Michele. This is one of the most difficult things to accept, that this market does not have to reflect what is going on in this economy. Can you speak to that . Bob i can speak to that because im in the bond market and it is reflecting perfectly what is going on. We just printed 33 gdp. There is a giant hole that we think will take 10 years to fill the output gap that has been created. The fed is telling us for a long period of time they will keep rates at zero because they have to bring the cost of funding down across the system so that any kind of recovery takes hold. Slowly, Bond Investors are recognizing that, and that has emboldened them to move further up the curve both in terms of duration and lower in credit quality. Jonathan we have had conversations about market distortions. The equity market, Big Tech Companies dominating the benchmarks in the u. S. What is the cleanest trade in fixed income to play an economy that would take 10 years to fully recover . Bob there are two clean trades. best with the fed. The kinds of things they are supporting, go ahead and buy them. You will get a notional return on them but at least it will be something that is positive. The second is to roll up your sleeves and dig through credit. The interesting thing to us is this is where there is a divergence from historic valuation metrics. We are seeing default rates go up credit rates come in. Jonathan what is the appropriate valuation method . We have spreads at 500 basis absolute borrowing costs for investmentgrade near record lows. What is the appropriate response, approach to this asset class now . Bob with the ongoing policy responses we are seeing, throw away the text books and the historic metrics, and find those companies that will pay you back. Book that yield now because it is only going to go lower. Those industries and companies, sectors of the market that look like they are headed to restructuring, get out of the way of those, let them head to restructuring, and then look to pick them up on the backend. Jonathan do you expect the same pain in europe . Once the ecb stepped into credit, the data was irrelevant, and spreads cap grinding tighter. Do you see the same thing happening in america . Bob i think so. This is less about buying bonds and more about an affordable funding rate for a recovery across corporate america. I do expect that. Jonathan walk me through how you would play the rest of the curve. Many think we can get a steeper curve. Are you looking for the steamroll to go out over the long end . Bob i think it is nonsense the curve is going steeper here. While i dont think this Central Reserve will take policy rates negative, to me that is irrelevant. It is possible that five and 10year treasuries go negative as more and more money comes in from overseas, both europe and japan, where yields are negative there. Think 10your nominal yields can turn negative in the market . Bob without question. We saw that in europe where the ecb held policy rates stable for a while. I dont know that will happen over the next month, but over the next few quarters, there will be a move, the fed will stick to zero, the money will come pouring in domestically and finance internationally to bring rates down to zero and probably negative. Is that foreign inflow enough to take it into negative territory . How much would you expect the Federal Reserve to respond . Fed you still have the theyre buying. They say they will buy 40 billion in agency mortgages, 80 billion in treasuries. Even as they start to fade from the market, theres enough money overseas trapped in negative markets that would come into the u. S. Market. The fed will look at that, it would make them uncomfortable, and they may dial down the level of her juices, but that may just be the reality of the economy we are in. Jonathan let me get the final spread. Next week, a ton of fed speak with jim bullard, Loretta Mester speaking throughout the week. Pmi in the u. S. And china. U. S. Factory orders and durable goods as well. Finally, another round of initial jobless claims and the u. S. Payroll report. Lets finish with a rapidfire round and get three quit questions. On the payrolls next week, negative or positive print for the month of july . Im going to be the outlier and say negative. I dont like what is going on with weekly cames data. Jonathan what is the first to break 1 , the 10year yield going higher or the 30 year yield coming lower . Question . At a trick 30 years going lower. Jonathan final question for you, on high yield, with everything that you have said, is a negative print possible on the payrolls report, a 30youre going some 1 , what do we see in spreads . 400 or 600 . Bob 400. To catch upntastic with you, bob michele. From new york, that does it for us. Was bloomberg real yield. This is bloomberg tv. It is 1 00 p. M. In new york, 6 00 p. M. In london, and 1 00 a. M. In hong kong. Welcome to Bloomberg Markets. We are digging into how the pandemic is affecting all walks of life from big oil to teachers and schools to even how we work out. Ill be speaking with Raymond James analyst paddle mulch and up. You will also hear from Stacy Davis Gates Chicago Teachers Union about the particular challenges in that city to reopening schools. And we will be discussing the work out at home trend with the ceo of tempo. Lets get a quick check of the markets. New jerseys transmission rate for coronavirus has jumped to 1. 