1 00:00:05,120 --> 00:00:09,200 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 2 00:00:09,200 --> 00:00:13,080 Speaker 1: with Jonathan Ferrell and Lisa A. Brawmowitz Jailey. We bring 3 00:00:13,119 --> 00:00:17,159 Speaker 1: you insight from the best and economics, finance, investment, and 4 00:00:17,239 --> 00:00:23,280 Speaker 1: international relations. Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg 5 00:00:23,360 --> 00:00:29,320 Speaker 1: dot Com, and of course, on the Bloomberg Terminal. How 6 00:00:29,360 --> 00:00:34,440 Speaker 1: do you prepare for how do you wrap up this year? Um, 7 00:00:34,520 --> 00:00:37,040 Speaker 1: let's bring in Katherine Rooney Vera to talk about that. 8 00:00:37,080 --> 00:00:40,080 Speaker 1: She is the head of Global macro research at Boltic, 9 00:00:40,240 --> 00:00:42,920 Speaker 1: so she's one of those top down people. UM. Kathan, 10 00:00:42,920 --> 00:00:45,120 Speaker 1: thanks so much for joining us, coming into the studio 11 00:00:45,159 --> 00:00:49,640 Speaker 1: and cold, dark and wet New York. Are you from Miami? 12 00:00:49,880 --> 00:00:52,279 Speaker 1: I'm from New Jersey, but I live in You live 13 00:00:52,280 --> 00:00:54,600 Speaker 1: in Miami, which would probably rather be in Miami. I'd 14 00:00:54,680 --> 00:00:59,560 Speaker 1: rather be there as well. So what do you think about? UM, 15 00:00:59,600 --> 00:01:03,080 Speaker 1: you know this conundrum. We're at a point where it 16 00:01:03,120 --> 00:01:06,520 Speaker 1: doesn't seem like a recession really is even priced in yet, 17 00:01:06,760 --> 00:01:10,600 Speaker 1: and that's pretty crazy given that everyone expects a recession. Yeah, 18 00:01:10,640 --> 00:01:13,679 Speaker 1: I think we're already beyond talking about recession and everyone's 19 00:01:13,720 --> 00:01:17,080 Speaker 1: talking about recovery before recession. Has actually happened, and something 20 00:01:17,160 --> 00:01:20,360 Speaker 1: Kayleie mentioned it's all about inflation. Yes, it's about inflation, 21 00:01:20,440 --> 00:01:22,520 Speaker 1: but for me, it's all about the labor market because 22 00:01:22,560 --> 00:01:27,160 Speaker 1: the labor market remains so strong and five six um 23 00:01:28,080 --> 00:01:31,440 Speaker 1: increases in salaries are not commensurate with a two percent 24 00:01:31,480 --> 00:01:33,920 Speaker 1: inflation target. So my view, and you and I have 25 00:01:33,920 --> 00:01:37,839 Speaker 1: talked about this previously, Kaylee, is that the FED knows, 26 00:01:37,959 --> 00:01:40,520 Speaker 1: in my view, that it has to get unemployment higher, 27 00:01:40,560 --> 00:01:44,399 Speaker 1: and that it's horrible to say. Um. But by the way, 28 00:01:44,400 --> 00:01:46,280 Speaker 1: we're gonna talk with Cloudy Asam a little bit later. 29 00:01:46,319 --> 00:01:50,200 Speaker 1: She of the Psalm rule, and she thinks that's a 30 00:01:50,240 --> 00:01:53,560 Speaker 1: mistake to to to think to argue that, you know, 31 00:01:53,600 --> 00:01:57,040 Speaker 1: the Phillips curve um still alive and well, and you've 32 00:01:57,040 --> 00:02:00,560 Speaker 1: got to push up unemployment in order to pull down inflations. Well, 33 00:02:00,600 --> 00:02:02,840 Speaker 1: I'd like to hear her view on where the NEHRU 34 00:02:03,440 --> 00:02:06,560 Speaker 1: is right now. Um, I think it's around four pot. 35 00:02:07,240 --> 00:02:11,000 Speaker 1: You know, we're at three point seven. So so for 36 00:02:11,080 --> 00:02:13,919 Speaker 1: the natural level of unemployment, if it is in fact 37 00:02:13,960 --> 00:02:17,200 Speaker 1: four point nine percent, anything below that is in fact inflationary, 38 00:02:17,280 --> 00:02:20,560 Speaker 1: So we're we're what's her view on wage price spiral? UM? 39 00:02:20,600 --> 00:02:23,919 Speaker 1: You know, if we look at and I'm writing these questions, 40 00:02:25,320 --> 00:02:29,680 Speaker 1: look at history UM and unemployment move of of that 41 00:02:29,760 --> 00:02:34,360 Speaker 1: amount has never not coincided with an economy already in 42 00:02:34,480 --> 00:02:38,240 Speaker 1: recession UM. So I think that's important to note. The 43 00:02:38,280 --> 00:02:40,640 Speaker 1: yield curve is pricing in recession. We know that, but 44 00:02:41,120 --> 00:02:44,680 Speaker 1: there could be a normalization next year. And my thing is, 45 00:02:45,400 --> 00:02:48,640 Speaker 1: you know, everyone's talking about how the ft isn't gonna cut, 46 00:02:48,680 --> 00:02:51,880 Speaker 1: But if you look also at history the past four 47 00:02:51,880 --> 00:02:57,960 Speaker 1: team monetary cycles, the last hike versus the first cut, 48 00:02:58,000 --> 00:03:00,720 Speaker 1: that timing is much shorter than you think. It's on 49 00:03:00,840 --> 00:03:04,239 Speaker 1: average four months. Okay, so maybe historically that is true. 50 00:03:04,240 --> 00:03:06,040 Speaker 1: But if you listen to the Federal Reserve and Chairman 51 00:03:06,080 --> 00:03:08,320 Speaker 1: Pal now, they are saying we are not going to 52 00:03:08,360 --> 00:03:10,560 Speaker 1: do that. We are talking higher for longer. We are 53 00:03:10,600 --> 00:03:13,440 Speaker 1: not giving up until inflation is back to our target, 54 00:03:13,440 --> 00:03:15,160 Speaker 1: which right now is two per cent. So even if 55 00:03:15,200 --> 00:03:18,600 Speaker 1: inflation is cooling, we are still far far away from that. 56 00:03:18,919 --> 00:03:21,720 Speaker 1: What gives you the conviction that the Fed is actually 57 00:03:21,760 --> 00:03:24,840 Speaker 1: not going to tolerate the weakness in the labor market 58 00:03:24,840 --> 00:03:27,080 Speaker 1: and in the broader economy as they say they will, 59 00:03:27,200 --> 00:03:30,840 Speaker 1: and have to make that pivot well, I think it's 60 00:03:30,880 --> 00:03:33,560 Speaker 1: going to have to come down to how far the 61 00:03:33,680 --> 00:03:37,200 Speaker 1: labor market rules over. So I think unemployment goes to four. 62 00:03:38,160 --> 00:03:41,480 Speaker 1: That's the neighru you know, it's hard to estimate, but 63 00:03:43,280 --> 00:03:45,960 Speaker 1: thot seven in unemployment. So I do think the FED 64 00:03:46,040 --> 00:03:48,720 Speaker 1: needs to force the labor markets roll over because their 65 00:03:48,720 --> 00:03:50,960 Speaker 1: supply side forces and their demand side. We all talk 66 00:03:51,000 --> 00:03:53,160 Speaker 1: about both of them. The supply side forces are improving. 