Trump Is Derailing, Perverting the Mission of the USPS: O'Brien

controversy surrounding the USPS, the United States Postal Service. Writing on this subject today in Bloomberg Opinion, Timothy O'Brien, senior columnist for Bloomberg, And in fact it wasn't today, Tim, but it has been recently, and it's not the first time you've written on this subject. What can Congress do to throw light on what the president is doing and rain in anything that's illegal? Um? Well, Van, yeah, I think I think I should do a lot to throw

light on the problem. I'm not sure how much they can do to stop it. What's going on is mail carriers hours has been reduced, Post office hours have been reduced. UM large mail sorting machines are being taken out of commission in post office hubs and all of this is slowing down mail delivery that matters in an election year. Pardon me, because uh, there's there's a strong chance we're going to have a huge surgeon mail in voting uh

this year because of the pandemic. And um, it's it's pretty clear that um, this is is in is an effort to weaponize the Postal Service to slow down mail in balloting, and the President is behind that. He's done very little uh to try to stop it. He's been questioned about it, he said he has no interest in changing what's going on in the Postal Service. In fact, he said he won't even release funds of the Postal Service that would allow to speed up its operations. Um Uh.

Congress is holding hearings. Congress has asked the Inspector General at the Post Office to examine this. A number of state attorneys general are are coalescing around this and planning to sue the Trump administration of the Post Office to stop these practices, but that has to wend its way through the court. So the issue here is, um, how much can really be done in real time to course correct here so voters of both parties don't get their votes um taken away from them because the post Office

can't deliver their balance. I didn't even know this was a thing until it happened him. Um, it just seems like every day there's something new here, is there? This kind of goes to the bigger question. I guess that some people are raising that if the president were to lose this election, that perhaps he would not be willing to really admit that, or or he would can can contest it? Is that a material risk in your perspective, it's a very material risk, And he said as much.

You know, he said in recent press appearances that we will know the results on election night. We may not know it for weeks after election night, perhaps even months. I mean that we certainly may not know an election night, and we may not know shortly after election night. But but we will find out in relatively short order, and voters will just have to get used to the facts. Will take a little longer this year, but the President has already ceded the ground with the idea that the

vote can't be trusted. He said that mail in balloting is riddled with fraud. That's just factually untrue. A majority of states have used it quite well for quite a long time, including Red states Republican states who stand by

it as a process. So yeah, it's a material risk, and I think, like everything in the Trump era, he's he's pressing the limits of what we accept as norms around executive authority and presidential behavior and public institutions that are really challenging people to kind of wrestle these things

to the ground with him. It's really interesting because it sort of puts paid to the idea that the president may not run now, or may pull out of the race if he thinks he's not going to win, or or or or this rhetoric that's going around that maybe he doesn't really want it, that he had his one term and he'll be finding something else. It seems like he really, really, really does want to win a second term.

The other thing that's been pointed out to people in his campaign and to himself is that last time around Mielan balloting actually benefited him, and so even that isn't enough, you know, to to change his mind on what's going on here with the postal service. Now. His argument is that it's a money loser, and of course that's a winning argument for a capitalist who cares about money. How how do those who don't like what's going on defend the USPS. So it's the United States Postal Service, it's

not the United States Postal business. It was mentioned in the in the Constitution as an organization that was meant to knit the country together and to make sure that Americans who lived in far fun places would always have a means of communication. Uh. And that's still true today. The Post Office loses a lot of money on traditional mail delivery because they have to deliver to remote rural communities.

Seniors really rely on the service, and the post Office itself is not allowed to raise the price of stamps. That's that's set by a commission that decides what the affordable rate should be. But we also don't expect the Department of Defense to make a profit. In fact, the Department of Defense loses by that standard. The Department of Defense loses far more money annually than the post Office,

roads and bridges, fire departments, police departments. Uh. The Intelligence services and the Diplomatic Corps and the White House itself are not for profit businesses their public services. Uh. That said, there's no question that the post offices operations could be streamlined and and and new thought and fresh thinking about how can do its job better is welcome. But it's a complete strong man to say this is about just

making the post office a better business. It's very clear now that that this is about the post office mission being perverted and derailed in the service of a trench warfare approach to politics. Well, it's extraordinary. Tim O'Brien, thanks so much for joining us and providing some color on what is a developing story. One that's getting the interest in the of Congress right now is Speaker Pelos, who brings the house back. Timothy O'Brian, Senior Columns for Bloomberg

Opinion joining us. Just a fascinating story. There's something new every day, it seems like. And it's uh the good folks of Bloomberg News and UH and Bloomberg Opinion keeping up on all of it, so we appreciate their help. Well, this market has been described as one that's being quote unquote backstopped by the US Federal Reservant for that matter,

of central banks around the world. To get a sense of whether that is enough for this market going forward to welcome Nicholas, co founder Data Trek Research, Nick, thanks so much. For joining us here. So again i'd love to get your thirty foot view on what's kind of

pushing this market higher. We obviously had that terrible pullback March April when the coronavirus hit, but since then with the Federal Reserve stepping in with fiscal stimulus and all the markets come roaring back, and love to get your thoughts right here right now as it relates to some of these riskier assets. Sure, the way we think about it at Data Trek is the market is discounting a very definite the bottom, not necessarily in the economy, but

in corporate profits. So if you think about a forty two dollar a share earnings power number for the SMP in the back half of last year per quarter, two dollars, markets expecting we're going to get back to those levels in the next four quarters. So even though the economy is going to be sluggish, we are going to get very high levels of corporate profitability because of fiscal stimulus, because of monetary stimulus, and because of costing, we're going

to get back to those numbers. And that's why the markets back to its old highs, because it doesn't care how we get that earnings number. It just cares that we do get it, and it has a very highly read confidence that we will. But Nick, it doesn't matter how much stimulus you give corporations or how lenient do you make the rules for them to get money to tie them over. If there isn't demand for their products from from customers who themselves are dropped, those earnings can't

be there. Come they no very good point and that's why they change in the composition of the SMP is so important. We're actually looking at this for clients last night. You know, back in two thousand sixteen, technology was the SMP. The comp number now apples to Apples thirty three. And as we saw the second quarter earnings, you have a whole range of tychnical companies that are really hurting, but

technology is doing extremely well. So the SMP five hundred is kind of a unique measure of corporate profitability because it is waiting those companies that have very high that was a profitability even to um showing high levels of cash flow. It values them very highly. So the F and P is not perhaps the best measure, but it's the one most folks follow, and the earnings are there for the technology sector and others that aren't as affected.

So Nick, it appears that this next next round of fiscal stimulus, you know, we didn't get it, you know, before the recess. Now there's some talk about perhaps will get something in September. How critical is it for the market to get a meaningful piece of fiscal stimulus? Uh, in the relatively near term. I mean on a scale of one to ten, it's probably a fifteen or sixteen. Um it's super super critical, you know, And to Bonny's point earlier, it's it underpins that ability for aggregate earnings

to improve. You know, without that, you don't get that part of the story. Look, I mean, you know, looking at past cycles, you know, every cycle bottom is a little bit different, and the biggest difference is exactly what's going to make us come off the bottom this time around?

It the whole is so deep that the market saying politicians have to provide the stimulus, they have no choice as an election year, and so our uncertainty about future earnings is actually lower than traditional bottom cycle moments when there isn't that level of support. So Nick, you know, what's the biggest risk here to this to this market rally? You know, it's it's it's a great question, um. You know, to us, the biggest risk is is a hybrid of

the policy political issue and the earnings issue. You know, we think back to two thousand eight, for example, really horrible quarter for UM, for the for the market, and it came in part because there was a huge change of government in Washington during the eight elections and we had a real power vacuum for several months during a period of you know, in the middle of the financial crisis. My biggest concern is we just get that's a similar

kind of power vacuum around the election. It's not necessarily because of anything untoward that happens in the election, but just millions in charge in DC for a few months, just when we get into perhaps a second wave and real concerns about the state of the economy in the first half of next year. So my biggest concern is we get a power vacuum in Washington in the matter month of the year and you end up with not

so much confidence around those corporations. As we discussed. Alright, So Nick, if where do you think where do you think investors should be looking in this market? Given the move we've had given that it's been. You know, the breath of this market isn't what most technicians or even fundamental analysts would like to see. Where do you see opportunities here? You know, do you take a look across some of the risk assets. You know, right now we

are favoring cyclicals um selectively. So I'm talking about industrials and energy first and Foremost industrials have the most ardens leverage going into meaning they generate the most out of incremental profits from upside surprise and revenues, and energy has the biggest potential upside. On the revenue side, you have a profitability to be kind of shaky just because of commodity pricing improved of it. So circle goals to the place we're recommending people to put in current on money.

It's going to be a hard way to make money, though. We think circle goals will outperform over the back half of the year, but it'll probably happen over ten random days where they're up two percents in the markets. Flat and a tough way to make money, but that's the way to outperform. We don't like the financials though. The financials are just stuck in their own private health. Yeah, that's a great way to put it, right. I mean, even Warren Buffett Is is deciding that he doesn't care

about the financials anymore. It's really really interesting. Did you learn anything for the thirteen F filings? Nick, No? No from Buffets No. I mean it's it is. It's always fascinating to watch him because he's just so good at what he does. But no, not really, you it's and just more broadly from the hedge funds and what they were doing or how hedge funds made money. So, for example, I was dropped by Chris Rockell spying just a whole heap of Ali Baba and like literally that's all he did.

He just made that one, if I can say, ballsy trade, and you know obviously it's paying off. Yeah. No, I mean Baba's boba is an interesting one. Evaluation is so cheap relative and China tech generally is so cheap relative to US tech that you kind of want to think there's a catch up trade. And we're certainly seeing some of the catch up trade in the broader Chinese market today with the stimulus last night. Are you seeing Nick

so t extent? You're looking at more cyclical names is that suggests you're going to fund that with some of the tech names that have a performed Yes. I mean the way the way we think about it is if you if you want to underweight one sector, it's got to be financials. There's just nothing going on there, and then you can dumbell it out between the industrial's energy and the tech and have a reasonable shot of that performing that. The banks are just just in a horrible space. Nick.

We will catch up with you again very soon and take the temperature of the banks and the cyclicals and lots lots of more. This market is going nowhere as as it seems anyway, it's going to just continue to go and hire Nichols as co founder of data Check Research. Fantastic notes every day, really and get in touch with Nick if if you want to subscribe to the our research once again, our thanks to Nick Cholas. I don't

want to bring you a headline across the Bloomberg. Just a few moments ago, New York City gyms can open August twenty four, which is one week from today, with thirty three percent capacity, so third capacity. Yeah, and in

fact it's more than New York City. It's it's it's New York State Gym's, so gym's all over the state can open August as long as people wear masks and they are not full beyond thirty three percent capacity, which was so beginners or people who haven't come to the gym in a long time quite happy for fewer people to be in the gym. Yeah. Absolutely, that's not to suggest that I myself will be going back. That might not be for coronavirus reasons, that might be for other reasons.

New research suggests glaring divergences between a m D and Intel, something that maybe didn't seems so obvious before. Let's bring in a strus and senior semiconductor and harder analyst for Bloomberg Intelligence to tell us about this new research. And and you know there were are rivals. But what does this new research tell us about A m D and intell how they do their business and their products. Good morning morning, Paul, Thank you for having me. So we've

done some work. That study that suggests that there's a structural landscape shift going on in the microposter industry across PCs and across servers between mb and Intel. M D appears to be on the front foot and will continue to gain share in our view through twenty and one, and in the data center their share could as much as triple from sort of the five percent range to the fi percent range. UM and Intel, on the other hand,

will continue to lose share. Um Intel has a wider variety of products and certainly is larger, but that may not help it at all over the next couple of years, particularly as the cloud becomes a bigger piece of the pie and more powerful piece of the pie. So, you know, you look at the evaluations, and you look at how

the stocks have performed here to date. And while it might suggest, you know, getting a lot of calls from clients about okay, is this you know, another set up for long Intel shorty m D for example, but fundamentals are suggesting exactly exactly the opposite. So on, you know, to this tech lay person, when I think chips, I think Intel. What's happened to Intel in terms of you know, losing share here? They seem to have lost kind of their you know there, I guess their new product Mojo,

their technology Mojo. What's what do you think is at the route there? You know, you can attribute it to a bunch of different factors. For I mean, if you look at their technology transitions transitions from our transistor shrinkage perspective, they were late to full key n animeter, they're late to ten animeter and now seven animeters delayed. Now considered that, you know, the technology shrinkage isn't the be all. Lend

All and More's law is in fact slowing. But smaller the transistors, more the transistors on the chip, more the transistors on the chip, chip is more powerful, uh, quite simplistically, and at the at the same time, more transistors on the chip produces the cost for transistion purely because of scaling. And if you keep prices same or you reduce it at a lower rate, you gross margins also can expand.

But m D has certainly taken the upper hand in this and is as much as a node or node and a half ahead of Intel, and Intel's sort of slow in its transitions. It has a wider ice cream shop, if you may, you know it has a wider variety of flavors, wider variety of toppings and sauces and stuff that go with it. But at the end of the day, you know, you still have to have a quality venilla, strawberry, and chocolate in order to build a more fitting ices

Sunday for your clients. I'm loving these analogies. And so what do customers want? Do they want the maybe a little bit more old fashioned flavor is you know, at a good price point that are very very reliable, you know, or do they want the new stuff? I mean, people were quite happy to wait for Apple to catch up with other people on on their software and so on. They didn't demand that app will be first on everything. Yeah,

that's a that's a great point. So one of the that's actually a fantastic question because the cloud has upended, upended the demand for the ice cream, if you may. If you look at the variety of computing workloads that the cloud has brought to bear, everything has become large. Everything has now has scale. So you want the specialized ice cream Sunday um and the demand for that is high relative to you know, corporate I demand scale, if

you may, and they vanillas, strawberry and chocolate. So if you look at what the m D has to offer, maybe it doesn't have all the flavors um in the in the ice cream shop, and maybe it's applicability to cloun. The workloads, if you may, is predominantly in the Minila chocolate and strawberry at a better place. No one listening to this segment is going to have any idea what we're talking about at this point. What about the cones?

What's the cones on? But the but the ice cream machine at Intel is broken, right, So that's the that's the that's the key part. At the end of the day, three years from now, five years from now, you have to be able to turn these out upun intended UM at a better UM, with better quality, and at a

better price point UM. As a result, when you build these massive servers and you know Facebook and Amazon, Microsoft are buying the servers ten thousand at a clip or fifty at a clip, you have to have better performance and better pricing. And I think the applicability of m D is in ceasing, and the applicability of Intel products is right over the next couple of years is decreasing.

On INTRONI Boston, thanks so much for joining us on Introney Boston, senior semi conductor and harder analysts, part time ice cream analyst from Blueberg Intelligence joining us here talking to us about the ostensibly the semi conductor, you know, the chip business. But I kind of, uh, kind of went. I took a different little route there with his analogy, but that works. So we got h A M D kind of hitting on all cylinders. Intel from our product perspective,

some concern that's per on its research. Sally Bakewell of Bloomberg News had a story several days ago, really fascinating. Basically the gist does stimulus has helped Amazon and Visa borrow at record low rates, yet small companies faced tighter conditions threatening the recovery to dig deep on that store and the phenomena. Were welcome to have Ted Kaneig, President and CEO of Monroe Capital, UH nine point three billion

dollars under under management. Ted, thanks for joining us here, so give us a sense of kind of the the mid market company out there. Is it easy or difficult for them to access capital here to try to make it through the pandemic, much less to find growth capital? Thanks for asking. It's tough. Um. You know, we we specialize. We have five hundred and eight middle market companies in our portfolio that we lend money to, everything from million

or revenue up to about five million revenue. These companies are not viewed as investment grade, so they don't have the ability to go into the marketplace and issue bonds or high yield debt that the government has been backing. So these companies have really been on their own and uh left to their own devices. They rely on the asset value or the enterprise value of of their own

companies in order to borrow money. And once they've borrowed capital that the banks believe, you know, as an amount sufficient to cover their assets, whether it's accounts, receivable, inventory, equipment, or real estate, they don't really have any other options. The government has not allowed these companies to have any any good options at their disposal to generate liquidity. And

that's really what's causing main street America. Well, so explain that a little bit, because A, isn't that what you're for? And B should the government be funding these companies? Well, the government has put up the p p P program and what the government has done is they've injected liquidity in order to buy bonds of the very large investment grade companies. Um Woral Lender. We focus on buyouts and transactions from mid market companies. We do it based upon

collateral value. We lend up to what you know these companies as a private lender, we lend up to what these companies can can can rightfully borrow, and we do it through institutional LPs. Right but still I'm still not sure about what the complaint is or arding the government. So they can apply for p p P if they meet the criteria, and they can borrow from banks if they meet the criteria, and if they don't, they also have the option of getting extra cash from you guys.

So well, I'm just lost. Just explained the problem of the government. What's what's happening is that the government has been buying in order to provide liquidity into the market. They've been buying um corporate bonds. They've been on a corporate bond buying program for quite a while, and that's part of the U. S. Treasury and UH that provides capital to the company. Lenders like us need the same liquidity.

I need that liquidity to make loans to a lot of the companies, and in times like this, many LPs, whether they're pension funds or endowments or foundations, don't have the ability to fund um into the investments. So have there been many are you saying that many of your portfolio companies are at risk all or have gone bankrupt. That is us a fact, not bankrupt because of business interruptions.

A lot of middle market companies UM, particularly those in the areas of leisure, hotel, airlines, restaurants, UM, have had significant challenges. That's due to closure. It's not due to bad businesses, not due to bad management. It's just due to the economy being closed to them. When the economy opens up, you know, those companies that are still around, hopefully we'll turn it around, but it's getting its covering

the bridge from here to there. Where the commercial banks and all of this they're they're the primary lender to these types of companies. How are they performing? Are they making their balance? It's available. Uh, it's hard, you know. And in times of stress, banks tend to look inward and they don't tend to put money to work. UM. This is no different than the last crisis. Right now,

banks are very concerned about their portfolios. They look at the bank stocks across the board are down, losses are up. The market believes that there's more losses to come in banks portfolios, So banks do not tend to be very aggressive. If you look at what's happening in the government right now. The government's trying to push the main street lending program, and the way that program works is banks are required to underwrite a portion of those loans, call it five percent.

Banks have not embraced the government's main street lending program because they don't want to take the exposure right now of lending to these companies. Yeah, I mean, it's a it's a horrible situation. But for some of the companies, would you blame them? I mean, what percentage of the portfolio companies you deal with do you think will be around any year's time. That's a great question. You know, I can't blame the lenders. I mean, I'm in the same position. You know, We've got to make sure we

don't lose money for our shareholders in our investors. So it's a it's a fine balance between you know, making uh good loans and being responsible to your shareholders and your investors and then providing relief. You know, right now there's a liquidity need. A lot of these companies don't have places to go to get the liquidity need. You know, the p p P programs were basically um payroll protection for employees, and you know, those were ninety day programs

to cover payroll. Many of those programs now that that program came out in May, many of those programs in you know, August, September and hour we're going to come to an end. And there's a lot of outcry on these smaller companies that took the p p P program that now we're in trouble. Yeah, And I mean some restaurant ours were saying this even before they took p

PP loans. Some of them didn't even take it because of this, you know, I mean, there was no guarantee that business is going to be back to normal three months later. And if there wasn't, why would you rehire people that were then going to have to go again. Ted kind of get President and CEO of Monroe Acompatal, Thank you for joining. Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts

or whatever a podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio,