WEBVTT - Boeing to Vote on New Wage Deal 0:00:02.440 --> 0:00:09.119 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:09.160 --> 0:00:13.320 Bloomberg Intelligence podcast. Catch us live weekdays at ten am 0:00:13.360 --> 0:00:16.360 Eastern on Affo Cardplaying and Broun Auto with the Bloomberg 0:00:16.400 --> 0:00:19.840 Business app. Listen on demand wherever you get your podcasts, 0:00:19.960 --> 0:00:22.080 or watch us live on YouTube. 0:00:23.040 --> 0:00:25.560 One of the names Abigail was talk to us about 0:00:25.880 --> 0:00:28.400 was Boeing, And we want to figure out are these 0:00:28.400 --> 0:00:30.600 folks going to be getting back to work because they 0:00:30.640 --> 0:00:35.040 need planes to come off, you know the line, they 0:00:35.080 --> 0:00:37.240 need the cash flow, they need to get. 0:00:37.120 --> 0:00:37.839 Folks back to work. 0:00:37.880 --> 0:00:40.600 George Ferguson covers all of the aerospace, all the defense, 0:00:40.600 --> 0:00:43.680 and all the airlines for Bloomberg Intelligence. So, George, it 0:00:43.800 --> 0:00:48.560 seems like the union's representatives have agreed to a deal 0:00:48.600 --> 0:00:51.320 with Boeing. What do you think the actual workers are 0:00:51.320 --> 0:00:52.400 going to do when they vote? 0:00:53.200 --> 0:00:54.400 So, I think we're getting closer. 0:00:56.200 --> 0:00:58.680 Look, I think what thirty five percent is the increase 0:00:58.720 --> 0:01:02.080 over four years. Still, I think subs some of the 0:01:02.120 --> 0:01:05.960 other union agreements we've seen in the marketplace. 0:01:06.680 --> 0:01:11.000 You know what, like the port workers. 0:01:11.600 --> 0:01:14.960 But I would note that Textron had a similar strike 0:01:15.040 --> 0:01:18.440 by its machinists out in Wichita, Kansas. I'm not sure 0:01:18.480 --> 0:01:20.440 if you get through they're very often Paul were aware 0:01:20.440 --> 0:01:25.399 of that, but they just came back to they agreed 0:01:25.440 --> 0:01:27.320 to come back to work. It was kind of a 0:01:28.200 --> 0:01:34.759 sub thirty percent increase over four years. So my guess is, 0:01:34.840 --> 0:01:37.839 you know that the shore workers probably or the port 0:01:37.840 --> 0:01:39.760 workers probably set the high end of the of the 0:01:39.800 --> 0:01:44.360 mark these Wichita machinists for Textra and probably set the 0:01:44.440 --> 0:01:46.960 lower end. Boeing probably lived somewhere in the middle of 0:01:46.959 --> 0:01:47.760 the thirty five. 0:01:47.720 --> 0:01:48.680 Sounds about right. 0:01:49.600 --> 0:01:52.600 Workers have been out on strike for about a month now, right, 0:01:52.680 --> 0:01:56.400 So my guess is that finances are probably starting to look. 0:01:57.800 --> 0:02:00.360 Challenge at some of those those household I. 0:02:00.280 --> 0:02:02.960 Think Kelly Orperg, you know, pulled out the Hey, we're 0:02:02.960 --> 0:02:05.640 gonna raise twenty five billion dollars in cash and we're 0:02:05.680 --> 0:02:09.520 ready to go the distance. So I think those combinations 0:02:09.560 --> 0:02:12.280 and then throwing some of the four to one K 0:02:12.440 --> 0:02:15.079 money at them, right, there was some plus ups on 0:02:15.800 --> 0:02:17.639 how much they would match the four O one K. 0:02:18.200 --> 0:02:19.760 I think some initial. 0:02:21.520 --> 0:02:24.600 You know, incentives on the four to one K. I 0:02:24.600 --> 0:02:27.760 think they're pretty close, although I note that the union 0:02:27.919 --> 0:02:29.920 leadership wouldn't endorse it. 0:02:29.960 --> 0:02:32.280 From everything I've read, they they're just. 0:02:32.280 --> 0:02:36.640 Passing along this offer from Boeing to the workers, you know, 0:02:36.720 --> 0:02:38.280 for for a vote. 0:02:38.520 --> 0:02:39.919 My guess is this is pretty close. 0:02:40.320 --> 0:02:43.240 I think they might make it here, but I guess 0:02:43.240 --> 0:02:45.240 we'll get we'll get a chance to see by Wednesday, 0:02:46.520 --> 0:02:48.799 you know how cranky the union is and how much 0:02:48.840 --> 0:02:49.600 more they want. 0:02:49.639 --> 0:02:51.240 But it seems like it's pretty close. 0:02:51.800 --> 0:02:55.399 George, how important is an end to this strike for 0:02:55.520 --> 0:02:58.359 Boeing and just broader sentiment there. I mean, shares are 0:02:58.400 --> 0:03:02.640 down about thirty nine percent you're today, Yeah, it's. 0:03:02.520 --> 0:03:03.079 Huge, right. 0:03:03.120 --> 0:03:08.200 I think if it doesn't get agreed to, I think 0:03:08.240 --> 0:03:10.600 Boeing almost needs to raise money anyways. I guess it 0:03:10.960 --> 0:03:13.440 might help them decide what amount of cash you. 0:03:13.480 --> 0:03:14.080 Need to raise. 0:03:14.919 --> 0:03:18.040 You know, I'm hearing stories that the supply chain still 0:03:18.040 --> 0:03:22.200 building at the rates prior to the strike. You know, 0:03:22.320 --> 0:03:25.799 components are stacking up on their you know, on their 0:03:25.840 --> 0:03:29.280 loading docks. I think the longer it goes, the harder 0:03:29.280 --> 0:03:31.920 it is to restart the line. The longer it takes 0:03:31.919 --> 0:03:34.440 to restart the line, and the longer it takes to 0:03:34.840 --> 0:03:38.320 generate cash. And I think Kelly Orpberg would prefer not 0:03:38.520 --> 0:03:41.320 to go to the equity markets for a lot of 0:03:41.320 --> 0:03:44.000 money and prefer not to have to draw down any 0:03:44.000 --> 0:03:45.880 additional debt, not that they've said they would do that 0:03:45.920 --> 0:03:46.600 at this point. 0:03:47.520 --> 0:03:50.120 So it's very important for the turnaround. 0:03:50.120 --> 0:03:53.200 And again, timing is crucial to keeping the supply chain 0:03:53.400 --> 0:03:56.120 I think healthy and ready to go. 0:03:56.760 --> 0:03:58.600 George talked to us about I know in the past 0:03:58.600 --> 0:04:02.000 you've you know, educated us about the cash and how 0:04:02.000 --> 0:04:02.800 the cash comes. 0:04:02.600 --> 0:04:04.640 In and cash leaves a company like Boeing. 0:04:04.360 --> 0:04:07.200 And it's it's tied pretty tightly to those seven three 0:04:07.280 --> 0:04:10.960 seven jets leaving the floor. 0:04:11.880 --> 0:04:13.360 How quickly can they restart it? 0:04:13.400 --> 0:04:16.400 And where do you think the build modes for that 0:04:16.480 --> 0:04:18.640 seven thirty seven jet will. 0:04:18.440 --> 0:04:20.200 Be and what do they need to be. 0:04:21.160 --> 0:04:23.160 Yeah, so, I mean they need to get that jet 0:04:23.240 --> 0:04:25.680 up into the into the mid forties and fifties. 0:04:26.640 --> 0:04:29.280 I think it's going to take them, you know. 0:04:29.320 --> 0:04:32.440 I think even if the strike ended today, I think 0:04:32.480 --> 0:04:34.400 they're not going to hit sort of you know, the 0:04:35.080 --> 0:04:38.320 forty ish Their target was thirty eight by the year end. 0:04:38.320 --> 0:04:39.839 I don't think they're going to hit maybe a forty 0:04:39.920 --> 0:04:42.320 ish level until midyear next year. 0:04:42.600 --> 0:04:43.120 They ought to be. 0:04:43.160 --> 0:04:47.480 Driving up towards towards fifty maybe hopefully by the end 0:04:47.480 --> 0:04:51.159 of next year if this strike ended relatively soon. You know, 0:04:51.200 --> 0:04:54.480 by comparison air buses competitor airplane the eight three twenty 0:04:54.960 --> 0:04:58.640 that's being built right now in the mid forties, you know, 0:04:58.680 --> 0:05:01.560 they're driving higher into the into the the they hope 0:05:01.600 --> 0:05:04.280 to be driving higher to the mid sixties think over 0:05:04.320 --> 0:05:06.720 the next year. So it hasn't gone as well for 0:05:06.760 --> 0:05:10.280 them as they like, but their competitor product is doing 0:05:10.360 --> 0:05:14.400 much better. This that is the cash cow for the company. 0:05:14.680 --> 0:05:17.600 Defense is really you know, back on its heels right 0:05:17.600 --> 0:05:20.000 now because of some of these big fixed price contracts 0:05:20.040 --> 0:05:22.360 they signed that are that are out of water, which 0:05:22.400 --> 0:05:24.960 makes it that much more important to get the seven 0:05:25.040 --> 0:05:29.240 thirty seven rolling off lines. And just I think an 0:05:29.279 --> 0:05:32.479 interesting point of comparison if you look at Poeing's inventory 0:05:32.600 --> 0:05:35.520 level last time we saw it too q eighty five 0:05:35.680 --> 0:05:40.000 billion dollars of inventory on their balance sheet. Their competitor 0:05:40.080 --> 0:05:43.839 airbus was in the mid forty level billion dollars, So 0:05:43.920 --> 0:05:46.040 you could tell that's just an example of how bloated 0:05:46.040 --> 0:05:49.200 that inventory level is and how much they can unlock 0:05:49.240 --> 0:05:51.960 as they start to deliver airplanes. But again seven thirty 0:05:52.040 --> 0:05:54.520 seven is the is the key to that, and they 0:05:54.600 --> 0:05:56.280 want to keep market share in that airplane too. 0:05:56.960 --> 0:05:59.760 Speaking of market Chare, I did want to get your 0:05:59.800 --> 0:06:03.040 take on how investors are thinking about Boeing. I mean, 0:06:03.160 --> 0:06:05.560 of course it's had a really troubled year when we 0:06:05.600 --> 0:06:08.360 think about twenty twenty four, but as you mentioned, they 0:06:08.400 --> 0:06:10.919 have Airbus as a competitor, but not too many competitors 0:06:10.960 --> 0:06:13.160 out there. So how do investors think about this when 0:06:13.200 --> 0:06:15.039 they're thinking about Boeing and its longevity? 0:06:16.120 --> 0:06:18.240 I think some of you know, what you've seen today 0:06:18.480 --> 0:06:22.080 in the stock price gives you a sense investors know 0:06:22.320 --> 0:06:27.880 it's a you know, it's a duopoly. And look, you know, 0:06:28.200 --> 0:06:30.640 we've been doing some work recently on the backlogs. And 0:06:30.680 --> 0:06:34.120 if you looked at Airbus's backlog for the competing airplane 0:06:34.120 --> 0:06:36.080 in the A three twenty I was just talking about 0:06:36.480 --> 0:06:37.960 competing to the seven thirty seven. 0:06:38.880 --> 0:06:41.240 You know, we think it's probably ten years of backlog 0:06:41.279 --> 0:06:42.280 in that airplane right now. 0:06:42.320 --> 0:06:45.400 Right so even if you stepped into Airbus's sales office, 0:06:45.440 --> 0:06:48.120 I'm sure it doesn't go, you know, all the way 0:06:48.160 --> 0:06:51.120 full out for ten years, because there's some airlines that'll 0:06:51.120 --> 0:06:53.880 come in and deliver or sorry, order out for a decade, 0:06:54.720 --> 0:06:57.640 but you're probably into the twenty thirties before you get 0:06:57.640 --> 0:06:58.400 that airplane. 0:06:58.680 --> 0:06:59.839 So if you when you're. 0:06:59.680 --> 0:07:02.640 Thinking about Boeing and you're thinking about the market share 0:07:02.720 --> 0:07:06.359 risks around this, striking the problems they've had, at least 0:07:06.440 --> 0:07:10.720 right now, if you want an airplane Boeing, you know 0:07:10.720 --> 0:07:14.640 it's probably your best place to buy a narrowbody, single 0:07:14.680 --> 0:07:18.160 aisle airplane, the seven thirty seven. So it's not like 0:07:18.240 --> 0:07:21.840 anybody's walking away with this business while Boeing is having 0:07:21.840 --> 0:07:25.320 their problems. I think investors know that the Chinese are coming, 0:07:25.360 --> 0:07:27.880 you know, they Comac the C nine one nine that's 0:07:27.880 --> 0:07:31.040 a narrowbody, single aisle airplane like the A three twenty 0:07:31.440 --> 0:07:34.600 seven thirty seven that's just rolling out into fleets in China. 0:07:34.680 --> 0:07:36.800 Now last week looked, I think there was eight or 0:07:36.840 --> 0:07:39.160 ten of them. They don't get the service out of 0:07:39.200 --> 0:07:41.800 them per day that Boeing and Airbus do. They get 0:07:41.840 --> 0:07:44.440 about half, so they're still sort of you know, they're 0:07:44.440 --> 0:07:47.200 still up coming up the learning curve, learning how to 0:07:47.240 --> 0:07:51.560 support that airplane in the marketplace. So that's no replacement yet, 0:07:51.960 --> 0:07:55.680 but that will move insize inside China in their fleets 0:07:56.200 --> 0:07:59.560 that's been a very important market for Boeing an airbus, 0:08:00.200 --> 0:08:03.880 and then it'll start to expand into that developing world 0:08:03.920 --> 0:08:06.960 around China. Bowling at Airbus I think would really like 0:08:07.000 --> 0:08:10.120 to get you know, they'd like to build at the 0:08:10.200 --> 0:08:13.320 at the highest rates possible, build their cash flows and 0:08:13.400 --> 0:08:16.360 come out with successor products in the twenty thirties and 0:08:16.480 --> 0:08:19.280 forties that stay ahead of the Chinese and keep them 0:08:19.280 --> 0:08:22.560 from taking significant market share. But again going back to 0:08:22.600 --> 0:08:26.400 your initial question, it's still a two airplane builder world. 0:08:26.440 --> 0:08:29.040 We don't see him Braier really getting into this business. 0:08:29.080 --> 0:08:32.360 So right now the narrow body the larger air commercial 0:08:32.400 --> 0:08:36.920 aircraft game. So it's really still a two manufacturer business 0:08:37.200 --> 0:08:39.320 and investors know that, and I think that's what, you know, 0:08:39.480 --> 0:08:41.600 what's leading to some of the action today. 0:08:41.679 --> 0:08:43.760 Well, I can see the fleet aging right before my eyes. 0:08:43.800 --> 0:08:47.720 I flew back from Charleston last week, Alex Steele and 0:08:47.760 --> 0:08:49.880 I did, and the seven thirty seven still had like 0:08:49.920 --> 0:08:52.760 the old card reader to get a TV show. I mean, 0:08:52.800 --> 0:08:55.960 that's like twenty year old tech technology. 0:08:56.040 --> 0:08:57.920 So I told I blame George for all that. He's 0:08:57.920 --> 0:08:58.960 got to get these people back to work. 0:08:59.040 --> 0:09:02.400 George Ferguson, Thanks for joining us there. George Ferguson's senior Aerospace, 0:09:02.400 --> 0:09:05.400 Defense and Airlines analyzes our go to person and all 0:09:05.400 --> 0:09:07.560 things as it relates to aerospace and airlines. He's a 0:09:07.559 --> 0:09:11.200 Bloomberg Intelligence then in Princeton. But it just seems like, 0:09:11.360 --> 0:09:13.559 you know, you think about I can just see all 0:09:13.640 --> 0:09:16.600 the you know, the stuff coming into the Boeing factory 0:09:16.600 --> 0:09:18.320 to make the plane and just sitting there and piling up, 0:09:18.360 --> 0:09:21.400 piling and appiling up because the line, the construction line, 0:09:21.400 --> 0:09:23.120 that the manufacturing line is not not running. 0:09:23.200 --> 0:09:25.520 So and I wonder how many people are still looking 0:09:25.559 --> 0:09:28.920 at what plane they're taking for flights. As you remember 0:09:29.240 --> 0:09:32.559 months back, things were falling apart and people were apprehensive, 0:09:32.559 --> 0:09:34.480 they were nervous about getting on Boeing planes. So I'm 0:09:34.480 --> 0:09:36.280 curious how many people are still shopping around when it 0:09:36.320 --> 0:09:37.160 comes to flights there. 0:09:37.320 --> 0:09:40.079 I never did that, and I always felt like you did. 0:09:40.200 --> 0:09:41.800 Guilty as charged, okay, because. 0:09:41.559 --> 0:09:43.920 I always I feel like the seven thirty seven Max 0:09:43.960 --> 0:09:46.400 is now the safest plane right because it's gone through 0:09:46.440 --> 0:09:47.000 so much. 0:09:47.440 --> 0:09:50.760 Testing in review, But I don't know, I mean, it's 0:09:51.240 --> 0:09:51.800 continue to do. 0:09:52.000 --> 0:09:54.920 Yeah, any of the USA or the Western airlines generally speaking, 0:09:55.120 --> 0:09:56.240 you know the safety. 0:09:55.880 --> 0:09:56.280 Is what it is. 0:09:56.320 --> 0:09:57.600 I think we feel pretty good about that. 0:09:57.720 --> 0:10:02.960 Right. You're listening to the Bloomberg Intelligence Podcast. Catch us 0:10:03.040 --> 0:10:06.400 live weekdays at ten am Eastern on applecar Play and 0:10:06.400 --> 0:10:09.320 Android Auto with the Bloomberg Business app. You can also 0:10:09.400 --> 0:10:12.920 listen live on Amazon Alexa from our flagship New York station, 0:10:13.280 --> 0:10:16.040 just say Alexa playing Bloomberg eleven thirty. 0:10:17.640 --> 0:10:19.320 Let's turn back to the US markets here again. 0:10:19.400 --> 0:10:21.600 Yes, and p I'm kind of down about five points now, 0:10:21.640 --> 0:10:23.960 off about one hundred and forty five and nasdak up 0:10:23.960 --> 0:10:27.680 twenty five. We check him with Phil Orlando, Federator at Hermes. 0:10:27.920 --> 0:10:30.120 He is our go to guys we think about some 0:10:30.160 --> 0:10:33.400 of these markets. He's a chief US equity market strategist 0:10:33.440 --> 0:10:36.280 and head of the client portfolio group there. Hey, Phil, 0:10:36.360 --> 0:10:38.280 I don't know if you saw this, but Goldman sachs 0:10:38.880 --> 0:10:40.480 out with the note saying, you know, if you think 0:10:40.480 --> 0:10:43.800 about the SMP over the next ten years, think about 0:10:44.040 --> 0:10:46.400 low single digit returns as opposed to what we've seen 0:10:46.440 --> 0:10:48.920 over the past ten years, which have been much better. 0:10:48.920 --> 0:10:52.040 When you see some a note like that, how do 0:10:52.040 --> 0:10:54.960 you kind of digest that well? 0:10:55.200 --> 0:10:58.320 I mean, Goldman's probably right, We've had such a phenomenal 0:10:59.400 --> 0:11:03.679 recovery in equities coming out of the depths of the pandemic, 0:11:03.840 --> 0:11:05.800 you know, four years ago, four and a half years ago, 0:11:05.880 --> 0:11:08.760 and just over the last year or so, that how 0:11:08.840 --> 0:11:11.800 much of this has borrowed from the returns that you 0:11:11.880 --> 0:11:15.640 might expect over the next decade. So Goldman, you know, 0:11:15.720 --> 0:11:18.920 adjusting their capital market assumptions and saying, you know, mid 0:11:18.960 --> 0:11:23.080 single digits over the next ten years probably feels right, 0:11:23.480 --> 0:11:26.240 particularly in light of the fact that we're you know, 0:11:26.320 --> 0:11:29.480 sitting here with thirty six trillion dollars in federal debt 0:11:30.200 --> 0:11:33.400 and a total debt to GDP ratio of one hundred 0:11:33.400 --> 0:11:37.000 and twenty five percent. Those numbers aren't sustainable, and you've 0:11:37.040 --> 0:11:40.319 got to believe that at some point Washington's going to 0:11:40.400 --> 0:11:45.520 find religion on trying to step away from the sugar 0:11:45.600 --> 0:11:48.640 high that we've seen over the last couple of years, 0:11:49.240 --> 0:11:52.120 with all of this massive amount of spending that'll have, 0:11:52.400 --> 0:11:55.360 you know, potentially a deleterious impact on economic growth and 0:11:55.440 --> 0:12:00.240 ultimately equity prices. So directionally, I don't disagree with what 0:12:00.320 --> 0:12:04.319 Goldman said. The case for active management, though, is that 0:12:05.160 --> 0:12:06.640 what you want to do, is you want to find 0:12:06.679 --> 0:12:10.560 good firms, good managers, good products that can do better 0:12:10.880 --> 0:12:15.600 than you know, the average. You know, those top quartile 0:12:15.720 --> 0:12:19.600 performers that will you know, will will help you generate 0:12:19.640 --> 0:12:22.760 the returns that you need for your you know, college 0:12:22.800 --> 0:12:24.800 funds or retirement funds or whatever else. 0:12:26.240 --> 0:12:28.679 Well, Phil, let's talk rates. Of course, we just got 0:12:28.679 --> 0:12:32.000 that jumbo rate cut just what felt like yesterday, and 0:12:32.040 --> 0:12:33.640 then here we're turning and we're going to be having 0:12:33.640 --> 0:12:35.800 another meeting in a matter of weeks. What do you 0:12:35.840 --> 0:12:37.840 expect to come out of that meeting? Of course, I know, 0:12:38.120 --> 0:12:40.960 as you flag just a month later after that last cut, 0:12:41.000 --> 0:12:44.599 we're seeing an economy that could be seen as reaccelerating 0:12:44.960 --> 0:12:47.720 and a labor market that has strengthened. What does this 0:12:47.800 --> 0:12:50.440 mean for markets? Do we see a rally continuing after 0:12:50.480 --> 0:12:51.920 this next meeting? And what do you expect from the 0:12:51.920 --> 0:12:52.680 next meeting to come? 0:12:53.440 --> 0:12:56.559 So to take half a step back, we were surprised 0:12:56.600 --> 0:12:58.960 by the pace of the fifty basis point raycut that 0:12:59.000 --> 0:13:03.240 the said gave us in September eighteenth. We think that 0:13:03.280 --> 0:13:06.880 the FED needs to sort of get back to you know, 0:13:06.960 --> 0:13:11.959 that quarter point level November seventh, December eighteenth, and then 0:13:12.000 --> 0:13:16.000 looking out over the next year and a half a 0:13:16.120 --> 0:13:19.760 quarter point cut per quarter, and that would take us 0:13:19.760 --> 0:13:22.520 down to a terminal value of the funds rate, let's 0:13:22.559 --> 0:13:24.559 say by the middle of calendar twenty sixth, at about 0:13:24.559 --> 0:13:29.160 three percent. We think that's a reasonable pace. And then 0:13:29.920 --> 0:13:34.559 to your point, given the seeming reacceleration that we've seen 0:13:34.559 --> 0:13:36.720 in the US economy over the last month or so 0:13:37.320 --> 0:13:41.960 and sort of the sticky nature of inflation, in the 0:13:42.040 --> 0:13:47.120 fact that the labor market in September was actually surprisingly strong. 0:13:48.440 --> 0:13:48.600 You know. 0:13:48.679 --> 0:13:51.720 Raphael Bostik, for one, the president of Atlanta FED, made 0:13:51.720 --> 0:13:54.160 a comment, I guess was last week where he said, 0:13:54.200 --> 0:13:57.120 you know what, maybe we should just skip November and 0:13:58.040 --> 0:14:00.680 you know, come back in December and see where we're at. 0:14:00.920 --> 0:14:04.000 So our view is that that the fifty we saw 0:14:04.000 --> 0:14:07.760 in September was probably a little too aggressive, and given 0:14:08.559 --> 0:14:10.920 sort of the tone of the economic data we've seen 0:14:10.960 --> 0:14:13.839 over the last month or so, you know, ratcheting back 0:14:13.920 --> 0:14:18.920 to a more conservative quarter point pace is probably more realistic. 0:14:19.880 --> 0:14:21.920 Phil We're just starting to get into the real teeth 0:14:21.920 --> 0:14:25.360 of the earnings season here. What have we seen so 0:14:25.440 --> 0:14:27.680 far from the big banks that have reported in and 0:14:27.680 --> 0:14:29.520 what do you think the market needs to see earnings 0:14:29.520 --> 0:14:32.120 wise from the corporate America. 0:14:33.040 --> 0:14:36.040 Well, the earnings haven't been bad. We're probably up four 0:14:36.080 --> 0:14:39.560 percent or so year every year, which is fine. We're 0:14:39.560 --> 0:14:42.920 probably gonna end up beating expectations as we usually do. 0:14:43.240 --> 0:14:48.240 But importantly, the earning season is going to be slower 0:14:48.280 --> 0:14:51.080 than the eleven or twelve percent year on year earnings 0:14:51.120 --> 0:14:54.240 we saw in the second quarter. And I think that's 0:14:54.280 --> 0:14:57.960 consistent with our soft landing thesis. We're not going negative, 0:14:58.440 --> 0:15:01.640 We're just gonna slow down, you know, sort of a 0:15:01.760 --> 0:15:06.040 trend to pace that that's you know, above zero, but 0:15:06.480 --> 0:15:09.520 nowhere near as hot as the double digit pace that 0:15:09.600 --> 0:15:12.560 we you know, we we saw in previous quarters. 0:15:13.840 --> 0:15:17.240 So expectations for this earning season are low. Does that 0:15:17.280 --> 0:15:20.360 support a further rally when we're looking at equities more 0:15:20.400 --> 0:15:24.120 broadly coming out of this earning season, Well, you. 0:15:24.080 --> 0:15:27.000 Know, we've seen a backup in treasury yields. From three 0:15:27.200 --> 0:15:29.640 fifty three sixty, we're up to you know, north of 0:15:29.720 --> 0:15:34.160 four to ten. Now, remember, price earnings ratios are inversely 0:15:34.240 --> 0:15:38.920 proportionate with the direction of inflation and interest rates. So 0:15:39.280 --> 0:15:42.880 the backup and yields suggested multiple should price earnings ratio 0:15:42.960 --> 0:15:46.600 should be contracting. Yet the stock market hit another, you know, 0:15:46.720 --> 0:15:51.040 all time record high last week. You've got stocks trading, 0:15:51.080 --> 0:15:54.400 the S and P trading at a forward multiple north 0:15:54.440 --> 0:15:58.480 of twenty one times on next year's earnings. We're estimating 0:15:58.520 --> 0:16:00.440 two hundred and seventy five dollars for S and P 0:16:00.600 --> 0:16:04.040 next year. Yet the appropriate pe on stocks, given what 0:16:04.160 --> 0:16:09.360 treasury yields are, is probably south of eighteen times earning. 0:16:09.400 --> 0:16:12.360 So you've got a valuation gap right now, you know, 0:16:12.400 --> 0:16:16.400 of about twenty percent in round numbers. In my mind, 0:16:16.520 --> 0:16:22.320 the market's extraordinarily enthusiastic here. It's looking through and discounting 0:16:23.040 --> 0:16:29.320 very favorable federal reserve behavior, very favorable election results, very 0:16:29.480 --> 0:16:35.560 favorable trajectory of economic roles and inflation. There's a lot 0:16:35.560 --> 0:16:38.720 of enthusiasm built in here that you know, maybe we 0:16:38.760 --> 0:16:40.440 ought to see a little bit of a pullback. 0:16:41.080 --> 0:16:43.040 All right, Phil, thanks so much for that. I always 0:16:43.040 --> 0:16:44.720 appreciate getting your thoughts on these markets. 0:16:44.720 --> 0:16:45.480 It's Phil Orlando. 0:16:45.600 --> 0:16:47.560 He's a chief equity market strategist and head of the 0:16:47.600 --> 0:16:50.200 client portfolio MANAFIT team at Federated Hermes. 0:16:50.960 --> 0:16:53.360 Zooming it in there from New York. 0:16:54.800 --> 0:16:58.680 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:16:58.760 --> 0:17:01.840 weekdays at ten Ami Staring on applecar Playing and broud 0:17:01.880 --> 0:17:04.960 Otto with the Bloomberg Business App. Listen on demand wherever 0:17:05.040 --> 0:17:08.880 you get your podcasts, or watch us live on YouTube. 0:17:10.080 --> 0:17:12.679 Normal Linda sitting in for Alex Steel. I'm Paul Sweeney. 0:17:12.680 --> 0:17:14.679 We're live here in our Bloomberg Interactive Broker Studio. 0:17:14.720 --> 0:17:17.520 We are streaming live on YouTube as well, so heitover 0:17:17.520 --> 0:17:20.000 to YouTube dot com search Bloomberg Podcast and that's where 0:17:20.040 --> 0:17:22.600 you will find us. Tensions in the Middle East, the 0:17:22.600 --> 0:17:24.960 military conflict in the Middle East still front and center 0:17:25.080 --> 0:17:27.879 for markets. We like to get some smart internal voices 0:17:27.920 --> 0:17:30.119 as well as external voices. And that brings us to 0:17:30.160 --> 0:17:33.600 our next guest, Ned Lazarius, Associate Professor of International Affairs 0:17:33.640 --> 0:17:38.720 at George Washington University, joining us via zoom from Washington, DC. Professor, 0:17:38.720 --> 0:17:41.639 thanks so much for joining us here. I'm just not 0:17:41.800 --> 0:17:44.919 sure what next steps are there in the Middle East. 0:17:45.000 --> 0:17:48.959 I guess one of them is what or how Israel 0:17:49.080 --> 0:17:53.439 will respond to the missile attack on Israel, as well 0:17:53.480 --> 0:17:56.359 as I guess a potential attack on Netahu's home. 0:17:56.760 --> 0:17:58.600 Where are we in that discussion? 0:17:59.640 --> 0:18:03.080 Well, you're quite right, this is a multi front war 0:18:03.400 --> 0:18:08.840 now with active multiple active fronts, with Israeli troops fighting 0:18:09.359 --> 0:18:12.639 in Gaza for over a year now, fighting on the 0:18:12.680 --> 0:18:17.399 ground in southern Lebanon, as well as continuing airstrikes north 0:18:17.800 --> 0:18:21.879 to the Dahia neighborhood of Beirutz, which is the Hesbalah stronghold. 0:18:22.320 --> 0:18:26.840 We are still seeing missiles fired from Iraq from Yemen 0:18:28.160 --> 0:18:31.040 from around the region, and we are waiting to see 0:18:31.040 --> 0:18:35.240 what will be the Israeli response to the massive, second 0:18:35.280 --> 0:18:40.840 massive Israel sorry Iranian missile barrage on Israel. We also, 0:18:40.960 --> 0:18:45.879 as you know, there was a recent leak of potential 0:18:46.000 --> 0:18:50.680 Israeli target plans that was leaked from the United States. 0:18:51.280 --> 0:18:54.200 I believe there's now a secret meeting going on or 0:18:54.760 --> 0:18:58.240 top secret meeting going on in Congress to discuss what 0:18:58.480 --> 0:19:01.480 happened and try to identify the source that seems to 0:19:01.520 --> 0:19:07.159 have leaked to the telegram social media Israeli planned that 0:19:07.200 --> 0:19:10.880 were shared with the United States, and it's possible that 0:19:10.880 --> 0:19:15.720 that source has more documents that may come to light 0:19:15.800 --> 0:19:19.960 as well, so that may throw a wrench in Israeli plans. 0:19:20.000 --> 0:19:24.280 If the plans that were leaked are accurate, It's all 0:19:24.359 --> 0:19:30.200 unclear as has been the case throughout this war. The 0:19:30.320 --> 0:19:32.880 only things that seem to be well known or that 0:19:32.920 --> 0:19:39.440 Israel intends to strike back at Iran, that there has 0:19:39.480 --> 0:19:44.040 been a tremendous amount of coordination and discussion with the 0:19:44.160 --> 0:19:49.399 United States, given the sensitivity of our electoral calendar, with 0:19:49.400 --> 0:19:52.080 our election coming up in just over two weeks. 0:19:52.720 --> 0:19:55.760 Well, as you mentioned, we do have a presidential election 0:19:55.880 --> 0:19:57.760 in just a matter of weeks. In the US is 0:19:57.800 --> 0:20:00.560 hopeful for a cease fire before then, and it's been 0:20:00.600 --> 0:20:03.960 reported that the Secretary of State Anthony Blincoln is said 0:20:04.000 --> 0:20:07.639 to visit Israel among other countries in the area starting today, 0:20:07.640 --> 0:20:10.240 and this one his eleventh visit in the region since 0:20:10.320 --> 0:20:12.880 last October. Can you speak a bit more about how 0:20:12.920 --> 0:20:14.400 the US is playing a role. 0:20:16.200 --> 0:20:20.439 Blincoln is headed there almost Hochstein, the President's Special envoy, 0:20:21.119 --> 0:20:25.080 who has been back and forth between Lebanon, Israel, and 0:20:26.359 --> 0:20:31.199 Washington for months is there again this week. They're making 0:20:31.560 --> 0:20:35.240 every effort to i think, at least keep it from 0:20:35.320 --> 0:20:41.320 spiraling further out of control and to try and manage 0:20:41.560 --> 0:20:47.280 Israel's responses in line with US interests. But they certainly 0:20:47.320 --> 0:20:52.919 cannot control events, as we've seen events there, you know, 0:20:52.960 --> 0:20:59.320 are beyond anyone's control, and even include surprises such as 0:20:59.800 --> 0:21:04.159 the killing of Hamas leader Yehia Sinoar less than a 0:21:04.160 --> 0:21:07.880 week ago, who was killed by Israeli regular infantry troops 0:21:07.920 --> 0:21:12.080 who did not know that it was him. And this 0:21:12.160 --> 0:21:17.000 is a massively important event which may eventually help turn 0:21:17.359 --> 0:21:20.840 the course of the war. I do not expect a 0:21:20.880 --> 0:21:25.440 ceasefire before the US election. There is just simply too 0:21:25.520 --> 0:21:30.280 much going on. It's too escalated of a conflict at 0:21:30.320 --> 0:21:32.800 the moment. As you said, we were waiting for Israel's 0:21:32.840 --> 0:21:38.720 response to the Iranian attack. It is possible, not unthinkable, 0:21:38.760 --> 0:21:42.080 that Israel would delay until after the US election, but 0:21:42.760 --> 0:21:46.440