Latest / Bloomberg Intelligence / Airline Traffic May Not Recover 2019 Levels Until 2025

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Airline Traffic May Not Recover 2019 Levels Until 2025 · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma Waits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. One of the hardest hit areas
• 0:21
  Speaker 1: of this pandemic has been the airline sector, with a
• 0:25
  Speaker 1: number of air companies going to the government and getting
• 0:28
  Speaker 1: Bailout's unclear though how much longer that will sustain them,
• 0:31
  Speaker 1: especially if air traffic and people taking flights does not
• 0:36
  Speaker 1: increase dramatically. Joining us now, I'm so glad to say,
• 0:39
  Speaker 1: is George Ferguson. He is senior Aerospace, Defense and Airlines
• 0:42
  Speaker 1: analyst for Bloomberg Intelligence. And George, you came out with
• 0:45
  Speaker 1: a research report saying that you don't expect the air
• 0:48
  Speaker 1: traffic to increase to two nineteen levels for another five years.
• 0:53
  Speaker 1: Can you explain? Yes? So thanks for having me. We
• 0:57
  Speaker 1: were we took a look at previous down turns and
• 1:01
  Speaker 1: just wanted to get a sense for how long it
• 1:03
  Speaker 1: takes to recover back to the total level of flying
• 1:07
  Speaker 1: before that downturn. So we looked at September eleven, and
• 1:10
  Speaker 1: we looked at the financial crisis, and we saw in
• 1:13
  Speaker 1: both cases, um, it was it was a number of
• 1:16
  Speaker 1: years until you recovered back to the level you had
• 1:20
  Speaker 1: seen again just before that, just before that downturn, and
• 1:24
  Speaker 1: so um, you know, we really think that this is
• 1:28
  Speaker 1: going to be even worse right than September eleventh or
• 1:32
  Speaker 1: the financial crisis. For example, the US airlines at parked
• 1:35
  Speaker 1: some three thousand airplanes at this point close to the fleet.
• 1:40
  Speaker 1: They got nowhere near there. I think we were less
• 1:42
  Speaker 1: than a thousand and September eleventh, um. And I think
• 1:45
  Speaker 1: the recovery after September eleventh and the financial crisis were
• 1:48
  Speaker 1: a lot easier because in one you had to pop
• 1:51
  Speaker 1: up banks and the others you had to just improve
• 1:53
  Speaker 1: security procedures. So we think you're into before we see
• 1:59
  Speaker 1: twenty nine teen level of flying. It doesn't mean airlines
• 2:02
  Speaker 1: can't make money before then they can. They'll have to
• 2:05
  Speaker 1: swim down to the market size. But we think it'll
• 2:07
  Speaker 1: take that long for us to get back to the
• 2:09
  Speaker 1: level of flying. We're doing well, George, I can give
• 2:12
  Speaker 1: you a primary research data point here. I'm writing the
• 2:15
  Speaker 1: flight path of Newark Airport and there's literally nothing in
• 2:18
  Speaker 1: the air right here, so that the planes aren't flying.
• 2:22
  Speaker 1: So you mentioned that we've got a lot of these
• 2:24
  Speaker 1: planes just parked on the ground. How quickly can the
• 2:28
  Speaker 1: industry ramp up to meet demand if and when or
• 2:32
  Speaker 1: when it does come back. So I think it's it's
• 2:35
  Speaker 1: all dependent. All depends on how quickly you get that
• 2:37
  Speaker 1: demand to come back. Right A lot of these airplanes
• 2:40
  Speaker 1: are sitting on the ground at airports around the world.
• 2:43
  Speaker 1: In a lot of cases they've shut down, uh you know,
• 2:46
  Speaker 1: runways and just parked them there. And so if we
• 2:49
  Speaker 1: got a nice rebound by the back part of the year,
• 2:52
  Speaker 1: and we're starting to see airlines try to get that schedule,
• 2:56
  Speaker 1: increase that level of schedule so they can figure out
• 2:58
  Speaker 1: if that rebound can come. If we get a rebound
• 3:01
  Speaker 1: by the end of the year, you get a lot
• 3:02
  Speaker 1: of those airplanes right off the tarmax and get them
• 3:05
  Speaker 1: back into the air as we push into one. If
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  Speaker 1: we don't get a recovery, and and at Boomberg cantet
• 3:12
  Speaker 1: Is we're not we don't. We don't really see a
• 3:13
  Speaker 1: recovery until we get a vaccine, and we don't see
• 3:16
  Speaker 1: that into next year. If we don't get that kind
• 3:18
  Speaker 1: of recovery the next year and it's mediocre, a bunch
• 3:22
  Speaker 1: of airplanes are gonna get torn down. And as those
• 3:25
  Speaker 1: airplanes get torn down, it obviously takes capacity away. Um
• 3:29
  Speaker 1: And look with the Airbus and Bowing, we're producing at
• 3:32
  Speaker 1: levels a lot lower than they were producing right before
• 3:35
  Speaker 1: the downturn, going how the MAX problems, but sort of
• 3:38
  Speaker 1: ignoring the MAX problems, we think that they're not going
• 3:40
  Speaker 1: to be building that sixty and fifty seven a month
• 3:43
  Speaker 1: our body airplanes for a while, but they could spring
• 3:47
  Speaker 1: back pretty quickly given that they've already been to that level.
• 3:51
  Speaker 1: Um and supply the industry with airplanes. I don't think
• 3:54
  Speaker 1: that's going to be the problem. Okay, George, you're saying
• 3:56
  Speaker 1: that you've got airlines that are going to be tearing
• 4:00
  Speaker 1: down airplanes. You have Boeing, etcetera. Not producing airplanes. Meanwhile,
• 4:05
  Speaker 1: you've got the big air companies cutting capacity in the
• 4:08
  Speaker 1: United States by seventy four percent going forward. I'm just wondering,
• 4:14
  Speaker 1: are we're gonna be paying a lot more if we
• 4:16
  Speaker 1: want to fly, and many fewer people are trying to
• 4:18
  Speaker 1: be flying just for the foreseeable future. Yeah, so we
• 4:22
  Speaker 1: see some of that speculation in the marketplace, and I
• 4:25
  Speaker 1: find it interesting. I think if you have to increase
• 4:29
  Speaker 1: the distance that people sit from each other on an airplane,
• 4:33
  Speaker 1: you're going to have to see an increase in fares
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  Speaker 1: in order for airlines to make money at that level.
