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Presented by our sponsor, Interactive Brokers. 0:00:44.680 --> 0:00:48.040 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:48.040 --> 0:00:51.880 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:51.920 --> 0:00:56.400 for insight from the best and economics, geopolitics, finance and investment. 0:00:56.840 --> 0:01:01.640 Subscribe to Bloomberg Surveillance on demand on a Spotify and 0:01:01.840 --> 0:01:06.160 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:01:06.200 --> 0:01:10.000 the Bloomberg Terminal, and the Bloomberg Business App. What we 0:01:10.080 --> 0:01:12.600 do here is we have smart guests like Will Kennedy, 0:01:12.680 --> 0:01:15.160 just joining us at Queen Victoria Street in London on 0:01:15.240 --> 0:01:18.479 oil and now joining us his compatriot in Irish crime. 0:01:18.560 --> 0:01:20.480 Thomas Kennedy joins his chief. 0:01:20.319 --> 0:01:22.559 Investment strategist at JP Morgan. 0:01:22.600 --> 0:01:24.080 One Kennedy to another. 0:01:23.800 --> 0:01:26.040 And you linked it when you sat down and you 0:01:26.040 --> 0:01:28.640 looked at Will Kennedy's world and says, when the price 0:01:28.640 --> 0:01:33.640 of oil moves, you see in chases, charge card juggernaut reaction, 0:01:33.840 --> 0:01:35.880 what do you observes oil comes down? 0:01:36.000 --> 0:01:38.720 Yeah, we saw change in the way the consumer was 0:01:38.720 --> 0:01:41.840 reacting to higher oil prices around August September area in 0:01:41.880 --> 0:01:44.800 our Chase credit card day. To remember, we're banking about 0:01:44.800 --> 0:01:47.200 twenty percent of America, and what we saw there. 0:01:47.200 --> 0:01:49.400 Was a nice plug nailed deck. 0:01:50.200 --> 0:01:54.000 When gasoline prices rose. You actually saw a discretionary spending 0:01:54.040 --> 0:01:56.400 go down. Now, Tommy might be saying, well, of course 0:01:56.440 --> 0:01:59.800 you're going to see that. Right, prior to August and September, 0:02:00.000 --> 0:02:02.160 in the post COVID era, we did not see that relationship. 0:02:02.400 --> 0:02:04.200 It suggests the excess savings in. 0:02:04.160 --> 0:02:07.960 America might actually be depleting after how many quarters of 0:02:08.000 --> 0:02:11.200 negotiating on it, right, and then when we really dig 0:02:11.240 --> 0:02:12.959 into the accounts of these folks, and we do it 0:02:13.000 --> 0:02:16.120 in anymous anonymous fashion, about half of America looks like 0:02:16.120 --> 0:02:16.760 they're out of excess. 0:02:17.280 --> 0:02:19.320 If you're missing words up, it's okay. You're sitting on 0:02:19.360 --> 0:02:21.359 the side of the table where we do that routinely. 0:02:22.080 --> 0:02:24.919 You know, I'm looking Time Kennedy at the polarity between 0:02:24.919 --> 0:02:27.560 Morgan Stanley and Golden Sachs today. You need the leadership 0:02:27.639 --> 0:02:29.960 or Bruce chast and Michael Faroli to give you an 0:02:30.000 --> 0:02:34.040 economic backdrop. What's your economic backdrop that forms your outlook 0:02:34.080 --> 0:02:34.720 call this year? 0:02:34.880 --> 0:02:37.639 Yeah, we're expecting a growth slow down pretty much like 0:02:37.680 --> 0:02:39.760 the less rest of Wall Street at this point, and 0:02:39.840 --> 0:02:43.360 it is relatively simple and intuitive. You have the cost 0:02:43.400 --> 0:02:46.640 of capital above expected revenue in this economy, and if 0:02:46.680 --> 0:02:49.720 you think about America as one big business, it's very 0:02:49.720 --> 0:02:52.680 odd to see the cost of capital to be above 0:02:52.840 --> 0:02:57.040 expected GDP. It should force investors to say, maybe I'll 0:02:57.080 --> 0:02:59.639 just save instead of borrow money and invest in my business. 0:03:00.040 --> 0:03:01.959 We've seen this four or five times in the last 0:03:02.000 --> 0:03:04.480 forty years, just about every time you see a growth slowdown, 0:03:04.520 --> 0:03:07.440 tom So we should expect that to happen. The question 0:03:07.560 --> 0:03:10.680 becomes what's the scenarios where it doesn't happen? And in 0:03:10.720 --> 0:03:14.480 those scenarios you have one where either the consumer is 0:03:14.520 --> 0:03:16.880 much more resilient and they have access to borrowing, and 0:03:16.919 --> 0:03:20.160 you're going to see growth come higher or something breaks 0:03:20.160 --> 0:03:25.400 in the meantime. Those are pretty dynamic and polarizing outcomes 0:03:25.440 --> 0:03:25.960 in the future. 0:03:26.120 --> 0:03:28.160 Everything you set up until then, though said, by the 0:03:28.200 --> 0:03:31.160 ten year go along the curve. Look in some of 0:03:31.160 --> 0:03:31.960 this yield. Is that right? 0:03:32.040 --> 0:03:32.239 Yeah? 0:03:32.280 --> 0:03:33.840 I think it has to be. John. 0:03:33.880 --> 0:03:37.160 You have at this point a municipal bond that is 0:03:37.200 --> 0:03:40.120 giving you equity like yields, and for the first time 0:03:40.160 --> 0:03:42.720 in twenty years, it is actually competing with the earning 0:03:42.760 --> 0:03:44.720 yield on the s and P five hundred. For my 0:03:44.800 --> 0:03:48.800 clients that are gathering wealth for generations, I can show 0:03:48.800 --> 0:03:51.560 them something that has near zero default risk and you 0:03:51.560 --> 0:03:53.960 can get equity like yields. Is their risk to that, 0:03:54.000 --> 0:03:56.600 of course there is, But that's a dynamic that they 0:03:56.640 --> 0:04:00.000 haven't seen in two decades. And now I can start 0:04:00.040 --> 0:04:02.120 to reposition some of their portfolio. 0:04:01.680 --> 0:04:04.080 And they say, Thomas, I'm nervous. I'm seeing yields all 0:04:04.080 --> 0:04:06.680 over the place. Are they reluctant to buy even at 0:04:06.720 --> 0:04:08.520 these rates? Even after you tell that story, it's a 0:04:08.640 --> 0:04:09.840 reluctant still to buy it. 0:04:10.680 --> 0:04:13.800 In our data for the last twelve months, this has 0:04:13.840 --> 0:04:15.839 been the trade that people have been excited about and 0:04:15.880 --> 0:04:16.760 can get invested in. 0:04:17.120 --> 0:04:18.680 That doesn't mean it's not without angst. 0:04:19.040 --> 0:04:22.960 When we saw a five year tax free yields show 0:04:23.080 --> 0:04:26.880 up two weeks ago, that dynamic changed five percent tax 0:04:26.960 --> 0:04:28.920 free for people in New York City, where we're sitting. 0:04:28.920 --> 0:04:31.320 Guys got to buy a taxable bond above ten percent 0:04:31.400 --> 0:04:35.160 to get an equal return, So the behavioral experience for 0:04:35.200 --> 0:04:39.360 them did change there. I think as a market prognosticator 0:04:39.400 --> 0:04:41.800 makes you say, well, how high can rates really go 0:04:41.920 --> 0:04:44.360 before we're going to see that crowding out effect of 0:04:45.400 --> 0:04:45.960 high yields. 0:04:46.040 --> 0:04:48.240 One of the mysteries of this year has been what 0:04:48.360 --> 0:04:51.200 the main driving force in yields has been. Is it 0:04:51.240 --> 0:04:54.440 the economy? Is it inflation? Is it the politics or 0:04:54.440 --> 0:04:56.560 the fiscal backdrop? This is going to be a really 0:04:56.600 --> 0:04:57.359 interesting test. 0:04:57.839 --> 0:04:59.000 What do you think is going to be. 0:04:59.000 --> 0:05:02.000 Most important with respect to market volatility? Of all the 0:05:02.000 --> 0:05:04.440 things that are going to happen this week, the. 0:05:04.440 --> 0:05:06.520 FED expected out look for the FED. 0:05:07.080 --> 0:05:09.320 You can explain more than three quarters of all the 0:05:09.360 --> 0:05:11.080 movement and rates just from those two things. Where the 0:05:11.120 --> 0:05:12.360 FED is and where you expect them to be in 0:05:12.360 --> 0:05:15.440 a year's time. In the last couple of months you 0:05:15.480 --> 0:05:19.039 have seen I would call it supply of treasuries become 0:05:19.080 --> 0:05:21.400 a little bit more of a factor, but not dominant 0:05:21.400 --> 0:05:23.560 at this point, Lisa. So as we look ahead, what's 0:05:23.600 --> 0:05:26.680 going to matter the slowdown? How big of a slowdown 0:05:26.760 --> 0:05:30.000 is it? And importantly, what will the Fed's reaction function be. 0:05:30.839 --> 0:05:33.599 You said that half of America's are half of America 0:05:33.680 --> 0:05:36.320 is pretty much out of savings based on your data, Yeah, 0:05:36.720 --> 0:05:37.800 which half, right? 0:05:37.880 --> 0:05:38.080 I mean? 0:05:38.160 --> 0:05:40.560 Is this the half that has been spending more aggressively 0:05:40.600 --> 0:05:43.320 and will continue to if they had the money, or 0:05:43.360 --> 0:05:47.400 is this a half that is particular in the economy? 0:05:47.480 --> 0:05:47.600 Right? 0:05:47.640 --> 0:05:49.520 I mean we're talking about the two Americas. We've got 0:05:49.520 --> 0:05:51.480 a lot of Americas and they're moving at different speeds. 0:05:51.560 --> 0:05:55.560 Yeah, the two America's theme really resonates for me. But 0:05:55.880 --> 0:05:57.400 the folks that are out of excess savings at the 0:05:57.400 --> 0:06:00.680 bottom half of America, and those are todaytionally the ones 0:06:00.720 --> 0:06:03.760 that don't have excess savings. So now they have a 0:06:03.800 --> 0:06:06.360 decision to make. They can either slow consumption or try 0:06:06.400 --> 0:06:08.840 to turn to their credit card at a time when 0:06:08.839 --> 0:06:12.600 credit card rates are historically punitive, even when you normalize 0:06:12.600 --> 0:06:15.520 them for where interest rates are or base rates from 0:06:15.520 --> 0:06:18.760 the FED. So I think the slow down metrics makes 0:06:18.839 --> 0:06:22.359 sense when your highest marginal propensity to consume folks are 0:06:22.440 --> 0:06:23.679 running out of their excess savings. 0:06:23.880 --> 0:06:27.240 Really sharp article this weekend of the millions of Americans. 0:06:27.279 --> 0:06:30.279 They don't own Apple, they don't own Nvidio, Microsoft, they 0:06:30.400 --> 0:06:32.000 missed the boat and they got a two to oh 0:06:32.080 --> 0:06:35.480 one k. They walk into JP Morgan Chase this morning 0:06:35.920 --> 0:06:37.720 with a disastrous portfolio. 0:06:37.839 --> 0:06:38.600 They're miserable. 0:06:38.920 --> 0:06:42.560 How do you approach the active versus passive retirement debate? 0:06:43.000 --> 0:06:45.080 I think at this point in the cycle time, active 0:06:45.160 --> 0:06:48.200 is going to make the most sense in that when 0:06:48.200 --> 0:06:50.800 you're looking at a passive allocation, even to the equity market, 0:06:50.920 --> 0:06:52.120 the haves and have nots are there. 0:06:52.839 --> 0:06:53.880 On the one hand, you have. 0:06:53.839 --> 0:06:57.160 Say Tech in the equity market that has gone through 0:06:57.160 --> 0:06:59.960 its optimization of its balance sheet. Layoffs in the tech 0:07:00.040 --> 0:07:03.040 sector have been big in the last twelve months. Capex 0:07:03.120 --> 0:07:05.520 is now getting turned back on around AI and the 0:07:05.560 --> 0:07:08.640 monetization phase is not going to be that long. Microsoft, 0:07:08.720 --> 0:07:11.200 as an example, three percent of their revenues are coming 0:07:11.200 --> 0:07:14.040 from AI already. Meanwhile, you move to small and midcaps, 0:07:14.080 --> 0:07:16.960 and these are the most interest rate sensitive sectors and 0:07:17.160 --> 0:07:20.520 they have debt to EBITDA two to five times. They 0:07:20.520 --> 0:07:23.200 are going to feel this pain more than big tech. 0:07:23.280 --> 0:07:25.679 So in the equity market as an example, active management 0:07:25.680 --> 0:07:29.360 I think makes sense as a headline early cycles when 0:07:29.360 --> 0:07:31.840 you rotate back two more passive ideas. 