WEBVTT - Surveillance: Optimistic Case with Calvasina (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg's Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jaily, we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.799 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:29.880 and of course, on the Bloomberg Terminal. Let's get to 0:00:29.960 --> 0:00:32.320 LORI canvastation into the head of U Secuity Strategy at 0:00:32.360 --> 0:00:35.440 OMBC Capital Markets. Laurie, a little bit of a trim 0:00:35.479 --> 0:00:38.760 to your price target, let's call it a trim from 0:00:38.800 --> 0:00:41.280 forty sixty. Just walk me through your thinking over the 0:00:41.280 --> 0:00:45.159 weekend into this week sure, you know, John, I think 0:00:45.200 --> 0:00:47.000 we've all had the question on our minds. Are we 0:00:47.040 --> 0:00:48.959 headed into a recession or not? And I will tell 0:00:48.960 --> 0:00:51.440 you that are We have eleven different models that we 0:00:51.520 --> 0:00:54.160 look at, but a fundamental assumption between behind all of 0:00:54.200 --> 0:00:56.400 our modeling is the idea that we're going to see 0:00:56.400 --> 0:00:59.120 a material slow down in economic growth that skirt the recession, 0:00:59.480 --> 0:01:01.600 and so we do that. We you know, we've basically 0:01:01.680 --> 0:01:04.360 updated our GDP models. We've added in a new valuation 0:01:04.440 --> 0:01:06.400 test which was really responsible for a lot of the 0:01:06.440 --> 0:01:09.280 downgrade to the part of the forecast, but in general, 0:01:09.360 --> 0:01:12.200 we think that the economic data um is you know, 0:01:12.200 --> 0:01:14.480 we're we're taking the optimistic case here that the said 0:01:14.520 --> 0:01:16.880 will be able to pull this off. But we do 0:01:16.959 --> 0:01:19.520 think that bond deals essentially have taken a bite out 0:01:19.520 --> 0:01:21.080 of some of the forward return of the market. We 0:01:21.120 --> 0:01:24.080 talked about that actually in April um that continues to 0:01:24.120 --> 0:01:26.360 be the case today. And you know, Lisa mentioned peak 0:01:26.400 --> 0:01:30.000 bearishness coming on. That's something else we're modeling. And so 0:01:30.040 --> 0:01:32.640 we basically look at the recovery off of the load 0:01:32.720 --> 0:01:34.679 that we had on May nineteenth and factor in the 0:01:34.720 --> 0:01:37.160 typical recovery that we see in growth scars, and it's 0:01:37.160 --> 0:01:41.600 about type return a aii that net barishness that we've 0:01:41.640 --> 0:01:43.360 seen there also tends to give you a bit of 0:01:43.360 --> 0:01:46.240 a springboard. So while we are factoring in this economic 0:01:46.319 --> 0:01:48.960 rashing down, we do want to take an account of 0:01:49.000 --> 0:01:51.480 the fact that sentiment probably has you know, hit peak 0:01:51.480 --> 0:01:54.080 barishness as well. Lori, I want to take an individual 0:01:54.160 --> 0:01:56.160 cell side report. I know you don't want to talk 0:01:56.200 --> 0:01:58.120 about individual stocks, and I'm not going to ask you 0:01:58.160 --> 0:02:01.760 about Amazon, but Ron Josie over City Group Publishers on 0:02:01.840 --> 0:02:05.560 Amazon with a stunning view out one to three four years. 0:02:06.000 --> 0:02:09.440 The dot growth from pre pandemic is forty three billion 0:02:09.919 --> 0:02:12.960 out to a present seventy one billion out to a 0:02:13.000 --> 0:02:15.800 window in twenty four months of a hundred and four billion. 0:02:16.200 --> 0:02:20.440 I believe that's growth. You are pounding the table. The 0:02:20.480 --> 0:02:25.359 growth does better is value fades discuss that. So look, 0:02:25.400 --> 0:02:28.040 I think we also need to just take that economic 0:02:28.120 --> 0:02:30.919 environment we think we're in and apply it to sector 0:02:30.960 --> 0:02:33.520 and style positioning. And typically we see that when you 0:02:33.560 --> 0:02:36.119 exit a hot economy to a cool economy, one that's 0:02:36.120 --> 0:02:38.799 above growth to be glow, growth are above average to 0:02:38.840 --> 0:02:41.520 blow average. It turns at the trend itself. You typically 0:02:41.600 --> 0:02:44.639 see value seed leadership. Value does well in a hot economy, 0:02:44.840 --> 0:02:47.680 and you tend to see growth out before in that 0:02:47.760 --> 0:02:50.399 cooler economy. Now, defensives would do well in the recession, 0:02:50.440 --> 0:02:52.440 but we think that's you know, a risk, but not 0:02:52.480 --> 0:02:54.960 our base taste. And when we look at growth as 0:02:55.000 --> 0:02:57.919 well versus value, we find that basically the relative valuation 0:02:58.000 --> 0:03:01.240 multiples are all starting to look reasonable slightly attractive again. 0:03:01.480 --> 0:03:03.600 And if you look at the long term growth expectation 0:03:03.680 --> 0:03:06.440 between value and growth, it had been sliding, so growth 0:03:06.520 --> 0:03:09.160 was really coming down relative to value. That tends to 0:03:09.240 --> 0:03:12.480 drive the relative PE multiple. But we have actually started 0:03:12.480 --> 0:03:15.720 to see some stability in that relative long term growth expectation. 0:03:16.520 --> 0:03:19.200 In other words, investors have not given up on the 0:03:19.240 --> 0:03:22.000 idea that growth is better than value on the growth front, 0:03:22.160 --> 0:03:25.120 and that should give some support to the PE multiples here. So, Lory, 0:03:25.440 --> 0:03:27.480 what's going to drive the SMP? What the what's the 0:03:27.560 --> 0:03:30.120 leadership going to be to get it to? Which is 0:03:30.120 --> 0:03:33.680 your new target? So, look, we like technology, and I 0:03:33.680 --> 0:03:36.040 want to stress that we are being very particular and 0:03:36.160 --> 0:03:38.320 very picky on that broader t I M key trade. 0:03:38.360 --> 0:03:41.000 So we don't like the communication services sector were neutral 0:03:41.000 --> 0:03:44.200 and consumer discretionary, but we like that classic tech sector 0:03:44.200 --> 0:03:47.680 where the valuations have gone from being ridiculously overvalued um 0:03:47.720 --> 0:03:50.240 to slightly attractive to neutral depending on what day we 0:03:50.320 --> 0:03:53.360 update the model. Earnings revision trends are actually starting to 0:03:53.400 --> 0:03:56.200 improve for the technology sector again, and it's one of 0:03:56.240 --> 0:03:58.920 the biggest sources of net income in the SNP as 0:03:58.960 --> 0:04:01.520 well as market cap, So we think that helps stabilize 0:04:01.560 --> 0:04:03.120 the market. If we do have a peak in bond 0:04:03.160 --> 0:04:05.160 fields here, which is a called our rate strategy team 0:04:05.280 --> 0:04:07.560 is making, that should all help also help the tech 0:04:07.600 --> 0:04:11.240 sector stabilize in terms of performance on the value side. Lisa, 0:04:11.240 --> 0:04:13.760 I would tell you, look at financials got a much 0:04:13.760 --> 0:04:16.599 better valuation case than what we've got an energy our materials. 0:04:16.720 --> 0:04:19.720 Right now, earnings revisions are positive, but they're not peak like, 0:04:19.880 --> 0:04:21.599 which I think they may be starting to look like 0:04:21.680 --> 0:04:24.200 they are in energy. And we really think that as 0:04:24.240 --> 0:04:26.760 the market sort of transitions away from the recession fear 0:04:26.880 --> 0:04:29.600 narrative and towards the slower growth narrative, that can breathe 0:04:29.600 --> 0:04:31.520 a little bit of life into this financials trade again 0:04:31.520 --> 0:04:34.160 in terms of a relief Laurie, wonderful to get your 0:04:34.160 --> 0:04:36.480 thoughts as you cut that price. Talkeet just a little bit, 0:04:36.480 --> 0:04:44.040 LORI canvass in to the EVOMPI sake, we are thrilled 0:04:44.080 --> 0:04:47.120 to bring you. Bruce chasm In, Chief Economists and the 0:04:47.120 --> 0:04:50.520 head of Global economic Research at JP Morrigan listening all 0:04:50.600 --> 0:04:55.360 weekend to Ario Speedwagon because Jasmin and team have been 0:04:55.480 --> 0:04:59.320 riding the storm out. There's no hurt the hurricane. Come on, 0:04:59.400 --> 0:05:02.760 you guys are diplomatic. In your Friday Weekly Prospects. You 0:05:02.880 --> 0:05:06.760 