WEBVTT - Bloomberg Surveillance TV: August 13, 2024 0:00:02.440 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amerie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.880 Terminal and the Bloomberg Business app. 0:00:36.440 --> 0:00:39.280 A growing list of companies are warning of a slowdown, 0:00:39.520 --> 0:00:43.120 Mariot cutting its full year outlook, expecting weaker demand in 0:00:43.200 --> 0:00:47.600 North America and China. Mariot International President and CEO Tony 0:00:47.680 --> 0:00:50.600 Kapawano joins us now, Tony, always wonderful. 0:00:50.200 --> 0:00:50.559 To see you. 0:00:50.600 --> 0:00:52.640 Thank you for being in the studio. You know, I 0:00:52.680 --> 0:00:54.560 want to start. I feel like the US consumer and 0:00:54.560 --> 0:00:57.600 the Chinese consumer are two completely different stories. So I 0:00:57.600 --> 0:00:59.880 want to start with the US in terms of the 0:01:00.040 --> 0:01:02.520 greater weakness. Is it across the board or is it 0:01:02.520 --> 0:01:05.560 this bifurcation that we just keep seeing higher end still 0:01:05.640 --> 0:01:09.320 spending going nuts, lower end really really crimped. 0:01:09.400 --> 0:01:13.880 Well, there is certainly a bifurcation across consumers. The lower 0:01:13.959 --> 0:01:17.960 end consumer is feeling the pressure of economic headwinds. In fact, 0:01:17.959 --> 0:01:21.160 while we don't operate in the economy tier, in the 0:01:21.160 --> 0:01:24.680 economy tier, they actually had negative revenue per available growth 0:01:25.240 --> 0:01:28.080 in the second quarter. But as you move up the 0:01:28.160 --> 0:01:32.160 chain scales, we are seeing continued strong RevPAR growth really 0:01:32.200 --> 0:01:36.440 across segments and across geographies. In fact, the strongest growth 0:01:36.480 --> 0:01:39.160 we saw in Q two was in the luxury segment, 0:01:39.400 --> 0:01:43.360 and so that luxury customer continues to spend, continues to 0:01:43.400 --> 0:01:47.720 have confidence, and continues to prioritize spending on travel and 0:01:47.760 --> 0:01:49.560 experiences versus hard goods. 0:01:49.640 --> 0:01:52.280 Can you give a sense of in the non luxury 0:01:52.320 --> 0:01:55.600 segment where consumers are pushing back what they're not willing 0:01:55.640 --> 0:01:57.360 to spend on in the same way that they were, 0:01:57.440 --> 0:01:58.160 say a year ago. 0:01:58.320 --> 0:02:00.520 Yes, So it's really interesting if you look at our 0:02:00.600 --> 0:02:03.160 Q two numbers, with the exception of Greater China, which 0:02:03.200 --> 0:02:06.400 I know we'll talk about, we saw strong growth across 0:02:06.480 --> 0:02:11.360 every geography and across all three segments we operate in, business, transient, group, 0:02:11.520 --> 0:02:14.760 and leisure. So it's not that we're seeing really a 0:02:14.800 --> 0:02:17.520 pullback and travel. We are seeing a little bit of 0:02:17.560 --> 0:02:22.440 a level of caution in some of the related discretionary spend. 0:02:22.680 --> 0:02:24.960 So when you look across most of the markets we operate, 0:02:25.200 --> 0:02:27.720 food and beverage spending for instance, was down a bit. 0:02:28.120 --> 0:02:31.640 So those consumers, it appears, are still prioritizing travel, but 0:02:31.760 --> 0:02:34.280 maybe they're being a little more judicious on their spending 0:02:34.360 --> 0:02:35.120 as they travel. 0:02:35.160 --> 0:02:37.080 Well, Tony, you've been with Marriott for a few cycles, 0:02:37.120 --> 0:02:39.520 joining in nineteen ninety five. I wonder when you look 0:02:39.520 --> 0:02:41.880 at the consumer now and some of that concern, that 0:02:41.960 --> 0:02:45.440 pickiness of what you're seeing, how similar or how far 0:02:45.480 --> 0:02:47.760 away does it look from past downturns. 0:02:48.200 --> 0:02:54.000 I think well, from a macro perspective, not terribly dissimilar 0:02:54.040 --> 0:02:56.520 other than the trend I just mentioned to Lisa, which 0:02:56.639 --> 0:03:00.040 is we have great credit card partners in American Express 0:03:00.080 --> 0:03:03.040 and JP Morgan Chase, and so we have really rich 0:03:03.120 --> 0:03:07.640 consumer spending data to evaluate and pre pandemic. You saw 0:03:07.680 --> 0:03:11.200 some of the younger demographics starting that shift away from 0:03:11.200 --> 0:03:15.400 purchase of hard goods towards experiences post pandemic. It really 0:03:15.400 --> 0:03:18.640 appears to be across demographics, and that's a trend that 0:03:18.720 --> 0:03:23.680 seems to have the legs to endure long beyond the 0:03:23.760 --> 0:03:25.840 end of the pandemic. So I think that's a distinction 0:03:26.480 --> 0:03:29.880 for Marriott. We're a different company than we were in 0:03:29.919 --> 0:03:34.720 different cycles. A higher percentage of our businesses franchise versus managed, 0:03:34.760 --> 0:03:38.640 so you don't have that incentive management fee volatility. Higher 0:03:38.640 --> 0:03:43.120 percentage of our revenue comes from non RevPAR related sources, 0:03:43.560 --> 0:03:47.400 like our branded residential business, like our branded credit card business. 0:03:47.760 --> 0:03:51.520 We're much more international than we were in previous cycles. 0:03:52.080 --> 0:03:54.880 But there are certainly some similarities. And you have yachts now, 0:03:55.080 --> 0:03:59.320 now we have yachts Ilma. Our second yacht launches next month. 0:03:59.840 --> 0:04:02.960 I'm just curious about this idea of investing in luxury. 0:04:03.400 --> 0:04:05.080 How much of this do you say this is just 0:04:05.120 --> 0:04:07.360 of the moment the split we're seeing, or we want 0:04:07.360 --> 0:04:09.720 to buy more boats, we want to have Marriott private 0:04:09.800 --> 0:04:12.040 jets in the sky. What does it mean to either 0:04:12.400 --> 0:04:14.320 just continue on the trend or double down on it. 0:04:14.400 --> 0:04:16.480 Well, the good news is we're not buying any of it. 0:04:16.520 --> 0:04:18.279 You know, we're an asset light model, so we have 0:04:18.400 --> 0:04:22.800 terrific partners who are investing meaningfully in luxury, and we 0:04:22.839 --> 0:04:25.480 want to lengthen the lead that we enjoy in luxury. 0:04:25.640 --> 0:04:28.760 We've got the industry's largest luxury footprint, we have the 0:04:28.800 --> 0:04:33.880 industry's largest luxury pipeline, we have the industry's largest luxury 0:04:33.920 --> 0:04:38.640 branded residential business, and yacht is just a natural extension 0:04:38.640 --> 0:04:42.080 of that. We find that luxury customer wants to spend more, 0:04:42.200 --> 0:04:44.920 higher and higher percentage of their travel wallet with the 0:04:44.960 --> 0:04:48.000 brands that they really trust. And when we look again, 0:04:48.080 --> 0:04:50.479 it's more anecdotal because we've only been in the water 0:04:50.720 --> 0:04:54.680 for two years, but more than fifty percent of the 0:04:54.720 --> 0:04:57.800 passengers have never cruised before, and so I think they 0:04:57.839 --> 0:04:59.800 look at that rich Carlton brand as a little bit 0:04:59.839 --> 0:05:03.920 of a housekeeping seal of approval. And more than seventy 0:05:03.920 --> 0:05:07.240 five percent of the passengers we've had our Bonvoyd members, 0:05:07.600 --> 0:05:10.839 and so that two hundred and ten million member loyalty 0:05:10.880 --> 0:05:14.000 platform really gives us a channel to talk to them 0:05:14.040 --> 0:05:16.520 about our expanded offerings before we move. 0:05:16.440 --> 0:05:18.000 On to internationals. So I want to ask you about 0:05:18.000 --> 0:05:20.320 the Chinese consumer. I want to ask you about Hawaii, 0:05:20.360 --> 0:05:22.680 and I know you have a lot of concern. You 0:05:22.720 --> 0:05:24.680 put a lot of effort into rebuilding what was going 0:05:24.720 --> 0:05:27.839 on in Maui after the wildfires. Is tourism coming back? 0:05:28.200 --> 0:05:28.560 It is? 0:05:29.240 --> 0:05:31.320 You know, we just passed the one year anniversary of 0:05:31.360 --> 0:05:34.720 those horrific fires in Lahina. I had my whole leadership 0:05:34.760 --> 0:05:38.520 team in Maui just last month. The great news is 0:05:40.000 --> 0:05:43.360 the Army Corps of Engineers is to be applauded. The 0:05:43.400 --> 0:05:47.400 progress they've made in cleaning up Leahina preparing Lahina for 0:05:47.520 --> 0:05:52.800 redevelopment is really encouraging. We had the commander who's running 0:05:52.800 --> 0:05:55.240 the effort give us a tour of Lahina. There's a 0:05:55.279 --> 0:06:00.240 house under construction, which was really important symbolically. But the 0:06:00.240 --> 0:06:02.680 aloha spirit of Hawaii is as strong as. 0:06:02.560 --> 0:06:03.160 It's ever been. 0:06:03.240 --> 0:06:07.200 Our people are passionate, they're resilient. They're excited to see 0:06:07.279 --> 0:06:11.000 tourists coming back. But they're still operating at occupancies in 0:06:11.040 --> 0:06:15.240 the sixty percent range. And so if your viewers hear 0:06:15.320 --> 0:06:18.080 nothing else, go to Hawaii. They need the business. It's 0:06:18.120 --> 0:06:20.960 as attractive as a destination as it's ever been. 0:06:21.080 --> 0:06:23.240 So who is traveling right now? We spoke to the 0:06:23.240 --> 0:06:26.200 four season CEO yesterday who said the Americans are out 0:06:26.200 --> 0:06:28.880 there and they're traveling, they're seeing weakness with the Chinese consumer. 0:06:29.279 --> 0:06:30.560 Is that similarly what you're seeing. 0:06:30.640 --> 0:06:35.000 Yeah, although interestingly, the high end Chinese consumer is traveling 0:06:35.080 --> 0:06:38.240 a great deal, but they're not traveling in China. So 0:06:38.360 --> 0:06:41.800 when we reported our second quarter earnings, the highest sub 0:06:41.839 --> 0:06:44.160 market we had in terms of year over year RevPAR 0:06:44.279 --> 0:06:47.880 was Japan. RevPAR in Japan was up twenty one percent, 0:06:48.320 --> 0:06:51.440 and a lot of that was driven, certainly by American travelers, 0:06:51.720 --> 0:06:53.920 but by high end Chinese travelers. 0:06:54.160 --> 0:06:55.839 Have also how much is that driven by the weakness 0:06:55.839 --> 0:07:00.400 we've seen in the end and consumers travelers take. 0:07:00.320 --> 0:07:02.200 A time on that that's the case, but I think 0:07:02.240 --> 0:07:05.280 that outbound Chinese traveler was locked down in a really 0:07:05.320 --> 0:07:09.000 significant way. And you've seen the Chinese government create visa 0:07:09.080 --> 0:07:12.640 free travel across the APEC region, and so we're seeing 0:07:12.720 --> 0:07:17.320 strong outbound Chinese travel in Japan, Thailand, those sorts of destinations. 0:07:17.400 --> 0:07:20.520 As an American company based in America. 0:07:20.320 --> 0:07:22.360 Does it give you pause to keep. 0:07:22.160 --> 0:07:24.640 The footprint in the size that you'd have in China 0:07:24.800 --> 0:07:28.760 given some of the overlay of tensions between the two countries, 0:07:28.840 --> 0:07:31.360 as well as the lack of appetite to go beyond 0:07:31.440 --> 0:07:33.680 that Apec region by Chinese wealthy travelers. 0:07:33.880 --> 0:07:37.119 Well, I have an expectation eventually they will come back. 0:07:37.440 --> 0:07:41.280 If you think about pre pandemic, the growing middle class 0:07:41.280 --> 0:07:44.360 in China and their appetite to explore the world was 0:07:44.400 --> 0:07:46.520 one of the things that drove a lot of optimism 0:07:46.560 --> 0:07:49.720 across our sector, and I think that will come back eventually. 