April 9, 2025 • 34 mins
- Chris Harvey, Head: Equity Strategy at Wells Fargo
- Sheila Kahyaoglu, Managing Director: Equity Research at Jeffries
- Richard Bernstein, CEO and CIO at Richard Bernstein Advisors
- Ruchir Sharma, CIO at Breakout Capital Partners
Chris Harvey, Head: Equity Strategy at Wells Fargo, joins to discuss whether equities could fall further now that President Trump's tariffs have taken effect. Sheila Kahyaoglu, Managing Director: Equity Research at Jeffries, talks about guidance and earnings from airlines and how tariffs could affect profit margins. Richard Bernstein of Richard Bernstein Advisors discusses the outlook for equities and bond amid recent selloffs. Ruchir Sharma, CIO at Breakout Capital Partners, talks about how public policy is reshaping markets and talks about the US economic outlook this year.
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and Amrie Hordern. Join us each day
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
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(00:34):
Terminal and the Bloomberg Business App. Chris Harvey of Wells Fargo, writing,
this growing crisis of confidence brewing. Stop market vigilantes will
not be that patient or ignored. It probably needs to
get worse before it gets better. Chris joins us now
for more. Chris, good morning, Good to see you.
Speaker 3 (00:50):
Good to see you too.
Speaker 2 (00:50):
This is a really difficult one, So let's take a beat.
Typically we sit here and think about the kind of
threshold that it would take for a policymaker to step
in and act as the circuit breaker. Time the policy
maker is the source of the risk, maybe not the solution.
Speaker 4 (01:04):
How different is this as a moment for you and
a team.
Speaker 3 (01:07):
It's very different.
Speaker 5 (01:08):
And the issue is, and we go back to green
Span before the ER four tightening cycle, they said, we
can raise rates, right, but what we need to do
is we need to communicate that to you. We need
to tell you how we're going to raise raids over
what time periods so you can plan. If you're going
to buy a house, you can speed up that house purchase,
going to buy a car, you can speed that up.
This administration is talking a lot, but they're not communicating
a lot. This weekend, we had one person saying tarish
(01:31):
and negotiable. We had somebody else saying they're non negotiable.
What are they? What's your goal? What you're trying to do?
What are we handicapping over what time period? You need
to communicate better. The other thing is the market is
sending a big signal. It's not a good idea to
ignore that.
Speaker 2 (01:45):
China sending a big signal right now as well, So
i'd love your thoughts on that too. Big Taris's coming
from the US side overnight, China responding with eighty four percent.
I think at the moment for a lot of investors
they look at that head down and say, you know,
what given how little we sell to China, that's not
much for a big deal. But I think the bigger
raid across, the bigger raid through at the moment, that
makes it much much harder to get to the negotiating
(02:06):
table with this president who's pushed back against China threatening
to do exactly this.
Speaker 3 (02:11):
Yeah.
Speaker 5 (02:11):
So what people have realized is the weak spot for
the US, the capital markets, and the economy. If they
push back, right, we're going to lose and we are
losing some negotiating leverage.
Speaker 3 (02:22):
What are we talking about.
Speaker 5 (02:23):
We're talking about recession, We're talking about job losses. We're
talking about the negative wealth effect. We're talking inter recession.
The deficit goes wider, not tighter. And people know that,
so they're saying, Okay, fine, if we're going to do this,
we're all going to We're just going to pull everyone
down into the mark and what you're seeing is just
not great.
Speaker 6 (02:40):
Well, I'm looking right now. China also added six more
firms from the US to the unreliable list at the
same time that we've seen incredible losses and the likes
of Apple, which seems to be very much in the
crosshairs of this. How much does this discourage you from
going to the multinational companies actually at a time when
they potentially could be the most exposed.
Speaker 5 (03:00):
Yeah, a Lisa, what we need to do is we
need to figure out exactly what we're dealing with. And
because it's a moving target, that's why it's so hard
to That's why the markets are so fluid at this
point in time. And you're right, where are the safe havens.
The safe havens are at the front end of the curve.
Safe havens are in low vold, they're in defensives, but
even those are still that's a place where we've like,
(03:20):
but it's still have it showing some stress, right, So
it's very difficult to find a safe haven. It's very
difficult to really preserve your money or your assets at
this point in time.
Speaker 3 (03:29):
Yeah.
Speaker 6 (03:29):
The reason why is because ten year yields are up
through four forty you're looking at thirty year yields now
almost four point nine percent.
Speaker 4 (03:36):
They've absolutely been surging.
Speaker 6 (03:38):
What's going on, I mean, what are you doing with this?
Speaker 3 (03:41):
So there's lots of talk.
Speaker 5 (03:43):
One conversation is that out of Asia that they're selling duration, right,
So they're selling longer bonds and buying shorter bonds for
liquidity issues to send a message. There's other talk about
basis trades.
Speaker 3 (03:54):
There's if you look at.
Speaker 5 (03:56):
What's happening nominals the last time I looked, nominals are
going higher bud but it's being forced by reels. It's
not being forced by at least in the last couple
of days, by inflation expectation. That seems more like a
liquidity issue, people moving around positions, not so much fundamental
driven right The other thing is, obviously we've got issue
INCE coming and there's more and more fear. Even though
(04:18):
right now inflation expectations or break evens aren't moving, there's
fear that that will continue in the future.
Speaker 2 (04:23):
Seeing some big moves right now, that's for sure. If
you are just joining us, welcome to the program. Eighty
four percent tariffs from China. China raising tariffs on US
goods to eighty four percent, and the spillover immedia equity
features down by one point six percent on the S
and P five hundred, the rustle down by two point
five the DAX is down by four full percentage points.
(04:44):
And in the commodity market you're seeing crude rollover as well.
On WCI and Don Brent were down by six percent.
Bran CREWD fifty eight ninety eight, WCI fifty five eighty five.
There will be some individuals in America making a lot
of noise today off the back of this headline.
Speaker 4 (04:59):
I'm thinking the farmers in a few red states.
Speaker 1 (05:02):
Absolutely, because remember Trump one point zero. The farmers were
the ones that got hit the worst because they didn't
have the export market of China to go to, and
then we the United States, had to bail them out.
But Jonathan, you started this conversation this morning where you're
look into policy makers for the answers for the solutions.
When I asked the President directly the pain threshold he
was willing to take on for the market, he said,
(05:22):
sometimes you have to take medicine to fix something. They
think the tariffs are the medicine. Well, what's going to
be the solution and the medicine to what is happening
right now? They'll fallout from these tariffs.
Speaker 2 (05:33):
Some big moves elsewhere as well. Apple's had a difficult
run of things. That name is down by two percent
in the pre market at the moment. Apple is down
before today by more than twenty percent in just four sessions,
the worst run for that name going back to two thousand.
The year two thousand, the worst four day run in
twenty five years for one of the biggest companies on
the planet. Chris Harvey not to talk about single names exclusively,
(05:55):
but we can talk about MAC seven. They had a
difficult moment now and a bigger way than maybe we've
ever seen for those names.
Speaker 5 (06:02):
So some yes, and obviously Apple is more of a
focus beca because there the tariffs and what they manufacture
in China.
Speaker 3 (06:11):
Right the rest of.
Speaker 5 (06:12):
The MAC seven, more of the communication names. They're in
a little bit better space, but it's not as if
anyone's in great space. It's not as if you can say, wow,
this is a perfect spot, this is fantastic for these guys.
Speaker 3 (06:22):
Couldn't be any better.
Speaker 5 (06:24):
It's just relative who's worse, who's better, and who's going
to get hurt a little bit more? Where's the defensive
this right now? What we're doing is everything is across
a risk spectrum, and which one has less risk?
Speaker 3 (06:35):
That's all you're doing.
Speaker 2 (06:36):
What's on your dashboard at the moment to establish where
a tradable bottom might be.
Speaker 4 (06:39):
Is that impossible right now?
Speaker 3 (06:41):
For you?
Speaker 4 (06:41):
In the scene.
Speaker 5 (06:41):
Oh no, so John, this is what we're looking at
because we see a setup. We don't see the bottom,
but we see a setup.
Speaker 3 (06:46):
Right.
Speaker 5 (06:47):
We want to see one Q numbers reset. We want
to see them cut. We want to see an inversion
in the front end of the curve between two years
and fed funds of one hundred bases points or more.
Speaker 3 (06:56):
That tells us.
Speaker 5 (06:57):
That the market's indicating we need to move fast, you
need to hurry up, and potential monetary policies coming. In
addition to that, we want to hear the conversation become
more productive. We want it either to shift from tariffs
to taxes or the acknowledgement that, oh, yes, everyone knows
there's going to be pain, but the issue is they
(07:18):
just don't know that the cure seems to be worse
than the disease right now, or that's what the market's saying.
You have to acknowledge that, hey, yes there's going to
be pain, but there's there's light at the end of
the tunnel. Here's what we're doing, here's our goals when
we get there.
Speaker 3 (07:31):
This is what's going to happen in the meantime.
Speaker 6 (07:33):
Delta with Drew, It's guidance for the full year. Walmart
reaffirmed us guidance.
Speaker 4 (07:37):
What do you do with this?
Speaker 5 (07:39):
So we actually had this conversation yesterday and I've been
having this conversation a lot. We expect numbers to come down.
It's going to range some people. We were talking to
our audio analysts and he would not be surprised if
there would be a suspension of guidance there. We were
talking to others saying, and maybe it's going to be
five percent, maybe ten percent. What we're going to hear
is the cease going to say, out of an abundance
(08:01):
of caution, here's what we're doing.
Speaker 3 (08:03):
We're lowering the top end of guidance.
Speaker 5 (08:04):
We're cutting five percent, we're cutting ten percent. Because of
the uncertainty, we have to remove guidance. So it's going
to be right across the board.
Speaker 3 (08:11):
And you're right.
Speaker 5 (08:12):
The example of Walmart DELT is a good one because
you have the two ends of the spectrum.
Speaker 2 (08:16):
This is where we really start the conversation. Where does
the circuit break come from? Could it come from Capitol Hill?
Speaker 3 (08:21):
It has to come from Capitol Hill.
Speaker 5 (08:22):
You have to hear the administration acknowledge what's going on
and you have to have them acknowledge and communicate that
they see it, they understand it, and you have to
have them start to slow things down. This conversation about
a thirty day pause, a sixty day pauses, a ninety
day pause. Something has to happen. You cannot continually walk
in and have more tarfs and more stress in the system,
(08:44):
because the more you do that, the faster we go
to a recession, the faster job losses come, and the
faster this gets out of control.
Speaker 2 (08:51):
But right now it's just rhetoric.
Speaker 1 (08:52):
Do you actually see Congress pulling back the reins and
trying to take control, giving less authority to the executive
branch when it comes to trade policy, Yeah.
Speaker 5 (09:00):
Emory, I think if it continues, you go down that route.
But that's a much slower route, right and the market's
going to move much quicker. And this is a question
of confidence. Does do the markets? Do business folks have
confidence in the plan? And what's the spill out.
Speaker 3 (09:16):
From the plan?
Speaker 5 (09:16):
And right now the markets are saying we're losing confidence,
and we're losing confidence quickly.
Speaker 1 (09:20):
So when it comes a circuit breaker, you think it's
actually Republicans in Congress that could be the ones to
put a stop to this. You don't see maybe it
Shijing ping or Donald Trump himself blinking.
Speaker 5 (09:30):
I don't see in the conversation. So a couple things there,
because that's a big question, right the situation between China
and US. US appears to think that China.
Speaker 3 (09:42):
Is the existential threat.
Speaker 5 (09:43):
We can have that continue, and likely that does continue.
But if we get positive news from the EU, from Japan,
from other places where there is actually progress, then things
can improve. China is towards the end of my concern
this point in time. Can we get our allies to
come on board, can we strike deals? Can we move forward?
(10:05):
Can we make progress? If we're showing progress, the markets
will react positively. If we do not show progress, the
markets are not going to react.
Speaker 6 (10:12):
Possibly, there's a story in the Financial Times about how
US ports are getting really crowded, that a lot of
companies are delaying their car shipments and they're just holding
them at the ports hoping that maybe in a couple
days these tariffs will be removed. Maybe it'll take four days,
maybe it'll take five days, and they're about to reach
capacity at these ports. What will it take for both
companies and for the markets to realize this is real.
Speaker 5 (10:36):
Listen, it's real, right, So the complexity of this you
cannot turn around in a couple of days, in a
couple of weeks, because you've basically tariff or taxed almost
every single country out there in order to unwind that.
Speaker 3 (10:48):
It's no small feet. The other thing is governments do.
Speaker 5 (10:52):
Not move quickly, right, and because of what we've done,
people want to protect themselves.
Speaker 3 (10:56):
So they're going.
Speaker 5 (10:57):
To have to talk to their lawyer, to their leaders,
to their parliament or whoever before they take some action.
We can have the conversation, but the actual action and
execution is going to take a lot, I think a
long period of time.
Speaker 6 (11:10):
What are we seeing in markets? Is this just the
fear that this is going to have a suppression to
growth or are we getting actually a sense of what
markets are repricing as the new normal?
Speaker 5 (11:21):
Yeah, the markets don't really know the end goal, right,
is it negotiation, is it revenue generation?
Speaker 3 (11:29):
Or is it something much bigger? Right?
Speaker 5 (11:32):
Do we want to change the way we do trade
throughout the world and for.
Speaker 3 (11:35):
The rest of time. That's a big question.
Speaker 5 (11:38):
So the markets are just trying to figure out what's
going on, and the markets are trying to send the
message we need better communication. We need to understand the goal.
When we get to the goal, what are you going
to do? And how are we going to do it?
Speaker 2 (11:50):
To start that process, to engineer that supply side response,
you've got to believe that these are the rules of
the gang, and we're saying is this a negotiation or
the rules of the game.
Speaker 6 (12:01):
I love how Chris puts it. The market is crying
to the White House, we want better communication. Can we
have a therapist come in here and try to clarify
what the end goal is? Are we meant to be together?
Are we meant to be apart?
Speaker 4 (12:13):
Is this therapy again?
Speaker 6 (12:14):
Well, it sounds like a lot of people are trying
to get into the psychology of the moment.
Speaker 4 (12:17):
What do people say, cry harder?
Speaker 6 (12:21):
I think that that's what we're doing on every single market.
Speaker 2 (12:22):
I got to find some light humor in a moment
like this one. We're down again by one point four
percent on the S and P. A special thanks to
Chris Harvey of Wells Fargo Richard Bernstein. If Bernstein advises
writing the FED is caught between a rock and a
(12:43):
hard place. GENP forecasts are being revised downward, but inflation
expectations seem poised to accelerate. Richard joins us Now for more, Richard,
welcome to the program. You put it in your not
Everyone's got a plan until they get punched in the face.
That famous strategist on Wall Street, my Tyson, how strong
is that punched this morning?
Speaker 7 (13:01):
I think the punch is a real it's not a jab,
it's a real roundhouse punch.
Speaker 3 (13:07):
And I think.
Speaker 7 (13:09):
John, look, you've been talking a lot about all the
different uncertainties and all the different things that.
Speaker 3 (13:13):
Are going on.
Speaker 7 (13:14):
That's fine, but I think one also has to realize
that we entered the year with investors historically confident, so
this has a magnified effect on investors' confidence that they're
being shaken. So that was my point about that everybody
has a plan until they get punched in the mouth.
Because everybody had a plan. They thought it was easy.
They thought this was like, oh, you know, it's just
(13:36):
buy an index funder, let's buy the mag seven. And
all of a sudden they're realizing that was the unusual
period and now we're going back to something that's much
more uncertain and they're getting punched in the mouth.
Speaker 6 (13:48):
Richard Scott beston Treasure Secretary speaking with Henry our own
here and saying that this then is not necessarily a
MAGA problem, it's a mag seven problem.
Speaker 8 (13:57):
Do agree?
Speaker 6 (13:58):
Is that basically what you're seeing right now is the
wine of an overvaluation of a crowded trade at the
end of the last year beginning of this one.
Speaker 7 (14:06):
Well, well, Lisa, I understand where he's going with that question,
But my response would be, why is the Russell two
thousand and performing so dramatically here? If it were just
a mag seven point? Why are the domestic the most
domestically focused companies in America? Smaller companies are underperforming? Right?
Speaker 6 (14:24):
So?
Speaker 7 (14:25):
How is this just a large cap MAGA effect? Is
clearly it's clearly not our mag seven effects. Sorry, it's
clearly not the you know, I think this is a
common The markets are are making a comment on the
broad economy in the United States, and and you know,
I think also the notion that this is an orderly
processed that's fine.
Speaker 4 (14:45):
I would agree with that.
Speaker 7 (14:47):
But the process is not positive one. The markets are
not giving a positive verdict on that. And that's kind
of what I think people are still sort of missing here.
Speaker 6 (14:56):
Richard, how do you navigate a situation like this? The
rules of the world may be be called into question
over a longer period of time, and acid allocation potentially
could look very different if the trends that we're seeing
in markets today would hold. So how are you thinking
about not just short term investing, but the one year,
(15:17):
two year, five years ahead?
Speaker 7 (15:19):
Right? So, so, Lisa, I think in the short term,
you know, you're using the word uncertainty. Everybody's using the
word uncertainty. I shouldn't personalize it like that. Everybody's using
the word uncertainty. So what that means is the scarcity
in the marketplace is certainty. That's what that's what will
command a premium through time is certainty. What does that mean?
(15:40):
That means quality, That means more certain cash flows, it
means dividends, it means near you know, really kind of
focusing on near term fundamentals as opposed to long term
growth stories. The second thing is, you know, what do
you do for three years, five years, ten years, two years, whatever?
And I think, look, the goal all of what's going on,
(16:01):
returning industrial processing back to the United States and manufacturing
back to the United States. I think that's a great goal.
In fact, we've been talking about it in my firm
at Richard Percy Advisors for ten years. I wrote an
op ed in twenty eleven in the Financial Times about
this topic and how important it was. This is the
goal is real. However, the method that they're choosing to
(16:24):
try and get to that goal, what personal opinion here
for a second, is incredibly ham handed. There are many
better ways to do with that. Do not place attacks
on the US consumer.
Speaker 4 (16:35):
Richard.
Speaker 2 (16:35):
We had from one ECP official earlier on this morning
that said, there's no reason for a rate cut right now.
I think you refer to fifty basis point cons as ridiculous.
Mary Daily, the San Francisco FED President, putting out a
post on LinkedIn saying we have the time and space
to deliberate our next moves. Lisa, that's what's different about
this moment. These officials are these central banks on Russian
(16:57):
to race in Russian to step in and provide support.
Maybe they would have done a number of years ago and.
Speaker 6 (17:02):
For the correct reasons, which is this is a very
different type of crisis that is not of the credit
markets making. This is about policy uncertainty and the potential
stagflationary shock that comes along with inflation. If you take
a look at two year break even rates, they've actually
hit the highest level going back to two thousand and
two earlier this morning. It's shifting around incredibly volatile markets,
(17:22):
but the signal it is not so clear in terms
of how they should act, let alone.
Speaker 2 (17:27):
If Richard, are you thinking about where pockets and leverage
might be? This has been a really unusual cycle hearing
the UNATO styce and worldwide because of the support that
was offered through the pandemic and through the recovery as well.
When you think about where pockets of leverage might be
this time around, how do you ask that question?
Speaker 7 (17:43):
So, John, that's related to you and Lisa were just
hawking about. The FED was spoiled for many, many years
decade two to two, three decades by globalization. Globalization was
a massive disinflationary force on the US economy. Why because
we were just increasing competition, and we all know when
you increase competition, you put downward pressure on prices. So
(18:06):
the FED could play the hero and ride in on
the white horse and save the day. Now what we're
seeing is de globalization. That whole disinflationary process is now
being reversed, so it's now an inflationary process that ties
the fed's hands, and the FED can't play the hero anymore.
(18:27):
And I think that's one of the things that's happening.
So where is the pocket of leverage. I don't really know.
You know, one could argue that it's in the private
market somewhere, because I think that a lot of their
returns have been boosted by by leverage and the ability
to borrow cheaply to make acquisitions. Maybe that's where it is,
you know, it certainly you know not going to be
(18:48):
I would argue it's unlikely to be in the big banks.
The big banks, for all the all the their whining
about over regulation, big bank balance sheets are pretty strong.
It looks like the regulation has worked. But where is
that leverage. It's in things like private debt and all
of that. So the risk hasn't gone away, it's just moved,
I think from the public markets to the private markets.
(19:09):
It's an interesting monetary and fiscal question is that if
there is some kind of problem in the private markets
they're supposed to be private, will they come to the rescue.
I would think they'd be very hesitant to do that.
Speaker 1 (19:21):
The Treasury Secretary this morning is saying really nothing to
see here. I feel like I'm going to sound like Lisa,
But how do you think this bond auction is going
to go today? For the ten year?
Speaker 7 (19:30):
Well, a little outside my area of expertise, I just
don't think. I think what we are seeing is a
complete repricing of US assets with a higher risk premium.
Right if you think about it, we've taken about five,
maybe six multiple points off the SMP despite good earnings.
We're seeing in a very short period of time the
ten years sell off. But certainly bond volatility has gone up.
(19:53):
Whether you grew with my statement about the risk pream renout,
certainly bond volatility has gone up. And I think what's
happening is US assets are being priced. You know, you
mentioned before about you know, or are we a safe
haven anymore?
Speaker 3 (20:06):
Maybe not?
Speaker 7 (20:07):
And that's kind of what we're seeing.
Speaker 2 (20:08):
I spy the Tottenham memblanm right behind you as well, Richard.
Super depressing stuff for you, A I appreciate.
Speaker 4 (20:13):
The time as always, rough rough season.
Speaker 2 (20:16):
Thank you, sir, Richard Bernstein and Richard Burnstein Advisors, thank
you very much. If you are just joining against these
with the numbers. So basically what they've done is withdrawn
their full year guidance, citing uncertainty around global trade. The
(20:36):
CEO at Bastian saying, quote, it's very difficult to predict
what policies may look like over the course of the year.
That's for sure. The stock is up by one point
seven percent, as Bastian ads that revenue has flatlined, joining
us now to discuss as Sheila Coleu of Jeffrey's Sheila,
welcome to the program. If mister Bastian can't offer any guidance,
can you?
Speaker 8 (20:57):
I don't think we can either.
Speaker 9 (20:58):
We cut our estimates early your last week across the
entire airline landscape, assuming flat domestic pricing for the year.
Speaker 8 (21:05):
What we're getting from.
Speaker 9 (21:06):
Delta's suspended guidance clearly, and that's probably the best.
Speaker 8 (21:09):
Strategic move from here, but it assumes something.
Speaker 9 (21:13):
Worse than that for Q two in terms of flat
domestic pricing, and then a second half capacity is flat,
So not great news out of the US's largest carrier
in terms of what they're seeing.
Speaker 2 (21:26):
Shalbe, You've talked about this repeatedly. The high income bracket
here in the United States holding up business for many
of these airlines Premium, Long cal Shaba. Are you seeing
building evidence that maybe we're seeing something we haven't seen
over the last five years, that they're starting to take
the hit here.
Speaker 9 (21:43):
I think Premium and Atlantic are International are actually still
holding up. But we just got off the phone with
Dan Jenkie Delta CFO. It seems like the bookings visibility
there is decent. What you're seeing the contraction is is
in the main cabin, which is where we would see it,
but also notably corporate. Corporate really saw a move down
in February and March. Industries that were particularly hit we're industrials,
(22:06):
aerospace of course, and some other sectors, while financials and
tech held in there. It seems so corporate is also
taking a leg down. So corports are clamping up a
little bit. Whether it's the tightness in just you know,
cost cutting, or if it's the macro volatility that's causing
that is to be determined.
Speaker 8 (22:25):
So that's where we're seeing the.
Speaker 9 (22:27):
Premium hit is really within the corporate customer chrending down.
Speaker 6 (22:31):
We are seeing some commentary from Ed Basti and the
CEO of Delta this in the Wall Street Journal. He
said he understands there's a role to play with tariffs
and trade policy. It's just hard when you're trying to
do them all at the same time. He also said,
I don't think we're in a recession. I think we're
in danger of talking ourselves into a recession. When you
talk to executives, particularly from airlines, is there a level
(22:53):
of frustration that the consumer does seem strong, willing to
accept even price increases, still looking for experience. Is at
the same time that there's a lot of gloom and
doom on Wall Street and a potential regime shift that
could just torpedo that.
Speaker 9 (23:09):
It's interesting because Delta's telling us they saw it within
the consumer turned down really quickly, whether it was in
February and March, in the first five to seven days
of April.
Speaker 8 (23:18):
I'm actually in Atlanta right now.
Speaker 9 (23:20):
I'm at a trade show, an aerospace aftermarket trade show,
and the ten executives we met with yesterday were so
confident regarding tariffs. They don't think it'll have as much
demand destruction as people assume, and.
Speaker 8 (23:31):
That pricing will actually be positive because.
