Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farroll and Lisa Abramowitz.
Speaker 2: Join us each day for insight from the best an economics, geopolitics,
Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,
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Speaker 3: Join I guess right now around a table. Chris Harvey,
Speaker 3: head an equity strategy at wels Farco. Good morning, Chris,
Speaker 3: Good morning. Would you like to start with the old
Speaker 3: price target or the newer price target? Because the old
Speaker 3: price target is forty two hundred on the S and fee.
Speaker 3: You more comfortable with that than the forty four to
Speaker 3: twenty that you upgraded.
Speaker 4: At See No, we're okay with the forty four hundred right.
Speaker 4: So at the beginning of the year, what we said
Speaker 4: is our base case is forty two. Forty four is
Speaker 4: a soft landing. Doesn't look like we're going to have
Speaker 4: a hard landing this year, so we just bumped it
Speaker 4: up to forty four. The range that we think we're
Speaker 4: in is that forty two to forty six. We think
Speaker 4: we're going to spend more time at the top end
Speaker 4: of the range. Right now, we're just taking some froth
Speaker 4: on the market, repricing risk, and we're waiting to see
Speaker 4: when the bond buyers start to show up. All in
Speaker 4: yields are approaching that five to ninety level that we
Speaker 4: saw back in October. CPI is down two hundred basis
Speaker 4: points since then. It looks like the FED tightening cycle
Speaker 4: is over close to being over. Buyers should start to materialize.
Speaker 5: We'll see.
Speaker 2: What I find interesting here is you're the single best
Speaker 2: qualified person to ask this question too. In your ute,
Speaker 2: you were out in the romance of fifty four degree
Speaker 2: water clamming in Long Island to pay the bills.
Speaker 1: I want to know, and this really works.
Speaker 2: Where's your line in the sand with the equity markets
Speaker 2: right now? Where's the tension point? That's the Harvey line
Speaker 2: in the sand.
Speaker 4: You know, Tom, I'm going to like all good equity stritus,
Speaker 4: I'm going to shift in politicians. So I'm going to
Speaker 4: shift because yesterday was really really interesting. It brought me
Speaker 4: back to ninety nine two thousand. Because what happened interest
Speaker 4: rates went higher. Old economy stock went down, New economy
Speaker 4: stocks went up. That was so reminiscent of ninety nine
Speaker 4: two thousand. So when you ask me for a line
Speaker 4: in the sand, I can't give you a line in
Speaker 4: the sand because the markets are not reacting.
Speaker 2: There's a march distant from that where there was a
Speaker 2: line in the sand for all of us, which is oops,
Speaker 2: how close are we to Oops?
Speaker 4: I don't think we're close to oops. What I think
Speaker 4: is what we're saying is forty two hundred. That's the
Speaker 4: technical level. We think that level holds. We have to
Speaker 4: wait for We have to wait for rates to kind
Speaker 4: of wash out here. There's been a lot of talk
Speaker 4: about rates, but we think you should start to see
Speaker 4: buyers showing up, especially those all in buyers, pretty soon.
Speaker 4: The other thing we'd like to see is we'd like
Speaker 4: to see something from one of the FED members saying
Speaker 4: something about raids in the back end, because I don't know,
Speaker 4: maybe maybe John.
Speaker 5: Said this before.
Speaker 4: If you look at what's happened to the tenure right
Speaker 4: since the issue and since since jainat Yellen said hey,
Speaker 4: we're going to need a lot more paper, real rates
Speaker 4: have gone straight up and real rates are dried nomenal up.
Speaker 4: This has not been about fundamentals, and so we may
Speaker 4: have to wait until November to find out what the
Speaker 4: needs are. In the short term, we find out November
Speaker 4: that the needs aren't as bad, then we can find
Speaker 4: we can find some ground, we can find some bidders.
Speaker 4: But in the interim, maybe one of the FED members
Speaker 4: comes out and says, something we'll see is.
Speaker 6: The forty four to fifty call that you have predicated
Speaker 6: on the idea of rates going down or just staying
Speaker 6: where they are not moving as rapidly.
Speaker 4: Really, just what we need is we need stability. Rates
Speaker 4: don't need to go down from here. What we're seeing
Speaker 4: is the underlying fundamentals are still good. We just got
Speaker 4: through a period where we had a major conference season,
Speaker 4: we had pre announcements, The pre announcements were pretty been
Speaker 4: nign and so we think the underlying fundamentals are fined
Speaker 4: for now. So we just need rates to stop because
Speaker 4: if we don't know where the top and rates will be,
Speaker 4: we don't know where the bottom of the equity market
Speaker 4: is going to be.
Speaker 3: That's important, Chris. You don't need them to go down,
Speaker 3: you just need to stop going up.
Speaker 7: That's right.
Speaker 3: That's right, Are you seeing signs that take leadership is
Speaker 3: stabilizing based on what you identified in yesterday session?
Speaker 4: I think so. So Again, if we go back to yesterday,
Speaker 4: what happened. You had a lot of defenses roll over. Right,
Speaker 4: The defenses are rolling over because rates are going up, untilitates, utilities.
