WEBVTT - Surveillance: RBC Open To Tactical Acquisitions, McKay Says 0:00:06.320 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.120 Bloomberg dot Com, and of course on the Bloomberg New 0:00:33.200 --> 0:00:35.159 York City. I'm very pleased to say we're here at 0:00:35.159 --> 0:00:39.360 the RBC Capital Markets Financial Institutions Conference. And joining me 0:00:39.760 --> 0:00:41.720 here in New York candis conference, I'm pleased to say, 0:00:41.800 --> 0:00:45.600 is the RBC CEO himself, Dave McKay. Dave, great to 0:00:45.640 --> 0:00:47.680 catch hell you do this morning. Good morning, nice early 0:00:47.720 --> 0:00:49.640 start to the day. So let's talk about your expansion 0:00:49.680 --> 0:00:52.519 into the United States and why you're ultimately here. So 0:00:52.640 --> 0:00:55.840 many people have tried to do this and pretty much 0:00:55.880 --> 0:00:58.280 every day my co anchor Tom Keen and I will 0:00:58.320 --> 0:01:01.240 talk about European banks that have failed in their effort 0:01:01.280 --> 0:01:04.520 to expand in the United States. Why are you different? Well, 0:01:04.560 --> 0:01:06.280 I think it goes back to you, this is not 0:01:06.319 --> 0:01:08.840 an overnight success. We've been working at this for ten years. 0:01:09.480 --> 0:01:12.560 Goes back to the early part of the last recession 0:01:12.560 --> 0:01:15.200 where we had balance sheet. Put that balance sheet to 0:01:15.240 --> 0:01:17.800 work with clients where other banks were retreating. And therefore, 0:01:17.840 --> 0:01:21.480 when you're with a client and with a strategy over 0:01:21.480 --> 0:01:24.080 the better part of a decade, you know, clients reward 0:01:24.160 --> 0:01:27.360 you for that loyalty and being there continue to upgrade 0:01:27.360 --> 0:01:31.160 and expand our coverage environment while we're putting our balance 0:01:31.040 --> 0:01:35.240 sheet to work and we're really pursuing and originate and 0:01:35.360 --> 0:01:37.560 lending strategy where we'll put a balance sheet and cross 0:01:37.560 --> 0:01:41.560 sell r D c M E c M capability. So 0:01:41.560 --> 0:01:44.240 it's really and it's not an overnight success. Douts your 0:01:44.240 --> 0:01:48.000 bank Curtiss RBS. There's such a long list of European 0:01:48.080 --> 0:01:51.840 players that are now retrenching into their core competency competencies 0:01:51.880 --> 0:01:55.000 that care geographies. How do you identify the right strategies 0:01:55.000 --> 0:01:57.280 that you don't make the same mistakes that others have. 0:01:58.360 --> 0:02:02.360 We're typically conserve bit of institution by nature, and we're 0:02:02.400 --> 0:02:04.920 thinking long term. Long term sustainable growth is a big 0:02:05.000 --> 0:02:06.960 part of our core strategy across all our businesses, not 0:02:07.160 --> 0:02:10.880 just capital markets. So when we're looking at, you know, 0:02:10.960 --> 0:02:12.720 building a relationship with a client, we look at the 0:02:12.800 --> 0:02:15.360 long term sustainability that relationship. We look at the potential 0:02:15.400 --> 0:02:18.200 to drive long term returns, look at the credit risk 0:02:18.880 --> 0:02:20.519 and put it all into balance, and we're looking to 0:02:20.600 --> 0:02:23.760 build long term, sustainable relationships. And that for us really 0:02:23.880 --> 0:02:25.800 was starting with a kind of a mid market capital 0:02:25.840 --> 0:02:30.520 market strategy across multiple sectors to diversifier book and therefore 0:02:30.639 --> 0:02:33.720 we've graduated that with you know, more bankers and upgrading bankers. 0:02:34.639 --> 0:02:37.799 We're very proud we just recently was sole advisor to 0:02:37.840 --> 0:02:40.120 b B and T on the sun Trust, a merger 0:02:40.160 --> 0:02:42.040 of equals, and that really talks to the power of 0:02:42.080 --> 0:02:46.840 our franchise consistency and ability to deliver value the clients 0:02:46.880 --> 0:02:49.840 and be that sol advisor in a historic transaction. That 0:02:49.919 --> 0:02:51.760 way is really what we've been aiming for for the 0:02:51.840 --> 0:02:54.919 last ten years. Is we've continued to upgrade and build 0:02:54.960 --> 0:02:58.040 relationships and build trust with CEOs across America. So let's 0:02:58.080 --> 0:03:00.520 talk about that solid advantaging. Well, that you did take 0:03:00.560 --> 0:03:02.680 a lot of people were surprised by that. Have to admit, 0:03:02.760 --> 0:03:04.359 many people come on the program and talk to me 0:03:04.360 --> 0:03:05.919 about it, and they were surprised by the fact that 0:03:05.960 --> 0:03:08.000 you did get that. Is this a moment in time 0:03:08.080 --> 0:03:10.240 or a broader consolidation story that you think you can 0:03:10.240 --> 0:03:12.919 be a key player in. I think certainly you have to. 0:03:13.160 --> 0:03:15.480 You have to hand both BB and T, Kelly King 0:03:15.600 --> 0:03:18.119 and and so trust a lot of credit for having 0:03:18.160 --> 0:03:21.400 the vision to build a larger competitive institution that will 0:03:21.440 --> 0:03:24.640 compete with the top four and bring the scale towards technology. 0:03:24.639 --> 0:03:26.520 And I think it's caused a lot of CEOs. I've 0:03:26.560 --> 0:03:28.160 talked to you even in the last twenty four hours 0:03:28.760 --> 0:03:31.600 and since the announcement of Transaction, to reevaluate the art 0:03:31.600 --> 0:03:36.640 of the possible, the implications of scale and potentially the 0:03:36.760 --> 0:03:39.800 openness to do something more transformational. Doesn't mean we'll see 0:03:39.880 --> 0:03:42.600 something else, but I think everyone's paused to digest and 0:03:43.280 --> 0:03:47.160 real kudos to those two leaders who put the Transaction together. That's, 0:03:47.360 --> 0:03:50.040 you know, looking at the implications. I think it's foundation. 0:03:50.240 --> 0:03:53.080 So being an advisor in the consolidation story here in 0:03:53.120 --> 0:03:55.680 the United States and the financial sector is one thing. 0:03:56.120 --> 0:04:00.160 Being an active participant in it's a different story. Are 0:04:00.200 --> 0:04:02.440 you looking at anything right now? You've made acquisitions in 0:04:02.440 --> 0:04:04.160 the possible on that big one a couple of years ago. 0:04:04.240 --> 0:04:07.640 Are you looking at anything right now? We continually evaluate 0:04:07.680 --> 0:04:10.400 the ability to grow organically and inorganically, and we we 0:04:10.600 --> 0:04:13.960 we have a team dedicated to thinking through various opportunities 0:04:14.000 --> 0:04:17.000 to grow geographically. That would be our first presence within 0:04:17.000 --> 0:04:19.119 the United States. Can we expand into a new market, 0:04:19.200 --> 0:04:20.840 but it has to be a cultural fit with the 0:04:21.080 --> 0:04:26.240 potential acquisition or merger partner. The economics have to be 0:04:26.320 --> 0:04:29.560 there for the shareholder. We made kind of a transaction 0:04:29.600 --> 0:04:32.440 that was longer term, a platform transaction with City National. 0:04:32.560 --> 0:04:35.440 We've earned our way back into our hurdle rates very quickly, 0:04:35.880 --> 0:04:39.880 but w we've benefited from economic tailwinds, benefitted from a 0:04:40.000 --> 0:04:42.960 rising rate environment. We've benefited from tax cuts. We accelerated 0:04:43.000 --> 0:04:46.880 our return on shareholder investment. You look at those transactions 0:04:46.920 --> 0:04:51.560 going forward. Without those tail winds, the economics are more difficult. Therefore, 0:04:51.600 --> 0:04:55.680 we're incredibly disciplined with the capital. We always look at alternative, 0:04:55.760 --> 0:04:58.000 organic or returning it to shareholders. And when you look 0:04:58.040 --> 0:05:00.680 at the platform we have, we don't need it for 0:05:00.720 --> 0:05:06.119 a platform basis. It's more for geographic expansion and and acceleration. Therefore, 0:05:06.120 --> 0:05:08.920 the economics have to work, and the economics still are 0:05:09.040 --> 0:05:10.840 quite tough for the share All you have to you 0:05:10.920 --> 0:05:13.720 have to forecast some end of cycle, so you're you're 0:05:13.839 --> 0:05:16.880 you're you're acquiring it towards the end of a cycle. 0:05:16.960 --> 0:05:19.119 So what's gonna be the credit performance? Your cash flows 0:05:19.200 --> 0:05:22.080 could be delayed by an economic cycle turn, All those 0:05:22.160 --> 0:05:24.880 come into consideration. We are trying to drive shareholder value 0:05:24.880 --> 0:05:29.279 in the market. Really really punishes players who over extend themselves. 0:05:29.320 --> 0:05:31.360 When you see us, somebody see guys will tell me 0:05:31.440 --> 0:05:33.560 the price isn't right. They'll say the spread between the 0:05:33.640 --> 0:05:35.760 buyer and the sounder is still too wide to come in. 0:05:36.279 --> 0:05:38.240 There's a decent chance it won't come in until the 0:05:38.320 --> 0:05:40.840 next down to the question you've got to answer Resultimately, 0:05:40.839 --> 0:05:43.000 are you're willing to extend your balance sheet in a 0:05:43.080 --> 0:05:47.479 recession to make that acquisition? Are you? If the if 0:05:47.560 --> 0:05:49.600 the deal is right, Absolutely, there's I don't see a 0:05:49.640 --> 0:05:52.400 lot of difference between you have to delay your cash flows, 0:05:52.400 --> 0:05:54.800 but the uncertainty of doing it now before there's some 0:05:54.880 --> 0:05:57.320 type of economic credit cycle turn versus while you're in it. 0:05:57.800 --> 0:05:59.760 Maybe you have more information when you're in it. But 0:06:00.000 --> 0:06:01.680 I mean there's the sellers not as willing to sell. 0:06:02.400 --> 0:06:05.080 Certainly there's a few willing sellers right now, so all 0:06:05.120 --> 0:06:07.720 the ingredients may not come together either. You're you're taking 0:06:07.760 --> 0:06:12.279 our risk between every constituent coming together. So it's an 0:06:12.320 --> 0:06:14.280 uncertain game. At the end of the day, we have 0:06:14.440 --> 0:06:18.040 a growth platform organically that we're really excited about. We 0:06:18.120 --> 0:06:22.320 continue to grow, add private bankers, add commercial bankers on 0:06:22.600 --> 0:06:25.920 the wealth management side. Similarly on the capital market side, 0:06:25.960 --> 0:06:28.120 we're pulling our balance sheet to work. We're adding bankers. 0:06:28.320 --> 0:06:32.800 We just hired another star banker, Michelle Neil's joining the platform, 0:06:33.320 --> 0:06:36.080 as you reported on. So we're very excited about the 0:06:36.120 --> 0:06:40.320 opportunity to grow. If there's a tactical acquisition, well we'll 0:06:40.400 --> 0:06:43.160 look at it. But right now we're focused organically. Right 0:06:43.240 --> 0:06:44.720 to catch up with you. Good luck for the rest 0:06:44.760 --> 0:06:47.839 of the day. Day McConney. Obviously see right here at 0:06:47.880 --> 0:07:06.839 the obviously capital markets Financial Institutions conference with this Howard Ward, 0:07:07.240 --> 0:07:10.800 wonderful long term investor at gibelly a claim to say 0:07:10.840 --> 0:07:13.240 the least. We're thrilled that he gives us opinion on 0:07:13.400 --> 0:07:15.960 use of cash and maybe on Apple. I was kidding 0:07:16.000 --> 0:07:20.320 him earlier calling him a Howard Apple off of Tim Apple, 0:07:20.440 --> 0:07:22.520 but we will. Well, let's stop with Apple now because 0:07:22.840 --> 0:07:25.880 Bowing is so centered. You own Bowing. Let's say, what 0:07:26.240 --> 0:07:29.600 do you do given the new slow Well, tom Um, 0:07:30.320 --> 0:07:33.560 I think most investors at owned Boeing will be best 0:07:33.600 --> 0:07:37.240 served by sitting tight until we have the resolution of 0:07:37.360 --> 0:07:42.160 the cause of this most recent crash. I believe that Boweing, 0:07:43.120 --> 0:07:45.040 even in the event that this is another one of 0:07:45.080 --> 0:07:49.160 their problems associated with the software on that plane, they 0:07:49.200 --> 0:07:51.800 will be able to fix that and the orders for 0:07:51.920 --> 0:07:56.480 that plane will remain largely, if not entirely intact. So 0:07:57.280 --> 0:08:02.080 it has been an outstanding dock in recent years. Even 0:08:02.400 --> 0:08:05.120 year to date, it's been one of the leading stocks 0:08:05.200 --> 0:08:08.920 in the TAO. Uh So it's certainly there is certainly 0:08:09.040 --> 0:08:11.600 room there for profit taking for those it might be 0:08:12.160 --> 0:08:15.320 somewhat nervous about this situation, but I think most people 0:08:15.320 --> 0:08:19.040 should sit tight. Sectors are different. How do you study 0:08:19.280 --> 0:08:23.360 a Boeing which goes project to project downs a itty 0:08:23.400 --> 0:08:27.640 biddy defense contractor no, but nevertheless they still live project 0:08:27.720 --> 0:08:32.360 to project as a general statement, versus Microsoft, which has 0:08:32.600 --> 0:08:36.679 huge persistent cash flow, or for that matter, Apple and Well, 0:08:36.720 --> 0:08:39.319 you have to study them differently, don't you. Well, you 0:08:39.440 --> 0:08:43.120 really do. And Boeing falls under the industrial category, and 0:08:43.280 --> 0:08:46.760 it is one of the premier industrial names because there 0:08:46.920 --> 0:08:52.360 is a oligopoly and the commercial airspace business which most 0:08:52.440 --> 0:08:56.839 of their businesses commercial aviation as opposed to defense, and 0:08:57.200 --> 0:08:59.720 they have historically made the finest planes in the world 0:08:59.760 --> 0:09:02.960 bar none. Air Bus makes a fine plane, but Boeing 0:09:03.080 --> 0:09:07.720 has traditionally, you know, been the finest manufacturer rough planes 0:09:07.760 --> 0:09:12.679 in the world and the largest producer. So uh, you know, 0:09:12.800 --> 0:09:14.880 that gives them a special place. And these are very 0:09:14.960 --> 0:09:19.600 long tail projects, these new planes which they embark upon. 0:09:19.920 --> 0:09:24.040 And you know, once a plane is in full production, 0:09:24.480 --> 0:09:26.920 the free cash flow starts to fall to the bottom. 0:09:26.960 --> 0:09:30.800 And so bowing right now is has become, i should say, 0:09:31.120 --> 0:09:34.719 a tremendous free cash flow story, allowing them to buy 0:09:34.800 --> 0:09:37.720 back greater amounts of stock and to increase their dividend 0:09:37.760 --> 0:09:39.760 and very healthy rate for what looks like to be 0:09:39.920 --> 0:09:43.439 years to come back four years free cash flow seven billion, 0:09:44.160 --> 0:09:49.560 eight billion, twelve billion, fourteen billion, why not do fourteen 0:09:49.600 --> 0:09:53.199 billion another time and modeled up to seventeen billions. So 0:09:53.360 --> 0:09:57.480 just over the span of Howard Award ownership, you can 0:09:57.520 --> 0:10:00.599 go from eight billion out to seven to billion on 0:10:01.120 --> 0:10:04.439 free cash flow. With that said, you have to know 0:10:04.600 --> 0:10:07.480 when to buy. How do you determine is it dividend yield? 0:10:07.720 --> 0:10:11.240 Is it some form of ratio multiple? You know? And 0:10:11.440 --> 0:10:14.199 now so so you know, Boeing isn't industrial, it's a 0:10:14.200 --> 0:10:18.839 little bit of a unique industrial but like most industrials, uh, 0:10:18.960 --> 0:10:21.600 you want to buy them when actually the best time 0:10:21.640 --> 0:10:24.200 to buy them, I should say, is when the economy 0:10:24.240 --> 0:10:26.520 isn't doing well and when industrials are not doing well, 0:10:26.640 --> 0:10:29.760 and when the stocks have been underperforming for a period 0:10:29.800 --> 0:10:32.679 of time and and that's not the current environment. And 0:10:32.880 --> 0:10:36.480 you know in two thousand and eight, two thousand and nine, 0:10:36.760 --> 0:10:39.679 for example, would have been an outstanding time to acquire 0:10:39.880 --> 0:10:42.760 Boeing shares. And uh so that's what you really have 0:10:42.840 --> 0:10:44.760 to do. And you have to be patient if you're 0:10:44.760 --> 0:10:47.680 going to wait for those kinds of opportunities. And otherwise 0:10:47.720 --> 0:10:49.640 you can still do fine, but the returns won't be 0:10:49.760 --> 0:10:53.200 as great. You survived December, the New York Rangers were terrible. 0:10:53.840 --> 0:10:57.840 Then you survived January, February the New York Rangers were terrible. 0:10:58.360 --> 0:11:00.959 Now you're in March in the New York Rangers are 0:11:01.040 --> 0:11:05.120 still terrible. How the last three months been, O wise? One, Yeah, 0:11:05.200 --> 0:11:08.320 they've been. They've been brutal for actually for New York 0:11:08.400 --> 0:11:12.080 sports in general, it hasn't been a sports You guys, 0:11:12.160 --> 0:11:15.839 what do you do well we're lots, we're hockey we uh, 0:11:15.920 --> 0:11:18.760 we just focus on watching that ticket tape go by 0:11:18.840 --> 0:11:21.000 every day. And what do you see there right now? 0:11:21.120 --> 0:11:24.839 I mean, yeah, Tom, So, you know, since the beginning 0:11:24.880 --> 0:11:27.959 of the year, we've seen negative earnings estimate revisions on 0:11:28.000 --> 0:11:31.120 the SMP. They've SMP estimates for this year have come 0:11:31.200 --> 0:11:34.080 down about seven percent from around hundred and seventy eight 0:11:34.120 --> 0:11:36.160 dollars a year about a hundred and sixty eight dollars 0:11:36.200 --> 0:11:39.240 a year. Uh. And given the trends that we see 0:11:39.280 --> 0:11:42.920 in terms of UH, increasing weakness in the global economy, 0:11:42.960 --> 0:11:46.480 including here at home. For example, the Conference Boards Index 0:11:46.559 --> 0:11:49.040 of Leading Economic Indicators here in the US has fallen 0:11:49.480 --> 0:11:53.400 for four consecutive months. And there's you know, weakness and 0:11:53.760 --> 0:11:57.959 autos and housing and retail sales, and I think the 0:11:58.040 --> 0:12:01.520 weekly unemployment claims are bubbling high. So uh, you know, 0:12:01.600 --> 0:12:04.720 we think there's more negative earnings estimate revisions to come 0:12:05.360 --> 0:12:08.400 and that has not been fully priced in. So we're 0:12:08.400 --> 0:12:10.240 a little bit cautious on the market in their term. 0:12:10.520 --> 0:12:12.400 And I'd also say I think the market has sort 0:12:12.440 --> 0:12:15.360 of baked in some sort of a deal with China 0:12:15.440 --> 0:12:18.160 on trade and whatever that deal is, and I'm sure 0:12:18.200 --> 0:12:20.599 there will be one. I'm sure Trump will announce it 0:12:20.640 --> 0:12:23.160 as being the greatest trade deal in history. It won't be, 0:12:23.760 --> 0:12:27.560 but uh, he'll he'll try to make that headline. Point um. 0:12:27.720 --> 0:12:30.240 But the market is sort of baked in probably something 0:12:30.320 --> 0:12:32.600 similar to what we're going to get. China is going 0:12:32.679 --> 0:12:35.680 to agree to buy more soybeans and cars, and there'll 0:12:35.720 --> 0:12:38.079 be a few compromises here and there, but it's not 0:12:38.160 --> 0:12:40.960 going to be uh, you know, the deal that Trump's 0:12:40.960 --> 0:12:43.360 gonna want you to think it is. Howard Apple, thank 0:12:43.440 --> 0:12:45.480 you so much for being with us today. I'm doing 0:12:45.559 --> 0:12:48.520 Howard Ward of Gabelli. We're thrilled that he could attend 0:12:48.559 --> 0:13:04.600 today with major news. Let's get right to it because 0:13:04.600 --> 0:13:07.719 there's so many distractions with Boeing and Brexit and all that. 0:13:07.880 --> 0:13:10.120 I just want to spend some time in the American economy. 0:13:10.600 --> 0:13:14.080 You can do that with Lindsay Piegs stifle uh joining 0:13:14.160 --> 0:13:19.440 us now uh dr vizzack pegs Um. I'm fascinated by 0:13:19.760 --> 0:13:24.520 the Atlanta g d P now forecast, which is not 0:13:24.720 --> 0:13:28.320 at recession levels but has come down well under one 0:13:28.440 --> 0:13:32.719 percent towards zero percent Q one growth. How do you 0:13:33.120 --> 0:13:38.800 use the forecasting model of the Federal Reserve Bank of Atlanta. Well, 0:13:38.960 --> 0:13:41.800 I think it's it's uh, it's good to use that 0:13:41.920 --> 0:13:45.120 as a gauge of almost a sentiment. This is how 0:13:45.280 --> 0:13:47.280 the market is feeling, This is how the set is 0:13:47.400 --> 0:13:51.280 viewing the economy. Now, the Atlanta GDP model does tend 0:13:51.320 --> 0:13:54.560 to be incredibly volatile, so you do have to take 0:13:54.640 --> 0:13:57.319 it with a grade of salt. There are wild swings 0:13:57.360 --> 0:14:01.040 after each data point being released, so it doesn't necessarily 0:14:01.160 --> 0:14:05.480 give us a specific target or even a target range. 0:14:05.920 --> 0:14:07.880 But I think it does give us a general sense 0:14:08.040 --> 0:14:12.560 of the directoral momentum as well as the general feel 0:14:12.600 --> 0:14:16.360 of the market. Is now mentioned, it's pretty dismal. Okay, 0:14:16.400 --> 0:14:18.920 it's pretty dismal. What is the vector that you see? 0:14:18.960 --> 0:14:22.560 It's Steple. Right now, our audience is riveted by the 0:14:22.720 --> 0:14:27.520 interviews we have of optimism versus some would say the 0:14:27.600 --> 0:14:32.840 reality they're feeling out there. What's the Steple vector? Well, 0:14:33.000 --> 0:14:35.040 I think the most important thing is opposed to just 0:14:35.200 --> 0:14:37.560 focusing on the first quarter, is looking at the long 0:14:37.760 --> 0:14:42.600 term directional trend. For the look at we see the 0:14:42.680 --> 0:14:46.320 economy losing significant momentum relative to what we saw in 0:14:47.680 --> 0:14:50.480 We're looking for the economy to fall well below two percent, 0:14:51.080 --> 0:14:52.800 closer to a range of one and a half to 0:14:52.880 --> 0:14:56.680 one point eight percent for the year of so again 0:14:56.800 --> 0:15:00.360 quarter to quarter volatility aside, we're looking for a point 0:15:00.400 --> 0:15:04.480 five to one point eight percent growth rate for the year, lindsay. 0:15:04.520 --> 0:15:06.360 Outside of this debate, there is also a big debate 0:15:06.400 --> 0:15:10.920 taking place that the headline inflation rate won't be boosted 0:15:10.960 --> 0:15:13.600 by what's happening with wages. Waste growth was really impressive 0:15:13.880 --> 0:15:16.240 last week, and there is just this comfort I think 0:15:16.320 --> 0:15:18.480 that that won't bleed into headline price pressure. Do you 0:15:18.560 --> 0:15:21.840 share that belief? Well? If, first off, I don't know 0:15:21.920 --> 0:15:24.440 if I if I agree with your characterization that wage 0:15:24.440 --> 0:15:28.360 growth was really impressive. It certainly was improvement from the 0:15:28.400 --> 0:15:31.560 more lackluster paces wage growth that we've seen over the 0:15:31.600 --> 0:15:34.400 past couple of years, But in my opinion, it's almost 0:15:34.560 --> 0:15:37.440 too little, too late. I do think the more recent 0:15:37.520 --> 0:15:40.360 backup and wages that we've seen is going to prove 0:15:40.520 --> 0:15:43.400 very short lived, as we do fear the risk of 0:15:43.440 --> 0:15:46.960 recession now lurking around the corner. Also, when we look 0:15:46.960 --> 0:15:50.640 into some of the wage specifics, the wage games seemed 0:15:50.640 --> 0:15:55.640 to be relatively segmented into particular areas of the economy 0:15:56.080 --> 0:15:59.320 areas where skills, specific skills are in high demand but 0:15:59.520 --> 0:16:05.160 very low supply, meaning it engineering, accounting, craft, labor. The 0:16:05.240 --> 0:16:09.160 FETES specifically noticed and noted these pockets of wage pressures, 0:16:09.480 --> 0:16:11.440 and that's pretty much what we're seeing in the data 0:16:11.480 --> 0:16:15.600 as opposed to a broad based increase across all sectors. 0:16:16.040 --> 0:16:18.160 So certainly there are sub workers out in the labor 0:16:18.240 --> 0:16:21.160 markets that are feeling that wage pressure, but not everyone 0:16:21.560 --> 0:16:24.240 is feeling that some are being left behind. Wellndy, Certainly, 0:16:24.280 --> 0:16:26.920 the assessment is all relative, of course, and relative to 0:16:26.920 --> 0:16:29.320 the last ten years. I think it's impressive relative to 0:16:29.400 --> 0:16:32.480 what we have got, and understand that relatively speaking, the 0:16:32.960 --> 0:16:36.400 data we've had before hasn't been great going forward from here, 0:16:36.480 --> 0:16:39.520 I think there's a big, big question about being late cycle. 0:16:39.800 --> 0:16:41.800 I've heard that so many times over the last couple 0:16:41.840 --> 0:16:44.080 of years that were late cycle. Five years ago we 0:16:44.160 --> 0:16:47.560 were light cycle. Why are we late cycle now? Well, 0:16:47.560 --> 0:16:49.520 I think we're late cycle now because when we look 0:16:49.560 --> 0:16:52.160 out and we look at the trajectory of the recovery, 0:16:52.640 --> 0:16:56.480 there's very little evidence that it will be sustained much beyond. 