearing from the railroads
0:43
Speaker 2: this quarter?
0:44
Speaker 1: Lee?
0:45
Speaker 3: So far?
0:46
Speaker 4: Yeah, so it's been a I wouldn't really call it
0:49
Speaker 4: a mixed bag bag. We've had pretty much most of
0:51
Speaker 4: the rails beat expectations that have reported. There is one
0:56
Speaker 4: left that hasn't reported, a Canadian Pacific but Norfolk Southern
0:59
Speaker 4: reported this morning and they missed. They missed by four cents,
1:02
Speaker 4: and you can see the stock is down around six
1:04
Speaker 4: dollars and fifty cents right now and really driving that weakness.
1:07
Speaker 4: There's not so much the miss, but it's their outlook.
1:09
Speaker 4: You know, they're expecting their margins to improve one hundred
1:12
Speaker 4: and one hundred and fifty basis points annually over the
1:16
Speaker 4: next three years, but consensus is at a two hundred
1:19
Speaker 4: and fifty basis point improvement, so consensus is pretty much
1:22
Speaker 4: in line. We're management is expecting revenue to come in,
1:25
Speaker 4: which is around three percent growth, but it's really on
1:28
Speaker 4: the cost side. And you know this, this railroad has
1:31
Speaker 4: been dealing with a lot of additional costs. They were
1:34
Speaker 4: made headlines unfortunately earlier last year due to that devastating
1:39
Speaker 4: derailment in Ohio which created a lot of chaos. The
1:43
Speaker 4: good news for them is that, you know, they are
1:47
Speaker 4: really focused on improving their operations. With improving operations also
1:52
Speaker 4: comes improved service and safety. That's all been doing quite well,
1:56
Speaker 4: but it also comes with higher costs. Norfolk Southern is
2:00
Speaker 4: tying to build a more resilient network so next time,
2:03
Speaker 4: you know, something like this happens, and hopefully it never does,
2:06
Speaker 4: but you know, it's an outdoor sport and things can
2:12
Speaker 4: happen when operating a railroad that are kind of beyond
2:15
Speaker 4: their control, but you know, it allows them to kind
2:19
Speaker 4: of bounce back. And management did mention on the call
2:22
Speaker 4: this morning that they got some kudos. You know, I
2:25
Speaker 4: guess they wanted highlight some good news that they had
2:27
Speaker 4: from some of their customers because a lot of rails
2:30
Speaker 4: face some serious weather in January and they were able
2:33
Speaker 4: to snap back a lot sooner than maybe some of
2:37
Speaker 4: its peers because of this resiliency that they're building into
2:40
Speaker 4: their network, and again that comes with higher costs.
2:43
Speaker 5: So leep, that's an R Folks Southern story which which
2:46
Speaker 5: in some ways had to use syncratic stuff going on.
2:49
Speaker 5: But you also had Union Pacific, you had CSX, and
2:52
Speaker 5: both of them had a cloudy outlook also for twenty
2:54
Speaker 5: twenty four. What's our macro read through for that.
2:58
Speaker 4: Yeah, so, you know, we've been in a freight recession
3:01
Speaker 4: for quite some time. You know, there has been no
3:03
Speaker 4: soft landing for the freight markets. You know, weakness kind
3:07
Speaker 4: of hit in twenty twenty two. The good news is that,
3:11
Speaker 4: you know, we could have some growth uh this year
3:14
Speaker 4: in twenty twenty four, but that growth is going to
3:16
Speaker 4: be probably pretty anemic. It can be anywhere between low
3:21
Speaker 4: and mid single digits. Uh So, the the outlook is
3:26
Speaker 4: mixed because it really depends on the commodity type. So
3:28
Speaker 4: the demand for automotives is still strong, you know.
3:32
Speaker 5: In spending and buying lots of stuff.
3:35
Speaker 4: We are buying buying lots of stuff, but a lot
3:37
Speaker 4: of that stuff is coming from warehouses versus coming from overseas.
3:41
Speaker 4: So you know, while inventory levels are getting normalized in
3:45
Speaker 4: the de stocking cycle appears to be over. You know,
3:48
Speaker 4: it doesn't really seem that retailers or other businesses are
3:53
Speaker 4: looking to build inventories just given the uncertainty that we're
3:56
Speaker 4: facing from an economic standpoint. I mean, you know, we
3:59
Speaker 4: all know that, you know, at least from consensus estimates
4:02
Speaker 4: that economic activity is going to be moderating this year
4:05
Speaker 4: versus last year. And so you know, again with the
4:08
Speaker 4: mixed bag. You know, Paul mentioned the export coal earlier.
4:12
Speaker 4: You know, export coal was a fantastic business for a
4:16
Speaker 4: lot of these carriers last year. That is expected to
4:20
Speaker 4: cool utility coal is really going to depend on the
4:23
Speaker 4: weather and where where stockpiles are, so that there's a
4:27
Speaker 4: lot of uncertainty around that. And you know, you mentioned
4:31
Speaker 4: you know that the idiosyncratic story of Norfolk Southern. The
4:35
Speaker 4: thing about railroads is, you know, while there are some
4:37
Speaker 4: like macro over arching themes, you know, each railroad operates
4:42
Speaker 4: a different network with a different mix of businesses, uh
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Speaker 4: and different benefits, and so you know, it's really becomes
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Speaker 4: a rail on rail story versus you know, industry story.
4:54
Speaker 4: But you know, the one overarching theme that I would
4:56
Speaker 4: say is that volume is going to be better this year.
4:59
Speaker 4: Our are probably gonna be better this year. Uh, and
5:04
Speaker 4: you know that should drive earnings growth.
5:06
Speaker 2: You know, Alex, one of my first gigs back in
5:08
Speaker 2: the day was I covered the railroad and trucking industries.
5:11
Speaker 5: Jobs have you had?
5:12
Speaker 3: I've been around. I've been around, and my job apparently
5:16
Speaker 3: I can't hold the job. Very That's very true, Lee.
5:19
Speaker 2: My first earnings models you could still take a look
5:21
Speaker 2: at him, but they're on floppy disc so I'm not.
5:23
Speaker 6: Sure how necessarily access to them.
5:25
Speaker 3: Lee, do you care? Do you have a preference Eastern
5:28
Speaker 3: railroads versus Western?
5:31
Speaker 5: Uh?
5:31
Speaker 4: That's that's that's a great question. And what I would
5:35
Speaker 4: say is that I do like Union Pacific, which is
5:38
Speaker 4: the only pure play Western rail that the Eastern rails
5:42
Speaker 4: are folk Southern CSX. And the reason why we like
5:47
Speaker 4: Union Pacific, and that's one of our focus ideas in
5:49
Speaker 4: Bloomberg Intelligence, is that, you know, we believe that their
5:53
Speaker 4: new CEO, Jim Venna, can do a lot with the company.
5:56
Speaker 4: He joined, I believe back in August uh he as
6:00
Speaker 4: their COEO left and he's really known for being a
6:03
Speaker 4: great operator at Canadian National. Canadian National was one of
6:06
Speaker 4: the first railroads to employ precision scheduling railroading. He's also
6:11
Speaker 4: a disciple of the legendary in late Hunter Harrison, who
6:15
Speaker 4: is kind of considered the godfather of PSR railroading. So,
6:19
Speaker 4: you know, we think he's going to come in and
6:21
Speaker 4: do a lot in terms of really improving the operations.
