1 00:00:00,080 --> 00:00:02,840 Speaker 1: We bring you news and analysis every day on the 2 00:00:02,840 --> 00:00:06,840 Speaker 1: Bloomberg Surveillance Podcast. But now you can get the latest 3 00:00:06,880 --> 00:00:11,639 Speaker 1: news on demand whenever you want. Subscribe to Bloomberg News 4 00:00:11,640 --> 00:00:14,400 Speaker 1: Now to get the latest headlines at the click of 5 00:00:14,440 --> 00:00:18,880 Speaker 1: a button. Get informed on your schedule. You can listen 6 00:00:18,960 --> 00:00:22,720 Speaker 1: and subscribe to Bloomberg News Now on the Bloomberg Business App, 7 00:00:22,760 --> 00:00:27,720 Speaker 1: Bloomberg dot Com plus Apple, Spotify, and anywhere else you 8 00:00:27,800 --> 00:00:35,479 Speaker 1: get your podcasts. Search Bloomberg News Now and subscribe today. 9 00:00:37,720 --> 00:00:40,880 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Lisa A. 10 00:00:40,960 --> 00:00:44,279 Speaker 3: Bramwods, along with Tom Keane and Jonathan Ferrow join us 11 00:00:44,320 --> 00:00:47,920 Speaker 3: each day for insight from the best in economics, geopolitics, 12 00:00:47,960 --> 00:00:49,040 Speaker 3: finance and investment. 13 00:00:49,400 --> 00:00:51,440 Speaker 2: Subscribe to Bloomberg Surveillance. 14 00:00:50,960 --> 00:00:54,440 Speaker 3: On demand on Apple, Spotify and anywhere you get your podcasts, 15 00:00:54,760 --> 00:00:57,800 Speaker 3: and always on Bloomberg dot Com, the Bloomberg Terminal, and 16 00:00:57,840 --> 00:01:01,000 Speaker 3: the Bloomberg Business App. There is quite of whether this 17 00:01:01,240 --> 00:01:05,320 Speaker 3: is enough of a disinflationary effect to really give people 18 00:01:05,400 --> 00:01:08,720 Speaker 3: confidence that inflation and the disinflation that we're seeing now 19 00:01:08,880 --> 00:01:11,320 Speaker 3: is more than just transitory. J. Brice and Over at 20 00:01:11,319 --> 00:01:14,280 Speaker 3: Wells Fargo chief economists there joining us. Now, what's your 21 00:01:14,280 --> 00:01:17,160 Speaker 3: thought just now to start with Jay on what we 22 00:01:17,280 --> 00:01:19,080 Speaker 3: just saw in the CPI print that did come in 23 00:01:19,240 --> 00:01:20,440 Speaker 3: just a bit hotter than expected. 24 00:01:21,680 --> 00:01:23,720 Speaker 4: Yeah, Lisa, I mean, I'll use a phrase here, and 25 00:01:23,720 --> 00:01:25,640 Speaker 4: I think John is probably familiar with it. You know, 26 00:01:25,680 --> 00:01:28,840 Speaker 4: this was kind of a damp squib. It's kind of right. 27 00:01:28,880 --> 00:01:30,800 Speaker 4: I mean, I don't think it's going to change anybody's 28 00:01:30,880 --> 00:01:32,920 Speaker 4: view of what's going on in the economy. I don't 29 00:01:32,920 --> 00:01:35,480 Speaker 4: think it changes anyone's view, you know, at the Federal 30 00:01:35,480 --> 00:01:39,160 Speaker 4: Reserve about this. I think it you know, maybe in general, 31 00:01:39,200 --> 00:01:41,399 Speaker 4: it kind of keeps them in play. It keeps the 32 00:01:41,640 --> 00:01:45,440 Speaker 4: possibility of another rate hike, probably not at November, maybe 33 00:01:45,480 --> 00:01:48,680 Speaker 4: December live, but in general, it's it's kind of what 34 00:01:49,040 --> 00:01:51,040 Speaker 4: I think most of us kind of assumed was going 35 00:01:51,080 --> 00:01:51,480 Speaker 4: to happen. 36 00:01:52,000 --> 00:01:53,720 Speaker 2: Damn squid. I actually had to look it up. 37 00:01:53,800 --> 00:01:55,560 Speaker 3: It means an event that is not as exciting or 38 00:01:55,600 --> 00:01:58,240 Speaker 3: popular as people thought it would be. I'm curious, though, Jay, 39 00:01:58,280 --> 00:02:01,120 Speaker 3: the fact that we got an upside surprise PPI yesterday 40 00:02:01,120 --> 00:02:04,640 Speaker 3: and the smallest of upside surprises on CPI. Now, are 41 00:02:04,640 --> 00:02:07,320 Speaker 3: you surprised we're not seeing more of a reaction in markets? 42 00:02:07,320 --> 00:02:10,480 Speaker 3: That if I'm responding to winds blowing in another room 43 00:02:10,680 --> 00:02:11,880 Speaker 3: over the past couple of days. 44 00:02:13,040 --> 00:02:15,480 Speaker 4: Well, you know, as you know, and we had just 45 00:02:15,520 --> 00:02:18,680 Speaker 4: a tremendous backup in yields over the last few weeks here, 46 00:02:18,919 --> 00:02:21,480 Speaker 4: and so you know, I think the market is just 47 00:02:21,520 --> 00:02:24,440 Speaker 4: trying to find this sequilibrium right now. And you know, again, 48 00:02:24,480 --> 00:02:27,240 Speaker 4: I don't think this was big enough to really change 49 00:02:27,280 --> 00:02:30,520 Speaker 4: sentiment all that much. If we would have printed you know, 50 00:02:30,560 --> 00:02:33,360 Speaker 4: another point six on the headline and a point four 51 00:02:33,440 --> 00:02:35,519 Speaker 4: on the core, then I could see much more of 52 00:02:35,880 --> 00:02:38,960 Speaker 4: a market reaction here. But just given all the price 53 00:02:39,000 --> 00:02:42,000 Speaker 4: action we've seen over the last two weeks, in some sense, 54 00:02:42,000 --> 00:02:43,839 Speaker 4: it's not all that surprising to me. We haven't seen 55 00:02:43,840 --> 00:02:46,160 Speaker 4: a bigger reaction this morning to this data. 56 00:02:46,240 --> 00:02:48,440 Speaker 3: What it does highlight, though, is something that you and 57 00:02:48,680 --> 00:02:51,280 Speaker 3: Sarah House have been speaking about for quite a while, 58 00:02:51,320 --> 00:02:53,720 Speaker 3: which is the final mile and how difficult it is 59 00:02:53,720 --> 00:02:56,400 Speaker 3: to get inflation back down to two percent. How much 60 00:02:56,440 --> 00:02:59,640 Speaker 3: does this edify just how difficult that battle is, given 61 00:02:59,639 --> 00:03:03,120 Speaker 3: the fact that we're seeing signs that goods inflation is 62 00:03:03,160 --> 00:03:04,120 Speaker 3: starting to reignite. 63 00:03:05,080 --> 00:03:07,200 Speaker 4: Yeah, So, I mean, you know, for us, it's you know, 64 00:03:07,200 --> 00:03:10,440 Speaker 4: it boils down to services. Right, services represent more than 65 00:03:10,600 --> 00:03:13,359 Speaker 4: sixty percent of the overall CPI. I mean, I don't 66 00:03:13,400 --> 00:03:15,920 Speaker 4: know what, you know, the so called super core was 67 00:03:16,000 --> 00:03:19,480 Speaker 4: this is services x housing. But that's been running, you know, 68 00:03:19,720 --> 00:03:21,920 Speaker 4: we've been getting point four sort of numbers on that, 69 00:03:22,160 --> 00:03:24,639 Speaker 4: and so that last mile to get us back down 70 00:03:24,720 --> 00:03:27,639 Speaker 4: to two percent on a sustained basis, you know, that's 71 00:03:27,880 --> 00:03:30,120 Speaker 4: that's tough, and that's why the FED is probably going 72 00:03:30,160 --> 00:03:33,400 Speaker 4: to remain restrictive, you know, for quite some time to 73 00:03:33,440 --> 00:03:35,840 Speaker 4: make sure that that does come down. And so what 74 00:03:35,880 --> 00:03:37,400 Speaker 4: you have to do is you have to have and 75 00:03:37,560 --> 00:03:40,200 Speaker 4: they said this in the minutes of the FMC minutes 76 00:03:40,200 --> 00:03:43,560 Speaker 4: the other day, you have to have subtrend growth for 77 00:03:43,680 --> 00:03:46,760 Speaker 4: a while to bring that down to two percent. And 78 00:03:46,880 --> 00:03:48,720 Speaker 4: I'm afraid that's what we're going to be looking at 79 00:03:48,760 --> 00:03:51,960 Speaker 4: over the next few quarters, is kind of subtrend economic growth. 80 00:03:52,520 --> 00:03:54,880 Speaker 5: The report also talks about the increase in the gasoline 81 00:03:54,920 --> 00:03:58,200 Speaker 5: index as a major contributor to the rise. How difficult 82 00:03:58,240 --> 00:04:02,320 Speaker 5: does the current geopolitical environment make the fact that this 83 00:04:02,520 --> 00:04:06,080 Speaker 5: gasoline index potentially has potential to continue to rise to 84 00:04:06,200 --> 00:04:08,120 Speaker 5: make this two percent even that much harder? 