1 00:00:05,120 --> 00:00:07,119 Speaker 1: This is the Bloomberg Surveillance Podcast. 2 00:00:07,160 --> 00:00:11,080 Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 3 00:00:11,280 --> 00:00:15,760 Speaker 2: Join us each day for insight from the best and economics, geopolitics, 4 00:00:15,760 --> 00:00:20,720 Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 5 00:00:20,960 --> 00:00:25,439 Speaker 2: Spotify and anywhere you get your podcasts, and always on 6 00:00:25,520 --> 00:00:29,880 Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 7 00:00:30,360 --> 00:00:32,080 Speaker 2: Let's get up front of Carl Worcadon, I got a 8 00:00:32,080 --> 00:00:35,159 Speaker 2: bigger broad up question from Let's Go narrow tomorrow. How 9 00:00:35,200 --> 00:00:38,840 Speaker 2: do you interpret average hourly earnings within the forty seven 10 00:00:38,920 --> 00:00:41,160 Speaker 2: other measurements of wage growth that are. 11 00:00:41,080 --> 00:00:44,199 Speaker 3: Out there well, Average early earnings are telling us that 12 00:00:44,840 --> 00:00:47,920 Speaker 3: we are not there yet in terms of the FED 13 00:00:47,960 --> 00:00:51,280 Speaker 3: being able to declare mission accomplished. Average oarly earnings running 14 00:00:51,280 --> 00:00:54,320 Speaker 3: at four percent are still too hot for inflation to 15 00:00:54,360 --> 00:00:58,200 Speaker 3: be sustainably at a two percent run rate, especially as 16 00:00:58,200 --> 00:01:00,440 Speaker 3: we look at the core numbers. And even more important 17 00:01:00,440 --> 00:01:03,040 Speaker 3: than average early earnings is the employment cost index wage 18 00:01:03,080 --> 00:01:05,800 Speaker 3: and salary component that's running at four to six. It 19 00:01:05,880 --> 00:01:09,200 Speaker 3: needs to be at three percent or less to be 20 00:01:09,280 --> 00:01:12,840 Speaker 3: consistent with the two percent core PC inflation. So we 21 00:01:12,880 --> 00:01:15,680 Speaker 3: are simply you know, there's lots of good progress. The 22 00:01:15,760 --> 00:01:19,440 Speaker 3: glide path is looking in the right direction, but there 23 00:01:19,520 --> 00:01:23,240 Speaker 3: is still further room to run before we can feel 24 00:01:23,280 --> 00:01:23,800 Speaker 3: more comfortable. 25 00:01:23,880 --> 00:01:25,679 Speaker 1: Karl, I got to go to sixty thousand feet here. 26 00:01:25,720 --> 00:01:28,399 Speaker 2: You're really good at this. Peter Drucker, nineteen ninety one 27 00:01:28,520 --> 00:01:32,000 Speaker 2: on the new productivity. Do we have any clue given 28 00:01:32,040 --> 00:01:36,120 Speaker 2: our labor data that we're in right now, what the productivity, 29 00:01:36,200 --> 00:01:39,400 Speaker 2: the efficiency, the efficacy of our labor is. 30 00:01:39,480 --> 00:01:41,320 Speaker 1: I would suggest we're flying blind. 31 00:01:43,400 --> 00:01:47,119 Speaker 3: I think we are still flying blind post pandemic tom 32 00:01:47,160 --> 00:01:50,680 Speaker 3: and we've seen some wild swings and productivity due to 33 00:01:51,000 --> 00:01:55,600 Speaker 3: labor shortages and then the rebound and participation. Lots of 34 00:01:56,240 --> 00:01:59,320 Speaker 3: kind of wild swing factors are really distorting the numbers. 35 00:01:59,360 --> 00:02:03,120 Speaker 3: That big surge we saw in GDP growth in Q three, 36 00:02:03,320 --> 00:02:06,880 Speaker 3: of course distorts productivity. That's not the beginning of a trend. 37 00:02:06,880 --> 00:02:09,120 Speaker 3: That was a one time flash in the pan. We 38 00:02:09,120 --> 00:02:11,760 Speaker 3: can see that in the tracking forecast for Q four. 39 00:02:12,360 --> 00:02:14,920 Speaker 3: So there really is still a lot of instability and 40 00:02:15,040 --> 00:02:17,200 Speaker 3: noise that we have to look through to get a 41 00:02:17,200 --> 00:02:20,480 Speaker 3: clearer perspective. Now, what I think does give us some 42 00:02:20,600 --> 00:02:24,040 Speaker 3: sense of the trend. When we have extended periods of 43 00:02:24,280 --> 00:02:30,640 Speaker 3: labor scarcity and high labor costs, typically that pushes businesses, 44 00:02:30,760 --> 00:02:34,720 Speaker 3: encourages them to make the kind of productivity enhancing capital 45 00:02:34,760 --> 00:02:39,960 Speaker 3: investments that do lead to a productivity boom. But we're 46 00:02:40,040 --> 00:02:42,360 Speaker 3: still not out of the woods yet. The labor data 47 00:02:42,400 --> 00:02:45,560 Speaker 3: does look to be moving to a more balanced state 48 00:02:45,639 --> 00:02:49,320 Speaker 3: where maybe we have less labor cost pressure six months 49 00:02:49,360 --> 00:02:52,360 Speaker 3: from now, for example, and then that would say maybe 50 00:02:52,400 --> 00:02:54,400 Speaker 3: there'll be less of a productivity flare up than we 51 00:02:54,440 --> 00:02:57,519 Speaker 3: might be anticipating. Of course, AI is a big wildcard, 52 00:02:57,560 --> 00:02:59,680 Speaker 3: but I think it's a little bit too soon to 53 00:02:59,680 --> 00:03:03,840 Speaker 3: be factoring that into the macroeconomic data on that kind of. 54 00:03:03,880 --> 00:03:05,720 Speaker 4: Scale if you are just starting the program. We did 55 00:03:05,800 --> 00:03:08,480 Speaker 4: just get a one two punch better than expected jobs 56 00:03:08,520 --> 00:03:10,880 Speaker 4: data with the ADP orport coming in hotter than expected 57 00:03:10,919 --> 00:03:14,079 Speaker 4: and that initial job was claims coming in lower than expected. 58 00:03:14,080 --> 00:03:16,200 Speaker 4: You could see an extension in the move with ten 59 00:03:16,240 --> 00:03:19,639 Speaker 4: yure yields now creeping closer to that four percent three 60 00:03:19,720 --> 00:03:22,600 Speaker 4: point nine to nine percent if you round up about 61 00:03:23,240 --> 00:03:26,560 Speaker 4: just less than one basis point, Carl, how much are 62 00:03:26,560 --> 00:03:29,640 Speaker 4: you looking at a market that is screaming that we 63 00:03:29,680 --> 00:03:32,600 Speaker 4: are not going to have any recession anytime soon without 64 00:03:32,639 --> 00:03:34,000 Speaker 4: some sort of exogenous shock. 65 00:03:36,080 --> 00:03:38,560 Speaker 3: Well, I think the market signal is very important, but 66 00:03:38,880 --> 00:03:42,720 Speaker 3: that market signal will be very subject to the macroeconomic 67 00:03:42,800 --> 00:03:45,880 Speaker 3: data trend. And we are certainly moving to a slower 68 00:03:45,920 --> 00:03:48,560 Speaker 3: pace of activity than where we were, for instance, in 69 00:03:48,640 --> 00:03:51,520 Speaker 3: Q three of last year. So it is a slower 70 00:03:51,560 --> 00:03:53,720 Speaker 3: profile in the first part of this year, which will 71 00:03:53,760 --> 00:03:58,920 Speaker 3: mean less hiring that puts pressure on margins and revenue 72 00:03:58,920 --> 00:04:02,800 Speaker 3: gains and whatnot, slower nominal GDP than those things tend 73 00:04:02,840 --> 00:04:05,040 Speaker 3: to slow down as well, So it will be a 74 00:04:05,160 --> 00:04:08,360 Speaker 3: challenging macro environment, which will be an environment in the 75 00:04:08,400 --> 00:04:11,000 Speaker 3: first half of this year where the macro variables really 76 00:04:11,120 --> 00:04:14,000 Speaker 3: do drive the narrative, as we'll get some clarity on 77 00:04:14,040 --> 00:04:17,200 Speaker 3: whether it's a bumpy landing, soft landing, no landing, et cetera, 78 00:04:17,240 --> 00:04:20,120 Speaker 3: et cetera. And so I think we do have to 79 00:04:20,240 --> 00:04:23,160 Speaker 3: pay very careful attention to that tug of war between 80 00:04:23,320 --> 00:04:26,080 Speaker 3: what markets are seeing in terms of FED easing and 81 00:04:26,120 --> 00:04:29,720 Speaker 3: whatnot and what the macro data are suggesting. And as 82 00:04:29,760 --> 00:04:32,280 Speaker 3: we look at the claims numbers, right, this is consistent 83 00:04:32,920 --> 00:04:34,920 Speaker 3: with what we said ahead of the data which is 84 00:04:35,040 --> 00:04:38,359 Speaker 3: it's not layoffs that are cooling the labor market at 85 00:04:38,400 --> 00:04:41,360 Speaker 3: the moment, it's just a reduced appetite for hiring. 