Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
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Speaker 1: academics on statistics in Central Limit. Theomor Sobrada Rajapa joins
Speaker 1: us now without Question on debt Our Conversation of the day,
Speaker 1: Head of US Right Strategy at the Derivative Force Society General.
Speaker 1: So I'm gonna cut to the chase and go a
Speaker 1: little bit Matthey here and the equity markets, we talk
Speaker 1: about a collar maybe even in commodity markets, we talk
Speaker 1: about a collar trend of copper, live, catt or whatever.
Speaker 1: What is your world like when the two year yield
Speaker 1: is collared? How do you respond to abandoned trade on
Speaker 1: yield in the derivative space?
Speaker 2: So basically you point as you pointed out, I mean, Tom,
Speaker 2: you have you know, all yields across the curve and
Speaker 2: the treasury market have been very range. Found you're looking
Speaker 2: at a range for two years around four percent maybe
Speaker 2: four and accorded to three seventy five. Same with tenure
Speaker 2: as well. It's been in a very very tight range.
Speaker 2: So really what that tells me, broadly speaking, is that
Speaker 2: there's really no strong conviction in the market on yields
Speaker 2: going either you know, monotonically higher or lower, broadly speaking,
Speaker 2: because of the fact that we're stuck between a rock
Speaker 2: and a hard place. In some respects, the data that
Speaker 2: we've gotten so far has been very very strong. The
Speaker 2: consumer is resilient, the employment pictures is relatively strong, inflation
Speaker 2: is sticky. That would all argue for much higher years
Speaker 2: from your on, But then you have the dead seating overhand,
Speaker 2: the regional banking crisis, as well as rates being policy
Speaker 2: rates being high and sticky, that would argue for perhaps
Speaker 2: lower years over the longer ud. So we're kind of
Speaker 2: stuck in this range because of that.
Speaker 1: When you are stuck, can you model out for higher
Speaker 1: in the case of where we are in the range
Speaker 1: right now, can you model out a bet for a
Speaker 1: higher yield and lower price.
Speaker 2: It's hard because ultimately what you're looking at, especially in
Speaker 2: this environment is for the FED to pause. We're not
Speaker 2: talking about perhaps a pause, a skip, and then another
Speaker 2: height later on this year. Perhaps all that means is
Speaker 2: that if policy is going to remain restrictive for the
Speaker 2: remainder of the year, then that would mean ultimately that
Speaker 2: you're going to see a slow down in the economy.
Speaker 2: That's kind of what the FED wants to achieve in
Speaker 2: order to bring down inflation, and that will ultimately mean
Speaker 2: lower yels. So we have a recession considered at for
Speaker 2: early twenty twenty four. The economy looks relatively robust a
Speaker 2: part of that point on, but then once we do
Speaker 2: go into a recession, the FED is going to have
Speaker 2: to cut greids. So the ultimate destination is perhaps for
Speaker 2: lower yels. The path between here and there is uncertain,
Speaker 2: given the fact that you have a lot of dynamics
Speaker 2: to get through over the short term as well as
Speaker 2: the medium term.
Speaker 3: So Badria mentioned the regional banking crisis is potentially helping
Speaker 3: to drive down inflation or regional banking crisis, it seems
Speaker 3: like it's stabilized. We sweem to swing between it not existing,
Speaker 3: not having ever percolated, and suddenly still being a full
Speaker 3: blown issue that's going to help the FED, which is it?
Speaker 2: So the regional banking crisis, broadly speaking, the headlines have
Speaker 2: definitely abated. You're seeing a little bit more stability in
Speaker 2: the banking sector. But broadly the transmission mechanism from the
Speaker 2: regional banking crisis is going to come from the credit
Speaker 2: crunch or tighter credit conditions. It's going to come from
Speaker 2: a greater regulation if you will, of both the smaller
Speaker 2: mid six as well as the larger banks that would
Speaker 2: broad speaking, would.
Speaker 4: Tighten credit conditions.
Speaker 2: As we progress through the year, you're seeing mortgage rate
Speaker 2: start to rise. You're seeing real yields around one point
Speaker 2: four percent, so that's also risen in the last few weeks.
Speaker 2: So broadly speaking, I think higher yields as well as
Speaker 2: tighter regulatory framework, it should lead to tighter credit conditions
Speaker 2: over the remainder of the years. So yes, it might
Speaker 2: not be a crisis in the regional banking sector as
Speaker 2: of now, but tighter credit conditions conditions I hear to stay.
Speaker 3: Do you believe that right now that's going to perhaps
Speaker 3: constrain yields going forward? That that's really the key feature
Speaker 3: the H eight reports that come out on Friday that
Speaker 3: determine really what that band is the yields can trade within.
Speaker 2: Yeah, I think over the near term yields are definitely constrained.
Speaker 2: You're probably going to see an environment where the two
Speaker 2: year is going to struggle to get past for and
Speaker 2: a quarter percent, because that would imply the market pricing
Speaker 2: out a lot of the cuts are priced in, perhaps
Speaker 2: even starting to price in for hikes at upcoming meetings.
Speaker 2: That doesn't seem to be in the cards. Powell seems
Speaker 2: to be squarely in the in the in the camp
Speaker 2: of pausing rates at least in the June meeting and
Speaker 2: then taking a meeting by meeting thereafter. Uh So, in
Speaker 2: that sort of context, I think two years are going
Speaker 2: to struggle to rise meaningfully from here. And as far
Speaker 2: as the long end it's concerned, it's much more pegged
Speaker 2: to the outlook for growth not just in the US
Speaker 2: but also globally. China has had a good year this
Speaker 2: year for for growth GDP is going to be positive,
Speaker 2: but again for upcoming years, you're looking at a meaningful
Speaker 2: store round and not just US but also global growth
Speaker 2: that should kind of heap the long and pegged and
Speaker 2: then ultimately decline over the coming uh you know, months
Speaker 2: as well as the next year.
Speaker 5: Well fair speak through today. I can't white bulloud, bustic
Speaker 5: daily speaking throughout this morning and the afternoons. Savatra, thank you, Sabato,
Speaker 5: Yeah for that of SLK gen.
Speaker 1: Christopher Marinac joins Director of Golf Jenny Montgomery Scott. He's
Speaker 1: not here to talk bank stocks, he's here to talk.
Speaker 1: We saw okill in the PGA this weekend, and you
Speaker 1: like live next door to Augusta as well. Very cool.
Speaker 1: I mean, give us a little vignette here after this
Speaker 1: spectacular weekend of golf, including a hole in one by
Speaker 1: the PGA pro from California. Give us a picture of
Speaker 1: your Augusta. What's it look like.
Speaker 6: It's the prettiest place on earth, but it's also a
Speaker 6: golf course that actually gets totally taken apart in the summertime.
Speaker 6: So when they close next week, they'll be closed for
Speaker 6: three four months and they'll take the entire place apart
Speaker 6: and redo the greens, redo a lot of things. Certainly
Speaker 6: fix up a few trees that fell.
Speaker 7: Back in April.
Speaker 6: But it's an incredible piece of property.
Speaker 1: It may be a place to relax when you're dealing
Speaker 1: with the bank stocks as well. Are you at any
Speaker 1: point a master's relaxation about the banking crisis or is
Speaker 1: it still very vivid on a Monday morning.
Speaker 7: Well, it's early innings. We have a lot of to go.
Speaker 6: I mean, we still have a recession to find and
Speaker 6: then real estate to work through. And the banks I
Speaker 6: think will continue to make money throughout this whole journey,
Speaker 6: but they certainly have issues to deal with the next
Speaker 6: three years.
Speaker 3: It seems like the move is toward greater capital requirements.
Speaker 3: We're hearing that from Neil Kushkari today and we got
Speaker 3: a little hint of that today from the JP Morgan
Speaker 3: investor day. What did we hear from them?
Speaker 6: Well, jpm morgan talks about their fortress balance sheet all
Speaker 6: the time, so you know their slides are no different
Speaker 6: this morning about that. I think their leadership position in
Speaker 6: the banking industry is second to none, and so they're
Speaker 6: going to continue to remind everybody the capital is king.
Speaker 7: The stress tests come out.
Speaker 6: In about a month and my sense is the Fed's
Speaker 6: going to pass most, if not all, the banks, but
Speaker 6: they're going to politely ask for more comfort capital and
Speaker 6: require banks to raise additional equity, which banks I think
Speaker 6: the banks and the stress test, and then that will
Speaker 6: get pushed down to regional banks. So you know, pretty
Speaker 6: much the rules work that anything that happens at the
Speaker 6: top twenty banks will get pushed down to the next
Speaker 6: twenty in the next twenty, so it kind of falls
Speaker 6: from the top down.
Speaker 3: We talk about the potential for just profitability constraints within
Speaker 3: some of the regional banks. How much will the profitability
Speaker 3: be further constrained and their lending mechanisms be curtailed if
Speaker 3: there is greater carapital requirements foisted on them by the Fed.
Speaker 6: Well, capital is going to naturally improve for the banks
Speaker 6: because of retained earnings, and I think there's a slight
Speaker 6: comeback on their equity securities just because you have natural
Speaker 6: amortization and payoffs of their at HTM and available for
Speaker 6: sale securities. The challenge is going to be that raising
Speaker 6: additional capital to cover what could be a future credit
Speaker 6: cycle in twenty four and twenty five. That's why the
Speaker 6: capital I think goes up. We still have those unrealized
Speaker 6: losses that are not going to go to zero, They're
Speaker 6: just going to get incrementally better.
Speaker 1: But should people buy individual stocks ETFs BKX. What's the
Speaker 1: intelligent way to play this three years out.
Speaker 6: Well, I think a basket of stocks across all market
Speaker 6: caps makes sense. It's not just the large cap I
Speaker 6: think looking at MidCap and small community banks makes a
Speaker 6: bunch of sense. A lot of those are even cheaper
Speaker 6: than the regional banks that have been hit. My sense
Speaker 6: is that there is a real opportunity these companies, many
Speaker 6: of which are trading below tangible book value and tanswill
Speaker 6: book values growing.
Speaker 5: Every now and again, TK and I take a stroll
Speaker 5: at Park Avenue. Brahma doesn't like to be with us publicly,
Speaker 5: and when T and I woke up, this is pretty popit,
Speaker 5: Guys's true, just saying like on air, but not outside
Speaker 5: of the building. We go at Park Avenue and we
Speaker 5: go past the First Republic. On the next corner, the
Speaker 5: next block is a Chase Private Client. Almost immediately true.
