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Looking at Boeing stocks, the three tenths of one percent, but we've got a good better sense of kind of their first quarter deliveries the lowest since mid twenty twenty one, So not good althose you read into it. The company delivered twenty seven aircraft in March, and that's a slight improvement from the twenty seven delivered in January and February. But again the combination and all the majority of these
things were the seven three seven Max jets. That's what we mostly, I think most of us fly the States at seven three seven Max. Well, I'm a Boeing person, I mean I'm a United Cus are out of Newark, and United flies the Boeing planes. And I report to George every time I get on a plane to go anywhere. I report to him what I'm the aircraft. I'm on the quality of it, how full it is. So I give him some of that primary research. George ferguson joints
as he covers the airlines the aerospace companies. Is the first quarter here? Is this going to be the bottom George for Boeing in terms of deliveries?
I think, yeah, for the year, I think this is going to be the bottom. So I'd expect this was the worst quarter. You know, the fa was in there doing their review of Boeing's manufacturing. Boeing's got to come up with for a plan for the FAA. Imagine that takes some hands as well, and manufacturing probably isn't moving very fast while they're in the middle of this process of figuring out how to stabilize, you know, the production of the airplanes. And so I think for the quarter
it'll be sorry. For the year, this will be the worst quarter, and I would expect that things would get better second, third, and fourth into.
The end of the year.
George, really nice to see you. We decided that we've maybe met twice after.
All this time.
Well, see, there's a we have some research people in Princeton. Yeah, and they prefer the Princeton as opposed to coming to the world's financial hub center of it all. Traffic for Princeton. I get it. Yeah, that's how we do that.
There's a couple of ways to break it down, so let's just take it maybe piece by piece. First of all, supply chain stuff that like Boeing will be a part of and Airbus will be a part of too, Like, how are the supply chain impacting their deliveries?
Well, I mean, right now, I think the biggest problem is up at Boeing and not in the supply chain.
So the supply chain stuff is fixed.
No, not at all.
So I meant for the number of deliveries we've seen this quarter and the constriction in that number of deliveries, this is all Boeing issue, right This is all Boeing's FAA review, their manufacturing review. Their supply chain I think is producing at a higher rate than they are right now. So Spirit Aero Systems would be an important part of
their supply chain. They're building somewhere around thirty eight or they were building around thirty eight seven thirty seven maxes a month when we heard from them at the end of the year, you know, for their four Q earnings call. We understand from Spirit that their suppliers were even building at higher rates than them in some cases, maybe even up at sort of forty two numbers. And they're already thinking about Spirit moving to a forty two number for
the Max. Again, we're talking Max, which is the highest volume airplane. They were talking about Spirit moving to a forty two number just prior to the Alaska you know, door panel incident, and that's when everything sort of hit the skids. But I think most of it hit the skids up at Boeing, which has to do manage all the FAA you know, inquiries and their manufacturing review.
All right, George. On Thursday, I am flying from Newark to Durham, North Carolina on a Boeing seven thirty seven Max eight plane. I will report into you. You can express that primary research.
What's up your off Friday?
I'm off Friday?
Yep, yep.
I love you too, you know, bummer, So you could care a loss? Not true at all?
Okay, George, If I guess from the company, I don't want to go too fast. I think you know, I can't have any more mishaps here. So it's almost like if I'm an investor, I'm not sure I'm knocking on the door saying, hey, you guys gotta get back to back to thirty eight or forty kind of do it when you can kind of thing.
Yeah, I mean, do it when you can.
But I mean in the long term interest of Boeing, they have to increase build rates here and that's going to drive better.
Cash flow and better products.
Okay, I mean, look, the competitor across the Atlantic, right which has by the way, has you know, final assembly facilities all around the world, including one in Mobile, Alabama.
Really Airbus has a thing in Mobile.
Absolutely, wow, absolutely, I don't know so, but their competitor is operating up in the forty five range per month for their A three twenty, the major competitor. If Boeing wants to be in this business long term, they have to stabilize production. You're right, but they've got to stabilize it at much higher levels. Prior to the pandemic, they were going close to sixty a month for the seven thirty seven max.
It can be done.
Their job is to make sure it happens.
So what's the timeline here? When do you think, like year end, where would you like to see them?
