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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, financial investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always I'm Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. We're gonna

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Speaker 1: bring in a gentleman right now, Seth Carpenter, at least

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Speaker 1: for this Friday, as global chief Economist at Morgan Stanley.

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Speaker 1: He is extinguished. I looked at one of the beauty

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Speaker 1: contests out there. He's sandwiched between Daily of San Francisco

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Speaker 1: and Goldsby of Chicago. Seth, Um, I know I'm going

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Speaker 1: to get the niceties from you here, but let us

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Speaker 1: begin in the Derby to replace BRAINERD and a vice chairman.

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Speaker 1: Explain to our audience what the vice chairman actually us.

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Speaker 1: So when I was there on staff, it was a

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Speaker 1: really important position. Worked very closely with the chair and

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Speaker 1: the President of the New York Fed, who is the

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Speaker 1: vice chair of the Federal of the Market Committee, and

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Speaker 1: really helps to steer the strategy for policy, not just

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Speaker 1: for the next meeting, but sort of over the course

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Speaker 1: of the next few quarters. There are schools of thought here,

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Speaker 1: and one of the things that's so important is the

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Speaker 1: politics of Capitol Hill and the basic idea of Main Street,

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Speaker 1: Wall Street and my I even add the academics of

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Speaker 1: Princeton or Jason Furman's Harvard. He's on the list Goolsby Chicago.

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Speaker 1: Have we politicized the FED in the last number of years?

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Speaker 1: Is it different than when you studied at Princeton? Yeah?

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Speaker 1: Uh so, I say the world goes in lots of cycles.

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Speaker 1: There are very famous episodes back in the late sixtieson

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Speaker 1: into the seventies and the interactions between President Johnson and

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Speaker 1: the FED chair and whether it was appropriate to tighten

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Speaker 1: policy while the US was fighting in Vietnam. So I

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Speaker 1: think there have been uh periods where there's more politicization

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Speaker 1: their periods where there's a bit less. I think the

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Speaker 1: main thing from my personal experiences that the people inside

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Speaker 1: the FED tend to be very, very focused on what

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Speaker 1: their mandate is and they try to block out the

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Speaker 1: political noise to the degree humanly possible. The mandate being

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Speaker 1: to really bring inflation down to that two percent target,

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Speaker 1: and that mandate is getting harder to wrap your head

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Speaker 1: around right now because we don't understand the contours of inflation.

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Speaker 1: If J Powell we're having his FED press conference right now,

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Speaker 1: do you think that you had mentioned disinflation as John

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Speaker 1: was mentioning earlier as many times as he did during

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Speaker 1: that press conference. I had to say, the last data

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Speaker 1: print does make things, you know, a little challenging to

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Speaker 1: read exactly the fundamental story of some disinflation from core

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Speaker 1: goods and some hopefully coming disinflation from housing that's generally

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Speaker 1: in in in still intact, and you never want to

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Speaker 1: fully change your worldview based on one month's worth of data.

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Speaker 1: But there have been some surprises, and it wasn't just

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Speaker 1: one data series. The non farm Perils report for January

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Speaker 1: was strong, Uh, the CPI report had some surprises. The

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Speaker 1: retail sales report was strong. Um, all of those have

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Speaker 1: to make you wonder, you know, is there a little

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Speaker 1: bit is there more resilience underlying resilience for the US economy. Now,

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Speaker 1: we've had the view for a long time that we'd

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Speaker 1: have a soft landing, that we would not go into

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Speaker 1: recession this year Uh, that view was hard to hold

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Speaker 1: six months ago, three months ago. Even now, I think

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Speaker 1: the market is coming there, and the conversation is shifting.

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Speaker 1: Are we actually getting a re acceleration instead of a

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Speaker 1: slowdown at all? Can we get inflation back down to

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Speaker 1: two if we don't get a recession? And this, to

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Speaker 1: me is really the underlying question of a lot of

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Speaker 1: what we're discussing, because yes, there is momentum, but this

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Speaker 1: is only increasing the expectations for federate hikes. I mean,

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Speaker 1: I my baseline view is yes, you and have inflation

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Speaker 1: get back down to target without a recession, but it's

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Speaker 1: a narrow path. It's pretty difficult. You need demand to

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Speaker 1: be reined in so that there isn't consistently and for

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Speaker 1: for continuing several quarters overall demand that exceeds the ability

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Speaker 1: of the economy to produce. Now we know the U.

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Speaker 1: S economy is still somewhat understaffed outside of tech um,

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Speaker 1: and I think it's that residual sort of catchup and

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Speaker 1: hiring that's giving some support to what's going on. But

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Speaker 1: if we can get the economy to slow down fundamentally

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Speaker 1: open up a bit of slack in the labor market

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Speaker 1: without causing a recession. You know that's possible. Uh, it's

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Speaker 1: tricky to do, but that's exactly what Defense trying to

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Speaker 1: pull off. This If carpont I was reading on Portugal,

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Speaker 1: of all places, in their housing crisis, and it seems

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Speaker 1: like every every every nation has a housing crisis. Are

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Speaker 1: we modeling out housing inflation correctly? Or is it a

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Speaker 1: squashy or changing set of data that we're gonna have

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Speaker 1: to adjud us down the road housing inflation. There's a

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Speaker 1: very strong sort of philosophical argument here. The way we

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Speaker 1: measure housing inflation in the United States is not on

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Speaker 1: home prices. The BLS is theory, if you will, is

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Speaker 1: that they want to separate out homes as an asset

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Speaker 1: versus the flow of housing services that you get. And

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Speaker 1: so that's why we have this concept of owners equivalent

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Speaker 1: rent And when the BLS measures housing inflation, they look

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Speaker 1: at quotes on rents and then they tried to ascribe

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Speaker 1: that obviously directly to people who are renting their homes,

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Speaker 1: where they also try to ascribe some of that to

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Speaker 1: people who own their homes. Um, it is what it

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Speaker 1: is at this point. That's the way that how is measured.

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Speaker 1: The U s. I did a completely amateur apples to

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Speaker 1: apples to onions analysis week. Dr Carpenter and I looked

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Speaker 1: at the rent increases from the pandemic beginning in New

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Speaker 1: York City and approximated the income increases, which are tangible,

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Speaker 1: but it ends up with a plug of a negative

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Speaker 1: twelve and a half percent over three or four years.

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Speaker 1: I mean, does the FED understand the angst all listeners

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Speaker 1: and viewers feel about the housing economy and then what

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Speaker 1: do they do about it? So my sense is yes,

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Speaker 1: the FED does understand that there is a challenge here.

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Speaker 1: What you've pointed out is that real wage growth has

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Speaker 1: been negative because overall consumer prices have been rising faster

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Speaker 1: than people's income. Now, in general, what that does is

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Speaker 1: it tends to crip people's spending behavior, and we have

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Speaker 1: seen over the past couple of years a notable slowdown

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Speaker 1: in consumer spending growth. Uh So, how does it affect

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Speaker 1: housing directly? Well, what needs to happen is a bit

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Speaker 1: of a pullback for housing specifically. That's usually tied historically

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Speaker 1: for with increases in total employment. So it's slowing in

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Speaker 1: the labor market will help there. The five dred seventeen

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Speaker 1: thousand non farm barrel print doesn't go in that direction.

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Speaker 1: But there is thing special about this cycle with COVID.

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Speaker 1: We did see a surge in demand for more housing space,

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Speaker 1: people wanting to live alone because they're working from home,

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Speaker 1: people wanting to have more space, and I think there's

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Speaker 1: part of this shift that was COVID specific. The challenge,

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Speaker 1: of course, is sorting out the cyclical part of inflation

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Speaker 1: in housing, the cyclical part of demand and housing from

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Speaker 1: a strong labor market, from that idiosyncratic COVID driven part

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Speaker 1: of things. I don't think anybody believes that a COVID

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Speaker 1: cycle is a normal business cycle. We're speaking with Seth

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Speaker 1: Carpenter of Morgan Stanley, the the economist who previously was

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Speaker 1: at the Federal Reserve, who has a long and storied

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Speaker 1: history in this particular sphere, and I'm curious about your

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Speaker 1: process this week, in the past couple of weeks, as

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Speaker 1: we've seen this data come in hotter than expected, causing

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Speaker 1: your team to increase their expectations of terminal rates, to

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Speaker 1: increase how long the FED was going to high rates,

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Speaker 1: but then also to increase the rate cuts on the

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Speaker 1: back end. Can you talk about the process of how

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Speaker 1: much your view shifted. I think the key right now

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Speaker 1: is trying to figure out how much underlying momentum there

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Speaker 1: is and as a result, how much the Fed needs

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Speaker 1: to raise rates. I think, as far as we can

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Speaker 1: tell now, the FED strategy remains titan policy. Have the

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Speaker 1: economy slowed down enough that you can be very certain

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Speaker 1: that you're going to be on a glide that back

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Speaker 1: to two percent over a couple of years. Uh, The

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Speaker 1: last several data points have not been consistent with that outcome,

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Speaker 1: and so as a result, more tightening is what's necessary

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Speaker 1: for the Fed strategy. I think the open question, and

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Speaker 1: the part that's very very difficult for us to know,

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Speaker 1: for markets to know generally, and for the Federal Reserve

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Speaker 1: to know, is just how far is enough? And part

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Speaker 1: of that is how much was the five seventeen thousand

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Speaker 1: jobs a one off like it was in July of

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Speaker 1: last year, and how much of it is an indication

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Speaker 1: of underlying strength? Inherently difficult. How much of the strength

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Speaker 1: in January's data for retail sales, for non farm pay rolls,

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Speaker 1: for inflation was because of changing seasonal adjustment. That's gonna

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Speaker 1: come out later in the year because seasonal adjustment has

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Speaker 1: to be zero sum over the course of a year.

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Speaker 1: Very hard to know right now. Um. And so that's

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Speaker 1: what we've done, is we've said, with the data available now,

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Speaker 1: and then if we go to the March meeting, what

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Speaker 1: data will the FED have available? It'll be clear things

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Speaker 1: are stronger than they thought, So they'll hike more than

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Speaker 1: we get to the main meeting. What information will be

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Speaker 1: available to the FED? Then another month or so worth

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Speaker 1: of extra data they have to take data, not one

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Speaker 1: month changing their view, but on the sort of accumulated

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Speaker 1: history of data. And by the time we get to May,

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Speaker 1: it's not it's good. It's very hard to see why

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Speaker 1: they would have concluded. And everything is hunky dorry at

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Speaker 1: that part. And so that's why we put in those

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Speaker 1: extra hikes. What would lead to even more hikes? What

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Speaker 1: would lead to for example, yesterday Lauretta Mester talking about

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Speaker 1: fifty basis points being on the table. I think, if

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Speaker 1: we get your evidence that January's data, we're not an anomaly,

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Speaker 1: but we're a shift in inflection higher we get another

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Speaker 1: four hundred thousand non farm barrels, for example, I think

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Speaker 1: they have to be talking about the fifty basis point hike.

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Speaker 1: So that's just real quick here twenty seconds. Do you

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Speaker 1: think that this all takes us further away from a

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Speaker 1: soft landing. It's a mixed bag. I'll say no for now.

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Speaker 1: It's hard to say that a stronger economy results in

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Speaker 1: a weaker economy that doesn't sort of follow on its own.

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Speaker 1: The tricky part is the FED has to react if

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Speaker 1: it's a substantially stronger economy, and it's always been difficult

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Speaker 1: to gauge how much to tighten. So it's a bit

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Speaker 1: of a mixed bag. Maybe at the margin greater chance

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Speaker 1: of a hard landing, but for now we're happy to

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Speaker 1: stick with our soft landing story. Dr Carpenter, thank you

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Speaker 1: so much, Seth Carpenter, at least for now. With Morgan Stanley,

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Speaker 1: thank you so much. What we're gonna do here is

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Speaker 1: dive into the politics of the moment. There's eight ways

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Speaker 1: to go. Always with Professor Schiller Wendy Schiller's directing Tubbin

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Speaker 1: Center for American Politics and Policy at Brown University or

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Speaker 1: textbook definitive Wendy, I want to go back to Ronald Reagan,

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Speaker 1: and I can remember clear when the FDR Democrat became

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Speaker 1: a Republican and changed how primaries were on. There was

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Speaker 1: a moment I think it was in a nineteen I

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Speaker 1: think eight, nineteen seventy eight, whatever, nineteen seventy six where

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Speaker 1: he was pushed aside because he was too conservative, and

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Speaker 1: he figured out, you run conservative and moved to the middle.

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Speaker 1: Along the election trail that seems to be absolutely blown

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Speaker 1: up is the governor of South Carolina jumps into the race.

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Speaker 1: As we see Paul John help me hear the poll

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Speaker 1: for Trump overnight couldn't be Yeah, yeah, the Quentin piach

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Speaker 1: Pole the leader, and right behind him is Rhonda Santis.

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Speaker 1: The leaderships, it seems like when it's all blown not

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Speaker 1: How are the primaries different this year versus what we

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Speaker 1: knew with Ronald Reagan. Um, we don't have time for

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Speaker 1: the entire explanation. Tom. As always, you ask a very

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Speaker 1: broad question a couple of things. Ronald Reagan understood that

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Speaker 1: you could gain steam in a primary, and you're right.

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Speaker 1: In nineteen seventy six, he challenged an incumbent Republican and

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Speaker 1: he didn't win the nomination to a typical and Republican

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Speaker 1: party typically to have sort of I lost last time,

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Speaker 1: so on the nominee next time, up until Donald Trump. Uh,

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Speaker 1: and then the Democrats changed their primary system in four

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Speaker 1: and eighty eight. They kept sort of changing the rules

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Speaker 1: about how delegates were allocated. What we're waiting for is

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Speaker 1: key how the Republican structure their primary season for twenty

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Speaker 1: four makes a big difference to Ron De Santis and

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Speaker 1: Donald Trump. We've seen the Democrats move their calendar. Obviously,

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Speaker 1: South Carolina is a big primary, big primary and a

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Speaker 1: big priority now for the Democrats. What will the Republicans do?

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Speaker 1: And when I'm talking about is how they divide up

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Speaker 1: their delegates in the beginning, proportional representation which kept Trump

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Speaker 1: a lot of actually in the early primaries in sixteen,

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Speaker 1: or winner take all, which would help Trump. Also because

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Speaker 1: Trump is now a known commodity, has got a built

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Speaker 1: in base, and if it's plurality, he'll he'll start winning

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Speaker 1: those early primaries. And that presents a challenge if you

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Speaker 1: think for Ronda Santis, even though he's got Florida, that's

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Speaker 1: gonna be And we haven't heard yet what the r

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Speaker 1: NC will do with how where they're gonna make any

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Speaker 1: changes or keep things stas quo Wendy. A lot of

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Speaker 1: people are talking about how much time, And I say

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Speaker 1: a lot of people. I'm saying the two people next

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Speaker 1: to me are talking about how much time it takes

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Speaker 1: for the election process to be carried out. And I'm

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Speaker 1: wondering how much room is there to change the gravitational

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Speaker 1: force and the Republican Party away from Trump towards Ronda

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Speaker 1: Santis perhaps a bit more, but also potentially to Nicki Haley. Well,

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Speaker 1: the only way it gravitationally pulls towards Ronda Santis if

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Speaker 1: it's Wanda Santa's declares and starts running. I think the

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Speaker 1: mistake that he might make is to wait too long.

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Speaker 1: Now you have Florida in your back pocket, you get

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Speaker 1: a lot of free publicity, but it doesn't mean you're

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Speaker 1: you're out there really connecting with primary voters. And that's

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Speaker 1: what the Santis has to do earlier than I think

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Speaker 1: he's comfortable with UH And then Nikki Hall is going

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Speaker 1: to be out there. Tim Scott from South Carolina, he's

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Speaker 1: a senator, he may get in the race as well.

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Speaker 1: I think the idea is the more people can present

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Speaker 1: alternatives positively, not beat up on Trump, not attack Trump,

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Speaker 1: but positive alternatives without all the baggage they're hoping they

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Speaker 1: can start to pick up some steam among rank and

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Speaker 1: file primary voters. On the Democratic side, we have President

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Speaker 1: Biden trying to deal with both domestic and also international issues,

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Speaker 1: and the latest news on that front is that he

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Speaker 1: is thinking about some sort of phone call with a

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Speaker 1: Chinese premiere with with paying the president of China. How

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Speaker 1: much does this give him a bit of a difficult

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Speaker 1: position to put out there, trying to both dovetail a

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Speaker 1: hawkish message with a sort of a sort of olive

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Speaker 1: branch to the Chinese leadership to try to smooth over

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Speaker 1: some of those relations. Yeah, I mean, I think that

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Speaker 1: he's handling this in the way that he handles on everything.

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Speaker 1: He's sort of marched into his own tune. He's got

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Speaker 1: a lot of foreign policy experience, and China is an

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Speaker 1: extremely important not telling you three something you don't know,

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Speaker 1: a very important economic partner. And he's been moderate in

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Speaker 1: his response to this because, you know, picking a fight

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Speaker 1: with Russia and China at the same time, particularly China economically.

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Speaker 1: We just got out of that with tariffs and you know,

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Speaker 1: they stopped buying our soybeans that cost us a lot

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Speaker 1: of tax by our dollars and subsidies back to farmers.

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Speaker 1: You know, there's a lot of very negative consequences to

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Speaker 1: picking up big fight with China GEO, politically and economically,

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Speaker 1: and he's not falling for it. He's deciding I'm gonna

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Speaker 1: take this slowly, one day at a time, and I'm

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Speaker 1: not going to jeopardize what seems to be a renewed

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Speaker 1: and healthier relationship than under the Trump administration. When the

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Speaker 1: underreported is the four base agreement between the Philippines and

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Speaker 1: the United States, I'm gonna say two weeks ago where

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Speaker 1: we're gonna expand out there with investment in for some

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Speaker 1: form of military bases in Luzon in the South China. See.

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Speaker 1: How important is that? What does that signal to the

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Speaker 1: Navy and to China, Well, it's extremely important. As you know,

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Speaker 1: China has been making incursions in this China see for

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Speaker 1: quite some time, obviously rattling their saber. When it comes

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Speaker 1: to Taiwan. Uh, just understanding that the United States will

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Speaker 1: maintain its military presence and that it will be prepared

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Speaker 1: in some way, shape or form to block any of

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Speaker 1: what they consider overreach by the Chinese military. And then

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Speaker 1: you threat to Taiwan. So I think it's a it's

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Speaker 1: you know, it's a traditional move. We've been affiliate with

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Speaker 1: the Philippines for very long time, and some people would

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Speaker 1: object to the nature of that relationship in its early days.

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Speaker 1: But nonetheless they have to show the military United States

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Speaker 1: and the President that we are going to engage some way,

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Speaker 1: shape or form, not to give China a freehand. When

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Speaker 1: do we have this Munich security comfort zone going open Germany,

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Speaker 1: what do you expect to come out of that? Well,

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Speaker 1: I mean, I think you know, the whole question of

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Speaker 1: the Ukraine Russian conflx, how much how much weaponry we

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Speaker 1: are giving to Ukraine. We've seen this in the past

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Speaker 1: where we give a lot of weapons and then we

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Speaker 1: lose and then the enemy gets our weapons, whether they're

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Speaker 1: destroyed or not. Uh. And it's it's a delicate balance.

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Speaker 1: And then you've got Finland saying, listen, when are we

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Speaker 1: getting into NATO. You want to expand NATO, We want

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Speaker 1: to be a part of NATO. Let us in already.