Speaker 5: And on those screens in First Republic, they're playing Bloomberg.
Speaker 5: And often't always think of them, because you know, right
Speaker 5: now we're talking about them, and they're looking up at
Speaker 5: those screens and they're watching us talk about them. Can
Speaker 5: you tell me what's going to happen? With those branches,
Speaker 5: does anyone know.
Speaker 6: I think they'll stay the same for probably a year
Speaker 6: or two and quietly change gears, maybe become a second
Speaker 6: GP Morgan office. Maybe they'll become something else. Most likely,
Speaker 6: it's going to be a slow play.
Speaker 5: You don't think they're just going to immediately come out
Speaker 5: with a knife and just cut all these branches and
Speaker 5: close them.
Speaker 7: I don't think so. They gave expense guidance this morning.
Speaker 6: That's the same that they had before, excluding the FRC.
Speaker 3: We heard from Jennet Yellen that there is going to
Speaker 3: be market soolidation akin to that First Republic getting acquired
Speaker 3: by JP Morgan. How much more it is JP Morgan
Speaker 3: still in the business of acquiring or is it going
Speaker 3: to be sort of the other Bank of America, the
Speaker 3: other big banks.
Speaker 6: I think it might be nothing. Actually, I think that
Speaker 6: the consolidation may have already happened, because you have three
Speaker 6: banks that failed in March and April, and that represents
Speaker 6: about four percent of the assets for those big regional banks.
Speaker 7: You know.
Speaker 6: The interesting thing to me is if you look at
Speaker 6: the top twenty five banks in the country, they represent
Speaker 6: two thirds of the assets in the FDIC deposits, So
Speaker 6: why do we need consolidation when you already have two
Speaker 6: thirds held there? So I think the consolidation may be greater,
Speaker 6: mid mid size and smaller.
Speaker 3: So every analyst who comes on talks about the regional
Speaker 3: banking crisis is something that's going to tighten credit conditions
Speaker 3: and actually help the FED. Are you pushing back and
Speaker 3: saying that's not really the case because it's over.
Speaker 6: Well, I'm not sure the crisis really ever happened. I
Speaker 6: think we had mishaps in the month of March with
Speaker 6: these failed banks, but largely those were their own doing.
Speaker 6: I think the rest of the contagion that's been limited
Speaker 6: to pack West Western Alliance, both of which seem to
Speaker 6: be stabilizing. Pack West has positive news out this morning
Speaker 6: on asset sales. I think that the rest of the
Speaker 6: industry is marching ahead. We have seen deposit outflows in
Speaker 6: the industry, for sure, and those may continue just because
Speaker 6: interest rates need to catch up for depositors. But most
Speaker 6: of these banks are lending money, making a profit and
Speaker 6: marching forward. So I think there is credit or tighter
Speaker 6: credit anyways, but it's not as bad and as negative
Speaker 6: as I think headlines have suggested.
Speaker 1: The heritage of Jenny Montgomery Scott is Philadelphia, the mid
Speaker 1: Atlantic States and all the roll up there that happened
Speaker 1: thirty forty years ago. In banking, when do the regionals
Speaker 1: finally act and consolidate? Waiting and waiting and waiting and waiting,
Speaker 1: when do they finally say enough?
Speaker 6: Well, you could see two or three mergers the next
Speaker 6: couple of years, so those regional banks. But I'm not
Speaker 6: sure it's going to be that often. I really think
Speaker 6: it's going to be a lot less than we anticipate.
Speaker 6: The FED has to really change gears at the examiner
Speaker 6: level to push these mergers.
Speaker 7: The last two years mergers.
Speaker 6: Have taken forever close and a handful of them terminated.
Speaker 1: Just ask there's a people thing the examiners.
Speaker 5: Sure, interesting interesting Master's tickets. Have we knat that down?
Speaker 7: Yeah?
Speaker 1: We had Chris is our new friend.
Speaker 5: Okay, good?
Speaker 1: The odds according to Golf died. Just thank you Simon
Speaker 1: for this to garner Master's tickets.
Speaker 5: Isn't one and two hundred that's the one that's through
Speaker 5: the lottery, the lottery whatever they Okay, yeah, I just
Speaker 5: applied last year and we've got to know people. Do
Speaker 5: you know people. Okay, you know Christopher Marrinac, But Chris
Speaker 5: knows people.
Speaker 1: He knows people that we know.
Speaker 5: It's good tonight, It's nice, Chris. Thanks for bambudis Chris
Speaker 5: March gentle Montgomery Scope.
Speaker 1: Let's go to a guest here right now to give
Speaker 1: us perspective here with all the different news flow we have,
Speaker 1: Lisa Hornby's head of US multisector fixed income at Schroeders.
Speaker 5: The yield move that.
Speaker 1: We have lifted up, does it take us up to
Speaker 1: a collar edge, yields up to resistance or is there
Speaker 1: something going on here, Lisa that's original?
Speaker 8: You know, I think the market is still flirting with
Speaker 8: this idea of is there a path where things can
Speaker 8: actually be okay? And certainly resolution on the debt ceiling,
Speaker 8: which was last week's optimism or cause for optimism, is.
Speaker 4: A step towards that path.