35. Not great news. Selling off on the s p 500, down. 6 . Crude oil making it above the 40 mark but it was below that for most of the day following results from some of the majors. The 10year yield at 55 basis points. The energy index for a second point 2 ,ow down two the worst performing index in the s p 500. Lets stay on that with more insight and what is next for big oil. Pavel molchanov is the Equity Analyst from Raymond James. Talk to us about exxon. I know you have a lot of thoughts about chevron, but weon, for the negative views were expecting, it was not as bad as it could have been. Picture is, the big that this was a her in this trough quarter for every oil company on the planet. Was at 30 a wti barrel at one point in april. Of course, demand collapsed in the lockdowns in april and may. The degree to which any betteres q2 results were or worse than expected, you are right, chevron was relatively worse. But those are minor details. The fact of the matter is, this was a trough for the entire industry. Q3 will certainly be much better. We have seen Oil Prices Get back to 40 plus. The response from every one of these companies is the same, which is cut everything they can. Capital spending, operating costs, headcount, corporate expenses. It is not pleasant but these austerity measures will help bring the oil market back into balance. That is the silver lining. Vonnie where will those reductions come from, will it be more shutins, the dividend . Pavel we have seen earlier this cut, shall cut its shell its major, the only major to do so this cycle. S dividend, the only major to do so this cycle. Do i expect others to follow suit . Probably not. If we are still talking 40 a barrel one year from now, all bets are off. In the meantime, everything these companies are doing is designed not to have to cut the dividend. The cuts will be from shrinking reserves, shrinking writing off assets, as we saw a number of these companies do this quarter, and less spending on all the assets that remain. Vonnie you have brought up a point i wanted to address. The highyield market is off limits to most of these guys, perhaps not the majors, but smaller players, and they are having to write off assets. What happens at the other end of this . Do they all get gobbled up by the majors, what happens to those assets that have been overburdened because of financing needs . Just in the last 100 days in north america, we have seen Something Like 30 oil and Gas Companies filing for chapter 11, public and private. M anumber of corporate deals is much smaller than that, we can count on one hand. For example, chevron buying noble energy. Most of these bankruptcies are not going to lead to buyouts, simply to banks taking a haircut on the debt, shareholders getting wiped out, and then perhaps the companies can come back to life in a shrunken down form with a cleaner balance sheet. There will be some m a. Right now, all of the big oils are cutting everything they can, too. Part, they are not in the mood to be gobbling up more assets, when the fact of the matter is, the existing asset base is being underinvested as it is. The first are your day need to be recovery in capital investment, organically, and only then doesnt make sense to look at potential does it make sense to look at potential m a and acquisition opportunities. Vonnie you say that while this year may look flat production wise, we could be looking at an increase in 21, 12 in fact. Will that be possible for chevron to do, is that thanks to the noble acquisition . Pavel that is absolutely because of the noble acquisition. Way, flat production, given the meltdown we have had this year, is actually quite good. The vast majority of multinationals will have a production decline of some unknown in this current year because of curtailment. So chevron is actually doing pretty well on that. But the growth in 21, that growth you mentioned, almost all of that comes from the noble acquisition. That was a oneoff. Corporatet seen much buyouts at all in the past six months, for obvious reasons. The accretion on that deal to chevron by our numbers is 5 on cash flow per share. It is not huge but not a huge deal to begin with, a 13 billion acquisition for a company with an enterprise value of more than 150 billion. Not a needle mover, not Something Like oxy buying anadarko last year, which was transformative. I dont know if chevron needed to do the deal, but it is accretive. Vonnie and a Good Discount built in. I want to ask you about the other companies. You include a company in brazil. Im curious what you think the trajectory is for that company that is so bogged down in coronavirus, and petrobras sticking with its target this year, even though it seems impossible. Pavel we have a sell rating on petrobras. That is very much in the context of brazils absolute catastrophe with the virus. Brazil is only the second country major second country in the world where more than half of the population is confirmed infected. That is particularly problematic in the coastal states. That happens to be where petrobras is based. More to the point, its offshore production platforms that are right off the coast of these are byhardhit states geographic proximity exposed to this high level of covid outbreak risk. By the way, petrobras already had two offshore platforms that had to shut down temporarily in april because of sudden outbreaks. At the time, brazil had 50,000 infected. Million, second only behind the u. S. , of course. You have that risk from an operational standpoint, to one of the Largest Oil Producers in the world, and on top of that is withacro crisis in brazil the pandemic, the currency, economic collapse in some of these hardhit states. Petrobras has a lot of exposure from a macro perspective to the brazilian economy, as you said, is pretty brutal right now. Vonnie thank you for joining us. Pavel molchanov at Raymond James. Expedia down 6 after a slump in bookings. We will discuss that next. This is bloomberg. We are looking across the entire company for efficiencies. We announced earlier in the year a goal of 500 million in savings, which did not even go to our variable costs. Ofare already at a run rate 400 million in savings, and we expect to do meaningfully better than our goal. Ofhave also taken costs out the variable side, on the call center side using technologies on the processing side, and even on the advertising side where we not a returnill be to business but much more efficient in our marketing. There is a lot of opportunity for us to take additional cost out. I will say that whole notion of deferred bookings has settled down. It was particularly acute in the back half of march and april when nobody was booking travel and everybody was canceling. That has considerably changed in the past few months. Even in july with cases returning, we are seeing it is not growing at the same rate as in june, but it is a fine place for us to sustain ourselves. We are not particularly concerned about that. Much of that deferred booking has burned away anyway. We feel good about where the business is. Obviously it is greatly reduced. You pointed out the quarter was terrible. Of course it was. Not a surprise to anybody. What is important is how we are going about it now and what we will look like when the business returns. We are spending our time on that, making sure we are efficient when we come back. The company is our stock of the hour. Here is kailey leinz. We heard peter talking about when the business comes back, but there may be a long way to go until we get there. When you look at the secondquarter numbers the company reported, bookings were down 90 from 2019 levels. Revenue plunging 82 . 33 largerit loss, than analysts were anticipating. Granted, they may be moving toward the light, things improving sequentially each month, but even in june, demand was down 70 . One analyst said things have gotten less ugly but the environment remains challenging. That is the sentiment echoed across the sell side. The street is giving the company some credit in regard to those cost cuts. Here atown analysts Bloomberg Intelligence say that they make it may weaken them from a competitive standpoint. They are focused on this competitive Advertising Channels like google, and that means they could lose bookings to rivals that have stronger digital platforms. Vonnie if they are traveling, where are americans going . Kailey pretty much anywhere they can get to by car. About 85 of people surveyed are planning to a road trip. They see a car as safer as a plane. Safety appears to be the primary factor in trouble at this point. 72 said they are basically trying to avoid crowds, and that is more important than anything else. That is an issue for expedias business. That is why we have seen the Airline Sector be hit so hard. Maybe its better for rental cars and hotels. Traveling, they just want to do it in their own cars. Vonnie thank you, kailey leinz. Chicago schools are preparing to reopen. We will hear with the teachers think about the citys plan with the Vice President of the Chicago Teachers Union. Stacy davis gates will join us in a few moments. This is bloomberg. Mark im Mark Crumpton with bloomberg first word news. The u. S. Government top Infectious Disease expert dr. Says he isci cautiously optimistic a Coronavirus Vaccine will be available by next year. Fauci a pironkova today at a hearing that was held by a House Committee calling for a National Plan to contain the virus. Market another milestone this week with total markinges from covid19 150,000. It is official, the euro area economy plunged into an unprecedented slump in the Second Quarter due to coronavirus lockdowns, and it may take years to fully recover. The area saw a 12. 1 contraction. Spain took the biggest hit, shrinking 18. 5 . France and italy also dropped by double digits. The u. S. Government want to seize but profits from john bolton without a trial. The Trump Administration asked a federal judge to rule in its favor. He argues bolton violated nondisclosure agreements when he released his book without completing a prepublication review. Bolton argues he fulfilled his responsibilities. Tropical storm nate lisa lees saias could strike the u. S. By saturday. The National Hurricane center has posted a watch along floridas east coast. Meteorologists think that it will skirt the east coast but the strongest winds will stay offshore until the hurricane probably comes ashore near wilmington, North Carolina next week. Global news 24 hours a day, onair, and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. Im Mark Crumpton. This is bloomberg. Amanda live from toronto, Bloomberg Markets. Im amanda lang in toronto. Vonnie im vonnie quinn in new york. We are joined by our bloomberg and Bnn Bloomberg audiences. Here are the top stories we are following from around the world. Chicago schools prepare to reopen. We will speak with the Vice President of the Chicago Teachers Union on the hybrid learning model said to be in place for reopening this fall. Investors gaining access to the clo market. Tempos 250 million valuation. The athome Fitness Company raised new capital. We will talk with the ceo about their plans for the future. President donald trump planning to sign an order to direct bytedance to divest its ownership of tiktok, of course, popular in some circles. Been reviewing potential National Security risks due to the companys control of the app, and the order could be announced today. This is something that had been chinasr the head of bytedance. President trump no ordering bytedance to get rid of tiktok over potential National Security concerns. Amanda we will watch to see some reaction in the markets. Watching reaction in the markets, coming off of the lows of the session. Is the strength across the broad markets, thanks to the earnings from some of the biggest tech names, which were mostly out of the park. We did see them give up some ground. The nasdaq back in positive territory. All subgroups of the s p 500 are negative except for Consumer Discretionary and tech. But things are getting better, we are off the lows of the session for industrials, financials, everything turning around a little bit. Of two markets, tech moving higher, apple and facebook up by 5 , and chevron down by 5 . You can see, in toronto, our financials are also week, so that is taking us down. On reopening schools across the u. S. And canada. In chicago, most schools will return. The plan is for most schools to have two days a week with Remote Learning continuing. That is something of the Teachers Union there says is a concern. Is the vicegates president of the Chicago Teachers Union. Lets start with the concern around safety. Why is it not safe for teachers to be back in school . Stacy we are having a huge issue reconciling the fact that we are in the middle of a pandemic, one that has impacted millions of people around the world. Our death toll in the United States of america has reached a grim figure. We have more police in our classrooms than school nurses. The infrastructure is not here for Chicago Schools to open up and keep people safe. Any plan that is being presented that only mitigates harm, it does not protect us from it. Vonnie new york city has drawn being in the sand as 3 the infection rate at which they will start rejecting schooling. Is there a percentage for the Chicago Teachers Union the on which there would be no going back for the teachers . Stacy it is 8 here in chicago. Our mayor said 8 . We think that is too high. Accordingly, if you look at some of the difficult parts of our city, where many of our black families preside, percentages are as high as 12 , which exceeds 8 . Int being said, we know that a School District that is overwhelmingly black, latin, and immigrant, those are also the same individuals that have been most impacted by covid. We have to get to a place where we can make Remote Learning more accessible to our students, putting in the infrastructure and working with stakeholders to make it better. It is not ideal for anyone. This is a pandemic. Our job right now is to keep people safe, and most of all, our children safe. Amanda one of the pieces of irreparable damage that may be done here is the loss of education to cohorts of young people. Like is online learning, should the attention be on how to deliver education in a way that is successful for everybody, that is actually equal for everybody . Why not turn the attention there . Stacy the issue with disparities in education have them there. I feel like this is groundhog day. Was saying the same thing in the lead up to our strike, that we needed smaller class sizes, nurses, librarians, social workers in our community. Know hower, i difficult this is for families. And i know that this will not be always. The adjustments that we are making at this moment to have robust support for the grownups involved, and that means every family that has cool aged children, they need devices. We should be talking about making broadband a utility, not just handing out hotspots to families. When there is a will, there is a way. What we are seeing is a lot of dithering on percentages that do not give parents like myself much confidence that they can keep our children safe. Vonnie do you worry about the kids that maybe will not have as much access to lunch if they dont get to go to school in person . As much as protecting teachers lies and lies of their students, how do you ensure the most vulnerable do not get hurt by decisions made . Stacy the Chicago Teachers Union have always been concerned about issues of equity and race. We have been at the fore for the past