Speaker 4: There's a lot of leverage and utilities, a lot of
Speaker 4: leverage in staples. Where are people running to. They're running
Speaker 4: to uber caps. Uber caps are now seen as that
Speaker 4: safety trade. If uber caps go up, the market goes up.
Speaker 3: So it's not AI or just older the above everything
Speaker 3: to send the caps right now?
Speaker 4: Really everything in uber caps. What we do is we
Speaker 4: look at the RUSSOL top fifty, right, and you have AI.
Speaker 4: But really what you're buying is you're buying at a
Speaker 4: premium of ten to fifteen percent of the market, stable
Speaker 4: balance sheets, less volatility, better earnings with an AI kicker.
Speaker 6: And that's not that when you say yesterday it was
Speaker 6: buy the new economy, sell the old economy. I thought
Speaker 6: that was really interesting, which raises a question, are we
Speaker 6: going to just get more of the same in terms
Speaker 6: of the dynamic of the Magnificent seven or a basket
Speaker 6: of stocks that are leveraged to artificial intelligence and the
Speaker 6: new tech gains really outperforming well everything else, not only
Speaker 6: but loses value.
Speaker 7: I think.
Speaker 4: So that's been our call. So what we've been saying
Speaker 4: is that we thought you'd have a broadening out of
Speaker 4: the market in the summertime, in the spring, but that
Speaker 4: was partly because people thought, Hey, the economy's not going
Speaker 4: to be as bad as expected. What you need for
Speaker 4: small caps in mid caps to do better is a
Speaker 4: much stronger economy, and that's just not going to come
Speaker 4: to fruition. So we do think it's going to be narrow.
Speaker 4: We do think the uber caps are the ones that
Speaker 4: that apper form well.
Speaker 2: Lesa asked the question exactly where I was, But I
Speaker 2: would narrow it even further to say technology new economy
Speaker 2: that's profitable in displays free cash flow versus many of
Speaker 2: them that do not out in the zeitgeist today Ala
Speaker 2: Lori Kelvicina is a percent of Russell two thousand is
Speaker 2: not profitable.
Speaker 1: That's not Apple.
Speaker 6: Just real quick here, as you're talking about this, we're
Speaker 6: seeing tenure yields climb through introday high is going back
Speaker 6: to two thousand and seven. At what point with yields, Chris,
Speaker 6: do you rethink your assumption.
Speaker 4: Well, let's talk big picture on yields. Right, So if
Speaker 4: you look at real rates, and let's just say we
Speaker 4: go back two decades, real rates, the high end is
Speaker 4: about two percent. If you look at inflation expectations to
Speaker 4: break evens, the high is about two and a half.
Speaker 4: You've gotten above that, but not for a sustained period
Speaker 4: of time. I think maybe back in six oh seven,
Speaker 4: So two and a half plus two as best I knows,
Speaker 4: four and a half. We're in and around those levels.
Speaker 4: Now we get to five, well, the components start to
Speaker 4: then all of a sudden, what we've been seeing is
Speaker 4: real rates going higher. Now the back ends a lot
Speaker 4: more restrictive. That's going to weigh on the economy. Ultimately,
Speaker 4: that's going to sow the seeds of bringing it back down.
Speaker 4: We can get to these levels, but what's going to
Speaker 4: happen is it's going to slow down the economy a
Speaker 4: lot lot faster, and then things will come back down
Speaker 4: once the economy slows down.
Speaker 3: Hey, Chris, this was awesome. It's going to see you
Speaker 3: basically of West Faco on the Secretary Market.
Speaker 2: This is the interview of the day for Global Wall
Speaker 2: Street on where we are with bills, notes and bonds.
Speaker 1: Robert Tip out of Berkeley.
Speaker 2: They had a shingle out at First Boston a feusions
Speaker 2: few years ago. Definitive at PGEUM fixed Income chief investment strategist, Robert,
Speaker 2: Why is this moving bonds different than the other eighteen
Speaker 2: you witnessed.
Speaker 7: Well, there are similarities in their differences.
Speaker 5: The thing that you don't see very often that we're
Speaker 5: seeing right now is a change paradigm. We were in
Speaker 5: an environment for a decade post financial crisis posts European
Speaker 5: peripheral crisis, where the central tendency for the tenure Treasury
Speaker 5: was two and for the Bund it was around zero.
Speaker 5: And I think the Fed, you know, is looking at
Speaker 5: the data coming across the transom. They're saying, we need
Speaker 5: to be at five plus and we're comfortable up and
Speaker 5: around the zip code. And I think that's because they
Speaker 5: are looking at the data and the data is telling
Speaker 5: them that, you know, four is the center of the
Speaker 5: range and then need to have policy a little bit
Speaker 5: at the restricted end of the range until they get
Speaker 5: inflation down. And the SAME's going on in Europe where
Speaker 5: they're going to be engineering a higher interest rate environment.
Speaker 5: This is the end of the financial crisis, the end
Speaker 5: of the peripheral crisis, and return to more normal level
Speaker 5: of bond yields.