Speaker 9 (23:33):
They could pass it through to the end user, which
is of course the airline, which is of course the
consumer in the US. So I think we're seeing that
short cycle hit with Delta this morning, a massive change
with what they previously guided. They had guided a capacity
up or now it's flat, and pricing also taking a
swing down down two and a half to down six
(23:54):
and a half in their.
Speaker 8 (23:55):
Forward outlook for Q two.
Speaker 9 (23:57):
So we're seeing that major revenue cut only from a
capacity perspective, but from a price perspective, and the airline
is doing its best to stay populitable, show that it's
you know, it's positioned well for this, but it's relatively
well leverage. But they're only growing their net fleet less
than one percent, so taking into account bowing air with
deliveries and their retirements, that's less than one percent. So
(24:18):
they're clamping down on their costs as well.
Speaker 6 (24:21):
This is a really fascinating dichotomy right now, Shila, because
on one hand, you have the airline saying es sensibly
they believe they have pricing power. They believe that they
can raise prices and that you could shrink potentially just
your flight schedule and keep prices where they are, go
higher and offset any kind of change you're searing something
so different from the likes of Walmart that want to invest.
Speaker 4 (24:42):
In price i e.
Speaker 6 (24:43):
Absorb some of the increase in prices. Is there some
sort of structural change that gives airlines a strategic advantage
to being able to have pricing power.
Speaker 9 (24:54):
So the airlines are clearly saying pricing is stalling. Pricing
and capacity are stalling. The Aerospace Show imat is more
than manufacturers and the maintenance providers to the airlines. They're
still seeing that they have the ability to pass price through.
Speaker 8 (25:12):
One is a shorter cycle by.
Speaker 9 (25:13):
With an airline of consumer booking is maybe thirty to
ninety days, and that's where we're seeing the hit with Delta.
The Aerospace Show i'm at is probably thirty to.
Speaker 8 (25:23):
One year bicycle.
Speaker 9 (25:25):
So the shorter cycle is definitely seeing the market volatility
impact its demand and it's pricing Sheila.
Speaker 1 (25:32):
Delta is a Virgin Atlantic partner on its North Atlantic routes.
We saw Virgin Atlantic pull back some of those routes,
especially when it comes to New York City, this major hub.
Speaker 10 (25:40):
JFK.
Speaker 1 (25:41):
Are you expecting more airlines to pull back some routes.
Speaker 9 (25:46):
I think International is the reader we're going to watch
the most so to put it in perspective in terms
of domestic, domestic is very important. Delta had previously seven
thirty five of EPs. Every one point of domestic pricing
is about eighty five cents to EPs. Internationally, every one
point of pricing is maybe twenty cents.
Speaker 8 (26:05):
Internationally is still holding up. But what we're seeing there
in the second.
Speaker 9 (26:09):
Half and in Q two and in the second half
is actually a decent amount of capacity, whether it's Delta,
whether it's United, whether it's American, capacity is amid single
digits of four percent. So if you have a lot
of capacity not a lot of demand, what happens your
price gets cut. So Atlantic is still holding up strong
in Q two. They're fairly well booked into April. I
(26:31):
think ninety percent booked in April, sixty percent booked in May,
and forty percent in June. And that's system wide, So
internationally would be better than that.
Speaker 8 (26:39):
So right now International is still holding up.
Speaker 9 (26:41):
But again that's a longer sale cycle, probably ninety days
instead of thirty days for the domestic side.
Speaker 2 (26:46):
Seva, I appreciate you time, thanks for jumping on busy
morning for you, I'm sure.
Speaker 4 (26:49):
Shiva Kari of Jeffrey's outline of the morning.
Speaker 2 (27:01):
So far, the tariffs go on overnight as expected, the
retaliation from China raising tariffs on US goods to eighty
four percent.
Speaker 4 (27:10):
To discuss some place to say that joining US now
is Russia. Shama A.
Speaker 2 (27:13):
Rockefeller International, Russia, welcome to the program, sir. We are
trying to work out what this Federal Reserve should do.
Should the policymakers be stepping in and providing support or
should they watch and wait to see how this place out.
Speaker 3 (27:26):
Well, I don't think.
Speaker 10 (27:26):
There's any case for the Fed to cut into a
streets given its dual mandages now, because as I wrote
in my ft OpEd this Monday, which is that the
Fed has missed its inflation target for five years in
a row, it will do so again this year and
the year after that, and possibly won't get to the
target now for the next couple of years, even if
(27:47):
it does nothing at this stage, and inflation is a
big concern for Americans, and the horizon consumer prices over
the last five to six years has been such that
it has offset the entire undershoot of the two percent
inflation target that we had last decade. So if you
go back to the year two thousand over the last
twenty five years. Now, what you will see is that
(28:09):
over that time period, consumer prices today are higher by
about sixteen percent than they would have been had the
FED been meeting its two percent inflation target over the
last twenty five years. So that's a serious miss on inflation,
and I think it's aware of that, and given the
fact that some infacient expectations are already elevated, to add
(28:32):
fuel to that fire would be a mistake. So I
think that the FED needs to be true to its
mandate and it needs to sort of at the very
least watch and so far there's been no evidence that
its policy has been overly restricted.
Speaker 2 (28:45):
They push back that I've heard over the past week,
and I'd love your response to it goes a little
something like this, They should focus on the downside risk
to growth and not the upside risk to inflation because
anxiety around the labor market is so much higher, we
don't have sufficient tightness in the hyper market that would
drive those second round effects high wightes, etc.
Speaker 4 (29:03):
What would you sind back.
Speaker 10 (29:04):
To that, Well, you know, this has been the same
easy money crowd which has been you know, which is
always calling for lower interest rates, So I think that
that's been the real problem. One of the basic problems
of the US economy is that it's been fed on
a diet of easy money for far too long, whether
it's monetary policy or fiscal policy, and I think that's
coming back to bite the US. And what's happening today
(29:25):
is a demonstration of that, which is that I can't
remember seeing a day in my memory where on the
US markets all three major indicators are down, US docs,
US bonds, and the US dollar. So there's a real
loss of confidence happening here as far as the US
is concerned. This is almost like the kind of scene
(29:46):
that I see in emerging markets that you know, where
you see cross assets declining together like this, And in
emerging markets, I don't think any central bank would think
about cutting interest rates in such an environment.
Speaker 6 (29:58):
Do you think that we're getting little ahead of ourselves
with trying to give a narrative to the move in
markets right now? Given that there are basis trades unwinding
and hedge funds that are deleveraging.
Speaker 10 (30:08):
Well, it's still unprecedented. I agree that there's nothing that
sort of extraordinary going on. If you look at the
scenes we have seen in two thousand and eight that
kind of market panic. We are far from that, but
we don't want to get to that point. So I
think that the whole issue here is the fact that
let's acknowledge that we have seen a very unusual move
and acid prices, and that this accident in a way
(30:30):
was waiting to happen. As you know that at the
end of last year, I had sort of called this
the mother of all bubbles, this American exceptionalism trade where
everybody was flooding into the American market as if there
was no other market in the world to invest in.
Eighty percent of all equity market flows around the world
this decade went into just America. So it's this big
(30:51):
unwind taking place.
Speaker 8 (30:52):
I think of that bubble.
Speaker 10 (30:54):
Now, you can argue that it would have happened regardless
of Trump and Taris, but his moves up obviously precipitated this.
But as someone put it, that the air is coming
out of that balloon, but that air was put in
the balloon before that. And as I've argued in the past,
the combination of very easy monetary and fiscal policies is
(31:14):
what has got us into this place today, how much.
Speaker 4 (31:17):
Further does it have to go?
Speaker 6 (31:18):
Then if that's the theory, that yes, this is partly
because of what's going on right now with policy uncertainty
and the actual policies putting and being put in place,
but it also has to do with the build up
over so many years that you call a bubble. How
much further do we have to go to create a
level that you feel more comfortable investing in?
Speaker 10 (31:37):
Well, I think that this marks a major regime shift,
which is that the US market had outperformed the rest
of the world for fifteen years, as you know, and
in the last couple of years that reached what we
call a parabolic stage where it just went completely vertical,
where US markets totally disconnected from the rest of the world.
They in fact was sucking capital out from the rest
(31:59):
of the world. I think that this has many years
to go, that what we're seeing today is the opening
act of this major trend reversal and capital flows. But
this is a multi year trend. You know that people
love to say that don't bet against America. The American
stock market eventually always comes back, and it's been a
great performer over very long stretches of time. All true,
(32:23):
But if you look at those very long stretches of time,
which go back to year nineteen hundred, when we have
data that the US stock market in six of the
past eleven decades has in fact underperformed the rest of
the world. And we've just had a fifteen year incredible
spell of US market outperformance with both the dollar doing
well and the US stock market doing well. I suspect
(32:44):
for at least the rest of the decade both the
dollar and the US stock market to significantly underperform the
rest of the world. So I think that this is
a regime shift precipitated by what Trump is doing, but
something which predates it.
