Speaker 1: This is Bloomberg Business Week. I'm Karl Masser and I'm
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Speaker 1: next guest. He's an executive producer and the star of
Speaker 1: Bar Rescue, where he helps transform struggling small businesses. He's
Speaker 1: also a New York Times bestselling author. He's also got
Speaker 1: a new book out. It's called The Power of Conflict.
Speaker 1: Speak your mind and get the results you want. John Taffer,
Speaker 1: it is good to have you with us in the
Speaker 1: Bloomberg Interactive Broker Studio. How are you. I'm doing great, guys,
Speaker 1: Good to see you. Yeah, it's good to see you.
Speaker 1: You know. I want to start with with with the
Speaker 1: economy because given what you do, you have such a
Speaker 1: good look at small businesses. You talk to so many
Speaker 1: small business owners. You have a good understanding of their sentiment,
Speaker 1: how they're feeling, how they're doing. You've talked to us
Speaker 1: a lot about that. But I want to start with J.
Speaker 1: Powell and the fedhairs comments earlier today. The economy is
Speaker 1: resiling at the economy is strong, uh. Inflation is high, yes,
Speaker 1: but the labor market is so tight that the economy
Speaker 1: can withstand higher interest rates. How do you see things? Well,
Speaker 1: you know, I think that those are fine public relations statements,
Speaker 1: but I think the lives that people are living in
Speaker 1: the worlds that I travel are telling them otherwise. You know,
Speaker 1: they're seeing day to day differences in their economics, day
Speaker 1: to day differences and their perceived security, day to day
Speaker 1: differences in in so many areas of their lives that
Speaker 1: cause fear and concern that there isn't unsettling, if you will,
Speaker 1: disruption to too moving in positive ways. And I say
Speaker 1: that in a very very broad sense. I see that
Speaker 1: investors are holding back right, They're concerned the corporate tax
Speaker 1: rates might go up. There's a lot of things going
Speaker 1: on around us that is causing a predictability. You know,
Speaker 1: I see employees being concerned with their workplace. I see
Speaker 1: them reassessing their careers and their jobs. We see people
Speaker 1: quitting their jobs at higher rates than ever before. But
Speaker 1: yet a huge percentage of American workers don't have more
Speaker 1: than a thousand dollars in the bank, but yet they're
Speaker 1: quitting jobs. Something has happened that I think has struck
Speaker 1: the nerve of our country, which is changing the behavior
Speaker 1: of our workforce. And I think it's a very powerful
Speaker 1: dynamic that we have to overcome the next two years.
Speaker 1: And it's not spoken about enough. You know, John, I'm
Speaker 1: curious you read on sort of the bar and restaurant
Speaker 1: industry writ large. I mean, one of the saddest things. Obviously,
Speaker 1: the sickness and the loss of life was the saddest
Speaker 1: thing of the pandemic. But to see all these really
Speaker 1: hard working bar and restaurant owners, you know, the small
Speaker 1: mom and pop shops, really struggle with the lockdowns and
Speaker 1: the closure. Where where is the industry right now? Is
Speaker 1: it almost back to where it should be or is
Speaker 1: there still a lot of room to go? Well, you
Speaker 1: know it's interesting is when you say that I think
Speaker 1: of the restaurants to existed for seventy eight years that
Speaker 1: went down in a pandemic. Four generations of ownership and
Speaker 1: they didn't make it through the pandemic. You know, generally speaking,
Speaker 1: the industry is up twenty revenues above pre pandemic levels.
Speaker 1: So you know, look at the quarter Las Vegas head,
Speaker 1: I live in Las Vegas. The casinos had a great quarter.
Speaker 1: So we talked about that pent up demand and how
Speaker 1: long would it take people to came back. They came back.
Speaker 1: So from a top line standpoint, the industry is looking great.
Speaker 1: Here's the issue. We're losing brand equity because we can't
Speaker 1: get employees to serve people properly. Obviously, the inflationary impact
Speaker 1: is huge upon our prime costs, food costs, and beverage costs.
Speaker 1: So we see the revenue opportunity is greater than we've
Speaker 1: experienced in years, but seizing those revenues is really a challenge.
Speaker 1: So companies that are so service oriented now are not
Speaker 1: achieving their own standards of service that are so important
Speaker 1: to their brand equity. That's scary, John, What would you
Speaker 1: say to somebody who said, wait a second, people in
Speaker 1: the service industry low way workers have been left behind
Speaker 1: for so many years. It's about time that they saw
Speaker 1: better conditions or wage increases. You know better than anyone.
Speaker 1: This is really really tough work and they deserve higher
Speaker 1: pay now, of course they do. And you know, I'm
Speaker 1: all for increasing their wage, but I'm in a supportive
Speaker 1: of doing it in steps. You know, I don't think that,
Speaker 1: for example, states that have employeed tip credit, you bring
Speaker 1: them up to fifteen dollars an hour, that's a six
Speaker 1: hundred percent increase in pay overnight. No business can sustain that.
Speaker 1: So let's bring it up in three or four steps.
Speaker 1: Let's get it there over two years. Let's allow the
Speaker 1: industry to adjust as we go. But I completely agree
Speaker 1: if we're going to retain employees and turn my industry
Speaker 1: back into a career based industry, we need to get
Speaker 1: it to that level. But I also want to highlight
Speaker 1: that if you're a waiter in a good steakhouse, you're
Speaker 1: making yourself well over a thousand dollars a week in
Speaker 1: many steakhouses, So there are those in the industry who
Speaker 1: make an awful out of money as well. So some
Speaker 1: are do well, some we're not doing as well. I
Speaker 1: think as an industry. We need to step up. You
Speaker 1: made a really interesting comment, um, you know, saying that
Speaker 1: we live in interesting times these days. Um, what brings
Speaker 1: you to that? I mean, I don't think anyone would
Speaker 1: argue with that, but what's top of mind for you?
Speaker 1: You know, I'm one Look, I took cultural anthropology in college,
Speaker 1: so I've always been one who studied behavior, human behavior.
Speaker 1: As a business person, I'm one who tries to change
Speaker 1: human behavior, right, I want to market you to buy things,
Speaker 1: and so I'm a real student of human behavior. And
Speaker 1: the past two years I see, you know, decisive changes
Speaker 1: in our behavior as a society. The way we interact
Speaker 1: with each other, the way we interact with businesses, the
Speaker 1: way we can complete transactions, the traffic discycles. There are
Speaker 1: so many changes around us that it creates a certain unpredictability.
Speaker 1: Are people being more respectful? There was this moment where
Speaker 1: I think there was a sense of unity early on
Speaker 1: in the pandemic, where you know, here in New York City,
Speaker 1: we would go out on our you know, open our
Speaker 1: windows and bang pots and pans at seven pm for
Speaker 1: healthcare workers each night. There was this idea that we
Speaker 1: were all in it together. Do you see that in
Speaker 1: your industry. I do. I certainly, because we're also seeing
Speaker 1: videos of you know, people getting kicked off of airplanes, dragging,
Speaker 1: you know, dragging, kicking, and screaming. I think that togetherness
Speaker 1: is sort of eroded a little bit, that we sort
Speaker 1: of experienced the earlier middle part of the pandemic. And
Speaker 1: that's one of the reasons why I wrote the book.
Speaker 1: You know, people today engage in conflict without dignity, and
Speaker 1: and it's the loss of dignity that has really destroyed
Speaker 1: our political landscape and destroyed our professional landscape in very
Speaker 1: many ways. So when I wrote the book, I realized,
Speaker 1: you know, I've done two hundred and thirty episodes of
Speaker 1: Our Rescue, the last hundred and fifty or so. I
Speaker 1: haven't been angry. When you see me angry, I'm being deliberate.
Speaker 1: I'm being manipulative. I have a purpose, and I'm using
Speaker 1: conflict as a tool to achieve an objective. And I
Speaker 1: started to realize, Wow, conflict is a dirty word that
Speaker 1: shouldn't be tim I'm trying to speed read this here,
Speaker 1: but I can I open up the page one thirteen.
Speaker 1: I can tell I like this book already. Let me
Speaker 1: just read the line here. There's never a show where
Speaker 1: I don't yell John. I mean, people know that, right.
Speaker 1: He's referring to the show Bar Rescue, the Big Hits show.
