Expectations For Airlines As Earnings Take Off

airlines report numbers today, smaller than expected loss uh. Cautiously optimistic about a continued recovery, UH, particularly in domestic That's a little bit better than what we heard from Delta Airlines and United, and I think offered maybe a little bit more caution here about the rebound in the airline business. Let's dig a little bit deeper in the airline business. We welcome Frank Homes, CEO and Chief Investment Officer of US Global Investors. Uh. Frank, I know you have a

lot of experience with all things aviation aeronautics. You've got your E T F J E T S, E T F SO a lot of experience there, Frank, What are you taking away here from what we've heard from some of the big US airlines. Well, talking to you in New York is the Jets et f It's not the Jets football team, that's right, And uh, I think the big part is what happened last year in March the t s A started publishing daily and you get on Bloomberg.

Is a nice functionality of how many people the t s A clear and prior to COVID it was two point seven million people a day. Two million people a day were just domestic travel. Seven hundred thousand were inbound from Europe, Asia and Latin America. That number fell down to in April mid April last year down to less

than ninety people a day. Now what we've seen is a huge surge over a million, three million, four a day now flying and and as that daily published, the longer stays up of that number, the faster the airlines can get to break even. The business traveler is not going to come in great numbers until the until most of the population is vaccinated. So the triangulation do you want to take a look at it is what is the penetration of of the population being vaccinated. Creed's got

confidence for travel. The first big movement has been tourists can wait. The airlines have reinvented where they fly to, like San Antonio to Miami and I'm based in San Antonio. Used to be NonStop every morning American airlines, it's not doing it southwest to Fort Lauderdale. You're seeing all this reconfiguration of taking people from north to south, and the

airlines have been able to move people for tourism. That business traveler is going to wait and probably what I think is until about six people have had their second needle uh for the vaccine process, that conference will then see it. I mean, I love that you brought up the business travel. Correct me if I'm wrong, But we think that the business travel is a higher profitable, better margin and traveler than the leisure traveler going on vacation.

What does that mean then for the composition of the margin mix of the profitability for these airlines they're looking to get back to being profitable. It explodes, you know, it's it's massive. And the other big part that the real big wind will be Europe when Europe finally gets his act together and getting more people vaccinated and travel opens up over there. Because jess As is a global airlines index um that recalibrates every quarter and picking those

with the strongest financial stocks. So I think that the big opportunities will be business travels. More people vaccinate here and Europe opens up this summer. UH, this will busial fast track the profitability of the airlines from both business travel and international travel. The tickets are much more profitable across the pond travel Franks or is there still a

risk for some of these carriers here. Um, you know, they really can't have stained profitability without um, their international travel, without their business travel. And again we're seeing some pandemic numbers, most notably today out of India that are just really going the wrong way. Um. Is there still that cloud hanging over whether these companies can survive, particularly those with you know, UH more leverage balance sheets. Well, it's a

great question. But I think what we've seen is the capital markets have been so fluid UH and in raising capital it's been inexpensive, and there's new mechanisms from UH and at the market mechanism a t M, they call it ability to raise capital. We've seen price discovery explode in the past year with all the robin Hood investors that coming in, and and that liquidity attracts other bigger fund managers and institutions. So I think the system is a Washwood capital and I don't think it's it's it's

easy to see how fast facts are exploding. Uh And and the capital markets are to be very exciting for investors. And I think we're going to continue to see more capital formation by these airlines be able to tap those complo markets. Curveball here, we're going to go from jets into bitcoin. What the heck are your clients asking you about bitcoin and the shake out below fifty? Well, you know,

I launched the first public company to mind cryptocurrencies. It's called high Blockchain Technology, and uh it minds e theorum and bitcoin. I think that the bitcoin is going through, uh it's it's sort of normal, big correction. I think it's temporary. You're seeing more and more adoption PayPal venmo. People can go on and buy a fraction of bitcoin. They don't have to worry about fifty five thousand dollars spending.

