WEBVTT - Surveillance: 'YOLO' Travel with Capuano 0:00:05.080 --> 0:00:08.280 This is the Bloomberg Surveillance Podcast. I'm Lisa A. 0:00:08.320 --> 0:00:11.640 Bromoids, along with Tom Keen and Jonathan Ferrow. Join us 0:00:11.680 --> 0:00:15.280 each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:16.440 finance and investment. 0:00:16.760 --> 0:00:18.840 Subscribe to Bloomberg Surveillance. 0:00:18.320 --> 0:00:21.840 On demand on Apple, Spotify and anywhere you get your podcasts, 0:00:22.160 --> 0:00:25.200 and always on Bloomberg dot Com, the Bloomberg Terminal, and 0:00:25.200 --> 0:00:28.440 the Bloomberg Business App. Tony Capolano, President and CEO of 0:00:28.480 --> 0:00:32.680 Maria International, things have been pretty uppy. Does it continue 0:00:32.840 --> 0:00:34.479 or does it sort of see an end date? Do 0:00:34.479 --> 0:00:36.440 people start pushing back against the cost? 0:00:36.840 --> 0:00:39.520 I don't think so. I mean, what we've really seen 0:00:39.560 --> 0:00:42.000 the last couple of years is the resilience of travel, 0:00:42.280 --> 0:00:46.680 and we've seen it across segments and across borders. When 0:00:46.720 --> 0:00:49.160 we reported earnings at the end of the first quarter, 0:00:49.720 --> 0:00:54.680 we saw recovery across every segment. Of course, leisure continued 0:00:54.680 --> 0:00:57.080 to be strong. It was the leisure segment that brought 0:00:57.160 --> 0:01:02.320 us out of the pandemic. But group has been remarkably strong. 0:01:02.400 --> 0:01:05.360 In fact, when we look at the remaining three quarters 0:01:05.360 --> 0:01:07.920 of the year, we're up twenty six percent year over 0:01:08.000 --> 0:01:13.759 year in group revenue and business transient Many had predicted 0:01:13.840 --> 0:01:17.039 sort of the demise of business travel, but you made 0:01:17.040 --> 0:01:21.320 the point. Increasingly folks are recognizing or reminding themselves of 0:01:21.360 --> 0:01:24.120 the power of getting in front of their clients, the 0:01:24.160 --> 0:01:28.800 importance of immersing new employees in their company culture. And 0:01:28.840 --> 0:01:32.039 as a result, we're seeing steady quarter over quarter improvement 0:01:32.080 --> 0:01:34.000 in business transient demand as well. 0:01:34.120 --> 0:01:36.759 Is it everywhere for business or places like say San 0:01:36.800 --> 0:01:40.200 Francisco not seeing any kind of revival because of some 0:01:40.240 --> 0:01:41.160 of the outflow there. 0:01:41.360 --> 0:01:46.080 Well, certainly markets like San Francisco are seeing slower recovery, 0:01:46.400 --> 0:01:49.160 but even there, I was listening during the break to 0:01:49.240 --> 0:01:54.400 Scott Kirby's comments. This phenomenon of blended trip purpose I 0:01:54.440 --> 0:01:57.880 think serves markets like San Francisco really well, This idea 0:01:58.080 --> 0:02:01.520 that through the pandemic, more and more travelers learned they 0:02:01.520 --> 0:02:05.120 can work from almost anywhere where. We really saw this 0:02:05.240 --> 0:02:07.840 in the datas we look at recovery by day of 0:02:07.880 --> 0:02:10.640 the week, and what was remarkable was the two days 0:02:10.639 --> 0:02:14.040 of the week that recovered most rapidly were Sunday and Thursday, 0:02:14.480 --> 0:02:17.720 which pre pandemic were really shoulder days. And what that 0:02:17.880 --> 0:02:22.040 tells us is with increasing frequency is business and group 0:02:22.120 --> 0:02:25.359 travelers are tacking on a couple leisure days pre and 0:02:25.560 --> 0:02:28.440 or post trip, and that really has the potential to 0:02:28.480 --> 0:02:32.440 help markets even like San Francisco, which have some leisure appeal. 0:02:32.520 --> 0:02:34.920 Peter, I see you nodding if you do that too, Yeah. 0:02:34.720 --> 0:02:37.040 I think that makes perfect sense. I mean I try 0:02:37.040 --> 0:02:38.960 not to quote unquote take many days off because you 0:02:38.960 --> 0:02:40.600 can work from your hotel room for an hour or two. 0:02:40.680 --> 0:02:43.520 We've done some Bloomberg interviews from hotel rooms on the road, 0:02:43.560 --> 0:02:44.240 so you can do a lot. 0:02:44.240 --> 0:02:44.640 I thinking. 