0:07:31.520 --> 0:07:33.280 And that's not where we are right now. So in 0:07:33.280 --> 0:07:35.680 the minds of money, late cycle is where people think 0:07:35.720 --> 0:07:36.360 we are right now. 0:07:36.400 --> 0:07:39.720 I think it's a muddel and I'm really fascinated by 0:07:39.760 --> 0:07:42.160 the outlooks. I meantime, Kennedy's going to put together thirty 0:07:42.160 --> 0:07:44.200 four page outlook I have a rule I read the first. 0:07:44.800 --> 0:07:47.320 Must this time of the year where it's difficult to 0:07:47.320 --> 0:07:49.680 sort of get beyond next week to put something out 0:07:49.720 --> 0:07:50.800 for the next twelve months. 0:07:50.840 --> 0:07:51.520 How hot is that? 0:07:53.000 --> 0:07:55.000 I think it's difficult when you're trying to do it 0:07:55.040 --> 0:07:57.080 at the end of a cycle. The FED has just 0:07:57.080 --> 0:07:59.480 done the most aggressive rate hiking cycle we've seen. And 0:07:59.560 --> 0:08:01.760 where are you? Are you in the muddle through? Are 0:08:01.800 --> 0:08:03.520 you in the late cycle? Are you in the end cycle? 0:08:03.520 --> 0:08:05.640 That's the hardest part. But to be able to turn 0:08:05.720 --> 0:08:07.800 to your client and say to them, I can show 0:08:07.800 --> 0:08:11.360 you equity like yields and fixed income it's a way 0:08:11.400 --> 0:08:13.960 to buy some time and get some good yield in 0:08:13.960 --> 0:08:14.640 a portfolio. 0:08:14.720 --> 0:08:21.520 Pro tip more charts tip David malpassed a Bears Turns 0:08:21.600 --> 0:08:22.080 years ago. 0:08:22.280 --> 0:08:22.880 Went in doubt. 0:08:23.520 --> 0:08:25.560 Saw that from David costin effort goalman. This morning it 0:08:25.600 --> 0:08:28.160 was gone through his outlook. He's just full of chance 0:08:28.680 --> 0:08:30.720 and tables. Thomas, this is great. He's going to see 0:08:30.760 --> 0:08:32.959 it some kind of do that of JP Mulkin prims 0:08:32.960 --> 0:08:33.280 a bank. 0:08:37.640 --> 0:08:41.840 Guy Johnson is expert at the development of jets, the 0:08:41.880 --> 0:08:44.439 crafts that we fly every day, and he knows the 0:08:44.559 --> 0:08:49.120 Christian Sharer Bleeds Airbus share grew up in to Lose France. 0:08:49.520 --> 0:08:52.480 He's been part of Airbus Way way Back for many 0:08:52.520 --> 0:08:56.480 many years and he is now the CCO of the 0:08:56.600 --> 0:08:59.080 great European airplane builder. 0:08:59.120 --> 0:09:01.760 Guy Johnson in Dubai, gud good morning. 0:09:01.880 --> 0:09:04.240 Good morning, Tom King, All good evening. The sun's setting 0:09:04.240 --> 0:09:06.200 on day one of the Dubai Air Show, and as 0:09:06.240 --> 0:09:08.760 you say, it has been a big one. We've seen 0:09:08.800 --> 0:09:12.320 some significant orders, some promise of even more still to come, 0:09:12.400 --> 0:09:15.520 and as you say, the wide body market feels like 0:09:15.600 --> 0:09:17.760 it is back. Over the last few years, this has 0:09:17.760 --> 0:09:20.640 been all about narrowbodies. The recovery out of the pandemic 0:09:20.720 --> 0:09:24.080 driven by the narrow bodies. Now it's the big workhorses 0:09:24.120 --> 0:09:27.160 of the sky, their time to shine. Let's talk to 0:09:27.240 --> 0:09:30.400 Christian Sharer, as you say, the chief commercial officer at Airbus. 0:09:30.400 --> 0:09:32.040 If you want to know what's happening in this industry, 0:09:32.200 --> 0:09:33.360 here is the guy to talk to. 0:09:33.720 --> 0:09:34.160 Christian. 