So year end, what we've modeled the Bloomberg intelligence is we think Boeing will be building thirty eight seven thirty sevens a month by four Q, which should have been where they started this year out at thirty eight. We think they were looking to break to forty two by the end of the year.
So do we ever get back to the sixty? Should they ever get back to the sixty?
Well, I mean, if you again, if you look at their competitor, their competitor says they're shooting for seventy five a month on the A three twenty. So if their competitor is breaking to those kind of rates, when you break to higher rates on your primary narrow body, you have the opportunity to go out to your customers and non customers, people that might be upset at Boeing and
sell more airplanes. Right So, right now, what we're seeing is, you know, United has expressed an interest in A three twenty. One's sort of constricted again. They've got you know, the backlog is full. There's airlines that want all those deliveries for the next number of years. We've seen Jet Blue pop up and Spear airlines pop up and say, hey, we might be willing to give up some of our airplanes or we are willing to give up some of
our airplanes. We think that's a function of Airbus going out to those customers saying, we have another potential customer that would like a three twenty one's do you definitely want everything you've got in the in the books for the next couple of years.
How did we get this might be a very silly question, but how did we get to the point where we got two airplane makers?
And how does that make sense?
Well, I mean, for I mean, these are this is not volume like automobiles, right, you sell right, I mean a good year in this business is what a little bit over a thousand airplanes a year?
Right, So it's not necessarily.
An industry that would support five or six manufacturers with the right pricing and you know, in the right margins. And then you've got to put money into R and D and development while you're you know, so you've got to earn a decent return so you can invest for the future.
We did have more right in the US.
We had Boeing, we had McDonald, Douglas, lockeed used to build a commercial aircraft. But you know, I think over time it's slimmed down to where you could make them profitable. And at the same time, airbus was growing in Europe because the Europeans wanted to be in this business. Right, this is a is a good margin, you know, strong
manufacturing kind of industry which really supports great jobs. They were rising, and that meant some of the US manufacturers had to go away to create room for a European competitor. And what we have in the horizon someday, I think it's probably five or six years away at least, is the Chinese that want to be in the business. So either the pie has to grow even maybe fifty percent larger.
Or someone's got a dwindle in that whole thing.
Right, interesting? All right, on's the next boondoggle slash air show that you.
Go schedule to go to.
Yeah, you go to some fun ones.
I mean, and they're not in Cleveland in December, they're not.
I just well, I just have to say, none of these are boondogles. I work really hard, exhausted.
When I come home.
All right, So what's the next one?
Farnborough Airshow Farmborough.
Air Show outside of London in July? What's the theme there? I mean, if I'm boeing, can I even show my face there. I mean, what do I I can't sell stuff. I mean, even if I make an announcement I'm selling, you know, two hundred planes to Emirates or something, I don't I don't have the capacity to build them.
Yeah, so this year will be very interesting, right because I think frankly, Airbus end Boeing don't have a lot more capacity right now, so I would expect the show would have a lot less sales.
It's a sales show, yeap. Although on the.
Wide body front, there's I think room to increase those build rates, especially for the Boeing seven eighty seven and the Airbus A three fifty.
There are they separate factories. Do I build my seven thirty seven and my seven eighty seven in the same factory?
No, you build them a separate.
Factory, okay, So I okay, so I can ramp.
Yeah, And look, you know you have much lower volume on seventy and seven builds at six a month, right, So going to nine a month, you're not asking your suppliers to do a heck of a lot more, right, They're going fifty percent higher, but on very low volume. But so both of those manufacturers would like to increase the volume of those two airplanes, the three fifty and seven eighty seven, because those would help them add to
you know, better margin, better cash flow. At the rates they're at now, their break even ish, they could get them into the low or sorry, high single digits, low double digits. I think if they got them up to ten or so, they're on the road to do that. So I'd see this show being a wide body sales show.
Okay, so that's sort of the Boeing Airbus story. Before we let you go, how is general demand? Like we know from say Spirit it's not great, but that might be a spirit thing. But then you have the Delta United American. How are they doing?
Oh, it's great, everything's great, it's great, but profitability isn't great.
So that means yea pricing might not be right.
So you know, what we what we're seeing the TV's we're seeing is that it looks like premium demand.
Is still pretty strong.
Tom King, and that's gonna help Tom King's bereaving and that's gonna help, you know, the big three Delta United American.
Right, but the back of the bus.
