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Speaker 2: Jeffrey You, senior Email market a strategist at bn Y,
Speaker 2: and really Jeffrey, just honored to have the kernel line
Speaker 2: and then to have you on synthesizing this. What are
Speaker 2: the correlations, jeff you in the market now? Is it equities, bunds,
Speaker 2: currencies and commodities for themselves or are they linked overall?
Speaker 3: I think it's each asset class for itself. I'm looking
Speaker 3: at equity markets right now. Some reaction in somes of
Speaker 3: the futures, but I don't think there's going to be
Speaker 3: too much in the grand scheme of things. Foreign exchange
Speaker 3: much more interested in where dollar en is going, and
Speaker 3: maybe there's going to be more of a knock on
Speaker 3: effect on the treasury market, so when a waste and
Speaker 3: see mode there, and of course some US treasury markets
Speaker 3: focusing on the inflation aspects as well, so individual drivers,
Speaker 3: you know, not one unique force at the space but
Speaker 3: you know, overall, I think markets will take this in.
Speaker 2: It's right over the weekend, jeff and this is your wheelhouse.
Speaker 2: There was a lot of discussion about linear and nonlinear
Speaker 2: movement and yields, which comes back to the belief in
Speaker 2: fixed income. In this case of worry, price down and
Speaker 2: yield up. Are we at a point where yields trip
Speaker 2: and we get a real accelerative tendency to higher yields.
Speaker 3: I think that's the broader fear. But if I look
Speaker 3: at the last few trading days, there's much more concern
Speaker 3: about Japan intervening and the stronger dollar causing Asian reserve
Speaker 3: managers in general and those in the GCC mind you,
Speaker 3: due to the need for dollar preference, will they need
Speaker 3: to sell US treasuries? That seems to be much more
Speaker 3: of a driver compared to the inflation shock. So we
Speaker 3: are looking at the treasury market, We are looking at
Speaker 3: these drivers are but probably these triggers are not where
Speaker 3: we expect them to be. But that confidence of factors
Speaker 3: is something the markets served me attuned to and worried
Speaker 3: about higher yields.
Speaker 4: So Jeffrey and we have seen some movement over the
Speaker 4: past you know, a week or so pronounced movement in
Speaker 4: the Japanese yen here pushing up with the one sixty.
Speaker 4: Now we see it back down to one fifty seven here.
Speaker 4: What do you think's going on in that market?
Speaker 3: So two things are really one inflation inflation expectations. Inflation
Speaker 3: number is actually softening in Japan. But I guess it's
Speaker 3: a unique environment right now, high base effects, inflation expectations
Speaker 3: due to the oil shock. Of course, that is driving
Speaker 3: things higher. But finally the market is saying you've warned
Speaker 3: about intervention. The ad Ministry Finance said, this is a
Speaker 3: final warning and learn the whole They actually came in.
Speaker 3: So now that they've put the money, you know where
Speaker 3: their mouths are. Let's see, you know, whether this can
Speaker 3: drive broader, stronger APAC currencies. In general, this is one
Speaker 3: of the most favorite positions in currency markets. At the
Speaker 3: beginning of the year, you're going to these anchoring things.
Speaker 3: Of course, balance of payments shifting a bit. But now
Speaker 3: with the end move this could be one of the
Speaker 3: bigger themes for the rest of the year. And this
Speaker 3: is good for the US by the way, greater purchasing
Speaker 3: power for Asia to buy US assets.
Speaker 2: Jeffery you were US with the B and Y. What
Speaker 2: you've heard there, folks, was a really sophisticated as you'd
Speaker 2: always get from JEFFU idea of yield guessing inflation versus flows.
Speaker 2: Right now, JEFFU is Chairman Walsh in the Funneral Reserve,
Speaker 2: central banker to the world. And then if the Japanese
Speaker 2: have troubles or any other nation, it is swaps to
Speaker 2: the rescue.
Speaker 5: Well, the US will help itself.
Speaker 3: The most amazing thing we've seen in US treasury markets
Speaker 3: this year, our clients are US clients. In our data,
Speaker 3: they are buying US treasuries phenomenal amounts. Actually, domestic clients
Speaker 3: in Europe, domestic clients in the UK they are buying
Speaker 3: their own debt and phenomenal amounts. Why I look at
Speaker 3: the brake even, I look inflation break even barely moved right,
Speaker 3: So your real yields are tremendous right now, foreign aging population.
Speaker 3: This is happening all over the Western world. I wouldn't
Speaker 3: be worried about the trophy market with real yields at
Speaker 3: least that.
Speaker 2: Is brilliant, folks. Can we get him back?
Speaker 5: He's pretty good?
Speaker 2: I mean, if the Red Sox win three in a row, Jeffrey,
Speaker 2: you will come back, maybe if Tottenham stays out of
Speaker 2: relegation and they'll come back, jeff you this is just
Speaker 2: so so so and important here. If you look at
Speaker 2: the ten year real yield, however you measure it, how
Speaker 2: a whack is it because of insatiable war demand for
Speaker 2: our full faith and credit debt?
Speaker 3: Well, right now it's the break evens. I'm just looking
Speaker 3: at ten year right now. They're barely above levels where
Speaker 3: we were a year ago, right so, you know, holding
Speaker 3: well about two and a half percent, yet nominal yields
Speaker 3: are higher. So I think there is this absolute belief
Speaker 3: that the AI trade will bring up, will push up
Speaker 3: US productivity and productivity differentials, and sometimes it's about differentials.
Speaker 3: The rest of the world will be so strong versus
Speaker 3: the rest of the world such that inflation is not
Speaker 3: now and will not really be a problem for the
Speaker 3: foreseeable future. So yes, you can have a supply shop
Speaker 3: AI and productivity growth in the US will be able
Speaker 3: to deal with it. And this is helping domestic investors
Speaker 3: who don't have to worry about FX anchor the U
Speaker 3: S creasury market as well. So I think Stan I
Speaker 3: really don't worry about the US creasury market either.
Speaker 2: Jeffrey, you thank you so much. Too short a visit,
Speaker 2: stay with us. More from Bloomberg Surveillance coming up after this.
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Speaker 2: It's a joy at Mattlizetti in the studio with a
Speaker 2: Deutsche Bank and all of his US economics because they
Speaker 2: see him like on the feddicides and he's got to
Speaker 2: run to his clients, so he's down for like four
Speaker 2: minutes twenty two seconds. John's asking a five minute question.
Speaker 2: So I'm toast great to have you here. The heritage
Speaker 2: of Deutsche Bank folks. Deutsche Bank owned hydrocarbon coverage twenty
Speaker 2: years ago. Adam Saminski, Paul Sanki. It was legendary. They
Speaker 2: had this huge Asian a projection. I should say, where's
Speaker 2: your mentally in your head? Where's your gallon of gas?
Speaker 2: Tip point for the American consumer.
Speaker 6: Yeah, So for us, our forecast is kind of based
Speaker 6: on the idea that oilfesers are going to come down
Speaker 6: over the course of this year. Our house view is
Speaker 6: that we're going to be down closer to eighty or
Speaker 6: eighty five dollars a barrel on brent by the end
Speaker 6: of the year.
Speaker 7: Not not too far offrom where market pricing is, but.
Speaker 6: We've identified if Brent were to be moving up towards
Speaker 6: one hundred and fifty dollars a barrel, that's roughly forty
Speaker 6: dollars more than where we are today being there on
Speaker 6: a sustained basis. That's where we've become a little bit
Speaker 6: more worried about the growth side of this picture rather
Speaker 6: than the inflation side. I think there you kind of
Speaker 6: clearly wipe out the benefits from the tax cuts in
Speaker 6: the one big beautiful bill and be a little bit
Speaker 6: more worried about consumer spending. Obviously, the consumer sentiment has
Speaker 6: already taken a big hit. So that's the oil price
Speaker 6: level that we're more worried about. What do you think
Speaker 6: the federal banks are worried about? We heard from the
Speaker 6: Fed last week. What did you take away from that?
Speaker 7: Yeah, it was you know, an interesting one.
Speaker 6: You know, all the debate was about whether or not
Speaker 6: they would keep their Ford guidance language or not they
Speaker 6: did that had a very slight cutting bias or dubbish bias.
Speaker 6: But we got three descents to the statement, which is
Speaker 6: an unusual outcome for the FED. And initially when I
Speaker 6: saw it on the headlines, it was an eight to
Speaker 6: four decision. It looked more like the Bank of England
Speaker 6: than it did the Federal Reserve. I think you have
Speaker 6: a FED that is kind of inching in a Hawkers direction.
Speaker 6: Pal said that the center of mass is moving to
Speaker 6: more neutral. I think you have a committee that you
Speaker 6: know at the June meeting could have rates unchanged in
Speaker 6: their own dot plot, and it's possible. At that point
Speaker 6: you have people that show rate hikes. But key for
Speaker 6: them is how sustained this oil price shock is. The
Speaker 6: more sustained it is, the more the more worried that
Speaker 6: come about inflation pressures, the less likely they are to
Speaker 6: cut this year.
Speaker 4: How about other central banks? The Bank of England, the
Speaker 4: ECB looks like they may be more on a hiking trajectory.
Speaker 6: So the ECB we do have with great hikes, we
Speaker 6: expect that they cut twenty five basis points in June.
Speaker 6: It's I think the bar is somewhat high for them
Speaker 6: to not cut, but it's still a possibility that they
Speaker 6: don't cut at the GYM meeting. We then have them
Speaker 6: falling up with another twenty five basis point cut later
Speaker 6: this year. Okay, you know other central banks, they're dealing
Speaker 6: with a little bit different outcomes than what you're seeing
Speaker 6: from the FED.
Speaker 7: At this point in time.
Speaker 6: The US economy is more insulated from the oil price shock,
Speaker 6: which is a good outcome. At the same time, you
Speaker 6: do have a bit more of pass through from oil
Speaker 6: price shocks to core inflation in other economies.
Speaker 2: I mean, this is all great, but here's the reality.
Speaker 2: When you were u c LA, you had a super
Speaker 2: woo where you could see through the floor d three
Speaker 2: hundred thousand miles on it. Now you're driving the Maserati
Speaker 2: after the bonaw you got from Deutsche Bank, and you're
Speaker 2: pulling up to the little home by Union seventy six.
Speaker 2: There's this GA station by USC. It's like it's like
Speaker 2: it's like a historic monument. They're popping for fancy gas
Speaker 2: or seven dollars fifty five cents. I mean, that's the
Speaker 2: reality our listeners and viewers are facing.
Speaker 6: Yeah, I'm thankful for being in New Jersey and not
Speaker 6: having to pay those gas prices and driving a Masa
Speaker 6: rather than a Maserati is helping me a little bit.
Speaker 6: But look, no doubt it's a big hit for household
Speaker 6: disposable incomes.
Speaker 7: As we look ahead, we.
Speaker 6: Do think that households are buffered from this to a
Speaker 6: reasonable extent. You have savings titchs which have been a
Speaker 6: little bit more elevated. The labor market is accelerating a
Speaker 6: little bit here. We think we'll get data on that
Speaker 6: this week. Household wealthy income ratios at record high levels.
Speaker 6: Financial positions are very easy. You have the tax cut
Speaker 6: benefits coming through refile.
Speaker 2: Where's the real wage, the inflation adjusted wage for all
Speaker 2: the Deutsche Bank enthusiasm.
Speaker 6: Yeah, it's been positive recently, but it's going to get
Speaker 6: turn negative on as headline inflation.
Speaker 2: Finally think negative.
Speaker 7: I want to view that.
Speaker 6: Within the context of the broad aggregate consumer and the
Speaker 6: broad economy, which I think the data that we continue
Speaker 6: to get there is resilient.
Speaker 7: The labor market data, the job.
Speaker 2: Macause forty two people in AI are making a jillion
Speaker 2: dollars and going to the med gale. Half of America's
Speaker 2: flat on their back.
Speaker 7: Look, I think, no doubt that's part of it.
Speaker 6: I mean, we got the Durbal goods orders data last
Speaker 6: week where AI related investment is really driving. You look
Speaker 6: at the year of a year growth rate of computer
Speaker 6: and perperal equipment, it's at a twenty year high. You
Speaker 6: do have a as you always do, a US consumer
Speaker 6: that is very heterogeneous and very divided in terms of
Speaker 6: their ability to absorb these shots.
Speaker 5: So no doubt.
Speaker 6: But as we think about the Federal Reserve and as
Speaker 6: we think about monetary policy, it is that aggregate picture
Speaker 6: that I think matters more to the FED than the
Speaker 6: dispersion economic growth.
Speaker 4: I need growth in my labor pool.
Speaker 5: I need productivity.
Speaker 4: I don't have any growth of my labor pool these days.
Speaker 5: Is productivity we do intern activity?