6:24
Speaker 4: And not only do we like that aspect of it,
6:26
Speaker 4: but we also you know, believe that that company has
6:29
Speaker 4: maybe gotten a little bloated over the years, and I
6:31
Speaker 4: think there's some you know, cost opportunities there on the
6:34
Speaker 4: corporate side, and you know, and it's not just about
6:37
Speaker 4: costs and operations, it's really about their network. They have
6:40
Speaker 4: a really fantastic network. You know, they have exposure to
6:44
Speaker 4: cross border freight between the US and Mexico. You know,
6:48
Speaker 4: while near shoring is not going to happen overnight, it
6:52
Speaker 4: is a long term secular trend that we really like.
6:56
Speaker 4: You know, it might be like watching grass grow or
6:59
Speaker 4: paint dry, whatever your analogy is, but you know, in
7:03
Speaker 4: terms of that growing, but it is going to grow
7:05
Speaker 4: and and up is really good to benefit from that.
7:09
Speaker 4: And then also, you know, in addition to their intermodal business,
7:13
Speaker 4: Paul alluded to that they truck coal out of the
7:16
Speaker 4: patter over basin. It's lower sofur coal, so it's quote
7:19
Speaker 4: unquote cleaner. You know, we're not getting away from coal overnight.
7:23
Speaker 4: And and that is you know, a good foundation for
7:26
Speaker 4: them not to mention some of their other businesses that
7:29
Speaker 4: they're involved in.
7:30
Speaker 5: Yeah, just don't tell the Biden administration that part. But
7:33
Speaker 5: so to that point out to politics for a second,
7:35
Speaker 5: if we get a second Trump presidency, what happens to
7:39
Speaker 5: like the import export world, and like, does that affect
7:41
Speaker 5: the railroads in the same kind of way if we're
7:43
Speaker 5: looking at maybe a ten percent tax on all imports,
7:45
Speaker 5: for example.
7:47
Speaker 4: Yeah, that's that's another great question. The reality is it
7:51
Speaker 4: just becomes a tax on the consumer, right because if
7:54
Speaker 4: there's not an alternative for a particular product, we are
7:58
Speaker 4: going to import it no matter what. So yes, increased
8:01
Speaker 4: tariffs do our inflationary, so it's not necessarily a good thing,
8:06
Speaker 4: but it certainly complicates complicates things. And what I would
8:10
Speaker 4: say on the West Coast is the West Coast could
8:12
Speaker 4: benefit at least in the near term from what's going
8:15
Speaker 4: on in the Panama Canal as I'm sure you know
8:17
Speaker 4: there's low water levels there. I think you've heard of
8:20
Speaker 4: something going on in the Red Sea. In terms of
8:22
Speaker 4: the Suez Canal. Container liners are not going through the Suez,
8:25
Speaker 4: so you know they have to either go along Africa
8:29
Speaker 4: and some of that east That freight that was destined
8:33
Speaker 4: for the East Coast might just go Transpacific directly to
8:36
Speaker 4: the West Coast and then intermodals across the country. So
8:39
Speaker 4: you know, there's some some pretty interesting near term opportunities.
8:43
Speaker 4: And there's also you know, we like to talk about
8:46
Speaker 4: labor a lot. In September, there is a contract that
8:51
Speaker 4: expires for the workers all along the East Coast and
8:54
Speaker 4: Gulf ports. You know, shippers might want to divert freight
8:58
Speaker 4: to the West Coast to kind of avoid any labor
9:02
Speaker 4: disputes or labor issues that might arise, which would cause
9:05
Speaker 4: would come up supply chains on those ports.
9:08
Speaker 3: Yep, we've seen that before. All right, Lee Clascow, great
9:10
Speaker 3: stuff as always.
9:11
Speaker 2: Lee Clascow, Senior Transportation Logistics Analyst, Bloomberg Intelligence. He was
9:15
Speaker 2: over in Asia last week meeting with shippers and investors,
9:18
Speaker 2: and so is it a global global story that he follows.
9:22
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9:42
Speaker 2: You know, as we're talking about the Good Economic Aid,
9:45
Speaker 2: it seems like a soft landing is certainly in the
9:47
Speaker 2: cards here. I look at the WARP function, the World
9:49
Speaker 2: interest rate probability function WRP, go on the terminal, and
9:53
Speaker 2: it's got like a forty five percent probability of a
9:56
Speaker 2: rate cut in March.
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Speaker 3: I don't really care. I don't. I don't care when
10:01
Speaker 3: it happens because I know it's gonna happen. I don't
10:04
Speaker 3: really need the when, but I don't. People still talking
10:08
Speaker 3: about that. I don't know. It just feels like, boy,
10:10
Speaker 3: if rates are gonna be cut, I'm in good shape.
10:12
Speaker 5: Well yeah, it's not the when, now, it's the how
10:14
Speaker 5: much and how Yeah yep, and that really matters to
10:17
Speaker 5: like the belly in this.
10:18
Speaker 2: But for some people that actually do this for a living,
10:20
Speaker 2: it kind of does matter. Dana Dioria, she's one of those.
10:23
Speaker 2: I believe co Cio at n vest Net in Berwin, PA.
10:27
Speaker 2: I'm a big fan of Berwin, Pa. That whole part
10:30
Speaker 2: of the date, Dana, thanks so much for joining us here.
10:33
Speaker 2: I mean, do you care when the FED starts cutting rates?
10:37
Speaker 4: You?
10:37
Speaker 3: How do you viewing the Fed? Because we're going to
10:39
Speaker 3: hear from the Fed next Wednesday.
10:41
Speaker 7: Next Wednesday.
10:43
Speaker 8: I think it's well, I think given the fact that
10:46
Speaker 8: the market is pricing and to the point you just
10:49
Speaker 8: made sort of this almost fifty to fifty at this point,
10:53
Speaker 8: you know, I think we are getting to the point
10:55
Speaker 8: where exactly when that cut happens matters a little bit
10:59
Speaker 8: less than maybe it did. Obviously we started there and
11:01
Speaker 8: you know, end in twenty twenty three with much higher
11:05
Speaker 8: expectations of the March rate cut, which I never quite
11:09
Speaker 8: could square because we were also very sanguine about the
11:12
Speaker 8: possibility of the downturn, and you know that you saw
11:15
Speaker 8: more and more the priced in this notion of a
11:18
Speaker 8: soft landing. So you know, the Fed, I mean, they
11:22
Speaker 8: on the one hand, you know, you've got this massive debt,
11:24
Speaker 8: we're caring and there's they're not oblivious to that. So
11:27
Speaker 8: cutting rates, you know, it's hopeful there, but looking past
11:31
Speaker 8: that and just you know, their mandate unemployment and inflation
11:35
Speaker 8: unemployment does not suggest that they need to be cutting
11:38
Speaker 8: rates right now, you know. So I'm not one who
11:40
Speaker 8: thinks the Fed is oblivious to what's going on in
11:42
Speaker 8: markets or that you know, they're they're just but but
11:45
Speaker 8: at this point they have they really have breathing room here,
11:48
Speaker 8: and so you know, I think it could go away,
11:51
Speaker 8: but I don't think they have to go ahead.
11:53
Speaker 5: Yes, so Dana, I wonder maybe whether they cut in
11:56
Speaker 5: March matters to certain parts of the market, the front end, right,
12:01
Speaker 5: maybe like three year notes. Does it matter to the
12:04
Speaker 5: stock market. I'm just trying to understand what's trading on
12:07
Speaker 5: what so like what's going to be trading to next
12:10
Speaker 5: Wednesday at you know, two fifteen pm.
12:14
Speaker 8: I do think it matters I mean, there's just you know, fundamentally, right,
12:19
Speaker 8: there's the whole. If you have longer dated cash flows,
12:23
Speaker 8: and you know, so glowth thier stocks, for example, should
12:26
Speaker 8: should tend to react negatively to higher rates because you
12:31
Speaker 8: are discounting back these longer dated cash flows at a
12:35
Speaker 8: higher rate. And so if I'm doing just a basic
12:38
Speaker 8: intrinsic value calculation, it should matter a lot to me
12:41
Speaker 8: if I have longer data cash flows, if I have
12:43
Speaker 8: a lot of that value of my company is in
12:46
Speaker 8: the terminal value that these rates that are higher for
12:49
Speaker 8: longer should negatively impact. Of course, that's one input right
12:54
Speaker 8: in a million inputs. And then you know, additionally, if
12:57
Speaker 8: we look at value stocks, for example, low price stocks,
13:00
Speaker 8: you know their shorter duration in nature, so maybe it
13:03
Speaker 8: shouldn't impact them as much. But they also compete with bonds,
13:07
Speaker 8: for you know, for they tend to be dividing the
13:09
Speaker 8: olds and you know they compete with bonds, so you know,
13:14
Speaker 8: higher rates impacts there. But I think this is one
13:16
Speaker 8: of many things going on. I think, you know, gross stocks,
13:19
Speaker 8: you talked about tech, You've been talking about tech communications,
13:23
Speaker 8: et cetera, and just where those companies stand in terms
13:28
Speaker 8: of like the defensive posture, the fact that they are
13:33
Speaker 8: looking at higher income and that they are revising up
13:36
Speaker 8: whereas other companies are not.
13:38
Speaker 2: So it's one input in many all right, Dan, you
13:42
Speaker 2: mentioned fixed income here.
13:44
Speaker 3: How do you feel about the bond market here?
13:46
Speaker 2: Was just brutally crushed in twenty twenty two, got some
13:49
Speaker 2: positive performance in twenty three thanks to the last couple
13:52
Speaker 2: of months of the year.
13:53
Speaker 3: Kind of soft so far this year. How do you
13:56
Speaker 3: think about your allocation to fixed income?
14:00
Speaker 8: Yeah, I just I think the starting point is so different,
14:02
Speaker 8: and you tend to be talking about it the same
14:04
Speaker 8: way as when we were starting at rates being rock bottom,
14:08
Speaker 8: and it's not the same, right, I mean, it's very
14:11
Speaker 8: it's a very different starting point no matter how you
14:13
Speaker 8: cut it. Even you know, the route we kind of
14:17
Speaker 8: saw last year a little bit we short lived and
14:19
Speaker 8: to your point, you got the money back. If you're
14:22
Speaker 8: looking moment to moment at the correlation between stocks and bonds,
14:25
Speaker 8: then you're nervous about pat to a certain extent because
14:28
Speaker 8: not seeing this hedging effect that maybe you're looking for.
14:32
Speaker 8: But if you just open the aperture a little bit
14:34
Speaker 8: in terms of the length of time you have but
14:37
Speaker 8: I'm I'm a strong believer and still having a robust
14:40
Speaker 8: bond allocation, particularly now, because again, I mean, there's only
14:44
Speaker 8: so far rates can go one way or the other
14:46
Speaker 8: at this point. It's not like it was, you know,
14:49
Speaker 8: starting again from a rock bottom and you know, massive
14:52
Speaker 8: increases that you have to stomach. So so I see
14:55
Speaker 8: that allocation as being necessary, as being good ballast for
14:59
Speaker 8: a portfolio, and not there's not the danger there that
15:02
Speaker 8: there was.
15:03
Speaker 5: Do you like teche? I love the question.
15:08
Speaker 9: You can't not like tech?
15:10
Speaker 5: You know.
15:10
Speaker 10: I'm a person who says, tilt a little because you're
15:13
Speaker 10: getting so much tech, whether you're in an index or
15:16
Speaker 10: you're you know, even actively managed, they can't get that
15:19
Speaker 10: far away. It's too big, it's too much a part
15:22
Speaker 10: of the index. So I am a person who will say,
15:24
Speaker 10: tilt a little bit towards you know, some companies, lower
15:27
Speaker 10: priced companies, just to offset some of that, you know,
15:30
Speaker 10: concentration risk. But you can't get away from tech. You
15:34
Speaker 10: need it, and you can't be too far on the
15:35
Speaker 10: tracking error.
15:37
Speaker 2: So Dana, we're kind of just getting to the teeth
15:39
Speaker 2: here of earnings. I haven't seen the actual numbers per se,
15:43
Speaker 2: but it just feels kind of meant to me. Some
15:45
Speaker 2: companies are doing okay, some companies not. What are you
15:48
Speaker 2: looking for this earning season?
15:52
Speaker 5: No, I think you're right.
15:53
Speaker 10: That's the exact right word that I you know, it's
15:57
Speaker 10: and I don't think that's a super big surprise, right
16:00
Speaker 10: because even if we stick the landing there to some extent,
16:04
Speaker 10: you know, we should expect corporate America to have some
16:07
Speaker 10: impact from the fact that you've had this massive increase
16:10
Speaker 10: in interest rates that they have to contend with inflationary increases.
16:14
Speaker 10: A lot of these things can be lagged in terms
16:16
Speaker 10: of their effects, So I mean, we can't expect to
16:19
Speaker 10: you know, hit the lights out every single time. And
16:23
Speaker 10: you know, even if the market is kind of absorbing this,
16:25
Speaker 10: and even if we're seeing that, wow, inflation actually is
16:28
Speaker 10: coming in, I mean, had another good print, you know,
16:31
Speaker 10: in terms of just where we want to be. We're
16:35
Speaker 10: moving our way to the two percent, and it's almost
16:37
Speaker 10: too good to be tripped to a certain extent. But
16:39
Speaker 10: at the end of the day, corporations, it's a varied landscape.
16:43
Speaker 10: They're all dealing with different parts of that inflationary increase,
16:48
Speaker 10: parts of you know, what it means to go back
16:50
Speaker 10: to bond markets.
16:51
Speaker 5: So I'm not surprised.
16:52
Speaker 10: I think the twenty twenty four forecasts matter a lot.
16:55
Speaker 10: You know, what do we expect by the end of
16:57
Speaker 10: this year, and that'll tell you something about whether we're
16:59
Speaker 10: trending toward receshion.
17:00
Speaker 5: After all, all right, Dana, we're gonna leave it there.
17:03
Speaker 5: Thank you so much appreciated. Dan and Daria co Cio
17:06
Speaker 5: of invest Net joining us.