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  Speaker 1: But before I think you get to that level, the
• 4:40
  Speaker 1: problem you have in the interim is there's a lot
• 4:42
  Speaker 1: of capacity, and so usually when there's a lot of capacity,
• 4:46
  Speaker 1: there's a bit of a market share battle, and so
• 4:49
  Speaker 1: I think airlines would not be able to command the
• 4:52
  Speaker 1: prices they need, probably even a break even with more
• 4:55
  Speaker 1: social distancing on airplanes. Longer term, I think if there's
• 4:59
  Speaker 1: no cure for coronavirus, if we're in this for a
• 5:02
  Speaker 1: longer haul, I think you could see that increased costs
• 5:06
  Speaker 1: as as the industry slimmed down, cut the numbers seats available,
• 5:10
  Speaker 1: and then went out and charged the appropriate fare given
• 5:13
  Speaker 1: the distance you occupied on the airplane. You know, Georgia,
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  Speaker 1: I'm glad that you went to the competition standpoint. I'm
• 5:18
  Speaker 1: struck by United Air, which is trying to raise money
• 5:21
  Speaker 1: right now in the high bond market and struggling to
• 5:23
  Speaker 1: do so. It's offering eleven percent yields for short term
• 5:27
  Speaker 1: financing three to five year financing, and nobody is buying.
• 5:31
  Speaker 1: Are a very few people are buying because they're saying,
• 5:33
  Speaker 1: what are you gonna look like on the other side
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  Speaker 1: of this? I mean, how much are we going to
• 5:37
  Speaker 1: see bankruptcies or companies just go out of business if
• 5:41
  Speaker 1: they can't compete at a time of such strained finances? Yeah, So,
• 5:47
  Speaker 1: you know, we think, we think that most of the
• 5:51
  Speaker 1: US carriers, I think all the carriers, actually the big ones,
• 5:54
  Speaker 1: are fine until the end of this government's support program.
• 5:58
  Speaker 1: And so I think if United else in this financing,
• 6:01
  Speaker 1: they always have treasury financing that they can go after UM,
• 6:05
  Speaker 1: and I think that they just want to avoid it
• 6:07
  Speaker 1: right now because they don't want to have that limitation
• 6:09
  Speaker 1: on share buybacks and dividends and probably even UM executive compensation.
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  Speaker 1: But they're not going to probably say that to US UM.
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  Speaker 1: And you know, so what we're seeing in the marketplaces,
• 6:20
  Speaker 1: I'm trying to get this bond deal done, and the
• 6:22
  Speaker 1: noises we've heard from the marketplaces. At the collateral package
• 6:26
  Speaker 1: inside that is some is older airplanes that just aren't
• 6:28
  Speaker 1: that desirable, right, And so I really think it's an
• 6:33
  Speaker 1: indicator for some of the airlines, and the big ones.
• 6:37
  Speaker 1: I think Delta, American United are in that package. They're
• 6:42
  Speaker 1: coming to the end of what they have that they
• 6:44
  Speaker 1: can collateralize to get more, to take down more debt
• 6:49
  Speaker 1: and get more cash. And so again, if we get
• 6:51
  Speaker 1: to the end of the year, demand has it proved dramatically, Um,
• 6:57
  Speaker 1: they're going to need more money to survive. I think
• 6:59
  Speaker 1: the US government gonna have to think about whether or
• 7:01
  Speaker 1: not they want to continue to support these airlines if
• 7:05
  Speaker 1: there's no demand in the marketplace, because they just can't
• 7:07
  Speaker 1: keep burning this level of cash and even going out
• 7:09
  Speaker 1: and issuing debt to get more cash. That's not a
• 7:12
  Speaker 1: viable a serve option, you know, over a course of
• 7:16
  Speaker 1: a year or something like that. So I think that's
• 7:18
  Speaker 1: gonna be a it's going to be a big question
• 7:20
  Speaker 1: we're gonna have come fourth quarter, George, Are we learning
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  Speaker 1: anything from China as that economy begins to open up
• 7:27
  Speaker 1: in terms of kind of how consumers are coming back
• 7:29
  Speaker 1: in air traffic. Yeah, so we're watching China closely and
• 7:35
  Speaker 1: in the report we put out today, Yeah, you know,
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  Speaker 1: their schedules are down. There's so actually a little bit
• 7:42
  Speaker 1: less than that. This one compared to last year, significantly
• 7:45
  Speaker 1: better than we've seen out of Europe and the US.
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  Speaker 1: Europe is still down some almost nine schedules are actually
• 7:53
  Speaker 1: seats in the marketplace are and US seventy plus we're approaches. Um.
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  Speaker 1: The Chinese bounce back looked a lot better than the
• 8:03
  Speaker 1: bounce back we're getting out of Europe and the US.
