WEBVTT - Bloomberg Surveillance TV: June 8th, 2026 0:00:02.360 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordert. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.840 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:36.919 Terminal and the Bloomberg Business app. We begin this out 0:00:36.920 --> 0:00:39.120 with stocks looking to recover following the biggest one day 0:00:39.159 --> 0:00:41.279 loss of the year so far. Cam Dawson and New 0:00:41.280 --> 0:00:44.000 Wedge Wealth writing after a nine week winning streak at 0:00:44.080 --> 0:00:46.600 a break neck pace, we should not be surprised to 0:00:46.640 --> 0:00:49.280 see some come down from the huge gains. Cam is 0:00:49.360 --> 0:00:51.400 joining us for the air and joined us now for more. Cam, 0:00:51.440 --> 0:00:52.240 Good morning, good to see it. 0:00:52.280 --> 0:00:52.800 Good morning. 0:00:52.920 --> 0:00:55.280 We've been told repeatedly the fundamentals are great, but the 0:00:55.360 --> 0:00:58.200 technicals are stretched. To the technicals beginning to bite. 0:00:58.280 --> 0:01:01.880 Yeah, Beta bites both ways. We had been enjoying a 0:01:02.160 --> 0:01:05.360 massive Beta rally where we got to some pretty big 0:01:05.400 --> 0:01:09.040 extremes come midweek last week, seventy six percent above the 0:01:09.080 --> 0:01:11.600 two undred aage moving average. On the socks, you got 0:01:11.600 --> 0:01:14.600 the costby up to one hundred and twelve percent above 0:01:14.640 --> 0:01:17.400 its two hundred day moving average. That would qualify as 0:01:17.440 --> 0:01:20.840 a classic price bubble. And so we're seeing this unwind 0:01:20.920 --> 0:01:23.559 just out of these really big overbought conditions. And what's 0:01:23.600 --> 0:01:26.959 notable is that we're nowhere near over sold. Just to 0:01:27.000 --> 0:01:29.399 get to your fifty day moving average on the on 0:01:29.480 --> 0:01:33.000 the socks, you would be down another thirteen percent. And yes, 0:01:33.080 --> 0:01:35.720 the fundamentals are great, but you had seen these stocks 0:01:35.720 --> 0:01:38.480 get so overbought, move so far so fast. It was 0:01:38.520 --> 0:01:41.200 sort of like seeing icarus fly closer and closer to 0:01:41.240 --> 0:01:43.360 the sun and getting a little bit of that wax melting. 0:01:43.560 --> 0:01:44.800 Do you think then at this point there was an 0:01:44.840 --> 0:01:46.759 air pocket then for further declines from here. 0:01:46.920 --> 0:01:49.040 Yeah, look, I think it would be actually a very 0:01:49.120 --> 0:01:50.440 healthy thing to see. 0:01:50.560 --> 0:01:52.160 I think the other thing that's really. 0:01:51.920 --> 0:01:54.800 Notable to focus on is the fact that you had 0:01:54.840 --> 0:01:59.080 seen valuations already reset back up to their twenty twenty 0:01:59.120 --> 0:02:02.080 six highs. So the whole dynamic that had happened at 0:02:02.120 --> 0:02:04.440 the start of the year is that valuations de rated 0:02:04.480 --> 0:02:07.720 significantly to about seventeen times on the socks just because 0:02:07.760 --> 0:02:11.560 earnings estimates went up so much. Now we've effectively reclosed 0:02:11.560 --> 0:02:14.120 that gap, where we've seen valuations get back up to 0:02:14.160 --> 0:02:16.840 twenty eight times forward. So arguably you could say that 0:02:16.919 --> 0:02:20.240 the easy part is over, meaning the valuation reset is over, 0:02:20.320 --> 0:02:22.880 and now the question is do you still see earnings 0:02:22.960 --> 0:02:24.799 upside for these semiconductors from here? 0:02:24.960 --> 0:02:27.560 Is the next catalyst potentially the inflation data Jonathan mentioned 0:02:27.600 --> 0:02:28.399 later in the week. 0:02:28.280 --> 0:02:31.200 Well, certainly for the broad markets, and it'll be fascinating 0:02:31.240 --> 0:02:34.359 because we could print a four handle on headline CPI, 0:02:34.680 --> 0:02:37.799 we could also print a six handle on headline PPI, 0:02:38.240 --> 0:02:40.240 and certainly if we're looking at the bond market, that 0:02:40.280 --> 0:02:43.000 would put upward pressure on yields. And you're already pricing 0:02:43.040 --> 0:02:45.519 in one hundred and seventeen percent chance of a hike 0:02:45.639 --> 0:02:48.200 by the end of the year for the Fed, which 0:02:48.320 --> 0:02:51.120 just suggests that could we even see more upside on 0:02:51.160 --> 0:02:53.640 that if you get a hot CPI or PPI print. 