86 00:04:41,560 --> 00:04:43,640 Speaker 4: You mentioned the market signal, Carl, and I think that 87 00:04:43,720 --> 00:04:46,760 Speaker 4: really follows nicely onto what we saw yesterday in the 88 00:04:46,800 --> 00:04:49,520 Speaker 4: meeting minutes. J Powell kind of dismissed this idea of 89 00:04:49,600 --> 00:04:53,080 Speaker 4: financial conditions in the December FMC meeting, and then he 90 00:04:53,200 --> 00:04:56,239 Speaker 4: inserted that back in, or somebody did in the meeting 91 00:04:56,279 --> 00:04:59,760 Speaker 4: minutes for suddenly they're worried about this easing and financial 92 00:04:59,800 --> 00:05:04,279 Speaker 4: can conditions. Do you think that basically the implied rate 93 00:05:04,279 --> 00:05:06,600 Speaker 4: cuts that we have seen priced into the market through 94 00:05:06,640 --> 00:05:09,159 Speaker 4: the end of last year have made it more difficult 95 00:05:09,440 --> 00:05:11,520 Speaker 4: to really achieve that price stability in a way that 96 00:05:11,560 --> 00:05:13,720 Speaker 4: we see with ongoing labor market strength. 97 00:05:15,440 --> 00:05:18,440 Speaker 3: I think that the easing of financial conditions, which is 98 00:05:18,440 --> 00:05:22,479 Speaker 3: pretty substantial. Our own BMP Financial Conditions Index would say that, 99 00:05:22,760 --> 00:05:24,599 Speaker 3: you know, the moves from the highs are equivalent to 100 00:05:24,800 --> 00:05:28,320 Speaker 3: maybe one hundred basis points of FED cuts. That complicates 101 00:05:28,400 --> 00:05:31,279 Speaker 3: the exit process. Now the FED knows full well that 102 00:05:31,320 --> 00:05:34,360 Speaker 3: when they shift from the risk of there being more 103 00:05:34,440 --> 00:05:37,279 Speaker 3: hikes to either being on perma hold or moving to 104 00:05:37,360 --> 00:05:40,120 Speaker 3: a lower policy rate, that there's always going to be 105 00:05:40,160 --> 00:05:43,279 Speaker 3: that kind of easing of financial conditions that takes place, 106 00:05:43,320 --> 00:05:46,080 Speaker 3: but absolutely this does complicate the process. We heard that 107 00:05:46,160 --> 00:05:48,640 Speaker 3: in the minutes, the line that said, you know, the 108 00:05:48,680 --> 00:05:51,440 Speaker 3: easing of financial conditions, you know, the scope or the 109 00:05:51,480 --> 00:05:55,200 Speaker 3: magnitude of it could jeopardize the Fed's path. If we 110 00:05:55,240 --> 00:05:58,479 Speaker 3: have a real reacceleration in the economy, then that last 111 00:05:58,520 --> 00:06:01,880 Speaker 3: mile in the inflation fight becomes more difficult, and that's 112 00:06:01,920 --> 00:06:04,440 Speaker 3: going to slow down the FED in that process. What 113 00:06:04,480 --> 00:06:07,359 Speaker 3: I thought was interesting in the minutes was the you know, 114 00:06:07,400 --> 00:06:10,159 Speaker 3: the usually the FED has the boilerplate language, if it's hotter, 115 00:06:10,240 --> 00:06:13,520 Speaker 3: we'll go higher, if it's cooler, will go lower, and 116 00:06:13,560 --> 00:06:15,599 Speaker 3: they didn't do that. It was i think on page 117 00:06:15,640 --> 00:06:18,400 Speaker 3: eight of the minutes where they talked about, you know, 118 00:06:18,480 --> 00:06:21,520 Speaker 3: kind of maybe empty or somewhat empty rhetoric about saying 119 00:06:21,560 --> 00:06:24,240 Speaker 3: that you know, there's a possibility of more hikes. Then 120 00:06:24,279 --> 00:06:26,320 Speaker 3: they went on to say there's a possibility that we 121 00:06:26,400 --> 00:06:30,920 Speaker 3: could take longer to pivot towards cuts, But they never 122 00:06:31,120 --> 00:06:33,320 Speaker 3: then added the other side of the scale, which is 123 00:06:33,440 --> 00:06:35,680 Speaker 3: and if things are cooler, we could go sooner, so 124 00:06:35,760 --> 00:06:38,880 Speaker 3: that tells you they're very sensitive to the market reaction 125 00:06:39,400 --> 00:06:41,080 Speaker 3: to the December press conference. 126 00:06:40,800 --> 00:06:43,480 Speaker 2: Carl, the fact that we were all wrong last year 127 00:06:43,839 --> 00:06:47,600 Speaker 2: and that we got this wonderfully buoyant economy and right now, John, 128 00:06:47,640 --> 00:06:50,680 Speaker 2: a three point eight percent statistic on the unemployment rate. 129 00:06:51,200 --> 00:06:55,120 Speaker 2: Guestimate for tomorrow, Carl, are we fully employed? I mean, 130 00:06:55,200 --> 00:06:58,039 Speaker 2: there's a lot of Americans flat on her back, but 131 00:06:58,120 --> 00:06:59,960 Speaker 2: are we fully employed in America? 132 00:07:02,120 --> 00:07:05,120 Speaker 3: As we look at the aggregate data right the unemployment 133 00:07:05,200 --> 00:07:09,000 Speaker 3: rate below four percent, If we look at the wage trends, 134 00:07:09,440 --> 00:07:12,560 Speaker 3: I think it's pretty apparent that we have been in 135 00:07:12,600 --> 00:07:16,640 Speaker 3: a period of full employment and that largely explains those 136 00:07:16,640 --> 00:07:19,760 Speaker 3: wage pressures. Now the labor market is cooling. So while 137 00:07:19,800 --> 00:07:22,760 Speaker 3: we may be fully employed now on the eve of 138 00:07:22,840 --> 00:07:25,760 Speaker 3: the December jobs report, by the middle of the year 139 00:07:25,880 --> 00:07:30,000 Speaker 3: or later, I think that there could be a hotter 140 00:07:30,120 --> 00:07:33,480 Speaker 3: debate about whether we still are at full employment, because 141 00:07:33,480 --> 00:07:35,640 Speaker 3: we will see those wage pressures coming down as the 142 00:07:35,680 --> 00:07:39,560 Speaker 3: unemployment rate drifts higher, and that will create some slack, 143 00:07:39,640 --> 00:07:43,840 Speaker 3: which is a welcome development after the last two years 144 00:07:44,080 --> 00:07:48,080 Speaker 3: post pandemic environment to get us that last mile back 145 00:07:48,120 --> 00:07:51,520 Speaker 3: to two percent. Of course, full employment is very important, 146 00:07:51,520 --> 00:07:55,680 Speaker 3: but as Jerome Powell reminds us in nearly every press conference, right, 147 00:07:55,840 --> 00:07:59,360 Speaker 3: price stability is the bedrock or the foundation of a 148 00:07:59,400 --> 00:08:03,040 Speaker 3: stable act. So we can't just push the unemployment rate 149 00:08:03,080 --> 00:08:07,280 Speaker 3: as low as we can go without taking into consideration 150 00:08:07,400 --> 00:08:11,360 Speaker 3: that trade off with the with the inflation dynamics. And 151 00:08:11,400 --> 00:08:13,960 Speaker 3: that was actually something that was highlighted in the Minutes 152 00:08:14,040 --> 00:08:16,720 Speaker 3: yesterday as well, where now policymakers are starting to think 153 00:08:16,760 --> 00:08:19,880 Speaker 3: about the tradeoff on the dual mandate, you know, so 154 00:08:20,360 --> 00:08:23,520 Speaker 3: there's more weighting to both factors on the dual mandate 155 00:08:23,960 --> 00:08:26,360 Speaker 3: relative to where we were over the last several quarters. 156 00:08:26,400 --> 00:08:28,960 Speaker 5: Hey, Cole, just quickly, just to recamp expectations tomorrow. 157 00:08:29,000 --> 00:08:30,600 Speaker 6: What are the numbers for you in a team. 158 00:08:32,160 --> 00:08:35,840 Speaker 3: Well, I'm eyeing this hissing sound in the labor market. 159 00:08:35,880 --> 00:08:39,120 Speaker 3: We're gradually losing momentum. So I think one sixty five 160 00:08:39,280 --> 00:08:41,760 Speaker 3: ish on the number, which now turns out to be 161 00:08:41,880 --> 00:08:44,920 Speaker 3: just slightly below the consensus forecast, and I would watch 162 00:08:45,000 --> 00:08:48,199 Speaker 3: for some slack and the unemployment rate. I actually think 163 00:08:48,400 --> 00:08:50,440 Speaker 3: maybe a two tenths increase up to three point nine 164 00:08:50,520 --> 00:08:54,240 Speaker 3: percent with still those persistent wage pressures in the background. 165 00:08:54,559 --> 00:08:57,880 Speaker 3: Keep in mind, inflation is a liking indicator, and so 166 00:08:58,040 --> 00:08:58,800 Speaker 3: is labor inflation. 167 00:08:58,960 --> 00:09:02,160 Speaker 5: Colt Rick adonad it Happy New Year, sir, cal Ricotono, 168 00:09:02,280 --> 00:09:09,679 Speaker 5: BMP parapath joining us now, Katy Kaminski, chief research strategist 169 00:09:09,840 --> 00:09:13,480 Speaker 5: of Apfasimplex, punishing that bond market, Katie, you were sure, 170 00:09:13,679 --> 00:09:15,560 Speaker 5: We talked about it. It felt good for a while. 171 00:09:15,600 --> 00:09:18,439 Speaker 5: Then this market turned, Katie. I guess you're still sure 172 00:09:18,520 --> 00:09:20,200 Speaker 5: after the pain of the last couple of months and 173 00:09:20,360 --> 00:09:22,240 Speaker 5: what changed for you? 174 00:09:22,280 --> 00:09:26,200 Speaker 7: No, trend signals have finally turned long, and I think 175 00:09:26,200 --> 00:09:30,000 Speaker 7: this is an epic signal for the market because we 176 00:09:30,120 --> 00:09:34,200 Speaker 7: have been short for nine quarters. This has been one 177 00:09:34,240 --> 00:09:38,400 Speaker 7: of the longest shorts in trend falling history over the 178 00:09:38,480 --> 00:09:41,320 Speaker 7: last twenty to forty years. And I think this is 179 00:09:41,400 --> 00:09:45,040 Speaker 7: important because it signals the end of the tightening cycle 180 00:09:45,400 --> 00:09:48,520 Speaker 7: and it suggests that we're going through a regime change 181 00:09:49,120 --> 00:09:51,240 Speaker 7: and that we need to start looking at the next 182 00:09:51,240 --> 00:09:54,840 Speaker 7: phase of the bond market. And for me, that's looking 183 00:09:54,880 --> 00:09:57,679 Speaker 7: for a steepral yield curve and I'm trying to think 184 00:09:57,720 --> 00:10:00,640 Speaker 7: about what is going to be the catalyst for that as. 185 00:10:00,520 --> 00:10:01,760 Speaker 8: The next phase of this trade. 186 00:10:01,840 --> 00:10:03,880 Speaker 4: It's one thing not to be short, Katie, it's another 187 00:10:03,920 --> 00:10:07,200 Speaker 4: thing to be aggressively long Where does trend following signal 188 00:10:07,280 --> 00:10:07,679 Speaker 4: send you? 189 00:10:08,640 --> 00:10:10,520 Speaker 9: So right now there's still rather muted. 190 00:10:10,760 --> 00:10:12,360 Speaker 7: But I think the key that we're going to have 191 00:10:12,400 --> 00:10:15,280 Speaker 7: to watch is how fast are cuts coming? And I 192 00:10:15,320 --> 00:10:17,439 Speaker 7: also think we have to be a little bit nervous too. 193 00:10:17,480 --> 00:10:20,120 Speaker 7: We need to watch what's happening with supply and treasuries, 194 00:10:20,440 --> 00:10:22,160 Speaker 7: to look at the end of the curve to see 195 00:10:22,160 --> 00:10:25,440 Speaker 7: what's happening there as well as we try to navigate 196 00:10:25,440 --> 00:10:28,040 Speaker 7: this year as weaker data might come in and as 197 00:10:28,080 --> 00:10:30,560 Speaker 7: we try to roll over debt throughout the year. So 198 00:10:30,600 --> 00:10:31,880 Speaker 7: I think this is going to be a year to 199 00:10:31,960 --> 00:10:34,319 Speaker 7: watch the shape of the curve and to see where 200 00:10:34,640 --> 00:10:36,080 Speaker 7: the curve actually settles out. 201 00:10:36,400 --> 00:10:38,360 Speaker 4: When you talk about a steepening in the yield curve, 202 00:10:38,400 --> 00:10:40,079 Speaker 4: it can come from two places. It can come from 203 00:10:40,120 --> 00:10:43,160 Speaker 4: short term yields coming down in response to FED rate cuts, 204 00:10:43,240 --> 00:10:46,680 Speaker 4: or it could come to from longer term yields rising aggressively. 205 00:10:47,000 --> 00:10:49,600 Speaker 4: Are you basically saying because you are no longer short 206 00:10:49,679 --> 00:10:51,840 Speaker 4: treasuries that you see it more coming from the front 207 00:10:51,960 --> 00:10:55,160 Speaker 4: end with more aggressive rate cutting cycle than people are expecting. 208 00:10:55,960 --> 00:10:58,440 Speaker 7: Well, that's the trade that everyone's focused on and I 209 00:10:58,440 --> 00:11:01,160 Speaker 7: think that's where everyone's focus. Now you're just mentioning it 210 00:11:01,280 --> 00:11:04,440 Speaker 7: that you know, we're focused on how soon our cut's coming, 211 00:11:05,200 --> 00:11:07,440 Speaker 7: and when are we going to see the shorter end 212 00:11:07,440 --> 00:11:09,720 Speaker 7: of the curve sort of deep in so that we 213 00:11:09,800 --> 00:11:12,160 Speaker 7: have this this more stepl curve, I think where you 214 00:11:12,240 --> 00:11:14,840 Speaker 7: have to worry. The typical thing that would be the 215 00:11:14,920 --> 00:11:19,000 Speaker 7: challenge is if we start to see more challenging effects 216 00:11:19,040 --> 00:11:21,960 Speaker 7: on the long end of the curve, aka you know, poor, 217 00:11:22,320 --> 00:11:24,480 Speaker 7: poorer fixed income market on the long end. So that 218 00:11:24,520 --> 00:11:27,960 Speaker 7: would happen if we had trouble in terms of valuations 219 00:11:27,960 --> 00:11:31,120 Speaker 7: for debt, and so that would happen if we had poor, 220 00:11:31,440 --> 00:11:34,400 Speaker 7: you know, poor auctions in the treasury market. So that's 221 00:11:34,400 --> 00:11:35,800 Speaker 7: something I'm going to be watching this year. 222 00:11:36,040 --> 00:11:38,160 Speaker 2: Kay, Let's talk to Global Wall Street right now. That 223 00:11:38,200 --> 00:11:44,320 Speaker 2: hangs on your every word on trend based CTA technical analysis. 224 00:11:44,640 --> 00:11:47,000 Speaker 2: So we had a trend to a higher yield than 225 00:11:47,000 --> 00:11:52,000 Speaker 2: a tenure we've rolled over the indeterminate point I call soup. 226 00:11:52,440 --> 00:11:55,440 Speaker 2: Are we in a trend of soup now indeterminate? Or 227 00:11:55,480 --> 00:11:58,880 Speaker 2: can you state that we have a trend towards lower yield? 228 00:11:59,000 --> 00:12:03,280 Speaker 2: Is a trend in place of higher prices and lower yield. 229 00:12:04,040 --> 00:12:07,200 Speaker 7: So we hit the inflection point and we've started moving 230 00:12:07,280 --> 00:12:13,400 Speaker 7: towards longer, longer signals, especially in most asset classes, particularly equities. 231 00:12:13,920 --> 00:12:17,960 Speaker 7: We've also seen very strong short signals in the US dollar, 232 00:12:18,320 --> 00:12:21,120 Speaker 7: so we've really seen that inflation trade that we were 233 00:12:21,600 --> 00:12:25,760 Speaker 7: seeing for pretty much two years dissipate and move past 234 00:12:25,800 --> 00:12:27,920 Speaker 7: a point where we're moving towards a new trend. 235 00:12:28,520 --> 00:12:31,960 Speaker 2: You sound like Luisa Mada there talking about dissipation. What 236 00:12:32,120 --> 00:12:35,400 Speaker 2: will it take to get trend in place where there's 237 00:12:35,440 --> 00:12:39,240 Speaker 2: a permanence to week dollar, a permanence to lower yield. 238 00:12:40,600 --> 00:12:45,200 Speaker 7: I think rate cuts as expected would definitely continue that 239 00:12:45,280 --> 00:12:48,560 Speaker 7: trend strongly, of course, not as weak data if we 240 00:12:48,600 --> 00:12:53,120 Speaker 7: continue to see this sort of soft landing be a possibility, 241 00:12:54,040 --> 00:12:56,400 Speaker 7: and I think that is going to be in question, 242 00:12:56,480 --> 00:12:59,440 Speaker 7: of course, because my general view this year is that 243 00:12:59,440 --> 00:13:02,360 Speaker 7: we're going to see a lot of variation in outcomes. 244 00:13:03,080 --> 00:13:06,240 Speaker 7: I want to point out one key fact a bond 245 00:13:06,320 --> 00:13:11,760 Speaker 7: volatility still remains elevated and bond stock correlation still remains positive. 246 00:13:11,880 --> 00:13:15,240 Speaker 7: Those are two technical factors that are very different than 247 00:13:15,360 --> 00:13:18,920 Speaker 7: the classic regime, so we need to navigate those first 248 00:13:19,080 --> 00:13:21,800 Speaker 7: before we can figure out sort of have we moved 249 00:13:21,960 --> 00:13:24,160 Speaker 7: to sort of back to where we were or are 250 00:13:24,160 --> 00:13:25,079 Speaker 7: we moving somewhere else? 251 00:13:25,080 --> 00:13:26,960 Speaker 5: Ok, Katie, let's finish that. We caught it with someone. 252 00:13:27,320 --> 00:13:29,640 Speaker 5: Just yesterday from JP, Mork and Lisa mentioned them. Phil 253 00:13:29,679 --> 00:13:31,840 Speaker 5: Camporari talked about sixty to forty being back and the 254 00:13:31,880 --> 00:13:34,000 Speaker 5: forty with an amble you to play defense. 255 00:13:34,040 --> 00:13:36,000 Speaker 6: Is there any reason to believe that it is back? 256 00:13:36,080 --> 00:13:38,719 Speaker 5: You're seeing anything that suggests that correlation is going back 257 00:13:38,720 --> 00:13:41,280 Speaker 5: to what some people might call slightly more intuitive. 258 00:13:43,160 --> 00:13:46,240 Speaker 7: I think everyone wants that, but I think the worry 259 00:13:46,400 --> 00:13:49,440 Speaker 7: is what I just said. We're seeing very different asset 260 00:13:49,440 --> 00:13:50,680 Speaker 7: class relationships. 261 00:13:51,240 --> 00:13:52,440 Speaker 8: So we need to. 262 00:13:52,400 --> 00:13:57,720 Speaker 7: Watch inflation and watch for how inflation behaves because inflation 263 00:13:58,000 --> 00:14:01,600 Speaker 7: changes the nature of asset class relationships. If we should 264 00:14:01,600 --> 00:14:05,440 Speaker 7: see inflation have upside risk potential, we will see more 265 00:14:05,520 --> 00:14:08,679 Speaker 7: challenge that sixty forty narrative if in fact we can 266 00:14:08,760 --> 00:14:10,079 Speaker 7: keep inflation under control. 267 00:14:10,200 --> 00:14:12,079 Speaker 9: I agree the sixty forty is. 268 00:14:12,000 --> 00:14:14,720 Speaker 7: A good place to be, but so watching inflation and 269 00:14:14,800 --> 00:14:16,680 Speaker 7: keeping that in check, And that's why the Fed is 270 00:14:16,720 --> 00:14:21,040 Speaker 7: probably being more conservative and being careful because they want 271 00:14:21,040 --> 00:14:22,080 Speaker 7: to make sure that's the case. 272 00:14:22,240 --> 00:14:24,880 Speaker 5: Casey appreciate the update. Happy New Year. It's going to 273 00:14:24,920 --> 00:14:26,640 Speaker 5: catch up. Katy Commnce to give appasimplex. 274 00:14:37,160 --> 00:14:40,560 Speaker 2: Edward Mills joins US ed Mills, Washington policy analyst at 275 00:14:40,640 --> 00:14:44,040 Speaker 2: Raymond James, and you've got a very domestic note today 276 00:14:44,120 --> 00:14:48,520 Speaker 2: with domestic issues. John Ferrell mentions the idea of our 277 00:14:48,680 --> 00:14:53,640 Speaker 2: foreign wars. Is there a foreign policy stance among Republicans 278 00:14:53,960 --> 00:14:55,840 Speaker 2: and Democrats on Capitol Hill. 279 00:14:57,480 --> 00:15:00,200 Speaker 10: Tom, They're trying to find that, and I think that 280 00:15:00,240 --> 00:15:03,360 Speaker 10: they do wrap it from a domestic agenda. What we're 281 00:15:03,440 --> 00:15:06,480 Speaker 10: looking at for a January agenda is not just funding 282 00:15:06,560 --> 00:15:10,720 Speaker 10: the United States government, but it's the national security issues. 283 00:15:10,880 --> 00:15:12,960 Speaker 9: And so you have the supplemental. 284 00:15:12,360 --> 00:15:16,360 Speaker 10: Looming in the background for Israel, for Ukraine, for Taiwan. 285 00:15:16,720 --> 00:15:19,520 Speaker 10: But Republicans are saying, if we're talking about national security, 286 00:15:19,760 --> 00:15:22,360 Speaker 10: we also have to talk about the border. So that's 287 00:15:22,360 --> 00:15:26,080 Speaker 10: why Republicans were at the southern border yesterday. 288 00:15:25,720 --> 00:15:28,200 Speaker 9: Right pushing four those border protections. 289 00:15:29,040 --> 00:15:31,720 Speaker 10: But the problem for them is that they continue to 290 00:15:31,800 --> 00:15:34,880 Speaker 10: lose members and they're down to two hundred and nineteen. 291 00:15:35,320 --> 00:15:37,640 Speaker 10: Usually you need two eighteen to get something through the House. 292 00:15:38,000 --> 00:15:41,120 Speaker 10: So they have really strong border policies, but right now 293 00:15:41,320 --> 00:15:42,720 Speaker 10: they don't have the votes. 294 00:15:43,040 --> 00:15:48,000 Speaker 2: What does the Democrat party view on a national security 295 00:15:48,080 --> 00:15:49,320 Speaker 2: issue at the border? 296 00:15:49,360 --> 00:15:50,640 Speaker 1: Do they agree? 297 00:15:50,880 --> 00:15:53,480 Speaker 2: Is it a nuanced do they flat out disagree with 298 00:15:53,520 --> 00:15:54,400 Speaker 2: Speaker Johnson? 299 00:15:55,400 --> 00:15:57,760 Speaker 9: So I think it's a little bit nuanced. 300 00:15:58,280 --> 00:16:00,800 Speaker 10: In the bill that filled in the Senate in December, 301 00:16:00,880 --> 00:16:04,800 Speaker 10: there were some border funding provisions. What we have right 302 00:16:04,880 --> 00:16:08,280 Speaker 10: now is that Democrats understand that they need to do 303 00:16:08,360 --> 00:16:11,360 Speaker 10: more on the border. There's been negotiations, but they certainly 304 00:16:11,360 --> 00:16:13,680 Speaker 10: don't want to go as far as House Republicans have 305 00:16:13,720 --> 00:16:16,800 Speaker 10: been pushing for. They call it HR two, that Protect 306 00:16:16,800 --> 00:16:21,360 Speaker 10: the Border Act. That's real changes to asylum, that's changes 307 00:16:21,560 --> 00:16:24,120 Speaker 10: to kind of e verify systems in the United States, 308 00:16:24,280 --> 00:16:27,400 Speaker 10: that's rebuilding the Trump border wall. Those are a step 309 00:16:27,440 --> 00:16:29,800 Speaker 10: too far for Democrats. What I think we have to 310 00:16:29,840 --> 00:16:32,440 Speaker 10: see is that Democrats have to go further than they're 311 00:16:32,480 --> 00:16:35,440 Speaker 10: comfortable with to get the other provisions. But we are 312 00:16:35,480 --> 00:16:38,320 Speaker 10: in that period of trying to figure out exactly where 313 00:16:38,320 --> 00:16:40,240 Speaker 10: that line is, and so we're going to go right 314 00:16:40,320 --> 00:16:43,320 Speaker 10: up to it and potentially have a government shutdown come 315 00:16:43,440 --> 00:16:46,920 Speaker 10: January nineteenth or February second, the two funding deadlines that 316 00:16:46,960 --> 00:16:48,080 Speaker 10: are approaching very. 317 00:16:48,000 --> 00:16:49,600 Speaker 4: Quickly here, That's where I wanted to go in there 318 00:16:49,640 --> 00:16:51,240 Speaker 4: seems to be a sort of a subtle shift in 319 00:16:51,280 --> 00:16:53,800 Speaker 4: the Republican party moving away from just tying some of 320 00:16:53,840 --> 00:16:58,480 Speaker 4: the border kinds of security provisions to funding for Ukraine 321 00:16:58,520 --> 00:17:00,880 Speaker 4: and Israel, to moving it more broadly to shutting down 322 00:17:00,920 --> 00:17:02,640 Speaker 4: the government if they don't get what they want. Does 323 00:17:02,680 --> 00:17:04,960 Speaker 4: that make it so much more likely that we are 324 00:17:05,000 --> 00:17:07,000 Speaker 4: going to get the government shutdown? It doesn't even matter. 325 00:17:08,080 --> 00:17:10,720 Speaker 10: It's a great question, Lisa, and I think that we're 326 00:17:10,840 --> 00:17:13,560 Speaker 10: kind of right on that precipice of either grand bargain 327 00:17:14,040 --> 00:17:18,480 Speaker 10: or bust because we probably have to watch what develops 328 00:17:18,520 --> 00:17:21,480 Speaker 10: in the Senate. But you do have this sense that 329 00:17:21,520 --> 00:17:24,479 Speaker 10: Republicans want to fight, that they want to show that 330 00:17:24,520 --> 00:17:27,639 Speaker 10: they are pushing for border security and want to push 331 00:17:27,640 --> 00:17:31,240 Speaker 10: for more than what Democrats want, and sometimes by having 332 00:17:31,280 --> 00:17:37,280 Speaker 10: that shutdown really elevates their point. However, Republicans also want 333 00:17:37,280 --> 00:17:39,640 Speaker 10: to have the ability to say they got something done 334 00:17:39,880 --> 00:17:43,040 Speaker 10: that when they run for reelection here in November, that 335 00:17:43,080 --> 00:17:45,560 Speaker 10: they can point to an accomplishment, and so that's where 336 00:17:45,560 --> 00:17:48,280 Speaker 10: the Grand bargain comes in. There is still a strong 337 00:17:48,320 --> 00:17:52,960 Speaker 10: desire in DC to support Israel, Ukraine, Taiwan through defense 338 00:17:53,000 --> 00:17:56,080 Speaker 10: supplemental and if you can put that all together, and 339 00:17:56,160 --> 00:17:58,280 Speaker 10: we have to remember that even if we shut down 340 00:17:58,320 --> 00:18:00,600 Speaker 10: the government, at some point, we're going to reopen it. 341 00:18:00,640 --> 00:18:03,080 Speaker 10: So it's just a question of how far and how 342 00:18:03,200 --> 00:18:06,120 Speaker 10: much drama there is. But at Raymond James we always 343 00:18:06,160 --> 00:18:10,560 Speaker 10: do point out that in past government shutdowns, on average, 344 00:18:10,680 --> 00:18:12,159 Speaker 10: the S and P five hundred has been up by 345 00:18:12,160 --> 00:18:13,119 Speaker 10: three point two percent. 346 00:18:13,200 --> 00:18:16,040 Speaker 9: So from a market perspective, we. 347 00:18:16,040 --> 00:18:18,159 Speaker 10: Kind of tend to discount the fact that the government 348 00:18:18,160 --> 00:18:20,719 Speaker 10: could shut down because it always reopens. 349 00:18:21,240 --> 00:18:24,360 Speaker 4: Talking about drama, Donald Trump, we're talking about January fifteenth, 350 00:18:24,400 --> 00:18:26,760 Speaker 4: We've got the Iowa CAUCUSUS. Then we've got New Hampshire 351 00:18:27,000 --> 00:18:29,920 Speaker 4: on January twenty third, where we have the first primary 352 00:18:30,000 --> 00:18:33,240 Speaker 4: in the country. How much does it change the calculus 353 00:18:33,440 --> 00:18:37,160 Speaker 4: if Donald Trump, as expected, wins the primary races in 354 00:18:37,200 --> 00:18:39,240 Speaker 4: those two states and we do get the sort of 355 00:18:39,240 --> 00:18:41,560 Speaker 4: feeling that he once again is at the helm very 356 00:18:41,600 --> 00:18:42,919 Speaker 4: much of the Republican Party. 357 00:18:43,680 --> 00:18:45,880 Speaker 10: So, Lisa, I think at that point what you would 358 00:18:45,920 --> 00:18:48,200 Speaker 10: see is that the voice of Donald Trump becomes even 359 00:18:48,200 --> 00:18:50,600 Speaker 10: more important in congressional fits. 360 00:18:50,960 --> 00:18:51,440 Speaker 9: Right now. 361 00:18:51,520 --> 00:18:53,840 Speaker 10: A lot of the times when he sends out a 362 00:18:53,840 --> 00:18:57,520 Speaker 10: message or sets of policy stands, it's. 363 00:18:57,240 --> 00:18:59,880 Speaker 9: Noticed in DC, but it's not truly followed. 364 00:19:00,160 --> 00:19:03,679 Speaker 10: If he re establishes himself as the head or the 365 00:19:03,680 --> 00:19:06,760 Speaker 10: de facto head of the Republican Party and looks like 366 00:19:06,800 --> 00:19:09,160 Speaker 10: it's going to be the nominee, then if he comes 367 00:19:09,200 --> 00:19:12,720 Speaker 10: out and says kill this bill, don't vote for this, 368 00:19:12,880 --> 00:19:16,520 Speaker 10: you have to fight stronger on border security. That makes 369 00:19:16,560 --> 00:19:20,040 Speaker 10: it much harder for Republicans to cut the deal. And 370 00:19:20,080 --> 00:19:22,560 Speaker 10: so that's putting pressure to try to do it sooner 371 00:19:22,600 --> 00:19:24,800 Speaker 10: rather than later. If they can get it done by 372 00:19:24,800 --> 00:19:28,480 Speaker 10: that January nineteenth deadline, that is after the Iowa caucuses, 373 00:19:28,720 --> 00:19:33,080 Speaker 10: but before that, momentum could build. Alternatively, if you have 374 00:19:33,160 --> 00:19:36,240 Speaker 10: someone like a Nicky Haley emerge, I think the markets 375 00:19:36,440 --> 00:19:39,240 Speaker 10: would start to kind of search because there is a 376 00:19:39,520 --> 00:19:43,480 Speaker 10: sense that she is a stronger candidate against Biden, the 377 00:19:43,600 --> 00:19:47,160 Speaker 10: likely Democratic nominee, and it gives a little bit more 378 00:19:47,160 --> 00:19:51,800 Speaker 10: wiggle room for House Republicans and House or Republicans generally 379 00:19:51,840 --> 00:19:53,720 Speaker 10: in DC to potentially cut that deal. 380 00:19:53,880 --> 00:19:55,480 Speaker 5: That's the range of outcomes said, You've got to tell 381 00:19:55,520 --> 00:19:57,240 Speaker 5: me a base case for the next month. 382 00:19:57,400 --> 00:19:57,760 Speaker 6: What a thing? 383 00:19:57,880 --> 00:20:03,480 Speaker 10: So, yeah, the base case is drama breakmanship. It does 384 00:20:03,520 --> 00:20:06,480 Speaker 10: seem like we could easily get that government shut down. 385 00:20:07,160 --> 00:20:10,679 Speaker 10: But from a market perspective, yeah, I tell clients to 386 00:20:10,760 --> 00:20:11,800 Speaker 10: kind of pay attention to. 387 00:20:11,760 --> 00:20:14,200 Speaker 9: That longer term provision. 388 00:20:14,480 --> 00:20:17,359 Speaker 10: I do think we will get government funded, we will 389 00:20:17,400 --> 00:20:20,959 Speaker 10: get defend supplemental, we will get something on the border. 390 00:20:21,200 --> 00:20:22,679 Speaker 9: It's just a question of timing. 391 00:20:22,760 --> 00:20:23,920 Speaker 6: John, Thank you, buddy. 392 00:20:24,040 --> 00:20:25,960 Speaker 5: Going to catch up a new year, Sir at Mills 393 00:20:25,960 --> 00:20:33,760 Speaker 5: there of Raymond James. Steve Trent says American Airlines, American 394 00:20:33,800 --> 00:20:36,879 Speaker 5: Airlines analyst over a city is still optimistic. Right in 395 00:20:36,920 --> 00:20:40,960 Speaker 5: this premium economy, traffic flow, international momentum and loyalty and 396 00:20:41,000 --> 00:20:44,600 Speaker 5: co prended card strength should continue to support network airline 397 00:20:44,880 --> 00:20:47,760 Speaker 5: revenue TK. That is the constructive view from Steve and 398 00:20:47,800 --> 00:20:48,160 Speaker 5: a team. 399 00:20:48,320 --> 00:20:51,040 Speaker 2: Mister Trent owns a high ground on this. You do 400 00:20:51,080 --> 00:20:55,600 Speaker 2: this with the grind at Stuyvesant, then under Pennsylvania, then 401 00:20:55,640 --> 00:20:57,640 Speaker 2: you go north into the middle of nowhere where there's 402 00:20:57,640 --> 00:21:00,600 Speaker 2: no airports, tuck, and you go someday, I'm going to 403 00:21:00,640 --> 00:21:04,080 Speaker 2: be an airline analyst. Trent darkins ador, good morning. Great 404 00:21:04,119 --> 00:21:07,000 Speaker 2: to have you with us here. What's the level of 405 00:21:07,200 --> 00:21:10,320 Speaker 2: enthusiasm You have a buy in United you published that yesterday. 406 00:21:11,040 --> 00:21:13,320 Speaker 2: People think you're nuts on this how do you have 407 00:21:13,359 --> 00:21:16,400 Speaker 2: a buy on an industry that seems so believed. 408 00:21:17,119 --> 00:21:19,159 Speaker 11: No, and thank you for having me in. Happy New 409 00:21:19,200 --> 00:21:22,880 Speaker 11: Year to you guys. I think I have enthusiasm in spots. 410 00:21:23,760 --> 00:21:25,720 Speaker 11: So when we look at what's going on in the 411 00:21:25,760 --> 00:21:29,679 Speaker 11: space right now, you're really seeing a lot of the 412 00:21:29,720 --> 00:21:35,000 Speaker 11: economic value going largely to two airlines, Delta and United. 413 00:21:35,040 --> 00:21:38,480 Speaker 11: If we're talking about the United States market, you can 414 00:21:38,520 --> 00:21:42,000 Speaker 11: actually extend this thesis to let's say Air Canada north 415 00:21:42,000 --> 00:21:45,480 Speaker 11: of the border, and let's say further down south Panama's 416 00:21:45,520 --> 00:21:51,119 Speaker 11: COPA Airlines, where international long haul is doing well. The 417 00:21:51,760 --> 00:21:55,440 Speaker 11: network airlines have adapted very well to what I would 418 00:21:55,520 --> 00:21:56,520 Speaker 11: characterize as. 419 00:21:56,359 --> 00:21:57,040 Speaker 8: The new normal. 420 00:21:57,440 --> 00:22:02,040 Speaker 11: We have most consumers only in the office three days 421 00:22:02,040 --> 00:22:06,840 Speaker 11: a week. That has resulted in a blended travel let's say, 422 00:22:07,359 --> 00:22:13,520 Speaker 11: with very good demand indicators for premium economy. Basic economy 423 00:22:13,560 --> 00:22:17,240 Speaker 11: is a different story. Your domestic is also a different story. 424 00:22:17,880 --> 00:22:20,080 Speaker 2: You and I were weed one this and the answer 425 00:22:20,160 --> 00:22:23,760 Speaker 2: is Robert Crandell changed the business years ago to American Airlines. 426 00:22:23,760 --> 00:22:25,840 Speaker 2: You sat out there and said, we're doing price discrimination. 427 00:22:25,960 --> 00:22:27,720 Speaker 1: Of that, what our audience knows. 428 00:22:27,520 --> 00:22:30,480 Speaker 2: Is tickets are cheaper now than they were a year ago. 429 00:22:30,600 --> 00:22:33,000 Speaker 2: Two years ago. How do you have a buy in 430 00:22:33,040 --> 00:22:35,480 Speaker 2: the stocks if they're giving away seats again. 431 00:22:36,520 --> 00:22:39,879 Speaker 11: So I think there are pieces of the space where 432 00:22:39,960 --> 00:22:43,080 Speaker 11: we're not optimistic. We certainly don't have a buy on 433 00:22:43,119 --> 00:22:47,160 Speaker 11: the whole group. We're far less sanguine on those domestic 434 00:22:47,200 --> 00:22:52,200 Speaker 11: oriented carriers. But when one looks at the supply situation. Now, 435 00:22:53,119 --> 00:22:57,000 Speaker 11: if you go back to twenty nineteen and compare domestic 436 00:22:57,040 --> 00:23:01,440 Speaker 11: capacity versus the US economy, you roughly had twenty three 437 00:23:01,600 --> 00:23:05,680 Speaker 11: dollars and twenty some odd sense of economic activity pervailable 438 00:23:05,680 --> 00:23:09,399 Speaker 11: seat mile. Go to twenty twenty three, we had roughly 439 00:23:09,480 --> 00:23:14,520 Speaker 11: twenty eight dollars of economic activity prevailable seat mile. So 440 00:23:15,359 --> 00:23:19,159 Speaker 11: capacity has grown, the US economy has grown more. I 441 00:23:19,160 --> 00:23:21,919 Speaker 11: think the argument we're trying to make is not to 442 00:23:21,960 --> 00:23:26,680 Speaker 11: buy everything, but to be selective in those network carriers 443 00:23:26,680 --> 00:23:32,400 Speaker 11: that have very specific attributes such as very strong loyalty 444 00:23:32,400 --> 00:23:35,639 Speaker 11: and co branded card. We think that's helped these carriers 445 00:23:35,640 --> 00:23:41,120 Speaker 11: to divus their earning stream international long haul and this 446 00:23:42,040 --> 00:23:47,080 Speaker 11: very good setup in terms of their cabin offering blended travel, 447 00:23:47,480 --> 00:23:50,120 Speaker 11: you know, economy plus that's really been the big mover. 448 00:23:50,840 --> 00:23:53,199 Speaker 4: How much would oil prices have to rise for you 449 00:23:53,240 --> 00:23:55,080 Speaker 4: to get less constructive at American. 450 00:23:56,640 --> 00:23:59,800 Speaker 11: You know, in terms of Delta and United those are 451 00:23:59,880 --> 00:24:03,080 Speaker 11: the really the two I like, and you know, less 452 00:24:03,080 --> 00:24:06,600 Speaker 11: sanguine on the others. Quite frankly, I think if oil 453 00:24:06,640 --> 00:24:11,040 Speaker 11: prices rise, it would really depend how they rise. Do 454 00:24:11,080 --> 00:24:13,600 Speaker 11: you get an oil price rise because there's better global 455 00:24:13,640 --> 00:24:17,000 Speaker 11: economic activity, I'm not necessarily perturbed by that because you 456 00:24:17,080 --> 00:24:23,560 Speaker 11: have the likes of Delta COPA that can price that 457 00:24:23,680 --> 00:24:28,359 Speaker 11: in to business travelers and higher end travelers. If we 458 00:24:28,400 --> 00:24:31,440 Speaker 11: get an oil price spike that you know, creud goes 459 00:24:31,520 --> 00:24:34,560 Speaker 11: up twenty bucks a barrel overnight, that's a whole different ballgame, 460 00:24:35,280 --> 00:24:37,800 Speaker 11: which is I don't see anybody predicting. But if we 461 00:24:37,920 --> 00:24:41,680 Speaker 11: in that instance, for example, that's actually a tough situation 462 00:24:41,760 --> 00:24:44,600 Speaker 11: to the group because it's very hard to pivot maybe 463 00:24:44,680 --> 00:24:48,439 Speaker 11: in lesser Southwest airlines and at least temporarily you have 464 00:24:48,600 --> 00:24:49,560 Speaker 11: a large hedge position. 465 00:24:49,680 --> 00:24:51,600 Speaker 5: At least has talked about this, the way these airlines 466 00:24:51,600 --> 00:24:54,800 Speaker 5: are essentially just credit card companies now with airplanes bolted 467 00:24:54,840 --> 00:24:57,960 Speaker 5: onto them. Who's absolutely now their lawless program. When you 468 00:24:58,000 --> 00:25:00,680 Speaker 5: look across these airlines, these companies, who's got and out down? 469 00:25:01,640 --> 00:25:07,160 Speaker 11: Delta's really I think head and shoulders above most everybody. 470 00:25:08,640 --> 00:25:12,320 Speaker 11: So if one looks at their brand, you know they 471 00:25:12,359 --> 00:25:16,280 Speaker 11: were thinking back to those you know, terrible pandemic days. 472 00:25:16,280 --> 00:25:19,119 Speaker 11: They were the very last airline to finally unblock that 473 00:25:19,200 --> 00:25:23,240 Speaker 11: metal seat as consumers were just starting to get comfortable 474 00:25:23,240 --> 00:25:26,480 Speaker 11: again with sitting next to strangers, even strangers wearing masks. 475 00:25:27,200 --> 00:25:31,439 Speaker 11: Delta is the only major US airline that did not 476 00:25:31,600 --> 00:25:35,520 Speaker 11: diluted sequity holvers during the pandemic. No convertible debt offerings, 477 00:25:36,119 --> 00:25:38,439 Speaker 11: no equity offerings. 478 00:25:37,680 --> 00:25:38,919 Speaker 1: No seats in their lounge. 479 00:25:38,960 --> 00:25:41,240 Speaker 2: Bramo, but fell off her chair there when you're talking 480 00:25:41,240 --> 00:25:43,320 Speaker 2: about give us an anecdote on. 481 00:25:43,280 --> 00:25:45,719 Speaker 4: Delta, Lisa, No, I mean, listen, this, get the smallest 482 00:25:45,800 --> 00:25:48,159 Speaker 4: violin possible out. But I'm just thinking, you know, of 483 00:25:48,240 --> 00:25:50,480 Speaker 4: all of the massive lines outside the Delta lounge with 484 00:25:50,520 --> 00:25:53,080 Speaker 4: people bringing their American Express card and pulling it out 485 00:25:53,080 --> 00:25:55,399 Speaker 4: and saying, but I'm the real guy. I mean, how 486 00:25:55,480 --> 00:25:57,960 Speaker 4: much is this really going to diminish the people who 487 00:25:58,000 --> 00:25:59,280 Speaker 4: are loyal flyers? 488 00:25:59,600 --> 00:25:59,879 Speaker 9: You know what? 489 00:26:00,119 --> 00:26:03,560 Speaker 11: And that's actually a hallmark of success right there. So 490 00:26:03,640 --> 00:26:06,440 Speaker 11: if you look at the you know, the loyalty program revenue, 491 00:26:06,440 --> 00:26:09,960 Speaker 11: they did four point one billion and twenty twenty one, 492 00:26:10,000 --> 00:26:12,359 Speaker 11: they did five and a half some add billion. In 493 00:26:12,400 --> 00:26:15,119 Speaker 11: twenty twenty two, they're probably going to close in on 494 00:26:15,240 --> 00:26:17,639 Speaker 11: seven billion. They're gonna I think the print for four 495 00:26:17,760 --> 00:26:22,480 Speaker 11: Q is on January twelfth of theirabouts. So that trajectory 496 00:26:22,600 --> 00:26:24,880 Speaker 11: and what they're doing on the co branded card. They 497 00:26:24,880 --> 00:26:28,560 Speaker 11: have such a good brand and for any large bank, 498 00:26:28,720 --> 00:26:32,560 Speaker 11: they're probably the best counterparty and get very good economics 499 00:26:32,600 --> 00:26:33,600 Speaker 11: on this program. 500 00:26:33,640 --> 00:26:35,879 Speaker 4: Fast forward five years from now, how much of the 501 00:26:35,920 --> 00:26:38,080 Speaker 4: revenue of a delta is going to come from the 502 00:26:38,119 --> 00:26:39,120 Speaker 4: card effort? 503 00:26:40,400 --> 00:26:44,520 Speaker 11: Yes, I think if one looks at the pure economics 504 00:26:44,560 --> 00:26:47,439 Speaker 11: of it versus just the stuff that runs through the 505 00:26:47,480 --> 00:26:51,560 Speaker 11: income statement, sort of two different pieces of flow there, 506 00:26:52,520 --> 00:26:55,560 Speaker 11: I think that, you know, you could have something conceivably 507 00:26:55,640 --> 00:26:59,560 Speaker 11: five years from now that's a good you know, ten 508 00:26:59,600 --> 00:27:02,280 Speaker 11: to fifth teen percent higher than it is today, which 509 00:27:02,320 --> 00:27:04,600 Speaker 11: on the surface doesn't sound like that big a deal, 510 00:27:05,240 --> 00:27:08,520 Speaker 11: But when one thinks about what kind of margins you 511 00:27:08,600 --> 00:27:12,280 Speaker 11: get on co branded card revenue, you know, versus main 512 00:27:12,400 --> 00:27:16,280 Speaker 11: cabin passenger revenue, you know, the mixed impact is big. 513 00:27:17,480 --> 00:27:19,760 Speaker 11: You know, the d risk of the earning stream is 514 00:27:20,080 --> 00:27:24,600 Speaker 11: also significant, you know, So once again I'm not constructive 515 00:27:24,600 --> 00:27:27,439 Speaker 11: on any every single US earline. There are two I 516 00:27:27,520 --> 00:27:29,800 Speaker 11: really like, and then I'm less sanguine on most of 517 00:27:29,840 --> 00:27:30,160 Speaker 11: the rest. 518 00:27:30,359 --> 00:27:32,880 Speaker 5: I can tell you the loyalist programs, the actual loyalist 519 00:27:32,960 --> 00:27:36,680 Speaker 5: Tom hate this. The people who actually fly on the planes, 520 00:27:36,880 --> 00:27:39,159 Speaker 5: they hate it because they believe that if you can 521 00:27:39,200 --> 00:27:40,919 Speaker 5: acquire the same state, it's just my spending on a 522 00:27:40,920 --> 00:27:41,360 Speaker 5: credit card. 523 00:27:41,359 --> 00:27:42,120 Speaker 6: It's just a cheat code. 524 00:27:42,119 --> 00:27:43,760 Speaker 5: It's not the same as actually being a loyalist and 525 00:27:43,800 --> 00:27:45,840 Speaker 5: flying every single day on the planes. 526 00:27:45,960 --> 00:27:47,280 Speaker 6: I know you're one of them. I know a lot 527 00:27:47,280 --> 00:27:49,840 Speaker 6: of people following this program. I mix the same as well. 528 00:27:49,920 --> 00:27:53,040 Speaker 4: I'm mixed because on one hand, it's a democratization of 529 00:27:53,280 --> 00:27:56,840 Speaker 4: a very otherwise sort of gross system where some people 530 00:27:56,960 --> 00:27:59,800 Speaker 4: are preferred and that you know, are allowed in for 531 00:28:00,280 --> 00:28:02,439 Speaker 4: and you're better and this and that, like it's sort 532 00:28:02,480 --> 00:28:04,800 Speaker 4: of this. It's sort of a social experiment when you 533 00:28:04,880 --> 00:28:07,280 Speaker 4: go to the airport and people start getting angry and start, 534 00:28:07,320 --> 00:28:09,239 Speaker 4: you know, filing up and pushing each other to your 535 00:28:09,320 --> 00:28:09,800 Speaker 4: good point. 536 00:28:09,840 --> 00:28:11,840 Speaker 2: I had a round trip recently where there was not 537 00:28:11,920 --> 00:28:14,840 Speaker 2: a single available seat in the lounge both ways. 538 00:28:15,040 --> 00:28:15,360 Speaker 1: As well. 539 00:28:15,359 --> 00:28:17,600 Speaker 2: Steve Tron, I've got to talk to you about the 540 00:28:17,720 --> 00:28:18,320 Speaker 2: dangers that. 541 00:28:18,280 --> 00:28:18,760 Speaker 1: Are out there. 542 00:28:18,800 --> 00:28:22,320 Speaker 2: All of us were just foundationally shaken by what we 543 00:28:22,359 --> 00:28:24,440 Speaker 2: sawt I needed in Tokyo here in the last couple 544 00:28:24,480 --> 00:28:27,000 Speaker 2: of days, I think of kaivon rumored Cow and you're 545 00:28:27,000 --> 00:28:30,200 Speaker 2: a great colleague here in the aerospace and airline game 546 00:28:30,560 --> 00:28:33,840 Speaker 2: and the dangers that are out there. Kai lived decades ago, 547 00:28:34,520 --> 00:28:38,680 Speaker 2: is well on an ugly flight. How safe our runways 548 00:28:38,720 --> 00:28:41,440 Speaker 2: with all of your knowledge, all of your intake, how 549 00:28:41,520 --> 00:28:43,960 Speaker 2: safe are the runways of American airports? 550 00:28:45,080 --> 00:28:45,320 Speaker 1: Yeah? 551 00:28:45,360 --> 00:28:48,120 Speaker 11: Great question, and my heart goes out to you know, 552 00:28:48,320 --> 00:28:52,120 Speaker 11: the folks over in Japan, not just for the play 553 00:28:52,160 --> 00:28:56,320 Speaker 11: and accident, but the earthquake itself. When one looks at 554 00:28:56,640 --> 00:29:01,640 Speaker 11: the system in the United States, we have very strict 555 00:29:01,720 --> 00:29:06,880 Speaker 11: rules here, very strict rules on air traffic limitations on 556 00:29:06,880 --> 00:29:11,000 Speaker 11: how many air traffic movements each controller is supposed to monitor. 557 00:29:11,840 --> 00:29:16,640 Speaker 11: So I don't have big concerns about the safety. There 558 00:29:16,680 --> 00:29:21,360 Speaker 11: are definitely bottlenecks out there in terms of the supply 559 00:29:21,440 --> 00:29:25,600 Speaker 11: of air traffic controllers, and there are arguments that you know, 560 00:29:25,840 --> 00:29:30,240 Speaker 11: US air traffic system to some extent is anequated. You 561 00:29:30,280 --> 00:29:33,640 Speaker 11: know that being said, how have officials responded to it? 562 00:29:34,600 --> 00:29:38,520 Speaker 11: They have forced the industry to reduce air traffic movements 563 00:29:38,520 --> 00:29:42,520 Speaker 11: in some places. So I think that's unfortunate for the 564 00:29:42,560 --> 00:29:45,560 Speaker 11: consumer on some levels, but I'm happy to see them 565 00:29:45,600 --> 00:29:48,000 Speaker 11: doing that in terms of you know, safety first. 566 00:29:48,160 --> 00:29:50,360 Speaker 6: Yeah, stay, this is tring to catch up. Thank you, sir. 567 00:29:50,480 --> 00:29:51,800 Speaker 6: It's going to say it after year. 568 00:29:51,960 --> 00:30:01,520 Speaker 5: You think trend that of safety. 569 00:30:03,640 --> 00:30:05,880 Speaker 2: Let's get shor it right now, Sarah Hugh and joining us, 570 00:30:06,280 --> 00:30:08,840 Speaker 2: and this is something John Farrell has not forgotten about 571 00:30:08,960 --> 00:30:11,520 Speaker 2: I have. And they're a europe ahead of Europe in 572 00:30:11,600 --> 00:30:15,080 Speaker 2: America's research and standard at charge. I want to digress here, Sarah, 573 00:30:15,080 --> 00:30:17,760 Speaker 2: away from the US economic data. We're going to see 574 00:30:18,080 --> 00:30:20,520 Speaker 2: we haven't even addressed at the beginning of the year 575 00:30:21,040 --> 00:30:24,720 Speaker 2: the challenges of Christine la guard. How are her inflation 576 00:30:25,040 --> 00:30:27,840 Speaker 2: challenges different than those of Jerome Power. 577 00:30:30,960 --> 00:30:35,400 Speaker 12: Sure that there are too many differences in terms of 578 00:30:35,440 --> 00:30:40,840 Speaker 12: the challenges because in both cases you have a strong 579 00:30:40,920 --> 00:30:46,480 Speaker 12: labor market, and the question is, you know, are is 580 00:30:46,520 --> 00:30:51,120 Speaker 12: the fact the ECB are they taking a different approach 581 00:30:51,240 --> 00:30:53,560 Speaker 12: to those strong labor markets. We had a very very 582 00:30:53,640 --> 00:30:57,240 Speaker 12: clear message from Christine Laguard at the last ECB meeting 583 00:30:57,520 --> 00:31:02,800 Speaker 12: that domestic inflation pressures with a concern that full employment 584 00:31:03,120 --> 00:31:08,280 Speaker 12: and ongoing labor market pressures were a concern, and that 585 00:31:08,280 --> 00:31:11,920 Speaker 12: that's why the ECP is cautious, why they're not talking 586 00:31:11,920 --> 00:31:15,800 Speaker 12: about rad cups. The FIRDS view seems to be, you know, 587 00:31:16,040 --> 00:31:19,960 Speaker 12: we're getting a soft landing, inflation is coming down, We're 588 00:31:20,000 --> 00:31:24,080 Speaker 12: not too concerned about labor market strength. But I would 589 00:31:24,120 --> 00:31:28,280 Speaker 12: note what happens to wage growth tomorrow. We saw for 590 00:31:28,360 --> 00:31:32,600 Speaker 12: the November payroll report AVAGALLI earnings up stronger than expected, 591 00:31:33,000 --> 00:31:36,320 Speaker 12: so that could be a concern going forward. 592 00:31:36,600 --> 00:31:38,280 Speaker 2: Let's go right there, because I was a thought the 593 00:31:38,320 --> 00:31:40,360 Speaker 2: high point of your research note on wage growth. 594 00:31:40,400 --> 00:31:42,880 Speaker 1: You take average hourly earnings AG. 595 00:31:43,480 --> 00:31:46,800 Speaker 2: I bring it over to ECI, which is wages and benefits. 596 00:31:47,280 --> 00:31:50,120 Speaker 2: What's the efficacy of AG for you tomorrow? 597 00:31:50,200 --> 00:31:55,400 Speaker 12: At eight thirty, I think that I mean we are 598 00:31:55,440 --> 00:31:58,560 Speaker 12: expecting a slowdown. To be fair, we think that we'll 599 00:31:58,600 --> 00:32:03,760 Speaker 12: see softer monthly growth, but that's against a backdrop of 600 00:32:04,200 --> 00:32:09,640 Speaker 12: last time around higher year on year, higher monthly, higher 601 00:32:09,720 --> 00:32:12,120 Speaker 12: on a three month and six months annualize, all the 602 00:32:12,160 --> 00:32:13,160 Speaker 12: sorts of measures. 603 00:32:12,880 --> 00:32:14,840 Speaker 8: That the Fed likes to look at. 604 00:32:15,600 --> 00:32:18,360 Speaker 12: And the reason why I think it is still very 605 00:32:18,440 --> 00:32:21,400 Speaker 12: much worth taking account of what's going on there is 606 00:32:21,440 --> 00:32:27,320 Speaker 12: because the disinflationary forces that have weighed on inflation to date, 607 00:32:28,400 --> 00:32:33,960 Speaker 12: goods inflation, imported inflation, commodity prices, we're starting to see 608 00:32:34,240 --> 00:32:37,520 Speaker 12: those reverse. Now we're seeing a pickup in commodity prices. 609 00:32:37,520 --> 00:32:42,400 Speaker 12: Obviously geopolitical factors are behind that. Higher freight costs, so 610 00:32:42,560 --> 00:32:45,880 Speaker 12: real jump in freight costs when we've got used to 611 00:32:45,880 --> 00:32:48,600 Speaker 12: seeing them really flatlining over the past year or so. 612 00:32:49,720 --> 00:32:53,080 Speaker 12: And what central bankers will be concerned about is that 613 00:32:53,480 --> 00:32:57,760 Speaker 12: you haven't brought your core inflation down far enough before 614 00:32:58,160 --> 00:33:03,680 Speaker 12: the benefit from weaker energy and food prices that starts 615 00:33:03,720 --> 00:33:06,880 Speaker 12: to reverse, and your headline inflation catches up and starts 616 00:33:06,920 --> 00:33:08,480 Speaker 12: to take over. 617 00:33:09,000 --> 00:33:11,800 Speaker 8: So the wage earning. 618 00:33:11,600 --> 00:33:14,040 Speaker 12: Section is very important, not just for the FED, but 619 00:33:14,120 --> 00:33:16,400 Speaker 12: also for the ECB. But I would say at the moment, 620 00:33:16,920 --> 00:33:19,600 Speaker 12: central bankers are taking a slightly different slant on what's 621 00:33:19,640 --> 00:33:24,400 Speaker 12: going on and those fundamental drivers of domestic inflation pressures. 622 00:33:24,480 --> 00:33:26,720 Speaker 5: With that mind, Sarah, when you compare and contrast you 623 00:33:26,760 --> 00:33:28,760 Speaker 5: and a team, the difference is between the ECB and 624 00:33:28,760 --> 00:33:31,520 Speaker 5: the Federal Reserve. How different are the thresholds for rate cuts? 625 00:33:31,520 --> 00:33:33,720 Speaker 5: Who goes first? What if you penciled in for twenty 626 00:33:33,760 --> 00:33:34,240 Speaker 5: twenty four. 627 00:33:35,560 --> 00:33:36,480 Speaker 8: Well, we do have. 628 00:33:36,440 --> 00:33:39,360 Speaker 12: The ECB going first, we think that they'll cut by 629 00:33:39,440 --> 00:33:40,440 Speaker 12: the second quarter. 630 00:33:41,160 --> 00:33:42,840 Speaker 8: They're shrugging aside. 631 00:33:42,520 --> 00:33:45,120 Speaker 12: Weakness in the economy, but we think that that is 632 00:33:45,200 --> 00:33:49,480 Speaker 12: going to become more of a factor. Obviously, inflation this 633 00:33:49,600 --> 00:33:52,640 Speaker 12: time around for December is likely to nudge higher year 634 00:33:52,680 --> 00:33:55,840 Speaker 12: on year because of base effects, but the broad trend 635 00:33:56,080 --> 00:33:59,960 Speaker 12: is moving in the right direction, and ultimately we think 636 00:34:00,080 --> 00:34:06,000 Speaker 12: that by the by the second quarter, by the next 637 00:34:06,040 --> 00:34:09,040 Speaker 12: set of forecasts that we get, I guess for June, 638 00:34:09,440 --> 00:34:14,440 Speaker 12: they will be signaling clearly that there will be inflation 639 00:34:14,640 --> 00:34:19,120 Speaker 12: on target over their time horizon. Possibly they get there 640 00:34:19,160 --> 00:34:21,759 Speaker 12: a little bit earlier, but we do see a sort 641 00:34:21,760 --> 00:34:23,520 Speaker 12: of more cautious approach from ECB. 642 00:34:23,640 --> 00:34:26,360 Speaker 8: So we think second quarter rate cups for the Fed. 643 00:34:26,480 --> 00:34:31,560 Speaker 12: We've got the third quarter factored in. But I have 644 00:34:31,680 --> 00:34:34,120 Speaker 12: to say that the commentary that we had at the 645 00:34:34,239 --> 00:34:38,799 Speaker 12: last FOMC seem to be giving greater emphasis to. 646 00:34:40,360 --> 00:34:42,200 Speaker 8: The perhaps the. 647 00:34:42,160 --> 00:34:46,600 Speaker 12: Underlying growth of the economy and potentially the need to 648 00:34:47,320 --> 00:34:51,440 Speaker 12: not over titan or not hold rates too high for 649 00:34:51,600 --> 00:34:57,319 Speaker 12: too long, which could suggest that they move earlier than 650 00:34:57,360 --> 00:35:01,480 Speaker 12: the third quarter. Obviously, markets are expect that they could 651 00:35:01,560 --> 00:35:05,680 Speaker 12: move as soon as the next couple of months. We 652 00:35:05,719 --> 00:35:08,120 Speaker 12: think that that will be too soon the minutes, I 653 00:35:08,239 --> 00:35:13,319 Speaker 12: suggest we're more cautious than maybe than Pal's commentary after 654 00:35:13,360 --> 00:35:14,960 Speaker 12: the last FMC meeting. 655 00:35:14,800 --> 00:35:17,440 Speaker 5: That tug of war between market expectations and communication from 656 00:35:17,480 --> 00:35:20,360 Speaker 5: the FAT continue. Sarah Grads catch ump. Happy New Year, Sarah. 657 00:35:20,360 --> 00:35:23,840 Speaker 2: You in that subscribe to the Bloomberg Surveillance podcast on Apple, 658 00:35:24,000 --> 00:35:28,239 Speaker 2: Spotify and anywhere else you get your podcasts. Listen live 659 00:35:28,360 --> 00:35:32,760 Speaker 2: every weekday, starting at seven am Eastern. I'm Bloomberg dot Com, 660 00:35:32,800 --> 00:35:35,360 Speaker 2: the iHeartRadio app, tune In. 661 00:35:35,520 --> 00:35:37,000 Speaker 1: And the Bloomberg Business app. 662 00:35:37,440 --> 00:35:41,120 Speaker 2: You can watch us live on Bloomberg Television and always 663 00:35:41,480 --> 00:35:42,720 Speaker 2: I'm the Bloomberg Terminal. 664 00:35:43,120 --> 00:35:47,320 Speaker 1: Thanks for listening. I'm Tom Keen, and this is Bloomberg