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Speaker 1: So I think there's a lot of complications going on,

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Speaker 1: and I think, you know, Trump took advantage of this

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Speaker 1: in terms of our NATO partners and saying you have

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Speaker 1: to do more and I think President Biden is doing

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Speaker 1: a lot with weaponry, but you have to make sure

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Speaker 1: Europe's in UH and continues to stay in and think

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Speaker 1: it's politically very important to President Biden and by Europe. Ready,

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Speaker 1: Way main gairmany time. Way, Wendy, thank you and so

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Speaker 1: alwa it's Wendy ship of that brand university. Wendy just wonderful.

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Speaker 1: We're gonna do something different with Helene Becker. We're not

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Speaker 1: going to get a single best buy in an individual stock.

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Speaker 1: We're not going to complain to her about the cost

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Speaker 1: to Paris or the like Placid this weekend for Lisa.

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Speaker 1: What we're gonna do is talk to her about the unspeakable.

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Speaker 1: When you're Helene Becker at Cow and you can write

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Speaker 1: about it, you can think about it, you can experience.

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Speaker 1: I cut to the chase Helene Becker. When I was

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Speaker 1: in school a long time ago, a friend of a

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Speaker 1: girlfriend's family was a PanAm pilot and he walked on water.

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Speaker 1: There was a time where these people were gods of

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Speaker 1: the airspace. Maybe it touches to the DiCaprio movie Catch

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Speaker 1: Me If you can. Things have changed? Do you have

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Speaker 1: confidence in the pilot training, the pilots coming up from

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Speaker 1: the regionals. Are they the same as that god from

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Speaker 1: fifty years ago? Um? So this are two questions Tom.

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Speaker 1: The first part of the question is do we have

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Speaker 1: confidence in the safety and and and security of our

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Speaker 1: er any of our air traffic UM system. Yes we do. UM.

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Speaker 1: The pilots of fifty years ago we're trained during wars.

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Speaker 1: We don't have that much anymore. So pilots now are

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Speaker 1: more civilian trained. But yes, they all have this fift

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Speaker 1: hours of experience before they can work for commercial airline UM.

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Speaker 1: Unless they're in the military, they can have a few

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Speaker 1: few fewer hours. UM. But yes, it's gotten increasingly difficult

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Speaker 1: to be a pilot because of concerns about safety. I

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Speaker 1: look alaim at the financial part of it, of recruiting pilots,

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Speaker 1: described the pilots shortage and the reports recently that the

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Speaker 1: major carriers are basically stealing pilots from the lesser regional carriers. Yeah,

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Speaker 1: they're eating their young. UM. So here's the situation. And

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Speaker 1: we've been talking about this since two thousand fourteen, but

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Speaker 1: the pandemic accelerated it. Um. You have a group of

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Speaker 1: pilots beginning in about twenty seven thousand pilots are going

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Speaker 1: to turn sixty five this decade. So when you think

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Speaker 1: about that, the US airline industry employs about fifty seven thousand,

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Speaker 1: sixty thousand pilots, so more than half or about what

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Speaker 1: of pilots were retiring and they have to be replaced.

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Speaker 1: UM in the US only trains collectively about five or

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Speaker 1: six thousand pilots a year, so you were going to

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Speaker 1: have a shortage anyway. Then you had the pandemic, and

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Speaker 1: airlines asked pilots who were intending to retire between two

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Speaker 1: to consider retiring in and UM. The only airline that

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Speaker 1: really didn't do that was United. They made different arrangements

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Speaker 1: with their with their pilots, but others retired. And then

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Speaker 1: when things started to recover, not only did you have

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Speaker 1: to hire back the ten thousand that retire, but when

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Speaker 1: you think about growth, and you need roughly five or

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Speaker 1: six thousand pilots a year collectively for all airlines, UM,

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Speaker 1: you were hiring fourteen or fifteen thousand pilots in two

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Speaker 1: in an environment where you're only training a third of that.

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Speaker 1: So we were going to have a shortage. And I'm sorry,

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Speaker 1: go ahead of hell and this all boils down to

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Speaker 1: this question of consumer experience and how much of this

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Speaker 1: is what's behind this shortage compere a city relative to

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Speaker 1: demand and an experience that I mean, I can't blame

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Speaker 1: this and why a plane turns around, but a feeling

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Speaker 1: that things are kind of running more by a shoestring

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Speaker 1: than they used to. How much well consumers put up

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Speaker 1: with given that this is a catastrophic experience for somebody

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Speaker 1: who's on that flight, But if they want to leave

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Speaker 1: New Zealand and go to UH somewhere else, they're going

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Speaker 1: to get back on a plane. Right. So, UM, I

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Speaker 1: think the incident you're talking about was the one yesterday

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Speaker 1: where there was a fire at JFK and UH and

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Speaker 1: Air New Zealand aircraft turned around halfway into the flight

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Speaker 1: or something like that. Yeah, So here's the thing you

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Speaker 1: want to travel as a consumer. Um, you've missed it.

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Speaker 1: Maybe you haven't traveled that much in the last couple

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Speaker 1: of years, and you want to get back and you

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Speaker 1: want to get back to experiences and doing things, and

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Speaker 1: air is part and and maybe air is part of

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Speaker 1: your vacation, and so you try to figure out the

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Speaker 1: best way to do that. UM, traveling days of week

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Speaker 1: that are maybe less popular, like Tuesday wins to Saturday day.

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Speaker 1: They're a little less popular than the other four days

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Speaker 1: of the week. Um. And then the other part of

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Speaker 1: it is for the consumer, we're seeing a lot of

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Speaker 1: buy up from main cabin to premium economy UM or

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Speaker 1: business class, but those fares are starting to go up

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Speaker 1: a lot, so we'll see whether that last. Just a

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Speaker 1: note from me, I'm not flying on a Tuesday. I'm

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Speaker 1: just not doing that. If you take the week off,

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Speaker 1: I'm leaving on Friday night flying on a Tuesday, It's

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Speaker 1: not happening. I need to clarify something I said a

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Speaker 1: little bit earlier. I read you a statement from an airline.

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Speaker 1: It was actually from Korean Airlines because there were two

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Speaker 1: flights that had to make a U turn. Can you

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Speaker 1: believe that? Can you believe that? So that was that

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Speaker 1: was the statement from Korean Airlines. Let me share the

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Speaker 1: statement from their New Zealand with you and Helen, can

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Speaker 1: you help us understand this a little bit more? They said,

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Speaker 1: diverting to another US poor would have meant the aircraft

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Speaker 1: would remain on the ground for several days, impacting a

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Speaker 1: number of other scheduled services and customers. How messy can

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Speaker 1: that get? Yeah? So okay, So what happens in this

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Speaker 1: case is pilots UM and fly to tendants have duty

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Speaker 1: our limitations and on a flight as long as the

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Speaker 1: ones we're talking about these over the Pacific fifteen hour flights,

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Speaker 1: you you usually fly with two crews, right, You fly

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Speaker 1: with your pilots who are flying the plane, and then

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Speaker 1: about halfway through, once they reach their limit, you switch

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Speaker 1: out cruise. And there are different ways of doing that anyway,

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Speaker 1: So the point here is if you divert to another

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Speaker 1: aircraft airport, UM, now your duty day is over regardless

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Speaker 1: of where you are, and now everybody has to rest

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Speaker 1: for their minimum rest period and then you have to

430
00:23:34,520 --> 00:23:37,280
Speaker 1: get back you know, in the aircraft. But meanwhile the

431
00:23:37,280 --> 00:23:39,800
Speaker 1: aircraft is out of place because you can't just willy

432
00:23:39,920 --> 00:23:42,000
Speaker 1: nilly pick an airport, or you don't want to. You

433
00:23:42,040 --> 00:23:44,160
Speaker 1: want to pick an airport where you have services, where

434
00:23:44,240 --> 00:23:47,440
Speaker 1: you you have UM a gate, where you have UM

435
00:23:47,520 --> 00:23:49,800
Speaker 1: a ticket counter that can help the people on the

436
00:23:49,840 --> 00:23:53,320
Speaker 1: aircraft get back UM get to where they're eventually going.

437
00:23:53,440 --> 00:23:55,760
Speaker 1: And then you have all the people who are intending

438
00:23:55,800 --> 00:23:59,040
Speaker 1: to go back to Auckland trapped in New York in

439
00:23:59,160 --> 00:24:02,360
Speaker 1: this case, so you have to have a plane there anyway.

440
00:24:02,800 --> 00:24:05,119
Speaker 1: And I want to finish on this given the nature

441
00:24:05,119 --> 00:24:07,600
Speaker 1: of the conversation we've just had for five minutes about

442
00:24:07,640 --> 00:24:11,440
Speaker 1: this industry. American Airlines is up twenty year today, United's

443
00:24:11,480 --> 00:24:13,480
Speaker 1: up thirty, doubt US up sixteen and a half. I

444
00:24:13,520 --> 00:24:15,560
Speaker 1: know over the last twelve months have had difficulties, but

445
00:24:15,600 --> 00:24:19,760
Speaker 1: these stocks have runned so hard here today. Why right, Yeah,

446
00:24:20,119 --> 00:24:22,480
Speaker 1: So what Lisa and I were just talking about, in

447
00:24:22,640 --> 00:24:26,960
Speaker 1: terms of demands, very very strong supply is limited UM

448
00:24:27,480 --> 00:24:30,159
Speaker 1: there O E M. Not only air frame delays from

449
00:24:30,200 --> 00:24:34,879
Speaker 1: Boeing and Airbus, but you have UM engine delays. You

450
00:24:34,960 --> 00:24:37,840
Speaker 1: have maintenance issues parts that we're turning around in forty

451
00:24:37,880 --> 00:24:40,600
Speaker 1: eight hours or taking weeks now, so aircraft are on

452
00:24:40,640 --> 00:24:43,840
Speaker 1: the ground. To have all these supply constraints, you have

453
00:24:43,960 --> 00:24:46,720
Speaker 1: a lot of demand still and you have very strong

454
00:24:46,800 --> 00:24:49,080
Speaker 1: pricing and fuel costs have come off their highs. So

455
00:24:49,200 --> 00:24:52,160
Speaker 1: from a margin perspective, we're actually looking at at least

456
00:24:52,240 --> 00:24:54,639
Speaker 1: a very good first half of the year. Whether it

457
00:24:54,720 --> 00:24:57,320
Speaker 1: carries through all year, we'll see, but we definitely think

458
00:24:57,400 --> 00:25:00,360
Speaker 1: first half is going to be very good and that's

459
00:25:00,400 --> 00:25:03,040
Speaker 1: propelling the stocks, good for them and bad for us

460
00:25:03,160 --> 00:25:05,280
Speaker 1: as we all just have to suck it up. Apparently, Helene,

461
00:25:05,320 --> 00:25:07,560
Speaker 1: thank you as always telling back to there of canon,

462
00:25:18,160 --> 00:25:20,520
Speaker 1: you're gonna bring in Robert, I hope. So unless you

463
00:25:20,520 --> 00:25:22,080
Speaker 1: want to talk about Dare again, No, I don't want

464
00:25:22,520 --> 00:25:26,160
Speaker 1: Bob donods Cio cross Mark Globe and Investments. Bob, We've

465
00:25:26,160 --> 00:25:28,560
Speaker 1: asked this question already this morning. But given the pullback

466
00:25:28,600 --> 00:25:30,560
Speaker 1: in equity market, so the running we've had so far

467
00:25:30,680 --> 00:25:33,200
Speaker 1: this year, what do you make of this most recent move?

468
00:25:33,320 --> 00:25:34,680
Speaker 1: Is that something you want to take the other side

469
00:25:34,720 --> 00:25:37,639
Speaker 1: of For starters, you guys are having way too much

470
00:25:37,720 --> 00:25:41,840
Speaker 1: fun over there for a Friday morning that aside. Look,

471
00:25:41,920 --> 00:25:45,360
Speaker 1: the bulls have had the year to date run um.

472
00:25:45,600 --> 00:25:47,560
Speaker 1: I think it's gonna be a year where we frustrate

473
00:25:47,720 --> 00:25:49,840
Speaker 1: both the bulls and the bears. Now it's time for

474
00:25:49,920 --> 00:25:53,560
Speaker 1: the bulls to be frustrated. Look, the narrative has been

475
00:25:54,119 --> 00:25:58,040
Speaker 1: maybe the Feds almost done, inflations coming down. I think

476
00:25:58,080 --> 00:26:00,680
Speaker 1: we'll have a soft landing. I better buy some stocks.

477
00:26:01,359 --> 00:26:03,920
Speaker 1: But what that ignores is we have the most inverted

478
00:26:04,000 --> 00:26:07,840
Speaker 1: yield curve in forty years. The l eyes have rolled

479
00:26:07,920 --> 00:26:12,960
Speaker 1: over sentiment. Retail sentiments move straight up to equal to

480
00:26:13,040 --> 00:26:15,840
Speaker 1: the peak of a year ago. Money growth is negative.

481
00:26:16,240 --> 00:26:18,760
Speaker 1: The impact of what the Fed did last year's yet

482
00:26:18,840 --> 00:26:21,320
Speaker 1: to be felt on the economy. I think the markets

483
00:26:21,320 --> 00:26:23,080
Speaker 1: ahead of itself and we're gonna give a lot of

484
00:26:23,119 --> 00:26:25,720
Speaker 1: this back. Bob Doll. I talked to Andrew Slimmon of

485
00:26:25,760 --> 00:26:29,040
Speaker 1: Morgan Stanley yesterday and he was absolutely brilliant. It was

486
00:26:29,080 --> 00:26:31,720
Speaker 1: a clinic on what you and I remember, which is

487
00:26:31,760 --> 00:26:35,520
Speaker 1: an actually normal rate environment. And what Andrew was talking

488
00:26:35,560 --> 00:26:40,720
Speaker 1: about is was everybody understand markets are looking forward and

489
00:26:40,920 --> 00:26:45,240
Speaker 1: expecting out to the future. What's the Bob Dolph future

490
00:26:45,359 --> 00:26:49,479
Speaker 1: look like? That gives me comfort in owning stocks. Well,

491
00:26:49,560 --> 00:26:51,680
Speaker 1: I think for starters, we've got to get through this

492
00:26:51,960 --> 00:26:54,879
Speaker 1: period of economic weakness. I'm going to call it a

493
00:26:54,960 --> 00:26:59,120
Speaker 1: mild recession. I know that's not popular. It was fourth

494
00:26:59,200 --> 00:27:02,320
Speaker 1: quarter last year, but now the soft landing school has

495
00:27:02,400 --> 00:27:04,360
Speaker 1: taken over. I don't know how you ignore the list

496
00:27:04,640 --> 00:27:07,120
Speaker 1: I just put on the table. We've got to get

497
00:27:07,160 --> 00:27:10,800
Speaker 1: through that. And during that time frame, Tom Earning's estiments

498
00:27:10,840 --> 00:27:13,440
Speaker 1: are gonna come down somewhere. They come down a lot. Already.

499
00:27:13,960 --> 00:27:17,399
Speaker 1: Stocks have a hard time moving significantly higher when earning's

500
00:27:17,480 --> 00:27:20,760
Speaker 1: estimates are coming down. So I think some caution here

501
00:27:20,840 --> 00:27:23,960
Speaker 1: makes sense. Bob Torsten Slock has been out front talking

502
00:27:24,000 --> 00:27:26,600
Speaker 1: about a no landing situation, and he just put out

503
00:27:27,080 --> 00:27:29,760
Speaker 1: this giving a sense of what the market response would

504
00:27:29,840 --> 00:27:34,159
Speaker 1: be to such a scenario. Basically, high inflation is a problem.

505
00:27:34,320 --> 00:27:36,480
Speaker 1: The Fed is not done raising rates, which means that

506
00:27:36,560 --> 00:27:39,960
Speaker 1: the trading environment from two will be coming back and

507
00:27:40,000 --> 00:27:44,480
Speaker 1: the portfolio will perform poorly. Do you agree? I do, sadly.

508
00:27:44,600 --> 00:27:47,879
Speaker 1: I wish I could answer differently, but I think the uh,

509
00:27:48,119 --> 00:27:51,800
Speaker 1: the inflation. Inflation takes a long time to get out

510
00:27:51,840 --> 00:27:54,520
Speaker 1: of the system, and to think that it just peaked

511
00:27:54,560 --> 00:27:56,560
Speaker 1: and is going to come straight down. Look, if the

512
00:27:56,640 --> 00:28:00,399
Speaker 1: Fed really wants to percent inflation, they have massive amounts

513
00:28:00,440 --> 00:28:02,320
Speaker 1: of work in front of them. Can we get down

514
00:28:02,400 --> 00:28:06,480
Speaker 1: to four maybe into the threes? Yeah, but nowhere close

515
00:28:06,560 --> 00:28:08,639
Speaker 1: to two? Bob, real quick here? Then what does that

516
00:28:08,760 --> 00:28:10,920
Speaker 1: mean for ten year treasury yields considering that they have

517
00:28:11,040 --> 00:28:14,600
Speaker 1: been creeping higher after a huge flood of cash into

518
00:28:14,960 --> 00:28:18,120
Speaker 1: longer duration for the first month of the year. Yeah,

519
00:28:18,160 --> 00:28:21,879
Speaker 1: I think that those rates have moved up appropriately. I

520
00:28:21,920 --> 00:28:25,440
Speaker 1: couldn't believe how low they got. I suspect they'll stay

521
00:28:25,480 --> 00:28:28,560
Speaker 1: where they are, maybe move a bit higher before we

522
00:28:28,960 --> 00:28:32,040
Speaker 1: see the eyes of a mild recession and some more

523
00:28:32,119 --> 00:28:35,000
Speaker 1: lower inflation numbers in flash and sticky. You guys know

524
00:28:35,119 --> 00:28:37,640
Speaker 1: that you've talked about it, so you want to wind.

525
00:28:38,640 --> 00:28:40,520
Speaker 1: So I want to have a little that four and

526
00:28:40,520 --> 00:28:43,920
Speaker 1: a half percent cash in my portfolio. I don't mind

527
00:28:44,040 --> 00:28:47,040
Speaker 1: so much a nearly four percent ten year treasury yield.

528
00:28:47,440 --> 00:28:49,440
Speaker 1: And in the stock market, I want to own a

529
00:28:49,520 --> 00:28:51,640
Speaker 1: lot of the things that have not done well year

530
00:28:51,680 --> 00:28:53,440
Speaker 1: to day. Which are the things that did do well

531
00:28:53,520 --> 00:28:58,120
Speaker 1: last year, Companies with earnings, reasonable valuations, good cash flow.

532
00:28:58,520 --> 00:29:02,320
Speaker 1: The leadership has been the stocks companies that lose money

533
00:29:02,440 --> 00:29:06,000
Speaker 1: last year, UM stocks that are heavily shorted. That's not

534
00:29:06,160 --> 00:29:08,600
Speaker 1: quality leadership in my view. I bopp Grist, have you

535
00:29:08,680 --> 00:29:10,680
Speaker 1: on the program. Thanks for being with us. Put all

536
00:29:10,720 --> 00:29:14,720
Speaker 1: that across montol even investments. Subscribe to the Bloomberg Surveillance

537
00:29:14,760 --> 00:29:19,040
Speaker 1: podcast on Apple, Spotify and anywhere else you get your podcasts.

538
00:29:19,560 --> 00:29:23,640
Speaker 1: Listen live every weekday starting at seven am Easter. I'm

539
00:29:23,640 --> 00:29:27,000
Speaker 1: Bloomberg dot Com, the I Heart Radio app tune In,

540
00:29:27,480 --> 00:29:30,840
Speaker 1: and the Bloomberg Business app. You can watch US Live.

541
00:29:31,080 --> 00:29:35,320
Speaker 1: I'm Bloomberg Television and always I'm the Bloomberg Terminal. Thanks

542
00:29:35,400 --> 00:29:39,280
Speaker 1: for listening. I'm Tom Keane and this is Bloomberg