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Speaker 1: It is one of our most word stories on the
Speaker 1: Bloomberg Today. It's about the nationwide halt and airline flights
Speaker 1: across the US this morning. This after the FA paused
Speaker 1: takeoffs due to a system outage of a key flight system.
Speaker 1: Airline shares is abigail mentioned are doing okay? But wait,
Speaker 1: do we need to be worried? I gotta say I'm
Speaker 1: a little worried when there's an f A a a system failure.
Speaker 1: I mean, this shouldn't ever probably happen. With some perspective,
Speaker 1: let's bring in Bloomberg's Creed Gupta. She's on the ground
Speaker 1: at LaGuardia Airport in New York City along with Allen
Speaker 1: leve and he's Aviation Safety and f A reporter at
Speaker 1: Bloomberg News on the phone from Washington, D C. Creedy.
Speaker 1: Let's kick it off with you. Looks pretty quiet, pretty
Speaker 1: come behind you. What's the latest regarding the disruption this
Speaker 1: morning and what actually caused the problem? Yeah, well it
Speaker 1: is pretty quiet, and I have to say though if
Speaker 1: you go to a different terminal you might see a
Speaker 1: little bit more chaos. And remember this all really started
Speaker 1: overnight when you did have, of course, the system wide
Speaker 1: outage coming up at the f A. The system called
Speaker 1: the No TAM system essentially the Notice to Air Mission system.
Speaker 1: It tells things to personnel and to pilots, things like
Speaker 1: runaway conditions, construction obstacles, bird hazards, even those are the
Speaker 1: kind of things that they need to know to make
Speaker 1: sure if a flight gets off the ground safely, as
Speaker 1: able to ground safely as well. So essentially the absence
Speaker 1: of that constant updating of information creates a pretty scary
Speaker 1: environment to operate. So of course we did see as
Speaker 1: a result six flight delays around the country. Of course,
Speaker 1: grounding of all air planes for about two hours this
Speaker 1: morning and about a thousand flight cancelations as well, something
Speaker 1: that the likes of United Delta Southwest are still kind
Speaker 1: of playing a little bit of catch up to. I
Speaker 1: love and come on in here because you cover the
Speaker 1: f A for us at Bloomberg News. Tell us everything
Speaker 1: that we need to understand about the no TAMP system,
Speaker 1: which I think to a lot of people probably hadn't
Speaker 1: heard about it until today. Yeah, it's basically an advisory system.
Speaker 1: The you know, the aviation system generally have to have
Speaker 1: such a high reliability and high level of safety that
Speaker 1: they want pilots to know every little detail in advance
Speaker 1: before they fly to an airport. So if you're doing
Speaker 1: maintenance on the lights at a runway, or let's say
Speaker 1: the snow conditions are such that it's a slippery uh,
Speaker 1: they'll put that in a notem uh. It Also, you know,
Speaker 1: if they're launching a rocket into space in Florida, that
Speaker 1: requires a clear out a lot of airspace, and so
Speaker 1: they handled that as well in a notem Um. But
Speaker 1: I do want to make one thing clear that the
Speaker 1: system that guide airplanes, that keep them separated in the sky,
Speaker 1: that allow air traffic controllers, to talk to pilots, etcetera.
Speaker 1: None of those were affected. So this did not in
Speaker 1: and of itself cause any safety issues that were aware of.
Speaker 1: So so yeah, because I have to say, when I
Speaker 1: first heard, I'm like, whoa, what is it? What is
Speaker 1: this about? But even so, alan should we assume that
Speaker 1: this shouldn't happen? Um? I think it's fair to say
Speaker 1: that everyone from FA to the airlines would say that
Speaker 1: this shouldn't happen. Um. There are quite a number of
Speaker 1: questions that remained to be you know, you know, what
Speaker 1: level of backup they had? Did the backup go down? Um?
Speaker 1: They certainly have some backup, but was it an instantaneous
Speaker 1: backup or did it take him an hour or two
Speaker 1: to get the backup up and running? Um? You know,
Speaker 1: a lot of that is just not clear yet. Hey, Creedy,
Speaker 1: you've been there throughout the day, So give us an
Speaker 1: idea how how things have shifted and if it seems like,
Speaker 1: you know, travelers are still disrupted, because as we learned
Speaker 1: very recently with Southwest, if there's a you know, widespread delay,
Speaker 1: then things happen kind of like dominoes, and it takes
Speaker 1: a long time for things to go back to normal.
Speaker 1: Well's that domino effect that's really the worry here. The
Speaker 1: idea that a lot of the airlines are kind of
Speaker 1: assuring travelers that this is going to be something that
Speaker 1: was going to end by nine am Eastern, then it
Speaker 1: was going to end by noon. Then you actually had
Speaker 1: a lot of the major transport hubs around the country
Speaker 1: start to say, well, actually, we're going to need a
Speaker 1: couple of hours to kind of play that element of
Speaker 1: catch up. So now aly are still saying, well, look,
Speaker 1: expect those delays, expect those cancelations, but it should be
Speaker 1: done by the end of today. That is not necessarily
Speaker 1: the case. Now. The thing to worry about here is
Speaker 1: that does this kind of seep into tomorrow's flight schedule
Speaker 1: as well. You've heard of that sentiment or at least
Speaker 1: that worry coming from Delta, from Southwest and from United
Speaker 1: as well. But once again, that seems to be the
Speaker 1: big question, how do we even get here in the
Speaker 1: first place. Helene Becker, count senior research analyst, told Bloomer
Speaker 1: TV earlier that look, this is once again a function
Speaker 1: of old technology that's going to take billions and billions
Speaker 1: of dollars to renovate and we're just not there. Alan.
Speaker 1: Is that something that that you see uh in your
Speaker 1: reporting on the f A as well, that this is
Speaker 1: a this is an issue of old technology that will
Speaker 1: take significant investment. So the the f a A is
Speaker 1: in the years long uh effort of upgrading its entire
Speaker 1: air traffic system. And I have to say, generally, uh,
Speaker 1: there've been glitches along the way more than but the
Speaker 1: generally the system is far more modern than it was
Speaker 1: ten fifteen years ago when that was a bigger concern.
Speaker 1: And and it's generally been more reliable. And so you
Speaker 1: know now that we use satellite systems to track planes
Speaker 1: instead of radar, that was a huge switch that started
Speaker 1: in UM, the computer systems that the air traffic controllers
Speaker 1: used to follow aircraft are all relatively updated. UM. The
Speaker 1: UM it remains to be seen. We're hearing kind of
Speaker 1: contradictory information about this specific computer system that runs a
Speaker 1: NOTEM program, whether it's new or not. UM. You know,
Speaker 1: it clearly shouldn't happen, and we'll have to figure out
Speaker 1: why uh later on. But but and you know, and
Speaker 1: any time this happens, there's going to be huge calls
Speaker 1: for change gen all that, But but I'd say my
Speaker 1: big picture of you watching this over the past decade
Speaker 1: or two, the f A systems overall have been modernized,
Speaker 1: relatively speaking. Hey, just quickly got about a minute or
Speaker 1: so left to both of you and Creedy. Let me
Speaker 1: ask you first, Um, can we should we rule out
Speaker 1: that this was a cyber attack? Well, that is what's
Speaker 1: the Biden administration is saying. But then Peter Boud excuse me,
Speaker 1: the Secretary of Transportation, came in later and spoken to
Speaker 1: other outlets and said, well, look, we can't rule out
Speaker 1: anything yet. They are creating a white scale investigation. So
Speaker 1: no for now, but of course we have to stay tuned.
Speaker 1: Frought date, Alan, what are you hearing on that front? Um,
Speaker 1: the same thing, But I just point out that most
Speaker 1: of the f A computers are kind of firewalled from
Speaker 1: the normal types of ways that attackers might go after
Speaker 1: a system, so the odds are probably lower. But I,
Speaker 1: I mean, I would rule anything out at this point.
Speaker 1: All right, Well, that kind of fit makes me feel better,
Speaker 1: but I like everything to work, like he said, Carol,
Speaker 1: Like Alan said. Nothing in terms of the way that
Speaker 1: pilots communicate with each other or with air traffic and
Speaker 1: trains around the ground. Yeah, that was a good thing,
Speaker 1: all right. Allan Levin Aviation Safety and f A, a
Speaker 1: reporter at Bloomberg News joining us on the phone from Washington,
Speaker 1: d C. In a creaty group because she's been out
Speaker 1: there at LaGuardia Airport, New York City. She's anchored markets
Speaker 1: correspondent here at Bloomberg just following it. Airlines they're just
Speaker 1: up shy of one percent here, so they're doing okay,
Speaker 1: doing better than even the markets. On a day we
Speaker 1: we're seeing a rally the S and P five hundred
Speaker 1: at eight tenths of one percent. The nastack up one
Speaker 1: point too. All right. You are listening in watching Bloomberg
Speaker 1: Business Week on this Wednesday, Carol Master Tim Stanovic. This
Speaker 1: is Bloomberg Radio. These sees Bloomberg Business Week with Carol
Speaker 1: Messer and Tim Stanovic on Bloomberg Radio Newsia. Bloomberg Business
Speaker 1: Week at newsstands tomorrow, some of the stories already on
Speaker 1: the Bloomberg and online at Bloomberg dot com. Slash business Week.
Speaker 1: It is the year ahead issue covering the major trends, disruptions,
Speaker 1: breakthrough products, so much that are coming this year in
Speaker 1: and it compliments next year's Bloomberg Live event and Davos
Speaker 1: happening as the World Economic Forum hosts its annual meeting. There.
Speaker 1: One section in the Year Ahead issue was all about
Speaker 1: the consumer, everything from starbucks unhappy New Year to Hollywood's
Speaker 1: comeback here and more with a round up. Here is
Speaker 1: a Bloomberg Business Week Assistant Managing Editor Jim Ellis. He's
Speaker 1: right here in our Bloomberg Interactive Broker's studio. Jim, good
Speaker 1: to see you. Um, the Year Ahead here we are here.
