WEBVTT - Bloomberg Surveillance: Holiday Equity Markets 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best an economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.080 --> 0:00:32.320 With us around the table and please to say Jack Caffrey, 0:00:32.400 --> 0:00:36.120 Equity portfolio manager at JP Morgan Asset Management, Mornajack. 0:00:35.720 --> 0:00:36.240 Good morning. 0:00:36.360 --> 0:00:38.480 What do we need to see to get this rally 0:00:38.520 --> 0:00:40.000 to broaden out it's next year? 0:00:40.640 --> 0:00:44.040 Well, I think let's break this down into three steps, 0:00:44.080 --> 0:00:47.800 if you will. The holiday rally is certainly very much 0:00:47.800 --> 0:00:50.479 in force. As Tom just mentioned, It's November has been 0:00:50.520 --> 0:00:52.960 a really good year. I think against the context of 0:00:52.960 --> 0:00:55.360 what most people would have been putting forth as an 0:00:55.400 --> 0:00:58.600 idea of what to expect with the end of say 0:00:59.160 --> 0:01:01.400 tex selling, with the return of the corporate bid, with 0:01:01.600 --> 0:01:04.280 earnings actually now being positive year on ear you have 0:01:04.360 --> 0:01:08.040 the ingredients of the next month two three of things 0:01:08.080 --> 0:01:10.600 being able to I think move a bit higher, you know, 0:01:10.760 --> 0:01:13.440 turning to what gets you a broader market rather than 0:01:13.520 --> 0:01:16.920 an extraordinarily narrow market, I think is a I hate 0:01:16.920 --> 0:01:19.360 to say, we stop kicking the can down the road 0:01:19.520 --> 0:01:22.360 in terms of what a continuing resolution turns into. How 0:01:22.400 --> 0:01:25.200 do we actually get some clarity on what federal spending 0:01:25.280 --> 0:01:28.480 might look like for a long enough time that we 0:01:28.520 --> 0:01:30.760 can then just worry about the election rather than how 0:01:30.760 --> 0:01:31.959 we're going to finance. 0:01:31.600 --> 0:01:32.920 The election and our government. 0:01:33.760 --> 0:01:35.399 And then I do think you're going to have a 0:01:35.440 --> 0:01:39.640 continued tug of war between the earnings outlook and the 0:01:39.800 --> 0:01:44.080 multiple where what happens in bond markets becomes really important. 0:01:44.400 --> 0:01:46.320 It's interesting that the first thing that you pointed to 0:01:46.480 --> 0:01:49.680 was the political calendar in twenty twenty four. Is it 0:01:49.800 --> 0:01:50.640 that important for you? 0:01:53.120 --> 0:01:56.040 Equity markets want to find something to worry about. And 0:01:56.200 --> 0:02:00.320 to the extent that most economics students chose to away 0:02:00.320 --> 0:02:02.840 from political science for a reason. We wanted to pretend 0:02:02.840 --> 0:02:07.360 we understood the math rather than understanding the psychology. And 0:02:07.760 --> 0:02:10.200 what we come back to and and and where you know, 0:02:10.240 --> 0:02:13.120 I actually have a degree, quote a formerly in political economy, 0:02:13.639 --> 0:02:16.119 and at that point in time, like why, I'm like, well, 0:02:16.160 --> 0:02:18.160 I kind of think government writes the rules under which 0:02:18.200 --> 0:02:20.680 the economy operates. So it would help me to understand 0:02:20.919 --> 0:02:23.000 who's writing those rules and what they're going to set 0:02:23.040 --> 0:02:25.600 them up to be. So, you know, paying for all 0:02:25.639 --> 0:02:26.520 of it kind of matters. 0:02:26.880 --> 0:02:28.760 Jack, What do people do with that have single digit 0:02:28.840 --> 0:02:31.600 returns this year? You've been doing this for ages, and 0:02:31.639 --> 0:02:34.679 there's those certain years where we're all behind. 