Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferrell and Lisa A. Brawnowitz Jaily. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. To find Bloomberg Surveillance on Apple podcast, Suncloud,
Speaker 1: Bloomberg dot Com and of course on the Bloomberg Terminal.
Speaker 1: And two thousand twenty one for William Dudley has really
Speaker 1: done something in former New York Fed President, and we
Speaker 1: are honored that he's been writing and writing a series
Speaker 1: of intelligent essays, controversial essays for Bloomberg Opinion. Bill Dudley.
Speaker 1: It it's not my chart of the year, but if
Speaker 1: I take log tenure yield and Stan Fisher has always
Speaker 1: been great about the percentage change moving yield, if we
Speaker 1: get the Dudley yield moves, these are huge percentage change
Speaker 1: shocks of this low base. Is that important? I would
Speaker 1: argue that the presented change obviously is going to be
Speaker 1: more elevated when you're very close to zero. So I
Speaker 1: think it's really the magnitude of the move rather than
Speaker 1: the percentage change that's really important. If the Fed boot
Speaker 1: raises short term rates to one and a half or
Speaker 1: two and al percent, that's still very low and environment
Speaker 1: where inflation is running above. Bill, help us ound with
Speaker 1: the playbook for next week. The extra surprise, the additional surprise,
Speaker 1: the essence of your pace this morning. Do you expect
Speaker 1: to see in the summary of economic projections beyond the
Speaker 1: forecast into the dot plow? What are you looking for? Bill? Well,
Speaker 1: the Fed is obviously changing their view on what's the
Speaker 1: appropriate monetary policy. I mean, this is a pretty remarkable meeting.
Speaker 1: After announcing the taper, they're going to accelerate the taper.
Speaker 1: So that's an admission that the Fed Reserve was wrong
Speaker 1: and as a as as part of that process, they're
Speaker 1: gonna have to revise their economic forecast, and I'll be
Speaker 1: summarizing the summary of economic projections. I think you're going
Speaker 1: to see is higher inflation, for a tighter labor market,
Speaker 1: and most importantly, much more tightening from the Fed in
Speaker 1: the forecast rising, which extends from last time the Fed
Speaker 1: meeting forecast for federal fundrate was one cent. That's below
Speaker 1: what the Fed fuses neutral. This time, I think they're
Speaker 1: gonna at least get to neutral by the end of
Speaker 1: So you're gonna get earlier rate hikes and more rate
Speaker 1: hikes within their forecast. What's the significance of that, just
Speaker 1: in terms of how quick this cycle will be bill
Speaker 1: how short it might be. Well, I think it really
Speaker 1: all depends on how financial markets react to that. I mean, right,
Speaker 1: so far, people have been very comfortable with the Fed
Speaker 1: beginning to remove mon entary policy accommodation. You see a
Speaker 1: tenure treasury yields are still a very local and one
Speaker 1: and a half percent. You see the stock market within
Speaker 1: a you know, a whisker of its all time high.
Speaker 1: So it really depends on how financial markets react to
Speaker 1: the FIT tightening. I think there is a prospect for
Speaker 1: a bit of a surprise, a bit of discomfort by market.
Speaker 1: I think the feder reserve is going to do more
Speaker 1: than what's currently priced in. You look at you're at
Speaker 1: the futures market, people are saying that the peak and
Speaker 1: the Federal fundrate and the cycle is only going about
Speaker 1: me about one and a half cent. That's well below
Speaker 1: what the Fed and selves deem as neutral and well
Speaker 1: below what the FIT is likely to write down next week.
Speaker 1: But when you talk about the financial markets reaction, I
Speaker 1: think of the yield curve and how it's been flattening
Speaker 1: some people saying that it indicates a market expectation for
Speaker 1: a policy error. Should the Fed high rates as much
Speaker 1: as three times next year, which you think probably should
Speaker 1: be a base case scenario. What's your read on the
Speaker 1: leield curve. Well, I'm not really sure why the yield
Speaker 1: curs are doing what it's doing. I mean, one possibility
Speaker 1: is that the quantitative easy in the fifth purchases of
Speaker 1: assets are just pushing down long term yields if people
Speaker 1: don't want to hold deposits of commercial banks in their
Speaker 1: searching searching out higher yielding assets. So we may have
Speaker 1: a bit of a bond bubble just caused by quantitative easing. Obviously,
Speaker 1: as the quantity of easing process is run down, and
Speaker 1: I would imagine bonnyels will will retreat to a more
Speaker 1: normal I do think the tenure treasure yield at one
Speaker 1: percent environment where inflation is running five or six percent
Speaker 1: is very hard to explain in the current circumstances, Bill,
Speaker 1: can you elaborate a bond bubble from quantitative easing? What
Speaker 1: that means in terms of the threshold of when people
Speaker 1: reap price bond yields. According to the Fed backing away
Speaker 1: from some of their purchases. Well, I think the you
Speaker 1: know it's gonna it could take a wild for this
Speaker 1: to playoff, because remember, the Fed is still adding to
Speaker 1: his balance sheet even as we speak, and the taper
Speaker 1: it won't be finished until the March flone C meeting,
Speaker 1: and even after that will be quite a bit of
Speaker 1: time before the Fed Reserve begins to shrink their balance sheet.
Speaker 1: Only after they've lifted off and raised short term interest
Speaker 1: rates to say one to two percent, will start to
Speaker 1: shrink or balance sheet. So the effects of quantitative easy
Speaker 1: and could linger for quite some time. I do think
Speaker 1: the bond market is going to be uh disturbed by
Speaker 1: the fact that the peak and the Federal funds raise
Speaker 1: is likely to be quite a bit higher than was priced,
Speaker 1: and that in a self a way, I think I'm bondus,
Speaker 1: but I want to get all stuff in open on you.
Speaker 1: Are we practicing monetary theory? Are we practicing modern monetary theory?
Speaker 1: I need to get you in trouble this morning. Help
Speaker 1: me here are we doing it? I don't think. I
Speaker 1: don't think so in the sense that I don't think
Speaker 1: the Center Reserve is just saying whatever you want to
Speaker 1: do on the cystal side, We're going to monetize that debt.
Speaker 1: It feels like that a little bit because of the
Speaker 1: quantitative easing program. But remember the quantitative easing program was
Speaker 1: undertaken because short term interest rates were at zero and
Speaker 1: that the said wanted to add monetary accommodation. The only
Speaker 1: way they could do it was by this these other means.
Speaker 1: So I think we're you know, it's more resembling monitor
Speaker 1: monetary theory than what we've done in the past, But
Speaker 1: I don't think we're quite there yet. They were lucky
Speaker 1: to have you with us this morning. Just fantastic, and
Speaker 1: so far this year you've been right in more ways
Speaker 1: than one. Built Downtly there be former New York Fed
Speaker 1: president and Bloomberg opinion columnist. Let's talk about this market
Speaker 1: with Ding kind of founder and CEO of Macro Risk Advices, Dan,
Speaker 1: your words, risk free asset, the bedrock of financial markets
Speaker 1: looks unwell, Dean, what do you mean by that? I
Speaker 1: would actually say it's um displaying signs of chaos. Um.
Speaker 1: You know, if you look at we all studied the VIX,
Speaker 1: and the VIX was on the move up down, traveled
Speaker 1: quite a bit this last week. UM, but so many,
Speaker 1: so much of this whole risk equation, it's priced off
Speaker 1: the risk free asset class. And I would just argue that, um,
Speaker 1: it's really not risk free. It might be from a
Speaker 1: regulatory standpoint or for how pension funds allocate to risk,
Speaker 1: how they think about their portfolios. But here's an asset
Speaker 1: class that number one is moving around, it's on, it's
Speaker 1: displaying a lot of volatility UM, and it's fundamentals are
Speaker 1: going through a regime shift that is deteriorating. UM. You know,
Speaker 1: if we think about a default in the typical sense
Speaker 1: of a credit bearing bond, uh inflation is effectively a
Speaker 1: default of creeping default for a risk free security. And
Speaker 1: that really what we're seeing, right that the bedrock of
Speaker 1: everything is rooting in terms of its fundamental outlook. And
Speaker 1: you know, when I step back and I look at this,
Speaker 1: this shot heard around the world the last week, the
Speaker 1: four percent draw down, which was in a lot of
Speaker 1: ways so meaningful because it encapsulated so many asset classes. Crude, yeah,
Speaker 1: cryptocurrency so much. You know, underneath the surface of it
Speaker 1: is a risk free market that's displaying a lot of fertility.
Speaker 1: And I just think it's something we have to pay
Speaker 1: a lot of attention to. We've seen the Vix come
Speaker 1: in UH dean constructively come in thirteen big figures. Most
Speaker 1: of us have a collective memory of nirvana of the
Speaker 1: Vix of A twelve, thirteen, A fourteen. Where's the new
Speaker 1: nirvana right now for the Vix? Is it a twenty level? Well?
Speaker 1: I think that you can argue that the floor has
Speaker 1: gone up a little bit. Um, you know, I like
Speaker 1: to say, especially these days markets and especially Volatila with
Speaker 1: with beam stocks and so forth, it's a never say
Speaker 1: never business. What you thought was achievable, both to the
Speaker 1: high side and the low side, um, just don't count
Speaker 1: on it. But that I would say that the floor
Speaker 1: has probably moved up from perhaps sixteen to eighteen. I
Speaker 1: think this last UH spasm in markets was was pretty meaningful,
Speaker 1: especially relative to the slight the modest degree of draw down.
Speaker 1: There was a lot of trepidation, and I think the
Speaker 1: trepidation comes from the sense that we almost got hit
Speaker 1: on two fronts at once. One the growth shock, which
Speaker 1: I think the markets working its way past perhaps omicrons
Speaker 1: not what we thought it was going to be. But second,
Speaker 1: and you guys alluded to it. We we get this
Speaker 1: inflation data on Friday. This is an ongoing, UH source
Speaker 1: of uncertainty for markets, and you know, it's potentially very disruptive. Again,
Speaker 1: the FED fighting inflation from above is just worlds apart
Speaker 1: from the FED fighting inflation from below, which it's really
Speaker 1: done for the entirety of the the post crisis period. Dean,
Speaker 1: There's a consensus emerging in markets that the more inflation
Speaker 1: data runs hot now and the more near term inflation
Speaker 1: expectations rise, the lower they go over the long term.
Speaker 1: And this is the flattening yield curve, and this is
Speaker 1: in the inflation expectations. Do you think that that is wrong?
Speaker 1: Do you think that anything in the near term data
Speaker 1: could shake that consensus. That's a really great and open question.
Speaker 1: And you know, as we look at the yold curve
Speaker 1: flattening this year, UH, it's very different from let's say,
Speaker 1: the flattening in two thousand seventeen, which was extremely low
Speaker 1: VIX environment a nine or ten VIS and a move
Speaker 1: index the rate volatility VIX that hovered an all time
Speaker 1: lows as well. This is much different. This is this
Speaker 1: is tightening because you have to versus twenty seven team,
Speaker 1: which is tightening because you can to the curve and
Speaker 1: especially the back end. Well, I'm just not convinced that
Speaker 1: as we tighten and if the FED gets off zero,
Speaker 1: it completes the taper and starts to initiate urns of tightening.
Speaker 1: I'm not even sure that packing goes up. And I
Speaker 1: think this will ultimately scare the FED quite a bit
Speaker 1: um as it did in late eighteen early nineteen, and
Speaker 1: so you just have to wonder how far we're going
Speaker 1: to get in the tightening cycle. Um, I just don't
Speaker 1: see it ultimately impounding itself into the long end of
Speaker 1: the curve. Being ready thoughtful stuff as always, brilliant. Love
Speaker 1: catching up with Dinka at Macro Risk Advices, joining us
Speaker 1: now by chance. Gig Gronville, Senior Scholar, JOHNS. Hopkins Center
Speaker 1: for Health Security, g G. One of the important points
Speaker 1: in the now beginning three year ordeal of your profession
Speaker 1: this pandemic. What is the significance of the FISER announcement. Yeah,
Speaker 1: this is based on one study and there are going
Speaker 1: to be many more over the coming weeks. That shows
Speaker 1: that even though there is a significant degradation of vaccine um,
Speaker 1: potential vaccine efficacy from in response to Amicon that there
Speaker 1: is for some protection. It's not a complete escape, and
Speaker 1: so it's going to likely be boosted by having a booster,
Speaker 1: by having a third dose. The Prime Minister will be
Speaker 1: grilled this morning in one part of that in the
Speaker 1: United Kingdom, and I would auditorialize it. It seems to
Speaker 1: be a lot more chaotic over here than even the
Speaker 1: gentle chaos of America is. On vaccine passports, in the
Speaker 1: vaccine restrictions of the unvaccinated, I should say in Germany,
Speaker 1: does that work? The vaccine passports work? I think they
Speaker 1: anything that can boost vaccine uptake get people vaccinated. We
Speaker 1: still don't know whether to doses is going to be
Speaker 1: enough to prevent severe disease um keep people out of
Speaker 1: the hospital. Maybe it will be enough to prevent even
Speaker 1: less severe disease. We just don't know yet. We were
Speaker 1: going to have to see for what real world data
Speaker 1: is like. But yes, I mean anything that can get
Speaker 1: people to h to get vaccinated, I'm for as honest.
Speaker 1: They have a choice to not get vaccinated, even if
Speaker 1: it's eight inconvenient. This Fighter and BioNTech News really highlights
Speaker 1: the sort of controversy around boosters and the possible need
Speaker 1: to continue distributing them. A lot of disagreement even among
Speaker 1: medical professionals about the importance for healthy individuals to get boosters.
Speaker 1: Do you think that data like this actually edifies the
Speaker 1: case for requiring this as yet another course in the
Speaker 1: normal course of action with vaccines? Yeah, I mean, we'll
Speaker 1: have to see what there's going to be more data
Speaker 1: that's coming, But it does indicate that getting that third
Speaker 1: dose might be much more important than just a nice
Speaker 1: to have. It might be quite necessary for certain groups
Speaker 1: in particular, UM, people who are more vulnerable to covid
Speaker 1: um even before you know, older people, people who are
Speaker 1: compromised UM. So it might be, uh, it might be
Speaker 1: something that is becomes part of the vaccine. It's just
Speaker 1: a three dose vaccine. Dr Runville. Do you expect a
Speaker 1: time when we're always just getting shot up with different
Speaker 1: vaccines to try to adjust to the different variants The
Speaker 1: idea that we're going to be getting vaccinated as frequently
Speaker 1: as we have been over the past couple of years.
Speaker 1: We will have to see. I mean, in general, there
Speaker 1: is no disease that's good to get UM. So I
Speaker 1: think it would be nice to have more vaccines for
Speaker 1: other things that we suffer from. But um, but we'll
Speaker 1: have to see. I hope that we can vaccinate more
Speaker 1: people in the world and we can stop this, uh,
Speaker 1: this this variant sequence. And John with Amadanzo yesterday is
Speaker 1: he reviewed It was a wonderful professional review of the
Speaker 1: efficacy of the booster. You wonder if that changes with
Speaker 1: this announcement. Yeah, it's worth pointing out though, Tom, what
Speaker 1: we're talking about almost exclusively its vaccine escape and jj
Speaker 1: that was only one question of three questions that we
Speaker 1: want to answer it. How contagious was this variant? How
Speaker 1: severe was this variant? Aside from whether it escapes the
Speaker 1: vaccines or not. What have we learned about that? J
Speaker 1: j UM. There are some indications that are positive that
Speaker 1: it might be less severe. But I think we really
Speaker 1: need to hold off and see, Um, we have a
Speaker 1: from population that has a different vaccination coverage in this
Speaker 1: in this country, we have a different spread of delta
Speaker 1: in this country. I think it's best to wait for
Speaker 1: some more data before saying, oh, it's a mild a
Speaker 1: mild variant, because I think some people are saying that
Speaker 1: and we just don't have enough information to say that
Speaker 1: yet don't do. We appreciate your insight as always. What timely?