Speaker 1: We didn't think it would happen. He made it here.
Speaker 1: Inflation is still here. And there's some stuff that we
Speaker 1: you know, some themes that we covered a little bit
Speaker 1: last year. Uh that kind of gave us a preview
Speaker 1: of what to think about this year. I think to
Speaker 1: the stories about unionization and Starbucks. So before we get
Speaker 1: to that, though, UM, talk about like how you chose
Speaker 1: the stories. Well, actually, one of the things that I
Speaker 1: wanted to do this year was to uh sort of
Speaker 1: you know, sort of capture how things are different from
Speaker 1: the previous year. And the biggest is that, you know,
Speaker 1: while the pandemic sort of defined last year, you know,
Speaker 1: how our sort of come back from the pandemic. This year,
Speaker 1: um you know, is going to be defined more about
Speaker 1: how consumers sort of you know, what's the new normal
Speaker 1: for consumers in other words, you know, lots of things changed.
Speaker 1: You obviously returned to work, you know, it's been an issue,
Speaker 1: but also how people want to shop, how people want
Speaker 1: to consume, you know, what people are willing to spend on,
Speaker 1: and the way the consumer behaves is a lot different
Speaker 1: than than and so we want to capture that. And
Speaker 1: so we tried to sort of take a look at
Speaker 1: a number of areas. You know, one I was obviously entertained.
Speaker 1: It was travel because it's something I love, but it's
Speaker 1: also something that was really really knocked during the pandemic.
Speaker 1: So I knew that was something we wanted to get into.
Speaker 1: And also there were a lot of management shifts that
Speaker 1: happened over the uh pandemic period, and a lot of
Speaker 1: it was because of the way the consumers were changing
Speaker 1: what they wanted to do a good A good example
Speaker 1: that was Starbucks simply because China was a big piece
Speaker 1: of its business. China was going to do, um, you know,
Speaker 1: not behave this year the way it did before. And
Speaker 1: also they were involved in a unionization drive that really
Speaker 1: picked up steam, you know, over the course of the pandemic,
Speaker 1: so that I knew it wanted that in there. So
Speaker 1: I went sort of just trying to choose things that
Speaker 1: I thought if I was a consumer, what would I
Speaker 1: care about? Now? I love that you guys say when
Speaker 1: it comes to starbuck in the section Starbucks, excuse me,
Speaker 1: could really use some caffeine this year, And well they're
Speaker 1: getting it in the likes of bringing back Howard Schultz,
Speaker 1: so connected obviously with this company. It's like the old
Speaker 1: leaders are all coming back Disney Tiger, but tell us, um,
Speaker 1: they've also got what another They've got a new CEO
Speaker 1: who's coming in, Um, who will work with Howard Schultz.
Speaker 1: We'll see how that works out. But I think, oh yeah, so, um,
Speaker 1: you know when he's coming. He was the former CEO
Speaker 1: of rek It. And the thing is that, you know,
Speaker 1: he was very he was successful there. The problem is
Speaker 1: that it's a very different type of business. This is
Speaker 1: a this is a true consumer business that sells and
Speaker 1: you know, sort of sells food and drink in restaurants,
Speaker 1: regor sells you know, condoms and and other things. But um,
Speaker 1: it's a sanitizing, sanitizing, and yeah, but I mean it's
Speaker 1: consumer products, but they're not the same thing as selling
Speaker 1: at retail, and so that's the real challenge. He's gonna
Speaker 1: have to learn that job at the same time that
Speaker 1: it has a big, big challenge in unionization of its stores.