Speaker 1: There's always that moment when I need to shock and
Speaker 1: owner into changing an unhealthy pattern, you know, John, and
Speaker 1: correct me if I'm wrong. But I get the impression
Speaker 1: that the bar and restaurant industry is one where there
Speaker 1: is a lot of you know, sort of heated moments
Speaker 1: and yelling and conflicts that everyone seems to go home
Speaker 1: and forget about it, have a drink, come back the
Speaker 1: next day and their friends again. I don't know if
Speaker 1: that's a I think that's a safe and you know
Speaker 1: what it is, we get packed, right, if there's this
Speaker 1: high energy, we're in the weeds, we're fighting, we're fighting.
Speaker 1: Then finally it mellows out at the end of the
Speaker 1: night and everybody comes back to war again the next time.
Speaker 1: Because you know what's incredible about the bar industry. For example,
Speaker 1: the average bar will do sevent of its revenue sixteen
Speaker 1: hours a week. Wow, just that. So it's a crunch.
Speaker 1: You know, it's it's high pressure. But I wonder, and
Speaker 1: I know you've looked at sort of not just the
Speaker 1: bar and restaurant industry, you sort of looked at conflicts
Speaker 1: in other business I mean, does conflict translate into all
Speaker 1: businesses or is it sort of you know, taboo to
Speaker 1: to sort of engage conflict and and and sort of
Speaker 1: you know, is the risk greater than the reward in
Speaker 1: other industries? You know? I think, I think the conflict
Speaker 1: is a critical aspect to every industry. But but what
Speaker 1: is conflict? It's perceived as a dirty word. You see,
Speaker 1: if you want to win in conflict in business, in
Speaker 1: professional relationships, in any aspect of your life with another
Speaker 1: human being, we succeed when we pulled them in, not
Speaker 1: when we pushed them away. Success always comes, whether it's
Speaker 1: pulling an employee and pulling your boss in, pulling your
Speaker 1: spouse in. So conflict can't push people away, it needs
Speaker 1: to pull them in. So that's what the book is about,
Speaker 1: is engaging in meaningful conflict, positive conflict. I love the
Speaker 1: Disney story that's in the book. You know, tell us
Speaker 1: about that Roy had the checkbook, Walt had the ideas.
Speaker 1: Walt's ideas would have made him go broke if Roy
Speaker 1: didn't have the check book, and they would talk about
Speaker 1: it all the time. There's a famous story where Walt
Speaker 1: went out of town on a business trip for two days.
Speaker 1: He had spent all the money in the company. When
Speaker 1: he came home, Royce sold his car. But the greatest
Speaker 1: story of all was snow White, the movie and new
Speaker 1: with flickers in snow White a defect in the film.
Speaker 1: So Walt goes to Roy and says, I gotta fix
Speaker 1: the film. It's a hundred and fifty thousand hours. Roy says, no,
Speaker 1: you're not fixing the film. Well, they never fix the film,
Speaker 1: and if you watch snow White to this day, those
Speaker 1: flickers are still in it. If budget doesn't manage creativity,
Speaker 1: there'll be no money for creativity. It's the conflict between
Speaker 1: those two elements of the business that create that success,
Speaker 1: if you will, that governance on either side, the big
Speaker 1: idea that creates the budget allocation, and the budget realities
Speaker 1: that limits the creative exercises. That's a conflict that drives
Speaker 1: every business China. Unlike you, I think Tim's gone about
Speaker 1: one million TV and radio shows without yelling at anyone.
Speaker 1: I don't know. We gotta get them what we do.
Speaker 1: I don't know what to do to get tim to
Speaker 1: yell at me. Yeah, that's that's the trip. Well, it's
Speaker 1: it's true. Though. It actually makes me think about, you know,
Speaker 1: my own management style or or my own style of
Speaker 1: being managed. I wonder about the idea of the squeaky mouse,
Speaker 1: you know, getting the cheese, or the squeaky wheel getting
Speaker 1: the grease. How do you do this in a way
Speaker 1: that isn't alienating to people, Because when people hear conflict,
Speaker 1: that's a dirty word, especially in an environment where people
Speaker 1: want to be liked. Yeah, you know, I think that
Speaker 1: that's the shame. And that's exactly why I wrote the book.