0:02:44.639 --> 0:02:47.360 You set up and you get these extended days, and 0:02:47.480 --> 0:02:49.639 especially with the air travel, as you point out earlier, 0:02:49.680 --> 0:02:51.760 sometimes is a bit painful. It's much easier if you're 0:02:51.760 --> 0:02:53.480 going to go somewhere for four nights instead of just 0:02:53.560 --> 0:02:56.160 two nights or these day trips. So we try and 0:02:56.200 --> 0:02:57.839 do it much of that. I think it makes perfect sense. 0:02:57.880 --> 0:02:59.960 And I was interesting with the Sundays and Thursdays. 0:03:00.040 --> 0:03:02.359 Well, but how much are you able to increase pricing then, 0:03:02.760 --> 0:03:05.760 based on the cost all in of traveling, which has gotten. 0:03:05.520 --> 0:03:08.760 Increazy, So I mean compression drives pricing. And so what 0:03:08.800 --> 0:03:12.360 we see is in leisure destinations and some of the 0:03:12.480 --> 0:03:16.400 urban destinations that have a strong leisure orientation like New York, 0:03:16.720 --> 0:03:18.799 we see a lot of compression, and as a result 0:03:18.800 --> 0:03:22.080 of that compression, we see strong pricing power. In a 0:03:22.160 --> 0:03:24.839 market like a Chicago or a San Francisco, where there's 0:03:24.919 --> 0:03:27.840 less compression, the pricing power is not as strong. 0:03:27.960 --> 0:03:30.560 Are there markets that you're seeing expand much more dramatically? 0:03:30.560 --> 0:03:32.760 I know that we were talking about, for example, in Florida, 0:03:33.000 --> 0:03:36.520 how much hotel prices, And I know experience from experience 0:03:36.560 --> 0:03:38.760 that when I've tried to go visit family down there, 0:03:38.800 --> 0:03:40.760 it's a new experience when it comes to the cost 0:03:40.760 --> 0:03:43.080 of it. I'm wondering, though, is that continuing? Are you 0:03:43.120 --> 0:03:44.520 starting to see in leveling off there? 0:03:44.560 --> 0:03:46.840 You're seeing a bit of leveling off, but to the 0:03:46.880 --> 0:03:50.280 benefit of some of the international destinations. So just this 0:03:50.400 --> 0:03:53.400 morning I was reading some statistics. If you look at 0:03:54.320 --> 0:03:59.040 outbound US to Europe airline bookings for the summer, they're 0:03:59.120 --> 0:04:02.400 up nearly fifty fifty percent year over year. And what 0:04:02.440 --> 0:04:05.040 that suggests is a lot of US travelers who might 0:04:05.040 --> 0:04:09.000 have gone to destinations like South Florida or southern California 0:04:09.120 --> 0:04:12.360 last summer, with increasing frequency, they're going to France and 0:04:12.440 --> 0:04:15.960 Italy and Greece, and so that's maybe eliminating a little 0:04:16.000 --> 0:04:19.520 of that compression pressure in South Florida, which will moderate 0:04:19.560 --> 0:04:20.320 pricing a bit. 0:04:20.480 --> 0:04:22.640 How much you're trying to cater to the high end, 0:04:22.960 --> 0:04:25.800 which has been perhaps recovering even more. 0:04:25.960 --> 0:04:29.200 So, luxury has been exceedingly strong. But we have a 0:04:29.240 --> 0:04:33.360 portfolio of thirty one brands across multiple price tiers and 0:04:33.440 --> 0:04:37.800 price points. So in the luxury tier we continue to 0:04:37.800 --> 0:04:42.480 see pretty strong pricing power. But that's just one tier 0:04:42.520 --> 0:04:45.520 that we operate in. In fact, just last month we 0:04:45.560 --> 0:04:49.080 acquired a brand called City Express, which signaled our entry 0:04:49.120 --> 0:04:51.680 into mid scale for the first time, which is now 0:04:51.720 --> 0:04:53.640 the lowest price tier that we operate in. 0:04:54.360 --> 0:04:57.520 Peter, I'm wondering from your perspective if you've been seeing 0:04:57.600 --> 0:05:02.400 a drop off with perspective to the housekeeping some of 0:05:02.440 --> 0:05:06.040 the other amenities around the experience of staying. 