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The Impact of COVID-19 on Business Travel · Bloomberg Intelligence

• 0:01
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
• 0:04
  Speaker 1: with my co host of Bonnie Quinn. Every business day
• 0:06
  Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
• 0:10
  Speaker 1: along with essential market moving news. Find the Bloomberg Markets
• 0:13
  Speaker 1: Podcast on Apple podcast or wherever you listen to podcasts,
• 0:17
  Speaker 1: and on Bloomberg dot Com. Our next guest says, at
• 0:20
  Speaker 1: the beginning of the third quarter, investors sit in the
• 0:22
  Speaker 1: uncomfortable middle. Her commentary is dotted with words like murky
• 0:27
  Speaker 1: and it's generally just a little uncomfortable to read as well.
• 0:29
  Speaker 1: Let's bring in Katie Nicks and Cee IO at Northern
• 0:31
  Speaker 1: Trust Wealth Management. Katie, when do we get out of
• 0:35
  Speaker 1: this murky middle? Good morning, Vonnie. First of all, thank
• 0:39
  Speaker 1: you so much for having me. And I think it's
• 0:41
  Speaker 1: going to be sometime. I mean, we're being really driven
• 0:44
  Speaker 1: by by the coronavirus news and that news seems to
• 0:47
  Speaker 1: be going in the wrong direction frankly, so I think
• 0:50
  Speaker 1: it's going to keep investors in this middle. And when
• 0:53
  Speaker 1: I say middle, I mean in between sort of phase one,
• 0:56
  Speaker 1: which is the downturn, to a phase two where you
• 1:00
  Speaker 1: have more clarity and confidence frankly in there being a recovery. So, Katie,
• 1:06
  Speaker 1: I guess we're to a certain extent this market has
• 1:09
  Speaker 1: been back stopped by the US Federal Reserve and just
• 1:12
  Speaker 1: an easy monetary policy on a global basis. How concerned
• 1:17
  Speaker 1: are you about that being the primary support or primary
• 1:20
  Speaker 1: driver of this market? Thanks, Paul. That's a great question.
• 1:24
  Speaker 1: And while we're confident that that policy will be there
• 1:27
  Speaker 1: and will continue to provide a backstop, I think you know,
• 1:31
  Speaker 1: Fed share Powell said it best when he said, you know,
• 1:33
  Speaker 1: the FED can provide liquidity, but does not guarantee solvency.
• 1:38
  Speaker 1: So the longer that this crisis continues UM, the more
• 1:42
  Speaker 1: at risk UM we see not just the economy, but
• 1:47
  Speaker 1: potentially even the market. So certainly the FED is going
• 1:49
  Speaker 1: to be there to provide the support in this in between,
• 1:53
  Speaker 1: but we really are going to have to get past
• 1:55
  Speaker 1: this pandemic phase and into an economic recovery so we
• 1:59
  Speaker 1: can forestall some of the solvency issues that can result
• 2:03
  Speaker 1: from a very prolonged um downturn. Katie, when do we
• 2:07
  Speaker 1: see price discovery or if we have seen it, will
• 2:10
  Speaker 1: we need to see, you know, the second round of
• 2:12
  Speaker 1: price discovery when the FED starts to back off a
• 2:14
  Speaker 1: little bit. Well, we don't think the Fed's going to
• 2:17
  Speaker 1: back off, um. And actually it's interesting, Um, there's been
• 2:21
  Speaker 1: sort of a a leveling off of there had been
• 2:24
  Speaker 1: a leveling off of the Fed's balance sheet over the
• 2:26
  Speaker 1: last couple of weeks, but we have seen it take
• 2:27
  Speaker 1: up um recently. So we don't think the Fed's going
• 2:30
  Speaker 1: to back off. And I think you're going to see
• 2:32
  Speaker 1: as soon as as there tends to be any price
• 2:35
  Speaker 1: discovery in the wrong direction, you'll see a doubling down
• 2:38
  Speaker 1: by by policymakers. Um. So we think that, you know,
• 2:42
  Speaker 1: that's certainly where we are right now. So okay, so
• 2:46
  Speaker 1: as we head into the meat of this earning season, Katie,
• 2:50
  Speaker 1: what are you kind of looking for here? I mean,
• 2:51
  Speaker 1: I guess the second quarter obviously is a throwaway quarter
• 2:54
  Speaker 1: for just about everybody. What are you really looking for? Yeah,
• 2:57
  Speaker 1: so it's a throwaway quarter in terms of the act
• 3:00
  Speaker 1: results because I think it's just such a wild card. Um.
