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Speaker 2: History has shown that stock analysts are famously bullish, right
Speaker 2: this year's no different. They're forecasting on average, a roughly
Speaker 2: eleven percent gain for US stocks next year. And that's
Speaker 2: despite things like inflation, like possibly rising unemployment. But guess what,
Speaker 2: all that optimism is actually putting some market watchers on edge.
Speaker 2: And Bloomberg's Alexandra Semenova wrote about this for the Bloomberg
Speaker 2: Terminal and she joins us here in an interactive broker studio. Alexander,
Speaker 2: great to see you. You would think, okay, well, people
Speaker 2: are feeling optimistic about next year. That should make market
Speaker 2: watchers happy. Why are they worried?
Speaker 3: Yeah?
Speaker 4: So it's this hardy annual ritual for Wall Street strategists
Speaker 4: to issue s and P five hundred forecasts for the
Speaker 4: end of the year, and we all know that it's
Speaker 4: very hard to hit such a spurious level of precision,
Speaker 4: but it gives us a sense of whether they're a
Speaker 4: bullish or bearish on the market. And if you look
Speaker 4: at the forecasts for twenty twenty six, there's this resounding
Speaker 4: sense of optimism. The lowest target on Wall Street is
Speaker 4: seven thousand, so that itself is already implying a modest
Speaker 4: gain on years that we've seen in the past where
Speaker 4: some were outliers and predicting some sort of loss. There
Speaker 4: were some bears, some contrarian calls, but this time around,
Speaker 4: even the lowest target on Wall Street is implying again.
Speaker 4: The highest sees the index ending at eighty one hundred.
Speaker 4: That's from Oppenheimer. So the gap between the lowest and
Speaker 4: the highest is actually the narrowest that it's been in
Speaker 4: nearly a decade. So they're bullish and they're clustered, and
Speaker 4: there's this sense that when everyone is on the same
Speaker 4: side of the boat, there is too much optimism baked
Speaker 4: into consensus and it'll take very little to disappoint the market,
Speaker 4: and that's kind of the fear among some investors.
Speaker 5: I feel like this story I loved it, by the way,
Speaker 5: because it was a fantastic story with a lot of nuggets.
Speaker 5: And you said, such locks of views are generally considered
Speaker 5: a contrarian signal. Why is that when some if you
Speaker 5: take the other side, you would think, oh, there's consensus,
Speaker 5: it must be going this way.
Speaker 4: Indeed, right, well, sentiment is usually a contrariant indicator. And
Speaker 4: in this case, when everyone thinks that nothing can go wrong,
Speaker 4: it'll take very little to surprise to the downside. So
Speaker 4: it won't take a recession. It could take something as
Speaker 4: much as you know, a miss on earnings expectations, any
Speaker 4: kind of little benign announcement from the Fed about to
Speaker 4: them scaling back their expectations for monetary easing. And that
Speaker 4: is kind of the fear going into nexture. When you
Speaker 4: think about it, there are still so many risks. We
Speaker 4: don't know when the next interest rate cut will be,
Speaker 4: despite a lot of investors hoping for another one. We
Speaker 4: don't know whether the AI story will continue the momentum
Speaker 4: that we've seen in recent years. Given some of these
Speaker 4: circular financing deals, we don't know why there will get
Speaker 4: any more sporadic announcements from the president. Obviously that spread
Speaker 4: volatility this year, So any of those little things could
Speaker 4: be risks to markets, and it seems like Wall Street
Speaker 4: strategists aren't really accounting for them going into next year.
Speaker 4: But it's understandable because when you look on the when
Speaker 4: you look back in the past three years, they have
Speaker 4: actually erred on being too cautious and that has obviously
Speaker 4: proven wrong given they underestimated the rally. So this time
Speaker 4: around they don't want to underestimate the market strength.
Speaker 2: So the pendulum has swung. And of course there are
Speaker 2: external shocks right and black swans that we can't foresee.
Speaker 2: What are they saying, is God, what are these forecasters
Speaker 2: saying is going to push the market hired by double
Speaker 2: digits next year?
Speaker 4: So we're still seeing expectations for double digit earnings growth.