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  Speaker 1: And one of the challenges we have is we're measuring
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  Speaker 1: seats in the marketplace and we don't know load factors
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  Speaker 1: and so so we suspect a lot of these Chinese
• 8:16
  Speaker 1: carriers are stayed on entities and they're going to survive
• 8:18
  Speaker 1: no matter what. We suspect. The load factors might be
• 8:22
  Speaker 1: very very low on some of those flights. But the
• 8:25
  Speaker 1: bounce back does look a bit better um than the
• 8:29
  Speaker 1: the US and Europe. And look at this could be
• 8:31
  Speaker 1: because um, you know, they're quarantining was better and they're
• 8:35
  Speaker 1: starting to spring back. We've seen some stuff in Hong
• 8:38
  Speaker 1: Kong that makes us believe they're quarantining and social distancing
• 8:42
  Speaker 1: was better, and they're measuring of people in contact with
• 8:45
  Speaker 1: other people was better. So you might see in economies
• 8:48
  Speaker 1: where you can really lock them down harder, you might
• 8:51
  Speaker 1: see spring back sooner. George Ferguson, who are speaking to
• 8:55
  Speaker 1: right now, is senior Aerospace, Defense and Airlines analyst for
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  Speaker 1: Bloomberg Intelligence. George, I want to go back to something
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  Speaker 1: that you're talking about, and it goes to corporate governance.
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  Speaker 1: There has been a lot of questions about corporate governance
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  Speaker 1: some of the US airlines after the massive stock repurchases
• 9:09
  Speaker 1: and dividends paid out with the money borrowed over the
• 9:13
  Speaker 1: recent years. And you're saying, if I heard you correctly,
• 9:16
  Speaker 1: that United Airlines does not want to tap the federal
• 9:20
  Speaker 1: reserve program because it doesn't want to be limited by
• 9:24
  Speaker 1: buying back stocks or limited in how much it can
• 9:28
  Speaker 1: compensate its executives going forward. So it's willing to pile
• 9:31
  Speaker 1: on more leverage with eleven percent yields in order to
• 9:34
  Speaker 1: avoid that. Is that correct? So that, I mean, that's
• 9:38
  Speaker 1: our take in the situation right now is they would
• 9:40
  Speaker 1: prefer not to take the government loan. And look, actually,
• 9:44
  Speaker 1: you know I shouldn't be you know, maybe I shouldn't
• 9:47
  Speaker 1: be just so aggressive because the terms of it's okay,
• 9:50
  Speaker 1: it's just shocking to me. Go ahead, be as aggressive
• 9:52
  Speaker 1: as he's like. The Remember that the terms of the
• 9:56
  Speaker 1: government loan programs say that they can't have money, if
• 10:00
  Speaker 1: eliable in the marketplace for them to take the money
• 10:02
  Speaker 1: from the government, and like I take at nine or
• 10:04
  Speaker 1: ten percent with a collateral package behind it. I think
• 10:08
  Speaker 1: that that means that there's not that money available to
• 10:10
  Speaker 1: them in the marketplace. But yes, I think they would
• 10:13
  Speaker 1: prefer to have much more flexibility coming out of US.
• 10:16
  Speaker 1: I think that's one of the reasons Boeing passed on
• 10:19
  Speaker 1: the on the loan program initially. Georgie, I guess the
• 10:23
  Speaker 1: question is one of the questions obviously right now is
• 10:25
  Speaker 1: is there are there any major airlines that are really
• 10:27
  Speaker 1: at risk that there might need to be a government bailout?
• 10:32
  Speaker 1: UH in the US, I don't think so. I think
• 10:34
  Speaker 1: for the next couple of quarters, I think they're they're okay,
• 10:38
  Speaker 1: and they're they're all trying to sort of bridge finances
• 10:41
  Speaker 1: well into twenty one. So I think for right now
• 10:45
  Speaker 1: we're okay in the US. We haven't seen the same
• 10:47
  Speaker 1: response globally and We've seen some failures. Virginal Australia is
• 10:51
  Speaker 1: one UM and so I think in those countries we
• 10:53
  Speaker 1: are not getting that response. You're going to see those
• 10:55
  Speaker 1: failures first. This is a trade information on time. We
• 11:01
  Speaker 1: were just talking about the transformational nature of the work
• 11:04
  Speaker 1: from home experiment. There is a question, as Paul raised,
• 11:08
  Speaker 1: about the nature of big cities going forward, the popularity
• 11:11
  Speaker 1: they're in, as well as the risk reward dynamic of
• 11:15
  Speaker 1: owning a home. Joining us now Logan Motor Shop, a
• 11:18
  Speaker 1: senior loan officer at a MC lending, and a contributed
• 11:22
  Speaker 1: to housing wire Logan. A real question here, especially as
• 11:25
  Speaker 1: mortgage rates drop on the average but increase for larger
• 11:30
  Speaker 1: loan amounts based on concerns that banks have. Are you
• 11:34
  Speaker 1: seeing demand drop drop off precipitously in the most densely
• 11:39
  Speaker 1: concentrated urban areas well. We had about five straight weeks
• 11:45
  Speaker 1: of decline you purchase application UH and the last two
• 11:50
  Speaker 1: weeks increase. So and credit the initial typing of credit
• 11:56
  Speaker 1: that we saw with higher mortgage rates and nonqu and
• 11:59
  Speaker 1: loans going out of business, we're starting to see just
• 12:02
  Speaker 1: a little bit of light in terms of their bringing
• 12:05
  Speaker 1: some of the credit standards down. So again, if you
• 12:09
  Speaker 1: have a job, if you make money, if you have
• 12:11
  Speaker 1: a down payment, you can get alone. Because Spreading and
• 12:13
  Speaker 1: Fannie are still working. They they were never taking public
• 12:17
  Speaker 1: So the system is there. It's just that credit is
• 12:20
  Speaker 1: tightening as it should. We have had thirty three and
• 12:23
  Speaker 1: a half million jobless claims, you know, that's how the
• 12:26
  Speaker 1: game works. When you have risk out there for defaults,
• 12:30
  Speaker 1: credits should get tighter. But reasonably speaking, it's not. It's
• 12:36
  Speaker 1: not like two thousand and eight where we have got
• 12:38
  Speaker 1: all these uh credit bubbles of over leverage homeowners and
• 12:44
  Speaker 1: then home prices crashing. If home prices were falling would
• 12:46
  Speaker 1: be much different. So I think as as tight as
• 12:50
  Speaker 1: the credit standards have gotten, it's very reasonable in a
• 12:53
  Speaker 1: in a cycle where lending standards were very reasonable. So logan,
• 12:58
  Speaker 1: has there been in any of the fiscal stimulant provisions
• 13:01
  Speaker 1: for residential mortgage market or do you expect any in
• 13:03
  Speaker 1: the future. Well, they're trying to deal with this forbearance issue,
• 13:07
  Speaker 1: and the first estimates, you know, some people are thinking
• 13:10
  Speaker 1: it's only gonna be a million loans that are forbearance.