Speaker 2: I look at what PGUM does crudential, your work with
Speaker 2: all State for years, and it's about.
Speaker 1: A shift in the actuarial assumption.
Speaker 2: What is the new What does the next institutional pension
Speaker 2: actuarial assumption look like? Is it two hundred beeps higher
Speaker 2: from where we are now?
Speaker 7: Yeah, you know, I wouldn't worry about about them.
Speaker 5: I don't think they ever fully adjusted to the low
Speaker 5: interest rate environment. I don't think the equity markets adjusted.
Speaker 5: But I think the financial community will be fine with
Speaker 5: this level of interest rates, the financial institutions. I think investors, though,
Speaker 5: in policymakers are getting dragged kicking and screaming to the
Speaker 5: new environment, especially the investors. The biggest pitfall I would
Speaker 5: say in investing is adaptive expectations. There's a lot of
Speaker 5: distractions with the cyclical noise, the government shutdowns, each economic
Speaker 5: region being in its own business cycle having differences from
Speaker 5: the others.
Speaker 7: It's very hard for people to wrap their arms around that.
Speaker 5: And the FED readjusted they were one of the few
Speaker 5: institutions that started to believe a two and a half
Speaker 5: percent nominal FED funds rate was going to be the
Speaker 5: neutral forever, and now they're, you know, on the precipice
Speaker 5: is starting to.
Speaker 7: Move back up. Basically.
Speaker 5: You know, this environment was clear from early twenty twenty
Speaker 5: two that we could be back in a four or
Speaker 5: five six percent in straight environment. I think that's the
Speaker 5: thing that people need to wrap their heads around.
Speaker 7: Here.
Speaker 6: What you just said there four or five six percent
Speaker 6: interest rate. Are you saying that the sell off that
Speaker 6: we've seen in ten year treasuries isn't done and that
Speaker 6: you see enough momentum and frankly rationalization behind the move
Speaker 6: that yields could go beyond five percent to even six
Speaker 6: percent on the tenure.
Speaker 7: Yeah.
Speaker 5: Absolutely, I think that that's not a base case, right.
Speaker 5: But if you imagine that the best news on inflation
Speaker 5: might be behind us, we have energy prices going up.
Speaker 5: We have a unique situation where high interest rates our
Speaker 5: crimping housing supply around the world at a time when
Speaker 5: housing is in short supply. That's a very unusual configuration.
Speaker 5: You could get some bad inflation numbers, you could get
Speaker 5: a signal that higher rates are coming from central banks,
Speaker 5: and the curve shape is only ready for rates to
Speaker 5: come back down, it's not really ready for the higher
Speaker 5: for longer kind of idea that you could, you know
Speaker 5: as whether that's a one in six or one in three,
Speaker 5: you could definitely end up between five and six on
Speaker 5: the tenure. I think it's more likely we're going to
Speaker 5: head up towards five and then as we go through
Speaker 5: next year. Thankfully, the fundamental data is really moderating. The
Speaker 5: underlying trends in inflation moderating, growth moderating, and in the
Speaker 5: US less so than in other places, but even in
Speaker 5: the US it is. This battle on inflation is our
Speaker 5: economists Tromp Porcelli's fond of saying, is over and we
Speaker 5: should be seeing the rates coming back down next year.
Speaker 5: But definitely, I think we've seen a move in that
Speaker 5: range back up towards the central tendency round four, and
Speaker 5: right now fed's not convinced that the cycle's crested.
Speaker 7: So yeah, there's upside risk.
Speaker 6: Robert, you're talking about the inflation outlook. You're not talking
Speaker 6: about the fiscal backdrop, which a lot of people say
Speaker 6: was known right that we're going to have a real
Speaker 6: big supply of bond sales and not the FED picking
Speaker 6: up the other side. Is that one of the main drivers,
Speaker 6: or is this just fundamentally the data has been coming
Speaker 6: in better than expected and this is an economy that
Speaker 6: needs a five percent ten year yield, not a three
Speaker 6: and a half percent one.
Speaker 8: Yeah.
Speaker 5: I think up until you know the turn of the century,
Speaker 5: you know, the supply bulges weren't that big. But since
Speaker 5: the financial crisis COVID, the fiscal situation is huge. Globally,
Speaker 5: we're dealing with governments that have much bigger guest stocks,
Speaker 5: much more rollover, and we've just come into the QT
Speaker 5: period where that means the central banks are no longer
Speaker 5: coming in and scooping up big chunks of the auction.
Speaker 5: So the markets now are forced to think about think
Speaker 5: hard about where things are every day, and on a
Speaker 5: day like yesterday, there were no treasury auctions of long
Speaker 5: term notes and VODs, but I think there's over one
Speaker 5: hundred billion in bills, so.
Speaker 7: There is a relationship there.
Speaker 5: It tends to make curves steeper, it tends to make
Speaker 5: treasuries cheapen a relative to what's the true underlying riskless
Speaker 5: rate in the market, And I think that is one
Speaker 5: of the minor upward pressures contributing to the sellof We've
Speaker 5: seen that with the downgrade, we saw it with the
Speaker 5: refunding announcement and the other big drivers the FED that's
Speaker 5: dragging the markets kicking and screaming to the reality that
Speaker 5: we're going to be up in the zip cub you know,
Speaker 5: for rates for some time to come.