Speaker 4: That has been time and time again that the thing
Speaker 4: that has made the market so resilient. Corporate America has
Speaker 4: defied you know, higher interest rate costs, it has defied tariffs,
Speaker 4: and it's still performed and grown profits. So that is
Speaker 4: expected to continue next year. A story largely is still
Speaker 4: intact for now, even though there are some concerns about
Speaker 4: how companies will monetize their investments. For the most part
Speaker 4: these hyper scalers have been delivering on their earnings. Economic
Speaker 4: growth is still solid, the labor market, although it is
Speaker 4: a little bit sluggish, it's still in a good spot.
Speaker 4: And there's this view that that will actually make the
Speaker 4: FED ease policy, so that is probably going to lift
Speaker 4: the market higher.
Speaker 5: As someone who watches this space very very closely, what
Speaker 5: do you make of this exercise of having year end
Speaker 5: targets because this whole year you've written, you have this
Speaker 5: story every year before we to set up the next year.
Speaker 5: But then during that year you write so many things
Speaker 5: about sales side strategies, either advising upwards or downwards, and
Speaker 5: sometimes you've written about shops saying no, we just won't
Speaker 5: put out targets at all because you're just prone to
Speaker 5: basically putting out something and then it being wrong.
Speaker 4: So is it still helpful? It's so funny, it's somewhat
Speaker 4: of a necessary evil. And actually ned Davis Research said
Speaker 4: that you kind of have to have a target to
Speaker 4: give investors a sense of how bullish you are, the
Speaker 4: magnitude of game.
Speaker 6: That you see.
Speaker 4: But at the same time, Cameron Christ actually did an
Speaker 4: analysis on this, the correlation between what the market does
Speaker 4: and what strategist targets are is actually zero. There's pretty
Speaker 4: much you almost never hit that exact number, and it
Speaker 4: feels like it's impossible to do. But at the same time,
Speaker 4: retail investors specifically are very interested in what these people
Speaker 4: have to say. Usually when I talk to these strategists,
Speaker 4: they say that their institutional clients don't care so much.
Speaker 4: They care about sector views and kind of tactical trade ideas,
Speaker 4: but retail clients wealth managers do care how they're thinking
Speaker 4: about the market and.
Speaker 2: What are they saying about outside of equities, because we've
Speaker 2: seen the run up that commodities have had really across
Speaker 2: the board, our forecasts for more bullishness there.
Speaker 4: Well, there's been a lot of talk this year about
Speaker 4: exploring opportunities outside of equities, given how lofty valuations are.
Speaker 4: We've seen the S and P five hundred return something
Speaker 4: like eighty percent since the bull market began at the
Speaker 4: end of October, So you're seeing time and time again
Speaker 4: that some firms are recommending al turn diversifying into real
Speaker 4: assets commodities, and that's likely to be a theme going
Speaker 4: into twenty twenty six.
Speaker 5: JP Morgan had in their outlook a sixty forty plus.
Speaker 4: I liked that.
Speaker 5: I was like, oh, that's catchy very quickly. Who got
Speaker 5: it right this year?
Speaker 4: So it's funny Chris Harvey, who Isabelle and I broke
Speaker 4: the story that he left Wills Fargo to go to
Speaker 4: his new firm. He had a target of seven thousand
Speaker 4: and seven going into this year, and during the trade war,
Speaker 4: he was one of the only people who didn't capitulate.
Speaker 4: A lot of strategists were slashing their outlooks, they were
Speaker 4: downwardly revising, and then they ultimately had to u turn
Speaker 4: and go back to their original targets, and he stuck
Speaker 4: to his guns. And here we are, we're pretty close
Speaker 4: to his target. So he's one of the people who
Speaker 4: got it right. Mike Wilson and Morgan Stanley is also
Speaker 4: one of them. He had a sixty five hundred target
Speaker 4: on the s and p five hundred were obviously above
Speaker 4: that level. But he's also someone who maintained confidence in
Speaker 4: his call that stocks would recover into the second half
Speaker 4: of the year. But for the most part, we did
Speaker 4: see a lot of flip flopping at Your Denny at
Speaker 4: Your Denny research that he's never had to change his
Speaker 4: target this many times ever in his career.
Speaker 5: I remember you we talk sometimes when we collaborate with stories,
Speaker 5: and you would say you would prefer and you would
Speaker 5: look up to someone more even if the even if
Speaker 5: he's so far from the consensus, but if he stuck
Speaker 5: to his guns rather than people who just keep on
Speaker 5: revising and whenever the market moves, you're just like, oh, okay,
Speaker 5: let me change my target.
Speaker 4: Exactly. It's almost somewhat paradoxical because as a strategist you
Speaker 4: have to be nimble, you have to be aware of
Speaker 4: changing economic data and earnings, and you have to be
Speaker 4: willing to change your views. But at the same time,
Speaker 4: conviction is so important, and obviously your credibility kind of
Speaker 4: diminishes once you're going back and forth.
Speaker 2: It's all at play. Bloomberg's Alexandra Simonova, thanks so much
Speaker 2: for stopping by. Really interesting stuff, great read on the
Speaker 2: Bloomberg Terminal.
Speaker 7: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 7: up after this.
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Speaker 2: The S and B five hundred is broken through sixty
Speaker 2: nine hundred in case you missed it. It's been a
Speaker 2: narrow tech lead. Advanced volume though not so great right,
Speaker 2: thirty five percent below the average of the past month
Speaker 2: ahead of the Christmas holiday, but that's to be expected.
Speaker 2: So what are the themes in the new year? Where
Speaker 2: are the opportunities? We've brought in David Shasler, he is
Speaker 2: here to lend his thoughts. He's head of multi Asset
Speaker 2: Solutions at van X Funds. David, great to see you.
Speaker 8: Thank you so much for having me.
Speaker 2: So you say that the long game in twenty twenty
Speaker 2: six has not changed. What is the long game in
Speaker 2: your view?
Speaker 8: So we are thematic investors, and let's be clear, what
Speaker 8: does a theme mean. The theme is a structural market driver.
Speaker 8: If you're a thematic investor, this is a target rich environment.
Speaker 8: There are a lot of opportunities. So I'm going to
Speaker 8: start with disruptive technology innovation. Yes we're talking about AI. Yes,
Speaker 8: we're talking about AI automation. It's under hyped in regardless,
Speaker 8: you're hyped. Yes, okay, it is going to drive more transformation,
Speaker 8: more productivity, more growth, and it's going to happen fast
Speaker 8: than people expect.
Speaker 6: So that's where we're at.
Speaker 8: It's under hype. There's going to be dislocation between expectations
Speaker 8: or reality and not expection bumpingess. So it doesn't mean
Speaker 8: it happens in twenty twenty six. A lot of competition there,
Speaker 8: But that's the first theme. The second theme is there's
Speaker 8: a stealth bull market in real assets. Real assets are
Speaker 8: performing extraordinarily well as Greatest Tech did last year. This
Speaker 8: year is Greatest Tech died in twenty twenty five. Lots
Speaker 8: of segments of real assets actually outperformed. Not a lot
Speaker 8: of people talking about it. The new world doesn't happen
Speaker 8: without the old world build So give.
Speaker 2: Us some examples of real world assets.
Speaker 6: That you like.
Speaker 8: Energy, how are you going to build it?
Speaker 6: Right?
Speaker 8: So we've been leaning into the energy that you have
Speaker 8: that's actually going to power things now, fossil fuels, where
Speaker 8: are we going, what's proven, what's reliable? And nuclear energy.
Speaker 8: We've made a lot of money with that, so we're
Speaker 8: leading into energy, but also the infrastructure build out need
Speaker 8: to facilitate not only energy transition, but infrastructure development to
Speaker 8: support the technology. So that's the second theme. The third,
Speaker 8: how are we going to pay for it? We've been
Speaker 8: perpetually overspending for decades. We're in the period of accountability.
Speaker 8: Financial accountability, sorry not sorry. Debt matters, Deficits matter. You
Speaker 8: can't just spend and spend and spend without repercussions. And
Speaker 8: now we're at the point where that is the case.
Speaker 8: In pre twenty twenty, you could do whatever you wanted, print, print, print,
Speaker 8: no inflation. That's not the world we're in now. We're
Speaker 8: the world of financial accountability. So if we're going to
Speaker 8: pay for all the sins of the past with all
Speaker 8: that perpetual spending, and then start to think about what's
Speaker 8: on our plate, what's on our plate. You've got reshoring,
Speaker 8: you've got an infrastructure bill out, you've got a global
Speaker 8: tech race. We're losing is existential And when you frame
Speaker 8: it that way, When you frame it that way, well,
Speaker 8: debt and deficits really don't matter as much. Losing is
Speaker 8: what matters. And how are we going to pay for it?
Speaker 8: You're gonna pay for it with the basement why, because
Speaker 8: you have no option. That's what happens when you perpetually overspend.
Speaker 8: So you need to own assets with embedded scarcity. You've
Speaker 8: got to own gold, You've got to own bitcoin, bitcoins rugged.
Speaker 8: We think it does really well later part.
Speaker 6: Of next year.
Speaker 2: So are we going to have another another year where
Speaker 2: we see gold rally right along with stocks?
Speaker 8: This I will be bold enough to frame it out.
Speaker 8: Give me a little bit of flexibility. So if we
Speaker 8: meet next year, give me a little bit of flexibility
Speaker 8: in this, because I'm gonna be very very specific.
Speaker 2: Okay, we like that.
Speaker 8: I think big coins a top performing asset next year.
Speaker 8: I'll frame out why think gold does well. I think
Speaker 8: real assets, broad based real assets. How do you actually
Speaker 8: build it? How do you power it does better than gold?
Speaker 8: Big gold does well. Technology stocks a bit behind that.
Speaker 8: All four of those do well. That's how I frame
Speaker 8: that up. Here's the thing, right, why will bitcoin do
Speaker 8: so well in the later part of the year. We're
Speaker 8: not saying we're in a battle liquidity environment, but we're
Speaker 8: saying the liquidity environment is going to get a lot better.
Speaker 8: You're gonna have a new fed share coming into office.
Speaker 8: Check that box. You've got a large portion of this
Speaker 8: of the public that's not participating. You've got a narrow
Speaker 8: growth market, you've got declining employment conditions, it's setting the
Speaker 8: backdrop for easing financial conditions. Bitcoin is the instrument that
Speaker 8: responds best to that. There's an emotional element to it,
Speaker 8: and there's a quiity element to it. If you're nervous,
Speaker 8: you're not going to lead into that. But if you
Speaker 8: get more exuberant and more confident, you're going to. If
Speaker 8: you've got bitcoin, which is outperformed almost every year of
Speaker 8: its existence and now underperformed by thirty percent relative to
Speaker 8: tech stocks last year, seventy five percent relative to gold
Speaker 8: last year, it's basically a coiled spring. We think it
Speaker 8: outperforms next year.
Speaker 5: So you oversee model portfolios and vanac. How do you
Speaker 5: think of bitcoin and gold when you put them in
Speaker 5: your model portfolios? Do you think they complement each other
Speaker 5: or do you think they're in either? Or because you
Speaker 5: say that bitcoin will gain next year, will be the
Speaker 5: top performing asset, what is bitcoin like to you? Because
Speaker 5: I feel like it still needs to mature. Some say
Speaker 5: it's like a risk asset. Some but the premise of
Speaker 5: bitcoin is not to be like a risk asset. It's
Speaker 5: to be a hedge against installation.
Speaker 8: It's definitely undergone an identity crisis over time, it's matured
Speaker 8: over time, it's a teenager now, and as it's continued
Speaker 8: to mature, it's starting to act more mature. It's volatility
Speaker 8: profiles more muted, the swings are less extreme, and it's
Speaker 8: starting to kind of set in its saddle in regards
Speaker 8: to what it is, and I think you could more
Speaker 8: correctly frame it and allocate to it. So we own
Speaker 8: gold and bitcoin, want a lot more gold than we
Speaker 8: do bitcoin. If the market sells off, I expect gold
Speaker 8: to be there for me. I expect bitcoin to be
Speaker 8: a risk asset. The similarity, the core similarity, is that
Speaker 8: they both have scarcity, and that's why they're both beneficiaries
Speaker 8: of financial access. However, when they perform and how they
Speaker 8: perform are very very different. Given the structural under performance
Speaker 8: of bitcoin over the last twelve eighteen months, we think
Speaker 8: it's set up for our performance next year. Gold we
Speaker 8: think still does great, but it's going to breathe a
Speaker 8: little bit. It's going to be volatile. It's not going
Speaker 8: to be a straight line. This way. The supply of
Speaker 8: gold static incremental investment demand. Given how small gold is
Speaker 8: relative to stocks and bonds, gold will become unhinged. It
Speaker 8: will become more volatile. People are gonna be surprised how
Speaker 8: voalatle it gets. That's the opportunity. It's a feature, it's
Speaker 8: not a flaw.
Speaker 5: And you have a five thousand price market for gold too.
Speaker 6: What was that?
Speaker 5: He has a five thousand price.
Speaker 8: Yes, we came out with that. We came out with
Speaker 8: that when gold was below three thousand dollars, so I
Speaker 8: think it was around twenty eight hundred. We said gold
Speaker 8: would go to five thousand dollars. Thought it would happen
Speaker 8: by the end this year. Miss that mark. We think
Speaker 8: it goes well above five thousand dollars in twenty twenty six.
Speaker 2: And just in about twenty seconds. What about Europe? Are
Speaker 2: they going to outperform us as much as they did
Speaker 2: this year?
Speaker 9: No.
Speaker 8: If you want to hedge, first off, you go where
Speaker 8: the growth is, invest where the growth is. If you
Speaker 8: want to hedge the dollar, go to gold, go to
Speaker 8: big one. So extract the currency, move out of European
Speaker 8: equities and the picture looks different, all right.
Speaker 2: David Chanstler, he is head of multi asset Solutions at
Speaker 2: van K Funds. Thank you for your predictions, some of them.
Speaker 7: Bold with us. More from Bloomberg Business Week Daily coming
Speaker 7: up after this.
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Speaker 10: station Just Say Alexa played Bloomberg eleven thirty.
Speaker 2: Artificial intelligence. We keep talking about it. We talk about
Speaker 2: how it touches almost every part of our lives. Well,
Speaker 2: guess what. It's also changing the way life sciences companies
Speaker 2: use real estate, and guess what it's coming at a
Speaker 2: time when more than sixty million square feet of lab
Speaker 2: space is sitting vacant, vacant on US markets. Those are
Speaker 2: just some of the findings in jll's twenty twenty five
Speaker 2: Life Sciences Real Estate Perspective and Cluster Analysis. I know
Speaker 2: that's a mouthful, but Travis McCready he is head of
Speaker 2: Industries and Leading Advisory at JLLL and he joins US
Speaker 2: now remotely. Travis, thanks so much for being with us.
Speaker 2: I found this report to be really fascinating. I love
Speaker 2: this kind of stuff, and I really love real estate.
Speaker 2: So this is sort of a different way into real estate. Look,
Speaker 2: there was a lot of overbuilding in the life science
Speaker 2: real estate industry.
Speaker 10: This we know.
Speaker 2: How does this set up landlords, tenants and also those
Speaker 2: looking for to invest in this area? How does that
Speaker 2: set us up for twenty twenty six.
Speaker 9: Indeed, it's the asymmetry between demand and supply right now
Speaker 9: and the effect of overbuilding, building way too much too
Speaker 9: soon in the life science is really puts us at
Speaker 9: the bottom of a cycle heading into twenty twenty six.
Speaker 3: And that's the good news.
Speaker 9: As you mentioned, the artificial intelligence is changing the way
Speaker 9: that we engage in research and development, hopefully making it
Speaker 9: more efficient, making it more efficacious. So on the horizon
Speaker 9: will be an uptick in entrepreneurship and hopefully an uptick
Speaker 9: and demand. But right now, heading into twenty twenty six,
Speaker 9: make no mistake, with sixty million square feet of vacancies
Speaker 9: that we need to digest across the United States, we have,
Speaker 9: as the saying goes, we have a lot of wood
Speaker 9: to chop in order to return to equilibrium from a
Speaker 9: lab standpoint in the United States.
Speaker 5: So we've seen more than twenty five billion dollars in
Speaker 5: new US bio manufacturing commitments announced. Is this the start
Speaker 5: of US sustained resharing cycle or is this more tactical
Speaker 5: response to the current policy that the pressures we're seeing.
Speaker 3: I think it's a little bit of both. Those investments.
Speaker 9: That twenty five billion dollars worth of investment is both
Speaker 9: a reflection of policy change making it more favorable to
Speaker 9: engage in pharmaceutical manufacturing on US soil, US and Puerto Rico,
Speaker 9: but it's also a function of the fact that we
Speaker 9: have more drugs that actually need to be manufactured.
Speaker 3: There's been an.
Speaker 9: Increase in pharma m and A activity, there's a there's
Speaker 9: certainly going to be an increase in twenty twenty six
Speaker 9: in revenues, about an eighteen percent increase in revenues from
Speaker 9: the top ten drugs.
Speaker 3: Alone sold in the United States.
Speaker 9: So it's a combination of factors, both policy shifts and
Speaker 9: more drugs being on the market that's driving that's driving
Speaker 9: that investment.
Speaker 2: In Travis I know Boston for sure, but also San Francisco,
Speaker 2: the Bay Area, San Diego, there are big markets for
Speaker 2: the biosciences, for life science, real estate. Any you think
Speaker 2: they're going to hold onto those positions in the new year.
Speaker 2: What are some other opportunities or other markets that might
Speaker 2: may be catching up.
Speaker 9: Yeah, those two markets are and will continue to be
Speaker 9: the leading life sciences markets in North America. The Greater
Speaker 9: Boston area inclusive of Cambridge and Boston as well as
Speaker 9: the as the Bay Area. That's that's the major two.
Speaker 9: Rounding out the third, however, is San Diego. We've seen
Speaker 9: an enormous amount of activity over the past decade in
Speaker 9: terms of output and real estate in the southern California
Speaker 9: San Diego area.
Speaker 3: So those that's the that's the trilogy to the trinity.
Speaker 9: Of of of markets in in the life sciences. After that,
Speaker 9: there are just as a great number about a dozen
Speaker 9: of exciting markets across the US on both coasts, and
Speaker 9: a couple in in the Midwest as well. One I
Speaker 9: point out is Indianapolis, a great market right now for
Speaker 9: pharmaceutical manufacturing as well as animal and veterinary types of
Speaker 9: life sciences activity. North Carolina, which is perhaps our most
Speaker 9: vibrant pharma manufacturing state in the United States, as well
Speaker 9: as Philadelphia, some really interesting things happening with massive urban
Speaker 9: reclamations in and around the Philadelphia area that are being
Speaker 9: backfilled with life science is activity driven by children's hospital
Speaker 9: and you Penn.
Speaker 3: So there are lots of markets to watch.
Speaker 9: But in terms of what's going to drive the amount
Speaker 9: of American activity in terms of volume, Boston, San Diego,
Speaker 9: and San Francisco.
Speaker 5: And we know funding is tighter and investors are demanding
Speaker 5: more capital efficiency, but what does doing more with less
Speaker 5: space actually look like? For instance, inside a biotech facility.
Speaker 9: Yeah, a lot of the efficiency metrics that are being
Speaker 9: pushed by biotechs right now will shift the amount of
Speaker 9: wet lab space, the space where science is actually conducted,
Speaker 9: as well as increasing the amount of dry lab space
Speaker 9: in order to densify real estate. Real estate environments, the
Speaker 9: actual signs increasingly can be pushed and outsourced to contract
Speaker 9: research or contract development manufacturing organizations, so that can densify
Speaker 9: the amount of lab space that you actually need. And
Speaker 9: then again there's always artificial intelligence. Every amount of the
Speaker 9: R and D cycle right now is being activated by AI,
Speaker 9: and in order to deploy AI within that setting, you
Speaker 9: need dry lab space office space. So you can actually
Speaker 9: densify your footprint quite a bit for a biopharma looking
Speaker 9: to conserve capital just by deploying those strategies, outsourcing artificial
Speaker 9: intelligence and densifying your space.
Speaker 2: Yeah, in about thirty second, Straves, I just want to
Speaker 2: talk about rent for a moment, because we know that
Speaker 2: rent has just been off the charts for when it
Speaker 2: comes to you know, residential for so many folks. But
Speaker 2: for buyertech companies, could the oversupply situation actually be an
Speaker 2: opportunity to maybe get a better deal.
Speaker 9: There's certainly better deals in the offing. We've seen in
Speaker 9: all markets in erosion of top line rents, particularly for
Speaker 9: Class A space, and we've also seen an increase in
Speaker 9: deal time, and that's largely as a result of the
Speaker 9: fact that there's more inventory for tenants to be able
Speaker 9: to cycle through. They have more choice and they can
Speaker 9: push stronger, better deals, both in terms of top line
Speaker 9: top line rent, free rent and as well as lengths
Speaker 9: of lease. So you're absolutely right, and now is the time.
Speaker 9: It's a great time to be an occupier.
Speaker 2: Yep, they might just be throwing some incentives your way.
Speaker 2: Travis McCready, head of Industries and Leading Advisory over at JLLM.
Speaker 7: Stay with us more from Bloomberg Business Week Daily coming
Speaker 7: up after this.
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Speaker 2: The airline industry, boil Boy, has it had its share
Speaker 2: of challenges this year. That shortage of air traffic controllers
Speaker 2: we know an ongoing issue, but also the historic government shutdown.
Speaker 2: It forced the airlines to drastically cut their schedules basically overnight.
Speaker 2: But through it all demand is there. We continue to
Speaker 2: fly in this country and over the holidays. It's just
Speaker 2: more of the same record high travel. And that's despite
Speaker 2: higher ticket prices. The average round trip now get this,
Speaker 2: nine hundred dollars for a domestic flight.
Speaker 5: I can't even believe that I've been braced talking about.
Speaker 3: Bloomberg News.
Speaker 2: Chief correspondent for Global Aviation Sid Phillip is here in
Speaker 2: studio to talk about this, and the Outlook for Global
Speaker 2: Aviation said, great to see you.
Speaker 3: I'm great.
Speaker 2: We're seeing you before your trip tomorrow because you're traveling.
Speaker 6: Exactly hopefully it goes well.
Speaker 3: You're flying to London to I am flying.
Speaker 6: That's brave, it is pretty brave. It's also a sort
Speaker 6: of test to see how bad things could be there.
Speaker 2: You go there a story out of US collector area exactly.
Speaker 2: So under three just under three million people are being
Speaker 2: moved by the airlines per day now through January fifth, exactly.
Speaker 6: That's so the number that we've got from Airlines for
Speaker 6: America says that about two point nine million people will
Speaker 6: travel average from the from the during the Christmas rush
Speaker 6: until the first week of January, and the busiest days
Speaker 6: of travel would have been yesterday and the twenty eighth,
Speaker 6: and that's why people sort of go on holiday and
Speaker 6: come back and so that's why those are the busiest days.
Speaker 6: And we will see some days when there isn't that
Speaker 6: much travel tomorrow and they after should be the days
Speaker 6: with the least amount of travel.
Speaker 5: So hopefully things go well for me, Yeah, because everyone
Speaker 5: wants to be home exactly by Christmas. And New York
Speaker 5: and New Jersey airports are expecting a record five point
Speaker 5: seven million travelers from December twenty two to January before.
Speaker 5: Are those two the busiest in terms.
Speaker 6: Of international travel, Yes, those are things to be the busiest.
Speaker 6: In terms of domestic airport we have Atlanta, We've got
Speaker 6: other airports Dallas, Fort Worth, and so there are many
Speaker 6: airports in the US that are seeing a massive sort
Speaker 6: of surge in demand. We're seeing people across the country
Speaker 6: looking to fly. And that's also been because this year
Speaker 6: has been sort of all about various ebbs and flows
Speaker 6: for the airline industry, and so people are sort of
Speaker 6: now getting out there and getting on planes, going to
Speaker 6: see family gone vacation, and sort of just buckling down
Speaker 6: on being those prices, if at all.
Speaker 2: I'm wondering if you have any insight into whether or
Speaker 2: not things are going to improve when it comes to
Speaker 2: the air traffic controllers, because we've seen I mean, not
Speaker 2: only is it an inconvenience, it's a safety issue. Is
Speaker 2: there is there a reason to believe that's going to
Speaker 2: change in the new year.
Speaker 6: The air traffic controllers has been sort of under fire
Speaker 6: for a while. I mean not just during the shutdown,
Speaker 6: but even before it, when we had those sort of
Speaker 6: shortages that Nuak Airport had and those sort of massive
Speaker 6: issues very close calls exactly right, and so we've seen that.
Speaker 6: We've seen it from this sort of the middle of
Speaker 6: the The government has been talking about increasing funding for
Speaker 6: air traffic controllers, and the government has said that they've
Speaker 6: hired more recruits and Chinees into the academy. They're also
Speaker 6: sort of getting those recruits across the line and into
Speaker 6: air traffic control stations. But it takes a long time.
Speaker 6: It takes some years to actually be able to be
Speaker 6: fully independent and actually be managing traffic. And so it's
Speaker 6: not really a sort of quick, fixed solution for anything.
Speaker 6: It has to be a very long process to actually
Speaker 6: hire those controllers, to train them up and make sure
Speaker 6: that they're fully capable of handling traffic into and out
Speaker 6: of those airports.
Speaker 5: I know there must be many reasons, a myriad, but
Speaker 5: why did we even see shortages to begin with? I
Speaker 5: just feel like it's it's a cool job. It must
Speaker 5: be a whelping job. It's like you're serving.
Speaker 9: In the country.
Speaker 6: It's a very stressful job. So it's a well paid job,
Speaker 6: but it's very very stressful. I mean, one of the
Speaker 6: controllers we talked to previously for a story said that
Speaker 6: you have to have the ability to drink in three dimensions.
Speaker 6: So it's actually and clans, Yeah, exactly, And so you're
Speaker 6: making quick decisions, you're telling you're communicating with multiple aircraft
Speaker 6: multiple times, so that you've got to be able to
Speaker 6: work really fast, think in three dimensions, because you're not
Speaker 6: just dealing with things sort of vertically and horizontally, but
Speaker 6: you're also stacking things up and sort so that makes
Speaker 6: things much more complicated. And so it's a very complicated
Speaker 6: job and it's not ready for everybody, and many people
Speaker 6: crack under the stress of the job. So off the
Speaker 6: recruits that get into the academy, very few actually make
Speaker 6: it out into the field because it's just a very demanding.
Speaker 5: Job and you want to make sure that the people
Speaker 5: you put out there on exactly super qualified because lives.
Speaker 6: Are at the risk, and then being able to do
Speaker 6: those jobs day in, day out, and not just sort
Speaker 6: of it's not one off thing. You got to do it.
Speaker 6: You've got to be doing it multiple days, multiple time.
Speaker 2: It takes a special person to be able to do
Speaker 2: that exactly.
Speaker 5: Yes, is this a US specific thing, I'm wondering if
Speaker 5: other parts of the world also see it.
Speaker 6: It is an issue across the world. I mean, because
Speaker 6: you obviously need as generations of air traffic controllers retire,
Speaker 6: you need to make sure that the pipeline of newer
Speaker 6: controllers taking those jobs. And so it is an issue
Speaker 6: I mean, it came up in the US much harder
Speaker 6: because I mean of various reasons that sort of led
Speaker 6: to a lot of controllers retiring, as well as the
Speaker 6: fact that there wasn't sufficient recruitment years ago, and so
Speaker 6: that sort of coincided to create this shortage. But the
Speaker 6: government has talked about both modernizing the air traffic control
Speaker 6: system because I mean, at the same time as the
Speaker 6: shortage of controllers is also very antiquated equipment in those
Speaker 6: air traffic controller systems. Yeah, and so that's something as
Speaker 6: well that they need to sort of tackle at the
Speaker 6: same time. So Congress has given Sean Duff, Transportation Secretary,
Speaker 6: the first tranch of that funding that he's seeking in
Speaker 6: order to modernize as the air space and there are
Speaker 6: sort of upgrades in terms of upgrading from copper wire
Speaker 6: to fiber and sort of increasing increasing new systems, especially
Speaker 6: since some of the systems that they previously had are
Speaker 6: sort of long out of data need to be replaced.
Speaker 5: I was going to say, AI still can't take it.
Speaker 2: Hey, I don't thanks, don't do not get hand that
Speaker 2: over to AI, and not if I'm in the plane,
Speaker 2: thank you very much. I do want to zoom out
Speaker 2: for a minute and just look at the industry overall.
Speaker 2: Next year, I'm imagining consolidation is still going to be
Speaker 2: a theme if I read this right, Spirit and Frontier
Speaker 2: talking again about a possible merger. I think that's the
Speaker 2: fourth time we'll see if you know, the fourth time
Speaker 2: is a charm. But do you think we're going to
Speaker 2: see more consolidation and will it be in the discount
Speaker 2: carrier space?
Speaker 6: So the discount carriers have been struggling, So Delta and
Speaker 6: United sort of made their strategy in targeting premium travelers
Speaker 6: coming out of the pandemic, and they've done really well
Speaker 6: on that strategy. So a lot of people had money
Speaker 6: to spend and they were willing to pay more for
Speaker 6: a better travel experience the premium. This sort of the
Speaker 6: low cost carriers at the bottom end the market have
Speaker 6: also seen that customers really affected, because I mean, we
Speaker 6: keep talking about the case shape recovery in the economy,
Speaker 6: and so the customers at the bottom end are the
Speaker 6: ones sort of holding off on travel decisions, holding off
Speaker 6: and going on those extra holidays, and that's where the
Speaker 6: low cost carriers play in, and that's where they're sort
Speaker 6: of seen a hit to their books and balance sheet.
Speaker 6: I mean, so Spirits in its second bankruptcy, in a
Speaker 6: second chapter eleven bankruptcy, and so in order for it
Speaker 6: to survive, I mean, it is looking at possibilities. And
Speaker 6: we reported that they are in discussions with Frontier and
Speaker 6: that will sort of give them more scale and be
Speaker 6: able to better compete against the other airlines.
Speaker 2: All right, Bloomberg sid fill up our chief correspondent for
Speaker 2: global aviation.
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