1 00:00:05,080 --> 00:00:08,280 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa A. 2 00:00:08,320 --> 00:00:11,640 Speaker 2: Bramwods along with Tom Keen and Jonathan Ferrell join us 3 00:00:11,680 --> 00:00:15,280 Speaker 2: each day for insight from the best in economics, geopolitics, 4 00:00:15,320 --> 00:00:16,440 Speaker 2: finance and investment. 5 00:00:16,760 --> 00:00:18,760 Speaker 1: Subscribe to Bloomberg Surveillance. 6 00:00:18,360 --> 00:00:21,840 Speaker 2: On demand on Apple, Spotify and anywhere you get your podcasts, 7 00:00:22,160 --> 00:00:25,160 Speaker 2: and always on Bloomberg dot Com, the Bloomberg Terminal, and 8 00:00:25,200 --> 00:00:26,400 Speaker 2: the Bloomberg Business App. 9 00:00:26,560 --> 00:00:30,159 Speaker 3: Joining us is Heidi Kreeve Iredica, senior fellow at the 10 00:00:30,240 --> 00:00:33,320 Speaker 3: Council and Form Relations. Heidi, is there some secret little 11 00:00:33,320 --> 00:00:35,120 Speaker 3: plan and do you have it with us this morning? 12 00:00:36,159 --> 00:00:37,960 Speaker 4: Yeah? I come bearing the secret plan. 13 00:00:38,920 --> 00:00:42,400 Speaker 5: No, I think I think you're consistent with with what 14 00:00:42,560 --> 00:00:46,240 Speaker 5: many of your speakers have been have been talking about. 15 00:00:46,880 --> 00:00:49,519 Speaker 5: This meeting today is really, you know, the best the 16 00:00:49,520 --> 00:00:52,800 Speaker 5: best outcome is that they continue to talk and negotiate 17 00:00:52,840 --> 00:00:55,920 Speaker 5: and open some you know a little bit of daylight, 18 00:00:56,600 --> 00:01:00,480 Speaker 5: uh in the the ability to you know, to carry 19 00:01:00,520 --> 00:01:05,319 Speaker 5: on where this goes. There is no secret plan, and 20 00:01:05,360 --> 00:01:07,800 Speaker 5: I think the most important thing that markets need to 21 00:01:07,880 --> 00:01:11,560 Speaker 5: understand is that this is that we're in We're in 22 00:01:11,680 --> 00:01:14,920 Speaker 5: unchartered territory right now because we you know, when we've 23 00:01:14,959 --> 00:01:19,520 Speaker 5: had these these standoffs in the past, we haven't had 24 00:01:19,720 --> 00:01:24,800 Speaker 5: such a polarized Congress and polarized politics. We haven't had 25 00:01:25,319 --> 00:01:28,800 Speaker 5: such a narrow, narrow majority in the House, and we 26 00:01:28,840 --> 00:01:31,480 Speaker 5: haven't had a speaker who's made it a deal that 27 00:01:31,520 --> 00:01:35,520 Speaker 5: we don't We don't really know, you know, how much negotiating. 28 00:01:34,959 --> 00:01:35,680 Speaker 4: Power he has. 29 00:01:35,720 --> 00:01:38,440 Speaker 5: But he did just pass He did just pass a 30 00:01:39,959 --> 00:01:44,000 Speaker 5: you know, a bill, and it gives him leverage. So 31 00:01:44,480 --> 00:01:48,600 Speaker 5: there is no secret plan. I expect after this meeting today, 32 00:01:49,200 --> 00:01:52,400 Speaker 5: everyone's going to take to the to to raw politics, 33 00:01:52,520 --> 00:01:56,960 Speaker 5: going out to constituencies, whether it's business constituencies, whether it 34 00:01:57,160 --> 00:02:03,560 Speaker 5: is going after brad you know, fragile red states where 35 00:02:03,720 --> 00:02:09,320 Speaker 5: you have veterans, fentanyl, social security checks. 36 00:02:09,960 --> 00:02:12,320 Speaker 4: You're going to have a full blast. 37 00:02:12,080 --> 00:02:17,320 Speaker 5: On media about what's at risk here. And I don't 38 00:02:17,360 --> 00:02:20,720 Speaker 5: think that the Republicans are necessarily going to budge. I 39 00:02:20,760 --> 00:02:22,560 Speaker 5: don't think McCarthy has a lot of room to budge. 40 00:02:22,560 --> 00:02:23,680 Speaker 5: So there is no secret plan. 41 00:02:24,360 --> 00:02:27,280 Speaker 2: So when you said markets need to understand there is 42 00:02:27,320 --> 00:02:30,359 Speaker 2: a question about whether markets are being held hostage by 43 00:02:30,360 --> 00:02:33,960 Speaker 2: this negotiation, that basically, as we heard from dalliep saying yesterday, 44 00:02:34,000 --> 00:02:37,320 Speaker 2: if Peacham fixed income. Essentially, politicians are waiting for markets 45 00:02:37,320 --> 00:02:39,080 Speaker 2: to freak out, for the S and P to tank 46 00:02:39,280 --> 00:02:41,519 Speaker 2: before they go to their constituents and say we had 47 00:02:41,560 --> 00:02:44,720 Speaker 2: no choice. Is that really what's going to basically have 48 00:02:44,800 --> 00:02:46,120 Speaker 2: to happen before there's a deal. 49 00:02:47,160 --> 00:02:49,799 Speaker 5: So I think I would agree with Deleepe that there 50 00:02:50,040 --> 00:02:51,480 Speaker 5: there needs to be market pressure. 51 00:02:51,520 --> 00:02:54,160 Speaker 4: There needs to be something, and we already have. 52 00:02:54,320 --> 00:02:57,679 Speaker 5: I mean, it's unfortunate that that's what we're looking to 53 00:02:58,200 --> 00:03:04,960 Speaker 5: pressure Paula Tians. But without that market, that market signal, 54 00:03:05,520 --> 00:03:10,279 Speaker 5: it makes it hard for McCarthy to go to the 55 00:03:10,320 --> 00:03:14,720 Speaker 5: holdouts who are holding him hostage and say it is 56 00:03:14,840 --> 00:03:18,800 Speaker 5: time to do a temporary left of the of the 57 00:03:18,840 --> 00:03:21,600 Speaker 5: debt ceiling to get us through and get us a 58 00:03:21,639 --> 00:03:24,959 Speaker 5: little bit of space to negotiate between so that nobody 59 00:03:25,000 --> 00:03:26,600 Speaker 5: loses space at the end of this. 60 00:03:26,600 --> 00:03:30,160 Speaker 2: This is incredibly difficult because if the politicians are waiting 61 00:03:30,400 --> 00:03:33,800 Speaker 2: for markets to respond, markets are thinking we've been through 62 00:03:33,800 --> 00:03:35,880 Speaker 2: this before and we're just going to lose our shirts. 63 00:03:35,920 --> 00:03:37,480 Speaker 2: We're going to lose money and be on the wrong 64 00:03:37,560 --> 00:03:40,080 Speaker 2: end of this if we play into this game of chicken. 65 00:03:40,120 --> 00:03:43,360 Speaker 2: As John put it earlier, that Washington is playing with markets, 66 00:03:43,400 --> 00:03:46,880 Speaker 2: So at what point is it's just becoming circular before 67 00:03:46,920 --> 00:03:49,000 Speaker 2: markets don't respond and then there is no deal. It 68 00:03:49,040 --> 00:03:51,320 Speaker 2: actually makes it more likely that we get some sort 69 00:03:51,320 --> 00:03:54,080 Speaker 2: of default. So the. 70 00:03:55,880 --> 00:03:59,480 Speaker 5: Fact that we're talking in Washington about needing markets and 71 00:03:59,560 --> 00:04:04,360 Speaker 5: markets art and wall streets looking at Washington saying you 72 00:04:04,400 --> 00:04:08,440 Speaker 5: guys got to do your job, it just it shows 73 00:04:08,480 --> 00:04:12,360 Speaker 5: you what a gap there is between between between DC 74 00:04:12,480 --> 00:04:15,840 Speaker 5: and New York and it's it means that we have, 75 00:04:17,000 --> 00:04:19,400 Speaker 5: you know, it means that the system is obviously broken. 76 00:04:19,560 --> 00:04:23,240 Speaker 5: It also means that we're putting out this picture on 77 00:04:23,279 --> 00:04:26,159 Speaker 5: the world stage of the United States as as being 78 00:04:26,320 --> 00:04:31,440 Speaker 5: hugely dysfunctional and not not a leader and steward of 79 00:04:31,480 --> 00:04:37,880 Speaker 5: global markets and and the global economy. The the the 80 00:04:37,880 --> 00:04:41,960 Speaker 5: pressure needs to come, and whether it comes from outreach 81 00:04:42,040 --> 00:04:47,320 Speaker 5: to constituents and particularly in fragile states, or from or 82 00:04:47,360 --> 00:04:50,520 Speaker 5: from markets, there needs to have We need to have 83 00:04:50,520 --> 00:04:54,520 Speaker 5: the pressure that gets us to a relief period so 84 00:04:54,560 --> 00:04:58,720 Speaker 5: you can align budget negotiations and debt ceiling negotiations so 85 00:04:58,720 --> 00:05:01,359 Speaker 5: that everyone can walk away with some face saving at 86 00:05:01,400 --> 00:05:04,640 Speaker 5: the end of this. And we hope we get there. 87 00:05:04,880 --> 00:05:07,400 Speaker 5: It's more likely to be in the fall than than 88 00:05:07,480 --> 00:05:09,600 Speaker 5: over the summer. But in the meantime you're going to 89 00:05:09,680 --> 00:05:11,920 Speaker 5: have a lot of a lot of politics playing out, 90 00:05:12,000 --> 00:05:16,240 Speaker 5: and that is that is bad for well, it will 91 00:05:16,279 --> 00:05:21,600 Speaker 5: give you a lot to talk about, which this story 92 00:05:21,680 --> 00:05:24,239 Speaker 5: is not going to end just you know today after 93 00:05:24,279 --> 00:05:25,120 Speaker 5: this meeting, Hi. 94 00:05:25,120 --> 00:05:28,320 Speaker 3: Do you alluded to something really important, Whether this compromise 95 00:05:28,400 --> 00:05:30,680 Speaker 3: is the United States on the international stage going into 96 00:05:30,680 --> 00:05:32,320 Speaker 3: the G seven Do you thymna's the case? 97 00:05:33,279 --> 00:05:36,360 Speaker 4: I think it. I think we have we lose credibility. 98 00:05:37,120 --> 00:05:37,560 Speaker 4: We go in. 99 00:05:37,720 --> 00:05:41,960 Speaker 5: We go in with with a desire to project power, 100 00:05:43,040 --> 00:05:46,360 Speaker 5: to project the strength of the dollar as the as 101 00:05:46,400 --> 00:05:49,120 Speaker 5: the central reserve currency of the world that we use 102 00:05:49,320 --> 00:05:54,839 Speaker 5: underpins our sanctions, our economics, state craft. We have the deepest, 103 00:05:54,880 --> 00:05:56,960 Speaker 5: most liquid capital markets in the world. 104 00:05:57,279 --> 00:05:59,000 Speaker 4: We have you know, I don't think we. 105 00:05:58,960 --> 00:06:01,320 Speaker 5: Actually even have a threat to the dollar that is 106 00:06:01,360 --> 00:06:05,200 Speaker 5: out there right now except from our own doing our 107 00:06:05,320 --> 00:06:07,720 Speaker 5: our own you know, it's an own goal from from 108 00:06:07,960 --> 00:06:11,320 Speaker 5: from you know, from from all from every way you 109 00:06:11,360 --> 00:06:11,920 Speaker 5: look at it. 110 00:06:12,040 --> 00:06:14,160 Speaker 4: So Janet Yellen is coming, uh? 111 00:06:14,760 --> 00:06:15,120 Speaker 6: Is uh? 112 00:06:15,440 --> 00:06:19,640 Speaker 4: Your her G seven meeting? Is? 113 00:06:19,839 --> 00:06:19,960 Speaker 7: Uh? 114 00:06:20,560 --> 00:06:21,320 Speaker 4: Is cut short? 115 00:06:21,480 --> 00:06:23,440 Speaker 5: We have Biden heading out to a G seven and 116 00:06:23,520 --> 00:06:26,880 Speaker 5: quad meeting at the leader's level later this month. This 117 00:06:26,920 --> 00:06:30,160 Speaker 5: will this will all be background music to a president 118 00:06:30,200 --> 00:06:34,760 Speaker 5: that wants to go out and talk about leadership, stewardship, responsibility, 119 00:06:35,360 --> 00:06:38,960 Speaker 5: and at home, we're going to have this political morass 120 00:06:39,200 --> 00:06:40,960 Speaker 5: of debt ceiling negotiations. 121 00:06:41,040 --> 00:06:43,000 Speaker 3: For a long, long time, the US had the luxury 122 00:06:43,640 --> 00:06:46,960 Speaker 3: of doing questionable things. How do you think that luxury 123 00:06:47,200 --> 00:06:48,000 Speaker 3: is no longer there? 124 00:06:49,600 --> 00:06:52,360 Speaker 5: So I think that this. You know, our friends are 125 00:06:52,360 --> 00:06:55,200 Speaker 5: watching us very closely. We're heading into a polliction of 126 00:06:56,120 --> 00:06:59,640 Speaker 5: a presidential election cycle, so we're you know, our friends 127 00:06:59,680 --> 00:07:03,159 Speaker 5: are wanted watching us closely, but we're literally playing into 128 00:07:03,400 --> 00:07:07,760 Speaker 5: the hands of our foes, those who would be we're 129 00:07:07,800 --> 00:07:12,120 Speaker 5: you know, we're handing the talking points to two adversaries 130 00:07:12,200 --> 00:07:16,480 Speaker 5: right now about the US is losing its ability to 131 00:07:16,600 --> 00:07:20,200 Speaker 5: lead the global global economy, you know, to lead the 132 00:07:20,240 --> 00:07:24,880 Speaker 5: global global alliances. And it's just the timing is very bad. 133 00:07:25,720 --> 00:07:27,560 Speaker 5: It's at a time when we are really trying to 134 00:07:27,560 --> 00:07:30,520 Speaker 5: reassert that leadership and we're not showing it at home. 135 00:07:30,760 --> 00:07:33,720 Speaker 3: Hidi, appreciate your time. Let's catch up soon. Wonderful input 136 00:07:33,760 --> 00:07:36,960 Speaker 3: and insight as always from Heidi Kreboretica of the Council 137 00:07:37,200 --> 00:07:43,520 Speaker 3: on Foreign Relations please to side that joining us NAS. 138 00:07:43,600 --> 00:07:46,680 Speaker 3: Robert Tip, chief investment strategist, had a global bonds at 139 00:07:46,720 --> 00:07:50,000 Speaker 3: PGIM Fixed Income. Robert, we talked about the eleventh hour. 140 00:07:50,360 --> 00:07:52,360 Speaker 3: Someone corrected us very quickly and said, it won't be 141 00:07:52,360 --> 00:07:54,560 Speaker 3: the eleventh hour. It will be the eleventh hour, the 142 00:07:54,600 --> 00:07:57,840 Speaker 3: fifty ninth minute, and the fifty ninth second, And Robert Tip, 143 00:07:57,880 --> 00:08:00,000 Speaker 3: maybe that's the case when we get to the eleventh 144 00:08:00,640 --> 00:08:03,640 Speaker 3: the fifty ninth minute, and the fifty ninth second, if 145 00:08:03,640 --> 00:08:06,880 Speaker 3: it gets messy, Robert, are we buying go selling treasuries. 146 00:08:07,960 --> 00:08:08,080 Speaker 2: Right? 147 00:08:08,120 --> 00:08:09,080 Speaker 6: Well, in the short term, I. 148 00:08:09,080 --> 00:08:12,200 Speaker 8: Think you're buying treasuries right. It'd be a risk off event, 149 00:08:13,160 --> 00:08:16,880 Speaker 8: and there may be variations in how the curve deals 150 00:08:16,920 --> 00:08:19,360 Speaker 8: with it. It could be bad for the back end 151 00:08:19,360 --> 00:08:22,400 Speaker 8: of the curve, the long end could underperform. But in 152 00:08:22,440 --> 00:08:25,760 Speaker 8: a flight to quality, treasuries usually do well. We saw 153 00:08:25,800 --> 00:08:28,080 Speaker 8: that in the SVB crisis, and we've seen it in 154 00:08:28,200 --> 00:08:32,480 Speaker 8: past debt crises in the US before, and I think 155 00:08:32,480 --> 00:08:34,720 Speaker 8: that would be the case this time as well. I 156 00:08:34,720 --> 00:08:37,000 Speaker 8: think it's worth keeping in mind of that twelve to 157 00:08:37,080 --> 00:08:40,040 Speaker 8: twenty four months down the road, unless we happen to 158 00:08:40,040 --> 00:08:42,880 Speaker 8: be right out another debt ceiling debate. You know, I 159 00:08:42,880 --> 00:08:45,320 Speaker 8: don't think this is going to matter. I think it 160 00:08:45,400 --> 00:08:48,880 Speaker 8: is extremely important in the short term how it gets resolved, 161 00:08:48,880 --> 00:08:52,439 Speaker 8: and it may be of epic proportions if you've got 162 00:08:52,480 --> 00:08:58,720 Speaker 8: certain kinds of outcomes, some that are are widely envisioned 163 00:08:58,760 --> 00:09:01,600 Speaker 8: and some may be less. But twelve to twenty four 164 00:09:01,600 --> 00:09:04,320 Speaker 8: months from now, I think the basics the risk here, 165 00:09:05,000 --> 00:09:08,640 Speaker 8: alluding to your curve, which is expecting rate cuts, is 166 00:09:08,640 --> 00:09:10,880 Speaker 8: that we may have evolved into a different kind of 167 00:09:10,960 --> 00:09:14,680 Speaker 8: secular environment where the growth is not so much so 168 00:09:14,960 --> 00:09:19,839 Speaker 8: debt driven, and that as a result, growth continues here 169 00:09:20,880 --> 00:09:23,360 Speaker 8: and we end up seeing the FED holding or doing 170 00:09:23,440 --> 00:09:27,440 Speaker 8: war hikes and getting some upward adjustment in the belly 171 00:09:27,440 --> 00:09:28,160 Speaker 8: of the yield curve. 172 00:09:28,640 --> 00:09:31,520 Speaker 3: Interesting. So, Robert, two time horizons there and two things 173 00:09:31,559 --> 00:09:34,080 Speaker 3: to unpack. Let's deal with them separately. Let's deal with 174 00:09:34,080 --> 00:09:36,880 Speaker 3: the first one the short term. Do you and the 175 00:09:36,960 --> 00:09:40,439 Speaker 3: team think this gets solved anytime soon the debt ceiling 176 00:09:40,520 --> 00:09:43,800 Speaker 3: gets addressed, and what informs that view? What do you 177 00:09:43,840 --> 00:09:46,040 Speaker 3: look to, Robert to get that idea? 178 00:09:47,320 --> 00:09:47,760 Speaker 6: Sure? 179 00:09:47,960 --> 00:09:51,280 Speaker 8: Well, I think the easy part is that nobody it's 180 00:09:51,679 --> 00:09:54,840 Speaker 8: nobody's interest to cave early. Everybody wants to show that 181 00:09:54,880 --> 00:09:58,880 Speaker 8: they negotiated up until very last minute, and the system, 182 00:09:58,920 --> 00:10:02,680 Speaker 8: in a way is in place. You know, the United States, 183 00:10:02,520 --> 00:10:05,480 Speaker 8: this freak of nature, with this messy system that's been 184 00:10:05,600 --> 00:10:09,040 Speaker 8: you know, ultimately very successful, is designed to prevent any 185 00:10:09,040 --> 00:10:12,800 Speaker 8: one idea, any one party, any one group from getting 186 00:10:12,800 --> 00:10:17,840 Speaker 8: too much power. So it's very hard to move anything 187 00:10:17,880 --> 00:10:20,520 Speaker 8: forward or stop anything. This is going to go right 188 00:10:20,520 --> 00:10:23,199 Speaker 8: down to the last minute. I think what'll be interesting 189 00:10:23,440 --> 00:10:28,640 Speaker 8: in a way though, is if Joe Biden goes for 190 00:10:29,040 --> 00:10:31,400 Speaker 8: a power play of sorts, since it being kind of 191 00:10:31,920 --> 00:10:36,520 Speaker 8: a sleeper in the sense of continues to say, you know, 192 00:10:36,600 --> 00:10:40,679 Speaker 8: this is the best budget that you could pass, and 193 00:10:40,800 --> 00:10:42,840 Speaker 8: all of the spending, all the taxes, these are the 194 00:10:42,840 --> 00:10:45,760 Speaker 8: best policies that you could come up with. You need 195 00:10:45,800 --> 00:10:49,040 Speaker 8: to have the borrowing capacity. And if they do not 196 00:10:49,320 --> 00:10:52,480 Speaker 8: give him a clean increase in the net ceiling, that 197 00:10:52,559 --> 00:10:55,840 Speaker 8: he invokes the fourteenth Amendment, goes ahead and makes the payment, 198 00:10:56,520 --> 00:10:59,840 Speaker 8: and the worst case scenario would be that then you know, 199 00:10:59,880 --> 00:11:04,360 Speaker 8: the government is sued effectively. I'm not a legal expert, 200 00:11:04,960 --> 00:11:08,319 Speaker 8: and either it's upheld or it's shot down. If it's 201 00:11:08,320 --> 00:11:10,800 Speaker 8: shot down, well then every time you come up against 202 00:11:10,800 --> 00:11:13,520 Speaker 8: the debt ceiling. You have to get it raised. But 203 00:11:13,640 --> 00:11:16,760 Speaker 8: on the other hand, if it's upheld and prioritization of 204 00:11:16,840 --> 00:11:20,920 Speaker 8: principle and interest payments is allowed, then this thing has 205 00:11:20,960 --> 00:11:24,400 Speaker 8: gone forever. In a way, that's a loss in that 206 00:11:24,880 --> 00:11:30,000 Speaker 8: it allows profligate increases in det GDP to continue ad nauseum, 207 00:11:30,720 --> 00:11:33,599 Speaker 8: But in terms of traders and anxiety, it would be 208 00:11:33,640 --> 00:11:34,079 Speaker 8: a big win. 209 00:11:34,480 --> 00:11:36,160 Speaker 2: Well, this is something that Jenny Allen is called the 210 00:11:36,200 --> 00:11:39,360 Speaker 2: constitutional crisis should it be invokes, So it's not necessarily 211 00:11:39,400 --> 00:11:43,040 Speaker 2: what they want to have happen at a time when 212 00:11:43,200 --> 00:11:45,280 Speaker 2: they do not want the legal challenges and they want 213 00:11:45,320 --> 00:11:48,920 Speaker 2: some sort of consensus. Let's put that aside for one minute, Robert, 214 00:11:48,960 --> 00:11:51,760 Speaker 2: and get your sense of how this is going to work. 215 00:11:51,920 --> 00:11:54,040 Speaker 2: If the market just sits on its hands, are you 216 00:11:54,160 --> 00:11:56,599 Speaker 2: concerned that a lack of reaction as everyone waits for 217 00:11:56,640 --> 00:11:59,000 Speaker 2: the eleventh hour, fifty ninth minute and fifty nine second 218 00:11:59,320 --> 00:12:01,360 Speaker 2: to make any kind of moves will mean that this 219 00:12:01,440 --> 00:12:03,199 Speaker 2: actually will not get done in time. 220 00:12:06,679 --> 00:12:09,640 Speaker 8: I think that you are going to see an increase 221 00:12:09,679 --> 00:12:14,760 Speaker 8: in anxiety as the balances run low, and you know, 222 00:12:15,040 --> 00:12:18,600 Speaker 8: if there's an accidental default, you will see a dropping 223 00:12:18,640 --> 00:12:21,640 Speaker 8: stock prices, a dropping yields into widening your credit spreads. 224 00:12:23,040 --> 00:12:27,000 Speaker 8: But I think that the economy is pretty resilient to 225 00:12:27,040 --> 00:12:29,720 Speaker 8: those kinds of shocks. I mean, whether you're looking at 226 00:12:29,760 --> 00:12:32,720 Speaker 8: October nineteen eighty seven and the stock market decline them, 227 00:12:33,520 --> 00:12:36,280 Speaker 8: whether you're looking at the volatility surge in twenty eighteen, 228 00:12:37,240 --> 00:12:40,920 Speaker 8: the economy is not derailed by those incidents of volatility. 229 00:12:41,360 --> 00:12:44,560 Speaker 8: And most like the current cycles, the increase in interest rates, 230 00:12:44,559 --> 00:12:47,240 Speaker 8: saying in nineteen ninety four quick fed rate hike cycle, 231 00:12:47,520 --> 00:12:51,520 Speaker 8: a lot of volatility in the markets. Economy powers through that. 232 00:12:51,840 --> 00:12:55,000 Speaker 8: So again I think twelve to twenty four months from now, 233 00:12:55,040 --> 00:12:57,160 Speaker 8: there is not going to be a major economic event. 234 00:12:57,559 --> 00:12:59,839 Speaker 8: It could, though in the short term, be very drawing 235 00:12:59,840 --> 00:13:00,640 Speaker 8: for the markets. 236 00:13:00,960 --> 00:13:02,400 Speaker 2: Well how do you play that? I mean, is it 237 00:13:02,440 --> 00:13:04,280 Speaker 2: frustrating for you? Do you feel like you're being used 238 00:13:04,280 --> 00:13:07,200 Speaker 2: as a pawn as a market participant in Washington's games? 239 00:13:07,280 --> 00:13:09,520 Speaker 2: Or is this a good trading opportunity or perhaps you 240 00:13:09,559 --> 00:13:11,080 Speaker 2: can get ahead and have an edge. 241 00:13:12,240 --> 00:13:14,000 Speaker 8: Yeah, I think there's a little bit of each. I 242 00:13:14,040 --> 00:13:19,640 Speaker 8: think that in the CBS markets, you know, the in 243 00:13:19,760 --> 00:13:22,360 Speaker 8: terms of the term structure there, I mean, people are 244 00:13:22,400 --> 00:13:24,960 Speaker 8: paying real money to protect against the default in the 245 00:13:25,000 --> 00:13:28,920 Speaker 8: short term, and you know, there could be a trade 246 00:13:28,960 --> 00:13:33,760 Speaker 8: to do there. But I think as an investor, everybody 247 00:13:33,840 --> 00:13:36,480 Speaker 8: has their edge, and I would think, you know, for 248 00:13:36,600 --> 00:13:40,680 Speaker 8: some for investors, their edge may be in as fascinating. 249 00:13:40,720 --> 00:13:43,439 Speaker 8: What's the twelfth to twenty four month environment. How are 250 00:13:43,480 --> 00:13:48,480 Speaker 8: fundamentals dramatically differently priced from where they should be? And 251 00:13:48,520 --> 00:13:51,000 Speaker 8: I think right now is one of those environments where 252 00:13:52,000 --> 00:13:55,120 Speaker 8: the market is heavily biased towards pricing and a recession 253 00:13:56,320 --> 00:14:00,480 Speaker 8: and having a more optimistic view is going to be 254 00:14:00,800 --> 00:14:04,640 Speaker 8: the best approach. Tactical trades on the debt ceiling. I 255 00:14:04,640 --> 00:14:06,320 Speaker 8: think you can do on the margin, but should not 256 00:14:06,360 --> 00:14:07,360 Speaker 8: be a major aspect. 257 00:14:07,559 --> 00:14:11,960 Speaker 3: Did you buy some Apple debt yesterday, Robert, Yeah, I'm. 258 00:14:11,800 --> 00:14:15,360 Speaker 8: Not going to comment on the trades. 259 00:14:15,480 --> 00:14:18,600 Speaker 3: Yeah, but you can build a little bit, Robert, if 260 00:14:18,600 --> 00:14:20,000 Speaker 3: you can, I think, yeah. 261 00:14:20,000 --> 00:14:25,280 Speaker 8: I think the market here, you know, is supportive. Here 262 00:14:25,560 --> 00:14:28,800 Speaker 8: sees yields as having traversed the range of the last 263 00:14:28,840 --> 00:14:32,000 Speaker 8: ten twenty years, and yields are attractive. And I think 264 00:14:32,040 --> 00:14:34,240 Speaker 8: some of the inversion of the curve, the demand for 265 00:14:34,320 --> 00:14:37,640 Speaker 8: corporate bonds, the fact that spreads are supported in the 266 00:14:37,640 --> 00:14:39,160 Speaker 8: face of what people think is going to be a 267 00:14:39,160 --> 00:14:43,520 Speaker 8: recession is indicative of the fact that people need yield 268 00:14:44,440 --> 00:14:48,360 Speaker 8: and if the market is well supported and that you're 269 00:14:48,480 --> 00:14:50,840 Speaker 8: likely to see spreads. The range that we've seen over 270 00:14:50,840 --> 00:14:52,880 Speaker 8: the last year is going to hold. 271 00:14:53,240 --> 00:14:55,440 Speaker 3: Robert Tip the page and diplomatic at the end there. 272 00:14:55,480 --> 00:14:58,600 Speaker 3: Thank you, sir, Robert Tip on a credit market constructive. 273 00:15:08,840 --> 00:15:11,600 Speaker 3: Lisa Chalett joins US now chief investment officer at Margan 274 00:15:11,640 --> 00:15:14,800 Speaker 3: Stanley Worth Management. Lisa, thanks for ving with us. I 275 00:15:14,840 --> 00:15:17,560 Speaker 3: won't ask you to translate, Lisa, We'll ask you this though, 276 00:15:18,000 --> 00:15:20,000 Speaker 3: just how frustrating is this market, Lisa, when you look 277 00:15:20,000 --> 00:15:22,520 Speaker 3: at things like all the right cuts that are being priced, 278 00:15:23,000 --> 00:15:24,960 Speaker 3: yet at the same time there is this feeling that 279 00:15:25,000 --> 00:15:27,680 Speaker 3: we will continue to live with durable growth. 280 00:15:29,200 --> 00:15:29,560 Speaker 6: Yeah. 281 00:15:29,600 --> 00:15:32,720 Speaker 7: So, look, I think there are a lot of conundrums 282 00:15:32,720 --> 00:15:36,040 Speaker 7: in this current market, and I think that probably the 283 00:15:36,160 --> 00:15:39,960 Speaker 7: single most frustrating thing is the benchmark. 284 00:15:40,000 --> 00:15:40,640 Speaker 6: At this point. 285 00:15:40,720 --> 00:15:46,680 Speaker 7: You know, most institutional investors, most retail investors define the 286 00:15:46,840 --> 00:15:51,080 Speaker 7: market as the S and P five hundred index. That index, 287 00:15:51,240 --> 00:15:54,600 Speaker 7: as we know, is up almost eight percent a year 288 00:15:54,640 --> 00:16:00,440 Speaker 7: to date, up seventeen percent from last October's low, but 289 00:16:00,520 --> 00:16:03,320 Speaker 7: certainly for the last you know, four or five months. 290 00:16:03,360 --> 00:16:06,560 Speaker 7: A huge portion of that move, at least, you know, 291 00:16:06,600 --> 00:16:11,240 Speaker 7: since January thirty first, has essentially come from seven stocks, 292 00:16:11,280 --> 00:16:16,800 Speaker 7: the megacap tech stocks who led for most of the 293 00:16:17,160 --> 00:16:20,600 Speaker 7: prior thirteen years, the you know what we you know, 294 00:16:21,200 --> 00:16:26,200 Speaker 7: I think affectionately nicknamed the fangs or fangs M plus whatever. 295 00:16:27,880 --> 00:16:32,080 Speaker 7: And I think what has been frustrating is that underneath 296 00:16:32,120 --> 00:16:36,400 Speaker 7: the surface, a lot of the indicators that are flashing 297 00:16:36,480 --> 00:16:42,400 Speaker 7: recession have crushed the cyclicals. We've seen the devastation of 298 00:16:42,760 --> 00:16:46,440 Speaker 7: the regional banking system as the FED has raised rates 299 00:16:46,480 --> 00:16:49,640 Speaker 7: and as the implications of tightening have. 300 00:16:49,720 --> 00:16:51,080 Speaker 6: Begun to show. 301 00:16:51,120 --> 00:16:55,520 Speaker 7: And yet there's that benchmark, you know, supported by that 302 00:16:55,720 --> 00:16:59,760 Speaker 7: heavy concentration at the top, you know, chugging along. When 303 00:17:00,040 --> 00:17:03,200 Speaker 7: low the surface there seems to be you know, some 304 00:17:03,280 --> 00:17:04,840 Speaker 7: pain and suffering and damage. 305 00:17:05,160 --> 00:17:08,000 Speaker 6: Small caps in particular have been crushed. 306 00:17:08,280 --> 00:17:10,520 Speaker 3: So, Lisa, the question we've got to ask then is 307 00:17:10,560 --> 00:17:13,360 Speaker 3: can this persist? And if it come, what would bring 308 00:17:13,400 --> 00:17:14,919 Speaker 3: down some of the big tech heavy weights that have 309 00:17:14,920 --> 00:17:15,919 Speaker 3: supported this market. 310 00:17:17,080 --> 00:17:19,560 Speaker 7: Yes, I think the reality is that in the short 311 00:17:19,640 --> 00:17:23,920 Speaker 7: term it can persist, you know, certainly as long as 312 00:17:24,080 --> 00:17:27,480 Speaker 7: we're you know, kind of in this stalemate, I think 313 00:17:27,520 --> 00:17:31,440 Speaker 7: to your point between you know, some labor market resilience, 314 00:17:31,600 --> 00:17:34,680 Speaker 7: the power of pricing power, and some of the nominal 315 00:17:34,720 --> 00:17:38,560 Speaker 7: growth drivers that can support some of those names. 316 00:17:38,920 --> 00:17:40,720 Speaker 6: Now, ultimately, you know, our. 317 00:17:40,640 --> 00:17:45,320 Speaker 7: Thesis has been that, you know, there are no companies 318 00:17:45,359 --> 00:17:52,480 Speaker 7: that ultimately are immune from recession or significant economic slowing, 319 00:17:52,520 --> 00:17:57,120 Speaker 7: and we don't think that this time ultimately will be different, 320 00:17:58,080 --> 00:18:01,760 Speaker 7: even though it has felt that way at moments. So 321 00:18:01,880 --> 00:18:05,479 Speaker 7: our best gas continues to be that there are some 322 00:18:05,560 --> 00:18:08,680 Speaker 7: earnings disappointments out there. I mean, one of the things 323 00:18:08,720 --> 00:18:13,400 Speaker 7: that folks have to digest is that the way earnings 324 00:18:13,440 --> 00:18:17,760 Speaker 7: are modeled, it looks like we're on a hockey stick 325 00:18:17,920 --> 00:18:22,320 Speaker 7: towards recovery over the next couple of quarters, with you know, 326 00:18:22,520 --> 00:18:26,919 Speaker 7: this first quarter that's being completed representing a trough in 327 00:18:26,960 --> 00:18:31,520 Speaker 7: earnings growth, and then we kind of, you know, kind 328 00:18:31,520 --> 00:18:34,159 Speaker 7: of get year over year earnings that are better and 329 00:18:34,200 --> 00:18:37,040 Speaker 7: better every quarter until we get to twenty twenty four, 330 00:18:37,200 --> 00:18:40,639 Speaker 7: where the market's looking for up thirteen percent earnings. 331 00:18:40,680 --> 00:18:44,119 Speaker 6: Now, you know, we're still very close to. 332 00:18:44,560 --> 00:18:48,760 Speaker 7: Peak economic growth and peak corporate profit margins. So that's 333 00:18:48,760 --> 00:18:52,160 Speaker 7: going to be a feat to achieve those expectations. 334 00:18:52,400 --> 00:18:53,800 Speaker 2: Lisa, what would it take for you to throw in 335 00:18:53,840 --> 00:18:56,199 Speaker 2: the towel and basically just say this time is different. 336 00:18:57,119 --> 00:19:00,040 Speaker 7: I think the fundamental issue for us is if we 337 00:19:00,080 --> 00:19:03,919 Speaker 7: see a reacceleration in economic growth, if the consumer really 338 00:19:03,960 --> 00:19:10,120 Speaker 7: does prove to be resilient, if the slowing that we 339 00:19:10,200 --> 00:19:15,720 Speaker 7: expect to emanate really from the credit crunch does not materialize, 340 00:19:15,760 --> 00:19:18,560 Speaker 7: if there's enough savings cushion, and we. 341 00:19:18,480 --> 00:19:20,560 Speaker 6: Would probably see that in the next. 342 00:19:20,320 --> 00:19:24,959 Speaker 7: Two quarters where these earnings that look like a hockey 343 00:19:24,960 --> 00:19:29,040 Speaker 7: stick recovery are achieved. If those earnings are achieved, then 344 00:19:29,480 --> 00:19:32,000 Speaker 7: quite frankly, our thesis is wrong. 345 00:19:32,720 --> 00:19:35,600 Speaker 2: There's another aspect to this that some people keep bringing up, 346 00:19:35,640 --> 00:19:39,359 Speaker 2: which is perhaps the largest companies are consolidating market share 347 00:19:39,400 --> 00:19:42,160 Speaker 2: to such a degree and taking it away from smaller companies. 348 00:19:42,400 --> 00:19:46,000 Speaker 2: So you could see small cabs basically blown up, absolutely 349 00:19:47,160 --> 00:19:50,159 Speaker 2: decline dramatically, which is something that we have seen in 350 00:19:50,200 --> 00:19:53,360 Speaker 2: certain pockets, even as the large cabs continue to chug 351 00:19:53,359 --> 00:19:56,719 Speaker 2: along and chart really impressive growth. Do you expect that 352 00:19:56,800 --> 00:19:58,600 Speaker 2: kind of environment, that that's going to be the new 353 00:19:58,640 --> 00:19:59,760 Speaker 2: reality for a while. 354 00:20:02,040 --> 00:20:04,080 Speaker 6: Look, I think it is possible. 355 00:20:04,240 --> 00:20:07,800 Speaker 7: Anything is possible, and certainly there are a host of 356 00:20:07,840 --> 00:20:12,320 Speaker 7: these companies that have very, very dominant positions. But I 357 00:20:12,359 --> 00:20:16,120 Speaker 7: do think that we're at a political point of a 358 00:20:16,160 --> 00:20:21,800 Speaker 7: political moment where, you know, the tolerance for you know, further, 359 00:20:22,400 --> 00:20:27,960 Speaker 7: big company consolidation does start to be debated as an 360 00:20:27,960 --> 00:20:31,360 Speaker 7: antitrust issue in a way that perhaps it hasn't been 361 00:20:32,400 --> 00:20:36,280 Speaker 7: quite frankly for over forty years since since the Reagan administration. 362 00:20:36,480 --> 00:20:40,080 Speaker 7: And look, some of you know, government in action is 363 00:20:40,119 --> 00:20:43,640 Speaker 7: what's gotten us here, and so you know what may 364 00:20:43,920 --> 00:20:49,600 Speaker 7: break the log jam? Maybe you know some attempts at reregulation. 365 00:20:50,000 --> 00:20:51,200 Speaker 3: Have we done the debt saving yet? 366 00:20:51,200 --> 00:20:52,679 Speaker 1: Bromo nod to do that? 367 00:20:52,720 --> 00:20:55,600 Speaker 3: Now go for it, Lisa, stick around place, just for 368 00:20:55,880 --> 00:20:59,640 Speaker 3: sixty seconds, least of the dead sailing. When clients ask 369 00:20:59,760 --> 00:21:02,480 Speaker 3: you about this, what are even the team telling them 370 00:21:02,920 --> 00:21:03,520 Speaker 3: at the moment. 371 00:21:05,160 --> 00:21:08,040 Speaker 7: The fundamental thing that we're telling them is, Look, it's 372 00:21:08,119 --> 00:21:11,800 Speaker 7: not a question of if, it's a question of when 373 00:21:12,119 --> 00:21:17,320 Speaker 7: and how. The question of when. What's critically important from 374 00:21:17,359 --> 00:21:21,800 Speaker 7: where we sit is what will Janet Yellen do after 375 00:21:22,440 --> 00:21:24,119 Speaker 7: she gets approval. 376 00:21:25,119 --> 00:21:27,320 Speaker 6: To extend borrowing? 377 00:21:27,760 --> 00:21:30,240 Speaker 7: And what we mean by that is at what pace 378 00:21:30,440 --> 00:21:34,400 Speaker 7: and what duration is she going to issue? Because if 379 00:21:34,440 --> 00:21:38,080 Speaker 7: you're down to kind of a zero in the Treasury 380 00:21:38,119 --> 00:21:41,600 Speaker 7: General Account. It is very possible that in the you know, 381 00:21:41,800 --> 00:21:45,480 Speaker 7: last four months of the year, you know, she's going 382 00:21:45,560 --> 00:21:48,000 Speaker 7: to be issuing to the tune of you know, six 383 00:21:48,160 --> 00:21:50,959 Speaker 7: hundred and fifty to seven hundred and fifty billion dollars, 384 00:21:51,000 --> 00:21:54,879 Speaker 7: which is a drain of liquidity at the same time 385 00:21:54,920 --> 00:21:57,920 Speaker 7: that we may have some of these credit fronch issues 386 00:21:58,160 --> 00:22:02,840 Speaker 7: where we're continuing to pursue quantitative tightening. So the first 387 00:22:02,880 --> 00:22:08,880 Speaker 7: thing that we're telling clients is beware of the liquidity implications. 388 00:22:08,880 --> 00:22:12,920 Speaker 7: On the other side, the second thing that we're talking 389 00:22:12,920 --> 00:22:17,440 Speaker 7: about is the how it matters, uh, you know, to 390 00:22:17,760 --> 00:22:23,480 Speaker 7: forward looking expectations of growth in terms of what is 391 00:22:23,600 --> 00:22:26,399 Speaker 7: cut if if that's what it takes to get a 392 00:22:26,440 --> 00:22:29,680 Speaker 7: deal done, commitments to cut fiscal spending. 393 00:22:30,080 --> 00:22:30,880 Speaker 6: What's cut? 394 00:22:31,160 --> 00:22:35,080 Speaker 7: Are there rollbacks of some of the Inflation Reduction Act 395 00:22:35,440 --> 00:22:42,199 Speaker 7: Act spending related opportunities, some of the infrastructure spending that 396 00:22:42,359 --> 00:22:45,480 Speaker 7: is kind of in motion, and those things have been 397 00:22:45,520 --> 00:22:48,400 Speaker 7: a support to growth, uh, And if we need to, 398 00:22:48,480 --> 00:22:51,600 Speaker 7: you know, take that out of the forward forecasts, that 399 00:22:51,800 --> 00:22:54,439 Speaker 7: is going to dampen economic growth. 400 00:22:54,560 --> 00:22:59,000 Speaker 3: Lisa, wonderful response. Thank you, Lisa, Shannader moment Stanley Wealth Management. 401 00:22:59,040 --> 00:23:00,000 Speaker 3: In fact, there was fantastic. 402 00:23:03,960 --> 00:23:06,240 Speaker 2: One of my favorite economists ever, Neil dad I joining 403 00:23:06,320 --> 00:23:08,720 Speaker 2: us now. I always love hashing this through with you. 404 00:23:08,800 --> 00:23:11,200 Speaker 2: He's head of US economic research at Renaissance Macro. 405 00:23:11,880 --> 00:23:14,520 Speaker 1: I want to start there. What's going to win here? 406 00:23:15,000 --> 00:23:18,480 Speaker 2: The consumers who keep spending and now are borrowing or 407 00:23:18,520 --> 00:23:21,960 Speaker 2: companies that are pulling back spending and being more conservative. 408 00:23:23,000 --> 00:23:25,879 Speaker 9: No, I think the consumers will win. Historically the causality 409 00:23:25,920 --> 00:23:29,119 Speaker 9: goes from consumers to businesses, right, So I think the 410 00:23:30,359 --> 00:23:33,359 Speaker 9: issue is that, you know, companies have been preparing now 411 00:23:33,400 --> 00:23:37,479 Speaker 9: for several quarters for a recession that hasn't yet arrived, 412 00:23:37,760 --> 00:23:41,480 Speaker 9: and I think they're moving further away. You know, they're 413 00:23:41,520 --> 00:23:44,879 Speaker 9: further off sides on growth, and you know, if the 414 00:23:44,880 --> 00:23:47,359 Speaker 9: consumer continues to hang in there, there may be a 415 00:23:47,359 --> 00:23:49,399 Speaker 9: period of catch up that happens where they have to 416 00:23:49,440 --> 00:23:53,760 Speaker 9: restock their inventories, maybe adjust their capex budgets, maybe hire 417 00:23:53,760 --> 00:23:59,040 Speaker 9: a bit more post more openings. So I definitely, you know, 418 00:23:59,119 --> 00:24:01,159 Speaker 9: I mean to me, it's also so Lisa, as you know, 419 00:24:01,240 --> 00:24:03,800 Speaker 9: it's really about what is the consensus pricing in and 420 00:24:03,840 --> 00:24:06,520 Speaker 9: then what is the likely outcome? You know going to 421 00:24:06,560 --> 00:24:08,080 Speaker 9: be and then you try to pick your battles as 422 00:24:08,080 --> 00:24:10,359 Speaker 9: wisely as you can. And you know, to me, the 423 00:24:10,400 --> 00:24:14,720 Speaker 9: consensus right now is expecting a recession to start really 424 00:24:14,720 --> 00:24:17,440 Speaker 9: in this quarter, I mean June Q three. I mean 425 00:24:17,600 --> 00:24:20,080 Speaker 9: the Bloomberg News consensus I think is for flat growth 426 00:24:20,080 --> 00:24:22,879 Speaker 9: in each of the next two quarters. And I don't know. 427 00:24:22,920 --> 00:24:26,200 Speaker 9: I mean, it just doesn't seem like that's going to happen. 428 00:24:26,280 --> 00:24:28,520 Speaker 9: And we had a strong auto sales number for April. 429 00:24:28,560 --> 00:24:31,000 Speaker 9: We had it looks like core retail sales will come 430 00:24:31,040 --> 00:24:33,960 Speaker 9: in stronger for April. We know from the public builders 431 00:24:34,000 --> 00:24:37,280 Speaker 9: that April was a very strong month for new home sales. 432 00:24:37,359 --> 00:24:42,240 Speaker 2: So you know, I mean, good, Okay, take me a 433 00:24:42,280 --> 00:24:44,960 Speaker 2: step back. Let's tesus out a little bit. You said 434 00:24:45,080 --> 00:24:49,159 Speaker 2: when you're talking about how the consensus is the consensus 435 00:24:49,160 --> 00:24:51,760 Speaker 2: of a survey of economists, or is the consensus what's 436 00:24:51,840 --> 00:24:54,320 Speaker 2: priced into stock valuations, because they're two different things and 437 00:24:54,320 --> 00:24:55,680 Speaker 2: they haven't been agreeing with each other. 438 00:24:56,680 --> 00:24:59,000 Speaker 9: Well, look, I mean the bond market's also out there 439 00:24:59,000 --> 00:25:01,800 Speaker 9: pricing in rate nuts and I think what like two 440 00:25:01,880 --> 00:25:04,080 Speaker 9: hundred bases points worth of cuts between now and the 441 00:25:04,160 --> 00:25:07,960 Speaker 9: end of next year. I mean, that's hard to see 442 00:25:08,000 --> 00:25:10,720 Speaker 9: in the context of a strong economy, right, so, or 443 00:25:10,760 --> 00:25:13,480 Speaker 9: even an economy that's treading water. I mean, people clearly 444 00:25:13,520 --> 00:25:16,240 Speaker 9: expect some weakness in the economy. I think, you know, 445 00:25:16,280 --> 00:25:18,840 Speaker 9: with respect to equities, I mean, equities are still well 446 00:25:18,880 --> 00:25:21,600 Speaker 9: off the highs obviously. I mean we've seen some rally 447 00:25:21,600 --> 00:25:24,400 Speaker 9: of late. But yeah, I mean, I think you can 448 00:25:24,440 --> 00:25:26,800 Speaker 9: make a case to say that the outlook for stocks 449 00:25:26,800 --> 00:25:30,360 Speaker 9: is somewhat ambiguous, right, I mean, if recession risk gets 450 00:25:30,440 --> 00:25:32,479 Speaker 9: priced out, that should be good for earnings, But at 451 00:25:32,480 --> 00:25:36,000 Speaker 9: the same time, that probably leaves the FED. The prospect 452 00:25:36,080 --> 00:25:40,760 Speaker 9: of the Fed, you know future, right, heakes still on 453 00:25:40,800 --> 00:25:42,760 Speaker 9: the table, which could weigh on stock. 454 00:25:42,840 --> 00:25:45,439 Speaker 2: What will we have to see tomorrow for the CPI 455 00:25:45,560 --> 00:25:48,040 Speaker 2: report to shock this market to say, wait a second, 456 00:25:48,119 --> 00:25:49,879 Speaker 2: we have to start thinking about the FED staying at 457 00:25:49,920 --> 00:25:53,240 Speaker 2: five percent, possibly going up to five point fifty, more 458 00:25:53,280 --> 00:25:55,960 Speaker 2: than rate cuts which are being significantly priced in. 459 00:25:57,840 --> 00:25:58,040 Speaker 1: Well. 460 00:25:58,080 --> 00:26:00,720 Speaker 9: I mean, I do think that the scope for some 461 00:26:00,840 --> 00:26:03,640 Speaker 9: upside surprises on inflation. The question is whether the Fed 462 00:26:03,720 --> 00:26:05,760 Speaker 9: is going to lean into that by continuing to hike 463 00:26:05,800 --> 00:26:08,080 Speaker 9: over the summer. I don't think they will. I think 464 00:26:08,160 --> 00:26:11,040 Speaker 9: that they probably take a pause you know, we have 465 00:26:11,640 --> 00:26:15,080 Speaker 9: you know, essentially they're captured to some extent by events, right, 466 00:26:15,160 --> 00:26:19,280 Speaker 9: I mean the regional banking issues. Obviously there's still an 467 00:26:19,280 --> 00:26:24,199 Speaker 9: issue there. We also have the debt limit negotiations, So 468 00:26:24,280 --> 00:26:26,800 Speaker 9: there are things out there that they can point to 469 00:26:26,800 --> 00:26:30,159 Speaker 9: to kind of keep them away from hiking over the summer. 470 00:26:30,200 --> 00:26:34,040 Speaker 9: But ultimately, I think if the inflation numbers stay relatively firm, 471 00:26:34,119 --> 00:26:36,760 Speaker 9: if the economy is still holding up, we're clearly not 472 00:26:36,880 --> 00:26:41,120 Speaker 9: growing below trend, right the unemployment rate is not going 473 00:26:41,160 --> 00:26:43,680 Speaker 9: to rise as much as the FED expects. Right when 474 00:26:43,680 --> 00:26:46,000 Speaker 9: we're at three point four percent, the Fed's looking for 475 00:26:46,040 --> 00:26:47,840 Speaker 9: a percentage point increase. Bet we're now in the end 476 00:26:47,880 --> 00:26:50,600 Speaker 9: of the year. I don't really see anything in the 477 00:26:50,600 --> 00:26:53,600 Speaker 9: outlook that justifies that kind of a move. So you 478 00:26:53,680 --> 00:26:57,640 Speaker 9: could be well, coming back in September talking about maybe 479 00:26:57,640 --> 00:27:01,360 Speaker 9: they're revising down their unemployment forecast, maybe there taking up GDP, 480 00:27:02,520 --> 00:27:06,520 Speaker 9: and that could you know, push them towards hiking again. 481 00:27:06,720 --> 00:27:08,719 Speaker 2: It's difficult to know what's going to happen in the future. 482 00:27:09,080 --> 00:27:11,359 Speaker 2: It's incredibly difficult to even know what's happening right now 483 00:27:11,440 --> 00:27:14,200 Speaker 2: because the signals are muddied, and perhaps you disagree. I'd 484 00:27:14,200 --> 00:27:17,240 Speaker 2: love the argument, but I do see that, for example, 485 00:27:17,280 --> 00:27:20,720 Speaker 2: the Senior Loan Officer survey to me, even though perhaps 486 00:27:21,400 --> 00:27:24,120 Speaker 2: nothing was that surprising with credit tightening, we did see 487 00:27:24,119 --> 00:27:26,919 Speaker 2: a huge drop off in demand. Again, the c suite 488 00:27:26,960 --> 00:27:30,000 Speaker 2: confidence factor not there or else not willing to pay 489 00:27:30,000 --> 00:27:32,600 Speaker 2: for the credit. And when you look at optimism among 490 00:27:32,640 --> 00:27:35,640 Speaker 2: business executives and anecdotally they say, we are very concerned 491 00:27:35,880 --> 00:27:38,040 Speaker 2: about what's coming down the pike, about inflation, about how 492 00:27:38,080 --> 00:27:40,520 Speaker 2: much we have to pay our workers, about our squeezed margins. 493 00:27:40,560 --> 00:27:43,840 Speaker 2: So how do you pair these ideas with the strength 494 00:27:43,840 --> 00:27:46,480 Speaker 2: that we're seeing in the overall kind of numbers that 495 00:27:46,520 --> 00:27:48,920 Speaker 2: we're getting out of these sort of regular surveys. 496 00:27:49,000 --> 00:27:54,160 Speaker 9: I mean, CEO confidence and business confidence more generally has 497 00:27:54,240 --> 00:27:59,320 Speaker 9: been quite sluggish pretty much since last June, and companies 498 00:27:59,359 --> 00:28:03,239 Speaker 9: have been slowly cutting back cap X inventories have been 499 00:28:03,240 --> 00:28:06,280 Speaker 9: a significant drag on growth over the last year so, 500 00:28:07,520 --> 00:28:10,199 Speaker 9: and consumers have been you know, their confidence has been 501 00:28:10,240 --> 00:28:15,080 Speaker 9: pretty weak also. But ultimately, to me, it's what are 502 00:28:15,119 --> 00:28:19,359 Speaker 9: they actually doing? Companies are still hiring people, right, I 503 00:28:19,400 --> 00:28:23,440 Speaker 9: mean this, you know, these depressed businesses, they're still going 504 00:28:23,440 --> 00:28:27,560 Speaker 9: out and hiring two hundred thousand people a month every month, 505 00:28:27,920 --> 00:28:30,760 Speaker 9: if you know, for the last three months, if you 506 00:28:30,840 --> 00:28:33,119 Speaker 9: I mean, the hiring it rate is basically stable at 507 00:28:33,119 --> 00:28:37,880 Speaker 9: around four percent. You know, see, you haven't really seen, right, 508 00:28:37,920 --> 00:28:41,160 Speaker 9: So there's a disconnect between how people say they may 509 00:28:41,200 --> 00:28:44,040 Speaker 9: feel about things, but what they're actually going on and doing. 510 00:28:44,280 --> 00:28:46,560 Speaker 9: And I'm more concerned about what people are actually doing. 511 00:28:46,640 --> 00:28:49,480 Speaker 2: Although you did see that businesses are not engaging in 512 00:28:49,560 --> 00:28:52,880 Speaker 2: mergers and acquisitions. They're not doing capital expenditures, which directly 513 00:28:52,920 --> 00:28:56,840 Speaker 2: goes into economic trajectory. They're not pulling the deal on 514 00:28:57,240 --> 00:28:59,280 Speaker 2: pulling the trigger on things, right, which has been one 515 00:28:59,280 --> 00:29:00,440 Speaker 2: of the things the reason some. 516 00:29:00,360 --> 00:29:02,800 Speaker 9: Things will get clipped Lisa in a higher interest rate 517 00:29:02,960 --> 00:29:06,560 Speaker 9: environment like M and A. But you know, I mean 518 00:29:06,880 --> 00:29:10,360 Speaker 9: you talk about cap X, I mean talk to I 519 00:29:10,400 --> 00:29:13,080 Speaker 9: mean Boeing orders are going up, right, Boeing production is 520 00:29:13,080 --> 00:29:14,440 Speaker 9: going to go up. That's going to be a huge 521 00:29:14,480 --> 00:29:17,360 Speaker 9: telement for transportation equipment, right, I mean that those are 522 00:29:17,400 --> 00:29:22,000 Speaker 9: capital goods, those are big ticket purchases. So but again, 523 00:29:22,120 --> 00:29:24,760 Speaker 9: it's not that the economy has to be booming here, right, 524 00:29:24,760 --> 00:29:28,320 Speaker 9: So there's this sort of there's this expectation that oh, 525 00:29:28,360 --> 00:29:30,480 Speaker 9: you know, GDP needs to be like three percent. No, 526 00:29:30,600 --> 00:29:33,840 Speaker 9: it doesn't. I mean the issue is where's the consensus 527 00:29:33,840 --> 00:29:36,760 Speaker 9: thinking it's going to be right? And to me, look, 528 00:29:36,800 --> 00:29:39,800 Speaker 9: the FEDS forecast is zero point four percent Q four 529 00:29:39,880 --> 00:29:45,600 Speaker 9: Q four this year. That's highly unlikely just given what 530 00:29:45,640 --> 00:29:47,840 Speaker 9: we have on hand for the for the second quarter. 531 00:29:48,400 --> 00:29:51,960 Speaker 2: We're talking about the short term or the relatively near 532 00:29:52,040 --> 00:29:55,720 Speaker 2: term in terms of growth continuing longer term, there is 533 00:29:55,760 --> 00:29:58,280 Speaker 2: this question of whether we're bringing forward growth, especially in 534 00:29:58,360 --> 00:30:00,800 Speaker 2: light of what everyone loves to talk about, the debt 535 00:30:00,800 --> 00:30:02,920 Speaker 2: ceiling debate, which we've been talking about all morning, and 536 00:30:02,960 --> 00:30:05,040 Speaker 2: this question of whether they're going to be cutting spending 537 00:30:05,120 --> 00:30:07,320 Speaker 2: going forward. How do you sort of pair the short 538 00:30:07,400 --> 00:30:09,960 Speaker 2: term versus the long term, the short term optimism in 539 00:30:10,280 --> 00:30:15,440 Speaker 2: ongoing strength in the economy versus long term perhaps sluggishness. 540 00:30:15,520 --> 00:30:17,480 Speaker 9: Yeah, I mean I think so, right, I mean that's 541 00:30:18,280 --> 00:30:22,040 Speaker 9: I think my primary I guess disagreement with the consensus 542 00:30:22,120 --> 00:30:24,200 Speaker 9: is really over the timing, right. I mean, I don't 543 00:30:24,200 --> 00:30:27,880 Speaker 9: see a recession as imminent. I don't see one as 544 00:30:28,000 --> 00:30:29,920 Speaker 9: likely at any point in the next you know, let's say, 545 00:30:29,920 --> 00:30:33,520 Speaker 9: twelve months. But the FED has told us that they 546 00:30:33,560 --> 00:30:36,360 Speaker 9: believe a period of below trend growth is required to 547 00:30:36,480 --> 00:30:40,160 Speaker 9: quell the inflation issue. So that's where the caution comes from. 548 00:30:40,160 --> 00:30:42,240 Speaker 9: So I think if you want to be honest with yourself, 549 00:30:43,200 --> 00:30:46,200 Speaker 9: you know, ultimately there's going to be some kind of 550 00:30:46,240 --> 00:30:49,520 Speaker 9: economic slump that's out there that the FED will try 551 00:30:49,520 --> 00:30:53,200 Speaker 9: to engineer to bring inflation back towards its target. If 552 00:30:53,240 --> 00:30:55,360 Speaker 9: you really believe in the soft landing at this point, 553 00:30:55,560 --> 00:30:58,280 Speaker 9: you need to be hanging your hat on two things. 554 00:30:58,920 --> 00:31:02,200 Speaker 9: Number one, some kind of productivity boom that brings unit 555 00:31:02,280 --> 00:31:07,719 Speaker 9: labor costs down, or you know, the FED basically accepts 556 00:31:07,760 --> 00:31:10,360 Speaker 9: the higher rate of inflation, and I don't see either 557 00:31:10,520 --> 00:31:15,040 Speaker 9: as as a baseline expectation going forward. So again it's 558 00:31:15,080 --> 00:31:17,840 Speaker 9: it's about the momentum in the economy right now. To me, 559 00:31:18,000 --> 00:31:21,640 Speaker 9: that doesn't speak to a recession. But as I said, 560 00:31:21,680 --> 00:31:24,320 Speaker 9: the FED still believes that below trend growth is required 561 00:31:24,360 --> 00:31:26,600 Speaker 9: to quality inflation issues. So to me, that that that 562 00:31:26,680 --> 00:31:28,560 Speaker 9: leaves you know, you have to kind of stay cautious. 563 00:31:28,600 --> 00:31:30,640 Speaker 9: I mean, I know, it's not it's not. It's sort 564 00:31:30,640 --> 00:31:33,440 Speaker 9: of a it's a difficult environment, I think for for 565 00:31:33,560 --> 00:31:37,680 Speaker 9: investors because it's hard to be sort of sustainable, sustainably 566 00:31:37,720 --> 00:31:40,920 Speaker 9: optimistic on equities here, right, So I think that that 567 00:31:40,920 --> 00:31:42,240 Speaker 9: that's part of the frustration. 568 00:31:42,840 --> 00:31:44,840 Speaker 2: Just before you go, I would love your thoughts on 569 00:31:44,880 --> 00:31:47,880 Speaker 2: the debt ceiling and what we're seeing and the excitement 570 00:31:48,400 --> 00:31:50,320 Speaker 2: that you expect in markets as a response. 571 00:31:51,800 --> 00:31:53,280 Speaker 9: I mean, that's sort of a bit. I mean, I 572 00:31:53,320 --> 00:31:57,280 Speaker 9: think we're going through a very public and open negotiation 573 00:31:57,680 --> 00:32:02,440 Speaker 9: from both sides politically, whether the deadline's actually June first 574 00:32:02,600 --> 00:32:06,800 Speaker 9: or not. I think the House Republicans have done what 575 00:32:06,840 --> 00:32:09,360 Speaker 9: they needed to do. I think the administration is doing 576 00:32:09,360 --> 00:32:12,360 Speaker 9: what they need to do, and I think ultimately there 577 00:32:12,360 --> 00:32:16,200 Speaker 9: will be some sort of negotiation that that that resolves 578 00:32:16,240 --> 00:32:19,120 Speaker 9: the issue. I mean, to me, it's not a binary thing, right, 579 00:32:19,200 --> 00:32:21,520 Speaker 9: I mean, you either go over the cliff or not. 580 00:32:21,720 --> 00:32:26,000 Speaker 9: I suspect they won't, And if they do get to 581 00:32:26,040 --> 00:32:28,680 Speaker 9: a point where they're prioritizing payments, I mean, that'll be 582 00:32:28,720 --> 00:32:32,040 Speaker 9: an opportunity to be buying bonds because I mean basically 583 00:32:32,240 --> 00:32:34,600 Speaker 9: you're basically forcing a recession on the economy over the 584 00:32:34,640 --> 00:32:35,680 Speaker 9: summer at that point. 585 00:32:35,520 --> 00:32:37,040 Speaker 1: So you don't think longer term. 586 00:32:37,040 --> 00:32:38,520 Speaker 2: And this is where I wanted to go, that this 587 00:32:38,600 --> 00:32:42,600 Speaker 2: will reduce the US as ability to borrow cheaply and 588 00:32:42,680 --> 00:32:45,160 Speaker 2: the ability for the dollar to be used globally in 589 00:32:45,280 --> 00:32:45,720 Speaker 2: sort of the. 590 00:32:46,000 --> 00:32:49,160 Speaker 9: What's the alternative, it's what's the alternative? I don't, I don't. 591 00:32:49,280 --> 00:32:50,719 Speaker 9: I mean, this is just I mean to me, it's 592 00:32:50,760 --> 00:32:53,960 Speaker 9: it's it's political rancoring. We'll see, we'll see what happens. 593 00:32:53,960 --> 00:32:57,360 Speaker 9: But I don't. I don't really subscribe to those ideas. 594 00:32:57,560 --> 00:33:00,320 Speaker 2: So is this basically the most fun time you've ever 595 00:33:00,360 --> 00:33:01,600 Speaker 2: had as an economist? 596 00:33:03,840 --> 00:33:06,360 Speaker 9: No, the most fun time actually was one. The job 597 00:33:06,440 --> 00:33:09,880 Speaker 9: was a lot easier in the period immediately following the 598 00:33:09,880 --> 00:33:13,120 Speaker 9: financial crisis, right, I mean, because back then it was 599 00:33:13,600 --> 00:33:16,720 Speaker 9: everyone was looking for recession literally every you know, it's 600 00:33:16,720 --> 00:33:18,600 Speaker 9: around the corner, two years away, and it was never 601 00:33:18,800 --> 00:33:21,520 Speaker 9: it was never really in the cards for that entire cycle. 602 00:33:21,640 --> 00:33:24,280 Speaker 9: And pushing back on that was actually quite easy, and 603 00:33:24,680 --> 00:33:27,440 Speaker 9: the data easily bore that out. Now it's actually quite 604 00:33:27,520 --> 00:33:29,880 Speaker 9: challenging because there are so many mixed signals. And I 605 00:33:29,960 --> 00:33:31,440 Speaker 9: prefer much easier job than not. 606 00:33:31,560 --> 00:33:33,200 Speaker 1: So I think a lot of people would agree with you. 607 00:33:33,240 --> 00:33:36,040 Speaker 1: Neil Zada, thank you so much of renaissance macro research. 608 00:33:36,040 --> 00:33:37,200 Speaker 1: We really appreciate it. 609 00:33:47,440 --> 00:33:50,880 Speaker 2: Helene Becker joins us now to talk about how long's continue, 610 00:33:50,880 --> 00:33:52,720 Speaker 2: whether margins just keep expanding, and when we start to 611 00:33:52,720 --> 00:33:54,960 Speaker 2: get some of the pushback that we heard from the 612 00:33:55,080 --> 00:33:58,680 Speaker 2: likes of President Biden himself yesterday. Helene Becker, Senior research 613 00:33:58,760 --> 00:34:01,680 Speaker 2: analyst at Cowen, so's to start there, why has it 614 00:34:01,720 --> 00:34:04,400 Speaker 2: been that consumers are not pushing back more to these 615 00:34:04,400 --> 00:34:05,640 Speaker 2: incredible price increases. 616 00:34:06,760 --> 00:34:09,400 Speaker 10: Well, I think there are two reasons, Lisa. The first 617 00:34:09,640 --> 00:34:12,799 Speaker 10: is that a year ago, in the first quarter, there 618 00:34:12,920 --> 00:34:16,600 Speaker 10: was still omicron, so that was one issue. And then 619 00:34:16,640 --> 00:34:20,960 Speaker 10: the second issue has a lot to do with summer travel, 620 00:34:21,120 --> 00:34:25,600 Speaker 10: especially international travel, because remember a year ago, the US 621 00:34:25,640 --> 00:34:31,040 Speaker 10: didn't remove restrictions until June eleventh, and a lot of 622 00:34:31,040 --> 00:34:34,040 Speaker 10: people had already missed. Summer trips are planned between mid 623 00:34:34,080 --> 00:34:36,839 Speaker 10: May and mid March, actually the other way around, right 624 00:34:36,880 --> 00:34:41,399 Speaker 10: March in May, and they had already decided where they 625 00:34:41,400 --> 00:34:44,000 Speaker 10: were going, and a lot of stuff wasn't open yet. 626 00:34:44,040 --> 00:34:48,360 Speaker 10: So now everything is open. People are tired of being home, 627 00:34:48,680 --> 00:34:51,600 Speaker 10: they want to travel. They feel like they've missed out 628 00:34:51,640 --> 00:34:54,680 Speaker 10: on a lot in there, and they're going. And you 629 00:34:54,840 --> 00:34:58,799 Speaker 10: have huge, huge demand where we're about equal to where 630 00:34:58,840 --> 00:35:04,319 Speaker 10: we were in twenty nineteen, but we have between ten 631 00:35:04,360 --> 00:35:09,200 Speaker 10: and twenty percent fewer seats available, and the result is 632 00:35:09,239 --> 00:35:14,120 Speaker 10: that with demand, even with business travel and international not 633 00:35:14,239 --> 00:35:18,680 Speaker 10: being one hundred percent back, with demand being so strong 634 00:35:18,760 --> 00:35:22,960 Speaker 10: and exceeding supply, airlines are pushing up bears and we'll 635 00:35:23,000 --> 00:35:25,839 Speaker 10: continue to do so until there's significant pushback. 636 00:35:26,080 --> 00:35:28,279 Speaker 1: And you're not seeing any significant pushback so far. 637 00:35:29,239 --> 00:35:31,479 Speaker 10: I'm not seeing it in the summer months, for sure. 638 00:35:32,640 --> 00:35:35,720 Speaker 10: I'm a little worried about once we get past Labor 639 00:35:35,840 --> 00:35:40,600 Speaker 10: Day in general, because we normally see a dip. But 640 00:35:40,880 --> 00:35:44,000 Speaker 10: also I'm a little worried because I think by then 641 00:35:44,120 --> 00:35:48,880 Speaker 10: people may be exhausted by the prices. And of course 642 00:35:48,880 --> 00:35:51,600 Speaker 10: we don't think this summer is going to be significantly 643 00:35:51,640 --> 00:35:54,280 Speaker 10: better than last summer, especially in the New York area 644 00:35:54,360 --> 00:35:58,399 Speaker 10: where we have a decided lack of air traffic controllers. 645 00:35:58,920 --> 00:36:01,760 Speaker 10: And the government and ask the airlines if they would 646 00:36:01,760 --> 00:36:08,120 Speaker 10: help by reducing capacity in the market. And most of 647 00:36:08,160 --> 00:36:12,160 Speaker 10: the airlines who are operating now have employment that exceeds 648 00:36:12,280 --> 00:36:15,640 Speaker 10: their pre pandemic levels, so the airlines were ready, the 649 00:36:15,680 --> 00:36:16,520 Speaker 10: government is not. 650 00:36:17,080 --> 00:36:19,640 Speaker 2: How much are we looking at a real divergence between 651 00:36:19,719 --> 00:36:23,200 Speaker 2: the international airlines versus the more domestic airlines, And I ask, 652 00:36:23,960 --> 00:36:27,200 Speaker 2: with also a focus on first class, which is commanding 653 00:36:27,239 --> 00:36:31,879 Speaker 2: the biggest premium in years relative to economy. How much 654 00:36:32,080 --> 00:36:35,280 Speaker 2: is really the gains that we have seen entirely driven 655 00:36:35,800 --> 00:36:39,400 Speaker 2: by that international flight path the traveler that has that 656 00:36:39,480 --> 00:36:40,840 Speaker 2: much more discretionary spending. 657 00:36:41,880 --> 00:36:46,600 Speaker 10: So, Lisa, we're seeing international outbound very strong from the US, 658 00:36:46,760 --> 00:36:50,040 Speaker 10: I think because the dollar has been relatively strong. Inbound 659 00:36:50,080 --> 00:36:54,840 Speaker 10: we're still down versus where we were, but outbound were above. 660 00:36:54,960 --> 00:36:57,160 Speaker 10: So I think that's one thing. I think the other 661 00:36:57,200 --> 00:37:02,279 Speaker 10: part of your question with respect to how the divergence 662 00:37:02,320 --> 00:37:05,759 Speaker 10: between the two, you know, I think that's definitely a 663 00:37:05,800 --> 00:37:10,359 Speaker 10: summer twenty twenty three event, maybe into twenty four when 664 00:37:10,400 --> 00:37:14,759 Speaker 10: you get to Asia Pacific which is reopening now, and 665 00:37:14,800 --> 00:37:18,200 Speaker 10: then domestic, I don't know. Maybe people will be so 666 00:37:18,320 --> 00:37:22,000 Speaker 10: overwhelmed by the price of some tickets that they'll pivot 667 00:37:22,160 --> 00:37:26,280 Speaker 10: and either shift days that they travel, or shift location 668 00:37:26,600 --> 00:37:29,440 Speaker 10: instead of going to Europe because fares are so high, 669 00:37:29,920 --> 00:37:34,759 Speaker 10: maybe go to Latin America, Northern South America. Domestic, I 670 00:37:34,760 --> 00:37:38,279 Speaker 10: think you'll see some of that pivoting because of the 671 00:37:38,280 --> 00:37:39,400 Speaker 10: differential in fairs. 672 00:37:39,760 --> 00:37:41,719 Speaker 2: Do you think that there's going to be some sort 673 00:37:41,719 --> 00:37:44,160 Speaker 2: of decline in business travel or is it coming back 674 00:37:44,480 --> 00:37:46,520 Speaker 2: nearly to the level that it was pre pandemic or 675 00:37:46,520 --> 00:37:48,840 Speaker 2: even more because people are just working from home and 676 00:37:48,880 --> 00:37:50,640 Speaker 2: then traveling right. 677 00:37:51,320 --> 00:37:53,960 Speaker 10: So I don't know the specific answer to that question, 678 00:37:54,040 --> 00:37:57,839 Speaker 10: because my thought has been that business travel will come 679 00:37:57,880 --> 00:38:01,719 Speaker 10: back in different measures, so you need to see your 680 00:38:01,760 --> 00:38:05,080 Speaker 10: clients after a while. Zoom calls don't cut it. Number one. 681 00:38:05,200 --> 00:38:08,919 Speaker 10: Number two, when you get to time zone differences. It's 682 00:38:08,960 --> 00:38:13,840 Speaker 10: one thing to be US East Coast to London or 683 00:38:13,880 --> 00:38:16,239 Speaker 10: western Europe, where you're dealing with a five or six 684 00:38:16,280 --> 00:38:18,920 Speaker 10: hour time change. You can kind of make that work. 685 00:38:19,120 --> 00:38:21,120 Speaker 10: But when you start to get into the nine hour 686 00:38:21,200 --> 00:38:23,759 Speaker 10: time changes that exist in the middle of the East, 687 00:38:23,920 --> 00:38:29,520 Speaker 10: or fifteen hours or twelve hours that exist to Asia, Australia, Japan, 688 00:38:31,520 --> 00:38:34,520 Speaker 10: I think people realize it's hard to do zoom calls 689 00:38:34,560 --> 00:38:38,319 Speaker 10: at one o'clock in the morning for somebody while they're 690 00:38:38,360 --> 00:38:42,239 Speaker 10: doing these calls. So I think at some point it 691 00:38:42,280 --> 00:38:44,839 Speaker 10: does start to come back. We've thought that it would 692 00:38:44,840 --> 00:38:49,040 Speaker 10: be international business would be would come back faster than domestic, 693 00:38:49,360 --> 00:38:51,880 Speaker 10: But I think the days of if it's Tuesday, it 694 00:38:51,960 --> 00:38:55,000 Speaker 10: must be Rome kind of thing are past us, and 695 00:38:55,560 --> 00:38:58,319 Speaker 10: to the extent you might have a meeting that would 696 00:38:58,360 --> 00:39:01,719 Speaker 10: be three hours long. You can probably get away with 697 00:39:01,840 --> 00:39:05,759 Speaker 10: a one hour or two one hour zoom calls, not 698 00:39:05,840 --> 00:39:09,239 Speaker 10: necessarily back to back. But I remember days when I 699 00:39:09,320 --> 00:39:11,640 Speaker 10: flew to London for due diligence and flew home the 700 00:39:11,680 --> 00:39:14,200 Speaker 10: next you know, the same day, land in the morning, 701 00:39:14,239 --> 00:39:15,880 Speaker 10: fly home at night. I mean, that kind of stuff 702 00:39:15,920 --> 00:39:16,920 Speaker 10: isn't happening anymore. 703 00:39:17,040 --> 00:39:19,480 Speaker 2: How much are we seeing, actually the resurgence of the 704 00:39:19,560 --> 00:39:21,840 Speaker 2: Chinese economy percolate into air travel. 705 00:39:22,719 --> 00:39:25,400 Speaker 10: Yeah, not yet. So what you're seeing is what we 706 00:39:25,680 --> 00:39:31,120 Speaker 10: experienced in the US. You see domestic first, So Golden Week, 707 00:39:31,160 --> 00:39:33,279 Speaker 10: as I understand it was fairly strong. We should get 708 00:39:33,320 --> 00:39:38,760 Speaker 10: the numbers tonight or tomorrow, but last week was a 709 00:39:38,880 --> 00:39:42,440 Speaker 10: very strong week for them. Domestic international hasn't come back 710 00:39:42,520 --> 00:39:45,840 Speaker 10: yet because the flights haven't come back. In twenty sixteen, 711 00:39:45,880 --> 00:39:47,960 Speaker 10: there were over one hundred flights a week between the 712 00:39:48,040 --> 00:39:51,719 Speaker 10: US and China and more between China and Europe, and 713 00:39:52,160 --> 00:39:55,160 Speaker 10: now there are fourteen between the US and China. So 714 00:39:55,360 --> 00:39:59,120 Speaker 10: flights haven't come back yet. And until that happens, which 715 00:39:59,200 --> 00:40:02,160 Speaker 10: was probably a twenty four event at the earliest, given 716 00:40:02,200 --> 00:40:05,640 Speaker 10: the political situation, maybe even later. I don't think you're 717 00:40:05,640 --> 00:40:09,000 Speaker 10: going to see that that dynamic come back. From a 718 00:40:09,000 --> 00:40:11,759 Speaker 10: tourist perspective, I think what you'll see, and what you're 719 00:40:11,800 --> 00:40:15,560 Speaker 10: probably seeing right now is family travel people who haven't 720 00:40:15,600 --> 00:40:17,640 Speaker 10: seen family in a couple of years because of the 721 00:40:17,760 --> 00:40:21,399 Speaker 10: Chinese COVID policy which had the country virtually shut down. 722 00:40:22,160 --> 00:40:25,000 Speaker 10: I think you see students making their way back home 723 00:40:25,320 --> 00:40:28,759 Speaker 10: who maybe were trapped outside of China. But I think 724 00:40:28,760 --> 00:40:32,359 Speaker 10: it's domestic is where you're seeing the strength versus international. 725 00:40:32,760 --> 00:40:35,200 Speaker 2: Just real quick, here we see oil prices coming down, 726 00:40:35,280 --> 00:40:38,359 Speaker 2: which means that a lot of the margins probably will 727 00:40:38,360 --> 00:40:41,840 Speaker 2: only expand. At what point do the widening margins become 728 00:40:41,880 --> 00:40:44,840 Speaker 2: a political liability for some of the airline companies that 729 00:40:44,920 --> 00:40:47,680 Speaker 2: are facing a lot of criticisms about the experience. 730 00:40:48,400 --> 00:40:51,160 Speaker 10: Yeah, I think that's a great question, Lisa. So I 731 00:40:51,200 --> 00:40:54,400 Speaker 10: think a couple of things. Fuel prices come down, typically 732 00:40:54,760 --> 00:40:57,480 Speaker 10: ticket prices follow with something like a three to four 733 00:40:57,480 --> 00:41:00,640 Speaker 10: month lag in both directions. So that's one thing to 734 00:41:00,680 --> 00:41:03,400 Speaker 10: think about. Oil prices come down. If oil prices are 735 00:41:03,400 --> 00:41:06,560 Speaker 10: coming down because we're in a recession, that should bring 736 00:41:06,640 --> 00:41:08,759 Speaker 10: ticket prices down as well, maybe take some of the 737 00:41:08,800 --> 00:41:10,960 Speaker 10: pressure off the airlines. The airlines do a really good 738 00:41:11,040 --> 00:41:15,000 Speaker 10: job this summer, probably remove some political pressure. I mean, 739 00:41:15,040 --> 00:41:18,000 Speaker 10: the airlines are one of those industries everybody loves to hate, 740 00:41:18,040 --> 00:41:20,920 Speaker 10: and even though it brings people together, even though to 741 00:41:20,960 --> 00:41:24,080 Speaker 10: have a good economy you need a robust airline industry, 742 00:41:25,480 --> 00:41:28,040 Speaker 10: it's one of those industries everybody likes to pick on, 743 00:41:28,360 --> 00:41:31,799 Speaker 10: and so they really need to do a better job 744 00:41:31,840 --> 00:41:34,320 Speaker 10: than they're doing. And I think you'll I mean, I 745 00:41:34,360 --> 00:41:36,799 Speaker 10: guess we're kind of hoping all that that's not a strategy. 746 00:41:37,440 --> 00:41:40,800 Speaker 10: I think we're thinking that as they invest in technology, 747 00:41:41,600 --> 00:41:45,879 Speaker 10: things will start to improve for them. But certainly the 748 00:41:46,000 --> 00:41:50,239 Speaker 10: lack of seats is a problem in terms of recovery 749 00:41:50,360 --> 00:41:53,200 Speaker 10: from irregular operations. So a lot, kind of a lot 750 00:41:53,239 --> 00:41:55,120 Speaker 10: to unpack there. At least that you asked a great question. 751 00:41:55,840 --> 00:41:57,600 Speaker 1: Well thanks, Elaine Becker of Gowan. 752 00:41:58,040 --> 00:42:01,880 Speaker 2: Subscribe the Bloomberg Surveillance Podcast on Apple, Spotify and anywhere 753 00:42:01,920 --> 00:42:05,280 Speaker 2: else you get your podcasts. Listen live every weekday starting 754 00:42:05,320 --> 00:42:08,400 Speaker 2: at seven am Eastern on Bloomberg dot Com, the iHeartRadio 755 00:42:08,440 --> 00:42:11,000 Speaker 2: app tune In, and the Bloomberg Business app. 756 00:42:11,280 --> 00:42:12,320 Speaker 1: You can watch us. 757 00:42:12,200 --> 00:42:15,720 Speaker 2: Live on Bloomberg Television and always on the Bloomberg terminal 758 00:42:15,920 --> 00:42:16,800 Speaker 2: thanks for listening. 759 00:42:16,840 --> 00:42:19,200 Speaker 1: I'm Lisa Abramowitz and this is Bloomberg