Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,
Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. We talked
Speaker 1: to someone more conceptual and just as wonderful. Peter Sheer
Speaker 1: Joints said of a macro strategy at Academy Securities. As
Speaker 1: John mentioned, there's no visibility. Peter share, how do you
Speaker 1: get out beyond labor day?
Speaker 2: And I think it's difficult. We've got to get through
Speaker 2: the summer jobs numbers. I think we're going to see
Speaker 2: some headwinds on the job numbers. I actually think we're
Speaker 2: going to see some deflationary pressure, so that's going to
Speaker 2: kick in. I think, you know, into the fall. Right now,
Speaker 2: it's all about earning, so for I think they'll come
Speaker 2: and find I think we're going to see those rotation
Speaker 2: where the laggers get bought. Part of it driven by
Speaker 2: some of the index rebalancing that's going to go on
Speaker 2: on Friday. But partly I think people are finally seeing
Speaker 2: this trade work. So you want to own the rustle
Speaker 2: two thousand, you want to own the laggards, and I
Speaker 2: think you're going to see some underperformance. So I think
Speaker 2: that's the trade for August and September. It's going to
Speaker 2: be unclear.
Speaker 1: The unclear of it all redounce to nominal GDP is
Speaker 1: statistic for real GDP plus the inflation overlay on top
Speaker 1: of it. Are you constructive that the machine can continue
Speaker 1: to develop four percent nominal GDP per year?
Speaker 2: Yeah, I think we can get to the four percent
Speaker 2: nominal GDP. But if we're an interest rates are at
Speaker 2: five and a quorter, the Fed's going to have to
Speaker 2: do something right. I think we do not want real
Speaker 2: rates above one percent. So if we start seeing nominal
Speaker 2: GDP tick down, and I think it's going to be
Speaker 2: a function of slower overall GDP and less inflation, that's
Speaker 2: what's going to try and to drive the Fed's decision
Speaker 2: into latet into late this year early next year. Though
Speaker 2: for the next three to four months, I really think
Speaker 2: the Feds a non factor. They'll hike in July and
Speaker 2: then that's about it.
Speaker 3: Let's stand that sweet spot next three months. Let's work
Speaker 3: through that together. Pete, you've shifted away then to the
Speaker 3: equal way I believe in the market. Can't wait at
Speaker 3: call on the s and P five hundred, pet What
Speaker 3: changed for you that ultimately got your ranted a view
Speaker 3: that this can broaden out?
Speaker 2: You know, I think for the last little while, you're
Speaker 2: starting to see some of the leaders not do quite
Speaker 2: as well, and you're starting to see the story broaden. Right,
Speaker 2: if we are going to get some sort of a
Speaker 2: soft landing or some sort of period that's not imminent recession,
Speaker 2: I think those laggards have to be bought. That's where
Speaker 2: people are going to look. That's where the value is.
Speaker 2: And even on conceptually AI, right, if AI is really
Speaker 2: going to work, it's going to work for individual companies
Speaker 2: as they figure out how to be more strategic or
Speaker 2: get efficiencies on their strategy on their tactical level. So
Speaker 2: I think you're going to see this chasing of that.
Speaker 2: It's been a problem trade. I'm a little bit worried
Speaker 2: it's consensus. I think people have been piling into this
Speaker 2: trade for the last month. It has not been working.
Speaker 2: But I think we're kind of poised with this earnings,
Speaker 2: this rebalancing that's going to occur on Friday, that we
Speaker 2: can finally see this catch up.
Speaker 4: Do you think that's spread please?
Speaker 3: Just to build on that, do you think that optimism
Speaker 3: constructive tone around the equal Wait and sorry for speaking IV,
Speaker 3: I was eaging to jump in.
Speaker 4: Pee spreads from you're rude, I'm not OK.
Speaker 3: You didn't pay that spreads from equity to credit because
Speaker 3: high yield spreads it's still pretty down tight gun into
Speaker 3: all this.
Speaker 2: Yeah, I think credits gonna help lead the way, right.
Speaker 2: I think you're going to see credit spreads continue to
Speaker 2: grind tighter. You know, there's a lot of fear every
Speaker 2: once in a while people are talking about this wall
Speaker 2: of debt maturities in the high yield market. I think
Speaker 2: right now it's still providing attronactive yield. The overall quality
Speaker 2: of issuer is better. The banks have been getting rid
Speaker 2: of some of their kind of hung inventory, some of
Speaker 2: their bad commitments made you know, during the peak, and
Speaker 2: with lack of supply, especially in the IG side, I
Speaker 2: think spreads grind tighter. That's very supportive and if high
Speaker 2: yield spreads can go further tighter. That does tend to
Speaker 2: tie really well into a rally in the Russell two thousand, so.
Speaker 3: I paid constructive on stocks, equal way and small capity,
Speaker 3: and there on the Russell constructive on high yield credit
Speaker 3: as well. Here's a risk factor real estate. Can you
Speaker 3: just weigh in on Commo shall real estate pee and why?