They can buy five thousand dollars. Uh And And and as you get more and more people adopting to this, now thirty five million going to forty million, they call wallets. Uh And, you have a limited supply Metcalf's law suggests if it goes to a hundred thousand, So I've always advocated a two percent waiting in that asset class is an alternative asset class. You can do it through the

cryptical mining companies, or you could do it directly. You can't buy stocks on your Bend Moore account, and you can't buy on PayPal, but you can buy bitcoin and and that is a very important long term adoption. Frank Holmes, CEO, Chief investment officer for US Global Investors, thank you so much for joining us today getting the report Paul on jets airlines and bitcoin as coin base it ees a three hundred level at a three oh six. Yeah, I know.

It's it's interesting the volatility in bitcoin, which is a big driver of coin base, is with us and this Franco suggesting maybe that's just a regular form of a correction in that currency. So we'll more coming up. This is Bloomberg, all right. We got the leading economic indicator data point for the month of March came in at uh where did it come in at one point three

uh percent? Um? You know better than a one percent? Look, so we had the the actual economic indicator increased one point three percent came in and one eleven point six that's pretty good. That follows a one zero point one percent decrease in February. So pretty strong numbers coming out of the month of month of March for the U S economy. Let's dig down a little bit deeper. We will do that with Ottoman Oldrum, Senior Director Economics and

Global Research Chair at the Conference Board. So Aduman, thanks so much for joining us. Once again, pretty good numbers in March. Is that just kind of a catch up from what was a tough winter month in February. Good morning, Paul, great to be here. Uh, yeah, the Leading Indicators had quite a positive report this morning. Um if February was slightly uh negative, revised down a little bit. So it was a rough sort of winter months in the beginning

of the year. So part of this is catch up, but it really is also the continuation of the positive momentum that the leading index had been building since you know, say the middle of last year. You know, with the reopening of the economy, um and more good news is kind of feeding into the economy and the leading indicators looking ahead. Now. I think what really stood out to me is that all ten components are contributedly contributing positively.

What are those ten components? What are you seeing that is really leading this recovery? Yes, so that is very good news. Indeed, so all ten components are contributing positively. There are really kind of five areas that are grouped together in this leading index. Uh and uh so those are you know, labor mark, hits, manufacturing, consumers outlook, construction,

and financial indicators, and all areas are flashing very positive. Um. So you in the program, you mentioned unemployment insurance claims. That is one of the components. Uh, and it is continuing to drop uh and feeding into those positive contributions. The good sign from labor markets and that really is kind of the beginning of a virtuous cycle that feeds on itself, right, and that's manufacturing orders are rising, Supply managers are very positive about the outlook. Consumers outlook is

also become much more positive about the expectations. Uh and we would expect that to translate into more spending. Housing permits are increasing after the bad winter months. There's a pick up there. Um. And financial indicators are also feeding positively in the into the leading index. Autuman. You know it's kind of a weird paradox in the labor market. You know. What's we still have so many people unemployed, much higher than we would like, certainly economists would like.

Yet what we hear from employers across the board as they're having a very difficult time filling positions, particularly on the lower end, and they often cite the fact that it's tough to compete against some of the government fiscal stimulus in terms of UH enhanced unemployment. How's that factoring into the economy? Is that a risk at all to kind of the reopening of this economy? So it is one of the potential risks as the economy kind of builds more momentum. UH. There is UH has been a

lot of labor market disruption and UH. You know, it's not just in the macro top level numbers, but when you look at the detail of the different sectors that laid off workers, there's a lot of UH variety across different sectors. You know, some continued along UH and some really shed a lot of workers, which they're now trying

to you know, higher back UH. And that sort of kind of perpetuates the disruptions that we've been seeing and that could the difficulty of finding and hiring workers could lead to you know, wage pressures uh in different sectors differentially and create even more disruptions in a way, kind of trying to move workers from one sector to another. It's not that easy and you'd have to pay them even higher and uh, and that difficulty in hiring could continue.

