Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot
Speaker 1: com and of course on the Bloomberg terminal. Let's get
Speaker 1: right to in the currency markets really moving right now
Speaker 1: to be interesting to see what we do really in
Speaker 1: the next one hour to the market opening. D x
Speaker 1: y soldly above one o eight. We're watching sterling John
Speaker 1: and I one eighteen thirty one. We will speak to
Speaker 1: him the day before Paul speaks and a data dependent
Speaker 1: FED will change to next Thursday. Seth Carpenter of Morgan
Speaker 1: Stanley will join us. We will be in Jackson Hole.
Speaker 1: He'll be cool common collected on the East Coast. We're
Speaker 1: thrilled at Mr Carpenter could join us this morning. Seth Carpenter,
Speaker 1: your note is frightening. The brewing storm. You talk about
Speaker 1: it sounds like Wins of War from nineteen thirty nine
Speaker 1: and all defined the brewing storm. What what what is
Speaker 1: the distinction now of this August of two thousand twenty two. Yeah.
Speaker 1: I mean, I think for markets, August is always a
Speaker 1: little liquidity moment, so you're gonna see all sorts of
Speaker 1: choppiness there. But I think when it comes to the
Speaker 1: macro front, you've got three key economies in the world.
Speaker 1: You've got the U S, You've got Europe, You've got China.
Speaker 1: China we know is struggling. Uh they had a contraction
Speaker 1: in Q two. They've got this burgeoning housing problem that
Speaker 1: they're trying to solve. The PBC just had to ease
Speaker 1: policy again in a bit of a surprise move. Now
Speaker 1: we think Beijing, through various sorts of policy, both monetary
Speaker 1: and fiscal, will come to the rescue. But the question
Speaker 1: is when does the inflection point happen and we get
Speaker 1: a big rebounder as it's soft shifting to Europe. Right,
Speaker 1: You've got this restriction and gas flow from Russia as
Speaker 1: invasion of Ukraine that's crippling the European economy. We have
Speaker 1: a baseline view of a recession in Europe. Q four
Speaker 1: being outright contraction. Q one being another contractions and that's
Speaker 1: not a great look. So the US right now pretty solid.
Speaker 1: We got the retail sales report in line with our expectations.
Speaker 1: The consensus a little bit. Non farm perils was super
Speaker 1: strong and over five thousand. But is good news good
Speaker 1: news in this case, I don't know. The fight has
Speaker 1: been very clear. They need to slow the economy down,
Speaker 1: so the stronger it is now, the more hiking they have.
Speaker 1: You know, we always look at our guests and we
Speaker 1: try to figure out from the back of their bookshelf
Speaker 1: Seth Carponer what they're actually thinking. And it's good to
Speaker 1: see that. You've got Tony Krissenzi of pimcost Stagum's Fixed
Speaker 1: income Bible over your right shoulder. What does the bond
Speaker 1: market tell an economist like you? I mean, I think
Speaker 1: right now the bond market is really struggling to read
Speaker 1: the tea leaves about what's happening. We saw this sense
Speaker 1: of relief in markets, I think when we got CPI
Speaker 1: tipping over, and when the market heard the Feds saying, gosh,
Speaker 1: we're taking a balanced approach. We care about both the
Speaker 1: growth in the economy and inflation. But what I think
Speaker 1: the market didn't hear enough of is the way inflation
Speaker 1: over the next two years is going to come down
Speaker 1: to the Fed's target is only if you get enough
Speaker 1: slowing in growth, and so as a result, you know,
Speaker 1: we think the peak rate that the market is priced
Speaker 1: is about right. But the cuts in the market that
Speaker 1: the market has in place for a lot of next year, uh,
Speaker 1: that's not really consistent with our forecast. Well on that
Speaker 1: point set the market thinks that the FED is going
Speaker 1: to get to the terminal rate and then very quickly
Speaker 1: thereafter come down from it. We've been having the conversation
Speaker 1: all week as to whether or not that's really true.
Speaker 1: How long do you think they have to stay up there?
Speaker 1: I mean, our baseline forecast is that they're there for
Speaker 1: a year. So they get to the peak grade in December,
Speaker 1: and then the first very grudging you know, basis point
Speaker 1: easing off in terms of a cut comes a year
Speaker 1: later in December. Ree. I mean, the short answer is no,
Speaker 1: one knows for sure. We think the US economy has
Speaker 1: a fair amount of momentum behind it, and more importantly,
Speaker 1: as I was saying before, they really do need to
Speaker 1: slow things down a lot. They need to take job
Speaker 1: growth from five hundred thousand per month down to something
Speaker 1: closer to a hundred thousand per month or maybe even
Speaker 1: a little bit below in order to get that real
Speaker 1: underlying trend inflation down, So they're gonna have to stay
Speaker 1: tight for a while. How low do you think realistically
Speaker 1: inflation will get? Is three percent going to be the
Speaker 1: new two percent? So sadly this is where you get
Speaker 1: the eggheaded economists talking about the two different measures of
Speaker 1: inflation CPI versus pc UM. I think three percent on
Speaker 1: CPI is very, very possible. I don't think that that's
Speaker 1: going to be happy to just let PC inflation, which
Speaker 1: is really what they said that two percent target for.
Speaker 1: I don't think they're going to be happy to let
Speaker 1: PC inflation settle in at three percent. They'll be happy
Speaker 1: when it gets down to three percent if it's on
Speaker 1: a downward trend, but they're not gonna declare victory if
Speaker 1: it's hanging out. I sided not budging, So set frame
Speaker 1: your and Elexantner's ex access to me. The big mistake
Speaker 1: here is the now now now of how policy is
Speaker 1: gonna move. Is this really a six quarter, eight quarter,
Speaker 1: even twelve quarter path that we're on far longer? Tom
Speaker 1: That's that's a great way of phrasing it. I think
Speaker 1: one issue that's important for everyone to keep in mind,
Speaker 1: is that monetary policy does in fact work with the lag.
Speaker 1: We know that markets are pricing in now at peak
Speaker 1: grade that's close to where we think that peep grade
Speaker 1: is just over three point six percent. But in terms
Speaker 1: of the actual drag on the economy from UH that
Speaker 1: policy stance, it hasn't shown through completely yet. We've seen
Speaker 1: it in housing, that's important. We're going to see it
Speaker 1: a bit in durable goods, and we'll see it more
Speaker 1: endurable goods. But that still has to play out. So
Speaker 1: it is not what's going on right now that matters.
Speaker 1: It is, in fact, as you say, what happens over
Speaker 1: the next two quarters, over the next four quarters, and yes,
Speaker 1: ultimately over the next six how will corporations and their
Speaker 1: investment react to a pernicious four or five percent inflation
Speaker 1: in the United Kingdom? Everyone from lisz Trust to Mr
Speaker 1: Sunac suggests there's been a dearth of investment in the UK.
Speaker 1: Are we going to see a dearth of investment in
Speaker 1: the United States? So I don't think we're going to
Speaker 1: see a dearth of investment, but we we should, by
Speaker 1: all all expectations, see a slowing in in that investment spending.
Speaker 1: What you see in the macro data is typically business
Speaker 1: investment spending tends to follow the overall trajectory of the economy.
Speaker 1: And so if we're right that the slowing and housing,
Speaker 1: the slowing and durable good spending, and with it the
Speaker 1: slowing in jobs leads to an overall slowing and aggregate demand,
Speaker 1: and absolutely businesses should be looking around and saying, Okay,
Speaker 1: there's gonna be less of a need for that sort
Speaker 1: of aggressive investment spending. I don't think it drops off
Speaker 1: of a cliff. I don't think we're going to have
Speaker 1: a massive shortfall. UK has its own idiots and credit issues,
Speaker 1: let's say, but we should see things starting to slow
Speaker 1: down as aggregate demand slows down, and businesses pay attention
Speaker 1: to that. So if we all know I read a
Speaker 1: lot of Morgan Stanley research, I shared a lot of
Speaker 1: it on this program, I'm wondering, set of course you'd
Speaker 1: say that, Seth. I'm wondering when I received that note
Speaker 1: from you that says global recession that's the base case.
Speaker 1: How close are we to you sending that note. Gosh,
Speaker 1: the SEC would get mad at me if I previewed
Speaker 1: forthcoming research. So I will say that we we We
Speaker 1: definitely had a global recession as one of the scenarios
Speaker 1: when we put out our mid year outlook in in April,
Speaker 1: and we are very much moving closer and closer to
Speaker 1: that scenario. I mean, the gas situation in Europe matters
Speaker 1: a lot, and we have a recession in Europe as
Speaker 1: our forecast. There's clear downside risk to China from their
Speaker 1: housing situation, something that's worse since we wrote that note.
Speaker 1: So we're moving in that direction. I think it's too
Speaker 1: soon yet the recession. But John, what just means Carpenter's
Speaker 1: got a published before next Thursday. We needed the fall.
Speaker 1: Jackson Hope a seth also to catch up sir as
Speaker 1: a White set copp into that of markin Stanley dry
Speaker 1: An Interview of the Day, Jane Folly joins us an
Speaker 1: out from Robbo Bank. Jane, let's get right to it.
Speaker 1: John's got a lot of technical questions. I've got one
Speaker 1: that's just simple. There's a log vector of weaker, weaker work,
Speaker 1: weaker sterling, and then it rolls over at what level
Speaker 1: is the tipping point you have in your head where
Speaker 1: things fall apart? For Governor Bailey, Well, to be honest,
Speaker 1: it's an awful lot depression on Governor Bailey already sent
Speaker 1: me from matt List. Trusty looks as if she could
Speaker 1: be the next step prime minister of the UK. But
Speaker 1: I think we could be heading down to one fifteen,
Speaker 1: maybe one fourteen on on cable and and that would
Speaker 1: add and I mean to interrupt, but if we go
Speaker 1: to one fourteen, is that a trend and a controlled
Speaker 1: trend or the things to borrow phrase from politics unraveled,
Speaker 1: you know, I I think if we're at one fifteen fourteen,
Speaker 1: A lot of that, actually you really does depend on
Speaker 1: on the dollar, and specifically on euro dollar, because what
Speaker 1: we're seeing at the moment is that if euro dollar dips,
Speaker 1: and of course it's been dipping, it's very difficult for
Speaker 1: cable to hang on in there has been dragged lower too,
Speaker 1: So a lot of this is a dollar move, certainly
Speaker 1: over the last week. But that said, there is a
Speaker 1: lot of sterling weakness. You know that the pound has
Speaker 1: really been suffering I would say for the last four
Speaker 1: or five years since the twenty sixteen Breakxit referendum. Sterling
Speaker 1: has never really been able to recover. Investment has never
Speaker 1: really been able to recover. Investors are still quite sept skeptical.
Speaker 1: I think of the prost Brexit UK economy and the
Speaker 1: government that we've had hasn't really been able to convince
Speaker 1: investors to come back. And you've got to bear in
Speaker 1: mind that the UK has got a current account deficit
Speaker 1: and if there was overseas savers are looking in at
Speaker 1: the UK and they're not liking what they're seeing. Well,
Speaker 1: you know, sterling is likely to a just lower and
Speaker 1: I think that's the situation that the pound finds itself
Speaker 1: in and and without the growth with at the investment,
Speaker 1: I think sterling could remain you know, pretty weak for
Speaker 1: a while. Jane, the Great Heights make a difference. Are
Speaker 1: you saying they don't? I don't think they do. I mean, look,
Speaker 1: if you go back to May, we had admittedly and
Speaker 1: as expected to interestrate hip then it was the twenty
Speaker 1: five back then in May, and sterling really dove. And
Speaker 1: the reason it dived lower was because the Bank of
Speaker 1: England at that point in its quarterly review down graded
Speaker 1: the inflation, sorry down graded the the growth number. Um
Speaker 1: and if we go if you fast forward to to
Speaker 1: to August, the next quarterly review, this is the one
Speaker 1: where we have the governor saying we're going to have
Speaker 1: a five quarter recession. And again, you know, Sterling reacted
Speaker 1: badly because you know, if we think that a lot
Speaker 1: of this is about the lack of investment growth in
Speaker 1: the UK, um investors need something to hang the hats,
Speaker 1: and they wanted to see improvements in productivity, improvements in growth,
Speaker 1: and that's not what they're seeing right now, and that's
Speaker 1: I think why Sterling is really so so weak. Well
Speaker 1: in the b O, we obviously is in a tough
Speaker 1: spot in that regard, but the e c B is too.
Speaker 1: There is a question of whether they can do anything
Speaker 1: to support the Euro if we get a break of
Speaker 1: parody once again, where's the bottom? Well, you know, I
Speaker 1: think if we were to break paroity, I think there's
Speaker 1: every reason that we could fall quite fast, maybe towards
Speaker 1: certain and there's some options that below there which could
Speaker 1: trigger U such a move. And I think it's I
Speaker 1: think you're right really to make some comparisons between at
Speaker 1: the Bank of England and where the ECB could find
Speaker 1: itself perhaps in a few months time, because if we
Speaker 1: look at the situation in the neurozone, it's all about energy.
Speaker 1: We know that if we do have, say, blackouts in
Speaker 1: Germany's industry groups over the winter months, if we do
Speaker 1: have the market panicking about what that would mean for
Speaker 1: that for growth or lack of growth in the Eurozone,
Speaker 1: But that wouldn't necessarily do anything to bring inflation down.
Speaker 1: So we could have a hawk ish ECB and that
Speaker 1: sort of scenario, but that wouldn't be a scenario which
Speaker 1: we which which would be beneficial for the euro. So again,
Speaker 1: it could be that the growth worry overtakes the outlet
Speaker 1: for the currency over and above the whole business of
Speaker 1: the central bank. Well, and there's a question of causation
Speaker 1: here is it? Is it weakness of the euro or
Speaker 1: strength of the dollar? More so? And on that point,
Speaker 1: where do you think the peak is on the d
Speaker 1: X Y Well, you know, I think we're going to
Speaker 1: remain strong at least for the next six months. And
Speaker 1: I think you're right. For instance, if we look at
Speaker 1: the G ten currency performance today, actually think the Euro
Speaker 1: is holding in relatively well, actually better than than many
Speaker 1: of the other G ten peers. So this is about
Speaker 1: dollar strength right now. I mean, of course, is euro
Speaker 1: weakness in there, and the energy story is really important,
Speaker 1: but this is about dollar strength. And and to be honest,
Speaker 1: I think for a while that the dollar has got
Speaker 1: these two pronged factors driving in and the first is
Speaker 1: of course the FED and now the markets again thinking
Speaker 1: that the FED could be higher for longer um in
Speaker 1: terms of interest rates, that maybe it needs to keep
Speaker 1: interest rates higher next year, next year in order to
Speaker 1: to to really get that inflation back in the box.
Speaker 1: But the other factory is a called safe haven. And
Speaker 1: don't forget at the start of the week we had
Speaker 1: a lot of poor Chinese data. Now that's really bad
Speaker 1: for emerging markets, it's really bad for world growth um,
Speaker 1: and and that is you know, part of the attraction
Speaker 1: of the dollar, this safe haven flows. So I think
Speaker 1: both of those things together have been pushing the dollar higher,
Speaker 1: and I don't think the dollar has done yet. Jane.
Speaker 1: With that in mind, what's the downside on a currency
Speaker 1: pair like cable? Now, once you take out the mitchell
Speaker 1: I lows, what next? You know? I do think one fifteen,
Speaker 1: you know, we could certainly see there. But it does
Speaker 1: depend on where euro dollar it goes, because there's a
Speaker 1: bit more of an equal battle at the moment between
Speaker 1: the poor fundamentals and the sterling and the poor fundamentals
Speaker 1: in the EU. So I think that the guide here
Speaker 1: will be your a dollar. John of her wonderful comments,
Speaker 1: Jane'll love this. I just did a log interpolation of
Speaker 1: euro sterling over the sterling dollar. You're ready, John, one eleven,
Speaker 1: one eleven. If you get sterling, the strengthen against euro
Speaker 1: is misfolly talked about it roughly interpolates to a one eleven.
Speaker 1: Jane Foley of Rabbit Bank, jank awesome to catch up
Speaker 1: right now an important interview with Patrick Armstrong, ce I
Speaker 1: O of Pleuri Meat Wealth. Patrick, I want to cut
Speaker 1: to the chase. The level of gloom now approximates the
Speaker 1: level of gloom of early June. Can you be long equities?
Speaker 1: I'm net long equities where I have completely flexible mandates. Um,
Speaker 1: we've got one fund where I can be short or long,
Speaker 1: and we're long net. So I've got actually fifty of
Speaker 1: my portfolio on long equities, and I've got thtent in shorts.
Speaker 1: And there's some extremely cheap talks out there that I've
Speaker 1: not seen in decades. Really, like a company like Moler
Speaker 1: marrisk is trading it less than two times earnings today
Speaker 1: it's paying me a twelve percent dividend deal, it's buying
Speaker 1: back shares. It's probably gonna pay a special dividend it
Speaker 1: will announced later this year. So it's got a lot
Speaker 1: of cyclical risk. Rate rates are going to collapse. Market
Speaker 1: says they're gonn a collaps starting today. I think those
Speaker 1: rates don't collapse until we're into next year. I think
Speaker 1: supply chains remain challenged, a lot of bottlenecks. There's an
Speaker 1: amount of goods in the world that need to be shipped.
Speaker 1: There's not enough shipping capacity. Oil and gas stocks exact
Speaker 1: same scenario, and maybe not to the same extent. Markets
Speaker 1: pricing and oil plummeting in the future. I don't know
Speaker 1: if it will. You've not seen to demand destroyed yet,
Speaker 1: supplies not coming on stream, and these companies are just
Speaker 1: producing massive cash flow every day. The Patrick, it sounds
Speaker 1: like you're still long inflation. Well, I think inflations plateaued
Speaker 1: in the United States and the strong dollar. Lower commodity
Speaker 1: prices are going to see your on your prints continue
Speaker 1: to go down. UM in Europe. In the UK, UM
Speaker 1: commodity prices haven't fallen in the same way because the
Speaker 1: currencies have fallen, and electricity prices are jumping in European
Speaker 1: natural gases moving higher. So I think you've got a
Speaker 1: lot of stagflationary forces that are remaining in Europe, where
Speaker 1: the US has probably passed the worst of that. Patrick,
Speaker 1: Just how bad is the story in Europe and how
Speaker 1: bad is it relative to the price at the story
Speaker 1: in the market. I don't think the market's really priced
Speaker 1: in how bad it can be in Europe unless something
Speaker 1: dramatic changes where you do get Russian gas into Europe again.
Speaker 1: Manufacturing is going to slow, hiring is going to slow,
Speaker 1: There's gonna be brownouts and blackouts, people told to work
Speaker 1: from home. All of those things are negative for the
Speaker 1: economy obviously, And it's just Germany is going to solve
Speaker 1: its reliance on Russian natural gas, but it's just not
Speaker 1: going to be in two in the winter of three.
Speaker 1: It's going to be another year and a half before
Speaker 1: they can get all the other measures in place that
Speaker 1: they're not reliant on Russian natural gas. On the subject
Speaker 1: of Europe, Patrick, one of the lines in your note
Speaker 1: that stood out to me was the market has the
Speaker 1: ECB hiking while the FED cuts in dot dot dot.
Speaker 1: No way what do you think is more likely that
Speaker 1: neither is hiking next year or that both are. I
Speaker 1: think neither will be hiking probably when we get to three.
Speaker 1: The U S economy is slowing, it's still growing, the
Speaker 1: employment situation still look pretty robust. That small companies say
Speaker 1: they're they're having trouble filling job opening so, um there's
Speaker 1: anecdotal evidence about layoffs coming the p w CS p
Speaker 1: WC surveys talking about half our companies doing layoffs next year,
Speaker 1: but companies aren't being able to fill the job openings
Speaker 1: they have. Um F, it's gonna be hiking in September,
Speaker 1: maybe once more after that, but while the economy slows
Speaker 1: and the rest of Europe falls into a deeper session,
Speaker 1: I don't think the Fed's going to be doing much
Speaker 1: in terms of hikes next year. But there's no way
Speaker 1: the e c B will be hiking with that backdrop. Well,
Speaker 1: I understand how the data could lead to a picture
Speaker 1: of the federal reserve backing off, but does that leave
Speaker 1: the job on inflation undone? Um? Yeah, So Powell characterized
Speaker 1: where rates were after the last hike is neutral. I
Speaker 1: don't think that could have been scripted. I don't think
Speaker 1: it's at neutral. I think if we do another seventy
Speaker 1: five basis points, you can plausibly say that's at neutral. Um,
Speaker 1: if the economic situation does weaken in the rest of
Speaker 1: the world, you've got a really strong dollar that continues
Speaker 1: to mute out inflation as well. So strong dollar means
Speaker 1: all your imports are a little bit cheaper, and that
Speaker 1: is disinflationary. So you can see that scenario where the
Speaker 1: Fed doesn't have to hike next year just because the
Speaker 1: dollar strengthening and the rest of Europe is probably in
Speaker 1: a pretty bad economic situation. Patrick, how useful is this
Speaker 1: conversation around neutral. It's such a fuzzy concept, and they're
Speaker 1: talking about a short run neutral level, a longer run
Speaker 1: neutral level. How useful? How valuable is that conversation right now? Well,
Speaker 1: if you get any insight onto what the Fed thinks
Speaker 1: is neutral, that's very important because that's the guy that
Speaker 1: will guide you on where they're going to put policy.
Speaker 1: I don't think Powell believes it's at neutral right now. Um,
Speaker 1: you've seen a lot of liquidity in markets. You've seen
Speaker 1: meme stocks rallying, you've seen no Learning's tech rallying, and
Speaker 1: you've not seen the FED meaningfully reduced its balance sheet,
Speaker 1: which is the other thing they indicated they would be doing,
Speaker 1: which isn't really happened yet. Um, but where neutral is
Speaker 1: is something no one will ever know. Even looking historically,
Speaker 1: you never know exactly where it is. But it does
Speaker 1: guide to fagine what they're trying to achieve while they're
Speaker 1: I guess driving half blindfolded. Pat check got a catch
Speaker 1: off set as a wise Patrick compstrong right now on
Speaker 1: the airlines, and it is something we've all got our
Speaker 1: stories about trying to get back to travel, trying to
Speaker 1: get back to normal. It's not, say Seth Joins, US
Speaker 1: Airlines Managing Director Ramon James Savy. I want to get
Speaker 1: this out of the way right now on a bi
Speaker 1: hold cell basis, which is the American airline to believe
Speaker 1: in over the next three to five years. Which is
Speaker 1: a stock that's getting it right. Hey, Tommy, I think
Speaker 1: Delta is probably a good stock to o and here
Speaker 1: there's a lot of uncertainties. Is a cyclical sector, but
Speaker 1: I think you've got quality. They're a good balance sheet
Speaker 1: and customer service that's returning. So that's probably my colleagues,
Speaker 1: Savvy Paul Sweeney has got me into looking at the
Speaker 1: app where I can watch the airlines take off. Last
Speaker 1: night at Newark e w R, I basically saw a
Speaker 1: controlled chaos. There were seventeen planes, imperfect weather trying to
Speaker 1: get up in the air. How did we get here
Speaker 1: where the actual physical airports are a mess? The issue
Speaker 1: with the Northeast though, is and then this has always
Speaker 1: been an issue, is it's and you look out, it's
Speaker 1: perfect weather. But whether in Pennsylvania, you know, the weather
Speaker 1: in the whole corridor matters to the airport. So it's
Speaker 1: it's long being a frustration. Um And and on top
Speaker 1: of that, you know you're you're layering on more recently
Speaker 1: air traffic control staffing that's that's lower than in the past.
Speaker 1: You're you have kind of just across the supply chain
Speaker 1: at the airlines and the airports. Um, just staffing levels
Speaker 1: that aren't you back to the productivity that we saw
Speaker 1: pree crisis. Hopefully, as we kind of go through the
Speaker 1: following months, m hiring picks up, people gave more experience,
Speaker 1: some of these issues should result. But unfortunately the Northeast
Speaker 1: airspace is a longer term issue that needs to be
Speaker 1: resolved and maybe using next generation air traffic control systems. Well,
Speaker 1: and of course that's not just a US story, that's
Speaker 1: a global story. When you look at what's happening with
Speaker 1: airports and airlines in Europe, the easy Jet pilot strike
Speaker 1: in Spain beginning today lasting three days. We know what's
Speaker 1: been going on at heath Throw with everyone from the
Speaker 1: people on the tarmac on strike. As we talk about
Speaker 1: how fuel pressures have come down a bit, what about
Speaker 1: the wage pressure, So are those now going to be
Speaker 1: picking up as the people employed by the airlines dependent
Speaker 1: demand more because of inflation? And good point, Kaylee, because
Speaker 1: and that's that's probably going to be different, different on
Speaker 1: this side of the Atlantic versus the other side, just
Speaker 1: the way the labor contracts work. But you make a
Speaker 1: really good client. And in the US last year you
Speaker 1: had a lot of the gay pagents rampage ins where
Speaker 1: they were struggling to staff and and so you saw
Speaker 1: a lot of wage increases there about five increases for
Speaker 1: entry level positions. But that's a very small portion of
Speaker 1: overall airline labor cost. What we haven't really seen is
Speaker 1: flight attendants, pilots, mechanics, those contracts that it became amendable
Speaker 1: right around before COVID or right around COVID, which usually
Speaker 1: would have been amended by now that hasn't gotten done yet.
Speaker 1: We think it will get done in the next twelve
Speaker 1: to twenty four months, and you're probably going to see
Speaker 1: pretty big wage increases there, and so kind of it's
Speaker 1: still a big cost increase yet to come for for
Speaker 1: airlines here. Okay, so obviously, so that's what the airlines
Speaker 1: are paying their people. Let's talk about what me and
Speaker 1: everybody else is going to have to pay to get
Speaker 1: on the plane itself. Have we seen peak fares and
Speaker 1: pricing powers at all downhill? For here? I think we've
Speaker 1: seen peak fairs for the reason that, you know, earlier
Speaker 1: in the summer you had this kind of a perfect
Speaker 1: storm of you know, for for various reasons, capacity that
Speaker 1: was being constrained and and the capacity that was probably
Speaker 1: about ten percentage points below demand. And as we go
Speaker 1: through I think capacity is finally going to catch up
Speaker 1: to demand. It also happen at a time where fuel
Speaker 1: was you know, it doubled in a in a very
Speaker 1: short period of newly doubling in a short period of time,
Speaker 1: and you have seen fuel called back a little bit
Speaker 1: now that will be somewhat offset by labor costs that
Speaker 1: are coming. But I do think you're not going to
Speaker 1: see the level of pricing that you saw earlier this summer,
Speaker 1: but because of that labor class, I think it will
Speaker 1: still be somewhat elevated. So I mean, I want to
Speaker 1: go small here. I want to go from Grand Forks,
Speaker 1: North Dakota, where you schooled, eighty two miles south to Fargo.
Speaker 1: If I want to fly from Fargo to New York,
Speaker 1: it's almost cheaper to go to Minnesota to Minneapolis to
Speaker 1: fly out. Is American aviation given up on smaller cities?
Speaker 1: Not completely? And I think Fargo is probably going to
Speaker 1: continue to have service, But you're right, there are these
Speaker 1: pockets of areas that the airlines are struggling right now
Speaker 1: because the pilot supply to two serves. And I think
Speaker 1: that will get resolved over time, but it is for
Speaker 1: small cities. Uh, you're going to see maybe less frequency
Speaker 1: UM or in very small city so as instances maybe
Speaker 1: no no service, and that the service getting dropped and
Speaker 1: the result is a pilot supply issue UM and a
Speaker 1: pilot cost issue. These are kind of fifty seed aircraft
Speaker 1: that it really gets hard to spread that fixed cost
Speaker 1: out as as pilot the wages move up, Sammy. Awesome
Speaker 1: to get your thoughts on this industry, Sammy said, there
Speaker 1: of Raymond James and industry we've all got an opinion on.
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