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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa A.

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Speaker 2: Bromoids, along with Tom Keen and Jonathan Farrell. Join us

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Speaker 2: each day for insight from the best in economics, geopolitics,

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Speaker 2: finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance.

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Speaker 2: On demand on Apple, Spotify and anywhere you get your podcasts,

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Speaker 2: and always on Bloomberg dot Com, the Bloomberg Terminal and

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Speaker 2: the Bloomberg Business app.

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Speaker 3: At Guthentic Joces now president of Youathny Research, and I

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Speaker 3: didn't know whether to be offended or not by those comments.

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Speaker 3: At great to catch out with you, you coined the

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Speaker 3: phrase bon vigilantes at the vigilances back.

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Speaker 4: I think they are. They're certainly saddling up. Look, usually

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Speaker 4: the bond market is driven by inflation, inflation expectations, and

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Speaker 4: what everybody expects the FED to do about inflation. Usually

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Speaker 4: supply and demand really don't matter that much, and that's

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Speaker 4: usually because federal deficits tend to widen during recessions when

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Speaker 4: the Fed's lowering interest rates. This time around, we've got

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Speaker 4: the federal deficit widening when the economy is doing well.

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Speaker 4: And I think the vigilianis are quite concerned about that

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Speaker 4: way too much supply.

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Speaker 3: How much of this bond move is a threat ahead

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Speaker 3: wind to your bullish equity call it?

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Speaker 4: Well, look, I thought we would end up the year

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Speaker 4: at forty six hundred on the S and P five hundred.

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Speaker 4: We got there at the end of July, and I

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Speaker 4: decided not to raise my forecast. So I'm looking for

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Speaker 4: the market to move sideways or continue with this pullback,

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Speaker 4: maybe even down to the two hundred day move an average,

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Speaker 4: and concerns about what the bond market's bond vigilanis are

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Speaker 4: going to do. But then I think by year end

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Speaker 4: will still end up around forty six hundred. Next year,

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Speaker 4: I'm looking for fifty four hundred. But I think in

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Speaker 4: the short term here it's why the market has been

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Speaker 4: down for since. Really the end of July, is.

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Speaker 2: A forty six hundred level or even a fifty four

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Speaker 2: hundred level a next year realistic or consistent with bond

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Speaker 2: yields that don't materially go down from where they are

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Speaker 2: right now.

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Speaker 4: Well, welcome back to normal. Right We had, you know,

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Speaker 4: abnormally low interest rates for a very long time, and

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Speaker 4: central banks around the world kept trying to pump more

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Speaker 4: liquidity into the system to bring inflation all the way

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Speaker 4: back up to two percent. Now we're back to where

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Speaker 4: we were before the two thousand and seven two thousand

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Speaker 4: and eight calamity. We've seen real interest rates, the tips seel,

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Speaker 4: the ten year tips shield go back to two percent

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Speaker 4: instead of going staying around zero or slightly negative. You know,

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Speaker 4: two percent plus two and a half percent inflation premium

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Speaker 4: is four and a half percent. So that's pretty close

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Speaker 4: to where we are. And so far the economy is

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Speaker 4: demonstrating that normal is okay. I mean, even the housing

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Speaker 4: market has recovered despite the fact that interest rates has

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Speaker 4: gone up. Look, I remember when I was younger. I

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Speaker 4: guess it was the When I was younger, it was

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Speaker 4: a nineteen eighties, early nineteen eighties, I been six percent

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Speaker 4: for a mortgage in Westchester, So you know, it's all

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Speaker 4: a matter of perspective, right, Well.

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Speaker 2: But housing prices were a lot lower that, right, We

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Speaker 2: hadn't necessarily seen the inflation relative to income. We hadn't

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Speaker 2: seen the inflation and assets that was spurred by lower

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Speaker 2: rate policies for so long. There was a theory before

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Speaker 2: we got here that it rates going up to this

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Speaker 2: level would decimate all these bubbles.

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Speaker 1: That it emerged during that era.

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Speaker 2: Are you saying that that's not true, that people have

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Speaker 2: basically refinanced and manage their balance.

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Speaker 1: Sheets well enough to avoid that.

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Speaker 4: Yes, Empirically, it's pretty clear that all this talk about

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Speaker 4: a recession so far hasn't panned out. I mean, we

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Speaker 4: still have that kind of risk, I suppose. But really

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Speaker 4: the way it's unfolded is as a rolling recession. It

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Speaker 4: hit housing and then it hit goods. Now it's going

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Speaker 4: to hit commercial real estate. But now I think, given

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Speaker 4: what retail sales did in July, the goods recession maybe

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Speaker 4: maybe over, and the housing recession maybe bottoming.

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Speaker 3: Can I just put it on the record that if

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Speaker 3: a boomer wants to sound with their home for fifty

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Speaker 3: thousand dollars, I'm happy to pay fifteen percent on a

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Speaker 3: loan for that.

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Speaker 1: Okay, it's on the record number.

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Speaker 4: Back back then, that was a lot of money for

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Speaker 4: our house.

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Speaker 3: If anyone's out there at But what was the multiple

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Speaker 3: of the average salary compared to what it is now?

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Speaker 5: It's ridiculous.

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Speaker 4: Now, look, look these are different times. But on the

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Speaker 4: other hand, I think the real abnormality was the period

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Speaker 4: since two thousand and eight through the pandemic until really

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Speaker 4: two and twenty two when the Feds had to start

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Speaker 4: raising interest rates. But look, I think inflation's coming down.

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Speaker 4: I think you were talking about Powell. I think Palell's

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Speaker 4: going to talk hawkish, but when you really listen to

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Speaker 4: the message, I think he's going to agree with John Williams,

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Speaker 4: the president of the Federal Reserve Bank of New York,

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Speaker 4: and say, you know what we have. We are making

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Speaker 4: progress on inflation, and if we continue to do that,

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Speaker 4: we're going to have to lower interest rates next year.

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Speaker 3: You think he will entertain that conversation at just the

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Speaker 3: idea that you don't want real rates to get more restricted,

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Speaker 3: you want to keep them consistent.