Speaker 3: You don't think that's going to be a broad problem.
Speaker 3: You think it's going to be a local regional problem.
Speaker 2: Yeah, I think it's going to be very local. You're
Speaker 2: gonna have areas I think like San Francisco where there
Speaker 2: was a lot of money invested at the peak, where
Speaker 2: work from home is going to continue. As people start
Speaker 2: seeing a little bit more pressure moving away from work
Speaker 2: from home, I think that'll help some the cre space. Plus,
Speaker 2: these things do take time to lead out. And even
Speaker 2: want to tie back to some of your comments earlier
Speaker 2: about homebuilders. I think the one thing that doesn't get
Speaker 2: talked about enough about the home builders is this trend
Speaker 2: of where people are moving. So homebuilders can do very
Speaker 2: well when people are moving to new areas, and so
Speaker 2: that trend away from some of the cities into other
Speaker 2: regions really helps homebuilders. So I'm looking at more and more.
Speaker 2: I'm trying to get down in the economy, looking at
Speaker 2: a region by region, because I think we are starting
Speaker 2: to see the separation. And that's one thing. If you
Speaker 2: kind of caught that on homebuilders, you would have seen, Oh,
Speaker 2: with everyone moving to Tennessee, Florida, Texas, there is a
Speaker 2: great opportunity for homebuilders, even with higher mortgage rates. So
Speaker 2: I think that translates very similarly into CRE. Some problem areas.
Speaker 2: There's going to be some good areas, but even the
Speaker 2: problem areas are going to take longer to play out,
Speaker 2: I think than people expect.
Speaker 3: So time to try it is that long Texas, short,
Speaker 3: New Jersey?
Speaker 4: What is it?
Speaker 5: You know?
Speaker 2: As a contrarian, I wanted to start getting along the
Speaker 2: other stuff. So I've been long some of these CRE
Speaker 2: stocks for a little while. I've been pairing gains in
Speaker 2: that just because you know, everyone was so doom and gloom,
Speaker 2: and I think that's one of the things we look
Speaker 2: at when you know, everyone loves to talk about the
Speaker 2: great financial crisis that took years to play out, right,
Speaker 2: it took a long period of time. I think it
Speaker 2: was the summer of two thousand and seven when Merrill
Speaker 2: Lynch had to cut the dividend, and it wasn't until
Speaker 2: October two thousand and eight that you had Lehman moments
Speaker 2: quote unquote moment. So I think people got a bit
Speaker 2: ahead of themselves. Banks have a lot of leeway to
Speaker 2: figure these things out. The companies themselves will work it out.
Speaker 2: There's a lot of pressure, I think, to move a
Speaker 2: little bit away from work from home to back to
Speaker 2: work from office. So that's kind of why I'm constructive
Speaker 2: there for now.
Speaker 3: Everyone's so harsh on New Jersey. P you know, Oh,
Speaker 3: it gives New Jersey such a hard time. I never
Speaker 3: understood that.
Speaker 4: It's always well, one loves.
Speaker 3: One loves the Hampton's, but Jersey Show is what's.
Speaker 4: That about it? You still don't get it.
Speaker 1: It's like snubble.
Speaker 3: It's it's like massively like the beaches and the beaches
Speaker 3: that the Hampton's aren't that nice?
Speaker 1: Yeah, when you start in on there's Stephanie Rull's hair curls.
Speaker 4: She gets likes the Jersey Show.
Speaker 1: Oh yeah, she's all Jersey.
Speaker 2: She's got one of our clients.
Speaker 1: She's got like six thousand square feet down there.
Speaker 3: Okay, I think Pete wanted to jump in, then, Pete,
Speaker 3: you can't jump in by all means.
Speaker 2: I was gonna say. One of our clients is always
Speaker 2: wanted to use the term jersey math on like TV.
Speaker 2: I still don't know what jersey math is, but it
Speaker 2: seems like an appropriate time to mention it.
Speaker 4: Do you get money for that?
Speaker 3: Do we get do we get a share of that.
Speaker 2: Shot?
Speaker 3: The guess that come on and they have a bet
Speaker 3: and they have to say a word. You know those guests.
Speaker 3: I didn't realize Pete was one of those guests. Peter,
Speaker 3: Chair of Academy Securities. Pete, thank you, sir.
Speaker 1: What I'm going to do and I think I can
Speaker 1: speak for the pros. What the pros do is not
Speaker 1: only look at the last six months last year, but
Speaker 1: where are we pre pandemic. Keetha Raghanathen is expert at
Speaker 1: this US media analyst for Bloomberg Intelligence. Ketha, let me
Speaker 1: go to what's important. Have you seen Barbie yet?
Speaker 6: No, not yet, but I'm looking forward to it. Then
Speaker 6: there is actually going to be the double feature. It's Barbenheimer.
Speaker 1: Yeah, well there's Barbarenheimer and all that. I guess we'll
Speaker 1: talk about that once we see the box office. I
Speaker 1: do want somebody emailed in, folks, And yes, there is
Speaker 1: a Ken surveillance. It's the more solid kind of Ken.