0:09:34.600 --> 0:09:37.680 Nice to see you, Thanks for making some time for us. Look, 0:09:38.360 --> 0:09:40.520 the world at the moment feels like we've got a 0:09:40.520 --> 0:09:43.600 lot of geopolitical tension. We've got a lot of uncertainty. 0:09:43.600 --> 0:09:46.200 We've got a lot of economic uncertainty as well. Rates 0:09:46.200 --> 0:09:49.160 have been jacked up, economies are slowing down. Yet it 0:09:49.200 --> 0:09:53.520 doesn't feel like it at this show, huge orders across 0:09:53.559 --> 0:09:55.720 the peace in terms of what we're seeing from airlines 0:09:55.720 --> 0:09:56.640 from around the world. 0:09:57.360 --> 0:10:01.080 Why the disconnect, I wouldn't say it's a disconnect. You know, 0:10:01.120 --> 0:10:05.239 an order at an air show is I wouldn't say anecdotal, 0:10:05.400 --> 0:10:09.559 but it's being very much highlighted because it's an air show. 0:10:10.320 --> 0:10:12.960 You will will have seen that this year alone, there's 0:10:13.000 --> 0:10:16.840 been lots of orders in particular with us at Airbus, 0:10:17.040 --> 0:10:19.640 well before the air show. During the air show, there'll 0:10:19.679 --> 0:10:22.760 be orders after the air show, So it isn't like 0:10:23.600 --> 0:10:26.560 an incredible peak all of a sudden, It's part of 0:10:26.600 --> 0:10:27.440 a phenomenon. 0:10:27.880 --> 0:10:29.920 The airshow is building for a while though. 0:10:30.480 --> 0:10:32.079 This is a kind of moment in time when you 0:10:32.120 --> 0:10:34.880 can take stock. As you say, you're about to sign 0:10:34.920 --> 0:10:37.680 a very large order with Turkish Airlines, a huge order, 0:10:38.000 --> 0:10:39.400 a lot of arrow bodies in there, but a lot 0:10:39.440 --> 0:10:41.200 of wide bodies as well. This feels like a moment 0:10:41.240 --> 0:10:43.640 in time just to reflect on what is happening, and 0:10:43.720 --> 0:10:46.800 it feels like demand from the customer is still very strong. 0:10:46.800 --> 0:10:50.440 Demand within the industry is very strong. They've watched what 0:10:50.480 --> 0:10:52.600 happens with the narrow bodies and then they've sold out. 0:10:52.720 --> 0:10:54.360 Now these guys want to make sure that they've got 0:10:54.360 --> 0:10:57.000 their slots. What is driving this demand, What gives the 0:10:57.000 --> 0:10:58.560 industry this confidence. 0:10:58.679 --> 0:11:04.440 Probably the act guy that we're seemingly in an under 0:11:04.440 --> 0:11:08.120 a supply situation again, so there's a lot of jockeying 0:11:08.520 --> 0:11:11.600 for delivery positions. You don't want to miss the train. 0:11:12.720 --> 0:11:15.119 Just a few years ago, in the midst of the pandemic, 0:11:15.880 --> 0:11:19.800 remember we manufactures were asked to slash our production by 0:11:20.200 --> 0:11:24.360 roughly fifty percent, So it takes time. There's a lot 0:11:24.360 --> 0:11:29.319 of industrial inertia to rebuild an industrial system that's capable 0:11:29.320 --> 0:11:32.960 of producing large numbers of white body airplanes, and so 0:11:33.400 --> 0:11:35.840 they don't come in large numbers. So you don't want 0:11:35.880 --> 0:11:36.480 to miss the train. 0:11:37.120 --> 0:11:39.360 You study the numbers very carefully. If I look at 0:11:39.360 --> 0:11:41.760 what's happening with discretionary spend at the moment I listened 0:11:41.760 --> 0:11:45.240 to LVMH or Reach Moore or the Azure, they're talking 0:11:45.280 --> 0:11:49.240 about that sort of high end discretionary spend beginning to 0:11:49.320 --> 0:11:51.960 roll over. And do you think that happens in aviation 0:11:52.200 --> 0:11:53.920 or do you think the lesson from the pandemic is? 0:11:54.080 --> 0:11:54.600 Do you know what? 0:11:54.760 --> 0:11:57.400 I won't have the Cognac, I won't have the Cartier. 