Mortgages, ETFs, Autos, Munis, and Aviation (Podcast)

average thirty year mortgage. What so I feel did you close on your tun closing later today? And I feel like I'm gaming the market with the rate I got. You locked in a good rate? Yeah, well, no, you locked in a good rate. I locked in a egregious rate. But it looks better than it does today. But let's talk about the mortgage market. Let's talk about the housing market.

Erica Aidelberg, she joins us here on our Bloomberg Interactor Broker's studio ericas the mortgage back security strategist for Bloomberg Intelligence. Erica talked to us about just kind of a housing market, just the basic housing market today, Ray Tire, it seems like there's a real supply problem out there. What are you seeing? But we have had big jumps in new home sales, are pending home sales, way bigger than we were looking for. Yeah, Hi, thanks for having me, Thanks

for coming. You know, the housing market is on a roller coaster. It's just you know, everybody I think who's interested in buying houses is taking close look at rates that I think there's is a lot of It feels like there's a lot of pent up demand. Whenever rates fall a little bit, and new home builders have a lot of inventory, they're probably looking to move because they

have more houses under constructions. So there's you know, a lot of incentives going around to try to encourage people to still be involved in the mortgage market, which I think is why I'm sorry in the housing market, which is why I think you saw the big jump in both existing home sales and new home sales, pending home sales and new home sales. You know, as soon as rates dropped a little bit, existing home sales are still very low, but pending home sales are leading indicator for that.

Let's separate all those three things. For people who don't work in the housing industry, like you do. So pending home sales is what contracts signed pending home sales is. I think, I know, I know. New home sales are contracts signed pending home sales. I'm not sure because it's a leading indicator for existing home sales. So yeah, it's before closing. So yeah, pending home sales are contract signed

new home sales. New home sales are just built and sold, right, not like if Paul lived in his house for twenty years and then sells it. That's existing home sales, right. But new home sales haven't necessarily even closed. So there are a lot of cancelations on new home sales because the first time move in, right, New homesales is like yeah,

new brand new home sales. Yeah, and existing home sales is on when the loans actually close the house is actually true, so existing home sales is usually related to rates a couple of months ago. Both new home sales and especially pending home sales are based more on you know, where rates are today and what type of incentives people are getting, and especially for new homes sales, they may not even close. There's a lot of cancelation. So that's really the whole thing is kind of confusing even for

an analyst. But the bottom line is we've seen the numbers tick up, yeah, from the doldrums, And does that mean we've seen a bottom in housing? You know, So there's one more number we can throw in there just to confuse people. The Mortgage Banker Association does a weekly survey and they look at purchase loan applications and refi

loan applications, which are of course in the basement. Purchase loan applications did tick up a little in January, which is why so many people thought that's the biggest leading indicator. That's like two months out basically, that's that's h you know, that's where you know, people were trying to lock in mortgages when the race we're a little bit lower. That's now back to twenty eight year lows. It's fallen two

weeks in a row. So I think, you know, bottom line is I think that's NBA B perch if you want to bring that up. But I think bottom line is that, you know, whatever green shoots we're seeing are obviously being peated now by the higher mortgage rates. On the bright side, we're moving to the spring housing season where a lot of people get involved in the markets and then okay, so this is not even the season anyway, it's just a yeah, we can't really judge it by

these numbers. I want to ask about something that I think Paul's going to be doing next year, and I think maybe a lot more people are than have been in the past decade, at least maybe longer people are getting adjustable rate mortgages because we're so high right bank rate says seven point one two percent right now, are more people going to be you said, refies are in the basement. Obviously, nobody's refinancing at seven percent. That's why city is letting go hundreds of people and get mortgage

in it. But next year people may be doing just that. Are a lot of people picking up adjustable rate mortgages hoping that rates go down in the future. Adjustable rate mortgages have picked up a little bit. You know, keep in mind when you think about adjustable rate mortgage, it's not the adjustable rate mortgage of yesteryear, where you might even get a teaser rate, or at least you can reset, you know, resets annually so you get a low rate. Right now, there were like five ones, ten ones, so

the rates only incrementally lower than thirty year. You can look at the bank rate. I think it's you know, maybe a hundred based points saving, right, So some people are taking those out. They don't have to reset for five years, and there's pretty serious caps on the first reset, so it's not really a risk for the mortgage market. But yeah, we are seeing a little bit of pickup and it's almost one hundred percent correlated right now with the spread between thirty year and five ones. So that's

that's the math people are doing. All right, Erica, let's talk about the mortgage backed securities market, fixed income market in general. Good January, bad February. Talk to us about the MBS market. Where you're seeing opportunities risk? What are you telling your clients? Yeah, it was very interesting. We came out of a really rotten, the worst ever year in twenty twenty two. You know, it came out of

the gates strong. We had the best January that I've seen, at least, you know, in history, I mean going back as far as any of our series go, both on you know, a hedge return basis as well as a bondser back you know, total return basis, and it's just

been you know, dripped by drip pain since then. And what turned the market is the fact that I think every the markets have been pricing in after you know, a nice turn in CPI, what appeared to be a turn in CPI, they've been pricing in the end of FED tightening and maybe even easing by the end of the year. That's all gone out the window as soon as last month's non farm payrolls number came in way

stronger than anyone expected. And other data is also you know, made us think, including isems and numbers today, that you know, we're not out of the woods yet. The Fed's probably gonna have to go a lot higher and keep rates a lot higher for a lot longer than people expected. And mortgages don't love that scenario, you know, bobs in general don't love that scenario. But it also means there's probably ongoing you know, volatility while we're trying to figure

out what's actually going to happen. So as I say, mortgages have given up all of their total raid to return near to date, and a lot of their excess returned near to date as well. Thirty seconds credit quality in the NBAS market mortgage market um. Credit quality is still very strong. Delinquencies are still very low. Most people still have those two percent mortgages or three percent mortgages, So look strong. All right, My man over here's got a very low mortgage, don't you on the estate in

west Chester? Yeah, yeah, it's pretty fantastic. Yeah, I'm paying glad I locked that in. Yeah, but it doesn't change the fact that my taxes are so high. I could honestly be buying like a new nine to eleven every year. Just insane. Right when you get the scat pack thing coming, and you'll be all, you'll be happy. Erica Aidelberg, mortgage backed security strategist for Bloomberg Intelligence, joining us here live in our Bloomberg Interactive Broker studio on a Friday, so

that's a double start. I love to Betty Kis. I love exchange traded funds. I think, what are they thirty years old now, and they just continue to innovation. The industry continues to grow. We're talking about at least at least nine trillion dollars of funds globally, so incredible growth stories. Sylvia Jablonski joins us here a chief investment officer and co founder of defiance ETFs and you know Sylvia on the Bloomberg terminal. There's this great stories every day on

ETF space. One that got my attention just recently, Jim Kramer ETFs arrives to bet on and against the CNBC host picks talk to us. So just about these specialized, super specialized kind of ETFs like a pro or con Jim Kramer ETF is that is that where the growth is as opposed to just like buying in index ETF Good morning. You know, it's it's a great question. I think it's certainly where the popularity is and where the

interest is. Um. You know, my sense of it is that you kind of have the ETFs out there already that you know, a track and represent the classics sectors and investors want access to. So for example, there are you know, many many options to get SMP five hundred exposure and an ETF rapper NASDAK emerging markets you know fixed it basic fixed income products and things like that.

So the second wave of products was really in the thematic space and you started to see these cool broader themes you know, like um, whether it's space or or EVS and things like that. And now you have, as you said this this Jim Kramer long, sure, I think providers are just coming trying to come out with something new that will um, you know, gather assets and will represent something that people actually want to trade. And you know, people do follow Jim Cramer and have strong opinions either

way on his side. What's what's a successful ETF in terms of size, Like, what's what's considered to be a successful et kind of clothes do you need to see? Yeah? Right, well it's you know, it depends on the management fee. So if obviously the higher the fee, the lower the thresholds that you need for success. So if you have an ETF that has you know, ninety BIPs to one percent and you gather twenty million, you know that's of

a decent baseline. But if you have an ETF that's priced at you know, ten twenty thirty books, you need to see hundreds and millions of assets to actually, you know, really generate a profit on that product. Because ETFs are actually pretty costly to run on the back end, we see more and more of these ETFs like the Kramer one. UM I think before that we got crews and nance tracking what not. Nancy Pelosi and Ted Cruise specifically do.