And um, you know, my colleagues at the Conference Board have already started talking about labor shortages, you know, coming back. This is not something that we saw over the last year, and they may, indeed, you know, come back earlier than we might have expected. Yeah, it's a really interesting dynamic to what is an improving labor market. Au amount Uzel Drum, thank you so much for joining us. Automan is a director of Economic Research and Global Research Chair at the

Conference Board. Again, the March leading Economic indicator came in with a growth rate of one point three percent. The consensus was one percent, so better than expected and his Ottoman was mentioning kind of across the board improvements, a little bit of catch up from the week winter months,

but certainly a strong number. You know, Taylor, back in the day, I used to work at Credit Swiss or what was then known as Credit Swiss first Boston, so I tend to follow the company and for newsflow to see what's the latest there, and the boy, they've been in the news but for all the wrong reasons. Let's get the latest on Credit Swiss. We go to our ACE Banks analyst from Bloomberg Intelligence. That would be Alison Williams. She's been with Bloomberg Intelligence covering the banks. It's the

beginning of Bloomberg Intelligence about twelve years ago. Before that, she was at Morgan Stanley Investment Management investing in a lot of these big banks. Allison, thanks so much for joining us here. Boy, it just seems like Credit Swisch just goes from minefield to mindfield and they just step on these minds all the time. Give us the latest on what's going on there and how they're trying to kind of get past it. I guess I think that

the latest today UM a couple of key things. First of all, um, they did a convertible offering raising two billion of capital. I think that's I think that's a good step towards risk management, right because even though they had the capital to absorb the loss. I think this will help to study the ship it'll stop UM questions swirling around the positions, especially since we know that there's another UM arts charge related coming in next quarter. We

know that there's probably a regulatory and legal fallout to come. UM. So granted it is dilutive to shareholders, but UM, but I think that UM it's it's smart from a risk management perspective. And then much of the other changes are exactly what you'd expect. They're going to be pulling back within the prime brokerage unit UM, cutting that business by about a third. They're going to be UM pulling which will result in you know, paring down at the investment

bank balance sheet UM by about ten percent. UM. There's obviously been changes in management for the prime brokerage unit. The Preston Bank had the chief risk officer. Again UM, these are all things you'd expect. They continue to do a review UM and they continue to make progress UM in the asset management business related to some of the green Filly issues. You know, Allison, big picture, it's interesting the timing. I'm in a class right now called managing

financial risk. We're learning how to calculate var and expected shortfall. Where were the var where were the risk parameters? Of credit suites that allowed this to happen. So UM. I think the most important lesson on var which hopefully you're also learning, is that it's a flawed measure and it's backwards looking. So bar is going to look, you know,

um pretty ugly for Credit Sweee going forward. Although the interesting thing is that you know they this this generally would be considered a contra revenue item because but because of the size of the item um, they booked it as a charge and as a provision, so outside of their unit you know, in contrast to Morgan Stanley that

absorbed it um within their revenue um. You know this The second part of it is, you know, tier point risk management and in these divisions, you know, there's there's generally all different types of tools by product, by client, by size of the exposure. And I think it's the size of the exposure versus the size of the unit um that that really UM was outsized because if you think about you know, Credit Sweee probably makes about a billion dollars a year for the last couple of years

from prime BROKERA. It's it's our estimate that a five billion dollar UM loss on this client. You know, Morgan Stanley, um you know, is probably at least double that. They've made forty billion over the last ten years and they had a one million dollar loss, and and they're they're much bigger in the business and than Credit Suite. So it signals that perhaps, you know that this bank was

taking outside risks. The question is, you know, were they were they taking outside risks in terms of the you know that just the exposure to this client, just trying to get bigger in the business. And then obviously there's um as I'm sure you know and has been um well discussed. There were specific issues the family office, the lack of transparency, etcetera, um that were sort of unique

to the situation. Alison. You know, again, I've got a lot of history with this firm and and it just seems like there's there's always some big, big control issues, some big bad trades, big bad investments, charges all over the place. When did when does the board get held responsible? I mean, blowing out your investment banking chief and your chief risk officer. Okay, I get it, but what does the board take some responsibility here? Because it just seems