Speaker 1: It's completely non political, takes no sides on any political
Speaker 1: issues whatsoever. But I put forth the following premise, we
Speaker 1: as a society have forgotten how to engage in positive conflict,
Speaker 1: the disrespect online, the taking of people's dignity. Even in
Speaker 1: the political world. They're saying things to each other years
Speaker 1: ago they would have never said to each other. So,
Speaker 1: if in fact, we hold our beliefs to ourselves, I'm
Speaker 1: concerned our beliefs are going to disappear. So we can't
Speaker 1: be silent. We need to stick off of the things
Speaker 1: that are meaningful to us. So I want to empower people,
Speaker 1: to teach them how to engage in meaningful conflict that
Speaker 1: isn't disruptive but is constructive. So it's all the premise
Speaker 1: of opening up people's minds, fighting for the values that
Speaker 1: you believe. In bar Rescues not really the model because
Speaker 1: in bar Rescue, at these sixty or ninety days working
Speaker 1: four days, I'm a raving maniac. There's a clock ticking
Speaker 1: in my head every minute. I don't have time for
Speaker 1: you to get on a bust him. You gotta get
Speaker 1: on the bus right now, you know. So, So these
Speaker 1: are the things that that create a difference in the
Speaker 1: real world. No, you don't scream at people that way
Speaker 1: that alienates them. You pull them in. You do things
Speaker 1: like put your hand on your chin, on your chin
Speaker 1: when they're talking to you, so they see you engaged.
Speaker 1: Great conflict creates great engagement, and great engagement is never bad.
Speaker 1: You know, John, There's there's sort of a power dynamic
Speaker 1: involved though. Two you know, I imagine, um, you know,
Speaker 1: a manager of a restaurant or a bar can get
Speaker 1: away with yelling at the bus boy. The bus boy
Speaker 1: can't get away as much with yelling at the boss.
Speaker 1: Am I reading that wrong, is it? I wonder least
Speaker 1: the word yelling, because if I was that bus boy,
Speaker 1: I would pull the manager over and say, boy, we
Speaker 1: both want to have a great restaurant, don't we. I
Speaker 1: got a couple of ideas that I think would make
Speaker 1: the restaurant better, and suddenly they're engaged in meaningful dialogue
Speaker 1: about something that the manager might not agree with. So again,
Speaker 1: conflict isn't yelling. Conflict is communicative. But conflict always should
Speaker 1: have a purpose. You know, I used to fight with
Speaker 1: the politicians during the last presidential elections. Think of how
Speaker 1: many arguments and conflicts to our over trivial things Nascar
Speaker 1: and crazy things that why are we fighting about things
Speaker 1: that don't mean it? But John, it's it doesn't seem
Speaker 1: like it's getting any better. No, That's why I felt
Speaker 1: I really how to write this book. I'm trying to
Speaker 1: bring dignity to the premise of conflict and respect. You know,
Speaker 1: it's interesting. One of the I think it's the biggest
Speaker 1: headphone in the world. Bridgewater Associates is famous for exactly
Speaker 1: what you're talking about. They have a culture where they
Speaker 1: really try to knock each other down a peg, and
Speaker 1: that might be a harsh way of saying it, but
Speaker 1: constructive criticism is very much part of the transparency. Transparency
Speaker 1: part of their culture, part of their culture. So is
Speaker 1: I guess it depends to some degree what the culture
Speaker 1: in your company is to you know, if if it
Speaker 1: should more companies sort of embrace that benefits of conflict
Speaker 1: and debating. Uh. You know, it seems to be what
Speaker 1: one of the messages you're trying to get through here.
Speaker 1: You know, it's interesting you can have a company where
Speaker 1: that type of high energy engagement is a part of
Speaker 1: the company, and then you hire somebody who's quiet, who's submissive,
Speaker 1: who doesn't engage in those kind of ways, and they
Speaker 1: get fired because they don't fit in that culture. It
Speaker 1: goes both ways. But I would tell you the most
Speaker 1: innovative companies in the world have elements of conflict, you know,
Speaker 1: and it is push and pull. And look at a
Speaker 1: great coach of a sports team. If he's a great coach,
Speaker 1: he'll get you to perform better than you even thought
Speaker 1: you could, right, and he does that forcefully. It is
Speaker 1: so great to have you joined us, and especially in
Speaker 1: person here really feels like returning your corner with these
Speaker 1: in person guests. It's fun to have everyone back in
Speaker 1: the studio. John Taffer is the host and executive producer
Speaker 1: of Bar Rescue with Us in the Bloomberg Interactive Broker Studio.