0:05:06.800 --> 0:05:07.200 I have not. 0:05:07.279 --> 0:05:09.359 Actually, I've really enjoyed it. I think we'll continue. I 0:05:09.360 --> 0:05:11.280 had a great trip down in Argentina. We did stay 0:05:11.279 --> 0:05:13.680 at one of your hotels on those other places. 0:05:13.520 --> 0:05:16.280 And did pay him off before coming in. 0:05:16.920 --> 0:05:19.240 What does strike mean we've been talking about, is are 0:05:19.279 --> 0:05:21.840 you seeing resurgents in Asia? Travel to or travel to Asia. 0:05:21.880 --> 0:05:23.320 That's something I've been hearing a little bit about. 0:05:23.440 --> 0:05:26.160 Yeah, we are the and you almost have to look 0:05:26.160 --> 0:05:30.320 at it. China and the balance of Asia. Mainland China 0:05:30.440 --> 0:05:36.479 is fully recovered, but again driven largely by domestic Chinese travel. 0:05:37.040 --> 0:05:42.400 International airline seats into mainland China are only about forty 0:05:42.480 --> 0:05:46.719 percent recovered to where they were pre pandemic, But the 0:05:46.800 --> 0:05:52.599 balance of Asia Pacific, particularly markets like Japan Thailand, are 0:05:52.839 --> 0:05:56.720 booming right now. In fact, I was looking at some statistics. 0:05:56.760 --> 0:05:58.919 Somebody asked me a question about what are the most 0:05:58.960 --> 0:06:03.040 popular destinations and the list that I looked at some 0:06:03.120 --> 0:06:07.120 of the destinations you would expect Italy, France, Greece, but 0:06:07.279 --> 0:06:08.880 Japan was in the top five. 0:06:09.000 --> 0:06:10.320 Are there any markets you're getting out. 0:06:10.240 --> 0:06:15.640 Of, Well, we suspended all our operations in Russia a 0:06:15.640 --> 0:06:19.560 couple of years ago, but other than extreme circumstances like that, no, 0:06:19.760 --> 0:06:23.039 we operate in one hundred and thirty eight countries today 0:06:23.440 --> 0:06:26.080 and in our five hundred thousand room pipeline there are 0:06:26.080 --> 0:06:27.920 another twenty new countries to build. 0:06:27.960 --> 0:06:30.480 On Peter's question, there is this issue of doing business 0:06:30.480 --> 0:06:34.080 in China, and we talked to every executive about how complicated. 0:06:34.120 --> 0:06:37.680 That is, as an American company going into the biggest 0:06:37.760 --> 0:06:42.039 rival right now economically, how much can you operate freely there? 0:06:42.080 --> 0:06:45.560 How much conviction do you have in the fact that 0:06:45.640 --> 0:06:48.560 the Chinese Communist Party will allow you to do your business? 0:06:49.000 --> 0:06:51.680 So our business model I think serves us well. There. 0:06:51.800 --> 0:06:55.160 We have eighty five hundred hotels globally, we only own 0:06:55.320 --> 0:06:58.680 twenty of those physical assets. So our business model is 0:06:58.720 --> 0:07:03.120 one of principally managed, enfranchising hotels. Of the roughly five 0:07:03.200 --> 0:07:06.839 hundred hotels we have in China today, almost the entirety 0:07:06.880 --> 0:07:10.280 of that portfolio is owned by Chinese companies, And so 0:07:10.360 --> 0:07:13.240 I think that serves us well, even against the backdrop 0:07:13.560 --> 0:07:15.480 of some of the complexities of doing business. 0:07:15.600 --> 0:07:17.840 Before we let you go, how much longer can this 0:07:17.880 --> 0:07:21.280 trend of yolo and let's travel around the world really last? 0:07:22.160 --> 0:07:24.520 You know, I don't see it ending anytime soon. I 0:07:24.560 --> 0:07:29.040 think there was pre pandemic, a shift away from consumption 0:07:29.120 --> 0:07:33.040 of hard goods towards investment and experiences, and if anything, 0:07:33.080 --> 0:07:38.400 the pandemic served as an accelerant and caused that trend 0:07:38.760 --> 0:07:41.520 to spread. A call across generations. 0:07:41.760 --> 0:07:44.280 Tony Capouano of Marriott, thank you so much for being 0:07:44.320 --> 0:07:44.560 with us. 0:07:44.640 --> 0:07:45.600 I really appreciate it. 0:07:45.680 --> 0:07:58.160 Be back. Meg of America is Michael gapen weigh in 0:07:58.200 --> 0:08:01.160 on the Fed's path forward, writing quote, the Main Jobs 0:08:01.160 --> 0:08:03.960 report is a particularly difficult one for the FED to 0:08:04.000 --> 0:08:06.320 parse coming out of the May meeting. We argue that 0:08:06.320 --> 0:08:08.320 the FED was inclined to stay on hold in June, 0:08:08.360 --> 0:08:10.040 and the onus would be on the Hawks to justify 0:08:10.040 --> 0:08:12.520 a hike. We think the Main Jobs Report is just 0:08:12.680 --> 0:08:16.560 soft enough to justify a hold, but perhaps not just 0:08:17.320 --> 0:08:20.440 soft enough to justify staying on hold for a long 0:08:20.440 --> 0:08:22.440 period of time. Michael Gapen, u as economist at Bank 0:08:22.440 --> 0:08:25.320 of America Securities, joins the table of economists here. So 0:08:25.640 --> 0:08:28.400 can you give us a sense of what the threshold 0:08:28.480 --> 0:08:30.760 is now for them to stay on hold? 0:08:31.200 --> 0:08:34.160 Well, I think you need to see some material softening 0:08:34.240 --> 0:08:37.120 in the data. I think they've certainly communicated they'd prefer 0:08:37.200 --> 0:08:39.439 to skip, and yes, I think that there was enough 0:08:39.559 --> 0:08:42.160 mixed messages in the employment report where they could do 0:08:42.200 --> 0:08:46.040 that if they want to. Personally, I think the Establishment 0:08:46.440 --> 0:08:48.880 report still gives the better signal, and there's probably some 0:08:49.000 --> 0:08:53.199 sampling error in that household survey, but there's resilience in 0:08:53.240 --> 0:08:55.280 the labor market as you mentioned, the resilience and the 0:08:55.320 --> 0:08:58.720 consumer as you mentioned, and some stickiness and inflation, and 0:08:58.760 --> 0:09:02.360 if the risk backdrop is diminishing and bank stresses more 0:09:02.440 --> 0:09:06.600 or less in stasis, then their communication should shift back 0:09:06.960 --> 0:09:10.600 in the direction of pushing the policy rate higher. That's 0:09:10.679 --> 0:09:14.560 probably the debate that they will be having next week. 0:09:14.920 --> 0:09:17.000 And I know that Laura is going to jump in 0:09:17.040 --> 0:09:19.360 here with a number of questions, But I'm curious how 0:09:19.440 --> 0:09:22.640 high they can go, whether the market is accurately reflecting that. 0:09:22.679 --> 0:09:25.000 Perhaps it's another quarter basis point hike, but it's not 0:09:25.040 --> 0:09:26.960 going to be that significant. It's not going to materially 0:09:27.080 --> 0:09:30.240 change the outlook in terms of the benchmark for the FED. 0:09:30.520 --> 0:09:30.640 Well. 0:09:30.679 --> 0:09:34.200 I do think back in March, before we had the 0:09:34.240 --> 0:09:37.120 banks stress pop up, I do think that they were 0:09:37.120 --> 0:09:39.439 going to guide markets to five four or five six 0:09:39.760 --> 0:09:42.640 on the terminal. That's probably the direction we're going back to. 0:09:44.120 --> 0:09:46.320 Could we get to six or above, you know, yeah, 0:09:46.360 --> 0:09:49.640 it's possible, but I think somewhere between here and say 0:09:49.679 --> 0:09:53.600 five seventy five to six will be sufficiently restrictive. Certainly, 0:09:53.600 --> 0:09:56.600 we are seeing evidence that past hikes are working on 0:09:56.640 --> 0:09:59.440 at least parts of the economy, and so I'm not 0:09:59.559 --> 0:10:02.120 convinced that they need to kind of really ram things 0:10:02.160 --> 0:10:05.079 back up. But yes, we're essentially saying if some of 0:10:05.120 --> 0:10:07.720 the bank's dress and other issues have dissipated, then the 0:10:07.760 --> 0:10:10.520 Fed should fill that gap. Two or three months ago, 0:10:10.600 --> 0:10:12.719 they thought that gap would be somewhere around five and 0:10:12.760 --> 0:10:15.000 a half, maybe a little above. I think that still holds. 0:10:15.800 --> 0:10:18.960 I think something that has really been unique about this cycle, 0:10:19.000 --> 0:10:22.679 clearly as inflation and the disinflationary process is happening. But 0:10:23.120 --> 0:10:24.600 I like to say it's a lot easier to get 0:10:24.600 --> 0:10:27.360 from nine percent down to five percent than from five 0:10:27.360 --> 0:10:30.800 percent back to two percent. And I think one of 0:10:30.840 --> 0:10:33.120 the things that really has come out of the recent 0:10:33.520 --> 0:10:37.600 tsunami of Fed speak is markets pricing out the rate cuts. 0:10:38.160 --> 0:10:40.920 And I know this is really looking around the corner 0:10:41.000 --> 0:10:43.839 right now, But when you think about the FED rate 0:10:43.920 --> 0:10:47.120 hike cycle kind of winding down clearly as it ends, 0:10:47.120 --> 0:10:49.720 I feel like market's rushed to price in the next 0:10:49.800 --> 0:10:52.560 leg down in the FED funds rate. To me, this 0:10:52.640 --> 0:10:55.239 is looking like it would be a very different process. 0:10:55.320 --> 0:10:57.559 It wouldn't be the elevator down that they usually take 0:10:57.600 --> 0:10:59.560 with rates. Do you have any thoughts about how that 0:10:59.559 --> 0:11:00.720 could even well. 0:11:00.600 --> 0:11:03.080 I think that's right. So some the balance leaves between 0:11:03.080 --> 0:11:05.480 the how high and the how long. I think you 0:11:05.520 --> 0:11:08.800 know both of that is is in this discussion, And 0:11:09.040 --> 0:11:12.640 I think you're right that maybe markets didn't baseline expect 0:11:12.720 --> 0:11:15.400 cuts this year, but in distributions of outcomes you had 0:11:15.400 --> 0:11:18.280 to put a lot more weight on that hard landing, 0:11:18.400 --> 0:11:21.920 and if the external risk backdrop is improving, those cuts 0:11:21.920 --> 0:11:25.840 come out as a result. So yeah, I think if 0:11:26.120 --> 0:11:28.320 you're not, you know, if they're looking to kind of 0:11:28.360 --> 0:11:31.160 fine tune where the policy stands is some of that 0:11:31.320 --> 0:11:33.959 is the how long, and I think markets have done 0:11:34.000 --> 0:11:36.160 it correctly in the sense of first you price out 0:11:36.200 --> 0:11:39.800 those cuts, will debate on how high things go, So 0:11:39.880 --> 0:11:43.520 the cycle could be a little different one where you're 0:11:43.600 --> 0:11:46.559 right that getting inflation down to the mid forest has 0:11:46.600 --> 0:11:50.920 been relatively easy. They've gotten help from other spaces. How 0:11:50.920 --> 0:11:52.880 we get that down to two is still in front 0:11:52.880 --> 0:11:53.080 of us. 0:11:53.240 --> 0:11:54.760 So do you think that good news is still good news? 0:11:54.800 --> 0:11:56.800 As Peter she was saying, No, I. 0:11:56.720 --> 0:11:59.320 Think good news is back to being bad news because 0:11:59.360 --> 0:12:03.480 good news if you include the risk backdrop mean less risk, 0:12:03.800 --> 0:12:06.640 then you should in theory get more fed hikes so 0:12:06.760 --> 0:12:09.200 I think we're back to the good news is bad 0:12:09.240 --> 0:12:09.720 news world. 0:12:10.200 --> 0:12:13.160 Laura, how much do you There's been a lot made 0:12:13.160 --> 0:12:17.920 about obviously, corporate margins have been relatively healthy throughout this period, 0:12:18.000 --> 0:12:21.079 and they're starting to narrow somewhat. There's been talk that 0:12:21.080 --> 0:12:23.600 that is now one of the factors that's adding to inflation, 0:12:23.679 --> 0:12:27.640 the fact that companies are being a little bit greedy 0:12:27.679 --> 0:12:30.160 about not wanting to clearly, you know, as would make 0:12:30.200 --> 0:12:32.160 sense for their own shareholder value, not wanting to give 0:12:32.240 --> 0:12:35.160 up that margin. How much is that now a driver 0:12:35.240 --> 0:12:36.920 of inflation or is it still a reaction to the 0:12:36.960 --> 0:12:37.760 strong economy. 0:12:38.360 --> 0:12:40.120 I think it's a little. I think it's fair to 0:12:40.160 --> 0:12:42.040 say it's both. And what I would say is what 0:12:42.120 --> 0:12:46.040 has surprised us most about the inflation forecast is how 0:12:46.080 --> 0:12:49.160 little goods prices have come down. I think we are 0:12:49.200 --> 0:12:51.439 all kind of on the shelter story, and that passed 0:12:51.480 --> 0:12:54.800 through seems to be happening as we would have expected. 0:12:54.880 --> 0:12:56.840 But to me, the big shock is you have these 0:12:56.920 --> 0:13:00.400 big durables items new cars, use cars, household of alliances, 0:13:00.440 --> 0:13:03.240 and so forth. They've been basically flat. And I think 0:13:03.320 --> 0:13:06.079 that's what you're seeing is that you know, margins have 0:13:06.200 --> 0:13:09.920 been getting squeezed and then then they got widened out, 0:13:10.200 --> 0:13:13.600 and I think corporate corporations are deciding, well, what is 0:13:13.640 --> 0:13:17.720 the elasticity of a price cut at this point in time. 0:13:17.840 --> 0:13:21.400 So I think the strong economy has meant goods prices 0:13:21.440 --> 0:13:24.480 have not come down as much as we had expected. Conversely, 0:13:25.360 --> 0:13:27.679 to open up room for goods prices to come down 0:13:27.720 --> 0:13:29.800 and for inflation to get back to two, you do 0:13:29.880 --> 0:13:32.000 have to moderate demand. And that's why I think good 0:13:32.000 --> 0:13:33.280 news is bad news. 0:13:33.600 --> 0:13:36.680 I have a question for both of you guys, since 0:13:36.720 --> 0:13:42.319 you both have traders at your offices. The anecdotal information 0:13:42.480 --> 0:13:45.520 I get is that, yeah, FED Fund's futures have been 0:13:45.600 --> 0:13:47.600 very volatile, that have been up and down about cuts 0:13:47.600 --> 0:13:51.000 and things like that, but traders have not. The expectation 0:13:51.200 --> 0:13:54.040 on the desks is that the FED is going to 0:13:54.080 --> 0:13:57.280 stay high and maybe even raise rates again. So we're 0:13:57.280 --> 0:14:01.280 getting conflicting signals from the trade guests and from the 0:14:01.280 --> 0:14:02.320 FED fund's futures. 0:14:03.280 --> 0:14:05.480 I think that's fair. I think, you know, there's some 0:14:05.520 --> 0:14:08.560 people who will play that game more than others, and 0:14:08.640 --> 0:14:12.280 some have different time horizons. I'd say the majority of 0:14:12.360 --> 0:14:14.920 investors that I meet with, so let's say two out 0:14:14.920 --> 0:14:17.680 of three are on board with the higher for longer 0:14:17.720 --> 0:14:21.400 and likely no cuts this year out of the FED. However, 0:14:21.400 --> 0:14:24.040 there's a group of investors I meet with who are 0:14:24.120 --> 0:14:27.240 very concerned about bank stress and see that as being 0:14:27.720 --> 0:14:31.680 more material and people like me are too complacent about it, 0:14:32.240 --> 0:14:34.000 and they say, well, the lags are going to hit 0:14:34.120 --> 0:14:36.760 later this year and the game is up in effect, 0:14:36.760 --> 0:14:38.760 and we'll know it when when we see it. But 0:14:38.920 --> 0:14:42.320 I would say, yes, more, there are more than not 0:14:42.720 --> 0:14:45.280 saying higher for longer seems to be where we're going. 0:14:45.640 --> 0:14:47.960 I would say the same thing. I think that on 0:14:48.000 --> 0:14:50.960 our desk there's, you know, a mix that reflects the 0:14:51.280 --> 0:14:54.960 future's curve, and there are there's a vocal group that 0:14:55.040 --> 0:14:57.520 is perhaps smaller in number, that really feels like the 0:14:57.560 --> 0:15:00.440 Fed's raising rates, they're going to break something, going to 0:15:00.440 --> 0:15:04.560 see yields come down very sharply should the economy slow. 0:15:04.720 --> 0:15:05.840 And I think that's. 0:15:05.640 --> 0:15:08.560 One of the reasons why we have this sort of 0:15:08.600 --> 0:15:13.520 fight in the sort of one year ahead FED rate expectations. 