Speaker 1: And also China, which is its second most important market,
Speaker 1: is still not back to normal. That's also supposedly the
Speaker 1: big growth market of Starbucks, and they hope that, you know,
Speaker 1: they're gonna have nine thousand stores there or something in
Speaker 1: a few years. You know, that's gonna be a real lift,
Speaker 1: given that China is still not fully back from the pandemic,
Speaker 1: and this guy has to figure out how to pull
Speaker 1: all this off at the same time that his predecessor,
Speaker 1: Howard Schultz, is still remaining on the board. And often founders,
Speaker 1: you know, sort of they tend to be sort of
Speaker 1: hands on, and especially a founder like Schultz, who has already,
Speaker 1: you know, had the CEO's job three times. He's already
Speaker 1: gotten rid of two people before. It's a good point. Hey,
Speaker 1: I gotta talk planes because I know Tim's really into it,
Speaker 1: but I'm just thinking, you know, you mentioned the importance
Speaker 1: of China China. Obviously in planes that's important, I mean
Speaker 1: jumbo jets important kind of, I feel like, to all
Speaker 1: the carriers. Well, but we previously thought they were no
Speaker 1: longer important. He said, Oh my god, jumbo jets they
Speaker 1: got four engines. They you know, they gobble up all
Speaker 1: this fuel. So therefore we moved beyond that. And so
Speaker 1: we saw all these new sort of what they call
Speaker 1: new generation planes, the UH seven seven have an X,
Speaker 1: the A three fifty I mean planes, and the Dreamliner
Speaker 1: planes that were supposedly able to do with two engines
Speaker 1: everything that the old jumbos like the seven forties seven
Speaker 1: and the double decker A three eighty could do. And
Speaker 1: the problem is that, um, you know, we've sort of
Speaker 1: retired a lot of those planes, and now demand is
Speaker 1: jumped back and they say like, oh my god, we
Speaker 1: need we need big planes, and we need big planes
Speaker 1: with big first classes. And he say, like, why does
Speaker 1: that matter that much? Well, it matters because the first
Speaker 1: class seat can sell for seven thousand dollars, and that's
Speaker 1: one way that's not around trip, and you make a
Speaker 1: lot of money in the front of the plane. People
Speaker 1: always talk about business class, but you started forget that
Speaker 1: for a lot of long haul careers. That's still the
Speaker 1: first class business, and they've been surprised at how fast
Speaker 1: that business has come back, so they want to get
Speaker 1: all these planes that have a lot of first class
Speaker 1: seats back up in the air. What's really surprising to
Speaker 1: me is that it's not necessarily a short term thing.
Speaker 1: I mean, you guys write the Thai Airways, which in
Speaker 1: that it planned to phase out those double decker Airbus
Speaker 1: A three eighties. They're pulling a return of the A
Speaker 1: three eighty, but not until only four Well, part of
Speaker 1: it is that a lot of people parked their large airplanes.
Speaker 1: They thought they were going to retire them, so they
Speaker 1: parked about in the desert someplace. They've know a lot
Speaker 1: of them just have not kept up with the planes,
Speaker 1: and so it takes months for these things to come back,
Speaker 1: and if you really haven't taken care of it, it
Speaker 1: could take you a year because often have to be
Speaker 1: refurbished and they're putting in new interiors. A lot of
Speaker 1: these planes have not been well kept from the pandemic. Alright,
Speaker 1: plane skipping trains, automobiles, the used car market man that
Speaker 1: was on fire during the pandemic and right after and
Speaker 1: now it feels like not so much. Yeah, I mean,
Speaker 1: used cars were a real sort of boom time during
Speaker 1: the pandemic. What happened was that because the new car
Speaker 1: business UM was really constrained because of chips, because of
Speaker 1: the shutdowns and auto plants and different parts of the world,
Speaker 1: UM prices went up on new cars because there was
Speaker 1: no you know, there was no supply. And what that
Speaker 1: meant was a lot of people couldn't afford new cars
Speaker 1: and so they said, okay, I'll buy something on the
Speaker 1: US line, and that sent used core prices soaring. The
Speaker 1: problem for the used car business now is that in
Speaker 1: the last you know, six months, you know, new cars
Speaker 1: have come back. You can get them on the lots again.
Speaker 1: You don't have these long waiting periods, and so the
Speaker 1: prices of youth have dropped. And what that means is
Speaker 1: for people like CarMax and for car Vanna, people's business
Speaker 1: is heavily skewed toward that. You know, they suddenly are
Speaker 1: you know, they don't have the demand, but also the
Speaker 1: values of the cars that they have have in stock
Speaker 1: are dropping. It's such a one eight. It's a great story.
Speaker 1: There's more in the magazine and also online. There's also
Speaker 1: another story about Hollywood hoping for a return to the
Speaker 1: old normal, so we highly recommend you check it out
Speaker 1: in the new Year Ahead issue. Jim Ellis, thank you
Speaker 1: so much, Assistant Managing editor of Bloomberg Business Week. Here
Speaker 1: in our interactive broker studio, you're listening and watching Bloomberg
Speaker 1: Business Week. That new issue out on newsstands, online at
Speaker 1: Bloomberg dot com and always on the Bloomberg terminal. This
Speaker 1: is Bloomberg Radio. You're listening to Bloomberg Business Week with
Speaker 1: Carol mess Here and Tim Stenovic on Bloomberg Radio. Well,
Speaker 1: we keep hearing from many of our guests about how
Speaker 1: investors need to keep an eye on the bond market
Speaker 1: for where the economy, US economy and Fed policy are going.
Speaker 1: Bond market trading often like the Fed is getting ready
Speaker 1: to stop raising rates and possibly even dear we say pivot,
Speaker 1: meaning cut rates. But monitoring and writing about it all NonStop.
Speaker 1: Is our next guest. She's a member of the family. Yeah,
Speaker 1: Bloomberg News Chief correspondent for Global macro Markets, Liz McCormick
Speaker 1: is back with us. She's Her story today is among
Speaker 1: the most rot on the Bloomberg terminal, it taps into
Speaker 1: the dreaded FED dot plot and why it's confusing markets.