Speaker 1 (32:58):
In this regime shift, do you think we need to
start working about potentially Affirm blowing up like Melvin Capital
Management did in twenty twenty two, Well, I think, you know, there.
Speaker 10 (33:08):
Is a lot of leverage out there which we only
know about when this happens. Like what are the marks
today for private credit for example, have they, you know,
started marking their assets down or not? Private equity? So
I think that there is a lot of follow through
action that we have to see. What we've seen so
far is only in the public markets. My concern is
that the longer this last, which I think it could,
(33:29):
then you have to sort of start marking down private
assets and then we have to see what really happens,
because that's where a lot of the build up in
excesses has taken place. So I think that yes, we
are going to find out where all the leverage is,
and that's what the fair should be doing now. It
should be out there looking at where will this stress
emerge of this big decline in public markets because so
(33:51):
much of the frauth and so much of the excesses
are lying in the private markets outside of the regular eye.
Speaker 2 (34:00):
We've heard that this morning. Russia Shama of Rockefeller International, Russia.
Appreciate your time, sir. This is the Bloomberg Surveillance Podcast,
bringing you the best in markets, economics, and geo politics.
You can watch the show live on Bloomberg TV weekday
mornings from six am to nine am Eastern. Subscribe to
the podcast on Apple, Spotify or anywhere else you listen,
(34:20):
and as always on the Bloomberg Terminal and the Bloomberg
Business app.
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and Amrie Hordern. Join us each day
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
live on Bloomberg Television weekday mornings from six to nine
am Eastern. Subscribe to the podcast on Apple, Spotify, or
anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business App. Chris Harvey of Wells Fargo, writing,
this growing crisis of confidence brewing. Stop market vigilantes will
not be that patient or ignored. It probably needs to
get worse before it gets better. Chris joins us now
for more. Chris, good morning, Good to see you.
Speaker 3 (00:50):
Good to see you too.
Speaker 2 (00:50):
This is a really difficult one, So let's take a beat.
Typically we sit here and think about the kind of
threshold that it would take for a policymaker to step
in and act as the circuit breaker. Time the policy
maker is the source of the risk, maybe not the solution.
Speaker 4 (01:04):
How different is this as a moment for you and
a team.
Speaker 3 (01:07):
It's very different.
Speaker 5 (01:08):
And the issue is, and we go back to green
Span before the ER four tightening cycle, they said, we
can raise rates, right, but what we need to do
is we need to communicate that to you. We need
to tell you how we're going to raise raids over
what time periods so you can plan. If you're going
to buy a house, you can speed up that house purchase,
going to buy a car, you can speed that up.
This administration is talking a lot, but they're not communicating
a lot. This weekend, we had one person saying tarish
(01:31):
and negotiable. We had somebody else saying they're non negotiable.
What are they? What's your goal? What you're trying to do?
What are we handicapping over what time period? You need
to communicate better. The other thing is the market is
sending a big signal. It's not a good idea to
ignore that.
Speaker 2 (01:45):
China sending a big signal right now as well, So
i'd love your thoughts on that too. Big Taris's coming
from the US side overnight, China responding with eighty four percent.
I think at the moment for a lot of investors
they look at that head down and say, you know,
what given how little we sell to China, that's not
much for a big deal. But I think the bigger
raid across, the bigger raid through at the moment, that
makes it much much harder to get to the negotiating
(02:06):
table with this president who's pushed back against China threatening
to do exactly this.
Speaker 3 (02:11):
Yeah.
Speaker 5 (02:11):
So what people have realized is the weak spot for
the US, the capital markets, and the economy. If they
push back, right, we're going to lose and we are
losing some negotiating leverage.
Speaker 3 (02:22):
What are we talking about.
Speaker 5 (02:23):
We're talking about recession, We're talking about job losses. We're
talking about the negative wealth effect. We're talking inter recession.
The deficit goes wider, not tighter. And people know that,
so they're saying, Okay, fine, if we're going to do this,
we're all going to We're just going to pull everyone
down into the mark and what you're seeing is just
not great.
Speaker 6 (02:40):
Well, I'm looking right now. China also added six more
firms from the US to the unreliable list at the
same time that we've seen incredible losses and the likes
of Apple, which seems to be very much in the
crosshairs of this. How much does this discourage you from
going to the multinational companies actually at a time when
they potentially could be the most exposed.
Speaker 5 (03:00):
Yeah, a Lisa, what we need to do is we
need to figure out exactly what we're dealing with. And
because it's a moving target, that's why it's so hard
to That's why the markets are so fluid at this
point in time. And you're right, where are the safe havens.
The safe havens are at the front end of the curve.
Safe havens are in low vold, they're in defensives, but
even those are still that's a place where we've like,
(03:20):
but it's still have it showing some stress, right, So
it's very difficult to find a safe haven. It's very
difficult to really preserve your money or your assets at
this point in time.
Speaker 3 (03:29):
Yeah.
Speaker 6 (03:29):
The reason why is because ten year yields are up
through four forty you're looking at thirty year yields now
almost four point nine percent.
Speaker 4 (03:36):
They've absolutely been surging.
Speaker 6 (03:38):
What's going on, I mean, what are you doing with this?
Speaker 3 (03:41):
So there's lots of talk.
Speaker 5 (03:43):
One conversation is that out of Asia that they're selling duration, right,
So they're selling longer bonds and buying shorter bonds for
liquidity issues to send a message. There's other talk about
basis trades.
Speaker 3 (03:54):
There's if you look at.
Speaker 5 (03:56):
What's happening nominals the last time I looked, nominals are
going higher bud but it's being forced by reels. It's
not being forced by at least in the last couple
of days, by inflation expectation. That seems more like a
liquidity issue, people moving around positions, not so much fundamental
driven right The other thing is, obviously we've got issue
INCE coming and there's more and more fear. Even though
(04:18):
right now inflation expectations or break evens aren't moving, there's
fear that that will continue in the future.
Speaker 2 (04:23):
Seeing some big moves right now, that's for sure. If
you are just joining us, welcome to the program. Eighty
four percent tariffs from China. China raising tariffs on US
goods to eighty four percent, and the spillover immedia equity
features down by one point six percent on the S
and P five hundred, the rustle down by two point
five the DAX is down by four full percentage points.
(04:44):
And in the commodity market you're seeing crude rollover as well.
On WCI and Don Brent were down by six percent.
Bran CREWD fifty eight ninety eight, WCI fifty five eighty five.
There will be some individuals in America making a lot
of noise today off the back of this headline.
Speaker 4 (04:59):
I'm thinking the farmers in a few red states.
Speaker 1 (05:02):
Absolutely, because remember Trump one point zero. The farmers were
the ones that got hit the worst because they didn't
have the export market of China to go to, and
then we the United States, had to bail them out.
But Jonathan, you started this conversation this morning where you're
look into policy makers for the answers for the solutions.
When I asked the President directly the pain threshold he
was willing to take on for the market, he said,
(05:22):
sometimes you have to take medicine to fix something. They
think the tariffs are the medicine. Well, what's going to
be the solution and the medicine to what is happening
right now? They'll fallout from these tariffs.
Speaker 2 (05:33):
Some big moves elsewhere as well. Apple's had a difficult
run of things. That name is down by two percent
in the pre market at the moment. Apple is down
before today by more than twenty percent in just four sessions,
the worst run for that name going back to two thousand.
The year two thousand, the worst four day run in
twenty five years for one of the biggest companies on
the planet. Chris Harvey not to talk about single names exclusively,
(05:55):
but we can talk about MAC seven. They had a
difficult moment now and a bigger way than maybe we've
ever seen for those names.
Speaker 5 (06:02):
So some yes, and obviously Apple is more of a
focus beca because there the tariffs and what they manufacture
in China.
Speaker 3 (06:11):
Right the rest of.
Speaker 5 (06:12):
The MAC seven, more of the communication names. They're in
a little bit better space, but it's not as if
anyone's in great space. It's not as if you can say, wow,
this is a perfect spot, this is fantastic for these guys.
Speaker 3 (06:22):
Couldn't be any better.
Speaker 5 (06:24):
It's just relative who's worse, who's better, and who's going
to get hurt a little bit more? Where's the defensive
this right now? What we're doing is everything is across
a risk spectrum, and which one has less risk?
Speaker 3 (06:35):
That's all you're doing.
Speaker 2 (06:36):
What's on your dashboard at the moment to establish where
a tradable bottom might be.
Speaker 4 (06:39):
Is that impossible right now?
Speaker 3 (06:41):
For you?
Speaker 4 (06:41):
In the scene.
Speaker 5 (06:41):
Oh no, so John, this is what we're looking at
because we see a setup. We don't see the bottom,
but we see a setup.
Speaker 3 (06:46):
Right.
Speaker 5 (06:47):
We want to see one Q numbers reset. We want
to see them cut. We want to see an inversion
in the front end of the curve between two years
and fed funds of one hundred bases points or more.
Speaker 3 (06:56):
That tells us.
Speaker 5 (06:57):
That the market's indicating we need to move fast, you
need to hurry up, and potential monetary policies coming. In
addition to that, we want to hear the conversation become
more productive. We want it either to shift from tariffs
to taxes or the acknowledgement that, oh, yes, everyone knows
there's going to be pain, but the issue is they
(07:18):
just don't know that the cure seems to be worse
than the disease right now, or that's what the market's saying.
You have to acknowledge that, hey, yes there's going to
be pain, but there's there's light at the end of
the tunnel. Here's what we're doing, here's our goals when
we get there.
Speaker 3 (07:31):
This is what's going to happen in the meantime.
Speaker 6 (07:33):
Delta with Drew, It's guidance for the full year. Walmart
reaffirmed us guidance.
Speaker 4 (07:37):
What do you do with this?
Speaker 5 (07:39):
So we actually had this conversation yesterday and I've been
having this conversation a lot. We expect numbers to come down.
It's going to range some people. We were talking to
our audio analysts and he would not be surprised if
there would be a suspension of guidance there. We were
talking to others saying, and maybe it's going to be
five percent, maybe ten percent. What we're going to hear
is the cease going to say, out of an abundance
(08:01):
of caution, here's what we're doing.
Speaker 3 (08:03):
We're lowering the top end of guidance.
Speaker 5 (08:04):
We're cutting five percent, we're cutting ten percent. Because of
the uncertainty, we have to remove guidance. So it's going
to be right across the board.
Speaker 3 (08:11):
And you're right.
Speaker 5 (08:12):
The example of Walmart DELT is a good one because
you have the two ends of the spectrum.
Speaker 2 (08:16):
This is where we really start the conversation. Where does
the circuit break come from? Could it come from Capitol Hill?
Speaker 3 (08:21):
It has to come from Capitol Hill.
Speaker 5 (08:22):
You have to hear the administration acknowledge what's going on
and you have to have them acknowledge and communicate that
they see it, they understand it, and you have to
have them start to slow things down. This conversation about
a thirty day pause, a sixty day pauses, a ninety
day pause. Something has to happen. You cannot continually walk
in and have more tarfs and more stress in the system,
(08:44):
because the more you do that, the faster we go
to a recession, the faster job losses come, and the
faster this gets out of control.
Speaker 2 (08:51):
But right now it's just rhetoric.
Speaker 1 (08:52):
Do you actually see Congress pulling back the reins and
trying to take control, giving less authority to the executive
branch when it comes to trade policy, Yeah.
Speaker 5 (09:00):
Emory, I think if it continues, you go down that route.
But that's a much slower route, right and the market's
going to move much quicker. And this is a question
of confidence. Does do the markets? Do business folks have
confidence in the plan? And what's the spill out.
Speaker 3 (09:16):
From the plan?
Speaker 5 (09:16):
And right now the markets are saying we're losing confidence,
and we're losing confidence quickly.
Speaker 1 (09:20):
So when it comes a circuit breaker, you think it's
actually Republicans in Congress that could be the ones to
put a stop to this. You don't see maybe it
Shijing ping or Donald Trump himself blinking.
Speaker 5 (09:30):
I don't see in the conversation. So a couple things there,
because that's a big question, right the situation between China
and US. US appears to think that China.
Speaker 3 (09:42):
Is the existential threat.
Speaker 5 (09:43):
We can have that continue, and likely that does continue.
But if we get positive news from the EU, from Japan,
from other places where there is actually progress, then things
can improve. China is towards the end of my concern
this point in time. Can we get our allies to
come on board, can we strike deals? Can we move forward?
(10:05):
Can we make progress? If we're showing progress, the markets
will react positively. If we do not show progress, the
markets are not going to react.
Speaker 6 (10:12):
Possibly, there's a story in the Financial Times about how
US ports are getting really crowded, that a lot of
companies are delaying their car shipments and they're just holding
them at the ports hoping that maybe in a couple
days these tariffs will be removed. Maybe it'll take four days,
maybe it'll take five days, and they're about to reach
capacity at these ports. What will it take for both
companies and for the markets to realize this is real.
Speaker 5 (10:36):
Listen, it's real, right, So the complexity of this you
cannot turn around in a couple of days, in a
couple of weeks, because you've basically tariff or taxed almost
every single country out there in order to unwind that.
Speaker 3 (10:48):
It's no small feet. The other thing is governments do.
Speaker 5 (10:52):
Not move quickly, right, and because of what we've done,
people want to protect themselves.
Speaker 3 (10:56):
So they're going.
Speaker 5 (10:57):
To have to talk to their lawyer, to their leaders,
to their parliament or whoever before they take some action.
We can have the conversation, but the actual action and
execution is going to take a lot, I think a
long period of time.
Speaker 6 (11:10):
What are we seeing in markets? Is this just the
fear that this is going to have a suppression to
growth or are we getting actually a sense of what
markets are repricing as the new normal?
Speaker 5 (11:21):
Yeah, the markets don't really know the end goal, right,
is it negotiation, is it revenue generation?
Speaker 3 (11:29):
Or is it something much bigger? Right?
Speaker 5 (11:32):
Do we want to change the way we do trade
throughout the world and for.
Speaker 3 (11:35):
The rest of time. That's a big question.
Speaker 5 (11:38):
So the markets are just trying to figure out what's
going on, and the markets are trying to send the
message we need better communication. We need to understand the goal.
When we get to the goal, what are you going
to do? And how are we going to do it?
Speaker 2 (11:50):
To start that process, to engineer that supply side response,
you've got to believe that these are the rules of
the gang, and we're saying is this a negotiation or
the rules of the game.
Speaker 6 (12:01):
I love how Chris puts it. The market is crying
to the White House, we want better communication. Can we
have a therapist come in here and try to clarify
what the end goal is? Are we meant to be together?
Are we meant to be apart?
Speaker 4 (12:13):
Is this therapy again?
Speaker 6 (12:14):
Well, it sounds like a lot of people are trying
to get into the psychology of the moment.
Speaker 4 (12:17):
What do people say, cry harder?
Speaker 6 (12:21):
I think that that's what we're doing on every single market.
Speaker 2 (12:22):
I got to find some light humor in a moment
like this one. We're down again by one point four
percent on the S and P. A special thanks to
Chris Harvey of Wells Fargo Richard Bernstein. If Bernstein advises
writing the FED is caught between a rock and a
(12:43):
hard place. GENP forecasts are being revised downward, but inflation
expectations seem poised to accelerate. Richard joins us Now for more, Richard,
welcome to the program. You put it in your not
Everyone's got a plan until they get punched in the face.
That famous strategist on Wall Street, my Tyson, how strong
is that punched this morning?
Speaker 7 (13:01):
I think the punch is a real it's not a jab,
it's a real roundhouse punch.
Speaker 3 (13:07):
And I think.
Speaker 7 (13:09):
John, look, you've been talking a lot about all the
different uncertainties and all the different things that.
Speaker 3 (13:13):
Are going on.
Speaker 7 (13:14):
That's fine, but I think one also has to realize
that we entered the year with investors historically confident, so
this has a magnified effect on investors' confidence that they're
being shaken. So that was my point about that everybody
has a plan until they get punched in the mouth.
Because everybody had a plan. They thought it was easy.
They thought this was like, oh, you know, it's just
(13:36):
buy an index funder, let's buy the mag seven. And
all of a sudden they're realizing that was the unusual
period and now we're going back to something that's much
more uncertain and they're getting punched in the mouth.
Speaker 6 (13:48):
Richard Scott beston Treasure Secretary speaking with Henry our own
here and saying that this then is not necessarily a
MAGA problem, it's a mag seven problem.
Speaker 8 (13:57):
Do agree?