decade making it very clear the funding our communities in the way that its been done over a generation is what is compounding the inequities. Sendingalking about black and brown children into School Communities that we know are not safe. We should also be talking about health care for those same children. When we talk about making sure they participate in society, we also have to make sure that their parents can have living wage jobs. We are clear about what is necessary at this moment. [indiscernible] families that have schoolage children. It is also universal health care for everyone in america. This is a pandemic. It is also the unemployment issue, which is higher for black americans in this country. There are communities that have been disinvesting in. 1 and blackaugust and brown people are being evicted from their homes. This is one issue of many that we are trying to work against. Amanda i just want to jump in and say every issue you have named is valid and important and enormous, and perhaps beyond the scope of a Teachers Union. Many parents feel frustrated to hear Teachers Unions talking about class sizes not that those are not worthy thing is, but can you pivot in a way that will educate kids remotely . Stacy can we pivot in a way to make sure the kids that are educated also have shelter and food . Can we pivot in a way that puts families in position to care for their children . Schools will not ameliorate the lack of a social safety net in society. Teachers are becoming practitioners and we are raising our voices with parents who are also frontline workers, by the way. In the grocery stores, nursing homes, hospitals. We are not just going to lift up one issue. We are going to lift up the issue that anchors a community in which we teach. These are common good issues. We are going to come bargain for the common good. We are going to fight for the common good. It is not a pivot, its a reality. Carekids dont have health , but there is not a nurse but a cop at the door. If we care about the health and safety of our children, we care about all of those things. See any of those in Authority Meeting you halfway, working on solutions . If not, what do you think is the answer for Something Like the Chicago Teachers Union . Is striking going to be effective in this instance . Stacy frankly, what we think will be effective is, those in charge of our local, state, and federal government to figure out how to keep people safe. This pandemic has exposed the lack of a social safety net for black and brown, immigrant, poor people in this country. We would expect folks who ask for our votes, who pledge a lot of things to us during election time, we would expect them to rise to the occasion. Obviously, our ultimate weapon is a strike. We are at the table currently with Chicago Public schools. We are hoping grownups can come to a conclusion that puts the health, safety, education of our children front and center. Vonnie thank you for your time and very good luck with everything. Stacy davis gates, Chicago Teachers Union Vice President. Thank you. I want to bring you back to that story, the president will soon make a decision on forcing bytedance to sell tiktok. Trump will order Chinas Bytedance to sell its u. S. Tiktok operations. This is bloomberg. Vonnie President Trump is said to be ready to order by dance to sell its tiktok operations in the United States on National Security grounds. Lets get more insight from kurt wagner. Joke about howa dancing is very threatening to our National Security, but i suppose the question is, is this just President Trump trying to punish china or is there a real National Security concern behind this . That has been the question for a number of months. We have seen a number of republican politicians, including President Trump say that tiktok poses a threat because of all of the data it collects on american users. That that data is not abused, not stored in china. They recently hired a new ceo who came from disney, they have an office in los angeles. Tiktok is trying to present itself as a very American Company to combat this idea that trump has positioned it as a threat. As we are seeing now unfolding live, clearly, he thinks it is serious enough that he will, at the very least, make it a big headache for the company. Forda including plans bytedance to potentially ipo the whole package. Withhappens from here tiktok, what Companies May stand to benefit . Assuming this is real, assuming the president can lookd force bytedance to at spending off tiktok, you will see a frenzy. This has been a highly attractive asset right now, the kind of company that people think could be the next instagram. We saw how well that worked out for facebook. Assuming this is real and taken seriously, i think youll see every major tech and Media Company in the u. S. Take a hard look at this, if they have not already. It will create an interesting environment. Again, kind of unfolding as we speak, so i dont know to the extent how immediate those bids will be, but i think we will see a lot of potential m a interest from some of the largest players in tech. Vonnie there are so Many Companies in the space. Snap had a little bit of a bounce on the announcement. Spike 3 , but there was a because perhaps it would benefit