0:15:13.560 --> 0:15:15.440 But a lot of us are still in kind of 0:15:15.440 --> 0:15:17.320 I think a camp that they're not going to have 0:15:17.400 --> 0:15:17.960 the room for that. 0:15:18.040 --> 0:15:18.840 In the past three weeks. 0:15:18.840 --> 0:15:20.720 It seems like there has been a shifting tone where 0:15:20.760 --> 0:15:24.200 a soft landing has suddenly become more likely that it 0:15:24.240 --> 0:15:24.560 had been. 0:15:24.600 --> 0:15:25.120 It's back. 0:15:25.320 --> 0:15:26.440 How long is it going to stay back? 0:15:26.480 --> 0:15:26.680 Mike? 0:15:27.880 --> 0:15:30.640 Until we get guidance that the funds rates going closer 0:15:30.680 --> 0:15:31.200 to six. 0:15:31.720 --> 0:15:33.920 You think'st break it? You think that that's well. 0:15:33.840 --> 0:15:36.800 No, I mean I think the soft landing can't be 0:15:36.880 --> 0:15:38.600 ruled out. I don't think it's ever been able to 0:15:38.600 --> 0:15:41.080 be ruled out entirely. I just think is as you 0:15:41.160 --> 0:15:45.200 mentioned in the lead in history suggests it's more likely 0:15:45.280 --> 0:15:48.440 than not. When the FED moves this quickly into counter inflation, 0:15:48.600 --> 0:15:50.360 you do have to pay a price at some point. 0:15:50.880 --> 0:15:53.240 So I think we're all in the You know, okay 0:15:53.400 --> 0:15:55.960 that that outcomes more likely than not, but it's a 0:15:56.080 --> 0:15:58.600 very different cycle, and I don't think we can entirely 0:15:58.680 --> 0:16:01.520 rule out that they kind of hit it just right. 0:16:01.560 --> 0:16:03.360 So it is back on the table at the moment 0:16:04.000 --> 0:16:07.640 because the risk backdrop has has improved. Now we'll see 0:16:08.240 --> 0:16:09.240 about the other direction. 0:16:09.680 --> 0:16:11.600 I feel like it always looks like a soft landing 0:16:11.680 --> 0:16:13.960 until all of a sudden, you're face. 0:16:14.160 --> 0:16:16.840 I mean, we're in a recession forecast, so I can't 0:16:16.960 --> 0:16:21.240 I'm not going to talk away from what the view is. Yeah, 0:16:21.320 --> 0:16:24.080 but I just just you know, Yeah, So I still 0:16:24.080 --> 0:16:26.040 think in the end it's more likely than not we'll 0:16:26.080 --> 0:16:29.480 have to, you know, pay some price to bring inflation down. 0:16:29.760 --> 0:16:32.760 And given what I said about goods prices being firm 0:16:32.880 --> 0:16:36.000 and the consumer being resilient, you have to lean against that. 0:16:36.800 --> 0:16:40.280 Will Halloween have a recession is you know, when your 0:16:40.320 --> 0:16:43.080 neighbor loses its jobs. A depression is when you lose 0:16:43.120 --> 0:16:45.120 your right And I guess the soft landing is when 0:16:45.160 --> 0:16:49.200 bonuses are cut on Wall Street, Michael. 0:16:49.000 --> 0:16:51.240 Cape It and Bank of America Securities, Thank you so much, 0:16:55.440 --> 0:16:58.400 Ellen Wall Senior fellow at the Atlantic Council and author 0:16:58.480 --> 0:16:59.320 of Saudi Inc. 0:16:59.480 --> 0:17:01.360 After that one million. 0:17:01.040 --> 0:17:04.800 Barrel cut that Saudi Arabia agreed to unilaterally go through with, 0:17:05.320 --> 0:17:09.200 even though the United Era Emirates most notably came out 0:17:09.240 --> 0:17:11.719 and didn't have to make a similar cut, Ellen, what 0:17:11.720 --> 0:17:13.639 do you make of this announcement and frankly, the sort 0:17:13.680 --> 0:17:15.240 of lackluster response in markets. 0:17:15.720 --> 0:17:19.400 Yeah, I'm not surprised by the somewhat lackluster response, especially 0:17:19.400 --> 0:17:23.119 because a one million barrel of day cut across the 0:17:23.160 --> 0:17:27.520 board from OPEK plus was being tossed around over the weekend, 0:17:27.600 --> 0:17:30.080 and so the fact that that didn't come through and 0:17:30.119 --> 0:17:34.679 instead we've got this Saudi lollipop of a one million 0:17:34.720 --> 0:17:38.080 barrel of day cut unilaterally on their part for the 0:17:38.160 --> 0:17:38.919 month of July. 0:17:39.359 --> 0:17:40.080 I think that the. 0:17:40.000 --> 0:17:45.360 Market sees that as as less significant than a across 0:17:45.400 --> 0:17:49.480 the board OPEC plus cut extended maybe for six months. 