• 3:04
  Speaker 1: So what we're looking for is we're listening to managements
• 3:08
  Speaker 1: were we're following the narrative on what they see in
• 3:10
  Speaker 1: terms of trends. Um, you know, are they seeing recoveries um,
• 3:15
  Speaker 1: are they seeing uh declines? UM, So we're really looking
• 3:19
  Speaker 1: to managements into the conference calls frankly to give us
• 3:22
  Speaker 1: some guidance. And Frankly, I think you know, as most
• 3:26
  Speaker 1: companies have pulled back on on giving forecasts and giving
• 3:30
  Speaker 1: estimates to Wall Street, everyone sort of playing playing in
• 3:33
  Speaker 1: the dark here. There's no informational advantage for anyone because
• 3:36
  Speaker 1: we're all sort of at the mercy of of the
• 3:39
  Speaker 1: track of the coronavirus and it's so uncertain. So what
• 3:45
  Speaker 1: happens with a portfolio at Northern Coast Wealth Management? I mean,
• 3:48
  Speaker 1: have you clients calling up and asking for you to
• 3:51
  Speaker 1: be proactive and to find them something a little bit
• 3:54
  Speaker 1: different at this time, Katie? Are they generally happy to
• 3:56
  Speaker 1: stick with the sort of longer term view that you
• 3:59
  Speaker 1: had before the pandemic? So funny, So our clients are
• 4:04
  Speaker 1: are are typically very long term oriented, and you know,
• 4:07
  Speaker 1: each of our portfolios is customized to each client's unique
• 4:11
  Speaker 1: goals and objectives. So our clients have full transparency into
• 4:14
  Speaker 1: why their portfolio is designed the way the way that
• 4:17
  Speaker 1: it is. And and it's been so interesting because during
• 4:20
  Speaker 1: the turmoil of UM of early twenty and into the
• 4:25
  Speaker 1: downturn and then obviously into the upturn, our clients were
• 4:29
  Speaker 1: very calm, Um, they were very confident in the long
• 4:32
  Speaker 1: term portfolio allocation. We didn't get panic phone calls and
• 4:35
  Speaker 1: we're not getting them right now. Um. I So I
• 4:38
  Speaker 1: think our clients are are are very uncomfortable sitting sitting
• 4:41
  Speaker 1: where they are now. That said, the longer that this
• 4:45
  Speaker 1: goes on, the more that the news on the pandemic
• 4:48
  Speaker 1: um is not in a positive direction, I think we
• 4:52
  Speaker 1: are starting to hear a little bit more about risk aversion. Um.
• 4:55
  Speaker 1: You know, do I have enough cash and fixed income
• 4:58
  Speaker 1: to sustain me through what could be a prolonged period
• 5:02
  Speaker 1: of uncertainty here? All right? So Katie, where are you
• 5:06
  Speaker 1: seeing the most opportunity here given kind of your economic outlook,
• 5:09
  Speaker 1: your outlook for the pandemic. Yeah, so our biggest overweight
• 5:14
  Speaker 1: from a tactical position right now is high yield. Um.
• 5:18
  Speaker 1: We think that the high old market is well supported. Uh.
• 5:21
  Speaker 1: Clearly we see a U shape recovery. We don't see
• 5:26
  Speaker 1: another economic downturn, so we do see a recovery over
• 5:29
  Speaker 1: a long term time horizon. Default rates have probably been
• 5:33
  Speaker 1: overstated in the market. UM. Fallen angel risk has certainly
• 5:37
  Speaker 1: been overstated in the market. So we are um pretty
• 5:41
  Speaker 1: comfortable with high yield. We are assuming you know, a
• 5:44
  Speaker 1: yield to worth here of you know, between six and
• 5:46
  Speaker 1: a half and seven percent. That's a pretty good risk
• 5:48
  Speaker 1: adjusted return over a twelve month time horizon for for investors.
• 5:52
  Speaker 1: So that's where we do see some value here. Katie Nixon,
• 5:56
  Speaker 1: thanks so much for joining us. We really appreciate your perspective.
• 5:58
  Speaker 1: As always, Katie nicks and, chief investment officer for Northern
• 6:02
  Speaker 1: Trust Wealth Management, giving us her thoughts on the market here,
• 6:06
  Speaker 1: and that gets uh the good folks at Northern Trust
• 6:08
  Speaker 1: Vannie looking for a U shaped recovery and that gives
• 6:10
  Speaker 1: them some support for selected areas within high yield. Yes, indeed,
• 6:15
  Speaker 1: it's an interesting one really because looking for a little
• 6:18
  Speaker 1: extra risk. Had a time when you would just imagine
• 6:21
  Speaker 1: that risk would be off the table. But because I've heard,
• 6:24
  Speaker 1: as you said, it's all getting back stopped, every part
• 6:27
  Speaker 1: of this, it's all getting back You're exactly right, and
• 6:29
  Speaker 1: I think backstopping not just equities, but kind of all
• 6:32
  Speaker 1: risk assets in general. And as Katie mentioned that default
• 6:35
  Speaker 1: risk remains relatively low in the high yield space, so
• 6:38
  Speaker 1: they are selectively taking a look there. Well. One of
• 6:40
  Speaker 1: the industries to be hit the hardest and certainly the
• 6:43
  Speaker 1: earliest from the economic impact of the pandemic was the
• 6:47
  Speaker 1: airline business. And now the question is, as the airline
• 6:50
  Speaker 1: start to add back flights slowly, to what extent can
• 6:54
  Speaker 1: the airlines ever recover, particularly as it relates to the
• 6:58
  Speaker 1: business flyer who was his jorically been the backbone and
• 7:01
  Speaker 1: the majority of the revenue for most airlines. Get a
• 7:03
  Speaker 1: sense of kind of where we are and how this
• 7:05
  Speaker 1: might play out, we welcome Brendon Case, Industrial Aerospace and Chemicals,
• 7:09
  Speaker 1: team leader for Bloomberg News. Brendan, thanks so much for
• 7:11
  Speaker 1: joining us here. You know, I live close to Newark Airport,
• 7:14
  Speaker 1: and I can tell you the traffic is still nowhere
• 7:18
  Speaker 1: near to what normal flows are. I just don't here
• 7:20
  Speaker 1: and see the planes overhead, and I guess that means
• 7:24
  Speaker 1: business folks aren't flying as much. They're not getting jumping
• 7:26
  Speaker 1: back on those planes, are they. Yeah, that's right. In fact,
• 7:29
  Speaker 1: nobody is flying that much these days. And a matter
• 7:32
  Speaker 1: of fact, I live close to Dallas Fort Worth Airport.
• 7:35
  Speaker 1: Um seeing exactly the same thing as you. Um, there's
• 7:38
  Speaker 1: been a big, big, collapse in in flying of all kinds.
• 7:42
  Speaker 1: But with this having lasted about four months now, the
• 7:47
  Speaker 1: big concern that's emerging for the for for the business
• 7:51
  Speaker 1: of airlines in the future is just whether you know
• 7:56
  Speaker 1: whether to what extent business travelers will come back. As
• 7:59
  Speaker 1: you say, it's always been the backbone of the industry. Um.
• 8:01
  Speaker 1: And yet many many of the nation's road warriors have
• 8:06
  Speaker 1: just may do with video conferencing or other tools, um
• 8:10
  Speaker 1: during the time when they can't travel. At the same time,
• 8:13
  Speaker 1: there will have to be some kind of resumption of
• 8:15
  Speaker 1: it at some point, right, I mean, how do you
• 8:17
  Speaker 1: do enough due diligence by zoom? Is it possible? It's
• 8:24
  Speaker 1: probably not possible to replace traveling entirely with something like zoom.
• 8:30
  Speaker 1: And I think that everyone agrees that business travel will
• 8:34
  Speaker 1: come back from the current levels which are which are
• 8:37
  Speaker 1: so low. Um, there's client meetings to be had, there's
• 8:41
  Speaker 1: sales to be made, uh, you name it. There's always
• 8:43
  Speaker 1: gonna be need for business travel. Um. Whether that gets
• 8:48
  Speaker 1: back to levels though, is another question. Entirely, there's sort
• 8:53
  Speaker 1: of a gathering consensus that maybe the industry doesn't get
• 8:57
  Speaker 1: back to that level, and even the CEO of Delta
• 9:01
  Speaker 1: that last week that that maybe the volumes don't come
• 9:05
  Speaker 1: back entirely. We should learn more this week with other
• 9:08
  Speaker 1: airlines reporting. So, Brendan, what do you think the airlines
• 9:11
  Speaker 1: are planning to do to the extent that the business
• 9:14
  Speaker 1: travel does not come back to the pre pandemic levels.
• 9:17
  Speaker 1: Is simply a function of shrinking their business, shrinking their
• 9:21
  Speaker 1: fleets that type of thing. Yeah, I think that probably
• 9:25
  Speaker 1: the game plan for the foreseeable future the next couple
• 9:28
  Speaker 1: of years UM is probably to become just much smaller
• 9:31
  Speaker 1: companies UM, take a lot of cost out. I think
• 9:34
  Speaker 1: we'll see a lot of employees leaving, many of them voluntarily.
• 9:39
  Speaker 1: Will learn a lot more about involuntary cuts UM in
• 9:42
  Speaker 1: October UM, and I think what you'll end up with
• 9:45
  Speaker 1: is airlines trying to get to a much smaller cost
• 9:48
  Speaker 1: dag UM and perhaps you know, being able to still
• 9:52
  Speaker 1: be profitable, but just as as smaller companies compared with
• 9:54
  Speaker 1: what they once were. So what airlines will benefit the most,
• 10:00
  Speaker 1: do you think, Brendan. Obviously the discount carriers will still
• 10:04
  Speaker 1: need to be discount carriers in some way, or do
• 10:07
  Speaker 1: we end up with sort of one one tier pricing. Yeah,
• 10:12
  Speaker 1: it's a great question. You know. An interesting and interesting
• 10:15
  Speaker 1: thing in terms of the way investors to you the
• 10:18
  Speaker 1: industry is that Southwest, which of course sort of pioneered
• 10:23
  Speaker 1: the discount model UM, is now a little more valuable
• 10:26
  Speaker 1: than than than Delta UM, which had always been you know,
• 10:32
  Speaker 1: known for a big focus on on business travel UM.