0:07:50.120 --> 0:07:52.440 To your first question, We've got a little more than 0:07:52.520 --> 0:07:55.840 five hundred hotels in China today, nearly the same number 0:07:55.880 --> 0:07:59.120 in our pipeline, and almost the entirety of that portfolio 0:07:59.200 --> 0:08:03.240 is owned by Chinainese companies, and so I'm not sure 0:08:03.280 --> 0:08:06.520 we're necessarily viewed as an American company in China because 0:08:06.560 --> 0:08:10.440 the assets are owned by the Chinese and they love 0:08:11.440 --> 0:08:15.360 global brands like Mariott and so of course our business 0:08:15.400 --> 0:08:19.240 thrives in times of political stability, and when you have 0:08:19.480 --> 0:08:22.480 ratcheting up tension between the US and China, that's not 0:08:22.600 --> 0:08:27.520 great for travel. But our demand levels in China are 0:08:27.560 --> 0:08:30.920 back to pre pandemic levels. The reason we reported such 0:08:31.000 --> 0:08:34.000 weakness in RevPAR is because a rate and rate is 0:08:34.040 --> 0:08:36.959 soft one because a lot of the high end Chinese 0:08:37.040 --> 0:08:41.079 consumers are leaving China to travel across the region, and 0:08:41.200 --> 0:08:45.360 the booking window because of weak consumer confidence in China, 0:08:45.559 --> 0:08:48.360 believe it or not, is under three days, and so 0:08:48.440 --> 0:08:51.480 they're making those decisions very close to travel for in 0:08:51.640 --> 0:08:52.520 country travel. 0:08:53.000 --> 0:08:55.160 So just to tie this all together, I know that 0:08:55.200 --> 0:08:57.880 Mariett had a subdued kind of outlook going forward in 0:08:57.960 --> 0:09:00.839 terms of how quickly you can see some normalization or 0:09:00.880 --> 0:09:03.120 at least reversal of what we've seen, particularly in the 0:09:03.120 --> 0:09:06.640 lower end consumer. How deep do you think some of 0:09:06.679 --> 0:09:08.920 the weakness goes the reluctance? I mean, is this just 0:09:08.960 --> 0:09:12.040 a matter of economic uncertainty or is this something that 0:09:12.080 --> 0:09:14.680 you're seeing escalate in a more significant way. 0:09:14.720 --> 0:09:18.240 Well, I think your term normalization is the right one. Remember, 0:09:18.320 --> 0:09:21.280 we saw our business drop by more than ninety percent 0:09:21.360 --> 0:09:23.520 in the early days of the pandemic. So for the 0:09:23.600 --> 0:09:26.360 last couple of years, you've seen demand come roaring back, 0:09:27.160 --> 0:09:30.680 the benefit of those really favorable year over year comparisons 0:09:30.720 --> 0:09:34.840 has faded, and we're settling into a more normalized demand environment. 0:09:35.840 --> 0:09:39.120 Weakness in the consumer obviously hits our business. We operate 0:09:39.120 --> 0:09:43.000 in a cyclical industry. But I think everybody's waiting for 0:09:43.160 --> 0:09:46.959 September and if the rate cuts that are expected materialize, 0:09:47.000 --> 0:09:49.679 that'll be a boost for the consumer. Obviously, I'm going 0:09:49.720 --> 0:09:51.400 to be watching you at eight thirty to see what 0:09:51.440 --> 0:09:54.600 the inflation numbers look like. But all of that factors 0:09:54.640 --> 0:09:57.240 into that mindset of the consumer. But the thing that 0:09:57.280 --> 0:10:00.200 gives me confidence beyond the next quarter or two is 0:10:00.280 --> 0:10:05.120 this almost sociological shift we've seen with this appetite for travel, 0:10:05.240 --> 0:10:07.400 and I think that bodes really well for our business. 0:10:07.559 --> 0:10:10.160 Tony Copano, thank you so much. Always wonderful to have 0:10:10.240 --> 0:10:13.840 you on the show. Marriott International, President and Chief executive Officer, 0:10:14.000 --> 0:10:25.560 Tony Copano, thank you. Joining us right now, we've got 0:10:25.640 --> 0:10:30.200 David Kelly of JP Morgan alongside Steve Rshudo of Mizuho. David, 0:10:30.600 --> 0:10:32.280 thank you for being on with us. I want to 0:10:32.320 --> 0:10:33.720 start with you, what's your action to this. 0:10:34.880 --> 0:10:37.360 I think it's pretty good news because if you look 0:10:37.400 --> 0:10:39.800 at what's you know, first of all, it was slightly 0:10:39.800 --> 0:10:42.000 better than consensus in the headline, I mean very slightly. 0:10:42.480 --> 0:10:44.760 But if you look at what's still holding CPI up. 0:10:44.840 --> 0:10:48.280 We got a one point two percent increase in auto insurance, 0:10:48.320 --> 0:10:51.160 so it's still that an auto insurance anomaly there. And 0:10:51.240 --> 0:10:53.600 we did, you know, we did see a five tenths 0:10:53.600 --> 0:10:55.880 of a percent increase in rents, but that's showing the 0:10:55.920 --> 0:10:58.440 rental numbers up over five percent year of year, and 0:10:58.480 --> 0:11:01.120 owner's equivalent rent of over five percent year over year. 0:11:01.160 --> 0:11:03.480 Now we know that that is somewhat misleading, and I 0:11:03.520 --> 0:11:05.840 think the auto insurance number is also somewhat misleading. 0:11:06.000 --> 0:11:09.200 But everywhere else inflation is nowhere to be seen. 0:11:09.240 --> 0:11:10.680 And I think that's really the important point. 0:11:10.720 --> 0:11:14.120 Where in the actual transactions markets of the economy, where 0:11:14.240 --> 0:11:17.120 people are sort of bidding and asking for in terms. 0:11:16.960 --> 0:11:18.959 Of prices, inflation is disappearing. 0:11:19.040 --> 0:11:21.520 So I think that overall this is this very much 0:11:21.559 --> 0:11:24.160 confirms the idea that inflation is heading down. I think 0:11:24.200 --> 0:11:25.679 over the next two months we're going to have some 0:11:26.240 --> 0:11:30.040 relatively easy comps, so I think that by September de 0:11:30.120 --> 0:11:32.320 BED may actually hit it's two percent year over year 0:11:32.400 --> 0:11:35.439 number on consumption to flater inflation. You know, we will 0:11:35.440 --> 0:11:38.120 see what happens, But overall, I think this is further 0:11:38.160 --> 0:11:40.760 confirmation that inflation is gradually whittling away. 0:11:41.120 --> 0:11:43.640 So inflation problem dead. Steve Rashuddo, your. 0:11:43.480 --> 0:11:45.840 Take complete opposite. 0:11:45.840 --> 0:11:46.120 Few. 0:11:47.280 --> 0:11:49.480 I don't think you should ignore things like what's happening 0:11:49.520 --> 0:11:51.440 in insurance rates. I don't think you should ignore things 0:11:51.480 --> 0:11:54.360 like what's happening in the housing market. I think what 0:11:54.400 --> 0:11:56.240 you're really looking at is an index. You take the 0:11:56.280 --> 0:11:58.880 index for what it is. You don't parse through the components, 0:11:59.080 --> 0:12:01.600 throughout what you like. You can keep only what throwout. Well, 0:12:01.600 --> 0:12:03.920 you don't like keeping only what you like. This is 0:12:03.960 --> 0:12:06.120 a problem that we have over and over again. This 0:12:06.160 --> 0:12:07.559 is a problem we have with people who want to 0:12:07.600 --> 0:12:10.880 look at a particular component, like an unemployment rate or 0:12:10.920 --> 0:12:13.600 a yield curve and make macroeconomic forecast out of it. 0:12:13.720 --> 0:12:15.760 The reality is it's a little bit like chicken little 0:12:15.760 --> 0:12:17.920 getting hit in the head with an eggcorn and saying 0:12:17.920 --> 0:12:21.880 the sky is falling. The reality is these are individual components, 0:12:21.880 --> 0:12:23.439 but they're individual components. 0:12:23.000 --> 0:12:24.800 Of a larger aggregate set of data. 0:12:24.880 --> 0:12:26.839 And that aggregate set of data is telling you, A, 0:12:26.960 --> 0:12:28.920 the unemployment rate is still low. B. 0:12:29.880 --> 0:12:31.960 Wage gains are still happening in the economy. 0:12:32.520 --> 0:12:34.920 Inflation is not near the FEDS target, it's still one 0:12:34.920 --> 0:12:38.480 percentage point above it at the CPI level, at the. 0:12:38.400 --> 0:12:39.760 Pc level it is lower. 0:12:40.280 --> 0:12:42.480 And it's telling me that we have an economy that 0:12:42.559 --> 0:12:43.880 is still very, very healthy. 0:12:43.960 --> 0:12:45.880 So again they want to cut rates. 0:12:45.880 --> 0:12:48.040 They're probably going to cut rates in September because they 0:12:48.120 --> 0:12:50.720 opened the door wide enough to bring a mac truck 0:12:50.760 --> 0:12:53.040 through it, or should bring the Queen Mary through it, 0:12:53.800 --> 0:12:55.800 and then net result is they'll get what they want. 0:12:55.880 --> 0:12:57.680 But at the end of the day, is it going 0:12:57.760 --> 0:12:59.680 to have much macroeconomic effect. 