systematic almost to this firm. Well, you know, one of the reasons why Credit Sweez was able to offset this loss was reduction and compensation. And you know one of the things that the bank did um when they had sort of flagged the initial or when I guess they first sized the four point four billion franc four point seven billion charge um turned out to be more, but they you know, went back and adjusted um, you know,

executive compensation um for the years prior. And that's and that's something also that that's I guess relatively new to the industry, but you know, clawing back um compensation when when things like this happen. Yeah, interesting, just extraordinary to watch this happen. And again that two billion dollar convert offering um perhaps strengthen off that balance sheet. Allison Williams, thanks so much for joining us. Always appreciate getting your

perspective on these global investment banks. Allison leads our banks coverage for Bloomberg Intelligence, the research arm of Bloomberg, and Boy Taylor just seems they can't get out of their own way. Sometimes I just need her to do my bar homework, Paul, That's the only thing I need exactly. Yeah, I mean she's had a lot of experience again, you know,

investing in these banks. She knows all the management teams, she knows all the strategies, she knows where all the bodies are are buried in when you're looking at Credit Swiss again, just so many things to be wary of if you are investing in that company. But we'll have to see how it plays out. This is Bloomberg time for Bloomberg Opinion. Today we have Carl Smith. He's Bloomberg

Opinion columnist for Bloomberg Opinion. He's kind of fascinating column here entitled repealing salt cap would be wrong move for Democrats. And then someone lives in the Metro New York area, one of those high tax areas that cap on the state and local taxes. Really hit home when you have followed the taxes, and uh, it's not just the Metro newerk areas, other high tax areas Taylor where that was a big issue. Paul. It's the only thing municipal bond

investors care about right now. That's the only reason we're doing this story. They knew I was going to be on radio. They pushed Matt Miller out. No one in Berlin even knows what this is. Municipal bond investors only care about the salt repeal if it gets repealed or not. That cap deduction, Paul, I know it's big, it's big. It's something I bring up all the type. Carl, thanks so much for joining us here. I'd like to see

the saltcap repealed. Why should Democrats not pursue that? Well, so it's understandable why a lot of people in you know, Mentro, New York and California high cost areas, UM took a big bite on that. But if we look at so the economics of the repeal, UM, it's it's pretty it's pretty regressive. So I think there's been some analysis that like on net, it's more regressive than the tax cuts

and Jobs Acts work. That is, more of the benefits from salt cap repeal would go to UM top five per st of owners, top one sin of earners then went to that group during the TCJ altogether. So it's it's unusual for Democrats. And then it's a little bit more skewed towards UM higher earners and even sort of Republican tax policies. UM. So that's why I think it's kind of a kind of a bad fit for you know,

where Democrats at least say their priorities are. UM. It also does take revenue, and we're in a we're in a place now where you know, the government has spent a lot of money, much of that was borrowed UM. The President Joe Biden, has indicated that he doesn't want to continue that, that he wants to fund most of the new initiatives, and so that's gonna take revenue. So if you want to do the big things on infrastructure, that's gonna take revenue. Saltcaps, so it takes away from that.

I mean, few of those things can be done, and so it's kind of a policy that just doesn't fit with where the Democrats want to go and what they say their priorities are. I also think that it's it's not really popular with UM a lot of Republicans either, so it's kind of a loser on that side as well. I love that you bring up the fight between Democrats and Republicans, but then really and maybe more importantly, the

fight within the Democratic Party. I mean, you think of the ao c s who say, no way, this is a loophole for the rich, and then you have maybe more moderates you're thinking the chuck humor saying we really need this to be included this repeal if we're going to get through this broader tax plan. What are the conversations within the Democratic Party about how they're going to get this done or not? Is this all just cultural politics? Yes?

So I think that one of the one of the things that's made that's really complicated is that UM during tc J A, Republicans are looking for ways to fund the corporate tax cut UH, and something that economists really have pushed for a long time is capping or get rid of getting rid of the state and local tax deduction UM. We think that it's it basically subsidizes UH states that have high levels of taxation, and there's no

particular reason to do that or increasing efficiency. But anyway, so the Republicans went towards that, but they had this problem and that it's a tax increase. So how do they justify this tax increase? And some of the some of the President Trump's allies got on the idea that we'll call it the blue state tax increase. Wool emphasize

that only like blue states are gonna pay. And in particular, they didn't get rid of the whole thing, They only captain it ten because that would sort of like maximize damage the blue states while leaving some wealthy people in a red states still able to deduct into that limit. Yeah really big, Yeah, yeah, Carl, So that that kind

of goes to where I wanted to go. You know, a lot of folks that are supporting the repealing the soft cap said, hey, this was just a political uh dig by President Trump against those areas of the country that did not support them in the election. It had nothing to do with fair taxation or economics. It was simply all political. As a result, it deserves to be repealed. So it's become kind of, I guess, more of a political issue than an economic issue. If anything else, is

that how it's being played out in Washington. That is a big part of it. And I mean, I think that's what's making that's just making the split among Democrats harder. I mean, um, I think among even sort of Republican wanks and Democratic wanks are kind of like both against the salt deduction. But when Trump's people came out and made it a cultural issue, that made it hard for Democrats to be in favor of captain salt, especially Democrats

whose own constituents, we're going to get hit. But and so you know, it's it's a live issue now, precisely because Trump made it a cultural issue. Carl, I'm throwing you a curveball here, but we know you're smart enough to handle it. I've been studying a lot of the state local government budgets. I think of New York, which after those tax increases, you're looking at fifty tax rate on some of the top earners, higher than California, and a lot of those budget assumptions, I think Cuomo's assumes

that the salt repeal indeed will go through. Are we getting into trouble when we're building budgets on a state level that's based on something that's going to happen at the federal level that well, we're not quite sure that that's even going to happen, right, And I mean, I mean, I mean, so obviously that's not wise. I mean, we're not wise from a budgetary standpoint. Um. It puts more pressure on representatives in New York since he's already said,

we'll look, you know, we're committed to this. We've already committed this. We're expecting you to come through. And so it makes sense. It's a political move, but obviously, um, you know, it's a poor budgetary move and only makes things riskier for the state going forward because I don't think that the salt cap is probably gonna get repealed. So um, I mean, it'll be a big fight, but I don't think ultimately the it will be repealed. What's the sense of timing here, Carl, about you know, when

we're gonna get some resolution here? You know, I'm I'm not clear on that because, uh, you know, so far, the President has said that he's he's not particularly interested in doing it. I know that's the position of the economists at the White House. Um, but Schumer seems to be digging in on it. Pelosi need soon as you're thinking in on it, and so um, it's really like

a live ball, right. I mean, I would expect, given the wings are that the President will ultimately get his way on this if he sticks to what the economists are telling him. But because it has so much support them on the Democratic leadership, it's hard to say when things will really like be resolved. All right, Carl, thank you so much for joining us. We appreciate that. Carl

Smith from Bloomberg Opinion. You can reach all you can read all of Carl's work and that of our good folks at Bloomberg Opinion at Bloomberg dot Com slash Opinion. Lots of great work there as well as I love these debates in the afternoon when I'm on TV, we debate about if there's inflation or not. I think there is. Romane thinks that there's no inflation. I'm going to now start debating you on salt. Is it a tax loophole? Is it not? I love it. Yeah, I don't know.

I don't know, but it's it's certainly hit folks in the metro New York area, I think pretty hard. Um and um, you know, it's one of the incentives for living in this part of the country as you can get some tax really on your state and local taxes which you can be very high in certain you know,

jurisdictions around the country. And I guess what made it even worse is that it was just a political gain their political football and and you know a lot of folks ended up paying the price just based upon where they live. But we'll certainly have more on that. That will be certainly a story that Bloomberg news will be following going forward, so we'll have more coming up. This is Bloomberg Markets. Thanks for listening to the Bloomberg Markets podcast.

You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller. On Ball Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio