Welcome to the Bloomberg Markets Podcast.
I'm Paul Sweeney.
Alongside my co host Matt Miller.
Every business day, we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com Slash podcast. A lot of news out of Washington, DCT on the legal front. I mean we started off the day looks like President Trump faces an August twenty twenty three trial in the classified documents case, so we've got some clarity there. Then just breaking recently, Hunter Biden de plete guilty to tax charges. So we want to get to the bottom
of this news coming out of Washington. Nick Ackerman, former assistant special Watergate prosecutor, joins us.
Nick.
Let's start with the news first on President Trump. If nothing else, it's he's going to receive a speedy trial, if you will. I mean, this is happening very quickly.
Yeah, no, I mean Florida, the southern district of Florida is known for its rocket dockets, and clearly he's on there, and I think it answers a lot of questions that people were concerned about with this particular Judge Cannon, who wasn't a Trump appointee, that somehow she would drag this out and delay it for Trump. That is not going to happen. I think one of the overriding themes that comes out of our news this morning is really the rule of law and how it has been enforced with
both of these developments today. One you've got a Trump appointee as a judge who is moving this case along and bringing it to trial. And two you've got the Hunter Biden a guilty plead that was done and overseen by a former Trump appointee as US Attorney in Delaware who was purposely kept on in order to deal with this matter, and he had the final ultimate decision as
to how it would be taken care of. The Attorney General kept himself out of it for fear of some kind of a conflict between the fact that he was appointed by President Biden and he would be making the decision. Instead, he delegated it completely to this Trump appointed US attorney, And in the same way, the decision to indict Donald Trump on the classified document case was delegated to a special prosecutor that was totally out of the politics and
was removed from the attorney general. So I think today was a good day for the rule of law.
So, Nick, has the Biden administration responded to either case yet?
I know, and there's no reason for them to. I mean, they have should have absolutely nothing to do with either case. It's important that they keep their distance and that the public understands that the decisions being made on this case are being made by totally independent individuals, whether the prosecutors or the judges.
So all right, Nick, let's I guess focus on, presumably what is the more important case here.
What is your expectation.
I mean, this is going only going to be They announced a two week trial, so that seems very expeditious if nothing else, How do you expect this to play out?
Oh?
I think it's likely to play out just the way she's got it set up. I mean, there may be a little bit of a delay in here, but this is not a difficult case. It's fairly straightforward. The number of classified documents I think is somewhere around thirty that are an issue here. There's testimony by witnesses, there's going to be pre trial motions, all of which are, for the most part, as far as I can tell, it pretty frivolous and will take no time to dispose of.
So there's no reason why this case can't be put on trial in August. I mean, this judge is spot on. This is the way the case ought to be handled.
Nick, Should we expect a plea deal from president former president Trump's campus that's something that we should expect, or do you think he prefers or he should go to trial?
Well, I think he's a fool to go to trial because the evidence, at least as it's set forth in the indictment, is extraordinarily powerful, and his statements, even his statement last night on Fox News, he keeps digging himself in deeper to this and creating more fodder for the prosecution in the case. The best thing that I would advise any client to do under these circumstances is to somehow get a plea deal. But knowing Donald Trump, I'd say that's pretty unlikely.
How does this affect the election.
Well, that's the whole point. If this case is done by early September, it's not going to affect the election at all. I mean, if he's convicted. You know, good luck to the Republican Party if they want to nominate somebody for president who's convicted for mishandling and obstructing classified documents. I mean, I just don't see that happening here, so I think it by doing this on this schedule, this, this is a good thing in terms of the election.
Nick, thanks so much for joining us.
Really appreciate it. Jumping on with us.
Nick Ackerman, former assistant special Watergate prosecutor, giving us his thoughts and analysis on what's been some pretty busy news front.
This morning, you're listening to the Team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern.
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You know I've said it before, I'll say it again. You know, my next life, I want to come back as a care m and a bank because this just deals left and right. We've got another one today, Lily to pay two point four Yeah, two point four billion dollars for immune drug developer Dice. Breaking down force is our good friend Sam Vizzelli. He's head of European Research. He's also got a side hustle where he's presumably reportedly a pharmaceuticals analyst for Bloomberg Intelligence. So we'll check in
with Sam. Sam, thanks so much for joining us here again, another deal here for Lily. You know your big farmer companies. I know they do a lot of R and D, Sam, but boy, they're really active on the M and A front, buying drugs and therap therapies. What are they getting here with Dice?
Hey, Paul, just just one comment before we go to Dice.
I think your life as a media analyst back in the days wasn't that bad, was it?
No? It was.
We had a good role there for a while.
Oh yes, No, so Dice.
Basically, what Lily is doing here is that it's acquiring a novel therapeutic approach or novel drug development approach to treating dermatological disease. In this particular case, I think the target's going to be a psariasis, which I think a lot of people are familiar with in which Lily's already active.
So they have a product called Tolts.
It's doing really well, but it's coming off patent in twenty in the late twenties, let's say, and it does make sense for them to be backing into it other products. And let's not forget a lot of farmer company products to fifty percent of them originate outside of the farmer company. You can't own every science, every new methodology for developing drugs, which is something that Dice has got a new approach to doing small molecule pill type drugs. So that's what
I think we got. We're seeing and we continue to see.