85 00:04:09,080 --> 00:04:10,839 Speaker 4: Yeah, I mean, it's interesting and if you look at 86 00:04:10,920 --> 00:04:13,120 Speaker 4: you know, if you look what's happened since let's call 87 00:04:13,160 --> 00:04:16,240 Speaker 4: it late September, so gasoline prices have actually come down 88 00:04:16,440 --> 00:04:19,559 Speaker 4: pretty significantly, like in the you know, fifteen twenty cents 89 00:04:19,560 --> 00:04:21,360 Speaker 4: a gallon or something like that. You know, what's going 90 00:04:21,400 --> 00:04:24,040 Speaker 4: on right now in the Middle East will probably stop 91 00:04:24,160 --> 00:04:28,200 Speaker 4: that decline right there. And if things obviously heat up 92 00:04:28,279 --> 00:04:30,600 Speaker 4: over in the Middle East and you start talking about 93 00:04:30,839 --> 00:04:34,240 Speaker 4: you know, potentially a ran going offline in terms of 94 00:04:34,440 --> 00:04:36,719 Speaker 4: you know, pumping three million or so barrels a day, 95 00:04:37,040 --> 00:04:40,400 Speaker 4: then that's obviously going to put upward pressure on oil prices, 96 00:04:40,480 --> 00:04:43,279 Speaker 4: and that would arrest that downward trend that we've seen 97 00:04:43,320 --> 00:04:45,200 Speaker 4: at least in the last two weeks in terms of 98 00:04:45,240 --> 00:04:46,159 Speaker 4: gasoline prices. 99 00:04:46,400 --> 00:04:49,839 Speaker 5: Do you start to consider that and put that into 100 00:04:50,040 --> 00:04:53,359 Speaker 5: how you were thinking about the next year or so. 101 00:04:53,360 --> 00:04:55,240 Speaker 4: So, I guess what I would the way I would 102 00:04:55,320 --> 00:04:58,920 Speaker 4: characterize that to our inflation forecast is it's an upside risk. 103 00:04:59,160 --> 00:05:02,160 Speaker 4: I mean, at this point, just given out how fluid 104 00:05:02,200 --> 00:05:04,320 Speaker 4: that situation in the Middle East is, I don't know 105 00:05:04,320 --> 00:05:07,160 Speaker 4: if we would necessarily try to factor that in right now, 106 00:05:07,240 --> 00:05:08,880 Speaker 4: and so you know, we would come up with some 107 00:05:08,880 --> 00:05:11,279 Speaker 4: sort of point estimate in terms of our view in 108 00:05:11,360 --> 00:05:14,599 Speaker 4: terms of inflation over the coming year or so, and 109 00:05:14,640 --> 00:05:16,320 Speaker 4: we would say, well, maybe the risk are a little 110 00:05:16,320 --> 00:05:19,040 Speaker 4: bit skewed to the upside here, and so we'll just 111 00:05:19,120 --> 00:05:21,200 Speaker 4: have to keep an eye on what's going on over there. 112 00:05:21,480 --> 00:05:24,760 Speaker 4: But keep in mind that gasoline itself represents a pretty 113 00:05:24,800 --> 00:05:27,000 Speaker 4: small part of the CPI. I think it's only like 114 00:05:27,240 --> 00:05:30,080 Speaker 4: six percent or something like that. It's pretty small, and 115 00:05:30,120 --> 00:05:32,320 Speaker 4: so you'd have to have see, you know, pretty significantly 116 00:05:32,360 --> 00:05:35,400 Speaker 4: increase in gasoline prices that were sustained to have you know, 117 00:05:35,520 --> 00:05:38,240 Speaker 4: a lasting impact on the overall rate of inflation. 118 00:05:38,520 --> 00:05:40,480 Speaker 2: Jay Bryce And and Wells Fargo, thank you so much for 119 00:05:40,520 --> 00:05:41,080 Speaker 2: being with us. 120 00:05:41,080 --> 00:05:41,320 Speaker 4: If we. 121 00:05:45,839 --> 00:05:47,839 Speaker 3: Do want to parse through what the response has been 122 00:05:47,920 --> 00:05:50,240 Speaker 3: to the CPI report, joining us now, David Kelly, chief 123 00:05:50,240 --> 00:05:52,359 Speaker 3: Global strategist at JPMorgan Asset Management. 124 00:05:52,560 --> 00:05:53,480 Speaker 2: I just would love to get your. 125 00:05:53,400 --> 00:05:57,240 Speaker 3: Thoughts, David, on whether the CPI, the PPI coming in 126 00:05:57,279 --> 00:06:01,200 Speaker 3: hotter than expected, moves the needle anywhere on your radar, 127 00:06:01,320 --> 00:06:02,119 Speaker 3: even just a touch. 128 00:06:04,120 --> 00:06:04,680 Speaker 4: Not really. 129 00:06:04,960 --> 00:06:06,960 Speaker 6: First of all, on the CPI, I think it was 130 00:06:07,120 --> 00:06:10,640 Speaker 6: close to being exactly on expectations. The one thing that 131 00:06:10,720 --> 00:06:14,480 Speaker 6: seemed to be stronger than people that expected was hotels. 132 00:06:14,800 --> 00:06:18,480 Speaker 6: Hotel rates had fallen a very sharp three point six 133 00:06:18,560 --> 00:06:21,279 Speaker 6: percent in the prior month, they jumped four point two 134 00:06:21,279 --> 00:06:23,680 Speaker 6: percent this month, and that was one of the things 135 00:06:23,680 --> 00:06:26,600 Speaker 6: to push up shelter costs, And if you take that out, 136 00:06:26,680 --> 00:06:30,159 Speaker 6: there's really not much else going on here. Meanwhile, we're 137 00:06:30,160 --> 00:06:32,640 Speaker 6: looking very closely at the price of gasoline, because what's 138 00:06:32,680 --> 00:06:35,039 Speaker 6: happening is, even though crude oil prices are holding in 139 00:06:35,040 --> 00:06:39,000 Speaker 6: at fairly high levels, we've seen refiner margins come crashing down. 140 00:06:39,400 --> 00:06:41,000 Speaker 6: And so the price of a gallon of gasoline is 141 00:06:41,000 --> 00:06:43,239 Speaker 6: now nineteen cents lower than it was a month ago, 142 00:06:43,560 --> 00:06:45,760 Speaker 6: and so I think that bodes well for a better 143 00:06:45,839 --> 00:06:48,520 Speaker 6: reading for October CPI. So right now, I think we're 144 00:06:48,560 --> 00:06:51,120 Speaker 6: still on track. I think we're on track for CPFF 145 00:06:51,880 --> 00:06:54,200 Speaker 6: year of a year headline CPI being at two percent 146 00:06:54,320 --> 00:06:56,400 Speaker 6: or less in the fourth quart of next year, and 147 00:06:56,440 --> 00:06:58,960 Speaker 6: the consumption to fasier also being a two percent or 148 00:06:59,080 --> 00:07:01,039 Speaker 6: less by the four court of next year, and that's 149 00:07:01,040 --> 00:07:04,080 Speaker 6: one year ahead of the FEDCE target, and that's you know, 150 00:07:04,120 --> 00:07:06,600 Speaker 6: so overall, this report makes me really, you know, I'm 151 00:07:06,600 --> 00:07:09,760 Speaker 6: still very optimistic that inflation is coming down and meanwhile, 152 00:07:09,800 --> 00:07:11,920 Speaker 6: we do have these other issues. We do we have 153 00:07:12,000 --> 00:07:16,680 Speaker 6: this expanding UAW strike. I think the continued sort of 154 00:07:16,760 --> 00:07:19,720 Speaker 6: chaos in Washington makes it quite possible that we'll have 155 00:07:19,720 --> 00:07:23,360 Speaker 6: a government shutdown in November. So I think there are 156 00:07:23,760 --> 00:07:26,320 Speaker 6: you know, there's still plenty of weights on the economy here, 157 00:07:26,440 --> 00:07:28,240 Speaker 6: and certainly when I look at inflation, I still think 158 00:07:28,280 --> 00:07:28,920 Speaker 6: it's coming down. 159 00:07:29,360 --> 00:07:31,200 Speaker 5: When you look at this report, though very much so 160 00:07:31,360 --> 00:07:34,320 Speaker 5: feels like status quo. How much harder is it going 161 00:07:34,360 --> 00:07:36,000 Speaker 5: to be to get to that two percent? 