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Speaker 4: I do. I think John Williams is very influential at

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Speaker 4: the FED, and I think he and Powell tends to

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Speaker 4: talk to each other quite a bit, and Williams tends

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Speaker 4: to be sort of the theoretician and Pollows the pragmatist

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Speaker 4: that implements policy. Look, they can't really afford to see

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Speaker 4: this bond You'll keep going up, so they've got to

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Speaker 4: calm the bond market down. And I think they're going

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Speaker 4: to have to concede or acknowledge that inflation has come down.

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Speaker 4: Look that the CPI excluding shelter is up only two

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Speaker 4: percent on a euro of your basis. In July, the

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Speaker 4: CPI core excluding shelter is up two and a half percent.

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Speaker 4: We're under two percent. All we have to do is

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Speaker 4: wait for shelter inflation to come down. And we know

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Speaker 4: it's coming down.

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Speaker 1: But ed, where is the neutral rate then?

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Speaker 2: Once we get to that, too said, and how high

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Speaker 2: can it be to still allow the stock market reality

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Speaker 2: that you're predicting.

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Speaker 4: I have to tell you, you know, I wrote a

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Speaker 4: book on my experiences for forty years back in twenty eighteen,

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Speaker 4: and one of the conclusions I came to is I

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Speaker 4: don't really understand the neutral rate the real rate. It's

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Speaker 4: a theoretical construct. Nobody, it's not something you can observe.

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Speaker 4: I'm sort of an empiricist. I do follow the data.

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Speaker 4: I'm data dependent like the FED, and I think what

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Speaker 4: it demonstrates is that the real rate is higher in

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Speaker 4: the sense that the economy has been able to withstand

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Speaker 4: these kind of levels of interest rates, which we really

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Speaker 4: haven't seen in over a decade.

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Speaker 3: Right now, we're all bond market dependent, aren't we Thank you, sir,

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Speaker 3: always good thinking at Jah Danny, who, of course decades

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Speaker 3: ago coin that phrase bond vigilancees Kelsi Parichoe just now,

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Speaker 3: fixed income portfolio manager over JP Morgan Esset Management, Cassie,

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Speaker 3: good morning, good morning. We're not going to talk about

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Speaker 3: the house in market. Don't worry, We're going to talk

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Speaker 3: about your bond market.

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Speaker 6: Cool.

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Speaker 3: We know you've been pretty bullish on fixed income. We've

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Speaker 3: caught up with Bob and yourself a few times over

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Speaker 3: the last few months. We've been looking for three percent

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Speaker 3: right the way through the curve. This bond market's moved

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Speaker 3: against you. Is this a buy now? And why is

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Speaker 3: it a buy?

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Speaker 7: Yeah, so the market has moved higher over the course

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Speaker 7: of the month. It feels like bond buyers has essentially

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Speaker 7: gone off to vacation.

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Speaker 8: But we do view this as a buy.

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Speaker 7: And the list of items that the consumer is going

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Speaker 7: to need to deal with when they get back from

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Speaker 7: their holidays and they look at their bills, I mean,

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Speaker 7: the list is really growing. So for instance, we're coming

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Speaker 7: back to the fall, student loan payments are restarting. Mortgage rates,

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Speaker 7: as you just mentioned, are at their highest level since

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Speaker 7: two thousand and one, you have people in California, Alabama,

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Speaker 7: and Georgia who deferre their taxes who now need to

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Speaker 7: make do on that. Credit card balances are also rising,

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Speaker 7: that interest expenses on that are rising as well. So

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Speaker 7: when I look at things like the retail sales report,

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Speaker 7: which is an inherently very volatile number, what I see

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Speaker 7: is a pull forward of consumption, a lot of fun

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Speaker 7: this summer, and we're getting to the point where some

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Speaker 7: of that fun has has run out.

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Speaker 8: In fact, you know, we talk about the tailor swift tour,

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Speaker 8: the errors tour. She's going abroad. You know, the US

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Speaker 8: economy is going to have to make it on their own.

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Speaker 2: Right, Okay, all right, So putting Taylor Swift in the

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Speaker 2: swift or tailwind into the US economy aside, how much

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Speaker 2: conviction do you have about what's behind the move that

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Speaker 2: we have seen other than just everyone's on vacation.

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Speaker 7: Yeah, So we've been looking back at the end of

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Speaker 7: prior rate hiking cycles. So two thousand, two thousand and six,

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Speaker 7: nineteen ninety five. What we've found in that all of

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Speaker 7: those scenarios when the FED stops, everybody thinks.

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Speaker 8: That we've engineered a soft landing.

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Speaker 7: If you go back and you look back at two thousand,

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Speaker 7: two thousand and one, two thousand and six, two thousand

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Speaker 7: and seven, we were talking about the exact same things

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Speaker 7: off landing. We weren't sure if policy was tight enough.

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Speaker 7: It looked like the FED had done it, okay, So

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Speaker 7: now we're trying to assess is this another soft landing

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Speaker 7: or is this potentially a false signal. And then there's

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Speaker 7: a couple things that we're seeing now that indicate to

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Speaker 7: us that, you know, things may get a little bit

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Speaker 7: more tricky as we move into the balance of the year.

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Speaker 7: Things that didn't happen in the nineteen ninety five cycle,

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Speaker 7: for example, and that's I use nineteen ninety five because

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Speaker 7: that's the benchmark, right, everyone uses that as the example

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Speaker 7: of the perfect example of a soft landing. Well, in

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Speaker 7: nineteen ninety five, the three month tenure yield curve, it

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Speaker 7: never inverted in nineteen ninety five, Credit credit credit in

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Speaker 7: the H eight data from the commercial banks that you

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Speaker 7: look at on Friday at four fifteen never contracted, right,

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Speaker 7: and right now it's in contraction already.

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Speaker 9: Right.

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Speaker 7: All of these things are said suggesting to us that

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Speaker 7: policy is actually restrictive. We need to give it time.

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Speaker 7: In fact, policy really has only been tight for a

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Speaker 7: few quarters.

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Speaker 1: So how aggressively are you buying right now?

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Speaker 7: I think this is absolutely a time to be buying

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Speaker 7: fixed income.

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Speaker 2: Sarah, have you increased your purchases recently? Have you been

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Speaker 2: aggressively increasing?

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Speaker 8: We have been using a dial across the whole year.

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Speaker 7: Right We've had a view that the FED would get

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Speaker 7: to around five percent, they would be able to pause,

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Speaker 7: and over that time we want to be increasing our

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Speaker 7: allocation to fixed income for the diversification and for the income.

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Speaker 8: That's what we've been doing.

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Speaker 7: We continue to do that as we see new highs

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Speaker 7: and yields, and it's new highs. But I would also

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Speaker 7: point out the fact that four thirty three was the

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Speaker 7: intro day high for tens, four forty two is the

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Speaker 7: inter jay high for thirties. We've been able to hold

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Speaker 7: off on those levels. We've been able to back off

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Speaker 7: those levels.

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Speaker 8: So fairly encouraging there.

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Speaker 3: Let's go back to last October. What's different about that

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Speaker 3: sell of than what's.

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Speaker 8: Handling here last October?

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Speaker 3: Last October, when we hit those levels that we just

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Speaker 3: described on a ten year what's different about this moment.

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Speaker 3: The spantamics behind the move now compared to back then, Well, I.

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Speaker 7: Think the most striking thing is that the terminal rate

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Speaker 7: pricing has essentially remained unchanged right so it's been static

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Speaker 7: around five point four percent, so really no movement there.

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Speaker 8: The market is very comfortable with the terminal rate.

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Speaker 7: I think if we were really if we really believed

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Speaker 7: that these policy rates were not making an impact on

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Speaker 7: the economy and that no one was bothered by seven

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Speaker 7: percent mortgage rates, then the market should be pricing.

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Speaker 8: A lot higher of a terminal rate, and it's not.

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Speaker 7: Also, if the market truly believed that policy wasn't restrictive, inflation,

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Speaker 7: break even should.

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Speaker 8: Be taking off right now. They're not. So that's the difference.

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Speaker 7: In October of last year, they hadn't done enough yet

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Speaker 7: it was still clear we hadn't done enough.

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Speaker 8: I think we're in a different place now.

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Speaker 3: It's a massive difference, And I would say a key

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Speaker 3: dynamic we haven't discussed yet is a supply story that

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Speaker 3: wasn't discussed in October.

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Speaker 5: It is being discussed now.

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Speaker 3: Does that change the way we should think about fixed

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Speaker 3: income and treasury specifically at the long runded a curve.

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Speaker 7: Yeah, so there is more supply. Normally demand comes in

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Speaker 7: to match apply. I think we are still seeing that, right.

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Speaker 7: It may be at a slightly incrementally higher yield to

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Speaker 7: meet that demand, but we are still seeing that.

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Speaker 6: You know.

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Speaker 7: One of the things that I've been looking at two

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Speaker 7: things I've been keeping my eye on to see if

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Speaker 7: there's some dislocation in the cash markets. One is swap spreads,

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Speaker 7: So how are cash bonds cash treasury bonds trading to

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Speaker 7: the swap market. And then the other thing is primary

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Speaker 7: dealer holdings. If there was a really big issue taking

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Speaker 7: down this supply, if people weren't interested, we would see

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Speaker 7: those primary dealer holdings really start to ramp up. We've

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Speaker 7: actually seen fairly good takedown at the auctions. Indirect buying

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Speaker 7: has continued to increase, so there are people, stronger hands

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Speaker 7: that are taking the yields at these levels, just real quickly.

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Speaker 2: Given the fact that spreads on high yield have remained

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Speaker 2: incredibly tight, how rich do you think that is?

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Speaker 7: I would be very cautious with spreads in high yields

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Speaker 7: in the low four hundreds. Here, this is a pricing

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Speaker 7: that is perfectly priced for the soft landing, and when

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Speaker 7: you look at the upside downside, how much tighter can

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Speaker 7: you go versus how much wider.

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Speaker 8: Can you go? On spreads?

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Speaker 7: I mean to me that asymmetry is very, very obvious.

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Speaker 7: It's obvious in high yield. I think it's obvious in

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Speaker 7: the pricing of the economy, and I think it's also

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Speaker 7: obvious in bond markets. How much higher can you go?

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Speaker 7: Maybe a little bit, how much lower can we go?

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Speaker 7: When the Fed starts cutting.

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Speaker 3: A lot basically near the tights of the year, which

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Speaker 3: is phenomenal it is, it's really phenomenal for everyone.

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Speaker 5: Since talking about this breakdown.

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Speaker 3: In the equity market, I can go through the levels

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Speaker 3: for you just briefly. On the S and P five hundred,

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Speaker 3: we're down five percent from the interday highs in July.

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Speaker 3: Then that's that one hundred down something like eight percent

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Speaker 3: from the interday highs in July. Given the move we've

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Speaker 3: seen in the bond market. If I just said there's

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Speaker 3: your bond market move, guess what's happened to stocks, I

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Speaker 3: think you go beyond five percent. If I said guess

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Speaker 3: what's happened to high yield, I'm not sure you'd guess

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Speaker 3: we're near the tights of the year.

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Speaker 2: Everyone would probably say this points to a market that's

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Speaker 2: strugging off and saying Edi Ardeni is right and this

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Speaker 2: is the new normal and it's just fine.

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Speaker 3: Kelsey, good to see you for the update. Thank you,

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Speaker 3: Cassey bar of JP Morgan. Well.

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Speaker 2: Sheila Kayalu, senior equity research analyst at Jeffries, joins to

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Speaker 2: actually answer the question that we keep speculating on with

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Speaker 2: absolutely uneducated impressions of the tickets being really pricey. Our

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Speaker 2: ticket price is going down as much as the US

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Speaker 2: CPI report seems to suggest.

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Speaker 6: Yeah, the CPI report seems to suggest ticket prices are

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Speaker 6: going down, but that is only through not necessarily encompassing

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Speaker 6: all the venues that folks could buy tickets through. But

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Speaker 6: you know, over the long term, as we actually look

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Speaker 6: at ticket prices, they actually.

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Speaker 9: Have not been increasing. So it's still great value.

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Speaker 6: Even though it's no longer four hundred dollars to get

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Speaker 6: from the East coast to the west coast, and it

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Speaker 6: might be seven hundred dollars and that seems like a

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Speaker 6: big increase. There's no other way to simply do it. So, yes,

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Speaker 6: ticket prices have not really been increasing over the long

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Speaker 6: term as much as people expect. And when we look

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Speaker 6: at the industry overall, you know, we're expecting ticket princes

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Speaker 6: to be about fifteen percent above twenty nineteen levels in

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Speaker 6: twenty twenty three and basically flatish year over year in

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Speaker 6: twenty twenty four, so not much of an increase.

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Speaker 9: And what we're seeing in the airline market right.

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Speaker 6: Now is a dichotomy between domestic bears and international affairs,

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Speaker 6: where domestic bears are actually seeing declines and sequential declines

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Speaker 6: as we head into Q three, just given demands softness

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Speaker 6: there and we could talk more about that, but international

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Speaker 6: continues to be up robustly twenty five percent or so

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Speaker 6: versus twenty nineteen levels, so much more strength than international

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Speaker 6: strength travel and bears is what we're seeing.

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Speaker 1: Bear with me for a second.

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Speaker 2: I want to get a little granular, because domestic fares

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Speaker 2: might be coming down in general and international fares may

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Speaker 2: not be. There is an issue about where domestically is

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Speaker 2: this a question of vacationers seeing prices go up significantly

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Speaker 2: and business travel, which hasn't come back to the same

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Speaker 2: degree not necessarily seeing that same kind of pressure. So

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Speaker 2: some of the sort of mid tier cities that aren't

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Speaker 2: as much vacation destination are the ones where prices are

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Speaker 2: going down.

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Speaker 6: Yeah, it's really interesting because I think a lot of

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Speaker 6: the uncertainty is out of you know, the macro economic factors.

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Speaker 6: I think we could all agree it's pretty much a

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Speaker 6: soft landing and not a hard landing. So why are

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Speaker 6: we seeing this yield softness in domestic markets or is

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Speaker 6: it just specific markets that are seeing it? Because corporate's

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Speaker 6: stagnating at eighty five percent, so maybe post pandemic, there's

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Speaker 6: different features that are going on in different cities. So

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Speaker 6: you know, somebody in Ohio might not be necessarily commuting

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Speaker 6: back to Chicago, and January Southwest Side died that as

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Speaker 6: an example of a route that's no longer fulfilled as

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Speaker 6: much as one would expect. So that's on the corporate

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Speaker 6: demand stagnating and also changing travel trends. And what we're

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Speaker 6: seeing in the US market as well is there's domestic

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Speaker 6: capacity typness right now, but we're expecting domestic capacity to

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Speaker 6: increase at a seven percent rate from twenty twenty two

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Speaker 6: to twenty twenty five. So I think forty four hundred

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Speaker 6: aircraft going to about five thousand plus over the next

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Speaker 6: three years, and that's double the rate of air traffic.

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Speaker 6: So what's flooding the market with capacity right now is

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Speaker 6: also the low cost carriers like Frontier and Spirit, and

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Speaker 6: so that might be causing the pricing softness as well

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Speaker 6: as everybody adds to these same domestic routes instead of

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Speaker 6: creating new markets.

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Speaker 2: If prices go down, does that mean that the experience

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Speaker 2: gets even worse?

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Speaker 6: Not necessarily, but obviously, you know, what we're seeing is

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Speaker 6: also an increase in the cost sided the equation, whether that's.

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Speaker 9: Jet fuel is up significantly since.

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Speaker 6: May, and obviously labor agreements are calling for a thirty

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Speaker 6: percent salary increases or so. So yes, one would that

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Speaker 6: if prices are going down, your revenues are going down

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Speaker 6: and your costs are going up, your margins are getting

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Speaker 6: squeezed as an airline, and the customer experience might.

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Speaker 2: Be impacted by that, which raises this question, Sheila, And

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Speaker 2: it's something that I've been asking myself. At what point

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Speaker 2: is it not worth flying anymore? Or is it worth

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Speaker 2: sort of readjusting vacations to try to drive places or

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Speaker 2: have some sort of alternative.

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Speaker 1: Are you seeing any kind.

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Speaker 2: Of exhaustion after two years of YOLO and two years

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Speaker 2: of pandemic revenge spending and revenge traveling. Is there any

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Speaker 2: exhaustion to shift away from this boom that we've seen

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Speaker 2: in the airline industry that is driven so much of

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Speaker 2: the gains across the board.

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Speaker 9: Not necessarily. I mean, we're still bullish on the certain.

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Speaker 6: Airlines such as Delta where they have a premium offering

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Speaker 6: an international focus, and that premium offering is really holding

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Speaker 6: on to you know, that pricing that experience.

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Speaker 9: People are paying up for that.

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Speaker 6: So and they're also expanding with their sky Miles program

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Speaker 6: and their American Express credit card, so they're providing a

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Speaker 6: little bit more of a lifestyle, expanding beyond just being

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Speaker 6: an airline.

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Speaker 9: So not necessarily, so can.

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Speaker 2: We just lean into that American Express thing? We also

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Speaker 2: that's another hot debate on surveillance about whether the lounge

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Speaker 2: is increasingly becoming a perk for credit card owners and

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Speaker 2: less about people who actually fly around on the planes.

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Speaker 2: Is that basically where this is going and how lucrative

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Speaker 2: actually is this at a time where people are crowding

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Speaker 2: into the lounge and trying to eat as much as

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Speaker 2: they can and drink as much as they can before

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Speaker 2: they get on the planes.

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Speaker 1: Well, if you think.

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Speaker 6: About it, the airline industry, they trade at about a

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Speaker 6: sixty percent discount to the market, so about five to

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Speaker 6: six times Vada.

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Speaker 9: And if you think about credit cards.

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Speaker 6: Like Visa and MX, they trade at double to triple

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Speaker 6: that multiple. So what we've seen with airlines is a

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Speaker 6: focus on loyalty programs, a focus on that experience as well.

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Speaker 6: But obviously, you know, Delta does not disclose what percentage

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Speaker 6: of its free cash flow is generated from its sky

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Speaker 6: Miles program, but we assume it's it's pretty hefty, and

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Speaker 6: you know that helps the company's valuation.

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Speaker 9: So I think that's where the focus is is.

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Speaker 6: Just the multiple equation and obviously the loyalty factor as

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Speaker 6: folks keep coming back to a certain airline.

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Speaker 9: Because of the points and you know, continuing to.

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Speaker 2: Accumulate those you talk about Delta, we also have talked

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Speaker 2: about United and an American era as far as the

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Speaker 2: gains that we've seen so far, particularly with the international

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Speaker 2: travel and the resurgence there. You mentioned Frontier and some

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Speaker 2: of the other discounters. Are they going to see their

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Speaker 2: time in the sun. Are they going to start to

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Speaker 2: reassert their muscle now?

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Speaker 1: After lagging behind for.

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Speaker 9: A while, We don't think so.

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Speaker 6: We actually just downgraded Southwest Airlines to and underperform rating.

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Speaker 6: Specifically for this carrier, we think that they're going to

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Speaker 6: be pressured in the middle. They're not part of the

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Speaker 6: network carriers and they're not necessarily part of the low

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Speaker 6: cost carriers, so they're going to see pressure and that's

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Speaker 6: why the company announced a five hundred million dollar plan

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Speaker 6: to five hundred million of it planned improvements in their

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Speaker 6: earnings outlook with their network optimization plan that they're starting

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Speaker 6: now but won't be really fulfilled till Q two, twenty

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Speaker 6: twenty four, and they're going to restructure some of those

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Speaker 6: routes to better fulfill where they're seeing demand. So for now,

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Speaker 6: we are quite negative on the lower cost carriers, given

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Speaker 6: we don't think that they're going to see a pricing

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Speaker 6: improvement and they're going to continue to see yields office,

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Speaker 6: particularly as US domestic capacity increases over the next two years.

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Speaker 2: When it comes to the major airlines, how much of

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Speaker 2: the gains that you expect are going to be driven

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Speaker 2: from business versus consumers and just people who are vacationing.

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Speaker 6: Our assumption is really for total air traffic to grow

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Speaker 6: four percent over the next three years.

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Speaker 9: That's global air traffic.

443
00:21:50,080 --> 00:21:52,200
Speaker 6: And when you think about global air traffic, it grew

444
00:21:52,240 --> 00:21:54,640
Speaker 6: about five and a half six percent over the last

445
00:21:54,680 --> 00:21:57,720
Speaker 6: two decades. So we have taken a point off for

446
00:21:57,960 --> 00:22:00,080
Speaker 6: China being slower to recover, and we have taken and

447
00:22:00,119 --> 00:22:05,160
Speaker 6: a point off for Zoom replacing some in person meetings.

448
00:22:05,200 --> 00:22:09,120
Speaker 6: So we've already factored that corporate kind of stagnates at

449
00:22:09,119 --> 00:22:11,600
Speaker 6: this eighty five percent level eighty five ninety percent of

450
00:22:11,600 --> 00:22:14,200
Speaker 6: twenty nineteen levels, and I'm kind of surprised that that.

451
00:22:14,280 --> 00:22:17,400
Speaker 6: Actually I thought it would be better. My travel schedule

452
00:22:17,480 --> 00:22:19,320
Speaker 6: is certainly more of a bust than it was in

453
00:22:19,359 --> 00:22:23,720
Speaker 6: twenty nineteen, but you know, clearly not for everybody else.

454
00:22:23,760 --> 00:22:28,879
Speaker 6: So really the factor here is how airlines do with

455
00:22:29,080 --> 00:22:32,720
Speaker 6: leisure and that you know, there's a hybrid leisure and

456
00:22:32,840 --> 00:22:36,439
Speaker 6: business travel factor, and more focus on how they do

457
00:22:36,520 --> 00:22:40,320
Speaker 6: internationally in Atlantic markets and Pacific markets as those Asia

458
00:22:40,359 --> 00:22:43,800
Speaker 6: Pacific markets as those reopen. Given what you're seeing in

459
00:22:44,000 --> 00:22:50,320
Speaker 6: US domestic leisure and Latin American leisure is basically already.

460
00:22:50,040 --> 00:22:50,960
Speaker 9: Above one hundred percent.

461
00:22:51,240 --> 00:22:53,480
Speaker 2: Chila, kayelu, thank you so much for being with us.

462
00:22:54,400 --> 00:22:56,800
Speaker 2: For joining and giving us a sense of what we

463
00:22:56,840 --> 00:23:08,560
Speaker 2: can expect in the airline industry.

464
00:23:10,600 --> 00:23:13,520
Speaker 3: Steve Falluka, the senior advisor at Bank Capital and co

465
00:23:13,680 --> 00:23:17,360
Speaker 3: chairman of Atalanta and Italian football club, who kicks off

466
00:23:17,359 --> 00:23:20,760
Speaker 3: their season later on this weekend against a Swallow on Sunday.

467
00:23:21,000 --> 00:23:23,000
Speaker 3: Steve wonder for to catch up with you. We just

468
00:23:23,040 --> 00:23:26,160
Speaker 3: wanted to start with Saudi's influence on the game. You're

469
00:23:26,160 --> 00:23:29,000
Speaker 3: in the transfer window, the transfer market, you're trying to

470
00:23:29,000 --> 00:23:33,240
Speaker 3: acquire talent. Just how distorted is this transfer market now, Steve?

471
00:23:33,480 --> 00:23:35,560
Speaker 5: In Europe, it's.

472
00:23:35,400 --> 00:23:36,920
Speaker 9: Been pretty extraordinary. John.

473
00:23:37,840 --> 00:23:40,159
Speaker 10: Actually, we just had a meeting with some of the

474
00:23:40,160 --> 00:23:42,199
Speaker 10: Saudi folks. One of our one of our players has

475
00:23:42,240 --> 00:23:48,119
Speaker 10: been purchased by the Saudis this morning and it's, uh,

476
00:23:48,240 --> 00:23:51,280
Speaker 10: it's been it's been extraordinary kind of injection of capital

477
00:23:52,160 --> 00:23:54,040
Speaker 10: and increase the price of players dramatically.

478
00:23:54,280 --> 00:23:57,280
Speaker 3: Steve is at upset the salary structure at clubs like

479
00:23:57,320 --> 00:23:59,480
Speaker 3: your own. Have you noticed that have you had players

480
00:23:59,480 --> 00:24:01,440
Speaker 3: come to you monting larger sums of money.

481
00:24:02,600 --> 00:24:03,440
Speaker 4: You know, it has an.

482
00:24:03,440 --> 00:24:06,919
Speaker 10: Upset because we've been dealing with the top five leagues

483
00:24:06,960 --> 00:24:11,760
Speaker 10: pay pretty well, and the Premier League probably pays the

484
00:24:11,800 --> 00:24:13,000
Speaker 10: best and so we've been dealing with that.

485
00:24:13,040 --> 00:24:14,439
Speaker 9: So the Saudis are no different.

486
00:24:14,800 --> 00:24:17,320
Speaker 10: But I think the Saudis maybe will disrupt the Premier

487
00:24:17,440 --> 00:24:20,760
Speaker 10: League because it looks like players are getting paid you

488
00:24:20,920 --> 00:24:23,520
Speaker 10: three times at least three times what they may either

489
00:24:23,520 --> 00:24:26,919
Speaker 10: in the Premier League or either in Italy maybe four times.

490
00:24:27,359 --> 00:24:29,520
Speaker 10: So we'll see how long that's sustainable, but for now

491
00:24:29,560 --> 00:24:32,280
Speaker 10: it's certainly objected. A lot of capital into football, and

492
00:24:32,880 --> 00:24:35,280
Speaker 10: football truly is becoming a global sport, and that's why

493
00:24:35,280 --> 00:24:36,440
Speaker 10: they're focusing on Steve.

494
00:24:36,480 --> 00:24:39,480
Speaker 3: How does it shape your investment prospects at a football

495
00:24:39,520 --> 00:24:43,160
Speaker 3: club like Atalanta when you take a stake and let's

496
00:24:43,200 --> 00:24:45,960
Speaker 3: say a mid size the Italian team hoping for much

497
00:24:45,960 --> 00:24:50,080
Speaker 3: bigger things, does it make things less sustainable in football

498
00:24:50,080 --> 00:24:53,199
Speaker 3: when you're competing against the price and sensitive player like

499
00:24:53,240 --> 00:24:54,040
Speaker 3: Saudi Arabia.

500
00:24:55,560 --> 00:24:58,800
Speaker 10: Well, the good news is each team has eleven players,

501
00:24:58,920 --> 00:25:00,480
Speaker 10: so there's plenty of great players out there.

502
00:25:00,640 --> 00:25:02,280
Speaker 9: You just have to be smart.

503
00:25:02,280 --> 00:25:04,719
Speaker 10: And you really have to have a great development capability,

504
00:25:04,760 --> 00:25:08,879
Speaker 10: and that's what we have here at Atalata. We've developed

505
00:25:09,080 --> 00:25:11,920
Speaker 10: hundreds of players for our own team and other teams.

506
00:25:12,200 --> 00:25:15,160
Speaker 10: So it's going to really put the empasis on development

507
00:25:15,200 --> 00:25:17,960
Speaker 10: and also being disciplined and making smart purchases and not

508
00:25:19,240 --> 00:25:24,320
Speaker 10: paying inflated prices for mediocre players. So I think it's

509
00:25:24,359 --> 00:25:27,000
Speaker 10: no different than the Premier League Premier League. The issue

510
00:25:27,040 --> 00:25:28,919
Speaker 10: the Premier League is you have a couple of clubs

511
00:25:28,920 --> 00:25:34,280
Speaker 10: directly controlled by sovereigns and obviously they have lots and

512
00:25:34,320 --> 00:25:36,680
Speaker 10: lots of capital, so it makes it difficult for the

513
00:25:36,760 --> 00:25:38,320
Speaker 10: sixteen clubs to compete there.

514
00:25:38,640 --> 00:25:40,920
Speaker 2: There is a question also about what the new economic

515
00:25:41,040 --> 00:25:43,320
Speaker 2: model is if you're investing in some of these clubs.

516
00:25:43,320 --> 00:25:45,679
Speaker 2: We've seen at least a couple of clubs seem to

517
00:25:45,960 --> 00:25:49,800
Speaker 2: go into second or third tier and then look to

518
00:25:49,840 --> 00:25:53,240
Speaker 2: broaden the commercial appeal the content on a broader level,

519
00:25:53,320 --> 00:25:55,840
Speaker 2: not just the games, but also Netflix series and other

520
00:25:55,880 --> 00:25:57,600
Speaker 2: ways of popularizing it.

521
00:25:57,640 --> 00:25:59,200
Speaker 1: Is that a way to kind of.

522
00:25:59,200 --> 00:26:03,080
Speaker 2: Key in give an economic upside to potential players in

523
00:26:03,119 --> 00:26:05,959
Speaker 2: a way that just paying them off doesn't cut.

524
00:26:06,400 --> 00:26:09,560
Speaker 10: You have to look at all mechanisms to help the players,

525
00:26:09,600 --> 00:26:12,600
Speaker 10: and certainly in European football, you need to have the

526
00:26:12,600 --> 00:26:17,400
Speaker 10: most attractive team, the most attractive situation, and attractive sponsorships.