Speaker 1: His new book is called The Power of Conflict. Speak
Speaker 1: your mind and get the results that you want. You're
Speaker 1: listening to Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. Let's get a
Speaker 1: view on the macro environment, specifically when it comes to travel.
Speaker 1: We're gonna speak to Axel He for the CEO of
Speaker 1: tree Vago. He joins us on the phone via Zoom
Speaker 1: from Germany, shares the hotel search and travel search platform,
Speaker 1: hitting a fifty two week low today after the company
Speaker 1: reported a lost per share for the first quarter that
Speaker 1: missed the average analyst estimate. Axel, good to have you
Speaker 1: back with us. Was today's miss Was that all about
Speaker 1: concern in Europe? And was that related to Russia's invasion
Speaker 1: of Ukraine? Not really, to be honest, I mean from
Speaker 1: our prospective, we didn't miss the numbers. I guess it's
Speaker 1: very difficult to to predict from the outside what the
Speaker 1: trend is looking like and there is one one one
Speaker 1: of the facts that is in the numbers, which is UM.
Speaker 1: It's basically a fine from a very old investigation that
Speaker 1: has been going on for many years in Australia. Well accellent.
Speaker 1: What's your read on the traveler? The health of the traveler?
Speaker 1: Writ large these days? Has that demand to take vacations,
Speaker 1: to take air travel recovered to sort of the pre
Speaker 1: pandemic level. There's a sense that it's even stronger. That
Speaker 1: there was a big bottleneck of demand for vacation and
Speaker 1: travel and that we're seeing even perhaps stronger, stronger impulse
Speaker 1: to travel. Is that Do your numbers suggest that as well?
Speaker 1: Or is that off? Yeah, it's it's UM. It depends
Speaker 1: very much to which segment of the travel market you're
Speaker 1: looking at. I mean, generally speaking, we've seen it as
Speaker 1: the last two summers as well. There is a huge
Speaker 1: desire to together rest and to to break out of
Speaker 1: the daily routine, even stronger coming out of a time
Speaker 1: of restrictions and lockdown. So the classical family vacation, going
Speaker 1: to the beach, going to the mountains UM sees hugely
Speaker 1: mount UM and if you're strong in that business, you
Speaker 1: see numbers that are at or above levels. Um. The
Speaker 1: traditional city trips where you go to I don't know,
Speaker 1: the Broadway, music, etcetera. Are now slowly coming back, and
Speaker 1: for that, obviously we needed the restrictions to to be lifted.
Speaker 1: And then the last segment, the business travel is obviously lagging,
Speaker 1: and depending on your business makes you you see more
Speaker 1: or less recovery. But what what we see as very
Speaker 1: positive that we think that we are now in a
Speaker 1: in a situation where we really see fundamental recovery and
Speaker 1: really a gradual improvement, whereas the last two years were
Speaker 1: very much an up and down. It does not feel
Speaker 1: like the business traveler here in the United States axel
Speaker 1: is struggling. I perhaps it's just because I just got
Speaker 1: back from the Milk and Institute Global Conference and it
Speaker 1: was truly back to nineteen levels, uh, you know, for
Speaker 1: the first time since the pandemic. But everyone I talked
Speaker 1: to you had trouble finding flights to and from and
Speaker 1: we booked some travel in the upcoming months and we're
Speaker 1: having trouble even finding flights. And I'm wondering if it's
Speaker 1: because flights are being uh managing a different way. They're
Speaker 1: they're reducing the number of them, or if it's because
Speaker 1: we're seeing a different level of business travel here in
Speaker 1: the US than you are in Europe. Yeah, I think
Speaker 1: you're at a very interesting point. I mean there there
Speaker 1: is is now with the demand coming back, we do
Speaker 1: experience supply shortages and there are a couple of factors. Um.
Speaker 1: There there are labor shortages everywhere, um, and I'm sure
Speaker 1: you've seen it in hotels, at the airport, security checks,
Speaker 1: ground handling, all of the above everything and so so
Speaker 1: that is reducing the capacity that that is on offer. Um.