them. Was tiktok so successful, when there are so many platforms that you can do short videos on . It has created a unique culture, especially among young people. From aht remember vine few years ago which was owned by twitter. Vine had this great ability to find young, talented people who have not really hit mainstream. They created a massive following, created a lot of attention. I feel like tiktok has replaced vine in a lot of ways but with better technology. What people point to with tiktok is the advanced algorithms that it uses to show people exactly the kinds of things they want to see. It is a combination of replacing this cultural element with young people with a company with some advanced technology that has helped it to explode. Kpope we should mention, fans on tiktok have become very political, in the u. S. Sphere, partially because of what the president is doing. Fans on tiktok apparently inflated the numbers at theo rally tulsa rally because they had bought tickets in advance. Amanda our thanks to kurt wagner for that. Coming up, the pace of Digital Fitness continues to grow. We will talk to the cofounder of tempo about how he is helping the company achieve a valuation of close to 260 million. Stay with us. Amanda welcome back. Im amanda lang in toronto. Alongside vonnie quinn in new york. One thing that the lockdown has done is encourage people to work out at home, and that includes Digital Fitness. Tempot the valuation of to a quarter billion dollars. It ceo Moawia Eldeeb is with us. Lets start with the connection that you saw in this pandemic lockdown, what it meant for your business. Changed thectually whole landscape. We saw that people were starting to work out at home. The trend was already starting to happen but this completely accelerated the trend, from our perspective, about five years. Getting so many more people working out at home. Also because of the lockdown, people were working out even more. On average, a person can work out three times a week. We saw the usage on our product increased to four and five times a week. Under quite pricey, just 2000, but you also have a 39 a month subscription, like some of the others. How much does it concern you of four of your customers are paying in installments . Down,sumer spending goes will they stop paying and just go delinquent on your payments . Most people who we are financing, are already paying something similar to that, if boutique fitness class, were they pay 35 a class. Users, if there are problems, obviously, the company will try to work with our financing partners. That ouromething Financing Team handles and has accounted for already, expects. All i know is that we care deeply about our customers and that we would try to help in any way we can, if these financial problems happen. Amanda can you tell us about a deal that you struck with the Real Estate Entity . What is that about . Moawia a lot of apartment complexes were looking at how to gymsthe most extravagant inside for users to use, but with covid, a lot of these gyms are going unused. The thought now is shifting to provide something of a standard, with a condo as a fullblown gym with a studio inside. That is what led to this partnership. It would be mutually beneficial for both. It would allow us to go directly into apartment buildings across the world. Vonnie when do you anticipate an exit from your vc people, will you look to be acquired by a larger company, maybe an ipo . Moawia honestly, all of us are looking all the way to ipo. This is the future of the home fitness trend. Big boxing gyms are something of the past. For many, they have moved completely digital. Fitness is moving that way. We are basically recreating the fitness industry. We are here for the long run. Vonnie thank you and best of luck to you. Definitely a niche market. Tempo ceo and cofounder Moawia Eldeeb. We are also getting word that President Trump may or may not he may make another decision about tiktok needs to be sold from bytedance. You say the customers make their own rules. Lets talk data. Only Xfinity Mobile lets you switch up your wireless data whenever. I accept. 5g, everybody is talking about it. How do i get it . Everyone gets 5g with our new data options at no extra cost. Thats good. Next item, corner offices for everyone. We just have to make more corners in this building. Chad . Your wireless, your rules. Only with Xfinity Mobile. Now thats simple, easy, awesome. Switch to Xfinity Mobile and save up to four hundred dollars a year on your wireless bill. Plus, get two hundred dollars off when you buy an eligible phone. New york as 7 00 2 00 p. M. In new york and 7 00 p. M. In london. You are watching Bloomberg Markets the close. The white house chief of staff mark meadows says that democrats rebuffed attempts to extend unemployment benefits. President trump, will he or what we order byte dance to divest tiktok. Its friday and we are falling off the s p 500 ending the week in the red, selloff of all oil producer with exxon and chevron their worst earnings in a generation. The dollar, it arises. Up served sandy syme sunnyside up. Going public today with shares over 60 up. We will speak with the ceo in a moment. All that and more coming up
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