17:09
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17:25
Speaker 2: It's time to take a look at some earnings and
17:26
Speaker 2: some earnings for the regional banks, because around this time
17:30
Speaker 2: last year there were some issues, and around that time
17:33
Speaker 2: last year, we've met this guy named Herman Chan, and
17:35
Speaker 2: we haven't been able to.
17:36
Speaker 3: Get rid of them since.
17:37
Speaker 2: Hermit Chan is the regional banks analyst on Wall Street
17:41
Speaker 2: worksforce of Bloomberg Intelligence, and boy do we depend upon him.
17:45
Speaker 2: Over the last year as we're trying to really get
17:46
Speaker 2: a handle on what's happening with the regional banks in
17:49
Speaker 2: this country and what types of pressure are they under? Hermit,
17:53
Speaker 2: thanks so much for joining us once again here in studio.
17:55
Speaker 2: We were back into earning season for some of these banks.
17:58
Speaker 2: Tell us what you're seeing and maybe what you're hearing
18:01
Speaker 2: from investors in these regional banks.
18:04
Speaker 5: Yeah.
18:04
Speaker 6: Thanks.
18:05
Speaker 11: Regional banks have largely completed fourth quarter earnings at this point,
18:09
Speaker 11: I'd say it's more of the same. Revenues are still
18:14
Speaker 11: off about two percent on average. Loan growths not really
18:18
Speaker 11: there because there's lots of weaker demand, especially from commercial borrowers,
18:24
Speaker 11: and banks aren't really doing a lot of commercial real
18:27
Speaker 11: estate lending at this point, given a lot of potential
18:29
Speaker 11: risk ahead for that particular asset class, and so banks
18:34
Speaker 11: are focused on buttoned down expenses and building capital. So
18:41
Speaker 11: there's not a lot of good news at least in
18:45
Speaker 11: fourth quarter results. But banks are expecting a return of
18:48
Speaker 11: lone growth later in twenty twenty four, and that's really
18:52
Speaker 11: a function of lower interest rates increasing demand.
18:55
Speaker 5: How are their deposits doing.
18:56
Speaker 6: The posits are pretty stable.
18:58
Speaker 5: That feels like a big bright spot.
19:00
Speaker 11: That has been an area of concern, particularly after the
19:04
Speaker 11: regional bank failures of SVB, First Republic.
19:07
Speaker 6: And Signature Bank.
19:08
Speaker 11: But at this point, banks have lifted interest costs and
19:15
Speaker 11: made deposit pricing more enticing for you know, depositors across
19:20
Speaker 11: the board in money markets and CDs. So that's really
19:24
Speaker 11: the area of growth for the regional banks. But they're
19:27
Speaker 11: still seeing attrition in those you know, zero cost deposits,
19:31
Speaker 11: the deposits that are in checking accounts that aren't generating
19:34
Speaker 11: any sort of interest for customers.
19:38
Speaker 2: So one of the tickers I learned a year ago
19:40
Speaker 2: from Herman was kr E. That's the spider s and
19:43
Speaker 2: p Regional Banking ETF, a great proxy for regional bankings
19:47
Speaker 2: in the US. You're to date that's flat trailing twelve months,
19:51
Speaker 2: down about ten to eleven percent. So the question I
19:54
Speaker 2: always have for you is, I work for a hedge fund.
19:57
Speaker 2: I want to go into my hedge fund manager. I'm
19:59
Speaker 2: a hot shot young animals covering in regional banks. I
20:02
Speaker 2: want to go on and say, give me another fifty
20:03
Speaker 2: another one hundred million dollars getting I think it's time
20:06
Speaker 2: to go long regional banks.
20:07
Speaker 3: Are we there yet?
20:09
Speaker 6: If you went long at the end of October, that
20:12
Speaker 6: was that was the that was the time.
20:15
Speaker 11: That was like sort of the uh, the inflection point,
20:18
Speaker 11: the banks were at the trough valuation levels, and then
20:23
Speaker 11: the market sort of turned around and expected robust interest
20:27
Speaker 11: rate cuts, and so the the the valuations of the
20:30
Speaker 11: banks have started reflecting those rate cuts.
20:33
Speaker 6: In the market's a bit more.
20:36
Speaker 11: Optimistic, uh for regional banks, largely because when rates cuts happen,
20:41
Speaker 11: you have lower funding costs and sort of potential growth
20:44
Speaker 11: in the balance sheet, as I mentioned earlier, So that could.
20:47
Speaker 3: Help move off that October low.
20:50
Speaker 11: That's right, So that that was the time to get
20:52
Speaker 11: in at this point. A lot of the easy money
20:55
Speaker 11: you should have brought me.
20:56
Speaker 5: Yes, I want wants to talk about when they're doing well. Yeah,
21:00
Speaker 5: so Herman. Another issue was that was holding maturity bonds
21:03
Speaker 5: right and the disconnect between deposit and the short versus
21:06
Speaker 5: long term maturities. What are they doing to fix that?
21:10
Speaker 5: I mean they need to. Are they offloading loans to
21:13
Speaker 5: say other big banks? What are they doing?
21:15
Speaker 6: Yes, So there's a few dynamics going on. One is that.
21:19
Speaker 11: With the longer term rates coming down, those unrealized losses
21:24
Speaker 11: are actually improving. So you've seen book value growth because
21:28
Speaker 11: of the lower paper losses across.
21:31
Speaker 6: The board for the industry. In the fourth quarter.
21:34
Speaker 11: A few of the banks have recently started selling these
21:38
Speaker 11: loans at a loss and then reinvesting at higher prevailing rates.
21:44
Speaker 11: So you take the upfront hit, but then you improve
21:48
Speaker 11: your nd interest margin and your earnings power going forward
21:50
Speaker 11: by reinvesting at current yields. So that's a strategy that's happening.
21:56
Speaker 11: Maybe that that happens a little bit less with interest
21:59
Speaker 11: rates potentially coming down going forward.
22:01
Speaker 2: So other than that spate of a handful of banks
22:04
Speaker 2: roughly a year ago, have we had any other notable
22:09
Speaker 2: bank I don't know, not failures, but.
22:12
Speaker 6: Just yeah, the angst was really relegated to those three.
22:16
Speaker 11: There were a couple of banks like PacWest that was
22:18
Speaker 11: in the headlines and that found a buyer in Bank
22:21
Speaker 11: of California. Another bank that that was definitely in the
22:26
Speaker 11: headlines was a bank as you recall, Western Alliance that
22:30
Speaker 11: they have done a tremendous job of shoring up their
22:33
Speaker 11: deposits and really getting back to the good graces of
22:37
Speaker 11: the market.
22:38
Speaker 6: So there's no real concerns there.
22:42
Speaker 11: And they actually reported yesterday after the close and that
22:46
Speaker 11: stocks up two percent, so favorable results in the fourth quarter.
22:50
Speaker 11: So at this point at the stage, it seems like
22:55
Speaker 11: the rest of the regional banks seemed pretty good standing.