Speaker 1: You know, it's a different Ken than what you had
Speaker 1: in the sixties. Keith, I want to talk about Netflix here.
Speaker 1: I don't have faith in the profitability stream. They make hits,
Speaker 1: they succeed at Wednesday, they fail at this, et cetera.
Speaker 1: Can you develop a persistent free cash flow? Can you
Speaker 1: develop a persistent ebitdah off of the creative process of
Speaker 1: success and failure.
Speaker 6: That's a really good question, Tom, and I think they've
Speaker 6: actually shown us that they can. So you know, obviously,
Speaker 6: the content business, it is a hit or miss business.
Speaker 6: It's very unpredictable, as you just kind of pointed out.
Speaker 6: But if you kind of looked at that report yesterday
Speaker 6: and you looked at the free cash flow story, I mean,
Speaker 6: this is a dramatic turnaround in what Netflix has been
Speaker 6: able to achieve. Look at the operating margin leverage. So
Speaker 6: we're seeing a lot of operating margin leverage, We're seeing
Speaker 6: a lot of you know, free cash flow leverage. And
Speaker 6: this is exactly what you want a streaming model to
Speaker 6: kind of look like. So they obviously raise their free
Speaker 6: cash flow guidance by forty percent, and there is going
Speaker 6: to be a little bit of lumpiness. I mean, we're
Speaker 6: looking at five over five billion dollars in free cash
Speaker 6: flow and going into twenty twenty four again we think
Speaker 6: it would probably be six to six and a half
Speaker 6: billion free cash flow. So this is going to be
Speaker 6: a persistent, growing, sustainable, free cash positive free cash flow
Speaker 6: story for many years to come.
Speaker 1: Do they have the ability do they have the elasticity
Speaker 1: to raise prices? We saw peacock Maybe some would say desperate,
Speaker 1: come up a buck can Netflix ruin my afternoon and
Speaker 1: come up one dollars or two dollars per month?
Speaker 6: They absolutely can. So this at the end of the day,
Speaker 6: if you just kind of look at the breadth and
Speaker 6: the depth of content, I think Netflix still is fairly underpriced.
Speaker 6: They do offer a very compelling value proposition kind of
Speaker 6: just looking at the amount of content that they have
Speaker 6: and they're going to keep adding to it. And then
Speaker 6: remember that these the labor strikes, while they're not good
Speaker 6: for the industry as a whole, they actually put Netflix
Speaker 6: in a little bit of a competitive advantage and a
Speaker 6: little bit of a sweet spot relative to its peers.
Speaker 6: Of course, it will be damaged if you know, or
Speaker 6: it will be heard if the strikes prolong for you know,
Speaker 6: into twenty twenty four. But I think relative to peers,
Speaker 6: we're going to see that they're going to do well
Speaker 6: and that's probably going to give them some more pricing power.
Speaker 4: Okay, So what did they say about I guess today,
Speaker 4: So what.
Speaker 6: They said so this is, you know, one thing that
Speaker 6: I think the key takeaway for me from the earnings
Speaker 6: report was that this whole password crackdown initiative has definitely
Speaker 6: got off to a very good start. So execution is good.
Speaker 6: There is a little bit of a balancing act that
Speaker 6: they've got to do when it comes to subscriber growth
Speaker 6: as well as our pool growth, right, revenue growth, and
Speaker 6: so what we're seeing this year twenty twenty three, I
Speaker 6: think is going to be more of the new member
Speaker 6: or new subscriber growth, and then as they kind of
Speaker 6: get that benefit of subscribers, we're going to be able
Speaker 6: to see them to increase pricing to increase revenue. So
Speaker 6: I think the revenue growth becomes more of a four
Speaker 6: Q and a twenty twenty four story to.
Speaker 4: Put prices up.
Speaker 3: You need a decent content slight, a deep catalog, and
Speaker 3: a lot in the pipeline. At Gaithie, you brought up
Speaker 3: the right to strike. What did they say and the
Speaker 3: call yesterday about when that might buy? How long does
Speaker 3: this need to go on for before it becomes a
Speaker 3: big problem.
Speaker 6: It's not going to become a big problem for Netflix
Speaker 6: for a considerable period of time. I mean, we've kind
Speaker 6: of seen them go through a very similar situation, not
Speaker 6: exactly the same, but we've seen them, you know, having
Speaker 6: to deal with a whole shutdown in production during COVID
Speaker 6: and they still held up relatively well. So remember, they
Speaker 6: have some advantages relative to peers because they do have
Speaker 6: a huge backlog. They have a huge content pipeline. That's
Speaker 6: because of very long lead in production times. The other
Speaker 6: thing that they benefit from relative to their peers is
Speaker 6: they have a lot of foreign content, so you know
Speaker 6: a lot of content coming from you know, Spanish language
Speaker 6: markets from South Korea. So they've been able to diversify
Speaker 6: that really well. So they're not necessarily hugely dependent on Hollywood.
Speaker 6: But of course it will affect them, and I don't
Speaker 6: think they're going to see any material adverse impacts up
Speaker 6: until at least the latter half of twenty twenty four.
Speaker 1: What does the rest of LA media do given the
Speaker 1: Netflix performance? Are they having meetings today going who do
Speaker 1: we merge with?
Speaker 6: I mean, this is you know, media of course, is
Speaker 6: under tremendous pressure. Tom, So we're seeing the linear TV
Speaker 6: business almost on the verge of collapse. And I think,
Speaker 6: you know, the alarm bells kind of really went off
Speaker 6: when when Bob Eiger just spoke a few days ago
Speaker 6: about how the linear TV assets are really no longer
Speaker 6: core to Disney's business. I mean, this is this is
Speaker 6: something unimaginable, right, So obviously linear under considerable pressure. The
Speaker 6: good thing with Netflix is they're the cleanest story in
Speaker 6: media right now because they are pure streamer right, whereas
Speaker 6: most of these other companies are having to manage this
Speaker 6: transition from linear to streaming. So yeah, it's a very
Speaker 6: very different problem for all of them. Again, they have
Speaker 6: to manage a declining linear TV business. They have to
Speaker 6: show profitability on the streaming side, something that Netflix has
Speaker 6: managed to do really really well. So it's going to
Speaker 6: be very very hard for the media companies. And as
Speaker 6: you point out, yes, consolidation is definitely on the cards case.
Speaker 4: Let's talk about that a little bit more.
Speaker 3: Is that consolidation Disney basically consuming all of Hulu, have
Speaker 3: an ESPN and keeping Disney Plus. Is that how it
Speaker 3: all works over at Disney and the rest is.
Speaker 4: Up for sale? Yeah?
Speaker 6: So I mean yes, in a nutshell, yes, So Disney
Speaker 6: is definitely going to buy Hulu. You know, there are
Speaker 6: all indications for that. The price point, of course, we
Speaker 6: don't know yet, but I think it will be upwards
Speaker 6: of ten billion, and then merge that into Disney Plus.
Speaker 6: And yes, everything other than ESPN is for sale. That's
Speaker 6: exactly what Bob has said. But the question is going
Speaker 6: to be who's really going to be willing to buy it?
Speaker 6: Because it's a declining business.
Speaker 1: Keith, the one final question, it's urgent. Who's going to
Speaker 1: get Otani? I mean, there's Otani such a media value
Speaker 1: that the LA Dodgers just pick them up. It's like
Speaker 1: a no brainer the day one they pay for it.
Speaker 6: I really don't. I wish I had had the answer
Speaker 6: to that question.
Speaker 1: Man, Okay, Keith, you know, prop up next time?
Speaker 3: Come ONKEITHA thank you Keithan rockin Ath and that Flumpeg
Speaker 3: it's setogen.
Speaker 1: For Global Wall Street. Our Interview of the Day with
Speaker 1: Ianlncoln on rates. I was making jokes about it, but
Speaker 1: you and I remember a normal rate environment. The pervading
Speaker 1: feel is we're all going to die. How do we
Speaker 1: survive in a normal rate environment.
Speaker 7: I think that survival in this type of rate environment
Speaker 7: is going to be a function of picking your places
Speaker 7: on the curve. It's an attractive environment to be involved
Speaker 7: in bills, it's an attractive environment to be in the
Speaker 7: front end of the curve. But as we know, when
Speaker 7: that shifts, it shifts very dramatically. And I expect that
Speaker 7: things will look wonderful from an economic perspective, certainly in
Speaker 7: the context of what we would normally anticipate between now
Speaker 7: and the end of the year. But come the fourth quarter,
Speaker 7: we're start to see more evidence of the cumulative impact
Speaker 7: of policy.
Speaker 1: Time to go to the belly of the curve. If
Speaker 1: you're at the five year point and you're rationalizing the
Speaker 1: risk of reinvestment, is your scale to go out to
Speaker 1: seven years or is your scale to go out to
Speaker 1: ten years from five?
Speaker 7: I think you go from five to ten years, And
Speaker 7: I think that the logic behind that is that there
Speaker 7: is enough cyclical risk between year five and year ten
Speaker 7: to justify lower yields over the course of time. And
Speaker 7: let us not forget the ten year treasury is the
Speaker 7: benchmark of all benchmarks, and so for overseas investors it
Speaker 7: will always be an attractive touch point.
Speaker 3: Andrew Holnholst The City just published He said we see
Speaker 3: upside risk to inflation and downside risk to growth three
Speaker 3: emerging in late twenty three. Max Catton has been bullished
Speaker 3: this equity market, and I know equlity' sign your things,
Speaker 3: So I'm not going to go in that direction.
Speaker 4: Don't worry.
Speaker 3: He's bullish and still bullish, but only through the rest
Speaker 3: of the summer. He thinks after the summer, inflation risk
Speaker 3: starts to kick back in What are you telling clients
Speaker 3: about that?