Speaker 1: The other thing is that depending on the routes that
Speaker 1: you're you're taking by by air, there is also less capacity.
Speaker 1: And I guess the airlines are to a certain extent
Speaker 1: more disciplines to put in particularly longhold routes again back
Speaker 1: to service and have also decommissioned quite quite a few planes.
Speaker 1: So again it depends very much on on the destination
Speaker 1: of the specific trip. But but overall in Europe, I
Speaker 1: would say that that that business travel is definitely not
Speaker 1: back to where it used to be, and and given
Speaker 1: what we are seeing in the US, it is neither um.
Speaker 1: But obviously it is coming back. Actcell Trovaco had a
Speaker 1: nice string of several quarters of profitability before the pandemic,
Speaker 1: and then obviously the pandemic UH in two when it
Speaker 1: really started affecting travel UH sent company back to a loss,
Speaker 1: then another couple of quarters last year at the end
Speaker 1: of the year back to profitability. Is any sense of
Speaker 1: when sort of we can see consistent positive earnings from Trivago? Yeah,
Speaker 1: it's I mean, I guess we we were. We were
Speaker 1: fortunate in a way that we realized that the pandemic
Speaker 1: would not be a temporary problem, but really a problem
Speaker 1: that would stay with us for multiple years. So we
Speaker 1: um we cut our costs very early, already April twenty
Speaker 1: in the pandemic and as a result managed to come
Speaker 1: out of it with a positive cash flow. So the
Speaker 1: lower cost base has helped us a lot to really
Speaker 1: manage and navigate through the very very tough times in
Speaker 1: the pandemic. And and now we and and also most
Speaker 1: of the other online players are obviously investing into into
Speaker 1: winning back the customers, into giving travelers confidence to travel.
Speaker 1: So there are investment quarters ahead of us, and you
Speaker 1: can really see that with many companies, and I guess
Speaker 1: it will take it will take a few quarters and
Speaker 1: perhaps even a few years to get to a market
Speaker 1: that is truly stable. Um. But yeah, but we will,
Speaker 1: we will. We will invest into marketing this summer for sure.
Speaker 1: Actual last minute that we have with you, getting getting
Speaker 1: back to what we learned from executives from around the
Speaker 1: world at milk in just a couple of days ago,
Speaker 1: it seemed to be there was cautious optimism here in
Speaker 1: the US, but there was some serious concern about Europe,
Speaker 1: specifically about the health of the European consumer. What's your take, Yeah,
Speaker 1: it's a difficult question. I think the biggest concern that
Speaker 1: I would have is it's really it's global, which is
Speaker 1: is the skyrocketing inflation and and like I said, that's
Speaker 1: where where you you're starting before we start the discussion.
Speaker 1: That is is obviously a concern and it puts pressure
Speaker 1: on on people around the globe. But but other than that, yeah,
Speaker 1: I I do believe that there is not that much
Speaker 1: of a difference, um, in terms of economic outlook. All right,
Speaker 1: we're gonna have to leave it there. Actual, we always
Speaker 1: love it when you join us on Bloomberg Business Week.
Speaker 1: That's actual here for the CEO of the travel platform
Speaker 1: tree Vago, joining us live from Germany the Journal. Yeah,
Speaker 1: but you let me drive. Oh no, no, no no, no,
Speaker 1: who's home? Honey? Please, I'll do the ride, Revels. Let me.
Speaker 1: I want to drive. It's the question that drive. This
Speaker 1: is the drive to the Globekay, we'll drive up down
Speaker 1: on Bluebird Radio. Mike, let's get right into it with
Speaker 1: Brad McMillan. He's chief investment officer at Commonwealth Financial Network.
Speaker 1: He joins us on the phone from Waltham, Massachusetts. He's
Speaker 1: got approximately two and two point five billion dollars in
Speaker 1: assets under management. Brad, give us your takeaways from what
Speaker 1: we just heard from FED Chair J Powell, because I
Speaker 1: gotta tell you the equity market is loving it, and
Speaker 1: they should. I mean, I'm sorry. The real message here
Speaker 1: from Chair Pale is we've got this. The FED is
Speaker 1: under control, you know, and we see the economy growing,
Speaker 1: we see the inflation. We're doing what we need to
Speaker 1: do and we're going to continue with the path. And
Speaker 1: there's a plan and the market loves the plan, you know. Brad.