0:16:57.600 --> 0:17:00.040 So in fact, we are looking for a recessionist it 0:17:00.160 --> 0:17:03.520 in potentially as early as the first quarter of so 0:17:03.920 --> 0:17:07.120 we see this bleeding momentum among a number of key 0:17:07.240 --> 0:17:10.320 sectors of the economy. The consumer are beginning to lose 0:17:10.680 --> 0:17:12.479 a little bit of momentum when we look at their 0:17:12.520 --> 0:17:17.159 spending patterns, business investment starting to wane, the FED specifically 0:17:17.240 --> 0:17:20.480 note in the moderating case of corporate dollars flooding into 0:17:21.040 --> 0:17:25.320 investment areas. Housing starting to lose ground as well. We've 0:17:25.400 --> 0:17:30.000 seen now ten consecutive months of negative sales activity. So 0:17:30.280 --> 0:17:32.359 I think at this point it's very clear that the 0:17:32.440 --> 0:17:37.400 domestical independent of international weakness is beginning to lose momentum, 0:17:37.480 --> 0:17:40.760 and it's very clear that this advansion is coming to 0:17:40.880 --> 0:17:42.840 an end in our opinion, and Dr Pierre's I think 0:17:42.880 --> 0:17:46.000 you so much greatly appreciated UH this morning. It was 0:17:46.200 --> 0:17:48.439 a well needed update and of course very different than 0:17:48.560 --> 0:17:53.240 some of the Yeah, but it's detail what I like 0:17:53.320 --> 0:17:55.439 about her call, whether I agree that or not, as 0:17:55.480 --> 0:18:13.520 she's granular. Try not sure what you airport you're out of. 0:18:14.359 --> 0:18:17.040 You come out of Gatwick or Standstead or whatever, and 0:18:17.200 --> 0:18:19.520 when you need to get on a jet to go 0:18:19.640 --> 0:18:23.160 up to Liverpool to root for the Liverpool Ians, whatever, 0:18:23.240 --> 0:18:27.200 they're called. Well, I'm not that's sure. It's not that 0:18:28.040 --> 0:18:31.399 you do it out of the smaller aircraft of the 0:18:31.520 --> 0:18:36.239 United Kingdom. He is expert on European transportation and all 0:18:36.359 --> 0:18:39.919 things bowing and airbus. Christopher Jasper was have you ever 0:18:40.040 --> 0:18:42.399 done that? Do you take the train to Liverpool to 0:18:42.520 --> 0:18:46.240 see the Mighty play, Christopher? Or do you take an airplane? 0:18:46.840 --> 0:18:49.280 How do you get there? Trying? But to be honest, 0:18:49.320 --> 0:18:52.240 I have tightened the plane on the all occasion. Certainly 0:18:52.840 --> 0:18:56.320 these planes, these seven thirty seven's in this smaller airbus 0:18:56.400 --> 0:18:59.960 there the workhorse of all those short distances of Europe. 0:19:00.400 --> 0:19:02.560 Do you assume and I know you're speaking as a 0:19:02.680 --> 0:19:06.280 journalist and that as you know, pundon expert, but we 0:19:06.400 --> 0:19:09.720 see Southeast Asia and now all mine of the Middle 0:19:09.800 --> 0:19:14.200 East combine, do you assume European announcements on the seven 0:19:14.280 --> 0:19:18.480 thirty seven Max. It's an interesting question and I think 0:19:18.560 --> 0:19:22.320 it's probably a crucial one for Boeing as well. I mean, 0:19:22.400 --> 0:19:26.920 we might think expect the US carriers to to sort 0:19:26.960 --> 0:19:30.200 of stay in line following the FAA's advice at the 0:19:30.280 --> 0:19:33.600 moment as we understand it, Yassa, which is the European 0:19:33.640 --> 0:19:38.639 Safety Regulator, uh, you know, would would would endorse the 0:19:38.760 --> 0:19:42.240 FAA's recommendations. If ASSA was to break ranks, then that 0:19:42.280 --> 0:19:45.679 would be a huge deal and obviously the Europeans would follow. 0:19:45.800 --> 0:19:51.200 But it's it's possible that some European carriers could see 0:19:51.200 --> 0:19:54.600 it differently. At the moment that appears not to be 0:19:54.680 --> 0:19:58.680 the case. The focus is generally in Asia and a 0:19:58.760 --> 0:20:03.959 handful of of African carriers and also something in Latin America. 0:20:04.040 --> 0:20:05.800 Why is that? Do we have a Y year? I mean, 0:20:05.880 --> 0:20:08.600 John Ferro was speculating on it. We're not, you know, 0:20:08.680 --> 0:20:11.200 I really don't want to do that. But do we 0:20:11.280 --> 0:20:15.920 have a why of this geographic band? It's an interesting one, 0:20:16.000 --> 0:20:17.679 I mean I think I think you can see. I mean, 0:20:17.800 --> 0:20:22.480 initially we had Europe, Ethiopia itself, and Indonesia, which of 0:20:22.520 --> 0:20:24.639 course is where the Lion air plane crash last year, 0:20:25.119 --> 0:20:30.440 followed by China, which views itself as a sort of 0:20:30.560 --> 0:20:33.680 an emerging regulatory power as well as an aerospace power, 0:20:33.760 --> 0:20:36.920 and all the rest. But in Asia, when we had 0:20:37.000 --> 0:20:41.560 today or overnight Singapore and Australia following suit, which are 0:20:41.600 --> 0:20:47.280 two administrations within the aviation world that are highly respected, 0:20:47.800 --> 0:20:53.320 then that's almost as potentially devastating for Boeing as if 0:20:54.720 --> 0:20:57.960 some of the Europeans had decided to break ranks. Is 0:20:58.000 --> 0:21:00.520 there certain as this goes to Christopher us for it's 0:21:00.600 --> 0:21:05.680 just really expertise on uh, these different planes. Is the 0:21:05.840 --> 0:21:09.000 Baby Bowing the seven thirty seven of the Max whatever, 0:21:09.760 --> 0:21:12.840 is it substantially different from the baby air Bus the 0:21:12.920 --> 0:21:17.959 direct competition? Are they really remarkably the same? Which is it? Well, 0:21:17.960 --> 0:21:23.639 they're very similar in in some ways, but each augmentation 0:21:23.720 --> 0:21:27.080 of the aircraft has has taken them in slightly different directions. 0:21:27.200 --> 0:21:32.719 But Airbus endorsed fly by wire technology, for example, earlier 0:21:32.800 --> 0:21:37.639 than Bowing. What does that mean, um, well, basically controlling 0:21:38.160 --> 0:21:42.359 the aircraft's flight surfaces the you know, the tail and 0:21:42.960 --> 0:21:47.480 flaps and so on, by electronic wiring rather than hydraulically. 0:21:47.560 --> 0:21:50.159 And they had real problems with that in in the 0:21:50.240 --> 0:21:52.040 early days, and certainly in the early days of the 0:21:52.280 --> 0:21:55.600 three twenty there was a crash there which was problematic 0:21:55.680 --> 0:22:00.240 for Airbus. Boeing stuck with the with hydraulic system for 0:22:00.320 --> 0:22:02.720 longer and ad planes have still got those systems. But 0:22:04.000 --> 0:22:07.280 Bowing is is moved in that direction itself now And 0:22:08.000 --> 0:22:11.119 I mean ironically that the thing that maybe at fault 0:22:11.720 --> 0:22:14.280 with the seven three seven Marx is a system that 0:22:14.400 --> 0:22:17.440 Bowing installed on this plane which wasn't present on the 0:22:17.480 --> 0:22:24.639 previous version UH to ENHNT safety, to actually provide an 0:22:24.720 --> 0:22:27.800 override that would step in when it needed to and 0:22:27.840 --> 0:22:29.840 the pilot needed Hell yeah, I mean, I'm glad you 0:22:29.960 --> 0:22:32.080 bring this up. And we covered it's yesterday and thanks 0:22:32.160 --> 0:22:35.880 to the blog the air Current John Astro on Seattle 0:22:36.000 --> 0:22:40.000 for a detailed article and this mc AS system to 0:22:40.160 --> 0:22:46.760 review Christopher to review this. The engines are moved forward 0:22:46.840 --> 0:22:52.119 off the wing to increase fuel consumption, but in doing 0:22:52.240 --> 0:22:57.200 that it tips the nose of the plane upwards naturally, 0:22:57.960 --> 0:23:00.280 and you have to have systems to bring them knows 0:23:00.320 --> 0:23:03.920 backed down. Do I have that right? Well that that 0:23:04.160 --> 0:23:06.720 that may be one case where that system would would 0:23:07.080 --> 0:23:12.119 kick in, but ultimately it's intended to to step in 0:23:12.200 --> 0:23:17.520 at any point where the aircraft faces a potential store situation. 0:23:17.760 --> 0:23:20.359 We're not talking about the engine stalling, We're talking about 0:23:20.440 --> 0:23:23.760 the wing. I either plane loses lift and threats to 0:23:23.800 --> 0:23:28.560 go out of control, and the MCAST system will will 0:23:28.600 --> 0:23:32.760 step in and dip the nose to rectify that and 0:23:33.000 --> 0:23:36.480 and increase the airflow which will keep the flying. What 0:23:36.640 --> 0:23:39.399 did we know from Lion and the Indonesian Airline of 0:23:39.440 --> 0:23:41.639 a number of months ago. Is there still a mystery 0:23:41.720 --> 0:23:46.040