Latest / Bloomberg Intelligence / Casual Dining Chains Could Lose 75% of Sales: BI's Halen

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Casual Dining Chains Could Lose 75% of Sales: BI's Halen · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you
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Speaker 1: along with my co host Lisa Brahmas. Each day we
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Speaker 1: bring you the most noteworthy and useful interviews for you
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Speaker 1: and your money, whether at the grocery store or the
0:12
Speaker 1: trading floor. Find a Bloomberg Penl podcast on Apple podcast
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Speaker 1: or wherever you listen to podcasts, as well as at
0:18
Speaker 1: Bloomberg dot com. We really need to focus our attention
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Speaker 1: on restaurants which you have been uniquely hammered. They've been
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Speaker 1: tourced to shut their doors, and there's a question of
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Speaker 1: how quickly they will be able to get back online
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Speaker 1: and how many of them will even survive throughout this.
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Speaker 1: Mike Hallen joining us now, senior restaurant analyst for Bloomberg Intelligence,
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Speaker 1: joining us on the phone. Mike, do you have a
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Speaker 1: sense of the proportion of restaurants that have closed their
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Speaker 1: doors that will easily get back up and going And
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Speaker 1: I know your look specifically in a lot of the
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Speaker 1: chains that have already closed their doors. Yeah, So you
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Speaker 1: know it's really going to depend on on the business model, right. So, um,
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Speaker 1: you know, in our in our rolled with the publicly
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Speaker 1: traded chains, if you're a fast food and you're doing
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Speaker 1: you know, between fifty and seventy percent of your business
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Speaker 1: through the drive through and probably another fifteen to twenty
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Speaker 1: via delivery, you're not going to be impacted as much.
1:14
Speaker 1: I mean, granted, you are going to be impacted the
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Speaker 1: less less people commuting to work. Right, people aren't going
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Speaker 1: out and um running errands and doing some shopping and
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Speaker 1: stopping for a burger while they're out so much, and
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Speaker 1: they're doing a lot more shopping at the grocery store
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Speaker 1: and cooking at home. So sales are still gonna be down.
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Speaker 1: But if you're a fast food and you have a
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Speaker 1: drive through, you know, you're in pretty good shape, you know.
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Speaker 1: But for casual dining, for full service restaurants, it's a
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Speaker 1: very very different situation, you know. Uh, you know, for example,
1:44
Speaker 1: Texas Roadhouse, a great chain, they only do about seven
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Speaker 1: percent of their sales and to go and they don't
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Speaker 1: have any delivery, and obviously they don't have any drive through.
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Speaker 1: So you know, on casual dining land, you know, for
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Speaker 1: for restaurants that close their dining room, they could lose
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Speaker 1: you know, between seventy five their sales. So, Mike, it
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Speaker 1: give us a sense of kind of how these companies
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Speaker 1: are trying to cope with it? Will they make it?
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Speaker 1: Are they how are they trying to kind of deal
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Speaker 1: with this complete lack of revenue. Yeah, so for for
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Speaker 1: the casual dining chains, and now we're starting to see
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Speaker 1: with with fast food chains as well. Uh they're fully
2:20
Speaker 1: drawing down on their revolving credit facilities. Uh, they're suspending
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Speaker 1: by backs and and uh suspending their dividends to try
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Speaker 1: to UM hold onto whatever cash flow and raise whatever
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Speaker 1: cash they can. Uh, they're gonna they're closing stores where
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Speaker 1: it makes sense, um, you know, and they're trying to
2:39
Speaker 1: push delivery and to go as as much as possible,
2:43
Speaker 1: try to grow grow that business as quickly as possible
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Speaker 1: so that they can continue to employ some of their employees,
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Speaker 1: uh stay in front of the customers for whenever this
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Speaker 1: does end. Um. You know. So you know, chains are
2:57
Speaker 1: kind of doing whatever they can, but we expect a
3:00
Speaker 1: lot of UM store closures. We also saw a note
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Speaker 1: yesterday out that that said Chiefecake Factory is saying that
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Speaker 1: they're not going to pay rent until they can reopen. So,
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Speaker 1: you know, rents are a pretty big expense even if
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Speaker 1: you're shut you know, the rent bill continues to keep coming,
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Speaker 1: so we expect to hear a lot more of this
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Speaker 1: as well, where the the restaurant chains are gonna maybe
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Speaker 1: hold off on paying rent until they can open their
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Speaker 1: doors again. Mike, I wonder how much this just accelerates
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Speaker 1: a trend that already was in place, because we saw
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Speaker 1: a restaurant traffic go down some of these casual dining
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Speaker 1: places even before the coronavirus, and even amid a really
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Speaker 1: good consumer confidence. I mean, how many of these bankruptcies
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Speaker 1: would have happened anyway. Yeah. Well, and also there's been
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Speaker 1: you know, low interest rates helping to keep zombie chains
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Speaker 1: alive for quite some time, right, So yeah, I agree,
3:56
Speaker 1: I think this is definitely going to speed up the process.
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Speaker 1: You're gonna see some of the casual dining chains that
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Speaker 1: do do not have a loyal customer base any longer
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Speaker 1: start to close even more stores. I mean, we've seen
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Speaker 1: a lot, We've seen chains like Applebee's, you know, close
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Speaker 1: a lot of stores over the last couple of years.
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Speaker 1: We expect uh store closures to to accelerate. So yeah,
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Speaker 1: it is kind of accelerating a trend. But you know,
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Speaker 1: some of these you know, you know, I'm going to
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Speaker 1: say the FED and and UM kind of the Wall
4:28
Speaker 1: Street echo chamber and the management teams altogether, uh, kind
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Speaker 1: of put themselves in in a tough position. You know,
4:35
Speaker 1: half of the companies we cover have levered up to
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Speaker 1: buy buy back stock. Uh, you know at thirty times earnings,
4:42
Speaker 1: you know, and now that these stocks are down six
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Speaker 1: off their highs, they're suspending their buy back programs, right,
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Speaker 1: so you know, their balance sheets on in a in
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Speaker 1: a great spot heading into this which we think is
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Speaker 1: going to exacerbate the problem. Hey, mikew about the mom
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Speaker 1: and pop restaurants, the local restaurants that are shut down,
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Speaker 1: just typically how much how long can they last like that? Yeah,
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Speaker 1: it's the same type of thing. It's going to depend
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Speaker 1: on their bound sheet. But it's hard. You know, in
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Speaker 1: the restaurant business, you're basically you know, making money, you know,
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Speaker 1: one month out of the year, right, one month out
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Speaker 1: of the year is all your profits. The other eleven
5:22
Speaker 1: months goes towards paying your labor, you know, paying your
5:25
Speaker 1: food costs, paying the rent. It's a very low margin business.
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Speaker 1: We're talking about mid single digit net margin business. So
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Speaker 1: a lot of these chains can't stay open for long.
5:35
Speaker 1: You know. Thankfully there's some provisions in here, uh for
5:38
Speaker 1: the independence as well as the larger change we covered
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Speaker 1: two uh you know, ball some money. They're gonna get
5:45
Speaker 1: some tax breaks and hopefully hopefully be able to to
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Speaker 1: you know, weather the storm for at least a few months.
5:51
Speaker 1: But just as uum, just to give you some color,
5:54
Speaker 1: you know, the one of the best run chains we
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Speaker 1: cover is Darting. They were the adults in the room.
6:00
Speaker 1: They did not lever up to buy back their stock.
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Speaker 1: They use their cash flow to do it. They increase
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Speaker 1: their sales and their margins by providing very you know,
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Speaker 1: very good service and good food and motivating the customers
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Speaker 1: to return. Right. So, so you know, they they have
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Speaker 1: only six months of cash basically at their current burn rate,
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Speaker 1: we're gonna have to leave it there. Mike cal And,
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Speaker 1: senior restaurant analyst for Bloomberg Intelligence, really highlighting what is
6:28
Speaker 1: being felt across the restaurant sector around the country. The
6:35
Speaker 1: Federal Reserve is throwing the kitchen sink at markets in
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Speaker 1: large part in response to the apparent dollar shortage, increasing
6:42
Speaker 1: strains in the dollar funding market, and this has hit
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Speaker 1: emerging markets particularly hard. Damian Sassour has been tracking its
6:50
Speaker 1: as chief market strategist at Bloomberg Intelligence and he joins
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Speaker 1: US now. Damien, I'm wondering, we are seeing the dollar
6:56
Speaker 1: a week in a bit in the past few sessions,
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Speaker 1: but still the move of it is to be stronger,
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Speaker 1: and I'm wondering how bad has it been in the
7:05
Speaker 1: emerging markets complex? Yeah, you know, I've been feeling a
7:08
Speaker 1: lot of questions asking what happens if this dollar just
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Speaker 1: keeps rising in em can't pay their debts and dollar
7:14
Speaker 1: and UM with the broad trade weighted US D now
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Speaker 1: at a fifty year high, you're really left with two
7:18
Speaker 1: options if if you're an EM sovereign that's got you know,
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Speaker 1: dollar obligations, UM, do you do not? I mean what
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Speaker 1: was the U S do? Does it do nothing about them? Default?
7:26
Speaker 1: Does it offer debt forgiveness? In both scenarios, Lisa, they're
7:30
Speaker 1: very inflationary, right, so, especially as the US fiscal situation worsens.
7:34
Speaker 1: I mean, two trillion stimulus is just the tip of
7:36
Speaker 1: the iceberg. It teems and the government reluctant to offer
7:39
Speaker 1: bailouts to Boeing in big companies, I imagine they're not
7:42
Speaker 1: going to be very open to a new Brady plan either.
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Speaker 1: So so EM is going to have a tough time here,
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Speaker 1: So damon give us a sense of kind of where
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Speaker 1: the greatest risk is that you see out there in
7:53
Speaker 1: EM world. Yeah, you know, I mean it's hard to
7:56
Speaker 1: kind of pick and choose, but you know, there are
7:58
Speaker 1: things that investors can do, uh, you know, if they
8:01
Speaker 1: are indeed willing to take that plunge and invest in
8:03
Speaker 1: emerging market. You know, local assets want us to diversify
8:07
Speaker 1: your funding sources, right, I mean most people dollar investors think, okay,
8:10
Speaker 1: you know, I'm taking the dollars in my pocket, I'm
8:12
Speaker 1: converting them into e M currencies and investing. But what
8:15
Speaker 1: you can do is you can also spread the dollar exposure,
8:18
Speaker 1: your short dollar exposure now around other developed market companies
8:22
Speaker 1: like the Swiss frank, like the Japanese yea and the
8:24
Speaker 1: British pound, the euro, etcetera. And if you do that,
8:27
Speaker 1: you actually have a much more attractive risk adjusted return
8:30
Speaker 1: profile of historically speaking, obviously, and you can definitely protect
8:35
Speaker 1: protect if the dollar does indeed continue to decline here,
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Speaker 1: So you know, there is some benefit there. There are
8:40
Speaker 1: ways that you can kind of manage around this. But yeah.
8:43
Speaker 1: I mean it's going to be very volatile, very whippy,
8:46
Speaker 1: and the structure of emerging markets really doesn't offer itself
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Speaker 1: to taking short term risk, if you follow me. I
8:51
Speaker 1: mean some of these markets are very liquid. Yeah, And
8:53
Speaker 1: talking about that, there's also a question of just how
8:56
Speaker 1: much debt has been incurred by some of these developing
8:59
Speaker 1: markets companies there, and the idea that this imbalanced in
9:03
Speaker 1: dollars isn't just simply a technical problem, but just an
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Speaker 1: overall imbalance where too many, too many dollars were borrowed
9:10
Speaker 1: by a lot of these countries. And I'm wondering, you know, yes,
9:13
Speaker 1: we're seeing some of the stress eased up, but how
9:16
Speaker 1: much pressure is there still that's going to cause a
9:19
Speaker 1: rash of defaults that people are expecting that may not
9:21
Speaker 1: be fully priced an't even yet. Well, I think you
9:24
Speaker 1: have to look at those that are most exposed, right
9:26
Speaker 1: at least so for me, you know, just looking at
9:28
Speaker 1: you know, you know, you know, emerging market sovereigns that
9:31
Speaker 1: are borrowed in dollars. It's the frontier sovereigns, the oil
9:34
Speaker 1: exporting frontier sovereigns like Nigeria and Gola, gabone. I mean
9:38
Speaker 1: you've seen Ecuador and now file for default. I mean,
9:40
Speaker 1: those are the ones that are obviously front and center,
9:42
Speaker 1: but you know it's all of those other sovereigns that
9:44
Speaker 1: have um you know, that are relying on tourist revenues,
9:47
Speaker 1: you know, Dominican Republic, Costa Rica. These are big issuers
9:49
Speaker 1: in e M and so you know, there's a lot
9:51
Speaker 1: of dead out there and dollars they're gonna have a
9:53
Speaker 1: lot of difficulty paying them back. But the question becomes
9:55
Speaker 1: a political one. You know, who do we you know,
9:58
Speaker 1: who do we bail out and who don't we? And
10:00
Speaker 1: you know that can potentially ignite a virtuous cycle of
10:03
Speaker 1: sovereign restructurings that really would break the buck and cause
10:07
Speaker 1: you know, hyper hyperinflationary scare in my mind, So you know,
10:10
Speaker 1: there's really no no easy way to go about it.
10:12
Speaker 1: But I don't think you can ignore it. I mean,
10:14
Speaker 1: what what the U S has done here post It's
10:17
Speaker 1: ignored a lot of the things that could potentially go wrong,
10:20
Speaker 1: you know, post Doccer, post dog Frank. Now we're just
10:23
Speaker 1: paying for it here. To ignore this would be shortsighted
10:26
Speaker 1: in my view. Alright, so give us a sense of
10:29
Speaker 1: timing Damien, where are we going to see the biggest
10:32
Speaker 1: problems first, do you think? Right? So, it's definitely going
10:35
Speaker 1: to hit the oil exporters first and foremost. They definitely
10:38
Speaker 1: have some capacity to manage through it in the near term,
10:41
Speaker 1: even more so if the dollar continues to come off here.
10:43
Speaker 1: But if the dollar does another you know about face
10:46
Speaker 1: and really ripped to the upside for whatever reason. You know,
10:49
Speaker 1: Paul Um, you're really going to see a lot of
10:51
Speaker 1: them start, you know, going to the IMF, going to
10:53
Speaker 1: the World Bank. I mean, you've already seen those two
10:55
Speaker 1: big multilaterals turned to the US and say, hey, we
10:57
Speaker 1: need we need help here to sort of to sort
11:00
Speaker 1: of stem the tide. But you know, it's it's it's
11:03
Speaker 1: no real easy question to say. I mean, look, I
11:06
Speaker 1: wouldn't be sitting here talking to I'd be on a
11:07
Speaker 1: beach somewhere if I knew the timing around this, right. So,
11:10
Speaker 1: So I think that's really what it comes down to.
11:12
Speaker 1: You just have to watch all these little pockets in
11:14
Speaker 1: the market and hope for the best. I mean, you've
11:17
Speaker 1: been covering this market for decades, You've got a lot
11:18
Speaker 1: of contacts. And one reason why I always love speaking
11:21
Speaker 1: with you is you can kind of get a feel
11:22
Speaker 1: for the mood. And honestly, the people who I speak
11:25
Speaker 1: to just seem exhausted. It's just been a ping pong
11:27
Speaker 1: kind of market going in different directions, popped by uncertainty,
11:31
Speaker 1: poked by depression, and popked by isolation. And I'm wondering
11:34
Speaker 1: where are we in that cycle? I mean, are people
11:36
Speaker 1: actually starting to look for opportunities or people just sort
11:39
Speaker 1: of sitting out and saying this one I don't understand. Alright,
11:43
Speaker 1: So I mean the first and foremost, you know, i'd
11:45
Speaker 1: have to address. All right, let me my sleeves, let's go,
11:49
Speaker 1: let's do it. Um. So you know, the Japanese currency basis,
11:53
Speaker 1: which was the last one to blow, is finally narrowed,
11:55
Speaker 1: and it's narrowed by overnight, right, I mean you saw
11:58
Speaker 1: you may see that the euro in the pounds are
12:01
Speaker 1: now very very positive, which means they're flushed with dollars.
12:04
Speaker 1: So the dollar hoarding, yes, well it's still you know,
12:06
Speaker 1: persists off. Sure, a lot of dollars being brought at
12:09
Speaker 1: the issues. So I think this whole you know, thought
12:11
Speaker 1: that there are you know, the top recording not enough
12:13
Speaker 1: dollars let's put that to bed for a minute now.
12:15
Speaker 1: Where the bottlenecks coming up there? Obviously in credit land,
12:18
Speaker 1: no question about it. You've seen the moving spreads. Everyone's
12:21
Speaker 1: seen it, everyone's watching it. And it's the um. It's
12:24
Speaker 1: really the mortgage market that scares me the most. I
12:26
Speaker 1: mean that was the epicenter back in two thousand and eight.
12:28
Speaker 1: We're starting to see some of these mortgage reads roll,
12:30
Speaker 1: you know, get meet, they're unable to meet margin calls.
12:33
Speaker 1: And these aren't just anyone. These are invest Goo Angelo
12:35
Speaker 1: Gordon tpg UM and and their portfolio is getting taken
12:38
Speaker 1: over by banks and and and being liquidated in the market,
12:41
Speaker 1: and and you know it's it's it's just you know,
12:43
Speaker 1: to bring in people in my mind, like you know
12:46
Speaker 1: who kind of helped us in the past, like Paulson
12:48
Speaker 1: and Guysner and black Rock. I mean that's while that's
12:50
Speaker 1: all said and good. You know I've said it before,
12:53
Speaker 1: I'll say it again. I'd love to see simmer Simon
12:55
Speaker 1: Potter back at the New York Center Reserve because you know,
12:58
Speaker 1: he used to run the markets. To if there's one
13:00
Speaker 1: person to know where the land mines are and where
13:02
Speaker 1: the bodies are buried at Simon, and so you know,
13:04
Speaker 1: it's interesting how quiet things have been on that front.
13:06
Speaker 1: I'd really like to just see some more clarity as
13:08
Speaker 1: to how we're going to address some of the bottlenecks
13:10
Speaker 1: that we're seeing abroad. And you know, we see the
13:12
Speaker 1: cross Curency basis and places like Korea are still pretty
13:15
Speaker 1: wide that they still don't have enough dollars and and
13:17
Speaker 1: so you know, we just have to kind of watch
13:19
Speaker 1: all these little elements of the market on the periphery
13:22
Speaker 1: and hope everyone can kind of come out of this. Okay,
13:24
Speaker 1: I guess. I mean, yeah, so Damien thirty seconds any
13:30
Speaker 1: place to hide in emerging markets. So we definitely still
13:33
Speaker 1: like um receiving an Indonesia on these spikes. I mean,
13:36
Speaker 1: and I think the Indonesian roupie has been one of
13:38
Speaker 1: the better performers today. UM the pace has come off
13:41
Speaker 1: a long way. You've seen that come all the way back.
13:42
Speaker 1: I I like countries that have a geostrategic importance to
13:46
Speaker 1: the United States for no other reason than because the
13:49
Speaker 1: U s print dollars. So you know, there's a lot
13:52
Speaker 1: of them out there. There's a lot of them that
13:53
Speaker 1: aren't there, and you know, I think that that's where
13:55
Speaker 1: you kind of want to focus if you're looking to
13:57
Speaker 1: wait it out a bit. Damien Sasur, thanks so much
14:00
Speaker 1: for joining us. We always appreciate your perspective on emerging
14:03
Speaker 1: markets UH lots of altility, even above and bound where
14:06
Speaker 1: we're seeing in the broader market. Statement sass Our, chief
14:08
Speaker 1: Emerging markets credit strategist for Bloomberg Intelligence. As we talked
14:16
Speaker 1: about that two point two trillion dollar plan that the
14:19
Speaker 1: Congress UH is expected to pass today, there is a
14:23
Speaker 1: question of how quickly it can get money out the
14:25
Speaker 1: door and who it gives money to. A big focus
14:28
Speaker 1: has been small and medium sized businesses. Our next guest
14:32
Speaker 1: has a lot of experience with the balance sheets in
14:35
Speaker 1: all conditions of these companies. Adam Leviton, Professor of Law
14:39
Speaker 1: and of Georgetown Law in Washington, d C. Professor, thank
14:44
Speaker 1: you so much for being with us. You recently penned
14:46
Speaker 1: up ed in the New York Times how to get
14:48
Speaker 1: money to small businesses fast. Passing through the details, it
14:52
Speaker 1: seems like the three hundred and fifty billion dollars estimated
14:55
Speaker 1: to go to small and mid sized businesses grants will
14:58
Speaker 1: be administered by the Small Business Administration, which has four
15:03
Speaker 1: thousand employees. Are you concerned about the logistics getting the
15:07
Speaker 1: money out the door? Absolutely? The money is not going
15:10
Speaker 1: to move as fast as as we really need it
15:13
Speaker 1: to move. Small businesses are already laying off employees and
15:17
Speaker 1: having trouble meeting their meeting their bills, and they need
15:20
Speaker 1: they need the money not today, they needed it yesterday.
15:23
Speaker 1: And it's going to take weeks, if not longer, for
15:26
Speaker 1: um these new small business loans, and they're for their
15:30
Speaker 1: forgivable loans, but the interest, the interest is not forgivable
15:33
Speaker 1: on them. Um, it's going to take weeks, if not longer,
15:37
Speaker 1: for that money to get too small businesses. There's gonna
15:39
Speaker 1: have to be a process whereby small businesses apply for
15:42
Speaker 1: the loan, the loans get processed, and then finally the
15:46
Speaker 1: checks will be dispersed. It is not going to happen instantaneously. So, Professor,
15:51
Speaker 1: is there any mechanism that would be preferable to that?
15:54
Speaker 1: I mean, in reality, can you in fact get cash
15:58
Speaker 1: as small businesses any quicker? Um, there's one way to
16:02
Speaker 1: get cash into small businesses pretty much. Actually, there are
16:05
Speaker 1: two ways to get it into small businesses immediately. One
16:08
Speaker 1: is in the bill, Um, it's a delay in um
16:11
Speaker 1: payroll taxes because some of the some of the payroll
16:15
Speaker 1: taxes are paid by the business basically your tax withholding,
16:19
Speaker 1: and the bill is allowing businesses to dip into the
16:23
Speaker 1: funds they withhold from your payroll and just pay it
16:27
Speaker 1: to Treasury later. That is one thing to get some
16:29
Speaker 1: cash immediately. And another thing that could get them cash
16:32
Speaker 1: immediately is a debt moratorium or a debt collection moratorium.
16:36
Speaker 1: And what that does is it if it would affect
16:38
Speaker 1: and that's not in the bill, and I want to
16:40
Speaker 1: be clear, but that would effectively force um UH float
16:44
Speaker 1: in a sort of an extension of payment terms from
16:48
Speaker 1: things like landlords and and lenders to small businesses. That
16:52
Speaker 1: would allow small businesses to prioritize their cash to con
16:55
Speaker 1: maintaining payroll. And then Congress could in theory at least
17:00
Speaker 1: UH compensate lenders and landlords on the back end with something,
17:03
Speaker 1: you say, attacks credit for their UH in the future.
17:07
Speaker 1: So You've had a lot of experience in this, both
17:10
Speaker 1: in bankruptcy commercial law, but also as former special counsel
17:14
Speaker 1: to the Congressional Oversight Panel for TARP, the Troubled Asset
17:18
Speaker 1: Relief Program back in two thousand eight and two thousand nine.
17:21
Speaker 1: I'm wondering what you think of the process of this bill.
17:25
Speaker 1: If you talk to representatives, they say, this has moved
17:27
Speaker 1: as fast as anything can move in Washington, d C.
17:30
Speaker 1: If you speak to the businesses, they say, what you say,
17:32
Speaker 1: We needed the checks last week and we've already laid
17:35
Speaker 1: people off. What's your sense those are both true? Um,
17:39
Speaker 1: there's no contradiction there. This This bill moved remark remarkably fast.
17:44
Speaker 1: You know, this is the largest federal spending bill we've
17:47
Speaker 1: ever seen, and it went as Congress goes, at lightning speed.
17:52
Speaker 1: The problem is that Congress is not set up to
17:56
Speaker 1: deal Uh, it's it's meant to be a deliberative in
18:00
Speaker 1: some sense, and it's not set up for dealing with
18:02
Speaker 1: emergencies with speed. It's there's just an attention between the
18:06
Speaker 1: design of our institutions and the needs of the moment. So, professor,
18:10
Speaker 1: how do you think this stimulus will in fact impact
18:15
Speaker 1: small and midsize businesses over the next coming weeks and months. Well,
18:20
Speaker 1: there are some small, small and medium sized businesses for
18:23
Speaker 1: which this money is just going to be too late.
18:25
Speaker 1: And um, we don't have a sense of how many
18:27
Speaker 1: of them there are that fall in that category that
18:31
Speaker 1: the there's surprised that the limited data we have on
18:34
Speaker 1: small businesses, and it's it's all kind of problematic because
18:38
Speaker 1: small businesses are don't don't fit one profile. You know,
18:43
Speaker 1: the the dry cleaner, the restaurant looks very different than
18:47
Speaker 1: the than the small manufacturer, let's say. But in general,
18:51
Speaker 1: small businesses don't have enormous cash reserves. That probably the
18:56
Speaker 1: best guesses that they may maybe have a few weeks
18:59
Speaker 1: or a month cash reserves on hand and and on average,
19:03
Speaker 1: and that means that there are plenty that have less,
19:05
Speaker 1: and those that have less are going to be in
19:07
Speaker 1: real trouble and may not be able to make it
19:09
Speaker 1: until they until government assistance arrives. The one the ones
19:16
Speaker 1: that can last until they get the assistance. This will keep.
19:19
Speaker 1: What what this will do, it will keep. It will
19:22
Speaker 1: basically put them on life support. The government will take
19:25
Speaker 1: effectively take over payroll and utilities and rent and mortgages
19:31
Speaker 1: and other debt service um for for for quite a while.
19:37
Speaker 1: The real question is how long does the crisis last? Absolutely,
19:40
Speaker 1: that's kind of been the key question. Adam Levitton, thank
19:43
Speaker 1: you so much for joining US and giving us your
19:45
Speaker 1: thoughts at perspective. Adam Leviton is at Georgetown Law professor
19:49
Speaker 1: and former Special counsel to the Congressional Oversight Panel of TARK.
19:55
Speaker 1: We are seeing gains, as Charlie was saying, in equity markets,
19:57
Speaker 1: which is interesting when you contrast it with the unbelievable number,
20:01
Speaker 1: a record number of unemployment initial jobless claims filed three
20:05
Speaker 1: point three million. It raises a question here. We knew
20:09
Speaker 1: it was bad, we don't know how bad. This indicates
20:12
Speaker 1: it's very, very bad. And yet is the indication in
20:16
Speaker 1: markets right now that the U. S. Congress can save it,
20:20
Speaker 1: or that the Fed and the Congress and Congress together
20:24
Speaker 1: can somehow cushion the blow and that we've priced in
20:26
Speaker 1: most of the pain. Navals Sym Bloomberg stocks that are
20:28
Speaker 1: joining us now. Carra Kadonna, chief US economist with Bloomberg Economics. Dave,
20:33
Speaker 1: I want to start with you, is that the implication
20:35
Speaker 1: from the two point seven percent rally we're seeing right
20:37
Speaker 1: now on the SMP. Boy, it sure looks that way, Lisa,
20:40
Speaker 1: especially when you consider what's leading the advance in the
20:44
Speaker 1: S and P five hundred. We're talking synchrony financial capital
20:48
Speaker 1: One and Discover Financial. All these companies are in the
20:51
Speaker 1: credit card business. Now you talk about an area of
20:54
Speaker 1: the market. We could think people would be concerned given
20:57
Speaker 1: the jump and jobless claims that we just saw, you know,
21:00
Speaker 1: raising the issue of whether people are going to be
21:02
Speaker 1: able to keep up the payments on their credit cards.
21:05
Speaker 1: And yet these stocks are all up like twelve or more,
21:09
Speaker 1: Synchrony up thirteen and a half percent of Capital One
21:13
Speaker 1: actually got an upgrade over at Oppenheimer. The firm moved
21:17
Speaker 1: to the equivalent to buy from hold on the stock.
21:19
Speaker 1: They basically say that company, will you hold up? Okay?
21:23
Speaker 1: I mean given you everything that's coming in terms of credits,
21:28
Speaker 1: So you know that that's something that really jumps out
21:30
Speaker 1: of this is to see as peers go up as
21:32
Speaker 1: much as they have. I mean, it really gets your attention. Yeah,
21:35
Speaker 1: and and really this is exactly where I wanted to go, Carl.
21:37
Speaker 1: How much is the high number a good thing? And
21:41
Speaker 1: good is in quotes, not a good thing. It's terrible
21:44
Speaker 1: and a tragedy for all those people losing their jobs,
21:46
Speaker 1: but a sign that at least millions of people will
21:49
Speaker 1: be receiving unemployment benefits potentially cushioning the lack of revenue
21:53
Speaker 1: that they're getting elsewhere, the turn of the market. That's
21:56
Speaker 1: really a signal of a couple of things. Uh. And
21:58
Speaker 1: so first of all, you know, j Pale this morning
22:01
Speaker 1: on the Today Show said that the Fed is nowhere
22:03
Speaker 1: near running out of ammunition to confront the crisis. Yesterday
22:08
Speaker 1: there was a Bloomberg News scoop that the ECB is
22:11
Speaker 1: getting ready to act more aggressively as well. Uh. And
22:15
Speaker 1: then also what today we see very convincing signs that
22:18
Speaker 1: were close to Congress finally passing the physical stimulus, which
22:22
Speaker 1: two trillion dollars has some multiplicative effects throughout the economy,
22:26
Speaker 1: so the administration is claiming two trillion is more like
22:29
Speaker 1: uh four to six trillion. Nonetheless, this is all providing
22:33
Speaker 1: important economic support. And to your point, Lisa, a lot
22:36
Speaker 1: of individuals who may have been out of work at
22:39
Speaker 1: least are getting some transfer payments from the government, and
22:42
Speaker 1: in fact, with the fiscal stimulus bill that they can
22:45
Speaker 1: take an additional six hundred dollars per week onto that
22:48
Speaker 1: transfer payment. That certainly doesn't bridge the gap, but it
22:52
Speaker 1: helps to at least offset some of the sting from
22:54
Speaker 1: this hard stop in the economy. So, Carl, I just
22:57
Speaker 1: wanted to get your latest thought coming out of bloomber
22:59
Speaker 1: Gap Economics. How do you think GDPs can look for
23:02
Speaker 1: the US this year. We've seen a lot of forecast
23:05
Speaker 1: coming out of Wall Street. Just one of our bloomerk
23:07
Speaker 1: Economics is sure So looking at the second quarter, we're
23:11
Speaker 1: looking for a nine percent contraction in the downside scenario.
23:15
Speaker 1: We think that could be closer to fourteen percent. But
23:18
Speaker 1: this entirely depends on the extent of the lockdown. If
23:21
Speaker 1: we're looking at a lockdown of forty five to sixty days,
23:24
Speaker 1: then those forecasts will be roughly on the market. If
23:27
Speaker 1: we reopen too soon and have to walk back down,
23:30
Speaker 1: or if the lockdown lasts through the entirety of the
23:33
Speaker 1: second quarter, then we're looking for a sharper contraction in
23:36
Speaker 1: the economy. But I think it's too early to be
23:38
Speaker 1: making that call, Dave. On the market side, there's a
23:41
Speaker 1: question of the actual economic effect of the shutdowns, and
23:46
Speaker 1: then there's the effect of whatever is going to probably
23:49
Speaker 1: be passed today by Congress. Do we have a sense
23:51
Speaker 1: of how much the market gain today is hinging on
23:54
Speaker 1: that bill getting passed today? Bowling in the airline stocks,
23:59
Speaker 1: and you talk about two areas that stand to benefit.
24:02
Speaker 1: You know, we've reported the people familiar with the matter
24:05
Speaker 1: telling us that that Boeing, you know, it may end
24:08
Speaker 1: up with as much as sixty billion dollars in assistance
24:10
Speaker 1: when you count in their suppliers as well. Uh. Coming
24:13
Speaker 1: out of the deal. Boweling shares up twelve percent at
24:16
Speaker 1: the moment, and you look across the board, you see
24:18
Speaker 1: the airlines higher and they're due for fifty billion dollars
24:22
Speaker 1: and loans and loan guarantees. Delta leading the way there
24:25
Speaker 1: with a gain of almost seven percent. Uh. And actually
24:28
Speaker 1: the airlines are doing substantially better than the cruise lines
24:31
Speaker 1: at this point, which aren't in the same position to
24:33
Speaker 1: get assistance under the measure. I mean, carnivals up, but
24:37
Speaker 1: you've got Royal Caribbean and Norwegian Cruise Line down. So
24:40
Speaker 1: you know, it goes to show you that there is
24:42
Speaker 1: a real focus on the winners. And I wouldn't say
24:46
Speaker 1: the losers. I mean they certainly if you think about
24:48
Speaker 1: the cruise lines, they've lost plenty already. But the companies
24:51
Speaker 1: that are going to get the most benefit out of
24:53
Speaker 1: this bill are doing relatively well on today's trading. Carl,
24:57
Speaker 1: just real quick here, I would love to get your
24:59
Speaker 1: sense of whether we're going to see another three point
25:01
Speaker 1: three million initial jobless claims next reading. Well, I think
25:06
Speaker 1: we're going to see something in the million plus territory
25:09
Speaker 1: for sure. The issue we're contending with here as we
25:11
Speaker 1: look at the numbers is that there's a significant backlog
25:15
Speaker 1: of applicants who have not been able to file. Websites
25:18
Speaker 1: are crashing, and Coal center are overwhelmed with the capacity constraints.
25:22
Speaker 1: So I think that we will see at least a
25:24
Speaker 1: couple more weeks with jobs claimed. The initial claims UH
25:28
Speaker 1: north of a million, it could be two or three million.
25:31
Speaker 1: I don't think we'll see as high of readings going
25:34
Speaker 1: forward as we saw today. Looking at today's number implies
25:38
Speaker 1: five and a half percent on the unemployment rate, so
25:40
Speaker 1: almost at two point increase. We continue to see this,
25:43
Speaker 1: then we're talking about, you know, seven eight percent unemployment
25:46
Speaker 1: in the second quarter. Caracadona, Chief you as economist with
25:49
Speaker 1: Bloomberg Economics and Dave Wilson Bloomberg Sock Center. Thank you
25:52
Speaker 1: both of you and Paul. Just to get a sense
25:55
Speaker 1: of how significant is three point three million number. Was.
25:58
Speaker 1: It was quadruple the prior record in the nineteen eighties.
26:04
Speaker 1: Thanks for listening to the Bloomberg pen L podcast. You
26:07
Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
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Speaker 1: whatever podcast platform you prefer. I'm Paul Sweeney. I'm on
26:12
Speaker 1: Twitter at pt Sweeney. I'm Lisa abram Woyit's I'm on
26:15
Speaker 1: Twitter at Lisa abram woits one before the podcast. You
26:18
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.