Speaker 3: Notice Cove, We've been in for a long long time.
Speaker 3: Robert Saff Thank you of Page and fixed.
Speaker 7: And come.
Speaker 2: On. The Conference Board is absolutely definitive on the pulse
Speaker 2: of business in America. Dana Peterson is a chief economist
Speaker 2: of the Conference Board. Dana, what's business doing right.
Speaker 1: Now with this yield move?
Speaker 8: Well, I think businesses are looking at the fact that
Speaker 8: the cost of capital is rising and they're starting to
Speaker 8: pull back on investments. And certainly, when we look at
Speaker 8: our consumer well our CEO confidence measure, many CEOs, even
Speaker 8: eighty four percent, think that there's still going to be
Speaker 8: a recession coming, and they're starting to think about what
Speaker 8: they're going to do with investments. But surely they are
Speaker 8: still holding on to workers and they're still hoarding I look.
Speaker 2: At this and to me and this goes to the
Speaker 2: Conference Board research, and that is a log convexity of
Speaker 2: this real rate. This new environment we're in, the rate
Speaker 2: of change. The speed of movement is shocking. Do you
Speaker 2: see that in the conference board research.
Speaker 8: Well, I mean, certainly, when we ask consumers what they're
Speaker 8: really concerned about, deep in the weeds, they are saying
Speaker 8: that they are concerned about higher interest rates and what
Speaker 8: that means for purchasing items, especially big ticket items that
Speaker 8: you need to finance. But the thing is that they're
Speaker 8: still mainly concerned about inflation, and certainly they're becoming more
Speaker 8: worried about the labor market.
Speaker 6: The fact that there is more concern about inflation, if
Speaker 6: there is more concern about hiring enough workers, does that
Speaker 6: just sort of solidify to you that we are not
Speaker 6: going to get a recession in the near term, that
Speaker 6: we can keep going the way we are, just simply
Speaker 6: because they keep seeing the customers, they keep seeing the sales.
Speaker 8: Well, I think we're seeing some slowing and sales. Certainly,
Speaker 8: when retail sales came out in August, they were weaker,
Speaker 8: and I think the consumer is going to be faced
Speaker 8: with a number of hurdles. Certainly, just as of this weekend,
Speaker 8: student loan payments returned, and that's roughly forty four million
Speaker 8: people impacted. Many of those people between the ages of
Speaker 8: thirty five and forty nine. Those are peak spending years.
Speaker 8: And so when you add that on to the fact
Speaker 8: that excess savings is running out many consumers who already
Speaker 8: spent that money or turning to credit card use, all
Speaker 8: these things bode poorly for the consumer, and certainly with
Speaker 8: higher interest rates still yet to impact the consumer spending,
Speaker 8: we think that we're still headed for a short and
Speaker 8: shallow recession, probably in the first half of next year.
Speaker 6: The key component that we've been looking for is the
Speaker 6: labor market. We are going to get the Jolt data
Speaker 6: coming out at ten am today. There is a question
Speaker 6: about whether some of the wage increases that people will
Speaker 6: keep seeing will offset the inflation, will actually be real
Speaker 6: positive wage growth, which we actually started to see in
Speaker 6: the past number of months. Do you foresee that being
Speaker 6: the new reality just because of the structural tightness of
Speaker 6: the labor market.
Speaker 8: Well, you have two things going on. Wage growth is slowing,
Speaker 8: especially in services, not so much in those jobs where
Speaker 8: you have to physically show up to work, and you're
Speaker 8: losing older experienced workers but inflation is coming down at
Speaker 8: least underlying inflation, and so there is an offset. And
Speaker 8: for the first time we've had several months of.
Speaker 3: Real wage gains.
Speaker 8: But still in all when we ask consumers what are
Speaker 8: you most worried about, they're still complaining about food and
Speaker 8: energy prices. And we know that energy prices are rising
Speaker 8: because OPEC is pulled back on production, and so that
Speaker 8: tends to that's a bread and butter type issue. And
Speaker 8: for many consumers it doesn't matter what's going on. If
Speaker 8: it costs more to fill up your tank and it
Speaker 8: costs more to fill up your grocery cart, then the
Speaker 8: world is not a great place.
Speaker 6: This is the reason why some people are worried about
Speaker 6: a wage price viral, because you're seeing the activity of
Speaker 6: labor unions coming out saying we're not keeping pace with
Speaker 6: those increases at the pump, with those increases at the
Speaker 6: grocery store, and they're demanding higher wages and they're getting them.
Speaker 6: How much are you watching this with interest to highlight
Speaker 6: how much we could see wages continue to go up
Speaker 6: at a significant pace just simply to offset that pain
Speaker 6: that you're talking about.