Speaker 7: So I'm completely on board with the notion that once
Speaker 7: we get to the September October CPI numbers that will
Speaker 7: start to get a better sense of how much housing
Speaker 7: costs and oer and rints have actually moderated sustainably. If
Speaker 7: we see a return of those core inflation components, I
Speaker 7: think that's going to be problematic for the FED. It
Speaker 7: will push rate cuts even further into twenty twenty four,
Speaker 7: and more importantly, I think the FED will focus on
Speaker 7: shifting the conversation to core services X shelter, and that's
Speaker 7: the big uncertainty. If that, given its high correlation with
Speaker 7: nominal wages, continues to moderate, the FED can claim victory
Speaker 7: even if core inflation resurges towards the end of the year.
Speaker 3: Give them what you've just said, How do you think
Speaker 3: that's going to shape communication next week and beyond inch
Speaker 3: Jackson Holle.
Speaker 7: So we're expecting a comparatively dubvish hike next week we
Speaker 7: get twenty five basis points. That's all that's completely priced
Speaker 7: in at this stage. But the Fed yes wants to
Speaker 7: retain a degree of flexibility, but also needs to communicate
Speaker 7: to the market that five point fifty may very well
Speaker 7: be the terminal rate for this cycle. So we're looking
Speaker 7: for a Powell press conference that echoes what we saw
Speaker 7: in June, not what we saw at Humphrey Hawkins.
Speaker 1: Not because of you. It was Beamo Capital Markets. But
Speaker 1: I loaded up on the Austrian twenty one hundred and
Speaker 1: seventeen piece. I thought for the great grandchildren, who'd be
Speaker 1: a great idea and I've enjoyed that from a price
Speaker 1: of two twenty down to seventy five, and critically it
Speaker 1: hasn't come off a mat at all. What's the risk
Speaker 1: to retail of being yield hogs and defining duration of
Speaker 1: twenty years, twenty five years, thirty years. What's the risk
Speaker 1: that you see there at retail? They just love to
Speaker 1: go out to that maturity.
Speaker 7: The biggest risk for that sector is that the subset
Speaker 7: of the market that believes that inflation is structurally higher
Speaker 7: and therefore nominal rates will be higher for longer, over
Speaker 7: an extended period, that they're right. If inflation is structurally
Speaker 7: higher and the FED gives up the inflation target at
Speaker 7: two percent revises to say three percent, then we actually
Speaker 7: are going to be in a sustainably higher rate environment
Speaker 7: for an extended While your.
Speaker 1: Work on the r start debate, John Williams comes out
Speaker 1: and reaffirms lower our start, Others, as you say, are
Speaker 1: looking for higher our start. Where does Governor lingoln think
Speaker 1: we are.
Speaker 7: I think that the post pandemic period we will all
Speaker 7: come to the realization that our start hasn't changed. If anything,
Speaker 7: it's incrementally lower as a result of the dislocations.
Speaker 1: We could do a good co interview here.
Speaker 4: We could do Williams and Williams to Williams on Jackson.
Speaker 4: How why I mean next month is serious?
Speaker 1: Folks. We've got market guy here saying he agrees with
Speaker 1: John Williams as well. What are the high our star
Speaker 1: of the worry warts? What do they get wrong?
Speaker 7: I think that the argument breaks down once we see
Speaker 7: labor force participation continue to move higher across the board
Speaker 7: with the exception of fifty five and older cohort, and
Speaker 7: we see nominal wages revert to pre pandemic norms.
Speaker 1: Like give me that's critical. There are nominal wages. Let's
Speaker 1: say we had the luxury four five six percent, particularly
Speaker 1: the lower death styles. Where do we get back to
Speaker 1: normal and nominal wages? Some inflation.
Speaker 7: So if we're printing with a three handle sustainably year
Speaker 7: over year average hourly earnings, the market is very quickly
Speaker 7: going to move back from the higher our start argument.
Speaker 4: Pre pandemic economy is that what you're calling for.
Speaker 7: I don't think that much has truly changed. Think that
Speaker 7: the Fed got transitory right. What they got wrong was
Speaker 7: how long transitory applied for.
Speaker 4: And you can't say months say that it was.
Speaker 7: It was four years.
Speaker 3: Okay, let's go back, little experiment. What do you think
Speaker 3: the optimal policy response would have been, given everything.
Speaker 7: We know now, if Congress and the fiscal side had
Speaker 7: stayed out of it. I think that the Fed did
Speaker 7: the right thing. It was difficult for Washington at that
Speaker 7: moment to not pump a ton of money into the system.
Speaker 7: I think that that is what really shifted the real
Speaker 7: life was.
Speaker 4: The ultimate scent.
Speaker 3: But what could the Fed have done? Given everything we know,
Speaker 3: just the benefit of perfect hindsight twenty twenty vision, what
Speaker 3: could they have done?
Speaker 4: They could have.
Speaker 7: Stopped buying bond sooner, they could have normalized rates more quickly.
