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Speaker 3: At Guthentic Joces now president of Youathny Research, and I
Speaker 3: didn't know whether to be offended or not by those comments.
Speaker 3: At great to catch out with you, you coined the
Speaker 3: phrase bon vigilantes at the vigilances back.
Speaker 4: I think they are. They're certainly saddling up. Look, usually
Speaker 4: the bond market is driven by inflation, inflation expectations, and
Speaker 4: what everybody expects the FED to do about inflation. Usually
Speaker 4: supply and demand really don't matter that much, and that's
Speaker 4: usually because federal deficits tend to widen during recessions when
Speaker 4: the Fed's lowering interest rates. This time around, we've got
Speaker 4: the federal deficit widening when the economy is doing well.
Speaker 4: And I think the vigilianis are quite concerned about that
Speaker 4: way too much supply.
Speaker 3: How much of this bond move is a threat ahead
Speaker 3: wind to your bullish equity call it?
Speaker 4: Well, look, I thought we would end up the year
Speaker 4: at forty six hundred on the S and P five hundred.
Speaker 4: We got there at the end of July, and I
Speaker 4: decided not to raise my forecast. So I'm looking for
Speaker 4: the market to move sideways or continue with this pullback,
Speaker 4: maybe even down to the two hundred day move an average,
Speaker 4: and concerns about what the bond market's bond vigilanis are
Speaker 4: going to do. But then I think by year end
Speaker 4: will still end up around forty six hundred. Next year,
Speaker 4: I'm looking for fifty four hundred. But I think in
Speaker 4: the short term here it's why the market has been
Speaker 4: down for since. Really the end of July, is.
Speaker 2: A forty six hundred level or even a fifty four
Speaker 2: hundred level a next year realistic or consistent with bond
Speaker 2: yields that don't materially go down from where they are
Speaker 2: right now.
Speaker 4: Well, welcome back to normal. Right We had, you know,
Speaker 4: abnormally low interest rates for a very long time, and
Speaker 4: central banks around the world kept trying to pump more
Speaker 4: liquidity into the system to bring inflation all the way
Speaker 4: back up to two percent. Now we're back to where
Speaker 4: we were before the two thousand and seven two thousand
Speaker 4: and eight calamity. We've seen real interest rates, the tips seel,
Speaker 4: the ten year tips shield go back to two percent
Speaker 4: instead of going staying around zero or slightly negative. You know,
Speaker 4: two percent plus two and a half percent inflation premium
Speaker 4: is four and a half percent. So that's pretty close
Speaker 4: to where we are. And so far the economy is
Speaker 4: demonstrating that normal is okay. I mean, even the housing
Speaker 4: market has recovered despite the fact that interest rates has
Speaker 4: gone up. Look, I remember when I was younger. I
Speaker 4: guess it was the When I was younger, it was
Speaker 4: a nineteen eighties, early nineteen eighties, I been six percent
Speaker 4: for a mortgage in Westchester, So you know, it's all
Speaker 4: a matter of perspective, right, Well.
Speaker 2: But housing prices were a lot lower that, right, We
Speaker 2: hadn't necessarily seen the inflation relative to income. We hadn't
Speaker 2: seen the inflation and assets that was spurred by lower
Speaker 2: rate policies for so long. There was a theory before
Speaker 2: we got here that it rates going up to this
Speaker 2: level would decimate all these bubbles.
Speaker 1: That it emerged during that era.
Speaker 2: Are you saying that that's not true, that people have
Speaker 2: basically refinanced and manage their balance.
Speaker 1: Sheets well enough to avoid that.
Speaker 4: Yes, Empirically, it's pretty clear that all this talk about
Speaker 4: a recession so far hasn't panned out. I mean, we
Speaker 4: still have that kind of risk, I suppose. But really
Speaker 4: the way it's unfolded is as a rolling recession. It
Speaker 4: hit housing and then it hit goods. Now it's going
Speaker 4: to hit commercial real estate. But now I think, given
Speaker 4: what retail sales did in July, the goods recession maybe
Speaker 4: maybe over, and the housing recession maybe bottoming.
Speaker 3: Can I just put it on the record that if
Speaker 3: a boomer wants to sound with their home for fifty
Speaker 3: thousand dollars, I'm happy to pay fifteen percent on a
Speaker 3: loan for that.
Speaker 1: Okay, it's on the record number.
Speaker 4: Back back then, that was a lot of money for
Speaker 4: our house.
Speaker 3: If anyone's out there at But what was the multiple
Speaker 3: of the average salary compared to what it is now?
Speaker 5: It's ridiculous.
Speaker 4: Now, look, look these are different times. But on the
Speaker 4: other hand, I think the real abnormality was the period
Speaker 4: since two thousand and eight through the pandemic until really
Speaker 4: two and twenty two when the Feds had to start
Speaker 4: raising interest rates. But look, I think inflation's coming down.
Speaker 4: I think you were talking about Powell. I think Palell's
Speaker 4: going to talk hawkish, but when you really listen to
Speaker 4: the message, I think he's going to agree with John Williams,
Speaker 4: the president of the Federal Reserve Bank of New York,
Speaker 4: and say, you know what we have. We are making
Speaker 4: progress on inflation, and if we continue to do that,
Speaker 4: we're going to have to lower interest rates next year.
Speaker 3: You think he will entertain that conversation at just the
Speaker 3: idea that you don't want real rates to get more restricted,
Speaker 3: you want to keep them consistent.
Speaker 4: I do. I think John Williams is very influential at
Speaker 4: the FED, and I think he and Powell tends to
Speaker 4: talk to each other quite a bit, and Williams tends
Speaker 4: to be sort of the theoretician and Pollows the pragmatist
Speaker 4: that implements policy. Look, they can't really afford to see
Speaker 4: this bond You'll keep going up, so they've got to
Speaker 4: calm the bond market down. And I think they're going
Speaker 4: to have to concede or acknowledge that inflation has come down.
Speaker 4: Look that the CPI excluding shelter is up only two
Speaker 4: percent on a euro of your basis. In July, the
Speaker 4: CPI core excluding shelter is up two and a half percent.
Speaker 4: We're under two percent. All we have to do is
Speaker 4: wait for shelter inflation to come down. And we know
Speaker 4: it's coming down.
Speaker 1: But ed, where is the neutral rate then?
Speaker 2: Once we get to that, too said, and how high
Speaker 2: can it be to still allow the stock market reality
Speaker 2: that you're predicting.
Speaker 4: I have to tell you, you know, I wrote a
Speaker 4: book on my experiences for forty years back in twenty eighteen,
Speaker 4: and one of the conclusions I came to is I
Speaker 4: don't really understand the neutral rate the real rate. It's
Speaker 4: a theoretical construct. Nobody, it's not something you can observe.
Speaker 4: I'm sort of an empiricist. I do follow the data.
Speaker 4: I'm data dependent like the FED, and I think what
Speaker 4: it demonstrates is that the real rate is higher in
Speaker 4: the sense that the economy has been able to withstand
Speaker 4: these kind of levels of interest rates, which we really
Speaker 4: haven't seen in over a decade.
Speaker 3: Right now, we're all bond market dependent, aren't we Thank you, sir,
Speaker 3: always good thinking at Jah Danny, who, of course decades
Speaker 3: ago coin that phrase bond vigilancees Kelsi Parichoe just now,
Speaker 3: fixed income portfolio manager over JP Morgan Esset Management, Cassie,
Speaker 3: good morning, good morning. We're not going to talk about
Speaker 3: the house in market. Don't worry, We're going to talk
Speaker 3: about your bond market.
Speaker 6: Cool.
Speaker 3: We know you've been pretty bullish on fixed income. We've
Speaker 3: caught up with Bob and yourself a few times over
Speaker 3: the last few months. We've been looking for three percent
Speaker 3: right the way through the curve. This bond market's moved
Speaker 3: against you. Is this a buy now? And why is
Speaker 3: it a buy?
Speaker 7: Yeah, so the market has moved higher over the course
Speaker 7: of the month. It feels like bond buyers has essentially
Speaker 7: gone off to vacation.
Speaker 8: But we do view this as a buy.
Speaker 7: And the list of items that the consumer is going
Speaker 7: to need to deal with when they get back from
Speaker 7: their holidays and they look at their bills, I mean,
Speaker 7: the list is really growing. So for instance, we're coming
Speaker 7: back to the fall, student loan payments are restarting. Mortgage rates,
Speaker 7: as you just mentioned, are at their highest level since
Speaker 7: two thousand and one, you have people in California, Alabama,
Speaker 7: and Georgia who deferre their taxes who now need to
Speaker 7: make do on that. Credit card balances are also rising,
Speaker 7: that interest expenses on that are rising as well. So
Speaker 7: when I look at things like the retail sales report,
Speaker 7: which is an inherently very volatile number, what I see
Speaker 7: is a pull forward of consumption, a lot of fun
Speaker 7: this summer, and we're getting to the point where some
Speaker 7: of that fun has has run out.
Speaker 8: In fact, you know, we talk about the tailor swift tour,
Speaker 8: the errors tour. She's going abroad. You know, the US
Speaker 8: economy is going to have to make it on their own.
Speaker 2: Right, Okay, all right, So putting Taylor Swift in the
Speaker 2: swift or tailwind into the US economy aside, how much
Speaker 2: conviction do you have about what's behind the move that
Speaker 2: we have seen other than just everyone's on vacation.
Speaker 7: Yeah, So we've been looking back at the end of
Speaker 7: prior rate hiking cycles. So two thousand, two thousand and six,
Speaker 7: nineteen ninety five. What we've found in that all of
Speaker 7: those scenarios when the FED stops, everybody thinks.
Speaker 8: That we've engineered a soft landing.
Speaker 7: If you go back and you look back at two thousand,
Speaker 7: two thousand and one, two thousand and six, two thousand
Speaker 7: and seven, we were talking about the exact same things
Speaker 7: off landing. We weren't sure if policy was tight enough.
Speaker 7: It looked like the FED had done it, okay, So
Speaker 7: now we're trying to assess is this another soft landing
Speaker 7: or is this potentially a false signal. And then there's
Speaker 7: a couple things that we're seeing now that indicate to
Speaker 7: us that, you know, things may get a little bit
Speaker 7: more tricky as we move into the balance of the year.
Speaker 7: Things that didn't happen in the nineteen ninety five cycle,
Speaker 7: for example, and that's I use nineteen ninety five because
Speaker 7: that's the benchmark, right, everyone uses that as the example
Speaker 7: of the perfect example of a soft landing. Well, in
Speaker 7: nineteen ninety five, the three month tenure yield curve, it
Speaker 7: never inverted in nineteen ninety five, Credit credit credit in
Speaker 7: the H eight data from the commercial banks that you
Speaker 7: look at on Friday at four fifteen never contracted, right,
Speaker 7: and right now it's in contraction already.
Speaker 9: Right.
Speaker 7: All of these things are said suggesting to us that
Speaker 7: policy is actually restrictive. We need to give it time.
Speaker 7: In fact, policy really has only been tight for a
Speaker 7: few quarters.
Speaker 1: So how aggressively are you buying right now?
Speaker 7: I think this is absolutely a time to be buying
Speaker 7: fixed income.
Speaker 2: Sarah, have you increased your purchases recently? Have you been
Speaker 2: aggressively increasing?
Speaker 8: We have been using a dial across the whole year.
Speaker 7: Right We've had a view that the FED would get
Speaker 7: to around five percent, they would be able to pause,
Speaker 7: and over that time we want to be increasing our
Speaker 7: allocation to fixed income for the diversification and for the income.
Speaker 8: That's what we've been doing.
Speaker 7: We continue to do that as we see new highs
Speaker 7: and yields, and it's new highs. But I would also
Speaker 7: point out the fact that four thirty three was the
Speaker 7: intro day high for tens, four forty two is the
Speaker 7: inter jay high for thirties. We've been able to hold
Speaker 7: off on those levels. We've been able to back off
Speaker 7: those levels.
Speaker 8: So fairly encouraging there.
Speaker 3: Let's go back to last October. What's different about that
Speaker 3: sell of than what's.
Speaker 8: Handling here last October?
Speaker 3: Last October, when we hit those levels that we just
Speaker 3: described on a ten year what's different about this moment.
Speaker 3: The spantamics behind the move now compared to back then, Well, I.
Speaker 7: Think the most striking thing is that the terminal rate
Speaker 7: pricing has essentially remained unchanged right so it's been static
Speaker 7: around five point four percent, so really no movement there.
Speaker 8: The market is very comfortable with the terminal rate.
Speaker 7: I think if we were really if we really believed
Speaker 7: that these policy rates were not making an impact on
Speaker 7: the economy and that no one was bothered by seven
Speaker 7: percent mortgage rates, then the market should be pricing.
Speaker 8: A lot higher of a terminal rate, and it's not.
Speaker 7: Also, if the market truly believed that policy wasn't restrictive, inflation,
Speaker 7: break even should.
Speaker 8: Be taking off right now. They're not. So that's the difference.
Speaker 7: In October of last year, they hadn't done enough yet
Speaker 7: it was still clear we hadn't done enough.
Speaker 8: I think we're in a different place now.
Speaker 3: It's a massive difference, And I would say a key
Speaker 3: dynamic we haven't discussed yet is a supply story that
Speaker 3: wasn't discussed in October.
