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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 3: No.
Speaker 2: We are Rabinie of Rabeni Macro Associates, looking ahead to
Speaker 2: the new year and writing this. Some of Trump's policies
Speaker 2: will increase growth and reduce inflation, while others could be stagflationary.
Speaker 2: So the impact on growth, inflation and on markets depends
Speaker 2: on how much of the former versus the latter. Noriel
Speaker 2: joins us now for more. No want for to see us, sir.
Speaker 2: You're in seeing How difficult does it make it to
Speaker 2: look ahead to next year with any real clarity, to
Speaker 2: come up with some kind of outlook when things are
Speaker 2: so difficult.
Speaker 3: There's a lot of policy uncertainty, as I pointed out
Speaker 3: some of the economic policies of TRAUM may increase over
Speaker 3: time growth, reduce inflation, being overall pro business keeping tax
Speaker 3: rates on capital and labor law, deregulating the economy, and
Speaker 3: things like increasing the production of fossil fuels and pushing
Speaker 3: down the prices of energy. Probably also this Dodge initiative
Speaker 3: over timing is economic efficiency and so on. So those
Speaker 3: are the positives, and over time they could increase growth,
Speaker 3: they could reduce inflation. But we know there are some
Speaker 3: sets of other policy we don't know how much they're
Speaker 3: are to be implemented. They will increase inflation and potentially
Speaker 3: be staflationary. In my view, tariffs are inflationary. Protection is
Speaker 3: the risk of the economic world with China first draconia,
Speaker 3: restriction to migration, if not the mass deportation. If we
Speaker 3: have unfunded physical deficits and the promises imply eight trillion
Speaker 3: dollars of deficits over additional over the next years, that's
Speaker 3: going to craft out growth by increasing interest rates normally
Speaker 3: and real and the bond marketgilands are going to wake up.
Speaker 3: If you try to disorderly weaken the dollar, that could
Speaker 3: be inflationary and if you interfere with independence of the FAT. Now,
Speaker 3: I think on the positive side, I think there are
Speaker 3: a number of factors that are going to constrain the
Speaker 3: bad policies. One is market discipline. If you follow pols
Speaker 3: are inflationary, then bond market vigilands are going to wake up.
Speaker 3: Bond is going to go higher, the stock market is
Speaker 3: going to correct, and it cares about the bond market.
Speaker 3: He cares about the stock market. Secondly, Fed independence. If
Speaker 3: he follows policies the lead to inflation, the Fed may
Speaker 3: not continue to cut traits next year, may even raise
Speaker 3: rates if inflation were to be going higher. And also
Speaker 3: policy choices, as you pointed out, on one side of
Speaker 3: people like Scott Besson want to escalate the escalate on
Speaker 3: tariffs and others were total trade hawks on trade and
Speaker 3: on China, like Peter Navarro. So it depends on the
Speaker 3: balance between who's going to be in power.
Speaker 2: Let's unpack some of that, and Pe can't tariffs to
Speaker 2: pay already so far this morning, you've heard some of it.
Speaker 2: Clase weigh in, if it's targeted, could be a good
Speaker 2: thing for the American economy.
Speaker 3: Well, if it's targeted, I would say that the impacts
Speaker 3: on inflation are going to be modest, and maybe some
Speaker 3: of the reassuring that a radio is occurring is going
Speaker 3: to continue, and there be actually pressure on our trade
Speaker 3: partners to say, if you don't want tariffs, you have
Speaker 3: to bring more investment semiconductors. Authors it beasy you name
Speaker 3: it to the United States. So that's the escalate in
Speaker 3: order to de escalate. But I would say the higher
Speaker 3: the startuff become, the more there's an impact on improprises,
Speaker 3: the more there's an impact on inflation, and the more
Speaker 3: there is global fragmentation. There's also the risk, of course
Speaker 3: of trade wars of our trade partner retaliating against the
Speaker 3: United States. If that occurs, the impact on growth is
Speaker 3: going to be more negative. The impact on inflation is
Speaker 3: going to be value depends on the size of the startifs.
Speaker 3: If it's Navaro types of policies on trade, is taflationary,
Speaker 3: if it's escalated, de escalate, Maybe the impact of inflation
Speaker 3: is modest and the negative impact on growth is also modest.
Speaker 4: Some peopeople are arguing that we're in this wave of
Speaker 4: deglobalization that basically reverses some of the disinflationary forces of
Speaker 4: the three decades following really the mid eighties. I'm wondering
Speaker 4: whether that's actually true, whether that's what we're seeing, because
Speaker 4: there still is quite a bit of trade, it's just
Speaker 4: going different routes, and frankly, you could see that overproduction
Speaker 4: from places like China are going to lower prices in
Speaker 4: certain places, even if they don't in the US if
Speaker 4: there walls up. In other words, are we overestimating the
Speaker 4: inflationary impact on a dramatic level of a lot of
Speaker 4: these tariffs.
Speaker 3: Well, the impact of high tariffs on the United States
Speaker 3: would be inflationary, But if you think about the impact
Speaker 3: on growth and inflation, rest of the world will be
Speaker 3: this inflationary because if there is a shock to the
Speaker 3: demand for the experts of Europe, Asia, China, then there'll
Speaker 3: be access supply growth is weakened in those parts of
Speaker 3: the world, and that leads to these inflation rest of
Speaker 3: the world. So the impact on the US of high
Speaker 3: tariff is inflationary. The impact on the rest of the
Speaker 3: world is this inflationary because the access is applied.
Speaker 4: You used to be called doctor doom. Are you retiring
Speaker 4: that mantle?
Speaker 3: I always said I'm not doctor Doom. No, doctor realist.
Speaker 3: There are plenty of upside in hallomic growth, and by
Speaker 3: the way, some of them are thinking that are more cycular.
Speaker 3: I think the impact of technological innovation implied that potential
Speaker 3: growth in the US by the end of the decade
Speaker 3: could be close to three percent. And the fact we
Speaker 3: already have seen for the last couple of years growth
Speaker 3: of two point five to twenty eight percent with inflation falling,
Speaker 3: is signed that maybe PRODUCTI growth is increasing and potential
Speaker 3: is increasing, and we can grow faster with having lower inflation.
Speaker 3: So I'm not doctor dum well.
Speaker 1: When it comes to terriffs. Just to go back to
Speaker 1: this idea of the personnel. We know what Jamison Greer
Speaker 1: as well thinks about China. In hearing to Congress, he
Speaker 1: had talked about strategically coupling. Do you expect that over
Speaker 1: the next four years between Beijing and Washington.
Speaker 3: Yes, I do. I think that one of the biggest
Speaker 3: risks is not just tariff in general, but a broader
Speaker 3: economic war against China. Fleet they listen to the long
Speaker 3: list of complaints of the drum administration. They say China
Speaker 3: has been thriding on free riding on international trading system,
Speaker 3: Tariff non tariferiy barriers, government procurement policies, FTI policies, intellectual
Speaker 3: property rights, and of course fend and lots of other things.
Speaker 3: And also geopolitically, there may be an attempt to try
Speaker 3: to contain the rise of China. So the biggest risk
Speaker 3: is not just tarif on China, but how much the
Speaker 3: overall policies for China is going to be confrontational. And
Speaker 3: if they feel that we're trying to contain their rise,
Speaker 3: they could become quite aggressive themselves.
Speaker 1: Well, from page of the ft today is talking about
Speaker 1: these four government back authorities that are telling local chip
Speaker 1: companies that you can no longer buy silicon from the
Speaker 1: United States, they're no longer safe or reliable or we
Speaker 1: already in this moment you're describing, Well.
Speaker 3: Certainly in anything to do with the high tech, we've
Speaker 3: started already in the by the administration to be in
Speaker 3: a process of the coupling restriction to experts both of
Speaker 3: semiconductor and secconductor equipment, restriction to anyth investiated with AI
Speaker 3: and high technology. Under Biden was an narrow yard and
Speaker 3: high fences and stuff that was supposed to be critical.
Speaker 3: So the risking I think that in the case of
Speaker 3: Trump administration, we may move from the risking with China
Speaker 3: to decoupling with China did something much more how to say.
Speaker 2: Severe, does Europe need to pick a side?
Speaker 3: They'll be in a very very tough position because geopolitically
Speaker 3: Europeans are close to the United States, NATO and so on,
Speaker 3: but they do a lot of trade and investment with China.
Speaker 3: You know, under the Bider administration was easier because there
Speaker 3: was a compromise within the digit seven about the risking
Speaker 3: as opposed to decoupling. If his US goes towards the coupling,
Speaker 3: it says European I have to follow us. Otherwise the
Speaker 3: consequences not just on trade but also NATO security and
Speaker 3: you name it. Then I think Europe is already weak
Speaker 3: to being a tougher spot.
Speaker 2: How much worse could things get for the Europeans. We've
Speaker 2: been saying through this morning that France is ungovernable at
Speaker 2: the moment, which means it can't still of reforms. And
Speaker 2: you know in Europe things have to get worse before
Speaker 2: ultimately they find solutions. How much worse does it needs
Speaker 2: to get?
Speaker 3: Well, things are really pretty bad already in Europe. I
Speaker 3: think that potential growth is below one percent in Europe.
Speaker 3: Growth Europe is going to be in the Eurozone less
Speaker 3: than one percent next year, and structural reform I'm not
Speaker 3: going to occur anytime soon. There's a fragmentation between these
Speaker 3: twenty seven countries. Some of them want more integration, some
Speaker 3: of them one less. At the core of Europe, German
Speaker 3: and Germany and France are going to politically unstable. So
Speaker 3: I don't see either the Letter Report or the Drug
Speaker 3: Report for more integration, for a common market, for more
Speaker 3: productivity combatants being implemented. So it looks pretty dark for
Speaker 3: Europe right.
Speaker 4: Now, which is the reason why I'm surprised that so
Speaker 4: many people come in and they say it's priced in.
Speaker 4: We don't really see a path out of here. We
Speaker 4: don't necessarily see an economic engine or the political will
Speaker 4: or capability to really counter it. At what point are
Speaker 4: we facing off with a potential dollar shock? And I
Speaker 4: asked this because yes, the euro is likely to stay
Speaker 4: around here a week and further, but what if it
Speaker 4: actually weakens dramatically, is the ECB is forced to cut
Speaker 4: rates and that divergence widens.
Speaker 3: Well, there are many good reasons why the dollar may
Speaker 3: continue to strengthen. One is, of course tariff if they
Speaker 3: reduce the trade deficit, is going to strengthen. Two. Trumpet said,
Speaker 3: I want to have actually the dollar the center of
Speaker 3: the global reserve system. And therefore that implies you want
Speaker 3: strong dollar than a week dollar. Relative grow differential relative
Speaker 3: monetary policies, the fact that the US is innovating and
Speaker 3: capital is flowing into the US capital market and the
Speaker 3: stock market all implied that the dollar over time should
Speaker 3: become stronger, the euro and other currencies should become weaker.
Speaker 3: The problem, however, is that Trump says a strong dollar
Speaker 3: has led to the industrialization, to American carnage, people free
Speaker 3: writing on us, to having large trade deficits, and we
Speaker 3: want at some point a week dollar. The fundamentals imply
Speaker 3: a stronger dollar. But policy that may be an attempt eventually,
Speaker 3: maybe in a second enough of an administration to find
Speaker 3: an agreement on currency, maybe to say either you accept
Speaker 3: ten percent tariffs or you accept a ten percent depreciation
Speaker 3: of the dollar. I would not rule out there'll be
Speaker 3: some big Mara lago agreement. Is you know, the effects
Speaker 3: agreement are always in a resort, you know, Bretton Woods
Speaker 3: and Maria the coach Lasa, you know Louver and so on.
Speaker 3: So Mara lagoa cord is something that they're gotta think about,
Speaker 3: not in the first two years, but down the line
Speaker 3: they're gonna say to the trading partners, you don't want tariffs.
Speaker 3: You have to do other things for us as right
Speaker 3: the currency.
Speaker 2: Talk about bitcoin, Bitcoin pushing one hundred and three k
Speaker 2: upon the session by more than five percent. Norian Repining
Speaker 2: is back with us. Norio. You've had a big move
Speaker 2: in bitcoin over the last month or so. I had
Speaker 2: a big move over the last several years. Have you
Speaker 2: rethought the way you think about what's happening here?
Speaker 3: Not really. I mean people talk about bitcoin being a
Speaker 3: cryptocurrency like the other ones, but they're not really currencies.
Speaker 3: They're not a unit of account, they're not a scalable
Speaker 3: means of payment. They're not a stable store of value,
Speaker 3: not a single numeror Bitcoin in the past went to
Speaker 3: seventeen down, then to sixteen, has above one hundred. You
Speaker 3: could have another fifty percent correction. So it's a speculative
Speaker 3: act like mime stocks, sparks and others, highly volatile. Many
Speaker 3: people are going to eat but don't take El Salvador
Speaker 3: the force. Everyone's used bitcoin as legal tender, and less
Speaker 3: than one percent of all transaction occurring in bitcoin, so
Speaker 3: I don't think it's going to ever become a currency.
Speaker 3: There's going to be a speculative act.
Speaker 2: One thing the dollar is depreciated against is bitcoin, and
Speaker 2: I think this is where I would see some separation
Speaker 2: between what's happening with main coins and main stocks and
Speaker 2: what is happening with bitcoin. There seems to be a preference.
Speaker 2: There are market participants who believe that this is a
Speaker 2: place to be if you're worried about the depreciation of
Speaker 2: the US dollar and a fiscal trajectory of the United
Speaker 2: States of America, Do you see a case for it there?
Speaker 3: Not really, because actually when the FED was essentially arising
Speaker 3: rates and inflation was higher, Bitcoin was falling, like in
Speaker 3: twenty two as there was the stock market correction. And
Speaker 3: now the stocks are going higher and the fact is
Speaker 3: easy and inflation has fallen, Beacon is going higher again.
Speaker 3: So historically has not been a hedge against inflation. Actually
Speaker 3: looks like it's highly correlated. Positively, bit stocks a better
Speaker 3: relative to the equity market, so it's not a traditional
Speaker 3: like hedge like gold that is in periods of time
Speaker 3: or inflation rising, or the basement or worries about the dollarization.
Speaker 3: So it's something to me, it looks like expectedlyve A said,
Speaker 3: it is highly correlated with equity, so it's not a
Speaker 3: hedge against inflation, you say, sort.
Speaker 4: Of parallel tracks to meme stocks and some of the
Speaker 4: other euphoria that we've seen. At the same time, there
Speaker 4: seems to be something more concrete behind this. You mentioned gold,
Speaker 4: and we are seeing that rally in gold and tandem
Speaker 4: because of what John is talking about, that store of
Speaker 4: value outside of the US dollar to protect against some
Speaker 4: sort of laws of fiscal dominance. Do you see with
Speaker 4: a more institutionalized structure endorsed by a presidential administration there
Speaker 4: being a case for at least a crypto based store
Speaker 4: of value that could offset some of the risks of
Speaker 4: volatility in the dollar and the potential loss on the
Speaker 4: margins of fiscal dominance.
Speaker 2: Down the road.
Speaker 3: I'm not sure, because if you're worried about inflation, the
Speaker 3: basement of field currency, or even the dollarization, there are
Speaker 3: plenty of other assets that provide a good hedge. Shortened treasuries, tapes,
Speaker 3: oil out commod it is gold, precious metal, so it's
Speaker 3: not as if there is not other alternatives. And as
Speaker 3: I pointed out, in the last few years, when inflation
Speaker 3: was higher, actually bitcoin was falling. And when inflection has fallen,
Speaker 3: Bigcone is going higher, so it doesn't look like it's
Speaker 3: been actually negatively correlated with inflation. So it is a
Speaker 3: spectultive act for some people. E is a store of value.
Speaker 3: But if you want to hedge yourself against inflation, I
Speaker 3: think that a spectrum of variety about their assets that
Speaker 3: are backed actually by real income or something store of
Speaker 3: value that are a better hedge against some of the
Speaker 3: risks that people worry about.
Speaker 1: But given the change of tone in Washington, do you
Speaker 1: think there could be retail adoption at any point?
Speaker 3: Oh? Yeah, and there's already been retail adoption. But my
Speaker 3: word is actually that the regulation on crypto might become
Speaker 3: looser like they were before, and then you have another
Speaker 3: speculty run, you have another sets of scams like FTXSPF
Speaker 3: and so on, and then you get another bust. So
Speaker 3: there ri is kids who are going to go towards
Speaker 3: a very little regulation. You know, there are lots of
Speaker 3: players in this space. That are quite shady, and the
Speaker 3: lack of regulation actually leads to a bigger bubble and
Speaker 3: a bigger bust down the line.
Speaker 2: None you a long time. Just want to finish up
Speaker 2: with something positive looking out to twenty twenty five. Favorite
Speaker 2: region right now, Favorite economy, the place you're most optimistic
Speaker 2: about for next year? Which one?
Speaker 3: It's a bit consensus, but I think the United States
Speaker 3: still is going to outperform both in terms of economic
Speaker 3: growth and equity markets.
Speaker 2: Yes, seems to be the one place to big here.
Speaker 2: It repeated it. Don't we the United States. It keeps
Speaker 2: coming back to America.
Speaker 4: It feels like Tina. This is the Tina trade. There
Speaker 4: is no alternative at a time or essentially, growth is
Speaker 4: concentrated in the world's biggest economy, and maybe it's trickling out,
Speaker 4: maybe it's not. But nonetheless you also have yield.
Speaker 2: Here, Lariel, It's good to see us, sir, Thanks for
Speaker 2: catching up with us. Thank you. Noria Rabini there of
Speaker 2: Rabini Macro Associates. Let's keep it on the administration, Let's
Speaker 2: stick with politics. President lec. Donald Trump rounding out his
Speaker 2: economic team, naming former Congressman Billy Long to lead the IRS,
Speaker 2: former Georgia Senator Kelly Loffler for Small Business Administrator, and
Speaker 2: former SEC Commissioner Paul Atkins for the role of Chairman
Speaker 2: of the Commission. Joining us now is Tobin Marcus of
Speaker 2: Wolf Research. Tabin, Welcome to the program. A lot of
Speaker 2: focus on the Atkins appointment. A lot of focus because
Speaker 2: bitcoin is rallying so hard when we hear things like
Speaker 2: they are a crypto advocate, they are pro crypto tope
Speaker 2: and in practice, what does that actually mean for policy?
Speaker 5: Well, the big complaint about the SEC from a digital
Speaker 5: asset perspective over the course the past few years was
Speaker 5: the so called regulation by enforcement approach that Gensler took.
Speaker 5: I think that's frankly more of an issue for a
Speaker 5: lot of these sort of smaller and newer entrant digital
Speaker 5: assets in terms of like not being able to get
Speaker 5: the clarity from the SEC that they wanted, either by
Speaker 5: trying to go through formal channels or through sort of
Speaker 5: seeking forgiveness not permission. From a Bitcoin perspective, I mean,
Speaker 5: obviously it's been able to thrive despite Gensler's approach to
Speaker 5: the SEC and has continued to rip hire. So I
Speaker 5: think that's obviously a kind of an animal spirit story.
Speaker 1: What kind of U turns can we see at the
Speaker 1: SEC under akins that were put in place by Gensler.
Speaker 5: I think Acinus is going to be broadly dirego story
Speaker 5: across pretty much every access. I mean, he's talked about
Speaker 5: rolling back formal roles. He's also been critical of penalty
Speaker 5: as imposed by the SEC in the past, So I
Speaker 5: think even where there are enforcement actions, he's going to
Speaker 5: be tending to take a more lenient approach with an
Speaker 5: eye towards not kind of reducing competition, not imposing costs,
Speaker 5: and ultimately flow through to shareholders. You know, a lot
Speaker 5: of the formal rules that Gensler put put forward that
Speaker 5: have faced the most criticism are already in litigation in
Speaker 5: terms of climate disclosures, for example. You know there's already
Speaker 5: litigation against the market structural rules that they put out
Speaker 5: earlier this fall. So you know, I don't know how
Speaker 5: much of it is going to be a story of
Speaker 5: formally rolling back rules as opposed to just sending a
Speaker 5: very clear message that you know, we're not going to
Speaker 5: try and regulate through enforcement. You don't need to sort
Speaker 5: of worry about what we're going to do quite as much.
Speaker 1: We also know who's going to be filling in now
Speaker 1: taking the job of Jonathan kantor over at the DOJ
Speaker 1: when it comes to antitrust, and that's Gail Slater. What
Speaker 1: can we glean into what she has said in the
Speaker 1: past about big tech companies into maybe how Trump two
Speaker 1: point zero might potentially be a continuation of what the
Speaker 1: Biden administration was already doing.
Speaker 5: Yeah, that was a very interesting pick. I think a
Speaker 5: little bit more populoust at the margin than we expected
Speaker 5: heading into the election, where I think are we going
Speaker 5: to get a fairly traditional pro business Republican approach at
Speaker 5: DOJ and FTC From a competition policy perspective, I think
Speaker 5: the clearest signal about what she stands for is what
Speaker 5: Trump said about her announcement and what we can glean
Speaker 5: from her working for Vance, both of which you know,
Speaker 5: are really focused on big tech. In terms of what's
Speaker 5: in the crosshairs, I don't see as much risk on
Speaker 5: in sectors that are not kind of explicitly targeted as
Speaker 5: we saw under connin Canter in the Biden administration, you know,
Speaker 5: but her personal trajectory, I mean, she spent ten years
Speaker 5: as a staff attorney at the FTC. She's done some
Speaker 5: work for the tech industry, so you know, looking at
Speaker 5: her resume, you wouldn't necessarily think that she's going to
Speaker 5: be pitchfork wielding. But I do think the expectation, based
Speaker 5: on what Trump advancer are saying, is that we'll see
Speaker 5: some populism in that approach.
Speaker 4: So far, Tobin populism aside, A lot of businesses are
Speaker 4: looking at the agenda and saying this gives us a
Speaker 4: lot more confidence going forward in our business models. There
Speaker 4: are a couple of surveys done by different places, one
Speaker 4: of them showing that now two thirds of business executive
Speaker 4: survey are optimistic about the path ahead versus twenty six
Speaker 4: percent of respondents in August. Do you think that that
Speaker 4: is justified simply because of the deregulation and do you
Speaker 4: think that was sort of I don't know a commentary
Speaker 4: on the regulatory regime before.
Speaker 5: It's fairly typical to see very dramatic reversals in business
Speaker 5: sentiment on transitions.
Speaker 1: You know, generally.
Speaker 5: Republican leadership tends to be better welcomed. Especially you know,
Speaker 5: some of those surveys like NFIB have a very very
Speaker 5: strong part is in balance to them. So, you know,
Speaker 5: I think that's not terribly surprising. You know, I think
Speaker 5: the sentiment swings tend to be bigger than the activity
Speaker 5: swings in terms of what people are doing versus what
Speaker 5: they're saying. But you know, I think in both cases
Speaker 5: we're seeing stronger animal spirits.
Speaker 4: But you know, our.
Speaker 5: Expectation heading into the Trump administration, or heading into the
Speaker 5: possibility of Trump win, was always that the good news
Speaker 5: would be kind of front loaded on some of those
Speaker 5: priorities like deregulation that were very clear, and then the
Speaker 5: more potentially adverse news is backloaded in terms of what
Speaker 5: happens with tariffs, what happens with some of these offsets
Speaker 5: for a fiscal package next year where we're going to
Speaker 5: need to wait to where these risks land.
Speaker 4: Backloaded at the same time that people are talking about
Speaker 4: how this is really going to be first order priority
Speaker 4: for President elect Trump when he takes office to put
Speaker 4: tariffs on and I wonder how much you expect that
Speaker 4: to really impact sentiment. We've been talking to a number
Speaker 4: of people about how much investors are really aware of
Speaker 4: that the idea of tariffs coming in and not just
Speaker 4: being a negotiating tool.
Speaker 2: What's your take on that.
Speaker 4: How much are the people you speak to taking it
Speaker 4: truly seriously?
Speaker 5: So I certainly don't think tariffs are priced in from
Speaker 5: a market perspective. I think that's the clearest thing. Even
Speaker 5: people who are taking it seriously. I think it's very
Speaker 5: challenging to figure out, you know, what are some of
Speaker 5: these single name traits, given how much prescretion the president
Speaker 5: has in implementing tariffs, and how much uncertainty there is
Speaker 5: about exactly what his agenda looks like. So you know,
Speaker 5: there's a lot of uh, sort of interest in it.
Speaker 5: We're having tons of conversations with institutional investors about what
Speaker 5: that might look like. But ultimately there is a lot
Speaker 5: of uncertainty, and I think people are going to need
Speaker 5: to see it to fully believe it.
Speaker 2: Hi Tibin, good to hear from you. It's Tobin macus
Speaker 2: that of Wolf Research on the alex of policy. Market's
Speaker 2: very focused on one thing tomorrow morning, and that's the
Speaker 2: payrolls report, with the hospitality sector coming into focus. Bloomberg
Speaker 2: Economics ranks in the following as this sector has been
Speaker 2: the biggest drank on headline payrolls in past novembers. We
Speaker 2: think underperformance here will be a major factor in a
Speaker 2: disappointing headline print. A man who has to manage the
Speaker 2: hospitality sector is Eric Resling, the CEO of KSSL Capital Partners,
Speaker 2: which invest in travel and leisure. It joins us now
Speaker 2: for more. Eric, good morning, it's good to see you.
Speaker 6: Good Mary, Jane, great to see you all to day.
Speaker 2: How are things going you managed in a hospitality sector.
Speaker 2: What does the labor market look like at the moment.
Speaker 6: Well, if you step back, we're the largest private investor
Speaker 6: in travel, solely focused on travel we believe in the world.
Speaker 6: We have about twenty five billion assets under management. Two
Speaker 6: thirds of that's inequity, a third in credit, and we
Speaker 6: employ about fifty thousand people. So when we look at that,
Speaker 6: I realized that in October there was comments on the
Speaker 6: softness in leisure hiring. Really see that. So there's been
Speaker 6: I think a resurgence of consumer confidence post election, when
Speaker 6: you alleviate the uncertainty around the presidential election, and so
Speaker 6: we're seeing bookings strong when we look into twenty twenty five.
Speaker 6: So I anticipate that whether the November jobs report is
Speaker 6: strong or not, I suspect that you'll see increase hiring
Speaker 6: as we look out over the next few months.
Speaker 4: Before we continue, you mentioned the sort of uncertainty around
Speaker 4: the election and that affects travel. Can you explain why,
Speaker 4: because none of us can figure that out. We've been
Speaker 4: trying to understand this is that there's an election coming up,
Speaker 4: so I'd better just stay home.
Speaker 6: I was hoping you could tell me it's an odd thing,
Speaker 6: but we see it most This is not specific to
Speaker 6: this election. Often in presidential elections, right ad spending goes
Speaker 6: up and generally consumers become a little less confident. I
Speaker 6: think it's just the basics of uncertainty is unnerving. Unnerving
Speaker 6: is less confidence. Less confidence, you don't spend as much
Speaker 6: and travels a place. In that circumstances, you tend to
Speaker 6: delay a little bit.
Speaker 3: So we saw a little bit.
Speaker 6: Of software third quarter and fourth quarter bookings going to
Speaker 6: the election. We've seen it rebound since, and when we
Speaker 6: look to twenty five, you know, bookings for US advanced
Speaker 6: bookings up about fifteen percent. So we're very excited about that.
Speaker 6: But it is odd to me. I can't give you
Speaker 6: an answer. I wish I knew.
Speaker 4: So when you talk about hiring and I do want
Speaker 4: to stick on that because that's one of the key
Speaker 4: components of people's confidence and their ability to keep going
Speaker 4: and traveling. How much easier is it to hire people now?
Speaker 4: I remember a time post pandemic where it was incredibly
Speaker 4: difficult and you couldn't find people, and in order to
Speaker 4: find somebody, you had to find someone who didn't work
Speaker 4: very hard and pay them thirty dollars an hour after
Speaker 4: paying them fifteen dollars an hour.
Speaker 3: How different is it now?
Speaker 6: It's very different. I would say, looks zooming back, what's
Speaker 6: fifteen dollars an hour? Like you mentioned, it is probably
Speaker 6: more like twenty. In big cities it's more. But if
Speaker 6: you look across the industry, I would say it's gone
Speaker 6: fifteen to twenty over four or five years. So it's
Speaker 6: still meaningful wage inflation that has helped. So right now
Speaker 6: we are staffed well above levels that were typically staffed
Speaker 6: at this time year in terms of the pace of
Speaker 6: hiring for us going into the winter ski season, so
Speaker 6: we are basically ninety five percent hired across Alterra Mountain
Speaker 6: Company and the Icon Pass, which is our ski pass
Speaker 6: that we created about seven years ago, catering to go
Speaker 6: on right Yeah, over that time period, we've seen a
Speaker 6: dramatic ramp up in demand for skiing and hiring this
Speaker 6: year has gone easier than it has probably any time
Speaker 6: since pre pandemic.
Speaker 4: Which traces this question about how sustainable this is going forward.
Speaker 4: And I don't want to get glimmy, because this is
Speaker 4: all very positive and vacation plans are something that we
Speaker 4: all want to make. But I am curious about whether
Speaker 4: you're sort of getting to this place where what we
Speaker 4: hear from companies is that consumers are pushing back against
Speaker 4: price increases. That's true, they don't want to pay that
Speaker 4: much more. Hiring is pretty easy. People are plentiful in
Speaker 4: terms of availability, not demanding that much more. Does this
Speaker 4: speak to a moment that in the past, over your
Speaker 4: decades in this industry have been tipping points things start
Speaker 4: to not be quite as good.
Speaker 6: I think that the rate of growth, which was robust
Speaker 6: coming out of COVID, has now stabilized to a more
Speaker 6: normal rate of growth. There's no doubt about that. I
Speaker 6: think we also see that the more luxury end of
Speaker 6: the market is growing faster than the lower end of
Speaker 6: the market. This past year, you've seen three or four
Speaker 6: percent red part growth in the luxury endo the market.
Speaker 6: You've seen a couple percent red part decline in the
Speaker 6: economy into the market. I think that speaks of a
Speaker 6: bit of what you're going after. There is some pricing
Speaker 6: fatigue out there. I think the consumer is willing to
Speaker 6: pay at all ENDO the market do want to pay
Speaker 6: for service. You have to execute against that.
Speaker 3: If you don't.
Speaker 6: Execute against it, you're going to be a net loser
Speaker 6: in that industry in terms of market share. So for us,
Speaker 6: we try to be an employer of choice that helps
Speaker 6: us on gaining effectively market share of the labor market,
Speaker 6: and we try.
Speaker 4: To be.
Speaker 6: I'll try to also provide choice to the consumer, value
Speaker 6: to the consumer in the terms of in terms of
Speaker 6: high end service, so that they feel like while they're
Speaker 6: paying more for their vacation, they're getting more as a result.
Speaker 6: And so if we get that equation right, I don't
Speaker 6: think there's any inflection point that we're at now. A's negative.
Speaker 6: I think we're in a sixty frankly sixty year cyclical
Speaker 6: trend of people spending more towards experiences over material goods
Speaker 6: when it.
Speaker 1: Comes to employment, though, how are you thinking about potential
Speaker 1: change of policies and the crackdown of illegal immigration by
Speaker 1: the incoming Trump administration and what that could mean for
Speaker 1: the supply right now in the market.
Speaker 6: Look, it's a relevant issue again, think for us in
Speaker 6: our industry, legal immigration policies are very important and creating
Speaker 6: vertical pathways for often legal immigrants and people getting their
Speaker 6: first job and giving them an opportunity to grow their
Speaker 6: careers over time in the leisure and hospitality industry, we
Speaker 6: think is a wonderful opportunity that our industry provides. Now
Speaker 6: we take very seriously making sure that our employees are
Speaker 6: legally here. And I don't think there's a broad issue
Speaker 6: in our industry in that regard, but certainly anything in
Speaker 6: the industry, but the knock on a fact, there is
Speaker 6: a knock on effect. We'll see what happens. There's talk
Speaker 6: and then there's action. Certainly we can't predict exactly what's
Speaker 6: going to happen. If there were something that resulted in
Speaker 6: a meaningful pullback in that kind of entry level labor market,
Speaker 6: that would certainly have a knock on effect. You know,
Speaker 6: as you mentioned emory in our industry. But what we
Speaker 6: have shown that could be inflationary if there's less available labor,
Speaker 6: it could be inflationary on wages. If that's the case,
Speaker 6: We've shown in our industry that we're very resilient. Just
Speaker 6: looking at the COVID, we were able to manage through
Speaker 6: a period of rapid inflation and come through that actually
Speaker 6: healthier than we went into it.
Speaker 2: The post COVID tourism flows have shifted, though, and geopolitics
Speaker 2: has been that Russian tourism has disappeared in certain places,
Speaker 2: the Chinese tourist was very slow to come back, and
Speaker 2: still our states for America as well. What do you
Speaker 2: noticeeing with regards to that, where's the tourism coming from?
Speaker 2: Where's it going? Where do you want to be? Where
Speaker 2: do you want to have a prophecy?
Speaker 6: Well, I can't give you a specific answer and perspective investments,
Speaker 6: but what I would say is Indian tourism is way up,
Speaker 6: China is down, Middle Eastern tourism is up, Russia is down,
Speaker 6: American tourism to.
Speaker 3: Europe is up.
Speaker 6: European tourism to the US has come back actually quite robustly.
Speaker 6: Japanese tourism is down to the US, Chinese tourism, or
Speaker 6: actually all tourism to Japan is up, currency flows, macroeconomics
Speaker 6: all coming too play there. We think of those as
Speaker 6: short term trends generally speaking, when you look over the
Speaker 6: long term, fundamentally, we think that global tourism, global travel flows,
Speaker 6: if you will, all generally are pointing up into the right.
Speaker 6: But yes, everything you said is true for us. We're
Speaker 6: looking for those unique destinations that have broad appeal, ideally
Speaker 6: a place that we can take a consumer. If they
Speaker 6: haven't appealed to the Indian tourists, how do we create
Speaker 6: more appeal to the Indian tourists that's growing will come
Speaker 6: to our new destination. Maybe that's in Italy, maybe that's
Speaker 6: in the US, maybe that's in our resorts in the Maldives,
Speaker 6: just as one example. But I wouldn't say that we're
Speaker 6: particularly concerned about that. We've never where the where the
Speaker 6: trends are weaker. We've never had a lot of Russian
Speaker 6: demand is for example, at our properties. But yes, you
Speaker 6: are right when we look at markets like Kurschevel in France,
Speaker 6: just as a consumer, the Russian travel of that market
Speaker 6: is down materially over the last several years.
Speaker 4: So I know you can't talk about prospective deals, but
Speaker 4: you can talk about the type of deals that you
Speaker 4: are interested in, and you had been focused much more
Speaker 4: on debt. Now you're much more shifting your focus to
Speaker 4: equity investments.
Speaker 6: Why, Well, I wouldn't say it's a shift. It's more
Speaker 6: if you look back last year, the typically year, we
Speaker 6: deploy about three billion dollars worth three billion dollars of capital,
Speaker 6: half in debt, half inequity. In the last year, credit
Speaker 6: debt was up fifty percent and equity was down fifty percent,
Speaker 6: And that was simply a symptom of a big bid
Speaker 6: ass gap between buyers and sellers on equity offset by
Speaker 6: a tremendous amount of refinancing demand combined with bank pullback
Speaker 6: on the credit side. Looking forward, we still see those
Speaker 6: seams trends ends in credit, but on the equity side
Speaker 6: we see real reason for optimism. We see NDAs that
Speaker 6: we've signed increasing, We've seen initial conversations with banks and
Speaker 6: sellers increasing. Going into twenty five, bank or get availability
Speaker 6: is there, So that helps spinning us acquisitions. Interest rates
Speaker 6: for down seventy five basis point, it's hopefully more coming.
Speaker 6: So all of that boats well for the equity market
Speaker 6: as we go into the first after twenty five. It
Speaker 6: will take a quarter or two to play out.
Speaker 2: Just before you go. I am an amateur hotel and
Speaker 2: restaurant critic. Congratulations, I'm aware. Yes, Bil, Savannah Lake Como.
Speaker 2: Fantastic property. It is a fantastic property. I highly recommend it.
Speaker 2: The self drive boats there are fantastic. Did that? The
Speaker 2: mini reeve of boats A beautiful think there, they are wonderful, sir, amateur, thank.
Speaker 6: You, thank you, thank you, thank you for being one
Speaker 6: of our past guests.
Speaker 2: Anytime, sir, anytime. Thank you.
Speaker 3: Good to see it, Thank you great.
Speaker 6: I appreciate you you having me.
Speaker 2: On, Eric Restmika KOs sound Capital pon this. This is
Speaker 2: the Bloomberg Seventans podcast, bringing you the best in markets, economics,
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Speaker 3: HM