Speaker 7: But recall, what the Fed was doing was they were
Speaker 7: trying to make sure that the system continued to function,
Speaker 7: that the ATM card worked when you went to the
Speaker 7: to the bank, and so they were playing a much
Speaker 7: longer game than the market was.
Speaker 4: And good to catch out ending and there of BIMO.
Speaker 1: This is a joy right now. Steve Tren is known
Speaker 1: for writing acutely detailed change notes on the airline business
Speaker 1: out of Stuyvesant and Penn holding on the Dartmouth bubble
Speaker 1: for four years or what I think he took he
Speaker 1: took Talk into a six year program just to hang
Speaker 1: out with his ll beans on up in Dartmouth. Steve
Speaker 1: Trena City Group joins us this morning. You learned at
Speaker 1: Talk under Max, Matt Slaughter and the rest of them
Speaker 1: that business plans matter and strategic vision matters. Which United
Speaker 1: States Airline has the best talk like business plan?
Speaker 5: Well, first off, thanks for having me on and for
Speaker 5: the warm welcome. I super appreciate that. When we think
Speaker 5: about the US airlines, I'm impressed with Delta, and I
Speaker 5: also think that you Niman knows what it's doing in
Speaker 5: terms of its long term refleeting effort, and Delta Airlines
Speaker 5: as well.
Speaker 2: I would say both of them.
Speaker 5: What we're seeing international long haul, that's really the place
Speaker 5: where I think one year from now we're going to
Speaker 5: be talking about how good the unit revenue is, and
Speaker 5: those two carriers I think will very well positioned for
Speaker 5: that longer term upside. And I think their strategy on
Speaker 5: that regard has been intentional.
Speaker 4: Steve, why isn't American in that sweet spot?
Speaker 5: You know, in Americans case, they have definitely done a
Speaker 5: better job. You know, the two Q print was above
Speaker 5: the street when we think about how they're set up structurally.
Speaker 5: They just don't have as much metal on those transatlantic
Speaker 5: or trans specific exposures on those corridors, so they won't
Speaker 5: have as much as the upside. You know, you can
Speaker 5: kind of also dig down deeper, for example, into co
Speaker 5: branded credit card and loyalty. That's a piece of the
Speaker 5: pie that elements of the market ignore sometimes. And if
Speaker 5: you look at Delta's program with the American Express, what
Speaker 5: all of that telegraphs in terms of Delta's strength as
Speaker 5: a counterparty. You know that revenue is still really surging
Speaker 5: in the right direction, and American probably from a counter
Speaker 5: probably excuse me, counterparty profile doesn't get that same premium
Speaker 5: that Delta.
Speaker 2: And United to.
Speaker 3: So Steve, when I see those massive lines around the
Speaker 3: corner of JFK to get into the data air lines loud,
Speaker 3: are you telling me that's good news?
Speaker 5: You know, that might not always be the best news
Speaker 5: for the consumer, that's probably good to very good news
Speaker 5: for the shareholder. And I think when we look at
Speaker 5: the normal post pandemic world out there, you know, I
Speaker 5: think Delta has been really good and United as well
Speaker 5: about really optimizing sort of the passenger outreach in.
Speaker 1: Let's optimize this, John, what we need in the lines
Speaker 1: you're in at JFK that go four miles long. We
Speaker 1: need Bloomberg terminals along the way so the shareholders can
Speaker 1: get their quotes along the way. Steve Trent, what I
Speaker 1: love about your note is you get granular about looking
Speaker 1: out weeks and months. You mentioned that October looks pretty good.
Speaker 1: Is your belief in guessing revenue, guessing number of fannies
Speaker 1: in the seat? Is your belief like it was pre
Speaker 1: pandemic or is there still a mystery to it?
Speaker 2: Oh, that's a great question, and I would say that.
Speaker 5: It looks like demand patterns have at least modestly changed
Speaker 5: versus pre pandemic. And this is partially a consequence of
Speaker 5: many people no longer working in the office Monday through Friday.
Speaker 5: So that lifestyle adjustment, per see, we believe has influenced
Speaker 5: the way consumers make purchasing decisions and the way they
Speaker 5: make decisions about purchasing airline tickets. So when we look
Speaker 5: at the data through October, you know, the booking curve
Speaker 5: in this first back to data we got for October
Speaker 5: looks very good. And one of the things we've seen
Speaker 5: in the last year and a half. Quite frankly, is
Speaker 5: advanced bookings much stronger than they used.
Speaker 2: To be pre pandemic.
Speaker 5: We think that's one sort of symptom, so to speak
Speaker 5: of the nature of post pandemic travel is now a
Speaker 5: bit different than twenty nineteen.
Speaker 1: Yeah, Jane from Scotland emails in and says she hopes
Speaker 1: you're working five days a week and not doing the
Speaker 1: work from home, la Steve Trent. When you look at
Speaker 1: the aviation business, and I'm going to go back to
Speaker 1: the wonderful conversations I had with one of my heroes,
Speaker 1: Robert Crandall, who basically invented some say the price discrimination
Speaker 1: of the cabin Is it going to be business as
Speaker 1: usual or for you out three years or five years?