0:02:35.480 --> 0:02:36.560 How do you catch up? 0:02:37.080 --> 0:02:39.200 I'm trying to figure that out because I'm behind this year. 0:02:41.520 --> 0:02:43.079 Answer. We want an answer now? 0:02:43.280 --> 0:02:45.120 Oh okay, well I should have bought a lot more 0:02:45.120 --> 0:02:47.720 in Nvidia would have been an important thing, but it 0:02:47.760 --> 0:02:51.400 doesn't really fit in a divid and growth mandate. I 0:02:51.400 --> 0:02:53.720 think ultimately it comes back to that question of broadening 0:02:54.400 --> 0:02:57.080 A and B. I think, you know, if you look 0:02:57.120 --> 0:02:59.720 at a strategy, earnings are supposed to be down this year, 0:02:59.720 --> 0:03:03.480 they want that being up. Dividends are up mid single digits. 0:03:03.520 --> 0:03:05.360 You know, you can find portfolios of stock set of 0:03:05.360 --> 0:03:07.119 dividends that are up low double digit. 0:03:07.240 --> 0:03:10.440 Do you fault big tech because they don't pay big 0:03:10.520 --> 0:03:13.680 dividends or establish double digit dividend growth? 0:03:14.160 --> 0:03:16.720 I don't think you can fault big tech for behaving 0:03:16.720 --> 0:03:19.520 in a way that they're rewarded. So to the extent 0:03:19.560 --> 0:03:21.680 that you can have companies that are valued on a 0:03:21.680 --> 0:03:24.320 price to sales basis. What everyone is telling you is, 0:03:24.320 --> 0:03:27.440 we're not actually asking you to have earnings, so to 0:03:27.480 --> 0:03:30.360 the extent that you can have an entire you know, 0:03:30.400 --> 0:03:32.799 almost thirty percent of a market which doesn't have to 0:03:32.880 --> 0:03:37.040 manage itself from an earnings perspective to a consistent cash 0:03:37.120 --> 0:03:40.880 return to its investors. You know, those management teams are 0:03:40.920 --> 0:03:43.160 going to do what they've done and continue to do that. 0:03:43.880 --> 0:03:46.640 I think, you know, dividends offer a real check on 0:03:46.680 --> 0:03:48.760 earnings and a real return of investors and let them 0:03:48.800 --> 0:03:49.720 decide where to reinvest. 0:03:49.760 --> 0:03:53.360 Lisa, Nvidia drowning in debt one point one percent. 0:03:53.840 --> 0:03:56.440 Well, this is a cash flow just bonanza, right, And 0:03:56.480 --> 0:04:00.800 at what point are we pricing in a potential continuation 0:04:01.200 --> 0:04:03.920 of the pace of acceleration of that cash bonanza into 0:04:03.920 --> 0:04:05.640 the future. How do you even game out what we're 0:04:05.680 --> 0:04:08.720 pricing in given some of the moonshots we've seen. 0:04:09.200 --> 0:04:11.400 In Nvidia today reminds me a lot of Cisco in 0:04:11.440 --> 0:04:15.120 the late nineties as having been that defining stock that 0:04:15.360 --> 0:04:18.200 somehow sat in the middle. So what Cisco was to 0:04:18.240 --> 0:04:21.960 the Internet and the completely network world, everyone hung on 0:04:21.960 --> 0:04:24.560 what John Chambers would say at four oh one, where 0:04:24.560 --> 0:04:27.479 he would shockingly manage to beat earnings time after time 0:04:27.520 --> 0:04:29.840 after time, and ultimately it came down to when his 0:04:29.920 --> 0:04:33.360 customers ran out of money to keep buying his servers. 0:04:34.080 --> 0:04:37.320 Nvidia now sits in that particular position where they can 0:04:37.360 --> 0:04:40.160 sit there and look at the capital spending of Microsoft, 0:04:40.240 --> 0:04:45.800 of Amazon, of Alphabet with some reworkschips, of what China 0:04:45.839 --> 0:04:47.920 intends to do in AI, what certain countries in the 0:04:47.920 --> 0:04:51.200 Middle East seem to be doing in order to actually 0:04:51.240 --> 0:04:54.000 build up their own AI equivalent. And you'll come back 0:04:54.040 --> 0:04:56.720 to you at what point does the investments as other 0:04:56.760 --> 0:05:00.719 people are making start actually becoming more challenged? What's different 0:05:00.800 --> 0:05:03.280 now versus the nineties example, where I have to admit 0:05:03.320 --> 0:05:07.440 there's a difference. Cisco's customers were all detfinanced, and so 0:05:07.480 --> 0:05:11.400 what the FED wound up doing draining liquidity, taking down 0:05:11.440 --> 0:05:13.440 the concerns and the flood of liquidity for Y two 0:05:13.480 --> 0:05:16.479 K for people who remember ancient history, is very different 0:05:16.800 --> 0:05:20.400 than an extraordinarily powerful base of very profitable cash flow 0:05:20.480 --> 0:05:23.960 generating companies, which for the most part aren't being asked 0:05:24.040 --> 0:05:26.760 or pressed to return cash to their investors. Some cases 0:05:26.800 --> 0:05:28.920 thanks to dual voting stock that they're not ever going 0:05:28.920 --> 0:05:29.440 to be pressed. 0:05:29.680 --> 0:05:32.240 This is a fascinating point. In other words, it's how 0:05:32.279 --> 0:05:35.240 long do the customers have open pocketbooks and plenty of 0:05:35.240 --> 0:05:39.279 cash and their customers have big open pocketbooks and massive 0:05:39.360 --> 0:05:41.800 quantities of cash. So how much can you see the 0:05:41.839 --> 0:05:44.119 moonshot continuing in some of these names that we didn't 0:05:44.120 --> 0:05:46.560 appreciate perhaps at the beginning of the year. 0:05:46.800 --> 0:05:47.760 Well, I think. 0:05:49.440 --> 0:05:53.320 Wall Street loves an easy store to understand. AI is 0:05:53.360 --> 0:05:56.479 conceptually really hard to understand. But if everyone wants to 0:05:56.520 --> 0:05:59.599 do it, everyone is going to keep spending. And certainly 0:05:59.680 --> 0:06:01.919 right now, you know, the cost of capital is higher, 0:06:01.920 --> 0:06:05.679 but it's still not all that burdensome against a longer 0:06:05.760 --> 0:06:09.159 term history of what money should cost, to the extent 0:06:09.200 --> 0:06:12.440 that the companies which are really driving that spending either 0:06:12.440 --> 0:06:14.480 have access to a blank check if you're in China 0:06:14.600 --> 0:06:20.000 effectively from state financing or personal financing and ultimately coming through. 0:06:20.520 --> 0:06:22.400 But you know, when you look through Whire, people somewhat 0:06:22.400 --> 0:06:25.159 disappointed in Nvidia. I think this morning it's oh, okay, 0:06:25.240 --> 0:06:28.520 that's all you've done for me, Like, yeah, what's double digit? 0:06:28.600 --> 0:06:30.960 What's a you know, effectively a two hundred percent gain 0:06:31.040 --> 0:06:31.760 year on year. 0:06:31.640 --> 0:06:33.680 Shipped in revenue in a year or something. It's it's 0:06:33.720 --> 0:06:34.320 kind of nuts. 0:06:36.040 --> 0:06:37.960 It kind of speaks to being a unique company and 0:06:38.839 --> 0:06:41.560 unique place in time. But that comes back to at 0:06:41.560 --> 0:06:44.359 some point, what have you done for really lately? 0:06:44.640 --> 0:06:46.400 And that's where we are this morning, Lisa. I think 0:06:46.520 --> 0:06:49.720 investors also they sort of gravitate towards stories they believe 0:06:49.720 --> 0:06:51.400 a divorce from the cycle because they don't want to 0:06:51.400 --> 0:06:53.600 talk about the cycle anymore. And this is one of 0:06:53.640 --> 0:06:55.600 those trends that you can just see out beyond a 0:06:55.640 --> 0:06:58.120 recession a year, two, three, four, five years down a road. 0:06:58.240 --> 0:07:01.120 Well said, it also doesn't necessarily have a cyclical feel, 0:07:01.160 --> 0:07:03.720 since we're looking right now at something that is a 0:07:03.760 --> 0:07:06.720 moonshot in a very specific slice of history and has 0:07:06.760 --> 0:07:08.440 the dominant, dominant footprint. 0:07:08.640 --> 0:07:13.080 Quickly, Jack, I'm calling the bullmarket the income poor Yourdenni 0:07:13.120 --> 0:07:17.160 bullmarket two fossils from the past like you. And the 0:07:17.240 --> 0:07:20.840 answer here is is this a legit bull market? And 0:07:20.880 --> 0:07:23.320 are we a seventy seven analog where this is the 0:07:23.360 --> 0:07:25.640 second leg of a bull market? You got a lot 0:07:25.680 --> 0:07:29.560 of scared people over at JP Morgan, don't you. 0:07:29.560 --> 0:07:31.680 You've got some really enthusiastic people. You've got some really 0:07:31.680 --> 0:07:33.280 scared people. That's the beauty of having. 0:07:33.960 --> 0:07:35.760 Is it the second leg of a bull market? 0:07:37.120 --> 0:07:39.440 Yea, we've had a great year this month, and if 0:07:39.480 --> 0:07:41.080 we go back and look back two years, we're still 0:07:41.080 --> 0:07:43.560 down two percent. So you know, we haven't really re 0:07:43.720 --> 0:07:46.760 entered that bull market because we're still not back too highs. 0:07:47.560 --> 0:07:49.880 To really make the sustainable highs, you actually need more 0:07:49.880 --> 0:07:52.640 people playing along than what I call the sacred seven, 0:07:52.960 --> 0:07:55.920 not the magnificent seven, because I'm trying to avoid theological 0:07:55.920 --> 0:07:59.480 belief in terms of growth rate. But I do come 0:07:59.520 --> 0:08:01.520 back to you. You know, what we had was a 0:08:01.560 --> 0:08:04.560 good growth quarter. It seems like we got that because 0:08:04.600 --> 0:08:08.239 the inventory supply chain finally got fixed. Companies could actually 0:08:08.280 --> 0:08:10.760 fill the orders right and right now the concern is, well, 0:08:10.840 --> 0:08:13.880 orders are seemingly drying up a little bit because you 0:08:13.880 --> 0:08:15.800 don't have to double order anymore because you actually get 0:08:15.800 --> 0:08:16.120 your stuff. 0:08:16.200 --> 0:08:18.480 John, did you see this percent change on the standard 0:08:18.520 --> 0:08:19.880 of four or five hundred. 0:08:19.720 --> 0:08:20.480 The canon it now? 0:08:21.200 --> 0:08:23.440 Yeah, today we're at big time month to day, up 0:08:23.480 --> 0:08:26.760 something like eight percent. Amazing on a session at the moment, 0:08:26.760 --> 0:08:29.920 we're positive by zero zero point two percent Jack, you 0:08:30.000 --> 0:08:31.400 and I have had the privilege of talking together for 0:08:31.400 --> 0:08:32.880 a long long time. I just wanted to squeeze in 0:08:32.880 --> 0:08:34.920 your call on housing because you've had some interesting calls 0:08:34.920 --> 0:08:37.160 associated with that part of the economy. What's the call now? 0:08:37.880 --> 0:08:42.160 You know it's certainly last several months. My bias has 0:08:42.200 --> 0:08:45.480 been we're living in the renovation nation, the idea that 0:08:45.720 --> 0:08:48.640 you know, with an eight percent mortgage rate, people are 0:08:48.720 --> 0:08:52.920 almost trapped concept trapped in your thirty year mortgage at 0:08:52.920 --> 0:08:56.400 two and three quarters percent. The shame, the shame. But 0:08:56.520 --> 0:08:59.960 you're certainly going to see I think some freeing up 0:09:00.679 --> 0:09:03.840 of housing activity. I do think that comes back to, 0:09:04.559 --> 0:09:06.400 you know, will the bond traders finally be right and 0:09:06.400 --> 0:09:08.839 we start getting some ray cuts next year rather than 0:09:08.960 --> 0:09:12.079 this permanently high plateau that the Fed is talking about, 0:09:12.080 --> 0:09:14.160 which kind of reminds me of Irving Fisher about nineteen 0:09:14.160 --> 0:09:17.199 twenty nine, except now it's bonds not stocks. 0:09:17.679 --> 0:09:20.200 This was a clinic Jack, Thank you, Jack Cash so 0:09:20.280 --> 0:09:21.760 much of JP morgan esimage. 0:09:32.120 --> 0:09:32.640 This is a. 0:09:32.640 --> 0:09:36.000 Joy and away from the horror of the Eastern Mediterranean. 0:09:36.040 --> 0:09:39.240 To have Aaron David Miller with us is wonderful. He 0:09:39.280 --> 0:09:42.840 wrote a book in twenty fourteen, which ought to be 0:09:42.880 --> 0:09:46.640 reissued this morning. He's senior fellow Carnegie Endowment for a 0:09:46.760 --> 0:09:50.840 National Peace and aaron with respect to our president, and 0:09:50.920 --> 0:09:55.559 to take your wonderful book here on the end of Greatness, 0:09:55.720 --> 0:09:59.520 I want you to describe how you perceive any given president, 0:09:59.559 --> 0:10:04.439 but in this case President Biden with mister net Yahoo, 0:10:04.840 --> 0:10:09.240 how should we interact? How should our president lead? Dare 0:10:09.280 --> 0:10:12.400 I say, Israel to a better future? 