But what the Republicans do or what the Democrats doing for in terms of you know, front running their legislation to make money. Are these just a fad? I think time will tell, you know, if if they perform. For example, there was a period of time last year where um, you know, you saw that short ARCTF right where everybody became super sour on Kathy what the year prior? You know, she was sort of the here the hero of ETFs, and her ETF took off and then last year was terrible. No,

this year her ETF is up twenty percent again. So um flows are kind of leaving the short arc and going into the long one. So I think it's it'll be the same thing with a long short Cramer fund. You know, if the performance is there, I think it'll generate assets, and there's enough kind of retail investors that are interested in in you know, the media of it and the publicity of it all. But you know, do I think it's going to end up in an asset

manager's ETF application? You know, probably not got ETF. I think a lot of thematic ETFs have a shot too, because you know, there is this interest in disruptive technology and innovation things like that. But something like that almost feels a little bit memi and will probably you know, gather some assets in the moment and then unless performance is phenomenal or price fade away, unless the congressional stock traders are forced to disclose what they do, you know,

within like ten years of their buy or self. By the way, speaking of Cruz, you have an ETF that I think Paul would like. Um, he's obsessed with hotels, planes, cruise, ships and you've got Cruz. Yeah, I mean, so we've we've we launched that ETF to really tackle the the idea that you know, post pandemic, there would be this pent up demand for people to travel. And you know, there's a very popular airline ETF out there, but there wasn't something that sort of captured the full picture with

hotels and cruises and whatnot. So UM, cruise gives you just that, it gives you access to the airline, so you're getting domestic, but you're also getting that China reopen trade that East meets West, you know, um tailwin that we're going to see this year. You get cruises and we've seen the data there, a lot of the CEOs are coming out and saying that pandemic book bookings are backed up to pandemic levels. They're starting to generate revenues again.

They have pricing power, and of course hotels, business travels back up. People are out there traveling. So I think in the short term, um, particularly if we don't see any kind of hard landing and we start to see some of this you know, inflationary pressure cool off, Um, you might get some gailwinds and in cruise and some of these types of names within that ETF for the next year or two, it's your highest year to date return.

That ETF is up like twenty percent year to date. Yeah, in terms of the largest fund assets you operate, the five G Right Defiance, next Gen Connectivity ETF. It's also lowest fees of the of the ETFs that you operate a guess because it's so big, right, and the highest yield. Yeah. So the interesting thing about that is when we launched that ETF, we were a new fund and a new company and we wanted to come to market. We thought that,

you know, we really need to make a splash. So let's let's try to come up with the most innovative product that we can and we thought to ourselves, there's no you know, great innovative product in terms of the feature of communication, and what is the feature of communication?

It's really five G. So we structured the product and then we thought to ourselves, and this is also around you know, kind of it's pre covid, but it kind of dove into covid around the time that we launched, and we thought to ourselves, you know, who's going to trade this. It's going to be a kind of that younger Robin hood trader and whatnot. And so let's make it your transparent, Let's make it as cost effective as possible and try to gather assets and really start a company.

And so it's really it's really our flagship fund, and it's what caught us on the map. And you know, we're super proud of that ETF today and we hope to see it. We hope to see it start to grow again as risk app type picks up in coming years. Hey, Solvia, talk to us about the trend of mutual funds converting to ETF. So I find that fascinating kind of where are we in that process and how do you think

it plays out going forward. So it's interesting because I think, you know, I'm young enough where I've invested in ETFs for a really long time, and I've worked with people who were really like mutual fund believers, hardcore hutual fund believers, and thought that the ETF would would go away. I mean, it's just really hard to argue that mutual fund assets will remain where they are. ETFs are just a much better rapper. You know, they're far more efficiating, got intra

day trading, combine and sell them throughout the day. You know what the intra day NAVI is what the fund is actually worth versus what you're paying for it. Um. You know, there are a lot of tax benefits to

using the ETF structure. So we've seen that transition. We've seen the outflow from mutual funds into ets And not to say that, you know, you have some great actively managed mutual funds out there that are never going to go away, but I think that the ETF rappers is now you know, kind of the preferred product of choice by by investors and especially the next generation of investors. I mean, if you ask um, like a seventeen year old about a mutual fund they but not even know

what it is. What about regulation? I mean, one thing about mutual funds I know is that my four o one k is like puking mutual funds. Can you put ETFs easily in a four oh one k? Are investors limited? Because that's a big it's a big pool there. Yeah, that's the limit. That's the limit, and that's where the

assets are sticky for mutual funds. So I think that UM either have been talks about this sort of you know, forever at least for the last decade that that I've been an ETFs that you know, all the retirement plans are going to open up to ETFs, and some of them have and some of them haven't. The majority have not.

You know, I suspect that there's going to become a time just because there's so much user demand for it, where you'll see that open up to ETF products, at least certain ETF products, And I think, you know, I think in that case that just even further propels the EATTF asset number by the trillions and shrinks the mutual

fund assets. And you see a lot of the you know, top actively managed mutual funds trying to create ETFs out of their strategies too, so they sort of know that they're not, you know, they're not kind of eroding their own assets, but they sort of realize that they have to switch over to keep their assets. Yeah, just amazing. It's one of the just greatest or most you know, impactful changes I've seen in the last decade, and I know it's been longer than that. I'm going to start.

I'm gonna start dating people by your either pre ETF or posting. Yeah, yeah, you're definitely because you started on the street. Yes, before spies were coiled out, exactly, but Sylvia, no, after absolutely, Sylvia Jablonski, chief investment Officer, co founder of Defiance ETFs, and then on the Bloomberg terminal. For those of you are sitting in front of a terminal, et F go is a great function. Gives you all the good information you want about the ETF space and looking

at the Defiance ones. Five G is Matt mentioned the biggest one and it's got great returns there. It's got seven hundred million dollars assets under management. All Right, we got Kevin tyin in on here. He's a senior autos analyst for Bloomberg Intelligence. No real agenda here, but I want to just start Kevin. I know Michael Dean, your colleague in London, follows Volf Volkswagen. But Volkswagen came out today saying, you know, their boosting production. Demand is still there.

I want to ask you from the global auto industry, is this supply chain issue is that fixed? Well, it's better, but you know, and we've talked about this a lot, like I'm not sure how much of it was chips and supply chain and how much of it was constraining output to maintain pricing and margins. So, um, you know, automakers are are going to get back to a little bit more of that growth mode as the demand is there.

But um, you know, I think it's an easier hurdle now, right, Like across in the key regions, you you don't have this um sales for sales sake kind of mindset anymore, right, Like the product portfolio is different, costs irrationalized, and it's um, you know, it's your most expensive stuff that you're putting out there, so um, you know, demand just carmakers, by the way, Kevin, you know last week I was down at the Ducati shop in Soho and the North American

CEO Jason Schinnickck told me after their experience during the pandemic, they're pushing towards basically thirtyty fifty thousand dollars models rather than the entry level ten tho dollar bike used to sell.

And even same thing at Harley Davidson. Right, if you look at that company, you know, this move away from volume for volume sake because they got out of a lot of difficult regions for them, you know, um international markets, and are really just focused on constraining supply, driving prices higher, you know, and just filling orders at the highest possible price and margin. So my question to you is is that a thing? Kevin? Is that a long term trend? I mean, this is an industry for it seems like

my entire lifetime at least. You know, you produced seventeen million cars and you sell them, you haggle and you do all that kind of stuff. Now you're talking tell me fifteen million, and it's you stick a price or above is what you're gonna pay? Yeah, Well, here's the thing. Right, So if you look at it from a volume perspective, you're going to say where where do two and a half million units go? And do they ever come back?

But the thing is at seventeen and a half million, you know, from the manufacturer's perspective, even from the dealership's perspective. You know, the average transaction price was thirty five thousand dollars in twenty twenty three. If we do fifteen million units, the average transaction price is going to be about forty nine thousand dollars. Excuse me. So when you look at the revenue pool, actually, this market is actually bigger than

when it was peak volume. And that's what I think automakers are focused on that consumers aren't right, they're just saying or the markets or analysts are just saying seventeen million, seventeen and a half to fifteen is bad. But everybody else or the automakers are going, yeah, but the revenue pool is bigger by about eighty billion dollars, at least

here in the US. So I think you have to layer in that one other data point above just simply volume, and say like, okay, well let's look at where how much money is this rather than how many units is this? Because you know, look a twenty thousand or an eighteen thousand dollars Chevrolet Cruise, which no longer exists, isn't the

same thing as a sixty thousand dollars Silverado. Is pushing up the average selling price because uh, you know, I've I had to fight to get my last call Dodge Challenger scat pack wide body sum and the price was let's just say it, I paid too much for a car that's going to depreciate a lot um. But it's the same everywhere. I mean, the new Mustangs are super expensive. You want to get a Broncho, you're gonna pay up.

And it seems like, and it makes sense, these carmakers are taking advantage of a last call for internal combustion engines to fund their loss making EV business. Well yeah, and it's so it's totally mix shift and not only car to truck, but also, like you said, right, look at that mix in that LX platform for for Stilantis Challenger and charger. Right, there's there's really no more garden

variety Challengers or you know, rental fleet chargers. I mean there are, but but if you were to look at the at um penetration rate of the fire breathers, right, the scat packs the hell Cats, all that stuff. It's probably way higher than you would ever believe it could be, yea, because that's what people want, right. They don't want the garden varieties, six cylinders, want the tennis star. Sure, everybody wants the hell Create for months now. I have no

idea what it is. What Okay, I'll just quickly tell you. Okay, So hell Cat and the hell Cat Red Eye and the Superstock and the Demon. These are all super charged six point two leader V eights. Okay, so they take um the inches down a little bit and slap on a power pusher. The scat pack is a six point four leader V eight, so a little bit more in inches three ninety two, but there's no forced induction, okay, so it's naturally aspirated. I give up, though, because I

don't believe that you're really paying attention. All right, Kevin, Kevin, what's the when you talk to institutional investors today, what's the number one question you get about the autobiz? You know, that idea that pricing new and used is set to tumble, you know, and it really comes you know, there's a lot of inputs into that Supply versus demand is really

what's going to determine it. So I don't think automakers for the most part, are going to run into an oversupply condition, unless, of course, demand goes through the floor, which I don't really see either, right, So I think the control or the power still stays in the hands of the automakers. You know, while we could see some softening demand just because of interest rates and prices and whatever, you know that fifteen million unit isn't as high a

hurdle in terms of pent up demand. And I think it's the number we can easily do and do it

basically at MSRP and do it very profitably. All right, everybody wins here, but the consumer, right, that's the thing, all right to me, that's a bullish call on his auto name across the sport with Kevin just well, well here here's the other thing too, Paul, is that you know, if the process is better for the consumer, everybody paying the same and they're being transparency the pricing, arguably they all right, all right, we'll see how it plays out

until I replaced the BMW twenty fourteen with manual transmission. Thank you very much, Kevin Tyne and Senior Automotive analyst for Bloomberg Intelligence. He's based down in our Princeton, New Jersey office, and the cool thing about him is, like Matt Miller, he gets to test drive pretty much every single car that comes out, so he knows what he's talking about. But left talking to Kevin looking at the fixed income landscape, Well, you guys had a really good January,

February not so much. Give us a sense of kind of your thoughts are here in early March about your space. Yeah, hey, good morning. You were absolutely spot on. January was amazing, February not so much. And you know, we've almost erased all the games we had to start the year. Year to dates are only up about thirty basis points. You know, the bad news is we're not predicting a lot of positive tailwinds carrying the sector into March. There's not a

lot of cash coming back to investors. Primary supply continues to be really light, and you know the problem is we're really just attached to where rates are traveling, and treasuries have had a rough time. I know today looks a little better, but last time I checked, inflation isn't dead yet. So until that really gets under control, we're sort of hamstrung. All right, the good news is well, first of all, I forgot to say bam, yeah, I almost want to read the billboard again. Bam, there you go.

Last time we were down at Bild America Mutual. We've got to talk to Chris Bergotti. He's the managing director Senior VP of Muni Investments over at Valley National Bank. And the good news is we have him here with us today, so Chris, we can bring you in to follow on to what Eric just said. First of all, good morning, thanks for joining us. What are your expectations in terms of inflation. It's clearly not died down over night.

What are your expectations in terms of rates? The Fed is clearly rethinking any kind of pause that was thought to come. Yeah, good morning man, thanks for having me. And you know, my thoughts are basically, inflation is still going to be a little bit of challenge for the economy and the markets, and I expect net net to test those higher yields that we saw back in October, which would have put ten years at treasuries at a four thirty two and thirty year treasuries at a four

thirty three, so that four forty two. I'm sorry. So that being said, you know, I'm expecting a little bit more pain to be had in the fixed income markets as a result of the inflationary environment. And we got the Fed talking about finally having to do another fifty basis point move, possibly in March. That's being put out there and has some credibility behind. It's not a good

look if it has to happen. Paul pointed out, you know, once you've stepped down to twenty five, it doesn't make you look great to have to turn around and go back to fifty exactly exactly. So, Chris, I mean, what do I mean again? Flation data? I guess we can say, you know, with some certain the inflation has peaked, But is the market just telling us and the FED feder Reserve in particular, saying, yeah, but it's not coming down as fast as maybe we thought maybe towards the end

of last year. Is that kind of what you think this Federal Reserve is looking at. I think it looked like there was a deceleration happening towards the end of last year, and then January data indicated that the deceleration was not decelerating at quite the same pace as we might have seen previously. So, you know, higher inflation as a challenge, and the fact that FED funds rate is still well below the core piece core CPI. It's a challenge for the markets that I don't think we've got

to close that gap before we can see meaningful progress. So, Eric, as you talk to your institutional investor clients kind of what's the conversation centering on today. Is it just the FED or is there something inn immunity space specifically that maybe gets your attention gets attention to some of your clients. I think it's a combination of things. So, you know, first off, everyone is sort of vexed by the lack

of primary supplying the market. You know, that's obviously a huge challenge because we're so technically driven, but you sort of compounded on top of that is just sort of this uncertainty where credit and credit spreads are going to go for the duration of the year. You know, one

of the things we're paying attention to. And we had Nick Bloom from Stanford University during our podcast last month to talk about the challenges that cities are still having with a good amount of people still working from home. You know, either full time or part time on a hybrid basis. And now you just had a headline come out this morning about Amazon canceling plans for their second headquarters in Virginia as a result of sort of those trends.

So definitely like something that we're keeping an eye on, Chris, in terms of you know, demand, what's it look like this year after the horrible, no good, very bad twenty twenty two and is there going to be enough to supply to satisfy it? You know, I think that's a challenge, and that's why we're seeing ratios where they are. Demand

is still relatively strong. Fund flows and the ETFs have as a barometer for that are kind of flatish versus last year there was a pretty pretty decent liquidations from those types of funds, which are a good way to look at the market in terms of demand. And so you know, flatish demand versus really light supply down thirty percent so far year over year in twenty twenty two, and that's not a good dynamic to be able to

have from a supply standpoint. So let's even say steady demand versus much lighter supply, there's plenty of demand to eat it up and that's why ratios are so low. And you know, one of the interesting things as a result of that is seeing is the treasury curve we know is inverted, but for the first time in forever for those that are Disney fans, the municipal ield curve inverted.

And that's that's whatever happened. Yes, So that is a unique dynamic that has not happened before, and that just indicates the strong demand on the front end of the muni for vapor the first time in forever. Music they'll be fun boy, get it all here, And who's got the two year old in this studio? I guess we can tell. Hey, Eric, what little I know about the taxabotle municipal bond market I've learned from you in your research.

What's the outlook for taxable muni market this year? I mean, pretty dismal from a supply standpoint, if you can imagine, we made so much volume, you know in the beginning, you know, stages of the pandemic, just because rates were so much lower, and a lot of the activity the keen in taxable muni states was refunding of tax exam bonds. Really, you know, we're trying to take economic advantage of that trade has totally gone away, and supply has gone with it.

You know, you're looking down almost like seventy percent year of a year basis for supply. And again you know you're talking taxible MUNI rates tied to treasury rates. It's attractive from a buying standpoint, but the challenge is finding those bonds to buy. Why is there thirty percent decline, Chris in supply here? Is it just because interest rates have risen? Because I've I've been told that, true, they don't really care about rates exactly. They issue money, They

issue bonds when they need the money. We need to get Joe Meisek in here, because he's been telling us this for years. So yeah, I thought, like, they don't even care what the rate is. Whenever they need the money, they issue the bonds. It's not like what Paul used to tell his clients, you know, get the money when you can, not when you need it. Muni's you know, towns and cities they're dumb. They don't do that. They

do when they don't. I think you know, you're looking at it the way that when there's a really big shock, you know, the markets in general, and look at issuers as well. They don't like indecision, they don't like volatility, and so they just step back and say they can push, you know, kick the can down the road a little bit, and they don't need to borrow today with the higher interest rate, and they're hopeful that things can improve for them and they can borrow it better rates down the road.

They might be willing to do that, and that in the phase of a challenging environment with a lot of volatility just scares them. And so just think of them not wanting to step into it when there's volatility is one way I tend to look at it. Hey, Eric, credit quality here, we've I guess since in the last several years, we've had no credit quality issues out there generally speaking. I mean, there's been so much liquidity from the federal government out there in the marketplace. Is that

still the case here? I mean, do you even run recession models for some of these issuers? Oh, we have tons of models. We're running them all the time now.

I mean, they did look these cities, states, counties. They've had a ton of cash the first year and a half two years of the pandemic, but they've they've sort of worked their way through that, and to sort of add on to la Chris said, you know, some of this lack of supply has been them having these stock pads of cash they hadn't really needed to access to market in times of higher rates. That's sort of running

out now right. They're on the clock, and we might actually see them being forced to issue into a higher rate environment when they don't really want to, which will be you know, obviously like eighteenful situation, because it's just going to translate into you know, higher taxes to trickle through. You know, we're not predicting anything from a default standpoint, but they're always just the you know, the thread of spread widening as credits offtens through the rest of the year.

Oh we even saw Illinois get upgraded a few weeks ago, So who knows what's going on up there? All right, that was fun a municipa bond round table, that is absolutely it was Max. I mean Max's been calling for that for the longest time, folks. We finally got it together. Eric Kazaski, senior municipal strategists out of prison and wait, Chris, where are you a Wayne, New Jersey? Beautiful Wayne? So if I wanted to ask, if you do you want to go to Brooklyn Bolden night and see a dead

cover band. I wonder if it wasn't for the commune. There you go. Chris Bergotti, Managing Director, Senior VP of Municipal Investments at Valley National Bank, talk at all things munis there. How fun is that? Paul and I have a guest in studio who runs what I think is one of the most fascinating businesses that we've talked about

in a long time. Ali ben Elmadanni joins us. He is the CEO of ABL Aviation, and this is a company that buys planes for airlines, I mean big planes, um not you know, little private jets, and then leases them back. So he has a bird's eye view of the airline industry and the crunch we're experiencing now in terms of capacity, which results of course in higher prices. How is that going to go in the coming months and years? Ali, thanks so much for joining us. Pleasure

having you in the in the studio. Um, what do you how do you view the aviation industry right now? We've been talking about the bounce back in travel across hotels, cruises and airlines, We've seen planes packed to full capacity here in the US, and now we have Europe not doing as badly as we thought it would, plus China reopening. What does that mean for you? Thank you, thank you so much about you on well, a big shortage of

supply of aircrafts. And you see that's all the flights that are going, knowing Europe and Americas are all full. The demand is very high. Everybody is sultling. And that's without Asia being fully opened. So just with America and Europe, there's a big demand for flying and you see it into piles of tickets going higher and all the flights being fully booked. You don't have enough supply of aircraft to all the airlines. So there's shortage and the slowdown

of supply of aircrafts. Why not enough supply? Is it because the airlines stopped putting in orders over COVID? Is it because they parked aircraft that they haven't been able to get back yet? Is it? Is there some other reason? Why is there a shortage on the supply side? Because I'm sure Boeing and Airbus are willing to make as many as they can. Well, Bowling and Airbus are producing as fast as they can, but then as producing enough. There's delay on both Bowling and Airbus, which had supply

chain problems, just like the carmakers. Yes, so they had a big supply changine COVID issues and they're fixing it, but there's a delay on us. In addition to that, the demand is so high. We didn't expect that the demand would be so high after COVID, and that's without even Asia being open. That's they so much demand of people flying all over the world that didn't fly for two years or three years all flying again. And I'm sure like people like you are going on vacation like before,

going on much more flying on the country. And if you fly like a Vegas New York, all the flights are full and there's a big demand. Voice when you get it, when you believe it would have that supplying demand will come back into balance a little bit more. When do you think that will occur? Well, it's not happened in my personal view for the next twenty four months, because Asia is not open yet, so Evan would just America and Europe being at full speed. We see that

there's a huge demand the moments. If we assume that's maybe America and Europe is going to slow down a little base. Then you have all of the demanda from Asia that's going to happen, and this will keep on going. Wow. So this kind of goes the Airbus and Boeing. That's the production site we're talking about earlier, all the stories at the beginning of the pandemic airlines taking the planes and parking them in the desert in Arizona or whatever.

By the way, which airlines do you supply a at abl We have few Alnes and do us who have a making airlines? We have Delta, we have Alaska, as we supply in Europe. We have Lifton's Air francel in Israel, so different airlines as we provided. As an aside, I'll tell you that for years Paul thought that the picture of the man on the tail of an Alaska airliner was Jerry Garcia the Great Debt, and then he realized

eventually that it was an Escama. Yes, well into my adulthood, I thought that, which is an amazing all right, I park a plane in the desert. Why can't I just if the man picks up, just go start it up again and put it back, Which they all did write a lot of your customers during COVID said listen, uh, you know that we're releasing planes from you. We're gonna park them in Arizona for a while, some of them

in buckets. But you need to make those aircuffs air water again, so like to make its air water, it takes time. You have to have a check in what we call an l facilities, so mantenance over whole facility. But there's no spots, like there's a shortage of spots in all those but there's a delay. Everybody is going back to those amables to have those aircrafts airwards. You or to have those checks, and there's not enough space

for all those aircrafts. So you have I mean, you're basically sitting pretty right now in terms of your business. You're a happy man. Not well. Yes, if you have naked aircraft, you can lease them at a high powers today, but you have to remember that there's in a case of answer state that's happened in the last few months that will have an impact on the leasers and the

cost of financing that has not been implemented yet. So the least rates of all those leasers that have been leased to airlines is not seeing yet, so you have to adjust for those new ancestais environments, for this new cost of financing. And that's just happening now. So it's just starting, so I would be a happy man into amount. How do you anticipate, how does the industry anticipate they're reopening a China to impact kind of just the global

aviation market and over what time frame? Well, the moments that we are going to have a full opening of Asia, not only Channel as Asia. You are going to see all those people like what's happened in America, what's happening in Europe. The first thing you did when COVID was the way it said, I want to go on the flight to Piace. I want to go to see Venice.

I want to see what I couldn't see anymore. Because COVID is gone, you're going to have the same thing from Asian people as I want to see New York, I want to see Vegas like there's no more you can finally go back to Tokyo for example, exactly. So then you are going to have big demand, and that demand you need to supply aircraft for that. You need to supply good roots for that and there will be a huge demand for it. In terms of one are the other things that you care about? I mean fuel prices,

they haven't gone up substantially yet. I've been watching at least you know, Brent crude and it hasn't been boosted so much by the reopening in China yet. Well, it's happens. But you have to remember that the cost of most airlines, one sort of the cost is fueled, and some of them did hedge, some of them did hedge. But as long as the fuel stays where it is, we have enough demand to make sure that airlines in very good health.

So airlines are very very happy today. If you look at the ticket prices versus before COVID, it's almost three times where it's used to be. So that's due to the demand supply issue. What's the biggest challenge right now for your business? The costs of finance in the cost of debt because of a is going and the inflation is going to be one of the big issues. Are you a big borrower? Are you have a lot of

debt to finance your aircraft? Well before ants in case, we used to boil lots of money to finance aircrafts. I know in the last twelve months with the ants in case while doing most of our aircrafts, that's one hundred percents equity and with the ideas to back lover lets on. Where do you get the equity? Well, one of our biggest partners, the Japanese Big House in Japan, is one of eques partners, and we have two partners here in the US. Interesting, Okay, it is a fascinating business.

I have to say, uh, And we could spend like an hour talking with you about this. So I hope you come back or we could go so so Ali has just moved to Marrakesh, if we can share that, and Paul is like on eBookers right now booking his next flight. I honestly really want to go there, and you can go there from my brother just went there. I think it would be a great place to take a motorcycle trip, like I want to go there, get a BMW like a GS twelve fifty and just ride

around Morocco. I would love to have you though, love to have you Mudcas. I love you a great when I get there, exactly. Ali ben Lemnadi, CEO of ABL Aviation, Thanks for listening. To the Bloomberg Markets podcast. You can subscribe and listen to interviews of Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three. And I'm false Sweeney.

I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio