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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app.

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Speaker 1: Here's the latest. Kamala Harrison President Biden are set to

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Speaker 1: speak in Maryland today.

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Speaker 3: It is their first joint trip.

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Speaker 1: Since Biden dropped out of the race. This is coming

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Speaker 1: ahead of Harris Israeli and North Carolina tomorrow, where she's

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Speaker 1: expected to unveil details about her policy agenda. Joining us

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Speaker 1: now is Tom Steyer, co founder of Galvani's Climate Solutions. Tom,

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Speaker 1: great to have you back. Thank you so much for

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Speaker 1: being with us. What are you hoping to hear from

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Speaker 1: Harris's campaign given that we haven't heard so much in

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Speaker 1: terms of how she differs from President Biden.

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Speaker 4: Well, what I'm expecting to hear Lisa and hoping to

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Speaker 4: hear is that her agenda around the economy is going

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Speaker 4: to be about opportunity. Then in fact, she understands that

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Speaker 4: America is the land of opportunity and it gives everything

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Speaker 4: the chance to do the most, and that is exactly

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Speaker 4: what drives this economy, what makes our capitalism capitalistic economy

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Speaker 4: so strong. At the same time that I expect her

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Speaker 4: to continue most of the policies of the Biden Hairris administration.

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Speaker 5: So she will continue on this electrifying the grid. What

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Speaker 5: more do you expect if she were to win, that

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Speaker 5: they can add on to what Biden did. When it

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Speaker 5: comes to the Inflation Reduction Act, well, I.

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Speaker 4: Think to a large extent, it is going to be

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Speaker 4: about implementing the Inflation Reduction Act, which is really two things.

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Speaker 4: It's not just about the grid. It's about deploying the

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Speaker 4: existing technologies when solar batteries evs, but it's also about

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Speaker 4: innovating and creating the next generation of any related companies

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Speaker 4: and technologies. So that second part is absolutely critical. We're

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Speaker 4: seeing deployment happen spurred by the IRA, but very much

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Speaker 4: driven by private money. What we need to see is

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Speaker 4: new companies solving some of the problems around energy in

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Speaker 4: ways that work for consumers and companies.

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Speaker 5: Well, when it comes to the competition, and if you

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Speaker 5: think climate is existential, why not let the cheap Chinese

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Speaker 5: evs into the United States.

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Speaker 3: I'm square.

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Speaker 4: Here's my answer for you. Look, I am a huge

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Speaker 4: believer in trade. I believe that the benefits, the dispersed

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Speaker 4: benefits to American consumers of trade are huge and important,

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Speaker 4: and we've all enjoyed them for a long time. And

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Speaker 4: it's theoretically true too. What is true is that the

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Speaker 4: Chinese economy is doing something strange. They are leading the

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Speaker 4: manufacturing of almost every clean energy product wind turbines, solar arrays, batteries, evs.

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Speaker 4: But what's also true is they're by far the biggest

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Speaker 4: polluter in terms of carbon emissions, and they're using their

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Speaker 4: carbon emissions to try and drive their economic program of

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Speaker 4: leading this energy transition to pull their very weak economy

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Speaker 4: out of the ditch. So, in fact, the idea that

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Speaker 4: they should be charged for their emissions that are about

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Speaker 4: a third of global emissions makes very good sense to me.

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Speaker 4: And we're doing it in not direct way, but it's

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Speaker 4: actually a way that turns out to be pretty fair.

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Speaker 5: The other big issue, not just national security when it

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Speaker 5: comes to China, but the other big political issue in

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Speaker 5: the election is who's going to win the union vote.

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Speaker 5: How does Kamala Harris strike that tone the fact that

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Speaker 5: they want to see more evs in the road. But

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Speaker 5: actually this unnerves a lot of rank and file of

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Speaker 5: those labor unions in places like Michigan, which is critical

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Speaker 5: to Democrats maintaining the White House.