If you will, right, the back of the cheap seats, those are those are in much more supply and much more competitive right now. And so if you're an airline that focuses just on economy, I think you're gonna have a harder time this earning season than you will for the Big three the Pats.
You're gonna take a lot of a lot of the money away from the airlines this quarter.
Really, the airline business is looking to us like there's a lot less business travel.
There's there's not a lot less.
There's ten or ten or twenty percent less business travel, but it hurts because it's high, high price travel. So it looks like the business may make even more of its profitability in two Q and three Q. We're not expecting great things in one Q from anybody, but again, the full server should do a little bit better. And what we're all watching is is leisure summer demand going to be so strong that it's going to drive profits for the year, better profits for the year than they
had last year. We feel like ticket prices might be softening. We'll get our first glimpses as as airlines start to report and tell us what they're seeing for bookings.
Well, Alex and I have a major business trip for the month of June very it's gonna be very impactful. So we'll be doing our Uh did you get your tickets?
I got to do that.
Oh yeah, you got to do that.
I TV. We're like book and stuff like three days before.
I'm not like the long which is funny because I'm actually a long term planner.
George, good to see you. Great to see for coming in.
We'll probably drag you over here tomorrow to are you here tomorrow to.
Go back to Princeton's.
They have lunch, They have everything there exactly.
We have un.
Real lunch lunch stations.
Proper all really.
Wants to go to Prince Boomberg Intelligence in your Aerospace, Defense and Airlines analyst George Ferguson and joining us now always a pleasure.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Okay, sorry, okay, pay attention French.
They have lavendercent they have almonds. It's just anyway. My point being is that that's how we know it. It's the good hand cream place, and apparently it's billionaire owner is nearing a deal to take that skincare company private with funding help from Blackstone. And this is people familiar with the matter ending it's fourteen year run on the Hong Kong Stock Exchange.
To be honest, I didn't even know. I didn't even know what traded.
In Hong Kong. Not to die. I'm trying to look it up here. But it's working on you.
He's working on it.
He's gonna work on it, and we're going to talk about it. Joining us now for more is David Havens, Bloomberg Intelligence, a senior credit analyst. He joins us, Okay, so do you use the hand cream?
I use the soap?
See soap, See soap if they give.
It away at hotels.
Yes.
So is this Blackstone buying the company or is this Blackstone being kind of like a banker to the billionaire and helping them buy it out.
It's the ladder.
So the way that the story reads us far is that the billionaire owner is going to take the company private, or is making efforts to take the company private Blackstone. I don't know if they will or won't. You know, it seems like the sort of thing that Blackstone might take a piece of the equity also for some of its funds, But I think the primary role that Blackstone will be playing here is providing the funding, the credit funding for the cash purchase.
So what's it?
Seems like Blackstone is everywhere these days, and granted they are literally everywhere. What are they doing in this marketplace?
What is it?
Kind of these deals here where they take a piece of the capital structure, whether it's equity or dead or they do just big deals themselves. What are they up to these days?
Well, Blackstone is a trillion dollar alternative asset manager. It's the largest in the largest in the world. Or in the earlier segment, you talked about Blackstone's position in real estate. I believe they are the largest institutional investor in real estate with over three hundred billion of assets in their portfolio. They're gigantic in private equity, gigantic and private credit.
They've got about.
Two hundred billion dollars a dry powder that they need to put to work in order to earn fees on that money.
So they've got a lot of deals. Oh yeah, I mean where is that number? Typically, I got to figure that two hundred million dollars with dry powders, probably more than they would like because they don't necessarily get paid on that lots just sitting there. They got to go out and spend it and then raise some more, which is where they get paid.
Yeah, And just to put all that in context, I think that there's two to three trillion dollars a dry powder across the private multiverse, I guess we can call it. But they're going to be looking everywhere globally, and they've.
Got global reach.
You know, that is pretty much not many compared to their global reach. The few in the ballpark.
Maybe just going to the structure of the less of ten deal for a sec, is this unusual for Blackstone to provide the funding that like a bank would have normally done for the billionaire.
It's more and more common than it used to be. And I think that you can pretty much go back to the financial crisis. You can go back to bank regulations being rewritten in the aftermath of the financial crisis,
with riskway charges going up on corporate lending. So basically one of the upshots of Basle Threebouzel four dot Frank is that it's taken commercial banks, regional banks out of sort of the traditional business of lending to lending to corporations, particularly on a leverage basis, and so Blackstone KKR, the whole universe of the credit is able to step into that breach on favorable favorable funding costs without some of the regulatory overhang, and they're able to do pretty well right now.
