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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best and economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on a Spotify and
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,
Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. What we
Speaker 1: do here is we have smart guests like Will Kennedy,
Speaker 1: just joining us at Queen Victoria Street in London on
Speaker 1: oil and now joining us his compatriot in Irish crime.
Speaker 2: Thomas Kennedy joins his chief.
Speaker 1: Investment strategist at JP Morgan.
Speaker 2: One Kennedy to another.
Speaker 1: And you linked it when you sat down and you
Speaker 1: looked at Will Kennedy's world and says, when the price
Speaker 1: of oil moves, you see in chases, charge card juggernaut reaction,
Speaker 1: what do you observes oil comes down?
Speaker 3: Yeah, we saw change in the way the consumer was
Speaker 3: reacting to higher oil prices around August September area in
Speaker 3: our Chase credit card day. To remember, we're banking about
Speaker 3: twenty percent of America, and what we saw there.
Speaker 2: Was a nice plug nailed deck.
Speaker 3: When gasoline prices rose. You actually saw a discretionary spending
Speaker 3: go down. Now, Tommy might be saying, well, of course
Speaker 3: you're going to see that. Right, prior to August and September,
Speaker 3: in the post COVID era, we did not see that relationship.
Speaker 4: It suggests the excess savings in.
Speaker 3: America might actually be depleting after how many quarters of
Speaker 3: negotiating on it, right, and then when we really dig
Speaker 3: into the accounts of these folks, and we do it
Speaker 3: in anymous anonymous fashion, about half of America looks like
Speaker 3: they're out of excess.
Speaker 1: If you're missing words up, it's okay. You're sitting on
Speaker 1: the side of the table where we do that routinely.
Speaker 1: You know, I'm looking Time Kennedy at the polarity between
Speaker 1: Morgan Stanley and Golden Sachs today. You need the leadership
Speaker 1: or Bruce chast and Michael Faroli to give you an
Speaker 1: economic backdrop. What's your economic backdrop that forms your outlook
Speaker 1: call this year?
Speaker 3: Yeah, we're expecting a growth slow down pretty much like
Speaker 3: the less rest of Wall Street at this point, and
Speaker 3: it is relatively simple and intuitive. You have the cost
Speaker 3: of capital above expected revenue in this economy, and if
Speaker 3: you think about America as one big business, it's very
Speaker 3: odd to see the cost of capital to be above
Speaker 3: expected GDP. It should force investors to say, maybe I'll
Speaker 3: just save instead of borrow money and invest in my business.
Speaker 3: We've seen this four or five times in the last
Speaker 3: forty years, just about every time you see a growth slowdown,
Speaker 3: tom So we should expect that to happen. The question
Speaker 3: becomes what's the scenarios where it doesn't happen? And in
Speaker 3: those scenarios you have one where either the consumer is
Speaker 3: much more resilient and they have access to borrowing, and
Speaker 3: you're going to see growth come higher or something breaks
Speaker 3: in the meantime. Those are pretty dynamic and polarizing outcomes
Speaker 3: in the future.
Speaker 5: Everything you set up until then, though said, by the
Speaker 5: ten year go along the curve. Look in some of
Speaker 5: this yield. Is that right?
Speaker 2: Yeah?
Speaker 4: I think it has to be. John.
Speaker 3: You have at this point a municipal bond that is
Speaker 3: giving you equity like yields, and for the first time
Speaker 3: in twenty years, it is actually competing with the earning
Speaker 3: yield on the s and P five hundred. For my
Speaker 3: clients that are gathering wealth for generations, I can show
Speaker 3: them something that has near zero default risk and you
Speaker 3: can get equity like yields. Is their risk to that,
Speaker 3: of course there is, But that's a dynamic that they
Speaker 3: haven't seen in two decades. And now I can start
Speaker 3: to reposition some of their portfolio.
Speaker 5: And they say, Thomas, I'm nervous. I'm seeing yields all
Speaker 5: over the place. Are they reluctant to buy even at
Speaker 5: these rates? Even after you tell that story, it's a
Speaker 5: reluctant still to buy it.
Speaker 3: In our data for the last twelve months, this has
Speaker 3: been the trade that people have been excited about and
Speaker 3: can get invested in.
Speaker 4: That doesn't mean it's not without angst.
Speaker 3: When we saw a five year tax free yields show
Speaker 3: up two weeks ago, that dynamic changed five percent tax
Speaker 3: free for people in New York City, where we're sitting.
Speaker 3: Guys got to buy a taxable bond above ten percent
Speaker 3: to get an equal return, So the behavioral experience for
Speaker 3: them did change there. I think as a market prognosticator
Speaker 3: makes you say, well, how high can rates really go
Speaker 3: before we're going to see that crowding out effect of
Speaker 3: high yields.
Speaker 6: One of the mysteries of this year has been what
Speaker 6: the main driving force in yields has been. Is it
Speaker 6: the economy? Is it inflation? Is it the politics or
Speaker 6: the fiscal backdrop? This is going to be a really
Speaker 6: interesting test.
Speaker 4: What do you think is going to be.
Speaker 6: Most important with respect to market volatility? Of all the
Speaker 6: things that are going to happen this week, the.
Speaker 4: FED expected out look for the FED.
Speaker 3: You can explain more than three quarters of all the
Speaker 3: movement and rates just from those two things. Where the
Speaker 3: FED is and where you expect them to be in
Speaker 3: a year's time. In the last couple of months you
Speaker 3: have seen I would call it supply of treasuries become
Speaker 3: a little bit more of a factor, but not dominant
Speaker 3: at this point, Lisa. So as we look ahead, what's
Speaker 3: going to matter the slowdown? How big of a slowdown
Speaker 3: is it? And importantly, what will the Fed's reaction function be.
Speaker 6: You said that half of America's are half of America
Speaker 6: is pretty much out of savings based on your data, Yeah,
Speaker 6: which half, right?
Speaker 2: I mean?
Speaker 6: Is this the half that has been spending more aggressively
Speaker 6: and will continue to if they had the money, or
Speaker 6: is this a half that is particular in the economy?
Speaker 1: Right?
Speaker 6: I mean we're talking about the two Americas. We've got
Speaker 6: a lot of Americas and they're moving at different speeds.
Speaker 3: Yeah, the two America's theme really resonates for me. But
Speaker 3: the folks that are out of excess savings at the
Speaker 3: bottom half of America, and those are todaytionally the ones
Speaker 3: that don't have excess savings. So now they have a
Speaker 3: decision to make. They can either slow consumption or try
Speaker 3: to turn to their credit card at a time when
Speaker 3: credit card rates are historically punitive, even when you normalize
Speaker 3: them for where interest rates are or base rates from
Speaker 3: the FED. So I think the slow down metrics makes
Speaker 3: sense when your highest marginal propensity to consume folks are
Speaker 3: running out of their excess savings.
Speaker 1: Really sharp article this weekend of the millions of Americans.
Speaker 1: They don't own Apple, they don't own Nvidio, Microsoft, they
Speaker 1: missed the boat and they got a two to oh
Speaker 1: one k. They walk into JP Morgan Chase this morning
Speaker 1: with a disastrous portfolio.
Speaker 2: They're miserable.
Speaker 1: How do you approach the active versus passive retirement debate?
Speaker 3: I think at this point in the cycle time, active
Speaker 3: is going to make the most sense in that when
Speaker 3: you're looking at a passive allocation, even to the equity market,
Speaker 3: the haves and have nots are there.
Speaker 4: On the one hand, you have.
Speaker 3: Say Tech in the equity market that has gone through
Speaker 3: its optimization of its balance sheet. Layoffs in the tech
Speaker 3: sector have been big in the last twelve months. Capex
Speaker 3: is now getting turned back on around AI and the
Speaker 3: monetization phase is not going to be that long. Microsoft,
Speaker 3: as an example, three percent of their revenues are coming
Speaker 3: from AI already. Meanwhile, you move to small and midcaps,
Speaker 3: and these are the most interest rate sensitive sectors and
Speaker 3: they have debt to EBITDA two to five times. They
Speaker 3: are going to feel this pain more than big tech.
Speaker 3: So in the equity market as an example, active management
Speaker 3: I think makes sense as a headline early cycles when
Speaker 3: you rotate back two more passive ideas.
Speaker 5: And that's not where we are right now. So in
Speaker 5: the minds of money, late cycle is where people think
Speaker 5: we are right now.
Speaker 1: I think it's a muddel and I'm really fascinated by
Speaker 1: the outlooks. I meantime, Kennedy's going to put together thirty
Speaker 1: four page outlook I have a rule I read the first.
Speaker 5: Must this time of the year where it's difficult to
Speaker 5: sort of get beyond next week to put something out
Speaker 5: for the next twelve months.
Speaker 2: How hot is that?
Speaker 3: I think it's difficult when you're trying to do it
Speaker 3: at the end of a cycle. The FED has just
Speaker 3: done the most aggressive rate hiking cycle we've seen. And
Speaker 3: where are you? Are you in the muddle through? Are
Speaker 3: you in the late cycle? Are you in the end cycle?
Speaker 3: That's the hardest part. But to be able to turn
Speaker 3: to your client and say to them, I can show
Speaker 3: you equity like yields and fixed income it's a way
Speaker 3: to buy some time and get some good yield in
Speaker 3: a portfolio.
Speaker 2: Pro tip more charts tip David malpassed a Bears Turns
Speaker 2: years ago.
Speaker 4: Went in doubt.
Speaker 5: Saw that from David costin effort goalman. This morning it
Speaker 5: was gone through his outlook. He's just full of chance
Speaker 5: and tables. Thomas, this is great. He's going to see
Speaker 5: it some kind of do that of JP Mulkin prims
Speaker 5: a bank.
Speaker 1: Guy Johnson is expert at the development of jets, the
Speaker 1: crafts that we fly every day, and he knows the
Speaker 1: Christian Sharer Bleeds Airbus share grew up in to Lose France.
Speaker 1: He's been part of Airbus Way way Back for many
Speaker 1: many years and he is now the CCO of the
Speaker 1: great European airplane builder.
Speaker 2: Guy Johnson in Dubai, gud good morning.
Speaker 7: Good morning, Tom King, All good evening. The sun's setting
Speaker 7: on day one of the Dubai Air Show, and as
Speaker 7: you say, it has been a big one. We've seen
Speaker 7: some significant orders, some promise of even more still to come,
Speaker 7: and as you say, the wide body market feels like
Speaker 7: it is back. Over the last few years, this has
Speaker 7: been all about narrowbodies. The recovery out of the pandemic
Speaker 7: driven by the narrow bodies. Now it's the big workhorses
Speaker 7: of the sky, their time to shine. Let's talk to
Speaker 7: Christian Sharer, as you say, the chief commercial officer at Airbus.
Speaker 7: If you want to know what's happening in this industry,
Speaker 7: here is the guy to talk to.
Speaker 8: Christian.
Speaker 7: Nice to see you, Thanks for making some time for us. Look,
Speaker 7: the world at the moment feels like we've got a
Speaker 7: lot of geopolitical tension. We've got a lot of uncertainty.
Speaker 7: We've got a lot of economic uncertainty as well. Rates
Speaker 7: have been jacked up, economies are slowing down. Yet it
Speaker 7: doesn't feel like it at this show, huge orders across
Speaker 7: the peace in terms of what we're seeing from airlines
Speaker 7: from around the world.
Speaker 9: Why the disconnect, I wouldn't say it's a disconnect. You know,
Speaker 9: an order at an air show is I wouldn't say anecdotal,
Speaker 9: but it's being very much highlighted because it's an air show.
Speaker 9: You will will have seen that this year alone, there's
Speaker 9: been lots of orders in particular with us at Airbus,
Speaker 9: well before the air show. During the air show, there'll
Speaker 9: be orders after the air show, So it isn't like
Speaker 9: an incredible peak all of a sudden, It's part of
Speaker 9: a phenomenon.
Speaker 2: The airshow is building for a while though.
Speaker 7: This is a kind of moment in time when you
Speaker 7: can take stock. As you say, you're about to sign
Speaker 7: a very large order with Turkish Airlines, a huge order,
Speaker 7: a lot of arrow bodies in there, but a lot
Speaker 7: of wide bodies as well. This feels like a moment
Speaker 7: in time just to reflect on what is happening, and
Speaker 7: it feels like demand from the customer is still very strong.
Speaker 7: Demand within the industry is very strong. They've watched what
Speaker 7: happens with the narrow bodies and then they've sold out.
Speaker 7: Now these guys want to make sure that they've got
Speaker 7: their slots. What is driving this demand, What gives the
Speaker 7: industry this confidence.
Speaker 9: Probably the act guy that we're seemingly in an under
Speaker 9: a supply situation again, so there's a lot of jockeying
Speaker 9: for delivery positions. You don't want to miss the train.
Speaker 9: Just a few years ago, in the midst of the pandemic,
Speaker 9: remember we manufactures were asked to slash our production by
Speaker 9: roughly fifty percent, So it takes time. There's a lot
Speaker 9: of industrial inertia to rebuild an industrial system that's capable
Speaker 9: of producing large numbers of white body airplanes, and so
Speaker 9: they don't come in large numbers. So you don't want
Speaker 9: to miss the train.
Speaker 7: You study the numbers very carefully. If I look at
Speaker 7: what's happening with discretionary spend at the moment I listened
Speaker 7: to LVMH or Reach Moore or the Azure, they're talking
Speaker 7: about that sort of high end discretionary spend beginning to
Speaker 7: roll over. And do you think that happens in aviation
Speaker 7: or do you think the lesson from the pandemic is?
Speaker 2: Do you know what?
Speaker 7: I won't have the Cognac, I won't have the Cartier.
Speaker 9: Watch, but I will have the airfat I think the
Speaker 9: letter is true. I think an air trip is no
Speaker 9: longer a luxury per se. It is part of discretionary
Speaker 9: consumer spending. It's probably a.
Speaker 7: The top of the list.
Speaker 9: I would think that the recent behavior that we've seen,
Speaker 9: beyond the obvious phenomenon of pent up demand coming loose
Speaker 9: after the pandemic, I believe that the consumer will tend
Speaker 9: to go enjoy himself, yourself, visit, visit friend's family before
Speaker 9: they buy an expensive.
Speaker 7: Watch in terms of kind of what happens next. Do
Speaker 7: you see this demand being sustainable? Do you talk about
Speaker 7: the fact that the esshow shouldn't just be how we
Speaker 7: perceive what's going on? You see this as big a
Speaker 7: sustainable story. Now you think white body demand is back.
Speaker 7: Where in the cycle do you think we are.
Speaker 9: I'm not sure we can talk about cycles as much
Speaker 9: as we used to anymore. So I do believe fundamentally
Speaker 9: it's sustainable. Our studies are telling us that we will
Speaker 9: see continue growth in air travel, including in wide body
Speaker 9: air travel, a little bit less perhaps than before the pandemic,
Speaker 9: or irrespective of the pandemic, because of the inflationary pressures,
Speaker 9: increases in fuel prices, et cetera, et cetera. You mentioned it,
Speaker 9: But we do see sustained demand, including on intercontinental travel,
Speaker 9: and we do see on the large aircraft where fuel
Speaker 9: burn in particular and technology plays the biggest part, increased
Speaker 9: demand to replace all the airplanes. So there's more replacement
Speaker 9: in the years ahead than there was before.
Speaker 7: You talk about inflation, What are you building into these contracts?
Speaker 7: You're selling airplanes five ten years down the road. Inflation
Speaker 7: is running hot right now? How are you building that
Speaker 7: into your contracts? How much are you building into that contracts?
Speaker 7: How important when you sign a contract is that escalation tools.
Speaker 9: That's a really good question, and that is a subject
Speaker 9: of finding the right balance of how you share that
Speaker 9: risk of inflation with the customer, the airline that is
Speaker 9: making a purchase decision many years in advance, typically a guy.
Speaker 9: What we do is we index our pricing on indices
Speaker 9: of material costs and labor costs. Those are US industries,
Speaker 9: those are most mature indices that exists in this industry.
Speaker 9: So we index that and then if it's a discussion
Speaker 9: depending on how far out the airplane is being ordered for,
Speaker 9: that's a discussion of how we share that risk, that
Speaker 9: inflationary risk with our customer.
Speaker 7: You're going to be able to build all these airplanes.
Speaker 7: I spoke to Gail a few days ago CEO. He
Speaker 7: was talking to me about going from nine to ten
Speaker 7: on the three point fifty program. If this demand continues,
Speaker 7: do you have to go ten to eleven, eleven to twelve,
Speaker 7: twelve to thirteen and how hard is that?
Speaker 9: Well, one step at a time. Remember we're coming from
Speaker 9: we were at a rate ten before the pandemic. We
Speaker 9: slashed it down. Now we're ramping back up to ten.
Speaker 9: It's not a trivial thing. Airbus is not necessarily the
Speaker 9: limiting factor here. It's a huge supply chain that we're
Speaker 9: pulling with us, and that's the pacing item. Is it
Speaker 9: conceptually possible that we go further? Yes, In fact, the
Speaker 9: ever optimistic commercial man and me will say yes, most
Speaker 9: probably we will, but that is not for today. We
Speaker 9: have objective ten per month in our site. That's what
Speaker 9: we're going to do, and our programs are running very
Speaker 9: much on time.
Speaker 7: One final quick question, and it's come up a lot
Speaker 7: today in the conversation that I've been having, the Rolls
Speaker 7: Royce new CEO two fan appears to be running the
Speaker 7: business in a slightly different way. He can clearly add up.
Speaker 7: He clearly wants to make some money, and that is
Speaker 7: resetting the relationships within the industry. They are sole supply
Speaker 7: on the A three fifty. How as that relationship changes,
Speaker 7: How does the relationship between Airbus and Rolls Royce change,
Speaker 7: Airbus and Emirates change, How does it change the nature
Speaker 7: of the relationship between between supply customer and ultimate customer.
Speaker 9: Well, I'd say two things. The first one, the most
Speaker 9: important is we're really really happy with the Rolls Royce
Speaker 9: engine on the A three to fifty program and on
Speaker 9: the A three thirty as well, but on the A
Speaker 9: three to fifty program in particular, the XWB engine, I
Speaker 9: will dare say is by far the best engine in
Speaker 9: the sky today in reliability, in fuel burn, endurability. It's
Speaker 9: a wonderful engine. So that's point one.
Speaker 4: Point two.
Speaker 9: Yes, there is a resetting of pricing in the engine business,
Speaker 9: the fuel burn. The engine guys have developed fabulous machines
Speaker 9: to lower the fuel burn. That comes at the expense,
Speaker 9: at some expense on the maintenance side, because these engines
Speaker 9: consume paths quicker, consume less fuel, more parts, And that
Speaker 9: reset is what's happening in the industry, in the engine
Speaker 9: industry at large, and Rolls Royce is no exception.
Speaker 7: To be glad to see you. Thank you very much,
Speaker 7: Dean Christian, thanks for taking us, taking the time and
Speaker 7: here at us Tom Kine from the Dubai show, the
Speaker 7: sun is setting here back to you.
Speaker 2: Guy Johnson, thank you so much. Always interesting.
Speaker 1: She has become acclaimed. Claudia Sam was someone out of
Speaker 1: Michigan in the fed A number of years ago with
Speaker 1: a really really dry, smart academic paper on government assistance
Speaker 1: and how to decide wrapped around recession economics. She's literally
Speaker 1: become a household name. Doctor Sam joins us now former
Speaker 1: Fed economist, founder of some consulting. I guess, congratulations. The
Speaker 1: only one Claudia had a bigger year than you was
Speaker 1: Taylor Swift. I expect we'll see you at a Kansas
Speaker 1: City football game anytime soon, Claudia, Sam, I got to
Speaker 1: get it out of the way just because of the notoriety.
Speaker 2: How closer we to recession.
Speaker 10: We're closer than we were say the middle of this year.
Speaker 10: We are not in a recession. And that's not just
Speaker 10: this Sam rule. Look around. The economy is still growing now.
Speaker 10: That's no guaranteed that we will be in that place,
Speaker 10: you know, in the coming months. And yet we are
Speaker 10: not in a danger zone with the labor market. And
Speaker 10: there's a lot of reasons why we may have seen
Speaker 10: the unemployment rate come up. There could be good reasons
Speaker 10: like workers coming back.
Speaker 1: What's important here and you have it in your research
Speaker 1: note to us and Bramo I think has really been
Speaker 1: out front on this is almost the behavioral impact. I
Speaker 1: think Faylor at Chicago. The behavioral impact of feedback loops
Speaker 1: tell us about what you're working on. The new I'm
Speaker 1: selling this, folks, for Claudia. She needs something to do.
Speaker 1: The new acclaimed some feedback loop.
Speaker 2: What's it looked like?
Speaker 10: Well, this is the logic. I mean, this Sam rule
Speaker 10: is about the unemployment rate rising a relatively small amount
Speaker 10: that happens early in recent It's been very accurate. The
Speaker 10: idea behind it comes well before me in that once
Speaker 10: the unemployment rate starts rising, it keeps going because on
Speaker 10: the demand side, there's this feedback loop. Some people lose
Speaker 10: their jobs, then they buy less, then those workers lose
Speaker 10: their jobs, and so on and so forth, and that's
Speaker 10: where it really gets going. What we see right now
Speaker 10: is not just a demand side, which would be a
Speaker 10: typical path into a recession. We see this. You know,
Speaker 10: workers have really come back. We've gone from labor shortages
Speaker 10: to now some workers that are looking for jobs.
Speaker 7: Right.
Speaker 10: It's going to take the jobs longer to catch up.
Speaker 10: That's a good thing. We needed those workers. It's just
Speaker 10: as with everything else in this economy, it's been messy
Speaker 10: to line up supply and demand. So now it's in
Speaker 10: the labor market.
Speaker 6: How uncomfortable does it make you to say this time
Speaker 6: is different?
Speaker 10: Very uncomfortable, and yet we could have said many times
Speaker 10: since the pandemic, this time is different, and very legitimately,
Speaker 10: you know, I talk about the quote unquote some rule breaking,
Speaker 10: which is it would trigger and then we would not
Speaker 10: go into a recession. Last year we saw two quarters
Speaker 10: of declines in GDP growth. That has only happened inside
Speaker 10: of recession since World War Two. It happened and we
Speaker 10: were not in a recession. So the SAM rule could
Speaker 10: be next in line to break. And I mean I
Speaker 10: prefer it didn't. I prefer unemployments stay low. But if
Speaker 10: it did, my base case is we don't go on
Speaker 10: a recession.
Speaker 6: Does this mean that right now you see sort of
Speaker 6: the immaculate disinflation or you see just year over year
Speaker 6: inflation come down to the Fed's target by later next
Speaker 6: year without necessarily the FED doing anything more and even
Speaker 6: potentially cutting rates, like so many Wall Street firms seem
Speaker 6: to believe.
Speaker 10: I take issue with the idea or the term of
Speaker 10: immaculate disinflation. I mean, this is coming out of a pandemic.
Speaker 10: We know where this is coming from. It's not just
Speaker 10: like it appeared. And yet to your point, we've already
Speaker 10: seen it right, and there are not all the disruptions
Speaker 10: worked out in the economy. The labor market's a place
Speaker 10: where we've seen some of like the kind of last momentum.
Speaker 10: There is more to give in terms of inflation coming down.
Speaker 10: It's going to be messy. I expect roma not to
Speaker 10: be a fun day in core inflation, and there is
Speaker 10: some of the demand to come out. And we've seen
Speaker 10: that wage growth has slowed back to something more normal.
Speaker 10: So everything is rowing in the right direction on inflation,
Speaker 10: it's just going to be slow and bumpy.
Speaker 6: Can you draw distinction, Claudia, between people coming back into
Speaker 6: the market and the participation rate which hasn't actually gone
Speaker 6: up so dramatically. Even as we do talk about people
Speaker 6: coming back into the labor force, when.
Speaker 10: We look at the years a whole participation has moved up.
Speaker 10: That's a very slow moving creature. Just in terms of
Speaker 10: the measurement, we've absolutely seen a burst of workers. Women's
Speaker 10: employment is at an all time high. We have seen
Speaker 10: a big surge of immigrants. In terms of the workfieces
Speaker 10: finally getting processed, so we've had people coming back in.
Speaker 10: It is there in the data in the labor force participation,
Speaker 10: and some of these factors are more temporary, and that's
Speaker 10: part of the jobs being able to catch up. Like
Speaker 10: we're still adding jobs at a good clip, just not
Speaker 10: like last year.
Speaker 8: Clot.
Speaker 1: I don't mean to interrupt, but I think it's really
Speaker 1: important into the CPI data tomorrow and retail sales the
Speaker 1: next day. The Boston Fed as a cottage industry of
Speaker 1: trying to this is Michelle Barnes years ago. Folks trying
Speaker 1: to figure out guessing consumption? Can we actually guess consumption?
Speaker 1: How do you respond to people talking about, well, this
Speaker 1: is the credit card data or that. What are the
Speaker 1: academics like you actually say about gaming? Seventy percent of
Speaker 1: the American economy?
Speaker 10: Right, So I was one of the lead forecasters on
Speaker 10: consumer spending at the Federal Reserve for about a decade.
Speaker 10: So I spent a lot of time trying to forecast
Speaker 10: consumer spending. The big piece, and I've talked about this recently,
Speaker 10: it's the income. Like if we lose the labor market,
Speaker 10: we lose consumers, as many people spend their paychecks. If
Speaker 10: we lose consumers, we're done for in a recession. So
Speaker 10: to me, it's like all eyes on the labor market
Speaker 10: that it keeps in the place it is, and household
Speaker 10: balance sheets are in a place that they have not
Speaker 10: been in for a very long time, particularly at the bottom.
Speaker 10: Like that's really encouraging.
Speaker 1: Claudia, Thank you so much. Claudia, so former feeder reserve economist.
Speaker 1: There's a lot to talk about here, John, as we
Speaker 1: get to Toto Wolf Team principal CEO of Mercedes. But John,
Speaker 1: the real issue here to me, and I'm gonna do
Speaker 1: a little bit more Spanner and cispar.
Speaker 2: I was reading about the SISPEC cake.
Speaker 1: Folks, the side impact bar is very very important for
Speaker 1: all these different cars.
Speaker 11: This, thank you, This is more of an engineering discussion
Speaker 11: you're looking at it.
Speaker 5: Maybe what we've got SITI is not running away from
Speaker 5: the camera. Joined us now, Toto Wolf Team principle and
Speaker 5: CEO of Mercedes AMG ptronis formula onetside. Fantastic catch with you, sir.
Speaker 5: Let's just start with this new racetrack. We've spoken to
Speaker 5: a couple of people about it already. What kind of
Speaker 5: feedback how are you getting from the drivers on the
Speaker 5: simulars Again, it's a race weekend.
Speaker 12: First of all, good morning, Good morning to New York.
Speaker 12: We can also talk side impic structures if you wish,
Speaker 12: but you're gonna lose some of your some of your audiences.
Speaker 2: Yeah, I'm skilled with that.
Speaker 8: Yeah, we can jump on a separate call. I'll tell you. So.
Speaker 12: The drivers have been in the simulator, and I spoke
Speaker 12: to Lewis last week when we had a meeting in
Speaker 12: the factory and he said, the strait is so long
Speaker 12: and impressive, but we don't really know what to expect because,
Speaker 12: as you mentioned before, we're racing between ten and twelve
Speaker 12: local time. Nevada nights, i've heard can be pretty pretty cold,
Speaker 12: and the only night racing experience that we have is
Speaker 12: Singapore and a little bit of the Middle East, but
Speaker 12: obviously never on a new track close to five degree
Speaker 12: cent degree with careally tires that have never experienced these
Speaker 12: kind of temperatures.
Speaker 5: It just raised some questions as to why it's being
Speaker 5: hosted at this time of the year, at this time
Speaker 5: of night. Toto, how did that come about and would
Speaker 5: you push for a change next season?
Speaker 12: Well, obviously, Las Vegas stands for entertainment and show and
Speaker 12: liberty came up with the plan, which is great. To
Speaker 12: be honest, we've not raised in Las Vegas for a
Speaker 12: long time, certainly not in modern Formula one, and going
Speaker 12: there with this new format in the night. It's going
Speaker 12: to be spectacular. I think it's been said before. The
Speaker 12: track is brand new. That means the surface can be
Speaker 12: quite greasy or oily, because that's what asphal do does
Speaker 12: when it's new. We haven't raised in those temperatures, as
Speaker 12: I said before, But in any case, it's going to
Speaker 12: be a big spectacle. I don't know whether we will
Speaker 12: be sliding around or whether the track is going to
Speaker 12: be really grippy, but we shall find out in a
Speaker 12: few days.
Speaker 5: We've been talking about qualifying and the prospect of maybe
Speaker 5: needing to two three laps to get tires up to
Speaker 5: what's more temperature to put in that quick slab, so
Speaker 5: twenty thoughts on that at this point.
Speaker 12: Yeah, we've headed in the past that sometimes you just
Speaker 12: needed to slowly warm up the tires because if you
Speaker 12: push them too hard at the beginning they're green, you know,
Speaker 12: then you slide over the surface.
Speaker 8: The grip is never going to come.
Speaker 12: So bringing them in, driving them carefully, getting them up
Speaker 12: to temperature and that could last a few laps, depending
Speaker 12: and we're getting a little bit technical here, depending on
Speaker 12: how much you heat your rims and your breaks beforehand.
Speaker 12: And teams have various concepts. They don't want to have
Speaker 12: the front tires pretty cool and long lasting, or you
Speaker 12: heat them a lot, which gives you a grip for
Speaker 12: a single lab for qualifying, but obviously harms them for
Speaker 12: the risks.
Speaker 5: It could be chaos or it could be really exciting
Speaker 5: one or the other. It goes to a conversation we've
Speaker 5: been having all season on this program total just how
Speaker 5: you balance pursuing commercial gains without compromising race quality. What
Speaker 5: do you make in the current balance the Formula one.
Speaker 12: I think we had that balance to cope with that
Speaker 12: balance for a long time. And I think why we
Speaker 12: love the sport so much is because it's honest. Entertainment
Speaker 12: follows sport. We're not designing regulations or content because we
Speaker 12: want to create scripted content with a certain outcome, with
Speaker 12: a certain degree of non variability.
Speaker 8: We're doing this, we're launching ourselves.
Speaker 12: There's technical regulations, they're sporting regulations, and then off you
Speaker 12: go with a certain within a certain framework of cost
Speaker 12: cap which is similar to the salary cap in some
Speaker 12: of the US leagues. Everybody has the same starting point
Speaker 12: and then we launch ourselves into this. So it's honest,
Speaker 12: the stop watch never lies, and therefore the entertainment's follow suit.
Speaker 5: And yet we go through these periods of dominance. We
Speaker 5: saw it with Ferrari late nineties, early two thousands, we
Speaker 5: saw it with you Mercedes for a long time as well,
Speaker 5: and now with Red Bull. So Lewis has said recently
Speaker 5: in the last couple of days, the Red Bull is
Speaker 5: so far away. I think they're probably going to be
Speaker 5: very clear for the next couple of years. From your
Speaker 5: standpoint as team principle, is that a realistic assessment of
Speaker 5: the future, the next couple of seasons.
Speaker 8: Where we're giving it all to break a cycle.
Speaker 12: Like you said, we had five years of dominance of Ferrari,
Speaker 12: and we had a drug spell of Red bulland then
Speaker 12: it was us eight times in a row. And now
Speaker 12: it's the second Constructor Championship for a Bull or the
Speaker 12: third Drivate Championship with an indeed very good driver. So
Speaker 12: we are, you know, with all we have back in effect,
Speaker 12: and at the racetrake we're trying to come up with
Speaker 12: a car and with an execution that is as good
Speaker 12: as it can be, and we have a next cycle
Speaker 12: of regulatory engine twenty twenty six. But we got to
Speaker 12: turn this around.
Speaker 1: The well for this race, and I think Total Wolf
Speaker 1: it's very clear. There's three late races left Las Vegas
Speaker 1: and then back over the Middle East cutter in Abu Dhabi.
Speaker 2: Are you racing right now for next year?
Speaker 8: Yes, we have done for quite some while.
Speaker 12: We're still fighting for the second championship in the constructor championship.
Speaker 12: We are second at the moment and Ferrari behind us,
Speaker 12: so that's an interesting one. But you know, deep down,
Speaker 12: second or third, third place doesn't matter. We've got to
Speaker 12: with old humility fight for the front. And that's why
Speaker 12: many months ago already we've switched and the transitioned to
Speaker 12: a new corner totally.
Speaker 1: There's a phenomenal photo of three Austrians, Nikki Lauda, Total
Speaker 1: Wolf and a guy named Schwarzeneger. It's a really really
Speaker 1: cool photo. And to take what Arnold Schwarzenegger did, and
Speaker 1: all of our American audience remove from F one understands
Speaker 1: the tale in here. When you look at the showbiz
Speaker 1: a Formula one, the Netflix success of which you're a
Speaker 1: star his Formula one Gone two Showbiz in twenty twenty three.
Speaker 12: Obviously, you know there's a few Austrians of us that
Speaker 12: have gone beyond beyond the country and schwartzeneg are probably
Speaker 12: the biggest. And I was lucky enough to be very
Speaker 12: close friends with Niki. We traveled the world around in
Speaker 12: its function as chairman of the team and there were
Speaker 12: very valuable lessons that I that I could learn. Did
Speaker 12: we go beyond the sports too much entertainment? No, I
Speaker 12: don't think so.
Speaker 8: We have.
Speaker 12: We're trying different formats with the sprint race weekends and
Speaker 12: all Las Vegas racing in the night, and if it
Speaker 12: needs calibration to provide a better show whilst staying true
Speaker 12: to our values of the honest spot, I think we've
Speaker 12: got to try it. But the core product the Grand
Speaker 12: Korea on Sunday, within the regulations financial technical in sporting
Speaker 12: is always what Formula one has been all about.
Speaker 5: Let's finish on the prospective expansion at Toto. I believe
Speaker 5: you've been against the expansion of the grid. Do you
Speaker 5: think it's now ultimately inevitable?
Speaker 12: I think the ten teams that have been in the sport,
Speaker 12: have been so for a long long time. The smaller
Speaker 12: teams or midfield teams have gone through a lot of
Speaker 12: hardship a few years ago when COVID struck, but in
Speaker 12: any case, they fault for survival. And here we are
Speaker 12: with the cost cap kicking in. The teams have most
Speaker 12: of the teams have done into profitability and finally are
Speaker 12: in a sustainable way and continuing.
Speaker 8: But that is not a given. You know.
Speaker 12: We we are on high at the moment, and therefore
Speaker 12: we've got to respect what the FA and the commercial
Speaker 12: rights holder are going to decide whether they want to
Speaker 12: have an additional team joining. And obviously, if we are
Speaker 12: being asked to saying, as long as it's a crazy
Speaker 12: for the show, as long as we provide a better,
Speaker 12: better entertainment, more income, why would any team be against it.
Speaker 12: But fundamentally it's it's somebody else that decides.
Speaker 5: And so it's wonderful to catch up with you, sir
Speaker 5: going into race weekend. Good luck to you with a team.
Speaker 5: I'm looking forward to watching the race over the weekend.
Speaker 5: Thank you for being with us. Total wolfare team principle
Speaker 5: and CEO of Mercedes AMG patronas f one.
Speaker 2: We've got clocks for any number of things.
Speaker 1: Four days, seventeen hours, forty one minutes, fifty three seconds
Speaker 1: to shut down. John Lieber knows the shutdown clock well
Speaker 1: over the many decades he is at your Raise your group, John,
Speaker 1: thanks so much for joining from London this morning. We're
Speaker 1: riveted to the shutdown clock. What's the likelihood that the
Speaker 1: nation's going to turn into a pumpkin at midnight on Saturday.
Speaker 11: Well, it's always exciting in US fiscal policy, and the
Speaker 11: shutdown clock's fun to watch. But I think fundamentally both
Speaker 11: parties are basically aligned around not shutting down the government.
Speaker 11: So I think that kind of this situation looks like
Speaker 11: I did a couple of months ago, where you've got
Speaker 11: Republicans making demands for spending cuts, Democrats saying we don't
Speaker 11: really want to do that, but neither side really wants
Speaker 11: to shut down the government, and Republicans are now putting
Speaker 11: forward as plan to keep funding going through January for
Speaker 11: part of the government, February or.
Speaker 2: For the rest.
Speaker 11: I would bet by the end of this week that's passed,
Speaker 11: because no, unless there's some mistake or something goes wrong,
Speaker 11: and these two sides inside they just hate each other
Speaker 11: too much to actually do this.