Speaker 5: It is being discussed now.
Speaker 3: Does that change the way we should think about fixed
Speaker 3: income and treasury specifically at the long runded a curve.
Speaker 7: Yeah, so there is more supply. Normally demand comes in
Speaker 7: to match apply. I think we are still seeing that, right.
Speaker 7: It may be at a slightly incrementally higher yield to
Speaker 7: meet that demand, but we are still seeing that.
Speaker 6: You know.
Speaker 7: One of the things that I've been looking at two
Speaker 7: things I've been keeping my eye on to see if
Speaker 7: there's some dislocation in the cash markets. One is swap spreads,
Speaker 7: So how are cash bonds cash treasury bonds trading to
Speaker 7: the swap market. And then the other thing is primary
Speaker 7: dealer holdings. If there was a really big issue taking
Speaker 7: down this supply, if people weren't interested, we would see
Speaker 7: those primary dealer holdings really start to ramp up. We've
Speaker 7: actually seen fairly good takedown at the auctions. Indirect buying
Speaker 7: has continued to increase, so there are people, stronger hands
Speaker 7: that are taking the yields at these levels, just real quickly.
Speaker 2: Given the fact that spreads on high yield have remained
Speaker 2: incredibly tight, how rich do you think that is?
Speaker 7: I would be very cautious with spreads in high yields
Speaker 7: in the low four hundreds. Here, this is a pricing
Speaker 7: that is perfectly priced for the soft landing, and when
Speaker 7: you look at the upside downside, how much tighter can
Speaker 7: you go versus how much wider.
Speaker 8: Can you go? On spreads?
Speaker 7: I mean to me that asymmetry is very, very obvious.
Speaker 7: It's obvious in high yield. I think it's obvious in
Speaker 7: the pricing of the economy, and I think it's also
Speaker 7: obvious in bond markets. How much higher can you go?
Speaker 7: Maybe a little bit, how much lower can we go?
Speaker 7: When the Fed starts cutting.
Speaker 3: A lot basically near the tights of the year, which
Speaker 3: is phenomenal it is, it's really phenomenal for everyone.
Speaker 5: Since talking about this breakdown.
Speaker 3: In the equity market, I can go through the levels
Speaker 3: for you just briefly. On the S and P five hundred,
Speaker 3: we're down five percent from the interday highs in July.
Speaker 3: Then that's that one hundred down something like eight percent
Speaker 3: from the interday highs in July. Given the move we've
Speaker 3: seen in the bond market. If I just said there's
Speaker 3: your bond market move, guess what's happened to stocks, I
Speaker 3: think you go beyond five percent. If I said guess
Speaker 3: what's happened to high yield, I'm not sure you'd guess
Speaker 3: we're near the tights of the year.
Speaker 2: Everyone would probably say this points to a market that's
Speaker 2: strugging off and saying Edi Ardeni is right and this
Speaker 2: is the new normal and it's just fine.
Speaker 3: Kelsey, good to see you for the update. Thank you,
Speaker 3: Cassey bar of JP Morgan. Well.
Speaker 2: Sheila Kayalu, senior equity research analyst at Jeffries, joins to
Speaker 2: actually answer the question that we keep speculating on with
Speaker 2: absolutely uneducated impressions of the tickets being really pricey. Our
Speaker 2: ticket price is going down as much as the US
Speaker 2: CPI report seems to suggest.
Speaker 6: Yeah, the CPI report seems to suggest ticket prices are
Speaker 6: going down, but that is only through not necessarily encompassing
Speaker 6: all the venues that folks could buy tickets through. But
Speaker 6: you know, over the long term, as we actually look
Speaker 6: at ticket prices, they actually.
Speaker 9: Have not been increasing. So it's still great value.
Speaker 6: Even though it's no longer four hundred dollars to get
Speaker 6: from the East coast to the west coast, and it
Speaker 6: might be seven hundred dollars and that seems like a
Speaker 6: big increase. There's no other way to simply do it. So, yes,
Speaker 6: ticket prices have not really been increasing over the long
Speaker 6: term as much as people expect. And when we look
Speaker 6: at the industry overall, you know, we're expecting ticket princes
Speaker 6: to be about fifteen percent above twenty nineteen levels in
Speaker 6: twenty twenty three and basically flatish year over year in
Speaker 6: twenty twenty four, so not much of an increase.
Speaker 9: And what we're seeing in the airline market right.
Speaker 6: Now is a dichotomy between domestic bears and international affairs,
Speaker 6: where domestic bears are actually seeing declines and sequential declines
Speaker 6: as we head into Q three, just given demands softness
Speaker 6: there and we could talk more about that, but international
Speaker 6: continues to be up robustly twenty five percent or so
Speaker 6: versus twenty nineteen levels, so much more strength than international
Speaker 6: strength travel and bears is what we're seeing.
Speaker 1: Bear with me for a second.
Speaker 2: I want to get a little granular, because domestic fares
Speaker 2: might be coming down in general and international fares may
Speaker 2: not be. There is an issue about where domestically is
Speaker 2: this a question of vacationers seeing prices go up significantly
Speaker 2: and business travel, which hasn't come back to the same
Speaker 2: degree not necessarily seeing that same kind of pressure. So
Speaker 2: some of the sort of mid tier cities that aren't
Speaker 2: as much vacation destination are the ones where prices are
Speaker 2: going down.
Speaker 6: Yeah, it's really interesting because I think a lot of
Speaker 6: the uncertainty is out of you know, the macro economic factors.
Speaker 6: I think we could all agree it's pretty much a
Speaker 6: soft landing and not a hard landing. So why are
Speaker 6: we seeing this yield softness in domestic markets or is
Speaker 6: it just specific markets that are seeing it? Because corporate's
Speaker 6: stagnating at eighty five percent, so maybe post pandemic, there's
Speaker 6: different features that are going on in different cities. So
Speaker 6: you know, somebody in Ohio might not be necessarily commuting
Speaker 6: back to Chicago, and January Southwest Side died that as
Speaker 6: an example of a route that's no longer fulfilled as
Speaker 6: much as one would expect. So that's on the corporate
Speaker 6: demand stagnating and also changing travel trends. And what we're
Speaker 6: seeing in the US market as well is there's domestic
Speaker 6: capacity typness right now, but we're expecting domestic capacity to
Speaker 6: increase at a seven percent rate from twenty twenty two
Speaker 6: to twenty twenty five. So I think forty four hundred
Speaker 6: aircraft going to about five thousand plus over the next
Speaker 6: three years, and that's double the rate of air traffic.
Speaker 6: So what's flooding the market with capacity right now is
Speaker 6: also the low cost carriers like Frontier and Spirit, and
Speaker 6: so that might be causing the pricing softness as well
Speaker 6: as everybody adds to these same domestic routes instead of
Speaker 6: creating new markets.
Speaker 2: If prices go down, does that mean that the experience
Speaker 2: gets even worse?
Speaker 6: Not necessarily, but obviously, you know, what we're seeing is
Speaker 6: also an increase in the cost sided the equation, whether that's.
Speaker 9: Jet fuel is up significantly since.
Speaker 6: May, and obviously labor agreements are calling for a thirty
Speaker 6: percent salary increases or so. So yes, one would that
Speaker 6: if prices are going down, your revenues are going down
Speaker 6: and your costs are going up, your margins are getting
Speaker 6: squeezed as an airline, and the customer experience might.
Speaker 2: Be impacted by that, which raises this question, Sheila, And
Speaker 2: it's something that I've been asking myself. At what point
Speaker 2: is it not worth flying anymore? Or is it worth
Speaker 2: sort of readjusting vacations to try to drive places or
Speaker 2: have some sort of alternative.
Speaker 1: Are you seeing any kind.
Speaker 2: Of exhaustion after two years of YOLO and two years
Speaker 2: of pandemic revenge spending and revenge traveling. Is there any
Speaker 2: exhaustion to shift away from this boom that we've seen
Speaker 2: in the airline industry that is driven so much of
Speaker 2: the gains across the board.
Speaker 9: Not necessarily. I mean, we're still bullish on the certain.
Speaker 6: Airlines such as Delta where they have a premium offering
Speaker 6: an international focus, and that premium offering is really holding
Speaker 6: on to you know, that pricing that experience.
Speaker 9: People are paying up for that.
Speaker 6: So and they're also expanding with their sky Miles program
Speaker 6: and their American Express credit card, so they're providing a
Speaker 6: little bit more of a lifestyle, expanding beyond just being
Speaker 6: an airline.
Speaker 9: So not necessarily, so can.
Speaker 2: We just lean into that American Express thing? We also
Speaker 2: that's another hot debate on surveillance about whether the lounge
Speaker 2: is increasingly becoming a perk for credit card owners and
Speaker 2: less about people who actually fly around on the planes.
Speaker 2: Is that basically where this is going and how lucrative
Speaker 2: actually is this at a time where people are crowding
Speaker 2: into the lounge and trying to eat as much as
Speaker 2: they can and drink as much as they can before
Speaker 2: they get on the planes.
Speaker 1: Well, if you think.
Speaker 6: About it, the airline industry, they trade at about a
Speaker 6: sixty percent discount to the market, so about five to
Speaker 6: six times Vada.
Speaker 9: And if you think about credit cards.
Speaker 6: Like Visa and MX, they trade at double to triple
Speaker 6: that multiple. So what we've seen with airlines is a
Speaker 6: focus on loyalty programs, a focus on that experience as well.
Speaker 6: But obviously, you know, Delta does not disclose what percentage
Speaker 6: of its free cash flow is generated from its sky
Speaker 6: Miles program, but we assume it's it's pretty hefty, and
Speaker 6: you know that helps the company's valuation.
Speaker 9: So I think that's where the focus is is.
Speaker 6: Just the multiple equation and obviously the loyalty factor as
Speaker 6: folks keep coming back to a certain airline.
Speaker 9: Because of the points and you know, continuing to.
Speaker 2: Accumulate those you talk about Delta, we also have talked
Speaker 2: about United and an American era as far as the
Speaker 2: gains that we've seen so far, particularly with the international
Speaker 2: travel and the resurgence there. You mentioned Frontier and some
Speaker 2: of the other discounters. Are they going to see their
Speaker 2: time in the sun. Are they going to start to
Speaker 2: reassert their muscle now?
Speaker 1: After lagging behind for.
Speaker 9: A while, We don't think so.
Speaker 6: We actually just downgraded Southwest Airlines to and underperform rating.
Speaker 6: Specifically for this carrier, we think that they're going to
Speaker 6: be pressured in the middle. They're not part of the
Speaker 6: network carriers and they're not necessarily part of the low
Speaker 6: cost carriers, so they're going to see pressure and that's
Speaker 6: why the company announced a five hundred million dollar plan
Speaker 6: to five hundred million of it planned improvements in their
Speaker 6: earnings outlook with their network optimization plan that they're starting
Speaker 6: now but won't be really fulfilled till Q two, twenty
Speaker 6: twenty four, and they're going to restructure some of those
Speaker 6: routes to better fulfill where they're seeing demand. So for now,
Speaker 6: we are quite negative on the lower cost carriers, given
Speaker 6: we don't think that they're going to see a pricing
Speaker 6: improvement and they're going to continue to see yields office,
Speaker 6: particularly as US domestic capacity increases over the next two years.
Speaker 2: When it comes to the major airlines, how much of
Speaker 2: the gains that you expect are going to be driven
Speaker 2: from business versus consumers and just people who are vacationing.
Speaker 6: Our assumption is really for total air traffic to grow
Speaker 6: four percent over the next three years.
Speaker 9: That's global air traffic.
Speaker 6: And when you think about global air traffic, it grew
Speaker 6: about five and a half six percent over the last
Speaker 6: two decades. So we have taken a point off for
Speaker 6: China being slower to recover, and we have taken and
Speaker 6: a point off for Zoom replacing some in person meetings.
Speaker 6: So we've already factored that corporate kind of stagnates at
Speaker 6: this eighty five percent level eighty five ninety percent of
Speaker 6: twenty nineteen levels, and I'm kind of surprised that that.
Speaker 6: Actually I thought it would be better. My travel schedule
Speaker 6: is certainly more of a bust than it was in
Speaker 6: twenty nineteen, but you know, clearly not for everybody else.
Speaker 6: So really the factor here is how airlines do with
Speaker 6: leisure and that you know, there's a hybrid leisure and
Speaker 6: business travel factor, and more focus on how they do
Speaker 6: internationally in Atlantic markets and Pacific markets as those Asia
Speaker 6: Pacific markets as those reopen. Given what you're seeing in
Speaker 6: US domestic leisure and Latin American leisure is basically already.
Speaker 9: Above one hundred percent.
Speaker 2: Chila, kayelu, thank you so much for being with us.
Speaker 2: For joining and giving us a sense of what we
Speaker 2: can expect in the airline industry.
Speaker 3: Steve Falluka, the senior advisor at Bank Capital and co
Speaker 3: chairman of Atalanta and Italian football club, who kicks off
Speaker 3: their season later on this weekend against a Swallow on Sunday.
Speaker 3: Steve wonder for to catch up with you. We just
Speaker 3: wanted to start with Saudi's influence on the game. You're
Speaker 3: in the transfer window, the transfer market, you're trying to
Speaker 3: acquire talent. Just how distorted is this transfer market now, Steve?
Speaker 5: In Europe, it's.