0:02:53.440 --> 0:02:55.920 A four handle on this inflation would basically mean what 0:02:56.000 --> 0:02:58.320 for Kevin Wosh. 0:02:57.520 --> 0:03:00.360 It means its back is very firmly in a and 0:03:00.360 --> 0:03:03.280 he has very few ways to argue that the Fed 0:03:03.360 --> 0:03:05.960 should be cutting rates at this point, whether you're looking 0:03:05.960 --> 0:03:08.520 at the labor market, which remains very resilient, or you're 0:03:08.560 --> 0:03:11.160 looking at the inflation picture. And I think the other 0:03:11.160 --> 0:03:13.720 important part about the inflation picture is that you're seeing 0:03:13.760 --> 0:03:17.240 this upward pressure on core CPI as well. So, yes, 0:03:17.360 --> 0:03:20.520 wages remain very subdued. And I think that's a really 0:03:20.560 --> 0:03:23.400 important point about this employment pictures. You're not seeing upward 0:03:23.400 --> 0:03:25.920 pressure on wages, but you're still seeing things like that 0:03:26.120 --> 0:03:30.079 super core CPI, core services X housing move higher, which 0:03:30.120 --> 0:03:32.960 just suggests that this can't be something that you completely 0:03:33.000 --> 0:03:33.880 look through at least. 0:03:33.880 --> 0:03:35.160 So it's talked about this and we'll can't you at 0:03:35.200 --> 0:03:37.160 leaster a little bit later this morning, she's found herself 0:03:37.160 --> 0:03:39.320 in real in Brazil, believe or not. We'll spend some 0:03:39.360 --> 0:03:41.200 time on that in a few hours time. At Lisa's 0:03:41.200 --> 0:03:43.120 talked about the fact that inflation is close to four, 0:03:43.400 --> 0:03:45.440 unemployment is close to four, and here we are having 0:03:45.480 --> 0:03:48.280 a discussion about dropping an easing bus, not hiking rates, 0:03:48.280 --> 0:03:50.840 but dropping an easing bus. Can you expect anything more 0:03:50.880 --> 0:03:53.520 than just that? And next week's mating, well. 0:03:53.320 --> 0:03:56.160 I would add one other peculiar factor, which is that 0:03:56.240 --> 0:03:58.800 if you look at five or five year inflation spreads 0:03:58.920 --> 0:04:02.800 or inflation breaks, they remain very contained. So you have 0:04:02.880 --> 0:04:05.600 a FED that's not necessarily saying that we're going to 0:04:05.640 --> 0:04:08.000 fight inflation with a lot of gusto, and yet the 0:04:08.000 --> 0:04:09.800 bond market says, yeah, but we think you're going to 0:04:09.840 --> 0:04:12.520 be successful at getting back to two percent. So I 0:04:12.520 --> 0:04:14.560 think the question will be is as we move through 0:04:14.640 --> 0:04:17.400 later in the year, if inflation still continues to trend higher, 0:04:17.480 --> 0:04:20.880 if energy prices continue to push higher, will we start 0:04:20.920 --> 0:04:23.000 to see the long end of the curves start to 0:04:23.040 --> 0:04:26.080 become a little bit more dubious of the Fed's willingness 0:04:26.080 --> 0:04:29.119 to fight inflation. And if that's the case, that really 0:04:29.160 --> 0:04:31.200 is the thing that forces the Fed's hand to start 0:04:31.279 --> 0:04:33.720 coming out and talking a much tougher game than just saying, oh, 0:04:33.760 --> 0:04:34.320 we're not easy. 0:04:34.520 --> 0:04:36.800 So two out to tens we've seen some flattening. Would 0:04:36.800 --> 0:04:38.719 you expect some statement to come back into the curve. 0:04:39.240 --> 0:04:42.159 I think that's certainly possible this week, mostly if we 0:04:42.200 --> 0:04:46.320 continue to see resilient economic data. The relationship to watch 0:04:46.480 --> 0:04:49.279 is the fact that you're seeing economic surprises continue to 0:04:49.279 --> 0:04:51.479 push higher. That's putting a lot more upward pressure on 0:04:51.560 --> 0:04:53.760 the back end of the curve. But you've seen a 0:04:53.800 --> 0:04:55.800 lot more upside on the front end the curve, which 0:04:55.839 --> 0:04:57.240 is why you're seeing that flattening. 0:04:57.320 --> 0:04:58.880 So if you see the hotter. 0:04:58.720 --> 0:05:01.760 Inflation data, and if you see things like the NFIB survey, 0:05:01.800 --> 0:05:04.479 which we also get this week show some improvement, that 0:05:04.560 --> 0:05:07.040 could be another reason why we see that back and 0:05:07.240 --> 0:05:07.719 back up. 0:05:07.839 --> 0:05:08.200 This week. 0:05:08.240 --> 0:05:11.320 Is not just about the data, it's also about supply, IPOs, 0:05:11.440 --> 0:05:14.440 SpaceX very much on the horizon. We've seen an upsize 0:05:14.600 --> 0:05:18.000 capital race from Alphabet the fteam reporting on Friday that 0:05:18.080 --> 0:05:21.320 MET is considering doing something similar that contributed to this move. 0:05:21.560 --> 0:05:24.200 Corporate America is telling you it's a good time to 0:05:24.240 --> 0:05:26.760 sell equity. Why is it a good time for investors 0:05:26.760 --> 0:05:27.159 to buy it? 0:05:27.400 --> 0:05:29.960 Yeah, well, they're telling you it's a good time that 0:05:30.080 --> 0:05:33.080 they need more money in order to fund this AI 0:05:33.160 --> 0:05:35.839 capex and this whole bull market is built on the 0:05:35.880 --> 0:05:39.800 idea that the mag seven would take their incredible, formerly 0:05:40.560 --> 0:05:43.680 very strong balance sheets and use them to fund this 0:05:43.839 --> 0:05:46.240 massive capex spending. And the question is how do we 0:05:46.279 --> 0:05:48.960 get to that next leg hire We've already gone from 0:05:49.000 --> 0:05:52.360 expecting ten percent growth in AI revenue or AI capex 0:05:52.400 --> 0:05:55.440 spending this time last year to up to eighty percent 0:05:55.480 --> 0:05:57.960 growth for this year. People are expecting that now to 0:05:58.040 --> 0:06:00.440 go from one trillion up to one point two trillion. 0:06:00.760 --> 0:06:04.320 To fund that gap, you need more capital. And what 0:06:04.600 --> 0:06:06.880 this could be a sign is that maybe we're running 0:06:06.920 --> 0:06:09.520 a little bit long and thinking that maybe we can't 0:06:09.520 --> 0:06:12.040 turn to debt markets as much. And so it certainly 0:06:12.080 --> 0:06:14.080 suggests that in order for this to keep running, you 0:06:14.200 --> 0:06:16.880 have to have a continued bull market, which just means 0:06:16.960 --> 0:06:19.760 that that there's so much pressure for the AI capex 0:06:19.800 --> 0:06:20.760 to continue to deliver. 0:06:21.040 --> 0:06:22.120 We saw about this last time. 0:06:22.120 --> 0:06:24.880 You're on where are people taking capital from to then 0:06:24.960 --> 0:06:27.440 make sure they can get in on these IPOs. 0:06:28.040 --> 0:06:30.520 I mean, it certainly seems to be in areas of 0:06:30.640 --> 0:06:33.960 other risk assets. People have been thinking maybe that's where 0:06:34.000 --> 0:06:36.279 some of the selling pressure is coming from, things like 0:06:36.360 --> 0:06:38.680 bitcoin in order to make room for it. But we 0:06:38.760 --> 0:06:40.400 still come back to the point that there are a 0:06:40.400 --> 0:06:43.520 lot of investors that don't have a choice in order 0:06:43.560 --> 0:06:46.800 to make room for some of these names and these 0:06:46.800 --> 0:06:50.000 IPOs simply because they're being forced into indices at a 0:06:50.080 --> 0:06:52.560 much more rapid pace. I think the turn last week 0:06:52.600 --> 0:06:55.120 though from S and P five hunderd SMP Global of 0:06:55.200 --> 0:06:57.840 effectively saying that they are not going to relax their 0:06:57.839 --> 0:07:01.960 profitability rule was a very import in potential sentiment shift 0:07:02.000 --> 0:07:04.280 and how quickly these things could be included in that 0:07:04.400 --> 0:07:06.800 big index. But I think at the end of the day, 0:07:06.880 --> 0:07:09.680 that's a really good thing for indux investors when we 0:07:09.720 --> 0:07:10.920 think about long term quality. 0:07:11.040 --> 0:07:11.880 Let's bring up bitcoin. 0:07:11.960 --> 0:07:14.520 Can you mention bitcoin? Bitcoin took out the loads of 0:07:14.520 --> 0:07:17.280 the year in Friday session, down fifty percent from the 0:07:17.280 --> 0:07:19.360 stand of October. We caught up with Lisa Shout Out 0:07:19.400 --> 0:07:22.320 of Morgan Stanley recently. You asked the question about whether 0:07:22.320 --> 0:07:24.240 we're seeing signs of things tightening up a little bit. 0:07:24.360 --> 0:07:27.480 Bitcoin is a liquidity oriented asset. When financial conditions are 0:07:27.520 --> 0:07:29.680 beginning to tighten, it falls back over the next twelve 0:07:29.720 --> 0:07:32.840 to eighteen months. Lisa's words, as everyone is issuing debt, 0:07:32.840 --> 0:07:35.240 as everyone is issuing stock, we're going to start to 0:07:35.240 --> 0:07:37.760 see things tighten up here. Would you expect to see 0:07:37.760 --> 0:07:39.600 further signs of that in the year ahead. 0:07:39.760 --> 0:07:39.960 Yeah. 0:07:39.960 --> 0:07:42.520 I think the most interesting thing over the course of 0:07:42.560 --> 0:07:45.520 the last let's call it nine months, is that bitcoin 0:07:45.600 --> 0:07:48.640 has completely sat out on this risk rally. So if 0:07:48.680 --> 0:07:51.120 we think about the cohort of things that typically go 0:07:51.240 --> 0:07:55.040 together and liquidity sensitive areas, it's the least profitable companies, 0:07:55.080 --> 0:07:58.600 it's the most speculative parts of the market, and Bitcoin. 0:07:58.680 --> 0:08:00.040 But you've seen Bitcoin sit. 0:08:00.080 --> 0:08:01.559 Out on the speculative rally. 0:08:01.600 --> 0:08:02.120 But you have. 0:08:02.160 --> 0:08:05.280 Things like a sixty percent rally and unprofitable tack over 0:08:05.320 --> 0:08:07.960 the course of the last two months. So the question 0:08:08.000 --> 0:08:10.800 would be is that is Bitcoin effectively a harbinger of 0:08:10.840 --> 0:08:13.880 things to come for those other speculative parts of the market, 0:08:14.120 --> 0:08:16.640 And certainly we're starting to see that unwind on Friday, 0:08:16.640 --> 0:08:18.960 as we saw a lot of that beta and momentum 0:08:18.960 --> 0:08:19.840 come out of the market. 0:08:20.240 --> 0:08:23.720 Stay with us. More Bloomberg surveillance coming up after this. 0:08:32.960 --> 0:08:35.480 The former Defense secretary Mark Esper ranking the following the 0:08:35.520 --> 0:08:38.640 conflict is in a strategic stalemate with no clear path 0:08:38.640 --> 0:08:41.800 forward for negotiations. We're now over one hundred days into 0:08:41.880 --> 0:08:44.560 a conflict there was only supposed to last four to 0:08:44.679 --> 0:08:48.239 six weeks. Mark joined us now for more, mister secretary, 0:08:48.320 --> 0:08:51.040 welcome to the program. Let's talk about how much control 0:08:51.080 --> 0:08:54.840 the president has over Israel at the moment given the 0:08:54.920 --> 0:08:55.880 events of the weekend. 0:08:57.160 --> 0:08:59.800 Well, he does have some control over Israel with regard 0:08:59.880 --> 0:09:03.319 to his relationship through Vbnnyahoo. But keep in mind the 0:09:03.360 --> 0:09:07.079 political dynamics in Israel and the United States are quite different. 