22:58
Speaker 5: All right, let's talk about one of my favorite topic,
23:00
Speaker 5: Basel three and games. Yeah, mostly because it just reminds
23:03
Speaker 5: me of The Avengers and I love that movie. But okay,
23:06
Speaker 5: so this is basically higher capital requirements for certain banks,
23:10
Speaker 5: and if you're the big, big guys, you got to
23:11
Speaker 5: put in a certain amount, and if you're sort of
23:13
Speaker 5: the medium players, you got to put in a certain amount.
23:15
Speaker 5: What's going to be the hit to the let's call
23:18
Speaker 5: it one hundred billion to two hundred and fifty billion
23:20
Speaker 5: dollars regional banks.
23:21
Speaker 6: Yeah, that's a very good question.
23:23
Speaker 11: You hear of the bank CEOs like Jamie Diamond be
23:27
Speaker 11: very vocal about it being the Basil three end game,
23:33
Speaker 11: being very negative for the US economy and hurtful in
23:36
Speaker 11: areas like mortgage lending, et cetera. But for the regionals
23:41
Speaker 11: it's fairly you know, digestible. The big hit for the
23:45
Speaker 11: regionals is that they their capital ratios will suffer from
23:51
Speaker 11: these unrealized paper losses that you asked about earlier, so
23:54
Speaker 11: that will be incorporated into their capital calculations, whereas that
23:59
Speaker 11: aspect is already in the big banks capital. So some
24:02
Speaker 11: of the tailoring issues that happened during the Trump administration
24:05
Speaker 11: will go away and be detrimental for regional banks. But
24:10
Speaker 11: outside of that, the issues that the big banks complain about,
24:13
Speaker 11: it's more manageable for the regionals and for the management
24:18
Speaker 11: team for the regions. I've talked about, you know, risk
24:21
Speaker 11: weighted assets growing you know in the low single digits,
24:25
Speaker 11: the mid single digits, So that's much more digestible or
24:29
Speaker 11: relative to a forty percent growth in art every ways
24:33
Speaker 11: that JPM Morgan has talked about.
24:35
Speaker 2: So you you mentioned during the again a year ago,
24:37
Speaker 2: when we're really people are really concerned about this group,
24:39
Speaker 2: it's really going to be an earnings issue as opposed
24:42
Speaker 2: to kind of a balance get issue. Where are we
24:44
Speaker 2: kind of getting through that earnings pressure, if you will,
24:47
Speaker 2: and maybe getting back to more normalized earnings power for
24:50
Speaker 2: these companies.
24:50
Speaker 6: Yeah, that's right.
24:52
Speaker 11: There's still pressure on the margin because even though short
24:56
Speaker 11: term rates so i FED stopped raising rates at this point,
25:01
Speaker 11: there is still a trickle down effect. Where As I
25:04
Speaker 11: mentioned before, there is a mixshift happening from your your
25:08
Speaker 11: your demand deposit, your you're checking accounts and moving into
25:11
Speaker 11: areas like CDs, so that that deposit remixing is a
25:15
Speaker 11: negative for earnings and revenues, but that's petering out. Offsetting
25:20
Speaker 11: that is fixed rates repricing of their of loans and security,
25:26
Speaker 11: so that's beneficial.
25:28
Speaker 6: So overall revenues.
25:30
Speaker 11: Are going to stabilize and are starting to stabilize. That's happening. Potentially,
25:35
Speaker 11: that's going to be a second half events. So you're
25:38
Speaker 11: going to still see some headwinds, but manageable with the
25:42
Speaker 11: second half potential growing from better margins and balance sheet growth.
25:47
Speaker 5: Herman so great, so smart, best stuff out there. We're
25:50
Speaker 5: star We only have you on when there's a disasters.
25:53
Speaker 5: Herman chand Bloomberg Intelligence Senior US Regional banks analyst.
25:58
Speaker 1: You're listening to the Bloomberg and Intelligence Podcast. Catch us
26:01
Speaker 1: live weekdays at ten am Eastern on applecar Play and
26:05
Speaker 1: Android Auto with the Bloomberg Business. You can also listen
26:08
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26:12
Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
26:17
Speaker 2: Eric Zaski joins his senior US municipal strategist for Bloomberg
26:20
Speaker 2: Intelligence joins us here from the Bloomberg Intelligence HQ in Princeton,
26:25
Speaker 2: New Jersey. It used to be New York, which we
26:27
Speaker 2: fought so hard for, but now they've retreated to Princeton.
26:29
Speaker 3: Eric, thanks so much for joining us here. What's going
26:32
Speaker 3: on in municipal bond market here these days? What are
26:34
Speaker 3: the headlines?
26:36
Speaker 7: You know what?
26:36
Speaker 9: We're just enjoying the starts of this new year and
26:38
Speaker 9: trying to noodle on the different headlines that we've been
26:41
Speaker 9: sort of throwing our way.
26:42
Speaker 7: Right.
26:42
Speaker 9: So, we had some speculation that there was some credit
26:46
Speaker 9: issues with Harvard. I think we've sort of safely put
26:48
Speaker 9: that to rest at this point that they're going to
26:50
Speaker 9: be around for probably another several hundred years. And obviously
26:53
Speaker 9: we're getting a lot of questions on what's going on
26:55
Speaker 9: in the southern border and how that would impact the states.
26:57
Speaker 4: You know.
26:58
Speaker 9: You know, obviously we're not of the opinion that there's
27:00
Speaker 9: going to be a secession issue on the behalf of Texas,
27:03
Speaker 9: but it does bring up a larger conversation, you know,
27:05
Speaker 9: what could happen when you have states sort of you know,
27:08
Speaker 9: going with battle to the federal government when there's so
27:11
Speaker 9: much a play as far as tax revenue is going
27:13
Speaker 9: in each direction.
27:14
Speaker 5: I love Eric because he can have energy and excitement
27:16
Speaker 5: about Munich sure unrivaled my seventeen r career covering stuff
27:22
Speaker 5: in the markets. Eric, can we go to the fun
27:24
Speaker 5: topic of the election, because it also kind of ties
27:26
Speaker 5: into the border issue, And I'm just wondering, how are
27:29
Speaker 5: we sort of prepping. How's the muni market thinking about
27:31
Speaker 5: a possible President Trump again?
27:33
Speaker 9: You know what, I don't think it would be the
27:35
Speaker 9: worst thing for the muni market in the fact that
27:37
Speaker 9: we already sort of know what we're going to get, Right, So,
27:39
Speaker 9: Tax Cuts and Jobs Act came into play twenty seventeen,
27:42
Speaker 9: we're still dealing with that. A lot of the provisions
27:44
Speaker 9: are set to sunset in twenty twenty five. So if
27:46
Speaker 9: the fact that we do have another dose of President
27:49
Speaker 9: Trump coming in, we can expect a lot of those
27:51
Speaker 9: provisions to you know, become permanent and stay in place.
27:54
Speaker 9: Not great for the muni market in the sense that
27:56
Speaker 9: corporate tax rates will stay low, and that really does
27:58
Speaker 9: tamper demand from some of those buyers who used to
28:01
Speaker 9: really plan our market.
28:02
Speaker 2: Hey, Eric, talking to you and reading your research, you know,
28:05
Speaker 2: I learned about taxable municipal bonds. I didn't know that
28:08
Speaker 2: was a thing until really, Yes, talk to us about
28:12
Speaker 2: that market. How's that performing here?