Speaker 1: What a timely conversation as well? G. G. Gronville. There
Speaker 1: of Johns Hopkins, the most well known west Ham supporter
Speaker 1: in the city of London, now with Hong Kong and
Speaker 1: now in the city of London. Briefly Steve Major, Global
Speaker 1: head of Fixed Income Research at HSBC. Steve, as part
Speaker 1: of the exchange to get you to talk about bonds,
Speaker 1: I promised we'll talk about west Ham. Do you want
Speaker 1: to start there? What a performance this season? All that
Speaker 1: matters is that we're above Arsenal and Tottenham. Hopefully it'll
Speaker 1: be Chelsea as well soon beat and Chausa. Over the weekend, Steve,
Speaker 1: where's this coming from? How much money if that to
Speaker 1: spend to do this? I was trying to explain it
Speaker 1: to Tom over the weekend that this is a West
Speaker 1: London club Chausea with a ton of money going up
Speaker 1: against an East London club west Ham with less money.
Speaker 1: How are they getting this done? There's hard work, good organization,
Speaker 1: They've they've signed some good players. Um, it's not just
Speaker 1: about buying the best players in the world, because as
Speaker 1: you can see at PS g and at Man United.
Speaker 1: It doesn't work. You have to have a structure and
Speaker 1: a method of framework, like forecasting bonds. Well, it's forecast
Speaker 1: bonds right now on tens year and that's the call
Speaker 1: one fifty year and next year, then this move, this
Speaker 1: quired pass towards one percent, the bit of a tweak
Speaker 1: in the last week or so. Just run us through it. Yeah.
Speaker 1: The thing about the forecast, John, And as you know,
Speaker 1: it's a it's a point testament. It's a thankless task.
Speaker 1: I mean successful forecasting. It's like the Kinzie and Beauty contest.
Speaker 1: You're actually trying to forecast what everybody else is thinking.
Speaker 1: So what I think personally doesn't matter that much. Is
Speaker 1: it's whether I can correctly estimate what everybody else is
Speaker 1: thinking at that point in time. And we've only got
Speaker 1: one number to play with. So so for us, one
Speaker 1: fifty for the ten year treasury is reasonable going into
Speaker 1: next year because that there's now a floor for rates,
Speaker 1: because the Fed has this hawk ish bias, and that
Speaker 1: it's possible that they're going to hike. We've got forecasts
Speaker 1: for rate hikes. I'll believe each hike when I see it,
Speaker 1: and that's been my view through throughout this UM. So
Speaker 1: the one percent call, we've pushed it into two thousand
Speaker 1: and twenty three because we think that if and when
Speaker 1: they start to hike, they won't get very far. And
Speaker 1: we're not in the business of forecasting policy errors. If
Speaker 1: it's so obvious that rates would be hiked and then
Speaker 1: cut afterwards, the central brank will presumably just not do
Speaker 1: very much. So so so to me, it's it's really
Speaker 1: really difficult to believe that rates are going to get
Speaker 1: anywhere near the levels reached in the last cycle. And
Speaker 1: when you look at the terminal rate like that, it's
Speaker 1: probably going to have a one handle. And that's why
Speaker 1: one in the longer run is more like the fair
Speaker 1: value your treasurers. I would love to have dinner Steve
Speaker 1: with you and Bill Dudley, a former FED president of
Speaker 1: the New York Office of the Federal Reserve. He has
Speaker 1: been talking about how the end rate for the FED
Speaker 1: could be three or four percent based on how hot
Speaker 1: the economy is, based on how high inflation has been
Speaker 1: and will likely be. What would you say to him, Well,
Speaker 1: I get very few invitations, Lisa, so thanks very much.
Speaker 1: Next week or the week after that, it would be
Speaker 1: interesting to know the basis of that. And look, we
Speaker 1: have to respect his opinion, but that it would be
Speaker 1: interesting to see how we get to three or four
Speaker 1: And has this calculation included the sensitivity of the economy
Speaker 1: to the amount of debt, and has it included global
Speaker 1: factors about the to see direction in China or Europe
Speaker 1: and Japan. I mean, does anybody watching this at the
Speaker 1: moment think that China is going to height rates or
Speaker 1: or the ECB or Bank of Japan. So so presumably
Speaker 1: we need to incorporate the longer term structural variables like
Speaker 1: the debt overhangs, demographics, distribution of wealth, technology, and we
Speaker 1: need to think globally and once we've done that, and
Speaker 1: I'd like to hear how it's possible to get to
Speaker 1: three or four percent, because on our reckoning, that's going
Speaker 1: to be very difficult. Some people say this time is
Speaker 1: slightly different, stive because of the money that was basically
Speaker 1: printed by so many economies by the fact that people
Speaker 1: got checks directly they are spending those checks, and you're
Speaker 1: seeing the consumer spending component of the economy absolutely surged,
Speaker 1: certainly in the United States. Why is that not enough
Speaker 1: given where inflation is given the read that we're expected
Speaker 1: on Friday, given wages to get us over the hump
Speaker 1: of the demographics that you speak. Yeah, So, first of all,
Speaker 1: I think there's some double counting on these money supply estimates.
Speaker 1: A lot of the money that has been created through
Speaker 1: the que is anyway stuck in banks. It exists as reserves,
Speaker 1: So it depends on your definition of money supply. I
Speaker 1: don't think it's gone up. Actually depends on how you
Speaker 1: measure it. The other thing is the fiscal impulse of
Speaker 1: two thousand and twenty one goes into reverse in two
Speaker 1: thousand and twenty two. So a rational expectations view of
Speaker 1: all of this would say, let's be careful. This isn't
Speaker 1: free money. Someone has to pay for it. The the
Speaker 1: the U. S Government has has effectively borrowed from the
Speaker 1: children to pay their parents. And if anyone thinks that's clever,
Speaker 1: then then fine. But I don't get it. Um it
Speaker 1: was a huge bridge to tomorrow, but it doesn't look
Speaker 1: very stimulant. It's not gonna be stimulative when we get
Speaker 1: into two thousand two. Steve Major Deutsche Bank frames out
Speaker 1: through George Sarah Ellis and their FX desk not a
Speaker 1: curve in version, but a possibility of one. Do you
Speaker 1: have a scenario call where two year goes out and
Speaker 1: goes a above the one fifty level on your tenure call. Yeah.
Speaker 1: Part of the reason for our recent forecast was because
Speaker 1: the two year treasury one year forward was trading at
Speaker 1: one twenty at the end of last week, and so
Speaker 1: the forwards have got a lot of cover for those
Speaker 1: great hikes. And in fact, in the forwards there is
Speaker 1: an inversion already if you go out to ten year plus.
Speaker 1: If you go one year two year forward for the
Speaker 1: tense thirties you get you can see an inversion if
Speaker 1: you if you look at a chart for the last
Speaker 1: thirty or forty years, inversions only happened two or three times,
Speaker 1: so so so to me, I'd be fading that move.
Speaker 1: And what we've been doing is looking at steepeners in
Speaker 1: the ultralong segment and you get paid in terms of
Speaker 1: carry and roll, and that they have they haven't gone
Speaker 1: wrong in the last few weeks, so that they've actually
Speaker 1: been holding steady. So so I think fading the inversion
Speaker 1: is important, um. And we have to look at the forwards.
Speaker 1: As I say that two year rate is already pretty
Speaker 1: high in the forwards, and we had hawkish surprise in
Speaker 1: June followed by by a big hawkish surprise in September,
Speaker 1: and next week some people are calling for an even
Speaker 1: bigger hawkish surprise. I say, once bitten twice shy okay.
Speaker 1: So this is really important, Steve Major, as we go
Speaker 1: into the sophistication of your market, which is to look
Speaker 1: to the future. If you were having a cup of
Speaker 1: coffee this morning with Jerome Powell, how do you explain
Speaker 1: the forwards to him to frame his press conference December? Well,
Speaker 1: he gets it, and I guess um he also gets
Speaker 1: the Maradonna effect, so he could he could talk to
Speaker 1: the Bank of England governor, the current one and the
Speaker 1: previous ones to talk about that. The Maradonna effect to
Speaker 1: non football fans is using your credibility to drive the expectations,
Speaker 1: maybe maybe getting a hawkish just when inflation is about
Speaker 1: to crash around there is is a way of tightening
Speaker 1: policy and meaning they haven't got to hype very much. John,
Speaker 1: who's Maradonna? Oh? Tom, No, No, I can't even pretend
Speaker 1: you mean that you're not serious? Will come on, diego Maradonna.
Speaker 1: Jason is one of the best football players in history. Tom,
Speaker 1: come on, and what Steve means by that is Diego
Speaker 1: Maradonna would faint left, faint right, drop the shoulder left,
Speaker 1: dropped the shoulder right. Tom, look like he's going to
Speaker 1: go one way, look like he's going to go the other,
Speaker 1: but ultimately just go straightforward, which is when we talk
Speaker 1: about Bank of England the Maradonna effect, it's the Bank
Speaker 1: of Engness suggesting they might do one thing or the
Speaker 1: other then ultimately do nothing. Steve, good luck at the weekend.
Speaker 1: Fantastic to have you back in town. London's I just
Speaker 1: love it, Steve. Thank you, sir. HSPC to you, sir,
Speaker 1: thank you very much. It is not all gloom. We
Speaker 1: saw that from JP Morgan today with the forty five
Speaker 1: page outlook. Adamant about recovery, adamant about a normal lozation,
Speaker 1: someone that understands this. As a president and chief executive
Speaker 1: officer of Hilton Chris n. Seta on the recovery, I
Speaker 1: have no real worries. I mean, every time, you know,
Speaker 1: we've sort of as we've been recovering. If you look
Speaker 1: at you know, the minute people start to feel like
Speaker 1: we're through the crisis. The demand for meetings and events,
Speaker 1: which is the longest lead, skyrockets. People are, people are
Speaker 1: dying to get out. Christian has set out of the
Speaker 1: uv A combine. They're talking, of course, peer to peer
Speaker 1: with David Rubinstein and an operating officer within this pandemic, David,
Speaker 1: I think about a moment I had with Jonathan Tish
Speaker 1: of Lowe's earlier this year of maintaining optimism in travel
Speaker 1: in a hotel. What did you learn about the trench
Speaker 1: warfare of this pandemic from Mr Minnesota. Well, obviously the
Speaker 1: hotel industry suffered enormously, as did the entire lodging industry
Speaker 1: and the travel industry, the cruise industry, but they're coming back.
Speaker 1: What's coming back more rapidly is is recreational kind of
Speaker 1: or vacation related travel. Business travel is not coming back
Speaker 1: as quickly, in part because business people have learned they
Speaker 1: can do a lot on zoom, so they're hopeful that
Speaker 1: will come back, but hasn't yet come back to the
Speaker 1: same extent that vacation of leisure travel has come back.
Speaker 1: Are you suggesting within the grind and the many many
Speaker 1: people under you at Carlisle, David Rubinstein is going to
Speaker 1: do your acclaim transactions by Zoom. Well, there's no doubt
Speaker 1: that the private equity world has done a lot through
Speaker 1: Zoom over the past year and a half. Clearly a
Speaker 1: lot of people are beginning to travel again. I've traveled
Speaker 1: a fair bit in recent uh weeks or so, but
Speaker 1: clearly it's just not coming back at the level that
Speaker 1: it was before, and it'll take some time. But the
Speaker 1: lodging industry has done reasonably well in terms of its
Speaker 1: stock performance. The stock performance at the height of the pandemic,
Speaker 1: we're all time lows for the travel industry and the
Speaker 1: lodging industry. Now they've come back to near record highs
Speaker 1: in terms of their stock. So the market is anticipating
Speaker 1: that they will see travel coming back. How much is
Speaker 1: Christmas said of the Hilton president CEO anticipating the business
Speaker 1: travel will resume in the same kind of way and
Speaker 1: putting money behind it by making acquisitions and some of
Speaker 1: the more beaten up areas in larger cities, in convention centers. Well,
Speaker 1: what they do is remember the way Hilton. Hilton is
Speaker 1: the second biggest hotel operator, married is the biggest. They
Speaker 1: have thousands of hotels mostly they operate them um for
Speaker 1: other people that are owners, and a lot of it
Speaker 1: is franchise operations. They take a fee or some kind
Speaker 1: of royalty on on the name Hilton. But it's coming
Speaker 1: back reasonably well. They are making some investments to get
Speaker 1: hotels back, but the biggest problem they have right now
Speaker 1: is getting a labor to come back. Remember, a lot
Speaker 1: of people lost their jobs, a lot of people were
Speaker 1: laid off, and now they have to get these people back.
Speaker 1: As hotels are coming back, more people, more and more
Speaker 1: people coming back to stay at the hotels, you have
Speaker 1: to get workers. And a lot of workers are not
Speaker 1: coming back. They don't like those jobs, or are they are.
Speaker 1: They're taking other times of jobs. So it's a real
Speaker 1: labor problem. And to some extent, the prices are going
Speaker 1: up in hotels because you've got to pay for higher
Speaker 1: price labor than you did before. In hotels are trying
Speaker 1: to figure out what they can cut, whether it's perhaps
Speaker 1: not changing the towels, is for as many nights or
Speaker 1: other areas that they can basically reduce costs in order
Speaker 1: to have fewer employees and to keep costs lower for consumers.
Speaker 1: Where are some of the areas that are costs are
Speaker 1: getting streamlined that you talked about with the president with
Speaker 1: the head of Hilton, Well, if you're staying at a
Speaker 1: top line hotel, one of their Wall Door for Story
Speaker 1: of hotels, or one of their their real um more
Speaker 1: luxurious hotels, you're gonna get all the services you had before,
Speaker 1: because people are paying very high prices for that. But
Speaker 1: if you're staying at their lower grade hotels, the ones
Speaker 1: where you can get by and maybe a hundred fifty
Speaker 1: dollars a night, you may not get daily towel service,
Speaker 1: you may not get the free breakfast that you've had before,
Speaker 1: and room service has probably been cut back of not
Speaker 1: a liminated in some of those hotels. So it's it's
Speaker 1: really the lower grade you're not getting the services back yet.
Speaker 1: That will come back in time, but they're experimenting maybe
Speaker 1: people don't really need hotel uh services they had before.
Speaker 1: Maybe the things will be different, But right now the
Speaker 1: hotel in issue is coming back. It's stock performance is
Speaker 1: in really really good shape, but the bottom line is
Speaker 1: still i would say below where it was at the
Speaker 1: peak before the pandemic. David, one more question, and of
Speaker 1: course this is perhaps my last question. Do you have
Speaker 1: two thousand twenty one. I want you to look in
Speaker 1: the next year and as you look at the D
Speaker 1: conglomeration for different reasons of General Electric, of Toshiba, UH
Speaker 1: and a few others out there as well. What is
Speaker 1: your tone on combinations or D combinations for two thousand
Speaker 1: twenty two. Well, I think you're going to see a
Speaker 1: lot of acquisitions, but I think conglomerate type acquisitions are
Speaker 1: probably not going to be in favor. The many large
Speaker 1: companies are de conglomerating, as you know, and people are
Speaker 1: trying therefore to how companies focus on one or two
Speaker 1: areas of expertise. But I do think that interest rates
Speaker 1: will be a little bit higher next year, but not
Speaker 1: so high that to deter people from making acquisitions. The
Speaker 1: acquisitions industry is still pretty strong right now. David Rubinstein,
Speaker 1: thank you so much for joining us. Peer to peer
Speaker 1: just very, very strong this year. Look for Peer to
Speaker 1: Peer with David Rubinstein nine pm in New York with
Speaker 1: the chief executive Officer of Hilton. This is the Bloomberg
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Speaker 1: Tom Keene, and this is Bloomberg One.