Speaker 1: My quick creator of the Moody's announcement was it was
Speaker 1: sort of a statement on civics in America. Are we
Speaker 1: going to go through a process now and towards the
Speaker 1: next shut down six months out a year out where
Speaker 1: we yearn to go back to the system you knew
Speaker 1: working for McConnell years ago. Are we going to some
Speaker 1: new system of legislating and appropriations in America?
Speaker 2: You know?
Speaker 11: I mean the system is basically the same as it
Speaker 11: has been for the last decade, where one party the
Speaker 11: other is trying to leverage these deadlines to get the
Speaker 11: fiscal policy they want. And you mentioned with the Moodies
Speaker 11: downgrade interest rates and basic civics. But there's also demographics
Speaker 11: and the US demographics aren't changing, and because of that,
Speaker 11: you've got this massive increase in spending as there's more
Speaker 11: retirees in this country, while tax revenues remain basically flat
Speaker 11: as a percentage GDP. And what that means is the
Speaker 11: combinations you get more debt as a share of GDP.
Speaker 11: We've seen the stock of debt triple over the last
Speaker 11: ten years, and that's probably going to happen again in
Speaker 11: the future. So I think this Moody's rating is yes
Speaker 11: about the short term, about higher interest rates, and about
Speaker 11: the dysfunction in Congress, but fundamentally, this country's on a
Speaker 11: bad path long term fiscally. Neither party has any seriousness.
Speaker 2: About doing anything about it.
Speaker 11: Even the Democrats, in what they called an Inflation Reduction Act,
Speaker 11: which was ostensibly designed to yes, invest in green technology
Speaker 11: but also reduce the deficit, couldn't muster a single thing
Speaker 11: that's an actual tax increase in there. They had to
Speaker 11: rely on these things they could spin as loophole closers,
Speaker 11: and in the end that bill is probably going to
Speaker 11: end up increasing the deficit too. So there's simply no
Speaker 11: seriousness in dealing with this problem, and there won't be
Speaker 11: until there's a.
Speaker 6: Crisis, which raises a question of what it will take.
Speaker 6: And we were talking with Neil Kashkari last week and
Speaker 6: he said he actually questions how much the fiscal concerns
Speaker 6: about the US really are affecting benchmark rates in the US,
Speaker 6: saying that if this really were an international concern, you
Speaker 6: would see the dollar weekend. From an international negotiation standpoint,
Speaker 6: is the fiscal backdrop of the US entering into the
Speaker 6: discussion more, is it putting the US in a more
Speaker 6: difficult situation.
Speaker 11: With China and other potential trading partners. Yes, yeah, I
Speaker 11: mean I think this is a factor.
Speaker 10: For sure.
Speaker 11: The US has relied both on kind of foreign funding
Speaker 11: of its debt, but also the Federal Reserve is a
Speaker 11: marginal buyer of debt for this ten year period of
Speaker 11: low and dropping interest rates, and that's now shifting fundamentally
Speaker 11: where foreign strategies around US debt are going to start
Speaker 11: affecting the interest rate outlook, and it's not going to
Speaker 11: be such a sure thing that the US can continue
Speaker 11: to fund these these massive deficits. However, all evidence so
Speaker 11: far suggests that when there's a flight to safety, US
Speaker 11: treasuries are still the place to be. The US has
Speaker 11: the reserve currency, and despite all the issues that we've
Speaker 11: seen this year, people still think that the US is
Speaker 11: a pretty safe bet that's got a deep and rich
Speaker 11: pool of taxable assets that you can get at in
Speaker 11: an emergency if you need it to. The big question
Speaker 11: is not whether or not the US can repay or
Speaker 11: has the money to repay, is if there's the political
Speaker 11: will to keep this going and what it looks like
Speaker 11: in a crisis where you might need to see an
Speaker 11: instant increase in taxes or something.
Speaker 6: John, just looking ahead to Wednesday, we are going to
Speaker 6: get that meeting between Jijon paying and President Biden. What
Speaker 6: are you looking for?
Speaker 11: You know, I think this is a very low bar
Speaker 11: to get over. The big celebration is the fact that
Speaker 11: they're meeting at all. I think a key question is
Speaker 11: if they resume the military to military communications that were
Speaker 11: cut off after the Pelosi visit. This would help de
Speaker 11: risk some of the challenges that you're seeing in the
Speaker 11: South China. See where China's you know, the China argues
Speaker 11: the US has been aggressively going approaching on their territory
Speaker 11: the Philippines as well, and they've been sending these warning
Speaker 11: signs to the US that they are telling them to
Speaker 11: back off. Resuming the military to military communications is a
Speaker 11: step that trying to help de escalate those tensions. That's
Speaker 11: probably the most we.
Speaker 2: Can hope for.
Speaker 11: I'm really curious to see what hu Jinping says in
Speaker 11: his speech to the American people, and I'm also watching
Speaker 11: what is his message going to be to US corporate
Speaker 11: executives who are very worried about a sudden stop and
Speaker 11: their ability to do business in China. What messages he
Speaker 11: give them to reassure them that China is still a
Speaker 11: safe place for them to do business. I think those
Speaker 11: three things will be the most interesting to watch coming
Speaker 11: out of this week.
Speaker 5: That last point is just absolutely huge and a big
Speaker 5: one for us or wait, John, Thank you, John Lebade.
Speaker 5: If you write your.
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