28:15
Speaker 9: Yeah, on a performance basis, you know, slightly outperforming corporates.
28:18
Speaker 9: But I think the real thing to focus on when
28:20
Speaker 9: you're looking at taxable munis is the different credit aspect,
28:23
Speaker 9: right so, totally asymmetric credit risk bucket to corporates and
28:27
Speaker 9: the fact that you're picking up another like twenty thirty
28:29
Speaker 9: basis points of yield right now. So if we think
28:31
Speaker 9: the Fed's going to cut you know, now's the time
28:33
Speaker 9: to sort of jump into bonds because of a scarcity issue.
28:36
Speaker 9: I want to be grabbing more yield in a safer
28:38
Speaker 9: area to play in. Taxable munis would check off a
28:40
Speaker 9: bunch of those boxes.
28:42
Speaker 5: What do you think the tax code will be that
28:44
Speaker 5: may or may not impact munis though I thought the
28:46
Speaker 5: whole point. Wouldn't they tax free? Is that the whole point?
28:49
Speaker 9: Well, sure they are tax free, right, But I think
28:51
Speaker 9: what we're expecting, regardless if it's a Republican or Democrat
28:54
Speaker 9: to come into the White House, is that individual tax
28:56
Speaker 9: rates are most likely going to go higher with the
28:58
Speaker 9: amount of federal deficits that they're tending with. It really
29:01
Speaker 9: only makes sense that that's the path that we're going
29:02
Speaker 9: to head on and at the end of the day,
29:04
Speaker 9: if taxes go higher, it's going to make municipal bonds
29:07
Speaker 9: a lot more desirable. It's sort of the last bashon
29:09
Speaker 9: of sort of you know, seeking a tax exemption for individuals.
29:13
Speaker 2: You mentioned higher education here and you have a noeubt.
29:15
Speaker 2: Muni's might have ninety nine problems, but Ivy League schools
29:19
Speaker 2: aren't one of them. Talk to us about that part
29:22
Speaker 2: of the market, that issuance category higher education. How often
29:27
Speaker 2: do they use them muni market? And are they good investments?
29:31
Speaker 1: Yeah?
29:31
Speaker 9: So you know, it really is sort of a bifurcated
29:34
Speaker 9: world when it comes to higher education, and it was
29:35
Speaker 9: one of the areas that we had a little bit
29:37
Speaker 9: of concern going into the year. But it's a story
29:39
Speaker 9: of have and have nots. Right, So you have the
29:41
Speaker 9: Triple A credits of the world, the Harvard's, the Yales
29:44
Speaker 9: who have tens of billions of dollars in endowments, and
29:47
Speaker 9: then you have schools like you know, Penn State, who
29:49
Speaker 9: are now five o'h one C three. No, I'm a
29:52
Speaker 9: state school guy myself, his pit.
29:54
Speaker 3: I wrote a lot of tuition checks to Penn State.
29:57
Speaker 9: There you go so you know, look, I mean the
30:00
Speaker 9: credit profile of those two different schools is very, very different.
30:03
Speaker 9: We think their concern is really the less funded private
30:06
Speaker 9: education for your institutions who really can't withstand, you know,
30:11
Speaker 9: sort of a drop in enrollment year after year after year.
30:13
Speaker 9: That's where we're going to see some spread widening.
30:15
Speaker 5: Spread widening. I like that you took us there, because
30:18
Speaker 5: what we've seen in the investment grade market, for example,
30:20
Speaker 5: is just compression, compression, compression in this in the spread, Like,
30:23
Speaker 5: no matter what, there's been that compression. Why are we
30:26
Speaker 5: seeing unies widening? Like, what's going on there? Walk us
30:29
Speaker 5: through that?
30:30
Speaker 9: Yeah, I mean, I think it's a race to quality
30:32
Speaker 9: this year, and that's why we're seeing you know, much
30:34
Speaker 9: of the grabbiness going on is going to be in
30:37
Speaker 9: the double A and triple A names that are coming
30:39
Speaker 9: to market. You know, Washington g O was an issue
30:42
Speaker 9: that just came did very well both in the primary
30:45
Speaker 9: and secondary. But I think what's happening in our market
30:47
Speaker 9: and sort of echo with corporates, is that, you know,
30:49
Speaker 9: you are seeing an overall tightening of spreads just due
30:52
Speaker 9: to supply and demand imbalance. And it's really been a
30:54
Speaker 9: theme for Unie's I would say, dating back to twenty seventeen.
30:57
Speaker 9: At this point, Eric, I'm.
30:59
Speaker 2: Thinking about my buddies on the new issue in some market.
31:01
Speaker 2: How's the new issue ins market look for twenty twenty four?
31:04
Speaker 2: How's a calendar look?
31:06
Speaker 9: I mean, pretty full and surprisingly so, I think a
31:09
Speaker 9: lot of the estimates for supply coming into this year
31:11
Speaker 9: across the board where it was going to be on
31:13
Speaker 9: the quieter side, But I been surprised by the amount
31:16
Speaker 9: of you know, preliminary new issue filings that have come
31:18
Speaker 9: out and pretty sizeable deals as well. Right, we have
31:21
Speaker 9: some stuff in the high yield space. Another bright line
31:24
Speaker 9: train issue coming, you know, bridging the gap between California
31:27
Speaker 9: and Vegas. So that's going to be interesting to watch. Yeah,
31:30
Speaker 9: and that's just it's children's hospital deal, you know, a
31:32
Speaker 9: subsector of healthcare that we always find interesting. So definitely
31:35
Speaker 9: something for everyone on the calendar.
31:38
Speaker 5: What happens to the FED cuts rates? More issues like
31:40
Speaker 5: what's the knock on effect?
31:42
Speaker 9: Yeah, well, I mean, look, our market can't do advanced refunding,
31:45
Speaker 9: so it's not like if I have a mortgage and ratesdrop,
31:47
Speaker 9: I can refine anything, right, So on that aspect, you know,
31:50
Speaker 9: we're not going to see a lot, but I do
31:51
Speaker 9: think the's some degree that there's market timing going on
31:54
Speaker 9: in our space, and a lot of people didn't like
31:55
Speaker 9: the market last year. So if we have you know,
31:58
Speaker 9: three four rate cuts, you know, yeah, you could definitely
32:00
Speaker 9: see some more stuff pop on the calendar.
32:02
Speaker 3: So what's the credit quality like out there a municipal
32:06
Speaker 3: bond land. I haven't heard of any big blow ups recently, and.
32:11
Speaker 9: You probably won't, right at least from the credit raiders perspective,
32:15
Speaker 9: they continue to sort of march higher as far as
32:17
Speaker 9: positive outlooks on the credits that we long have held
32:21
Speaker 9: to sort of be the bad boys of the municipal space,
32:23
Speaker 9: right the Illinois and Chicago's of the worlds. So as
32:26
Speaker 9: long as sort of the opinion over the next several
32:28
Speaker 9: fiscal periods is that they're going to continue to pay
32:30
Speaker 9: their bonds, I think all is going to be well
32:32
Speaker 9: when it comes to credit quality in our space.