Speaker 1: Is there an airline new world, an airline new persistency
Speaker 1: of free cash flow that makes it more quality than
Speaker 1: the crazy Crandall world we knew?
Speaker 2: Yeah, absolutely so.
Speaker 5: I think one of the things that's definitely going to
Speaker 5: be different for a while it's capacity. So some of
Speaker 5: that's coming from the manufacturers. You've had, of course, these
Speaker 5: pandemic era supply chain issues, which to some indications that
Speaker 5: those supply chain issues are improving, but there's still a
Speaker 5: lot that they have to dig through.
Speaker 8: It still takes a.
Speaker 5: Long time for airlines to get planes. You have in
Speaker 5: some instances engines and spare parts are hard to come by,
Speaker 5: and then the pilots. So it's a little bit difficult
Speaker 5: to see the pilot situation normalizing in the next two,
Speaker 5: three or even four years. So you have this bottleneck
Speaker 5: out there that is going to be hard to solve.
Speaker 5: I think that layered over you know what we see
Speaker 5: as the good countercyclical demand trends. At the moment, capacity
Speaker 5: should be constrained and capacity remains below twenty nineteen levels
Speaker 5: on a per capital basis, so that's something that probably
Speaker 5: takes a very long time to change.
Speaker 3: Steve, this was great. Let's do it again, Steve Trend.
Speaker 3: There a city on the airlines.
Speaker 1: Well, welcome all of you worldwide and across America. From
Speaker 1: the guy who made major headlines three months ago styling
Speaker 1: at the met Gala, he's moved from the met Gala.
Speaker 4: He's doing a little better.
Speaker 1: Matt Gello with the beautiful people. It's a new danger RECURR.
Speaker 3: Just really good stuff. Daniel Ricardo joined US now Formula
Speaker 3: One driver for Alpha Tawi. Daniel, wonderful to have you
Speaker 3: with us, and first of all, congratulations, it's going to
Speaker 3: be fantastic to see you. Want a seat this weekend.
Speaker 3: I actually want to go back a couple of weeks
Speaker 3: if we can. You went into the car to do
Speaker 3: some testing, I believe, tire testing in Red Bull at Silverston,
Speaker 3: and for many people they assume that was the game changer. Daniel,
Speaker 3: can you tell me what it was like to get
Speaker 3: in the seat and tell me how well that went
Speaker 3: and how quickly it came back to you?
Speaker 8: Ferstally, thanks for having me back. Appreciate it. It was,
Speaker 8: it felt it kind of gave me everything I wanted
Speaker 8: to feel again. You know, I hadn't hadn't driven since
Speaker 8: the last race of last season, so it was about
Speaker 8: eight months, and yeah, I was like, I was very curious.
Speaker 8: I was I'm probably going to feel a little but
Speaker 8: I'd also been doing a lot of sim work and
Speaker 8: so I'd kept my eye in, but yeah, hadn't driven,
Speaker 8: you know, the physical car, and I got in and
Speaker 8: it felt all like normal and natural again, and it
Speaker 8: went really well. And I think that was like the
Speaker 8: last box that needed to be ticked to kind of
Speaker 8: confirm the comeback.
Speaker 4: Just so of a decent idea.
Speaker 3: Daniel, what kind of lap times were you putting in
Speaker 3: and how long did it take to put those kind
Speaker 3: of lap times in? Did it take five, six, seven,
Speaker 3: eight laps? What were you putting in?
Speaker 1: It was?
Speaker 8: It went well? It went well, so I you know,
Speaker 8: I So the very first lap I did, I was like, oh,
Speaker 8: this steels, it feels fast. I haven't driven this fast
Speaker 8: in a long time. So you know, it's it's nearly
Speaker 8: like your brain and your like eyes need to readjust
Speaker 8: just to the speeds and everything, let alone like your body,
Speaker 8: you know, the physical forces. So yeah, like the first
Speaker 8: lap in a way felt like a bit of a
Speaker 8: shock to the body. And then from that point it
Speaker 8: just I quickly got back into it, like it all
Speaker 8: felt normal again. So I did one run just to
Speaker 8: get my eye in, so that was about six laps
Speaker 8: or something, and then the next run we put on
Speaker 8: some new tires and that's when I, like the first lap,
Speaker 8: I was pretty much down to the pace.
Speaker 3: Well, I hear it's better than that, Daniel, I hear,
Speaker 3: it's better than that. What I've heard is that actually
Speaker 3: it would have put you at the front of the
Speaker 3: grid at Silverstone on race day?
Speaker 4: Is that right?
Speaker 8: Yeah?
Speaker 1: It was.
Speaker 4: It was good enough for a front, right, So that's amazing.
Speaker 9: I was like, look, I obviously like believe a lot
Speaker 9: in my ability, but I know that being out in
Speaker 9: the city for a while, like there's going to be
Speaker 9: a few cobbs to kind of dust off.