Speaker 1: Liz joins us via zoom from New York City. Liz
Speaker 1: always good to chat with you, especially when it comes
Speaker 1: to everything you know related to dot plots and what
Speaker 1: the Fed is going to do with rates. But what's
Speaker 1: the mixed message here or is there not even a
Speaker 1: mixed message? And traders are just kind of like grappling
Speaker 1: onto whatever positive news they can. Well, I guess it's
Speaker 1: like they're grappling onto some of the bad news right
Speaker 1: that the economy is slowing down. The good news, I
Speaker 1: guess as they think inflation is peaked. But but yeah,
Speaker 1: it's like the FED keeps saying, you know, Craig and
Speaker 1: I wrote that story. We're saying, it's like a total
Speaker 1: full court Fed press, like we are not going to
Speaker 1: cut rates. We have more work to do. Look at
Speaker 1: our dot plot, which is they're kind of projections for
Speaker 1: rates that show no cuts this year, and the market
Speaker 1: just saying, okay, whatever, we're we're doing what we think.
Speaker 1: And you know, I mean literally last week in the
Speaker 1: minutes they said we're not going to cut rates totally.
Speaker 1: That's what I'm saying it is like a clear full
Speaker 1: court press. But I think you know, that's why I
Speaker 1: mean all joking aside. Craig and I've been around maybe
Speaker 1: too long, but we thought, you know, we remember I said.
Speaker 1: Part of the problem is that the FED officials themselves
Speaker 1: in the past have said, I kind of don't focus
Speaker 1: too much on the dots. It's just our forecast. It's
Speaker 1: not a projection for sure policy. And now they keep
Speaker 1: you know, of course they're saying things too, but they're
Speaker 1: they're also pointing to like our dot plot is a
Speaker 1: good projection of where we're going. Um, So I think
Speaker 1: markets are kind of jaded, like number one, we've heard
Speaker 1: you downplay these before, and number two like all economists.
Speaker 1: But the FED has kind of been really wrong footed
Speaker 1: in some of these, not just the projections on the
Speaker 1: dot plants, some of their economic forecast where they saw inflation,
Speaker 1: of course didn't pan out. So I think these investors,
Speaker 1: these traders are a little bit like you know, I've
Speaker 1: heard this before. I'm seeing signs that we have a
Speaker 1: slowdown coming, I think, and maybe they're wrong to think
Speaker 1: that the FED ultimately is going to have to cater
Speaker 1: to the economy, which is like history. But as you
Speaker 1: guys have talked before, if inflation stays too sticky, the
Speaker 1: FED has no choice. They will have to stay high.
Speaker 1: So it's gonna be interesting to see, like we talk
Speaker 1: in a six months time, what what's really panned out? Right?
Speaker 1: I feel like Lizzie, like you hit it. There's such
Speaker 1: diversion between what we're hearing from the ED saying they're
Speaker 1: going to do, no doubt about the message, and then
Speaker 1: what you see plays ob certainly in the bond market
Speaker 1: they think, you know, the FED is gonna you know,
Speaker 1: and I don't know what how much of it is?
Speaker 1: Like you said, hey, Fed, you've gotten a lot wrong.
Speaker 1: We're the bond market. We're figuring this out and it
Speaker 1: will be interesting. How much do you think tomorrow's CPI
Speaker 1: report could help the bond you know, could could change
Speaker 1: that or be reflected in the bond market about whether
Speaker 1: or not there there's more of a buy into the
Speaker 1: FED and what it's saying and the dot plot. Well,
Speaker 1: at first, I want to make a joke. I heard
Speaker 1: Doug saying it's the day before cp I. I I was
Speaker 1: waiting for like the day day before Christmas exactly. That
Speaker 1: would be more fun. But no, I think I think Carol,
Speaker 1: you're right, cp I, you know, could change this kind
Speaker 1: of I call it the schism between the two. If
Speaker 1: cp I, first of all, if it's it proves a
Speaker 1: surprising strong number, I think the market is going to think,
Speaker 1: oh yeah, maybe the Fed is going to have to
Speaker 1: do what they're saying. So you might see yields pick up.
Speaker 1: Maybe we'll see some of that pricing and the derivative market,
Speaker 1: you know, be reduced saying they'll price out the cuts,
Speaker 1: but may they may trim down how much um And
Speaker 1: if it's an uber soft number, then maybe the bond
Speaker 1: market just doubles down. You know. The Fed officials seem
Speaker 1: to be which seems fair if you look at history,
Speaker 1: you know, they they've noted pastimes in and like we
Speaker 1: all know in the seventies and the eighties when they
Speaker 1: say policy, if it moved to the reverse course too fast,
Speaker 1: they had to come back and do more tightening. So
Speaker 1: I think they don't want to make that mistake. Um.
Speaker 1: But in the labor market at you know, as we've
Speaker 1: looked at with payroll last week, wages were down, but
Speaker 1: it hasn't rolled over, and the Fed seems to think
Speaker 1: we not that they want to put people out of work,
Speaker 1: but sadly that's part of what's going to have to happen,
Speaker 1: is that we have just too much demand for the
Speaker 1: labor that's out there. So I just think cp I
Speaker 1: may be telling tomorrow, let's see what happens, right, Hey, Liz,
Speaker 1: you know, going deeper into the markets, which is what
Speaker 1: we love about you know you're reporting is you understand
Speaker 1: this market so well. We do it often at you know,
Speaker 1: the headline level ale and so and so forth, but
Speaker 1: you dig deeper and in your story yours and Craig
Speaker 1: tourists as you talk about primary dealers in US treasuries,
Speaker 1: you know, and they're making of their official forecast as
Speaker 1: a group, they are not pricing in rate cuts. And
Speaker 1: that was a servey by the New York Fed. Right
Speaker 1: is that an important discussion to be having right now
Speaker 1: ahead of CPI. Yeah, I think so, because it's interesting
Speaker 1: and I think it was Matthew Hornback of Morgae Santon
Speaker 1: I've heard him mentioned this as well, that okay, there's
Speaker 1: the market pricing, there's the FED, and then there's a
Speaker 1: lot of forecasts, which you know, a lot of the
Speaker 1: primary dealer economists are also saying no cuts this year, right,
Speaker 1: I mean some are saying cuts by maybe December UM.
Speaker 1: But I think maybe that primary dealer servey that, like
Speaker 1: you said, the FED took itself, is maybe giving the
Speaker 1: FED solace to say, you know, because of course, Carol,
Speaker 1: there's like optionality into these pricing of derivatives, you know,
Speaker 1: like I guess people aren't doing their job as these
Speaker 1: traders if they're not saying, well, we were hanging out.
Speaker 1: That's how you price these things. Scenario analysis, we could
Speaker 1: end up with a stronger economy, FED has to go further.
Speaker 1: We could end up with the economy totally falls out
Speaker 1: of bed and we have a terrible recession. They cut
Speaker 1: a lot, So some of that is in this pricing.
Speaker 1: But I think that survey does, you know, show that, hey,
Speaker 1: there's a lot of economists that lean on the FED side.
Speaker 1: And that's why I think, honestly, it's a walk card
Speaker 1: to be honest. Before I got out with you guys,
Speaker 1: and I always kind of look at what is Anna
Speaker 1: Wong saying these days. She says the same thing, go
Speaker 1: to over five percent. I think about five she's got
Speaker 1: three more basis point heights and then she says no
Speaker 1: cuts this year. So I'm like, okay, annimals on the
Speaker 1: FED side. So that's you know, that's a good support
Speaker 1: for them. Well, first, this is what makes your job fun,
Speaker 1: I'm guessing is that you know, everybody sort of has
Speaker 1: a different idea. But the other part of this, too, Liz,
Speaker 1: is that you know, the FED only knows what we
Speaker 1: know in terms of data, and they've said many times
Speaker 1: that their data dependent and you know, since the last meeting,
Speaker 1: we got uh jobs report that showed that wage growth
Speaker 1: was moderating, and investors certainly latched onto that. But each
Speaker 1: piece of data kind of gives them a different idea
Speaker 1: of what their next move is going to be. And
Speaker 1: and maybe indeed we are seeing some of the core
Speaker 1: issues that j. Powell and the FED are concerned about
Speaker 1: starting to alleviate a little bit right, And of course
Speaker 1: they they have they should be data pendant, like you said,
Speaker 1: they said they are. And I was talking to someone
Speaker 1: I won't say who yet because I'm trying to write
Speaker 1: a story, but a long time investor today and I
Speaker 1: was saying asking him the same thing, do you think
Speaker 1: the FED is going to really do what they're saying,
Speaker 1: and he said, I think now that's what the FED
Speaker 1: thinks they're going to do given the data they have,
Speaker 1: and of course if it's six months things changed, they're
Speaker 1: going to have to adjust. So and I think that's
Speaker 1: why the market that they're like, well, we have to
Speaker 1: kind of think ahead of you, you know, especially the
Speaker 1: bond market. You know, people always say, hey, look at
Speaker 1: where the long term meals are. That's a signal of
Speaker 1: where investors think the accou to me is going, not
Speaker 1: just where it is right. So long term rates have
Speaker 1: fallen a lot in the last couple of months, and
Speaker 1: I think the market is thinking, you know, the curve
Speaker 1: is very inverted that you know, whether you know the
Speaker 1: FED cuts sooner or later, that this recession is coming,
Speaker 1: we're gonna have a slowdown, and that this you know,
Speaker 1: they're going to have to pivot eventually this year. So
Speaker 1: again it's gonna be the million dollar question, like does
Speaker 1: anyone win? That? Was it? No? No, still a chance
Speaker 1: for us. List, there's still a chance. List just quickly
Speaker 1: about thirty seconds here is it hardest in terms of
Speaker 1: doing FED policy and for the market's the bond market
Speaker 1: to understand it. When the FED is getting ready to stop.
Speaker 1: Well that's what Yeah, a woman, an investor in my
Speaker 1: story said, and I think she's right. I mean, it's
Speaker 1: the inflection points. And I'm remembering my old calculus or
Speaker 1: whatever I used to know. But you know that even
Speaker 1: for the FED, it's very hard. It's it makes sense
Speaker 1: like when you're on a pivotal change, when you're on
Speaker 1: a glide path of you know, you're easy easy easing,
Speaker 1: that's like what you're doing, or or the vice versa,
Speaker 1: your tightening like they have been. But I think it's
Speaker 1: the it's the inflection points, you know, and and history
Speaker 1: has shown that that's where they kind of fumble a little.
Speaker 1: I would say, you know, to be fair to them,
Speaker 1: A lot of people do. It's you know, people called
Speaker 1: the end of the bond bear market, you know, or
Speaker 1: a bull market years before it ever happened, right, and
Speaker 1: then finally we got your yields go up. So I
Speaker 1: try to be fair, but I think, yeah, history does
Speaker 1: show that they have a kind of worst track record
Speaker 1: at inflection points. Yeah, sorry, FED, Liz, thank you, Thank you.
Speaker 1: Liz McCormick's she's chief correspondent for Global Macro Market's APT
Speaker 1: Bloomberg News. Her reporting is always a must read. This
Speaker 1: story by Liz along with Craig tourists and of course
Speaker 1: Liz joining us via zoom from New York City. I mean,
Speaker 1: we'll see what CPI does and how it changes market
Speaker 1: sentiment if it comes in a little hot. I guess
Speaker 1: the point is, like we talked with Abigail though, do
Speaker 1: we look at you know, trend or a month over
Speaker 1: month or do we have to start thinking about where
Speaker 1: it was a year ago. That's a good point. At
Speaker 1: six point five is the number that's expected year over year,
Speaker 1: um until over a month. Uh, it's supposed to be
Speaker 1: negative one tenth of one percent. Yeah, so interesting. We'll
Speaker 1: certainly know in less than twenty four hours time journal. Yeah,
Speaker 1: but you let me drive? No, no, no, please, ravels.
Speaker 1: I want to drive. It's a good question. Is the
Speaker 1: ride to the closed up on Bluebird Radio? All right, folks,
Speaker 1: just about seventeen minutes left in today's trading session, getting
Speaker 1: ready to wrap up the Wednesday trade US for equities,
Speaker 1: as you heard from Doug, just coming off their highs
Speaker 1: of the session, Tech leading the way with about a
Speaker 1: one point four percent gain on the Nasdaq one hundred
Speaker 1: in yields. Keeping an eye on the treasury trade ahead
Speaker 1: of tomorrow's CPI report, that ten year note still at
Speaker 1: about three fifty four two year note with the yield
Speaker 1: of for twenty one, So curious to see what our
Speaker 1: NEXTUS has to say about where you can find some
Speaker 1: opportunities for that, We turned to Austin Graf, launching his
Speaker 1: own investment management firm late last year. He's founder and
Speaker 1: a c I O at Opal Capital. Austin joins us
Speaker 1: on the phone from book of Ratana, Florida. Austin, how
Speaker 1: are you good? Thanks? How are you Tim? Yeah, we're
Speaker 1: doing pretty well. Thank you. Um, So, give us an
Speaker 1: idea of what you're seeing when you look out at
Speaker 1: the markets right now, because investors are certainly optimistic ahead
Speaker 1: of CPI tomorrow. Yeah, it's kind of interesting right now.
Speaker 1: It seems like kind of in the short term, the
Speaker 1: markets are really swinging with each new economic data point
Speaker 1: that comes out. But we think kind of if you
Speaker 1: zoom out a little bit, the market will end up
Speaker 1: kind of falling in line with fundamentals and valuations. Um.
Speaker 1: So we're not really sure that investors should jump on
Speaker 1: board with some of these kind of rallies in the
Speaker 1: short term, we think they could be kind of kind
Speaker 1: of false starts here. I do wonder, you know, when
Speaker 1: you look at and try to get a handle on
Speaker 1: kind of where we go. I mean, there's a lot
Speaker 1: of questions still up in the air. There's a lot
Speaker 1: of folks saying first half is going to be one way,
Speaker 1: second half is going to be another way. Um. But
Speaker 1: having said that, is there any clear consensus at least
Speaker 1: in your thinking when it comes to an asset class
Speaker 1: that maybe makes a lot of sense. Could it be currencies,
Speaker 1: Could it be uh, I feel like at the equities,
Speaker 1: could be emerging markets. Could it be bonds over equities,
Speaker 1: Could it be going back to, you know, the historical
Speaker 1: play of a balanced portfolio. What is it? Yeah, I
Speaker 1: think it does make sense to have a balanced portfolio,
Speaker 1: just because in the current market where you see kind
Speaker 1: of expectations at two ends of the spectrum, especially if
Speaker 1: you look at the interest rate perspective. Right now, you've
Speaker 1: got the market kind of assuming the Fed's going to
Speaker 1: have to lay off and start reducing rights at the
Speaker 1: end of the year, while the Fed's trying to keep
Speaker 1: a relatively hawkish tone. Um. If you're if you're going
Speaker 1: to play one end of the spectrum there and you're wrong,
Speaker 1: it could be pretty painful for investors. So we think,
Speaker 1: you know, the ultimate outcome is likely to be somewhere
Speaker 1: in the middle. So it makes sense to maintain a
Speaker 1: relatively balanced portfolio um and not go too far in
Speaker 1: one direction or the other. Austin, I want to talk
Speaker 1: about some of the companies that you've got your eye
Speaker 1: on right now, because you did say that you know,
Speaker 1: these rallies that we're seeing right now could be false starts.
Speaker 1: Does that mean that, But that still means that you know,
Speaker 1: you should, you know, get into the companies that that
Speaker 1: that you're picking right now, including x On Mobile. You
Speaker 1: still think there's a there's room for x On Mobile
Speaker 1: to run. Yeah, we think that there's still quite a
Speaker 1: bit of opportunity in x On. It's it's a relatively
Speaker 1: high quality name. And you know, I think a lot
Speaker 1: of people are looking at Energy over the last called
Speaker 1: twelve to eighteen months and saying it's run so far already,
Speaker 1: But if you look back five years, Energy is not
Speaker 1: anywhere near where it used to be. The other side
Speaker 1: of the argument is that you know, we're transitioning to
Speaker 1: a green economy and these companies are no longer going
Speaker 1: to be relevant. We just don't think that that's the
Speaker 1: case in the kind of intermediate term. We think over
Speaker 1: the next over decades, you know, that might be, I
Speaker 1: might be the case, but um, between now and you know,
Speaker 1: the next thirty or forty years, we think these energy
Speaker 1: companies are extremely relevant, um with less. That's a long runway. Well,
Speaker 1: if you look at the if you look at the
Speaker 1: demand for oil and the ability for alternatives or renewables
Speaker 1: to offset the the demand that is required for oil,
Speaker 1: it's likely going to take a long time for the
Speaker 1: trend to revert. So we think that the marketabile ahead
Speaker 1: of itself and embedding on some of these renewable opportunities
Speaker 1: at the expense of kind of traditional oil and gas names.
Speaker 1: And we think global economies are I mean, barring a
Speaker 1: dramatic decline and demand, we think, you know, these these
Speaker 1: traditional oil and gas companies are are going to be
Speaker 1: around for a while, and they're also reinvesting in their
Speaker 1: businesses to benefits from some of the new green technology.
Speaker 1: It's just it's not going to be kind of a binary.
Speaker 1: You go from fossil fuels to green. Yeah, we certain that.
Speaker 1: We certainly saw that over the last couple of years,
Speaker 1: Carol and mean we talked about all that all the time, right,
Speaker 1: the idea of an energy transition, and we saw for
Speaker 1: the last two years, and especially over the last year
Speaker 1: as Russia invaded Ukraine, how reliant the world continues to
Speaker 1: be on fossil fuels. You know, it's so funny. I
Speaker 1: gotta tell you. Austin, Tim and I are looking at
Speaker 1: each other and we're like, do we have enough oil
Speaker 1: for forty years? And I know there are estimates that
Speaker 1: maybe we have fifty years left, give or take a
Speaker 1: little bit. So you're thinking it's a play until the
Speaker 1: very bitter end. Having said that, we're gonna talk about
Speaker 1: climate change later, and I'm just wondering how much more
Speaker 1: pressure that might put on um the energy sector. Metronic, though,
Speaker 1: let's go somewhere else. Metronic is another name that you like.
Speaker 1: It's already up about three percent this year, and I'm
Speaker 1: noticing to a lot of these names that you like,
Speaker 1: you're talking about some dividend yells, which makes it also
Speaker 1: a little bit extra attractive. I mean, Metronics three point
Speaker 1: four percent dividend yield. Yeah, it's a historically high yield
Speaker 1: for Metronic, which is a best in class medical device company.
Speaker 1: They've had some missteps over the last basically since COVID
Speaker 1: took place, with some troubles with product launches. We think
Speaker 1: that's behind them. So currently you can pick up Metronic
Speaker 1: at what is a relatively low operating margin and also
Speaker 1: a relatively low valuation. We think with the the product
Speaker 1: launch issues behind them and China reopening and people turning
Speaker 1: back to elective operations, we think there's there's room for
Speaker 1: Metronic to expand those margins and also benefit from from
Speaker 1: a higher valuation. So we think it's a great time
Speaker 1: to buy a company that's kind of best in class,
Speaker 1: high quality that also has some growth in front of it.
Speaker 1: All right, Austin, we're gonna leave it. They're fun to
Speaker 1: talk some names if you really appreciated. Austin graph under
Speaker 1: in chief investment officer launched his own investment management firm
Speaker 1: late last year. And as we said, uh Faunther and
Speaker 1: c IO of Opal Capital. Thanks for listening to Bloomberg
Speaker 1: Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg
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