0:09:07.400 --> 0:09:10.160 Both leaders have elections coming up in the fall. NET 0:09:10.200 --> 0:09:13.480 and Yahoo directly, the kanessets being has an election, but 0:09:13.600 --> 0:09:17.520 he is fighting a war in which overwhelming numbers sixty 0:09:17.600 --> 0:09:20.760 to seventy percent of the Israeli people at least support 0:09:20.800 --> 0:09:25.080 the conflict, certainly against Hezballah in Lebanon, but also against Iran, 0:09:25.480 --> 0:09:29.000 and President Trump's numbers are flipped. So there are different 0:09:29.040 --> 0:09:32.160 political dynamics here at play. I also think there are 0:09:32.200 --> 0:09:36.040 different end states that are desired. Obviously, Israel wants regime 0:09:36.120 --> 0:09:39.040 change and President Trump wants to get a deal that 0:09:39.679 --> 0:09:42.560 it says no nuclear weapons or a path to nuclear 0:09:42.559 --> 0:09:44.720 weapons for Iran. 0:09:44.800 --> 0:09:47.080 So in some ways they are just on different paths. 0:09:47.160 --> 0:09:48.480 Right now, quit just talk. 0:09:48.320 --> 0:09:51.360 About the latest hostilities of the past forty eight hours. 0:09:51.720 --> 0:09:55.079 It doesn't seem like the ceasefire is fully broken. Do 0:09:55.200 --> 0:09:57.400 you think that these are just countries that are testing 0:09:57.440 --> 0:09:58.280 each other right now? 0:09:59.000 --> 0:10:01.079 Well, first of all, I've been lucky to say for 0:10:01.080 --> 0:10:03.120 at least last week or so ceasefire. It seems to 0:10:03.160 --> 0:10:05.440 me it's more like a cessation or a suspension of 0:10:05.440 --> 0:10:08.240 major hostilities, because, as you know, there have been missiles 0:10:08.280 --> 0:10:12.240 flying back and forth across the Persian Gulf, from the 0:10:12.320 --> 0:10:15.880 United States attacking Iranian coastal sites to the Iranians attacking 0:10:15.960 --> 0:10:18.760 Kuwait and Bahrain and other countries. And now the last 0:10:18.800 --> 0:10:20.560 twenty five hours this is a big flare up with Israel. 0:10:21.120 --> 0:10:24.000 So look, I think this is going to continue for 0:10:24.400 --> 0:10:27.480 a while. What's interesting to me as well, is it 0:10:27.480 --> 0:10:29.839 seems like Iran is putting new things on the table 0:10:29.880 --> 0:10:33.120 with regard to negotiations, because now they're talking about wanting 0:10:33.200 --> 0:10:37.480 upfront twelve billion dollars in unfrozen assets, maybe another twelve 0:10:37.520 --> 0:10:41.320 along the way. There's the threat, of course, of leveraging 0:10:41.320 --> 0:10:44.280 the Babel Mandeb, and we know that Dave said, and 0:10:44.280 --> 0:10:48.640 as your reporter said just prior that Iran is demanding 0:10:48.679 --> 0:10:51.840 a complete cessation of hostilities in Lebanon. And I'm not 0:10:51.880 --> 0:10:54.800 sure that BB Neeta who can agree to that well? 0:10:54.840 --> 0:10:58.120 And also how can the president agree to that for 0:10:58.480 --> 0:11:00.959 Israel given the fact that accord the Financial Times, the 0:11:01.000 --> 0:11:03.000 president that he called the shots and then Israel actually 0:11:03.040 --> 0:11:06.000 took their own step to have this response. 0:11:06.720 --> 0:11:09.120 Sure, and look, the agreement between the last few days 0:11:09.120 --> 0:11:13.840 between Lebanon and Israel, which does not include Hesbla, was 0:11:13.880 --> 0:11:17.040 that Israel would not attack into southern bay Rout into 0:11:17.040 --> 0:11:22.480 the outskirts of Beirut unless Hesbelah attacked into Israeli territory. 0:11:22.520 --> 0:11:24.439 And we know the last twenty fours. 0:11:25.200 --> 0:11:28.800 Israel has alleged that his Blood did strike, did send 0:11:28.880 --> 0:11:31.000 rockets or missiles into northern Israel. 0:11:31.040 --> 0:11:31.760 They were intercepted. 0:11:31.800 --> 0:11:35.000 But that's what prompted this latest round of exchanges between 0:11:36.840 --> 0:11:39.960 with Israel going into Beirut and then of course Iran responding. 