WEBVTT - Surveillance: Rajappa's Recession Call

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<v Speaker 1>This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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<v Speaker 1>with Jonathan Farrow and Lisa Abramowitz. Join us each day

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<v Speaker 1>for insight from the best and economics, geopolitics, finance and investment.

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<v Speaker 1>the Bloomberg Terminal, and the Bloomberg Business App. Subrider Chappa

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<v Speaker 1>joins us right now. My head is spinning here on

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<v Speaker 1>equities and even more so on bonds as well. Sot

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<v Speaker 1>of the fact is a lot of yields are moving

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<v Speaker 1>up here. I'm looking at the ten year real yield

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<v Speaker 1>in the US and is sobering. What are the ramifications

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<v Speaker 1>to you in SoC gen If we see the ten

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<v Speaker 1>year real yield breakout to new highs.

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<v Speaker 2>Well, I think that the impact is going to be

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<v Speaker 2>felt not just in the bond market, but broadly speaking

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<v Speaker 2>in all risky assets. Right, we're starting to recalibrate to

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<v Speaker 2>a much stronger economy, but a lot of the data

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<v Speaker 2>that we're looking at, like the first quarter GDP, the

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<v Speaker 2>second take or third take is backward looking, right, So

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<v Speaker 2>we have to be looking at forward looking indicators, and

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<v Speaker 2>if we are if the FED word raised rates by

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<v Speaker 2>fifty basis points or more, then I think that you're

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<v Speaker 2>going to see that feed through even more sharply into

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<v Speaker 2>the broader economy.

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<v Speaker 3>So the forward looking data has the potential.

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<v Speaker 2>To be meaningfully weaker if the FED, you know, continues

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<v Speaker 2>to hike rates. I mean, our call is that the

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<v Speaker 2>FED would probably stay in and around you know, the.

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<v Speaker 3>Current levels for the remainder of the years.

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<v Speaker 2>It's not out of the question that they raise rates

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<v Speaker 2>by maybe twenty five basis points or even fifty basis

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<v Speaker 2>points by the end of the year. But you know,

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<v Speaker 2>that's only going to really bring the recession you know forward,

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<v Speaker 2>if you will, we have a recession pencident for the

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<v Speaker 2>first half of twenty twenty four. That still seems like

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<v Speaker 2>the timeline that we're looking at. But broadly speaking, I

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<v Speaker 2>think a lot of the data that we're placing our

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<v Speaker 2>optimism on is backward looking, not forward looking.

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<v Speaker 1>Well, it's so important here the dynamics Katie Greifeld mentioned earlier,

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<v Speaker 1>the belly of the curve. Let's come in tight, not

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<v Speaker 1>five to seven years, but in that interesting two year

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<v Speaker 1>to five year space. What is your belief that we'll

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<v Speaker 1>see there. Do the high yields of a two year

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<v Speaker 1>one year space come out to high yields of a

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<v Speaker 1>four year five year space, or do we get relief.

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<v Speaker 2>I think that a lot of the repricing in the

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<v Speaker 2>FED funds market is going to be very much a

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<v Speaker 2>front end phenomena. That's part of the reason why we

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<v Speaker 2>don't really think that the tenure meaningfully rises about four percent.

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<v Speaker 2>I think we get close to four percent. It's going

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<v Speaker 2>to be a buying opportunity for bond investors that missed

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<v Speaker 2>their first opportunity earlier on this year to go long bonds.

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<v Speaker 2>But again, you know, the rise in yields, at least

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<v Speaker 2>in my view, is going to be much more of

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<v Speaker 2>a front end phenomena and not a long end phenomena.

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<v Speaker 2>And you're looking at the yield curve, you know, the

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<v Speaker 2>two stents part of the eeld curve is back near

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<v Speaker 2>negative hundred basis points or below. Again, that might be

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<v Speaker 2>our opportunity to think about reinitiating steepeners in the bond market,

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<v Speaker 2>because eventually, the more the Fed hikes, the more the

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<v Speaker 2>slowdown is going to be, and the Fed's going to

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<v Speaker 2>have to perhaps adjust policy during twenty twenty four.

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<v Speaker 4>So Poer, I am so excited to talk to you

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<v Speaker 4>about that two tens curve over one hundred basis points inverted,

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<v Speaker 4>and you say that you expect the yield curve to

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<v Speaker 4>gradually steep in, and that language masks a huge call

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<v Speaker 4>because if you expect the ten year yield to sort

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<v Speaker 4>of drop and then stay there, what does the front

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<v Speaker 4>end look like? How much do two year yields have

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<v Speaker 4>to plummet and how much does the FED have to

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<v Speaker 4>cut to get there?

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<v Speaker 3>So that's really a tricky question.

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<v Speaker 2>I think it's it's fair to say that the FED

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<v Speaker 2>could keep policy stable after getting to a certain level,

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<v Speaker 2>but beyond that, I think that the FED is very

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<v Speaker 2>committed to keeping policy higher for longer, and this time

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<v Speaker 2>around with inflation not just a US phenomena but a

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<v Speaker 2>global phenomena. I think that global center banks are going

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<v Speaker 2>to keep policy restrictive well into the first half of

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<v Speaker 2>next year. So in that sort of context, it makes

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<v Speaker 2>sense that the front end remains sticky and you don't

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<v Speaker 2>really see that dramatic repricing lower in the two year

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<v Speaker 2>part of the yel curve. That's why we're calling for

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<v Speaker 2>a very gradual resteepening of the yelk curve. Typically when

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<v Speaker 2>the FED pauses, you know, six months after that, you

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<v Speaker 2>tend to see the two stents part of the curve

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<v Speaker 2>steeping out meaningfully. This time around, that process is going

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<v Speaker 2>to be somewhat gradual. Also for the tenure.

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<v Speaker 3>We only have.

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<v Speaker 2>The tens getting to say three and a quarter by

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<v Speaker 2>the end of the of the year. That's not a

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<v Speaker 2>meaningful decline from where you are at the lows of

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<v Speaker 2>this year in tents. Again, the decline in yields is

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<v Speaker 2>going to be much more gradual across the curve in

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<v Speaker 2>this cycle as opposed to the past cycles.

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<v Speaker 4>So what gets us back to positive territory on the

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<v Speaker 4>twos tense curve if you have the two year kind

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<v Speaker 4>of anchored, I mean, what has to happen then at

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<v Speaker 4>the back half.

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<v Speaker 2>So we will I think eventually get to positive territory,

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<v Speaker 2>but it's going to be perhaps.

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<v Speaker 3>In twenty twenty four and not in twenty twenty three.

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<v Speaker 2>We have the two stands part of the curve you know,

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<v Speaker 2>steepening out, but you know, getting to only anywhere between

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<v Speaker 2>the negative fifteen negative twenty five basis points.

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<v Speaker 3>You know, by the end of the year. So the

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<v Speaker 3>steepening is going to be, you know, much more gradual.

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<v Speaker 2>But broadly speaking, you look at the broader economy, you

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<v Speaker 2>are going to start seeing the market respond to higher

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<v Speaker 2>interest rates. We did see some improvement in the housing

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<v Speaker 2>market in the in the last couple of months. If

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<v Speaker 2>you start seeing two start, you know ten, you're starting

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<v Speaker 2>to get towards four percent again, and mortgage it's start

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<v Speaker 2>to rise. You're going to see that impacting the housing

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<v Speaker 2>market and the broader interstate censor sectors of the economy.

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<v Speaker 3>Are going to respond to higher interstrates.

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<v Speaker 1>Sobrata, thank you for the brief. Really look forward to

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<v Speaker 1>talking to you in the twenty twenty three here on

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<v Speaker 1>the dynamics of fixed income. Sobrada Rajappa with a sack gen.

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<v Speaker 1>We decided to go to the only man in America

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<v Speaker 1>from sea to shining Sea that has not lost the

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<v Speaker 1>family arapods. Tom Forty joins us right now of Da Davison.

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<v Speaker 1>And what's important with this conversation, folks, is Forty's expert

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<v Speaker 1>on the chips, the wiring and all that. But he's

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<v Speaker 1>not a fanboy your neutral on Apple discuss all right.

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<v Speaker 5>I'm neutral.

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<v Speaker 6>I think that a lot of the good news is

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<v Speaker 6>already priced.

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<v Speaker 5>Into the stock.

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<v Speaker 6>So when you think about the Marshall three trillion, it's

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<v Speaker 6>mainly been in the back of the iPhone. The iPhone

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<v Speaker 6>continues to perform very well. But when you think of

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<v Speaker 6>the next trillion, and you think of vision pro and

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<v Speaker 6>augmented reality and virtual reality.

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<v Speaker 5>There are a lot of structural challenges.

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<v Speaker 6>Even for Apple started with price thirty four to ninety nine,

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<v Speaker 6>is not going to result in a mass produced, mass marketed,

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<v Speaker 6>mass adopted I am and Tom, I wish I could

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<v Speaker 6>tell you that I haven't washed many AirPods in my

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<v Speaker 6>washer dryer, well, many AirPods in the fourteen household.

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<v Speaker 1>Yeah, Cook and Lucas are working on that right now. Tom.

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<v Speaker 1>Everybody owns it. But I continue to read from pros

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<v Speaker 1>like you that Apple is institutionally under owned. On June

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<v Speaker 1>thirty is long only buyside out there going oh damn it,

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<v Speaker 1>I gotta buy it.

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<v Speaker 6>All right, So to that point, I think that's a

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<v Speaker 6>fair yes, And outside of Warren Buffett, where it's his

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<v Speaker 6>number one position, yes, it's probably under owned. From an

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<v Speaker 6>inters social standpoint, if you look at the basis points

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<v Speaker 6>holdings versus the index. They're likely a lot of equal

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<v Speaker 6>weights or some underweights out there and that's going to

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<v Speaker 6>negative affect their performance for the June quarter.

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<v Speaker 4>And Tom, I want to talk about the next trillion dollars.

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<v Speaker 4>I mean, you have a neutral rating on the stock.

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<v Speaker 4>It seems like you would say take a breather here.

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<v Speaker 4>But what's going to propel the next trillion is that

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<v Speaker 4>the Vision Pro.

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<v Speaker 6>Yes, and I would have told you that it was

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<v Speaker 6>the Vision Pro and at some point the Apple car,

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<v Speaker 6>But now I have concerns that if they make a car,

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<v Speaker 6>they're going to price it at two hundred thousand. So

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<v Speaker 6>I think that you know, the good news is that

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<v Speaker 6>the iPhone keeps on chugging on and that's still the

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<v Speaker 6>most important product right now, generates the largest percentage of

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<v Speaker 6>sales and profits, and it's still well positioned.

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<v Speaker 5>But I think to go.

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<v Speaker 6>From three to four, three to five, three to six,

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<v Speaker 6>we're going to have to see some sort of contribution

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<v Speaker 6>from the Vision Pro, potentially a car, new products, and

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<v Speaker 6>I think that's going to be challenging.

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<v Speaker 4>Can we talk about the price tag on the Vision

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<v Speaker 4>Pro because when they announced that there was a clip

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<v Speaker 4>that made its way through social media of people gasping

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<v Speaker 4>at that price town tag three four hundred ninety nine

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<v Speaker 4>dollars for that augmented reality headset.

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<v Speaker 7>Is that price going to have to come down?

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<v Speaker 5>So the answer is yes.

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<v Speaker 6>The question is did Apple tip off their strategy by

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<v Speaker 6>naming it the Vision pro So are they going to

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<v Speaker 6>have a lower price point ARVR headsite called Division not,

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<v Speaker 6>unlike they do with their laptops?

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<v Speaker 5>And I think that's a possibility. But I do think even.

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<v Speaker 6>For Apple to generate mass adoption, they're going to have

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<v Speaker 6>to have a lower priced offering. The good news is

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<v Speaker 6>for Meta Platforms they're three thousand dollars less.

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<v Speaker 5>So I do think to the.

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<v Speaker 6>Extent that Apple gets people excited about ARVR, that could

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<v Speaker 6>lean people to purchase the products from Meta Platforms, which

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<v Speaker 6>has one at four ninety nine.

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<v Speaker 4>And Tom, I know, oh you're neutral, but I want

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<v Speaker 4>to bring you the ball case. Of course, again that

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<v Speaker 4>city call getting a lot of attention, initiating coverage with

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<v Speaker 4>the buyer and talking about this underestimation of Apple's ability

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<v Speaker 4>to really protect and grow its margins. How are you

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<v Speaker 4>thinking about Apple's abilities when it comes to its margins.

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<v Speaker 5>So the story for.

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<v Speaker 6>Apple under tim Cook has been the rollout of higher

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<v Speaker 6>margin services, which has resulted.

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<v Speaker 5>In a higher multiple for the stock. Now, what the.

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<v Speaker 6>Analyst isn't pointing out is that on a short term basis,

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<v Speaker 6>we've seen pressure in the services revenue.

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<v Speaker 5>We've seen pressure in the advertising revenue.

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<v Speaker 6>So yes, I found sales have held up amazingly well

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<v Speaker 6>in a global, challenging macroeconomic environment, but the higher margin,

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<v Speaker 6>higher multiple causing services revenue has been under pressure. So

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<v Speaker 6>I think that's a little optimistic over the next twelve months.

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<v Speaker 1>O good time. I want to fold this into the

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<v Speaker 1>share buyback and the beliefs that they're going to show

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<v Speaker 1>up every day and buy four hundred and twenty two shares.

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<v Speaker 1>In an odd log from Fidelity dot com, Tom fourteen,

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<v Speaker 1>i got free cash flow out at one hundred and

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<v Speaker 1>eleven billion, basically a double pre COVID. I've got the

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<v Speaker 1>margin discussion that uber bulls like Ives and Mailekovert City

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<v Speaker 1>Group are talking about, and critically, Tom, I've got Apple

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<v Speaker 1>with four point one percent of capital is debt. Can't

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<v Speaker 1>these guys just keep going out and doing bond deals

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<v Speaker 1>and buying back share after share after share.

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<v Speaker 6>They certainly are cash register and generate tremendous free cash flow.

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<v Speaker 6>And yes, his Warren Buffets not buying the stock, Apples

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<v Speaker 6>certainly buying the stock.

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<v Speaker 5>And we'll see about.

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<v Speaker 6>Those institutional investors, Tom to see if they want to

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<v Speaker 6>ramp their portfolio to at least equal weight.

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<v Speaker 1>Are they deminimus? I mean, are they going to come

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<v Speaker 1>back and buy back so much shares? Is Tom? Is

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<v Speaker 1>Tim Cook going to privatize AAPL?

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<v Speaker 6>Maybe not privatize, but it does remind me of another

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<v Speaker 6>Warren Buffet investment being there where there was an extended

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<v Speaker 6>period of time where Dairy Queen had no new unit

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<v Speaker 6>growth but essentially bought back having to stop. So I

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<v Speaker 6>do think there's a potential that, given the free cash

0:12:11.240 --> 0:12:13.160
<v Speaker 6>flow Apple generates and that it is a cash right,

0:12:13.240 --> 0:12:17.360
<v Speaker 6>sure they're going to retire a lot more shares privatize.

0:12:17.400 --> 0:12:20.360
<v Speaker 1>I don't think so, and their folks. In the history

0:12:20.400 --> 0:12:23.560
<v Speaker 1>of Bloomberg Surveillance is the first time we've taken the

0:12:23.600 --> 0:12:27.080
<v Speaker 1>mother of all blue chip stocks and compared it to

0:12:27.200 --> 0:12:31.520
<v Speaker 1>Dairy Queen. Tom forty, thank you so much. With da Davidson, hugely,

0:12:31.600 --> 0:12:44.760
<v Speaker 1>hugely valuable. He's one of the greatest thinkers on Wall Street.

0:12:44.800 --> 0:12:48.400
<v Speaker 1>I mean this seriously. He's chief economist ubs Global Wealth Management,

0:12:48.840 --> 0:12:52.040
<v Speaker 1>far More, a student of the Pacific experiment of China

0:12:52.440 --> 0:12:56.040
<v Speaker 1>and America. Farmer as student of Brexit. Farmer's student of

0:12:56.080 --> 0:12:59.439
<v Speaker 1>continental Europe as well. We welcome Paul Donovan. It's been

0:12:59.480 --> 0:13:03.320
<v Speaker 1>way way to a love Paul. I love, love, love

0:13:03.400 --> 0:13:08.560
<v Speaker 1>your comments on CenTra. Everybody's out there pounding the inflation bendwagon.

0:13:08.960 --> 0:13:13.280
<v Speaker 1>You're with Ed Hyman, You're with David Rosenberg. Disinflation is

0:13:13.320 --> 0:13:18.440
<v Speaker 1>in place. Discuss well, we're seeing this inflation.

0:13:18.720 --> 0:13:23.040
<v Speaker 8>The three waves of inflation that we've had, the demand

0:13:23.200 --> 0:13:25.840
<v Speaker 8>shock after the pandemic, the supply shock of the war,

0:13:26.160 --> 0:13:29.439
<v Speaker 8>and then the profit led inflation. Wave one and Wave

0:13:29.520 --> 0:13:33.880
<v Speaker 8>two have gone. We've had six months of outright deflation

0:13:34.480 --> 0:13:38.760
<v Speaker 8>in endurable goods prices in the United States. Transitory inflation

0:13:39.080 --> 0:13:43.520
<v Speaker 8>was transitory energy prices fading completely from the picture. And

0:13:43.559 --> 0:13:45.839
<v Speaker 8>now what we're starting to see is this squeeze on

0:13:46.000 --> 0:13:50.640
<v Speaker 8>margins coming through. Now every country's got weird technical stuff

0:13:50.720 --> 0:13:53.320
<v Speaker 8>going on with its inflation numbers, which creates a little

0:13:53.320 --> 0:13:55.440
<v Speaker 8>bit of noise, a little bit of distortion. But just

0:13:55.559 --> 0:13:58.600
<v Speaker 8>draw up any inflation chart around the world and you

0:13:58.640 --> 0:14:01.440
<v Speaker 8>are seeing the numbers come out down. That's I think

0:14:01.920 --> 0:14:05.320
<v Speaker 8>the disinflation narrative is going to start to become a

0:14:05.320 --> 0:14:06.440
<v Speaker 8>bit more established.

0:14:06.920 --> 0:14:10.520
<v Speaker 4>I want to talk about profit lead inflation and how

0:14:10.559 --> 0:14:13.319
<v Speaker 4>that differs or is the same as what we're seeing

0:14:13.360 --> 0:14:16.240
<v Speaker 4>when it comes to margins. What's going to be the

0:14:16.280 --> 0:14:20.000
<v Speaker 4>biggest impulse in that disinflation that you're talking about. Is

0:14:20.000 --> 0:14:24.360
<v Speaker 4>it the margins decreasing or how does that actually translate through?

0:14:25.960 --> 0:14:30.160
<v Speaker 8>So profit led inflation, it's a bit of a weird terms.

0:14:30.200 --> 0:14:32.800
<v Speaker 8>It's really a relative price shift. To be very clear,

0:14:32.880 --> 0:14:37.400
<v Speaker 8>profit led inflation does not take place across the entire economy.

0:14:37.600 --> 0:14:40.040
<v Speaker 8>It takes place at the end of the supply chain.

0:14:40.240 --> 0:14:44.160
<v Speaker 8>It's with retailers with very strong corporate brands, so food brands,

0:14:44.200 --> 0:14:47.320
<v Speaker 8>clothing brands, people who are very very close to the consumer.

0:14:47.520 --> 0:14:53.080
<v Speaker 8>And what happens is you have stabilist demand and companies

0:14:53.120 --> 0:14:57.440
<v Speaker 8>find a good excuse to pass on a margin increase.

0:14:57.800 --> 0:15:00.640
<v Speaker 8>So if we look in the United States tail profit

0:15:00.680 --> 0:15:04.960
<v Speaker 8>margins as a share of retail GDP pre pandemic, those

0:15:05.000 --> 0:15:08.200
<v Speaker 8>are averaging about fourteen percent one four percent of GDP

0:15:08.600 --> 0:15:12.680
<v Speaker 8>now twenty one percent. So you've seen that margin expansion

0:15:12.720 --> 0:15:16.080
<v Speaker 8>coming through margin small companies. It's not just big business.

0:15:16.320 --> 0:15:19.160
<v Speaker 8>Small business does this as well. But what's now happening

0:15:19.200 --> 0:15:21.840
<v Speaker 8>is customers are saying, you know what, I don't believe

0:15:21.880 --> 0:15:25.280
<v Speaker 8>that story. I don't think that profit increase is necessarily

0:15:25.800 --> 0:15:28.800
<v Speaker 8>something I should be paying. I don't believe why prices

0:15:28.840 --> 0:15:32.280
<v Speaker 8>are going up. You're seeing more discernment amongst consumers. You're

0:15:32.280 --> 0:15:35.520
<v Speaker 8>seeing politicians start to get involved, and with that, with

0:15:35.600 --> 0:15:40.120
<v Speaker 8>the threat of brand damage, companies are starting to perhaps

0:15:40.360 --> 0:15:43.080
<v Speaker 8>be a bit more cautious on their margin expansion, and

0:15:43.280 --> 0:15:46.760
<v Speaker 8>with that that final stage of inflation is starting to

0:15:46.840 --> 0:15:49.640
<v Speaker 8>turn into this inflation refource.

0:15:49.480 --> 0:15:51.360
<v Speaker 1>Zima, what is your I mean, you're doing more of

0:15:51.360 --> 0:15:53.760
<v Speaker 1>a broader economic chit chat. I get there. But let's

0:15:53.760 --> 0:15:57.160
<v Speaker 1>play asset allocation. Now, what are you and UBS Global

0:15:57.160 --> 0:16:01.000
<v Speaker 1>Wealth Management say, after the bang upon market we've seen,

0:16:01.400 --> 0:16:05.320
<v Speaker 1>how do you recalibrate on an allocation basis in equities

0:16:05.800 --> 0:16:07.320
<v Speaker 1>into the second half of this year.

0:16:08.920 --> 0:16:11.880
<v Speaker 8>Well so, for the time being, equities for Arthur a

0:16:12.160 --> 0:16:16.960
<v Speaker 8>moderate underweight, because there is still this optimism about earnings

0:16:17.000 --> 0:16:19.120
<v Speaker 8>which perhaps needs to be looked at a little bit

0:16:19.160 --> 0:16:22.920
<v Speaker 8>around the world. There are some challenges. Remember, of course,

0:16:23.000 --> 0:16:26.080
<v Speaker 8>the equity market is more skewed towards the good sector

0:16:26.160 --> 0:16:29.280
<v Speaker 8>than the service sector. The economy is very very service

0:16:29.280 --> 0:16:33.000
<v Speaker 8>sector space focused. The equity market's a little bit more

0:16:33.080 --> 0:16:36.800
<v Speaker 8>good spacing, and there we're seeing more of the moderation

0:16:36.880 --> 0:16:39.800
<v Speaker 8>of demands, more of the disinflation pressure coming through. So

0:16:40.600 --> 0:16:43.480
<v Speaker 8>the macroeconomics are not creating a sort of a vibrant

0:16:43.480 --> 0:16:46.920
<v Speaker 8>equity market. I'm not saying it's a disaster. I'm just

0:16:47.000 --> 0:16:49.720
<v Speaker 8>saying it's something where I think equities are more likely

0:16:49.800 --> 0:16:54.120
<v Speaker 8>to underperform. And as central banks are confronted by an

0:16:54.160 --> 0:16:58.840
<v Speaker 8>inflation rate that continues to come down, then the expectations

0:16:58.840 --> 0:17:01.280
<v Speaker 8>about rates are going to assist as well. They can't

0:17:01.360 --> 0:17:04.480
<v Speaker 8>keep hiking inexorably. Even Powell has got to learn to

0:17:04.480 --> 0:17:07.600
<v Speaker 8>stop tiking policy at some point, and with that the

0:17:07.640 --> 0:17:09.320
<v Speaker 8>bond market gets a little bit more support.

0:17:09.920 --> 0:17:13.080
<v Speaker 1>Can we withstand higher yields? I mean, I get the

0:17:13.119 --> 0:17:16.679
<v Speaker 1>idea of your case and others very respectful ed heyman,

0:17:18.080 --> 0:17:22.040
<v Speaker 1>evercore Isi. I mean the basic idea here, Paul is

0:17:22.080 --> 0:17:25.480
<v Speaker 1>if we delay a disinflation, if we get some form

0:17:25.520 --> 0:17:28.280
<v Speaker 1>of higher rate regime, there's a belief out there we

0:17:28.320 --> 0:17:30.200
<v Speaker 1>all fall apart, says who.

0:17:32.040 --> 0:17:34.520
<v Speaker 8>Well, I'm a little bit skeptical about the idea that

0:17:34.560 --> 0:17:36.600
<v Speaker 8>we all fall apart. I have to say, I think

0:17:36.800 --> 0:17:42.120
<v Speaker 8>economies generally have become less interest rate sensitive, over time

0:17:42.680 --> 0:17:45.959
<v Speaker 8>monetary policy and to a lesser extent quantitative policy. They

0:17:46.040 --> 0:17:50.480
<v Speaker 8>become blunter tools in the range of options that a

0:17:50.520 --> 0:17:53.280
<v Speaker 8>central bank has got. So absolutely I think that there

0:17:54.080 --> 0:17:56.399
<v Speaker 8>is less likely to be a complete collapse. And what

0:17:56.400 --> 0:17:59.159
<v Speaker 8>we're going to remember is that when we look at economies,

0:17:59.200 --> 0:18:03.359
<v Speaker 8>it's the middle income consumer that's really the engine of

0:18:03.440 --> 0:18:08.480
<v Speaker 8>any advanced economy, and middle income consumers are actually doing okay,

0:18:08.520 --> 0:18:11.440
<v Speaker 8>they're more resilient. Now I'm not saying they're not slowing down.

0:18:11.600 --> 0:18:15.360
<v Speaker 8>They are slowing down, but with low unemployment, with rising

0:18:15.400 --> 0:18:18.919
<v Speaker 8>female participation in the workforce, very important point that, with

0:18:19.000 --> 0:18:22.760
<v Speaker 8>the fact that middle income consumers have a lower inflation

0:18:22.960 --> 0:18:26.760
<v Speaker 8>rate than headline consumer price inflation suggests on both sides

0:18:26.760 --> 0:18:29.840
<v Speaker 8>of the Atlantic, all of that combined is giving the

0:18:29.840 --> 0:18:32.600
<v Speaker 8>middle income consumer that little bit more firepower when it

0:18:32.640 --> 0:18:35.679
<v Speaker 8>comes to spending. Not enough to reverse a slowdown at

0:18:35.720 --> 0:18:38.760
<v Speaker 8>this stage, but enough to make sure that the slowdown

0:18:38.960 --> 0:18:41.560
<v Speaker 8>is not, in my view, going to be too severe.

0:18:41.880 --> 0:18:45.520
<v Speaker 4>Well, Paul, maybe the economy has become less interest rate sensitive,

0:18:45.840 --> 0:18:48.320
<v Speaker 4>as you say, And if that's the case, does that

0:18:48.359 --> 0:18:51.399
<v Speaker 4>mean the FED ultimately has to go higher on the

0:18:51.480 --> 0:18:54.880
<v Speaker 4>terminal than cycles previous? I mean, if the upper bound

0:18:54.960 --> 0:18:57.720
<v Speaker 4>right now is at five and a quarter percent, do

0:18:57.760 --> 0:19:00.640
<v Speaker 4>we need to go above six to really pull down

0:19:00.680 --> 0:19:03.800
<v Speaker 4>the final areas of the economy that are still pretty

0:19:03.840 --> 0:19:04.679
<v Speaker 4>hot at this point.

0:19:05.320 --> 0:19:08.399
<v Speaker 8>I think that's a very very difficult question because I

0:19:08.440 --> 0:19:10.439
<v Speaker 8>think you need to sort of pause and reflect on

0:19:10.520 --> 0:19:13.200
<v Speaker 8>what is changing and what isn't changing in the economy.

0:19:13.400 --> 0:19:16.119
<v Speaker 8>I mean, this is why the sort of relentless chance

0:19:16.119 --> 0:19:18.879
<v Speaker 8>of hike hike hikes that comes out of the fanatics

0:19:18.880 --> 0:19:21.280
<v Speaker 8>that the said is really quite troubling. You know, stop

0:19:21.320 --> 0:19:24.199
<v Speaker 8>and think for a moment, guys, because I think what

0:19:24.240 --> 0:19:27.080
<v Speaker 8>you've got to assess is, Okay, well, look the transport sector,

0:19:27.160 --> 0:19:30.520
<v Speaker 8>LEO travel and so on. That's not necessarily changing. There

0:19:30.560 --> 0:19:35.960
<v Speaker 8>is this fanatical desire to go on vacation all the time. Well, actually,

0:19:36.040 --> 0:19:39.200
<v Speaker 8>then perhaps you've got a totally different world emerging post

0:19:39.200 --> 0:19:41.960
<v Speaker 8>pandemic in that sector. But then look at the deflation

0:19:42.040 --> 0:19:44.639
<v Speaker 8>that's coming through endurable goods, So we've got something different

0:19:44.640 --> 0:19:46.440
<v Speaker 8>going on there. So I think you've got to balance

0:19:46.480 --> 0:19:49.560
<v Speaker 8>this out and consider what relative prices are doing as

0:19:49.600 --> 0:19:51.919
<v Speaker 8>well as the aggregate. How much of this is the

0:19:51.920 --> 0:19:54.600
<v Speaker 8>fiction of owner's equivalent rent, which we know is going

0:19:54.640 --> 0:19:57.719
<v Speaker 8>to be coming down in the future. Again an important factor.

0:19:58.200 --> 0:20:01.240
<v Speaker 8>I think that the central banks also need to broaden

0:20:01.320 --> 0:20:04.399
<v Speaker 8>their thought. I mean, they've got conversative policy as an

0:20:04.400 --> 0:20:08.120
<v Speaker 8>additional weapon. They've also got regulatory policy, and of course

0:20:08.160 --> 0:20:10.400
<v Speaker 8>that's going to become a topic in the United States

0:20:10.520 --> 0:20:13.520
<v Speaker 8>if you start to Tyson bank regulation in the wake

0:20:13.560 --> 0:20:16.920
<v Speaker 8>of the implosion of Silicon Valley Bank, that is going

0:20:16.960 --> 0:20:19.080
<v Speaker 8>to be something which is going to have a cooling

0:20:19.119 --> 0:20:20.600
<v Speaker 8>aspect on the economy as well.

0:20:20.720 --> 0:20:24.080
<v Speaker 1>Paul Donovan, thank you so much. With UBS Global Wealth Management.

0:20:29.000 --> 0:20:31.040
<v Speaker 1>Part of the collective memory that John and I have

0:20:31.160 --> 0:20:34.919
<v Speaker 1>about bulls and bears is people that are out switch

0:20:35.000 --> 0:20:37.439
<v Speaker 1>their mind and get it right. One of those is

0:20:37.520 --> 0:20:41.840
<v Speaker 1>Max Kuttner, chie's anti asset strategist at HFCC. We joined

0:20:41.880 --> 0:20:45.520
<v Speaker 1>him in London ages ago and he said, you know what, up,

0:20:45.800 --> 0:20:48.120
<v Speaker 1>we get a brief today from the gentleman who got

0:20:48.119 --> 0:20:50.800
<v Speaker 1>this really right. Max, give us a redo here. How

0:20:50.840 --> 0:20:55.760
<v Speaker 1>have you recalibrated for Q three of twenty twenty three. Yeah,

0:20:55.800 --> 0:20:56.480
<v Speaker 1>good morning, Tom.

0:20:56.760 --> 0:20:59.440
<v Speaker 9>Not an awful lot really, because from a fundamental perspective,

0:20:59.480 --> 0:21:02.400
<v Speaker 9>I don't think an awful lot really has changed yet.

0:21:02.840 --> 0:21:05.600
<v Speaker 9>When we look actually at the US economy, I think,

0:21:05.640 --> 0:21:10.080
<v Speaker 9>particularly against initial expectations, the US economy is just doing fine.

0:21:10.359 --> 0:21:13.840
<v Speaker 9>The consumers doing fine, the services sector is fine. Look

0:21:13.880 --> 0:21:16.560
<v Speaker 9>at all the concerns we had around the housing sector,

0:21:16.720 --> 0:21:20.320
<v Speaker 9>around commercial real estate. The reality is I think you

0:21:20.440 --> 0:21:23.800
<v Speaker 9>guys at Bloomberg are running one of those surprise and

0:21:23.880 --> 0:21:28.119
<v Speaker 9>disease about the US housing and in real estate activity,

0:21:28.160 --> 0:21:31.199
<v Speaker 9>and that's on a twenty year high, right, So the

0:21:31.320 --> 0:21:34.479
<v Speaker 9>US economy is really doing fine. So quite frankly, I

0:21:34.560 --> 0:21:38.359
<v Speaker 9>don't think those recession calls that we're still having for

0:21:38.560 --> 0:21:41.359
<v Speaker 9>Q three and Q four and in particular for you,

0:21:41.600 --> 0:21:45.840
<v Speaker 9>for the US economy, that these recession calls are really

0:21:45.920 --> 0:21:48.800
<v Speaker 9>really going to come to fruition. I really do think

0:21:48.800 --> 0:21:52.560
<v Speaker 9>that those recession calls will continue to be misplaced, and

0:21:52.640 --> 0:21:56.359
<v Speaker 9>if anything, the risk is that things are continuing to

0:21:56.480 --> 0:21:59.600
<v Speaker 9>be much much better than expected and that we will

0:21:59.640 --> 0:22:03.119
<v Speaker 9>have another sort of short end rate repricing.

0:22:02.720 --> 0:22:06.359
<v Speaker 1>Mex Curtner fold in here the linkage of economics to

0:22:06.400 --> 0:22:09.040
<v Speaker 1>the markets, which I'm going to take through nominal GDP.

0:22:09.880 --> 0:22:12.760
<v Speaker 1>If we have a persistent inflation or dare I say,

0:22:12.800 --> 0:22:16.600
<v Speaker 1>even a breakout higher in rates on a broad global basis,

0:22:17.119 --> 0:22:19.639
<v Speaker 1>and if we get some form of real GDP like

0:22:19.680 --> 0:22:24.080
<v Speaker 1>the surprise of America, does that provide persistency to corporate

0:22:24.119 --> 0:22:27.720
<v Speaker 1>revenues forward? Yeah? I think it does.

0:22:27.760 --> 0:22:30.480
<v Speaker 9>When we look at earnings, actually at earnings growth over

0:22:30.520 --> 0:22:34.120
<v Speaker 9>the last thirty forty years, you overlay that with things

0:22:34.160 --> 0:22:37.760
<v Speaker 9>like headline inflation, you know, that usually does provide some

0:22:38.000 --> 0:22:41.080
<v Speaker 9>tailwent because as you said, right, this is the discussion

0:22:41.160 --> 0:22:43.680
<v Speaker 9>that we should be focused on much much more rather

0:22:43.720 --> 0:22:46.560
<v Speaker 9>than looking at you know, credit crunches and commercial real

0:22:46.640 --> 0:22:50.000
<v Speaker 9>estate and death seiling and you know, in effect really

0:22:50.080 --> 0:22:52.600
<v Speaker 9>some sort of when's the recession finally going to hit?

0:22:52.720 --> 0:22:55.560
<v Speaker 9>Instead of that, we should be talking much more about, well,

0:22:55.560 --> 0:22:58.600
<v Speaker 9>do we really care right now about real GDP growth?

0:22:58.920 --> 0:23:00.840
<v Speaker 9>Or as an investor, like you were saying, right, the

0:23:00.920 --> 0:23:05.199
<v Speaker 9>connection to markets is real versus nominal and in effect,

0:23:05.200 --> 0:23:08.440
<v Speaker 9>really we should be caring much much more about nominal

0:23:08.440 --> 0:23:12.480
<v Speaker 9>growth nominal earnings and they're growing just fine. And think

0:23:12.520 --> 0:23:15.840
<v Speaker 9>about Q two, the Q two reporting season that's going

0:23:15.880 --> 0:23:19.399
<v Speaker 9>to start in a couple of weeks. Consensus expectations again

0:23:19.600 --> 0:23:23.000
<v Speaker 9>are only for flat growth Q two over Q on

0:23:23.160 --> 0:23:27.080
<v Speaker 9>they are you know, they've been massively downgraded for cyclical sectors,

0:23:27.160 --> 0:23:31.600
<v Speaker 9>the sectors like consumer, discretionary, energy, and materials. Even tech, right,

0:23:31.640 --> 0:23:34.840
<v Speaker 9>even the tech earnings expectations have been downgraded by more

0:23:34.880 --> 0:23:37.560
<v Speaker 9>than ten percent in the last five months. So I

0:23:37.640 --> 0:23:41.720
<v Speaker 9>do struggle to see a big, big decline or a

0:23:41.720 --> 0:23:45.359
<v Speaker 9>big big downside surprise in earnings, particularly now in the

0:23:45.520 --> 0:23:47.320
<v Speaker 9>in the Q two reporting season.

0:23:47.400 --> 0:23:49.440
<v Speaker 4>We let's talk about the next half of the year

0:23:49.480 --> 0:23:51.560
<v Speaker 4>that we're sailing into. I want to talk a little

0:23:51.600 --> 0:23:55.880
<v Speaker 4>bit about the expectations for the relative asset classes. Of course,

0:23:55.880 --> 0:23:58.000
<v Speaker 4>there was a lot of doom and gloom about the

0:23:58.040 --> 0:24:00.560
<v Speaker 4>corporate earnings picture, and this was really supposed to be

0:24:00.640 --> 0:24:03.000
<v Speaker 4>the year of the bond, the year of fixed income.

0:24:03.000 --> 0:24:06.280
<v Speaker 4>It looks like it just turned into another year for equity,

0:24:06.400 --> 0:24:10.879
<v Speaker 4>specifically another year for big tech. Is that the dynamic

0:24:10.920 --> 0:24:12.679
<v Speaker 4>heading into the second half is that how we're going

0:24:12.760 --> 0:24:13.920
<v Speaker 4>to end twenty twenty three.

0:24:15.720 --> 0:24:17.199
<v Speaker 9>I think, well, I'm going to give you the classic

0:24:17.200 --> 0:24:20.280
<v Speaker 9>strategist answer yes and no, and it depends I think

0:24:20.320 --> 0:24:22.320
<v Speaker 9>what it's going to be is I think at the

0:24:22.359 --> 0:24:25.080
<v Speaker 9>beginning of Q three, I think, Katie, you're correct, it's

0:24:25.119 --> 0:24:27.520
<v Speaker 9>going to be more of the same, right, more sort

0:24:27.520 --> 0:24:30.720
<v Speaker 9>of growthy, you know, the kind of goldilocks environment where

0:24:30.720 --> 0:24:34.000
<v Speaker 9>we're in right now, because growth is fine, inflation, headline

0:24:34.000 --> 0:24:37.359
<v Speaker 9>inflation is still going down, so that's sort of really

0:24:37.400 --> 0:24:40.960
<v Speaker 9>really goldilocks y. The problem I think will come in

0:24:41.080 --> 0:24:45.520
<v Speaker 9>late summer towards Q four when we realize, look, inflation

0:24:45.600 --> 0:24:48.879
<v Speaker 9>could and particularly headline inflation in the US could start

0:24:48.920 --> 0:24:51.760
<v Speaker 9>to pick up again because some of those energy based

0:24:51.760 --> 0:24:55.199
<v Speaker 9>effects will fade, right, they will converge to zero. So

0:24:55.200 --> 0:24:57.120
<v Speaker 9>we're going to have a bit of a mechanical posh

0:24:57.200 --> 0:25:00.600
<v Speaker 9>higher for headline inflation again. And that and of course

0:25:00.880 --> 0:25:03.960
<v Speaker 9>the economy doing much much better, and that in my mind,

0:25:04.040 --> 0:25:07.680
<v Speaker 9>really will then favor value of a growth So that

0:25:07.760 --> 0:25:10.680
<v Speaker 9>will then really make a switch from those big tech

0:25:10.800 --> 0:25:15.280
<v Speaker 9>names into the more value and short duration names towards

0:25:15.320 --> 0:25:17.359
<v Speaker 9>the end of the summer and into the poll.

0:25:17.760 --> 0:25:20.800
<v Speaker 4>How do valuations factor into that call for this rally

0:25:21.000 --> 0:25:24.120
<v Speaker 4>to broaden out outside of just you know, megacap tech,

0:25:24.160 --> 0:25:25.919
<v Speaker 4>which has absolutely been dominating.

0:25:27.400 --> 0:25:31.200
<v Speaker 9>The short answer is not at all, nothing, Right, Valuations

0:25:31.240 --> 0:25:34.080
<v Speaker 9>don't matter, right, They really really don't matter to me

0:25:34.280 --> 0:25:35.639
<v Speaker 9>at all. In the short term.

0:25:35.760 --> 0:25:36.800
<v Speaker 3>If we're talking about.

0:25:36.600 --> 0:25:38.600
<v Speaker 9>The next seven to ten years, they are the thing

0:25:38.640 --> 0:25:40.680
<v Speaker 9>that should matter the most. If we're talking about the

0:25:40.720 --> 0:25:43.439
<v Speaker 9>next three to six months, they are quite frankly a

0:25:43.560 --> 0:25:45.960
<v Speaker 9>random number. If you look at you know, the explanatory

0:25:45.960 --> 0:25:50.480
<v Speaker 9>power of both outright and absolute valuations of equities and

0:25:50.520 --> 0:25:54.199
<v Speaker 9>also relative valuations things like equity risk premium, and the

0:25:54.240 --> 0:25:56.960
<v Speaker 9>explanatory power with sort of six to twelve month performance,

0:25:57.280 --> 0:26:00.399
<v Speaker 9>it is somewhat between two to three percent, So they

0:26:00.440 --> 0:26:03.520
<v Speaker 9>don't really matter, right. So to me, the valuation side

0:26:03.520 --> 0:26:04.920
<v Speaker 9>of things, they don't really matter.

0:26:04.960 --> 0:26:05.359
<v Speaker 3>It's more the.

0:26:05.440 --> 0:26:10.280
<v Speaker 9>Inflation and the rates trajectory, right, and particularly inflation, the

0:26:10.359 --> 0:26:14.040
<v Speaker 9>sticky inflation part that matters for the next six months.

0:26:14.040 --> 0:26:17.359
<v Speaker 1>The left tail outlier right now, and we covered this

0:26:17.480 --> 0:26:20.640
<v Speaker 1>yesterday Max Kutner with an important essay by William Dudley,

0:26:20.640 --> 0:26:23.600
<v Speaker 1>the former president of the New York fedoh modeled out

0:26:23.640 --> 0:26:27.040
<v Speaker 1>of four and a half percent US tenure. But the

0:26:27.119 --> 0:26:31.200
<v Speaker 1>thing that no one's predicting is a higher interest rate

0:26:31.280 --> 0:26:35.000
<v Speaker 1>regime that goes against Steve Major, that goes against David

0:26:35.000 --> 0:26:38.800
<v Speaker 1>Blom and a lot of the HSBC research heritage. Are

0:26:38.840 --> 0:26:42.840
<v Speaker 1>you guys prepared for the possibility of higher interest rates?

0:26:44.560 --> 0:26:46.280
<v Speaker 9>Not quite yet, because I think we're still in this

0:26:46.359 --> 0:26:49.119
<v Speaker 9>goldilocks environment right where you know, yields are sort of

0:26:49.160 --> 0:26:52.960
<v Speaker 9>peeped from last year. I think it is really a

0:26:53.040 --> 0:26:55.160
<v Speaker 9>risk for the second half. It's not a base case.

0:26:55.160 --> 0:26:57.280
<v Speaker 9>It is a risk, though not on the long end,

0:26:57.400 --> 0:27:00.720
<v Speaker 9>more on the front end, because let's remember that, you know,

0:27:00.800 --> 0:27:03.919
<v Speaker 9>futures are still pricing around one hundred and fifty basis

0:27:03.920 --> 0:27:06.520
<v Speaker 9>points of rate cuts between the end of this year

0:27:06.640 --> 0:27:09.119
<v Speaker 9>and the end of next year, so it is really

0:27:09.160 --> 0:27:12.480
<v Speaker 9>one of those risks. I think that if the majority

0:27:12.520 --> 0:27:14.400
<v Speaker 9>of those rate cuts will be sort of pushed into

0:27:14.440 --> 0:27:17.320
<v Speaker 9>twenty twenty five, not saying that there won't be any

0:27:17.400 --> 0:27:19.800
<v Speaker 9>rate cuts at all next year, but if the market

0:27:19.840 --> 0:27:24.000
<v Speaker 9>temporarily shifts its expectations, you know, from twenty twenty four

0:27:24.160 --> 0:27:28.680
<v Speaker 9>into twenty twenty five, that has massive, massive implications from

0:27:28.720 --> 0:27:31.600
<v Speaker 9>an asset of location perspective, because what we just talked

0:27:31.600 --> 0:27:34.560
<v Speaker 9>about in that environment, if that risk does, if that

0:27:34.680 --> 0:27:38.520
<v Speaker 9>tail risk, that left hand side risk really does pan out,

0:27:38.880 --> 0:27:42.359
<v Speaker 9>you really absolutely don't want to be in growth names.

0:27:42.440 --> 0:27:45.200
<v Speaker 9>You want to be shifting into the value names, perhaps

0:27:45.280 --> 0:27:49.080
<v Speaker 9>even into the cyclical value names, rather than re having

0:27:49.160 --> 0:27:51.520
<v Speaker 9>the long duration and tech assets.

0:27:51.880 --> 0:27:54.320
<v Speaker 1>Max Cutner, thank you so much for the June thirty brief.

0:27:54.440 --> 0:28:08.960
<v Speaker 1>Mister Cuttner is with HSBC. But what's far more important

0:28:09.160 --> 0:28:14.000
<v Speaker 1>is there some serious ramifications to this airline mess up.

0:28:14.200 --> 0:28:18.280
<v Speaker 1>We address this now. The Points Guy, let's just be blunt.

0:28:18.320 --> 0:28:21.720
<v Speaker 1>He changed the way all of his travel absolutely revolutionary,

0:28:22.240 --> 0:28:25.480
<v Speaker 1>so much so that Clint Anderson was an iconic guy

0:28:26.040 --> 0:28:28.600
<v Speaker 1>and all sorts of TV metrics doing the charade that

0:28:28.640 --> 0:28:31.600
<v Speaker 1>we do every day. Clint Anderson said, no, I want

0:28:31.600 --> 0:28:33.720
<v Speaker 1>to get frequent fires on Alaska Era. I'm going to

0:28:33.800 --> 0:28:36.560
<v Speaker 1>join with Brian. How did you get to the Points Guy?

0:28:36.640 --> 0:28:38.680
<v Speaker 1>How did they drag someone as the famous as you

0:28:38.840 --> 0:28:42.960
<v Speaker 1>and MSNBC over to a real job with the Points Guy.

0:28:43.040 --> 0:28:44.920
<v Speaker 10>Well, you know, the Points Guy is obsessed with points

0:28:44.920 --> 0:28:48.160
<v Speaker 10>and miles. That's always been ours sort of DNA, but

0:28:48.400 --> 0:28:51.400
<v Speaker 10>over the years we've expanded into a full media brand,

0:28:51.440 --> 0:28:53.080
<v Speaker 10>and so they wanted somebody who had a little bit

0:28:53.120 --> 0:28:54.880
<v Speaker 10>of media experience to come in. So that's sort of

0:28:54.920 --> 0:28:56.720
<v Speaker 10>where I came in. And it was right before COVID,

0:28:57.120 --> 0:28:58.960
<v Speaker 10>and so it was the perfect timing because I was

0:28:59.000 --> 0:29:00.440
<v Speaker 10>able to help drive this news.

0:29:00.960 --> 0:29:03.960
<v Speaker 1>Was this expected? I'm going to suggest that the thebaccle

0:29:04.040 --> 0:29:07.680
<v Speaker 1>of fourth of July weekend in America is new and original.

0:29:07.720 --> 0:29:08.560
<v Speaker 1>Do I have that right?

0:29:08.760 --> 0:29:12.920
<v Speaker 10>So Unfortunately, since COVID, we've seen this holiday after holiday.

0:29:12.920 --> 0:29:15.520
<v Speaker 10>We got through Memorial Day, but remember Christmas time was

0:29:15.560 --> 0:29:18.720
<v Speaker 10>a mess. We had a real mess last summer. At

0:29:18.720 --> 0:29:21.800
<v Speaker 10>the time, we were blaming airline staffing, so there wasn't

0:29:21.880 --> 0:29:24.840
<v Speaker 10>enough pilots and flight attendants. Now it seems like they've

0:29:24.840 --> 0:29:26.520
<v Speaker 10>been able to higher up. But now it's the air

0:29:26.520 --> 0:29:29.920
<v Speaker 10>traffic controller issue that's really helping to drive this. You know,

0:29:30.000 --> 0:29:33.200
<v Speaker 10>thunderstorms are a normal part of summer. We should be

0:29:33.240 --> 0:29:36.640
<v Speaker 10>planning for that. Unfortunately, the airlines are scheduled really tight

0:29:36.720 --> 0:29:39.760
<v Speaker 10>right now, as if there's no such thing as thunderstorm.

0:29:39.840 --> 0:29:43.040
<v Speaker 10>So there's blame to go around. But the air traffic

0:29:43.080 --> 0:29:45.400
<v Speaker 10>controller shortage is a real issue.

0:29:45.000 --> 0:29:47.760
<v Speaker 4>A real issue. And talk about the demand picture too.

0:29:47.840 --> 0:29:50.680
<v Speaker 4>Obviously a lot of people want to fly right now,

0:29:50.680 --> 0:29:53.400
<v Speaker 4>which is maybe why that shortage with the air traffic

0:29:53.400 --> 0:29:54.960
<v Speaker 4>controllers is really being felt.

0:29:55.160 --> 0:29:57.280
<v Speaker 10>Yeah, you know what's really interesting. Business travel has not

0:29:57.440 --> 0:29:59.840
<v Speaker 10>fully recovered yet, But it's been more than made up

0:29:59.840 --> 0:30:03.760
<v Speaker 10>for by leisure travel. So the demand is insane. And

0:30:03.800 --> 0:30:06.520
<v Speaker 10>remember during COVID, the airline's cut back on the number

0:30:06.720 --> 0:30:08.920
<v Speaker 10>of flights, in the number of seats that are for sale,

0:30:09.320 --> 0:30:11.880
<v Speaker 10>and people decided during COVID, I'm going to travel. I

0:30:11.880 --> 0:30:14.120
<v Speaker 10>don't care what happens. And that's what we're seeing. We're

0:30:14.120 --> 0:30:16.760
<v Speaker 10>seeing that pent up demand and people who decided that's

0:30:16.760 --> 0:30:18.720
<v Speaker 10>going to be a way of life for themselves.

0:30:18.520 --> 0:30:19.120
<v Speaker 7>Well your life.

0:30:19.400 --> 0:30:22.960
<v Speaker 4>It's interesting though that business travel hasn't really caught up,

0:30:23.000 --> 0:30:25.160
<v Speaker 4>and I do want to talk about the summer travel season,

0:30:25.200 --> 0:30:28.160
<v Speaker 4>but with business travel, I mean, is that coming back

0:30:28.240 --> 0:30:30.920
<v Speaker 4>or when can we officially declare we're not going back

0:30:30.960 --> 0:30:32.000
<v Speaker 4>to twenty nineteen.

0:30:32.120 --> 0:30:34.360
<v Speaker 10>So it really depends on who you ask. We're sort

0:30:34.400 --> 0:30:37.520
<v Speaker 10>of eighty percent level of business travel. I don't think

0:30:37.560 --> 0:30:41.080
<v Speaker 10>it returns fully ever. I think people have learned how

0:30:41.080 --> 0:30:45.320
<v Speaker 10>to do zoom meetings. Companies have realized it's really expensive

0:30:45.360 --> 0:30:47.920
<v Speaker 10>to send employees around and they don't necessarily need to

0:30:48.000 --> 0:30:48.640
<v Speaker 10>in all cases.

0:30:48.680 --> 0:30:50.880
<v Speaker 1>So I think that's what you're seeing on a planning basis.

0:30:51.000 --> 0:30:53.640
<v Speaker 1>And the points guy is a concept. I mean, you

0:30:53.680 --> 0:30:56.840
<v Speaker 1>guys reinvented how we travel the whole keep track at

0:30:56.840 --> 0:30:59.360
<v Speaker 1>your miles racket and the charge cards and all that.

0:31:00.040 --> 0:31:02.160
<v Speaker 1>But what if I'm fascinating here. It's the same old,

0:31:02.200 --> 0:31:05.360
<v Speaker 1>same mold. We have limited airports, limited gates. We have

0:31:05.400 --> 0:31:08.880
<v Speaker 1>a major argument between gates at JFK and Newark. Just

0:31:09.480 --> 0:31:13.120
<v Speaker 1>is one discussion point. I'll even pull a LaGuardia on it.