Sam. How are investors reacting to this? Because if you look at shares of Dice as tickersymbol DIICE up about thirty eight percent on Peaceport's best days since October of last year. Looking at Eli Lillly tickersymbol l l Y up about one percent.
Yeah, well, so, I mean usually the acquired when they're doing such a small de Let's not forget Eli Lee. Now, at least last time I checked, was the largest farmer company in the world. They overtook Johnson and Johnson. Although I think they're vying for that position like who's the wealthiest man in the world kind of situation.
But so, really, what difference does it make to them?
Yes, it changes a little bit of the dynamics of potential downside in their immunology franchises and rices franchise seven years at.
Down the road. Great planning.
But what really is driving in the stock today is the excitement around as we all know, obesity, diabetes, and Alzheimer's disease. So this is not surprising to me the way the share prices that mod What is interesting is that the share price I'm just watching it now on my screen here for Dyce.
This company presented.
Data for this drug way back in nine months ago October last year, and it's interesting that it's taken this long for them to be taken out. And I have to also say it's not the biggest premium I've seen with recent deals.
So Mark bought Prometheus for.
Around a seventy seventy five percent premium, and the Chinook was acquired or at least announced to be acquired by Novartists just a few days ago last week for a sixty six percent premium or sixty percent premium depending on where you start so at this thirty eight percent premium is not the biggest we've seen, and it does make me wonder how why this it took so long for somebody like Lily to actually close the deal, and perhaps they could have paid less.
Who knows?
Hey, Sam, talk to us about kind of that risk for patent expirations. I mean, I know you guys as analysts and investors, you probably follow that closely, are there.
Do you have a pretty good certainty.
When drugs come off patent and then when that revenue may be a risk, And are certain companies more vulnerable to that risk than than others?
Yeah, I think, Paul, it happens that sometimes some companies go through a wave of them and then others are pretty immune for a while to go yet, and I think Lily is one of those that's relatively immune. Pfizer, I think, more exposure than others currently, But then of course they come and go and then they move on
to a new base. And with patterns, yes, it's relatively relatively easy because you can get fantastic pattern analysts like our own old Girsbacker who digs deep on these things to try and guestimate when the patent expirer would come.
What has muddied the water here.
Of course, is the Inflation Reduction Act, which is saying that some of your drugs, especially these small molecules, these pills that I've been talking about, will be negotiated in terms of price to get them into a world that looks like as if they're becoming generic in terms of
pricing way before the patent expires. And so that creates an extra layer of uncertainty, which is why I'm actually quite interested in this deal today because it is a small molecule dealer, it is a pill, and it does fall into the IRA.
Trap, same with healthcare. Deer deals on a tear this year. Is this a sign of optimist in the M and A market?
Yeah, it's interesting, isn't it?
If you think back to last year interest rates pretty much close to zero here and there, it was a deal that these are not big numbers. You know, three billion dollars. What's that to a four hundred billion dollar company? But it does it's make me kind of chuck a little bit when interest rates are shooting up, But you think that MNA would be less likely. These companies are stepping in into introduers, which of course, it's telling you that they don't need any debt to do this. I mean,
Lily is very clear. He said, we're just going to finance this through our massive cash flow. So what is happening though, is that I think they're coming to a point of thinking more and more.
Valuations are where they are. They haven't moved very much.
They've taken their time, and they're finding the assets that they feel are the right quality for their pipelines.
Hey, Sam, as analysts and investors in these pharma companies, does a market care whether you know, the the Lilies of the world, the marks of the world, whether they do all of their therapeutics and drugs internally via R and D or they go out and buy it, do you guys even care?
No, not really at the end of the day.
I mean, obviously, if the R and D engine of the company they were spending ten billion a year and they were getting nothing out of it, that's not a good thing. But let's not forget this product isn't done yet. It still needs to go through. What a lot of people don't think about or contemplate is that it's not just about discovering a molecule. It's about then manufacturing it. Make sure you've got the right manufacturing footprint, make sure you've got the right package.
To go to the FDA, et cetera, et cetera.
So there's a lot of R and D that still needs to go in here that Lily will be spending on this product. So but nobody really cares as long as internal R and D, which is where the Munjaro drug there's appetite has come from, which is where there alzhemazrugs have come from, are delivering something.
Any chatter of other companies that Eli Lilly might be potentially in the sort of looking here to see potential buying as far as wor could potentially obviously continue this behemoth of a company that we've been seeing.
Yeah, so I think the best way to figure that out is to look at the products that are facing competition in the longer term and look at what else is available in the biotech sector. So you know, a lot of these deals are not coming into the mid stage development companies. There was a time where everybody wanted big, big revenue generators to basically do a little bit of financial engineering on that. But what we're seeing more than names I read off to Chinuk Prometheus, this company dies.
These are more midstage pipeline fillers, which are therefore going to be tied to what the company is either developing a new therapeutic franchise or it's got a drug like Tolts in the case of Lily that's going off pattern.
What you should really.
Be looking for is to marry that with good data that comes out of the companies as they report them.
Hey, Sam, thanks so much for joining us. Really preciated as always, Sam Fazzelli. He's head of European Research. He's also the senior pharmaceuticals analyst, one of the top analysts in the city of London.
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Jess Mitt and Paul Sweeney here in the Interactive Brokers studio, and we're going to change things up with a C suite conversation with someone who I here actually went to a school in Texas. Yes, well, so I'm excited. Matt Road, chief revenue officer at the auto lending enable to firm Open Lending. He's going to chat with us about the auto market, carloans, credit crunch, all things about that. Matt, thanks so much for joining us.
Yeah, thank you, guys, Thanks palm Jess.
I have to get your thoughts when it comes to the auto space and with the backdrop obviously with the Federal reserve in the direction of the economy. Are you noticed seeing any sort of red flags pop up so far when it comes to auto lending, you.
Know, not at this time.
I mean, I think everybody is curious in watching. You know, we've seen used car values over the last couple of years, you know, induced by the pandemic and the shortage of supply of vehicles, drive car values to the highest we've ever seen. And we've seen the biggest drop last year
in the Mannheim index on records. I think, you know, cautiously watching what you use car values are doing, and then I'll be ever looming, you know, recession that we may or may not be in has lenders thinking about you know, from a strategy standpoint, you know, how can they still drive some growth but not you know, avoid some of the risk that may be out there today.
Hey, Matt, we may be in a recession or coming into recession. People have been talking about it for more than a year. What are you seeing in terms of the credit quality of your portfolio? Are are your borrowers are there? Are they struggling?
You know, so we tend to focus more on the near prime consumer, and what we have typically seen even through the Great Recession is that near prime consumers can weather you know, economic storms better than than prime consumers.
And so, you know, from a from a risk standpoint, we encourage you know, banks and in any auto lender to diversify their portfolio because you know, again typically you know, what we saw in the in the Great Recession was that prime consumers defaulted at a much higher anticipated rate
than the near prime consumers. So, you know, we have not seen anything out of the norm as of yet as it relates to higher than expected delinquency at this point in time, but it's something that we continue to monitor.
Matt.
Do you guys lend directly to borrowers or do you provide financing for the dealerships?
How does your business model work.
Yeah, So so we actually are lending enablement platform solution that allows auto lenders to better assess risk at origination. So we work directly with the banks, credit unions, any auto lender on their near prime auto lending strategy to help them price and assess risk better at the time of origination of that of that auto loan.
Something that struck me is the car shopping website Edmunds was talking about how the thousand dollars auto loan payment is actually becoming more common. In about seventeen percent of people who bought new cars in the first three months of the year have an auto loan payment of about one thousand dollars or more. How is that possible? You know, it's even sustainable.
Yeah, it's pretty wild.
I mean I think, you know, obviously a lot of that was driven by the shortage of car car vehicles out there, right, So, I mean, when the pandemic, you know, caused the auto manufacturers to stop making new cars the cars that were available, the price of those just obviously went up. So you know, coupled that with you know, rising indust rates over the last year, it's just exacerbated some of the affordability issues that the consumers are having
out there today. So so from a from a bank and a credit union standpoint, we advise them to take ways to to although payments have gone up, you know, how can they protect themselves from a risk standpoint of
that of that increased payment. But you know a lot of times, you know, from a from a near prime consumer, you know, payment is everything, and so as long as they're assessing the collateral value and that residual value appropriately on the front end, it puts the bank and the credit union in a better position to withstand some of this some of these things that we are seeing, you know, as it relates to affordability in the economy.
Hey man, I seem to remember in the news in the last several weeks a bank or multiple banks just kind of pulling back from the auto lending business. What do you what are you seeing in the marketplace in terms of the number of lenders actually out there providing credit to this segment of the economy.
You know, I think today, you know, I think what most banks and credit unions are trying to do from an asset liability management perspective is focus on shorter duration loans obviously, given what's happened with you know, Silicon Valley banks collapse, you know, they need to focus on lending to those consumers that you know have a greater value. So are they achieving a return that exceeds.
Their cost of capital?
Because of what's happened with interest rates, obviously, everybody's cost of capital has gone up, and so you know, maintaining balance sheets is what's the most important things and pricing those loans correctly, you know, and that really ties back to using correct data and to be able to predict loan performance ahead of time and ensuring that they're again hitting those yield targets that that that they need to hit today.
Right, What indicator are you watching to see if more Americans are falling behind on their car loans?
Yeah, so we we obviously monitor sixty day delinquencies very closely. I mean, that is sort of the standard for any auto lender out there today in terms of monitoring risk. And you know, is that that that's kind of the leading indicator for you know, what is my defaults or is this barwer's ability actually going to make their next payment? And so I think that's that's obviously one that that most of the industry watches just as a sort of the leading indicator for future losses.
And Matt just about thirty seconds here. Just overall, I mean, it looks like Detroit settled on this annual manufacturing figure of maybe fifteen million vehicles per year versus maybe the seventeen or seventeen million plus before.
Do you think that's a new normal.
I think that it's it's it's getting back to where we I do think the seventeen million years is where we're going to get back to. I mean, you know, the auto manufacturer, you know, need to make cars, and so they're.
Going to do that.
And I think what we're seeing on the incentive side is that those incentives are coming back, and so that will drive new car prices down. As we've started to see that. I think we just saw the first time in a couple of years that the average car sale for a new vehicle was below HIMSRP. So I do think we're going to get back to normal levels, pre pregnement levels.
All right, Matt, thanks so much for joining us. I really appreciate getting some of your thoughts there. Matt Rowe, he's a chief revenue officer for open lending. Open lending provides, you know, lending solutions for auto dealers, so really focusing in on that auto business, and that's one of the areas that economas said, they really focus on to see some cracks in the consumers will continue to pay attention there.
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Of course, what else can we continue to talk about, Paul, But obviously the Federal Reserve with Fed Shair Jerome Palll going to Capitol Hill on Wednesday and Thursday. So I want to bring in our next guest, Danielle di Martino Booth, who's the CEO and chief strategist at QI Research, joining us to of course talk about the FED. Danielle, how are you?
I'm doing great today.
How are you doing well? So I want to get your take now that we got off the FED decision last week and obviously going to hear from the man himself again this week, what were your expectations as far as going into this and also what was your sort of take now that we've gotten past the FED decision last week.
Well, from the perspective of a former FED insider, to say that it's exceedingly rare to see the FED truly pause and then resume rate hikes.
I will believe it.
When I see it, and I'm happy to be corrected. And that's where the market is pricing in right now. But this is a highly unusual situation. But again, the markets are sitting at about seventy four percent probability that there's another go come July. But there's a heck of a lot of data between now and then. You know, starting off on the terminal this morning, you see that private equity firms are having a very hard time hedging, and at the same time, you know, used car loans
are upside down. This is a story that we would have read about in two thousand and eight, but about homes. For the average loan to value is one hundred and twenty five percent on used cars in the first three months of twenty twenty three, according to TransUnion. Clearly, the fed's campaign has had an effect in many different places.
It seems to me, Danielle, I mean you're you're the expert to hear, having been at the Dallas FED. But it just feels like from a optics perspective, I wouldn't want if I were on the FED, I would want to pause and then just kind of restart next meeting. It sounds like I don't have much conviction one way or the other.
Well, you know, it was interesting because Powell definitely threaded that needle in what he said at the podium. He said, the data that we have over a six week period that's much different the data we have over a three
month period, which is more trend like. So he was actually answering your question in advance, saying that the time we get to the July meeting, we will have enough to establish whether or not the lag effect has created a trend in the data or whether it's a blip, and we still have a lot more work to do on the inflation front. I was his answers were extremely choreographed and extremely careful, but he did make that distinction.
Danielle, are you managing money?
We advise institutional investors, so we I think our most are what they thought was our craziest call was in June of twenty twenty one, we said that the yield curve would invert to triple digit negative levels and stay there, when the entire street was saying no, no, we're going steeper, We're going steeper. We're of the mind right now that higher for longer is being reflected in the persistence of the negative inversion in the two year tenure, which pushing one hundred basis points again today.
How are you advising clients to position whether or not there's a couple more interest rate hikes or not.
Well, what we're telling telling clients right now is that time is on their side. If you have the optionality of actually making a return on your cash right now, then there's absolutely nothing wrong with being having a little bit of dry powder, having some cash on the sidelines.
By the same token, we think that given what we're hearing about household finances and this aha moment in October when student loan payments resume, we think that a lot of the consumer discretionary doocs and names and sectors have gone way way over their skis right now on the assumption that everything's going to be fine and the FED is going to rise right into the rescue with rate cuts.
We don't see that as happening. But yet we are seeing some severe distress emanating from the US household sector.
So again, I love to get further thoughts there, I mean, Danielle, because I'm not sure really how to handle or phrase or characterize this economy.
How tough is it out there?
I find myself stuck here in New York and if I go to work to San Francisco, But how is it out there?
What's the data telling you?
Well, the data you know. Actually, this week's quill, I'm writing on big ANNEC data because it's more of the anecdotes that you're hearing that tell the bigger story. We have to recall it's advertised on every medium known in financial media. The employee retention credit is pumping about twenty
billion dollars a month into the US economy. That makes it really hard to tease out spending trends when the highest income earners are getting twenty billion dollars a month from Uncle Sam in leftover Carezact spending through the IRS. So that's a really big swing factor about two hundred billion dollars in the last three years or so. Marginal increase to high net worth individuals if you will you
parse that out. There was a documentary that aired a few months ago about a Phoenix food bank, for example, the local TV station just revisited that same food bank, and prior volunteers at that food bank are now going to the feed bank for food. So we're seeing a turn. There's a huge bifurcation in the US economy right now where the haves really have it and the haves not are really struggling. But it's hard to pick up in the data right.
In the bifurcation. Just looking at some of the housing data this morning, with housing starts surging the most since twenty sixteen, and so that's suggesting that residential construction could be on track to really help fuel economic growth. But to your point, how do you square some of that data away where you start to see some cracks with the consumer even though we've seen other consumer data like retail sales still keep up.
Well, we are seeing retail sales keep up, and we should given we're seeing month after month of record uptake on credit cards as well as the extra twenty billion dollars that I just said is being pumped into the economy via the ERC tax credit. So we should be seeing these numbers given the amount of money that's being
taken out and or given away by Uncle Sam. But when you see housing starts a hat tip to Randy Woodword for pointing this out to me, when you see starts at the highest level compared to permits since the nineteen nineties, there's something funky in the data, especially when we learned that thirty one point two billion dollars of residential loans saw a negative in the Fed's H eight on Friday after the clothes when everybody had long since
left for the long weekend. So, from what I'm hearing from home builders and from people who study the industry, right now, builders are buying down points, so you're still borrowing in the four percent range if you're buying a new home. The assumption is that the FED is going to lower interest rates, making it that much easier to push this spec supply out in into the housing market and for there to be people who can actually afford it.
But again, a lot of people, whether you're talking about home builders or you're talking about individuals making loans, loan officers at banks, a lot of the decisions are being predicated on the assumption of said rate cuts. Going forward.
So on that front, there rate cuts, I mean keeps getting pushed out, pushed out. What is your call given the data right now?
Well, I don't If any of you are Star Wars fans, you know these aren't the droids you're looking for. When Powell was asked by Politico dot com about quantitative tightening, he basically gave her that answer, These are not the droids you're looking for. We're not talking about the balance sheet. It's going to continue to run off in the background. Now, he can only do that if he maintains high interest rates. You cannot cut interest rates and have quantitative tightening going
on at the same time. They're by definition contradictory policies. So for him to keep shrinking that balance sheet, all I ask to do is not hike anymore. Just keep breaks where they are.
All right, Well, it was really great having you, Danielle, as far as just breaking down the Federal Reserve, all things FED ahead of Fedchair Jerome Pal's testimony on Capitol Hill on Wednesday and Thursday. Thank you so much for joining.
Us, Thank you for having me today.
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All right, let's pivot over to lay great boondoggle over in Paris. That would be the Paris Air Show. They buy and sell airplanes there, like you know, we change socks. George Ferguson's over there. He's a senior aerospace and defense analyst, and it's so important that George is there, so we send him there every other year there than the odd year they go to London.
George, thanks much for joining us Boeing Airbus.
How's it playing out for those two big aerospace companies?
Thanks for having me? It's I'd say it's I'd say it's playing out kind of weekly this year, weekly as in W E A K L. I think there's no E in there. Why, you know, we've seen a lot of the orders we've seen are really wheels out of previous orders that were undisclosed, and so they disclose them at the air show, and you know, they try to
get someone to put them in the tally. Airbus started the show out with a five hundred airplane order from Indigo, the largest order ever, which was that was pretty exciting. I mean when you when you look at the order books right now, Indigo, you know, the largest air in India, fast grower. Indigo has four hundred airplanes on order already, so I guess they'll add the five hundred to four hundred.
Have about nine hundred airplanes on order. They said they're taking care of in the order book well into the next decade. It didn't surprise us. They took about fifty airplanes last year, so I think they were looking to make a big splash. But you know, if you knock that order out, there's just not a lot going on the show. But don't tell my bosses, because I want.
What are these orders tell us about the trajectory of the global economy?
You know, I think what they tell us is, look, aerospace is one of the last recovering areas of the global economy. And everyone we talked to over here we asked the same question, how's your supply chain, How's your supply chain? How's your supply chain? And we're hearing stories from it's not getting any worse, but it isn't. We still have a lot of problems. So we're getting you know, incremental improvement. This industry isn't performing at the level it
was performing before the pandemic. It's going to take them a bunch more years to get there. And so what that means is that backlogs are already large. They're already stretching into the next decade actually for the Neo and the Max, right, the two narrow body people movers, and so I think you didn't wait for the show. If you had in order to place, you got it placed right away because you had to get in that backlog and hope that these two manufacturers figure out how to
get more airplanes pumped through their factories. But they're still so I haven't supply chain problems. Labor is the big issue.
So all right, I want to get to like, what is the problem.
I'm not hearing about semiconductor problems anywhere these days. You know, it feels I haven't heard from the auto guys in a while, So what really for aerospace. I understand it's long lead time and it's you know, building the planes a pretty big deal, but what are the supply chains and kind of is there any fix out there?
You know, it's really hard, I think for aerospace because, like I said, the big problem is labor, labor, labor, and it's not just hiring labor, right, this is sophisticated manufacturing. You have to hire it, train it, and get it to perform at the level of performed pre pandemic. All of this in the backdrop of a global economy where during the pandemic people learn to work from home, liked it, want the quality of life. And so now you say to yourself, do I want to go back to my
aerospace job. I got to go there five days a week. My neighbor's going in three days a week, and you're sleeping in at six o'clock in the morning. I'm not taking that job. I'm going to go with attack or something like that.
Wow.
So, especially when it comes to pilot pay, that has been a particular issue.
Right, Yes.
Absolutely. The funny thing too is the pilots even in their agreement, they wanted quality of life issues. And I was like, wow, you got to get my cockpit five plane. But us pilots especially, I think I have a really good year, right, Delta has already signed an agreement with their pilots eighteen percent immediately retroactive to the beginning of the year, five more percent in pay at the end of the year, and then I think it's another five,
four and four in the out years. So if you want the school to be a pilot, you know, your ship has come in.
Your ship has come in so Georgia over there in Paris. I know it's always a fight, and you know, between Boeing and Airbus, but I want to talk about kind of talk about the big jets that I like, the big wide body jets, you know, the old seven four sevens or even the you know, the triple sevens and all that kind of stuff.
That the Airbus three, I don't know, was it three eighty? This monsters.
Are they even gonna be making those things anymore?
Is at all?
Like you said, the people movers the smaller planes, you know.
So what we saw during the pandemic is that the big four engine airplanes three eighty and the seven four seven they were sunset. So they're done with the seven four. I think we're fully done with the three eighty, though there might be one or two coming off the line. Still, but they're done. The two big the wide bodies that are going to rule the day, I think, you know, post pandemic, are going to be the seven eight seven and the A three fifty, and we've seen orders for
those airplanes here at the show. Long haul travel has taken a little bit longer to come back. China is still not sort of wide open. There's not much capacity going in and out of there from Europe in the US, you know, long haul capacity, so that's kind of slowed down that recovery. I still think there's some willing to dealing dealing to do here at the show on wide bodies, because that's one of the areas of the backlogs, the you know, the three fifteen to seventy eighty seven that
Bolli and everybody would like to grow. They want to build. They want to build more rate on that they could make. They could be more profitable toy build more per month, and so I think there's probably some wheeling and dealing to be done, maybe last minute dinners tonight, you know, to try to coerce people to buy one hundred and thirty million dollar jets.
You know, all right, you.
Flew over to Paris, I'm guessing you went business. How was it in terms of was this sold out? Tell it to us about the flight and kind of what you learned.
Yeah, I mean flight was pretty full. Is United flight on a triple seven a big steal that you'd like? Yeah, and those will continue to remain in you know, in production. I think they're Heyday. That day we'll come back and have a Hey Day again because that'll be the biggest people movers. But the flight was full, you know, I think this year is going to be pretty busy when it comes to this summer. When it comes to European travel,
there's a lot of bounce back. You know, here in Paris we have you can see a lot of Americans on the streets, not a lot of Asians, you know, not a lot of Chinese and Koreans and Japanese from other times I've been here, a lot a lot more Americans a dollars strong. So they're filling airplanes and they're all,
you know, they're trying to get that revenge travel. And they got to go back to Paris two or three more times since they had to go through a pandemic, and so they're you know, they're full they're in the airplanes.
George, we only have thirty seconds left. When do you think corporate travel will return to its pre pandemic levels.
Yeah, so our last look it was seventy percent back. I think we got to get back to a world where people are going to the office five days a week and it's maybe not so much quality of life exactly.
That's coming from a former Army officer, you know, quabi of life, Get back to work. George Ferguson, thank you so much. We appreciate it as always. George Ferguson. He covers the global airspace industry, the airline business, and as I mentioned, he is a veteran of the US Army, so we of course thank him for his service. But again, you know, when I was working with George, I'd see this request come in. Oh, I got to go to
Paris for the Paris Air Show next year. I need to get in London for the farms where I'm like, really you got to go, say yeah, this is where.
It all happens, you know, and then Hearriet.
There is yeah, I mean, and they just it's amazing the you know the amount of money that gets committed.
At those air shows.
Just huge orders from airlines, and he was mentioning Indigo talking about a fast growth market of India.
So that's interesting to learn.
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Jess Mitten and Paul Sweeney here in the Interactive Broker studio and Paul and I we were just talking about that Kava ipo last week that debuted. It actually ended up being the sixth largest IPO of the year after it raised three hundred and seventeen million dollars at around a two hundred actually a two point five billion dollar valuation.
But once you saw that open up, Paul obviously closer to a five billion dollar valuation and being up to about forty two dollars per share notes trading around thirty eight. But who better to bring in to chat about this ipo as well as what the outlook is when it
comes to the IPO market. Brian Lynch, who's the head of market insight at Equiti z in Brian talk to us about this IPO last week and what you think this means as far as what the trajectory is for the IPO market moving forward this year next year.
Thanks for having me. I think the IPO market was really seeing the benefits of the Mediterranean diet. As you've said that. Kava ipo traded up ninety two percent on its first day and holding on to that IPO pop and I think they've set a really strong example for what a company needs to show to have a successful IPO. So public market investors are looking for companies generating significant revenue, so Kava generating over five hundred million, and then also
a mix of growth and profitability. So they stated how the majority of their IPO proceeds would go to opening more stores, and while they're not profitable, they have strong unit economics and they're on a near term path to that. So they've kind of laid out the path for the boxes other companies will need to check as well.
So Brionn, I mean, you know, the S and P five hundred is a you know, a good chunk this year ten eleven twelve percent, why haven't we seen more deals? Because the deals we've seen ken View, Kava have been wildly successful, and there's got to be a a you know, a backlog that you know is incredibly huge. Now for most of these underwriters, I.
Would think absolutely, you have globally over twelve hundred unicorn companies. So these are private companies valued at over a billion dollars, many that are sitting on the sidelines and we're waiting
for the market to turn around. So while the market's down a bit today, the SMPS at a fourteen month high, the VIX is at its lowest level since February of twenty twenty, and as you said, we've seen a few successful IPOs, So I think companies who have strong business fundamentals and have put the right hires in place really should start to think about capitalizing on this market opportunity.
And Paul and I were actually just talking about a story Lena Popoina Dita on our US Equities team about how Goldman Sachs was saying, the IPO bus looks like it's ready to boom once again looking at that data, do you think that is when you're seeing a call like that from Goldman Sex that you'll see more firms kind of jump in and join that kind of call.
I think it's certainly in encouraging, and there is a lot of pent up demand both for liquidity from early employees and shareholders of these companies who have been waiting ten fifteen years for an IPO, but then also for investor access. I think there is this desire to participate in innovation and growth, and with companies staying private longer,
that's happening in the private market. So once these growing companies do make their public market debut, I think they will be warm received, will be received warmly, So I would say that, like the Goldman Report is painting the right picture.
So the last eighteen months have been the slowest initial public offering market really since a great financial crisis. I guess I'm just wondering what the catalyst is going to be here brand because it feels like, you know, just by judging by recent deals, i'd be hitting a market right here.
I'm not sure why people are waiting.
We're starting to see more companies confidentially file or you know, make the indications that they're preparing for an IPO, so maybe hiring a new head of investor relations, hiring a new CFO. But there are companies you know who are in the process that I think public market investors will be excited about. Arm Is one. This is the British SoftBank backed microchip company that tried to merge with Navidio
last year. That didn't work out for regulatory reasons, but they were looking at a forty billion dollar valuation at that time and they've confidentially filed for a USIPO. They're looking to raise eight to ten billions. So I think that's an exciting one that we'll see coming down the pipe at some point this year, and more of these examples will kind of, you know, give that nudge to additional companies to test the markets.
To Paul's point talking about the IPO market, especially last year, it was facing its worst year in about two decades. Is given the backdrop of inflation and then higher interest rates, how does the Federal Reserve in their interest rate path play into this as far as if they're getting close to this peak point here, what that means for the trajectory of the IPO market.
Yeah, we saw that rate increases have slowed down, so I think that's a positive. It's showing that inflation is getting a bit more under control and there will be likely future rate hikes, but there's a little less uncertainty around that. But I think it really backonds to the
point of investor interest in growth. So they want, you know, large growth opportunities and the ability to really capitalize on greater returns, you know, in a higher interest rate environment where your cash could be making more.
So brandis are there any industries that the market might be more receptive to right now? Because I'm just saying that Cava was a restaurant business, ken View was healthcare. I mean, these aren't like the super sexiest things like technology or something. So what are you hearing from the bankers in terms of what industries might be, you know, most receptive of by the public.
Yeah, So in the private markets, we're seeing a few sectors with the greatest investor interest. Those are AI and machine learning companies. Not surprisingly, fintech is generating a lot of interest, and then software as a service businesses as well. So those are some categories to think about where there may be public market interest as well for the right candidates to go public. But that's what we're seeing in the private markets at equity zen, What.
Are the next IPOs that are on your radar?
Yeah, arm is one I'd mentioned that I think could be interesting. Sheen is another one, the Chinese fast fashion retailer. They just raised more capital at a down round just earlier this year after raising at you know, a very aggressive hundred billion dollar value back in April of twenty twenty one. But this is the profitable, fast growing company with a global market that is said that they're looking to IPO later this year, So I think that's another one people will have their eye on.
You bring up a good point here, just wondering about the types of names that could come public here. And valuation is a big issue here because I could I can imagine me being an IPO banker going into with evaluation that would represent a down round for a lot of these companies and that's a problem.
So are we seeing that in the market.
I think it's just a reality of where we are, where companies raised capital at these aggressive valuations in twenty twenty and twenty twenty one, and on equity Zience platform, we're seeing the average company trading at a forty to fifty percent discount to that last primary round reflection or reflecting that correction in the market. So I think some companies may choose to raise additional primary capital as a means of also reset adding their valuation before they go
to IPO. Others may rip off the band aid and understand that they may be you know, raising out a lower valuation in an IPO. So it's different paths that different companies will take. But I think ultimately they need to come up with the solution, you know, both for liquidity and broader access.
Hey, Brian, thanks so much for joining us. Really appreciate getting a few minutes of your time. Brian Lynch, head of Market Insight at Equity Zen.
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Lots going on in terms of global geopolitics, if you will. Mc muloy joins us. He's co founder of the Lobo Institute, former senior fellow at Middle East Initiative Formula Deputy Assistant Second Defense for the Middle East at the US Department of Defense. And also he is a former US Marine Infantry officer, so we thank him for his service. Hey, Mick, there's a lot to talk about here. We appreciate getting
some more of your time. Let's start with China and Secretary of State Blincoln, how would you kind of characterize that visit the success or lack thereof.
So great to be with you, I think right now we can say it's somewhere in between. It's good that it happened. It's important that the superpowers of the world, particularly those with nuclear weapons, are talking and not going more towards the potential for our conflict. But one of the main things that we wanted to do here was
to get military to military communications back started. That's something that during the entirety of the Cold War, the United States and sovi Union did mostly because we wanted to avoid a misinterpretation that led to an engagement that could lead to a conflict. So that's why I think Secretary
blink And has been so emphatic about that. And it looks like that did not happen, but they did have agreement to carry on and have another engagement between the Foreign Minister and our Secretary of State and potentially have our presidents meet at st the G twenty. So it wasn't a failure, but it wasn't what we needed, which was to make sure that our militaries have the ability to talk to one another to avoid an escalation that need Cutter would want.
Nick.
There were reports earlier this year that the US was planning to increase the number of US troops training Taiwanese forces, not confirmed though obviously by the government. Have we gotten new indication on that front from his visit this week.
So one of the things that I think has irritated China so much is that we have new agreements with the Philippines, for example, to put four new or four bases where less military will be, what the Marine Corps doing with the lictoral Regiment. And now to your point that we are actively increasing the number of trainers in Taiwan, that is in our interest, it's in the interest of our allies in the region. But it's obviously something that China doesn't want to see if they still have a
design on taking Taiwan. So that's going to be attention. I don't think we could have one hundred diplomatic engagements and we're never going to see the eye to eye on the issue of Taiwan, but it is something that we need to address and then focus on the areas where the United States and China do have an interest, which is largely economics. Our economies are tied, not economists.
But I think I know I can say that, and it's important that we focus on those areas, understanding that there's certain areas that will never agree on.
All Right, Mick, let's switch gears because I know we can do that with you. Ukraine, I guess the counter offensive is underway. If it is kind of how would you characterize it and what are your thoughts given that situation over there?
So I would characterize it as smart. From the Ukrainian perspective, they could they could have gone all in, and they could have had a catastrophic failure. What I think they've
done is they've probed the Russian lines. They've retaken some territory I think around one hundred and fourteen square kilometers right now, about eight pounds, But they haven't committed the bulk, the mass of their force because They're really trying to find out where the Russians are most runnable and then exploit it to a point where it puts them so much on their back, but that they can start regaining
a lot of territory. So I think it is going where the Ukrainians expected it to, maybe not what everybody expected it, where it would be a more massive attack acts of attacks. But I think they're doing it the right way because they have skill, they have the better equipment, but they also have a problem and they don't have as many soldiers, so they have to be very cautious one where they bend those soldiers and try to find the vulnerabilities, the gaps and teams, if you will, in
the Russian defenses. So I think this is going to be something that builds rather than a big big bang at the beginning.
What is it going to take to get Russia out of Ukraine?
It's going to be tough. I think what the Ukrainians are trying to do is get to a point where they challenge their ability to maintain their presence in Crimea something they had thought they had harready gotten. They've done it in twenty fourteen and never thought that that would be challenged, and it is very strategically important to them if the Ukrainians can get to a point where they
challenge their ability to stay there. That's why they're trying to cut off the land bridge by pushing all the way through Zaparicha to be able to cut them off. The only way they can get to Crimea after that is that bridge, which is vulnable. But if they get to that point, perhaps they'll be at times they can negotiate.
I don't know if the Ukrainians will be willing to give any territory, including Crimea, but Russia might get to a point where they realized that they might lose Crimea, something they never thought would happen when they launched this invasion.
Mike Holt important are critical? Are fighter jets for Ukraine? Are they a game changer or not.
So much so.
I think that with all the other items that they've gotten, you know, from the M one tanks, the other main battle tanks, the infantry fighting vehicles, this is just one more piece of the puzzle that's going to give them the ability to go on the offensive and to the point where they can take back key terrains. F sixteams.
They're good in the air. They can knock incoming missiles, they can knock enemy fighters, but they can also do qulose air support, and that's something desperately needed when you're trying to attack fortified positions in which the Russians have
been in for so long. Developing so game changer close to it, But I think the game changers of all the things that you've given recently that have really given them the ability to do this counter offensive in a way that could be really meaningful, that really put Russia in a position where they might not be able to stay stay in the positions that they had occupied for so long.
Nick Willy have about thirty seconds left, but have to get your take about this Titanic vessel. What do you think is going to happen there?
Well, I certainly hope that we can get out and find these individuals and rescue them. It's obviously you know, thoughts to them and their families, but it's going to be difficult. I mean, they're going to have to find If you think about it, look how long it took to find the Titanic itself. Well, the Titanic is nine hundred feet fall. How long is the Titan. That's the name of the submersible lends is twenty feed long. So they're going to have to figure out where it was,
which is difficult because it doesn't have any communications. And then they're going to have to get all the way down there and figure out how to tether it to another subversible and bring it to the surface. Let's hope they can do it, but it is not going to be easy.
It's going to be a challenge, all right, Nick, thank you so much.
We appreciate it.
McK mouloy, co founder of the Lobo Institute, getting his thoughts on some geopolitical issues.
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