0:12:59.320 --> 0:12:59.960 One way or the other. 0:13:00.000 --> 0:13:02.280 To be honest with you, it's going to affect financial market. 0:13:02.320 --> 0:13:05.160 It's much more show than the underlying bacro economic environment day. 0:13:05.200 --> 0:13:06.559 What I just want to give you a chance to 0:13:06.600 --> 0:13:07.199 respond to that. 0:13:07.960 --> 0:13:10.160 Yeah, well, you know, Steve and I have just got 0:13:10.160 --> 0:13:11.240 a slightly different view of this. 0:13:11.520 --> 0:13:13.679 I don't think this is an inflation area economy. 0:13:13.880 --> 0:13:16.120 I realize that labor market's tight, even with the unemployer 0:13:16.200 --> 0:13:19.439 rate up at four point three percent, But what's remarkable 0:13:19.520 --> 0:13:22.360 is how much wage growth has fallen, very steadily, all 0:13:22.360 --> 0:13:24.520 the ways since March of twenty twenty two. What that 0:13:24.600 --> 0:13:26.680 tells me is it doesn't matter how tight the labor 0:13:26.720 --> 0:13:30.280 market is. American workers are just not demanding huge wage increases. 0:13:30.320 --> 0:13:31.440 They're just not doing it. 0:13:32.240 --> 0:13:34.800 We're not seeing massive numbers of strikes, we're not seeing 0:13:34.880 --> 0:13:37.359 massive industrial action to try and get wage increases. 0:13:37.640 --> 0:13:39.800 Wages are still rising more than inflation. 0:13:40.240 --> 0:13:42.520 But if you look at core goods, if you look 0:13:42.559 --> 0:13:43.600 at food prices, you look. 0:13:43.520 --> 0:13:44.560 At energy prices. 0:13:44.920 --> 0:13:47.680 None of it shows inflation picking up, So we're really 0:13:47.720 --> 0:13:51.319 we're heading back towards two percent inflation is it's cooling slowly. 0:13:51.640 --> 0:13:53.679 But I think the greater risk right now is a fit. 0:13:53.920 --> 0:13:54.120 You know. 0:13:54.320 --> 0:13:56.520 I think the economy is in a soft landing. It's 0:13:56.559 --> 0:13:57.280 in a good place. 0:13:57.679 --> 0:13:59.520 But if I'm in the Federal Reserve, I want to 0:13:59.520 --> 0:14:01.400 try to get back to normal year because the risk 0:14:01.440 --> 0:14:04.200 of recession, I think, is greater than the risk of 0:14:04.200 --> 0:14:05.440 any resurgence in inflation. 0:14:05.760 --> 0:14:08.480 David, not that this is a competition between you and Steve, 0:14:08.520 --> 0:14:10.680 but if the market had to vote, it would probably 0:14:10.679 --> 0:14:13.040 be voting with Steve. Right now, front end fields are 0:14:13.080 --> 0:14:15.840 moving higher by about five basis points. You're looking at 0:14:15.840 --> 0:14:18.760 equities giving up on their gains except for small caps. 0:14:18.800 --> 0:14:20.960 Not to me, seems like a market that is saying, 0:14:21.000 --> 0:14:23.680 hang on, maybe the Fed can't cut as much as 0:14:23.720 --> 0:14:24.920 we thought it was going to. 0:14:25.200 --> 0:14:27.880 What do you make of that reaction, I think. 0:14:27.840 --> 0:14:30.200 Well, the thing is that I do work the details 0:14:30.200 --> 0:14:31.920 and all these numbers, and I was kind of surprised 0:14:31.960 --> 0:14:34.520 that consensus was as optimistic as it was in inflation. 0:14:34.560 --> 0:14:36.640 But I think people are looking for at this stage 0:14:36.640 --> 0:14:39.680 they want. Okay, if we get a negative surprise and inflation, 0:14:39.840 --> 0:14:41.920 then then maybe we can price in some more FED 0:14:42.000 --> 0:14:45.240 rate cuts. If we get something close to expectations, then 0:14:45.280 --> 0:14:46.440 we'll sort of sell the news. 0:14:46.440 --> 0:14:47.920 And I think that's what's probably going on in the 0:14:47.920 --> 0:14:48.640 bond market. 0:14:48.880 --> 0:14:51.120 But it doesn't change my view that things are weakening 0:14:51.120 --> 0:14:54.720 here on the inflation side. And the really important thing 0:14:54.760 --> 0:14:58.280 then is where is the economy looking when we get 0:14:58.320 --> 0:15:01.560 to September, because we'll get another inflation report, but important 0:15:01.600 --> 0:15:03.560 we're going to get a job support for the month 0:15:03.600 --> 0:15:05.680 of August, and that's going to be really crucial here 0:15:05.760 --> 0:15:08.480 because if it looks like the economy is solventing too much. 0:15:08.560 --> 0:15:10.360 I think the FED can look at these inflation numbers, 0:15:10.400 --> 0:15:12.400 they can study them, they can be confident they're going 0:15:12.440 --> 0:15:14.560 to head towards two percent, but they don't want to 0:15:14.560 --> 0:15:17.520 be responsible for coding rates too high for too long 0:15:18.080 --> 0:15:21.000 and helping trigger more economic weakness, and so I think 0:15:21.040 --> 0:15:24.120 they'll be looking very closely what's going on in the 0:15:24.200 --> 0:15:26.440 labor markets and on the demand side of the economy. 0:15:26.560 --> 0:15:28.920 So Steve David says the risk of recession at this 0:15:29.000 --> 0:15:31.440 moment is greater where we are than the risk of 0:15:31.520 --> 0:15:34.920 inflation reacceleration. Do you see that completely different? 0:15:35.280 --> 0:15:37.760 Yeah, I don't see a real risk of a recession whatsoever. 0:15:37.960 --> 0:15:41.320 When you see risk of reacceleration of inflation if you wind. 0:15:41.160 --> 0:15:43.520 Up with an accelerated economy, the answer is yes, and 0:15:44.040 --> 0:15:46.320 that I think is the risk in this scenario. This 0:15:46.400 --> 0:15:49.200 economy really hasn't slowed much. You look at the GDP numbers. Yeah, 0:15:49.240 --> 0:15:51.880 we slowed from last year's three point three percent number, 0:15:51.880 --> 0:15:54.880 but we continue to exceed expectations in terms of where 0:15:54.880 --> 0:15:57.440 we're going in the second quarter numbers and what we're 0:15:57.480 --> 0:16:00.160 looking like eventually. In terms of where we are in 0:16:00.200 --> 0:16:02.960 the current quarter. The Atlanta fad now casters are at 0:16:03.040 --> 0:16:05.240 very very high rates of growth, and this becomes an 0:16:05.240 --> 0:16:07.720 ongoing problem is that you do run the risk of 0:16:07.760 --> 0:16:11.160 a domestic cyclical story versus a global deflation story. And 0:16:11.200 --> 0:16:13.400 this really is the end result debate we were talking 0:16:13.440 --> 0:16:17.480 about it earlier. This is the discussion deflation versus cyclical 0:16:17.520 --> 0:16:21.360 inflation globally versus domestically. Where do we pan out on this? 0:16:21.720 --> 0:16:24.880 David's right, Inflation has been coming down slowly. It's coming 0:16:24.920 --> 0:16:27.880 down slowly primarily because there is this real battle going 0:16:27.920 --> 0:16:30.920 on between these two forces. And the problem I see 0:16:30.960 --> 0:16:33.720 is if you start backing away from the pressure that's 0:16:33.760 --> 0:16:38.040 allowing you to achieve your target, you might wind up 0:16:38.080 --> 0:16:41.400 creating an environment where you stop improvement towards your target. 0:16:41.960 --> 0:16:44.520 But what would you say to corporate CEOs that continuously 0:16:44.560 --> 0:16:48.360 say they are seeing this slow down from consumers. They 0:16:48.400 --> 0:16:51.320 do see consumers differring big spending. 0:16:51.840 --> 0:16:54.480 Again, after an environment of three point three percent growth, 0:16:54.480 --> 0:16:56.840 which is a one percentage point above trend, you're going 0:16:56.880 --> 0:16:58.400 to see that inflection point. 0:16:59.280 --> 0:17:01.040 And that's real inflection point. 0:17:01.080 --> 0:17:03.960 By the same token, you have services where spending is 0:17:04.000 --> 0:17:07.359 doing exceptionally well, and I think that becomes part of 0:17:07.400 --> 0:17:07.840 the problem. 