32:34
Speaker 5: Here's the question that may tighten politics also. So clearly
32:38
Speaker 5: the Inflation Reduction Act is trying to be a catalyst
32:43
Speaker 5: for investment, and you're seeing a lot of red states
32:45
Speaker 5: get a lot of that investment, whether it's even with
32:47
Speaker 5: the Chips Act, or it's building a new facility or
32:49
Speaker 5: a battery storage, et cetera. And I'm just wondering with
32:52
Speaker 5: Republicans talking a lot about wanting to repeal that, whether
32:54
Speaker 5: or not it actually happens, what would like a South
32:56
Speaker 5: Carolina do if all of a sudden they lost all
32:59
Speaker 5: this investment helped buy the IRA and the Chips Act.
33:04
Speaker 9: Yeah, I mean, well to speaking to the fact that
33:07
Speaker 9: they haven't done a lot of issuance even with those
33:09
Speaker 9: matching funds available to this point, speaks to the fact
33:12
Speaker 9: of that market timing we just mentioned. But if they
33:14
Speaker 9: had to go at it alone, I think they find
33:16
Speaker 9: a very receptive municipal market who'd be happy to finance
33:20
Speaker 9: them at very competitive rates. So, you know the availability
33:23
Speaker 9: of money to finance the amount of things that actually
33:25
Speaker 9: need to get finance in our space, there's no shortage
33:27
Speaker 9: of that.
33:28
Speaker 4: Wow.
33:29
Speaker 3: So what are the sectors you like here?
33:32
Speaker 2: I mean is that do investors in your world that
33:34
Speaker 2: they look at sectors like I want to be in
33:36
Speaker 2: healthcare or I want to be in transportation.
33:39
Speaker 3: How does that to really work?
33:41
Speaker 9: Yeah? I mean, look, a lot of the products in
33:42
Speaker 9: our area they're trying to be an index, right, and
33:46
Speaker 9: it's sort of broad base, but yeah, there are definitely
33:48
Speaker 9: investment vehicles that are focused on sectors. Some of the
33:50
Speaker 9: sectors that we think are going to be more interesting
33:52
Speaker 9: this year are healthcare, right, shaking off some of that
33:55
Speaker 9: pandemic pain they've been dealing with the past several periods. Right,
33:58
Speaker 9: And hopefully what we think is going to happen is
34:00
Speaker 9: a little bit of spread tightening based on some you know,
34:03
Speaker 9: more normal margins coming back to the space.
34:05
Speaker 3: All right, very good.
34:07
Speaker 2: Eric Kazaski joins us senior US Municipals strategist for Bloomberg Intelligence.
34:13
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
34:17
Speaker 1: weekdays at ten am Eastern on applecard Play and Android
34:20
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34:23
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34:27
Speaker 1: Just say Alexa playing Bloomberg eleven thirty.
34:32
Speaker 2: Brian Egger he is our senior gaming analyst. He covers
34:34
Speaker 2: all those casinos, all the hotels, the cruise lines, all
34:37
Speaker 2: that kind of good stuff. He's been doing it for
34:39
Speaker 2: decades on Wall Street.
34:42
Speaker 3: We got a super Bowl coming up. Super Bowls in Vegas,
34:46
Speaker 3: that's got to be good for Vegas, Brian, how big?
34:49
Speaker 7: Yeah, it's big. I mean it's the first time Vegas
34:51
Speaker 7: as a host city, you know. I think if you
34:53
Speaker 7: look at other analogous types of big events, the formul
34:56
Speaker 7: One Grand Prix back in November, well we saw for
34:59
Speaker 7: that event November twenty three versus twenty two, as you had,
35:03
Speaker 7: table game revenue shot up, room rates shot up, slot
35:06
Speaker 7: revenues are a little weaker, but all the high end
35:08
Speaker 7: business for both gaming and hotel certainly benefited. We'll see
35:12
Speaker 7: what it does to the bottom line in terms of
35:14
Speaker 7: how many rooms they gave away. We'll get a better
35:16
Speaker 7: sense of that during earning season. But certainly from a
35:18
Speaker 7: top line perspective. You know, these big events are really powerful,
35:22
Speaker 7: and the Super Bowl in Vegas, well we expect the same.
35:25
Speaker 5: So Brian, we keep getting really solid economic data. The
35:29
Speaker 5: consumer is definitely spending. Are they still spending on experiences
35:33
Speaker 5: and stuff? Is that helping gambling and casinos?
35:37
Speaker 7: They are, They're definitely spending on experiences. Vegas is a
35:40
Speaker 7: big beneficiary that, both on the gaming side and the
35:43
Speaker 7: hotel side. And you know, the connection business being back
35:45
Speaker 7: as well, US is certainly up Vegas is up very
35:50
Speaker 7: significantly versus twenty nineteen, but it is up also year.
35:52
Speaker 7: Every year the comps get tougher, but it's definitely benefited.
35:56
Speaker 2: I mean, so Vegas one of my favorite towns of
35:59
Speaker 2: all time. Really, oh yeah, three nights, it is my
36:03
Speaker 2: favorite place in the world.
36:04
Speaker 3: Fourth night, I'm like, I'm done. So, I mean the
36:08
Speaker 3: convention business. That's how I most people get introduced to
36:11
Speaker 3: Vegas here at this convention business. So I know that's
36:13
Speaker 3: such a big part, and that I know that that's back.
36:16
Speaker 3: Is Vegas at the point where it always seems like they.
36:19
Speaker 2: Can't possibly think about building another big resort, yet they
36:22
Speaker 2: do yes, and they sell their rooms and they get
36:25
Speaker 2: their rates.
36:25
Speaker 3: It's just amazing. Where are we in kind of the
36:27
Speaker 3: development of Vegas.
36:28
Speaker 7: So the big recent opening was the Fontablue open in
36:31
Speaker 7: December thirteenth, So that's a recent opening.
36:33
Speaker 3: And where is that.
36:35
Speaker 7: That's also the north part of the Las Vegas Strip.
36:37
Speaker 3: Okay, yeah, so.
36:38
Speaker 7: It's you know, and also we had back in two
36:42
Speaker 7: years earlier, you know, we had another major opening with
36:45
Speaker 7: Genting's Resorts World. So we are seeing some development in
36:49
Speaker 7: percentage growth terms. Each of those openings is maybe a
36:52
Speaker 7: two percent increase in room supply.
36:53
Speaker 1: Yep.
36:53
Speaker 7: So it's nothing white back in the nineties when you
36:55
Speaker 7: had several openings in a quarter. But nevertheless, it is
36:59
Speaker 7: kind of feel out.
37:00
Speaker 3: So that way, he was a dl jake killing it
37:02
Speaker 3: on the street, doing all kinds of this.
37:04
Speaker 7: It's the opening parties for the Luxer in.
37:06
Speaker 5: Nineteen ninety four, okay, so seeking of the opening parties,
37:09
Speaker 5: Jody Lourie, who covers cruise lines and stuff, went on
37:11
Speaker 5: what was it again, Yes, Icon of Seas, right, and
37:15
Speaker 5: when to talk about like here something's opening, come join us.
37:18
Speaker 5: And she was saying, the whole point of this cruise
37:20
Speaker 5: lines is they want to be Vegas on the seas.
37:22
Speaker 5: I mean I'm extrapolating, but is the cruise line industry
37:25
Speaker 5: eating away at Vegas?