162 00:07:37,040 --> 00:07:38,400 Speaker 6: Well, I don't think it's going to be that hard. 163 00:07:38,400 --> 00:07:39,920 Speaker 6: I mean, it's a lot of this has to do 164 00:07:40,000 --> 00:07:42,960 Speaker 6: with year over year changes and basis. So if you 165 00:07:43,000 --> 00:07:45,920 Speaker 6: look at the core CPI, it came down from four 166 00:07:45,920 --> 00:07:48,320 Speaker 6: point four percent year over year to four point one percent, 167 00:07:48,520 --> 00:07:50,520 Speaker 6: and actually Core is going to keep on coming down 168 00:07:51,120 --> 00:07:54,160 Speaker 6: over the next next few months. And then you know, 169 00:07:54,200 --> 00:07:56,880 Speaker 6: as I said, I think the energy story is gradually 170 00:07:56,880 --> 00:07:59,920 Speaker 6: getting better. I think the economy will grow more slowly 171 00:08:00,160 --> 00:08:03,720 Speaker 6: in the fourth quarter and next year. So and then 172 00:08:03,760 --> 00:08:06,080 Speaker 6: the last thing is shelter. We know that that owners 173 00:08:06,080 --> 00:08:10,240 Speaker 6: equivalent to rent actual rents. As the government reports some 174 00:08:10,440 --> 00:08:14,400 Speaker 6: lag reality on the ground when it comes to negotiated rents, 175 00:08:14,720 --> 00:08:17,200 Speaker 6: and we're not seeing any increase going on in the 176 00:08:17,240 --> 00:08:19,560 Speaker 6: actual rental market. We're not seeing any increase going on 177 00:08:19,640 --> 00:08:23,480 Speaker 6: in actual new car prices since the start of this year. 178 00:08:23,560 --> 00:08:25,920 Speaker 6: So we think that that will all tend to push 179 00:08:25,920 --> 00:08:29,600 Speaker 6: away at transportation or cutaway at transportation services and at 180 00:08:29,640 --> 00:08:32,480 Speaker 6: shelter costs. And that's really where our forecast of two 181 00:08:32,520 --> 00:08:34,560 Speaker 6: percent inflation by the end of next year is coming from. 182 00:08:34,679 --> 00:08:37,280 Speaker 2: Does that make you bullish or bearish? 183 00:08:38,160 --> 00:08:40,160 Speaker 6: Siting BULLETSH I think I think you have to pick 184 00:08:40,160 --> 00:08:43,520 Speaker 6: and choose here. The overall US equity market's not cheap, 185 00:08:44,360 --> 00:08:48,000 Speaker 6: but it's very bifurcated between those top ten stocks, a 186 00:08:48,040 --> 00:08:50,520 Speaker 6: top seven stocks, and everything else. The rest of the 187 00:08:50,559 --> 00:08:53,080 Speaker 6: market is looking like pretty good value here. I would 188 00:08:53,080 --> 00:08:55,319 Speaker 6: also say the bond market's pretty good value here. I mean, 189 00:08:55,400 --> 00:08:58,680 Speaker 6: if I'm right, then inflation gets down to two percent, 190 00:08:59,320 --> 00:09:01,280 Speaker 6: then a ten your treasury at about four and a 191 00:09:01,320 --> 00:09:03,719 Speaker 6: half percent sounds about right, and we actually could get 192 00:09:03,720 --> 00:09:06,599 Speaker 6: a little bit of a capital gain when inevitably we 193 00:09:06,720 --> 00:09:08,840 Speaker 6: trip into recession at some stage in the next year 194 00:09:08,920 --> 00:09:09,200 Speaker 6: or two. 195 00:09:09,360 --> 00:09:11,679 Speaker 3: We've been trying to wrapperhead around some of the whipsaw 196 00:09:11,720 --> 00:09:13,800 Speaker 3: action that we've seen in ten year treasure yields and 197 00:09:13,840 --> 00:09:17,360 Speaker 3: thirty year treasure yields. We've had softer than expected auctions 198 00:09:17,440 --> 00:09:19,240 Speaker 3: yesterday the ten year, today we have one of the 199 00:09:19,280 --> 00:09:21,920 Speaker 3: thirty year. There's been a question of how much is 200 00:09:22,000 --> 00:09:25,160 Speaker 3: technical and how much is a larger lack of certainty 201 00:09:25,200 --> 00:09:27,920 Speaker 3: about what the ultimate inflation paradigm is going to look like. 202 00:09:28,000 --> 00:09:30,880 Speaker 3: Not to mention fiscal from your vantage point, does this 203 00:09:30,960 --> 00:09:34,640 Speaker 3: volatility make this market less investible or more investible? 204 00:09:35,720 --> 00:09:38,920 Speaker 6: Well, it's disconcerting, of course for investors, But if you're 205 00:09:38,920 --> 00:09:40,680 Speaker 6: a long term investor, just look at the prices and 206 00:09:40,679 --> 00:09:43,840 Speaker 6: don't worry about the day to day action because a 207 00:09:43,840 --> 00:09:45,880 Speaker 6: lot of this is whipsaw, as you say, but over 208 00:09:45,880 --> 00:09:48,640 Speaker 6: the course of a year, or two years or ten years, 209 00:09:49,520 --> 00:09:52,640 Speaker 6: it'll diminish. I do think that there is something important 210 00:09:52,640 --> 00:09:54,280 Speaker 6: going on the fiscal side, and we just got the 211 00:09:54,280 --> 00:09:58,680 Speaker 6: Congressional Budget Office numbers on their estimates on the budget 212 00:09:58,720 --> 00:10:02,520 Speaker 6: deficit on Monday even and it looks like this fiscal 213 00:10:02,600 --> 00:10:05,080 Speaker 6: year or last fiscal year came in at one point 214 00:10:05,120 --> 00:10:08,080 Speaker 6: seven trillion dollars. This fiscal year probably about two trillion dollars. 215 00:10:08,320 --> 00:10:12,360 Speaker 6: You add in the fact that the FED is returning 216 00:10:12,400 --> 00:10:15,240 Speaker 6: bonds to the market, and the federal government is having 217 00:10:15,320 --> 00:10:17,480 Speaker 6: to borrow about two and a half to three trillion 218 00:10:17,520 --> 00:10:20,960 Speaker 6: dollars every year from global public capital markets, and that 219 00:10:21,080 --> 00:10:25,079 Speaker 6: is an enormous lift. And that does suggest that when 220 00:10:25,160 --> 00:10:27,120 Speaker 6: long term deals come down, they're not going to come 221 00:10:27,160 --> 00:10:29,640 Speaker 6: down to you know, one percent or two percent. So 222 00:10:29,679 --> 00:10:32,320 Speaker 6: there is a floor to how low long term bonds 223 00:10:32,360 --> 00:10:33,760 Speaker 6: can come down. So what I'd say is, you know, 224 00:10:33,840 --> 00:10:38,319 Speaker 6: buy bonds for income, buy them far to diversify your portfolio, 225 00:10:38,760 --> 00:10:40,840 Speaker 6: but don't expect a big capital gain from bonds, because 226 00:10:40,880 --> 00:10:42,800 Speaker 6: I think there is a limit to how far rates 227 00:10:42,840 --> 00:10:45,280 Speaker 6: could fall given how much the government has to borrow. 228 00:10:45,640 --> 00:10:47,360 Speaker 5: When you look at the fiscal trajectory though of the 229 00:10:47,400 --> 00:10:49,160 Speaker 5: United States, you see a lot of the dysfunction that 230 00:10:49,200 --> 00:10:52,200 Speaker 5: goes on in Washington. The fighting is about a very 231 00:10:52,240 --> 00:10:55,880 Speaker 5: small sliver of the US budget. Is can we ever 232 00:10:55,920 --> 00:10:58,199 Speaker 5: really deal with the fiscal health of the United States 233 00:10:58,280 --> 00:11:00,720 Speaker 5: until we start looking at the defense budget or things 234 00:11:00,720 --> 00:11:03,480 Speaker 5: like entitlements, these mandatory spending measures. 