0:31:13.720 --> 0:31:16.080
<v Speaker 1>And then we got air traffic controllers. Now I look

0:31:16.080 --> 0:31:18.360
<v Speaker 1>out on the web and they're making one hundred and

0:31:18.360 --> 0:31:21.000
<v Speaker 1>thirty one hundred and fifty thousand dollars a year. So

0:31:21.080 --> 0:31:23.360
<v Speaker 1>I'm up in the air and there's a guy with

0:31:23.480 --> 0:31:26.720
<v Speaker 1>seven lights on a radar screen, and I look at

0:31:26.760 --> 0:31:29.240
<v Speaker 1>the pilots that were complaining, and they make sixty grand

0:31:29.240 --> 0:31:32.520
<v Speaker 1>a year, which is like a bar worse than a bartender.

0:31:33.000 --> 0:31:36.360
<v Speaker 1>I don't get the salary structure we're complaining about. Shouldn't

0:31:36.400 --> 0:31:40.240
<v Speaker 1>we just pay the air traffic controllers more? Shouldn't we

0:31:40.440 --> 0:31:44.520
<v Speaker 1>just pay the pilots more to solve this labor conundrum.

0:31:44.560 --> 0:31:45.840
<v Speaker 7>I think that would help solve it.

0:31:45.880 --> 0:31:48.000
<v Speaker 10>But that's going to cut into the airline's bottom line,

0:31:48.120 --> 0:31:51.120
<v Speaker 10>and they don't necessarily want to do that. Air traffic controllers.

0:31:51.200 --> 0:31:54.000
<v Speaker 10>That's a good middle class, solid job that you could

0:31:54.280 --> 0:31:56.880
<v Speaker 10>end up doing very well. I'm not sure why it's

0:31:56.880 --> 0:32:00.640
<v Speaker 10>not an attractive option for young people. I think they're

0:32:00.680 --> 0:32:03.440
<v Speaker 10>trying to do some recruiting at colleges and places like that,

0:32:03.600 --> 0:32:05.040
<v Speaker 10>but it's tough to get people in.

0:32:05.720 --> 0:32:08.600
<v Speaker 1>Okay, but I don't buy this. If Kirby was here

0:32:08.680 --> 0:32:11.040
<v Speaker 1>or Bastian was here, yeah, i'd say, look, you guys

0:32:11.040 --> 0:32:12.800
<v Speaker 1>are fancy. I get it, you want to make your

0:32:12.800 --> 0:32:16.800
<v Speaker 1>profits and all that. The fact is on this Friday

0:32:17.480 --> 0:32:19.880
<v Speaker 1>or I think at Bramo, she's probably down in Atlanta

0:32:19.960 --> 0:32:23.240
<v Speaker 1>right now at Heartsfeld's sleeping on a floor somewhere. Why

0:32:23.280 --> 0:32:26.200
<v Speaker 1>are we acting like a third world country where we've

0:32:26.200 --> 0:32:29.880
<v Speaker 1>got families with kids sleeping on the floor in the

0:32:29.920 --> 0:32:33.480
<v Speaker 1>new terminal A at Nork. That's a good policy for

0:32:33.560 --> 0:32:34.280
<v Speaker 1>these airlines.

0:32:34.320 --> 0:32:36.960
<v Speaker 10>Totally unacceptable, and that's why, as consumer advocates are the

0:32:36.960 --> 0:32:40.440
<v Speaker 10>points guy. My own personal opinion is that we should

0:32:40.480 --> 0:32:42.840
<v Speaker 10>have some kind of passenger bill of rights. Now, there

0:32:42.920 --> 0:32:45.520
<v Speaker 10>is a passenger Bill of Rights being proposed by Senators

0:32:45.560 --> 0:32:49.080
<v Speaker 10>Markey and Blumenthal. Even though even if that was passed,

0:32:49.080 --> 0:32:52.440
<v Speaker 10>though which is unlikely, the problem is it doesn't cover

0:32:52.520 --> 0:32:54.760
<v Speaker 10>for weather, so the airlines always have wiggle room when

0:32:54.760 --> 0:32:56.560
<v Speaker 10>it comes to weather. They can say, oh, well, that

0:32:56.640 --> 0:32:59.560
<v Speaker 10>chain reaction started because of a storm on Tuesday, so

0:32:59.560 --> 0:33:03.080
<v Speaker 10>we don't have to compensate passengers. I think maybe something

0:33:03.120 --> 0:33:04.440
<v Speaker 10>stronger needs to be in place.

0:33:04.760 --> 0:33:07.840
<v Speaker 7>Is there any blueprint for that? Though? Maybe it doesn't

0:33:07.840 --> 0:33:08.680
<v Speaker 7>exist in the US.

0:33:08.720 --> 0:33:11.280
<v Speaker 4>But when you look overseas, I mean, how is that

0:33:11.320 --> 0:33:12.000
<v Speaker 4>handled there?

0:33:12.120 --> 0:33:14.320
<v Speaker 10>I would love to see something pass in the US

0:33:14.320 --> 0:33:16.040
<v Speaker 10>like EU two sixty one compensation.

0:33:16.120 --> 0:33:17.480
<v Speaker 1>What those So?

0:33:17.560 --> 0:33:21.760
<v Speaker 10>Basically, if a flight is delayed extreme amounts from three

0:33:21.840 --> 0:33:24.920
<v Speaker 10>to six hours, or it's canceled, the airlines have to

0:33:24.960 --> 0:33:29.360
<v Speaker 10>compensate passengers in almost all cases. I personally benefited from

0:33:29.400 --> 0:33:31.960
<v Speaker 10>this with an American Airlines flight from Europe. But here's

0:33:32.000 --> 0:33:34.680
<v Speaker 10>the issue. There is an exception for whether in those

0:33:34.720 --> 0:33:35.600
<v Speaker 10>cases as well.

0:33:36.040 --> 0:33:38.080
<v Speaker 4>Even still, I mean, a lot of people would make

0:33:38.120 --> 0:33:40.239
<v Speaker 4>a lot of money when you think about just the

0:33:40.280 --> 0:33:43.640
<v Speaker 4>cancelations that we've seen. Let's talk about this summer though,

0:33:43.680 --> 0:33:46.040
<v Speaker 4>because even with the conditions that we're talking about, I mean,

0:33:46.040 --> 0:33:49.600
<v Speaker 4>the demand is off the charts, especially internationally. I mean

0:33:49.600 --> 0:33:53.040
<v Speaker 4>you've heard several airlines talk up what they expect to

0:33:53.040 --> 0:33:57.440
<v Speaker 4>see in terms of overseas travel. Is that actually going

0:33:57.480 --> 0:33:58.480
<v Speaker 4>to materialize?

0:33:58.600 --> 0:33:59.240
<v Speaker 1>Absolutely.

0:33:59.600 --> 0:34:02.600
<v Speaker 10>You see two thousand dollars flights from New York to Rome,

0:34:02.880 --> 0:34:04.920
<v Speaker 10>you know something's up. And I think part of the

0:34:04.960 --> 0:34:08.200
<v Speaker 10>issue is they've reduced the number and frequency of flights,

0:34:08.520 --> 0:34:12.399
<v Speaker 10>and so what's happening is those seats are very much

0:34:12.400 --> 0:34:14.840
<v Speaker 10>in demand in prices are spiking. But there is deals

0:34:14.880 --> 0:34:17.200
<v Speaker 10>out there. I promise you every day we publish a

0:34:17.200 --> 0:34:19.239
<v Speaker 10>deal at the Point Skuy and there are deals to

0:34:19.280 --> 0:34:20.239
<v Speaker 10>bed click.

0:34:20.239 --> 0:34:23.080
<v Speaker 1>Come on, you're a grizzle media proble. What's Katie doing here?

0:34:25.360 --> 0:34:29.760
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0:34:29.960 --> 0:34:34.160
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0:34:38.719 --> 0:34:42.920
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