37:26
Speaker 7: Yeah? So they all first of all have to say,
37:28
Speaker 7: you know, Jody went on a cruise and all he
37:30
Speaker 7: got is the slousy T shirt. Yes, that's like, not
37:33
Speaker 7: go on that cruise, right, I didn't get a T
37:34
Speaker 7: shirt actually, But I mean to the point, yes, I
37:37
Speaker 7: mean they're all competing for the same discretioning dollar. Cruise
37:40
Speaker 7: lines are doing well, Vegas is doing well. In essence,
37:43
Speaker 7: they compete for a similar customer. The penetration expansion is
37:46
Speaker 7: a lot lower for cruise lines, but they're all benefiting
37:49
Speaker 7: and we've yet to see the consumer roll over. Comps
37:52
Speaker 7: do get tougher, but you know, the the appetite for
37:56
Speaker 7: experiences and leisure travel remains very strong.
38:00
Speaker 3: Talk to us about the sports betting business.
38:02
Speaker 2: It's legalized in so many states now, it's gotten so big,
38:05
Speaker 2: and it's you know, listening to sports radio, it's every
38:07
Speaker 2: single ad, it's on.
38:08
Speaker 3: Television and all the big sporting events. It's just exploding.
38:11
Speaker 2: Talk to us about that business as a business of itself,
38:14
Speaker 2: and then maybe is that impacting kind of the sports
38:17
Speaker 2: books at some of these casinos.
38:18
Speaker 7: Yeah, I think, first of all, in terms of the business.
38:20
Speaker 7: You know, Vermont just started up mobile sports betting this month.
38:23
Speaker 7: You have North Carolina recently, We're filling in all the states.
38:26
Speaker 7: There's more and more of it. The big challenge has
38:28
Speaker 7: been gaining profitability. So what they are doing is targeting
38:32
Speaker 7: promotions more effectively. They're reaching now the point of actual profitability,
38:36
Speaker 7: a much better point than they were a year ago.
38:38
Speaker 7: Companies like DraftKings, I don't really think it competes directly
38:42
Speaker 7: against brick and mortar sportsbooks. Maybe it does to some degree,
38:46
Speaker 7: but in markets where you do have both mobile and
38:48
Speaker 7: brick and mortar, mobile gets to such a bigger part
38:50
Speaker 7: of the pie.
38:52
Speaker 5: Can I just share my story about gambling?
38:53
Speaker 1: Sure?
38:54
Speaker 5: So I went to the Mohammas with my husband and
38:56
Speaker 5: we were at an Ultimate Texas holding table. A twenty
38:59
Speaker 5: one year old got quad queens. Wow, and it was amazing.
39:05
Speaker 5: I know it's not sports betting, but that's like the
39:07
Speaker 5: moment you live for, Like, that's so cool. He tried
39:10
Speaker 5: and called his mom.
39:11
Speaker 6: It was so great.
39:13
Speaker 5: So, but for sports betting, how hard is it to understand? Like, Okay,
39:17
Speaker 5: it's legal here, it's not legal here, Like does that
39:19
Speaker 5: get into difficulty when you're there an inmustry?
39:21
Speaker 7: Generally, you're right that gaming is legalized and regulated on
39:25
Speaker 7: a state by state basis. It's true of casino its,
39:27
Speaker 7: it's true of sports books. And now we're seeing online
39:32
Speaker 7: sports books, online sports betting legal in north of twenty
39:35
Speaker 7: five states, right, So it's it's really a significant Something
39:38
Speaker 7: like forty five percent of the US population has access
39:41
Speaker 7: to an online sports book. There are some states where
39:43
Speaker 7: it's not there yet, but since the Supreme Court blockade
39:47
Speaker 7: against this was lifted a few years back in twenty eighteen.
39:51
Speaker 7: We're really significantly expanded the industry, so it is maybe
39:55
Speaker 7: some confusion, but more and more it's becoming ubiquitous.
39:58
Speaker 2: Yeah, I'm looking at the FA function for DraftKings. They're
40:01
Speaker 2: not even they're gonna be I guess finally turned Ebatha
40:05
Speaker 2: positive this year for the first time. So these guys
40:07
Speaker 2: aren't even making any net incomes a while.
40:09
Speaker 7: And what happens is you introduced a sports book, takes
40:12
Speaker 7: a couple of years to reach maturation. You eventually build
40:15
Speaker 7: an audience and you can take the promotions and giveaways down.
40:19
Speaker 7: And that's what they've done. So in states that are
40:20
Speaker 7: really mature, like New Jersey been around five years, they're
40:24
Speaker 7: much more profitable than Newer State. But overall, you know,
40:27
Speaker 7: look in the UK and Europe you've got online gaming
40:29
Speaker 7: is more profitable, but that's a much more mature business.
40:33
Speaker 5: So interesting, I know.
40:34
Speaker 3: So I mean, how about that. You also do some
40:35
Speaker 3: work on the regional casino companies that aren't in Vegas.
40:38
Speaker 3: How's that business doing?
40:39
Speaker 7: You know, they're they're doing well.
40:41
Speaker 2: I mean, it's still think think riverboat casinos, but not really,
40:44
Speaker 2: but usually not on riverboat.
40:46
Speaker 1: But they're still ajacent.
40:51
Speaker 3: Depressing.
40:52
Speaker 5: No, I didn't finally see that depressing last time. Yeah,
40:55
Speaker 5: I want to see Amy Plarentina fe It was really fun.
40:57
Speaker 3: I saw Sinatra don there eight times during heigh going
41:00
Speaker 3: to college. Gun, okay, that's okay. Yes, it's easy. We
41:03
Speaker 3: drive down.
41:04
Speaker 5: It's a whole other convers yeahs a.
41:05
Speaker 7: Whole lot of convers we're from the same rasid.
41:07
Speaker 6: Yeah, Troy did too back then.
41:09
Speaker 7: So you know, I think the original game business is
41:12
Speaker 7: doing well. It's still up well over the pre pandemic.
41:15
Speaker 7: It's up your over the year. I think the comps
41:17
Speaker 7: do get tougher, you know, I mean just because we've
41:19
Speaker 7: seen so much growth, particularly, so you'll comps a little tougher.
41:22
Speaker 7: But it's still it's still doing well. I think the
41:24
Speaker 7: Margins story gets tougher.
41:26
Speaker 3: Ten seconds on ABC. You know, how's AC doing ten second?
41:29
Speaker 7: He's doing okay, man, It's like other regional markets. It's
41:31
Speaker 7: it's it's up your over year. You know. The big
41:34
Speaker 7: challenge for all these regionals, I'll throw AC in there
41:36
Speaker 7: as well, is is costs competition.
41:38
Speaker 3: Yeah, all right, okay, John, I got a little ac
41:41
Speaker 3: talking there for you. It's not Vegas, I don't The
41:44
Speaker 3: people there just aren't as friendly as.
41:46
Speaker 1: The people in Vegas.
41:47
Speaker 2: Now that just you know, the pit bosses, the dealers.
41:49
Speaker 2: They yell at you and stuff. But I have good
41:50
Speaker 2: time when I go down there, so it's all good.
41:51
Speaker 2: Brianegger covers all the gaming stuff.
41:54
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42:02
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