Speaker 6 (13:58):
Is that basically what you're seeing right now is the
wine of an overvaluation of a crowded trade at the
end of the last year beginning of this one.
Speaker 7 (14:06):
Well, well, Lisa, I understand where he's going with that question,
But my response would be, why is the Russell two
thousand and performing so dramatically here? If it were just
a mag seven point? Why are the domestic the most
domestically focused companies in America? Smaller companies are underperforming? Right?
Speaker 6 (14:24):
So?
Speaker 7 (14:25):
How is this just a large cap MAGA effect? Is
clearly it's clearly not our mag seven effects. Sorry, it's
clearly not the you know, I think this is a
common The markets are are making a comment on the
broad economy in the United States, and and you know,
I think also the notion that this is an orderly
processed that's fine.
Speaker 4 (14:45):
I would agree with that.
Speaker 7 (14:47):
But the process is not positive one. The markets are
not giving a positive verdict on that. And that's kind
of what I think people are still sort of missing here.
Speaker 6 (14:56):
Richard, how do you navigate a situation like this? The
rules of the world may be be called into question
over a longer period of time, and acid allocation potentially
could look very different if the trends that we're seeing
in markets today would hold. So how are you thinking
about not just short term investing, but the one year,
(15:17):
two year, five years ahead?
Speaker 7 (15:19):
Right? So, so, Lisa, I think in the short term,
you know, you're using the word uncertainty. Everybody's using the
word uncertainty. I shouldn't personalize it like that. Everybody's using
the word uncertainty. So what that means is the scarcity
in the marketplace is certainty. That's what that's what will
command a premium through time is certainty. What does that mean?
(15:40):
That means quality, That means more certain cash flows, it
means dividends, it means near you know, really kind of
focusing on near term fundamentals as opposed to long term
growth stories. The second thing is, you know, what do
you do for three years, five years, ten years, two years, whatever?
And I think, look, the goal all of what's going on,
(16:01):
returning industrial processing back to the United States and manufacturing
back to the United States. I think that's a great goal.
In fact, we've been talking about it in my firm
at Richard Percy Advisors for ten years. I wrote an
op ed in twenty eleven in the Financial Times about
this topic and how important it was. This is the
goal is real. However, the method that they're choosing to
(16:24):
try and get to that goal, what personal opinion here
for a second, is incredibly ham handed. There are many
better ways to do with that. Do not place attacks
on the US consumer.
Speaker 4 (16:35):
Richard.
Speaker 2 (16:35):
We had from one ECP official earlier on this morning
that said, there's no reason for a rate cut right now.
I think you refer to fifty basis point cons as ridiculous.
Mary Daily, the San Francisco FED President, putting out a
post on LinkedIn saying we have the time and space
to deliberate our next moves. Lisa, that's what's different about
this moment. These officials are these central banks on Russian
(16:57):
to race in Russian to step in and provide support.
Maybe they would have done a number of years ago and.
Speaker 6 (17:02):
For the correct reasons, which is this is a very
different type of crisis that is not of the credit
markets making. This is about policy uncertainty and the potential
stagflationary shock that comes along with inflation. If you take
a look at two year break even rates, they've actually
hit the highest level going back to two thousand and
two earlier this morning. It's shifting around incredibly volatile markets,
(17:22):
but the signal it is not so clear in terms
of how they should act, let alone.
Speaker 2 (17:27):
If Richard, are you thinking about where pockets and leverage
might be? This has been a really unusual cycle hearing
the UNATO styce and worldwide because of the support that
was offered through the pandemic and through the recovery as well.
When you think about where pockets of leverage might be
this time around, how do you ask that question?
Speaker 7 (17:43):
So, John, that's related to you and Lisa were just
hawking about. The FED was spoiled for many, many years
decade two to two, three decades by globalization. Globalization was
a massive disinflationary force on the US economy. Why because
we were just increasing competition, and we all know when
you increase competition, you put downward pressure on prices. So
(18:06):
the FED could play the hero and ride in on
the white horse and save the day. Now what we're
seeing is de globalization. That whole disinflationary process is now
being reversed, so it's now an inflationary process that ties
the fed's hands, and the FED can't play the hero anymore.
(18:27):
And I think that's one of the things that's happening.
So where is the pocket of leverage. I don't really know.
You know, one could argue that it's in the private
market somewhere, because I think that a lot of their
returns have been boosted by by leverage and the ability
to borrow cheaply to make acquisitions. Maybe that's where it is,
you know, it certainly you know not going to be
(18:48):
I would argue it's unlikely to be in the big banks.
The big banks, for all the all the their whining
about over regulation, big bank balance sheets are pretty strong.
It looks like the regulation has worked. But where is
that leverage. It's in things like private debt and all
of that. So the risk hasn't gone away, it's just moved,
I think from the public markets to the private markets.
(19:09):
It's an interesting monetary and fiscal question is that if
there is some kind of problem in the private markets
they're supposed to be private, will they come to the rescue.
I would think they'd be very hesitant to do that.
Speaker 1 (19:21):
The Treasury Secretary this morning is saying really nothing to
see here. I feel like I'm going to sound like Lisa,
But how do you think this bond auction is going
to go today? For the ten year?
Speaker 7 (19:30):
Well, a little outside my area of expertise, I just
don't think. I think what we are seeing is a
complete repricing of US assets with a higher risk premium.
Right if you think about it, we've taken about five,
maybe six multiple points off the SMP despite good earnings.
We're seeing in a very short period of time the
ten years sell off. But certainly bond volatility has gone up.
(19:53):
Whether you grew with my statement about the risk pream renout,
certainly bond volatility has gone up. And I think what's
happening is US assets are being priced. You know, you
mentioned before about you know, or are we a safe
haven anymore?
Speaker 3 (20:06):
Maybe not?
Speaker 7 (20:07):
And that's kind of what we're seeing.
Speaker 2 (20:08):
I spy the Tottenham memblanm right behind you as well, Richard.
Super depressing stuff for you, A I appreciate.
Speaker 4 (20:13):
The time as always, rough rough season.
Speaker 2 (20:16):
Thank you, sir, Richard Bernstein and Richard Burnstein Advisors, thank
you very much. If you are just joining against these
with the numbers. So basically what they've done is withdrawn
their full year guidance, citing uncertainty around global trade. The
(20:36):
CEO at Bastian saying, quote, it's very difficult to predict
what policies may look like over the course of the year.
That's for sure. The stock is up by one point
seven percent, as Bastian ads that revenue has flatlined, joining
us now to discuss as Sheila Coleu of Jeffrey's Sheila,
welcome to the program. If mister Bastian can't offer any guidance,
can you?
Speaker 8 (20:57):
I don't think we can either.
Speaker 9 (20:58):
We cut our estimates early your last week across the
entire airline landscape, assuming flat domestic pricing for the year.
Speaker 8 (21:05):
What we're getting from.
Speaker 9 (21:06):
Delta's suspended guidance clearly, and that's probably the best.
Speaker 8 (21:09):
Strategic move from here, but it assumes something.
Speaker 9 (21:13):
Worse than that for Q two in terms of flat
domestic pricing, and then a second half capacity is flat,
So not great news out of the US's largest carrier
in terms of what they're seeing.
Speaker 2 (21:26):
Shalbe, You've talked about this repeatedly. The high income bracket
here in the United States holding up business for many
of these airlines Premium, Long cal Shaba. Are you seeing
building evidence that maybe we're seeing something we haven't seen
over the last five years, that they're starting to take
the hit here.
Speaker 9 (21:43):
I think Premium and Atlantic are International are actually still
holding up. But we just got off the phone with
Dan Jenkie Delta CFO. It seems like the bookings visibility
there is decent. What you're seeing the contraction is is
in the main cabin, which is where we would see it,
but also notably corporate. Corporate really saw a move down
in February and March. Industries that were particularly hit we're industrials,
(22:06):
aerospace of course, and some other sectors, while financials and
tech held in there. It seems so corporate is also
taking a leg down. So corports are clamping up a
little bit. Whether it's the tightness in just you know,
cost cutting, or if it's the macro volatility that's causing
that is to be determined.
Speaker 8 (22:25):
So that's where we're seeing the.
Speaker 9 (22:27):
Premium hit is really within the corporate customer chrending down.