Speaker 4: And is that an AI productivity or is that just
Speaker 4: me and Tom working harder?
Speaker 5: What?
Speaker 8: Well?
Speaker 7: You and Tom are working very hard, I think, and
Speaker 7: helping us all out.
Speaker 6: But you know, I think so far it's mostly just
Speaker 6: looking at backward looking.
Speaker 7: Historic tightening in the labor market. And what we've seen.
Speaker 6: Back over history is when you have very tight labor markets,
Speaker 6: labor is expensive and hard to find.
Speaker 7: That leads to productivity gains.
Speaker 6: So I think we're still reaping the benefits of the
Speaker 6: very tight labor market in twenty twenty one, twenty twenty two.
Speaker 6: I think you're beginning to see some early evidence that
Speaker 6: it is AI related. When I have a chart in
Speaker 6: my chart book where you look at AI adoption across
Speaker 6: sectors versus productivity across the different sectors, there's an emerging
Speaker 6: positive relationship between those two things. Ultimately, I think as
Speaker 6: you look ahead, we expect AI to be driving productivity
Speaker 6: growth fifty to seventy five basis points higher.
Speaker 2: Wow, let me get this in. Are you nominal GDP agnostic?
Speaker 2: If it comes from real GDP or the growth comes
Speaker 2: from the inflation part for American corporations, it really doesn't matter.
Speaker 2: There's just a pop there, right. Yeah.
Speaker 6: I think there's a very big difference between the stock
Speaker 6: market and bond market on this one, because the Fed
Speaker 6: cares a lot about that breakdown, whether or not it's
Speaker 6: inflation or real growth.
Speaker 7: The more it is inflation, the higher for longer they are.
Speaker 6: We think that the Fed does not cut rates this
Speaker 6: year as a result of this inflationary environment, and so
Speaker 6: that that that mix matters a lot. Our own forecast
Speaker 6: has moved a bit more towards the inflation side. We've
Speaker 6: marked up our core PC inflation forecast about fifty basis
Speaker 6: points from two point four to two point nine percent
Speaker 6: this year.
Speaker 7: We've kept our real growth forecast at two point four
Speaker 7: percent two point three.
Speaker 2: Gas station UCLA. It's just wild, how gorgeous.
Speaker 5: That is everything.
Speaker 7: It's like everything is gorgeous out there.
Speaker 2: It's just great. And then what they're doing, and I
Speaker 2: could see your maserati there right now in the photo.
Speaker 2: Thank you so much. Stay with us. More from Bloomberg
Speaker 2: Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 2: Detrees, joins us out co founder at Veda Partners, Henriette.
Speaker 2: I've never done this, but I'm going to do it
Speaker 2: because a cacophony of headlines this weekend was stunning into
Speaker 2: this morning. Does anyone in Washington have a plan or
Speaker 2: is it every congress type and senator for themselves?
Speaker 9: That's a really solid question.
Speaker 10: There are so many disparate factions in Capitol Hill right
Speaker 10: now that I wouldn't say there is a plan. I
Speaker 10: would say that lots of different groups have their own
Speaker 10: agenda that they'd like to see. You know, there are
Speaker 10: some really hardline Republicans who want to see the president
Speaker 10: perpetuate this war with iron, who are encouraging the President
Speaker 10: to stay the course, actively encouraging him not to back down.
Speaker 10: And there are folks who are even calling for more
Speaker 10: military as escalation from here. Senator Tillis as a plan
Speaker 10: to give the president a year long authority to wage
Speaker 10: this war however he sees fit. And then you have
Speaker 10: other members who are looking at gas prices and see,
Speaker 10: you know, it costs one hundred and sixty two dollars
Speaker 10: to fill up the tank of the most popular car
Speaker 10: in America, and they have a problem going into an election.
Speaker 9: So it really is pretty disparate.
Speaker 2: When you look at this. Do you have the optimism
Speaker 2: that this will get solved at the ballance box, that
Speaker 2: our ability to go into a secret place and vote
Speaker 2: will fix it.
Speaker 9: No, definitely not.
Speaker 10: For example, I get this question a lot, because you know,
Speaker 10: there's a strong sense that the House will flip to
Speaker 10: democratic control and maybe even growing possibility that the Democratic
Speaker 10: Democrats take the Senate. But think about what the margins
Speaker 10: would be, you know, most and you're talking if Dems
Speaker 10: were able to pick up red states like Texas at Ohio.
Speaker 10: You're looking at fifty one seats for democratic control in
Speaker 10: the United States Senate. So in that scenario, you're not
Speaker 10: passing legislation to reign in the president. You don't have
Speaker 10: sixty to overcome a filibuster. You sure ise don't have
Speaker 10: sixty seven to overwrite a veto. So you're working on
Speaker 10: just investigations. And so for investors trying to see what
Speaker 10: are the fallouts if Democrats take the House. In the Senate,
Speaker 10: it's actually usually what investors like best, which is no
Speaker 10: action from DC. No legislation on tax policy, no legislation
Speaker 10: on really anything. It's still just the executive branch. So
Speaker 10: that's where you get tariffs and foreign intervention like we're
Speaker 10: seeing right now.
Speaker 4: Henrietta, I can't recall the last piece of meaningful legislation
Speaker 4: that was pass me.
Speaker 7: That's just me.
Speaker 4: But what is Congress working on? What should they be
Speaker 4: looking at? Should we be expecting anything from this Congress.
Speaker 9: You forgot about the one big beautiful bill. I guess
Speaker 9: that's about a year ago. No, it's okay.
Speaker 10: I mean we've been dealing with government shutdowns effectively since then.
Speaker 10: So we had a forty three day shutdown and then
Speaker 10: a sixty seven day shutdown or whatever. Right now, they
Speaker 10: have just passed a flurry of legislation on the House side,
Speaker 10: and what tells.
Speaker 9: You everything that you need to know.
Speaker 10: So they passed all their work and then they left
Speaker 10: town schedule to recess.
Speaker 9: They get me out of here. They're gone for the
Speaker 9: next twelve.
Speaker 10: Days, so they're operating in like fits and starts. When
Speaker 10: they get back, they'll be in for about two weeks.
Speaker 10: They'll hopefully have a reconciliation bill that they can pass,
Speaker 10: and that bill is really just an appropriations which I
Speaker 10: don't want to get too nerdy, but it's really just
Speaker 10: funding for immigration and it'll clear the decks on immigration
Speaker 10: for the next two and.
Speaker 9: A half years.
Speaker 10: And then they're going to go on recess again. So
Speaker 10: we're not working on massive, you know, new deal style
Speaker 10: legislation right now.
Speaker 4: So what is the next thing coming out of DC here?
Speaker 5: Is?
Speaker 4: Are we just still at the waiting for the next
Speaker 4: social media posts from the White House.
Speaker 10: Yeah, the White House definitely is a very firm control
Speaker 10: over DC. Democrats are in full campaign mode. Republicans are
Speaker 10: very much catering, i think, to the administration, and that's
Speaker 10: going to persist through the rest of this month. As
Speaker 10: I've discussed with y'all before, when it comes to the war,
Speaker 10: there are two real inflection points five dollars gas lane,
Speaker 10: which we're not yet at but rising quickly and could
Speaker 10: be at before Memorial Day. So that's something to be
Speaker 10: extraordinarily anxious about. You know, when it takes that one
Speaker 10: hundred and sixty two dollars to phillip An f one fifty,
Speaker 10: you have a problem. And then the month of June
Speaker 10: and June is optically in DC considered the time when
Speaker 10: the president really needs to migrate to domestic politics and
Speaker 10: really concentrate on affordability, where he pulls the worst and
Speaker 10: is also the most important thing to the American voter.
Speaker 10: And that's why the president's disapproval numbers are in the
Speaker 10: sixty four percent.
Speaker 9: Right, You've got to have that conversation.
Speaker 2: Okay, brilliantly said quickly. Here, Then what happens in June.
Speaker 2: What do you expect to see in June at.
Speaker 9: That point where at the ninety day marker of the war.
Speaker 10: So there are a couple of senators Senator John Curtis
Speaker 10: or Republican of Utah and most recently Senator Collins of
Speaker 10: Maine who's in a very real fight for her Senate
Speaker 10: seat in Maine. They have crossed the aisle effectively or
Speaker 10: told us that they're going to when we get to
Speaker 10: that ninety day point, or in the case of Susan Collins,
Speaker 10: already rain and the President's authority on the war Powers solution,
Speaker 10: try to have some messaging boats that ninety day threshold
Speaker 10: is really what's most optically important to members. If you
Speaker 10: simultaneously had five dollars gasoline, there's going to be a
Speaker 10: lot of political pressure on the administration. You've already seen
Speaker 10: spared our lines go out of business. I was just
Speaker 10: talking about that with your colleagues on TV. I mean,
Speaker 10: the compounding effects are cascading now. It's going to be
Speaker 10: in food prices, it's going to be in services.
Speaker 9: This is not ending. As long as the straight is closed.
Speaker 10: I don't care if there's a ceasefire or a blockade
Speaker 10: or whatever, it doesn't matter.
Speaker 9: You need a straight reopen.
Speaker 2: Henrietta, thank you so much. Really appreciate Hanny to Trey's
Speaker 2: there on a Monday to get us as started here
Speaker 2: on the cascating moment. We are all stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 2: This is a joy in perfect time. Stephen Trent with
Speaker 2: us right now with STT Capital Advisors, absolutely definitive and
Speaker 2: grinding out twelve page detailed reports on the aviation business
Speaker 2: give us. Is jet Blue the next Sprint? I mean
Speaker 2: it's just as simple as that.
Speaker 5: Well, thank you so much for having me on.
Speaker 8: And I think jet Blue is propositively in a difficult
Speaker 8: spot if you look at it today versus the pandemic.
Speaker 8: Its leverage is very high. It hasn't generated cash in
Speaker 8: a while. It has six years, yes, correct, that's a while.
Speaker 5: So what are these?
Speaker 4: Is there a market for these lower cost regional airlines today?
Speaker 4: Is there even a business proposition, particularly with jet fuel
Speaker 4: with these levels.
Speaker 8: You know, it's really hard for the discount airlines. I mean,
Speaker 8: I think we've seen structural adjustments POSTP. Part of that's
Speaker 8: coming from the consumer. You now have a lot of
Speaker 8: consumers that are no longer in the office five days
Speaker 8: a week. That has affected travel patterns. You also now
Speaker 8: have a lot of the traveling public is from the
Speaker 8: wealthier side of the fence. So if you're one of
Speaker 8: the big three, you're enjoying the flow, you're enjoying premium,
Speaker 8: you're enjoying your co branded card renumeration.
Speaker 5: But for the discount folks, it's a tough one, you.
Speaker 8: Know, and pre pandemic, they would really win the battle
Speaker 8: by diluting seat mile cost. And we've seen so much
Speaker 8: cost convergence. We don't have the air traffic control capability
Speaker 8: to jam a whole bunch of flights like we used to.
Speaker 8: So those guys are in a tough spot.
Speaker 4: So what is the you mentioned the air traffic control.
Speaker 7: What is the solution there?
Speaker 5: Is it just.
Speaker 4: Hiring more bodies? Is it improving the technologies at all?
Speaker 5: The above?
Speaker 4: Because I don't know where that problem came from, but yeah,
Speaker 4: you know, what that's.
Speaker 5: Been brewing a while.
Speaker 8: So the actually been attempts over the years to try
Speaker 8: and modernize the aviation, the air traffic control system. There
Speaker 8: was talk about using satellites. You know, it seems to
Speaker 8: be very slow for that stuff to get impacted and affected,
Speaker 8: and I think part of that's coming from you know,
Speaker 8: appropriations in Congress and what have you. But the job
Speaker 8: itself and training air traffic controllers, I mean that's not
Speaker 8: a particularly easy task.
Speaker 4: I mean I was just again coming into work today
Speaker 4: up the Jersey Turnpike. Literally a plane flew right over
Speaker 4: my car, like it does every single morning. How does
Speaker 4: a plane hit a lamp hole in Newark by the way,
Speaker 4: I mean, I don't know what happened there.
Speaker 8: Oh boy, yeah that I don't think I've seen that
Speaker 8: before myself.
Speaker 4: Mine just shows you the boy, the air traffic control
Speaker 4: and the right thing just needs an upgrade.
Speaker 2: Your world, Stephen Trent, Is there a more persistent stream
Speaker 2: of cash floats with all the buffeting and and you
Speaker 2: know the price of fuel and all that. Is it
Speaker 2: a more blue chip sector than in your ute?
Speaker 8: You know, I would say today versus twenty years ago,
Speaker 8: the network airlines are definitely stronger cash flow producers, not
Speaker 8: only because twenty years ago you had a lot more
Speaker 8: network airlines, you know, and they've all emerged, for example,
Speaker 8: but you also have co branded card renumeration is huge.
Speaker 8: So some of this flow is coming through the income statement,
Speaker 8: you know, the royalties they receive from the credit cards,
Speaker 8: but a lot of that flow is working capital tailwind
Speaker 8: so every time somebody uses the card, So when you
Speaker 8: look at the cash flow coming in from that and
Speaker 8: the amount they're doing at a premium.
Speaker 2: Okay, so Delta, you know, whichever what portion of their
Speaker 2: story is the credit cards versus actually running an airline.
Speaker 8: Yeah, look, you've heard the saying that you now have
Speaker 8: credit card companies that start airlines.
Speaker 5: I would say it's the outpost.
Speaker 8: When we think about the stability and the earning stream
Speaker 8: and the cash flow stream, I would absolutely say the
Speaker 8: co branded card enumeration is a very important part of it.
Speaker 5: Maybe one third of that greatest.
Speaker 2: Stability percent as a credit card company.
Speaker 5: The greatest ability, yes, at least.
Speaker 2: That how do you spend your miles on flights? They
Speaker 2: want me to spend it on everything else and the
Speaker 2: afterthought needed a ticket? I'm shot, I.
Speaker 4: Know, you're shocked exactly, And I did it with Miles
Speaker 4: and it works.
Speaker 7: I get value out of that.
Speaker 4: So in the airline business today, for an investor, how
Speaker 4: do you play it with given more jet fuel is
Speaker 4: it's got to be.
Speaker 7: A crusher on profit margins.
Speaker 4: But when you talk to institutional investors, how are they
Speaker 4: playing in the airline business these days?
Speaker 8: Yeah, Look, I think over the short term you'll have
Speaker 8: a little bit of noise and Jet Blue and Frontier
Speaker 8: because of Spirit's demise. But I think when we look
Speaker 8: at jet fuel, I think people are looking back to
Speaker 8: what happened in twenty twenty two where we did have
Speaker 8: this big spike in fuel where fuel prices didn't really
Speaker 8: start to subside until July.
Speaker 5: And what you saw over that.
Speaker 8: Period is the network airlines were really able to sustain
Speaker 8: a long period of higher yields and the pricing. If
Speaker 8: you look at sort of a sequential increase in yields
Speaker 8: versus sequential increase in jet fuel carrising, you saw one
Speaker 8: year of stronger pricing from the net.
Speaker 4: So they do pass along to cut consumers, the price increases.
Speaker 8: Absolutely, there is you know, an effort to raise fares
Speaker 8: and if they need to you know, very likely we'll
Speaker 8: see more capacity cuts that should also support pricing.
Speaker 2: Chapaul's good question about I call it the aircraft carrier
Speaker 2: known as newer airport. How are we doing a night
Speaker 2: a not in my backyard building new airports? One?
Speaker 8: Well, look, I think that in terms of the effort
Speaker 8: to build out some of these new facilities, I think
Speaker 8: that's actually a really good effort on their parts. So
Speaker 8: a carrier like United has done very well in terms
Speaker 8: of cash flow from operations growth, for example. And one
Speaker 8: thing you look that I think is changing now versus
Speaker 8: pre pandemic, I would say with the discount airlines pre pandemic,
Speaker 8: there was the saying what's good for the consumer is
Speaker 8: bad for the shareholder, or vice versa. So you look
Speaker 8: at a Spirit people didn't want to fly in, but
Speaker 8: Spirit pre pandemic made a lot of money. I think
Speaker 8: United Airlines and others I think more focused on the
Speaker 8: customer experience now. They want sticky, relatively wealthy flow and
Speaker 8: the airports upgrades are part of that.
Speaker 2: Do you have a single best buy.
Speaker 5: Copa Airlines and Panamas.
Speaker 2: Myspap you're still flogging that one.
Speaker 5: That one is unbelievable.
Speaker 8: Twenty one percent EBIT margin, six percent cash dividend yield.
Speaker 8: They have a mote surveying a preponderance of low density routes.
Speaker 5: Out of their Talkumen hub. That one, I.
Speaker 8: Feel isn't a class by itself, but we're fans of
Speaker 8: the Big three. Maybe the place where we're out a
Speaker 8: consensus is going to be American Airlines with a positive view.
Speaker 2: Okay, Steven Trent, thank you so much. I really really
Speaker 2: appreciate it. This morning, all of us work at SDT
Speaker 2: Capital Advisors.
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