0:11:57.000 --> 0:11:59.040 Watch, but I will have the airfat I think the 0:11:59.120 --> 0:12:04.280 letter is true. I think an air trip is no 0:12:04.400 --> 0:12:08.800 longer a luxury per se. It is part of discretionary 0:12:08.840 --> 0:12:12.280 consumer spending. It's probably a. 0:12:11.800 --> 0:12:12.520 The top of the list. 0:12:13.280 --> 0:12:16.120 I would think that the recent behavior that we've seen, 0:12:16.640 --> 0:12:20.480 beyond the obvious phenomenon of pent up demand coming loose 0:12:20.559 --> 0:12:24.480 after the pandemic, I believe that the consumer will tend 0:12:24.840 --> 0:12:30.520 to go enjoy himself, yourself, visit, visit friend's family before 0:12:30.760 --> 0:12:32.120 they buy an expensive. 0:12:31.720 --> 0:12:35.560 Watch in terms of kind of what happens next. Do 0:12:35.600 --> 0:12:38.080 you see this demand being sustainable? Do you talk about 0:12:38.080 --> 0:12:40.120 the fact that the esshow shouldn't just be how we 0:12:40.160 --> 0:12:42.720 perceive what's going on? You see this as big a 0:12:42.760 --> 0:12:45.880 sustainable story. Now you think white body demand is back. 0:12:46.240 --> 0:12:47.600 Where in the cycle do you think we are. 0:12:48.360 --> 0:12:51.480 I'm not sure we can talk about cycles as much 0:12:51.600 --> 0:12:55.400 as we used to anymore. So I do believe fundamentally 0:12:55.640 --> 0:12:58.920 it's sustainable. Our studies are telling us that we will 0:12:58.960 --> 0:13:02.640 see continue growth in air travel, including in wide body 0:13:02.640 --> 0:13:06.120 air travel, a little bit less perhaps than before the pandemic, 0:13:07.440 --> 0:13:11.319 or irrespective of the pandemic, because of the inflationary pressures, 0:13:11.720 --> 0:13:14.400 increases in fuel prices, et cetera, et cetera. You mentioned it, 0:13:15.360 --> 0:13:20.720 But we do see sustained demand, including on intercontinental travel, 0:13:20.920 --> 0:13:24.439 and we do see on the large aircraft where fuel 0:13:24.480 --> 0:13:28.760 burn in particular and technology plays the biggest part, increased 0:13:28.920 --> 0:13:32.520 demand to replace all the airplanes. So there's more replacement 0:13:32.920 --> 0:13:35.000 in the years ahead than there was before. 0:13:35.440 --> 0:13:38.440 You talk about inflation, What are you building into these contracts? 0:13:38.480 --> 0:13:42.160 You're selling airplanes five ten years down the road. Inflation 0:13:42.280 --> 0:13:45.040 is running hot right now? How are you building that 0:13:45.120 --> 0:13:47.840 into your contracts? How much are you building into that contracts? 0:13:47.880 --> 0:13:51.080 How important when you sign a contract is that escalation tools. 0:13:51.120 --> 0:13:53.760 That's a really good question, and that is a subject 0:13:53.880 --> 0:13:57.120 of finding the right balance of how you share that 0:13:57.400 --> 0:14:02.480 risk of inflation with the customer, the airline that is 0:14:02.800 --> 0:14:07.480 making a purchase decision many years in advance, typically a guy. 0:14:07.520 --> 0:14:12.079 What we do is we index our pricing on indices 0:14:12.120 --> 0:14:16.400 of material costs and labor costs. Those are US industries, 0:14:16.480 --> 0:14:20.840 those are most mature indices that exists in this industry. 0:14:21.080 --> 0:14:25.400 So we index that and then if it's a discussion 0:14:25.880 --> 0:14:28.640 depending on how far out the airplane is being ordered for, 0:14:29.440 --> 0:14:32.200 that's a discussion of how we share that risk, that 0:14:32.800 --> 0:14:34.960 inflationary risk with our customer. 0:14:36.040 --> 0:14:37.520 You're going to be able to build all these airplanes. 