67 00:03:53,480 --> 00:03:57,600 Speaker 1: You know, used car lots are packed now, I've seen 68 00:03:57,640 --> 00:04:00,680 Speaker 1: prices come down considerably. She knows us hearing what you'll 69 00:04:00,720 --> 00:04:05,040 Speaker 1: respond to passively. I know you love um. So, so 70 00:04:05,080 --> 00:04:07,920 Speaker 1: I do think supply side forces are improving. Um, you 71 00:04:08,000 --> 00:04:10,480 Speaker 1: have China reopening, which you guys are talking all morning about, 72 00:04:10,560 --> 00:04:14,320 Speaker 1: especially you've been up so early. Um. But demand side 73 00:04:14,480 --> 00:04:16,960 Speaker 1: really hasn't taken that hit yet. By the way, we 74 00:04:17,360 --> 00:04:21,360 Speaker 1: also got a one point seven trillion dollar omnibus in 75 00:04:21,440 --> 00:04:23,960 Speaker 1: my notes to talk about as well. So we do 76 00:04:24,040 --> 00:04:28,720 Speaker 1: have inflationary impulses, but that's going to aggravate the demand side, 77 00:04:28,720 --> 00:04:33,400 Speaker 1: which hasn't yet rolled over. Consumption is still pretty good. Um, 78 00:04:33,440 --> 00:04:36,599 Speaker 1: it's been very resilient. If you look at Conference Board 79 00:04:36,880 --> 00:04:39,000 Speaker 1: that's been very resilient and that has a very strong 80 00:04:39,000 --> 00:04:42,440 Speaker 1: correlation with the unemployment rate. So if unemployment moves higher, 81 00:04:42,640 --> 00:04:47,440 Speaker 1: Conference board consumer confidence drops, you get a rollover in consumption. UM. 82 00:04:47,920 --> 00:04:50,640 Speaker 1: People are still spending even though inflation is very high. 83 00:04:50,680 --> 00:04:52,880 Speaker 1: It's because they have jobs well. And when people are 84 00:04:52,920 --> 00:04:55,920 Speaker 1: still spending, and maybe they're doing it by leveraging up 85 00:04:55,960 --> 00:04:58,640 Speaker 1: more So, now all that pandemic stimulus money and savings 86 00:04:58,640 --> 00:05:01,080 Speaker 1: built up has evaporated it essentially. But what does that 87 00:05:01,080 --> 00:05:03,600 Speaker 1: mean for corporate earnings? Because in theory, if people are 88 00:05:03,640 --> 00:05:06,440 Speaker 1: still out there spending tolerating higher prices, you're going to 89 00:05:06,520 --> 00:05:09,279 Speaker 1: be able to continue passing on your higher input costs. 90 00:05:09,279 --> 00:05:11,560 Speaker 1: And in theory that would mean margins hold up and 91 00:05:11,680 --> 00:05:15,280 Speaker 1: profits hold up, so you have nominal growth and inflation. 92 00:05:15,400 --> 00:05:17,840 Speaker 1: So I I do think that next inflation is going 93 00:05:17,880 --> 00:05:20,120 Speaker 1: to come down. I do believe in a recession. I've 94 00:05:20,160 --> 00:05:22,520 Speaker 1: I've been out of consensus on that since virtually the 95 00:05:22,520 --> 00:05:25,080 Speaker 1: beginning of this year. UM calling for recession is the 96 00:05:25,080 --> 00:05:28,760 Speaker 1: next phase of the economic cycle. Stagflation to recession was 97 00:05:28,880 --> 00:05:33,120 Speaker 1: my outlook piece for twenty two UM, and I do 98 00:05:33,200 --> 00:05:36,360 Speaker 1: think that that that we could get earnings having to 99 00:05:36,360 --> 00:05:40,680 Speaker 1: be revised lower UM and nominal growth in in my view, yeah, 100 00:05:40,680 --> 00:05:43,360 Speaker 1: it's positive, but real growth. Next year I have at 101 00:05:43,360 --> 00:05:45,839 Speaker 1: minus zero point four percent, so that's year every year, 102 00:05:46,000 --> 00:05:49,159 Speaker 1: So I have three quarters baked in of negative sequential 103 00:05:49,720 --> 00:05:52,160 Speaker 1: annualized growth in the US. I just want to make 104 00:05:52,160 --> 00:05:57,760 Speaker 1: one point to the consumer, because savings rates have fallen substantially. 105 00:05:57,760 --> 00:05:59,760 Speaker 1: I mean, we, you know, during the pandemic, shot up 106 00:05:59,800 --> 00:06:02,800 Speaker 1: to you know, record highs for American savings rates and 107 00:06:02,800 --> 00:06:04,800 Speaker 1: now we're you know, over twelve percent and now we're 108 00:06:04,800 --> 00:06:06,920 Speaker 1: back down to about two percent on savings rates. But 109 00:06:06,960 --> 00:06:08,599 Speaker 1: I was talking to Mike McKee about this and he 110 00:06:08,680 --> 00:06:11,920 Speaker 1: pulled up bank balances. I've got the index in there 111 00:06:12,120 --> 00:06:14,120 Speaker 1: if the controller wants to bring that. Bank balances are 112 00:06:14,120 --> 00:06:17,040 Speaker 1: still holding pretty high right now. They started to roll 113 00:06:17,080 --> 00:06:20,599 Speaker 1: over a little bit, but they're still pretty fat. So 114 00:06:20,960 --> 00:06:24,000 Speaker 1: the US consumer shouldn't be counted out quite yet. There 115 00:06:24,040 --> 00:06:27,000 Speaker 1: you see. And you can find this on your Bloomberg 116 00:06:27,080 --> 00:06:30,320 Speaker 1: terminal for those listening on Yes, absolutely sorry if you're 117 00:06:30,320 --> 00:06:33,359 Speaker 1: listening on radio. Let's just say they build up big 118 00:06:33,400 --> 00:06:36,240 Speaker 1: time during the pandemic and we show this um and 119 00:06:36,279 --> 00:06:41,000 Speaker 1: they have held their pretty well. However, Kayley points out, 120 00:06:41,040 --> 00:06:43,160 Speaker 1: you know, credit card debt is starting to climb again, 121 00:06:43,160 --> 00:06:45,920 Speaker 1: the consumers starting to leverage up. How do you take 122 00:06:46,000 --> 00:06:48,960 Speaker 1: this all into account with and put it into your 123 00:06:49,000 --> 00:06:52,000 Speaker 1: investment strategy? What are you doing right now? Are you 124 00:06:52,240 --> 00:06:55,400 Speaker 1: still defensive? And when do we find an inflection point 125 00:06:55,440 --> 00:06:57,960 Speaker 1: when you really can turn around start investing again. It's 126 00:06:58,600 --> 00:07:01,600 Speaker 1: a good a good thought. I'm still defensive going into 127 00:07:01,680 --> 00:07:05,080 Speaker 1: next year. I still like energy utility staples. I still 128 00:07:05,120 --> 00:07:07,560 Speaker 1: I think you still have to remain defensive. But once 129 00:07:07,600 --> 00:07:11,119 Speaker 1: you do get that change in UM in the labor market, 130 00:07:11,160 --> 00:07:14,000 Speaker 1: I think that's where the market drops a bit further. 