All right, folks, on the bio page, if you want to see at the bio of any guests we have, for example, you go bio in the name, and it's got career and education and all that kind of stuff. And it's also a little section there called memberships maybe where your you know, board of directors or something like that. If you're a member Council Foreign Relations, you would list it there, David havens under memberships includes Netflix and Sam's Wholesale Club.
I love that you did that. That's awesome.
That's a few other memberships too, right, that's very proud, very prestigious. Uhould be very very proud, David. I'm surprised we haven't seen more private equity back to IPOs. I mean, I got a market. It's up twenty five percent since October. Back when I was on the street, I could push
out a gajillion deals with that kind of backdrop. Why are the private equity guys maybe not pushing Are they about down round valuations or because I got to think it's been a foul of a couple of years here for new deals, I would think they'd want to lock up or unlock some of these things.
Yeah, No, I think absolutely, And I think that what's happened is you're going to see a lot more of these realizations as they're called, you know, taking place.
But we're not.
We're let's we're only about a year off from the regional banking crisis in the US and the failure of credit Swiss, you know, so we saw some pretty significant tectonic temblers in the world of banking, and that I think put things on pause for a period of time. But I think that we're pretty much coming out of it. And if you look at equity valuations, the markets are obviously, you know, doing extremely well. Might be concentrated in a
few names, but the market's generally doing well. And if you look at the credit market, the high grade credit index in the US is eighty six basis points right now, maybe one to two percent of the time. Over the past twenty or thirty years, it's been under one hundred basis points. We're near record tights six basis points away since nineteen ninety nine. So markets I think are ready and receptive. So it's just a case of I think getting these things prepped and ready to sort of send
out the door. And they may not be IPOs, they might be sales to other private investors.
Right, secondaries.
Right, I feel like I've read a lot about how that's huge now because the exit market has just not been around. Where do you think the issues and the cracks come in, whether you're looking at private equity or private credit. Because the narrative is like, look, it's ten year investments. Okay, it's a tough few years, but it's going to be okay because we got like seven five
more years to make it up, et cetera. But everybody says that, but then everyone warns about it, and I'm trying to understand who's going to be left holding.
The I don't know what are they holding? The bag, the empty bag, the non Sam's club bag.
Right, So I think that a year ago there is an awful lot of concern that private credit would have serious problems. That hasn't occurred if you look at the default rates within business development company portfolios. So these are public private lenders that are part of the affiliated with the Blackstone KKR companies like that areas. If you look at their performance, they've had virtually no defaults, So things
haven't fallen apart. I think that what you're seeing is that there's an awful lot of cash out there leftover from the leftover from the pandemic. When you talk about risks going forward, monetary tightening is having I guess a negative influence in that there's less money supply out there, but it's just not showing up in terms of the performance of the companies that have been lent.
To thus far.
What's the capital raising environment like for a lot of the funds you cover, both equity and for private credit. Can I go out there and just is it still I can go out there and pretty much raise any money if I'm a Blackstone or Apollo or KKR.
Yeah, if I have it right. I think that Blackstone raised one point one billion dollars for a b credit, which is the largest business development company. It's got about fifty billion dollars of assets. It's a privately traded company, but I think they raised one point one billion in December or January, which I think was their biggest month ever. And if you look at b Ret, which is I think the largest reate out there, they had a lot
of redemption requests a year ago. Those redemption requests I think have dropped precipitously, So there's a lot of money out there that needs to find a home. And if you look at the total returns on private credit at Blackstone, for example, I think it was up fourteen percent last year, which compares extremely well to just about anything else out there. So people are always.
Chasing You're great, You're really it's great, we love you. What else you're watching?
Well, you know, I cover all sorts of financial thing imagigs. They are not non bank thing ima jigs. And one of the areas which I think is really interesting is what's going on between the private world, private debt, private credit, alternative asset management, and life insurance. And you know, that's a forty trillion dollar addressable market for the alternative asset managers. You've seen companies like Apollo and Kkar via a theme and Global Atlantic owning some of the top annuity in
life insurance companies in the United States. So that's an area which I think we're going to see a lot more convergence over the next couple of years. And then you were talking in the earlier segment about office also and about how real estate is not all created equal. Office is an area that we're going to continue to keep a very close eye on because there is a real secular shift on top of what was a cyclical shift apartments, warehouses, you know, health properties, life sciences.