Speaker 8: Of course, I think we'll be We'll have some fits
Speaker 8: and starts between now and then, and I don't think
Speaker 8: we'll see the highest end of the ten year range
Speaker 8: where the peaks that we got to last year. But
Speaker 8: I think, you know, I think there could be some
Speaker 8: tactical trading opportunity here for sure.
Speaker 1: What are you doing on duration? We hardly taught touched
Speaker 1: down it this morning, not so much the price move
Speaker 1: or yield move, but the bet you place in maturity.
Speaker 4: Yeah, you know, I think duration.
Speaker 8: I think look, the outlook for bonds in our view
Speaker 8: this year has been compelling. I think we're ten years.
Speaker 8: We're probably looking at a range of three twenty five
Speaker 8: to three seventy five, So we're getting towards that up
Speaker 8: or band. We like tactically trading but airing towards being
Speaker 8: long because our view is for economic deterioration. It's kind
Speaker 8: of a slow burn, but I think that that's where
Speaker 8: we're headed, and so we want to be We want
Speaker 8: to come out the other side of this long but
Speaker 8: understanding this is going to be a volatile market, as
Speaker 8: it really has been for the last four or five months.
Speaker 5: ALESA, where are you seeing that signs of economic deterioration
Speaker 5: at the moment.
Speaker 8: So certainly a slow grind, but we are starting to
Speaker 8: see it. On the consumer side. It's it's obviously very gradual,
Speaker 8: but we have seen credit card balances take up. We
Speaker 8: have seen on the auto loan side, now really across
Speaker 8: the figo spectrum a bit of deterioration. Obviously, jobs still
Speaker 8: remain very very resilient.
Speaker 2: You know.
Speaker 8: One of the things we're watching though closely is small businesses.
Speaker 8: You know, small business surveys have really deteriorated over the
Speaker 8: last I want to say, more than a year, and
Speaker 8: that deterioration, in our view, is probably set to increase
Speaker 8: as credit condition and tightened for these guys, particularly in
Speaker 8: light of what's going on on the regional banking side.
Speaker 4: So that's where we're focused.
Speaker 8: I mean, we have to remember small businesses in the
Speaker 8: US employ on a very large percentage of the population.
Speaker 8: You know, we spend a lot of time talking about
Speaker 8: the gees of the world, but probably ninety percent of
Speaker 8: the businesses in the US are small, small to mid size,
Speaker 8: So their outlook is pretty important and it's not particularly
Speaker 8: compelling when you look at the data.
Speaker 3: We just had Chris Marrinack on over from Jenny Montgomery Scott,
Speaker 3: and he was talking about the regional banking crisis that
Speaker 3: wasn't and so I wanted to get your sense of
Speaker 3: what is happening in terms of the credit tightening. He
Speaker 3: said that regional banks are a much better position than
Speaker 3: people assume. They're not constraining their lending mechanisms all that much.
Speaker 3: Do you see something different or do you think it
Speaker 3: just hasn't happened yet, but just wait and it will.
Speaker 4: I think it's again.
Speaker 8: I think it's a bit of a slow burn, right
Speaker 8: we you know, the cost of capital has gone up,
Speaker 8: These regional banks are under increased scrutiny. I think there
Speaker 8: will be more focus on balance sheet preservation and the
Speaker 8: type of loan making that they're doing, and I think
Speaker 8: certain pockets of the economy will see a little bit
Speaker 8: more stress as a result of that and make it
Speaker 8: a bit harder to access capital. I mean, Tom said
Speaker 8: it before while I was listening in earlier. The cost
Speaker 8: of capital has risen, and that poses an issue, and
Speaker 8: it's supposed to pose an issue, right The FED is
Speaker 8: doing this intentionally to try and slow economic growth, and
Speaker 8: they're doing it, but it takes some time.
Speaker 3: Given how resilient the economy has been has been, and
Speaker 3: given that we haven't really seen the credit stress materialize
Speaker 3: in a way as significant as many people had expected
Speaker 3: at this point. What is the risk that the Fed's
Speaker 3: going to have to tighten further, It's going to have
Speaker 3: to hike again, perhaps even in June, because maybe the
Speaker 3: constraint isn't that great from the regional banks just yet,
Speaker 3: and then it will have to be the slow burn
Speaker 3: that goes on for a while.
Speaker 8: Yeah, I mean the market is certainly flirting right that. Right,
Speaker 8: we've seen the probability of a FED hike at the
Speaker 8: next meeting move very between twenty five and forty percent.
Speaker 8: You know, if we get a debt ceiling resolution in
Speaker 8: the near term, I wouldn't be surprised to see that
Speaker 8: move higher. I think the Fed wants to be cautious.
Speaker 8: I mean, if you listen to Powell's comments last week,
Speaker 8: he didn't explicitly suggest a pause here, but he did
Speaker 8: allude to the fact that, hey, we've done a lot,
Speaker 8: we can potentially be patient and see what the impact is.
Speaker 8: I mean, they are breaking things right, There are more
Speaker 8: you know, look at the move index and where it's
Speaker 8: been over the last year versus the previous several years.
Speaker 8: Things are starting to percolate in the background, and we
Speaker 8: have had if several banks now fell, I don't know
Speaker 8: that that story is completely played out. I think that
Speaker 8: they realize that, you know, there are now some risks
Speaker 8: out there that are becoming a bit more serious and
Speaker 8: so all l Sql. I'm sure they would prefer to pause,
Speaker 8: but we have a lot of data between now and
Speaker 8: the middle of June, their next meeting, so we'll have
Speaker 8: to wait and see.