Speaker 9: Been pretty extraordinary. John.
Speaker 10: Actually, we just had a meeting with some of the
Speaker 10: Saudi folks. One of our one of our players has
Speaker 10: been purchased by the Saudis this morning and it's, uh,
Speaker 10: it's been it's been extraordinary kind of injection of capital
Speaker 10: and increase the price of players dramatically.
Speaker 3: Steve is at upset the salary structure at clubs like
Speaker 3: your own. Have you noticed that have you had players
Speaker 3: come to you monting larger sums of money.
Speaker 4: You know, it has an.
Speaker 10: Upset because we've been dealing with the top five leagues
Speaker 10: pay pretty well, and the Premier League probably pays the
Speaker 10: best and so we've been dealing with that.
Speaker 9: So the Saudis are no different.
Speaker 10: But I think the Saudis maybe will disrupt the Premier
Speaker 10: League because it looks like players are getting paid you
Speaker 10: three times at least three times what they may either
Speaker 10: in the Premier League or either in Italy maybe four times.
Speaker 10: So we'll see how long that's sustainable, but for now
Speaker 10: it's certainly objected. A lot of capital into football, and
Speaker 10: football truly is becoming a global sport, and that's why
Speaker 10: they're focusing on Steve.
Speaker 3: How does it shape your investment prospects at a football
Speaker 3: club like Atalanta when you take a stake and let's
Speaker 3: say a mid size the Italian team hoping for much
Speaker 3: bigger things, does it make things less sustainable in football
Speaker 3: when you're competing against the price and sensitive player like
Speaker 3: Saudi Arabia.
Speaker 10: Well, the good news is each team has eleven players,
Speaker 10: so there's plenty of great players out there.
Speaker 9: You just have to be smart.
Speaker 10: And you really have to have a great development capability,
Speaker 10: and that's what we have here at Atalata. We've developed
Speaker 10: hundreds of players for our own team and other teams.
Speaker 10: So it's going to really put the empasis on development
Speaker 10: and also being disciplined and making smart purchases and not
Speaker 10: paying inflated prices for mediocre players. So I think it's
Speaker 10: no different than the Premier League Premier League. The issue
Speaker 10: the Premier League is you have a couple of clubs
Speaker 10: directly controlled by sovereigns and obviously they have lots and
Speaker 10: lots of capital, so it makes it difficult for the
Speaker 10: sixteen clubs to compete there.
Speaker 2: There is a question also about what the new economic
Speaker 2: model is if you're investing in some of these clubs.
Speaker 2: We've seen at least a couple of clubs seem to
Speaker 2: go into second or third tier and then look to
Speaker 2: broaden the commercial appeal the content on a broader level,
Speaker 2: not just the games, but also Netflix series and other
Speaker 2: ways of popularizing it.
Speaker 1: Is that a way to kind of.
Speaker 2: Key in give an economic upside to potential players in
Speaker 2: a way that just paying them off doesn't cut.
Speaker 10: You have to look at all mechanisms to help the players,
Speaker 10: and certainly in European football, you need to have the
Speaker 10: most attractive team, the most attractive situation, and attractive sponsorships.
Speaker 10: And so that's what we're trying to do here At
Speaker 10: Delanta and obviously win where in the Europa League we're
Speaker 10: trying to get to the Champions League and so it's
Speaker 10: a big boom for us to be in the Europa
Speaker 10: League and play the best clubs. So each team has
Speaker 10: to have that kind of strategy and have to be
Speaker 10: creative with the money that's out there.
Speaker 9: This is all without risk.
Speaker 10: You've seen many teams relegated that there's just as opposed
Speaker 10: to the US, you have a relegation model where if
Speaker 10: you don't spend thoughtfully and you don't perform, you know,
Speaker 10: you get down to the next level and then you're
Speaker 10: in real trouble financially. So there's high upside of the
Speaker 10: high downside in this game.
Speaker 1: Although that said, leil no Messi.
Speaker 2: Watching him down in Florida, he looks like he's had
Speaker 2: a joy ride.
Speaker 10: You know.
Speaker 2: John pointed this out that basically he's just going through
Speaker 2: the field and kicking goals in and left and right
Speaker 2: and dominating in every which way. People are still signing up,
Speaker 2: people are still watching.
Speaker 8: Is all you need?
Speaker 2: One good player, one good drama, one good something to
Speaker 2: hook in viewers beyond just an incredible competition.