Speaker 8: I didn't expect for it to go that good. So
Speaker 8: I was like, I was greeting for me Adio.
Speaker 1: Daniel I pointed up one hundred and twenty thousand last
Speaker 1: week for the simulator, which is somewhat almost like what
Speaker 1: you max for stepping and others. Do we see it
Speaker 1: on the Netflix movies. You guys are into simulators, wasting
Speaker 1: time from photo shoot to photo shoot. Explain what a
Speaker 1: simulator can't do. I'm fascinated by your leap from simulators
Speaker 1: to Budapest, which some people say is Monico without barriers.
Speaker 1: What's the jump from simulator to actually doing it?
Speaker 8: I mean it's still a it's still a legitimate jump,
Speaker 8: you know. I think the the simulator is now very good.
Speaker 8: Like the team's purpose build them, you know, you can't.
Speaker 8: These aren't stimulators that you can have at your home.
Speaker 8: They are beyond next level, so they they feel like
Speaker 8: you can you can kind of get I mean what
Speaker 8: I'd probably say it feels like maybe eighty eighty five
Speaker 8: percent of the real thing. So it gives you enough
Speaker 8: of a feeling and enough of an idea. So it
Speaker 8: definitely helped me get up to speed. But you know,
Speaker 8: there's no like physical aspect of the simulator. You know,
Speaker 8: you don't get the g forces and so there's a
Speaker 8: lot that's still you know, like tire management, all that
Speaker 8: sort of stuff is then that's all on track, real
Speaker 8: stuff that that I have ahead of me obviously now
Speaker 8: this weekend, so it's prepped me. But yeah, I'll still
Speaker 8: got a few things to get on top of.
Speaker 4: Well, let's talk about this weekend and beyond.
Speaker 3: So you're obviously going from a team as a reserve
Speaker 3: driver red Bull at the top of the pack, top
Speaker 3: of the standings, to a team at the bottom of
Speaker 3: the standings at Alphatarrius. Back to your Toro Rosso roots.
Speaker 3: You know how to get it done in a slower car,
Speaker 3: So talk to me about how you're going to define
Speaker 3: success not just for this weekend, but for the rest
Speaker 3: of the season.
Speaker 8: I mean, it's really I think as you said said
Speaker 8: like the car I drove last week was the best
Speaker 8: car on the grid, So in a way, part of
Speaker 8: me needs to remove that feeling. But getting into that
Speaker 8: car last week, I was just I just kind of
Speaker 8: jumped in. I was like, let's just see how it goes.
Speaker 8: Let's just drive. Who's my ability have fun with it?
Speaker 8: And you know that's the approach now. I think you
Speaker 8: know it's so easy to overcomplicate it. Yes, this team
Speaker 8: is having a difficult season. There's going to be some
Speaker 8: things we're gonna have to work on. But I think
Speaker 8: the approach for me needs to be just go out there,
Speaker 8: drive it, and then you go from work on its weaknesses.
Speaker 8: And I think I just need to focus on getting
Speaker 8: the best out of myself first.
Speaker 1: Dane, I noticed its silverstone, Like Lando Norris is getting
Speaker 1: all the love. I mean, Florence Pugh wants to hang
Speaker 1: out with Lando, not Daniel.
Speaker 6: I get it.
Speaker 8: I mean, there's no question about this.
Speaker 1: You have been through the ups and downs of this.
Speaker 1: John mentions Budapest, and I think Austin's out there summer
Speaker 1: as well. Is this a sequential process you have to
Speaker 1: get back into it or is this so thing you
Speaker 1: can figure out and practice to tomorrow now on the
Speaker 1: qualities and get something done on Saturday.
Speaker 8: I mean I, like I would say, realistically, it's a
Speaker 8: bit of a process. I can't probably expect everything to
Speaker 8: fall into place on the first weekend, but let's see
Speaker 8: what happens. Like I also, and you know, I've.
Speaker 3: Never seen this modest in my life. I've never seen
Speaker 3: in this modest in my life. Let's finish on this
Speaker 3: hopes and dreams. I know you've got many have you
Speaker 3: got your right on that second seat at red Bull
Speaker 3: not for next year, but the year after that.
Speaker 8: I mean that that's like that is that is where
Speaker 8: I would love to get to. And this this for
Speaker 8: me is it's an opportunity for sure, back in the sport,
Speaker 8: back in the red Bull family. And I know if
Speaker 8: I can capitalize on this, it could potentially lead to that.
Speaker 8: So this is all part of it.
Speaker 3: Then your congratulations and good luck for race weekend. And
Speaker 3: next time you're in the States, drop by New York
Speaker 3: on the way to Wolston and Vegas. We can catch
Speaker 3: up Daniel Ricardo there of Afatari, Thank you, sir.
Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple Spotify, and
Speaker 1: anywhere else you get your podcasts. Listen live every weekday,
Speaker 1: starting at seven am Eastern. I'm Bloomberg dot Com, the
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You
Speaker 1: can watch us live on Bloomberg Television and always I'm
Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and
Speaker 1: this is Bloomberg