• 13:12
  Speaker 1: It could get up seven eight, you know, twelve fifty million,
• 13:16
  Speaker 1: so the market has to deal with that, but pretty
• 13:20
  Speaker 1: much outside of that, it's traditional thirty year fixed loan
• 13:24
  Speaker 1: if you have if you're working and you have a
• 13:26
  Speaker 1: down payment, you can get a loan. I think that
• 13:28
  Speaker 1: is part of the aspect of purchased applications ran in
• 13:31
  Speaker 1: the last two weeks. Uh So I think it's not
• 13:35
  Speaker 1: as bad as it seems. What we've seen is lower
• 13:38
  Speaker 1: FICO score fh A loans are kind of out of
• 13:40
  Speaker 1: the mix that they weren't that big of the marketplace anyway.
• 13:43
  Speaker 1: These high jumbo loans you know, for these homes over
• 13:46
  Speaker 1: a million, which is not that big of a marketplace,
• 13:48
  Speaker 1: that's been hit. Cash out loans of pricing has been hit,
• 13:51
  Speaker 1: so that loan, that product is as not as popular anymore,
• 13:55
  Speaker 1: and then the home equity lines some lenders are taking
• 13:57
  Speaker 1: that up. I think that's all fine in this kind
• 14:01
  Speaker 1: of environment. That's what you should see. We had the
• 14:03
  Speaker 1: best loan profile, you know, in the longest job expansion ever,
• 14:06
  Speaker 1: and we're doing what should be done to mitigate risk.
• 14:10
  Speaker 1: And as long as home prices don't fall in this force,
• 14:14
  Speaker 1: of which they shouldn't, then uh, this is as tight
• 14:17
  Speaker 1: as you're going to see and then if economy reopens
• 14:20
  Speaker 1: again and jobless claims start to fall, credit will loosen
• 14:24
  Speaker 1: up a little bit. And but we we we've had
• 14:26
  Speaker 1: really vanilla standards for ten years, so we should just
• 14:30
  Speaker 1: be going back to that once jobless claims fall and
• 14:33
  Speaker 1: you know, you see some of economic data get better,
• 14:35
  Speaker 1: because then the risk starts to go away. Look, and
• 14:37
  Speaker 1: you say, the only thing is if housing prices fall precipitously,
• 14:42
  Speaker 1: that doesn't seem to be happening on average around the country,
• 14:46
  Speaker 1: with actually home prices increasing reflecting the lack of supply
• 14:50
  Speaker 1: that people aren't putting their homes on the market during
• 14:53
  Speaker 1: this period. Again, though I go back and I sound
• 14:56
  Speaker 1: like a broken record, I know, But in some of
• 14:59
  Speaker 1: the urban area is I'm talking about coastal cities that's
• 15:03
  Speaker 1: huge run ups and prices of some of the real
• 15:05
  Speaker 1: estate and great building booms. Are we going to see
• 15:08
  Speaker 1: precipitous price declines there, not only because of people losing
• 15:12
  Speaker 1: their jobs, but because of a shift away from urban centers.
• 15:17
  Speaker 1: When we look at the unemployment rate today is people
• 15:22
  Speaker 1: without a high school education, It's like eight point four
• 15:25
  Speaker 1: percent for college educated Americans. People that own homes in
• 15:29
  Speaker 1: that bracket typically have a lot of leverster pull. This
• 15:33
  Speaker 1: isn't like they don't have a credible vants, fixed slow
• 15:35
  Speaker 1: death products and next of equities. So uh, we should
• 15:39
  Speaker 1: be worrying about renters more than than coastal high end areas. Now,
• 15:44
  Speaker 1: of course, it's going to take a lot longer to
• 15:46
  Speaker 1: sell those homes. That's I think that's the thing is
• 15:48
  Speaker 1: that it's not like it used to be. These homes
• 15:50
  Speaker 1: always took longer to sell over time. If things don't
• 15:54
  Speaker 1: get better, prices will come down. Because I refer right now,
• 15:58
  Speaker 1: what we're seeing is we're seeing decline in sales and
• 16:00
  Speaker 1: we're seeing declining listings, and and that could only go
• 16:04
  Speaker 1: for so much longer because once you reopen the economy,
• 16:07
  Speaker 1: more people are going to put their homes on the
• 16:09
  Speaker 1: market to sell. I don't know how much we're gonna
• 16:12
  Speaker 1: see the higher end homes, but if if it continues
• 16:15
  Speaker 1: with what the middle and lower end homes are gonna be,
• 16:18
  Speaker 1: you're gonna see more listings come out. And there's where
• 16:20
  Speaker 1: you're gonna see your UH price decreases out there. But
• 16:24
  Speaker 1: for right now, UH, listings are down, sales are down
• 16:28
  Speaker 1: because nobody why would you put your home in the
• 16:30
  Speaker 1: market in this kind of viruent. You want to wait
• 16:33
  Speaker 1: till lockdown protocols are taken off, then we'll then we'll see.
