1 00:00:00,200 --> 00:00:02,480 Speaker 1: Get the latest news at the click of a button 2 00:00:02,759 --> 00:00:07,640 Speaker 1: inside your car. The new Bloomberg Business App, now featuring 3 00:00:07,680 --> 00:00:11,520 Speaker 1: Apple CarPlay and Android Auto. Listen to all your favorite 4 00:00:11,600 --> 00:00:16,400 Speaker 1: Bloomberg radio stations and podcasts, including Bloomberg Surveillance, plus the 5 00:00:16,480 --> 00:00:20,480 Speaker 1: latest news, all on your dashboard. It's free and easy 6 00:00:20,520 --> 00:00:24,120 Speaker 1: to use. Just download the Bloomberg Business App on your 7 00:00:24,120 --> 00:00:25,640 Speaker 1: smartphone and connect the. 8 00:00:25,640 --> 00:00:26,800 Speaker 2: Phone to your car. 9 00:00:27,240 --> 00:00:30,479 Speaker 1: The Bloomberg Business App now with Apple car Play and 10 00:00:30,480 --> 00:00:34,440 Speaker 1: Android Auto features. Download it free in the Apple Store 11 00:00:34,960 --> 00:00:39,720 Speaker 1: or on Google Play. Presented by our sponsor, Interactive Brokers. 12 00:00:44,680 --> 00:00:48,040 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 13 00:00:48,040 --> 00:00:51,880 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 14 00:00:51,920 --> 00:00:56,400 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 15 00:00:56,840 --> 00:01:01,640 Speaker 1: Subscribe to Bloomberg Surveillance on demand on a Spotify and 16 00:01:01,840 --> 00:01:06,160 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 17 00:01:06,200 --> 00:01:10,000 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. What we 18 00:01:10,080 --> 00:01:12,600 Speaker 1: do here is we have smart guests like Will Kennedy, 19 00:01:12,680 --> 00:01:15,160 Speaker 1: just joining us at Queen Victoria Street in London on 20 00:01:15,240 --> 00:01:18,479 Speaker 1: oil and now joining us his compatriot in Irish crime. 21 00:01:18,560 --> 00:01:20,480 Speaker 2: Thomas Kennedy joins his chief. 22 00:01:20,319 --> 00:01:22,559 Speaker 1: Investment strategist at JP Morgan. 23 00:01:22,600 --> 00:01:24,080 Speaker 2: One Kennedy to another. 24 00:01:23,800 --> 00:01:26,040 Speaker 1: And you linked it when you sat down and you 25 00:01:26,040 --> 00:01:28,640 Speaker 1: looked at Will Kennedy's world and says, when the price 26 00:01:28,640 --> 00:01:33,640 Speaker 1: of oil moves, you see in chases, charge card juggernaut reaction, 27 00:01:33,840 --> 00:01:35,880 Speaker 1: what do you observes oil comes down? 28 00:01:36,000 --> 00:01:38,720 Speaker 3: Yeah, we saw change in the way the consumer was 29 00:01:38,720 --> 00:01:41,840 Speaker 3: reacting to higher oil prices around August September area in 30 00:01:41,880 --> 00:01:44,800 Speaker 3: our Chase credit card day. To remember, we're banking about 31 00:01:44,800 --> 00:01:47,200 Speaker 3: twenty percent of America, and what we saw there. 32 00:01:47,200 --> 00:01:49,400 Speaker 2: Was a nice plug nailed deck. 33 00:01:50,200 --> 00:01:54,000 Speaker 3: When gasoline prices rose. You actually saw a discretionary spending 34 00:01:54,040 --> 00:01:56,400 Speaker 3: go down. Now, Tommy might be saying, well, of course 35 00:01:56,440 --> 00:01:59,800 Speaker 3: you're going to see that. Right, prior to August and September, 36 00:02:00,000 --> 00:02:02,160 Speaker 3: in the post COVID era, we did not see that relationship. 37 00:02:02,400 --> 00:02:04,200 Speaker 4: It suggests the excess savings in. 38 00:02:04,160 --> 00:02:07,960 Speaker 3: America might actually be depleting after how many quarters of 39 00:02:08,000 --> 00:02:11,200 Speaker 3: negotiating on it, right, and then when we really dig 40 00:02:11,240 --> 00:02:12,959 Speaker 3: into the accounts of these folks, and we do it 41 00:02:13,000 --> 00:02:16,120 Speaker 3: in anymous anonymous fashion, about half of America looks like 42 00:02:16,120 --> 00:02:16,760 Speaker 3: they're out of excess. 43 00:02:17,280 --> 00:02:19,320 Speaker 1: If you're missing words up, it's okay. You're sitting on 44 00:02:19,360 --> 00:02:21,359 Speaker 1: the side of the table where we do that routinely. 45 00:02:22,080 --> 00:02:24,919 Speaker 1: You know, I'm looking Time Kennedy at the polarity between 46 00:02:24,919 --> 00:02:27,560 Speaker 1: Morgan Stanley and Golden Sachs today. You need the leadership 47 00:02:27,639 --> 00:02:29,960 Speaker 1: or Bruce chast and Michael Faroli to give you an 48 00:02:30,000 --> 00:02:34,040 Speaker 1: economic backdrop. What's your economic backdrop that forms your outlook 49 00:02:34,080 --> 00:02:34,720 Speaker 1: call this year? 50 00:02:34,880 --> 00:02:37,639 Speaker 3: Yeah, we're expecting a growth slow down pretty much like 51 00:02:37,680 --> 00:02:39,760 Speaker 3: the less rest of Wall Street at this point, and 52 00:02:39,840 --> 00:02:43,360 Speaker 3: it is relatively simple and intuitive. You have the cost 53 00:02:43,400 --> 00:02:46,640 Speaker 3: of capital above expected revenue in this economy, and if 54 00:02:46,680 --> 00:02:49,720 Speaker 3: you think about America as one big business, it's very 55 00:02:49,720 --> 00:02:52,680 Speaker 3: odd to see the cost of capital to be above 56 00:02:52,840 --> 00:02:57,040 Speaker 3: expected GDP. It should force investors to say, maybe I'll 57 00:02:57,080 --> 00:02:59,639 Speaker 3: just save instead of borrow money and invest in my business. 58 00:03:00,040 --> 00:03:01,959 Speaker 3: We've seen this four or five times in the last 59 00:03:02,000 --> 00:03:04,480 Speaker 3: forty years, just about every time you see a growth slowdown, 60 00:03:04,520 --> 00:03:07,440 Speaker 3: tom So we should expect that to happen. The question 61 00:03:07,560 --> 00:03:10,680 Speaker 3: becomes what's the scenarios where it doesn't happen? And in 62 00:03:10,720 --> 00:03:14,480 Speaker 3: those scenarios you have one where either the consumer is 63 00:03:14,520 --> 00:03:16,880 Speaker 3: much more resilient and they have access to borrowing, and 64 00:03:16,919 --> 00:03:20,160 Speaker 3: you're going to see growth come higher or something breaks 65 00:03:20,160 --> 00:03:25,400 Speaker 3: in the meantime. Those are pretty dynamic and polarizing outcomes 66 00:03:25,440 --> 00:03:25,960 Speaker 3: in the future. 67 00:03:26,120 --> 00:03:28,160 Speaker 5: Everything you set up until then, though said, by the 68 00:03:28,200 --> 00:03:31,160 Speaker 5: ten year go along the curve. Look in some of 69 00:03:31,160 --> 00:03:31,960 Speaker 5: this yield. Is that right? 70 00:03:32,040 --> 00:03:32,239 Speaker 2: Yeah? 71 00:03:32,280 --> 00:03:33,840 Speaker 4: I think it has to be. John. 72 00:03:33,880 --> 00:03:37,160 Speaker 3: You have at this point a municipal bond that is 73 00:03:37,200 --> 00:03:40,120 Speaker 3: giving you equity like yields, and for the first time 74 00:03:40,160 --> 00:03:42,720 Speaker 3: in twenty years, it is actually competing with the earning 75 00:03:42,760 --> 00:03:44,720 Speaker 3: yield on the s and P five hundred. For my 76 00:03:44,800 --> 00:03:48,800 Speaker 3: clients that are gathering wealth for generations, I can show 77 00:03:48,800 --> 00:03:51,560 Speaker 3: them something that has near zero default risk and you 78 00:03:51,560 --> 00:03:53,960 Speaker 3: can get equity like yields. Is their risk to that, 79 00:03:54,000 --> 00:03:56,600 Speaker 3: of course there is, But that's a dynamic that they 80 00:03:56,640 --> 00:04:00,000 Speaker 3: haven't seen in two decades. And now I can start 81 00:04:00,040 --> 00:04:02,120 Speaker 3: to reposition some of their portfolio. 82 00:04:01,680 --> 00:04:04,080 Speaker 5: And they say, Thomas, I'm nervous. I'm seeing yields all 83 00:04:04,080 --> 00:04:06,680 Speaker 5: over the place. Are they reluctant to buy even at 84 00:04:06,720 --> 00:04:08,520 Speaker 5: these rates? Even after you tell that story, it's a 85 00:04:08,640 --> 00:04:09,840 Speaker 5: reluctant still to buy it. 86 00:04:10,680 --> 00:04:13,800 Speaker 3: In our data for the last twelve months, this has 87 00:04:13,840 --> 00:04:15,839 Speaker 3: been the trade that people have been excited about and 88 00:04:15,880 --> 00:04:16,760 Speaker 3: can get invested in. 89 00:04:17,120 --> 00:04:18,680 Speaker 4: That doesn't mean it's not without angst. 90 00:04:19,040 --> 00:04:22,960 Speaker 3: When we saw a five year tax free yields show 91 00:04:23,080 --> 00:04:26,880 Speaker 3: up two weeks ago, that dynamic changed five percent tax 92 00:04:26,960 --> 00:04:28,920 Speaker 3: free for people in New York City, where we're sitting. 93 00:04:28,920 --> 00:04:31,320 Speaker 3: Guys got to buy a taxable bond above ten percent 94 00:04:31,400 --> 00:04:35,160 Speaker 3: to get an equal return, So the behavioral experience for 95 00:04:35,200 --> 00:04:39,360 Speaker 3: them did change there. I think as a market prognosticator 96 00:04:39,400 --> 00:04:41,800 Speaker 3: makes you say, well, how high can rates really go 97 00:04:41,920 --> 00:04:44,360 Speaker 3: before we're going to see that crowding out effect of 98 00:04:45,400 --> 00:04:45,960 Speaker 3: high yields. 