Speaker 10: Well, you know, Messi is one of the best two
Speaker 10: or three players in the entire world. So it's great
Speaker 10: that Mammy's landed him. And I think he turned down
Speaker 10: two hundred million a year something on the owner of
Speaker 10: that to play in Saudi, so that's incredible. So I
Speaker 10: think Apple has done a great job and the league's
Speaker 10: had a great job bring him in to continue to
Speaker 10: grow soccer in the US, and I hope it continues
Speaker 10: to grow because it's a world game and it's going
Speaker 10: to benefit everybody.
Speaker 3: New York Red Bulls in the next couple of weeks,
Speaker 3: you send the price of those tickets.
Speaker 1: I mean, he's a message.
Speaker 5: Have you send the price?
Speaker 2: I have not seen them.
Speaker 3: If you want to sit, let's say halfway lined, great
Speaker 3: tickets typically at a stadium like that to watch a
Speaker 3: team like that, maybe you'd pay like somewhere up to
Speaker 3: one hundred bucks, maybe one thousand dollars, one thousand dollars
Speaker 3: to go and watch MESSI.
Speaker 5: It's a rockstar in New York.
Speaker 3: Just ridiculous, Steve, can we define success for this season
Speaker 3: and not just for Atalanta? I think there's a lot
Speaker 3: of people watching that want your view on a Celtics
Speaker 3: as well.
Speaker 5: What does success look like? For your teams this year.
Speaker 10: Well, we're contending for a championship in Boston. It's about
Speaker 10: championships and we try to construct the team so we
Speaker 10: can win. I'm I'm very optimistic this season. We have
Speaker 10: a great group of players coming in. Berzingis is going
Speaker 10: to add a lot upfront. That was a fantastic job
Speaker 10: Brent Stevens with Grosspeca, the team that getting him to
Speaker 10: come to Boston. He had several opportunities and we were
Speaker 10: over pull off a trade. So we're very excited about
Speaker 10: this season. Our fans are excited and I can't wait
Speaker 10: for it to start.
Speaker 2: From a financial perspective going forward, do you expect the
Speaker 2: same amount of interest in buying sports teams across the
Speaker 2: world if we do have a new interest rate structure,
Speaker 2: if we do have suddenly a higher cost of money, definitely,
Speaker 2: a higher.
Speaker 10: Cost of money is going to impact that. And team
Speaker 10: values are already very high, so it is hard for
Speaker 10: you know, teams to grow ten times or twenty times
Speaker 10: off off the high basis they're at, and the hygistrates
Speaker 10: are affecting everything. Now that being said, for at least
Speaker 10: two thirds of my lifetime, you know, T bills have
Speaker 10: been at five percent. We've only had this anomalist period
Speaker 10: since the crisis in two thousand and eight where they
Speaker 10: went down to one percent and a half percent. So
Speaker 10: there's no more free money and that will definitely impact
Speaker 10: what people can do. But other factors like the Saudi
Speaker 10: Oil and the huge expansion of sports in terms of
Speaker 10: streaming and be able to get any sports team at
Speaker 10: any time that you want with today's technology, truly globalized sports,
Speaker 10: and so I see the values continuing to increase because
Speaker 10: you're having people tune in from China to see Messi
Speaker 10: in Miami, and you couldn't do that twenty or thirty
Speaker 10: years where I lived at Hollida in the late seventies
Speaker 10: and the best I could get was the International Heart
Speaker 10: Tribune three days later would give me the sports results
Speaker 10: from the US to World Series, or I'd have to
Speaker 10: pay twenty dollars a minute to call someone of the
Speaker 10: US find out who won a game. So that's a
Speaker 10: huge advance in my lifetime where now you can get
Speaker 10: out your phone and be on the subway in China
Speaker 10: and watch the Celtics play the Lakers.
Speaker 2: That's incredible, unreal.
Speaker 3: Steve Atlanta, Atalanta, Milan December tenth. Let's make that happen.
Speaker 3: Your club against against my club. We're going to go
Speaker 3: watch that together December tenth at Atalanta ac Milan.
Speaker 10: Yeah, that's going to be a big one for us.
Speaker 10: It has a lot of subplots to it as well,
Speaker 10: with the trading and things we've done with them and
Speaker 10: their arrival. That's forty five minutes away from here, so
Speaker 10: that's always a huge game. So let's definitely do that.
Speaker 5: I'll book it down, We'll make that happen. Steve.
Speaker 3: Congratulations for all your success. Good luck at the weekend.
Speaker 3: We appreciate your time this morning. Steve Palukuda of Bane
Speaker 3: of course and at Atalanta Boston Celtics.
Speaker 5: Take your pick, Bremo.
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