0:17:49.640 --> 0:17:52.600 I do think though, that the market is a bit 0:17:52.680 --> 0:17:57.480 downplaying the significance of the deal that renegotiated the baseline 0:17:57.720 --> 0:18:01.959 production levels, because starting in twenty twenty four, these are 0:18:02.000 --> 0:18:03.919 going to come into effect, and that's really going to 0:18:03.960 --> 0:18:06.760 bring more clarity to the market because one of the 0:18:06.760 --> 0:18:09.480 issues that we've seen with OPEC is that they push 0:18:09.600 --> 0:18:11.680 through a one million barrel a day cut, but it's 0:18:11.720 --> 0:18:13.880 not actually going to be one million barrels a day 0:18:14.560 --> 0:18:17.960 because a lot of the countries that are participating are 0:18:17.960 --> 0:18:19.560 not actually producing up to. 0:18:19.560 --> 0:18:20.400 Their max level. 0:18:20.440 --> 0:18:25.720 Their capacity is down because their production quotas are back 0:18:25.720 --> 0:18:29.679 from twenty sixteen and now it's twenty twenty three and 0:18:29.720 --> 0:18:32.200 things are really different. So I think that once these 0:18:32.240 --> 0:18:36.560 new baselines come into effect, OPEX production rates will actually 0:18:36.560 --> 0:18:40.000 be more reflective of what's actually on the market, and 0:18:40.400 --> 0:18:43.800 the market will appreciate that clarity. 0:18:44.119 --> 0:18:46.000 Do we have a sense ellen of just how much 0:18:46.040 --> 0:18:49.199 demand has actually fallen off versus the forward look of 0:18:49.280 --> 0:18:50.720 demand potentially falling off? 0:18:50.840 --> 0:18:51.920 Is there if there's a recession. 0:18:51.920 --> 0:18:55.480 In other words, our price is accurately reflecting the slowdown 0:18:55.520 --> 0:18:58.439 that some people are saying is transpiring in China. 0:18:58.480 --> 0:19:03.320 In other places, prices are reflecting the fear of the 0:19:03.359 --> 0:19:07.200 slowdown much more than what any actual slowdown is, mostly 0:19:07.200 --> 0:19:10.159 because we're not really sure what that slowdown is going 0:19:10.200 --> 0:19:11.760 to be. We also don't know how China is going 0:19:11.800 --> 0:19:14.600 to react to this. Is China going to push through 0:19:14.760 --> 0:19:19.600 some kind of big manufacturing stimulus that will push up demand. 0:19:20.040 --> 0:19:23.520 Plus there's always this kind of fake I don't want 0:19:23.520 --> 0:19:26.840 to say it's fake, but China tends to buy more 0:19:27.280 --> 0:19:30.040 crude oil when it's cheap, to put into storage, maybe 0:19:30.080 --> 0:19:33.760 for rainy days or whatnot, or just to resell, to 0:19:33.840 --> 0:19:36.919 process and resell around to Asia. And so there's a 0:19:37.040 --> 0:19:40.719 lot of cheap crud available on the market. Now. Russia 0:19:40.800 --> 0:19:44.679 is a huge purveyor of it. But also there's you know, 0:19:44.720 --> 0:19:48.080 Iranian and Venezuela imprud that China can get, and so 0:19:48.720 --> 0:19:52.560 they may actually be buying more crude oil than they're using, 0:19:52.640 --> 0:19:56.240 and that's kind of papering over any kind of demand 0:19:56.359 --> 0:19:58.639 issues that we're seeing. 0:19:59.040 --> 0:20:01.200 Yeah, one big wildcar I've been wondering about, and maybe 0:20:01.200 --> 0:20:02.959 you've got some good color on, is what's going on 0:20:03.000 --> 0:20:05.560 with the Strategic Petroleum Reserve. Where do we stand? What 0:20:05.600 --> 0:20:07.640 are you hearing about us trying to rebuild that, because 0:20:07.680 --> 0:20:09.800 to me, it's a bit concerning that it got so 0:20:09.920 --> 0:20:11.520