pushed against the CEO, who's looking for a hurricane if 0:05:06.760 --> 0:05:10.240 it's not a hurricane Bruce Brief, Mr Diamond right now 0:05:10.279 --> 0:05:14.520 and what's ahead. Well, I think what we have here 0:05:14.600 --> 0:05:18.400 is a pretty powerful tension between drags that are not 0:05:18.480 --> 0:05:22.600 going away and a very resilient private sector, with the 0:05:22.600 --> 0:05:26.760 health of both households and corporates being quite remarkable right now. 0:05:27.480 --> 0:05:30.279 I think what we're gonna see is growth continue to 0:05:30.320 --> 0:05:34.559 be on the softer side, but growth continue to show resilience. Uh. 0:05:34.640 --> 0:05:37.640 We don't see a near term recession. Uh. We see 0:05:37.640 --> 0:05:40.719 a global economy which actually does okay in the second 0:05:40.720 --> 0:05:42.880 half of the year, with the US slowing and the 0:05:42.880 --> 0:05:45.719 rest of the world doing somewhat better. What does China 0:05:45.800 --> 0:05:48.039 do to the US? You call it to the audacity 0:05:48.080 --> 0:05:51.080 you hope? I agree. We have a jump conditioning copper 0:05:51.160 --> 0:05:55.080 this morning. But Lincoln, all of your Asia research over 0:05:55.120 --> 0:05:59.240 to what's happening in the United States. Well, I think 0:05:59.279 --> 0:06:02.880 the the US manufacturing sector mostly is gonna see some 0:06:03.040 --> 0:06:05.719 softening as a result of what's been happening in China. 0:06:06.200 --> 0:06:09.200 I think, in addition to that, there is every reason 0:06:09.240 --> 0:06:12.520 to think that higher interest rates, higher energy prices is 0:06:12.520 --> 0:06:16.520 gonna hurt things like the autosector. We can see that. Uh. 0:06:16.520 --> 0:06:18.560 And we've just been through a really good run for 0:06:18.720 --> 0:06:22.320 US and global manufacturing on the back of inventory dynamics, 0:06:22.360 --> 0:06:24.720 I think industry is gonna slow. You know, our basic 0:06:24.760 --> 0:06:28.320 point is there's no real reason to be worried about 0:06:28.320 --> 0:06:30.960 a recession. There is some slowing in the in the picture. 0:06:31.320 --> 0:06:33.240 But the other thing is that part of the reason 0:06:33.279 --> 0:06:35.760 we're getting slowing is high inflation. And I think the 0:06:35.800 --> 0:06:39.440 combination of high inflation and tight labor markets is starting 0:06:39.440 --> 0:06:42.400 to change the inflation process, which over time is not 0:06:42.480 --> 0:06:45.280 good for the sustainability of this expansion. So I'm not 0:06:45.640 --> 0:06:49.000 I'm not trying to downplay the underlying dynamics here, which 0:06:49.000 --> 0:06:52.040 are worrisome, but not about near term recessionments. I think 0:06:52.080 --> 0:06:54.200 you have to get hit by much bigger shocks to 0:06:54.240 --> 0:06:57.080 really talk about recession anytime in the next twelve months 0:06:57.160 --> 0:06:59.840 or so. Bruce to one of John's pet peeves that 0:07:00.000 --> 0:07:02.359 you mentioned this morning, the good news is bad news 0:07:02.360 --> 0:07:04.919 that we experienced on Friday, the momentum in a labor 0:07:05.000 --> 0:07:08.599 market highlights how much the FED has to do. Is 0:07:08.600 --> 0:07:10.880 that your takeaway from the recent data that there is 0:07:10.960 --> 0:07:13.560 nothing to stop the FED from being more aggressive than 0:07:13.560 --> 0:07:17.400 the market is currently pricing in. I think over time 0:07:17.520 --> 0:07:21.280 that's true. I think the FED is committed to two fifties. UH. 0:07:21.400 --> 0:07:23.600 If we're right in the economy slowing towards a two 0:07:23.640 --> 0:07:26.200 percent pace later this year, there's a good chance they 0:07:26.200 --> 0:07:29.640 slow the pace down. But but ultimately, I don't think 0:07:29.800 --> 0:07:32.600 what you see in market pricing is going to be 0:07:32.680 --> 0:07:35.840 consistent with the get FED getting control on inflation, UH, 0:07:35.920 --> 0:07:38.400 slowing the economy down to to something that's going to 0:07:38.480 --> 0:07:40.480 be weak. And I think ultimately the FED is going 0:07:40.520 --> 0:07:41.760 to have to do more. But I don't think the 0:07:41.760 --> 0:07:44.560 Fed is ready or signaling it's willing to do that 0:07:44.640 --> 0:07:46.600 much more. I think in the near term, and I 0:07:46.600 --> 0:07:48.720 think that's important. The FED does not want to create 0:07:48.720 --> 0:07:51.600 a recession right now. The FED is tolerant of inflation 0:07:51.640 --> 0:07:54.400 above two percent. So this is gonna take time before 0:07:54.400 --> 0:07:56.520 we get to the point where the FED really has 0:07:56.560 --> 0:07:58.280 to hurt us. So, Bruce, when I was reading a 0:07:58.320 --> 0:08:00.120 lot of the notes over the weekend, they see us 0:08:00.160 --> 0:08:02.720 to be this distinction drawn between a slowdown and a 0:08:02.760 --> 0:08:06.320 recession is a really some sort of clear cut distinction here, 0:08:06.600 --> 0:08:09.000 or we basically just parsing words around the same issue, 0:08:09.000 --> 0:08:12.080 which is, how do you price in a loss of momentum. 0:08:12.240 --> 0:08:14.400 I think there's a huge difference between a slowdown and 0:08:14.440 --> 0:08:17.120 a recession. We haven't had a recession in the US 0:08:17.400 --> 0:08:20.680 without the US unemployment rate rising two percentage points or 0:08:20.680 --> 0:08:24.040 more recessions and nonline events where corporates are pulling back. 0:08:24.240 --> 0:08:26.040 So I think we should be careful and we use 0:08:26.120 --> 0:08:28.680 those terms to make sure we understand that that's what 0:08:28.720 --> 0:08:31.000 it means. There are a number of different ways the 0:08:31.040 --> 0:08:33.720 economy can slow. I think it is likely the U 0:08:33.800 --> 0:08:36.320 S economy slow. I don't think it's likely that we're 0:08:36.320 --> 0:08:38.280 going to see that kind of break that we've seen 0:08:38.400 --> 0:08:41.400 that's been notable in recession dynamics. First, one of the 0:08:41.400 --> 0:08:43.960 big distinctions of JP Morgan is how you parse it 0:08:43.960 --> 0:08:46.080 out among your team. I know you hang on every 0:08:46.080 --> 0:08:49.560 word the Daniel Silver rights in this weekend. He rights 0:08:49.600 --> 0:08:53.600 about high wage growth. This is a really important concept 0:08:54.040 --> 0:08:58.079 and that the new domestic labor economy is skewing again 0:08:58.160 --> 0:09:02.640 the high wage job growth just us that well. As 0:09:02.760 --> 0:09:07.120 as the pandemic got hit and we saw dislocations in 0:09:07.120 --> 0:09:10.440 the economy, an important part of the wage gains we 0:09:10.480 --> 0:09:13.040 were seeing in the elevated wage gains were not tied 0:09:13.120 --> 0:09:15.000 to the tightness of the labor market. They were tied 0:09:15.000 --> 0:09:18.439 to the dislocations, and they were unusually skewed towards lower 0:09:18.840 --> 0:09:22.880 UH skill UH job sectors. And now we're seeing, I think, 0:09:22.920 --> 0:09:26.680 what's more consistent with the tight labor market UH wage 0:09:26.679 --> 0:09:30.800 pressures building, and wage pressures building in particular insectors of 0:09:30.840 --> 0:09:32.920 the economy that are high wages. I think the problem 0:09:32.960 --> 0:09:35.280 the economy has even as it slows, is that the 0:09:35.320 --> 0:09:39.640 labor market tightness, the salience of inflation UH is starting 0:09:39.640 --> 0:09:41.839 to affect the wage and price setting process. And I 0:09:41.880 --> 0:09:44.600 think that's the issue around the sustainability of the expansion 0:09:44.760 --> 0:09:47.600 that ultimately is going to be a serious problem. How 0:09:47.600 --> 0:09:50.320 long can the consumer remain resilient if you don't get 0:09:50.320 --> 0:09:53.920 wage gains commensurate with inflation, and if you see people 0:09:53.960 --> 0:09:57.079 eating down into their savings as we have, well, first 0:09:57.120 --> 0:09:59.319 of all, we should realize we are getting wage gains 0:09:59.320 --> 0:10:03.480 commensurate with inflation. The wage bill, wages and hours together 0:10:03.559 --> 0:10:06.200 have been growing at about a nine percent base over 0:10:06.240 --> 0:10:08.439 the last six months or so, so we have been 0:10:08.440 --> 0:10:10.920 getting that. I think we are going to see slowing 0:10:10.960 --> 0:10:14.880 in wage income, partly because the aboutmy slowing. I do 0:10:15.000 --> 0:10:19.360 think the US household sector has every ability to continue 0:10:19.400 --> 0:10:22.440 to absorb drags from higher inflation. The question is whether 0:10:22.440 --> 0:10:24.640 they're gonna be willing to and whether corporates are going 0:10:24.679 --> 0:10:27.760 to continue to generate that kind of labor income. First, 0:10:27.800 --> 0:10:30.600 you're gonna hate me. We talked to people in the 0:10:30.600 --> 0:10:32.720 White House and we say, when you go into the 0:10:32.720 --> 0:10:36.000 Oval office and sit on that gold couch, how does 0:10:36.040 --> 0:10:40.040 the president take in your economic data when you wander 0:10:40.120 --> 0:10:43.440 into Mr Diamond's office and you have to do a briefing, 0:10:43.800 --> 0:10:48.320 how does he take in the chasm in economic data. Well, 0:10:48.360 --> 0:10:49.800 I think he takes it in and he's got his 0:10:49.840 --> 0:10:53.120 own views. I remember quite distinctly in the past that, 0:10:53.840 --> 0:10:55.960 you know, the leadership of the firm was much more 0:10:56.160 --> 0:11:00.559 clear cut about understanding dynamics and financial conditions and how 0:11:00.600 --> 0:11:02.440 they were going to impact on the on the on 0:11:02.480 --> 0:11:05.360 the macro economy. That's something which is economist we may 0:11:05.360 --> 0:11:08.000 not fully appreciate. I think that's one of the issues 0:11:08.040 --> 0:11:10.319 we have to face right now is financial conditions are 0:11:10.360 --> 0:11:15.320 tightening as we're seeing it, and we we give our advice. Um, 0:11:15.360 --> 0:11:18.079 you know, as we see it, we see the economy slowing, 0:11:18.440 --> 0:11:22.800 We don't see a financial storm coming right now, and 0:11:22.840 --> 0:11:25.160 we think the economy is gonna avoid recession as we 0:11:25.280 --> 0:11:27.000 go through the rest of this year. John, if we 0:11:27.120 --> 0:11:30.079 go into hurricane season, can we get Cassman in here 0:11:30.080 --> 0:11:33.680 to do other reports? I think Cassman practice that would 0:11:33.720 --> 0:11:36.760 pay on before coming on. That's for sure. Proce gonna 0:11:36.800 --> 0:11:40.360 catch up audience. Chris Castman at JP Morgan my favorite 0:11:40.400 --> 0:11:42.559 tweet this morning. The hurricane has been tancraded to a 0:11:42.679 --> 0:11:52.800 light summer priest for JP Morgan. Hawaiine Becker joins us, Now, 0:11:52.840 --> 0:11:55.199 this could be a three hour interview given the fixation 0:11:55.280 --> 0:11:58.480 in American air travel as we come out of the pandemic. 0:11:58.600 --> 0:12:02.560 Deaths under three is a huge, huge deal, Hollane, Let 0:12:02.559 --> 0:12:06.760 me get out of the way, Spirit Frontier and Jet 0:12:06.840 --> 0:12:10.200 Blue into borrow phrase some cf A level four? Is 0:12:10.240 --> 0:12:16.000 this dinosaurs mating? Is this much ado about next to nothing? Well, 0:12:16.000 --> 0:12:18.600 we'll see what happens. Um. It's certainly not a done 0:12:18.600 --> 0:12:22.040 deal in any case, because they need regulatory approval and 0:12:22.080 --> 0:12:27.199 the regulatory hurdles in the current administration are pretty high. UM, 0:12:27.280 --> 0:12:31.240 so there's no guarantee either deal gets done. Obviously, Spirit 0:12:31.280 --> 0:12:35.319 thinks they have a better proposal, and um really are 0:12:35.400 --> 0:12:38.800 taking to task the Spirit Airlines Board of Directors and 0:12:38.920 --> 0:12:43.480 management team Hollane just to get this out of the way, 0:12:43.480 --> 0:12:46.840 because Lisa's got forty seven other questions that really matter. 0:12:47.280 --> 0:12:51.480 How does Spirit Frontier or Jet Blue, Spirit, whatever the 0:12:51.600 --> 0:12:54.280 name is gonna be. How do they compete with the 0:12:54.360 --> 0:12:59.360 juggernauts like United, Delta and American Air Yeah, you know, 0:12:59.360 --> 0:13:01.000 that's a good question to Tom, and I think that's 0:13:01.040 --> 0:13:04.040 why they need to merge. I think any airline currently 0:13:04.080 --> 0:13:07.160 not named American, Delta or United is having issues attracting 0:13:07.160 --> 0:13:10.120 and retaining people, and one of the biggest issues is 0:13:10.160 --> 0:13:14.679 retaining pilots. UM there were ten thousand pilots that retired 0:13:14.760 --> 0:13:22.560 in twenty one, and in order to fly the schedule 0:13:22.640 --> 0:13:24.760 they need to hire that man a plus to do 0:13:24.840 --> 0:13:27.240 any growth. If they were anticipating, they need to hire 0:13:27.840 --> 0:13:32.920 figure another twenty UM. I said this year alone, the 0:13:33.280 --> 0:13:35.839 industry needs to hire something like twelve thousand pilots and 0:13:35.880 --> 0:13:37.960 we just don't turn out that many. Number one and 0:13:38.040 --> 0:13:42.200 number two. The whole idea I think behind either mergers 0:13:42.320 --> 0:13:47.800 really about giving UM employees and especially pilots, more crew bases, 0:13:47.880 --> 0:13:51.280 more opportunity. It will fly the schedule more opportunity to 0:13:51.320 --> 0:13:54.680 make captain, which is where you maximize your income over 0:13:54.720 --> 0:13:57.440 the life of your career. UM. And I think that's 0:13:57.480 --> 0:13:59.960 really what what we're arguing about here, and I think 0:14:00.040 --> 0:14:04.280 that's why Jeff lewis being so aggressive attracting. Attracting employees 0:14:04.520 --> 0:14:08.120 is basically the same as saying having to pay them more. 0:14:08.360 --> 0:14:10.720 Not the same, but it's definitely part and parcel of 0:14:10.760 --> 0:14:13.640 the same story, Helene. Given the fact that airlines are 0:14:13.640 --> 0:14:16.199 having to pay their workers more, they're also facing much 0:14:16.280 --> 0:14:19.680 higher costs when it comes to fuel. How much pricing 0:14:19.720 --> 0:14:22.880 power do they continue to have as consumers get crimped 0:14:22.880 --> 0:14:26.040 in other areas as well. Yeah, that's a great question, 0:14:26.080 --> 0:14:29.200 and we're wondering that ourselves. Um So, so here's how 0:14:29.240 --> 0:14:32.080 we're thinking about it. The summer is sold out. Everybody 0:14:32.080 --> 0:14:35.120 who was planning to go away in June, July, and 0:14:35.160 --> 0:14:38.480 August probably bought their tickets in April or May, and 0:14:38.600 --> 0:14:43.480 certainly UM airlines themselves have been sounding the alarm on 0:14:43.600 --> 0:14:47.560 higher ticket prices. UM they're also flight cancelations. It's it's 0:14:47.560 --> 0:14:50.160 really kind of a disastrous summer. I think. I think 0:14:50.200 --> 0:14:53.360 we're setting up for a really difficult summer from the 0:14:53.440 --> 0:14:58.000 perspective of operations. Um, but I think we're worried about 0:14:58.480 --> 0:15:02.480 September and what happens in the fall because to your point, UM, 0:15:02.560 --> 0:15:05.080 I heard you say that gasoline prices are five dollars 0:15:05.080 --> 0:15:08.480 a gallon, and UM, we're certainly seeing it costs more 0:15:08.480 --> 0:15:12.320 and more to fill up cars, especially for those who drive. UM. 0:15:13.240 --> 0:15:16.040 And and airlines have new choice. But as labor costs 0:15:16.040 --> 0:15:18.520 go up, and as fuel costs go up, and airport 0:15:18.560 --> 0:15:22.120 fees are going up, they have huge inflationary pressures, they 0:15:22.160 --> 0:15:25.440 need to raise ticket prices. And at some point the 0:15:25.440 --> 0:15:28.880 consumer is going to say, Okay, we did our travel 0:15:29.160 --> 0:15:32.920 and we're just done. We cannot fly again. But to 0:15:32.960 --> 0:15:35.640 that point, Helene, how much does business take over given 0:15:35.640 --> 0:15:38.200 the fact you are seeing more conferences and people are 0:15:38.200 --> 0:15:43.320 realizing that that FaceTime is really important. Yes, well that's 0:15:43.360 --> 0:15:46.240 our our. I don't want to say hope is a strategy, right, 0:15:47.200 --> 0:15:50.320 but that's what we are thinking about. After labor Day. 0:15:50.360 --> 0:15:53.160 We are thinking that, Okay, leisure travel, which is up 0:15:53.200 --> 0:15:57.400 about thirty five or from twenty nineteen levels, starts to 0:15:57.520 --> 0:16:02.120 flatten ow until the holidays and then UM, business travel, 0:16:02.200 --> 0:16:05.440 which to your point, is increasing with more conferences definitely 0:16:05.480 --> 0:16:10.160 more in person. There's been so much turnover at companies 0:16:10.320 --> 0:16:13.480 that you don't know who your clients are anymore. So yes, 0:16:13.560 --> 0:16:16.200 you have to get out and meet and greet, and 0:16:16.320 --> 0:16:20.720 so we're hoping that business travel definitely comes UM comes back, 0:16:21.320 --> 0:16:25.120 and then international is the other big one, right UM 0:16:25.160 --> 0:16:31.240 we think internationals down about fifty still, especially Asia Pacific, 0:16:31.280 --> 0:16:33.440 which we think will be another couple of years before 0:16:33.440 --> 0:16:37.720 it comes back because of the uncertainty with COVID. But um, 0:16:37.920 --> 0:16:40.600 North Atlantic is going to be good this summer, even 0:16:40.680 --> 0:16:44.680 when the US still requiring testing, well the testing, I 0:16:44.720 --> 0:16:47.000 want to go there. We we experienced this in real 0:16:47.040 --> 0:16:50.200 time for instantly. QUI the Gulf Stream folks. So Lisa 0:16:50.200 --> 0:16:53.320 and I were flying you know, the airlines. Hellane Becker 0:16:53.400 --> 0:16:56.680 talks about why do we why are we the only ones, 0:16:56.760 --> 0:16:59.680 Helene with a test to get back into the country. 0:17:00.000 --> 0:17:04.560 When does that go away? No kidding? I think it's ridiculous, 0:17:04.680 --> 0:17:10.200 right because you can fly to Toronto or Tijuana or Mexico, 0:17:10.440 --> 0:17:16.600 well Mexico City, yeah, said that, and then you drive 0:17:16.640 --> 0:17:19.040 across the land border and you don't have to test. 0:17:19.119 --> 0:17:22.680 So how insane is that that you have to that 0:17:22.880 --> 0:17:27.119 you cannot fly into the United States without having a 0:17:27.160 --> 0:17:31.399 predeparture test. It's just ridiculous. And I've been wrong on 0:17:31.520 --> 0:17:33.520 this so far. I thought it would go away in 0:17:33.600 --> 0:17:36.159 March and it didn't. I thought I may first for 0:17:36.280 --> 0:17:39.439 sure it would go away. No, it's still with US. 0:17:39.960 --> 0:17:43.000 UM So maybe I'm done predicting when it's going away 0:17:43.000 --> 0:17:45.760 and just kind of thinking at some point the US 0:17:45.880 --> 0:17:50.080 has to examine what it is doing and remove that 0:17:50.240 --> 0:17:53.919 pre departure testing. Becker, thank you so much, greatly appreciate it. 0:17:53.960 --> 0:17:58.800 With Cowen always here on sprint frontier. Jeff Blue yea. 0:18:01.240 --> 0:18:03.199 I'm going to frame out the math here and then 0:18:03.280 --> 0:18:06.560 John's gonna pick it up. Vision tu joins us down Global, 0:18:06.600 --> 0:18:10.000 director of fixed income Research at Morgan Stanley Visual. If 0:18:10.040 --> 0:18:13.840 you take the vector and you take the x axis, 0:18:13.880 --> 0:18:16.800 you end up at a terminal rate for the ten 0:18:16.880 --> 0:18:20.199 yere yield. Where is your guestimate of the of the 0:18:20.320 --> 0:18:25.120 ten year yield terminal rate? It's hard to say ternal rate. 0:18:25.280 --> 0:18:28.960 I would say how looking ahead and second quarter next year, 0:18:29.400 --> 0:18:31.080 we expect the ten year rate to be at three 0:18:31.119 --> 0:18:35.639 point and we expect and if FED is downe, we 0:18:35.680 --> 0:18:37.639 think they will be in the you know about in 0:18:37.960 --> 0:18:40.600 the three to three point two five percent range the 0:18:40.680 --> 0:18:44.160 target ranges, will they will stop hiking, which would put 0:18:44.200 --> 0:18:47.719 them about what we would consider to be are generally 0:18:47.720 --> 0:18:51.439 industed to be a neutral, which is a someone imprecise estimate. 0:18:51.440 --> 0:18:55.560 I don't have set. Asked people twenty three, which year 0:18:55.600 --> 0:18:58.200 with the high on a tenuere tritory fall in. Most 0:18:58.200 --> 0:19:00.919 people would conclude twenty two, they say, because they look 0:19:00.960 --> 0:19:03.560 ahead to twenty three at the day celeration in growth, 0:19:03.800 --> 0:19:05.480 and I think most people would think yelds would be 0:19:05.560 --> 0:19:07.920 much lower, maybe closer to two on a ten year 0:19:08.200 --> 0:19:10.159 What's with the more constandar view issue. Why do you 0:19:10.200 --> 0:19:13.120 have this view that we can almost stabilize around three 0:19:13.160 --> 0:19:17.000 percent as the FED ultimately attacks growth tries to bring 0:19:17.040 --> 0:19:21.280 it lower. So I think I have some sympathy with 0:19:21.320 --> 0:19:23.840 that news we did that view. I think the key 0:19:23.840 --> 0:19:26.359 thing to keep in mind is that while decision risks 0:19:26.440 --> 0:19:30.280 have certainly gone up, our economist models show that the 0:19:30.359 --> 0:19:32.960 session risks have gone up just from a few weeks 0:19:32.960 --> 0:19:37.520 ago to now something like thirty So while the recession 0:19:37.560 --> 0:19:39.920 that have gone up, but in the US recession is 0:19:39.960 --> 0:19:43.200 still not our base case. So that's the first important 0:19:43.200 --> 0:19:45.919 thing to note is that it's US recession is not 0:19:46.040 --> 0:19:49.080 our base case, and we are suggesting that between now 0:19:49.119 --> 0:19:51.159 and the end of the year we would be pretty 0:19:51.200 --> 0:19:54.560 much range bound in a sort of in in in 0:19:54.840 --> 0:19:58.639 two seventy five three ish kind of levels. Uh. And 0:19:59.080 --> 0:20:02.200 so three three upon one five is not a tremendously 0:20:02.320 --> 0:20:06.800 far from this from this range. So, especially with laying 0:20:06.840 --> 0:20:10.639 the idea that we will our base case remains um 0:20:10.840 --> 0:20:13.480 not about that at a recession under the FED keeps 0:20:13.480 --> 0:20:16.560 going um to get to significant you know, at least 0:20:16.640 --> 0:20:21.240 some points about about the neutral rate. So wisially some 0:20:21.280 --> 0:20:24.479 people would say that they higher long term interest rate 0:20:24.560 --> 0:20:27.440 call is uh. Get pair as well with this idea 0:20:27.440 --> 0:20:29.520 that the FED isn't gonna be overly aggressive, that they're 0:20:29.520 --> 0:20:32.560 gonna allow inflation to remain well above that two percent 0:20:32.600 --> 0:20:35.360 target for way longer than a lot of people expect. 0:20:35.440 --> 0:20:41.440 You agree, So we think that they fed until including three, 0:20:41.560 --> 0:20:43.720 we will we don't expect that they will come back 0:20:43.720 --> 0:20:46.640 to a two percent level of concrete c level, So 0:20:46.920 --> 0:20:49.520 we expect that the inflation will remain about that level 0:20:49.920 --> 0:20:54.159 through So what does that mean for credit? Given the 0:20:54.200 --> 0:20:56.320 fact that we really saw a rates move for the 0:20:56.359 --> 0:20:58.439 first part of the year, and now we're looking at 0:20:58.560 --> 0:21:01.159 something that's looking, to use Tom's word, more nudgy in 0:21:01.160 --> 0:21:03.800 the credit space. We saw saw offen the credit spreads. 0:21:04.000 --> 0:21:06.159 Then you saw our tracement. But now there's starting to 0:21:06.160 --> 0:21:07.760 be a little bit more concerned where do you fall. 0:21:08.680 --> 0:21:11.480 So we think that it's time, you know, year today 0:21:11.520 --> 0:21:14.520 to say maybe about a few weeks ago it was 0:21:14.680 --> 0:21:18.520 mainly a duration driven negative or returns. We think a 0:21:18.560 --> 0:21:20.920 lot of that is now in price and I would 0:21:21.000 --> 0:21:23.600 be careful at this point and move up in the 0:21:23.760 --> 0:21:26.399 in the quality spectrum, so we you know, within the 0:21:26.440 --> 0:21:29.359 high yel space with more moved towards double bees, where 0:21:29.480 --> 0:21:33.880 within the UH investment grade space UH in investment grade 0:21:33.920 --> 0:21:38.199 over high yield, that would be our call. Basically, the 0:21:38.040 --> 0:21:40.439