235 00:11:03,800 --> 00:11:05,600 Speaker 6: Well, it's not just on the spending side, it's also 236 00:11:05,600 --> 00:11:07,840 Speaker 6: on the tax side. I mean, the reason we have 237 00:11:07,880 --> 00:11:11,400 Speaker 6: big budget deficits today is because we had two huge 238 00:11:11,440 --> 00:11:14,320 Speaker 6: wars over a very long period. We had two major 239 00:11:14,400 --> 00:11:17,600 Speaker 6: tax cuts, one of them which was extended, and we've 240 00:11:17,600 --> 00:11:20,560 Speaker 6: had and we've had a pandemic and a global financial 241 00:11:20,600 --> 00:11:22,400 Speaker 6: crisis in which the government has poured money at the 242 00:11:22,400 --> 00:11:24,920 Speaker 6: problem and we didn't pay for any of it. The 243 00:11:25,000 --> 00:11:28,280 Speaker 6: reason of the big budget deficits is because politicians treat 244 00:11:28,360 --> 00:11:33,080 Speaker 6: us like children, and we accept it. So I completely 245 00:11:33,120 --> 00:11:34,800 Speaker 6: agree with you that what they're talking about today is 246 00:11:34,800 --> 00:11:37,800 Speaker 6: just complete sideshow. You can't deal with the budget deficit 247 00:11:37,800 --> 00:11:41,400 Speaker 6: without either raising taxes or cutting defense, Medicare and Medicaid 248 00:11:41,920 --> 00:11:45,480 Speaker 6: and social security or both. You simply can't. And we 249 00:11:45,480 --> 00:11:47,839 Speaker 6: need to have these tough discussions, but I don't expect 250 00:11:47,880 --> 00:11:49,959 Speaker 6: that anytime soon. So I think we will be looking 251 00:11:50,000 --> 00:11:54,200 Speaker 6: at rising deficits or rising debt and very high deficits 252 00:11:54,200 --> 00:11:55,040 Speaker 6: for many years to come. 253 00:11:55,360 --> 00:11:57,840 Speaker 3: David Kelly of JP Morgan Asse Management, thank you so much. 254 00:12:08,440 --> 00:12:11,280 Speaker 3: There is this question of whether this is enough of 255 00:12:11,320 --> 00:12:16,040 Speaker 3: a disinflationary effect to really give people confidence that inflation 256 00:12:16,240 --> 00:12:18,439 Speaker 3: and the disinflation that we're seeing now is more than 257 00:12:18,480 --> 00:12:21,280 Speaker 3: just transitory. J. Brice and over at Wells Fargo chief 258 00:12:21,280 --> 00:12:24,400 Speaker 3: economists there joining us. Now, what's your thought just now 259 00:12:24,440 --> 00:12:26,720 Speaker 3: to start with Jay on what we just saw in 260 00:12:26,760 --> 00:12:28,640 Speaker 3: the CPI print that did come in just a bit 261 00:12:28,679 --> 00:12:29,520 Speaker 3: hotter than expected. 262 00:12:30,800 --> 00:12:32,800 Speaker 4: Yeah, Lisa, I mean, I'll use a phrase here, and 263 00:12:32,840 --> 00:12:34,760 Speaker 4: I think John is probably familiar with it. You know, 264 00:12:34,800 --> 00:12:37,920 Speaker 4: this was kind of a damp squib. It's kind of right. 265 00:12:38,000 --> 00:12:39,920 Speaker 4: I mean, I don't think it's going to change anybody's 266 00:12:40,000 --> 00:12:42,000 Speaker 4: view of what's going on in the economy. I don't 267 00:12:42,040 --> 00:12:44,600 Speaker 4: think it changes anyone's view, you know, at the Federal 268 00:12:44,600 --> 00:12:48,320 Speaker 4: Reserve about this. I think it you know, maybe in general, 269 00:12:48,320 --> 00:12:50,720 Speaker 4: it kind of keeps them in play. It keeps the 270 00:12:50,760 --> 00:12:54,559 Speaker 4: possibility of another rate hike, probably not at November, maybe 271 00:12:54,600 --> 00:12:57,760 Speaker 4: December alive. But in general, it's it's kind of what 272 00:12:58,120 --> 00:13:00,000 Speaker 4: I think most of us kind of assumed was going 273 00:13:00,200 --> 00:13:00,559 Speaker 4: to happen. 274 00:13:01,120 --> 00:13:02,800 Speaker 2: Damn squid. I actually had to look it up. 275 00:13:02,920 --> 00:13:04,679 Speaker 3: It means an event that is not as exciting or 276 00:13:04,720 --> 00:13:07,360 Speaker 3: popular as people thought it would be. I'm curious, though, Jay, 277 00:13:07,360 --> 00:13:09,600 Speaker 3: the fact that we got an upside surprise with PPI 278 00:13:09,760 --> 00:13:13,560 Speaker 3: yesterday and the smallest of upside surprises on CPI, now, 279 00:13:13,600 --> 00:13:15,880 Speaker 3: are you surprised we're not seeing more of a reaction 280 00:13:15,960 --> 00:13:18,880 Speaker 3: in markets that if I'm responding to winds blowing in 281 00:13:18,960 --> 00:13:20,720 Speaker 3: another room over the past couple. 282 00:13:20,559 --> 00:13:24,200 Speaker 4: Of days, well, you know, as you know, and we 283 00:13:24,280 --> 00:13:26,680 Speaker 4: had just a tremendous backup in yields so over the 284 00:13:26,760 --> 00:13:29,880 Speaker 4: last few weeks here, and so you know, I think 285 00:13:29,920 --> 00:13:32,640 Speaker 4: the market is just trying to find a sequilibrium right now. 286 00:13:32,720 --> 00:13:34,600 Speaker 4: And you know, again, I don't think this was big 287 00:13:34,720 --> 00:13:37,760 Speaker 4: enough to really change sentiment all that much. You know, 288 00:13:38,200 --> 00:13:40,679 Speaker 4: if we would have printed you know, another point six 289 00:13:40,760 --> 00:13:43,400 Speaker 4: on the headline and a point four on the core, 290 00:13:43,520 --> 00:13:46,640 Speaker 4: then I could see much more of a market reaction here. 291 00:13:46,640 --> 00:13:49,000 Speaker 4: But just given all the price action we've seen over 292 00:13:49,040 --> 00:13:51,600 Speaker 4: the last two weeks, in some sense, it's not all 293 00:13:51,600 --> 00:13:53,680 Speaker 4: that surprising to me. We haven't seen a bigger reaction 294 00:13:53,760 --> 00:13:55,280 Speaker 4: this morning to this data. 295 00:13:55,360 --> 00:13:57,559 Speaker 3: What it does highlight, though, is something that you and 296 00:13:57,800 --> 00:14:00,400 Speaker 3: Sarah House have been speaking about for quite a while, 297 00:14:00,440 --> 00:14:02,800 Speaker 3: which is the final mile and how difficult it is 298 00:14:02,840 --> 00:14:05,520 Speaker 3: to get inflation back down to two percent. How much 299 00:14:05,559 --> 00:14:08,800 Speaker 3: does this edify just how difficult that battle is, given 300 00:14:08,800 --> 00:14:12,240 Speaker 3: the fact that we're seeing signs that goods inflation is 301 00:14:12,280 --> 00:14:13,920 Speaker 3: starting to reignite. 302 00:14:14,200 --> 00:14:16,320 Speaker 4: Yeah, So, I mean, you know, for us, it's you know, 303 00:14:16,320 --> 00:14:19,560 Speaker 4: it boils down to services, right, services represent more than 304 00:14:19,720 --> 00:14:22,480 Speaker 4: sixty percent of the overall CPI. I mean, I don't 305 00:14:22,480 --> 00:14:25,040 Speaker 4: know what, you know, the so called super core was 306 00:14:25,080 --> 00:14:28,600 Speaker 4: this is service's x housing. But that's been running, you know, 307 00:14:28,640 --> 00:14:31,080 Speaker 4: we've been getting point four sort of numbers on that. 308 00:14:31,280 --> 00:14:33,760 Speaker 4: And so that last mile to get us back down 309 00:14:33,840 --> 00:14:36,760 Speaker 4: to two percent on a sustained basis, you know, that's 310 00:14:37,000 --> 00:14:39,240 Speaker 4: that's tough, and that's why the FED is probably going 311 00:14:39,280 --> 00:14:42,520 Speaker 4: to remain restrictive, you know, for quite some time to 312 00:14:42,560 --> 00:14:44,920 Speaker 4: make sure that that does come down. And so what 313 00:14:45,000 --> 00:14:46,480 Speaker 4: you have to do is you have to have and 314 00:14:46,680 --> 00:14:49,320 Speaker 4: they said this in the minutes of the FMC minutes 315 00:14:49,320 --> 00:14:52,680 Speaker 4: the other day, you have to have subtrend growth for 316 00:14:52,800 --> 00:14:55,880 Speaker 4: a while to bring that down to two percent. And 317 00:14:55,960 --> 00:14:57,880 Speaker 4: I'm afraid that's what we're going to be looking at 318 00:14:57,880 --> 00:15:00,160 Speaker 4: over the next few quarters is kind of subtrend and 319 00:15:00,200 --> 00:15:01,080 Speaker 4: economic growth. 320 00:15:01,600 --> 00:15:03,960 Speaker 5: The report also talks about the increase in the gasoline 321 00:15:04,040 --> 00:15:07,320 Speaker 5: index as a major contributor to the rise. How difficult 322 00:15:07,360 --> 00:15:11,440 Speaker 5: does the current geopolitical environment make the fact that this 323 00:15:11,600 --> 00:15:15,200 Speaker 5: gasoline index potentially has potential to continue to rise to 324 00:15:15,320 --> 00:15:17,200 Speaker 5: make this two percent even that much harder? 325 00:15:18,200 --> 00:15:19,920 Speaker 4: Yeah, I mean it's interesting and if you look at 326 00:15:20,040 --> 00:15:22,240 Speaker 4: you know, if you look what's happened since let's call 327 00:15:22,280 --> 00:15:25,320 Speaker 4: it late September, so gasoline prices have actually come down 328 00:15:25,560 --> 00:15:28,720 Speaker 4: pretty significantly, like in you know, fifteen twenty cents a 329 00:15:28,800 --> 00:15:30,640 Speaker 4: gallon or something like that. You know, what's going on 330 00:15:30,760 --> 00:15:33,320 Speaker 4: right now in the Middle East will probably stop that 331 00:15:34,640 --> 00:15:37,560 Speaker 4: decline right there. And if things obviously heat up over 332 00:15:37,560 --> 00:15:40,160 Speaker 4: in the Middle East and you start talking about you know, 333 00:15:40,240 --> 00:15:43,720 Speaker 4: potentially a ran going offline in terms of you know, 334 00:15:43,760 --> 00:15:46,520 Speaker 4: pumping three million or so barrels a day, then that's 335 00:15:46,560 --> 00:15:49,680 Speaker 4: obviously going to put upward pressure on oil prices, and 336 00:15:49,720 --> 00:15:52,520 Speaker 4: that would arrest that downward trend that we've seen at 337 00:15:52,600 --> 00:15:55,280 Speaker 4: least in the last two weeks in terms of gasoline prices. 338 00:15:55,520 --> 00:15:58,960 Speaker 5: Do you start to consider that and put that into 339 00:15:59,160 --> 00:16:02,480 Speaker 5: how you were thinking about out the next year or so. 340 00:16:02,480 --> 00:16:04,360 Speaker 4: So I guess what I would the way I would 341 00:16:04,400 --> 00:16:08,040 Speaker 4: characterize that to our inflation forecast is it's an upside risk. 342 00:16:08,280 --> 00:16:11,280 Speaker 4: I mean at this point, just given out how fluid 343 00:16:11,280 --> 00:16:13,400 Speaker 4: that situation in the Middle East is, I don't know 344 00:16:13,440 --> 00:16:16,280 Speaker 4: if we would necessarily try to factor that in right now. 345 00:16:16,360 --> 00:16:17,960 Speaker 4: And so you know, we would come up with some 346 00:16:18,000 --> 00:16:20,360 Speaker 4: sort of point estimate in terms of our view in 347 00:16:20,440 --> 00:16:22,840 Speaker 4: terms of inflation over the coming you know, year or so, 348 00:16:23,520 --> 00:16:25,200 Speaker 4: and we would say, well, maybe the risk are a 349 00:16:25,240 --> 00:16:28,120 Speaker 4: little bit skewed to the upside here, and so we'll 350 00:16:28,120 --> 00:16:29,600 Speaker 4: just have to keep an eye on what's going on 351 00:16:29,720 --> 00:16:33,480 Speaker 4: over there. But keep in mind that gasoline itself represents 352 00:16:33,520 --> 00:16:35,280 Speaker 4: a pretty small part of the of the CPI. I 353 00:16:35,280 --> 00:16:38,040 Speaker 4: think it's only like six percent or something like that. 354 00:16:38,080 --> 00:16:40,160 Speaker 4: It's pretty small, and so you'd have to have see, 355 00:16:40,280 --> 00:16:43,040 Speaker 4: you know, pretty significant increase in gasoline prices that were 356 00:16:43,040 --> 00:16:45,880 Speaker 4: sustained to have you know, a lasting impact on the 357 00:16:45,960 --> 00:16:47,360 Speaker 4: overall rate of inflation. 358 00:16:47,640 --> 00:16:49,600 Speaker 2: Jay Bryce and Wells Fargo, thank you so much for 359 00:16:49,640 --> 00:16:50,400 Speaker 2: being with us. 360 00:16:54,320 --> 00:16:56,400 Speaker 7: With this around the table. And please to say Michael Shaw, 361 00:16:56,560 --> 00:17:00,040 Speaker 7: CEO of market Field Asset Management. Morning, Michael, morning. And 362 00:17:00,080 --> 00:17:01,720 Speaker 7: to go back to this Gympianco question I asked in 363 00:17:01,720 --> 00:17:03,480 Speaker 7: the last Now, I think it's worth asking a view 364 00:17:03,520 --> 00:17:05,119 Speaker 7: because I know your answer to it, so we can 365 00:17:05,160 --> 00:17:06,280 Speaker 7: have a broader conversation about it. 366 00:17:06,320 --> 00:17:07,320 Speaker 8: That's someone knows the answer. 367 00:17:07,440 --> 00:17:10,439 Speaker 7: The disinflation we've seen over the last few months is 368 00:17:10,480 --> 00:17:11,200 Speaker 7: that transitory? 369 00:17:11,680 --> 00:17:14,600 Speaker 8: I think so? Yes, Why well, because I think you 370 00:17:14,680 --> 00:17:17,440 Speaker 8: had this big, shocking COVID of excess demand and cons 371 00:17:18,240 --> 00:17:22,399 Speaker 8: constricted supply, and that created a lot of took a 372 00:17:22,400 --> 00:17:24,679 Speaker 8: long time, but it was transitory inflation. And now you 373 00:17:24,720 --> 00:17:27,080 Speaker 8: have a sort of transitory deflation. And what you see 374 00:17:27,200 --> 00:17:29,800 Speaker 8: is that end demand is still there for physical goods, 375 00:17:30,480 --> 00:17:33,200 Speaker 8: and you've seen PPI start to spin around back into 376 00:17:33,240 --> 00:17:36,160 Speaker 8: positive territory, and I think CPI will follow course. Now, 377 00:17:36,560 --> 00:17:38,280 Speaker 8: I would stress it's not going to be a wave 378 00:17:38,480 --> 00:17:42,159 Speaker 8: anything like as powerful as what we saw in twenty 379 00:17:42,200 --> 00:17:44,600 Speaker 8: one twenty two, but I think it is going to 380 00:17:44,640 --> 00:17:47,399 Speaker 8: stop CPI getting back into the twos and staying there. 381 00:17:47,440 --> 00:17:48,560 Speaker 8: CPI is going to be sticky. 382 00:17:48,760 --> 00:17:50,320 Speaker 7: Is it a mistake to sound like you might be 383 00:17:50,320 --> 00:17:51,679 Speaker 7: done then at a further reserve? 384 00:17:53,640 --> 00:17:55,760 Speaker 8: Well, I mean my view, I said it last time 385 00:17:55,800 --> 00:17:57,320 Speaker 8: I was on it's really about the long end of 386 00:17:57,320 --> 00:17:59,040 Speaker 8: the curve, not the short end of the curve. Now, 387 00:17:59,119 --> 00:18:01,359 Speaker 8: the Father's sort of box itself into a corner. I 388 00:18:01,359 --> 00:18:03,560 Speaker 8: don't really care if it stops at five fifty or 389 00:18:03,600 --> 00:18:06,520 Speaker 8: five seventy five, because if you look at the range 390 00:18:06,560 --> 00:18:08,760 Speaker 8: of long term yields, I mean, the tenure was at 391 00:18:08,760 --> 00:18:10,800 Speaker 8: three point fifty in May and was knocking on five 392 00:18:10,840 --> 00:18:12,720 Speaker 8: percent a couple of weeks ago, And you know, I 393 00:18:12,720 --> 00:18:15,760 Speaker 8: think that that's really the question. I think the Feder's 394 00:18:15,840 --> 00:18:18,240 Speaker 8: done what it's going to do in this monetary cycle. 395 00:18:18,840 --> 00:18:21,240 Speaker 8: I think it's going to step away. I'm of a 396 00:18:21,320 --> 00:18:23,720 Speaker 8: view that at some point in time we're not there yet, 397 00:18:23,800 --> 00:18:25,680 Speaker 8: that you're going to see some form of yield curve 398 00:18:25,720 --> 00:18:30,080 Speaker 8: control brought in to stabilize the bond market. But that's 399 00:18:30,359 --> 00:18:31,880 Speaker 8: you know, that's not this week, that's not this. 400 00:18:31,840 --> 00:18:34,119 Speaker 3: Weak hold on a second yield curve control in the 401 00:18:34,240 --> 00:18:36,879 Speaker 3: United States? Does that mean that essentially they're going to 402 00:18:36,880 --> 00:18:39,960 Speaker 3: hold rates high, but that they're going to accelerate quantitative 403 00:18:40,000 --> 00:18:42,160 Speaker 3: easing like they're going to quit accelerate purchases. 404 00:18:42,600 --> 00:18:45,040 Speaker 8: I think at the end of the day, financial stability 405 00:18:45,119 --> 00:18:47,520 Speaker 8: is the unspoken mandate of the Federal Reserve. And they 406 00:18:47,520 --> 00:18:50,800 Speaker 8: talk a lot about unemployment and inflation, but when when 407 00:18:51,280 --> 00:18:54,880 Speaker 8: things really come to a head, financial stability is number one. 408 00:18:54,880 --> 00:18:57,360 Speaker 8: And we saw a taste of it exactly this time 409 00:18:57,440 --> 00:18:59,840 Speaker 8: last year in the UK when the guilt's market three 410 00:19:00,400 --> 00:19:03,600 Speaker 8: briefly dislocated. You know, I'm of a view that the 411 00:19:03,640 --> 00:19:07,480 Speaker 8: Fed doesn't really have things under control. It's certainly not 412 00:19:07,520 --> 00:19:09,679 Speaker 8: in control of the fiscal policy of this country. The 413 00:19:09,680 --> 00:19:13,960 Speaker 8: fiscal policy of this country is reckless in the extreme. 414 00:19:15,680 --> 00:19:18,159 Speaker 8: And you know, I think at some point in the 415 00:19:18,200 --> 00:19:21,920 Speaker 8: foreseeable future you're going to have disorder at the long 416 00:19:22,040 --> 00:19:24,040 Speaker 8: end of the curve, and I think that's going to 417 00:19:24,040 --> 00:19:27,159 Speaker 8: be important enough that it becomes something the Federals of 418 00:19:27,840 --> 00:19:28,639 Speaker 8: gets involved in. 419 00:19:28,760 --> 00:19:31,719 Speaker 3: So is that kind of what equity buyers are banking 420 00:19:31,760 --> 00:19:34,360 Speaker 3: on that essentially when they say when they come out 421 00:19:34,359 --> 00:19:37,760 Speaker 3: and they say stocks can handle bonds where they are, 422 00:19:37,920 --> 00:19:40,440 Speaker 3: yields where they are, are they basically saying because if 423 00:19:40,440 --> 00:19:42,560 Speaker 3: they get out of control, the Fed's going to step in, 424 00:19:42,600 --> 00:19:44,120 Speaker 3: regardless of what's going on with inflation. 425 00:19:44,520 --> 00:19:46,320 Speaker 8: No, I think they're just not thinking about it. I 426 00:19:46,640 --> 00:19:49,479 Speaker 8: think I think that that people spend an awful lot 427 00:19:49,480 --> 00:19:52,400 Speaker 8: of time worrying about monetary policy over the short term, 428 00:19:52,440 --> 00:19:55,440 Speaker 8: and the FED feeds into this. They're constantly out there 429 00:19:55,480 --> 00:19:58,160 Speaker 8: talking and like sort of hinting, maybe we'll do this, 430 00:19:58,280 --> 00:20:01,959 Speaker 8: maybe maybe we'll do that. And the sort of general 431 00:20:02,000 --> 00:20:04,440 Speaker 8: sense for Federals of wants to get out of those 432 00:20:04,480 --> 00:20:07,040 Speaker 8: that it is somehow in control the things that it's 433 00:20:07,080 --> 00:20:09,360 Speaker 8: palpably not in control of I mean, I'd argue it's 434 00:20:09,359 --> 00:20:12,159 Speaker 8: had no effect on inflation. It's it's totally lucky that 435 00:20:12,240 --> 00:20:14,239 Speaker 8: inflation went away. It didn't go away because of what 436 00:20:14,280 --> 00:20:15,760 Speaker 8: the FED did. It went away in spite of what 437 00:20:15,800 --> 00:20:16,280 Speaker 8: the FED did. 438 00:20:16,320 --> 00:20:20,199 Speaker 7: Supply side rebalancing, is that absolutely? 439 00:20:20,720 --> 00:20:20,960 Speaker 4: Yes? 440 00:20:21,160 --> 00:20:23,040 Speaker 7: Do you think that won't be sufficient then to get 441 00:20:23,080 --> 00:20:24,800 Speaker 7: inflation down anymore? Have we seen the bulk of that? 442 00:20:25,920 --> 00:20:27,800 Speaker 8: I think we've seen. I think we've seen the bulk 443 00:20:27,800 --> 00:20:29,800 Speaker 8: of it. Now the long end of the curve may 444 00:20:29,880 --> 00:20:32,280 Speaker 8: have its own form of discipline. You know, I've said 445 00:20:32,320 --> 00:20:36,080 Speaker 8: before that the you know, effectively nothing that happened from 446 00:20:36,160 --> 00:20:40,800 Speaker 8: last October to last to this August really got transmitted 447 00:20:40,800 --> 00:20:42,200 Speaker 8: to the long end of the curve. You know that's 448 00:20:42,240 --> 00:20:45,600 Speaker 8: no longer true. We've now transmitted another seventy five to 449 00:20:45,600 --> 00:20:48,359 Speaker 8: one hundred basis points of tightening to the long end 450 00:20:48,359 --> 00:20:50,920 Speaker 8: of the curve. A question is is really what happens next? 451 00:20:51,080 --> 00:20:54,600 Speaker 7: Typically those sell offs can become self limiting because ultimately 452 00:20:54,600 --> 00:20:56,240 Speaker 7: you start to worry about a slow down and people 453 00:20:56,359 --> 00:20:58,879 Speaker 7: by treasures. Again, what I hear from you is that 454 00:20:58,960 --> 00:21:01,480 Speaker 7: you think the bunch of deaf as a financial stability risk, 455 00:21:01,680 --> 00:21:03,199 Speaker 7: that this thing is going to have to respond to. Now, 456 00:21:03,200 --> 00:21:05,280 Speaker 7: if that's the case, let's run with that. Where does 457 00:21:05,320 --> 00:21:06,119 Speaker 7: that leave the dollar? 458 00:21:07,720 --> 00:21:10,440 Speaker 8: The question is whether this is unique to the United States, 459 00:21:10,720 --> 00:21:13,280 Speaker 8: or whether it's or whether it's something of a global 460 00:21:13,400 --> 00:21:15,639 Speaker 8: something of a global malais. It's If it's unique to 461 00:21:15,680 --> 00:21:18,600 Speaker 8: the United States, the dollar gets significantly weaker. If there's 462 00:21:18,600 --> 00:21:21,679 Speaker 8: a host of G seven countries which are running similar 463 00:21:21,720 --> 00:21:25,240 Speaker 8: deficits and have forced down similar paths, then it's a 464 00:21:25,240 --> 00:21:26,119 Speaker 8: hard asset story. 465 00:21:27,320 --> 00:21:29,719 Speaker 2: If this is the case, then do you foresee a 466 00:21:29,720 --> 00:21:32,720 Speaker 2: certain level, a certain trigger for the FED to step 467 00:21:32,760 --> 00:21:35,800 Speaker 2: in and be able to justify additional purchases at a 468 00:21:35,840 --> 00:21:38,159 Speaker 2: time where inflation is still expected to be hot. 469 00:21:38,320 --> 00:21:40,399 Speaker 8: I don't think it's as a magical yield number. I 470 00:21:40,400 --> 00:21:42,600 Speaker 8: don't think five percent or five twenty five and the 471 00:21:42,640 --> 00:21:44,960 Speaker 8: tenure suddenly gets a FED jumping up and down. It's 472 00:21:45,000 --> 00:21:48,240 Speaker 8: more the orderly functioning of markets. You can have a 473 00:21:48,359 --> 00:21:50,960 Speaker 8: very orderly market with a tenure at five percent. You 474 00:21:51,000 --> 00:21:54,520 Speaker 8: could have a very disorderly market with the tenure at 475 00:21:54,600 --> 00:21:57,760 Speaker 8: five percent. I mean, I think the quality of auctions, 476 00:21:57,800 --> 00:21:59,600 Speaker 8: I think the amount of bids for viget, I think 477 00:21:59,640 --> 00:22:02,760 Speaker 8: the off the market response post auctions matters a great deal. 478 00:22:03,400 --> 00:22:05,000 Speaker 8: You know, it wasn't that the yield in the UK 479 00:22:05,200 --> 00:22:07,520 Speaker 8: was so high this time last year, but it was 480 00:22:07,600 --> 00:22:10,879 Speaker 8: clearly a disorderly market. There was clearly massive force selling 481 00:22:11,440 --> 00:22:14,520 Speaker 8: in the institutional community, and that's when a central bank 482 00:22:14,560 --> 00:22:15,800 Speaker 8: wakes up extremely quickly, and. 483 00:22:15,760 --> 00:22:18,320 Speaker 7: Fiscal policy risk was at the epicenter of that as well. 484 00:22:18,440 --> 00:22:20,479 Speaker 7: Let's finish here. I can hear people screaming at home, 485 00:22:20,600 --> 00:22:22,920 Speaker 7: listen to this. Do I buy stocks? Are Salem? 486 00:22:23,000 --> 00:22:25,760 Speaker 8: What do I think in the short term? You know, 487 00:22:25,840 --> 00:22:28,960 Speaker 8: for I think there's an investable market rebound here, and 488 00:22:30,000 --> 00:22:32,240 Speaker 8: I still think there's portions of the equity market that 489 00:22:32,280 --> 00:22:33,600 Speaker 8: are that are doing Okay. 490 00:22:33,560 --> 00:22:35,960 Speaker 7: It's Washington listening amh to this. 491 00:22:36,520 --> 00:22:39,160 Speaker 5: Well, a lot of people are, but doesn't mean they're 492 00:22:39,160 --> 00:22:39,919 Speaker 5: going to react on it. 493 00:22:40,040 --> 00:22:42,840 Speaker 7: The privilege of acting recklessly just seems to have been lost. 494 00:22:43,000 --> 00:22:45,120 Speaker 5: This is the whole thing Moody's is talking about. It's 495 00:22:45,200 --> 00:22:47,639 Speaker 5: the idea of governance that is not going the direction 496 00:22:47,720 --> 00:22:49,639 Speaker 5: that it should that is concerning them. 497 00:22:49,720 --> 00:22:51,480 Speaker 3: Yeah, but if any of these officials are looking to 498 00:22:51,480 --> 00:22:54,639 Speaker 3: the stock market for any validation of their concern, we 499 00:22:54,760 --> 00:22:58,000 Speaker 3: hear all of these incredibly dooomy and gloomy prognostications and 500 00:22:58,040 --> 00:23:01,040 Speaker 3: then investor after investors has but actually this makes Stucks 501 00:23:01,080 --> 00:23:02,240 Speaker 3: a pretty good bye for now. 502 00:23:02,440 --> 00:23:07,000 Speaker 7: Just process that budget deficit is a financial stability risk 503 00:23:07,040 --> 00:23:09,920 Speaker 7: that this FED has to respond to and commence yield 504 00:23:09,960 --> 00:23:12,440 Speaker 7: curve control. And if it's unique to America, can you 505 00:23:12,480 --> 00:23:13,920 Speaker 7: imagine the dollar weakness we're going to see off the 506 00:23:13,920 --> 00:23:15,840 Speaker 7: back of that if we remember what happened to Sterling 507 00:23:16,000 --> 00:23:17,359 Speaker 7: Right off the back of that story, what happens to 508 00:23:17,400 --> 00:23:19,640 Speaker 7: the US dollar if that starts to materialize? 509 00:23:19,680 --> 00:23:22,560 Speaker 3: The key thing you said if right, But it's a 510 00:23:22,600 --> 00:23:25,119 Speaker 3: global issue. And what did we hear from Tony Dwyer 511 00:23:25,520 --> 00:23:28,560 Speaker 3: that basically battery higher rates are bad because this is 512 00:23:28,600 --> 00:23:32,000 Speaker 3: an entire world leveraged that it to low rates and 513 00:23:32,040 --> 00:23:33,960 Speaker 3: it is not just a US centric. 514 00:23:33,680 --> 00:23:47,439 Speaker 7: Issue joining us now? Is Shila Kayalu, the senior equity 515 00:23:47,480 --> 00:23:50,639 Speaker 7: research analyst over a Jeffreys, Shila, let's start with this story, 516 00:23:50,680 --> 00:23:52,640 Speaker 7: just how disruptive is this for the airlines? 517 00:23:52,680 --> 00:23:53,040 Speaker 4: Currently? 518 00:23:56,080 --> 00:23:57,800 Speaker 9: It's disruptive, but it's manageable. 519 00:23:57,840 --> 00:24:00,680 Speaker 10: What we've seen from Delta Airlines is the cut capacity 520 00:24:00,720 --> 00:24:03,280 Speaker 10: to Israel through October. But I'm sure we'll see that 521 00:24:03,400 --> 00:24:07,080 Speaker 10: change and schedules be trimmed into the rest of the 522 00:24:07,160 --> 00:24:09,840 Speaker 10: Q four and potentially into January, depending on how long 523 00:24:09,880 --> 00:24:12,560 Speaker 10: the conflict lasts. But it's manageable from a risk pro 524 00:24:12,640 --> 00:24:15,400 Speaker 10: cloud perspective that it's one point five percent of capacity 525 00:24:15,440 --> 00:24:18,800 Speaker 10: for Delta, so not a needle mover, and that traffic 526 00:24:18,880 --> 00:24:23,159 Speaker 10: might get rerouted to other European cities. So obviously a 527 00:24:23,240 --> 00:24:26,720 Speaker 10: very sad situation what's going on there. And LLLL is 528 00:24:26,840 --> 00:24:30,080 Speaker 10: the carrier that is flying because they do have some 529 00:24:30,160 --> 00:24:33,320 Speaker 10: ISR equipment on their aircraft. So for Delta, it's a 530 00:24:33,320 --> 00:24:35,200 Speaker 10: financially manageable situation. 531 00:24:35,400 --> 00:24:38,520 Speaker 3: There's a question though about larger risk aversion to travel. 532 00:24:38,560 --> 00:24:40,720 Speaker 3: There have been other conferences that have been canceled or 533 00:24:40,720 --> 00:24:45,280 Speaker 3: postponed in Qatar and other places in response to potential 534 00:24:45,359 --> 00:24:48,159 Speaker 3: violence and just disruption in the region. Is there a 535 00:24:48,320 --> 00:24:51,200 Speaker 3: sense that this could make any kind of dent in 536 00:24:51,520 --> 00:24:54,240 Speaker 3: some of the revenues or just the appetite to travel 537 00:24:54,720 --> 00:24:56,800 Speaker 3: at a time of incredible n ease. 538 00:24:58,920 --> 00:25:01,760 Speaker 10: I think it might pull back international traffic a little bit, 539 00:25:01,800 --> 00:25:05,000 Speaker 10: but we you know, we seasonally expect that Q two 540 00:25:05,119 --> 00:25:08,719 Speaker 10: and Q three are the biggest transatlantic mid East travel season, 541 00:25:08,880 --> 00:25:11,080 Speaker 10: so we'll see it pulled back into that in Q four, 542 00:25:12,040 --> 00:25:15,240 Speaker 10: So the airlines already have that built into their capacity plans, 543 00:25:15,960 --> 00:25:18,880 Speaker 10: and again that travel might get rerouted to that holiday 544 00:25:18,880 --> 00:25:22,000 Speaker 10: travel and leisure travel might get rerouted to other cities. 545 00:25:22,760 --> 00:25:26,160 Speaker 10: In terms of corporate, more US focused, Delta did see 546 00:25:26,200 --> 00:25:28,080 Speaker 10: a ten point improvement this quarter. That was the first 547 00:25:28,119 --> 00:25:31,880 Speaker 10: time they noted that corporate's kind of been stuck at 548 00:25:31,920 --> 00:25:35,040 Speaker 10: eighty percent recovered. That's mostly in the US and talking, 549 00:25:35,080 --> 00:25:38,480 Speaker 10: but you know, we did see some improvement to going. 550 00:25:38,320 --> 00:25:39,000 Speaker 9: Back to work. 551 00:25:39,080 --> 00:25:43,719 Speaker 10: So not sure how much corporate international travel to the 552 00:25:43,720 --> 00:25:46,760 Speaker 10: Mid East and that region DELTA has specifically, but we 553 00:25:46,800 --> 00:25:49,919 Speaker 10: do think it'll be a manageable risk for US network 554 00:25:49,960 --> 00:25:50,879 Speaker 10: carriers in general. 555 00:25:51,040 --> 00:25:53,040 Speaker 3: The Delta results actually put to rest some of the 556 00:25:53,080 --> 00:25:56,080 Speaker 3: biggest fears, at least for now, that higher oil prices 557 00:25:56,160 --> 00:25:57,720 Speaker 3: would seriously impede profits. 558 00:25:57,720 --> 00:25:59,080 Speaker 2: It also raises questions. 559 00:25:58,760 --> 00:26:02,520 Speaker 3: About how much they are unable to pass along some 560 00:26:02,560 --> 00:26:05,520 Speaker 3: of those price increases to the consumers. What did you 561 00:26:05,600 --> 00:26:07,919 Speaker 3: learn in terms of the reality on the ground of 562 00:26:07,960 --> 00:26:10,040 Speaker 3: how airlines are managing some of their fixed costs and 563 00:26:10,040 --> 00:26:13,560 Speaker 3: their ability to actually keep airfares elevated. 564 00:26:15,040 --> 00:26:17,520 Speaker 10: So I think, you know, My thought into today was 565 00:26:17,560 --> 00:26:20,080 Speaker 10: Delta's print was going to be online and it's inline, 566 00:26:20,119 --> 00:26:21,920 Speaker 10: and that they were going to narrow to cut the 567 00:26:21,960 --> 00:26:23,359 Speaker 10: guidance slightly, and they did. 568 00:26:24,160 --> 00:26:26,360 Speaker 9: But I think as we have other network carriers. 569 00:26:26,000 --> 00:26:29,000 Speaker 10: And especially the low cost carriers report through earning season, 570 00:26:29,280 --> 00:26:31,440 Speaker 10: this Delta print is going to come out looking much better. 