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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 3: Stocks hovering around those record at high levels. Paul Christopher
Speaker 3: of olds Vargo writing this, based on our expectations for
Speaker 3: accelerating earnings, we believe the next twelve to fifteen months
Speaker 3: will favor US equities. Paul joins us. Now, Paul, let's
Speaker 3: start there the idea that people don't like buying into
Speaker 3: valuations like this, They don't like buying into consensus. They
Speaker 3: don't like doing it in a vacuum that is just
Speaker 3: because of government dysfunction. And yet it seems like that's
Speaker 3: the only place to go. Can you explain how that
Speaker 3: is somewhat of a difficult trade yet and obvious one
Speaker 3: to many people, including yourself.
Speaker 4: Yeah, I mean, surely it is uncomfortable for all the
Speaker 4: reasons that you mentioned, But you know, you have to
Speaker 4: sort of focus here on what i'd call the big rocks.
Speaker 4: The big rocks are that artificial intelligence is a trend,
Speaker 4: it has some momentum behind it, it's investable, and we
Speaker 4: need to take advantage of it. Now, there's smart ways
Speaker 4: to do that and not smart ways to do that,
Speaker 4: and we're going to try to stick with the smart ways,
Speaker 4: and I'm happy to talk about those.
Speaker 3: Okay, so let's talk about them. The smart ways to
Speaker 3: do it. Is it investing in the hyperscalers or is
Speaker 3: it investing in energy companies that they are going to
Speaker 3: have to fuel this over the longer term.
Speaker 4: The answer is yes. But look, you've got hyperscalers in
Speaker 4: comm services, communication services, and in information technology. All right,
Speaker 4: So you've got two sectors there. Do you want to
Speaker 4: buy them both or do you just want to buy
Speaker 4: one right now by the one that looks the least overpriced.
Speaker 4: And then let's sit there for a while. And then
Speaker 4: at the same time, let's try to diversify that AI
Speaker 4: exposure by going with what I would call adjunct trends
Speaker 4: like the data centers. You know, you've got some of
Speaker 4: these two and three ton computers right now around the
Speaker 4: country sitting under tents, So they're going to have to
Speaker 4: build places for those computers to live, and they're going
Speaker 4: to have to build out the energy infrastructure not just
Speaker 4: to power them, but to cool them. Going computers off
Speaker 4: and have cooling below the floor. So utilities and industrials
Speaker 4: look like two sectors US that are not as overpriced
Speaker 4: as in fact even abtractively priced compared to information technology
Speaker 4: and common services. And then a third way to diversify,
Speaker 4: or let's call it a second way to diversify, is
Speaker 4: to look for trends that aren't necessarily directly related to AI,
Speaker 4: but that play another big rock in the economy. And
Speaker 4: that's the fact that we think that the FED is
Speaker 4: we believe is going to cut two more times this
Speaker 4: year and another two more times next year. That's going
Speaker 4: to take the short end of the yield curve lower.
Speaker 4: And with long rates we think hovering near where they
Speaker 4: are right now, that's a pretty good looking environment for banks.
Speaker 4: Right They're going to pay short term deposit rates which
Speaker 4: are going down, so their cost fall. At the same time,
Speaker 4: longer rates stay high and that's what they're going to
Speaker 4: earn on their lending. So we can play different trends
Speaker 4: here in different ways that aren't as overpriced as the
Speaker 4: overall market. Over the hypers you know, the individual hyper
Speaker 4: six scalers, the mag seven. So I think that's the
Speaker 4: way to go here. You want to try to be
Speaker 4: as effective with your capital as possible. And look, there
Speaker 4: are going to be pullbacks, so we're going to get
Speaker 4: to earning season, They're going are going to be some
Speaker 4: disappointments and those firms will be punished. Those could be
Speaker 4: buying opportunities. We'll have to see what transpires.
Speaker 5: Well, I'm glad you.
Speaker 6: Brought up the energy demand that it's going to be
Speaker 6: for this entire AI boom electricity demand. Do you think
Speaker 6: that could end up slowing this momentum because it might
Speaker 6: not keep pace with what these hyperscalers are trying to do.