• 10:35
  Speaker 1: And I think that probably we will see more of
• 10:38
  Speaker 1: a shift to UH. You know that the discount model UM.
• 10:43
  Speaker 1: Certainly we won't lose the whole idea of business class
• 10:48
  Speaker 1: and and and premium seating UM. But on balance there
• 10:53
  Speaker 1: could be less of that in the industry than than
• 10:55
  Speaker 1: just you know, Coach Brendan, is there only concerning the
• 11:00
  Speaker 1: industry about we might see a major US airline at
• 11:03
  Speaker 1: some point go bankrupt should this lower level of travel continue.
• 11:08
  Speaker 1: You know, that's always been a concern. In fact, the
• 11:10
  Speaker 1: CEO of Boeing no less UH, sounded that warning earlier
• 11:14
  Speaker 1: this year. You know, the US government of course stepped
• 11:17
  Speaker 1: in with billions dollars of aid UM and the airline
• 11:21
  Speaker 1: since then have been caught in costs really aggressively. That said, UM,
• 11:27
  Speaker 1: it really just depends on how many passengers come back
• 11:30
  Speaker 1: at current levels. I think that there's no way the
• 11:33
  Speaker 1: industry could survive in its in its existing configuration. Um.
• 11:37
  Speaker 1: The hope would be that sometime by maybe next year, um,
• 11:41
  Speaker 1: you know, people start to come back a little more. Um,
• 11:44
  Speaker 1: even though the airlines themselves will tell you that they
• 11:47
  Speaker 1: don't expect a full recovery for another two or three years. Yeah,
• 11:51
  Speaker 1: it's it's really fascinating one because they do say that
• 11:54
  Speaker 1: they have military grade air conditioners and so on. But
• 11:57
  Speaker 1: you really have to wonder at what point people will
• 11:59
  Speaker 1: be comfortable regularly standing in line, going to an airport,
• 12:03
  Speaker 1: taking public transportation to and from an airport, and so on.
• 12:07
  Speaker 1: Our thanks to you, and we will keep on this. Obviously,
• 12:10
  Speaker 1: Brendon Case Industrial Aerospace and Chemicals team leader has a
• 12:14
  Speaker 1: lot of work ahead of him. Paul Sweeney, Paul, would
• 12:16
  Speaker 1: you be in time to take a flight? You know?
• 12:19
  Speaker 1: Not if I have to, I have to, I would,
• 12:21
  Speaker 1: But I just don't see that that risk reward right now.
• 12:24
  Speaker 1: It just isn't there for me. Yeah, it's and it's
• 12:26
  Speaker 1: exactly that, isn't it. It's how much risk are you
• 12:28
  Speaker 1: willing to take? And are you willing to you know,
• 12:30
  Speaker 1: sort of put another's way and if you know, if
• 12:35
  Speaker 1: taking a flight isn't necessary, then, I guess why would
• 12:37
  Speaker 1: you even consider doing it differently with the subway system
• 12:42
  Speaker 1: or other types of technology, Because at least in flights
• 12:44
  Speaker 1: it does seem like the air conditioning systems are a
• 12:46
  Speaker 1: little bit higher grade, more military grade and so on.
• 12:48
  Speaker 1: I think I'd be even less inclined to take a
• 12:50
  Speaker 1: subway right now. Yeah, exactly. And uh, you know, the
• 12:53
  Speaker 1: ridership on the MTA is down dramatically and they need
• 12:56
  Speaker 1: to help on this next fiscal stimulus plan. Yeah, for sure.
• 12:59
  Speaker 1: All we will continue to keep an eye on all
• 13:01
  Speaker 1: of the transportation options during this coronavirus and nightmare. This
• 13:07
  Speaker 1: is Bloomberg Markets with Paul Sweeney and Bunny Quinn on
• 13:10
  Speaker 1: Bloomberg Radio. Let's talk about mask wearing or lack thereof.
• 13:15
  Speaker 1: It's just an extraordinary story here. I'm just seeing that
• 13:18
  Speaker 1: in France today ordered mandatory mask use in indoor public spaces,
• 13:23
  Speaker 1: Hong Kong and Australia titan mask rules. So it seems
• 13:26
  Speaker 1: to be a global phenomenon that if you wear a mask,
• 13:28
  Speaker 1: and we hear that from the medical professionals and scientists, Uh,
• 13:30
  Speaker 1: that is a good way to fight the spread of
• 13:33
  Speaker 1: the COVID virus. Yet here in the United States not
• 13:36
  Speaker 1: so much the case. It's actually become very politicized. To
• 13:39
  Speaker 1: get a sense of kind of what's driving that, we
• 13:42
  Speaker 1: welcome Bloomberg Opinion editor Frank Wilkinson, Frank, thanks, thanks so
• 13:46
  Speaker 1: much for joining us here. How did this war on
• 13:49
  Speaker 1: mask really develop in the US? Well, I think it's
• 13:53
  Speaker 1: a pretty complicated phenomenon, so I hesitate to give you
• 13:57
  Speaker 1: one answer for that, but uh, obviously it has a
• 14:01
  Speaker 1: very significant political component, which stands from President Trump's resistance
• 14:08
  Speaker 1: to masks, and it also has a psychological component that's
• 14:14
  Speaker 1: a little bit harder to grapple with. I just saw
• 14:16
  Speaker 1: something today about a I just saw something today about
• 14:21
  Speaker 1: a store in northern California that refuses to serve people
• 14:24
  Speaker 1: who wear masks. So this is not about personal notions
• 14:29
  Speaker 1: of liberty. This is really about a kind of a
• 14:34
  Speaker 1: group political resistance to, you know, to a partisan idea
• 14:41
  Speaker 1: in their heads. Will it extend to other things? So
• 14:45
  Speaker 1: I think there's a little bit of trepidation out there
• 14:48
  Speaker 1: that if we do end up getting a vaccine or
• 14:50
  Speaker 1: several vaccines that work, or that may work, that many
• 14:53
  Speaker 1: people will decide that they don't want to participate either,
• 14:56
  Speaker 1: and that will have an impact on how much they function. Well,
• 15:00
  Speaker 1: that's a pretty horrifying prospect um. There obviously is a
• 15:04
  Speaker 1: pretty strong anti vax movement in the United States and
• 15:09
  Speaker 1: in other countries as well. We have seen UH state
• 15:13
  Speaker 1: public health UH facilities be able to deal with that,
• 15:17
  Speaker 1: you know, with legislation UH in California, for instance, mandating
• 15:23
  Speaker 1: a certain amount of vaccine for kids going to school,
• 15:27
  Speaker 1: so they really restrict the number of parents who can
• 15:30
  Speaker 1: opt out. And those things are are you know, potentially
• 15:34
  Speaker 1: going to come into play here. I don't know exactly
• 15:38
  Speaker 1: what the lay of the land will be on that
• 15:41
  Speaker 1: we have to see. We don't know who the president
• 15:43
  Speaker 1: will be, We don't know what the political context will be,
• 15:46
  Speaker 1: so I hesitate to draw conclusions about that yet. So
• 15:52
  Speaker 1: it's just something that you're reporting indicates, you know, if
• 15:55
  Speaker 1: there were strong, consistent messaging from the White House or
• 16:01
  Speaker 1: just from the federal government in general, that this issue
• 16:03
  Speaker 1: could have been mitigated somewhat here in the US, or
• 16:05
  Speaker 1: resist just the way we're wired here. Well, I think
• 16:10
  Speaker 1: there are two things. I think it's the way some
• 16:12
  Speaker 1: people are wired, and I think they got reinforcement. Uh
• 16:15
  Speaker 1: for that wiring from the President of the United States,
• 16:18
  Speaker 1: who obviously is a very significant modeler of behavior. Uh.
• 16:23
  Speaker 1: The President even yesterday, in his interview that was broadcast
• 16:29
  Speaker 1: with Fox News, was completely all over the map on
• 16:33
  Speaker 1: mass saying, you know, they're fine, but he's also resistant
• 16:36
  Speaker 1: and Dr Fauci resisted them at first, So he's still
• 16:40
  Speaker 1: not giving a clear message about masks. What we have
• 16:43
  Speaker 1: seen is they are rising in use, even among Republicans.
• 16:48
  Speaker 1: So even in the last few weeks, according to polls,
• 16:51
  Speaker 1: you're seeing increased use among Democrats, independence and Republicans. Still
• 16:56
  Speaker 1: lowest among Republicans, which points to the partist and problem,
• 17:01
  Speaker 1: but it is rising. So somewhere along the line, uh,
• 17:06
  Speaker 1: in states in particular, I mean you've got you know,
• 17:09
  Speaker 1: Republican governors like the governor of Ohio, who have been
• 17:12
  Speaker 1: pretty good on this from the beginning. Uh. So it's
• 17:15
  Speaker 1: really more of a problem focused in some areas, like
• 17:18
  Speaker 1: the governor of Georgia and in the White House itself.
• 17:22
  Speaker 1: So at some point will all of the municipalities, governors,
• 17:26
  Speaker 1: mayors and everything be almost forced into making a public
• 17:30
  Speaker 1: wearing of the mask. I mean the president finally it
• 17:33
  Speaker 1: took a long time. But you know, at an event recently,
• 17:36
  Speaker 1: the President did wear a mask and said he had
• 17:38
  Speaker 1: no problem with wearing masks. Well, but he clearly does
• 17:42
  Speaker 1: have a problem with wearing a mask because he refused
• 17:46
  Speaker 1: to do it again, and then again he gave a
• 17:47
  Speaker 1: muddled answer to to Fox News. So what we saw
• 17:52
  Speaker 1: last week in Georgia was Governor Kemp overriding localities municipalities
• 17:59
  Speaker 1: saying they could not enforce a mask plan. So, you know,
• 18:04
  Speaker 1: we're not out of the woods on the politics of
• 18:06
  Speaker 1: this yet. There are a lot of Republican governors and
• 18:11
  Speaker 1: mayors to extend or mayors who are going their own
• 18:14
  Speaker 1: way on this, resisting the White House track. But you've
• 18:18
  Speaker 1: got the governor of a very large state, Georgia, just
• 18:22
  Speaker 1: reinforcing behavior that public health officials pretty much unanimously tell
• 18:28
  Speaker 1: us now is very important to contain the pandemic. Yeah,
• 18:32
  Speaker 1: it seems like there's needs to be some leadership. I'm
• 18:34
  Speaker 1: just not sure at what level because I look look
• 18:36
  Speaker 1: at your column, Frank. I mean, even within southern California,
• 18:40
  Speaker 1: Orange County, the schools there we're going to reopen and
• 18:43
  Speaker 1: you don't have to wear masks, whereas neighboring San Diego
• 18:47
  Speaker 1: in Los Angeles, they're not gonna open. So I mean,
• 18:50
  Speaker 1: just within that very close regional area of southern California,
• 18:54
  Speaker 1: widely different policies. Well, you have widely different politics. You know,
• 18:59
  Speaker 1: there's still a pretty strong conservative basis in in Orange County. Um,
• 19:07
  Speaker 1: it's changed a lot. A lot of Democrats flip seats
• 19:10
  Speaker 1: in Orange County and the Congress in but that particular board,
• 19:15
  Speaker 1: which which cannot mandate what happens in Orange County, is
• 19:20
  Speaker 1: really offering recommendations. But that particular board is dominated by
• 19:24
  Speaker 1: local Republicans, and those Republicans are following the path of
• 19:30
  Speaker 1: Donald Trump and and and camp in Georgia and not
• 19:34
  Speaker 1: people like the Ohio governor and others who you know
• 19:37
  Speaker 1: are really trying to grapple with the problem directly. So
• 19:42
  Speaker 1: what about the other countries. I mean, if you know,
• 19:45
  Speaker 1: Hong Kong has gone back on lockdown and so on.
• 19:47
  Speaker 1: The places like Asia never had a problem wearing masks.
• 19:50
  Speaker 1: They were pretty you know, happy to embrace mask wearing
• 19:54
  Speaker 1: even in regular times. Do you ever foresee a time
• 19:57
  Speaker 1: when that becomes the norm in the United State. It's
• 20:01
  Speaker 1: it's hard to see. But I also don't have a
• 20:04
  Speaker 1: vision of what kind of pandemics we're going to face
• 20:08
  Speaker 1: over the next years. I think it really Again, it
• 20:12
  Speaker 1: depends on a couple of things. It depends on the
• 20:14
  Speaker 1: health threat, and it depends a lot on the political context.
• 20:18
  Speaker 1: I mean, obviously, if George W. Bush were the president
• 20:21
  Speaker 1: now or Barack Obama were the president now, they would
• 20:25
  Speaker 1: be dealing with this in a very different way than
• 20:28
  Speaker 1: Donald Trump. Uh, Donald Trump. I mean, let's just to
• 20:31
  Speaker 1: take the basic realities of this situation. For Trump, this
• 20:37
  Speaker 1: virus is killing people, it's damaging the economy, and it's
• 20:42
  Speaker 1: frankly destroying his reelection campaign, and yet he is unable psychologically,
• 20:49
  Speaker 1: appears unable to come to grips with it in any
• 20:52
  Speaker 1: kind of reasonable fashion. It is wonderful to speak with you,
• 20:57
  Speaker 1: looking forward to the next time. Frank Wilkinson is Bloomberg
• 21:00
  Speaker 1: Opinion editor, writes editorials and politics and US domestic policy primarily,
• 21:05
  Speaker 1: and his latest one, the War in Masks is another
• 21:07
  Speaker 1: lost Cause is out right down. This is Bloomberg Markets
• 21:12
  Speaker 1: with Paul Sweeney and Vanny Quinn on Bloomberg Radio. We
• 21:16
  Speaker 1: saw that big deal today's Chevron buying Noble for five
• 21:18
  Speaker 1: billion dollars effectively. Mike Worth, the CEO, saying, yeah, you know,
• 21:22
  Speaker 1: it was an attractive asset at a very attractive price.
• 21:25
  Speaker 1: And that reflects the fact that the energy patch, the
• 21:28
  Speaker 1: U S energy patch has been hit brutally hard for
• 21:31
  Speaker 1: by this pandemic and the economic impact. But we had
• 21:34
  Speaker 1: got a little piece of bright news today. In addition
• 21:36
  Speaker 1: to that M and A trade Halliburton, the big oil
• 21:39
  Speaker 1: services provider, provided some pretty good numbers today, the stocks
• 21:43
  Speaker 1: up six percent. To break it all down, we welcome
• 21:45
  Speaker 1: Scott Levine. He covers all things energy force for Bloomberg Intelligence.
• 21:49
  Speaker 1: So Scott, let's start with Halliburton here, stocks up six percent.
• 21:53
  Speaker 1: So I guess the street likes what they heard. What
• 21:55
  Speaker 1: were your takeaways? Yeah, I think the news basedly from
• 22:00
  Speaker 1: a macro standpoint. You know, while obviously weak in alignment,
• 22:04
  Speaker 1: the operating environment probably not weaker than expected. Revenue fell
• 22:08
  Speaker 1: short by about a hundred million, but more importantly, from
• 22:11
  Speaker 1: an earning standpoint, a pretty big beat, primarily driven by
• 22:16
  Speaker 1: cost controls and uh they're decremental margins or the amount
• 22:21
  Speaker 1: of earnings UH they lose per dollar of revenue lost.
• 22:24
  Speaker 1: UH reflected that cost control decremental margins were only fifteen percent,
• 22:29
  Speaker 1: which was lower than expected, so they're about seventy five
• 22:32
  Speaker 1: percent of the way through a cost savings program they
• 22:35
  Speaker 1: announced in April, which drove the upside of the earnings.
• 22:38
  Speaker 1: And equally important, if not more important, the free cash
• 22:41
  Speaker 1: flow was a big beat at four hundred and fifty
• 22:44
  Speaker 1: six million dollars, reflecting not just the sixty percent reduction
• 22:49
  Speaker 1: in capetes year over year, but an increase in operating
• 22:52
  Speaker 1: cash flow as well. So, you know, all in much
• 22:55
  Speaker 1: better earnings performance and free cash flow performance on a
• 22:59
  Speaker 1: sleigh be weak or top line than than was expected.
• 23:03
  Speaker 1: How will the two companies be looking at the deal
• 23:06
  Speaker 1: that was done today and will either of them be
• 23:08
  Speaker 1: in a position at some point to you know, help
• 23:11
  Speaker 1: out in terms of consolidation. Yeah. No, I think that
• 23:15
  Speaker 1: the market environment in general is pretty still pretty unsettled,
• 23:19
  Speaker 1: so I don't expect a lot of m and A
• 23:23
  Speaker 1: and attrition while the market is in this period of disruption.
• 23:27
  Speaker 1: I would think any dealmaking would likely be opportunistic and
• 23:31
  Speaker 1: one off in nature. Uh, but you know, incourage on
• 23:35
  Speaker 1: the encouraging side. Uh. The outlook for the second half
• 23:39
  Speaker 1: of this year, Uh, you know, a little bit lower
• 23:42
  Speaker 1: than I think was initially expected. Haliburton indicated today UH
• 23:47
  Speaker 1: that they see international spending down for the full year UH.
• 23:52
  Speaker 1: Previously they were expecting down ten UH. North America is
• 23:56
  Speaker 1: still expected to be down about fift so MAR generally
• 24:00
  Speaker 1: weak or do primarily to weakness in Latin America, but
• 24:04
  Speaker 1: the environment seemed to be stabilizing. They do expect the
• 24:08
  Speaker 1: rick count to stabilize or bottom in the third quarter,
• 24:11
  Speaker 1: and completion activity or pressure pumping or fracking, whatever you
• 24:15
  Speaker 1: want to call it, I expect to be up marginally
• 24:17
  Speaker 1: in the third quarter as well. So the industry environment
• 24:20
  Speaker 1: does seem to be stabilizing, and once it does, albeit
• 24:23
  Speaker 1: at very low levels, I think maybe you start to
• 24:25
  Speaker 1: see deal activity pick up a bit more. So, Scott,
• 24:28
  Speaker 1: if youra these oil SPI oil services providers like Haliburton
• 24:32
  Speaker 1: and Schlumberge, which end reports later this week, do you
• 24:35
  Speaker 1: just when you see oil crater like we did see
• 24:38
  Speaker 1: it back in the March April time frame, we're still
• 24:40
  Speaker 1: here at forty dollars on w T I is your
• 24:44
  Speaker 1: only strategy there, I means your only course of action
• 24:46
  Speaker 1: to just cut your expenses operating expenses and capital expenses
• 24:50
  Speaker 1: and cash flow outputs like dividends. Is that really the
• 24:54
  Speaker 1: tried and true strategy here, I think it is maybe
• 24:57
  Speaker 1: one small caveat Hall and and And And you're hearing Haliburn
• 25:02
  Speaker 1: emphasize their investment in digital. Now, obviously they're going to
• 25:05
  Speaker 1: crack down on all investments in order to survive the storm.
• 25:08
  Speaker 1: That's the most important thing. But the one thing they're
• 25:11
  Speaker 1: emphasizing still, and I think you'll hear slumbers A emphasize
• 25:15
  Speaker 1: on Friday when they report earnings as well, is the
• 25:18
  Speaker 1: longer term commitments to the digital strategy, because they do
• 25:21
  Speaker 1: see that as being central to the value proposition that
• 25:25
  Speaker 1: they offer the the upstream oil and gas producers in
• 25:29
  Speaker 1: order to do what they do more efficiently and productively.
• 25:32
  Speaker 1: So I think the idea here is battened down the hatches,
• 25:34
  Speaker 1: cut costs UH to the minimum level possible while the
• 25:39
  Speaker 1: environment stabilizes. But at the same time, and the investments
• 25:43
  Speaker 1: and the focus on the digital drilling and remote drilling
• 25:46
  Speaker 1: and all these things that help their customers save money,
• 25:50
  Speaker 1: because that, you know, is essentially the reason for being
• 25:53
  Speaker 1: is helping oil and gas producers drill, frack and UH
• 25:57
  Speaker 1: produce more efficiently. So you know, at the very least, uh,
• 26:01
  Speaker 1: you know, commentary to that effect. Uh, you know, while
• 26:04
  Speaker 1: they maintain a capital preservation strategy, uh, in anticipation of
• 26:09
  Speaker 1: an ultimate recovery Scott, Do these companies watch OPEQUE and
• 26:13
  Speaker 1: OPEC plus anymore? Is it a player you know, to
• 26:16
  Speaker 1: the extent that it used to be for US companies
• 26:18
  Speaker 1: at least? Yeah. No, But it's interesting, uh, you know,
• 26:22
  Speaker 1: in that the last couple of years, you know, North
• 26:26
  Speaker 1: America has been much more of a focus Foannie. Uh.
• 26:29
  Speaker 1: And and we saw you know, an increase, much bigger
• 26:32
  Speaker 1: increase in North America eighteen as the industry came out
• 26:36
  Speaker 1: of the twenties fifteen sixteen downturn. Last year, you saw
• 26:40
  Speaker 1: North America really pulled back even before the COVID nineteen outbreak.
• 26:45
  Speaker 1: And I think a lot of this focus on North
• 26:47
  Speaker 1: America suggested that OPEC uh an open plus was a
• 26:50
  Speaker 1: much more marginal player. Uh, you know, obviously them, you know,
• 26:55
  Speaker 1: the initial tussle between Saudi and Arabia and Russia. Uh,
• 26:59
  Speaker 1: you know, simultane us with the COVID nineteen outbreak was
• 27:01
  Speaker 1: as much a factor in the commodity markets breaking down
• 27:05
  Speaker 1: in the industry outlook darkening UH as as was the
• 27:10
  Speaker 1: dimmer economic outlook. Now obviously they've gotten on the same
• 27:13
  Speaker 1: page since then, and we saw most recently in agreement
• 27:16
  Speaker 1: to the start to tape or production cuts UH going
• 27:20
  Speaker 1: forward as the economy starts to come out of the
• 27:24
  Speaker 1: of the crisis. But UH, I think that does suggest
• 27:27
  Speaker 1: that OPEC and OPEC plus is still a very important consortium,
• 27:32
  Speaker 1: and probably as North America has pulled back, it's become
• 27:35
  Speaker 1: even more the case. So yes, I think of the
• 27:37
  Speaker 1: answer your questions. Thank you so much. That is Scott Levine,
• 27:41
  Speaker 1: analyst for Bloomberg Intelligence, joining us there on slammerg and Halliburton.
• 27:46
  Speaker 1: Thanks for listening to Boomberg Markets podcast. You can subscribe
• 27:50
  Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast
• 27:53
  Speaker 1: platform you prefer. I'm Bonny Quinn. I'm on Twitter at
• 27:56
  Speaker 1: Bonny Quinn. Sweeney I'm on Twitter at pt Sweeney. Before
• 28:00
  Speaker 1: the podcast, you can always catch us worldwide at Bloomberg Radio.