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Credit Spread Cushion Is Pretty Much Gone: UBS's Falconio · Bloomberg Intelligence

0:01
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
0:04
Speaker 1: with my co host of Bonnie Quinn. Every business day
0:06
Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
0:10
Speaker 1: along with essential market moving news. Kind the Bloomberg Markets
0:13
Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
0:17
Speaker 1: and on Bloomberg dot com. Let's bring in Leslie Falconio,
0:21
Speaker 1: senior fixed income strategist at UBS Global Wealth Management. Nearly
0:25
Speaker 1: a trillion dollars in assets under management firm whide, including
0:29
Speaker 1: family office assets. So Leslie really has a great view
0:34
Speaker 1: of where people are putting their money, where flows are going,
0:38
Speaker 1: and what families are doing versus what institutions are doing.
0:42
Speaker 1: So Leslie talked to us first about those flows. Have
0:44
Speaker 1: we seen much of anything change hands recently? Is there
0:49
Speaker 1: a sort of an area that certain certain um demographics
0:54
Speaker 1: or what have you are moving towards. Yeah, I mean
0:58
Speaker 1: right now. Obviously we still have this in our in
1:00
Speaker 1: our opinion, a little bit too much cash on hands
1:02
Speaker 1: that we think investors have. But I think to your points,
1:05
Speaker 1: you know, as we know, especially in the fixed income aside,
1:07
Speaker 1: it's the search field and in order to really gain
1:11
Speaker 1: you know, decent yield and decent return going forward, you
1:14
Speaker 1: have to sort of looking at at the alternatives market,
1:17
Speaker 1: and that's where right now a lot of people are
1:19
Speaker 1: sort of allocating because of this stimulus that we've seen,
1:22
Speaker 1: because of all this central bank support, and because of
1:24
Speaker 1: the liquidity that people who have a little bit longer
1:27
Speaker 1: time horizons are really sort of picking their spots that
1:30
Speaker 1: areas that have been hit due to this crisis. So
1:32
Speaker 1: although people in our opinios still have a little bit
1:34
Speaker 1: too much cash, they are starting to allocate to somebody's
1:37
Speaker 1: alternative investments. When you say alternative investments, give us a
1:41
Speaker 1: little more detail on where, yeah, absolutely, Like i' let's
1:46
Speaker 1: just say things like commercial real estate. Okay, we know
1:48
Speaker 1: that the commercial real estate areas actually has had obviously
1:52
Speaker 1: you know a lot of points of concern, particularly those
1:54
Speaker 1: pockets of vulnerability, whether it's office space, you know, hotels,
1:59
Speaker 1: you know all those all those sort of areas that
2:01
Speaker 1: have really been a problem, problematic area that have not
2:04
Speaker 1: recovered yet. But the market is forecasting such high levels
2:08
Speaker 1: of delinquencies that right now there are alternatives that allow
2:12
Speaker 1: investors to really get involved for if they have a
2:14
Speaker 1: longer term of time arising and they're willing to forego
2:17
Speaker 1: a bit of liquidity. There are these pockets of opportunity
2:20
Speaker 1: because the market is pressing in such negativity. That's really
2:24
Speaker 1: interesting because you know, we hear so much about some
2:26
Speaker 1: of these businesses going going away, you know, hotels in particular,
2:30
Speaker 1: So is there a big premium to these investments? There are?
2:35
Speaker 1: I mean, and actually, and you're absolutely right. I mean,
2:36
Speaker 1: that's why you really need to pick your spots, and
2:38
Speaker 1: you really need to do your due diligence. But as
2:40
Speaker 1: as as opportunistic sort of as the opportunity set, particularly
2:44
Speaker 1: within fixed income and co and has participated, it's really
2:47
Speaker 1: gotten white. When you look at things like CMBs theory,
2:52
Speaker 1: those there are pockets of opportunities there if you do
2:54
Speaker 1: your due diligence, that are actually for the longer term,
2:58
Speaker 1: we believe, particularly because we do believe it'shistical stateless the summing,
3:01
Speaker 1: because we do believe there's there's the Fed and the
3:04
Speaker 1: government is a great backstop. We'll be able to recover,
3:07
Speaker 1: not not everywhere, but so you really need to pick
3:09
Speaker 1: your spots. But given you're an environment where you've had
3:12
Speaker 1: such great returns and equity and even a lot of
3:14
Speaker 1: recovery and fixed income. The opportunities are very small. So
3:17
Speaker 1: if you pick your spots, then over the longer term,
3:19
Speaker 1: you know, you have really good returns. So the market
3:25
Speaker 1: it's looking like it's anticipating a Biden victory right now.
3:28
Speaker 1: Is it too complacent? Leslie? You know, honestly, I think
3:32
Speaker 1: it is a bit too complaced. And and and I'll
3:34
Speaker 1: tell you why if you look at things like the
3:35
Speaker 1: credit market. Let's just look at the credit market for example,
3:38
Speaker 1: triple see how yield spreads are at pre COVID levels. Okay,
3:42
Speaker 1: the credit markets spreads are right now are incredibly incredibly tight,
3:47
Speaker 1: and you're really not getting compensated a tremendous amount for
3:50
Speaker 1: a fact elevent whether it's upboard down. So I do
3:53
Speaker 1: think the market is a bit complacent. It is just
3:55
Speaker 1: spooming this Biden suite. And you know, over longer term,
3:59
Speaker 1: I think with the market really needs to focus on
4:01
Speaker 1: is the fact that the curvice sea thing. You know,
4:03
Speaker 1: deals are a bit higher. But more importantly, that cushion
4:06
Speaker 1: that you once had is pretty much gone. Can you
4:11
Speaker 1: elaborate a little bit um Yeah? Absolutely, yeah. So for example,
4:16
Speaker 1: so if you like I seari the trip sea side,
4:17
Speaker 1: like right, if you have things like you know is
4:20
Speaker 1: now the pre COVID spreads and a lot of the
4:22
Speaker 1: issuance that we're seeing are at triple seas and as
4:24
Speaker 1: we know, you know a lot of these companies have
4:26
Speaker 1: sort of been riding the hotel of the fed liquidity.
4:29
Speaker 1: You know, when we look at things like say, for example,
4:31
Speaker 1: just a basic invest in grade corporate, which has been
4:33
Speaker 1: a great faccept for the feed the set has bought
4:35
Speaker 1: invest in grade corporate. It has a lot of powder
4:38
Speaker 1: drive to do more. But you asn't as a corporate
4:41
Speaker 1: if you're going to corporate right now, you have only
4:44
Speaker 1: maybe twenty basis points rise in interest rates where you
4:47
Speaker 1: wipe out a whole year of income. You don't have
4:50
Speaker 1: a lot of spread Crishian there to really you know,
4:53
Speaker 1: compensate you if in fact you get more default in
4:55
Speaker 1: both investment grade and high you okay, So let's see
4:59
Speaker 1: can I skill us all about you know outside of
5:02
Speaker 1: the US. You know, there's a lot of talk about
5:04
Speaker 1: Asia these days, and I suppose emerging markets more generally
5:07
Speaker 1: the China we sort of treat a little bit separately.
5:10
Speaker 1: What are you doing there? Particularly given the the strengthening
5:13
Speaker 1: in the yuan recently. Yeah, we we do feel for
5:17
Speaker 1: those investors that are looking for their guild, and then
5:19
Speaker 1: when we talk about high yield, for example, that we
5:22
Speaker 1: feel it's a little bit more tight in the US.
5:24
Speaker 1: You can go over to Asia high yields and actually
5:26
Speaker 1: took up a nice, a nice yield at like six.
5:30
Speaker 1: We do think the Asian the Asian market is actually
5:32
Speaker 1: on a road to recovery. A little bit more inflation
5:34
Speaker 1: that they have obviously the backstep of the central bank,
5:38
Speaker 1: and we do think that that p m I is,
5:39
Speaker 1: although volatile overall, we expect about recovery there. So our
5:43
Speaker 1: preference for those that are really that are yield speakers
5:46
Speaker 1: that believe that the US is just simply a bit
5:49
Speaker 1: too tight. Asia high yield is another alternative that you
5:52
Speaker 1: can invest it. All right, Leslie, thank you so interesting
5:55
Speaker 1: to speak with you. One final question, if you don't mind,
5:57
Speaker 1: families that have great wealth, are they trying to do
6:01
Speaker 1: something with that before there is a change in administration
6:04
Speaker 1: assuming that there is, Yeah, I mean list really look,
6:08
Speaker 1: taxicles harvesting is always, always, always a big thing to do,
6:10
Speaker 1: and I'm sure that there there there are families that
6:13
Speaker 1: are trying to allocate in terms of potential changes. But
6:17
Speaker 1: you know, and frankly, our view is that even if
6:20
Speaker 1: we do have a democratic suite, it's that's gonna be
6:22
Speaker 1: the first thing on the agenda to go changing taxes.
6:24
Speaker 1: It's just not the economy is the first and the
6:26
Speaker 1: agenda jobs with the first on the agenda, you know,
6:29
Speaker 1: and make sure and having you know, corporations remain and
6:32
Speaker 1: sustainability of corporations on the agenda. So although yes, they are,
6:35
Speaker 1: it's just not going to be on day one, that day.
6:37
Speaker 1: This change is gonna ocurse, gonna occur over over time. Yeah,
6:41
Speaker 1: that's for sure. Okay, Leslie, thank you, we'll be talking
6:43
Speaker 1: to you again. Well before then, Leslie Falconio is senior
6:46
Speaker 1: strategist at ubs A Global Wealth Management. All right now
6:51
Speaker 1: it is time to turn to the world of commercial banking,
6:53
Speaker 1: and for that we bring in a specialist. We have
6:56
Speaker 1: Done mcque head of commercial banking as Citizens Bank. Don
7:00
Speaker 1: What does your job involved primarily these days and pandemic times, Well,
7:05
Speaker 1: it's really taking care of our clients. Fannie um. You know,
7:08
Speaker 1: right at the beginning of the pandemic, we we actually
7:11
Speaker 1: said our primary job is to help our clients get
7:14
Speaker 1: through this really unprecedented events, and that you know, started
7:17
Speaker 1: with the p PP loans, that started with the provision
7:20
Speaker 1: of a lot of liquidity lines, some restructuring of credit agreements.
7:23
Speaker 1: And we're really encouraged by what we're saying. We're seeing
7:26
Speaker 1: some real bright spots in the portfolio. There's obviously some
7:29
Speaker 1: real trouble in certain industries, but but so far, so good.
7:34
Speaker 1: You must have had an internal conversation about what the
7:36
Speaker 1: criteria might be, what the lines in the sand might be,
7:39
Speaker 1: what industries you're willing to be more lenient on than others.
7:43
Speaker 1: How did that conversation go. Well, you know what what
7:46
Speaker 1: we really did was we immediately undertook what we call
7:50
Speaker 1: it cash burn analysis on our client base, and we
7:53
Speaker 1: really throughout history and went to what current cash flow
7:56
Speaker 1: was versus current cash resources and try to project forwards three, six,
8:01
Speaker 1: twelve months to see how long the company you know,
8:03
Speaker 1: had before it ran into a real liquidity problem. And
8:06
Speaker 1: then we we actually took a ride of different actions
8:08
Speaker 1: against those different scenarios and and really tried to bolster
8:12
Speaker 1: the companies to get to the other end of the pandemic.
8:15
Speaker 1: We we don't. We don't have any redline industries in
8:17
Speaker 1: terms of things that the places that we won't help.
8:19
Speaker 1: We certainly have some there in a little bit more
8:22
Speaker 1: difficulty than others. So anything that's in the hospitality sector
8:25
Speaker 1: or the restaurants sector, or the leisure sectors obviously experiencing
8:29
Speaker 1: a fair amount of distress right now. But but the
8:32
Speaker 1: broad portfolio looks like it's stabilizing. How do you avoid
8:37
Speaker 1: some of your clients being aided by other, you know,
8:40
Speaker 1: maybe shadow banking type entities. Is there a way that
8:44
Speaker 1: you can hold onto them, or are you actually quite
8:47
Speaker 1: happy for some of these private equity companies or what
8:50
Speaker 1: have you dig on sometimes that might be underperforming. We haven't.
8:53
Speaker 1: We haven't seen a lot of that, you know. What
8:55
Speaker 1: we what we have seen is some distressed investments, for example,
8:59
Speaker 1: So some clients just needs minority equity and and we'll
9:02
Speaker 1: try to facilitate that. But we haven't seen the non
9:05
Speaker 1: banks trying to come in and take our clients away
9:07
Speaker 1: at the split second. And you know, I think our
9:09
Speaker 1: general approaches if we do a good job of our
9:11
Speaker 1: clients and take care of them and are close to them.
9:14
Speaker 1: And we went on a real communication effort with all
9:18
Speaker 1: of our CEOs as we went through this to make
9:20
Speaker 1: sure we understood what was happening with their companies. So
9:22
Speaker 1: we've seen some refinancing. We we've refanced some people out
9:25
Speaker 1: of other facilities, but it's nothing very different from usual way. Well,
9:30
Speaker 1: that's good to hear from your perspective. I suppose how
9:33
Speaker 1: are you handling the we're in the we're mortgage and
9:35
Speaker 1: interest rates in general. Well, you know, we we've done
9:39
Speaker 1: a great job in lowering our costs of deposits um
9:42
Speaker 1: and so we've held up on our energy margin pretty well.
9:46
Speaker 1: Can I just intervene and say that that's bank for
9:49
Speaker 1: not paying anything on deposits. Well, we pail, we pay
9:54
Speaker 1: a little bit, but but our our our neg interest
9:57
Speaker 1: margin while under pressure is held up, held up. Okay,
10:00
Speaker 1: we've benefited from a very strong fee line, so as
10:03
Speaker 1: you might have seen when we when we reported last
10:05
Speaker 1: week or pp ANDR line was quite strong, and in
10:08
Speaker 1: fact it was a record level. So we feel good
10:10
Speaker 1: about our overall PANO. Well, that's good to hear. And
10:13
Speaker 1: now there's been a lot of talk about whether there
10:15
Speaker 1: might be some consolidation. How is citizens faring in terms
10:18
Speaker 1: of being able to ward off any outside interest or
10:23
Speaker 1: indeed maybe looking around if if you're in that good
10:25
Speaker 1: of a position and trying to beef up what you have, well,
10:28
Speaker 1: we don't. You know, we don't feel like we have
10:29
Speaker 1: to do a transaction to be successful. And you know,
10:33
Speaker 1: we're not really in discussions either way with anyone, and
10:35
Speaker 1: we wouldn't talk about it anyway. So what we have
10:38
Speaker 1: done is we've we've focused on acquiring smaller companies to
10:43
Speaker 1: basically beef up our offerings on our solution set. So
10:46
Speaker 1: I bought three M and A boutiques in the last
10:48
Speaker 1: two years. We bought a big mortgage company. We brought
10:50
Speaker 1: a wealth management company. So our our strategy is really
10:53
Speaker 1: um fill in acquisitions that that that broughten out our
10:56
Speaker 1: products White. Yeah, so Bolletons. Then, so what are these
11:00
Speaker 1: t companies on? What do they specialize in mergers? And
11:03
Speaker 1: actually no, I mean what kinds of mergers rooms? So,
11:06
Speaker 1: so one is a general industrial UM and we bought
11:09
Speaker 1: them two years ago. They really do Midwestern industrial companies.
11:13
Speaker 1: We bought one down in Atlanta, which is really business
11:15
Speaker 1: services and and other kinds of services. And we bought
11:18
Speaker 1: one in California, which is restaurants and franchise franchise finance,
11:22
Speaker 1: so fascinating and why did you land on those particular ones.
11:26
Speaker 1: We just saw that one day were leaders in their market.
11:28
Speaker 1: Um and we want to buy M and A boutiques
11:32
Speaker 1: which are which are really strong and very narrow sectors.
11:35
Speaker 1: We're not going to compete with Golden Sacks or JP
11:37
Speaker 1: Morgan in M and can't compete in narrow sectors. And frankly,
11:41
Speaker 1: we've been incredibly successful through the pandemic. I think we're
11:44
Speaker 1: closing an M and A deal a week right now,
11:46
Speaker 1: so it's it's gone quite well. That's really phenomenal. I
11:49
Speaker 1: want to hear more about these M and A deals.
11:51
Speaker 1: So one a week is a distress semina or no?
11:55
Speaker 1: You know. I think the perspective I give you is
11:58
Speaker 1: they're an awful lot of companies that are doing quite
12:00
Speaker 1: well and some are actually thriving through the pandemic. And
12:04
Speaker 1: as long as as long as the company's EBA diesn't
12:06
Speaker 1: being impacted, we're seeing that people want to complete transactions
12:11
Speaker 1: that we're in the pipeline. So they're not huge. I mean,
12:12
Speaker 1: they're anywhere from fifty million to three million in terms
12:15
Speaker 1: of valuation. So it's not the billion ten billion dollar deals,
12:19
Speaker 1: but you're seeing some of those happen also. So you know,
12:21
Speaker 1: we see some that have gone on hold because you've
12:24
Speaker 1: had cash flows disrupted and we just have to figure
12:26
Speaker 1: out what a profile looks like on the back end.
12:29
Speaker 1: But a lot of them have moved forward. We've been
12:31
Speaker 1: frankly surprised at how many moved forward. Yeah, I mean,
12:33
Speaker 1: it's the wheels of capitalism, isn't it. They just keep turning,
12:36
Speaker 1: and it's really really fascinating to watch and also a
12:39
Speaker 1: very good sign because you do want to, you know,
12:42
Speaker 1: the wheels of industry to be well oiled and turning,
12:46
Speaker 1: even at times like this. You just hope that that
12:48
Speaker 1: can be the case. Well, thank you very much, Don,
12:51
Speaker 1: very interesting conversation and good look for the next couple
12:54
Speaker 1: of months. We'll be talking to you again before long.
12:56
Speaker 1: Don McCree is head of commercial Banking citizens by Ink,
13:00
Speaker 1: and you heard him. So much going on in the
13:02
Speaker 1: capital markets these days. It's it's not all just stagnancy
13:06
Speaker 1: and dooming loom and waiting for stimulus. The fields of
13:09
Speaker 1: capitalism do continue to turn. So let's bring in George
13:16
Speaker 1: ferguson our senior aerospace, defense and airlines analysts with Bloomberg Intelligence. George.
13:21
Speaker 1: What I found interesting about the conversation was that Scary
13:24
Speaker 1: Kelly seems to be so optimistic that it looks like
13:27
Speaker 1: he's still almost expecting some kind of targeted stimientos somewhere
13:32
Speaker 1: he does. I found that interesting as well. It seems
13:34
Speaker 1: to me I'm in the camp that we probably don't
13:36
Speaker 1: see a stimulus package for the airline um until next year,
13:41
Speaker 1: if we get one at all. I really don't see
13:43
Speaker 1: anything happening in a lame duck session. I sense it
13:46
Speaker 1: potentially the Republicans don't, you know, don't really see a
13:50
Speaker 1: need to be stimulating in parts of the economy like
13:52
Speaker 1: the airlines, and so I think I think the best
13:55
Speaker 1: case would be a Democratic win for the airlines. Democratic
13:58
Speaker 1: win in November, and then they could actually gets into
14:00
Speaker 1: stimulust into into early next year. We'll see. That's funny
14:03
Speaker 1: because I would have thought that if the Democrats win,
14:05
Speaker 1: that it would not be politically expedient for them to
14:08
Speaker 1: be seen to be quote unquote bailing out particular industries,
14:11
Speaker 1: and that in fact, the Republicans would be more likely
14:14
Speaker 1: to do targeted some stimulus how do you get to
14:17
Speaker 1: Democrats bailing out airlines? I just think I think the
14:22
Speaker 1: unionized labor force is one that they have, you know,
14:25
Speaker 1: they have a strong support from and they and they
14:28
Speaker 1: in turn on a continue support and I use some
14:31
Speaker 1: of the Pat Toomey, Republican from Pennsylvania is on the
14:37
Speaker 1: record is saying the airline shouldn't be providing any more
14:40
Speaker 1: stimulus like kind of us. I guess those two, uh,
14:44
Speaker 1: you know, benchmarks as well as I think Republicans are
14:46
Speaker 1: more concerned about deficit spending, and I think there's a
14:49
Speaker 1: little bit less concerned about that. And that's certainly will
14:52
Speaker 1: come back to the four if indeed there is a
14:54
Speaker 1: transfer of power. And you know it because right now
14:58
Speaker 1: it's it's not popular to talk about the deficit, but
15:01
Speaker 1: it will be soon if the Republicans aren't in power still. So, George,
15:06
Speaker 1: is Gary Kelly a little bit misguided? Or can he
15:10
Speaker 1: get enough liquidity? Can he wait until next year until
15:13
Speaker 1: something comes? Yeah? So you know what, Gary Kelly, he
15:17
Speaker 1: has plenty of liqudity. I mean he's Southwest is in
15:21
Speaker 1: one of the best positions of any U S airline
15:23
Speaker 1: to weather this storm. They have a lot of cash
15:26
Speaker 1: they would. I think somewhere around fifteen billion cash they
15:29
Speaker 1: reported this morning. Uh, and they have less debt than that.
15:33
Speaker 1: You know, when we even we look at all the
15:35
Speaker 1: US airlines, we see them all able to survive into
15:38
Speaker 1: into summer. I think they've all sort of targeted that area.
15:43
Speaker 1: Late next year's being a time when they think demand
15:45
Speaker 1: is gonna hopefully start to recover. So I think it's
15:49
Speaker 1: for Gary, it's more a question of whether or not,
15:51
Speaker 1: you know, as he as he mentioned, whether or not
15:52
Speaker 1: he's going to push his employees through, you know, taking
15:56
Speaker 1: pay cuts and things like that and furloughing more employees,
15:59
Speaker 1: and his role can Sorry, I think about you know,
16:02
Speaker 1: an unsettled environment at Southwest. It years to make those
16:05
Speaker 1: moves to drive down, drive down costs and get to
16:09
Speaker 1: a zero cash man, Georgie, I love to have your
16:12
Speaker 1: thoughts on Bowing on the seven thirty seven Max getting
16:15
Speaker 1: back up in the air. We were waiting for it
16:17
Speaker 1: for so long and so long, and suddenly it's it's
16:19
Speaker 1: all happening. Yes, I mean I think that you know,
16:24
Speaker 1: Bowing Bowing, He's had some challenges, but the airplane is
16:28
Speaker 1: an absolutely viable airplane, and I think Bowing really gets
16:31
Speaker 1: focused on getting the airplane back in the air. It's
16:33
Speaker 1: been a while, but we think it's going to be
16:36
Speaker 1: approved by the f a A, you know, by end
16:38
Speaker 1: of year this year or early next year. So I
16:40
Speaker 1: think Gary is going to be having that discussion more
16:43
Speaker 1: intensely now about when he really wants all those airplanes
16:46
Speaker 1: that Bowing is built for him. Because it's it's again
16:49
Speaker 1: we see it's sort of late this year early next
16:51
Speaker 1: year back in service. Can you give us an update
16:54
Speaker 1: on orders? So there was a big order book and
16:56
Speaker 1: then it was slowly you know, lines in that book
16:58
Speaker 1: we're getting crossed out, as are some airlines a you know,
17:01
Speaker 1: got hit by the pandemic. But we weren't maybe willing
17:05
Speaker 1: fully to wait for Boeing. Where are we out now
17:07
Speaker 1: for Boing? Yeah? I mean the last time we looked
17:10
Speaker 1: at the set seven max, I'm going to give you
17:12
Speaker 1: a rough Converns around five thousand. The challenge with the
17:14
Speaker 1: order book is exactly like you heard this morning, right,
17:17
Speaker 1: Gary Kelly wouldn't go on record as to what he
17:20
Speaker 1: was going to do in that order book, and he
17:22
Speaker 1: said he would continue to talk to Bowing. Now, look,
17:25
Speaker 1: we know over time, Gary will need airplanes, and he's
17:28
Speaker 1: a solely he's solely a Bowing shop. And when the
17:31
Speaker 1: world looks better, Gary will go to Bowing. I need
17:33
Speaker 1: airplanes and airplanes sooner because I got great demand, and
17:36
Speaker 1: he'll want Bowing to give him those airplanes. And so
17:39
Speaker 1: Bowing is going to come to him at this time
17:41
Speaker 1: and say, look, we have a problem, right, We've got
17:44
Speaker 1: a lot of airplanes stacked up, we need to deliver,
17:47
Speaker 1: we need to cash what we need you to support
17:49
Speaker 1: us through this downturn. So that negotiation and and Gary
17:52
Speaker 1: Kelly is one of the most important customers for Bowing.
17:54
Speaker 1: That conversation is going on throughout that Bowing order book,
17:58
Speaker 1: you know, with this and sort of intensities. So it's
18:02
Speaker 1: really hard to plumb what portion of those of those
18:05
Speaker 1: orders could go away or not. We think a lot
18:08
Speaker 1: of them will just be deferred. And what will happen
18:11
Speaker 1: is Boweling and Airbus. Airbus will be in the same
18:13
Speaker 1: boat with their customers, will have to lower build rates
18:18
Speaker 1: as they manage manage a slower airline recovery, and the
18:21
Speaker 1: customers say, look, I just can't take those airplanes this year.
18:24
Speaker 1: So we don't see a lot of unwinding the books,
18:26
Speaker 1: but we see a lot of deferrals in the books. George,
18:30
Speaker 1: we went into this thing with you know, close on
18:32
Speaker 1: twenty airlines were now at what's seventeen? I think, can
18:34
Speaker 1: you give us an update on on where we are
18:36
Speaker 1: and who didn't survive? I'm sorry say it again. We
18:42
Speaker 1: went into the pandemic with a couple of more airlines
18:44
Speaker 1: than than are in existence now. Basically, you know around
18:48
Speaker 1: the world, can you give us an update? Well, I
18:51
Speaker 1: mean right right now, you know, right now, I don't
18:53
Speaker 1: think we've seen anybody really liquidated and taken out of
18:56
Speaker 1: the game yet, so you know, there may be or
19:00
Speaker 1: to I I'm missing, but we know we have hot
19:02
Speaker 1: spots of problems. You know, down in South America we
19:05
Speaker 1: had lat Time in Avianca declared bankruptcy and restructure their companies,
19:09
Speaker 1: which if if demand doesn't improve long term, more airlines
19:13
Speaker 1: will need to go through that bankruptcy and lay off
19:17
Speaker 1: their debt and get rid of their airplanes. So we
19:20
Speaker 1: saw them. We know Norwegian out in Europe is having
19:23
Speaker 1: challenges and cut operations percent, but is still limping along.
19:28
Speaker 1: We have a number of airlines around the world that
19:31
Speaker 1: are kind of limping through. We know air Asia out
19:34
Speaker 1: in Malaysia's having big problems with they're big buyer of
19:37
Speaker 1: air A three and A three thirties their Asia X
19:42
Speaker 1: longer haul um a portion of that airline, so we
19:46
Speaker 1: see it cropping up. But remember we're now coming into
19:48
Speaker 1: winter season, and so winter season is the really difficult
19:53
Speaker 1: travel season, and I think now is where we're going
19:55
Speaker 1: to start to see even more failures as airlines don't
19:59
Speaker 1: see this demand come in cash flow this weekend to
20:01
Speaker 1: go into the weaker season. But again, the airlines have
20:05
Speaker 1: a great propensity to sort of um limp along, go
20:09
Speaker 1: to a bankruptcy, restructuring, and continue. I think what we'll
20:12
Speaker 1: really watch though, is the amount of capacity that comes
20:16
Speaker 1: out of the marketplace. Right these airplanes have to leave
20:18
Speaker 1: these airlines because they don't have to they don't have
20:21
Speaker 1: the demand to fly them. And the question will start
20:24
Speaker 1: to become what do we do with all these airplanes
20:27
Speaker 1: and the market up there a bunch of them down.
20:29
Speaker 1: But we're watching for capacity to come out of these
20:31
Speaker 1: global airlines. Gosh, those car parks and Phoenix, or those
20:34
Speaker 1: airplane parks and Phoenix are going to get pretty full
20:36
Speaker 1: if they're not already. George, thank you so much. George Ferguson,
20:39
Speaker 1: Senior Aerospace, Defense and Airlines analyst for Bloomberg Intelligence, joining
20:44
Speaker 1: us there. All right, it is time for our weekly
20:48
Speaker 1: visit with Barry Whittle's Bloomberg opinion columnists. We're always thrilled
20:52
Speaker 1: to have them on, and Barry, I want you to
20:55
Speaker 1: take on things because you're so learned and you also
20:58
Speaker 1: read just voraciously about the market, and you're also in
21:01
Speaker 1: the market as well, so you've got people's money and
21:03
Speaker 1: your money, you know, at risk. We've heard a lot
21:05
Speaker 1: of different opinions about what's going on here in the
21:07
Speaker 1: last week. And I'm talking about people like Bill Miller,
21:10
Speaker 1: for example, talking in his note about it and that
21:13
Speaker 1: getting disseminated. We had Eric Shatsker talking to bos Weinstein today.
21:17
Speaker 1: A lot of big names are trying to figure out
21:19
Speaker 1: the environment. What have you taken away from them? Who
21:22
Speaker 1: are the best thinkers on this? Wow, that's such a
21:26
Speaker 1: challenging question. There we go, you know, I think that
21:33
Speaker 1: and my vantage point is having sat with many of
21:36
Speaker 1: these people for masters and business interviews for the podcast.
21:41
Speaker 1: Each of these people have a a somewhat unique um perspective,
21:46
Speaker 1: but a much more um precise specialty. So when I'm
21:53
Speaker 1: talking to Howard Marks, I'm talking to him about two things.
21:57
Speaker 1: I'm talking to him about the thinking pro says, how
22:00
Speaker 1: do you make decisions? How do you analyze things? As
22:03
Speaker 1: well as this specifics of distress debt um. This weekend's
22:09
Speaker 1: guest is Ray Dalio from from Bridgewater Associates. He's a
22:13
Speaker 1: big macro thinker. So when I'm talking to Ray, I
22:17
Speaker 1: want to ask him about different asset classes, what do
22:20
Speaker 1: you do now that rates are so low? What do
22:22
Speaker 1: you do with gold? What do you do you know,
22:24
Speaker 1: those sort of questions. But at the same time, I
22:26
Speaker 1: want to understand how he looks at the world, and
22:29
Speaker 1: I know he's he's not just an investor, but a
22:33
Speaker 1: historian and someone who's thought process is really what is
22:38
Speaker 1: the history tell us about this particular area. Um So,
22:43
Speaker 1: So we were talking for for this week's show about
22:46
Speaker 1: the pandemic and the lockdown and how unique this is,
22:49
Speaker 1: and his answer is, yeah, it's unique in your lifetime,
22:52
Speaker 1: but you look back a few hundred years and you
22:54
Speaker 1: could see examples of things that have happened before. We've
22:58
Speaker 1: had um Central Bank create a lot of um take
23:02
Speaker 1: rates down to zero. We've had governments have all sorts
23:07
Speaker 1: of debt be monetized. We've seen the wealth gap expand
23:12
Speaker 1: in prior cycles, and we've seen um arising power challenge
23:17
Speaker 1: the established um powers that be. All these things that
23:21
Speaker 1: we're experiencing today, they've all happened before, sometimes separately, sometimes together,
23:27
Speaker 1: and and so it's that whole what drives their thought
23:30
Speaker 1: process before they get to their specific expertise. That really
23:35
Speaker 1: is quite fast, and I mean very honestly, you know,
23:37
Speaker 1: wouldn't you argue that not only has it happened before,
23:40
Speaker 1: but it happens roughly once every ten years. So, I mean,
23:42
Speaker 1: we had the Great Financial Crisis ten years ago. In
23:44
Speaker 1: terms of pandemics, we we had one twenty years ago.
23:47
Speaker 1: And I mean, these things happen. We're very likely to
23:50
Speaker 1: have a rolling series of these for the rest of
23:53
Speaker 1: our lifetimes, particularly out of time when global thought systems
23:58
Speaker 1: are fragmenting and disintegrating, and you know, the world that
24:02
Speaker 1: worked for a while has not been working for a
24:04
Speaker 1: long time. So that's why you want these guys's opinions
24:08
Speaker 1: on things. You want to see how they're thinking about it.
24:10
Speaker 1: So so that's Ray Dalio. Those who specialize in treasury investing, though,
24:15
Speaker 1: may have a different opinion on this, because it certainly
24:18
Speaker 1: is the greatest expansion, even greater than the Great Financial
24:21
Speaker 1: Crisis of you know, monetary policy tools and um just
24:27
Speaker 1: the monetary base that we've ever seen across the world. Right,
24:30
Speaker 1: Dalio says, you have to go back to ninety three
24:33
Speaker 1: to find a central bank like the US taking rates
24:38
Speaker 1: now to zero. But when you look at the balance
24:41
Speaker 1: sheet of the by the joke about that was, I
24:45
Speaker 1: guess modern monetary theory ain't so modern because the version
24:49
Speaker 1: of it that that we're sort of experiencing goes back
24:53
Speaker 1: to UM. But but to your point about how cyclical
24:58
Speaker 1: all these things are, and how you know, unprecedented is
25:02
Speaker 1: a bad word because unprecedented things happen all the time.
25:06
Speaker 1: I think I say the same thing every time I
25:09
Speaker 1: hear someone say it's a hundred year flood. It's yeah,
25:13
Speaker 1: we but we get them every ten years. Maybe we
25:16
Speaker 1: should stop calling these things that come along ten or
25:20
Speaker 1: more times a century. Maybe we should stop calling them
25:22
Speaker 1: hundred year floods. Yeah, I mean, honestly, the people that
25:26
Speaker 1: do do you do you take them seriously? So I
25:31
Speaker 1: almost think of it as a verbal tick, the phrase
25:34
Speaker 1: you know, you ever speak to someone who every other sentences?
25:37
Speaker 1: You know, we have these unthinking, unconscious verbal ticks. Uh.
25:43
Speaker 1: Market hates uncertainty is probably the one that's most dominance
25:47
Speaker 1: these days, and I think we should really stop and
25:51
Speaker 1: carefully consider what we say and and try to avoid cliches.
25:57
Speaker 1: Market hates uncertainty is a perfect example mark it's thrived
26:00
Speaker 1: on uncertainty. Anytime there's certainty, there isn't someone to take
26:04
Speaker 1: the other side of your trade. There there has to
26:05
Speaker 1: be by definition, uncertainty about the future. It's inherently unknown,
26:11
Speaker 1: and therefore markets are a mechanism to make sense I
26:15
Speaker 1: have of uncertainty. Given what's been going on in the
26:18
Speaker 1: markets lately, UM, I love the narrative that we've been
26:23
Speaker 1: hearing lately that the possibility of a lack of resolution
26:27
Speaker 1: of the presidential contest on November three is it has
26:32
Speaker 1: been all the uncertainty. Let me let me point out
26:35
Speaker 1: that in two thousand um Bush v. Gore wasn't resolved
26:39
Speaker 1: until I think it was December twelfth or December thirteenth.
26:42
Speaker 1: And if you really want to be a story and
26:44
Speaker 1: you could go back to the election of eighteen hundred,
26:47
Speaker 1: which was an electoral college tie. It was a dead heat.
26:52
Speaker 1: When that happens, it gets thrown to the House, and
26:55
Speaker 1: each state gets a vote in the House of representative
27:00
Speaker 1: of each state's um congressional delegation gets one vote plus
27:04
Speaker 1: plus the various um um territories and and non states
27:09
Speaker 1: and and so that's in the event of an electoral
27:13
Speaker 1: college tie, the House is the final determiner. So all
27:16
Speaker 1: these things that look like they're so unique in one off,
27:19
Speaker 1: we've experienced some form of them in the past. Yeah,
27:22
Speaker 1: I mean, it's that old joke on Wall Street, right
27:24
Speaker 1: that the interns or the newies haven't seen this before
27:28
Speaker 1: and they have no idea what they're in for. But
27:31
Speaker 1: you know, it really does help to live through a
27:33
Speaker 1: couple of them, I think, and you see how markets
27:35
Speaker 1: react and how they work, and and and you have
27:37
Speaker 1: minor ones, you know, in the meantime. So for example,
27:40
Speaker 1: when remember when when when the credit rating was was
27:43
Speaker 1: downgraded for the US, that was a little bit of
27:45
Speaker 1: a minor shock to the system as well. So it's
27:48
Speaker 1: all practiced it yet it did nothing to the contractory
27:52
Speaker 1: market other than the news broke. There was a little
27:54
Speaker 1: wobble for a couple of minutes, and then the bullmarket
27:58
Speaker 1: and treasuries continued for they're ongoing. Arguably it still hasn't ended. Barry,
28:05
Speaker 1: Thank you. Always fun to have a chat Barry Riddles.
28:08
Speaker 1: Do tune into his Master's in Business podcast. He also
28:11
Speaker 1: makes frequent appearances here on Bloomberg Radio and of course,
28:13
Speaker 1: on Bloomberg Television in the mornings. Thanks for listening to
28:18
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
28:21
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. I'm
28:25
Speaker 1: Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm
28:28
Speaker 1: Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast,
28:31
Speaker 1: you can always catch us worldwide at Bloomberg Radio.