0:14:37.560 --> 0:14:39.880 I spoke to Gail a few days ago CEO. He 0:14:39.960 --> 0:14:41.640 was talking to me about going from nine to ten 0:14:42.080 --> 0:14:45.280 on the three point fifty program. If this demand continues, 0:14:45.320 --> 0:14:47.920 do you have to go ten to eleven, eleven to twelve, 0:14:48.320 --> 0:14:49.880 twelve to thirteen and how hard is that? 0:14:50.560 --> 0:14:53.840 Well, one step at a time. Remember we're coming from 0:14:54.440 --> 0:14:57.160 we were at a rate ten before the pandemic. We 0:14:57.280 --> 0:14:59.880 slashed it down. Now we're ramping back up to ten. 0:15:00.320 --> 0:15:04.480 It's not a trivial thing. Airbus is not necessarily the 0:15:04.520 --> 0:15:08.080 limiting factor here. It's a huge supply chain that we're 0:15:08.080 --> 0:15:11.800 pulling with us, and that's the pacing item. Is it 0:15:11.840 --> 0:15:15.680 conceptually possible that we go further? Yes, In fact, the 0:15:16.800 --> 0:15:20.920 ever optimistic commercial man and me will say yes, most 0:15:20.960 --> 0:15:23.760 probably we will, but that is not for today. We 0:15:23.840 --> 0:15:26.600 have objective ten per month in our site. That's what 0:15:26.600 --> 0:15:29.360 we're going to do, and our programs are running very 0:15:29.440 --> 0:15:30.200 much on time. 0:15:30.560 --> 0:15:32.400 One final quick question, and it's come up a lot 0:15:32.440 --> 0:15:35.560 today in the conversation that I've been having, the Rolls 0:15:35.640 --> 0:15:38.880 Royce new CEO two fan appears to be running the 0:15:38.920 --> 0:15:41.400 business in a slightly different way. He can clearly add up. 0:15:41.440 --> 0:15:43.720 He clearly wants to make some money, and that is 0:15:43.880 --> 0:15:48.480 resetting the relationships within the industry. They are sole supply 0:15:48.560 --> 0:15:52.120 on the A three fifty. How as that relationship changes, 0:15:52.200 --> 0:15:55.440 How does the relationship between Airbus and Rolls Royce change, 0:15:55.600 --> 0:15:58.880 Airbus and Emirates change, How does it change the nature 0:15:58.920 --> 0:16:03.440 of the relationship between between supply customer and ultimate customer. 0:16:03.680 --> 0:16:05.640 Well, I'd say two things. The first one, the most 0:16:05.640 --> 0:16:09.320 important is we're really really happy with the Rolls Royce 0:16:09.320 --> 0:16:11.640 engine on the A three to fifty program and on 0:16:11.680 --> 0:16:13.600 the A three thirty as well, but on the A 0:16:13.720 --> 0:16:17.560 three to fifty program in particular, the XWB engine, I 0:16:17.640 --> 0:16:20.640 will dare say is by far the best engine in 0:16:20.720 --> 0:16:26.120 the sky today in reliability, in fuel burn, endurability. It's 0:16:26.160 --> 0:16:29.320 a wonderful engine. So that's point one. 0:16:29.480 --> 0:16:29.960 Point two. 0:16:30.640 --> 0:16:35.120 Yes, there is a resetting of pricing in the engine business, 0:16:35.480 --> 0:16:38.920 the fuel burn. The engine guys have developed fabulous machines 0:16:38.920 --> 0:16:42.040 to lower the fuel burn. That comes at the expense, 0:16:42.760 --> 0:16:46.040 at some expense on the maintenance side, because these engines 0:16:46.440 --> 0:16:51.160 consume paths quicker, consume less fuel, more parts, And that 0:16:51.240 --> 0:16:54.840 reset is what's happening in the industry, in the engine 0:16:54.880 --> 0:16:58.760 industry at large, and Rolls Royce is no exception. 0:16:59.120 --> 0:17:00.640 To be glad to see you. Thank you very much, 0:17:00.760 --> 0:17:02.840 Dean Christian, thanks for taking us, taking the time and 0:17:03.640 --> 0:17:06.280 here at us Tom Kine from the Dubai show, the 0:17:06.280 --> 0:17:08.120 sun is setting here back to you. 0:17:08.520 --> 0:17:11.680 Guy Johnson, thank you so much. Always interesting. 0:17:21.760 --> 0:17:25.720 She has become acclaimed. Claudia Sam was someone out of 0:17:25.720 --> 0:17:28.199 Michigan in the fed A number of years ago with 0:17:28.320 --> 0:17:34.400 a really really dry, smart academic paper on government assistance 0:17:34.600 --> 0:17:40.680 and how to decide wrapped around recession economics. She's literally 0:17:40.720 --> 0:17:43.560 become a household name. Doctor Sam joins us now former 0:17:43.600 --> 0:17:48.080 Fed economist, founder of some consulting. I guess, congratulations. The 0:17:48.119 --> 0:17:50.159 only one Claudia had a bigger year than you was 0:17:50.200 --> 0:17:53.359 Taylor Swift. I expect we'll see you at a Kansas 0:17:53.400 --> 0:17:57.159 City football game anytime soon, Claudia, Sam, I got to 0:17:57.160 --> 0:17:59.320 get it out of the way just because of the notoriety. 0:17:59.720 --> 0:18:01.560 How closer we to recession. 0:18:03.000 --> 0:18:06.000 We're closer than we were say the middle of this year. 0:18:06.160 --> 0:18:09.199 We are not in a recession. And that's not just 0:18:09.200 --> 0:18:13.240 this Sam rule. Look around. The economy is still growing now. 0:18:13.440 --> 0:18:16.119 That's no guaranteed that we will be in that place, 0:18:17.119 --> 0:18:19.720 you know, in the coming months. And yet we are 0:18:19.720 --> 0:18:21.919 not in a danger zone with the labor market. And 0:18:21.960 --> 0:18:24.720 there's a lot of reasons why we may have seen 0:18:24.760 --> 0:18:27.720 the unemployment rate come up. There could be good reasons 0:18:27.800 --> 0:18:29.040 like workers coming back. 0:18:29.520 --> 0:18:31.600 What's important here and you have it in your research 0:18:31.720 --> 0:18:34.320 note to us and Bramo I think has really been 0:18:34.359 --> 0:18:37.879 out front on this is almost the behavioral impact. I 0:18:37.920 --> 0:18:42.560 think Faylor at Chicago. The behavioral impact of feedback loops 0:18:42.960 --> 0:18:45.160 tell us about what you're working on. The new I'm 0:18:45.160 --> 0:18:47.880 selling this, folks, for Claudia. She needs something to do. 0:18:48.280 --> 0:18:50.880 The new acclaimed some feedback loop. 0:18:51.000 --> 0:18:51.800 What's it looked like? 0:18:53.160 --> 0:18:55.640 Well, this is the logic. I mean, this Sam rule 0:18:55.680 --> 0:18:58.879 is about the unemployment rate rising a relatively small amount 0:18:58.960 --> 0:19:02.080 that happens early in recent It's been very accurate. The 0:19:02.119 --> 0:19:05.160 idea behind it comes well before me in that once 0:19:05.200 --> 0:19:08.639 the unemployment rate starts rising, it keeps going because on 0:19:08.680 --> 0:19:11.840 the demand side, there's this feedback loop. Some people lose 0:19:11.840 --> 0:19:14.480 their jobs, then they buy less, then those workers lose 0:19:14.520 --> 0:19:17.160 their jobs, and so on and so forth, and that's 0:19:17.200 --> 0:19:20.040 where it really gets going. What we see right now 0:19:20.119 --> 0:19:21.879 is not just a demand side, which would be a 0:19:21.960 --> 0:19:25.239 typical path into a recession. We see this. You know, 0:19:25.280 --> 0:19:28.040 workers have really come back. We've gone from labor shortages 0:19:28.080 --> 0:19:30.879 to now some workers that are looking for jobs. 0:19:30.960 --> 0:19:31.120 Right. 0:19:31.160 --> 0:19:33.280 It's going to take the jobs longer to catch up. 0:19:33.640 --> 0:19:36.040 That's a good thing. We needed those workers. It's just 0:19:36.080 --> 0:19:38.879 as with everything else in this economy, it's been messy 0:19:39.000 --> 0:19:41.439 to line up supply and demand. So now it's in 0:19:41.440 --> 0:19:42.200 the labor market. 0:19:42.359 --> 0:19:44.400 How uncomfortable does it make you to say this time 0:19:44.480 --> 0:19:44.919 is different? 0:19:46.119 --> 0:19:52.040