• 16:36
  Speaker 1: I'm kind of telling everybody wait until July see the
• 16:40
  Speaker 1: June existing home sales market, because right now sellers are
• 16:44
  Speaker 1: preventing any kind of natural flow of supply in a
• 16:47
  Speaker 1: in a recessionary environment. Maybe they do that for the
• 16:50
  Speaker 1: rest of the year, but at some point people do
• 16:53
  Speaker 1: need to sell their homes. So I think we need
• 16:54
  Speaker 1: to be a little bit patient on the housing data
• 16:57
  Speaker 1: to make kind of any assumptions on the higher end
• 16:59
  Speaker 1: home out there, because it's it's one of these things
• 17:02
  Speaker 1: where the homeowner, unlike two thousand eight, doesn't need to
• 17:06
  Speaker 1: sell their homes, and I think that's the thing that
• 17:09
  Speaker 1: people are missing out on the housing market. Just real
• 17:12
  Speaker 1: quick here, Logan, I'm wondering you said renters are the
• 17:15
  Speaker 1: real point of concern JP Morgan's asset management arm. Today
• 17:18
  Speaker 1: it released a statement that they were increasing it's bet
• 17:22
  Speaker 1: on single family rental homes more than doubling the size
• 17:25
  Speaker 1: of a joint venture with Landlord American Homes for Rent.
• 17:27
  Speaker 1: I'm just wondering what is the fate of rental properties
• 17:31
  Speaker 1: at a time when so many people are in uncertain
• 17:33
  Speaker 1: circumstances with respect to their wages. You know what, I
• 17:37
  Speaker 1: think that type of UH investment UH JP Morgan is
• 17:42
  Speaker 1: doing is still predicated to college educated or skilled wages.
• 17:47
  Speaker 1: When I talk about the rental deflation, I'm talking people
• 17:49
  Speaker 1: that were struggling with rents all the way through the
• 17:52
  Speaker 1: expansion and all of a sudden this happened. And you know,
• 17:55
  Speaker 1: whatever the number is or not paying rent, those people
• 17:59
  Speaker 1: are not the single family renters. They're never going to
• 18:02
  Speaker 1: be home buyers. That's the stress market because typically those
• 18:06
  Speaker 1: are low wage jobs and a lot of these are
• 18:08
  Speaker 1: dual renters and even one household. So UH, that investment
• 18:12
  Speaker 1: I think will keep on going for time and time
• 18:15
  Speaker 1: again just because there's certain people that can afford bigger homes,
• 18:18
  Speaker 1: so they rent. And I think that investment is prudent
• 18:21
  Speaker 1: for JP Morgan going out for decades because in some
• 18:24
  Speaker 1: of these areas, you really have to make money. You
• 18:27
  Speaker 1: to three hundred thousand dollars at least to be owning
• 18:30
  Speaker 1: homes in some of these areas. So if you make
• 18:33
  Speaker 1: a hundred or hundred twenty thousand renting might not be
• 18:36
  Speaker 1: a bad choice to you. I understand that investment that
• 18:39
  Speaker 1: JP Morgan is making. I just think that we need
• 18:41
  Speaker 1: to separate the distress renters from the kind of the
• 18:44
  Speaker 1: hug midileval too higher wage rental housseles. Logan, thanks so
• 18:48
  Speaker 1: much for joining us. We appreciate it as always. Logan
• 18:50
  Speaker 1: Multi Shami, senior loan officer for a MC lending group,
• 18:54
  Speaker 1: also a columnist for The Housing Wire, getting an update
• 18:57
  Speaker 1: on the housing market and the mortgage mark get in
• 19:00
  Speaker 1: the US facing unprecedented UH pressure here as thirty million
• 19:05
  Speaker 1: Americans since the beginning of pandemic have lost their jobs.
• 19:09
  Speaker 1: We'll have more. This is Bloomberg. You're listening to Bloomberg
• 19:15
  Speaker 1: Markets with Lisa Ramo, Eds and Paul Sweeney on Bloomberg Radio. Well,
• 19:20
  Speaker 1: with more and more people working from home and making
• 19:23
  Speaker 1: all the necessary accommodations, a question starting to pop up
• 19:27
  Speaker 1: with what does it mean for the traditional office, the
• 19:29
  Speaker 1: traditional office space and will people make changes going forward.
• 19:33
  Speaker 1: To get a sense of kind of where that how
• 19:35
  Speaker 1: that might play out, we welcome Tom Stringer. Tom's corporate
• 19:38
  Speaker 1: real Estate Advisory Managing director Site selection and incentives for
• 19:42
  Speaker 1: the firm b DO located in New York City. Tom,
• 19:45
  Speaker 1: thanks so much for joining us here. You know, are
• 19:47
  Speaker 1: we Is this going to change how the workplace of
• 19:51
  Speaker 1: the future looks. Am I going to ever get back
• 19:53
  Speaker 1: on a train, come into the city, hike up to
• 19:55
  Speaker 1: my skyscraper or is work from home kind of going
• 19:58
  Speaker 1: to be something for the future. Well, good morning of
• 20:02
  Speaker 1: both of you, and thanks for having me and and unfortunately,
• 20:05
  Speaker 1: if you're a commuter in the New York City like myself, yes,
• 20:08
  Speaker 1: I think we will both be slugging it out through
• 20:10
  Speaker 1: Penn Station. Again. I don't think the corporate office environment
• 20:14
  Speaker 1: is is going away entirely, but I certainly think that
• 20:18
  Speaker 1: there's some changes that are being discussed. You know, in
• 20:20
  Speaker 1: the last couple of years, we've certainly seen the matriculation
• 20:23
  Speaker 1: to the open office concept, you know, lower depth collaborative areas,
• 20:28
  Speaker 1: um a lot of cafeterian conference room space. Well, we're
• 20:33
  Speaker 1: seeing right now are discussions towards really kind of backing
• 20:37
  Speaker 1: up a little bit towards more office space that might
• 20:39
  Speaker 1: be a little more familiar to to those who started
• 20:41
  Speaker 1: working in the eighties or nineties, where you're seeing maybe
• 20:45
  Speaker 1: higher cubicles kind of taking hold again, that's being discussed
• 20:50
  Speaker 1: more private offices, smaller than than previously, but more private offices.