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Speaker 4: Absolutely, But let's take a step back, if we could, Henry,

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Speaker 4: which is this We've all listened to Elon Musk and

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Speaker 4: Donald Trump talk about their attitude towards organized labor and

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Speaker 4: labor unions. In fact, they've been sued over what they

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Speaker 4: said on Twitter. So the truth is, it's not a

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Speaker 4: choice between Kamala, who is a very strong union person,

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Speaker 4: and a blank person. It's someone who clearly is anti union,

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Speaker 4: an anti working person. And that's been a long history

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Speaker 4: over decades of where mister Trump has gone and where

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Speaker 4: he's likely to go. So yes, it's absolutely clear that Michigan. Obviously,

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Speaker 4: the UAW has a huge sway in Michigan and they're

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Speaker 4: a really important part of the Democratic coalition. But the

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Speaker 4: truth is that the person who supports working people and

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Speaker 4: who supports organized labor is definitely Kamala Harris. And to

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Speaker 4: go any other way is to ignore the facts of

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Speaker 4: this week, let alone the last two decades.

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Speaker 6: And Tom, you're painting quite a dichotomy between the two candidates.

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Speaker 6: And I just wonder in your conversations with not just

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Speaker 6: investors but portfolio companies that want to do clean technology,

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Speaker 6: if there's a sense that they're holding back on investing

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Speaker 6: because of the uncertainty of the race, and it might

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Speaker 6: continue to do so if it is a Trump presidency.

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Speaker 4: Well, I think when we talk about the possibility of

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Speaker 4: a Trump presidency, let's break it down into two things.

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Speaker 4: One is what's going to happen in the United States

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Speaker 4: of America. And I think that to a very large extent,

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Speaker 4: when it comes to the deployment of the existing technologies,

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Speaker 4: they're just cheaper. You know, if you look around the

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Speaker 4: world last year, so twenty twenty three of new electricity generation,

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Speaker 4: eighty six percent of it was renewable. They're not doing

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Speaker 4: that to be nice. They're doing it because it's a cheaper,

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Speaker 4: better deal. And those lines have crossed and there's nothing

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Speaker 4: that mister Trump can do to change the economic forces.

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Speaker 4: What is really important from the standpoint of addressing the

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Speaker 4: climate crisis more broadly, is this, This is obviously a

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Speaker 4: global issue. It requires global cooperation and American leadership. That

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Speaker 4: is something that a Trump administration will never do. I mean,

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Speaker 4: they famously withdrew from the Paris Accords. He's talking about

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Speaker 4: getting out of NATO, let alone cooperating with the UN

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Speaker 4: efforts around climate. So from the standpoint of the American economy,

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Speaker 4: we're going to continue to deploy. I think that's baked

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Speaker 4: in the cake, just because it's a better deal. Texas

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Speaker 4: has tripled its solar since twenty eighteen, and that's the

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Speaker 4: state where they love to say how bad renewables are,

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Speaker 4: but they're a bigger win producer and producer than California.

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Speaker 1: Tell me, Joseph about thirty seconds. Do you think that

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Speaker 1: Musk's friendship with Donald Trump will ensure that there will

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Speaker 1: be a friendly environment for electric vehicles even if Trump

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Speaker 1: gets since the office. No.

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Speaker 4: I think that mister Trump doesn't really have policies and

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Speaker 4: he doesn't have friendships. So whatever he said on said

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Speaker 4: this week, that's something that'll change over time because they

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Speaker 4: don't even have a platform. They literally don't have a

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Speaker 4: platform because they don't have policies. They just have instincts

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Speaker 4: urges and vengeance.

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Speaker 1: Time Stier of Galvanized Climate Solutions, who really appreciate you

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Speaker 1: coming in as always, thank you for being here. Here's

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Speaker 1: the latest cruise lines of bucking the trend and travel industry.

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Speaker 1: The signs of a consumer slowdown continue to mound, at

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Speaker 1: least in certain corners. Norwegian Cruise Line Holdings, Carnival and

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Speaker 1: Royal Caribbean all boosting their year end outlooks amid record

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Speaker 1: setting demand. Harry Summer, Norwegian Cruise Line Holdings President and

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Speaker 1: Chief executive Officer, joins us. Now, Harry, thank you so

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Speaker 1: much for being with us. I want to just start

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Speaker 1: with what you're seeing in terms of whether demand is

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Speaker 1: sort of plateauing, accelerating or falling off. Just a touch

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Speaker 1: on the.

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Speaker 3: Margins, Well, good morning. Thank you for having me. On

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Speaker 3: Demand in the cruise industry right now is great. We're

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Speaker 3: very very happy with what we're seeing with the consumer.

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Speaker 3: You know, keeping in mind that the demographic that we're

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Speaker 3: pursuing is mostly upper middle class, upper class demographic across

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Speaker 3: our three brands, and those consumers certainly continue to have

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Speaker 3: money to spend and are continuing to spend it on crucifigations.

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Speaker 1: At this point, Harry, I guess there's this key question

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Speaker 1: of how divorced the upper echelons are from the rest

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Speaker 1: of the economy. Essentially, do you find that your business

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Speaker 1: is somewhat insulated from a cycle where you have consumers

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Speaker 1: that aren't necessarily feeling the same kind of pinches elsewhere.

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Speaker 3: So I think there's a number of criteria, a number

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Speaker 3: of things that really do help insulate us, as you

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Speaker 3: mentioned now. Number one, we are fishing in the upper

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Speaker 3: demographic pool, as I mentioned, but we also have a

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Speaker 3: very long lead time for booking. So unlike hotels and

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Speaker 3: air which are dependent on a lot of close in bookings,

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Speaker 3: our average booking curve is six eight months into the future.

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Speaker 3: So we have tremendous visibility into trends. If there is

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Speaker 3: ever any weakness that we're not seeing any but every

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Speaker 3: once in a while there's a few sailings that perhaps

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Speaker 3: are doing less well, we can make adjustments six eight

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Speaker 3: months in advance, small adjustments that put things back on track.

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Speaker 3: It's really a unique feature of the cruise industry that

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Speaker 3: allows us to continue to have more stable and higher returns.

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Speaker 3: You know, fundamentally, cruises is a tremendous value. Our average yield,

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Speaker 3: you know, versus a hotel ADR is anywhere from thirty

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Speaker 3: to forty percent below what they expend on a hotel.

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Speaker 3: And I think consumers, whether times are good, but especially

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Speaker 3: if times are less good, certainly recognize that value and

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Speaker 3: that accrues to us. I mean, the last couple of quarters,

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Speaker 3: we've reported eight and six percent year over year yield

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Speaker 3: increases compared to last year, where we're guiding to another

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Speaker 3: six percent for Q three. We see that as a

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Speaker 3: very strong consumer.

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Speaker 6: Harry, I just wonder about prices. I mean, are you

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Speaker 6: in a position where you might even be able to

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Speaker 6: rise raise prices given that level of demand?

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Speaker 3: You know, I think, yes, great question. I think what

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Speaker 3: we've showed in our financewers for the last few quarters

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Speaker 3: is pricing has been going up. We're guiding in Q

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Speaker 3: three and Q four for prices to go up. I

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Speaker 3: mean you may imagine, you know, with the long lead

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Speaker 3: time I described, Q three and Q four are substantially

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Speaker 3: sold out, so we have great visibility and we stand

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Speaker 3: behind the guidance we just issued a few weeks ago

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Speaker 3: in our quarterly earnings goal. Pricing will absolutely go up

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Speaker 3: in both quarters, and it looks that way for twenty

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Speaker 3: twenty five certainly as well, Harry.

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Speaker 6: I want to get your thoughts as a CEO of

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Speaker 6: a major company. Lisa mentioned this fascinating statistics of CEO

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Speaker 6: is being let go from companies at an unprecedented pace,

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Speaker 6: going back to twenty seventeen. I wonder how you think

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Speaker 6: about this moment in time. You're obviously the CEO of

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Speaker 6: a company that's successful, but when you look among your

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Speaker 6: peers again, not just the cruise industry, but CEOs of

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Speaker 6: large companies, has something changed that there is more pressure

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Speaker 6: in a way there hasn't been before.

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Speaker 3: So I'm guessing there's always been pressure in the CEO role.

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Speaker 3: But I think we're in a world of a rapidly

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Speaker 3: involving consumer. You know, tastes change over time and consumers

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Speaker 3: change over time, and we have to be constantly thinking

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Speaker 3: and innovating in the future. I mean, right now, as

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Speaker 3: an example, we're planning for ship deliveries through twenty thirty six.

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Speaker 3: I mean, we have to have a pretty good crystal

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Speaker 3: ball and a pretty good feel for what the consumers

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Speaker 3: are going to want for you know, years, even a

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Speaker 3: decade into the future, and it's really important to keep

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Speaker 3: that future focus if we're going to be successful.

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Speaker 5: Harry, we had the Sea of Marriott on yesterday and

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Speaker 5: I'm talking about Marriotte yachts. Now, are you concerned on

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Speaker 5: the higher end consumer the competition that's coming into the industry.

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Speaker 3: You know, I've always said that our competition is not

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Speaker 3: other cruises. I mean, cruises in general make up about

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Speaker 3: two to three percent of the overall vacation market. You know,

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Speaker 3: we're keenly focused on what hotels do in general, and

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Speaker 3: we believe cruising is a wonderful vacation alternative to hotels.

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Speaker 3: I mentioned before the huge gap in value or price

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Speaker 3: thirty to forty percent below hotel. But also, you know,

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Speaker 3: hotels have their asset light model as being a competitive

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Speaker 3: advantage in their industry. It's also a competitive disadvantage because

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Speaker 3: they lose control of the product. We own all thirty

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Speaker 3: two ships in our fleet, fully own them one hundred

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Speaker 3: percent ourselves. We have thirteen more ships on order, by

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Speaker 3: the way, and we can ensure that we deliver an

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Speaker 3: outstanding consistent product across the fleet, and I think guests

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Speaker 3: are beginning to realize that that consistency is something you

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Speaker 3: don't always get in the hotel space.

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Speaker 5: I've been on cruises before, and when you get on

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Speaker 5: board all the extras you have to spend more on,

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Speaker 5: especially things like some of these excursions. Are you seeing

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Speaker 5: consumers start to ratchet back some of that spending.

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Speaker 3: You know, not at all. Our onboard spend continues at

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Speaker 3: record levels, you know, you know, we get weekly reports,

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Speaker 3: you know, as our ship's travel of our fifty five

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Speaker 3: to sixty thousand guests that we're carrying at any given time,

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Speaker 3: on board spend shows no cracks. We're very very happy.

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Speaker 3: You know. It's another advantage I mentioned the long lee

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Speaker 3: time that consumers have in making bookings, so they're paying

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Speaker 3: for their cruises four or five months in advance. By

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Speaker 3: the time they come on the cruise, that money spend,

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Speaker 3: it's already paid for off their credit card. They come

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Speaker 3: on the ship with the full whilet ready to spend more.

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Speaker 3: And unlike hotels where people don't really stay at a hotel,

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Speaker 3: although the tent to sleep, people stay on the ship

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Speaker 3: to do everything, shop, spa casino, they arrange their short

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Speaker 3: tours for us, so we really have we really getting

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Speaker 3: much larger share the consumer's wallet on the ship as well.

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Speaker 1: It is literally a captured audience. Harry Summer, Thank you

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Speaker 1: so much for being with us. Harry Summer, Norwegian Cruise

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Speaker 1: Line Holdings, President and chief executive Officer, bond market selling

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Speaker 1: off of but yields Hire you are seeing good news

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Speaker 1: is good news across the equity sphere. Joining us now

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Speaker 1: Tom Porcelli a PGM fixed income which is a good

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Speaker 1: and beautiful thing. Tom, always wonderful to see.

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Speaker 3: Thank you for being here. Good to be with you all.

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Speaker 1: So what's your initial take? This actually wouldn't suggest that

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Speaker 1: the Fed is behind the curve and needs to cut

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Speaker 1: rates aggressively.

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Speaker 7: So I think it depends how you define behind curve, right,

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Speaker 7: because I don't know that you're supposed to be looking

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Speaker 7: for notable consumer weakness today. But let's just use the

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Speaker 7: sort of the FED zone forecast against them for a second.

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Speaker 7: If you look at what they're forecasting for the unemployment

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Speaker 7: rate next year, what they're forecasting for inflation next year,

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Speaker 7: and what they're forecasting for the FED funds rate next year,

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Speaker 7: the unemployment rate and the inflation rate are we have

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Speaker 7: that right now, and they have one hundred basis points

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Speaker 7: of cuts next year. So I would argue that you

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Speaker 7: pulled forward all of this. You've pulled forward the slowing

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Speaker 7: and labor, you've pulled forward the slowing in the unemployment rate.

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Speaker 7: So I think there is justification for pulling forward this

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Speaker 7: hundred basis points worth of cuts that they actually are

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Speaker 7: forecasting for next year to this year. So to me,

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Speaker 7: that's the sort of the right calculus of it.

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Speaker 3: I would actually also.

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Speaker 7: Argue that, you know, when you think about cuts, even

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Speaker 7: if and again it's not our forecast, we're not saying

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Speaker 7: they're going to do one hundred basis points worth of cuts,

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Speaker 7: But I have a lot of sympathy for the idea,

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Speaker 7: which is what the market is pricing in.

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Speaker 4: You know.

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Speaker 7: I think what we have to keep in mind is

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Speaker 7: you're even at one hundred basis points. If you cut

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Speaker 7: one hundred basis points, defend is still restrictive. I mean,

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Speaker 7: that's sort of the interesting thing. Policy was calibrated or

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Speaker 7: is calibrated for a meaningfully higher inflation rate and is

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Speaker 7: calibrated for meaningfully lower unemployment rate. But those things have

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Speaker 7: now moved.

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Speaker 1: Okay, that said, you have to wonder, if this is

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Speaker 1: incredibly restrictive, why the economy isn't feeling it, why you're

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Speaker 1: seeing an acceleration in retail sales.

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Speaker 7: Yeah, So what I would say is that there have

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Speaker 7: been so many buffers in place, right, Like, if you

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Speaker 7: think back to how this whole thing started, all that

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Speaker 7: fiscal stimulus, all of that excess saving, the idea that

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Speaker 7: there was a wealth effect because home prices were rising

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Speaker 7: a lot, equity prices were up a lot. This made

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Speaker 7: people sort of, you know, sort of exist in this

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Speaker 7: feel good environment, and I think that really sort of

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Speaker 7: propelled consumption in so many ways. So I would argue

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Speaker 7: that the hikes that we saw, that aggressive tightening cycle

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Speaker 7: really didn't have a chance to sort of clamp down

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Speaker 7: because of all of those sort of extra factors that

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Speaker 7: were in play. But I would highlight that you are

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Speaker 7: starting to see delinquency rates on the rise, modestly, but

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Speaker 7: they're rising. You are starting to see the unemployment rate

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Speaker 7: rise again. It's still relatively low, but it's up to

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Speaker 7: seven ten to percent at this point. So I think

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Speaker 7: you're starting to see some of the tight policy now

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Speaker 7: start to show through.

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Speaker 6: Well, it's this idea that you're not cutting to react

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Speaker 6: or cutting just to get us in the right place.

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Speaker 6: When you think about ray cuts, what even is that line,

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Speaker 6: because I know you're saying, just what the Fed's projections

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Speaker 6: one hundred makes sense? Or is the idea of cutting

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Speaker 6: a hundred basis points something that looks like a recession?

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Speaker 3: Where's kind of that cutoff for them?

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Speaker 7: I think it's such an important idea, and that's why

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Speaker 7: I think, you know, and I've said this before, I

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Speaker 7: think when the FED starts cutting, I don't think classically,

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Speaker 7: when the FED starts cutting, it's like, oh, you know,

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Speaker 7: it's over right, the recession is here. I don't think

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Speaker 7: that's what this is. I think the narrative coming from

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Speaker 7: the FED has to be, hey, look, we're just looking

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Speaker 7: to extend the cycle, right, We're looking to extend the expansion.

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Speaker 7: I think so the FED has a real opportunity here

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Speaker 7: to sort of shift the narrative. And I would argue

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Speaker 7: that they're starting that process now. You know, when Powell

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Speaker 7: finally shifted to focusing on labor over inflation, which I

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Speaker 7: would argue is long overdue, I think that's that's step one.

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Speaker 7: And I think the next step is, hey, look, we

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Speaker 7: don't think that things are really sort of slowing in

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Speaker 7: a notable way, but we are recognized that policies calibrated

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Speaker 7: for a completely different inflation regime than what we have

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Speaker 7: right now, and so we can take back some of

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Speaker 7: that aggressive tightening.

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Speaker 5: Well, Rauffa al Bostic certainly one of those individuals that

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Speaker 5: is starting to recalibrate. But if that's the case, and

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Speaker 5: they're going to message that this isn't in deterioration, but

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Speaker 5: we're trying to land the plane, how do they do

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Speaker 5: that before the US election?

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Speaker 3: You know?

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Speaker 7: So I love this question, and I have We've done

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Speaker 7: this analysis. I'm sure so many others have.

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Speaker 6: You know.

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Speaker 7: We went back and we just went back to nineteen

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Speaker 7: eighty four. It seemed like a fine round number. We

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Speaker 7: looked at every single election from nineteen eighty four through

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Speaker 7: to today, and what you see is that history, that

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Speaker 7: modest history, is littered with examples of the FED adjusting

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Speaker 7: policy during election years. In fact, not just during election years,

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Speaker 7: but in and around the election month. All they needed

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Speaker 7: was the sort of the justification from a data perspective,

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Speaker 7: and I would argue that the unemployment rate being up

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Speaker 7: as much as it is. Inflation being down as much

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Speaker 7: as it is is your justification.

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Speaker 1: How do we know though, that it isn't actually headed

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Speaker 1: in the other direction that we already saw the slowdown,

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Speaker 1: especially because Joba's claims are actually going down and you're seeing,

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Speaker 1: for example, Walmart increasing its expectation for profits. You're seeing

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Speaker 1: companies actually doing better out of the four hundred and

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Speaker 1: ninety three other than the magnificent seven and accelerating earnings.

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Speaker 1: How do we know are not the prespose of an

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Speaker 1: acceleration that will only be turbocharged by rate cuts.

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Speaker 7: So it's again a super important question. And what I

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Speaker 7: would say is Walmart. Walmart is maybe the exception to

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Speaker 7: what's going on broadly, right, because we know from a

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Speaker 7: lot of other retailers that things are starting to they're

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Speaker 7: starting to feel some of the pressure of the consumer

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Speaker 7: that's really sort of really looking around for value. And

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Speaker 7: if Walmart's really the value player, then it actually makes

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Speaker 7: a lot of sense that they performed well. And I

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Speaker 7: didn't look at the numbers directly today, but I heard

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Speaker 7: that they did pretty well, So I think that that

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Speaker 7: is an important idea. But again, I think this is

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Speaker 7: this is exactly my point, I think, let this continue

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Speaker 7: to roll out, right, Let the economy continue to sort

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Speaker 7: of expand by just removing some of the aggressive tightening

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Speaker 7: that they have in place. I don't know that unless

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Speaker 7: you think that inflation is going to reaccelerate to you know,

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Speaker 7: four handles, which is what this policy is calibrated for.

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Speaker 7: I think the it can feel very comfortable that alls

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Speaker 7: you're doing is taking back some of the aggressive commodation

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Speaker 7: that we don't need anymore because inflation has slowed so much.

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Speaker 7: And sorry this so I'll make this one last point.

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Speaker 7: You know, just keep in mind when we think about inflation,

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Speaker 7: just think about how labor it is doing. The unemployment

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Speaker 7: rate again, I hate to say it again, but the

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Speaker 7: unemployment is up. But in combination with that, hours are down.

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Speaker 7: I think Mike mentioned that earlier, but that broadly speaking,

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Speaker 7: hours are down a lot, wages are down a lot,

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Speaker 7: quit rates are down a lot. The consumer's not feeling

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Speaker 7: that great about labor right now. And if you think

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Speaker 7: about the thing that really does the driving from a

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Speaker 7: consumption perspective, it is the unemployment rate. The unemployment rate

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Speaker 7: rises and consumption tends to slow just quickly.

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Speaker 1: Here, what would you have to see in the non

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Speaker 1: farm Payrolls report in September to change your view.

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Speaker 7: So I think that you need a dud of a report,

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Speaker 7: right Like you know, I don't know how you quantified

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Speaker 7: dut I've fully acknowledged that, but I think you need

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Speaker 7: a number that really sort of that that has even

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Speaker 7: worse contours than the one that we saw last and

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Speaker 7: last report. And I think if you get that, I

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Speaker 7: think that's the FEDS justification from going.

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Speaker 1: For Tom Prosellio of PGM Fixed Income. Always wonderful to

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Speaker 1: see you, Thank you for being here.

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