I'm interesting to see for some of these big office properties trade in the urban centers and big big discounts I think. David Havens, thanks so much for joining us. David Havens, he's a senior credit analyst for Bloomber Intelligence. Joining us live here in our Bloomberg Interactive Brokers studio.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apple car Play and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Waiting for CPI A thirty tomorrow. Will it be a big market uber and if not, what else are we waiting for?
Waiting then for earnings. They're gonna kick off on Friday.
So let's get the take now with Rubin Jmenision, his generalist portfolio manager over TCW's fixed income group. He joins us from Los Angeles, California. Rubin, what do you think the pain trade is into tomorrow's CPI?
Good morning, Thanks for having me on.
Well, we think the CPI tomorrow, Well, the big pain trade is as we've seen in the beginning of the year. We have seen we may see some some some increase in CPI for deriven by seasonal factor or driven by some other quirks of inflation calculation.
But generally speaking, as we look at the inflation inflation matrix.
Over a longer term, we see that the trend is one of the declining or this acceleration of inflation. So as we look at PC, looked we got PC about a week ago or so.
The PC core PC he read was about two.
Point eight percentage two point eight percent year over year, And while that's above the target that the Fed has, but that marks the fourteenth year over year decline in a row. And as we look at the core pc X shelter. As we know, shelter is one of the
notorious lagging indicators of the inflation calculation. That was about two point one percent, much closer to the inflav to the Fed inflation expectation, and again that marks more than a year of declining year over year reads of that of that may measure all.
Right, So Rubin, let's I guess one of the first questions people have its like, what's this economy going to do? And what's this federal reserve going to do? It feels like the soft landing is being fairly well negotiated by the Federal Reserve and that more than more than not, there will be some rate cuts this year. Do you guys agree with that?
We do agree with that.
We moreover, we do think that the rate cut where we will see more rate cuts than what's currently being priced in. So generally, as we look at the market, we think that the market is being priced for perfection. You know, we have very very gradual rate cuts priced in. You look at the credit markets, corporate credit markets, they
are at cycle tights. Spreads are at cycle tights right now, which means that the compensation that corporate bond investors receive for holding corporate bonds is at the lowest level we've seen in this cycle, and that's a lot of oplimism that's being priced into the market. We at TCW are less optimistic about the prospects of the economy. We think, in fact that a lot of that optimism that we see in the market is perhaps extrapolation of the strong
resilient twenty twenty three that we've seen. But we think that one should use a lot of caution when extrapolating from the strong resilient twenty twenty three into twenty twenty four, because there were some significant tailwinds that helped growth in twenty twenty three that we don't think are going to be nearly as powerful for twenty twenty four.
Growth enhanced, the growth will prove yes.
So what do you think, where will the data become weaker and where will we see that reflected. It seems like we can kind of pick the narrative and find the data right like the NFIB for example, at lowest level since twenty twenty one, right expecting sales to fall like it doesn't look great, But then you take a look at the jobs number, and then it looks great.
Yes, you're absolutely right.
The data has been coming in mixed, and you know, we had some very strong payroll data, but NFIB Business Optimist number this morning was very was very very was not as good. Was actually pretty bad across across the board, whether you look at the credit condition for small businesses, whether you look at hiring plans, and if you if you do believe that the small businesses employee about forty percent of your workforce, that's pretty significant.
So we already see some cracks in the data.
You know, you know, the the some of the tailwinds that they talked about that that were powerful in twenty twenty three and perhaps the first quarter of twenty twenty four as well as the data is coming in helped prolong.
The cycle, so to speak.
So but we do still see cracks, especially in areas that are highly exposed to high that are more interest rates sensitive. So when we look at on consumer side, for example, we look at the delinquency rates, and there are higher across the almost across the board, and in many many cases delinquency rates that we see are higher
than pre pandemic levels. Is you remember in twenty twenty three, the store was that the links rates are rising, but they're rising to pre pandemic normal to pre pandemic levels, so they're normalizing to pre pandemic.
That is no longer the.
Case because in many cases, especially at the you know, for the bottom cohores of income distribution spectrum, we do see that those linkal s rates are way higher than pre pandemic levels and rising. When we look at the corporate sector, we do see that the segments that are most sensitive to interest rates, bank loans that reset the rate on a quarterly basis.
They see their default rates increasing. There.
They went from sub two percent in a couple of years ago to mid single digits depending on how you measure, and that there's a measure defaults. So they're on the rise as well, and we think that will continue as we see, you know, the monetary policy lacks dissipate and monitary policy continue to weigh on the economic growth.
So Rubin, I mean, I'm an equity guy, but I look at the two year treasury and I can get four point seventy three percent work my money there or do I take some credit risk and think about that? How do you guys think about that?
Well, we do like the front end of the curve, So we're overweight duration, and a big fraction of our overweight is in the front end of the curve in two years and five years, because we do think that's an attract that those are attractive rates. That being said, credit we think is very very optimistically priced. We don't think investors get a ton of compensation or forget being in corporate credit, but we do think that the securitized markets agency mbs for instance, and some segments of non
agency securitized credit are very attractively priced. So we are currently expressing some overweights in those areas as we think that those are more attractive, far more attractive than corporate credit, which is as I mentioned at cycle tights in IG and in high yield as well.
So if you like the front end, is that a pure yield play or is that a price appreciation play or honestly.
Both, well, it's both. We do think we'll see some price appreciate. Gilds are attractive, as we know, but we think that we'll get some price appreciation as well because we do think that the rates will will come down, especially more so in the front end of the curve. We do expect a bulls deepening of the curve where where by the front end of the you know, the lower tenors, the shorter tenors will come down more than the belly and the and the long end of the curve.
So we think you'll get both.
You'll get a price appreciation and obviously you're clipping a very high yield uh while holding the short treasury bonds.
All right, Rubin, thanks very much. I really appreciate Rubin hoven asci And Okay, I'm going to get it.
Homan Is, Did I get it? Did I sort of get it?
Yes? Yes, you did?
Nice? All right, he joins us.
There he's a general's portfolio manager at tc w's fixed income group.
Those those people tc W, every person we get smart.
Super smart smart.
Uh.
And you know you raised the point about you know you're the equity The ampity risk premium is like nothing over bonds, right, It's just like, how do you buy equities then when you can get a two year yielding almost five percent? And we talk a lot about how all that money and money market funds is going to go somewhere?
How about how about New Jersey municipal bonds?
Oh about on a deep teas for Friday.
Tuesday, but just get you're ready municipals on Friday.
So yeah, it's true. I mean slowly he'll convert me.
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We strive to bring you the best from Bloomberg Intelligence. We cover two thousand companies one hundred and thirty industries worldwide. We also strive to bring you the best from Bloomberg News, and to do that we go to Sheridan Prasso. She's Bloomberg News Senior Investigations a writer and she joins us from Washington, d C. Her her story is the Big
Take story on Bloomberg. She co authored about how countries from Central Asia to South America are building their own killer tech based on Iranian designs.
This does not.
Feel like a feel good story, Sheridan, thank you so much for joining us.
Really appreciate it.
Walk us through your stories about and what you learned in this investigation process.
Hi, So thanks for having me. We had we took a look at how US technology flows are going into Iran's drone program, and what we found is just an incredible proliferation of Iranian drones now spreading throughout the world in ways that surprised even me from when I first
started looking into this. You know, we obviously know about Iran's drone proliferation in the Middle East context, right through Syria, I Rock, including now into Yama and Yemen, and then in the Middle East, you know, conflict in Gaza now as well, we're seeing kind of use of Iranian drones in the periphery of that conflict as well. But what also was surprising to us we found is that Iranian
drones are now being manufactured in Russia. There's a program for six thousand Iranian drones there that are starting to turn up now in the battlefields of Ukraine. They're increasing proliferation in places like Central Asia and in South America as well, so it really is quite an enormous spread around the world.
How is the technology, how advanced is the technology? Is just a model airplane with a lawnmower engine on the back or are they going something.
Further it essentially is, and it's fairly low tech. But what's been really successful about these programs is that they're increasingly developing them and learning from experiences on the battlefield, for example in Ukraine. So what is now believed to be the case is that Iran learned from the way that Iranian drones were now being able to get into Ukraine had increased their effectiveness in the Middle East context.
So it's increasingly battlefield experience and more and more use of these drones that are allowing them to make more deadly strikes. Actually in these conflicts. We're seeing them, especially in the Red Sea. And also there was the particular case of the three servicemen who were killed in Jordan earlier this year. It was a fairly low tech small drone, but what it was able to do is we learned in the course of this reporting that it was kind of drafting in behind a US drone that was attempting
to land at the same time. And those drafting techniques are something that they've been working on improving in the Russian and Ukrainian context. So this kind of learning growing proliferating technology using low tech technology, but actually improving its effectiveness is actually proving very deadly.
What can we do about this?
So the US has export controls where we try to stop US technology from going into these drones and into the manufacturing of these drones. The issue, though, is that Iran in particular has become a master of circumventing, you know, over forty years of sanctions. There are very developed networks where front companies from all over the world are able
to acquire this low tech technology at uh. A lot of our export controls are aimed at stopping sort of the higher end you know, chips now going to China for example, for their AI, but in fact the proliferation of kind of lower tech you know, you need like maybe a few hundred low tech chips, the kind that go into your you know, lawnmower or you or blender or any kind of regular household equipment. That low tech
stuff is actually what's powering the drones as well. And a lot of that is just available, it's recycled from old products, it's uh available from suppliers in Asia. China in particular has not been willing to enforce our US export controls against Russia, for example, So there's actually a very big loophole, particularly in Asia, for US tech flowing now into Russia into a run drone program in Russia. So there are a bunch of concerted efforts now to try to make that stop.
Sheridan, Do we know how effective these drones are?
So they've been very deadly in particular instances. What we've seen is a halt to I forget the percentage, maybe more than fifty percent of shipping in the Red Sea has been halted by some drone attacks in the past few months. We've saw the deadly attack in Lebanon and several other very effective drone strikes as well, and so it's really cause for alarm in Washington. You know, we're wondering how far this is going to go, how effective this is, our efforts at stopping it are going to be.
You know, we're considering kind of how do you actually get US companies to stop allowing their technology to go there. And the companies that we talked to, for example, Texas Instruments, Analog Devices, a lot of their stuff at least eighty percent of the drones that are turning up in Ukraine or containing this US technology from in particularly these companies and a few others as well. How do you get that to stop and therefore decrease Iran's ability to proliferate.
And that's the biggest question right now.
What did those companies say.
The companies say that that we ad by by US export controls. We have our insisted our suppliers do so as well. The issue is that there's so many loopholes, and in particular Hong Kong is proving to be a very difficult place. It used to be maybe ten, twelve, fifteen years ago, we had much better relations with Hong Kong. They would have been a lot closer to Western interests.
And now with the changes that have happened in Hong Kong and the last three four years, we have seen less willingness on the part of Hong Kong officials to actually enforce US export controls, particularly going towards Russia, and so we've seen a big uptick in proliferation from equipment going via Hong Kong into Russia, for example. It is much better though at enforcing UN sanctions against Iran, and so it has successfully stopped a lot of technology going
to run. But still there are quite a few kind of leaks in the dam basically, so it's happening all around all right.
Shardon, thanks a lot, We really appreciate it. Sharon impress so Bloomberg News Senior Investigations a writer, and I highly recommend that everyone read her piece.
You can find the.
Story on Bloomberg and at Bloomberg dot com, slash Big Take, check out the Bloomberg Big Take podcast at Bloomberg dot com and wherever you.
Get your podcasts. I love how like, how do you get turned on to all these stories?
Right? Because you're investigative reporter, it can go to so many different directions. But what an amazing piece of work and something that isn't We're working on it like an easy quick fix.
No no, and on this story that there is the Big Take podcast hosted co hosted by David Gura, and they're featuring this story. So you can go check out that podcast. Just fascinating stuff.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecard Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
A lot of folks are saying, you know, as I look at the market here off a half a one percent, is Jonas's reporting that what this market needs is a you know, a more I guess bigger pullback, maybe five percent, ten percent, something like that, that that would not be the worst thing for this market, but we have not seen that in some time. Again, SMP up more than twenty five percent off of those October lows. Let's check
in with a professional now, Nancy Daoud. She is private wealth advisor at Amorprice Financial, joining us from Miami, Florida via zoom. Nancy, thanks so much for joining us here. I mean, what are you telling your clients here? Is it just up up in a way here for risk assets?
Well, that's a great question, because you know, everybody wants to talk about how great the market is, and what I'm what we're really telling our clients is essentially to be very very cautious because people get too used to
this and they expect it to just continue forever. And up markets don't last, and neither do down markets, you know, obviously, And I think this is the opportunity for us to sit down with our clients and talk about well, what are your shorter term cash needs, because there's no better time to just take some money off the table and board it for those immediate cash needs, anything in the one to the next one to three years, this is the time to do it. And I believe also that
that's probably what we're seeing. I mean, we saw a couple of days of downturns in the last week, and of course now that's happening again. I think a good chunk of that could very well be some profit taking.
Yeah, absolutely, but we just you know, a lot of folks again expect to see more pronounced profit taking than what we've seen recently. And one of the issues is, you know, for by and large, this is a market really in twenty twenty three and continuing to some degree this year, has really been led by those big tech names. I know there's some laggards like Apple, like Tesla, but the big tech names have still been kind of leading the way. Is that still going to be the case?
Is that you're do you think tech is still the leader in this market?
Well, longer term, certainly, yes, But just more recently it's been nice to see a broadening of the market a little bit. We've seen financials do really well, healthcare continues to do well. Energy obviously is catching up a bit, and mostly because of the geopolitical environment that we're in, and we're seeing a little bit of the broadening of the market, which helps in that sentiment a little bit. You'd never want just one sector to dominate, you know,
to make or break the market. But longer term, certainly technology is the next boom, or the AI really is the next boom. And if you're in it for the longer term, meaning seven to ten years or longer, what opportunity do.
You feel in the shorter term? Do you feel confident that the broadening out will continue throughout this earning season.
Well, you know, I think there's quite a few variables that may or may not affect that, and that's the
persistent inflation. I mean, getting to two percent, I think is going to be a lot tougher than everyone thinks because the progression or the progress that we've made in the last couple of years has been, you know, pretty much on track, but it's always that home stretch that takes a little longer and with a significant more I know everybody's been very bullish about rate cuts happening you know, next month, or we don't believe that that's going to
happen anytime soon, and if it does, it won't be until the latter part of the year. I mean, we're seeing mortgage rates actually going up at this time, and the reality is sinking in, you know, and that is that although inflation is no longer increasing or going up as much, you know, this is the new normal. Prices are the way they are now. They are not going back, and there's a little bit of an adjustment to that.
Yeah, Hey, Nancy, my co host here, Alex is a expert in the field of all things energy. What do you think about that sector right now with Brent crude at you know, close to ninety dollars a barrel.
Well, typically we always see energy as an opportunity during a time of geopolitical risk, which we certainly have right now. So since October when the Israel the Middle East war started, then we begin to buy some energy or ETFs mainly, and that's that's when we saw a big uptick, but then it kind of came down. Now it's really pulling
going up again. So this is you know, oil prices are always something to watch during a time when there's a lot of geopolitical risk and we have a war in Europe and we have some going on in Southeast Asia. I mean, it's it's on every front.
So based on that, I mean, I appreciate that the oil trade is there for that. Do you think the gold is moving along the same lines as that or do you think gold is moving on its own because no one kind of really gets what's going on there.
Well, that's hard to predict, but it doesn't appear that they're moving together. I think they're probably kind of on its own. Gold is probably on its own a bit.
Yeah, it's interesting when we talk about save Haven's Paul right, Yeah, is that what's happening? Okay, we're going to play stuff, but we're going to go save Haven as gold or is it something?
Yeah?
And you know the central banks that we had a guest this morning, Tom Keenan and I and really talking about the central banks around the world kind of concerted buying there, including China NATSI just lastly broke real quick, what are you looking for in earnings? We're going to get earnings kicking off in Earnest this week here.
We're expecting to see more of the same, it wouldn't be unusual to see a little bit of some pullback or you know, not maybe not as strong. But you know, it's interesting that it's always about expectations. If we expect earnings to be really strong and they come up weaker, the market reacts violently. And if the market if I'm sorry, if earnings are expected to be weak and they come out really strong, the market, you know, reacts violently also. So it really all has to do with expectations, not
so much much about the real numbers. And you know, when we put together portfolios and make recommendations for clients, it's really about the math, not about sentiment. You've got to always go back to the math because the math are always rules in the end.
Yep, Nancy, thank you so much for joining us at Nancy Dude President. She's a private wealth advisor at Amerorprise Financial.
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