527
00:26:17,400 --> 00:26:19,159
Speaker 10: And so that's what we're trying to do here At

528
00:26:19,520 --> 00:26:22,720
Speaker 10: Delanta and obviously win where in the Europa League we're

529
00:26:22,720 --> 00:26:24,480
Speaker 10: trying to get to the Champions League and so it's

530
00:26:24,480 --> 00:26:26,000
Speaker 10: a big boom for us to be in the Europa

531
00:26:26,040 --> 00:26:28,760
Speaker 10: League and play the best clubs. So each team has

532
00:26:28,760 --> 00:26:30,359
Speaker 10: to have that kind of strategy and have to be

533
00:26:30,400 --> 00:26:32,320
Speaker 10: creative with the money that's out there.

534
00:26:32,520 --> 00:26:33,360
Speaker 9: This is all without risk.

535
00:26:33,400 --> 00:26:36,240
Speaker 10: You've seen many teams relegated that there's just as opposed

536
00:26:36,280 --> 00:26:38,760
Speaker 10: to the US, you have a relegation model where if

537
00:26:38,760 --> 00:26:41,520
Speaker 10: you don't spend thoughtfully and you don't perform, you know,

538
00:26:41,560 --> 00:26:43,000
Speaker 10: you get down to the next level and then you're

539
00:26:43,040 --> 00:26:46,119
Speaker 10: in real trouble financially. So there's high upside of the

540
00:26:46,160 --> 00:26:47,560
Speaker 10: high downside in this game.

541
00:26:47,680 --> 00:26:49,520
Speaker 1: Although that said, leil no Messi.

542
00:26:49,680 --> 00:26:52,920
Speaker 2: Watching him down in Florida, he looks like he's had

543
00:26:52,920 --> 00:26:53,560
Speaker 2: a joy ride.

544
00:26:53,800 --> 00:26:53,920
Speaker 10: You know.

545
00:26:54,000 --> 00:26:56,800
Speaker 2: John pointed this out that basically he's just going through

546
00:26:56,800 --> 00:26:59,160
Speaker 2: the field and kicking goals in and left and right

547
00:26:59,640 --> 00:27:02,520
Speaker 2: and dominating in every which way. People are still signing up,

548
00:27:02,560 --> 00:27:03,639
Speaker 2: people are still watching.

549
00:27:03,920 --> 00:27:04,720
Speaker 8: Is all you need?

550
00:27:04,880 --> 00:27:07,760
Speaker 2: One good player, one good drama, one good something to

551
00:27:07,800 --> 00:27:10,760
Speaker 2: hook in viewers beyond just an incredible competition.

552
00:27:11,960 --> 00:27:14,640
Speaker 10: Well, you know, Messi is one of the best two

553
00:27:14,720 --> 00:27:16,400
Speaker 10: or three players in the entire world. So it's great

554
00:27:16,480 --> 00:27:19,160
Speaker 10: that Mammy's landed him. And I think he turned down

555
00:27:19,480 --> 00:27:21,679
Speaker 10: two hundred million a year something on the owner of

556
00:27:21,680 --> 00:27:24,840
Speaker 10: that to play in Saudi, so that's incredible. So I

557
00:27:24,880 --> 00:27:26,600
Speaker 10: think Apple has done a great job and the league's

558
00:27:26,600 --> 00:27:28,600
Speaker 10: had a great job bring him in to continue to

559
00:27:29,080 --> 00:27:31,200
Speaker 10: grow soccer in the US, and I hope it continues

560
00:27:31,240 --> 00:27:33,439
Speaker 10: to grow because it's a world game and it's going

561
00:27:33,480 --> 00:27:34,320
Speaker 10: to benefit everybody.

562
00:27:34,440 --> 00:27:36,560
Speaker 3: New York Red Bulls in the next couple of weeks,

563
00:27:36,560 --> 00:27:37,760
Speaker 3: you send the price of those tickets.

564
00:27:38,119 --> 00:27:39,080
Speaker 1: I mean, he's a message.

565
00:27:39,119 --> 00:27:39,800
Speaker 5: Have you send the price?

566
00:27:40,240 --> 00:27:40,879
Speaker 2: I have not seen them.

567
00:27:41,280 --> 00:27:44,240
Speaker 3: If you want to sit, let's say halfway lined, great

568
00:27:44,280 --> 00:27:47,840
Speaker 3: tickets typically at a stadium like that to watch a

569
00:27:47,840 --> 00:27:51,280
Speaker 3: team like that, maybe you'd pay like somewhere up to

570
00:27:51,320 --> 00:27:55,520
Speaker 3: one hundred bucks, maybe one thousand dollars, one thousand dollars

571
00:27:55,560 --> 00:27:56,439
Speaker 3: to go and watch MESSI.

572
00:27:56,520 --> 00:27:57,840
Speaker 5: It's a rockstar in New York.

573
00:27:57,960 --> 00:28:00,760
Speaker 3: Just ridiculous, Steve, can we define success for this season

574
00:28:00,880 --> 00:28:02,639
Speaker 3: and not just for Atalanta? I think there's a lot

575
00:28:02,680 --> 00:28:05,040
Speaker 3: of people watching that want your view on a Celtics

576
00:28:05,080 --> 00:28:05,360
Speaker 3: as well.

577
00:28:05,400 --> 00:28:07,920
Speaker 5: What does success look like? For your teams this year.

578
00:28:08,720 --> 00:28:14,000
Speaker 10: Well, we're contending for a championship in Boston. It's about

579
00:28:14,040 --> 00:28:17,119
Speaker 10: championships and we try to construct the team so we

580
00:28:17,160 --> 00:28:19,600
Speaker 10: can win. I'm I'm very optimistic this season. We have

581
00:28:19,640 --> 00:28:22,720
Speaker 10: a great group of players coming in. Berzingis is going

582
00:28:22,760 --> 00:28:25,480
Speaker 10: to add a lot upfront. That was a fantastic job

583
00:28:25,720 --> 00:28:28,320
Speaker 10: Brent Stevens with Grosspeca, the team that getting him to

584
00:28:28,359 --> 00:28:30,840
Speaker 10: come to Boston. He had several opportunities and we were

585
00:28:30,840 --> 00:28:33,840
Speaker 10: over pull off a trade. So we're very excited about

586
00:28:33,840 --> 00:28:36,200
Speaker 10: this season. Our fans are excited and I can't wait

587
00:28:36,240 --> 00:28:36,879
Speaker 10: for it to start.

588
00:28:37,400 --> 00:28:40,520
Speaker 2: From a financial perspective going forward, do you expect the

589
00:28:40,560 --> 00:28:44,520
Speaker 2: same amount of interest in buying sports teams across the

590
00:28:44,560 --> 00:28:47,440
Speaker 2: world if we do have a new interest rate structure,

591
00:28:47,520 --> 00:28:51,880
Speaker 2: if we do have suddenly a higher cost of money, definitely,

592
00:28:51,880 --> 00:28:52,360
Speaker 2: a higher.

593
00:28:52,160 --> 00:28:54,360
Speaker 10: Cost of money is going to impact that. And team

594
00:28:54,440 --> 00:28:58,520
Speaker 10: values are already very high, so it is hard for

595
00:28:58,640 --> 00:29:01,120
Speaker 10: you know, teams to grow ten times or twenty times

596
00:29:01,160 --> 00:29:03,920
Speaker 10: off off the high basis they're at, and the hygistrates

597
00:29:03,960 --> 00:29:08,680
Speaker 10: are affecting everything. Now that being said, for at least

598
00:29:08,800 --> 00:29:11,000
Speaker 10: two thirds of my lifetime, you know, T bills have

599
00:29:11,040 --> 00:29:14,120
Speaker 10: been at five percent. We've only had this anomalist period

600
00:29:14,520 --> 00:29:16,880
Speaker 10: since the crisis in two thousand and eight where they

601
00:29:16,920 --> 00:29:18,800
Speaker 10: went down to one percent and a half percent. So

602
00:29:19,120 --> 00:29:21,160
Speaker 10: there's no more free money and that will definitely impact

603
00:29:21,240 --> 00:29:24,600
Speaker 10: what people can do. But other factors like the Saudi

604
00:29:24,600 --> 00:29:29,440
Speaker 10: Oil and the huge expansion of sports in terms of

605
00:29:29,480 --> 00:29:31,640
Speaker 10: streaming and be able to get any sports team at

606
00:29:31,640 --> 00:29:35,560
Speaker 10: any time that you want with today's technology, truly globalized sports,

607
00:29:35,600 --> 00:29:38,800
Speaker 10: and so I see the values continuing to increase because

608
00:29:38,800 --> 00:29:41,000
Speaker 10: you're having people tune in from China to see Messi

609
00:29:41,040 --> 00:29:44,240
Speaker 10: in Miami, and you couldn't do that twenty or thirty

610
00:29:44,280 --> 00:29:47,560
Speaker 10: years where I lived at Hollida in the late seventies

611
00:29:48,040 --> 00:29:50,520
Speaker 10: and the best I could get was the International Heart

612
00:29:50,560 --> 00:29:53,080
Speaker 10: Tribune three days later would give me the sports results

613
00:29:53,080 --> 00:29:57,360
Speaker 10: from the US to World Series, or I'd have to

614
00:29:57,360 --> 00:29:59,560
Speaker 10: pay twenty dollars a minute to call someone of the

615
00:29:59,640 --> 00:30:01,720
Speaker 10: US find out who won a game. So that's a

616
00:30:01,800 --> 00:30:04,880
Speaker 10: huge advance in my lifetime where now you can get

617
00:30:04,880 --> 00:30:07,440
Speaker 10: out your phone and be on the subway in China

618
00:30:07,480 --> 00:30:09,160
Speaker 10: and watch the Celtics play the Lakers.

619
00:30:09,200 --> 00:30:10,280
Speaker 2: That's incredible, unreal.

620
00:30:10,440 --> 00:30:15,720
Speaker 3: Steve Atlanta, Atalanta, Milan December tenth. Let's make that happen.

621
00:30:15,840 --> 00:30:18,520
Speaker 3: Your club against against my club. We're going to go

622
00:30:18,600 --> 00:30:22,080
Speaker 3: watch that together December tenth at Atalanta ac Milan.

623
00:30:23,120 --> 00:30:25,120
Speaker 10: Yeah, that's going to be a big one for us.

624
00:30:26,360 --> 00:30:28,200
Speaker 10: It has a lot of subplots to it as well,

625
00:30:28,240 --> 00:30:30,600
Speaker 10: with the trading and things we've done with them and

626
00:30:30,640 --> 00:30:33,360
Speaker 10: their arrival. That's forty five minutes away from here, so

627
00:30:33,400 --> 00:30:35,840
Speaker 10: that's always a huge game. So let's definitely do that.

628
00:30:36,160 --> 00:30:38,640
Speaker 5: I'll book it down, We'll make that happen. Steve.

629
00:30:39,040 --> 00:30:41,880
Speaker 3: Congratulations for all your success. Good luck at the weekend.

630
00:30:42,000 --> 00:30:45,280
Speaker 3: We appreciate your time this morning. Steve Palukuda of Bane

631
00:30:45,280 --> 00:30:48,480
Speaker 3: of course and at Atalanta Boston Celtics.

632
00:30:48,520 --> 00:30:49,360
Speaker 5: Take your pick, Bremo.

633
00:30:50,400 --> 00:30:51,080
Speaker 1: Subscribe to the.

634
00:30:51,040 --> 00:30:54,560
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635
00:30:54,600 --> 00:30:58,040
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636
00:30:58,040 --> 00:31:01,760
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637
00:31:01,880 --> 00:31:02,240
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638
00:31:02,200 --> 00:31:03,360
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639
00:31:03,640 --> 00:31:06,960
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640
00:31:07,040 --> 00:31:10,440
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641
00:31:10,480 --> 00:31:11,560
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