0:11:40.000 --> 0:11:41.440 So this is a big part of this. 0:11:41.480 --> 0:11:44.760 Is Iran trying to defend its proxy, hes bloods its longest, oldest, 0:11:44.840 --> 0:11:48.640 best proxy from elimination, and you have this dynamic at 0:11:48.679 --> 0:11:50.400 play and they're not going to give that up easily. 0:11:50.520 --> 0:11:53.200 As the former Defense secretary, the president said in this 0:11:53.280 --> 0:11:55.840 Meet the Press interview when talking about troops, saying, we 0:11:55.880 --> 0:11:58.280 have a lot of people there, quote, they're very safe. 0:11:58.880 --> 0:12:00.560 Do you think our troops in the middle are safe 0:12:00.640 --> 0:12:01.040 right now? 0:12:01.720 --> 0:12:03.840 Well, you know, you're always at some risk when you're 0:12:03.880 --> 0:12:06.280 in a combat zone. But I think in terms of 0:12:06.320 --> 0:12:10.240 the status of the war, and I'm confident in the 0:12:10.280 --> 0:12:12.800 ability of our commanders to take good defensive measures. 0:12:13.640 --> 0:12:16.040 I think they're in pretty good shape. But look, war 0:12:16.120 --> 0:12:18.240 is risky. Things happen. We know. 0:12:18.400 --> 0:12:22.720 Unfortunately, we lost thirteen service members already. That's thirteen too many, 0:12:23.000 --> 0:12:25.480 and several hundred have been wounded, so we can't forget 0:12:25.480 --> 0:12:26.400 about that as well. 0:12:26.720 --> 0:12:28.320 So look, it's not risk free, but. 0:12:28.760 --> 0:12:30.559 We're not in the hot war that we were two 0:12:30.600 --> 0:12:31.800 and a half months ago, per se. 0:12:31.920 --> 0:12:33.480 So do you think our troops right now are just 0:12:33.559 --> 0:12:37.080 there to set a deterrence when it comes to Iranian regime. 0:12:37.480 --> 0:12:39.719 Well, it's a combination of determinent deterrence. 0:12:40.360 --> 0:12:43.240 You also are supporting your diplomatic efforts so that the 0:12:43.240 --> 0:12:45.400 Iranians know that we can back up whatever we say 0:12:45.440 --> 0:12:47.760 with military force, or if things break down or if 0:12:47.760 --> 0:12:50.400 the Iranians lash out again, we're there to back it 0:12:50.480 --> 0:12:51.400 up with military force. 0:12:51.440 --> 0:12:53.199 So there are a number of reasons why we're there. 0:12:53.200 --> 0:12:55.839 And of course, you know, for a long time, certainly 0:12:55.920 --> 0:12:59.679 during my period, we've kept over forty thousand troops in 0:12:59.720 --> 0:13:02.400 the Middleaks, regardless of what was happening happening, so now 0:13:02.440 --> 0:13:04.960 we have a plus up there, mostly with regard to 0:13:05.000 --> 0:13:07.480 Air Force and Navy, and I suspect they will stay 0:13:07.480 --> 0:13:10.360 there for a while until this is resolved, which doesn't 0:13:10.360 --> 0:13:13.360 appear to get resolved, won't appear to get resolved anytime soon. 0:13:13.400 --> 0:13:16.560 Frankly, mister Secretary, when you are at the Pentagon, you 0:13:16.600 --> 0:13:19.200 go through a lot of scenario analysis without a doubt. 0:13:19.240 --> 0:13:21.400 And I'm sure this was an event that you spend 0:13:21.440 --> 0:13:24.240 time on in the past. How does this play out 0:13:24.240 --> 0:13:26.120 in your mind? And what kind of preparation have we 0:13:26.240 --> 0:13:29.120 made for this enduring through the summer. 0:13:30.280 --> 0:13:32.560 Well, you know, I went through this scenario a few times, 0:13:32.600 --> 0:13:34.400 or at least this drill with the President in the 0:13:34.960 --> 0:13:38.080 situation room. I talk about it a lot in my memoir, 0:13:38.080 --> 0:13:40.320 where you'd have folks who wanted to go to Iran, 0:13:40.360 --> 0:13:43.560 wanted to strike Iran, and I would least say two things. 