Speaker 5: Well, let's just finish the Lisa, clearly, you're not going
Speaker 5: to keep on hiking until you see too. Do you
Speaker 5: think we've seen sufficient evidence right now that they are
Speaker 5: sufficiently restrictive or is this a guess based on the
Speaker 5: cunitive tightening that they've already delivered.
Speaker 8: I think it's a great question. My sense is they've
Speaker 8: probably done enough. They might go a little bit further
Speaker 8: because they're looking at data on a leg. If we
Speaker 8: could fast forward six months from now, I said, I
Speaker 8: suspect that inflation will continue to slow and that they
Speaker 8: will get, you know, be closer to their targets and
Speaker 8: growth will be starting to roll over in a more
Speaker 8: serious way. But you know, if we get another five
Speaker 8: and a half percent inflation print, that all bets are off.
Speaker 8: So I think, you know, we Unfortunately, the way monetary
Speaker 8: policy works is with a lag, and so they'll react
Speaker 8: to the data and as it comes in rather than
Speaker 8: you know, six months or twelve months from now, trying
Speaker 8: to see the bigger picture.
Speaker 5: Hey, Lisa, this was great, Lisa Holbe. The Strouders appreciate
Speaker 5: it as always. Michael O. Larry see I've ran et
Speaker 5: on just right now. Michael grit to see in New
Speaker 5: York going to see my sois dollars? It's not, is it?
Speaker 5: So Michael tell me this is that a future still
Speaker 5: or things changed?
Speaker 9: It is the future and things our margin are changing.
Speaker 9: I mean, I think you know we've ordered another three
Speaker 9: hundred aircraft from Boeing two weeks ago, so you know
Speaker 9: we're going to grow from one hundred and forty nine
Speaker 9: million passengers pre COVID to three hundred million passengers by
Speaker 9: the early twenty thirties. So there's still lots of growth
Speaker 9: for Ryanair, but growth is getting easier in Europe. The
Speaker 9: market has consolidated post COVID. Capacity has come out. I mean,
Speaker 9: we're looking across Europe this summer where we're operating twenty
Speaker 9: five percent more seat capacity than we had pre COVID,
Speaker 9: but the rest of the market's only opening about ninety percent,
Speaker 9: so we're taking huge amounts of market share from everybody else.
Speaker 9: We're still we're well hedged on fuel we're offering really
Speaker 9: low airfares, but those low airfares are of a bit
Speaker 9: like we expect our lowest airfare to rise probably five
Speaker 9: ten percent a year for the next couple of years.
Speaker 9: Because of this capacity constraint and with the manufacturer's challenge
Speaker 9: Boeing and Airbus huge backlock on orders can't increase monthly
Speaker 9: production because supply chain difficulties for the next four or
Speaker 9: five years. I think you're looking at a European marketplace
Speaker 9: that will now copy some of America in the last decade.
Speaker 9: Stable capacity and more reasonable pricing going forward.
Speaker 5: Is that good for you and bad for the paper traveling?
Speaker 4: I think it's good for us.
Speaker 5: It's also good for the people traveling.
Speaker 9: But the challenge is if you look at the German
Speaker 9: market this year, for example, Lufthansa, which was bailed out
Speaker 9: by the German government to the June of thirteen billion
Speaker 9: during COVID, they've only restored eighty percent of their pre
Speaker 9: COVID capacity. Airfas in Germany have doubled this year over
Speaker 9: last year. So you know, German consumers are being stiffed
Speaker 9: by their national champion, and they're increasingly turning to us
Speaker 9: because we have capacity growth. I'm taking fifty year craft
Speaker 9: a year from Boeing because we have capacity growth, we
Speaker 9: can keep fares down. But I have no doubt in
Speaker 9: my mind that one of the big drivers of Ryanair's
Speaker 9: growth the next couple of years is going to be
Speaker 9: the incumbent legacy carriers really driving airfares much higher in
Speaker 9: Europe than they are in US.
Speaker 3: Are you willing to then just have a commensurate increase
Speaker 3: in your price.
Speaker 9: Just perhaps less Absolutely not. Li So we're going to
Speaker 9: keep growing capacity. We're we will remain load factor active,
Speaker 9: vial passive. We intend to take huge amounts of market
Speaker 9: share from every incumbent in Europe as we grow our
Speaker 9: share in Europe from about twenty percent now to about
Speaker 9: thirty three percent in the early twenty thirties.
Speaker 3: People talk about the travel boom that is really supported
Speaker 3: services globally as being a bit of yellow You only
Speaker 3: live once after the pandemic, get out there and travel,
Speaker 3: and if you're not dealing necessarily with the business segment
Speaker 3: as much, how confident are you that that's going to
Speaker 3: continue in perpetuity.
Speaker 9: Perpetuity is a long time. I mean, it's too long
Speaker 9: for my horizon. Next five years is going to continue.