Speaker 5: Yeah, that's a good point.
Speaker 4: I mean, look, there are always going to be constraints
Speaker 4: when you're going through a growing trend, a growing pains
Speaker 4: trend like this one. This is a very disruptive economic trend.
Speaker 4: We saw the same thing. If you go back to
Speaker 4: the nineties, right, there were shortages of things. If you
Speaker 4: go back to the forties and the fifties and the sixties,
Speaker 4: we were developing automobile, ship and air transport and there
Speaker 4: were constraints there. We eventually broke through those constraints, and
Speaker 4: for investors, those constraints really represent opportunities. Right, So as
Speaker 4: long as you see electricity production and transmission being constrained,
Speaker 4: that means there's opportunities and utilities, there's opportunities in midstream energy.
Speaker 4: There's no opportunities in natural gas. For a long term investor,
Speaker 4: those constraints have to be worked through, and we believe
Speaker 4: they will.
Speaker 6: Well, I want to know what you think of, basically,
Speaker 6: what you're doing in absence of US economic data. Christian
Speaker 6: Nolting from Deutsche Bank. Earlier the program was talking about
Speaker 6: how actually it's been easier without having the US economic data.
Speaker 6: What have you been relying on?
Speaker 4: Yeah, it is easier in a sense you don't have
Speaker 4: the reports coming out every day. But look, let's go
Speaker 4: back to the idea of the big rocks. For a
Speaker 4: long term investor, what matters right here, right now is
Speaker 4: that the economy is still growing. I don't think anybody
Speaker 4: doubts that, and that inflation is still moderate. I don't
Speaker 4: think anybody doubts that really, And those that combination, along
Speaker 4: with a labor market that's continuing to soften but is
Speaker 4: not generating a lot of new unemployment, that also tells
Speaker 4: us the FED is likely to cut, the economy is
Speaker 4: likely to grow. We think earnings come up to three
Speaker 4: hundred dollars per share next year on the S and
Speaker 4: P five hundred. Those are the big rocks that investors
Speaker 4: really need to know about. The government shutdown. That's noise,
Speaker 4: it's distraction. Let's look through it.
Speaker 5: Yeah, at this time.
Speaker 3: At this point, though, you have to wonder whether the
Speaker 3: strength that we're seeing in corporate earnings pairs with this
Speaker 3: idea of a FED easing. We were talking earlier with
Speaker 3: Kadi Kaminski about this simplex and she said it is
Speaker 3: confusing to her that we're not seeing some sort of
Speaker 3: sell off in long term bonds as a result of
Speaker 3: the FED presumably cutting two more times this year in
Speaker 3: the face of real strength in the US economy.
Speaker 5: How do you manage that risk?
Speaker 3: Considering that we really haven't seen much of anything in
Speaker 3: the bond space in terms of volatility.
Speaker 4: Well, that is one risk on the long end of
Speaker 4: the yield curve, the maturity spectrum, and we would agree
Speaker 4: that that's a risk. We would see other risks as well.
Speaker 4: Potentially the tariff revenue will not generate as much as
Speaker 4: many dollars as Congress thinks, and so you could end
Speaker 4: up with wider deficits going forward. So there is risk,
Speaker 4: we think on the long end of the maturity spectrum,
Speaker 4: and that's why we've been underweight there for some time.
Speaker 5: For some months.
Speaker 4: We're also underweight on the short end, expecting the FED
Speaker 4: to cut. So that really leaves us with a bullet
Speaker 4: strategy where what we really like is that intermediate portion
Speaker 4: of the maturity spectrum, the yield curve, those that three
Speaker 4: to seven year range, investment grade, investment grade munis and corporates,
Speaker 4: that's where we would target. Look, you're going to get
Speaker 4: a yield in that three to seven year range that's
Speaker 4: not far off of what it is in the ten
Speaker 4: ten year but you're going to get a lot less
Speaker 4: duration risk, a lot less risk from fluctuating long term yield.
Speaker 4: So whatever the reasons are, yeah, well, we would agree
Speaker 4: that we want to be underweight long term debt at
Speaker 4: this point.
Speaker 3: Are bonds still the diversifier that they have been traditionally?
Speaker 4: Yes, over time they have been, And I mean we've
Speaker 4: done the work behind this to show the whether it's
Speaker 4: short term or long term. If in terms of the
Speaker 4: number of years you look at, bonds are consistently the
Speaker 4: best diversifier for equities, you.
Speaker 5: Know, on a regular, on a regular and ongoing basis.
Speaker 4: At the moment, there's lots of trends that are churning
Speaker 4: around fixed income. So there's you know, some buying in
Speaker 4: the in the fixed income space pushing yields down a
Speaker 4: little bit. That's also tending to push more money into stocks,
Speaker 4: but that that's just part of the normal give and
Speaker 4: take between those two markets. We would want people to
Speaker 4: hold both bonds and stocks because we don't want to
Speaker 4: try to predict when one is going to peak and
Speaker 4: the other one's going to troll.
Speaker 2: Stay with us Mobile intex Savanna's coming up after this.
Speaker 3: I want to rip up the script and go right
Speaker 3: to our next guy, Rajadaksha of Markley's, to talk about
Speaker 3: what we're seeing with respect to the international picture, how
Speaker 3: much that's edifying what we're seeing in the gold trade.
Speaker 3: But also how difficult it's been to really make some
Speaker 3: sort of international call when you take a look like Argentina.
Speaker 3: How much does that complicate the emerging market bet, I mean,
Speaker 3: how much does that complicate understanding what the calculus is there?
Speaker 7: It does, but it depends on the asset class you're
Speaker 7: talking about, So on the bond side it does matter hugely.
Speaker 7: But on the equity side, remembered Lisa, you're talking about
Speaker 7: anamaquity asset class that is primarily dependent on what China does.
Speaker 7: You know, not so much, not so much, but not
Speaker 7: even at this point India. You know, Indian equities are
Speaker 7: basically treaded water for a while, but the Chinese equity
Speaker 7: market has been on a tear and that I think
Speaker 7: is the is the wind beneath EM's wings for the
Speaker 7: forciful future. So there's noise, yes, but this is not
Speaker 7: going to upset the em equity rally.
Speaker 3: This is fascinating because how much is China the wind
Speaker 3: beneath the sales of gold? We've been talking all about
Speaker 3: gold as being this debasement trade, but you're not seeing
Speaker 3: it necessarily in treasure healds because you are seeing some
Speaker 3: kind of demand at the auctions.
Speaker 5: Is it really just central.
Speaker 3: Bank buying led by China that's fueling in a narrative
Speaker 3: that's taking on a life of its own.
Speaker 7: It is partly central bank buying, and it started in
Speaker 7: twenty twenty two and the West froze Russia's affects reserves.
Speaker 7: We saw an immediate pickup, you know, almost double the
Speaker 7: amount of buying in twenty twenty two from central banks
Speaker 7: loyalty to twenty twenty one, and it has not let
Speaker 7: up since. Central banks have bought over a thousand tons
Speaker 7: of gold each year starting in twenty twenty two. They
Speaker 7: used to be at barely three hundred to four hundred tons.
Speaker 7: Part of it is also the lack of supply. Weirdly enough,
Speaker 7: despite gold prices basically tripling in the last five to
Speaker 7: six years, the amount of supply, you know, college geopolitical
Speaker 7: issues calledge geological issues, but the amount of supply really
Speaker 7: hasn't picked up anyone near as much as you expect.
Speaker 7: And then that is the third thing what I think
Speaker 7: you're referring to, which is just uneasiness about the global
Speaker 7: financial and montre order.
Speaker 6: When it comes to that uneasiness and the central bank buying,
Speaker 6: what's the impact of that, because that means then they're
Speaker 6: not buying as many US treasuries.
Speaker 7: That is actually a very clear impact. So for a
Speaker 7: first time, late last year, by our estimates, the amount
Speaker 7: of effects reserves globally held moved to a majority, not
Speaker 7: a majority, but more effects reserves were held in gold
Speaker 7: and US treasuries, which is not something that has happened
Speaker 7: for a long, long long time. Like you guys just said,
Speaker 7: it is true that it's not shown up in a
Speaker 7: lack of auction demand, for example, but if you look
Speaker 7: at swap spreads and where they are right now, they
Speaker 7: still seem to be screaming that on a relative basis,
Speaker 7: you know, sovereign debt is still not as much in
Speaker 7: favor as all in yield levels would suggest.
Speaker 6: Do you call this the world de dollarizing?
Speaker 7: No, I think the world it's not so much one
Speaker 7: currency versus another, you know, because let's face it, that
Speaker 7: is not an alternative to the dollar. That nib is
Speaker 7: not an alternative. The euro has its own problems. The
Speaker 7: yen used to be a safe haven but has struggled
Speaker 7: in the last clear for the Swiss frank you know,
Speaker 7: quite frankly is very expensive too small, so it's not
Speaker 7: ded aularizing as in the world moving to other currencies.
Speaker 7: But the world absolutely is worried about how much we
Speaker 7: are awash, both in fiat currencies as well as in
Speaker 7: the trillions of dollars of sovereign debt with the promise
Speaker 7: of trillions more to come. That that is the uneasiness
Speaker 7: that I think investors are turning to gold for.
Speaker 3: You know, I wonder if we're just trying to create
Speaker 3: daves around a liquidity picture that people don't fully understand.
Speaker 3: And as the head of research at Barclay's, I'm sure
Speaker 3: you track the liquidity pictures and the idea that you're
Speaker 3: having the fiscal and the monetary engines kind of firing
Speaker 3: at the same time. How much do all assets end
Speaker 3: up trading in tandem? And I know I shouldn't make
Speaker 3: too much about this, but the fact that stocks, pods
Speaker 3: and gold also sold off yesterday sort of hinted at
Speaker 3: this question around liquidity almost as much as some of
Speaker 3: the narratives that were trying to put around them.
Speaker 7: So I'm less switted about, Oh, you're talking about too
Speaker 7: much liquidity in the system or.
Speaker 3: And then being withdrawn and how much that ends up
Speaker 3: really kind of creating the dynamic and markets well beyond
Speaker 3: any question around geopolitics or loss in US exceptionalism, waket
Speaker 3: in growth beyond.
Speaker 7: So I think yesterday just to address that, you know,
Speaker 7: small question first was not about the liquidity, partly because
Speaker 7: like you said, gold was so overbought. That is I've
Speaker 7: just never seen it. You know, something goes of fifty percent,
Speaker 7: it's not you know, easy for it to take a
Speaker 7: little bit of a breather. In equities, I would say
Speaker 7: the same thing. Bonds. We are running, according to the
Speaker 7: Atlanta FARED at a three point eight percent quarter on
Speaker 7: quarter growth number annualized for the third quarter. That is
Speaker 7: a nominal GDP print of over six percent. At some
Speaker 7: point bonds are supposed to start to reflect that, and
Speaker 7: I think that is what they were doing. But I
Speaker 7: do think that the FED is laser focused on the
Speaker 7: amount of bank reserves it starts to take out of
Speaker 7: the system as it continues with QT. Now, the problem
Speaker 7: that they have is the way that you know there
Speaker 7: is a problem is when there is a problem, you know,
Speaker 7: we're all guessing at what is the correct level of
Speaker 7: bank reserves. But if I had to guess I think
Speaker 7: they would err on the side of caution, meaning leave
Speaker 7: too many reserves are then too few, And that again
Speaker 7: is gold, bitcoin, silver positive.
Speaker 3: So is it very difficult to be purish in anything
Speaker 3: right now? Considering that that's the backdrop of liquidity.
Speaker 7: It's hard to be verished given the economic outlook. You know,
Speaker 7: we've turned you know, neither of you guys have asked
Speaker 7: me a single question on tarts. And there's a reason
Speaker 7: for that. You know, we've turned the page on what
Speaker 7: used to matter. There's this massive aye boom, which even
Speaker 7: if it ends up with you know, some problems along
Speaker 7: the way. This amount of spending is there's names, Lisa
Speaker 7: that I never knew, Colossus, Rainiers, Target, these are all
Speaker 7: fantastical names, except that they are all gigantic data centers.
Speaker 7: Each one of them have the size of Manhattan. And
Speaker 7: that spending is not going to go away. And while
Speaker 7: that is going on, I just see no reason for
Speaker 7: a big pullback in most ACID classes.
Speaker 2: Stay with US Moblin TEX Surviance coming up after this.
Speaker 3: The partisans stalemate is dragging on in Washington, d C.
Speaker 3: With President Trump threatening cuts to democratic programs. Some federal
Speaker 3: workers are preparing for missed paychecks today as a shutdown
Speaker 3: continues for a Arkansas Congressman Frenchhill joins us Now, Congressman,
Speaker 3: thank you so much for being with us. Is there
Speaker 3: any progress being made, Is there a good faith effort
Speaker 3: to be getting in the room and talking about some
Speaker 3: of the details.
Speaker 5: Well, good morning, it's nice to be with you.
Speaker 8: I think senators are certainly having conversations about what they'd
Speaker 8: be willing to do in the appropriations process after the
Speaker 8: government reopens.
Speaker 5: This is the issue.
Speaker 8: The House passed a clean, bipartisan a continuing resolution to
Speaker 8: have all of government open, and just yesterday Chuck Schumer
Speaker 8: put a sign up saying We're getting stronger every day.
Speaker 5: Well, you know who's not getting stronger.
Speaker 8: People depended on the flood insurance program who are concerned.
Speaker 5: About storms or floods.
Speaker 8: People who are working in the military who know next
Speaker 8: week they get their last paycheck. People who are dependent
Speaker 8: on grant programs from the federal government to keep state
Speaker 8: child care programs open. That's who's not getting stronger every day.
Speaker 8: So I would just simply say, all the Senator has
Speaker 8: to do is pass the continuing resolution and keep the
Speaker 8: appropriations process going. So the answer question is Yes, Senators
Speaker 8: are having conversations about what they want to do in
Speaker 8: fiscal twenty six spending, including on healthcare.
Speaker 6: Cherman Hill, you just said the active service duty service members,
Speaker 6: the military members will get their last paycheck next week.
Speaker 6: Isn't your understanding they will get paid next week, because
Speaker 6: I think there's still been a question mark about that.
Speaker 8: Well, I think that's the last paycheck that I'm aware
Speaker 8: of is the fifteenth, and.
Speaker 5: Maybe that's maybe it's not.
Speaker 8: But either way, this is why I decline my pay
Speaker 8: during this whole period, as I have in previous shutdowns.
Speaker 8: I don't think members of Congress, particularly the Senate, should
Speaker 8: be paid while federal workers are furloughed, and some federal
Speaker 8: workers may well lose their job when the simplest thing
Speaker 8: to do, Anne Marie, is to get this government back open.
Speaker 8: We were in the middle of discussing all of the
Speaker 8: spending for fiscal twenty six. The Senate had passed three
Speaker 8: bills across the Senate floor. We had passed four bills
Speaker 8: across the House floor, and Susan Collins and Tom Cole
Speaker 8: have that process underway, and Schumer, I think, for internal
Speaker 8: democratic political purposes, chose to pick a fight with Trump
Speaker 8: and try to make a name for himself once again.
Speaker 8: So the Schumer shutdown starts.
Speaker 5: In his office.
Speaker 6: Meanwhile, we do see the executive branch continuing along on
Speaker 6: a number of foreign policy issues, including Argentina. I'd love
Speaker 6: to get your thoughts on this twenty billion dollar swap line.
Speaker 6: If they are using the ESF, isn't that taxpayer dollars
Speaker 6: going to Buenos Aires?
Speaker 8: Over many many years, since the nineteen thirties, the US
Speaker 8: Treasury has used the Exchange Stabilization Fund when they think
Speaker 8: it's in American interest for geopolitical reasons, for global international
Speaker 8: finance stability reasons by both political parties. Treasury Secretary of
Speaker 8: Bessin's first trip as Treasury Secretary was to meet the
Speaker 8: leadership at the Malay government in Buenos Aires. I visited
Speaker 8: Argentina in August to assess the IMF program, assess their
Speaker 8: progress for the first time of trying to return Argentina
Speaker 8: back to a market economy that people can be benefited
Speaker 8: from by low inflation, lifting kids out of poverty, created
Speaker 8: a private sector, dropping currency controls. So I think the
Speaker 8: Melee government is on the right track, and I think
Speaker 8: Secretary Besset is trying to carefully and prudently see how
Speaker 8: they can encourage that success. If they're successful, they will
Speaker 8: rival the stories in Taiwan or Singapore or the Asian Tigers,
Speaker 8: and they will reverse the curse of one hundred and
Speaker 8: fifty years of mismanagement and finance in Buenos Aires.
Speaker 6: But jare Hill I was with the traasch secretary when
Speaker 6: he went to Argentina in April, his first international trip.
Speaker 6: This is because of the midterm elections coming up, not
Speaker 6: some geopolitical issue.
Speaker 5: I disagree completely with you.
Speaker 8: I understand that President Melee is having national elections in
Speaker 8: Buenos Aires on October twenty six. That's true, and it's
Speaker 8: important that he keep the momentum going because they need
Speaker 8: legislative support for the reforms that they've made. But just
Speaker 8: in the first few months of his leadership, he's made
Speaker 8: substantial macroeconomic reforms that have improved the outcome and individual
Speaker 8: citizens have been improved.
Speaker 5: So it's more than that.
Speaker 8: Argentina is an important strategic partner to the United States
Speaker 8: in the Southern hemisphere, for national security purposes, for shipping purposes,
Speaker 8: for global open navigation purposes. So it's a much bigger
Speaker 8: issue than just the fact that they have domestic elections
Speaker 8: coming up.
Speaker 3: Congressman, the market is shrugging off all of what's going on,
Speaker 3: whether it's geopolitically or whether it's the government shut down,
Speaker 3: and they're actually looking more to measures that you put
Speaker 3: forward in including some of the deregulation of banks, including
Speaker 3: some of what we've seen with respect to easing some
Speaker 3: of the ability for tie ups in the financial sector.
Speaker 3: As someone who has been a part of the financial
Speaker 3: sector in the small banking area as well as who's
Speaker 3: been really a leader in this particular space, how much
Speaker 3: more do you see this continuing? Are you encouraged by
Speaker 3: what you're seeing? What kind of consolidation are you hoping for?
Speaker 8: Well, it's not about consolidation. It's about right sizing the
Speaker 8: role of government supervision and tailoring bank regulations. This began
Speaker 8: under the first Trump administration when we passed a bipartisan
Speaker 8: bill that was signed into law by President Trump back
Speaker 8: in twenty eighteen, and in that effort, we wanted to
Speaker 8: tailor regulation and supervision of our financial institutions based on
Speaker 8: their complexity, not just simply based on size. And that's
Speaker 8: been a theme that we've had for my first nine
Speaker 8: months of leading the Financial Services Committees, we want tailoring
Speaker 8: both in capital markets and in commercial banking, encourage banks
Speaker 8: to be able to stay successful, have the capital they
Speaker 8: need to lend to customers, whether they're building new homes
Speaker 8: or starting new businesses. And that had gotten atropheed under
Speaker 8: the leadership by the Joe Biden FED who was too
Speaker 8: bureaucratic two paper intensive, and that's the focus that we've taken.
Speaker 3: How much are you watching what's going on in financial markets?
Speaker 3: The unprecedented run in things like bitcoin, the mergers and acquisitions,
Speaker 3: the leverage buyouts that are starting to come back. Is
Speaker 3: starting to worry that maybe things will begin to get
Speaker 3: a little too far. Is that something that is in
Speaker 3: your purview in any way?
Speaker 8: Well, I do think there is a return of animal
Speaker 8: spirits in the market. You see that in the equity
Speaker 8: and bond market spreads. You certainly see it in the
Speaker 8: number of initial public offerings that we've had, the largest
Speaker 8: in probably about five years. And so there are elements
Speaker 8: of that, and you've seen overturned to some merger and
Speaker 8: acquisition activity in some industries. All that is true, It's
Speaker 8: not something that I worry about instinctively. That it's happening,
Speaker 8: but can it be overdone? Certainly, and that's the nature
Speaker 8: of markets. We want a regulatory and supervisory system both
Speaker 8: at the Securities and Exchange Commission and in the bank
Speaker 8: supervisors that make sense, that's focused on material financial risk,
Speaker 8: focused on information that investors need, Focus our CEOs and
Speaker 8: boards of directors at banks on material safety and soundness issues, and.
Speaker 5: Not be distracted by.
Speaker 8: Tertiary topics like is making this loan going to have
Speaker 8: an impact on climate risk?
Speaker 2: Stay with US multile IMPEG Savannahs coming up.
Speaker 3: Off to this, Sheila Coyelo of Jeffries joins US now
Speaker 3: and Sheila as somebody who might or might not be
Speaker 3: interested for personal reasons as well as otherwise. How much
Speaker 3: are we seeing delays really trickle through the airline industry.
Speaker 1: We're seeing some delays, but you know, some select airports
Speaker 1: were closed yesterday for several hours, like Burbank. But in general,
Speaker 1: the airlines are telling us this is not going to
Speaker 1: impede travel demand and we're going to continue to see
Speaker 1: momentum in the airlines. So it's unfortunate for the consumer,
Speaker 1: not so much for the airlines and the workers who
Speaker 1: aren't getting paid.
Speaker 3: Essentially, people have to get places, regardless of how much
Speaker 3: of a pain in the neck it is to get places,
Speaker 3: So it's not necessarily going to affect revenues for now. Nonetheless,
Speaker 3: does this kind of put a hitch in some of
Speaker 3: the airline's plans, particularly I'm thinking United that's from trying
Speaker 3: to really fight and counter some of the reputational risks
Speaker 3: around the likes of Newark.
Speaker 1: Delta reporting yesterday and they gave us a range for
Speaker 1: Q four of up two to four percent, and I
Speaker 1: think that range puts into account how long the shutdown lasts.
Speaker 1: Last time it was only about a million dollars a day.
Speaker 1: This time, I think it's going to be less than
Speaker 1: that for the last nine days that they've seen. So
Speaker 1: Newark is always a highlight and a poster child for
Speaker 1: air traffic delays. So we'll see how United Southwest has
Speaker 1: slightly more exposure to government employees as well. But for now,
Speaker 1: we don't think it's going to stop travel demands. I'm
Speaker 1: out all week next week traveling. I don't think I'm
Speaker 1: canceling my plans, So.
Speaker 6: You can give us a personal update on next So
Speaker 6: if you're seeing delays, but we are seeing delays, and
Speaker 6: we're seeing staffing shortages across air traffic control towers around
Speaker 6: the United States, and we're ten days in. What happens
Speaker 6: when we're twenty thirty potentially days into this shutdown.
Speaker 1: Yeah, we'll see more and more delays, but unfortunately, you know,
Speaker 1: we see one to two percent cancelations usually and about
Speaker 1: twenty percent delays. So it'll just have people stay at
Speaker 1: the airport a bit longer. But that's all we have
Speaker 1: for now.
Speaker 6: Do you think this is a pressure point for Washington, DC?
Speaker 6: Because twenty nineteen, when we saw massive delays and big
Speaker 6: airports like Orlando and New York that day President Trump
Speaker 6: caved and then the government reopened. Could it come down
Speaker 6: to just you know, airlines and delays.
Speaker 1: I think it's a lot more than that. I mean,
Speaker 1: if you look at the defense side of the business,
Speaker 1: a Secretary hexcep is talking about awarding the six gen
Speaker 1: Navy fighter. This is during a shutdown. So I think
Speaker 1: the government's trying, the administration's try to move forward. But
Speaker 1: we'll see what happens with the shutdown and how badly
Speaker 1: consumers are affected.
Speaker 3: One thing that we've seen consistently through all the earnings
Speaker 3: reports has been and I'm just moving to what we
Speaker 3: got from Delta yesterday, aside from the government shutdown, is
Speaker 3: that the front of the cabin has been the real
Speaker 3: money driver, in the back of the cabin has been
Speaker 3: a laggard. And it sort of is a story, a
Speaker 3: tale of two airlines, the ones that are able to
Speaker 3: cater to the business class side of things, the ones
Speaker 3: that are faring with the budget customers. Did we see
Speaker 3: a shift in tone yesterday from ed bastion of Delta.
Speaker 1: I think on a number of fronts, not only the
Speaker 1: discrepancy between main cabin and premium, that pricing Delta gap
Speaker 1: even wider. That was the first corporate was up eight
Speaker 1: percent year over year. That was really solid. Cargo was
Speaker 1: up sixteen percent or so year over year. Their MRO
Speaker 1: business was up sixty percent. All these stats were pretty
Speaker 1: positive economically if you ask me. Some of it is
Speaker 1: market share gains on MRO and car Go, but still
Speaker 1: those were pretty high percentages.
Speaker 3: That's where I wanted to go. Is this a read
Speaker 3: through to the entire industry or is what we're seeing
Speaker 3: a consolidation of market share and the likes of Delta
Speaker 3: United and American at the behest of some of the
Speaker 3: budget carriers.
Speaker 1: I think both fronts, you're seeing United and Delta really outperform.
Speaker 1: They've picked the right strategy. We saw United add more
Speaker 1: routes to Europe yesterday. Europe would be the one area
Speaker 1: in Delta's report I would call out that was negative.
Speaker 1: The read through on pricing in Atlantic revenues were down
Speaker 1: in Q three. That means there was either too much
Speaker 1: capacity or there was tariff impacted bookings. So people that
Speaker 1: were going to book summer travel in March decided not
Speaker 1: to travel into the US, So that would be the
Speaker 1: one data point I would call it as week. But
Speaker 1: going back to the airlines, it's the story of United
Speaker 1: and Delta winning the strategies of Southwest and American and
Speaker 1: Jeff Blue needing to refocus their areas.
Speaker 3: Did you see any evidence the rest of the cabin
Speaker 3: the people who are sandwiched into economy are coming back
Speaker 3: that the recovery that you're seeing in demand is also
Speaker 3: coming from people at the middle income the lower income
Speaker 3: spheres of the population, rather than trust the people at
Speaker 3: the front.
Speaker 1: You saw that a bit in the first half. We
Speaker 1: saw pricing for airfares down in Q three Delta's report
Speaker 1: was a turn positive and they're forecasting an improvement in
Speaker 1: Q four. So we really needed to see that positive
Speaker 1: inflection in the main cabin in Q three and we
Speaker 1: got that, and we're going to see more momentum into
Speaker 1: Q four. Some of it is because airlines are cutting capacity,
Speaker 1: so you're having less routes, and some of it is
Speaker 1: because the consumer feels more confident, and that was evident
Speaker 1: in their close in bookings they saw more and more
Speaker 1: cash sales.
Speaker 6: We're expecting from American and Jet blow based on what
Speaker 6: we've learned from Delta.
Speaker 1: I think the Atlantic data point for American is one
Speaker 1: that we highlighted as potentially being weak. They're the third
Speaker 1: carrier in the Atlantic. If you have too much capacity
Speaker 1: not enough demand for multiple reasons, I think you'll see
Speaker 1: a weak report there. We're more bullish into United, but
Speaker 1: I think Delta put up a very clean and without
Speaker 1: any news, you know, any other items to muddy the waters.
Speaker 6: What about the budget carriers, given the fact that Delta
Speaker 6: is saying, to Lisa's point, it's the entire airline, do
Speaker 6: you think the budget carriers are going to do well
Speaker 6: or those customers going straight to the big dogs.
Speaker 1: You know, we lean into the network carriers. I think
Speaker 1: Southwest adding routes into cities like Las Vegas isn't going
Speaker 1: to necessarily help their pricing momentum. But United opening up
Speaker 1: a route to Bury or Bilboa in Spain or Italy,
Speaker 1: I think that, you know, that ignites demand that wasn't
Speaker 1: necessarily there. That's a route that nobody buys directly from
Speaker 1: the US, and it could, you know, instigate demand. Last
Speaker 1: year they did Greenland, so this year they stuck a
Speaker 1: little bit more conservative with their routes.
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Speaker 3: Mm hmm