• 20:54
  Speaker 1: So you're certainly seeing those discussions around how do we
• 20:59
  Speaker 1: change the actual physical environment the workflow in the office
• 21:03
  Speaker 1: such that we can get people back. Um. But you know,
• 21:06
  Speaker 1: the one thing I would also mention is that will
• 21:08
  Speaker 1: probably have smaller offices meaning total square footage, because the
• 21:13
  Speaker 1: work from home experiment that's taken place over the last
• 21:16
  Speaker 1: six to eight weeks quite frankly been amazing I think
• 21:20
  Speaker 1: in corporate America and for for governmental workers that have
• 21:23
  Speaker 1: done it, and it's been pretty seamless. Also, I mean
• 21:25
  Speaker 1: we've all gotten used to you know, uh, family members
• 21:28
  Speaker 1: or pats walking in a zoom conference calls and it's uh,
• 21:32
  Speaker 1: it's kind of acceptable now, which is nice and fun.
• 21:34
  Speaker 1: But if you look at the cost savings right from
• 21:36
  Speaker 1: a corporate real estate standpoint on the back side of this,
• 21:40
  Speaker 1: that's gonna be substantial, and that's going to be a
• 21:42
  Speaker 1: factor that really takes takes hold as well. How do
• 21:44
  Speaker 1: we reduce our footprinted to accommodate for this incredible transformation
• 21:48
  Speaker 1: that we've seen. Tom, I will just say, uh, saying
• 21:51
  Speaker 1: that it's been pretty seamless. I think feels a little
• 21:54
  Speaker 1: bit dissonant for anyone who's homeschooling their children at home
• 21:57
  Speaker 1: will also trying to manage a job. Just saying theoretically
• 22:01
  Speaker 1: that that that's me maybe isn't exactly the description that
• 22:04
  Speaker 1: I would say, but I'll leave it there. I will say, Tom,
• 22:08
  Speaker 1: there is a question going forward of the calculations by
• 22:11
  Speaker 1: businesses with the cost savings of office space with productivity concerns,
• 22:18
  Speaker 1: the idea that having people together generates ideas, and that
• 22:21
  Speaker 1: there's a certain motivation that comes from the camaraderie of
• 22:25
  Speaker 1: a workplace. How do you sort of square that. Are
• 22:28
  Speaker 1: there studies or anything scientific to look at to make
• 22:32
  Speaker 1: that determination? Well, I see your first point about homeschooling children,
• 22:37
  Speaker 1: and I certainly feel your pain on that, But I
• 22:39
  Speaker 1: won't say I have the greatest VC of I in
• 22:44
  Speaker 1: history helping me through this process, which is my thirteen
• 22:47
  Speaker 1: year old daughter. She seems to have gotten zoom and
• 22:50
  Speaker 1: connectivity repeatedly for me during the course of the last
• 22:54
  Speaker 1: few weeks. You're asking are you paying her? The allowance
• 22:58
  Speaker 1: has gone up? Yeah? Significant? All right, there you go.
• 23:02
  Speaker 1: Benefits are there? There is Yeah, there is a cost
• 23:05
  Speaker 1: associated with it. I guess, uh, but you're asking a
• 23:09
  Speaker 1: really good question, are there any kind of tangible hard
• 23:11
  Speaker 1: data studies right now? And And the answer to that
• 23:14
  Speaker 1: is no, we're looking at this all. Really, this is
• 23:16
  Speaker 1: a live lab experiment that we're all looking at in
• 23:19
  Speaker 1: real time. But you can tell quite frankly in terms
• 23:23
  Speaker 1: of you know, office closures that have taken place and shutdowns.
• 23:27
  Speaker 1: You know, you can forecast out well what really is
• 23:29
  Speaker 1: necessary maybe on a corporate headquarters campus versus what is
• 23:33
  Speaker 1: not so so those kind of arithmetic and discussions are
• 23:37
  Speaker 1: really going on right now in in in real time.
• 23:41
  Speaker 1: So Tom, just quickly here. I mean, are we going
• 23:44
  Speaker 1: to see a migration of corporations from densely populated urban
• 23:47
  Speaker 1: areas to perhaps less densely populated, uh, suburban areas as
• 23:52
  Speaker 1: a result of this pandemic? That's the quest of the
• 23:55
  Speaker 1: burden question in economic development right now. You know, for
• 23:58
  Speaker 1: years you've had this kind of we'll call suburban or
• 24:00
  Speaker 1: rural and urbans by where the city's really had had
• 24:03
  Speaker 1: attracted so much in terms of young talent, in terms
• 24:05
  Speaker 1: of corporate focus and headquarters really going back downtown. You know,
• 24:10
  Speaker 1: folks on the sidelines of that. For the last cent
• 24:12
  Speaker 1: of fifteen years have been looking at this thing. You know,
• 24:15
  Speaker 1: is this our opportunity to to recast the argument to
• 24:18
  Speaker 1: some extent, And that may be the case. Um, will
• 24:21
  Speaker 1: it be entirely No. I think cities offer really some
• 24:25
  Speaker 1: unique value combinations, some unique returns on investment. But may
• 24:30
  Speaker 1: the presence that they have in those cities be as
• 24:33
  Speaker 1: debt be as intense. Are we gonna have a hundred
• 24:35
  Speaker 1: thousand square feet or maybe can we have some back
• 24:38
  Speaker 1: office just for some you know, emergency related issues. Um,
• 24:43
  Speaker 1: it's also provide some cost related savings. You know, this
• 24:46
  Speaker 1: was kicked around a lot after nine eleven and never
• 24:49
  Speaker 1: really came to fruition. I mean effectively the pandemic from
• 24:53
  Speaker 1: an economic standpoint nine eleven everywhere in the corporate real
• 24:56
  Speaker 1: estate world. So I think it will have a more
• 24:59
  Speaker 1: profound impact where they start to look at do we
• 25:01
  Speaker 1: need that type of concentration if do we need it
• 25:04
  Speaker 1: at a hundred ten dollars a square foot versus being
• 25:07
  Speaker 1: able to kind of separate our offices a little bit,
• 25:11
  Speaker 1: and maybe also at a layer of security for employees.
• 25:15
  Speaker 1: Tom Stringer, thank you so much for being with us.
• 25:17
  Speaker 1: Tom Stringer, Corporate real Estate Advisory Managing Director and Site
• 25:20
  Speaker 1: Selection and Incentives at b d O, helping companies decide
• 25:25
  Speaker 1: whether or not to invest in that office. The question
• 25:29
  Speaker 1: getting that much harder now that the work from home
• 25:31
  Speaker 1: experiment has come back with some positive results for certain companies.
• 25:37
  Speaker 1: This is Bloomberg Markets with Lisa Ramo, Weeds and Paul's
• 25:40
  Speaker 1: Wheeney on Bloomberg Radio. A decade of jobs lost in
• 25:45
  Speaker 1: one month. The question now is, after the worst economic
• 25:49
  Speaker 1: report in history having to do with the US jobs,
• 25:52
  Speaker 1: how do we move forward and joining us now to
• 25:54
  Speaker 1: talk about that? As Lindsay Pigs, chief economist at Stephle Lindsay,
• 25:58
  Speaker 1: this was a horrible, horrid It was expected to be bad.
• 26:01
  Speaker 1: It was perhaps not quite as horrible as people expected,
• 26:04
  Speaker 1: yet still confirmed a catastrophic loss in the jobs market.
• 26:09
  Speaker 1: What caught try when you looked under the hood of
• 26:12
  Speaker 1: the headline numbers here, Well, you're exactly right. The headline
• 26:15
  Speaker 1: was pretty much expected. The market was bracing for a
• 26:18
  Speaker 1: very devastating report, but nevertheless it's still is a reminder
• 26:22
  Speaker 1: of the devastating impact of the policies that have been
• 26:25
  Speaker 1: put in place to contain COVID nineteen essentially shutting down
• 26:29
  Speaker 1: entire sectors of the economy, and that really is the
• 26:32
  Speaker 1: most startling part of this report. You're seeing widespread losses
• 26:36
  Speaker 1: across a number of different categories. Now, early on, we
• 26:39
  Speaker 1: saw these job losses hit predominantly the hospitality sector. We
• 26:43
  Speaker 1: saw restaurants being closed, hotels being closed. But what we've
• 26:47
  Speaker 1: seen now is the second wave of layoffs coming through
• 26:50
  Speaker 1: the economy, hitting those that we thought were were effectively
• 26:53
  Speaker 1: able to work from home, so lawyers, government employees, even
• 26:57
  Speaker 1: healthcare workers, at least those not on the front line.
• 27:00
  Speaker 1: So what we're seeing is that the impacts of these
• 27:02
  Speaker 1: policies shutting down the economy, forcing businesses to close, workers
• 27:06
  Speaker 1: to stay at home, have really hit every corner of
• 27:10
  Speaker 1: the economy. So lindsay, I'm thinking about some of the
• 27:13
  Speaker 1: small and mid sized businesses getting hit here. I mean,
• 27:16
  Speaker 1: as you think about it, and a lot of those
• 27:18
  Speaker 1: companies are not laying off people, they're literally closing. And
• 27:22
  Speaker 1: so try to gauge what percentage of these You know,
• 27:25
  Speaker 1: more than twenty million people that lost their jobs in
• 27:27
  Speaker 1: April will actually come back on the other side of
• 27:31
  Speaker 1: this year. How do you think about that? It's a
• 27:33
  Speaker 1: good question. We saw that the Chamber of Commerce come
• 27:35
  Speaker 1: out and say about twenty five businesses have closed their
• 27:37
  Speaker 1: doors at least temporarily. But that report came out in
• 27:40
  Speaker 1: early April, and it was based on the expectation that
• 27:43
  Speaker 1: the economy would be back open within the coming days,
• 27:47
  Speaker 1: if not weeks. And so what we see now is
• 27:50
  Speaker 1: with many states still with those at home or stay
• 27:53
  Speaker 1: at home orders in place through the end of the month,
• 27:55
  Speaker 1: many of these businesses who thought they were just temporarily
• 27:58
  Speaker 1: closing are going to be as to permanently close their doors.
• 28:02
  Speaker 1: So there still is a lot of optimism that jobs
• 28:05
  Speaker 1: will come back in some absolutely will, but even the
• 28:08
  Speaker 1: businesses that are able to reopen are going to be
• 28:10
  Speaker 1: facing a very different environment. Restaurants that reopen may only
• 28:15
  Speaker 1: open with twenty tables instead of forty tables, so they
• 28:17
  Speaker 1: need fewer wait staff. Boutiques limiting the number of people
• 28:22
  Speaker 1: coming in at one time may need fewer sales clerks.
• 28:26
  Speaker 1: So even if we are able to salvage some of
• 28:28
  Speaker 1: these small businesses around the country, it's likely that they're
• 28:31
  Speaker 1: going to reduce staff, reduce hours or both for their employees. Lindsay,
• 28:36
  Speaker 1: I'm struck by the widening disparity between the haves and
• 28:41
  Speaker 1: the have nots, with people who have lower wage jobs
• 28:45
  Speaker 1: suffering disproportionately, with job losses, people who do not have
• 28:49
  Speaker 1: college degrees suffering disproportionately. How much does this set the
• 28:54
  Speaker 1: nation back when it comes to those segments of the
• 28:57
  Speaker 1: labor force that frankly have lagged behind and in any
• 29:01
  Speaker 1: recent recovery from from economic downturns. Absolutely, any time you
• 29:06
  Speaker 1: see any type of legislation or any type of natural
• 29:09
  Speaker 1: scenario play out in the markets where it widens that
• 29:12
  Speaker 1: divide can have very negative ramifications and make it increasingly
• 29:16
  Speaker 1: more difficult for those at the bottom wrongs of the
• 29:19
  Speaker 1: labor market to claw their way back. And as we
• 29:23
  Speaker 1: are seeing, as I mentioned, the hospitality industry, predominantly led
• 29:26
  Speaker 1: by individuals with lower level paychecks, are being the hardest hit.
• 29:31
  Speaker 1: And of course we know that many Americans live paycheck
• 29:34
  Speaker 1: to paychecks, so even a loss of one or two
• 29:37
  Speaker 1: weeks can have very devastating financial ramifications for people in
• 29:43
  Speaker 1: this country. So lindsay, I mean the government in terms
• 29:46
  Speaker 1: of the FED easing access to capital, the fiscal stimulus
• 29:51
  Speaker 1: coming from Congress very very aggressive to try to fight
• 29:55
  Speaker 1: this thing, but it's coming out of cost. Our national
• 29:57
  Speaker 1: debt is near twenty five trillion dollars right now. What
• 30:00
  Speaker 1: the economic ramifications of our balance sheet. Oh, it's it's
• 30:04
  Speaker 1: very concerning. And I think on the one hand, when
• 30:07
  Speaker 1: we look at the pain that's happening out in the
• 30:09
  Speaker 1: labor market, this morning's report confirming that we do know
• 30:12
  Speaker 1: that the FED and the federal government had to do something.
• 30:14
  Speaker 1: They had to step in and take unprecedented action to
• 30:17
  Speaker 1: help stem the fallout from these policies. But on the
• 30:21
  Speaker 1: flip side, what we don't want to do is try
• 30:23
  Speaker 1: and bridge the near term gap but leave the economy permanently,
• 30:27
  Speaker 1: uh structurally impeded in terms of our productive potential going forward.
• 30:32
  Speaker 1: And right now, what we're seeing is very valuable savings
• 30:35
  Speaker 1: and resources being depleted. And it's not just at the
• 30:38
  Speaker 1: federal government. We're seeing that the balance sheet at individual business,
• 30:43
  Speaker 1: local municipalities. This is really going to leave us in
• 30:45
  Speaker 1: a crippled position and could actually retard growth for the
• 30:50
  Speaker 1: next several years. So while we're helping to stem the
• 30:55
  Speaker 1: pain from this short term pandemic, we could actually be
• 30:58
  Speaker 1: limiting the upside for the economy When we look out
• 31:01
  Speaker 1: to and beyond. I mean, these are massive levels of debt.
• 31:05
  Speaker 1: As you mentioned, we're expected to be around twenty five
• 31:08
  Speaker 1: trillion dollars in debt. Uh. This, this is on precedented levels.
• 31:12
  Speaker 1: It's hard for the average American to even digest that
• 31:15
  Speaker 1: level of debt. But it says essentially that for the
• 31:19
  Speaker 1: first time since World War Two, the US would not
• 31:22
  Speaker 1: be able to pay off its debt based on the
• 31:25
  Speaker 1: amount of production that we have in a given year. Now,
• 31:27
  Speaker 1: back during World War Two time, we were actually able
• 31:30
  Speaker 1: to grow ourselves out of this set level because as
• 31:33
  Speaker 1: we swapped for more time production, we were embarking on
• 31:35
  Speaker 1: a four and a half percent decade long expansion. This
• 31:39
  Speaker 1: time around, will be lucky if we even get back
• 31:41
  Speaker 1: to that pre Corona trend page of sub two percent.
• 31:44
  Speaker 1: So we're already starting from a much lower level of activity. Again,
• 31:49
  Speaker 1: if we see the consumer persistently constrained by financial constraints,
• 31:53
  Speaker 1: are concerned about their health, we could actually see the
• 31:56
  Speaker 1: economy stuck in around a one one and a half
• 31:59
  Speaker 1: percent growth rate age for the next several years. Lindsay,
• 32:03
  Speaker 1: thanks so much for joining us. We appreciate it. As always,
• 32:05
  Speaker 1: Lindsay piigsa chief econers for Steeple Financial, joining us on
• 32:09
  Speaker 1: the phone here. So, Lisa, there's certainly some some cost,
• 32:12
  Speaker 1: significant costs here to try to combat the economic effects
• 32:17
  Speaker 1: of the pandemic, but again they come at a pretty
• 32:20
  Speaker 1: significant price as well, so that it's a balancing act.
• 32:22
  Speaker 1: Although the interesting thing is that as the US to
• 32:25
  Speaker 1: devisit climbs into near record territory, it hasn't mattered at
• 32:29
  Speaker 1: all when it comes to the actual cost of financing
• 32:32
  Speaker 1: with yields at record lows in the short and the
• 32:34
  Speaker 1: question does it matter if the Federal Reserve basically monetize
• 32:37
  Speaker 1: it by buying it all? Yeah, exactly right. And we're
• 32:40
  Speaker 1: seeing again we've seen from the beginning of this to
• 32:42
  Speaker 1: FED very very aggressive here in pulling out all the
• 32:45
  Speaker 1: stops and trying to support the liquidity in the market.
• 32:47
  Speaker 1: We've had some meaningful fiscal stimulus. More to come as
• 32:51
  Speaker 1: the expectation over the next couple of weeks. This is Bloomberg.
• 32:57
  Speaker 1: Thanks for listening to the Bloomberg pan l podcast. You
• 32:59
  Speaker 1: can subscribe. I've been listening to interviews at Apple Podcasts
• 33:02
  Speaker 1: or whatever podcast platform you prefer. M Paul Sweeney, I'm
• 33:05
  Speaker 1: on Twitter at pt Sweeney, I'm Lisa abram Woyits I'm
• 33:07
  Speaker 1: on Twitter at Lisa abram Woits One. Before the podcast,
• 33:10
  Speaker 1: you can always catch us worldwide on'm Bloomberg Radio