Speaker 8: Sure, I think the key thing is that the number
Speaker 8: of people who are in unions now is much lower
Speaker 8: than in the past. So I don't imagine that the
Speaker 8: actions that we're seeing and increases in wages due to
Speaker 8: union actions are necessarily going to spiral out of control
Speaker 8: and filter throughout the rest of the economy. But like
Speaker 8: I said, we are seeing wage growth slow. Last year,
Speaker 8: wage growth was really outsized more than it could be
Speaker 8: sustained by businesses. So we're going to see that slow
Speaker 8: to a more sustainable pace.
Speaker 1: Dana, what are we going to see in the jobs report?
Speaker 1: I'm asking for a friend.
Speaker 8: Well, I don't know what the numbers are, but I
Speaker 8: would not be surprised if we saw slowing, continued slowing
Speaker 8: in the number of payroll gains, certainly compared to last year.
Speaker 8: Just looking at the three parts of the labor market,
Speaker 8: you're still going to have a lot of hoarding, but
Speaker 8: we're probably going to continue to see job losses in
Speaker 8: those sectors that did very well during the pandemic and
Speaker 8: are not doing so well now. And then also some
Speaker 8: gains continued gains and healthcare and some in leisure and
Speaker 8: hospitality and.
Speaker 2: Near emails in he says, but what about the real wage? Okay,
Speaker 2: so you got the doom and gloom. Dana Peterson, wage decline,
Speaker 2: I get it, but I also got disinflation. Do I
Speaker 2: have a level or even an increasing inflation adjusted wage?
Speaker 8: Well, I think well depends on your inflation gage. If
Speaker 8: you use headline, it's probably about level or maybe even
Speaker 8: a decline a bit, because like I said, overall inflation
Speaker 8: is rising because of gasoline prices. But if you use
Speaker 8: the core, then you probably will see some easing or
Speaker 8: rather some improvement in weight real adjusted wages.
Speaker 1: Dana, thank you so much.
Speaker 2: Dana Peterson with the conference board here on the American economy.
Speaker 3: There's new weight loss drugs hit the market. Sheila Kayalu
Speaker 3: of Jeffreys crunching the numbers and writing this, United Airlines
Speaker 3: would save eighty million dollars a year if the average
Speaker 3: passenger weight falls by ten pounds. This would trim one thousand,
Speaker 3: seven hundred and ninety pounds from every United flight, implying
Speaker 3: a saving of twenty seven point six million gallons a year.
Speaker 3: TK there's some big numbers.
Speaker 2: This is important, and Johan Farre will bring in our
Speaker 2: next guest, John, I'm gonna do some research, are you.
Speaker 2: My father died and I had to take on very
Speaker 2: short notice an economy trip. I didn't have a choice
Speaker 2: get on a plane, Prima Donna, like I had to
Speaker 2: go to economy.
Speaker 1: And I can report to you.
Speaker 2: With surveillance analysis, which is appropriate for someone who owns
Speaker 2: electrical equipment at credit sweee and now with Jeffrey Sheila Kayalu,
Speaker 2: that the economy width of a United seat is sixteen
Speaker 2: point eight inches and business class is a lofty twenty
Speaker 2: point seven inches. I had to sit up the entire
Speaker 2: way to Oregon on the unrest because I literally couldn't
Speaker 2: get in a seat.
Speaker 1: Take care of that SHOKEI it's worst in Fenway Park.
Speaker 3: That's Brad sail SHADOWE place to say is with us
Speaker 3: now shadea good morning.
Speaker 9: Thanks.
Speaker 3: Let's start here. How did this study start? What are
Speaker 3: you assuming? What are the underlying assumptions that go into
Speaker 3: all of this?
Speaker 9: So kudos to the Jeffreys Equity Research Department for pulling
Speaker 9: this piece together with thirty analysts across the department. And
Speaker 9: of how you know weight loss drugs could potentially be
Speaker 9: helpful and ackful to industries and for airspace and defense
Speaker 9: and airlines. You know airlines are constantly trying to save fuel.
Speaker 9: Fuel is twenty five percent of their costs. It's something
Speaker 9: out of their control. Fuels up thirty percent, the stocks
Speaker 9: are down twenty percent in the last three months, and
Speaker 9: the engine manufacturers like Raytheon, Pratt and GE are having
Speaker 9: trouble getting the fuel efficiency cross. So we said, what
Speaker 9: if something out of their control happens and one hundred
Speaker 9: and seventy five people on the flight lose ten pounds
Speaker 9: because of ozenfic or whatever, you know, diet that they're on,
Speaker 9: and what does that do? And we took a stat
Speaker 9: going back to twenty eighteen that poor United Airlines put
Speaker 9: out there. They saved an ounce on every passenger seat
Speaker 9: from taking out changing the feedstock of the paper that
Speaker 9: they used on their United Airlines magazine and saving eleven
Speaker 9: pounds for per flight. What yeah, And so we extrapolated
Speaker 9: that into ten pounds per passengers one hundred seventy five
Speaker 9: people per plane. What happens to the fuel savings? They
Speaker 9: saved twenty seven million versus the forty two billion that
Speaker 9: they use. So they use a lot of fuel. It's
Speaker 9: only two percent, but hey, it's a savings out of
Speaker 9: their control, and you don't need a new engine for that.
Speaker 3: So this is a what if. Are you prepared to
Speaker 3: say that this is a proxy now for a zenpic
Speaker 3: and we should get long United Airlines? Are you there yet?
Speaker 9: I think across the airline space, variable costs is very
Speaker 9: difficult for them to manage with fuel going up, so
Speaker 9: in all seriousness, that is impacting shares of the airlines.
Speaker 9: So far, labor costs are up forty percent as well,
Speaker 9: so with their with fifty percent of their costs up
Speaker 9: significantly over the last few months. It's definitely weigh on
Speaker 9: the airlines and we're going to see that into q
Speaker 9: Q three earnings that are coming up in two weeks time.
Speaker 9: But you know, the cost element is weighing and also
Speaker 9: the revenues are as well as a pricing problems.
Speaker 2: Lisa, the surveillance golf stream unner less soire I had
Speaker 2: to go back and actually it's about Kirby air Kirby
Speaker 2: United Airlines. I was thunderstruck at the percent of business
Speaker 2: class seats. The more I look back, it's bigger and bigger.
Speaker 2: One study is they've gone from thirty seats to forty
Speaker 2: six seats. When is time where business class simply takes
Speaker 2: over their profit proposition.
Speaker 9: So what's going on in the airline industry right now?
Speaker 9: It's the haves and the have nots. For the first
Speaker 9: time in such a long time, the network carriers like
Speaker 9: United and Delta are having their way because that premium
Speaker 9: passenger is holding up the pricing element, and the mainline
Speaker 9: cabins are actually seeing price deceleration year over year and
Speaker 9: over capacity to leisure markets like Florida. So you're really
Speaker 9: seeing a tale of two markets where Southwest, Jet Blue
Speaker 9: are pre announcing pretty negative results on their visibility and
Speaker 9: Delta and United are seeing premium pricing happen. So that's
Speaker 9: because of the business class.
Speaker 6: Let's put that together, this idea of the potential for
Speaker 6: weight loss to improve the margins for some of these companies,
Speaker 6: and the idea that a lot of the companies are
Speaker 6: earning the most from the front of the cabin, how
Speaker 6: much can they really push in terms of extra expenses
Speaker 6: before they have a real pr problem. In other words,
Speaker 6: what would happen if you had a company come out
Speaker 6: one of the discount carriers and say we're going to
Speaker 6: weigh everybody before they get on the plane, and if
Speaker 6: you're over this point, we're going to charge you more.
Speaker 9: I mean, I think that's part of the problem with
Speaker 9: the discount carriers is you know, there's no seat assignments.
Speaker 9: It's a lot more difficult. There's no variability in the
Speaker 9: class you set in. So I think we're far away
Speaker 9: from weighing passengers.
Speaker 3: But this was just we white backs done. We Yeah, well,
Speaker 3: you know they weigh backs. You get punished if your
Speaker 3: back is too heavy, don't you.
Speaker 6: Well, okay, but this to me is the issue. It's like,
Speaker 6: how much can people handle? How much can people put
Speaker 6: up with? Paying for water, paying for drinks, paying for snacks,
Speaker 6: paying for the air you breathe, paying for how much
Speaker 6: you weigh? I mean, at a certain point, you know,
Speaker 6: when does this become a real problem.
Speaker 3: But ten pounds of weight loss? What does that ten
Speaker 3: pounds come from? You make an assumptions of what could
Speaker 3: happen to the average weight of the passenger. Do you
Speaker 3: think that's something actually could happen?
Speaker 9: Yeah, I think according to these waste loss drugs. Clearly
Speaker 9: I'm not on them, but you know people tend to
Speaker 9: be on them. But if they do lose an average
Speaker 9: of ten pounds, one hundred and seventy five passengers per
Speaker 9: narrow wide bodies are three hundred, it would be a
Speaker 9: significant fuel cost savings. And it was actually in light
Speaker 9: of because we cover the airlines, the aircraft OEMs like
Speaker 9: Boeing and the engine guys like GE and RTX, and
Speaker 9: they're having such mega issues building these aircraft. It was
Speaker 9: just a fun way of looking at something that's completely
Speaker 9: out of their control, not having you to do with
Speaker 9: making a fuselage with Spirit that stocks down forty five percent,
Speaker 9: just changed its CEO yesterday. And the engine manufacturers, obviously
Speaker 9: Pride is having a tough time with the contamination in
Speaker 9: their engine.
Speaker 3: So there's a.
Speaker 9: Different angle of looking at something completely out of their control.
Speaker 3: Yet Blue struggling as well. So let's get to the
Speaker 3: nuts and bolts of what's happening right now. Are you
Speaker 3: starting to see limits to the consumer appetite for flying
Speaker 3: domestically in America? We've seen that happen now.
Speaker 9: So it's a matter of that's our debate in Q three.