Speaker 1: It's it's Mike Reagan. There seemed to be just uh
Speaker 1: spike higher in equities and risk assets right around is
Speaker 1: like two forty two. There are were a few remarks
Speaker 1: of pals right around that time. I'm curious, what do
Speaker 1: you think really lit that fire? There was some remarks
Speaker 1: where he basically said we can still attain a soft landing,
Speaker 1: but he also said they've pretty much ruled out a
Speaker 1: seventy five basis point hike. Was it sort of the
Speaker 1: one who punch? Do you think or do you think
Speaker 1: it was one or the other? I guess some people
Speaker 1: really were worried about the chance of a seventy five
Speaker 1: basis point hike. What do you think really is driving
Speaker 1: this rally? We're looking at three percent now up in
Speaker 1: the SMP, just eye popping gains. Well, as I said,
Speaker 1: I really think it comes down to does the FED
Speaker 1: have a handle on this and how rightly or wrongly
Speaker 1: conveyed a strong sense that they see another couple of
Speaker 1: fifty basis point hikes, you know, which is in line
Speaker 1: with yes, we're going to get inflation under control, but
Speaker 1: it's not so far out of control that they need
Speaker 1: to get crazy. I mean, the real message from a
Speaker 1: pipe would have been, Wow, this is a crisis. We've
Speaker 1: really got to do something. So I think that sweet spot,
Speaker 1: you know, between doing enough and not having to do
Speaker 1: too much is what the market sees right here, Go ahead, Mike, Yeah, Brat,
Speaker 1: where do you think this sort of embracive risk today
Speaker 1: in the market. Is it kind of counterproductive to the
Speaker 1: Fed's goal to tighten financial conditions a little bit too,
Speaker 1: you know, as a way to tamp down the inflation.
Speaker 1: Is this kind of maybe not the outcome power Power
Speaker 1: would have hoped for. We're going instance, what I do
Speaker 1: you think. I actually think that makes a certain amount
Speaker 1: of sense. But given the amount of decline we've seen Gassett,
Speaker 1: you know, over the past couple of months, I don't
Speaker 1: think it's going to worry them too much. I also
Speaker 1: think that this kind of a relief rally, you know,
Speaker 1: after the worries we've seen, is probably the evaluations start
Speaker 1: to move back up. That's what I think that that
Speaker 1: is going to start to worry about the market. I
Speaker 1: think today I think the Fed's reaction is going to
Speaker 1: let them have their fun. They've learned it at this point.
Speaker 1: I thought it was really remarkable, Brad, the way that
Speaker 1: Powell opened his press conference speaking to the American people
Speaker 1: saying that he understands that inflation is too high that
Speaker 1: he understands the pain associated with rising prices. Brad, What
Speaker 1: did you make of that? I think there's two things here.
Speaker 1: First of all, I think that um, the FED is
Speaker 1: in a difficult place politically, you know, they're they've been
Speaker 1: seen as perhaps not being as sensitive to the needs
Speaker 1: of the average person. And I thought Powell made a
Speaker 1: very good case that what we're doing actually is aimed
Speaker 1: at helping the average person, and he came back to
Speaker 1: that again and again throughout the press conference. You know,
Speaker 1: I think the FED is trying to build the political
Speaker 1: base for what might actually turn out to be a
Speaker 1: difficult campaign against inflation. As an example that one of
Speaker 1: the people asked, you know, what does this mean? You know,
Speaker 1: are you willing to create a recession like Volker did?
Speaker 1: And Pal's answer was interesting. He basically said, yeah, we'll
Speaker 1: do what's necessary, but you can't do that and you
Speaker 1: can't hold onto it without that political backing. And so
Speaker 1: I read that as kind of a preemptive strike on
Speaker 1: the FED doesn't understand the little guy, you know, Brad.
Speaker 1: In addition of stocks, just an eye popping move in
Speaker 1: the treasury market too. I'm looking at the two year
Speaker 1: yield it's down almost fifteen basis points. UH tenure yield
Speaker 1: is down a lot. Do you think we've seen the
Speaker 1: worst of this UH steady march higher in interest rates?