99 00:04:46,040 --> 00:04:48,240 Speaker 6: One of the mysteries of this year has been what 100 00:04:48,360 --> 00:04:51,200 Speaker 6: the main driving force in yields has been. Is it 101 00:04:51,240 --> 00:04:54,440 Speaker 6: the economy? Is it inflation? Is it the politics or 102 00:04:54,440 --> 00:04:56,560 Speaker 6: the fiscal backdrop? This is going to be a really 103 00:04:56,600 --> 00:04:57,359 Speaker 6: interesting test. 104 00:04:57,839 --> 00:04:59,000 Speaker 4: What do you think is going to be. 105 00:04:59,000 --> 00:05:02,000 Speaker 6: Most important with respect to market volatility? Of all the 106 00:05:02,000 --> 00:05:04,440 Speaker 6: things that are going to happen this week, the. 107 00:05:04,440 --> 00:05:06,520 Speaker 4: FED expected out look for the FED. 108 00:05:07,080 --> 00:05:09,320 Speaker 3: You can explain more than three quarters of all the 109 00:05:09,360 --> 00:05:11,080 Speaker 3: movement and rates just from those two things. Where the 110 00:05:11,120 --> 00:05:12,360 Speaker 3: FED is and where you expect them to be in 111 00:05:12,360 --> 00:05:15,440 Speaker 3: a year's time. In the last couple of months you 112 00:05:15,480 --> 00:05:19,039 Speaker 3: have seen I would call it supply of treasuries become 113 00:05:19,080 --> 00:05:21,400 Speaker 3: a little bit more of a factor, but not dominant 114 00:05:21,400 --> 00:05:23,560 Speaker 3: at this point, Lisa. So as we look ahead, what's 115 00:05:23,600 --> 00:05:26,680 Speaker 3: going to matter the slowdown? How big of a slowdown 116 00:05:26,760 --> 00:05:30,000 Speaker 3: is it? And importantly, what will the Fed's reaction function be. 117 00:05:30,839 --> 00:05:33,599 Speaker 6: You said that half of America's are half of America 118 00:05:33,680 --> 00:05:36,320 Speaker 6: is pretty much out of savings based on your data, Yeah, 119 00:05:36,720 --> 00:05:37,800 Speaker 6: which half, right? 120 00:05:37,880 --> 00:05:38,080 Speaker 2: I mean? 121 00:05:38,160 --> 00:05:40,560 Speaker 6: Is this the half that has been spending more aggressively 122 00:05:40,600 --> 00:05:43,320 Speaker 6: and will continue to if they had the money, or 123 00:05:43,360 --> 00:05:47,400 Speaker 6: is this a half that is particular in the economy? 124 00:05:47,480 --> 00:05:47,600 Speaker 1: Right? 125 00:05:47,640 --> 00:05:49,520 Speaker 6: I mean we're talking about the two Americas. We've got 126 00:05:49,520 --> 00:05:51,480 Speaker 6: a lot of Americas and they're moving at different speeds. 127 00:05:51,560 --> 00:05:55,560 Speaker 3: Yeah, the two America's theme really resonates for me. But 128 00:05:55,880 --> 00:05:57,400 Speaker 3: the folks that are out of excess savings at the 129 00:05:57,400 --> 00:06:00,680 Speaker 3: bottom half of America, and those are todaytionally the ones 130 00:06:00,720 --> 00:06:03,760 Speaker 3: that don't have excess savings. So now they have a 131 00:06:03,800 --> 00:06:06,360 Speaker 3: decision to make. They can either slow consumption or try 132 00:06:06,400 --> 00:06:08,840 Speaker 3: to turn to their credit card at a time when 133 00:06:08,839 --> 00:06:12,600 Speaker 3: credit card rates are historically punitive, even when you normalize 134 00:06:12,600 --> 00:06:15,520 Speaker 3: them for where interest rates are or base rates from 135 00:06:15,520 --> 00:06:18,760 Speaker 3: the FED. So I think the slow down metrics makes 136 00:06:18,839 --> 00:06:22,359 Speaker 3: sense when your highest marginal propensity to consume folks are 137 00:06:22,440 --> 00:06:23,679 Speaker 3: running out of their excess savings. 138 00:06:23,880 --> 00:06:27,240 Speaker 1: Really sharp article this weekend of the millions of Americans. 139 00:06:27,279 --> 00:06:30,279 Speaker 1: They don't own Apple, they don't own Nvidio, Microsoft, they 140 00:06:30,400 --> 00:06:32,000 Speaker 1: missed the boat and they got a two to oh 141 00:06:32,080 --> 00:06:35,480 Speaker 1: one k. They walk into JP Morgan Chase this morning 142 00:06:35,920 --> 00:06:37,720 Speaker 1: with a disastrous portfolio. 143 00:06:37,839 --> 00:06:38,600 Speaker 2: They're miserable. 144 00:06:38,920 --> 00:06:42,560 Speaker 1: How do you approach the active versus passive retirement debate? 145 00:06:43,000 --> 00:06:45,080 Speaker 3: I think at this point in the cycle time, active 146 00:06:45,160 --> 00:06:48,200 Speaker 3: is going to make the most sense in that when 147 00:06:48,200 --> 00:06:50,800 Speaker 3: you're looking at a passive allocation, even to the equity market, 148 00:06:50,920 --> 00:06:52,120 Speaker 3: the haves and have nots are there. 149 00:06:52,839 --> 00:06:53,880 Speaker 4: On the one hand, you have. 150 00:06:53,839 --> 00:06:57,160 Speaker 3: Say Tech in the equity market that has gone through 151 00:06:57,160 --> 00:06:59,960 Speaker 3: its optimization of its balance sheet. Layoffs in the tech 152 00:07:00,040 --> 00:07:03,040 Speaker 3: sector have been big in the last twelve months. Capex 153 00:07:03,120 --> 00:07:05,520 Speaker 3: is now getting turned back on around AI and the 154 00:07:05,560 --> 00:07:08,640 Speaker 3: monetization phase is not going to be that long. Microsoft, 155 00:07:08,720 --> 00:07:11,200 Speaker 3: as an example, three percent of their revenues are coming 156 00:07:11,200 --> 00:07:14,040 Speaker 3: from AI already. Meanwhile, you move to small and midcaps, 157 00:07:14,080 --> 00:07:16,960 Speaker 3: and these are the most interest rate sensitive sectors and 158 00:07:17,160 --> 00:07:20,520 Speaker 3: they have debt to EBITDA two to five times. They 159 00:07:20,520 --> 00:07:23,200 Speaker 3: are going to feel this pain more than big tech. 160 00:07:23,280 --> 00:07:25,679 Speaker 3: So in the equity market as an example, active management 161 00:07:25,680 --> 00:07:29,360 Speaker 3: I think makes sense as a headline early cycles when 162 00:07:29,360 --> 00:07:31,840 Speaker 3: you rotate back two more passive ideas. 163 00:07:31,520 --> 00:07:33,280 Speaker 5: And that's not where we are right now. So in 164 00:07:33,280 --> 00:07:35,680 Speaker 5: the minds of money, late cycle is where people think 165 00:07:35,720 --> 00:07:36,360 Speaker 5: we are right now. 166 00:07:36,400 --> 00:07:39,720 Speaker 1: I think it's a muddel and I'm really fascinated by 167 00:07:39,760 --> 00:07:42,160 Speaker 1: the outlooks. I meantime, Kennedy's going to put together thirty 168 00:07:42,160 --> 00:07:44,200 Speaker 1: four page outlook I have a rule I read the first. 169 00:07:44,800 --> 00:07:47,320 Speaker 5: Must this time of the year where it's difficult to 170 00:07:47,320 --> 00:07:49,680 Speaker 5: sort of get beyond next week to put something out 171 00:07:49,720 --> 00:07:50,800 Speaker 5: for the next twelve months. 172 00:07:50,840 --> 00:07:51,520 Speaker 2: How hot is that? 173 00:07:53,000 --> 00:07:55,000 Speaker 3: I think it's difficult when you're trying to do it 174 00:07:55,040 --> 00:07:57,080 Speaker 3: at the end of a cycle. The FED has just 175 00:07:57,080 --> 00:07:59,480 Speaker 3: done the most aggressive rate hiking cycle we've seen. And 176 00:07:59,560 --> 00:08:01,760 Speaker 3: where are you? Are you in the muddle through? Are 177 00:08:01,800 --> 00:08:03,520 Speaker 3: you in the late cycle? Are you in the end cycle? 178 00:08:03,520 --> 00:08:05,640 Speaker 3: That's the hardest part. But to be able to turn 179 00:08:05,720 --> 00:08:07,800 Speaker 3: to your client and say to them, I can show 180 00:08:07,800 --> 00:08:11,360 Speaker 3: you equity like yields and fixed income it's a way 181 00:08:11,400 --> 00:08:13,960 Speaker 3: to buy some time and get some good yield in 182 00:08:13,960 --> 00:08:14,640 Speaker 3: a portfolio. 183 00:08:14,720 --> 00:08:21,520 Speaker 2: Pro tip more charts tip David malpassed a Bears Turns 184 00:08:21,600 --> 00:08:22,080 Speaker 2: years ago. 185 00:08:22,280 --> 00:08:22,880 Speaker 4: Went in doubt. 186 00:08:23,520 --> 00:08:25,560 Speaker 5: Saw that from David costin effort goalman. This morning it 187 00:08:25,600 --> 00:08:28,160 Speaker 5: was gone through his outlook. He's just full of chance 188 00:08:28,680 --> 00:08:30,720 Speaker 5: and tables. Thomas, this is great. He's going to see 189 00:08:30,760 --> 00:08:32,959 Speaker 5: it some kind of do that of JP Mulkin prims 190 00:08:32,960 --> 00:08:33,280 Speaker 5: a bank. 191 00:08:37,640 --> 00:08:41,840 Speaker 1: Guy Johnson is expert at the development of jets, the 192 00:08:41,880 --> 00:08:44,439 Speaker 1: crafts that we fly every day, and he knows the 193 00:08:44,559 --> 00:08:49,120 Speaker 1: Christian Sharer Bleeds Airbus share grew up in to Lose France. 194 00:08:49,520 --> 00:08:52,480 Speaker 1: He's been part of Airbus Way way Back for many 195 00:08:52,520 --> 00:08:56,480 Speaker 1: many years and he is now the CCO of the 196 00:08:56,600 --> 00:08:59,080 Speaker 1: great European airplane builder. 197 00:08:59,120 --> 00:09:01,760 Speaker 2: Guy Johnson in Dubai, gud good morning. 198 00:09:01,880 --> 00:09:04,240 Speaker 7: Good morning, Tom King, All good evening. The sun's setting 199 00:09:04,240 --> 00:09:06,200 Speaker 7: on day one of the Dubai Air Show, and as 200 00:09:06,240 --> 00:09:08,760 Speaker 7: you say, it has been a big one. We've seen 201 00:09:08,800 --> 00:09:12,320 Speaker 7: some significant orders, some promise of even more still to come, 202 00:09:12,400 --> 00:09:15,520 Speaker 7: and as you say, the wide body market feels like 203 00:09:15,600 --> 00:09:17,760 Speaker 7: it is back. Over the last few years, this has 204 00:09:17,760 --> 00:09:20,640 Speaker 7: been all about narrowbodies. The recovery out of the pandemic 205 00:09:20,720 --> 00:09:24,080 Speaker 7: driven by the narrow bodies. Now it's the big workhorses 206 00:09:24,120 --> 00:09:27,160 Speaker 7: of the sky, their time to shine. Let's talk to 207 00:09:27,240 --> 00:09:30,400 Speaker 7: Christian Sharer, as you say, the chief commercial officer at Airbus. 208 00:09:30,400 --> 00:09:32,040 Speaker 7: If you want to know what's happening in this industry, 209 00:09:32,200 --> 00:09:33,360 Speaker 7: here is the guy to talk to. 210 00:09:33,720 --> 00:09:34,160 Speaker 8: Christian. 211 00:09:34,600 --> 00:09:37,680 Speaker 7: Nice to see you, Thanks for making some time for us. Look, 212 00:09:38,360 --> 00:09:40,520 Speaker 7: the world at the moment feels like we've got a 213 00:09:40,520 --> 00:09:43,600 Speaker 7: lot of geopolitical tension. We've got a lot of uncertainty. 214 00:09:43,600 --> 00:09:46,200 Speaker 7: We've got a lot of economic uncertainty as well. Rates 215 00:09:46,200 --> 00:09:49,160 Speaker 7: have been jacked up, economies are slowing down. Yet it 216 00:09:49,200 --> 00:09:53,520 Speaker 7: doesn't feel like it at this show, huge orders across 217 00:09:53,559 --> 00:09:55,720 Speaker 7: the peace in terms of what we're seeing from airlines 218 00:09:55,720 --> 00:09:56,640 Speaker 7: from around the world. 219 00:09:57,360 --> 00:10:01,080 Speaker 9: Why the disconnect, I wouldn't say it's a disconnect. You know, 220 00:10:01,120 --> 00:10:05,239 Speaker 9: an order at an air show is I wouldn't say anecdotal, 221 00:10:05,400 --> 00:10:09,559 Speaker 9: but it's being very much highlighted because it's an air show. 222 00:10:10,320 --> 00:10:12,960 Speaker 9: You will will have seen that this year alone, there's 223 00:10:13,000 --> 00:10:16,840 Speaker 9: been lots of orders in particular with us at Airbus, 224 00:10:17,040 --> 00:10:19,640 Speaker 9: well before the air show. During the air show, there'll 225 00:10:19,679 --> 00:10:22,760 Speaker 9: be orders after the air show, So it isn't like 226 00:10:23,600 --> 00:10:26,560 Speaker 9: an incredible peak all of a sudden, It's part of 227 00:10:26,600 --> 00:10:27,440 Speaker 9: a phenomenon. 228 00:10:27,880 --> 00:10:29,920 Speaker 2: The airshow is building for a while though. 229 00:10:30,480 --> 00:10:32,079 Speaker 7: This is a kind of moment in time when you 230 00:10:32,120 --> 00:10:34,880 Speaker 7: can take stock. As you say, you're about to sign 231 00:10:34,920 --> 00:10:37,680 Speaker 7: a very large order with Turkish Airlines, a huge order, 232 00:10:38,000 --> 00:10:39,400 Speaker 7: a lot of arrow bodies in there, but a lot 233 00:10:39,440 --> 00:10:41,200 Speaker 7: of wide bodies as well. This feels like a moment 234 00:10:41,240 --> 00:10:43,640 Speaker 7: in time just to reflect on what is happening, and 235 00:10:43,720 --> 00:10:46,800 Speaker 7: it feels like demand from the customer is still very strong. 236 00:10:46,800 --> 00:10:50,440 Speaker 7: Demand within the industry is very strong. They've watched what 237 00:10:50,480 --> 00:10:52,600 Speaker 7: happens with the narrow bodies and then they've sold out. 238 00:10:52,720 --> 00:10:54,360 Speaker 7: Now these guys want to make sure that they've got 239 00:10:54,360 --> 00:10:57,000 Speaker 7: their slots. What is driving this demand, What gives the 240 00:10:57,000 --> 00:10:58,560 Speaker 7: industry this confidence. 241 00:10:58,679 --> 00:11:04,440 Speaker 9: Probably the act guy that we're seemingly in an under 242 00:11:04,440 --> 00:11:08,120 Speaker 9: a supply situation again, so there's a lot of jockeying 243 00:11:08,520 --> 00:11:11,600 Speaker 9: for delivery positions. You don't want to miss the train. 244 00:11:12,720 --> 00:11:15,119 Speaker 9: Just a few years ago, in the midst of the pandemic, 245 00:11:15,880 --> 00:11:19,800 Speaker 9: remember we manufactures were asked to slash our production by 246 00:11:20,200 --> 00:11:24,360 Speaker 9: roughly fifty percent, So it takes time. There's a lot 247 00:11:24,360 --> 00:11:29,319 Speaker 9: of industrial inertia to rebuild an industrial system that's capable 248 00:11:29,320 --> 00:11:32,960 Speaker 9: of producing large numbers of white body airplanes, and so 249 00:11:33,400 --> 00:11:35,840 Speaker 9: they don't come in large numbers. So you don't want 250 00:11:35,880 --> 00:11:36,480 Speaker 9: to miss the train. 251 00:11:37,120 --> 00:11:39,360 Speaker 7: You study the numbers very carefully. If I look at 252 00:11:39,360 --> 00:11:41,760 Speaker 7: what's happening with discretionary spend at the moment I listened 253 00:11:41,760 --> 00:11:45,240 Speaker 7: to LVMH or Reach Moore or the Azure, they're talking 254 00:11:45,280 --> 00:11:49,240 Speaker 7: about that sort of high end discretionary spend beginning to 255 00:11:49,320 --> 00:11:51,960 Speaker 7: roll over. And do you think that happens in aviation 256 00:11:52,200 --> 00:11:53,920 Speaker 7: or do you think the lesson from the pandemic is? 257 00:11:54,080 --> 00:11:54,600 Speaker 2: Do you know what? 258 00:11:54,760 --> 00:11:57,400 Speaker 7: I won't have the Cognac, I won't have the Cartier. 259 00:11:57,000 --> 00:11:59,040 Speaker 9: Watch, but I will have the airfat I think the 260 00:11:59,120 --> 00:12:04,280 Speaker 9: letter is true. I think an air trip is no 261 00:12:04,400 --> 00:12:08,800 Speaker 9: longer a luxury per se. It is part of discretionary 262 00:12:08,840 --> 00:12:12,280 Speaker 9: consumer spending. It's probably a. 263 00:12:11,800 --> 00:12:12,520 Speaker 7: The top of the list. 264 00:12:13,280 --> 00:12:16,120 Speaker 9: I would think that the recent behavior that we've seen, 265 00:12:16,640 --> 00:12:20,480 Speaker 9: beyond the obvious phenomenon of pent up demand coming loose 266 00:12:20,559 --> 00:12:24,480 Speaker 9: after the pandemic, I believe that the consumer will tend 267 00:12:24,840 --> 00:12:30,520 Speaker 9: to go enjoy himself, yourself, visit, visit friend's family before 268 00:12:30,760 --> 00:12:32,120 Speaker 9: they buy an expensive. 269 00:12:31,720 --> 00:12:35,560 Speaker 7: Watch in terms of kind of what happens next. Do 270 00:12:35,600 --> 00:12:38,080 Speaker 7: you see this demand being sustainable? Do you talk about 271 00:12:38,080 --> 00:12:40,120 Speaker 7: the fact that the esshow shouldn't just be how we 272 00:12:40,160 --> 00:12:42,720 Speaker 7: perceive what's going on? You see this as big a 273 00:12:42,760 --> 00:12:45,880 Speaker 7: sustainable story. Now you think white body demand is back. 274 00:12:46,240 --> 00:12:47,600 Speaker 7: Where in the cycle do you think we are. 275 00:12:48,360 --> 00:12:51,480 Speaker 9: I'm not sure we can talk about cycles as much 276 00:12:51,600 --> 00:12:55,400 Speaker 9: as we used to anymore. So I do believe fundamentally 277 00:12:55,640 --> 00:12:58,920 Speaker 9: it's sustainable. Our studies are telling us that we will 278 00:12:58,960 --> 00:13:02,640 Speaker 9: see continue growth in air travel, including in wide body 279 00:13:02,640 --> 00:13:06,120 Speaker 9: air travel, a little bit less perhaps than before the pandemic, 280 00:13:07,440 --> 00:13:11,319 Speaker 9: or irrespective of the pandemic, because of the inflationary pressures, 281 00:13:11,720 --> 00:13:14,400 Speaker 9: increases in fuel prices, et cetera, et cetera. You mentioned it, 282 00:13:15,360 --> 00:13:20,720 Speaker 9: But we do see sustained demand, including on intercontinental travel, 283 00:13:20,920 --> 00:13:24,439 Speaker 9: and we do see on the large aircraft where fuel 284 00:13:24,480 --> 00:13:28,760 Speaker 9: burn in particular and technology plays the biggest part, increased 285 00:13:28,920 --> 00:13:32,520 Speaker 9: demand to replace all the airplanes. So there's more replacement 286 00:13:32,920 --> 00:13:35,000 Speaker 9: in the years ahead than there was before. 287 00:13:35,440 --> 00:13:38,440 Speaker 7: You talk about inflation, What are you building into these contracts? 288 00:13:38,480 --> 00:13:42,160 Speaker 7: You're selling airplanes five ten years down the road. Inflation 289 00:13:42,280 --> 00:13:45,040 Speaker 7: is running hot right now? How are you building that 290 00:13:45,120 --> 00:13:47,840 Speaker 7: into your contracts? How much are you building into that contracts? 291 00:13:47,880 --> 00:13:51,080 Speaker 7: How important when you sign a contract is that escalation tools. 292 00:13:51,120 --> 00:13:53,760 Speaker 9: That's a really good question, and that is a subject 293 00:13:53,880 --> 00:13:57,120 Speaker 9: of finding the right balance of how you share that 294 00:13:57,400 --> 00:14:02,480 Speaker 9: risk of inflation with the customer, the airline that is 295 00:14:02,800 --> 00:14:07,480 Speaker 9: making a purchase decision many years in advance, typically a guy. 296 00:14:07,520 --> 00:14:12,079 Speaker 9: What we do is we index our pricing on indices 297 00:14:12,120 --> 00:14:16,400 Speaker 9: of material costs and labor costs. Those are US industries, 298 00:14:16,480 --> 00:14:20,840 Speaker 9: those are most mature indices that exists in this industry. 299 00:14:21,080 --> 00:14:25,400 Speaker 9: So we index that and then if it's a discussion 300 00:14:25,880 --> 00:14:28,640 Speaker 9: depending on how far out the airplane is being ordered for, 301 00:14:29,440 --> 00:14:32,200 Speaker 9: that's a discussion of how we share that risk, that 302 00:14:32,800 --> 00:14:34,960 Speaker 9: inflationary risk with our customer. 303 00:14:36,040 --> 00:14:37,520 Speaker 7: You're going to be able to build all these airplanes. 304 00:14:37,560 --> 00:14:39,880 Speaker 7: I spoke to Gail a few days ago CEO. He 305 00:14:39,960 --> 00:14:41,640 Speaker 7: was talking to me about going from nine to ten 306 00:14:42,080 --> 00:14:45,280 Speaker 7: on the three point fifty program. If this demand continues, 307 00:14:45,320 --> 00:14:47,920 Speaker 7: do you have to go ten to eleven, eleven to twelve, 308 00:14:48,320 --> 00:14:49,880 Speaker 7: twelve to thirteen and how hard is that? 309 00:14:50,560 --> 00:14:53,840 Speaker 9: Well, one step at a time. Remember we're coming from 310 00:14:54,440 --> 00:14:57,160 Speaker 9: we were at a rate ten before the pandemic. We 311 00:14:57,280 --> 00:14:59,880 Speaker 9: slashed it down. Now we're ramping back up to ten. 312 00:15:00,320 --> 00:15:04,480 Speaker 9: It's not a trivial thing. Airbus is not necessarily the 313 00:15:04,520 --> 00:15:08,080 Speaker 9: limiting factor here. It's a huge supply chain that we're 314 00:15:08,080 --> 00:15:11,800 Speaker 9: pulling with us, and that's the pacing item. Is it 315 00:15:11,840 --> 00:15:15,680 Speaker 9: conceptually possible that we go further? Yes, In fact, the 316 00:15:16,800 --> 00:15:20,920 Speaker 9: ever optimistic commercial man and me will say yes, most 317 00:15:20,960 --> 00:15:23,760 Speaker 9: probably we will, but that is not for today. We 318 00:15:23,840 --> 00:15:26,600 Speaker 9: have objective ten per month in our site. That's what 319 00:15:26,600 --> 00:15:29,360 Speaker 9: we're going to do, and our programs are running very 320 00:15:29,440 --> 00:15:30,200 Speaker 9: much on time. 321 00:15:30,560 --> 00:15:32,400 Speaker 7: One final quick question, and it's come up a lot 322 00:15:32,440 --> 00:15:35,560 Speaker 7: today in the conversation that I've been having, the Rolls 323 00:15:35,640 --> 00:15:38,880 Speaker 7: Royce new CEO two fan appears to be running the 324 00:15:38,920 --> 00:15:41,400 Speaker 7: business in a slightly different way. He can clearly add up. 325 00:15:41,440 --> 00:15:43,720 Speaker 7: He clearly wants to make some money, and that is 326 00:15:43,880 --> 00:15:48,480 Speaker 7: resetting the relationships within the industry. They are sole supply 327 00:15:48,560 --> 00:15:52,120 Speaker 7: on the A three fifty. How as that relationship changes, 328 00:15:52,200 --> 00:15:55,440 Speaker 7: How does the relationship between Airbus and Rolls Royce change, 329 00:15:55,600 --> 00:15:58,880 Speaker 7: Airbus and Emirates change, How does it change the nature 330 00:15:58,920 --> 00:16:03,440 Speaker 7: of the relationship between between supply customer and ultimate customer. 331 00:16:03,680 --> 00:16:05,640 Speaker 9: Well, I'd say two things. The first one, the most 332 00:16:05,640 --> 00:16:09,320 Speaker 9: important is we're really really happy with the Rolls Royce 333 00:16:09,320 --> 00:16:11,640 Speaker 9: engine on the A three to fifty program and on 334 00:16:11,680 --> 00:16:13,600 Speaker 9: the A three thirty as well, but on the A 335 00:16:13,720 --> 00:16:17,560 Speaker 9: three to fifty program in particular, the XWB engine, I 336 00:16:17,640 --> 00:16:20,640 Speaker 9: will dare say is by far the best engine in 337 00:16:20,720 --> 00:16:26,120 Speaker 9: the sky today in reliability, in fuel burn, endurability. It's 338 00:16:26,160 --> 00:16:29,320 Speaker 9: a wonderful engine. So that's point one. 339 00:16:29,480 --> 00:16:29,960 Speaker 4: Point two. 340 00:16:30,640 --> 00:16:35,120 Speaker 9: Yes, there is a resetting of pricing in the engine business, 341 00:16:35,480 --> 00:16:38,920 Speaker 9: the fuel burn. The engine guys have developed fabulous machines 342 00:16:38,920 --> 00:16:42,040 Speaker 9: to lower the fuel burn. That comes at the expense, 343 00:16:42,760 --> 00:16:46,040 Speaker 9: at some expense on the maintenance side, because these engines 344 00:16:46,440 --> 00:16:51,160 Speaker 9: consume paths quicker, consume less fuel, more parts, And that 345 00:16:51,240 --> 00:16:54,840 Speaker 9: reset is what's happening in the industry, in the engine 346 00:16:54,880 --> 00:16:58,760 Speaker 9: industry at large, and Rolls Royce is no exception. 347 00:16:59,120 --> 00:17:00,640 Speaker 7: To be glad to see you. Thank you very much, 348 00:17:00,760 --> 00:17:02,840 Speaker 7: Dean Christian, thanks for taking us, taking the time and 349 00:17:03,640 --> 00:17:06,280 Speaker 7: here at us Tom Kine from the Dubai show, the 350 00:17:06,280 --> 00:17:08,120 Speaker 7: sun is setting here back to you. 351 00:17:08,520 --> 00:17:11,680 Speaker 2: Guy Johnson, thank you so much. Always interesting. 352 00:17:21,760 --> 00:17:25,720 Speaker 1: She has become acclaimed. Claudia Sam was someone out of 353 00:17:25,720 --> 00:17:28,199 Speaker 1: Michigan in the fed A number of years ago with 354 00:17:28,320 --> 00:17:34,400 Speaker 1: a really really dry, smart academic paper on government assistance 355 00:17:34,600 --> 00:17:40,680 Speaker 1: and how to decide wrapped around recession economics. She's literally 356 00:17:40,720 --> 00:17:43,560 Speaker 1: become a household name. Doctor Sam joins us now former 357 00:17:43,600 --> 00:17:48,080 Speaker 1: Fed economist, founder of some consulting. I guess, congratulations. The 358 00:17:48,119 --> 00:17:50,159 Speaker 1: only one Claudia had a bigger year than you was 359 00:17:50,200 --> 00:17:53,359 Speaker 1: Taylor Swift. I expect we'll see you at a Kansas 360 00:17:53,400 --> 00:17:57,159 Speaker 1: City football game anytime soon, Claudia, Sam, I got to 361 00:17:57,160 --> 00:17:59,320 Speaker 1: get it out of the way just because of the notoriety. 362 00:17:59,720 --> 00:18:01,560 Speaker 2: How closer we to recession. 363 00:18:03,000 --> 00:18:06,000 Speaker 10: We're closer than we were say the middle of this year. 364 00:18:06,160 --> 00:18:09,199 Speaker 10: We are not in a recession. And that's not just 365 00:18:09,200 --> 00:18:13,240 Speaker 10: this Sam rule. Look around. The economy is still growing now. 366 00:18:13,440 --> 00:18:16,119 Speaker 10: That's no guaranteed that we will be in that place, 367 00:18:17,119 --> 00:18:19,720 Speaker 10: you know, in the coming months. And yet we are 368 00:18:19,720 --> 00:18:21,919 Speaker 10: not in a danger zone with the labor market. And 369 00:18:21,960 --> 00:18:24,720 Speaker 10: there's a lot of reasons why we may have seen 370 00:18:24,760 --> 00:18:27,720 Speaker 10: the unemployment rate come up. There could be good reasons 371 00:18:27,800 --> 00:18:29,040 Speaker 10: like workers coming back. 372 00:18:29,520 --> 00:18:31,600 Speaker 1: What's important here and you have it in your research 373 00:18:31,720 --> 00:18:34,320 Speaker 1: note to us and Bramo I think has really been 374 00:18:34,359 --> 00:18:37,879 Speaker 1: out front on this is almost the behavioral impact. I 375 00:18:37,920 --> 00:18:42,560 Speaker 1: think Faylor at Chicago. The behavioral impact of feedback loops 376 00:18:42,960 --> 00:18:45,160 Speaker 1: tell us about what you're working on. The new I'm 377 00:18:45,160 --> 00:18:47,880 Speaker 1: selling this, folks, for Claudia. She needs something to do. 378 00:18:48,280 --> 00:18:50,880 Speaker 1: The new acclaimed some feedback loop. 379 00:18:51,000 --> 00:18:51,800 Speaker 2: What's it looked like? 380 00:18:53,160 --> 00:18:55,640 Speaker 10: Well, this is the logic. I mean, this Sam rule 381 00:18:55,680 --> 00:18:58,879 Speaker 10: is about the unemployment rate rising a relatively small amount 382 00:18:58,960 --> 00:19:02,080 Speaker 10: that happens early in recent It's been very accurate. The 383 00:19:02,119 --> 00:19:05,160 Speaker 10: idea behind it comes well before me in that once 384 00:19:05,200 --> 00:19:08,639 Speaker 10: the unemployment rate starts rising, it keeps going because on 385 00:19:08,680 --> 00:19:11,840 Speaker 10: the demand side, there's this feedback loop. Some people lose 386 00:19:11,840 --> 00:19:14,480 Speaker 10: their jobs, then they buy less, then those workers lose 387 00:19:14,520 --> 00:19:17,160 Speaker 10: their jobs, and so on and so forth, and that's 388 00:19:17,200 --> 00:19:20,040 Speaker 10: where it really gets going. What we see right now 389 00:19:20,119 --> 00:19:21,879 Speaker 10: is not just a demand side, which would be a 390 00:19:21,960 --> 00:19:25,239 Speaker 10: typical path into a recession. We see this. You know, 391 00:19:25,280 --> 00:19:28,040 Speaker 10: workers have really come back. We've gone from labor shortages 392 00:19:28,080 --> 00:19:30,879 Speaker 10: to now some workers that are looking for jobs. 393 00:19:30,960 --> 00:19:31,120 Speaker 7: Right. 394 00:19:31,160 --> 00:19:33,280 Speaker 10: It's going to take the jobs longer to catch up. 395 00:19:33,640 --> 00:19:36,040 Speaker 10: That's a good thing. We needed those workers. It's just 396 00:19:36,080 --> 00:19:38,879 Speaker 10: as with everything else in this economy, it's been messy 397 00:19:39,000 --> 00:19:41,439 Speaker 10: to line up supply and demand. So now it's in 398 00:19:41,440 --> 00:19:42,200 Speaker 10: the labor market. 399 00:19:42,359 --> 00:19:44,400 Speaker 6: How uncomfortable does it make you to say this time 400 00:19:44,480 --> 00:19:44,919 Speaker 6: is different? 401 00:19:46,119 --> 00:19:52,040 Speaker 10: Very uncomfortable, and yet we could have said many times 402 00:19:52,040 --> 00:19:56,400 Speaker 10: since the pandemic, this time is different, and very legitimately, 403 00:19:56,680 --> 00:19:59,159 Speaker 10: you know, I talk about the quote unquote some rule breaking, 404 00:19:59,200 --> 00:20:01,800 Speaker 10: which is it would trigger and then we would not 405 00:20:01,840 --> 00:20:05,199 Speaker 10: go into a recession. Last year we saw two quarters 406 00:20:05,280 --> 00:20:09,440 Speaker 10: of declines in GDP growth. That has only happened inside 407 00:20:09,440 --> 00:20:12,840 Speaker 10: of recession since World War Two. It happened and we 408 00:20:12,840 --> 00:20:15,800 Speaker 10: were not in a recession. So the SAM rule could 409 00:20:15,800 --> 00:20:18,080 Speaker 10: be next in line to break. And I mean I 410 00:20:18,160 --> 00:20:20,479 Speaker 10: prefer it didn't. I prefer unemployments stay low. But if 411 00:20:20,520 --> 00:20:22,200 Speaker 10: it did, my base case is we don't go on 412 00:20:22,240 --> 00:20:22,840 Speaker 10: a recession. 413 00:20:23,440 --> 00:20:26,000 Speaker 6: Does this mean that right now you see sort of 414 00:20:26,000 --> 00:20:29,000 Speaker 6: the immaculate disinflation or you see just year over year 415 00:20:29,400 --> 00:20:32,440 Speaker 6: inflation come down to the Fed's target by later next 416 00:20:32,520 --> 00:20:35,160 Speaker 6: year without necessarily the FED doing anything more and even 417 00:20:35,240 --> 00:20:38,320 Speaker 6: potentially cutting rates, like so many Wall Street firms seem 418 00:20:38,359 --> 00:20:38,760 Speaker 6: to believe. 419 00:20:40,280 --> 00:20:42,840 Speaker 10: I take issue with the idea or the term of 420 00:20:42,920 --> 00:20:46,200 Speaker 10: immaculate disinflation. I mean, this is coming out of a pandemic. 421 00:20:46,240 --> 00:20:48,320 Speaker 10: We know where this is coming from. It's not just 422 00:20:48,359 --> 00:20:51,480 Speaker 10: like it appeared. And yet to your point, we've already 423 00:20:51,600 --> 00:20:54,600 Speaker 10: seen it right, and there are not all the disruptions 424 00:20:54,600 --> 00:20:56,760 Speaker 10: worked out in the economy. The labor market's a place 425 00:20:56,760 --> 00:20:59,600 Speaker 10: where we've seen some of like the kind of last momentum. 426 00:21:00,119 --> 00:21:03,120 Speaker 10: There is more to give in terms of inflation coming down. 427 00:21:03,160 --> 00:21:05,280 Speaker 10: It's going to be messy. I expect roma not to 428 00:21:05,280 --> 00:21:09,119 Speaker 10: be a fun day in core inflation, and there is 429 00:21:09,160 --> 00:21:11,040 Speaker 10: some of the demand to come out. And we've seen 430 00:21:11,080 --> 00:21:14,280 Speaker 10: that wage growth has slowed back to something more normal. 431 00:21:14,440 --> 00:21:17,560 Speaker 10: So everything is rowing in the right direction on inflation, 432 00:21:17,760 --> 00:21:21,119 Speaker 10: it's just going to be slow and bumpy. 433 00:21:21,320 --> 00:21:24,680 Speaker 6: Can you draw distinction, Claudia, between people coming back into 434 00:21:24,720 --> 00:21:28,480 Speaker 6: the market and the participation rate which hasn't actually gone 435 00:21:28,560 --> 00:21:31,560 Speaker 6: up so dramatically. Even as we do talk about people 436 00:21:31,600 --> 00:21:35,040 Speaker 6: coming back into the labor force, when. 437 00:21:34,840 --> 00:21:38,760 Speaker 10: We look at the years a whole participation has moved up. 438 00:21:38,840 --> 00:21:43,600 Speaker 10: That's a very slow moving creature. Just in terms of 439 00:21:43,640 --> 00:21:48,280 Speaker 10: the measurement, we've absolutely seen a burst of workers. Women's 440 00:21:48,480 --> 00:21:51,600 Speaker 10: employment is at an all time high. We have seen 441 00:21:51,680 --> 00:21:54,200 Speaker 10: a big surge of immigrants. In terms of the workfieces 442 00:21:54,240 --> 00:21:58,080 Speaker 10: finally getting processed, so we've had people coming back in. 443 00:21:58,200 --> 00:22:00,760 Speaker 10: It is there in the data in the labor force participation, 444 00:22:01,200 --> 00:22:04,440 Speaker 10: and some of these factors are more temporary, and that's 445 00:22:04,480 --> 00:22:06,720 Speaker 10: part of the jobs being able to catch up. Like 446 00:22:06,760 --> 00:22:08,879 Speaker 10: we're still adding jobs at a good clip, just not 447 00:22:09,240 --> 00:22:10,480 Speaker 10: like last year. 448 00:22:10,880 --> 00:22:11,160 Speaker 8: Clot. 449 00:22:12,480 --> 00:22:13,920 Speaker 1: I don't mean to interrupt, but I think it's really 450 00:22:13,960 --> 00:22:17,439 Speaker 1: important into the CPI data tomorrow and retail sales the 451 00:22:17,440 --> 00:22:21,159 Speaker 1: next day. The Boston Fed as a cottage industry of 452 00:22:21,240 --> 00:22:24,600 Speaker 1: trying to this is Michelle Barnes years ago. Folks trying 453 00:22:24,600 --> 00:22:30,280 Speaker 1: to figure out guessing consumption? Can we actually guess consumption? 454 00:22:30,440 --> 00:22:32,959 Speaker 1: How do you respond to people talking about, well, this 455 00:22:33,040 --> 00:22:35,439 Speaker 1: is the credit card data or that. What are the 456 00:22:35,480 --> 00:22:40,439 Speaker 1: academics like you actually say about gaming? Seventy percent of 457 00:22:40,480 --> 00:22:41,639 Speaker 1: the American economy? 458 00:22:42,920 --> 00:22:45,280 Speaker 10: Right, So I was one of the lead forecasters on 459 00:22:45,320 --> 00:22:49,399 Speaker 10: consumer spending at the Federal Reserve for about a decade. 460 00:22:49,480 --> 00:22:51,640 Speaker 10: So I spent a lot of time trying to forecast 461 00:22:51,680 --> 00:22:54,960 Speaker 10: consumer spending. The big piece, and I've talked about this recently, 462 00:22:55,200 --> 00:22:58,760 Speaker 10: it's the income. Like if we lose the labor market, 463 00:22:58,840 --> 00:23:01,719 Speaker 10: we lose consumers, as many people spend their paychecks. If 464 00:23:01,720 --> 00:23:04,439 Speaker 10: we lose consumers, we're done for in a recession. So 465 00:23:04,480 --> 00:23:06,840 Speaker 10: to me, it's like all eyes on the labor market 466 00:23:06,880 --> 00:23:09,520 Speaker 10: that it keeps in the place it is, and household 467 00:23:09,640 --> 00:23:11,919 Speaker 10: balance sheets are in a place that they have not 468 00:23:12,160 --> 00:23:15,680 Speaker 10: been in for a very long time, particularly at the bottom. 469 00:23:15,880 --> 00:23:17,840 Speaker 10: Like that's really encouraging. 470 00:23:17,640 --> 00:23:22,600 Speaker 1: Claudia, Thank you so much. Claudia, so former feeder reserve economist. 471 00:23:26,400 --> 00:23:28,240 Speaker 1: There's a lot to talk about here, John, as we 472 00:23:28,240 --> 00:23:32,280 Speaker 1: get to Toto Wolf Team principal CEO of Mercedes. But John, 473 00:23:32,640 --> 00:23:34,240 Speaker 1: the real issue here to me, and I'm gonna do 474 00:23:34,280 --> 00:23:37,399 Speaker 1: a little bit more Spanner and cispar. 475 00:23:37,280 --> 00:23:39,200 Speaker 2: I was reading about the SISPEC cake. 476 00:23:39,080 --> 00:23:42,760 Speaker 1: Folks, the side impact bar is very very important for 477 00:23:42,880 --> 00:23:44,879 Speaker 1: all these different cars. 478 00:23:46,640 --> 00:23:49,639 Speaker 11: This, thank you, This is more of an engineering discussion 479 00:23:49,640 --> 00:23:50,280 Speaker 11: you're looking at it. 480 00:23:50,320 --> 00:23:52,520 Speaker 5: Maybe what we've got SITI is not running away from 481 00:23:52,560 --> 00:23:55,199 Speaker 5: the camera. Joined us now, Toto Wolf Team principle and 482 00:23:55,320 --> 00:24:00,680 Speaker 5: CEO of Mercedes AMG ptronis formula onetside. Fantastic catch with you, sir. 483 00:24:00,960 --> 00:24:03,119 Speaker 5: Let's just start with this new racetrack. We've spoken to 484 00:24:03,119 --> 00:24:05,200 Speaker 5: a couple of people about it already. What kind of 485 00:24:05,240 --> 00:24:07,600 Speaker 5: feedback how are you getting from the drivers on the 486 00:24:07,600 --> 00:24:09,240 Speaker 5: simulars Again, it's a race weekend. 487 00:24:10,480 --> 00:24:12,440 Speaker 12: First of all, good morning, Good morning to New York. 488 00:24:12,480 --> 00:24:15,200 Speaker 12: We can also talk side impic structures if you wish, 489 00:24:15,640 --> 00:24:20,800 Speaker 12: but you're gonna lose some of your some of your audiences. 490 00:24:21,040 --> 00:24:22,439 Speaker 2: Yeah, I'm skilled with that. 491 00:24:23,480 --> 00:24:27,160 Speaker 8: Yeah, we can jump on a separate call. I'll tell you. So. 492 00:24:27,520 --> 00:24:29,560 Speaker 12: The drivers have been in the simulator, and I spoke 493 00:24:29,600 --> 00:24:33,280 Speaker 12: to Lewis last week when we had a meeting in 494 00:24:33,359 --> 00:24:36,119 Speaker 12: the factory and he said, the strait is so long 495 00:24:36,920 --> 00:24:40,119 Speaker 12: and impressive, but we don't really know what to expect because, 496 00:24:40,119 --> 00:24:42,959 Speaker 12: as you mentioned before, we're racing between ten and twelve 497 00:24:43,320 --> 00:24:47,720 Speaker 12: local time. Nevada nights, i've heard can be pretty pretty cold, 498 00:24:47,800 --> 00:24:50,439 Speaker 12: and the only night racing experience that we have is 499 00:24:50,800 --> 00:24:54,000 Speaker 12: Singapore and a little bit of the Middle East, but 500 00:24:54,400 --> 00:24:59,439 Speaker 12: obviously never on a new track close to five degree 501 00:24:59,480 --> 00:25:03,439 Speaker 12: cent degree with careally tires that have never experienced these 502 00:25:03,520 --> 00:25:04,280 Speaker 12: kind of temperatures. 503 00:25:04,320 --> 00:25:06,520 Speaker 5: It just raised some questions as to why it's being 504 00:25:06,520 --> 00:25:08,760 Speaker 5: hosted at this time of the year, at this time 505 00:25:08,800 --> 00:25:10,760 Speaker 5: of night. Toto, how did that come about and would 506 00:25:10,800 --> 00:25:12,159 Speaker 5: you push for a change next season? 507 00:25:13,400 --> 00:25:17,760 Speaker 12: Well, obviously, Las Vegas stands for entertainment and show and 508 00:25:18,560 --> 00:25:21,199 Speaker 12: liberty came up with the plan, which is great. To 509 00:25:21,240 --> 00:25:23,919 Speaker 12: be honest, we've not raised in Las Vegas for a 510 00:25:23,920 --> 00:25:28,679 Speaker 12: long time, certainly not in modern Formula one, and going 511 00:25:28,760 --> 00:25:31,680 Speaker 12: there with this new format in the night. It's going 512 00:25:31,680 --> 00:25:34,879 Speaker 12: to be spectacular. I think it's been said before. The 513 00:25:34,960 --> 00:25:38,040 Speaker 12: track is brand new. That means the surface can be 514 00:25:38,400 --> 00:25:42,800 Speaker 12: quite greasy or oily, because that's what asphal do does 515 00:25:42,840 --> 00:25:45,919 Speaker 12: when it's new. We haven't raised in those temperatures, as 516 00:25:45,920 --> 00:25:48,159 Speaker 12: I said before, But in any case, it's going to 517 00:25:48,200 --> 00:25:51,200 Speaker 12: be a big spectacle. I don't know whether we will 518 00:25:51,240 --> 00:25:53,679 Speaker 12: be sliding around or whether the track is going to 519 00:25:53,720 --> 00:25:56,639 Speaker 12: be really grippy, but we shall find out in a 520 00:25:56,640 --> 00:25:57,119 Speaker 12: few days. 521 00:25:57,160 --> 00:25:59,640 Speaker 5: We've been talking about qualifying and the prospect of maybe 522 00:25:59,720 --> 00:26:02,280 Speaker 5: needing to two three laps to get tires up to 523 00:26:02,280 --> 00:26:04,639 Speaker 5: what's more temperature to put in that quick slab, so 524 00:26:04,720 --> 00:26:06,080 Speaker 5: twenty thoughts on that at this point. 525 00:26:08,040 --> 00:26:11,359 Speaker 12: Yeah, we've headed in the past that sometimes you just 526 00:26:11,480 --> 00:26:14,080 Speaker 12: needed to slowly warm up the tires because if you 527 00:26:14,119 --> 00:26:16,480 Speaker 12: push them too hard at the beginning they're green, you know, 528 00:26:16,560 --> 00:26:18,360 Speaker 12: then you slide over the surface. 529 00:26:18,359 --> 00:26:19,560 Speaker 8: The grip is never going to come. 530 00:26:19,760 --> 00:26:22,359 Speaker 12: So bringing them in, driving them carefully, getting them up 531 00:26:22,400 --> 00:26:27,280 Speaker 12: to temperature and that could last a few laps, depending 532 00:26:27,359 --> 00:26:30,359 Speaker 12: and we're getting a little bit technical here, depending on 533 00:26:30,400 --> 00:26:33,359 Speaker 12: how much you heat your rims and your breaks beforehand. 534 00:26:33,359 --> 00:26:36,000 Speaker 12: And teams have various concepts. They don't want to have 535 00:26:36,200 --> 00:26:39,879 Speaker 12: the front tires pretty cool and long lasting, or you 536 00:26:39,960 --> 00:26:42,000 Speaker 12: heat them a lot, which gives you a grip for 537 00:26:42,119 --> 00:26:44,919 Speaker 12: a single lab for qualifying, but obviously harms them for 538 00:26:44,960 --> 00:26:45,280 Speaker 12: the risks. 539 00:26:45,359 --> 00:26:47,640 Speaker 5: It could be chaos or it could be really exciting 540 00:26:47,920 --> 00:26:50,160 Speaker 5: one or the other. It goes to a conversation we've 541 00:26:50,160 --> 00:26:52,760 Speaker 5: been having all season on this program total just how 542 00:26:52,800 --> 00:26:57,480 Speaker 5: you balance pursuing commercial gains without compromising race quality. What 543 00:26:57,520 --> 00:26:59,600 Speaker 5: do you make in the current balance the Formula one. 544 00:27:01,000 --> 00:27:04,240 Speaker 12: I think we had that balance to cope with that 545 00:27:04,320 --> 00:27:06,960 Speaker 12: balance for a long time. And I think why we 546 00:27:07,040 --> 00:27:11,480 Speaker 12: love the sport so much is because it's honest. Entertainment 547 00:27:11,600 --> 00:27:16,520 Speaker 12: follows sport. We're not designing regulations or content because we 548 00:27:17,480 --> 00:27:21,119 Speaker 12: want to create scripted content with a certain outcome, with 549 00:27:21,240 --> 00:27:25,480 Speaker 12: a certain degree of non variability. 550 00:27:25,560 --> 00:27:27,200 Speaker 8: We're doing this, we're launching ourselves. 551 00:27:27,200 --> 00:27:30,879 Speaker 12: There's technical regulations, they're sporting regulations, and then off you 552 00:27:31,000 --> 00:27:34,639 Speaker 12: go with a certain within a certain framework of cost 553 00:27:34,720 --> 00:27:37,280 Speaker 12: cap which is similar to the salary cap in some 554 00:27:37,359 --> 00:27:40,639 Speaker 12: of the US leagues. Everybody has the same starting point 555 00:27:41,200 --> 00:27:43,919 Speaker 12: and then we launch ourselves into this. So it's honest, 556 00:27:44,359 --> 00:27:49,320 Speaker 12: the stop watch never lies, and therefore the entertainment's follow suit. 557 00:27:49,560 --> 00:27:51,919 Speaker 5: And yet we go through these periods of dominance. We 558 00:27:51,960 --> 00:27:54,720 Speaker 5: saw it with Ferrari late nineties, early two thousands, we 559 00:27:54,760 --> 00:27:57,080 Speaker 5: saw it with you Mercedes for a long time as well, 560 00:27:57,280 --> 00:28:00,000 Speaker 5: and now with Red Bull. So Lewis has said recently 561 00:28:00,080 --> 00:28:01,800 Speaker 5: in the last couple of days, the Red Bull is 562 00:28:02,040 --> 00:28:03,760 Speaker 5: so far away. I think they're probably going to be 563 00:28:03,920 --> 00:28:06,120 Speaker 5: very clear for the next couple of years. From your 564 00:28:06,160 --> 00:28:09,439 Speaker 5: standpoint as team principle, is that a realistic assessment of 565 00:28:09,480 --> 00:28:12,320 Speaker 5: the future, the next couple of seasons. 566 00:28:12,480 --> 00:28:15,439 Speaker 8: Where we're giving it all to break a cycle. 567 00:28:15,520 --> 00:28:19,040 Speaker 12: Like you said, we had five years of dominance of Ferrari, 568 00:28:19,080 --> 00:28:21,439 Speaker 12: and we had a drug spell of Red bulland then 569 00:28:21,480 --> 00:28:24,680 Speaker 12: it was us eight times in a row. And now 570 00:28:24,680 --> 00:28:27,359 Speaker 12: it's the second Constructor Championship for a Bull or the 571 00:28:27,400 --> 00:28:31,000 Speaker 12: third Drivate Championship with an indeed very good driver. So 572 00:28:31,520 --> 00:28:34,919 Speaker 12: we are, you know, with all we have back in effect, 573 00:28:35,000 --> 00:28:37,520 Speaker 12: and at the racetrake we're trying to come up with 574 00:28:37,640 --> 00:28:41,200 Speaker 12: a car and with an execution that is as good 575 00:28:41,240 --> 00:28:43,440 Speaker 12: as it can be, and we have a next cycle 576 00:28:43,480 --> 00:28:46,280 Speaker 12: of regulatory engine twenty twenty six. But we got to 577 00:28:46,360 --> 00:28:47,360 Speaker 12: turn this around. 578 00:28:47,080 --> 00:28:50,200 Speaker 1: The well for this race, and I think Total Wolf 579 00:28:50,520 --> 00:28:53,480 Speaker 1: it's very clear. There's three late races left Las Vegas 580 00:28:53,560 --> 00:28:56,080 Speaker 1: and then back over the Middle East cutter in Abu Dhabi. 581 00:28:56,520 --> 00:28:59,040 Speaker 2: Are you racing right now for next year? 582 00:29:00,800 --> 00:29:03,480 Speaker 8: Yes, we have done for quite some while. 583 00:29:03,960 --> 00:29:08,440 Speaker 12: We're still fighting for the second championship in the constructor championship. 584 00:29:08,520 --> 00:29:12,440 Speaker 12: We are second at the moment and Ferrari behind us, 585 00:29:12,520 --> 00:29:17,320 Speaker 12: so that's an interesting one. But you know, deep down, 586 00:29:17,560 --> 00:29:20,360 Speaker 12: second or third, third place doesn't matter. We've got to 587 00:29:20,960 --> 00:29:23,920 Speaker 12: with old humility fight for the front. And that's why 588 00:29:24,000 --> 00:29:26,840 Speaker 12: many months ago already we've switched and the transitioned to 589 00:29:26,880 --> 00:29:28,160 Speaker 12: a new corner totally. 590 00:29:28,160 --> 00:29:32,960 Speaker 1: There's a phenomenal photo of three Austrians, Nikki Lauda, Total 591 00:29:33,040 --> 00:29:36,160 Speaker 1: Wolf and a guy named Schwarzeneger. It's a really really 592 00:29:36,200 --> 00:29:39,400 Speaker 1: cool photo. And to take what Arnold Schwarzenegger did, and 593 00:29:39,440 --> 00:29:42,760 Speaker 1: all of our American audience remove from F one understands 594 00:29:42,760 --> 00:29:46,440 Speaker 1: the tale in here. When you look at the showbiz 595 00:29:46,640 --> 00:29:49,480 Speaker 1: a Formula one, the Netflix success of which you're a 596 00:29:49,520 --> 00:29:55,880 Speaker 1: star his Formula one Gone two Showbiz in twenty twenty three. 597 00:29:56,480 --> 00:29:59,000 Speaker 12: Obviously, you know there's a few Austrians of us that 598 00:29:59,120 --> 00:30:04,280 Speaker 12: have gone beyond beyond the country and schwartzeneg are probably 599 00:30:04,320 --> 00:30:08,480 Speaker 12: the biggest. And I was lucky enough to be very 600 00:30:08,480 --> 00:30:11,240 Speaker 12: close friends with Niki. We traveled the world around in 601 00:30:11,320 --> 00:30:14,000 Speaker 12: its function as chairman of the team and there were 602 00:30:14,120 --> 00:30:17,240 Speaker 12: very valuable lessons that I that I could learn. Did 603 00:30:17,280 --> 00:30:20,840 Speaker 12: we go beyond the sports too much entertainment? No, I 604 00:30:20,840 --> 00:30:21,400 Speaker 12: don't think so. 605 00:30:22,400 --> 00:30:22,680 Speaker 8: We have. 606 00:30:23,120 --> 00:30:26,239 Speaker 12: We're trying different formats with the sprint race weekends and 607 00:30:26,320 --> 00:30:28,480 Speaker 12: all Las Vegas racing in the night, and if it 608 00:30:28,560 --> 00:30:32,880 Speaker 12: needs calibration to provide a better show whilst staying true 609 00:30:32,920 --> 00:30:35,880 Speaker 12: to our values of the honest spot, I think we've 610 00:30:35,880 --> 00:30:37,880 Speaker 12: got to try it. But the core product the Grand 611 00:30:37,920 --> 00:30:42,720 Speaker 12: Korea on Sunday, within the regulations financial technical in sporting 612 00:30:42,800 --> 00:30:44,960 Speaker 12: is always what Formula one has been all about. 613 00:30:45,280 --> 00:30:48,080 Speaker 5: Let's finish on the prospective expansion at Toto. I believe 614 00:30:48,080 --> 00:30:50,760 Speaker 5: you've been against the expansion of the grid. Do you 615 00:30:50,760 --> 00:30:52,480 Speaker 5: think it's now ultimately inevitable? 616 00:30:54,160 --> 00:30:56,760 Speaker 12: I think the ten teams that have been in the sport, 617 00:30:56,880 --> 00:31:00,000 Speaker 12: have been so for a long long time. The smaller 618 00:31:00,040 --> 00:31:02,160 Speaker 12: teams or midfield teams have gone through a lot of 619 00:31:02,240 --> 00:31:05,800 Speaker 12: hardship a few years ago when COVID struck, but in 620 00:31:06,120 --> 00:31:08,520 Speaker 12: any case, they fault for survival. And here we are 621 00:31:08,600 --> 00:31:11,920 Speaker 12: with the cost cap kicking in. The teams have most 622 00:31:11,960 --> 00:31:15,800 Speaker 12: of the teams have done into profitability and finally are 623 00:31:15,800 --> 00:31:18,360 Speaker 12: in a sustainable way and continuing. 624 00:31:18,400 --> 00:31:20,120 Speaker 8: But that is not a given. You know. 625 00:31:20,240 --> 00:31:23,480 Speaker 12: We we are on high at the moment, and therefore 626 00:31:23,120 --> 00:31:26,280 Speaker 12: we've got to respect what the FA and the commercial 627 00:31:26,320 --> 00:31:29,360 Speaker 12: rights holder are going to decide whether they want to 628 00:31:29,360 --> 00:31:32,080 Speaker 12: have an additional team joining. And obviously, if we are 629 00:31:32,080 --> 00:31:34,160 Speaker 12: being asked to saying, as long as it's a crazy 630 00:31:34,280 --> 00:31:36,840 Speaker 12: for the show, as long as we provide a better, 631 00:31:37,000 --> 00:31:41,000 Speaker 12: better entertainment, more income, why would any team be against it. 632 00:31:41,040 --> 00:31:43,960 Speaker 12: But fundamentally it's it's somebody else that decides. 633 00:31:44,000 --> 00:31:45,920 Speaker 5: And so it's wonderful to catch up with you, sir 634 00:31:46,120 --> 00:31:48,320 Speaker 5: going into race weekend. Good luck to you with a team. 635 00:31:48,440 --> 00:31:50,600 Speaker 5: I'm looking forward to watching the race over the weekend. 636 00:31:50,680 --> 00:31:53,280 Speaker 5: Thank you for being with us. Total wolfare team principle 637 00:31:53,560 --> 00:32:05,600 Speaker 5: and CEO of Mercedes AMG patronas f one. 638 00:32:07,200 --> 00:32:08,720 Speaker 2: We've got clocks for any number of things. 639 00:32:08,760 --> 00:32:13,000 Speaker 1: Four days, seventeen hours, forty one minutes, fifty three seconds 640 00:32:13,000 --> 00:32:15,760 Speaker 1: to shut down. John Lieber knows the shutdown clock well 641 00:32:16,000 --> 00:32:19,880 Speaker 1: over the many decades he is at your Raise your group, John, 642 00:32:19,920 --> 00:32:22,840 Speaker 1: thanks so much for joining from London this morning. We're 643 00:32:22,880 --> 00:32:26,600 Speaker 1: riveted to the shutdown clock. What's the likelihood that the 644 00:32:26,680 --> 00:32:29,880 Speaker 1: nation's going to turn into a pumpkin at midnight on Saturday. 645 00:32:31,280 --> 00:32:33,760 Speaker 11: Well, it's always exciting in US fiscal policy, and the 646 00:32:33,800 --> 00:32:37,200 Speaker 11: shutdown clock's fun to watch. But I think fundamentally both 647 00:32:37,240 --> 00:32:40,600 Speaker 11: parties are basically aligned around not shutting down the government. 648 00:32:40,960 --> 00:32:43,000 Speaker 11: So I think that kind of this situation looks like 649 00:32:43,000 --> 00:32:45,040 Speaker 11: I did a couple of months ago, where you've got 650 00:32:45,040 --> 00:32:49,520 Speaker 11: Republicans making demands for spending cuts, Democrats saying we don't 651 00:32:49,520 --> 00:32:52,400 Speaker 11: really want to do that, but neither side really wants 652 00:32:52,400 --> 00:32:55,080 Speaker 11: to shut down the government, and Republicans are now putting 653 00:32:55,080 --> 00:32:58,680 Speaker 11: forward as plan to keep funding going through January for 654 00:32:58,800 --> 00:33:00,160 Speaker 11: part of the government, February or. 655 00:33:00,160 --> 00:33:00,680 Speaker 2: For the rest. 656 00:33:01,000 --> 00:33:03,200 Speaker 11: I would bet by the end of this week that's passed, 657 00:33:03,240 --> 00:33:06,160 Speaker 11: because no, unless there's some mistake or something goes wrong, 658 00:33:06,400 --> 00:33:08,400 Speaker 11: and these two sides inside they just hate each other 659 00:33:08,440 --> 00:33:09,400 Speaker 11: too much to actually do this. 660 00:33:09,600 --> 00:33:12,080 Speaker 1: My quick creator of the Moody's announcement was it was 661 00:33:12,120 --> 00:33:15,840 Speaker 1: sort of a statement on civics in America. Are we 662 00:33:16,000 --> 00:33:18,760 Speaker 1: going to go through a process now and towards the 663 00:33:18,800 --> 00:33:21,840 Speaker 1: next shut down six months out a year out where 664 00:33:21,880 --> 00:33:24,400 Speaker 1: we yearn to go back to the system you knew 665 00:33:24,440 --> 00:33:27,680 Speaker 1: working for McConnell years ago. Are we going to some 666 00:33:27,920 --> 00:33:33,400 Speaker 1: new system of legislating and appropriations in America? 