Speaker 9: We're going to see what results have to bring. We
Speaker 9: downgraded Southwest Airlines to an underperform in the beginning of
Speaker 9: August on that structural call that the US domestic consumer
Speaker 9: is in a tough spot. Student loans are coming back,
Speaker 9: it's weighing on their savings, so that mainline cabin passenger
Speaker 9: is going to see some difficult times. You know, pricing
Speaker 9: is up about ten percent versus twenty nineteen levels. We
Speaker 9: saw Q two pricing on the mainline cabin down one percent,
Speaker 9: very different than the story we're seeing in the premium
Speaker 9: business class cabin. Very different than Transatlantic up twenty five
Speaker 9: percent versus twenty nineteen levels. So it's a matter of
Speaker 9: where we you know, what we see in Q three results, John,
Speaker 9: I look at two flights.
Speaker 2: I just ran through the Paris flight, which I think
Speaker 2: at one point was seven thousand dollars even nine thousand
Speaker 2: dollars in pandemic and all that shocking statistic. Two thousand,
Speaker 2: six hundred and twelve dollars business class to Paris out
Speaker 2: a couple months, Like when you're planning months out, economy
Speaker 2: used to be seven hundred and even nine hundred dollars.
Speaker 2: It's now five thirty four, but the ratio is still
Speaker 2: four point nine to one. You pay a premium to
Speaker 2: fly Pharaoh.
Speaker 3: You pay a premium, just to be clear, just to
Speaker 3: be Mary Claar Shita, thank you. Thanks Gs Kyler of Jeffray.
Speaker 2: With the support of Ray Dalio in Greenwich, Connecticut, they
Speaker 2: have put together an annual soiree come October. The Greenwich
Speaker 2: Economic Forum really can't say enough about that. Behind that
Speaker 2: and support as their governor Ned Lamont. He is the
Speaker 2: governor of Connecticut and of course has a storied history
Speaker 2: here of doing business and attempting to keep business within Connecticut.
Speaker 2: Of course, all the idea of the transfer of Connecticut
Speaker 2: to maybe a greater New York business as well. Governor,
Speaker 2: thank you so much for joining surveillance this morning. What
Speaker 2: are you going to do about Florida? What are you
Speaker 2: going to do about somebody in an X million dollar
Speaker 2: palace in Greenwich or someplace else, or somebody in one
Speaker 2: hundred and twenty two thousand dollars rental paying four thousand
Speaker 2: bucks a month in Connecticut and both these people say
Speaker 2: I'm moving to Florida.
Speaker 1: What are you going to do about it?
Speaker 10: I'm good to see you. First of all, this is
Speaker 10: not a soiree. This is a hard working group for
Speaker 10: the French Economic Forum. We have a lot of fintech
Speaker 10: and financial services here expanding here, moving here. You're right though,
Speaker 10: a lot of these firms also have a foot down
Speaker 10: in Florida, so there's a little bit of a competition
Speaker 10: Greenwich and Stanford and Miami. You know, when it comes
Speaker 10: to housing prices, we're very competitive when it comes to
Speaker 10: workforce and you know, young well educated folks ready for
Speaker 10: the fintech world. Connecticut is very competitive there and we've
Speaker 10: had tens of thousands of new families move into the
Speaker 10: state of Connecticut, you know, in each of the last
Speaker 10: few years, so I think we're making progress. A lot
Speaker 10: of people want to be here.
Speaker 2: What is your most effective text policy over the next
Speaker 2: five years to compete with the American South?
Speaker 10: Did you say tech or tax techs?
Speaker 1: TA tax policy Connecticut?
Speaker 2: I don't know if you're aware they have a few
Speaker 2: marginal taxes, to say the least.
Speaker 1: What are you going to do about tax policy in Connecticut?
Speaker 10: Well, look, I don't think we'll ever be as cheap
Speaker 10: as far than when it comes to taxes, because they
Speaker 10: can tax sunshine and tourism. But we have an amazing
Speaker 10: education system, which is a big plus. We just reduce
Speaker 10: taxes for everybody earning up to about two hundred and
Speaker 10: fifty thousand, so we're the lowest in the region, so
Speaker 10: we're making a real progress there. We've eliminated the estate
Speaker 10: tax for everybody except for the very top five percent
Speaker 10: of people, So I take that too account. But I
Speaker 10: also have to sell Connecticut on the attributes. And that's
Speaker 10: not just the lifestyle. That's not just the easy access
Speaker 10: to New York or Boston, great place to visit, wouldn't
Speaker 10: want to live there, but also the quality of education
Speaker 10: system and our workforce.
Speaker 6: How difficult, governor is it to really build up Connecticut
Speaker 6: at a time where they are where you are losing population,
Speaker 6: when borrowing costs are where they are, where you don't
Speaker 6: have the leeway of borrowing to build so that they
Speaker 6: will come.
Speaker 10: Well, look, let's fasten. We were flat as a pancake
Speaker 10: for thirty years there, and you're absolutely right. We were
Speaker 10: losing population. A lot of the older folks were going
Speaker 10: down to Florida. That's turning around a bit. You know,
Speaker 10: during the COVID days, our schools were open. A lot
Speaker 10: of folks moved into the state, A lot of them
Speaker 10: came from New York, to be blunt about it, and
Speaker 10: they stayed. So our schools were expanding. You know, the
Speaker 10: biggest shortfall I've got is housing. I got to make
Speaker 10: sure we have enough housing for people here.
Speaker 6: There's a problem though, with businesses. I mean Frontier Communications
Speaker 6: was the latest going to I believe Dallas from Norwalk, Connecticut.
Speaker 6: I mean some businesses are looking for that tax advantage
Speaker 6: as well. It's not just older people in particular. I
Speaker 6: just am wondering how much you can really cater to
Speaker 6: the tax side of the equation when you can't plug
Speaker 6: the gap on the borrowing side simply because of where
Speaker 6: yields are.
Speaker 7: Well.
Speaker 10: I can tell you that Frontier, which was nearly bankrupt,
Speaker 10: did move their corporate headquarters, but you know, all the
Speaker 10: staff is still here. But you know, Citadel and Apollo
Speaker 10: and Digital Currency Group and Tomo all moved to the state.
Speaker 10: We're taking sort of an older economy and slowly moving
Speaker 10: into a newer economy. So I like the trend there.
Speaker 10: You're absolutely right. Look, Texas is a variable. New England
Speaker 10: Northeast is more expensive than the sun Melters. I call
Speaker 10: it the hot belt. But we're getting more competitive every day,
Speaker 10: and I think our workforce is a big advantage.
Speaker 3: Governor, do you have a migrant crisis?
Speaker 10: No, I wouldn't say it's a crisis, but I watch
Speaker 10: it carefully. We've had a few thousand migrants come. We
Speaker 10: have a bit of a waiting list, but for us,
Speaker 10: a waiting list is going from three weeks to three months.
Speaker 10: It's not what it is you know, New York and Texas,
Speaker 10: But we watch it carefully. They've got to get to
Speaker 10: control the border. Just the deal.
Speaker 3: You're a sanctuary state, aren't you am?
Speaker 10: I right, No, that's not true, but we do have
Speaker 10: a couple of cities that claim that. But this is
Speaker 10: not a sanctuary state. We do take care of people
Speaker 10: in need when they come to the state. But again
Speaker 10: I think that said, we've got to get control of
Speaker 10: the border.
Speaker 3: What do you make of the attitude changes in places
Speaker 3: like New York with a year or sub ago that
Speaker 3: were welcoming migrants and people seeking asylument and now they
Speaker 3: seem to be turning them back on that. Now they
Speaker 3: actually have to confront what that looks like.
Speaker 10: I think a monitor is a liberal who is rugged
Speaker 10: by reality. When New York City has, you know, hundreds
Speaker 10: of thousands of new mirgrants, you've got to take care
Speaker 10: of You've got to shelter. Kathy Holkals has been very
Speaker 10: outspoken on this, as has Eric Adams. You got to
Speaker 10: get these people that they're there either going to be
Speaker 10: a welfare they're gonna have to be able to get
Speaker 10: a job. It all circles back to the fact that
Speaker 10: you've got to control your border.
Speaker 3: We sank Governor that what we saw for much of
Speaker 3: the last several years around this issue was purely just
Speaker 3: virtue signaling without a price, and that had now been
Speaker 3: mucked by reality.
Speaker 10: Well, let's face it, we've had a lot of vibrant
Speaker 10: coming across the border, you know, going back to Donald
Speaker 10: Trump and caravans of terrorists whatever he said, But that said,
Speaker 10: we've got to control that. Part of that is what
Speaker 10: you do at the border. Maybe you recognize Venezuela and
Speaker 10: do some things to mitigate the pressure for people wanted
Speaker 10: to come into the United States.
Speaker 2: That I'm absolutely thrilled to find.
Speaker 1: How we're going to save banking in the Northeast.
Speaker 2: As you know, you had six football field platforms of
Speaker 2: ubs long ago and far away in Stamford, and that's
Speaker 2: sort of It's not that it didn't work out, it's
Speaker 2: just technology advance forward with work from a home with technology,
Speaker 2: how does Connecticut stay financial.
Speaker 10: I think work from home Tom is a good trend
Speaker 10: for us in the sense that we used to have
Speaker 10: everybody commuting back and forth and into the city and
Speaker 10: down the Wall Street and the long haul and men.
Speaker 10: As you point out, a lot of want of the
Speaker 10: be closer to a home, so they move some of
Speaker 10: their headquarters out of here. What we're finding is, maybe
Speaker 10: you're in the city two three days a week. Our
Speaker 10: Metro North trains on Friday are not crowded at all.
Speaker 10: In fact, they're virtually empty. We're going to cut down
Speaker 10: there a little bit, just because people have a different lifestyle.
Speaker 10: And I think the fact that you can be closer
Speaker 10: to home out here in Connecticut and you don't have
Speaker 10: to do that commute five days a week is a
Speaker 10: big plus for the Connecticut lifestyle.
Speaker 3: Governor, I appreciate the update today. Let's do this again soon,
Speaker 3: Governor an I'm on of Connecticut.
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Speaker 1: Thanks for listening. I'm Tom Keen, and this is Bloomberg