571 00:26:32,680 --> 00:26:35,040 Speaker 9: You know, Delta did go to the low end of 572 00:26:35,080 --> 00:26:36,280 Speaker 9: its guidance, but one of. 573 00:26:36,240 --> 00:26:39,440 Speaker 10: The factors to highlight year is they generated two point 574 00:26:39,480 --> 00:26:41,720 Speaker 10: seven billion of free cash flow year to date and 575 00:26:41,760 --> 00:26:45,440 Speaker 10: they narrowed their guidance to two billion of cash from 576 00:26:45,480 --> 00:26:48,840 Speaker 10: three billion prior. That's due to higher maintenance and fuel 577 00:26:49,600 --> 00:26:52,320 Speaker 10: so you know, I think we're seeing the impact of that. 578 00:26:52,440 --> 00:26:55,560 Speaker 10: Delta does have a long term target of uh, you know, 579 00:26:55,600 --> 00:26:58,920 Speaker 10: billions of dollars of cash generation out there, so we 580 00:26:59,320 --> 00:27:01,920 Speaker 10: could see those from because of what's going on with 581 00:27:02,000 --> 00:27:06,040 Speaker 10: higher fuel prices and maintenance expenses also coming in higher too. 582 00:27:06,520 --> 00:27:08,240 Speaker 5: How much more difficult is it going to be for 583 00:27:08,280 --> 00:27:12,280 Speaker 5: these airlines to hedge for potential future spikes in jet 584 00:27:12,320 --> 00:27:16,840 Speaker 5: fuel as they see this tragedy unfold in the Middle East. 585 00:27:17,720 --> 00:27:20,560 Speaker 10: None of the airlines outside of Southwest currently have a 586 00:27:20,600 --> 00:27:23,840 Speaker 10: massive touching program, so they do it through other ways. 587 00:27:24,359 --> 00:27:27,000 Speaker 10: For instance, to Delta, we highlight that fifty five percent 588 00:27:27,000 --> 00:27:29,880 Speaker 10: of their revenues or from other services such as their 589 00:27:30,080 --> 00:27:33,199 Speaker 10: Delta tech Ops network, which is quite a unique feature 590 00:27:33,280 --> 00:27:37,160 Speaker 10: they have that's differentiated and helps lower their maintenance costs. 591 00:27:37,160 --> 00:27:40,040 Speaker 10: They have their lower loyalty program with MX as well, 592 00:27:40,760 --> 00:27:42,400 Speaker 10: so they have other revenue streams. 593 00:27:42,400 --> 00:27:45,600 Speaker 9: They really derive revenues from premium. 594 00:27:46,080 --> 00:27:49,359 Speaker 10: Customers, so they try to hedge it in that way 595 00:27:49,480 --> 00:27:50,760 Speaker 10: rather than a direct edge. 596 00:27:51,280 --> 00:27:54,720 Speaker 7: Can we finish that just on those loyalty programs changes? 597 00:27:55,119 --> 00:27:57,520 Speaker 7: Over at Delta Shielda, how are those changes working out? 598 00:27:59,160 --> 00:28:01,399 Speaker 10: I say, I wish I could use a sky Miles 599 00:28:01,400 --> 00:28:02,560 Speaker 10: club because I never have time. 600 00:28:02,560 --> 00:28:05,000 Speaker 9: I'm constantly running around, you know. 601 00:28:05,080 --> 00:28:07,600 Speaker 10: And at Bastian is kind of taking a step back 602 00:28:07,640 --> 00:28:10,399 Speaker 10: and saying they'll revisit the exact changes because of the 603 00:28:10,400 --> 00:28:13,480 Speaker 10: feedback they've gotten. But it just making it more difficult 604 00:28:13,480 --> 00:28:16,320 Speaker 10: to orn those points given that they have such a 605 00:28:16,400 --> 00:28:20,600 Speaker 10: high loyal customer base, because they do have a very 606 00:28:20,640 --> 00:28:23,160 Speaker 10: reliable on time network and part of that comes from 607 00:28:23,200 --> 00:28:24,960 Speaker 10: their other revenue streams too. 608 00:28:25,119 --> 00:28:26,680 Speaker 7: I'm trying to work out if they're going to lose 609 00:28:27,080 --> 00:28:29,400 Speaker 7: customers because of the changes they've made. Do you think 610 00:28:29,400 --> 00:28:29,760 Speaker 7: they might? 611 00:28:32,520 --> 00:28:35,119 Speaker 10: I don't think so, just because they'll actually get me 612 00:28:35,200 --> 00:28:37,879 Speaker 10: to where I need to go, so it's okay for me. 613 00:28:38,040 --> 00:28:41,640 Speaker 9: But you know, and they have such a loyal customer base. 614 00:28:41,680 --> 00:28:44,680 Speaker 10: I mean, that's what's resulting in these changes to begin with, 615 00:28:45,120 --> 00:28:47,280 Speaker 10: is that they have too many loyal customers. So they're 616 00:28:47,320 --> 00:28:50,560 Speaker 10: just making the tiers slightly more difficult. So I don't 617 00:28:50,560 --> 00:28:53,840 Speaker 10: think they'll lose customers. Perhaps you might, you know, swap 618 00:28:53,880 --> 00:28:56,600 Speaker 10: a Delta and United, but you're not going to move 619 00:28:56,640 --> 00:28:57,440 Speaker 10: to a different tier. 620 00:28:57,640 --> 00:28:59,600 Speaker 7: My colleague Tom King would say, right now, beneath the 621 00:28:59,640 --> 00:29:02,480 Speaker 7: brandum Lisa has views on this shade. 622 00:29:02,720 --> 00:29:04,840 Speaker 2: Well, I just hold on a second. 623 00:29:04,880 --> 00:29:07,440 Speaker 3: First of all, this isn't people necessarily being loyal. It's 624 00:29:07,440 --> 00:29:09,480 Speaker 3: people get an American Express card. So if you get 625 00:29:09,480 --> 00:29:11,680 Speaker 3: an American Express card and then you get into the 626 00:29:11,720 --> 00:29:14,360 Speaker 3: lounge and then the people who actually are flying don't 627 00:29:14,400 --> 00:29:16,640 Speaker 3: access it unless they spend about a million dollars in 628 00:29:16,720 --> 00:29:19,880 Speaker 3: actual ticket costs, then you have to wonder why should 629 00:29:19,880 --> 00:29:22,360 Speaker 3: someone stick with one airline rather than go to any 630 00:29:22,360 --> 00:29:24,719 Speaker 3: airline that offers them the best fare that gets them 631 00:29:24,720 --> 00:29:25,440 Speaker 3: to where they need to go. 632 00:29:27,960 --> 00:29:30,120 Speaker 10: I think also one thing to remember, which we haven't 633 00:29:30,160 --> 00:29:32,960 Speaker 10: talked about because there's been so many fears of airline 634 00:29:33,000 --> 00:29:36,680 Speaker 10: profitability with fuel going higher, is capacity is still tight 635 00:29:36,680 --> 00:29:40,640 Speaker 10: in the market to certain city pairs, right, So it's 636 00:29:40,640 --> 00:29:42,880 Speaker 10: not like you have tons of options. 637 00:29:42,920 --> 00:29:45,080 Speaker 9: You usually have one to two to pick from. 638 00:29:45,160 --> 00:29:49,280 Speaker 10: So that's why airlines have been so successful gaining pricing 639 00:29:49,480 --> 00:29:53,720 Speaker 10: so far. Especially we're seeing that in the international areas. 640 00:29:54,200 --> 00:29:56,880 Speaker 10: So yeah, I think that's where they're stepping back because 641 00:29:56,880 --> 00:29:58,920 Speaker 10: they don't want to lose that customer base to that 642 00:29:59,120 --> 00:30:01,440 Speaker 10: other carrier potentially, But I don't think you're going to 643 00:30:01,480 --> 00:30:02,280 Speaker 10: see a massive shift. 644 00:30:02,440 --> 00:30:04,040 Speaker 7: Basically, then don't have to worry about it. It's in 645 00:30:04,040 --> 00:30:06,360 Speaker 7: that customer Based on what I just heard, Sheila Sheila 646 00:30:06,440 --> 00:30:09,080 Speaker 7: kailelu There, Jeffries, I'm the latest with doubts. 647 00:30:09,240 --> 00:30:13,000 Speaker 3: Subscribe to Bloomberg Surveillance podcast on Apple, Spotify and anywhere 648 00:30:13,040 --> 00:30:16,400 Speaker 3: else you get your podcasts. Listen live every weekday starting 649 00:30:16,440 --> 00:30:19,840 Speaker 3: at seven am Eastern on Bloomberg dot Com, the iHeartRadio app, 650 00:30:20,040 --> 00:30:23,040 Speaker 3: tune In, and the Bloomberg Business app. You can watch 651 00:30:23,120 --> 00:30:26,840 Speaker 3: us live on Bloomberg Television and always on the Bloomberg terminal. 652 00:30:27,040 --> 00:30:30,320 Speaker 3: Thanks for listening. I'm Lisa Abramowitz, and this is Bloomberg