667 00:33:33,520 --> 00:33:33,680 Speaker 2: You know? 668 00:33:33,960 --> 00:33:36,080 Speaker 11: I mean the system is basically the same as it 669 00:33:36,080 --> 00:33:38,920 Speaker 11: has been for the last decade, where one party the 670 00:33:38,920 --> 00:33:41,239 Speaker 11: other is trying to leverage these deadlines to get the 671 00:33:41,240 --> 00:33:44,440 Speaker 11: fiscal policy they want. And you mentioned with the Moodies 672 00:33:44,480 --> 00:33:47,920 Speaker 11: downgrade interest rates and basic civics. But there's also demographics 673 00:33:48,200 --> 00:33:51,719 Speaker 11: and the US demographics aren't changing, and because of that, 674 00:33:51,760 --> 00:33:55,720 Speaker 11: you've got this massive increase in spending as there's more 675 00:33:55,760 --> 00:33:59,320 Speaker 11: retirees in this country, while tax revenues remain basically flat 676 00:33:59,360 --> 00:34:01,760 Speaker 11: as a percentage GDP. And what that means is the 677 00:34:01,880 --> 00:34:04,360 Speaker 11: combinations you get more debt as a share of GDP. 678 00:34:04,680 --> 00:34:06,680 Speaker 11: We've seen the stock of debt triple over the last 679 00:34:06,680 --> 00:34:09,759 Speaker 11: ten years, and that's probably going to happen again in 680 00:34:09,800 --> 00:34:12,439 Speaker 11: the future. So I think this Moody's rating is yes 681 00:34:12,600 --> 00:34:14,919 Speaker 11: about the short term, about higher interest rates, and about 682 00:34:14,960 --> 00:34:18,520 Speaker 11: the dysfunction in Congress, but fundamentally, this country's on a 683 00:34:18,520 --> 00:34:23,239 Speaker 11: bad path long term fiscally. Neither party has any seriousness. 684 00:34:22,680 --> 00:34:24,200 Speaker 2: About doing anything about it. 685 00:34:24,520 --> 00:34:28,319 Speaker 11: Even the Democrats, in what they called an Inflation Reduction Act, 686 00:34:28,320 --> 00:34:31,759 Speaker 11: which was ostensibly designed to yes, invest in green technology 687 00:34:31,960 --> 00:34:35,239 Speaker 11: but also reduce the deficit, couldn't muster a single thing 688 00:34:35,280 --> 00:34:37,560 Speaker 11: that's an actual tax increase in there. They had to 689 00:34:37,600 --> 00:34:41,040 Speaker 11: rely on these things they could spin as loophole closers, 690 00:34:41,320 --> 00:34:43,319 Speaker 11: and in the end that bill is probably going to 691 00:34:43,400 --> 00:34:45,920 Speaker 11: end up increasing the deficit too. So there's simply no 692 00:34:46,120 --> 00:34:48,680 Speaker 11: seriousness in dealing with this problem, and there won't be 693 00:34:48,760 --> 00:34:49,359 Speaker 11: until there's a. 694 00:34:49,320 --> 00:34:52,759 Speaker 6: Crisis, which raises a question of what it will take. 695 00:34:52,880 --> 00:34:54,920 Speaker 6: And we were talking with Neil Kashkari last week and 696 00:34:54,960 --> 00:34:59,200 Speaker 6: he said he actually questions how much the fiscal concerns 697 00:34:59,239 --> 00:35:02,720 Speaker 6: about the US really are affecting benchmark rates in the US, 698 00:35:03,040 --> 00:35:05,960 Speaker 6: saying that if this really were an international concern, you 699 00:35:05,960 --> 00:35:09,799 Speaker 6: would see the dollar weekend. From an international negotiation standpoint, 700 00:35:09,920 --> 00:35:12,400 Speaker 6: is the fiscal backdrop of the US entering into the 701 00:35:12,440 --> 00:35:15,239 Speaker 6: discussion more, is it putting the US in a more 702 00:35:15,320 --> 00:35:17,160 Speaker 6: difficult situation. 703 00:35:19,880 --> 00:35:23,920 Speaker 11: With China and other potential trading partners. Yes, yeah, I 704 00:35:24,000 --> 00:35:25,120 Speaker 11: mean I think this is a factor. 705 00:35:25,160 --> 00:35:25,520 Speaker 10: For sure. 706 00:35:25,560 --> 00:35:28,720 Speaker 11: The US has relied both on kind of foreign funding 707 00:35:28,760 --> 00:35:31,279 Speaker 11: of its debt, but also the Federal Reserve is a 708 00:35:31,280 --> 00:35:34,480 Speaker 11: marginal buyer of debt for this ten year period of 709 00:35:34,520 --> 00:35:37,759 Speaker 11: low and dropping interest rates, and that's now shifting fundamentally 710 00:35:38,080 --> 00:35:40,839 Speaker 11: where foreign strategies around US debt are going to start 711 00:35:40,880 --> 00:35:43,799 Speaker 11: affecting the interest rate outlook, and it's not going to 712 00:35:43,800 --> 00:35:46,800 Speaker 11: be such a sure thing that the US can continue 713 00:35:46,800 --> 00:35:50,279 Speaker 11: to fund these these massive deficits. However, all evidence so 714 00:35:50,920 --> 00:35:53,960 Speaker 11: far suggests that when there's a flight to safety, US 715 00:35:54,040 --> 00:35:56,640 Speaker 11: treasuries are still the place to be. The US has 716 00:35:56,680 --> 00:35:59,640 Speaker 11: the reserve currency, and despite all the issues that we've 717 00:35:59,680 --> 00:36:02,239 Speaker 11: seen this year, people still think that the US is 718 00:36:02,280 --> 00:36:04,919 Speaker 11: a pretty safe bet that's got a deep and rich 719 00:36:05,120 --> 00:36:07,719 Speaker 11: pool of taxable assets that you can get at in 720 00:36:07,760 --> 00:36:10,280 Speaker 11: an emergency if you need it to. The big question 721 00:36:10,360 --> 00:36:12,680 Speaker 11: is not whether or not the US can repay or 722 00:36:12,719 --> 00:36:15,120 Speaker 11: has the money to repay, is if there's the political 723 00:36:15,160 --> 00:36:17,799 Speaker 11: will to keep this going and what it looks like 724 00:36:17,920 --> 00:36:20,080 Speaker 11: in a crisis where you might need to see an 725 00:36:20,120 --> 00:36:22,280 Speaker 11: instant increase in taxes or something. 726 00:36:22,480 --> 00:36:24,600 Speaker 6: John, just looking ahead to Wednesday, we are going to 727 00:36:24,600 --> 00:36:27,279 Speaker 6: get that meeting between Jijon paying and President Biden. What 728 00:36:27,280 --> 00:36:27,920 Speaker 6: are you looking for? 729 00:36:29,440 --> 00:36:31,359 Speaker 11: You know, I think this is a very low bar 730 00:36:31,440 --> 00:36:35,160 Speaker 11: to get over. The big celebration is the fact that 731 00:36:35,160 --> 00:36:37,719 Speaker 11: they're meeting at all. I think a key question is 732 00:36:37,719 --> 00:36:40,440 Speaker 11: if they resume the military to military communications that were 733 00:36:40,440 --> 00:36:43,239 Speaker 11: cut off after the Pelosi visit. This would help de 734 00:36:43,520 --> 00:36:46,120 Speaker 11: risk some of the challenges that you're seeing in the 735 00:36:46,160 --> 00:36:49,720 Speaker 11: South China. See where China's you know, the China argues 736 00:36:49,760 --> 00:36:52,920 Speaker 11: the US has been aggressively going approaching on their territory 737 00:36:53,080 --> 00:36:56,120 Speaker 11: the Philippines as well, and they've been sending these warning 738 00:36:56,200 --> 00:36:58,680 Speaker 11: signs to the US that they are telling them to 739 00:36:58,719 --> 00:37:02,640 Speaker 11: back off. Resuming the military to military communications is a 740 00:37:02,680 --> 00:37:05,719 Speaker 11: step that trying to help de escalate those tensions. That's 741 00:37:05,719 --> 00:37:06,480 Speaker 11: probably the most we. 742 00:37:06,440 --> 00:37:06,920 Speaker 2: Can hope for. 743 00:37:07,280 --> 00:37:09,600 Speaker 11: I'm really curious to see what hu Jinping says in 744 00:37:09,600 --> 00:37:12,720 Speaker 11: his speech to the American people, and I'm also watching 745 00:37:12,920 --> 00:37:15,080 Speaker 11: what is his message going to be to US corporate 746 00:37:15,120 --> 00:37:18,160 Speaker 11: executives who are very worried about a sudden stop and 747 00:37:18,200 --> 00:37:21,360 Speaker 11: their ability to do business in China. What messages he 748 00:37:21,400 --> 00:37:23,600 Speaker 11: give them to reassure them that China is still a 749 00:37:23,640 --> 00:37:25,480 Speaker 11: safe place for them to do business. I think those 750 00:37:25,520 --> 00:37:27,799 Speaker 11: three things will be the most interesting to watch coming 751 00:37:27,800 --> 00:37:28,279 Speaker 11: out of this week. 752 00:37:28,480 --> 00:37:30,680 Speaker 5: That last point is just absolutely huge and a big 753 00:37:30,680 --> 00:37:33,400 Speaker 5: one for us or wait, John, Thank you, John Lebade. 754 00:37:33,680 --> 00:37:34,359 Speaker 5: If you write your. 755 00:37:34,320 --> 00:37:38,319 Speaker 1: Group, subscribe to the Bloomberg Surveillance podcast on Apple, Spotify 756 00:37:38,440 --> 00:37:42,319 Speaker 1: and anywhere else you get your podcasts. Listen live every 757 00:37:42,320 --> 00:37:46,480 Speaker 1: weekday starting at seven am Eastern. I'm Bloomberg dot Com, 758 00:37:46,520 --> 00:37:50,720 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 759 00:37:51,160 --> 00:37:54,800 Speaker 1: You can watch us live on Bloomberg Television and always 760 00:37:55,200 --> 00:37:56,360 Speaker 1: I'm the Bloomberg Terminal. 761 00:37:56,840 --> 00:38:00,920 Speaker 2: Thanks for listening. I'm Tom Keen, and this is Bloomber