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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: are live on Bloomberg Television weekday mornings from six to

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Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify

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Speaker 2: or anywhere else you listen, and as always on the

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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Alisha Levine of

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Speaker 2: B and WY wilt saying, the administrations Let's make a

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Speaker 2: deal show removes the worst case tariff scenario. The market

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Speaker 2: can only inflect high with the policy response. There will

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Speaker 2: be equity vole as long as there is policy uncertainty.

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Speaker 2: Alisa joins us some more. Alisha kind Mornick, Good morning.

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Speaker 2: There's certainly a lot of that going around. Yeah, are

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Speaker 2: we addressing any of this?

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Speaker 3: Look?

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Speaker 4: I think you know, as I've said, like time is

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Speaker 4: not on the mark get side, and time is not

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Speaker 4: on the real economy side. The longer that this gets

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Speaker 4: drawn out, you're doing real damage. As corporations and individuals

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Speaker 4: are sort of frozen in place waiting for the actual

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Speaker 4: policy is So.

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Speaker 3: The interesting thing about the.

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Speaker 4: Ninety day pause and the recategorization of some of the

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Speaker 4: electronic tariffs is that it does remove some of the

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Speaker 4: left tail risk in the market, but it doesn't really

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Speaker 4: remove the left tail risk in the real economy, which

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Speaker 4: is getting damaged every day. So at first we were

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Speaker 4: optimistic on that ninety day pause like everybody else, and

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Speaker 4: then when you start thinking about what this actually means,

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Speaker 4: it means it's gonna go on for much longer. So

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Speaker 4: Q one's gonna come and find you had pre buying

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Speaker 4: before tariffs. And the hard data, as we've talked about,

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Speaker 4: has held up fairly well.

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Speaker 3: The soft data is rock bottom, and again, you.

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Speaker 4: Know where can this go from rock bottom?

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Speaker 2: Right?

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Speaker 3: So you're there.

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Speaker 4: In fact, we did a chart, we did a chart

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Speaker 4: for our team about you know what happens when consumer

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Speaker 4: sentiment hits rock bottom. Well, it turns out the SMP

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Speaker 4: tends to rally right after that. And we went back

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Speaker 4: about forty years with this. So you know, the soft

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Speaker 4: data is not telling us anything that we don't know.

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Speaker 3: But we're here and.

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Speaker 4: You know, the concern really is that unless you start

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Speaker 4: seeing the outlines of what a deal looks like with

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Speaker 4: Japan with the broad outlines, yes, details can take six months,

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Speaker 4: twelve months, but what does it look like that would

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Speaker 4: further remove left tail risk on the market. And I

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Speaker 4: think here you're fairly priced. You're fairly priced at about fifty

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Speaker 4: four hundred for where earnings are going.

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Speaker 2: He saut of Eastern Time US retail sales US retail sales

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Speaker 2: for March. Is it too early to expect some weakness

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Speaker 2: to show up in those.

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Speaker 4: Figures given the fact that the sentiment data was already

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Speaker 4: cratering in March. If there's some some read through, you

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Speaker 4: should start to see something going on. I find what's

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Speaker 4: fascinating actually is the fact that tariff is on everybody's lips.

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Speaker 4: The American public, which tends to tune out a lot

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Speaker 4: of political stuff, is talking about tariffs everywhere, and so

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Speaker 4: everybody knows about it and concerned about it. And of

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Speaker 4: course it's the inflationary piece that everybody's worried about, because

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Speaker 4: we just lived through banded inflation two years ago, and

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Speaker 4: so that's the biggest fear here. But sales probably represents

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Speaker 4: some pre buying.

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Speaker 1: What do you need to see to try to get

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Speaker 1: more confidence in some sort of risk rally. And I

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Speaker 1: say this at a time where we do have a

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Speaker 1: number of earnings that are coming out pretty positive. UBS's

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Speaker 1: CIO came out with a list of five reasons why

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Speaker 1: they actually are getting pretty positive for US equities in

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Speaker 1: a six to twelve months basis, and they include April

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Speaker 1: tariff showers, may fiscal flowers. This is really fun the

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Speaker 1: FED put and the data by US exceptionalism, especially when

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Speaker 1: it's on sale. That last point, do you think that

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Speaker 1: the divergence between the US and the rest of the

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Speaker 1: world has been overplayed totally?

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Speaker 4: I think it's been totally overplayed, meaning meaning the rest

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Speaker 4: of the We are the buyer for the rest of

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Speaker 4: the world. You know, we have the best consumer on

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Speaker 4: earth two percent of US GDP. The consumer can be down,

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Speaker 4: can take a break, but ultimately this is what drives

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Speaker 4: the global economy. And if there is concern about where

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Speaker 4: US policy is going, well, boy, the rest of the

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Speaker 4: world really has an issue here. That doesn't mean rest

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Speaker 4: of the world can't outperform this year and some sort

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Speaker 4: of catch up trade as some of the heat from

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Speaker 4: the tech sector comes out on the multiples and the

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Speaker 4: s andp resets here that's perfectly reasonable. But if you

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Speaker 4: look forward for the cycle where this is going, I

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Speaker 4: struggle to accept the fact that the rest of the

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Speaker 4: world will be growing faster than the US.

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Speaker 1: At the same time, people talk about the response to

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Speaker 1: tariffs from the US and it comes to fiscal spending.

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Speaker 1: You've seen that in the You've seen that in Europe,

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Speaker 1: You've seen that in Japan, you've seen that in China.

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Speaker 1: Why can't you just follow the fiscal spending at a

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Speaker 1: time when a lot of people are saying that tariffs

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Speaker 1: will hurt the United States as much as some of

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Speaker 1: these other trading partners.

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Speaker 4: So the fiscal spend is a great story as a trade.

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Speaker 4: In the end, we do long term wealth creation, we

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Speaker 4: do long term wealth present so that for US would

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Speaker 4: represent a nice trade for the next twelve months. That's

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Speaker 4: probably the right framework to.

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Speaker 3: Look at it.

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Speaker 4: But if you look at how the markets are performed

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Speaker 4: since Liberation Day, actually the US has outperformed rest of world.

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Speaker 4: With the understanding that the US is actually in a

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Speaker 4: better position here than the rest of the world, specifically

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Speaker 4: on the trade issue.

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Speaker 3: So fiscal can only get you so far.

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Speaker 4: As we've seen in the US, you can prop up

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Speaker 4: the economy for a couple of years and then you

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Speaker 4: really have to deal with the underlying productivity and barriers

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Speaker 4: to growth that you have, for instance in Europe, that

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Speaker 4: you have to deal with. So they're going to put

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Speaker 4: a trillion dollars into the economy, how productive will that

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Speaker 4: capital be?

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Speaker 3: So where are the regulations going?

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Speaker 2: Trying to get some visibility on policy down in Washington,

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Speaker 2: and now we've got legal issues. So if you're just

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Speaker 2: joining us, I want to share this story with you again.

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Speaker 2: The California coverity Gavin Newsom has set a state is

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Speaker 2: suing to hold President Donald Trump's tariffs, citing home to

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Speaker 2: consumers and businesses, Home to consumers and businesses. Now, this

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Speaker 2: is something people have been talking about for a while.

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Speaker 2: Is that enough to say you've got a legal footing

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Speaker 2: to push forward and really start what's happening here?

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Speaker 5: Well, I think given the fact that the United States

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Speaker 5: the administration has come out and said that this is

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Speaker 5: due to IEPA a national security concern.

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Speaker 3: That likely that will be upheld in court.

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Speaker 5: And I think this is one of the things that

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Speaker 5: Jamison Greer, the USTR Trade Representative has been very focused

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Speaker 5: on making sure that anything they come out with can

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Speaker 5: legally be upheld in court. But the courts are going

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Speaker 5: to fight it out, and certainly Governor Newsom, i think

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Speaker 5: eyeing maybe a twenty twenty eight bid, is going to

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Speaker 5: do whatever he can to try to make this point

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Speaker 5: very clear.

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Speaker 2: This is almost exactly what Libby Canssel and PIMCO said

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Speaker 2: to you and I on Sunday evening. This is what

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Speaker 2: she was anticipating these kind of things. And this is

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Speaker 2: the first and I'm sure it won't be the last.

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Speaker 1: And this is ultimately the real question with exemptions. How

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Speaker 1: much does that open up the Trump administration to legal

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Speaker 1: challenges based in the fact that is it a national

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Speaker 1: emergency or not. There has been a lack of direction

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Speaker 1: in terms of exactly why some of the tariffs have

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Speaker 1: gone on, which might go to some of the legal fight.

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Speaker 1: That said, even if they you get undermined, there are

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Speaker 1: other provisions that this president can use to try to

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Speaker 1: get these tariffs through.

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Speaker 2: So again, the.

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Speaker 1: Whack a mole of tariffs, it's not going to go away.

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Speaker 1: It's just going to get dragged out in a court system.

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Speaker 2: Alicia, Everyone's become an expert in trade relations, and now

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Speaker 2: they need to become an expert in trained law. As

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Speaker 2: an investor, how do you navigate this mess at the moment?

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Speaker 3: Really difficult, really difficult.

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Speaker 4: Look, I think with the VIX at sixty and the

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Speaker 4: SMP hitting about forty eight hundred, that's typically a signal

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Speaker 4: to close your eyes and buy because you're downside from

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Speaker 4: forty eight hundred in the worst case scenario is probably

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Speaker 4: a forty.

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Speaker 3: Four one hundred or forty five.

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Speaker 4: Worst case scenario like deep recession earnings get cut to

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Speaker 4: two thirty or something like that, is probably a forty

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Speaker 4: four to forty five hundred from forty eight hundred, and

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Speaker 4: it's asymmetric risk to the upside there, particularly when vics

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Speaker 4: hit sixty. So we're looking at technical analysis for that

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Speaker 4: kind of thing. The two hundred week moving average on

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Speaker 4: the SMP, which is held for about fifty years, is

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Speaker 4: at forty six hundred, so forty eight hundred, you've essentially

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Speaker 4: de risked it. The only time the s and P

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Speaker 4: went below the two hundred week moving average was during

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Speaker 4: the depths of the global financial crisis and then a

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Speaker 4: pop right and every crisis you just hit it if

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Speaker 4: it's bad enough, and you respond from there.

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Speaker 3: So that's what we're looking at.

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Speaker 4: Here are fifty four hundred again where we think earnings

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Speaker 4: are going, which you know it'll come down over the street.

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Speaker 4: You're probably fairly priced for now for the kinds of uncertainty, very.

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Speaker 3: Difficult to model.

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Speaker 4: I think it's really good to remember though, there's also

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Speaker 4: a right tail risk.

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Speaker 3: We all sit here and talk about the left tail risk.

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Speaker 4: We can't model it. It's a terrible policy. It's inflationary,

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Speaker 4: it's tagflationary, we're going to go into a deep recession.

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Speaker 4: But there's also the right tail and I think in

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Speaker 4: markets there's always a two way trade. And I think

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Speaker 4: now you're starting to get the conversation about Okay, what

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Speaker 4: could the upside look like?

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Speaker 3: And I think we just need to remember it.

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Speaker 5: I'm glad you mentioned the VIX because the Treasury Secretary

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Speaker 5: mentioned the VIX in my interview on Monday and he

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Speaker 5: said it's likely peaked and it's spiked. Do you agree

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Speaker 5: with him it's past it or do you think we

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Speaker 5: could see the VIC spike again.

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Speaker 4: On a probability basis, we've probably spiked. There can't be

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Speaker 4: any certainties here would I do know when the market's

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Speaker 4: down about twenty percent and the VIX is at sixty,

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Speaker 4: I have better odds than not in deploying capital at

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Speaker 4: that point. And so that's what I would say, should something,

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Speaker 4: I'd say the real risk here is there is there

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Speaker 4: some kind of financial contagent? Right the bond market and

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Speaker 4: the FX market have moved so quickly, acting like the

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Speaker 4: equity market. Frankly, you know what's out there that.

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Speaker 3: We're not seeing.

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Speaker 4: That that's leverage that could create a broader financial risk.

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Speaker 4: If this is a policy induced error and a policy

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Speaker 4: induced sell off, those can be fairly quick. Maybe you

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Speaker 4: have a bit of a U shape recovery, but more

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Speaker 4: or less we're intact. The issue is if this becomes

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Speaker 4: a financial contagent. So yes, VIX at sixty should be

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Speaker 4: a buy signal. The SMP at forty eight hundred more

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Speaker 4: risks you know, to the upside than downside. It's still

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Speaker 4: downside risk, but you're asymmetric risk. It's really the financial

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Speaker 4: contagent issue. We don't know, we don't know. That's what

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Speaker 4: we have to think about.

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Speaker 2: Let's get to this. If you don't know how long

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Speaker 2: talks are going to last, what do you do in between.

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Speaker 2: We keep hearing this phrase, wait and see what kind

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Speaker 2: of CAPEX decisions can you make in the meantime.

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Speaker 4: So we're very concerned about that because already intentions to

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Speaker 4: invest and intentions for CAPEX have dropped. If you look

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Speaker 4: at all the survey data, that's what we're seeing. So

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Speaker 4: it's a pretty it's a pretty brutal policy in terms

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Speaker 4: of forward investment. And that's really where the problem is coming.

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Speaker 4: That each day that this goes on and time is

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Speaker 4: just not on the side for the real economy. You know,

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Speaker 4: just as a reminder of the market always bottoms before

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Speaker 4: the real economy does.

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Speaker 3: It happened in COVID, it happens all the time.

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Speaker 4: Is just to remember that that's that's out there, but

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Speaker 4: there is real damage happening today right now. It's great

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Speaker 4: that China and the US are negotiating, but it's impossible

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Speaker 4: to make a decision if you're a COO or a

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Speaker 4: CFO where to put investment. It's impossible, And so I'm

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Speaker 4: concerned that you might have a freezing in the real

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Speaker 4: economy here. I think I think the risk is real,

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Speaker 4: and I think it's happening right now. It's certainly the

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Speaker 4: damages to small businesses are beyond right. So the interesting thing,

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Speaker 4: the challenge from the governor in California is really the

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Speaker 4: first major AEPA challenge that we've seen since policy was

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Speaker 4: announced on April second. So it's actually amazing that there

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Speaker 4: haven't been more, hasn't been immediate, But I think the

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Speaker 4: administration knows that AIPA is a little bit more on

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Speaker 4: shaky ground, which is why they're putting pharmaceuticals and semis

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Speaker 4: under two three two.

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Speaker 3: Right, there's this other question.

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Speaker 1: It's not just how this trickles out into the actual economy.

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Speaker 1: Is are there certain sectors that are going to be

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Speaker 1: so exposed so as to be not really desirable for you.

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Speaker 1: I'm thinking of auto manufacturers, retailers.

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Speaker 3: Yeah, look for that.

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Speaker 4: In terms of an investment thesis, you just really have

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Speaker 4: to look at how far the stocks have fallen and

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Speaker 4: where the multiples are, because there is the price at

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Speaker 4: which you pay because it's been completely de risk So

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Speaker 4: the auto sector looks like it's been completely de risked. Here,

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Speaker 4: the market's very efficient in pricing it with the worst

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Speaker 4: case scenarios.

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Speaker 3: And I think we have it again.

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Speaker 4: We have to remember the market's always bottom before the

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Speaker 4: real economy does.

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Speaker 6: So.

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Speaker 4: Sentiment data has been rock bottom really for about five

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Speaker 4: or six weeks now. Again, the American public knows the

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Speaker 4: word tariff, which I find fascinating. Fascinating because sometimes I

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Speaker 4: don't know who the Defense Secretary is, and so we've

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Speaker 4: seen the sentiment data really be terrible. The issue is,

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Speaker 4: can the hard data, at this point declining do more

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Speaker 4: damage to markets than what we're already anticipating and its investors.

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Speaker 3: That's where we have to live.

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Speaker 4: We've gone neutral on equities, We've moved some of the

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Speaker 4: allocations to short term fixed simply because we too are

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Speaker 4: really uncertain. It's very hard to have conviction except on

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Speaker 4: price and valuations.

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Speaker 2: President Biden forgot who the Defense Secretary was once upon

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Speaker 2: a time, to remember when we lost him for about

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Speaker 2: a week he was lost.

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Speaker 3: He was under anesthesia.

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Speaker 5: Yeah, that's right, and he didn't call the White House

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Speaker 5: to tell them he was.

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Speaker 3: Going to be under anesthesia. So yeah, I think it

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Speaker 3: was twenty four for eight hours. It's that How long

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Speaker 3: is we lost a defense secretary?

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Speaker 2: Got to find space for jokes here, brahma elis Lafina

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Speaker 2: bm wi. Wow, the leader is going to see Rick

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Speaker 2: reader of Black Rock Writing. Taking opportunistic positions in good

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Speaker 2: quality companies in the equity market has and should continue

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Speaker 2: to pay off for investors with longer time horizons. I'm

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Speaker 2: pleased to say that, Rick johin US Now for more,

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Speaker 2: Rick Reader, it's been too long, my friend. Let's go

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Speaker 2: straight to it. I just want to understand what you've

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Speaker 2: been seeing with the team over the last week or so.

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Speaker 2: Have the foreign buyers of treasuries been pulling back?

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Speaker 7: So? I mean, boy, it's been an incredible period.

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Speaker 8: I mean, so you know, to start with, I mean

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Speaker 8: the treasury market to move back in the treasure.

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Speaker 7: Of Friday was extraordinary.

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Speaker 8: This pressure on the treasury market, concern about international selling

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Speaker 8: that there was pretty amazing. And then we bounced back

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Speaker 8: pretty nicely as some calm has come back in and

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Speaker 8: then you know, the volatile and the equity market of

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Speaker 8: the daily volatile a little bit calmer. This week does

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Speaker 8: present you know, it's similar to what I've said there before.

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Speaker 8: It does present some opportunity in these markets.

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Speaker 7: It is, I will tell you.

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Speaker 8: The uncertainty though, has led to liquidity in these markets.

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Speaker 7: That's pretty rough. Right now. When you go to execute,

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Speaker 7: you've got.

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Speaker 8: To be very thoughtful and very tactical about how you

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Speaker 8: do it, because markets are very jumpy and very uncertain

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Speaker 8: these days.

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Speaker 2: And Rick, typically the place you go full liquidity is

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Speaker 2: the treasury market, deep predictable. That's why people buy treasuries. Rick,

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Speaker 2: can I get your view on what you think was

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Speaker 2: happening last week? Do you believe that was foreigners pulling back?

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Speaker 2: Is there a question mark over the US safe haven

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Speaker 2: status or is that just certain traits and winding things

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Speaker 2: blowing up.

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Speaker 7: It's a great question.

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Speaker 8: I mean, so, first of all, you know when you

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Speaker 8: have this pressure on the currency market, and by the way,

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Speaker 8: it's super acute when you think about equities going down

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Speaker 8: the same time that the currency is going down.

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Speaker 7: Usually the dollar appreciates when you're in this risk off mode.

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Speaker 8: So you've unquestionably seen the pressure on equities and international disposition.

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Speaker 7: Of the equity of a number of US equities.

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Speaker 8: In the rates market, it's a bit more blurred, but

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Speaker 8: there's no question about it. There is some concern we

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Speaker 8: fund so much of our treasury debt internationally, there is

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Speaker 8: some concern with the currency depreciating.

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Speaker 7: And then quite frankly that the back end of the.

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Speaker 8: Curve going through these periods of spasm where inflation is higher.

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Speaker 8: You know, even if the FED cuts, what does it

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Speaker 8: do for the back end. There's an argument that when

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Speaker 8: you've been the FED cuts, the back end becomes less tethered,

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Speaker 8: and in fact you get a steepening.

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Speaker 7: Of the curve.

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Speaker 8: So yes, I think there's some international disposition for sure,

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Speaker 8: as the currency weakens. But I think broadly it's its uncertainty,

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Speaker 8: and it's just hard.

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Speaker 7: You see watch days like Friday.

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Speaker 8: You know, it's just hard stepping in, particularly in the

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Speaker 8: back end, with this uncertainty still out there.

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Speaker 2: So Ray welt, what point would you step in?

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Speaker 8: So so I like gowning the belly of the yield

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Speaker 8: curve and I like gowing. And you know, the front

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Speaker 8: end has gotten pretty well priced. I mean you've got

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Speaker 8: to and I think the way you all described it,

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Speaker 8: you know, the Fed, you're pricing an awful lot of

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Speaker 8: cuts for the FED this year and you haven't seen

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Speaker 8: that hard data deseration. I do think you'll see that

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Speaker 8: in labor over the next two or three months. You'll

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Speaker 8: see some pullback of probably some significance in place like

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Speaker 8: healthcare and education, leisure and hospitality, but we've got.

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Speaker 7: To see it. But the billy of the yield curve,

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Speaker 7: there are some opportunities.

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Speaker 8: And frantly, Europe is more interesting because you don't have

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Speaker 8: the inflation impact in Europe.

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Speaker 7: The ECB's got to cut more aggressively.

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Speaker 8: So I actually think, you know, we've you know where

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Speaker 8: we've seen some real opportunities.

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Speaker 7: Actually European rates very different.

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Speaker 8: And by the way, you don't you don't have the

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Speaker 8: international disposition there. In fact, that's where you have probably

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Speaker 8: international I'm sure have you have international buying. So European

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Speaker 8: rates is a place recently we've liked quite a bit.

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Speaker 3: Can we take this a step further?

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Speaker 1: You talk about how US treasury markets tend to be

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Speaker 1: the deepest, most liquid, and then you talk about how

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Speaker 1: rocky liquidity has been and how execution risk has become

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Speaker 1: an increasing consideration for you. Have we gone to the

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Speaker 1: point where on some of these days the European rates

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Speaker 1: market has actually been more liquid than the US rates market?

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Speaker 7: Good question.

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Speaker 8: So more liquid I don't know if certainly the back

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Speaker 8: end of the yeld curve it takes price to get

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Speaker 8: to get execution. I don't know if it's more liquid

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Speaker 8: it certainly feels to me like you have this ballast

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Speaker 8: of you've got an ECB moving, you've.

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Speaker 7: Got a yield curve that's also that's already pretty steep

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Speaker 7: in Europe.

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Speaker 8: And by the way, if you're a dollar investor, you

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Speaker 8: get a cross currency swap benefit. And because the curves

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Speaker 8: so steep, you roll down. So you know, there are

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Speaker 8: a lot of reasons why I'm sure others as well

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Speaker 8: as ourselves have felt like it's a safer place to

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Speaker 8: be even though you're going to get European funding of

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Speaker 8: fiscal and issues of the next couple of years.

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Speaker 7: That just takes some time.

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Speaker 8: But I don't you know, I still say the truagery

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Speaker 8: market generally is much deeper, but you know, you're up.

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Speaker 7: You definitely see.

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Speaker 8: More buyers coming in internationally as well as what we

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Speaker 8: see in the States.

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Speaker 1: It seems like the picture that you're painting is a

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Speaker 1: regime change. The picture that you're painting is shifting away

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Speaker 1: from the United States and following a real flood of

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Speaker 1: money into some of the overseas markets, and frankly not

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Speaker 1: betting that the long end of the yield curve will

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Speaker 1: provide the ballast that it has in the past. Can

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Speaker 1: you talk about what else has changed? Does this really

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Speaker 1: undermine or reshape the way you look at sixty forty

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Speaker 1: or the position of gold in your portfolio.

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Speaker 7: That is a long it's a great discussion. That's a

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Speaker 7: long discussion. A ton has changed.

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Speaker 8: Like you say, we've added in the portfolios, on in

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Speaker 8: our fixed income or other portfolios, we've added gold.

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Speaker 7: We think gold is a is a is.

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Speaker 8: A good hedge generally, you know, quite frankly, you have

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Speaker 8: to do during periods like this, you tactically.

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Speaker 7: Hold more cash in the portfolios.

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Speaker 8: We've done that back end of the yield curve and

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Speaker 8: interest rates and as a hedge when you've got inflation

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Speaker 8: moving potentially signmiulantly higher, not really a big benefit to

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Speaker 8: the portfolio.

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Speaker 7: And then the other one, when you get rates backing up.

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Speaker 8: You can get your yield much more attractively using high

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Speaker 8: quality assets. So even though you know you're you know,

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Speaker 8: some pressure on parts of the high yield market, pressure

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Speaker 8: is in the left loan market, you can actually still

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Speaker 8: create them. In one of our ETF is bing ETF,

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Speaker 8: we're able to create over seven percent yield and actually

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Speaker 8: improve the quality of portfolio. Run more cash that becomes

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Speaker 8: super attractive. As long as you're not stretching go down

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Speaker 8: the credit structure into the triple C rated high yield,

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Speaker 8: you can actually create more yield today.

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Speaker 7: So I like the idea, build some more.

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Speaker 8: Cash, use some tools that are different than in the past,

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Speaker 8: and then quite frankly, just get higher quality and more

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Speaker 8: liquidity in the portfolio.

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Speaker 5: Rick, do you think the rhetoric around the fact that

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Speaker 5: some investors are saying they're dumping dollar, dumping treasuries, that

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Speaker 5: the US is losing safe haven reserve asset level?

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Speaker 3: Do you think that rhetoric is overblown?

443
00:20:05,840 --> 00:20:08,240
Speaker 7: I'd say sentiment can change really quickly.

444
00:20:08,359 --> 00:20:11,080
Speaker 8: I mean, we're in this period now where there's clearly

445
00:20:11,560 --> 00:20:14,399
Speaker 8: a concern about the currency, and there's clearly a concern

446
00:20:14,520 --> 00:20:16,879
Speaker 8: about how do we bring the debt down, how do

447
00:20:16,920 --> 00:20:18,760
Speaker 8: we get how do we get interest rates down? So

448
00:20:18,800 --> 00:20:21,400
Speaker 8: I'd say near term, you know, there is a question listen.

449
00:20:21,400 --> 00:20:24,720
Speaker 8: I think reserve currency status status is something that is

450
00:20:24,800 --> 00:20:27,520
Speaker 8: absolutely critical to the United States. We fund a lot

451
00:20:27,520 --> 00:20:29,960
Speaker 8: of debt globally. The number of you know, the percentage

452
00:20:29,960 --> 00:20:32,520
Speaker 8: of trades in the world that happen in dollars bills

453
00:20:32,560 --> 00:20:36,200
Speaker 8: as a collateral for for many of the transactions in

454
00:20:36,240 --> 00:20:39,320
Speaker 8: the world. I think reserve currency status is absolutely critical.

455
00:20:39,760 --> 00:20:43,200
Speaker 8: Are you denting it? You're definitely denting it. And listen,

456
00:20:43,240 --> 00:20:44,280
Speaker 8: I think that I think this.

457
00:20:44,240 --> 00:20:45,440
Speaker 7: Year is going to change.

458
00:20:45,600 --> 00:20:47,280
Speaker 8: I think we've got a couple of months here where

459
00:20:47,280 --> 00:20:50,439
Speaker 8: there's a lot of uncertainty an economy that's probably in

460
00:20:50,440 --> 00:20:53,240
Speaker 8: the recession today in terms of certainly where corporate spend

461
00:20:53,240 --> 00:20:53,560
Speaker 8: will be.

462
00:20:54,119 --> 00:20:55,440
Speaker 7: And then but I think as you get to the

463
00:20:55,520 --> 00:20:56,119
Speaker 7: back half of the.

464
00:20:56,160 --> 00:20:58,760
Speaker 8: Year, things can really evolve. So listen, I think you're

465
00:20:58,840 --> 00:21:01,880
Speaker 8: chipping away at reserve currency, but I don't think there's

466
00:21:01,920 --> 00:21:04,639
Speaker 8: a natural alternative. So and I you know, and I

467
00:21:04,720 --> 00:21:06,800
Speaker 8: think I think things can change, hopefully they do.

468
00:21:07,000 --> 00:21:08,879
Speaker 2: Rick hopefully they do. But that last point that I

469
00:21:08,880 --> 00:21:12,119
Speaker 2: think is important. If we are in recession today, do

470
00:21:12,160 --> 00:21:15,680
Speaker 2: you think risk assets are approprily priced for that scenario?

471
00:21:17,960 --> 00:21:21,200
Speaker 8: So I would say, I would say today, listen, I

472
00:21:21,240 --> 00:21:22,760
Speaker 8: think that I think the tail, the.

473
00:21:22,720 --> 00:21:24,479
Speaker 7: Tail has the taist has gotten fatter.

474
00:21:25,200 --> 00:21:28,159
Speaker 8: I think quality assets they are pretty reasonable. There's a

475
00:21:28,160 --> 00:21:32,080
Speaker 8: lot of quality assets we've had to agency mortgages, et cetera. Listen,

476
00:21:32,160 --> 00:21:34,040
Speaker 8: I think you've got to put a wider range on

477
00:21:34,080 --> 00:21:37,280
Speaker 8: the equity market today than you've had before. You've got

478
00:21:37,280 --> 00:21:40,840
Speaker 8: an economy that's pretty uncertain, and you've got to you know,

479
00:21:40,920 --> 00:21:42,000
Speaker 8: I think you've got to keep your.

480
00:21:41,880 --> 00:21:43,560
Speaker 7: Beta bit more restrained. Today.

481
00:21:43,720 --> 00:21:45,560
Speaker 8: Quite frankly, one of the most interesting trades in the

482
00:21:45,640 --> 00:21:46,560
Speaker 8: last couple of weeks has.

483
00:21:46,440 --> 00:21:47,520
Speaker 7: Been to sell puts.

484
00:21:47,760 --> 00:21:50,199
Speaker 8: You know, not to necessarily increase, but you know, the

485
00:21:50,240 --> 00:21:53,119
Speaker 8: best time to sell insurance is after a hurricane, and

486
00:21:53,200 --> 00:21:54,320
Speaker 8: they've been some great trades.

487
00:21:54,440 --> 00:21:56,480
Speaker 7: Actually sell downside. We are gosh.

488
00:21:56,520 --> 00:21:58,520
Speaker 8: You know, if we go down another ten fifteen twenty

489
00:21:58,760 --> 00:22:01,480
Speaker 8: spending on single name go down ten fifteen twenty percent,

490
00:22:01,840 --> 00:22:04,720
Speaker 8: you get paid handsomely for taking that. So keep your

491
00:22:04,720 --> 00:22:07,240
Speaker 8: beta restrained, hunker down a bit in terms of risk,

492
00:22:07,560 --> 00:22:09,800
Speaker 8: but then find someplace like Gosh. I would add if

493
00:22:09,800 --> 00:22:13,400
Speaker 8: we came down, if we if markets went down significantly, So.

494
00:22:12,960 --> 00:22:14,720
Speaker 7: Anyway, a bunch of things to do in this market,

495
00:22:14,840 --> 00:22:15,040
Speaker 7: I think.

496
00:22:15,080 --> 00:22:17,280
Speaker 8: But I just think you have to expand your the

497
00:22:18,160 --> 00:22:20,320
Speaker 8: where you think your return objectives are going to be,

498
00:22:20,320 --> 00:22:21,640
Speaker 8: in the probability around it.

499
00:22:21,960 --> 00:22:23,560
Speaker 7: In an environment like this.

500
00:22:23,840 --> 00:22:25,520
Speaker 2: Things have changed a lot. Rick is good to see

501
00:22:25,560 --> 00:22:27,800
Speaker 2: you as always, Rick Raider of black Rock There, Rick,

502
00:22:27,800 --> 00:22:39,880
Speaker 2: thank you sir. We're doing against sing Wall Street's biggest banks,

503
00:22:39,960 --> 00:22:42,800
Speaker 2: looking for some clarity on policy. JP Morgan's Chamei time

504
00:22:42,800 --> 00:22:45,359
Speaker 2: and urging Trump to start talks with China and telling

505
00:22:45,400 --> 00:22:48,200
Speaker 2: the ft quote, we should be careful. I don't think

506
00:22:48,240 --> 00:22:50,720
Speaker 2: anyone should assume they have a divine right to success

507
00:22:50,760 --> 00:22:53,240
Speaker 2: and therefore don't worry about it. Joining us now to

508
00:22:53,240 --> 00:22:56,760
Speaker 2: discuss the former Republican House Majority leader Eric Cancer. Eric,

509
00:22:56,800 --> 00:22:58,440
Speaker 2: welcome to the program, So welcome back. It's good to

510
00:22:58,440 --> 00:23:01,520
Speaker 2: see it recent. What do you make of the approach

511
00:23:01,520 --> 00:23:03,879
Speaker 2: from the administration to trade over the last few weeks.

512
00:23:04,240 --> 00:23:07,200
Speaker 9: Well, listen, I mean there are so many, uh, there's

513
00:23:07,200 --> 00:23:10,080
Speaker 9: so much noise, so many signals coming from the White

514
00:23:10,080 --> 00:23:10,760
Speaker 9: House right now.

515
00:23:10,800 --> 00:23:12,560
Speaker 7: I think that market.

516
00:23:12,160 --> 00:23:14,840
Speaker 9: Players are just, you know, sort of trying to take

517
00:23:14,880 --> 00:23:17,639
Speaker 9: a step back and figure out if they have a

518
00:23:17,680 --> 00:23:20,520
Speaker 9: portfolio of companies, you know, what it is that they

519
00:23:20,600 --> 00:23:24,720
Speaker 9: look like, if they're imports sensitive. Obviously, there's now a

520
00:23:24,760 --> 00:23:27,639
Speaker 9: little bit more focus on what's coming out every single

521
00:23:27,720 --> 00:23:30,280
Speaker 9: day of the White House. I think the imperative for

522
00:23:30,560 --> 00:23:33,919
Speaker 9: the President and his team today as they're meeting with

523
00:23:34,040 --> 00:23:37,040
Speaker 9: Japan is to demonstrate success. I mean, this is where

524
00:23:37,119 --> 00:23:41,720
Speaker 9: I think people are looking for some amount of clarity

525
00:23:41,920 --> 00:23:44,199
Speaker 9: and that what does it mean when we're supposed to

526
00:23:44,200 --> 00:23:47,080
Speaker 9: be enduring some pain and the president's been pretty clear

527
00:23:47,160 --> 00:23:49,440
Speaker 9: said hey, we've got we're going to we're going to

528
00:23:49,600 --> 00:23:52,080
Speaker 9: change sort of the trajectory of the country. We're going

529
00:23:52,119 --> 00:23:55,359
Speaker 9: to strengthen the foundation. And if that's the case, what

530
00:23:55,440 --> 00:23:57,600
Speaker 9: does it really look like when he's dealing with the

531
00:23:57,680 --> 00:24:01,400
Speaker 9: counterparty and if it's Japan and I would say even India,

532
00:24:01,440 --> 00:24:05,080
Speaker 9: because India is the one that is most protectionist, that

533
00:24:05,200 --> 00:24:08,879
Speaker 9: comes to mind. If we can demonstrate there's an opening

534
00:24:08,960 --> 00:24:12,000
Speaker 9: up of that markets, that this is what it's all about.

535
00:24:12,200 --> 00:24:14,760
Speaker 9: I think that that would calm some nerves right now.

536
00:24:14,760 --> 00:24:17,160
Speaker 2: Are you convinced that is the metric for success?

537
00:24:17,680 --> 00:24:20,320
Speaker 6: Well, I think you know there is.

538
00:24:20,560 --> 00:24:22,959
Speaker 9: At leasta you talked about sort of taking him literally,

539
00:24:23,000 --> 00:24:25,879
Speaker 9: taking him seriously or hinted of that what you just said,

540
00:24:26,200 --> 00:24:28,920
Speaker 9: And I look at this term of the Trump administration

541
00:24:29,520 --> 00:24:31,639
Speaker 9: somewhat differently than the way we looked at the at

542
00:24:31,680 --> 00:24:34,960
Speaker 9: the last one, and that almost you he is sticking

543
00:24:35,000 --> 00:24:38,240
Speaker 9: to his literal word when we're talking about tariffs and

544
00:24:38,320 --> 00:24:41,879
Speaker 9: trade here. So Jonathan, back to your question, if he's

545
00:24:41,960 --> 00:24:45,240
Speaker 9: about trade deficits, because that's been one of the real

546
00:24:45,640 --> 00:24:47,960
Speaker 9: metrics that he's put out there consistently.

547
00:24:48,560 --> 00:24:49,520
Speaker 6: That's what it's about.

548
00:24:49,560 --> 00:24:52,159
Speaker 9: So who are we going to see the Japanese buying

549
00:24:52,160 --> 00:24:54,080
Speaker 9: more of our goods? Are we going to see that

550
00:24:54,280 --> 00:24:57,800
Speaker 9: along with the opening up of their markets so that

551
00:24:57,920 --> 00:25:00,000
Speaker 9: our exports can flow into these other countries.

552
00:25:00,160 --> 00:25:03,520
Speaker 5: The President ran though, on hutting everyday goods down in prices,

553
00:25:03,560 --> 00:25:06,320
Speaker 5: things like grocery, things like gas. A recent CBS poll

554
00:25:06,400 --> 00:25:09,800
Speaker 5: says a majority of American sea tariffs adding to prices,

555
00:25:09,840 --> 00:25:10,760
Speaker 5: adding to inflation.

556
00:25:11,080 --> 00:25:13,280
Speaker 3: Can they wrap this up before the midterms?

557
00:25:13,400 --> 00:25:16,200
Speaker 9: Well, this is the and then this brings up the

558
00:25:17,280 --> 00:25:20,479
Speaker 9: last point. I think that's really important about today and

559
00:25:20,680 --> 00:25:23,400
Speaker 9: when we look at Capitol Hill when Congress gets bad,

560
00:25:24,359 --> 00:25:27,280
Speaker 9: I think the administration and the Republicans need to act

561
00:25:27,320 --> 00:25:32,359
Speaker 9: with dispatch. It's important that there is some success under

562
00:25:32,359 --> 00:25:35,280
Speaker 9: the belt, demonstrably, so the markets see that.

563
00:25:35,280 --> 00:25:36,840
Speaker 6: In terms of dealing with countries.

564
00:25:37,280 --> 00:25:40,840
Speaker 9: And I think from the Republican standpoint in Congress, they've

565
00:25:40,880 --> 00:25:45,040
Speaker 9: got to get this reconciliation bill done. Simplicity is their

566
00:25:45,119 --> 00:25:48,879
Speaker 9: friend right now. Adding additional taxes doing those kinds of

567
00:25:48,880 --> 00:25:51,359
Speaker 9: things is going to take weeks, if not months to

568
00:25:51,440 --> 00:25:54,520
Speaker 9: bring everyone on board. And I think if we can

569
00:25:54,600 --> 00:25:58,639
Speaker 9: just extend what President trumpet said was the greatest tax

570
00:25:58,680 --> 00:26:02,080
Speaker 9: bill ever twoudy seventeen, they should just go ahead and

571
00:26:02,160 --> 00:26:02,480
Speaker 9: do that.

572
00:26:02,760 --> 00:26:05,040
Speaker 5: If I had said to you, Congress right now is

573
00:26:05,080 --> 00:26:07,280
Speaker 5: debating whether or not to raise taxes on people that

574
00:26:07,320 --> 00:26:09,359
Speaker 5: make a million dollars a year, would you think that

575
00:26:09,400 --> 00:26:11,000
Speaker 5: came from a Republican or a Democrat.

576
00:26:11,200 --> 00:26:14,359
Speaker 9: It is an extraordinary concept coming out of what I

577
00:26:14,440 --> 00:26:18,920
Speaker 9: believe is still a very pro growth party. And I think,

578
00:26:19,080 --> 00:26:21,760
Speaker 9: as I think you've been discussing this morning, the three

579
00:26:21,840 --> 00:26:25,440
Speaker 9: legs of the stool of the Trump Economic Plan. One

580
00:26:25,480 --> 00:26:28,320
Speaker 9: of them is taxes, the other deregulation, along with the

581
00:26:28,359 --> 00:26:31,639
Speaker 9: trade agenda, all that has to come together to help

582
00:26:31,840 --> 00:26:37,480
Speaker 9: growth in this country, to see incomes rise, wages, growth, wealth, all.

583
00:26:37,320 --> 00:26:38,800
Speaker 6: Of it opportunity.

584
00:26:39,160 --> 00:26:41,600
Speaker 9: And to sit here and say that we are going

585
00:26:41,640 --> 00:26:45,679
Speaker 9: to be increasing marginal rates on individuals that ends up

586
00:26:45,720 --> 00:26:48,720
Speaker 9: hurting small businesses. I mean, that's the trick there. When

587
00:26:48,720 --> 00:26:51,480
Speaker 9: they start talking about millionaires. Remember we've got a lot

588
00:26:51,520 --> 00:26:55,520
Speaker 9: of people in this country that file taxes, that have

589
00:26:56,080 --> 00:27:00,480
Speaker 9: subs or LPs that are taxed at the individual level,

590
00:27:00,880 --> 00:27:03,639
Speaker 9: but actually run businesses and I don't think they're going

591
00:27:03,680 --> 00:27:05,160
Speaker 9: to get too far with that concept.

592
00:27:05,240 --> 00:27:06,120
Speaker 3: But what if they do.

593
00:27:06,359 --> 00:27:09,640
Speaker 5: This is a pillar of conservative orthodoxy not to raise

594
00:27:09,680 --> 00:27:11,960
Speaker 5: taxes period on anyone.

595
00:27:12,280 --> 00:27:13,480
Speaker 3: What do you make of the.

596
00:27:13,440 --> 00:27:15,359
Speaker 5: Party in the direction of travel if they were to

597
00:27:15,400 --> 00:27:16,520
Speaker 5: go ahead with this, Well.

598
00:27:16,359 --> 00:27:18,119
Speaker 9: Again, I'm not sure that they're going to go ahead

599
00:27:18,119 --> 00:27:21,520
Speaker 9: with this. So they're discussing, Well, I'm not so sure

600
00:27:21,560 --> 00:27:24,840
Speaker 9: how widespread that discussion is and what kind of enthusiasm

601
00:27:24,880 --> 00:27:28,480
Speaker 9: there is. This is not a pro growth item, and

602
00:27:28,560 --> 00:27:30,359
Speaker 9: I think more of the focus is going to be

603
00:27:30,560 --> 00:27:33,520
Speaker 9: on how they come together on these pay fors because

604
00:27:33,560 --> 00:27:37,040
Speaker 9: we saw again the important data point that occurred last

605
00:27:37,040 --> 00:27:39,800
Speaker 9: week was the bond markets. You know, we saw the

606
00:27:39,880 --> 00:27:43,840
Speaker 9: concern there about the fiscal health going forward, and I

607
00:27:43,880 --> 00:27:46,280
Speaker 9: think it's really important they focus on that so they

608
00:27:46,280 --> 00:27:49,119
Speaker 9: can act with dispatch and get these tax rates extended.

609
00:27:49,200 --> 00:27:51,879
Speaker 1: Heading into this year, the belief was that President Trump

610
00:27:52,119 --> 00:27:54,680
Speaker 1: was going to be a pro business president who is

611
00:27:54,720 --> 00:27:58,879
Speaker 1: going to focus on fiscal responsibility as well as celebrating

612
00:27:59,000 --> 00:28:02,879
Speaker 1: national champions. We have seen policies that have reaped the

613
00:28:02,880 --> 00:28:06,320
Speaker 1: opposite consequences in markets. Do you think that this president

614
00:28:06,320 --> 00:28:07,119
Speaker 1: is still pro growth?

615
00:28:07,480 --> 00:28:09,320
Speaker 9: I do think He's a business guy. I mean, we

616
00:28:09,359 --> 00:28:12,000
Speaker 9: all know he's a real estate developer from New York

617
00:28:12,040 --> 00:28:15,640
Speaker 9: City that was very successful and had times here where

618
00:28:15,680 --> 00:28:17,600
Speaker 9: just like any in the real estate business, there are

619
00:28:17,680 --> 00:28:21,240
Speaker 9: ups and downs. But he has demonstrated the ability in

620
00:28:21,320 --> 00:28:24,359
Speaker 9: business to create wealth and I think he wants to

621
00:28:24,400 --> 00:28:26,919
Speaker 9: do that for America, And so yes, I think he

622
00:28:27,080 --> 00:28:30,040
Speaker 9: is now what he's going about doing in reordering our

623
00:28:30,119 --> 00:28:33,399
Speaker 9: economy and trying to sort of rebalance if you will,

624
00:28:34,920 --> 00:28:38,200
Speaker 9: the balance of trade as well as the burden sharing

625
00:28:38,280 --> 00:28:41,920
Speaker 9: that occurs with us and our allies, importantly in the

626
00:28:41,920 --> 00:28:44,480
Speaker 9: financial realm as well as the defense realm.

627
00:28:44,560 --> 00:28:47,440
Speaker 1: Although you have a unique position because you wear the

628
00:28:47,480 --> 00:28:50,240
Speaker 1: hat of both being in government in a leadership position

629
00:28:50,360 --> 00:28:53,400
Speaker 1: and also talking with tons of companies while being vice

630
00:28:53,440 --> 00:28:54,280
Speaker 1: chair of molus.

631
00:28:55,000 --> 00:28:56,800
Speaker 3: Do they have the confidence to invest?

632
00:28:57,160 --> 00:28:59,680
Speaker 1: Do they feel like they can be expanding right now

633
00:28:59,720 --> 00:29:03,400
Speaker 1: and have confidence and conviction that ultimately this whole mix

634
00:29:03,680 --> 00:29:05,040
Speaker 1: will benefit where they're heading?

635
00:29:05,320 --> 00:29:07,000
Speaker 9: Well, I mean I would say, first of all, we're

636
00:29:07,040 --> 00:29:11,360
Speaker 9: still America, right, I mean, there is still this unbelievable

637
00:29:11,440 --> 00:29:13,960
Speaker 9: country that we've got with and we can go through

638
00:29:14,000 --> 00:29:17,760
Speaker 9: the various aspects of what draws capital and investors here,

639
00:29:18,120 --> 00:29:21,360
Speaker 9: rule of law, transparency, you name it, innovation, the rest.

640
00:29:21,640 --> 00:29:25,360
Speaker 9: We're still that the Trump administration understands. The President in

641
00:29:25,360 --> 00:29:28,320
Speaker 9: particular has said the biggest asset we've got is this

642
00:29:28,440 --> 00:29:31,720
Speaker 9: huge consumer market that the world now has tooled up

643
00:29:31,760 --> 00:29:34,719
Speaker 9: to take advantage of, and he's trying to use that

644
00:29:34,840 --> 00:29:40,360
Speaker 9: to go in and create a more stable trajectory longer term,

645
00:29:40,480 --> 00:29:42,760
Speaker 9: both from a fiscal and economic standpoint.

646
00:29:43,080 --> 00:29:44,800
Speaker 6: So I think listen.

647
00:29:44,600 --> 00:29:47,000
Speaker 9: Right now, as we started, there's a lot of signals

648
00:29:47,000 --> 00:29:50,040
Speaker 9: that are creating this sort of question on the minds

649
00:29:50,080 --> 00:29:54,640
Speaker 9: of individuals, whether they are strategics, whether they are sponsors,

650
00:29:54,880 --> 00:29:59,320
Speaker 9: and how to go about in terms of conducting their business.

651
00:30:00,080 --> 00:30:02,840
Speaker 9: And that's why I say again, really really important that

652
00:30:02,880 --> 00:30:06,960
Speaker 9: we see manifestation of success. You know, the President's really

653
00:30:07,000 --> 00:30:11,400
Speaker 9: good at communicating. I hope we can see some communication

654
00:30:11,480 --> 00:30:15,680
Speaker 9: of success and that people will begin to understand what

655
00:30:15,760 --> 00:30:16,840
Speaker 9: the trade off here is.

656
00:30:17,120 --> 00:30:20,600
Speaker 2: This is ambitious stuff. Let's finish on this. Governor Youngkin

657
00:30:20,720 --> 00:30:22,600
Speaker 2: is in your seat yesterday and we asked him this question.

658
00:30:22,640 --> 00:30:25,960
Speaker 2: I'll phrase it differently. At the moment, there are two

659
00:30:26,040 --> 00:30:29,560
Speaker 2: very left wing politicians in this country filling stadiums, getting

660
00:30:29,560 --> 00:30:31,479
Speaker 2: support at a time in the Democratic Party is an

661
00:30:31,520 --> 00:30:33,840
Speaker 2: absolute mess and support is rock bottom. I get that,

662
00:30:34,600 --> 00:30:37,560
Speaker 2: But do you worry that if the president isn't successful

663
00:30:37,840 --> 00:30:40,000
Speaker 2: that a number of years time this pendulum could swing

664
00:30:40,000 --> 00:30:43,360
Speaker 2: aggressively to the left. If the right can't provide the solutions,

665
00:30:43,600 --> 00:30:46,000
Speaker 2: does this country seacunt solutions from the left?

666
00:30:46,200 --> 00:30:50,600
Speaker 9: Look, all I know is the left is so in tatters,

667
00:30:50,720 --> 00:30:53,600
Speaker 9: and the one pill or that they've got of any

668
00:30:53,680 --> 00:30:57,800
Speaker 9: kind of unity is so extreme on the cultural side

669
00:30:58,080 --> 00:30:58,920
Speaker 9: and the.

670
00:30:58,720 --> 00:31:00,600
Speaker 6: Design of where they see the world.

671
00:31:00,600 --> 00:31:03,720
Speaker 9: There is no way that the mass of this country,

672
00:31:03,760 --> 00:31:06,000
Speaker 9: in terms of an electorate, is going to adhere to

673
00:31:06,040 --> 00:31:10,160
Speaker 9: that extreme Bernie Sanders AOC agenda. There is just no

674
00:31:10,240 --> 00:31:14,400
Speaker 9: way now not to say that there will be unhappiness

675
00:31:14,440 --> 00:31:16,680
Speaker 9: if we don't see success again. Which is why I

676
00:31:16,760 --> 00:31:19,400
Speaker 9: come back to the point it's important that we act

677
00:31:19,480 --> 00:31:23,240
Speaker 9: with that we see some urgency and acting with dispatch

678
00:31:23,360 --> 00:31:24,440
Speaker 9: in Washington.

679
00:31:24,040 --> 00:31:26,400
Speaker 2: Because you understand the risk here to bring up the

680
00:31:26,400 --> 00:31:30,160
Speaker 2: em example, but you swing between Bolsonnaro and Lula, Bolscenaro

681
00:31:30,200 --> 00:31:32,200
Speaker 2: and Lula, and you start to resemble what we see

682
00:31:32,200 --> 00:31:35,600
Speaker 2: in Latin America. Repeatedly, we are America, we are America.

683
00:31:35,720 --> 00:31:37,560
Speaker 6: We are not Brazil, right.

684
00:31:37,680 --> 00:31:46,760
Speaker 9: So we have a long tradition of continued institutional guardrails protections.

685
00:31:47,200 --> 00:31:48,280
Speaker 7: We have the.

686
00:31:48,360 --> 00:31:53,120
Speaker 9: Deepest, broadest capital markets there are. I still believe that

687
00:31:53,200 --> 00:31:56,280
Speaker 9: we can get through this. Again, as you said, this

688
00:31:56,440 --> 00:32:00,200
Speaker 9: is a very ambitious goal that the President has set

689
00:31:59,840 --> 00:32:03,440
Speaker 9: out to sort of rebalance. It is where we can

690
00:32:03,560 --> 00:32:06,200
Speaker 9: head and the fact that there have been some people

691
00:32:06,280 --> 00:32:09,160
Speaker 9: left out, and when you talk about these stadiums that are.

692
00:32:09,080 --> 00:32:10,520
Speaker 6: Filled by Bernie Sanders and.

693
00:32:10,480 --> 00:32:14,120
Speaker 9: Aoc accolodes, it is those people that are looking for

694
00:32:14,280 --> 00:32:16,680
Speaker 9: the answers and frankly a lot of sort of people

695
00:32:16,760 --> 00:32:19,680
Speaker 9: who feel left out if there are those stadiums. They

696
00:32:19,720 --> 00:32:22,440
Speaker 9: are looking to the president to deliver on the promises

697
00:32:22,440 --> 00:32:23,080
Speaker 9: that he's made.

698
00:32:23,200 --> 00:32:25,960
Speaker 2: It's an ambitious agenda. We've said it repeatedly on this program.

699
00:32:26,000 --> 00:32:28,040
Speaker 2: For the good of the country. We hope he's successful.

700
00:32:28,280 --> 00:32:29,760
Speaker 2: Eric is good to see it. Thanks for dropping by

701
00:32:30,000 --> 00:32:42,360
Speaker 2: the former House majority leader there, Eric Hanson, the United

702
00:32:42,440 --> 00:32:44,920
Speaker 2: and I see Scott Kirby. Scott, welcome back to the program.

703
00:32:44,920 --> 00:32:47,160
Speaker 2: Sarah's going to catch up with you once again. Let

704
00:32:47,160 --> 00:32:50,560
Speaker 2: me just understand maybe your approach to this earnings report,

705
00:32:50,840 --> 00:32:53,480
Speaker 2: how you and the team decided you know what this time,

706
00:32:53,520 --> 00:32:56,080
Speaker 2: I think we have to do something different and offered

707
00:32:56,120 --> 00:32:58,040
Speaker 2: dual forecast. Where did that come from, Scott?

708
00:32:58,640 --> 00:32:59,240
Speaker 6: Yeah, we did.

709
00:32:59,440 --> 00:33:02,880
Speaker 10: We appropriate to do something different. It starts with, you know,

710
00:33:03,000 --> 00:33:05,600
Speaker 10: the environment has gotten more difficult. But first, you know,

711
00:33:05,640 --> 00:33:08,560
Speaker 10: we did have you know, as you said in the intro,

712
00:33:09,360 --> 00:33:11,560
Speaker 10: the best margins we've had in five years. We grew

713
00:33:11,600 --> 00:33:14,040
Speaker 10: margins every year, one up, only two airlines that are profitable.

714
00:33:14,240 --> 00:33:16,160
Speaker 10: And as we kind of went through it, we still

715
00:33:16,200 --> 00:33:19,080
Speaker 10: see a viable path to getting to our as long

716
00:33:19,080 --> 00:33:21,200
Speaker 10: as bookings remain stable as they are today, to getting

717
00:33:21,200 --> 00:33:24,240
Speaker 10: to our original guidance. But we also recognize that there's

718
00:33:24,400 --> 00:33:28,040
Speaker 10: more macroeconomic uncertainty, that people are fearful of a recession

719
00:33:28,120 --> 00:33:30,240
Speaker 10: hasn't happened yet, but that they're fearful of a recession,

720
00:33:30,720 --> 00:33:33,320
Speaker 10: and so we wanted to also give investors some outlook

721
00:33:33,400 --> 00:33:35,440
Speaker 10: on what we think of recesion could look like if

722
00:33:35,440 --> 00:33:38,200
Speaker 10: it happens here at United. So really the goal was

723
00:33:38,240 --> 00:33:40,640
Speaker 10: to just give investors more information.

724
00:33:41,360 --> 00:33:43,560
Speaker 6: It's non traditional. We're the first ones that I ever

725
00:33:43,600 --> 00:33:44,000
Speaker 6: know if.

726
00:33:43,880 --> 00:33:45,560
Speaker 10: They have done something like this, and so far the

727
00:33:45,600 --> 00:33:47,840
Speaker 10: feedback has been has been really positive, and I think

728
00:33:47,840 --> 00:33:50,760
Speaker 10: investors and others appreciate that we try to give them

729
00:33:50,880 --> 00:33:54,040
Speaker 10: a more fulsome range as we give guidance since time, Scott, can.

730
00:33:53,960 --> 00:33:55,720
Speaker 1: You give us a sense if you are catering more

731
00:33:55,760 --> 00:34:00,000
Speaker 1: to investor nervousness or whether you're responding to actual weakness

732
00:34:00,080 --> 00:34:02,720
Speaker 1: you see in some of the forward bookings by clients.

733
00:34:04,200 --> 00:34:07,040
Speaker 10: So as I'm guessing your re friend to our capacity

734
00:34:07,120 --> 00:34:10,040
Speaker 10: changes and we're going to pull about four points of

735
00:34:10,080 --> 00:34:13,120
Speaker 10: capacity from the second half of this year, that's really

736
00:34:13,160 --> 00:34:17,120
Speaker 10: just a pure tactical economic decision. We do see weakness,

737
00:34:17,120 --> 00:34:19,520
Speaker 10: and because we see weakness, it means we're starting to

738
00:34:19,520 --> 00:34:22,120
Speaker 10: cancel some of the utilization flying that red eye flight

739
00:34:22,440 --> 00:34:26,520
Speaker 10: that was barely profitable and really peak strong times becomes unprofitable.

740
00:34:26,560 --> 00:34:28,200
Speaker 6: When the demand environment weekends a.

741
00:34:28,200 --> 00:34:30,759
Speaker 10: Little bit, customers have more choice to fly better times

742
00:34:30,760 --> 00:34:33,080
Speaker 10: a day, and so they do, and so we're all

743
00:34:33,080 --> 00:34:37,000
Speaker 10: we're really doing tactically is pulling some of that marginal flying.

744
00:34:37,280 --> 00:34:39,960
Speaker 10: Marginaling good times turns negative and bad times, so we're

745
00:34:40,000 --> 00:34:41,120
Speaker 10: just pulling that out of the system.

746
00:34:41,239 --> 00:34:43,759
Speaker 1: How much do you see going forward though, any kind

747
00:34:43,800 --> 00:34:47,360
Speaker 1: of retrenchment from consumers whatsoever. A lot of people have

748
00:34:47,400 --> 00:34:50,880
Speaker 1: been talking about how particularly international travel is going to

749
00:34:50,920 --> 00:34:53,920
Speaker 1: come down with people from overseas now coming to the US.

750
00:34:53,960 --> 00:34:56,480
Speaker 1: Are you seeing that forward bookings or has that kind

751
00:34:56,520 --> 00:35:00,239
Speaker 1: of been more of a narrative than a reality, more.

752
00:35:00,200 --> 00:35:03,200
Speaker 10: Of a nerrative than a reality. We saw weakness starting

753
00:35:03,440 --> 00:35:05,239
Speaker 10: at the end of January. We saw a step down,

754
00:35:05,800 --> 00:35:07,920
Speaker 10: but it is stabilized in March, and even the first

755
00:35:08,040 --> 00:35:09,239
Speaker 10: two weeks of April.

756
00:35:08,920 --> 00:35:10,040
Speaker 6: It has stabilized.

757
00:35:10,080 --> 00:35:12,959
Speaker 10: And the weakest area we see is actually the low

758
00:35:13,120 --> 00:35:18,000
Speaker 10: end domestic consumer. Here in the United States, international has

759
00:35:18,040 --> 00:35:21,160
Speaker 10: remained quite strong. International for what it's worth is eighty

760
00:35:21,200 --> 00:35:24,480
Speaker 10: two percent US point of sale, so it's much more

761
00:35:24,520 --> 00:35:26,719
Speaker 10: dependent on the US economy than foreigners coming to the

762
00:35:26,800 --> 00:35:29,319
Speaker 10: United States. It's also less corporate than it used to be.

763
00:35:29,960 --> 00:35:32,319
Speaker 10: And because of that, you know, the leisure traveler is

764
00:35:32,320 --> 00:35:36,160
Speaker 10: still going, The premium leisure is still there. Typically, even

765
00:35:36,200 --> 00:35:39,520
Speaker 10: in times of economic weakness, the high end consumer outperforms,

766
00:35:40,000 --> 00:35:41,400
Speaker 10: and that's what we thought would happen.

767
00:35:41,440 --> 00:35:42,520
Speaker 6: That's what we've seen so far.

768
00:35:42,600 --> 00:35:45,040
Speaker 10: We'll keep watching it, of course, but that's certainly what

769
00:35:45,040 --> 00:35:45,799
Speaker 10: we've seen so far.

770
00:35:45,960 --> 00:35:47,960
Speaker 1: How much does this really put you in a position

771
00:35:48,000 --> 00:35:51,480
Speaker 1: to consolidate market share right now? We keep seeing that

772
00:35:51,640 --> 00:35:54,080
Speaker 1: among a lot of the leaders in different industries that

773
00:35:54,160 --> 00:35:56,440
Speaker 1: this is time for them to compete on price, to

774
00:35:56,480 --> 00:36:00,399
Speaker 1: compete on some of the offerings, and frankly squeak some

775
00:36:00,440 --> 00:36:03,080
Speaker 1: of the other weaker players in the markets that you

776
00:36:03,160 --> 00:36:05,200
Speaker 1: emerge on the other side a lot stronger.

777
00:36:05,200 --> 00:36:07,239
Speaker 3: Do you see that happening with United right now?

778
00:36:07,280 --> 00:36:10,239
Speaker 10: Well, Unit, we've had a five year strategy to win

779
00:36:10,320 --> 00:36:13,600
Speaker 10: brand loyal customers and we've done that, so really nothing

780
00:36:13,640 --> 00:36:16,000
Speaker 10: is changing now. We're not doing anything incremental, anything different.

781
00:36:16,520 --> 00:36:19,200
Speaker 10: We're continuing the path that we have been on because

782
00:36:19,239 --> 00:36:21,880
Speaker 10: it's worked. It's led to the best margins in good times.

783
00:36:21,920 --> 00:36:24,800
Speaker 10: I think that lead is going to expand in tough times,

784
00:36:24,920 --> 00:36:28,080
Speaker 10: not because we're doing anything special, but just because we'll

785
00:36:28,120 --> 00:36:30,719
Speaker 10: have more seats to sell available to those customers. And

786
00:36:30,760 --> 00:36:33,279
Speaker 10: when you're the brand loyal airline, when times get tough

787
00:36:33,280 --> 00:36:35,400
Speaker 10: and you have more seats to sell, more customers migrate

788
00:36:35,400 --> 00:36:37,719
Speaker 10: to you. And so we'll wind up selling more seats

789
00:36:37,719 --> 00:36:39,640
Speaker 10: at lower prices because that's the way our your management

790
00:36:39,640 --> 00:36:42,520
Speaker 10: system works. But we'll sell just as many seats, but

791
00:36:42,520 --> 00:36:44,720
Speaker 10: it's going to make it much harder at the bottom

792
00:36:44,760 --> 00:36:46,160
Speaker 10: of the customer choice pyramid.

793
00:36:46,440 --> 00:36:48,040
Speaker 2: Scot as you know, there's a lot of tension right

794
00:36:48,080 --> 00:36:50,680
Speaker 2: now between the United States and China that's been expressed

795
00:36:50,719 --> 00:36:53,480
Speaker 2: in several rounds of towers from either side. We hope

796
00:36:53,480 --> 00:36:55,360
Speaker 2: they can come to the table and have some talks,

797
00:36:55,400 --> 00:36:59,120
Speaker 2: but so far not great for the maintenance of your plane, sir,

798
00:36:59,239 --> 00:37:01,879
Speaker 2: and the exposure you have to China to Hong Kong.

799
00:37:02,120 --> 00:37:04,000
Speaker 2: How are you managing that situation at the moment?

800
00:37:05,600 --> 00:37:10,160
Speaker 10: So United We actually we have more of our heavy

801
00:37:10,160 --> 00:37:13,160
Speaker 10: maintenance work done here in the United States than any

802
00:37:13,200 --> 00:37:14,480
Speaker 10: airline in the country.

803
00:37:14,840 --> 00:37:16,640
Speaker 6: We've been growing here in the US.

804
00:37:16,680 --> 00:37:18,200
Speaker 10: In fact, over a three year period, we're going to

805
00:37:18,239 --> 00:37:21,000
Speaker 10: hire about five thousand technicians here in the United States,

806
00:37:21,040 --> 00:37:25,760
Speaker 10: building huge new facilities in Houston and in Orlando.

807
00:37:26,320 --> 00:37:27,560
Speaker 6: And most of our work.

808
00:37:27,360 --> 00:37:29,480
Speaker 10: Is done in the Free Trade Zone outside of Hong

809
00:37:29,560 --> 00:37:30,960
Speaker 10: Kong the work that has done in China.

810
00:37:31,040 --> 00:37:32,719
Speaker 6: So we're monitoring it day by day.

811
00:37:33,200 --> 00:37:35,839
Speaker 10: But you know, we have a high percentage here in

812
00:37:35,880 --> 00:37:39,319
Speaker 10: the United States, more than anyone else, and feel good

813
00:37:39,360 --> 00:37:40,000
Speaker 10: about our setup.

814
00:37:40,080 --> 00:37:42,560
Speaker 2: Because some CEOs have been quite outspoken about what they'd

815
00:37:42,640 --> 00:37:45,759
Speaker 2: like to see from the administration on policy. Are you

816
00:37:45,840 --> 00:37:47,759
Speaker 2: willing to do that? Is there are a reason why

817
00:37:47,800 --> 00:37:49,960
Speaker 2: maybe you'd be a little bit more hesitant away in.

818
00:37:50,800 --> 00:37:54,000
Speaker 10: Well, I've spent a lot of time in DC this year,

819
00:37:54,480 --> 00:37:57,799
Speaker 10: as I always do, but I've mostly been focused on

820
00:37:57,880 --> 00:38:00,839
Speaker 10: listening instead of talking. And so I want to understand

821
00:38:01,120 --> 00:38:04,160
Speaker 10: where the administration was coming from, what their goals were,

822
00:38:04,400 --> 00:38:06,640
Speaker 10: how they were trying to get there. And I actually

823
00:38:06,719 --> 00:38:08,120
Speaker 10: got by the end of March felt like I had

824
00:38:08,120 --> 00:38:10,560
Speaker 10: a pretty good understanding of that. And if you have

825
00:38:10,640 --> 00:38:13,440
Speaker 10: that kind of understanding and you can put everything that's

826
00:38:13,440 --> 00:38:16,120
Speaker 10: happening into context, you know, it makes it a lot

827
00:38:16,200 --> 00:38:20,480
Speaker 10: easier to run, manage the business, to not make panicky decisions.

828
00:38:21,280 --> 00:38:23,440
Speaker 10: And you know what I think is happening here is

829
00:38:23,800 --> 00:38:25,600
Speaker 10: you know, we're nowhere near the end of game. Yet

830
00:38:26,000 --> 00:38:27,640
Speaker 10: you know, these are still the opening moves of the

831
00:38:27,680 --> 00:38:28,240
Speaker 10: chess game.

832
00:38:28,920 --> 00:38:31,080
Speaker 6: And I think I and most.

833
00:38:30,840 --> 00:38:33,080
Speaker 10: People that I talk to, you know, or things have

834
00:38:33,200 --> 00:38:35,040
Speaker 10: slowed down, but we're all in a kind of a

835
00:38:35,120 --> 00:38:37,640
Speaker 10: take a breath mode and let's wait till we get

836
00:38:37,680 --> 00:38:39,439
Speaker 10: to whatever the new normal is going to be before

837
00:38:39,440 --> 00:38:41,080
Speaker 10: we start making big long term decision.

838
00:38:41,120 --> 00:38:42,600
Speaker 2: We've all got to take a deep breath. Your stock

839
00:38:42,640 --> 00:38:44,279
Speaker 2: is out this morning by about six and a half

840
00:38:44,280 --> 00:38:46,080
Speaker 2: of percent. I wanted to talk about something with you

841
00:38:46,120 --> 00:38:48,760
Speaker 2: that we've been talking about for a while on this program. Scott,

842
00:38:48,800 --> 00:38:50,799
Speaker 2: As you know, one of the most disruptive parts of

843
00:38:50,840 --> 00:38:53,480
Speaker 2: flying right now is the boarding process, and when you

844
00:38:53,520 --> 00:38:56,480
Speaker 2: get on, everyone is wrestling to find space to put

845
00:38:56,480 --> 00:38:59,360
Speaker 2: that bag over their seat. How do we address that situation,

846
00:38:59,440 --> 00:39:02,040
Speaker 2: Scott co Sunny was a traanveler. It is the most

847
00:39:02,040 --> 00:39:05,600
Speaker 2: annoying experience. And it's not inn eight United. It's something

848
00:39:05,600 --> 00:39:06,720
Speaker 2: we're saying across the board.

849
00:39:07,719 --> 00:39:10,320
Speaker 10: As a father of seven, I understand it trying to

850
00:39:10,320 --> 00:39:12,759
Speaker 10: get out with a bunch of kids, and I'd say

851
00:39:12,760 --> 00:39:14,799
Speaker 10: we're fixing that at United. The biggest thing we can

852
00:39:14,840 --> 00:39:16,560
Speaker 10: do we had to put bigger bends on the airplane.

853
00:39:16,600 --> 00:39:19,520
Speaker 10: We're about we're over fifty percent through the fleet at United,

854
00:39:19,640 --> 00:39:21,480
Speaker 10: but we're putting bends on all the airplanes that are

855
00:39:21,560 --> 00:39:25,000
Speaker 10: large enough that on one hundred percent full airplane, every

856
00:39:25,040 --> 00:39:27,759
Speaker 10: single customer can bring a roller board on and put

857
00:39:27,840 --> 00:39:30,239
Speaker 10: it in the overhead. And I think that at its

858
00:39:30,280 --> 00:39:32,120
Speaker 10: core is how we're going to solve It'scott.

859
00:39:31,719 --> 00:39:33,759
Speaker 1: How much more can you get people to pay for

860
00:39:33,840 --> 00:39:35,880
Speaker 1: things that they used to know they could get. I

861
00:39:35,880 --> 00:39:37,920
Speaker 1: know that Fronteriry used to do that with cans of

862
00:39:37,960 --> 00:39:40,840
Speaker 1: soda and then they had to backtrack or checking bags.

863
00:39:41,080 --> 00:39:43,800
Speaker 1: Are there other things that you can monetize or doesn't

864
00:39:43,840 --> 00:39:47,080
Speaker 1: really come down to the credit took hard business, the

865
00:39:47,160 --> 00:39:49,960
Speaker 1: loyalty program counting on the front of the cabin.

866
00:39:51,160 --> 00:39:53,400
Speaker 6: You know, yeah, you know.

867
00:39:53,440 --> 00:39:56,200
Speaker 10: I actually we're kind of going the opposite direction. If

868
00:39:56,280 --> 00:39:58,720
Speaker 10: we haven't disaggregated the product, give customers.

869
00:39:58,320 --> 00:39:59,840
Speaker 6: What they want. If you want the premium product, you

870
00:39:59,840 --> 00:40:00,319
Speaker 6: can get it.

871
00:40:00,320 --> 00:40:02,440
Speaker 10: You can go the regular economy product all the way

872
00:40:02,480 --> 00:40:03,719
Speaker 10: down to basic economy.

873
00:40:03,960 --> 00:40:06,080
Speaker 6: But you know, we got Starlink coming next year.

874
00:40:06,200 --> 00:40:08,400
Speaker 10: We're going to have the best, the fastest WiFi in

875
00:40:08,440 --> 00:40:10,760
Speaker 10: the sky and that's going to be free for our customer.

876
00:40:10,800 --> 00:40:12,319
Speaker 10: So WiFi is going to be free, and it's going

877
00:40:12,360 --> 00:40:15,520
Speaker 10: to be by far the best experience, the most bandwidth,

878
00:40:15,520 --> 00:40:19,680
Speaker 10: the fastest speeds for any customers. And you know, in

879
00:40:19,719 --> 00:40:23,160
Speaker 10: a lot of ways, increasingly, instead of being an airline

880
00:40:23,160 --> 00:40:25,560
Speaker 10: that also has a loyalty business, we are becoming a

881
00:40:25,600 --> 00:40:27,879
Speaker 10: loyalty business that runs an airline. I mean being able

882
00:40:27,880 --> 00:40:30,560
Speaker 10: to get customers to Tahiti and Cape down. That's the cool,

883
00:40:30,640 --> 00:40:33,160
Speaker 10: sexy reward that you get in.

884
00:40:33,120 --> 00:40:34,120
Speaker 6: The loyalty program.

885
00:40:34,640 --> 00:40:38,319
Speaker 10: But you know, the large airlines, particularly like United, you know,

886
00:40:38,360 --> 00:40:41,799
Speaker 10: we really have the best, the deepest loyalty program. And

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00:40:41,880 --> 00:40:44,880
Speaker 10: I talked earlier about brand loyal customers, like customers that

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00:40:45,000 --> 00:40:48,280
Speaker 10: want to fly United Airlines, and that is the strength.

889
00:40:48,280 --> 00:40:51,520
Speaker 10: That's what's given us the resilience to have strong earnings

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00:40:51,600 --> 00:40:54,320
Speaker 10: even in a tough macro environment. It's what's going to

891
00:40:54,400 --> 00:40:57,920
Speaker 10: let us outperform even if the economy gets weaker from here.

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00:40:58,520 --> 00:41:00,440
Speaker 6: That loyalty of customers.

893
00:41:00,160 --> 00:41:02,200
Speaker 10: Whether you call it the loyalty business or just having

894
00:41:02,239 --> 00:41:05,680
Speaker 10: brand loyal customers, is the foundation that's letting an unined

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00:41:05,719 --> 00:41:06,200
Speaker 10: out perform.

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00:41:06,320 --> 00:41:08,560
Speaker 2: A masterclass in communications from the firm in the last

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00:41:08,600 --> 00:41:11,320
Speaker 2: twenty four hours, Scott, appreciate your time. Thank you, Scott Kirby,

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00:41:11,320 --> 00:41:16,280
Speaker 2: the United Airlines CEO. This is the Bloomberg Surveillance Podcast,

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00:41:16,400 --> 00:41:20,319
Speaker 2: bringing you the best in markets, economics, and geopolitics. You

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00:41:20,360 --> 00:41:23,120
Speaker 2: can watch the show live on Bloomberg TV weekday mornings

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00:41:23,120 --> 00:41:26,080
Speaker 2: from six am to nine am Eastern. Subscribe to the

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00:41:26,080 --> 00:41:29,600
Speaker 2: podcast on Apple, Spotify or anywhere else you listen, and

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00:41:29,640 --> 00:41:32,759
Speaker 2: as always on the Bloomberg Terminal and the Bloomberg Business app.