0:17:07.920 --> 0:17:10.560 Again, it's the goods versus the services side of the equation. 0:17:11.119 --> 0:17:13.600 Services are doing extremely well. You're seeing that some of 0:17:13.640 --> 0:17:15.320 the components that people want to throw out of the 0:17:15.320 --> 0:17:20.040 CPI report. The reality is its services that matter domestically, 0:17:20.119 --> 0:17:24.600 it's goods that matter globally. Globally, it's a deflation story. Domestically, 0:17:24.600 --> 0:17:27.800 it's a six inflation story. The currency sits in between 0:17:27.840 --> 0:17:30.120 the two, and where the currency goes from here will 0:17:30.160 --> 0:17:33.320 be critical. If we get back to one hundred on 0:17:33.359 --> 0:17:36.320 your DXY measure from having been as high as what one. 0:17:36.280 --> 0:17:37.560 Thirteen, one sixteen. 0:17:37.920 --> 0:17:40.360 That's a huge depreciation in the currency, and you could 0:17:40.359 --> 0:17:42.200 start to see some of these benefits on the good 0:17:42.240 --> 0:17:45.240 side of the inflation dissipate at the same time that 0:17:45.280 --> 0:17:47.080 you may see a little weakening in the service side 0:17:47.080 --> 0:17:49.000 of the inflation, and you wind them stuck at three 0:17:49.000 --> 0:17:51.200 percent inflation. Now, if the Fed's willing to be stuck 0:17:51.240 --> 0:17:54.680 at three percent inflation, fine, bonds have to adjust to that. 0:17:55.320 --> 0:17:57.199 David, we'll let you respond in just one second. I 0:17:57.240 --> 0:17:58.840 just want to, if you are just joining us, give 0:17:58.840 --> 0:18:01.360 you a sense of where we are right now. CPI 0:18:01.480 --> 0:18:04.560 month of a month coming bang in line, as Mike 0:18:04.680 --> 0:18:08.960 was saying, with forecasters expectations zero point two percent, up 0:18:09.080 --> 0:18:12.080 from negative zero point one percent in the prior month. 0:18:12.160 --> 0:18:14.480 Across the board, X food and Energy zero point two 0:18:14.480 --> 0:18:18.600 percent in line, CPI year over year coming in at 0:18:18.680 --> 0:18:22.200 two point nine percent just to touch below the expectation, 0:18:22.600 --> 0:18:25.040 and X food and Energy three point two percent bang 0:18:25.080 --> 0:18:28.520 in line. All of this really suggesting forecasters are getting 0:18:28.560 --> 0:18:30.639 it right. Mike has been looking through the details, the 0:18:30.680 --> 0:18:33.040 line items that we can debate whether they matter or not. 0:18:33.320 --> 0:18:35.960 What are you finding in terms of interesting nuggets. 0:18:36.080 --> 0:18:39.320 Well, I think in sure part of this plays into 0:18:39.320 --> 0:18:42.480 the whole political campaign season that we're in now. Insurance 0:18:42.520 --> 0:18:46.160 prices are very mixed. We do see motor vehicle insurance 0:18:46.160 --> 0:18:48.679 prices going up significantly in the You know, if you 0:18:48.720 --> 0:18:51.639 look at X formerly known as Twitter, I think you 0:18:51.680 --> 0:18:55.960 said yesterday a lot of complaints about that. But homeowner's 0:18:56.080 --> 0:18:59.639 insurance is flat on the month, Medical insurance down just 0:18:59.680 --> 0:19:03.159 a little little bit, so it's not a universal situation. 0:19:03.560 --> 0:19:07.440 Airfares were down by one point six percent, so if 0:19:07.440 --> 0:19:12.040 you're traveling, you're going to notice that. And overall it 0:19:12.080 --> 0:19:15.040 is housing that has pushed this up. Ninety percent of 0:19:15.080 --> 0:19:19.800 it was the four tenths rise in owner's equivalent rent 0:19:19.880 --> 0:19:23.439 and shelter and that the FED can't do anything about. 0:19:23.920 --> 0:19:28.320 So they're going to have to decide. You know, they'll 0:19:28.359 --> 0:19:32.560 go back to Poul's ex shelter measure and say things 0:19:32.880 --> 0:19:35.879 are getting better. One other political thing, and I know 0:19:35.920 --> 0:19:39.440 Anne Marie will appreciate this. Bacon price is down one 0:19:39.480 --> 0:19:43.840