Speaker 9: There's a couple of fundamentals in Europe. One, we're seeing
Speaker 9: very strong business growth. I mean, businesses are flying around Europe,
Speaker 9: particularly two kind of Eastern Europe Morocco Portugal, fix repairing
Speaker 9: supply chains that they can no longer depend on a
Speaker 9: and they're looking to cheap find cheap manufacturing in Morocco, Portugal,
Speaker 9: poland Romania. We're the biggest airlines in those markets. So
Speaker 9: we're seeing a very strong recovery in our business.
Speaker 2: Travel.
Speaker 9: I think people who are locked up for two and
Speaker 9: a half years are going back traveling, and that's not
Speaker 9: a short term phenomenon travel increasingly. I think what really
Speaker 9: surprises me about the moment, for all the negative coverage
Speaker 9: of higher energy prices, price inflation, they're still fundamentally full
Speaker 9: employment in Europe. People are getting paychecks at the end
Speaker 9: of every month, and what they do is they go traveling.
Speaker 9: Leisure time is rising. You have kids who are all
Speaker 9: over Europe. I mean when I grew up in the
Speaker 9: seventies and eighties, as my children remember, keep reminding me
Speaker 9: that was the last century we went around Europe by training.
Speaker 9: You know, you're interrailing. Now they go around Europe on
Speaker 9: Ryan Air this summer, huge US flows into Europe. The
Speaker 9: Asian market is recovering, but because only ninety percent of
Speaker 9: the pre COVID capacity has been restored, demand is strong
Speaker 9: and pricing is strong, and I see no reason why
Speaker 9: that won't continue for a four or five year period.
Speaker 9: Now there'll be curvebulls, COVID Ukraine invasions, things like that
Speaker 9: would throw us off course, but the underlying fundamentals are
Speaker 9: very strong. Demand for traveler is strong, and supply is
Speaker 9: constrained by aircraft manufacturers. There's a cap on what they
Speaker 9: can build and how fast they can increase production.
Speaker 1: I've got an aerospace team with a lot of really
Speaker 1: smart questions. Here's the only question our listeners and viewers
Speaker 1: care about. It looks like the US airfares are a
Speaker 1: complete scam. I looked at a geog quick eyeball sixty
Speaker 1: seventy dollars round trip on Ryanair versus three hundred dollars
Speaker 1: in the same flight in America roughly, and I look
Speaker 1: at the margin. You're making twelve cents modeled on the
Speaker 1: dollar versus six seven cents. It's say Kirby's wonderful United airlines.
Speaker 1: Why can't America get this right? Why aren't you in America?
Speaker 9: One? Because there's so much growth for us in Europe.
Speaker 9: Why would I want to go to America when we
Speaker 9: can deploy all of this growth in Europe and Europe
Speaker 9: is still fundamentally under exploited. Europe is moving towards consolidation.
Speaker 9: I think the American airs have slightly overplayed it. You know,
Speaker 9: we look at Southwest and you know, Southwest was a
Speaker 9: kind of heroic model for us when we first started
Speaker 9: this thirty years ago. But Southwest is no longer fundamentally
Speaker 9: a low cost airline. You know, it's average ticket price
Speaker 9: one hundred and ten hundred and twenty dollars a seat.
Speaker 9: My average ticket price last year was forty euros a seat.
Speaker 9: So I think, you know, the more needs to be
Speaker 9: done there. You know, more capacity needs to be found
Speaker 9: in the American industry. But the challenge is going to
Speaker 9: be for all of us. Because Boeing and Airbus can't
Speaker 9: fundamentally increase their production rates, We're going to be This
Speaker 9: industry is going to be challenged for the next four
Speaker 9: or five years, and I think we have to be
Speaker 9: careful not to repeat what's happening in the States. We
Speaker 9: don't want to push pricing too high. And that's I
Speaker 9: think why our three hundred aircraft order with Boeing is
Speaker 9: so key to keeping prices low and people traveling across
Speaker 9: Europe for the next decade.
Speaker 5: You could buy some capacity you mentioned consolidation, You interested
Speaker 5: in that?
Speaker 9: No, I mean, you know, it's just I'm buying somebody
Speaker 9: else's problem, right, But I'm very happy in Europe to
Speaker 9: see loft hands and by al Ittalia. Let's see iag
Speaker 9: by tap you know, consolidate away. And you'll need to
Speaker 9: consolidate because none of you are going to be are
Speaker 9: able to compete with Ryan Air because we have much
Speaker 9: lower costs than you, have much lower fairs than you.
Speaker 9: So you better well may as.
Speaker 5: Well class Shay too. So if you don't want to
Speaker 5: play the consolidation game, you're sitting there with a great
Speaker 5: bandage shape.
Speaker 9: No debt right now, right, No, when we're paying debt down,
Speaker 9: aggress to get down.
Speaker 5: We have no net debt where we with dearnet cash
Speaker 5: net fantastic, okay, capital it sense.
Speaker 9: I think it's coming, just not yet. I mean, we're
Speaker 9: paying down debt at the moment I've paid two bonds
Speaker 9: this year, one point five billion of debt. I've only
Speaker 9: got about two billion of debt left. I paid that
Speaker 9: all down in twenty twenty five and twenty six. I'm
Speaker 9: spending about two just over two two and a half
Speaker 9: billion a year in capex, which I'm funding out of
Speaker 9: internally generated cash flow. And once we get through that,
Speaker 9: I think maybe next year, if we have another strong
Speaker 9: year and we have significant net cash balances, then we'll
Speaker 9: return those to shareholders.
Speaker 1: Ryan Air twenty six percent debt U al seventy debt A.
Speaker 5: Big difference, isn't It's just a massive difference. This was fun.
Speaker 5: Michael got into this. More often we do. I got
Speaker 5: to come back to the States more often.
Speaker 7: You see, can you.
Speaker 1: Bring your damn airline to the States? Lisa having an
Speaker 1: absolutely crush your secret is?
Speaker 3: I mean why some people can offer forty dollars or
Speaker 3: forty years.
Speaker 1: Double eighty ninety, I mean double eight hundred is a ridiculous.
Speaker 9: You know, through history, the Irish have always been you know,
Speaker 9: we've been transport pioneers. We've built the roads, we built
Speaker 9: the railways, and now we're building the area. We're going
Speaker 9: to dominate the skies across Europe. Come to Europe for
Speaker 9: low fairs, don't bother holiday in the States.
Speaker 5: When you're back, we need to talk about a business traveler.
Speaker 5: I do wonder what's going to happen here. I remember
Speaker 5: easy Jet might a big transition years ago to get
Speaker 5: the business traveler. And I wonder if your Captain's going
Speaker 5: to change its toll in years to come. Absolutely not
Speaker 5: over remind the sign you're going to keep the same
Speaker 5: thing business.
Speaker 9: Travel with what's different about it? People keep confusing short
Speaker 9: hole on long hauld. What's different in shorthold is nobody
Speaker 9: will pay a premium for business travel. Business just wan
Speaker 9: on time, affordable, safe transport they want to get there longhould.
Speaker 9: Twenty percent of the market will still pay a ludicrous
Speaker 9: premium on long haul, which is why long haul and
Speaker 9: shorthold is different. And we intend to continue to grow
Speaker 9: very strongly in Europe car with a huge growth in
Speaker 9: business travel as well as leisure travel out over the
Speaker 9: next decade. And I can only do that with my
Speaker 9: beloved airport aircraft partners palling.
Speaker 5: The aircraft this week sales. I don't think they fight
Speaker 5: to Monte Carlo and Marcia. There we drive across way
Speaker 5: from New York City. Michael was great, Thank you, buddy.
Speaker 5: We wake up again to another morning, anticipating looking ahead
Speaker 5: to more talks on Capitol Hill. There are a range
Speaker 5: of estimates out there. Here's one from Goldman and the
Speaker 5: team estimating that Treasury will drop below thirty billion dollars
Speaker 5: in cash as soon as June eighth, but one in
Speaker 5: the following The estimate is subject to substantial uncertainty, so
Speaker 5: there is certainly a chance that received could slow more
Speaker 5: than expected and leave the Treasury short of cash by
Speaker 5: June first or June second. T K we're taking this
Speaker 5: early June day, I think increasingly, seriously.
Speaker 1: Absolutely to me, that was the frontline this weekend, and
Speaker 1: this is yelling out front, and maybe it is the
Speaker 1: acuity of being an economist, or she put a bow
Speaker 1: on it earlier, and the bow's moving, and it's moving
Speaker 1: quickly towards June. The other thing that's moving, I would point,
Speaker 1: is a calendar. We were talking about this on May tenth.
Speaker 1: It's not May tenth, it's May twenty second.
Speaker 5: No, we're running out of time, We're runn out of time.
Speaker 5: I think it's less about the mood of the moment,
Speaker 5: the mood music, so to speak, and much more about substance. Now,
Speaker 5: let's get into the substance of it. What's the hang guy, I.
Speaker 1: Would say, yeah, I would go with that, and the substance,
Speaker 1: of course, as the return of the president to Washington
Speaker 1: and Tokyo as our Amory Horden our Bloomberg Washington corresponded, Emory,
Speaker 1: there's points in a campaign where there's hallmarks along the way,
Speaker 1: not in the news flow, but maybe a research piece
Speaker 1: that's out there or in an op ed piece. This morning,
Speaker 1: the Washington Post drops a bombshell of an op peace
Speaker 1: directly addressing the president's age. He returns to Washington for
Speaker 1: a debt debate, but he also returns to Washington looking
Speaker 1: at an eighty second birthday, et cetera on election day.
Speaker 1: How's he going to deal with that when you get
Speaker 1: back there and keep asking him tough questions.
Speaker 10: Well, I think that's exactly what the president needs to
Speaker 10: be doing for the public to put rest aside these concerns.
Speaker 10: He's going to have to get in front of the
Speaker 10: public take questions from the press like he did yesterday
Speaker 10: at the end of the G seven summit, and that
Speaker 10: potentially could assuage voters concerns about his age. But Tom,
Speaker 10: I don't really think this is a bombshell. I think
Speaker 10: everyone has been talking about this. Yes, whether or not
Speaker 10: the whispers are getting now louder echoes, but everyone has
Speaker 10: been talking about this because it shows up in polls.
Speaker 10: Americans are concerned about his age, but also in the
Speaker 10: same age bracket.
Speaker 2: I would say, is.
Speaker 10: The nominee right now that that's leading the Republican candidate
Speaker 10: for president, and that's the former president Donald Trump. He's
Speaker 10: just four years behind Biden. So regardless, we're going to
Speaker 10: have a president if it was to be a rematch
Speaker 10: of these two individuals, a president ending that next term
Speaker 10: in their eighties, and.
Speaker 1: John ed was clearly addressed by the Washington Post and
Speaker 1: the op ed piece. It was not just about President Biden.
Speaker 5: You wake up this morning, you just get the failing
Speaker 5: G seven wat G seven and Marie. What did they
Speaker 5: talk about? Because the President had to leave at dinner early,
Speaker 5: even on the way back reporting me on Air Force one,
Speaker 5: had to take a call with speaking McCarthy. He's going
Speaker 5: to Land engage in talks almost immediately. Did he ever
Speaker 5: really leave behind the domestic issues.
Speaker 10: I think it's fair to say he had one foot
Speaker 10: here in Japan and one foot back home in Washington.
Speaker 10: He even brought Bruce Reid with him to make sure
Speaker 10: that there was an individual on the team keeping in
Speaker 10: touch with his key negotiating team in Washington. As you said,
Speaker 10: he left a dinner early to have a call phone
Speaker 10: called his team. He was constantly kept up to date
Speaker 10: on where the negotiations were. But the negotiations over the
Speaker 10: weekend we're very much so on and off. Breaking that
Speaker 10: impass last night was this phone call the President had
Speaker 10: while he was on Air Force one with Speaker McCarthy.
Speaker 10: Speaker McCarthy then came out and said as productive. He also, really,
Speaker 10: for one of the first times it's been since the
Speaker 10: President's been abroad, did not criticize his trip abroad and
Speaker 10: just said we're going to meet tomorrow. So that's today,
Speaker 10: President Biden and Speaker McCarthy, these two men in a room,
Speaker 10: and this is how a deal is going to be
Speaker 10: able to get over the finish line, because it's really
Speaker 10: just these two individuals being able to come to an agreement.
Speaker 10: Biden alluded to that in the press conference, saying, I
Speaker 10: guess he wants me to get home to be able
Speaker 10: to hammer out this negotiation. So that's where all eyes are,
Speaker 10: and I think, you know, there's other topics. Obviously at
Speaker 10: the G seven China was a massive focus. President Zelenski
Speaker 10: was here in person. Russia was a massive focus. But
Speaker 10: for other world leaders and their concerns about future economic risks.
Speaker 10: When the President of United States is in the room,
Speaker 10: that the question would be going to him, sir, are
Speaker 10: you going to have a fault on treasuries? Which is
Speaker 10: the bedrock and it underpins our entire global financial system?
Speaker 10: So it loomed large over him and Maria.
Speaker 3: I guess there's another way to reframe this build and
Speaker 3: what John's talking about, was this G seven a waste
Speaker 3: of time with a focus entirely on whether the US
Speaker 3: would get its ducks in a row back at home
Speaker 3: or were there some really substantive to things that took place,
Speaker 3: in particular having to do with China with a communicate
Speaker 3: that the Financial Times described as the strongest condemnation of
Speaker 3: China yet and really a tit for tat with China
Speaker 3: and Micron over the weekend that really left me highly
Speaker 3: confused about whether we're thawing or exacerbating the tensions.
Speaker 10: I think this week was a key week when we
Speaker 10: will look back in history in terms of a more
Speaker 10: multi polar world. Not only do you have Zelenski here
Speaker 10: at the G seven. Formerly this was a G eight
Speaker 10: where President Putin used to think of this club he
Speaker 10: was part of in a very prestigious way. Zlenski was
Speaker 10: here some six hundred miles away from Russia's Far East.
Speaker 10: At the same time, you had Zelenski in the Middle East,
Speaker 10: clearly for Putin, he's seeing that the Middle East is
Speaker 10: no longer in his bag. And then you also had
Speaker 10: China xijingping last week sitting down in five ex Soviet states.
Speaker 10: So you can see there are changing movements in the
Speaker 10: geopolitical world. And when it comes to some substance that
Speaker 10: happened here on the foreign policy front, it was all
Speaker 10: about China, and the President reiterated that yesterday in his
Speaker 10: press conference. With this administration and the Europeans have really
Speaker 10: been able to coalesce around is language about not decoupling
Speaker 10: but de risking. And I asked the President's Deputy National
Speaker 10: Security Advisor for Economic Affairs, Mike Pyle, what's the difference,
Speaker 10: and he said, look, D risking means we don't want
Speaker 10: China to get a hold of advanced technology for their military.
Speaker 10: We have concerns about economic coercion and their market practices,
Speaker 10: but how can you call something a D couple when
Speaker 10: US China trade was at a record last year. So
Speaker 10: that is the framework that we are going into. But Lisa,
Speaker 10: you also bring up a great point. Just hours after
Speaker 10: we got this communicate, China came out and said that
Speaker 10: Micron did not pass their cybersecurity review. And one thing
Speaker 10: Rama Manuel, the US Ambassador to Japan, said to me
Speaker 10: was we're no longer really just seeing China take these
Speaker 10: economic coertions against nations. They're now going against companies. So
Speaker 10: I think this was really a pivotal moment really in
Speaker 10: the geopolitical landscape this week, even though domestic concerns were
Speaker 10: definitely front and center.
Speaker 5: MH. Buddy Kountrich of at a Weekend and this morning
Speaker 5: as Wow, em Marie, thank you out of Japan Following
Speaker 5: the G seven.
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