Speaker 1: Where is there really more room to go for for
Speaker 1: rates to go higher? Do you think? I think we've
Speaker 1: about topped out. And the reason I say that is
Speaker 1: the last time we saw a rate hiking cycle was
Speaker 1: in you know, obviously pre pandemic, and things topped out
Speaker 1: about three out right now, obviously we have much higher inflation,
Speaker 1: but there's also signs that's starting to top out as well,
Speaker 1: and there's still a tremendous amount of demand for long
Speaker 1: duration US Treasury assets. So I'd be surprised if we
Speaker 1: didn't start to see things back off. Maybe as the
Speaker 1: number of expected hikes goes back, we see rates start
Speaker 1: to roll over a little bit as well as we
Speaker 1: start to price in more rate cuts in the next
Speaker 1: couple of years. I can't see if pushing too much
Speaker 1: higher than where we are. Brad. I did think that
Speaker 1: FED share Powell's comments regarding the blunt instruments that the
Speaker 1: FED has and that they're not precision tools were pretty remarkable,
Speaker 1: Specifically the part about him not being able to control
Speaker 1: supply side elements, supply chain issues, uh, effects of war
Speaker 1: on commodities. He specifically said that the FED can't do
Speaker 1: anything about commodity prices or snarled supply chains. Um, what
Speaker 1: can the FED do to bring down prices there? Well,
Speaker 1: I think once again this is kind of a combination
Speaker 1: of educating the public and laying the political groundwork for
Speaker 1: what could be a difficult campaign. I mean, what the
Speaker 1: FED can control is how much it costs to buy
Speaker 1: stuff here in the US, cars, houses, and that's going
Speaker 1: to hit the average person. But that's not going to
Speaker 1: show up in the price of gas. So the question
Speaker 1: becomes that you're an average person, what am I suffering
Speaker 1: all of this paying for? And to be able to
Speaker 1: do that To make the PET that as little of
Speaker 1: a punching bag as he can, he needs to get
Speaker 1: the average person to think, yes, I understand where this
Speaker 1: is coming from, and part of that is acknowledging what
Speaker 1: he can't do. Again, I think it's a preemptive strike
Speaker 1: against what's sure to be political attacks as we get
Speaker 1: into the midterms. You know, Brad, speaking of those commodity
Speaker 1: and energy markets, the other big story today is just
Speaker 1: a huge rally in oil. This is coming as the
Speaker 1: EU is threatening to come pletely banned Russian supplies. Some
Speaker 1: of the US regional fuel inventory data show drops to
Speaker 1: two record lows in some cases, looking at West Texas
Speaker 1: intermediate oil up five and a half percent to over
Speaker 1: eight dollars of barrel. To bring it back to that
Speaker 1: equity market, obviously, energy shares have just been far and
Speaker 1: away the best performing style sector among the main ones
Speaker 1: in the SMP really the only one with with a
Speaker 1: steady positive gain this year thirty some percent for the group.
Speaker 1: Is that is that play still in place? Do you
Speaker 1: think his energy poised to really continue that out performance? Uh?
Speaker 1: Do you think as long as this Russian Ukraine situation continues.
Speaker 1: I do think it's poised to continue the apt performance
Speaker 1: for two reasons. First of all, the supply situation the
Speaker 1: world has changed. It's different this time, and I never
Speaker 1: say that it really is. You know, you have you
Speaker 1: have a very significant exporter off in the market, and
Speaker 1: depending on whether or not that does damage to their infrastructure,
Speaker 1: and there's reason to believe it will, that might be
Speaker 1: off for years. So the supply situation has changed significantly.
Speaker 1: And the other significant thing that I don't think is
Speaker 1: getting enough attention is us drillers especially, are showing a
Speaker 1: lot more capital discipline than they've done in the past.
Speaker 1: In other words, they're not just going out and going
Speaker 1: crazy and drilling. They're actually managing their capital expenditure. So
Speaker 1: we're not going to see the kind of explosion of
Speaker 1: So we gotta we gotta leave it there. Brad McMillan,
Speaker 1: chief investment officer at Commonwealth Financial Network, joining us on
Speaker 1: the phone from Waltham, Massachusetts. Thanks for listening to Bloomberg
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