0:10:13.800 --> 0:10:16.120 That's a very good question. And the president has been 0:10:16.160 --> 0:10:19.040 roundly criticized by just about everybody who with the exception 0:10:19.200 --> 0:10:21.640 of the Republican Party that has sort of emerged as 0:10:21.679 --> 0:10:25.640 the Israel Can Do No Wrong party for restraining Israel 0:10:25.760 --> 0:10:30.000 from not cracking down on the exponential rise in Palestinian 0:10:30.040 --> 0:10:33.959 deaths and the humanitarian catstroe in Gaza. You know, I mean, 0:10:34.240 --> 0:10:37.440 I'm you know, a pithy of the Oracle at Delphi 0:10:37.520 --> 0:10:40.000 reading the best of Golden Trails. Can't tell you how 0:10:40.040 --> 0:10:42.560 this content is going to end. But I will say 0:10:42.559 --> 0:10:45.160 one thing is predictable, and that is Joe Biden's response 0:10:45.200 --> 0:10:49.600 to this crisis. For three reasons, his persona, the fact 0:10:49.600 --> 0:10:52.080 that the presidential model here is Bill Clinton, though a 0:10:52.120 --> 0:10:54.520 generation of part. Both of these men have this peter 0:10:54.640 --> 0:10:58.040 natural love. I would say, I use the word intentionally 0:10:58.440 --> 0:11:01.480 for Israel in a high regard for its security. President 0:11:01.520 --> 0:11:05.000 reacted to October seven in a powerful speech on October tenth, 0:11:05.000 --> 0:11:08.479 was set to frame for his reaction. Second is politics. 0:11:08.559 --> 0:11:12.439 You have a deeply divided Democratic Party, progressives and even 0:11:12.520 --> 0:11:17.120 mainstream Democrats, some of whom are calling for more restraint. 0:11:18.320 --> 0:11:21.040 But again in twenty twenty four, I don't think the 0:11:21.040 --> 0:11:24.320 president wants to leave himself vulnerable to Republican charges that 0:11:24.360 --> 0:11:28.160 he's weak on his role. And the third p persona 0:11:28.440 --> 0:11:33.120 politics is policy constraints. The fact is Biden doesn't have 0:11:33.160 --> 0:11:36.080 any better answers to the three cruel dilemmas that the 0:11:36.120 --> 0:11:41.199 Israelis face. Number One, prosecute a war against Tamas and 0:11:41.240 --> 0:11:45.679 eradicate it in a densely populated urban area without endangering 0:11:45.720 --> 0:11:48.440 and killing large numbers of Palestinians. And then what do 0:11:48.480 --> 0:11:50.199 you do about the day after. I don't think the 0:11:50.360 --> 0:11:52.760 nutrition that are sensing the is rallies eron. 0:11:52.840 --> 0:11:55.000 You know, I look at the collective memory loss, and 0:11:55.040 --> 0:11:57.560 it may be as far back beyond nineteen forty eight, 0:11:58.160 --> 0:12:01.320 or certainly nineteen sixty seven. We have a youth of 0:12:01.360 --> 0:12:05.080 America that seems removed from our collective memories of the 0:12:05.120 --> 0:12:06.359 Eastern Mediterranean. 0:12:06.920 --> 0:12:09.360 How do either political party. 0:12:09.720 --> 0:12:14.680 Corral the youth of America towards an understanding of America's 0:12:14.760 --> 0:12:17.640 effort in diplomacy in the Eastern Mediterranean. 0:12:18.400 --> 0:12:23.559 I think it's virtually given the generational divides identity politics 0:12:24.400 --> 0:12:27.600 the sort of a symmetry of power where the stronger party, 0:12:27.640 --> 0:12:31.000 regardless of its motivations or context, is perceived to be 0:12:31.120 --> 0:12:35.080 the goliath and the smaller party perceived to be the David. 0:12:35.600 --> 0:12:38.959 I'm not sure that's possible. I mean, I would argue 0:12:38.960 --> 0:12:44.200 public service, but then again, I'm old and probably out 0:12:44.200 --> 0:12:47.000 of touch with this generation. You know, when it comes 0:12:47.000 --> 0:12:49.480 to foreign policy, I think George Will was right for 0:12:49.600 --> 0:12:52.880 most Americans, and I think even for young Americans they 0:12:52.920 --> 0:12:55.839 want as little of it as possible. So the fight, 0:12:55.920 --> 0:13:00.640 the struggle, the focus is here at home. I worry 0:13:00.640 --> 0:13:03.160 about that young generation. I have two forty year old 0:13:03.559 --> 0:13:06.320 kids who I think are committed trying to leave the 0:13:06.360 --> 0:13:09.120 world a better place. They are interested in foreign policy. 0:13:10.160 --> 0:13:12.920 My bias has become theirs to a degree. I think 0:13:12.920 --> 0:13:14.480 it's hard, it's really hard. 0:13:14.760 --> 0:13:18.240 I'm depressed when somebody young is forty, Okay, I just 0:13:18.240 --> 0:13:19.200 want to let you know that. 0:13:19.480 --> 0:13:22.040 But Erin, I am curious how you see this evolving 0:13:22.080 --> 0:13:24.480 in terms of if we've been all talking about what 0:13:24.960 --> 0:13:27.640 some sort of humanitarian pause or cease fire or whatever 0:13:27.679 --> 0:13:30.040 you want to call it, a cessation in fighting for 0:13:30.080 --> 0:13:32.960 four or five days to allow the hostages to go 0:13:33.000 --> 0:13:36.480 home to their families, to allow for humanitarian aid to 0:13:36.600 --> 0:13:39.360 enter Gaza, what does that lead to? Do we have 0:13:39.440 --> 0:13:42.280 a sense of what different camps want after that? 0:13:43.120 --> 0:13:44.880 I think that's the broke the code. 0:13:44.880 --> 0:13:47.040 I think that's the key question is what we're win 0:13:47.160 --> 0:13:50.640 the scene within the next twenty four hours, when fifty 0:13:51.679 --> 0:13:55.200 Israeli women and children will be released, hopefully three Americans, 0:13:55.240 --> 0:13:59.600 including a three year old that Bob to celebrate birthday. 0:14:00.440 --> 0:14:02.480 Is this a headline or is this a trend line. 0:14:03.000 --> 0:14:06.720 Hamas took prisoners for two reasons. Number one, to trade 0:14:06.760 --> 0:14:11.840 them for asymmetrical number of Palestinians released from Israeli jays 0:14:11.880 --> 0:14:15.720 one hundred and fifty in this trade, because this resonates 0:14:15.760 --> 0:14:19.480 deeply into Palestinian street. Hamas also took hostages in order 0:14:19.480 --> 0:14:25.040 to constrain and delay an Israeli ground campaign. The hope 0:14:25.160 --> 0:14:28.280 is that pressurable amount. A four day pause will turn 0:14:28.320 --> 0:14:31.600 into a six, seven, eight, ten day pause, pressurable amount 0:14:31.640 --> 0:14:35.240 for what Hamas really wants, which is extended in prolonged 0:14:35.280 --> 0:14:40.720 cease fire. That is going to be extremely problematic an 0:14:40.760 --> 0:14:45.800 Israeli government that seems to have no intention of stopping 0:14:46.000 --> 0:14:49.040 its military campaign. But pressure is going to rise. And 0:14:49.080 --> 0:14:52.360 we have two clocks sticking. The Israeli operational clock which 0:14:52.400 --> 0:14:56.880 is ticking much slower weeks, perhaps months biden than the 0:14:56.920 --> 0:15:02.640 international community's political clock. She's taking much faster under the 0:15:02.760 --> 0:15:06.360 humanity pressure of the humanitarian catastrophe in Carza and the 0:15:06.440 --> 0:15:08.640 exponential rise in Palestinian deaths. 0:15:09.560 --> 0:15:11.960 Seems to me this situation. 0:15:11.840 --> 0:15:14.280 Is going to get worse before it gets much worse. 0:15:14.480 --> 0:15:15.040 I'm afraid. 0:15:15.600 --> 0:15:18.160 Back to back clinics on this program in the last 0:15:18.160 --> 0:15:21.400 thirty minutes, Aaron David Mela that of the canagiantownment for 0:15:21.520 --> 0:15:23.720 international pace just phenomenal. 0:15:28.120 --> 0:15:30.840 It is a wonderful tradition for us to write size 0:15:30.880 --> 0:15:34.440 the airline industry all that we hated joining us now. 0:15:34.440 --> 0:15:38.600 Helene Becker, senior research analyst at tid Cohen Halene, let 0:15:38.640 --> 0:15:41.800 me just start with the basic idea, when does it 0:15:41.840 --> 0:15:47.680 get better? When does American aviation not so much nostalgically 0:15:47.840 --> 0:15:51.480 harken back to what we remember, but gets to a new, 0:15:51.800 --> 0:15:53.040 more constructive model. 0:15:54.760 --> 0:15:58.040 Thanks Tom So. I think we're in this period of 0:15:58.080 --> 0:16:00.960 time now for a few years where we don't have 0:16:01.120 --> 0:16:05.760 enough air traffic controllers, So anytime there's a rain cloud 0:16:05.840 --> 0:16:08.720 in the area, and a lot of the controllers we 0:16:08.840 --> 0:16:12.080 have are less experienced than the ones who are retiring. 0:16:13.400 --> 0:16:16.440 They slow things down, and they do it for safety purposes, 0:16:16.480 --> 0:16:20.040 but it's frustrating for passengers. You've seen in the New 0:16:20.120 --> 0:16:24.000 York area especially, but it will occur in other markets. 0:16:25.680 --> 0:16:29.040 The FAA asking the airlines that serve the market to 0:16:29.080 --> 0:16:32.800 cut capacity, so we've seen this trend to more seats 0:16:32.800 --> 0:16:36.600 per departure and fewer departures per day in an effort 0:16:36.760 --> 0:16:40.720 to smooth things out. And then just in terms of 0:16:40.760 --> 0:16:44.760 people traveling, I think people are tired of not being 0:16:44.800 --> 0:16:47.360 able to go away. And you've seen that, right, You 0:16:47.400 --> 0:16:50.360 saw it in twenty twenty two. You're seeing it really 0:16:50.440 --> 0:16:54.440 aggressively as people travel in twenty three, and we definitely 0:16:54.480 --> 0:16:56.600 expect it to continue. 0:16:56.480 --> 0:16:59.120 On this weekend with this weather. What do you focused 0:16:59.200 --> 0:17:00.040 on in the team. 0:17:00.080 --> 0:17:04.359 Cohen, We're looking at the traffic numbers, and we're looking 0:17:04.400 --> 0:17:08.119 at where people are going, and what we're seeing is 0:17:08.119 --> 0:17:13.479 an increasing increasingly number, increasing number of people going outside 0:17:13.520 --> 0:17:18.240 the country actually for the holidays with their family. I 0:17:18.240 --> 0:17:21.320 don't think people may be tired of cooking at home, 0:17:21.760 --> 0:17:23.480 they don't want to go to a restaurant for their 0:17:23.520 --> 0:17:26.960 Thanksgiving dinner, so they change their mind and they go traveling. 0:17:27.200 --> 0:17:29.760 And we're seeing an awful lot of that, and again, 0:17:29.840 --> 0:17:30.800 I think that's a good thing. 0:17:31.119 --> 0:17:33.360 I'm looking right now in some prices to a couple 0:17:33.440 --> 0:17:35.800 of places, and they've come down really markedly. I mean, 0:17:35.840 --> 0:17:39.439 I'm actually surprised by how much lower they are this 0:17:39.560 --> 0:17:41.560 time of the year than last time of the year. 0:17:41.800 --> 0:17:44.120 There was a story on the Bloomberg talking about how 0:17:44.240 --> 0:17:47.800 airplanes have been actually increasing capacity in response to what 0:17:47.800 --> 0:17:49.840 you're talking about the demand from the consumers, but they're 0:17:49.840 --> 0:17:52.639 having trouble now filling the seats. Are we seeing the 0:17:52.760 --> 0:17:55.399 shift that could really change the picture in a more 0:17:55.440 --> 0:17:56.600 material way for next year? 0:17:58.400 --> 0:18:01.200 I think we are. Actually what we're saying for next 0:18:01.280 --> 0:18:05.439 year is that domestic is going to be normal, whatever 0:18:05.520 --> 0:18:09.200 that is. But it will be normal seasonal travel patterns, 0:18:09.240 --> 0:18:11.200 more so than we've seen in the last few years. 0:18:12.119 --> 0:18:15.000 I call it for as the new three. Lisa, your 0:18:15.040 --> 0:18:17.160 boss wants you back in the office three or four 0:18:17.240 --> 0:18:19.359 days a week instead of two or three days a week, 0:18:19.760 --> 0:18:23.120 so makes it harder to take that long weekend. Kids 0:18:23.119 --> 0:18:25.320 are back in school five days a week, so again 0:18:25.400 --> 0:18:27.000 it makes it hard to just pull them out and 0:18:27.040 --> 0:18:31.159 go somewhere. So we're seeing that more normalized travel pattern 0:18:31.200 --> 0:18:33.359 in the domestic market. I think what you're going to 0:18:33.359 --> 0:18:38.240 see internationally is increased capacity because that's where the demand was. 0:18:38.280 --> 0:18:41.640 So you'll see fears coming down, especially in the North 0:18:41.680 --> 0:18:45.359 Atlantic and the Caribbean, Mexico as well. Those are three 0:18:45.400 --> 0:18:48.480 of the biggest markets where we see declines and then 0:18:48.520 --> 0:18:50.440 we think there will be a ship to Asia Pacific. 0:18:50.480 --> 0:18:51.720 Oh sorry, Tom No. 0:18:51.840 --> 0:18:53.119 I think this is important, Lisa. 0:18:53.160 --> 0:18:55.239 You and I have been following selected flights and I 0:18:55.280 --> 0:18:56.679 just look at one Newark to Paris. 0:18:56.680 --> 0:18:59.359 It's what everybody takes and the answers is one third, 0:19:00.080 --> 0:19:00.400 it's one. 0:19:00.680 --> 0:19:03.600 It's you can fly three people now business class for 0:19:03.640 --> 0:19:06.080 what one business class ticket costs eighteen months ago. 0:19:06.280 --> 0:19:06.800 It's stunning. 0:19:06.960 --> 0:19:09.359 I love at lines Denver theoretically because some of the 0:19:09.400 --> 0:19:15.159 snow has started and it's really nice. Well, okay, Helene, 0:19:15.200 --> 0:19:17.679 I am curious as you talk about the potential for 0:19:17.880 --> 0:19:21.000 prices to go lower where the breaking point is for 0:19:21.040 --> 0:19:22.840 some of these airlines. We talked about some of the 0:19:22.880 --> 0:19:27.199 contracts with pilots, with other staff, all the prices are 0:19:27.240 --> 0:19:30.679 going up dramatically of the work staff. The base costs 0:19:30.720 --> 0:19:33.640 are going up as well. Put oil aside for one second, 0:19:34.280 --> 0:19:36.720 how difficult is it to make that break point for 0:19:36.800 --> 0:19:39.920 some of these airlines as prices start to come in. 0:19:40.880 --> 0:19:44.320 Yeah, we're going to see margins get squeezed. No choice 0:19:44.320 --> 0:19:48.160 but to raise your revenue. And it's hard to raise 0:19:48.200 --> 0:19:51.840 revenue because, especially in the domestic market, people will opt 0:19:51.840 --> 0:19:55.360 out and you can't. I've done this for a long 0:19:55.359 --> 0:19:58.040 time as you're not and you can never lower fares 0:19:58.119 --> 0:20:01.720 to offset volume declients. It just doesn't work that way. 0:20:01.920 --> 0:20:04.680 And so we'll see margin pressure and we don't think 0:20:04.720 --> 0:20:07.119 airlines will make as much money on twenty twenty fours 0:20:07.160 --> 0:20:10.199 they earned in twenty twenty three as we revert to 0:20:10.240 --> 0:20:15.320 a more seasonal and normal pattern. I liken it to 0:20:15.400 --> 0:20:17.760 the cargo industry. Look at what happened with FedEx and 0:20:17.840 --> 0:20:20.080 ups over the last year and a half or two years. 0:20:20.320 --> 0:20:23.919 Volumes are down and revenues are not up as much. 0:20:24.119 --> 0:20:26.879 Revenues are down, costs of rep and margins are under pressure. 0:20:26.920 --> 0:20:28.320 Well, that's sad happen. 0:20:28.359 --> 0:20:30.160 Do you run away from the industry? I mean, I'm 0:20:30.160 --> 0:20:32.320 trying to get my airline stocks back to where they 0:20:32.320 --> 0:20:35.040 were pre COVID. Good luck with that dream. Is there 0:20:35.040 --> 0:20:37.239 a single best buyer? Do you just walk away from 0:20:37.280 --> 0:20:37.760 the sector. 0:20:38.680 --> 0:20:42.719 It's really hard, Tom, because the stocks are at twenty 0:20:42.880 --> 0:20:48.320 twenty lows or below. Our best idea for twenty twenty 0:20:48.359 --> 0:20:51.600 three was United. We had some good success with that 0:20:51.800 --> 0:20:55.480