131 00:07:14,320 --> 00:07:17,320 Speaker 1: I think we could go lower in the smp UM 132 00:07:17,360 --> 00:07:20,160 Speaker 1: and then I think we start talking about the FEDS 133 00:07:20,160 --> 00:07:22,840 Speaker 1: guidance turning a little more devilish. So I am in 134 00:07:22,880 --> 00:07:28,160 Speaker 1: the camp where UM the labor market determines how quickly 135 00:07:28,640 --> 00:07:32,360 Speaker 1: the FED could stop talking about higher for longer? And yes, 136 00:07:32,360 --> 00:07:35,080 Speaker 1: the Feds all in now, but the policy mistake has 137 00:07:35,120 --> 00:07:38,600 Speaker 1: already been made, all right. Katherine R. Nuvera of Baltic, 138 00:07:38,680 --> 00:07:40,720 Speaker 1: thank you so much for joining us in studio. How 139 00:07:40,760 --> 00:07:43,720 Speaker 1: are you getting back to Miami? What airline are you flying? Oh? Gosh, 140 00:07:43,720 --> 00:07:46,560 Speaker 1: thank god, not Southwest? But I'm not not not far 141 00:07:46,600 --> 00:07:49,880 Speaker 1: better spirit, oh Man for tall people like you and 142 00:07:49,960 --> 00:07:53,720 Speaker 1: I that's very complicated. Yeah, it's difficult, and I don't 143 00:07:53,920 --> 00:08:05,760 Speaker 1: envy you. That I want to bring in right now 144 00:08:05,840 --> 00:08:09,760 Speaker 1: Cloudy Assam, founder of PSALM Consulting. She's a former Federal 145 00:08:09,800 --> 00:08:14,200 Speaker 1: Reserve economist and one of my favorites because Cloudy, I 146 00:08:14,200 --> 00:08:18,679 Speaker 1: can see, Uh, you care about people in your work, 147 00:08:18,760 --> 00:08:22,360 Speaker 1: which is something that doesn't always come through an economist research. 148 00:08:22,600 --> 00:08:24,800 Speaker 1: You also went to Dennis In University, but I feel 149 00:08:24,840 --> 00:08:28,160 Speaker 1: more like you're an Oberlin person. So I want to 150 00:08:28,200 --> 00:08:31,720 Speaker 1: talk about the recent column you wrote banned the Phillips 151 00:08:31,760 --> 00:08:34,640 Speaker 1: curve and the idea or uh, is it banned the 152 00:08:34,640 --> 00:08:38,120 Speaker 1: Phillips curve? Yes, the idea is that to get inflation down, 153 00:08:38,240 --> 00:08:41,439 Speaker 1: the FED has to push unemployment up, which I guess 154 00:08:41,480 --> 00:08:44,440 Speaker 1: makes sense because otherwise how else do they affect sticky 155 00:08:44,480 --> 00:08:48,840 Speaker 1: services prices? How is that wrong? And what should the 156 00:08:48,840 --> 00:08:51,720 Speaker 1: FED be doing differently in order to, you know, in 157 00:08:51,840 --> 00:08:58,439 Speaker 1: order not to destroy the lives of working Americans. So 158 00:08:58,520 --> 00:09:02,199 Speaker 1: I think what a big US two, which has been 159 00:09:02,240 --> 00:09:06,480 Speaker 1: extremely disorientating. Right, We've had fifty year low unemployment, We've 160 00:09:06,480 --> 00:09:10,640 Speaker 1: had forty year high inflation. It is time to put 161 00:09:10,800 --> 00:09:13,600 Speaker 1: at least to scrutinize the rules of thumb like the 162 00:09:13,640 --> 00:09:16,240 Speaker 1: Phillips curve that have been used by macro economists for 163 00:09:16,240 --> 00:09:19,080 Speaker 1: a long time, to think about what's that trade off. 164 00:09:19,559 --> 00:09:22,959 Speaker 1: The low unemployment just means that people have less money 165 00:09:22,960 --> 00:09:26,880 Speaker 1: to spend. Most Americans, it's their paycheck, right, And low 166 00:09:27,040 --> 00:09:30,840 Speaker 1: unemployment means that people all the way up and like 167 00:09:30,960 --> 00:09:34,679 Speaker 1: working up into the middle class, they have money. That is, 168 00:09:35,080 --> 00:09:38,400 Speaker 1: that's not a bad way to think, baby about the 169 00:09:38,440 --> 00:09:41,800 Speaker 1: tradeoff when it's all demand driven, right, A lot of 170 00:09:41,840 --> 00:09:45,559 Speaker 1: stimulus checks, a lot of money, big wage increases. But honestly, 171 00:09:46,120 --> 00:09:49,000 Speaker 1: we have a pandemic, it is still affecting China other 172 00:09:49,080 --> 00:09:51,880 Speaker 1: parts of the world, and we have a war in Europe, 173 00:09:52,240 --> 00:09:54,960 Speaker 1: so that you really shouldn't use the Philip curve. It's 174 00:09:55,000 --> 00:09:57,079 Speaker 1: a really nice rule of thumb. It would be great 175 00:09:57,160 --> 00:10:00,200 Speaker 1: if it worked and helped the Fed calibrate everything. But 176 00:10:00,600 --> 00:10:02,600 Speaker 1: come on, like this is a lesson. At this point, 177 00:10:02,679 --> 00:10:06,600 Speaker 1: we are in uncharted territory and thus we gotta think 178 00:10:06,760 --> 00:10:09,280 Speaker 1: we got to dig deeper in terms of what the 179 00:10:09,320 --> 00:10:13,880 Speaker 1: Fed does. So how else, because inflation also is I mean, 180 00:10:14,720 --> 00:10:17,760 Speaker 1: Ronald Reagan, I'm sure one of your favorite presidents Um 181 00:10:17,800 --> 00:10:21,120 Speaker 1: described it as like an armed robber or you know, 182 00:10:21,280 --> 00:10:26,239 Speaker 1: a boogeyman um that really steals from especially the working classes. 183 00:10:26,760 --> 00:10:30,120 Speaker 1: And it's very high right now. And then if you 184 00:10:30,160 --> 00:10:34,559 Speaker 1: look at the non accelery Inflation rate of Unemployment NEHRU UM, 185 00:10:34,600 --> 00:10:37,800 Speaker 1: that shows that when unemployment is below a certain level, 186 00:10:37,920 --> 00:10:40,720 Speaker 1: it's gonna be inflationary. Right We were talking with Katherine 187 00:10:40,760 --> 00:10:43,480 Speaker 1: Rooney vera earlier who said that unless you get up 188 00:10:43,480 --> 00:10:46,720 Speaker 1: to four point nine percent, these low levels of unemployment 189 00:10:47,160 --> 00:10:51,240 Speaker 1: are inflationary. Do you disagree with that? The NEHRU is 190 00:10:51,280 --> 00:10:53,280 Speaker 1: a made up number. I mean, it's with a lot 191 00:10:53,280 --> 00:10:56,720 Speaker 1: of judgment and data. But running up until COVID started 192 00:10:56,800 --> 00:10:59,920 Speaker 1: the Federal Reserve, most of the macroeconomics community was like, 193 00:11:00,120 --> 00:11:03,000 Speaker 1: this thing is broken. In many ways, the Federal Reserve 194 00:11:03,080 --> 00:11:05,480 Speaker 1: showed they have no idea what NEHRU is. Despite a 195 00:11:05,520 --> 00:11:10,320 Speaker 1: lot of effort, it moved consistently downward after the Great 196 00:11:10,360 --> 00:11:13,560 Speaker 1: Recession because unemployment kept going down and down and inflation 197 00:11:13,640 --> 00:11:17,080 Speaker 1: did not spike. And we really don't know given all 198 00:11:17,080 --> 00:11:21,120 Speaker 1: the disruptions in the labor market, particularly the massive drop 199 00:11:21,120 --> 00:11:23,760 Speaker 1: in the labor force participation, it hasn't come back that 200 00:11:23,840 --> 00:11:27,000 Speaker 1: affects the unemployment rate, the things that we have looked 201 00:11:27,000 --> 00:11:29,480 Speaker 1: to as signals as a way to think about what 202 00:11:29,480 --> 00:11:32,880 Speaker 1: what is this equaliberate like, what would normal and sustainable 203 00:11:32,960 --> 00:11:36,560 Speaker 1: look like? It's really hard to know what that is 204 00:11:36,600 --> 00:11:38,720 Speaker 1: at this point. Now you gotta do something, and I 205 00:11:38,720 --> 00:11:40,840 Speaker 1: think this is where the FED has to get back. 206 00:11:40,960 --> 00:11:45,360 Speaker 1: Leaning into the data. We have seen inflation coming down 207 00:11:45,480 --> 00:11:49,640 Speaker 1: without wage growth really slowing, and so that tells you 208 00:11:49,679 --> 00:11:52,800 Speaker 1: there is at least some relief that comes without the 209 00:11:52,840 --> 00:11:57,360 Speaker 1: Fed pumping high interest rate increases, fast interest rate increases 210 00:11:57,440 --> 00:11:59,800 Speaker 1: into the economy. It's time to be a little more 211 00:12:00,000 --> 00:12:05,079 Speaker 1: action and really look at the early stages of the data. 212 00:12:05,200 --> 00:12:08,160 Speaker 1: It takes a long time to get to consumer price inflation. 213 00:12:09,200 --> 00:12:11,960 Speaker 1: On the subject of consumer price inflation or really just 214 00:12:12,160 --> 00:12:15,760 Speaker 1: inflation generally, the FED looking obviously the PCs a flatter 215 00:12:16,880 --> 00:12:19,160 Speaker 1: and the idea of made up numbers, or at least 216 00:12:19,240 --> 00:12:23,199 Speaker 1: arbitrary numbers. Two percent it's what the FED said its 217 00:12:23,240 --> 00:12:25,800 Speaker 1: target at. Granted it went moved to average inflation targeting, 218 00:12:25,840 --> 00:12:28,000 Speaker 1: but still that's what they're striving for. Something like that 219 00:12:28,040 --> 00:12:31,679 Speaker 1: two percent number. Is that no longer a number fitting 220 00:12:32,120 --> 00:12:34,120 Speaker 1: of the new world in which we live. In post 221 00:12:34,160 --> 00:12:38,199 Speaker 1: pandemic post or still ongoing more in Ukraine. If we're 222 00:12:38,200 --> 00:12:43,880 Speaker 1: looking at structurally lower labor force participation, structurally higher energy costs, 223 00:12:44,320 --> 00:12:48,480 Speaker 1: should they be rethinking two percent. It's far too early 224 00:12:48,559 --> 00:12:52,520 Speaker 1: to have that discussion, and I think, honestly it it 225 00:12:52,679 --> 00:12:56,520 Speaker 1: muddies the water, and it makes the FED fight even 226 00:12:56,640 --> 00:12:59,880 Speaker 1: harder to get two percent. They are extremely concerned about 227 00:13:00,000 --> 00:13:02,679 Speaker 1: a quote unquote credibility. I mean, I'm not sure who 228 00:13:02,840 --> 00:13:05,320 Speaker 1: right now still questions the FED is going to fight inflation, 229 00:13:05,400 --> 00:13:08,560 Speaker 1: but I guess they're out there, and there is still 230 00:13:08,559 --> 00:13:11,319 Speaker 1: a path as we come out of the pandemic, as 231 00:13:11,360 --> 00:13:14,240 Speaker 1: the supply change, as the rotation and the in the 232 00:13:14,240 --> 00:13:17,560 Speaker 1: economy from goods back to services happens, we have a 233 00:13:17,640 --> 00:13:20,520 Speaker 1: path back to two percent. It's far too early. That's 234 00:13:20,520 --> 00:13:23,199 Speaker 1: a conversation for maybe this time next year, the middle 235 00:13:23,240 --> 00:13:27,400 Speaker 1: of the year after. But it's I don't see any 236 00:13:27,440 --> 00:13:29,640 Speaker 1: reason for the FED to be moving that two percent 237 00:13:29,679 --> 00:13:32,160 Speaker 1: target if we get back to something that looks kind 238 00:13:32,200 --> 00:13:35,000 Speaker 1: of sort of like normal. On the other end of this, well, 239 00:13:35,600 --> 00:13:41,080 Speaker 1: they couldn't even get two percent before COVID showed up. Okay, 240 00:13:41,080 --> 00:13:44,319 Speaker 1: fair enough, but it raises the question of especially as 241 00:13:44,440 --> 00:13:46,559 Speaker 1: you mentioned China, how it's still been shut off from 242 00:13:46,559 --> 00:13:47,959 Speaker 1: the world. It led to a lot of supply chain 243 00:13:48,000 --> 00:13:51,000 Speaker 1: issues that were very inflationary. Now it's opening back up 244 00:13:51,559 --> 00:13:55,240 Speaker 1: rather rapidly and the surgeons dealing with currently aside in 245 00:13:55,280 --> 00:13:57,719 Speaker 1: the medium term, in theory, that's going to mean more 246 00:13:57,760 --> 00:14:01,360 Speaker 1: demand for commodities, could be a few of inflation. How 247 00:14:01,400 --> 00:14:03,960 Speaker 1: do you filter that back into your thinking about the 248 00:14:04,000 --> 00:14:07,319 Speaker 1: trajectory inflation and how monetary policy has to respond to it. 249 00:14:07,400 --> 00:14:08,880 Speaker 1: And that's not the only thing, right We've got a 250 00:14:08,920 --> 00:14:13,560 Speaker 1: one point seven trillion dollar omnibus, you've got deglobalization, which 251 00:14:13,600 --> 00:14:16,439 Speaker 1: has to lead to at least some inflation as well 252 00:14:16,520 --> 00:14:21,080 Speaker 1: or at least less disinflation. M hm. So absolutely what's 253 00:14:21,080 --> 00:14:24,000 Speaker 1: happening in China and reopening as a wild card. And 254 00:14:24,200 --> 00:14:27,520 Speaker 1: we know that the FED has very limited tools to 255 00:14:27,560 --> 00:14:31,560 Speaker 1: deal with commodity price inflation, the energy inflation. We still 256 00:14:31,600 --> 00:14:34,320 Speaker 1: have a lot of food inflation and that is not 257 00:14:34,440 --> 00:14:37,400 Speaker 1: something that interest rates are going to chip away at. 258 00:14:38,040 --> 00:14:42,760 Speaker 1: And you know, what's happening in China is extremely um disruptive, 259 00:14:42,800 --> 00:14:46,520 Speaker 1: tragic as they're trying to reopen, and every time COVID 260 00:14:46,600 --> 00:14:49,240 Speaker 1: came back was in the United States or big waves globally. 261 00:14:49,400 --> 00:14:53,120 Speaker 1: It set us back in terms of getting back to normal. Right, 262 00:14:53,160 --> 00:14:55,840 Speaker 1: this has been very disruptive as things closed down open 263 00:14:55,880 --> 00:14:59,040 Speaker 1: back up. So I totally agree on the commodity space 264 00:14:59,080 --> 00:15:02,120 Speaker 1: that that could be a tough one and that that 265 00:15:02,320 --> 00:15:04,800 Speaker 1: was a lot of the problems that FED had a 266 00:15:04,800 --> 00:15:08,800 Speaker 1: lot of the inflation um concerns of the past year 267 00:15:08,840 --> 00:15:12,720 Speaker 1: when we had the big spike in energy prices, particularly gasoline. 268 00:15:13,000 --> 00:15:15,360 Speaker 1: So yeah, we are not out of this. There is 269 00:15:15,400 --> 00:15:17,600 Speaker 1: a path back to something that looks like normal and 270 00:15:17,600 --> 00:15:21,040 Speaker 1: the United States. On the globalization, I would be very 271 00:15:21,080 --> 00:15:24,240 Speaker 1: careful about taking the last few years, which have been 272 00:15:24,280 --> 00:15:27,000 Speaker 1: extraordinary with a pandemic and a war in Europe, to 273 00:15:27,120 --> 00:15:31,120 Speaker 1: project big structural changes. That takes time, fair and it's 274 00:15:31,200 --> 00:15:34,640 Speaker 1: very difficult to do. Claudia, you know, for years now, 275 00:15:34,840 --> 00:15:38,600 Speaker 1: income inequality has been on policymakers radar, and you could 276 00:15:38,640 --> 00:15:43,680 Speaker 1: argue that that's what drove the big populist forces that 277 00:15:43,720 --> 00:15:49,120 Speaker 1: we've seen um globally. Has the pandemic made income inequality 278 00:15:49,160 --> 00:15:51,520 Speaker 1: worse or have we made any progress in pushing back 279 00:15:51,520 --> 00:15:57,000 Speaker 1: against that we during the pandemic. So in what we've 280 00:15:57,040 --> 00:16:01,280 Speaker 1: seen so far, the fiscal Paul, let's see the labor 281 00:16:01,360 --> 00:16:05,920 Speaker 1: market coming back strong. That made a big difference for 282 00:16:06,520 --> 00:16:10,440 Speaker 1: you know, the bottom fifty, middle class on down because 283 00:16:10,520 --> 00:16:14,400 Speaker 1: for the first time in many decades, we have had 284 00:16:14,400 --> 00:16:19,480 Speaker 1: a job full recovery and that really makes a difference 285 00:16:19,600 --> 00:16:24,200 Speaker 1: for the vast majority of people now that and and 286 00:16:24,280 --> 00:16:28,600 Speaker 1: so you see in wealth inequality data that the increase 287 00:16:28,680 --> 00:16:31,960 Speaker 1: in what you know, families bottom have in the bank, 288 00:16:32,120 --> 00:16:35,600 Speaker 1: it is it is enormous relative particularly to after the 289 00:16:35,640 --> 00:16:38,880 Speaker 1: Great Recession. So we have done some things to narrow 290 00:16:38,920 --> 00:16:41,960 Speaker 1: that inequality now. I mean, the top is doing well 291 00:16:42,400 --> 00:16:45,600 Speaker 1: right even with some correction right now in the stock prices, 292 00:16:45,680 --> 00:16:48,440 Speaker 1: and our our billionaires out there, I mean they really 293 00:16:48,600 --> 00:16:52,600 Speaker 1: got their recovery came fast as usual. And yet this 294 00:16:52,720 --> 00:16:55,880 Speaker 1: is I think it opens up some big questions. It's like, 295 00:16:55,920 --> 00:16:59,720 Speaker 1: can our economy handle a job full recovery? And we 296 00:16:59,760 --> 00:17:01,800 Speaker 1: need to have those So there's a lot to figure 297 00:17:01,800 --> 00:17:06,000 Speaker 1: out why this caused so much disruption, and yet we 298 00:17:06,040 --> 00:17:10,040 Speaker 1: really did help people who haven't gotten a lot of help. Claudia, 299 00:17:10,080 --> 00:17:12,320 Speaker 1: great having on the program. Thanks so much for joining us. 300 00:17:12,520 --> 00:17:16,240 Speaker 1: Really love reading your research and your pieces. Cloudy Assam. 301 00:17:16,320 --> 00:17:20,360 Speaker 1: There of some consulting talking to us about maybe UH, 302 00:17:20,400 --> 00:17:22,840 Speaker 1: the FED should look at things a little bit differently 303 00:17:22,880 --> 00:17:30,800 Speaker 1: than UM it typically has. I think, UH, for Tesla, 304 00:17:31,240 --> 00:17:35,240 Speaker 1: for big tech, for crypto, it has been an annus horribilis, 305 00:17:35,480 --> 00:17:38,560 Speaker 1: as the Queen would have put it. Well, you know what, 306 00:17:38,640 --> 00:17:40,920 Speaker 1: I got that from Christina Hooper she joins US now 307 00:17:41,200 --> 00:17:44,960 Speaker 1: chief Global Market Strategists at Investco UM and Christina, I 308 00:17:45,040 --> 00:17:48,800 Speaker 1: guess you got that from her, Majesty, Queen Elizabeth, But 309 00:17:48,920 --> 00:17:52,960 Speaker 1: she wasn't talking about stocks and bonds. What does three 310 00:17:53,080 --> 00:17:57,520 Speaker 1: look like? If we've had, you know, the pandemic leading 311 00:17:57,560 --> 00:18:02,280 Speaker 1: into incredible inflation, and the war in Ukraine making it worse, 312 00:18:02,359 --> 00:18:07,120 Speaker 1: the FED hiking us UH into maybe a recession, how 313 00:18:07,160 --> 00:18:12,879 Speaker 1: does look any better? Well? I think that after several 314 00:18:13,040 --> 00:18:17,640 Speaker 1: extraordinary years, and when by by extraordinary, I mean extraordinarily 315 00:18:17,840 --> 00:18:21,159 Speaker 1: bad and traumatic, UM, what we're getting to is a 316 00:18:21,200 --> 00:18:26,240 Speaker 1: more normal environment UM where we're likely to see UM 317 00:18:26,320 --> 00:18:31,400 Speaker 1: the FED ease what has been a dramatic level of tightening. 318 00:18:31,480 --> 00:18:35,440 Speaker 1: So I don't mean ease per se, but UH certainly 319 00:18:35,800 --> 00:18:39,040 Speaker 1: down shift its tightening and ultimately hit a pause button. 320 00:18:39,359 --> 00:18:43,440 Speaker 1: In the first half, probably the first quarter of UM, 321 00:18:43,440 --> 00:18:47,280 Speaker 1: we're likely to see inflation continue to moderate significantly in 322 00:18:47,320 --> 00:18:51,760 Speaker 1: te so something of a return to normal. It's not 323 00:18:51,840 --> 00:18:55,360 Speaker 1: going to be an easy transition UM, but I suspect 324 00:18:55,480 --> 00:18:58,120 Speaker 1: that is going to be a lot more normal than 325 00:18:58,160 --> 00:19:01,600 Speaker 1: the last three years, but normal of at least the 326 00:19:01,680 --> 00:19:05,560 Speaker 1: last decade or so. Christina has been leadership by big 327 00:19:05,600 --> 00:19:08,360 Speaker 1: tech and stocks being able to fly high because money 328 00:19:08,480 --> 00:19:11,320 Speaker 1: was free and with low borrowing costs, it's okay to 329 00:19:11,320 --> 00:19:13,320 Speaker 1: have a higher multiple. That is not really the world 330 00:19:13,320 --> 00:19:15,879 Speaker 1: we have lived in two and in theory, that's not 331 00:19:15,960 --> 00:19:19,080 Speaker 1: going to change incredibly quickly. So just using a stock 332 00:19:19,119 --> 00:19:21,800 Speaker 1: like Tesla as an example, how much more do you 333 00:19:21,840 --> 00:19:26,600 Speaker 1: think those stocks need to deflet? How much more devaluation 334 00:19:26,920 --> 00:19:31,160 Speaker 1: could be coming for certain pockets of the equity market. Well, 335 00:19:31,280 --> 00:19:36,120 Speaker 1: clearly tech is under pressure. UM, the high valuation areas 336 00:19:36,160 --> 00:19:39,120 Speaker 1: of the stock market are under significant pressure, and that 337 00:19:39,160 --> 00:19:43,119 Speaker 1: doesn't change overnight. In fact, when we get to more 338 00:19:43,280 --> 00:19:47,399 Speaker 1: of a risk on environment, as global risk appetite grows, 339 00:19:47,800 --> 00:19:52,480 Speaker 1: we're likely to see a movement towards UM, lower valuation 340 00:19:52,600 --> 00:19:56,080 Speaker 1: names more cyclicals. I don't think this is going to 341 00:19:56,119 --> 00:19:59,480 Speaker 1: be a time where we see tech rebound dramatically because 342 00:19:59,600 --> 00:20:02,600 Speaker 1: raiths are so much higher. Now we will go through 343 00:20:02,680 --> 00:20:07,040 Speaker 1: an adjustment period. Um, we've already started that process, and 344 00:20:07,320 --> 00:20:11,000 Speaker 1: we could see more of that in But again it's 345 00:20:11,000 --> 00:20:13,280 Speaker 1: going to be a more normal environment, which means we're 346 00:20:13,359 --> 00:20:17,639 Speaker 1: unlikely to see outsized gains by tech. Um, we're really 347 00:20:17,720 --> 00:20:22,240 Speaker 1: unlikely to see big gains by stocks in general. But 348 00:20:22,320 --> 00:20:25,040 Speaker 1: I do hold that hope and I believe strongly that 349 00:20:25,080 --> 00:20:29,480 Speaker 1: we're likely to see a positive, uh single digit return environment. 350 00:20:29,560 --> 00:20:33,359 Speaker 1: For example, the SMP fire, you know, Christina Yester, we 351 00:20:33,359 --> 00:20:35,159 Speaker 1: were talking with Matt Merlely and Miller tay Back and 352 00:20:35,160 --> 00:20:37,480 Speaker 1: he pointed out, we're looking at I think seventeen point 353 00:20:37,520 --> 00:20:40,800 Speaker 1: three times earnings forward earnings on the SMP five hundred 354 00:20:40,880 --> 00:20:44,720 Speaker 1: now since World War Two. In any recession, if we 355 00:20:44,760 --> 00:20:49,159 Speaker 1: do get a recession, valuations have dropped to fifteen before 356 00:20:49,200 --> 00:20:52,360 Speaker 1: the bear market ended and turned around. Do you expect 357 00:20:52,400 --> 00:20:54,720 Speaker 1: that we could fall that far, because that would put us, 358 00:20:55,000 --> 00:20:57,919 Speaker 1: you know, at thirty or maybe even below before we 359 00:20:57,960 --> 00:20:59,840 Speaker 1: can turn around and climb back up into the end 360 00:20:59,840 --> 00:21:03,320 Speaker 1: of the year. Well, we have to keep in mind 361 00:21:03,359 --> 00:21:07,200 Speaker 1: that this is a very compressed economic cycle, so things 362 00:21:07,240 --> 00:21:10,119 Speaker 1: are moving a lot faster than they typically do. So 363 00:21:10,160 --> 00:21:12,040 Speaker 1: I think We're going to see a number of different 364 00:21:12,080 --> 00:21:15,399 Speaker 1: forces converge at the same time, so we will have 365 00:21:15,680 --> 00:21:20,080 Speaker 1: that headwind of downward revisions to earnings. I mean, that's 366 00:21:20,119 --> 00:21:23,480 Speaker 1: a given. We haven't seen that priced in yet. But 367 00:21:23,560 --> 00:21:26,719 Speaker 1: having said that, UM, we also have a market looking 368 00:21:26,880 --> 00:21:30,480 Speaker 1: ahead to the potential for the FED to cut rates 369 00:21:30,520 --> 00:21:33,000 Speaker 1: by the end of the year, and certainly just hitting 370 00:21:33,000 --> 00:21:37,920 Speaker 1: the pause button will take pressure off risk assets. So 371 00:21:37,960 --> 00:21:42,280 Speaker 1: I think that we could actually see earnings downwardly revised 372 00:21:42,320 --> 00:21:45,760 Speaker 1: at the same time, we could potentially see UM as 373 00:21:45,840 --> 00:21:50,760 Speaker 1: the year progresses, UM some movement towards multiple expansion. Okay, 374 00:21:50,800 --> 00:21:53,840 Speaker 1: so that's all on the equity side, Christina, But we 375 00:21:54,320 --> 00:21:56,280 Speaker 1: know that, or at least we have heard that, there 376 00:21:56,280 --> 00:22:00,720 Speaker 1: are now alternatives to equities. Those have emerged. Tara, right, 377 00:22:00,800 --> 00:22:05,000 Speaker 1: Tara Tara? I think Tara Tara. I didn't never, I 378 00:22:05,040 --> 00:22:07,720 Speaker 1: was never sure about, but I'll say Tara. Okay. So, however, 379 00:22:07,760 --> 00:22:09,840 Speaker 1: you want to pronounce the acronym t A R A 380 00:22:10,160 --> 00:22:12,640 Speaker 1: rather than Tina t I N A, which was there 381 00:22:12,720 --> 00:22:15,679 Speaker 1: was no alternative for equities. It seems that that world 382 00:22:15,720 --> 00:22:19,479 Speaker 1: has now changed. How are you viewing bonds into the 383 00:22:19,480 --> 00:22:21,600 Speaker 1: new year, and how much you want to be allocated 384 00:22:21,840 --> 00:22:25,840 Speaker 1: in that asked class rather than into equities. That's a 385 00:22:25,840 --> 00:22:29,160 Speaker 1: great question. And of course fixed income had an annus 386 00:22:29,280 --> 00:22:33,560 Speaker 1: horribilious in two as well. UM. That's part and parcel 387 00:22:33,640 --> 00:22:35,920 Speaker 1: of of what we saw in terms of a dramatic 388 00:22:36,359 --> 00:22:39,240 Speaker 1: um tightening cycle on the part of the FED and 389 00:22:39,520 --> 00:22:42,479 Speaker 1: other central nights. So where we find ourselves is today 390 00:22:42,920 --> 00:22:45,440 Speaker 1: UM is looking out on a year in which we're 391 00:22:45,560 --> 00:22:47,719 Speaker 1: unlikely to see much more in the way of rate 392 00:22:47,760 --> 00:22:51,399 Speaker 1: high certainly relative to what we saw in two. That 393 00:22:51,560 --> 00:22:54,520 Speaker 1: gives some breathing room for fixed income. At the same time, 394 00:22:54,600 --> 00:22:58,880 Speaker 1: we've seen yields go up significantly, UM, making as as 395 00:22:58,880 --> 00:23:02,520 Speaker 1: you pointed out, many areas of fixed income quite attractive. 396 00:23:03,160 --> 00:23:07,960 Speaker 1: I would focus on investment grade credit UM as we 397 00:23:08,040 --> 00:23:11,920 Speaker 1: see this struggle between a risk on and risk off environment. UM. 398 00:23:12,119 --> 00:23:16,679 Speaker 1: The the level of of the maturity wall is pretty 399 00:23:16,720 --> 00:23:19,399 Speaker 1: low right now. UM. We don't see a lot of 400 00:23:19,880 --> 00:23:23,160 Speaker 1: debt maturing in the next eighteen or so months. UM, 401 00:23:23,200 --> 00:23:26,520 Speaker 1: so this is a good environment. Companies are fundamentally more 402 00:23:26,600 --> 00:23:30,600 Speaker 1: sound in general than they were in the last significant 403 00:23:30,640 --> 00:23:33,600 Speaker 1: procession we went through, the global financial crisis, So this 404 00:23:33,680 --> 00:23:36,960 Speaker 1: is a very different environment. UM. Now, as we transition 405 00:23:37,040 --> 00:23:40,159 Speaker 1: through the year. As as UM we get through a 406 00:23:40,240 --> 00:23:43,840 Speaker 1: downturn in the economy and look forward to an economic recovery. 407 00:23:43,920 --> 00:23:46,800 Speaker 1: That might be a time to increase a risk appetite 408 00:23:46,880 --> 00:23:49,960 Speaker 1: and move towards high yield UM. But certainly right now, 409 00:23:50,040 --> 00:23:53,800 Speaker 1: investment grade credit looks very attractive. Al right, Christina, thanks 410 00:23:53,800 --> 00:23:56,680 Speaker 1: so much for joining us. Really appreciate your time this morning, 411 00:23:56,760 --> 00:23:59,919 Speaker 1: especially during a holiday week. Christina Hooper, they're talking to 412 00:24:00,200 --> 00:24:14,800 Speaker 1: us from invest go out of Connecticut. Let's go though 413 00:24:14,800 --> 00:24:17,040 Speaker 1: and focus in on the airline. Helene Becker joins us 414 00:24:17,080 --> 00:24:19,400 Speaker 1: right now, senior research analyst at Cow and Helene, thanks 415 00:24:19,400 --> 00:24:21,680 Speaker 1: so much for coming on Bloomberg again. We just talked 416 00:24:21,680 --> 00:24:23,600 Speaker 1: to you last week, but since then there have been 417 00:24:23,640 --> 00:24:27,520 Speaker 1: thousands and thousands of cancelations. As as Madeline says, we're 418 00:24:27,560 --> 00:24:31,040 Speaker 1: not close to getting back on track here. How is 419 00:24:31,080 --> 00:24:36,600 Speaker 1: it right now, especially for Southwest? UM, good morning. Yes, 420 00:24:36,960 --> 00:24:40,280 Speaker 1: we are not close. Southwest is not close. Everybody else 421 00:24:40,359 --> 00:24:43,479 Speaker 1: is pretty much within what I would call their normal 422 00:24:44,040 --> 00:24:47,840 Speaker 1: course of doing business. UM. The cancelations are relatively low. 423 00:24:47,920 --> 00:24:51,360 Speaker 1: Southwest accounted for more than eighty percent of all cancels 424 00:24:51,440 --> 00:24:58,399 Speaker 1: yesterday and UM for them, they're Um, They're just they're 425 00:24:58,440 --> 00:25:03,320 Speaker 1: just behind the curve here and they probably won't get 426 00:25:03,359 --> 00:25:07,040 Speaker 1: caught up until the weekend at the earliest. Well, and 427 00:25:07,119 --> 00:25:09,439 Speaker 1: we have seen modeling from analysts over its city that 428 00:25:09,480 --> 00:25:11,480 Speaker 1: talks about a three to five percent earnings hit for 429 00:25:11,520 --> 00:25:14,840 Speaker 1: the fourth quarter. But I'm wondering what kind of signal 430 00:25:14,960 --> 00:25:18,879 Speaker 1: this is on the longer term operational health of Southwest 431 00:25:18,960 --> 00:25:21,880 Speaker 1: beyond just what is ongoing currently. If something like this 432 00:25:21,920 --> 00:25:24,960 Speaker 1: could happen at this scale for this long, does that 433 00:25:25,000 --> 00:25:28,600 Speaker 1: just mean they're ill equipped to handle weather events like this? 434 00:25:28,720 --> 00:25:32,160 Speaker 1: I mean, what went wrong here that could go wrong again. Yeah, 435 00:25:32,720 --> 00:25:35,040 Speaker 1: they had a confluence of a lot of events. So 436 00:25:35,080 --> 00:25:37,760 Speaker 1: you had the weather and it moved across country, hitting 437 00:25:37,800 --> 00:25:42,680 Speaker 1: Denver and Chicago particularly hard. UM United and Isn't Both 438 00:25:42,720 --> 00:25:45,159 Speaker 1: of those locations didn't get hit quite as hard, but 439 00:25:45,440 --> 00:25:50,000 Speaker 1: still impacted UM For Southwest though, I think in Midway 440 00:25:50,040 --> 00:25:52,800 Speaker 1: there was a lack of the icing fluid. Then they 441 00:25:52,840 --> 00:25:55,320 Speaker 1: had an issue in San Diego with fog, they had 442 00:25:55,440 --> 00:25:59,159 Speaker 1: ice and Dallas, so so everywhere they were they had weather, 443 00:25:59,480 --> 00:26:03,119 Speaker 1: and the worst of it is their systems are just 444 00:26:03,240 --> 00:26:09,000 Speaker 1: not equipped to handle it. Historically, Southwest underinvested in I 445 00:26:09,200 --> 00:26:13,920 Speaker 1: t in in technology and UM this is has come 446 00:26:13,920 --> 00:26:16,160 Speaker 1: back in the past to hurt them. They were investing 447 00:26:16,520 --> 00:26:19,600 Speaker 1: aggressively this year. That was one of the catalysts for 448 00:26:19,760 --> 00:26:22,600 Speaker 1: we thought for the shares later this year is the 449 00:26:22,640 --> 00:26:26,000 Speaker 1: new scheduling system for employees was coming up. But one 450 00:26:26,040 --> 00:26:30,480 Speaker 1: of the issues UM we saw yesterday was UH an 451 00:26:30,480 --> 00:26:33,520 Speaker 1: aircraft with a bunch of flight attendants dead heading to 452 00:26:33,600 --> 00:26:37,199 Speaker 1: a city. UM. But the crew working the plane was 453 00:26:37,240 --> 00:26:40,359 Speaker 1: short of flight attendant and according to the pilot on 454 00:26:40,440 --> 00:26:43,639 Speaker 1: board UM, any one of those other flight attendants offered 455 00:26:43,640 --> 00:26:46,520 Speaker 1: to work the flight, but they couldn't get through the 456 00:26:46,600 --> 00:26:49,639 Speaker 1: scheduling to say, hey, we're here, we'll take it, and 457 00:26:49,720 --> 00:26:53,200 Speaker 1: so Southwest canceled the flight. They're doing what should be 458 00:26:53,240 --> 00:26:56,919 Speaker 1: automated by hand. UM. When you have six thousand flights 459 00:26:56,920 --> 00:27:00,000 Speaker 1: a day, and and you probably shouldn't, you should probab 460 00:27:00,040 --> 00:27:03,320 Speaker 1: they have two thirds of that. UM. It's not that 461 00:27:03,359 --> 00:27:05,040 Speaker 1: I don't have enough people, it's that they don't know 462 00:27:05,080 --> 00:27:07,280 Speaker 1: where their people are, so they have to reset the 463 00:27:07,480 --> 00:27:14,399 Speaker 1: entire Essentially, it doesn't make much sense because I understand 464 00:27:14,480 --> 00:27:18,680 Speaker 1: that the weather is very bad in some places. My 465 00:27:18,720 --> 00:27:20,719 Speaker 1: buddy Kareem just showed me a picture of his parents 466 00:27:20,720 --> 00:27:24,000 Speaker 1: house in Buffalo and it's completely snowed under. On the 467 00:27:24,040 --> 00:27:28,040 Speaker 1: other hand, Helene, I'm forty nine years old. It's snowed 468 00:27:28,119 --> 00:27:31,359 Speaker 1: most winters of my life. You know, this happens in 469 00:27:31,480 --> 00:27:34,960 Speaker 1: the winter months, and an airline especially should be prepared 470 00:27:35,000 --> 00:27:39,320 Speaker 1: for it. Has Southwest management learned any lessons? Will they invest? 471 00:27:39,359 --> 00:27:42,399 Speaker 1: Will they you know, stock up at midway with some 472 00:27:42,520 --> 00:27:46,520 Speaker 1: d icing fluid? Yeah, so sometimes they get caught out. 473 00:27:46,560 --> 00:27:49,199 Speaker 1: But you're you're absolutely correct, And I think people have 474 00:27:49,280 --> 00:27:53,600 Speaker 1: a right to be really angry and um and annoyed because, 475 00:27:53,640 --> 00:27:58,920 Speaker 1: to your point, this is almost they should have invested 476 00:27:59,000 --> 00:28:02,560 Speaker 1: years ago in the stems and they just didn't. Um. Well, 477 00:28:02,560 --> 00:28:04,680 Speaker 1: do you change your opinion on the stock lane because 478 00:28:04,680 --> 00:28:07,880 Speaker 1: you liked Southwest before this? Yeah? No, I don't think 479 00:28:07,880 --> 00:28:12,600 Speaker 1: we do. Uh. I think that as the shares um 480 00:28:13,200 --> 00:28:17,600 Speaker 1: will are reflecting the disaster that's befallen them. I think 481 00:28:17,880 --> 00:28:20,879 Speaker 1: you'll see the impact you mentioned the three to five percent. 482 00:28:20,960 --> 00:28:22,760 Speaker 1: We think it will be in the hundreds of millions 483 00:28:22,760 --> 00:28:25,800 Speaker 1: of dollars range. They're doing everything they can, for example, 484 00:28:25,880 --> 00:28:28,760 Speaker 1: refunds a hundred percent of your cash back. They're offering 485 00:28:28,800 --> 00:28:31,200 Speaker 1: to buy tickets on other airlines if you can even 486 00:28:31,240 --> 00:28:34,919 Speaker 1: find a seat. Um, So consumers should totally keep their 487 00:28:34,920 --> 00:28:37,639 Speaker 1: receipts to submit them to the airline. And then I 488 00:28:37,680 --> 00:28:41,720 Speaker 1: suspect in the first cutter will see them heavily discount 489 00:28:42,240 --> 00:28:47,080 Speaker 1: tickets to encourage people to try them again and um. 490 00:28:47,160 --> 00:28:49,760 Speaker 1: And then this investment, I suspect they'll do everything they 491 00:28:49,760 --> 00:28:52,680 Speaker 1: can to speed it up. And you're right, there was 492 00:28:52,720 --> 00:28:55,880 Speaker 1: a fuel shortage at one location, but we're seeing sporadic 493 00:28:56,000 --> 00:29:00,240 Speaker 1: fuel shortages around the country, and airlines are tankering old 494 00:29:00,240 --> 00:29:03,040 Speaker 1: where they where they need to. Um. But but I 495 00:29:03,080 --> 00:29:05,320 Speaker 1: think the other part of what Southwest needs to do 496 00:29:05,360 --> 00:29:08,560 Speaker 1: in the short term is cut back their ambition because 497 00:29:08,720 --> 00:29:12,960 Speaker 1: even though they've hired enough people, um, not everybody is 498 00:29:13,000 --> 00:29:15,840 Speaker 1: fully trained. So the school house is full as they 499 00:29:15,880 --> 00:29:19,200 Speaker 1: work through this and and get back up to speed. 500 00:29:19,880 --> 00:29:23,320 Speaker 1: Um that I just you know, Kaylee and Matt, I 501 00:29:23,400 --> 00:29:28,040 Speaker 1: just don't see how they get by with another storm 502 00:29:28,120 --> 00:29:33,240 Speaker 1: like this without super investment in in systems to to 503 00:29:33,400 --> 00:29:36,800 Speaker 1: improve things. Yeah. Well, clearly something's got to give because 504 00:29:36,840 --> 00:29:39,160 Speaker 1: there are a lot of people, including the Department of Transportation, 505 00:29:39,200 --> 00:29:41,560 Speaker 1: who are not excelled by this episode. Laine Becker of 506 00:29:41,600 --> 00:29:44,160 Speaker 1: Cowen Thank you so much as always for providing us 507 00:29:44,280 --> 00:29:48,200 Speaker 1: for insight. Absolutely and this is the Bloomberg Surveillance Podcast. 508 00:29:48,440 --> 00:29:51,840 Speaker 1: Thanks for listening. Join us live weekdays from seven to 509 00:29:51,920 --> 00:29:55,960 Speaker 1: ten am Eastern on Bloomberg Radio and on Bloomberg Television 510 00:29:56,320 --> 00:30:00,360 Speaker 1: each day from six to nine am for insight from 511 00:30:00,360 --> 00:30:04,880 Speaker 1: the best in economics, finance, investment, and international relations. And 512 00:30:05,000 --> 00:30:10,120 Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg 513 00:30:10,200 --> 00:30:13,520 Speaker 1: dot com, and of course on the terminal. I'm Tom 514 00:30:13,600 --> 00:30:16,000 Speaker 1: keene In. This is Bloomberg