0:13:43.600 --> 0:13:45.319 You know, first of all, mister President, a war is 0:13:45.360 --> 0:13:47.000 easy to get into but hard to get out of. 0:13:47.480 --> 0:13:48.960 And secondly, if we want to do this, it's going 0:13:49.000 --> 0:13:51.160 to take a lot of preparation, weeks of preparation to 0:13:51.160 --> 0:13:54.760 get all the troops in place, whether it's Army, air defenders, 0:13:55.480 --> 0:13:58.080 air Force, fighter squadrons or Navy ships, and so it 0:13:58.120 --> 0:14:01.480 does take a preparation time. Of course, you always want 0:14:01.559 --> 0:14:03.920 to bring along as many allies as you can to 0:14:03.960 --> 0:14:08.040 support you, preferably some of the European militaries, but certainly 0:14:08.040 --> 0:14:10.800 the golf allies. You know, obviously we know that the 0:14:10.840 --> 0:14:13.280 President started this at the end of February of this 0:14:13.400 --> 0:14:15.840 year when talks broke down in Geneva, and there wasn't 0:14:15.840 --> 0:14:19.240 a lot of that preparation going on. So obviously they've 0:14:19.280 --> 0:14:21.080 kind of short some of that up in the meantime. 0:14:21.120 --> 0:14:23.880 But you go through at least those steps of preparation 0:14:24.640 --> 0:14:27.920 when you're looking at a possible major conflict with the country. 0:14:27.640 --> 0:14:31.320 Like Ron stay with us more Bloomberg surveillance coming up 0:14:31.640 --> 0:14:44.560 after this. According to the International Air Transport Association, airlines 0:14:44.600 --> 0:14:47.640 are expecting to bring in a combined twenty three billion 0:14:47.680 --> 0:14:50.200 dollars in net profit this year, down from the previously 0:14:50.200 --> 0:14:54.240 projected forty one billions. Holding its annual conference in Brazil, 0:14:54.680 --> 0:14:57.280 of all places, Bramo joined just now with a special guest. 0:14:57.320 --> 0:15:02.560 Good morning, Lisa. 0:15:00.800 --> 0:15:02.320 Buji, Jonathan Verro. 0:15:02.480 --> 0:15:05.160 I am here still in Rio, enjoying the beaches. As 0:15:05.200 --> 0:15:07.400 you've said, you can see here the incredible beach of 0:15:07.440 --> 0:15:09.840 this conference center, and I'm here with the chief operating 0:15:09.840 --> 0:15:12.000 officer of Southwest Andrew Watterson. 0:15:12.240 --> 0:15:13.920 Thank you so much for being with us this morning. 0:15:14.120 --> 0:15:14.680 My pleasure. 0:15:14.880 --> 0:15:15.840 So I want to start with the. 0:15:15.760 --> 0:15:17.960 Story that Jonathan and Emory we're just talking about this 0:15:18.080 --> 0:15:20.600 idea of higher fuel costs. This morning we see another 0:15:20.680 --> 0:15:24.400 leg higher. We're hearing yes, people are concerned about oil prices, 0:15:24.600 --> 0:15:27.080 but that they've been managing through I mean, how have 0:15:27.200 --> 0:15:31.160 you managed to offset the increased cost through raising prices, 0:15:31.480 --> 0:15:35.320 cutting roots and potentially raising costs on charging for bags. 0:15:35.600 --> 0:15:38.040 Yeah, so you can you need to cover the extra 0:15:38.080 --> 0:15:39.840 cost from higher fuel. You can't do it in a 0:15:39.920 --> 0:15:41.800 matter of days if you can't organize yourself and do 0:15:41.800 --> 0:15:42.120 it in a. 0:15:42.040 --> 0:15:43.200 Matter of months and quarters. 0:15:43.240 --> 0:15:46.160 And so we have been taking access to you know, 0:15:46.200 --> 0:15:50.480 conserve costs, prove fuel efficiency, but also revenue through you 0:15:50.520 --> 0:15:54.119 know additional you know bag fee increases, through fare increases 0:15:54.320 --> 0:15:57.840 and other demand generation activities that allow you to move 0:15:57.840 --> 0:15:59.680 your revenues up to cover that increased cost you know 0:16:00.000 --> 0:16:02.040 food by the end of this year early next as. 0:16:01.960 --> 0:16:05.040 It impeded your quest to become profitable and your actual 0:16:05.080 --> 0:16:06.800 ability to do so so far this year. 0:16:06.960 --> 0:16:08.640 Well, we had the highest adjusted net margin in the 0:16:08.720 --> 0:16:11.480 US industry in Q one, so we were stored profitability 0:16:11.520 --> 0:16:13.840 before fuel enough, which better than the other way around. 0:16:14.160 --> 0:16:18.160 We certainly anticipate that transformation activity driving us throughout the 0:16:18.200 --> 0:16:20.240 rest of the year from profit perspective, so we're focused 0:16:20.280 --> 0:16:20.720 on that. 0:16:20.720 --> 0:16:21.480 And have more to go. 0:16:21.720 --> 0:16:24.320 Have you been surprised by how little demand destruction there's 0:16:24.360 --> 0:16:27.600 actually been that customers keep flying even as you raise prices. 0:16:27.880 --> 0:16:30.680 Well, the drivers a demand are corporate profits really drive 0:16:30.720 --> 0:16:33.000 business travel, and corporate profits is held up well, and 0:16:33.120 --> 0:16:35.560 job growths we saw last week is also strong and 0:16:35.560 --> 0:16:38.440 that drives leisure travel. So the fundamentals of demand generation 0:16:38.720 --> 0:16:42.360 are strong and that really helps the customer overcome increase prices. 0:16:42.400 --> 0:16:45.480 At is business travel this year compared to last year? 0:16:45.760 --> 0:16:48.360 Is it actually more or is it less because of 0:16:48.360 --> 0:16:49.160 the higher costs. 0:16:49.160 --> 0:16:51.440 It's incredibly strong right now. Last year in a terrorist 0:16:51.440 --> 0:16:54.360 there's a lot of uncertainty. Businesses hate uncertainty, and so 0:16:54.400 --> 0:16:56.880 they pulled back on travel in the uncertain times. Now 0:16:57.000 --> 0:16:59.360 it's higher cost for fuel, they understand that they can 0:16:59.400 --> 0:17:01.760 act on that, and as we said in Burnstein conference 0:17:01.840 --> 0:17:05.280 last week, we're seeing twenty five percent growth in corporate 0:17:05.280 --> 0:17:06.840 travel from March on. 0:17:07.080 --> 0:17:09.760 There has been some speculation that businesses would pull back 0:17:09.880 --> 0:17:12.439 on first class travel, on business class travel because the 0:17:12.480 --> 0:17:13.159 costs are. 0:17:13.000 --> 0:17:15.399 Going up to such a degree. Have you seen any 0:17:15.440 --> 0:17:15.959 signs of that. 0:17:16.440 --> 0:17:18.680 No, we've not seen any change of business travel. If anything, 0:17:18.720 --> 0:17:21.800 is an acceleration in March versus February. So businesses are 0:17:21.840 --> 0:17:24.800 out traveling themselves, trying to generate the revenue they need 0:17:24.920 --> 0:17:25.760 for the higher cost. 0:17:25.640 --> 0:17:26.840 Environment going forward. 0:17:27.040 --> 0:17:29.960 Do you expect to be able to raise prices further 0:17:30.320 --> 0:17:31.680 without seeing demand destruction? 0:17:32.040 --> 0:17:34.800 We certainly have to organize yourself to have the higher revenue. 0:17:34.960 --> 0:17:37.159 There's many levels you can do in general. 0:17:36.880 --> 0:17:38.479 The higher costs to lower your growth rate. 0:17:38.520 --> 0:17:40.040 So you have to look at your growth of supply 0:17:40.240 --> 0:17:42.359 versus demand growth. And so as long as demand keeps 0:17:42.400 --> 0:17:45.040 growing and you can modify supply, even it's not a 0:17:45.080 --> 0:17:47.359 direct fare increase, you can get the revenue tracktion you need. 0:17:47.440 --> 0:17:49.639 Southwest was known as the place you could go for 0:17:49.680 --> 0:17:51.919 the cheapest fairs. You would wait in lines in different 0:17:51.960 --> 0:17:53.560 groups and then everybody would get on the plane. 0:17:53.600 --> 0:17:54.879 There wouldn't be seen assignments. 0:17:55.080 --> 0:17:58.240 There's been a transformation to the identity of Southwest since 0:17:58.280 --> 0:18:01.239 you took over really as chief operating office and in 0:18:01.240 --> 0:18:05.520 twenty twenty four with some of the activist shareholders, have 0:18:05.600 --> 0:18:07.600 you seen a change in your customer base in a 0:18:07.640 --> 0:18:08.320