Speaker 6 (22:31):
We are seeing some commentary from Ed Basti and the
CEO of Delta this in the Wall Street Journal. He
said he understands there's a role to play with tariffs
and trade policy. It's just hard when you're trying to
do them all at the same time. He also said,
I don't think we're in a recession. I think we're
in danger of talking ourselves into a recession. When you
talk to executives, particularly from airlines, is there a level
(22:53):
of frustration that the consumer does seem strong, willing to
accept even price increases, still looking for experience. Is at
the same time that there's a lot of gloom and
doom on Wall Street and a potential regime shift that
could just torpedo that.
Speaker 9 (23:09):
It's interesting because Delta's telling us they saw it within
the consumer turned down really quickly, whether it was in
February and March, in the first five to seven days
of April.
Speaker 8 (23:18):
I'm actually in Atlanta right now.
Speaker 9 (23:20):
I'm at a trade show, an aerospace aftermarket trade show,
and the ten executives we met with yesterday were so
confident regarding tariffs. They don't think it'll have as much
demand destruction as people assume, and.
Speaker 8 (23:31):
That pricing will actually be positive because.
Speaker 9 (23:33):
They could pass it through to the end user, which
is of course the airline, which is of course the
consumer in the US. So I think we're seeing that
short cycle hit with Delta this morning, a massive change
with what they previously guided. They had guided a capacity
up or now it's flat, and pricing also taking a
swing down down two and a half to down six
(23:54):
and a half in their.
Speaker 8 (23:55):
Forward outlook for Q two.
Speaker 9 (23:57):
So we're seeing that major revenue cut only from a
capacity perspective, but from a price perspective, and the airline
is doing its best to stay populitable, show that it's
you know, it's positioned well for this, but it's relatively
well leverage. But they're only growing their net fleet less
than one percent, so taking into account bowing air with
deliveries and their retirements, that's less than one percent. So
(24:18):
they're clamping down on their costs as well.
Speaker 6 (24:21):
This is a really fascinating dichotomy right now, Shila, because
on one hand, you have the airline saying es sensibly
they believe they have pricing power. They believe that they
can raise prices and that you could shrink potentially just
your flight schedule and keep prices where they are, go
higher and offset any kind of change you're searing something
so different from the likes of Walmart that want to invest.
Speaker 4 (24:42):
In price i e.
Speaker 6 (24:43):
Absorb some of the increase in prices. Is there some
sort of structural change that gives airlines a strategic advantage
to being able to have pricing power.
Speaker 9 (24:54):
So the airlines are clearly saying pricing is stalling. Pricing
and capacity are stalling. The Aerospace Show imat is more
than manufacturers and the maintenance providers to the airlines. They're
still seeing that they have the ability to pass price through.
Speaker 8 (25:12):
One is a shorter cycle by.
Speaker 9 (25:13):
With an airline of consumer booking is maybe thirty to
ninety days, and that's where we're seeing the hit with Delta.
The Aerospace Show i'm at is probably thirty to.
Speaker 8 (25:23):
One year bicycle.
Speaker 9 (25:25):
So the shorter cycle is definitely seeing the market volatility
impact its demand and it's pricing Sheila.
Speaker 1 (25:32):
Delta is a Virgin Atlantic partner on its North Atlantic routes.
We saw Virgin Atlantic pull back some of those routes,
especially when it comes to New York City, this major hub.
Speaker 10 (25:40):
JFK.
Speaker 1 (25:41):
Are you expecting more airlines to pull back some routes.
Speaker 9 (25:46):
I think International is the reader we're going to watch
the most so to put it in perspective in terms
of domestic, domestic is very important. Delta had previously seven
thirty five of EPs. Every one point of domestic pricing
is about eighty five cents to EPs. Internationally, every one
point of pricing is maybe twenty cents.
Speaker 8 (26:05):
Internationally is still holding up. But what we're seeing there
in the second.
Speaker 9 (26:09):
Half and in Q two and in the second half
is actually a decent amount of capacity, whether it's Delta,
whether it's United, whether it's American, capacity is amid single
digits of four percent. So if you have a lot
of capacity not a lot of demand, what happens your
price gets cut. So Atlantic is still holding up strong
in Q two. They're fairly well booked into April. I
(26:31):
think ninety percent booked in April, sixty percent booked in May,
and forty percent in June. And that's system wide, So
internationally would be better than that.
Speaker 8 (26:39):
So right now International is still holding up.
Speaker 9 (26:41):
But again that's a longer sale cycle, probably ninety days
instead of thirty days for the domestic side.
Speaker 2 (26:46):
Seva, I appreciate you time, thanks for jumping on busy
morning for you, I'm sure.
Speaker 4 (26:49):
Shiva Kari of Jeffrey's outline of the morning.
Speaker 2 (27:01):
So far, the tariffs go on overnight as expected, the
retaliation from China raising tariffs on US goods to eighty
four percent.
Speaker 4 (27:10):
To discuss some place to say that joining US now
is Russia. Shama A.
Speaker 2 (27:13):
Rockefeller International, Russia, welcome to the program, sir. We are
trying to work out what this Federal Reserve should do.
Should the policymakers be stepping in and providing support or
should they watch and wait to see how this place out.
Speaker 3 (27:26):
Well, I don't think.
Speaker 10 (27:26):
There's any case for the Fed to cut into a
streets given its dual mandages now, because as I wrote
in my ft OpEd this Monday, which is that the
Fed has missed its inflation target for five years in
a row, it will do so again this year and
the year after that, and possibly won't get to the
target now for the next couple of years, even if
(27:47):
it does nothing at this stage, and inflation is a
big concern for Americans, and the horizon consumer prices over
the last five to six years has been such that
it has offset the entire undershoot of the two percent
inflation target that we had last decade. So if you
go back to the year two thousand over the last
twenty five years. Now, what you will see is that
(28:09):
over that time period, consumer prices today are higher by
about sixteen percent than they would have been had the
FED been meeting its two percent inflation target over the
last twenty five years. So that's a serious miss on inflation,
and I think it's aware of that, and given the
fact that some infacient expectations are already elevated, to add
(28:32):
fuel to that fire would be a mistake. So I
think that the FED needs to be true to its
mandate and it needs to sort of at the very
least watch and so far there's been no evidence that
its policy has been overly restricted.
Speaker 2 (28:45):
They push back that I've heard over the past week,
and I'd love your response to it goes a little
something like this, They should focus on the downside risk
to growth and not the upside risk to inflation because
anxiety around the labor market is so much higher, we
don't have sufficient tightness in the hyper market that would
drive those second round effects high wightes, etc.
Speaker 4 (29:03):
What would you sind back.
Speaker 10 (29:04):
To that, Well, you know, this has been the same
easy money crowd which has been you know, which is
always calling for lower interest rates, So I think that
that's been the real problem. One of the basic problems
of the US economy is that it's been fed on
a diet of easy money for far too long, whether
it's monetary policy or fiscal policy, and I think that's
coming back to bite the US. And what's happening today
(29:25):
is a demonstration of that, which is that I can't
remember seeing a day in my memory where on the
US markets all three major indicators are down, US docs,
US bonds, and the US dollar. So there's a real
loss of confidence happening here as far as the US
is concerned. This is almost like the kind of scene
(29:46):
that I see in emerging markets that you know, where
you see cross assets declining together like this, And in
emerging markets, I don't think any central bank would think
about cutting interest rates in such an environment.
Speaker 6 (29:58):
Do you think that we're getting little ahead of ourselves
with trying to give a narrative to the move in
markets right now? Given that there are basis trades unwinding
and hedge funds that are deleveraging.
Speaker 10 (30:08):
Well, it's still unprecedented. I agree that there's nothing that
sort of extraordinary going on. If you look at the
scenes we have seen in two thousand and eight that
kind of market panic. We are far from that, but
we don't want to get to that point. So I
think that the whole issue here is the fact that
let's acknowledge that we have seen a very unusual move
and acid prices, and that this accident in a way
(30:30):
was waiting to happen. As you know that at the
end of last year, I had sort of called this
the mother of all bubbles, this American exceptionalism trade where
everybody was flooding into the American market as if there
was no other market in the world to invest in.
Eighty percent of all equity market flows around the world
this decade went into just America. So it's this big
(30:51):
unwind taking place.
Speaker 8 (30:52):
I think of that bubble.
Speaker 10 (30:54):
Now, you can argue that it would have happened regardless
of Trump and Taris, but his moves up obviously precipitated this.
But as someone put it, that the air is coming
out of that balloon, but that air was put in
the balloon before that. And as I've argued in the past,
the combination of very easy monetary and fiscal policies is
(31:14):
what has got us into this place today, how much.
Speaker 4 (31:17):
Further does it have to go?
Speaker 6 (31:18):
Then if that's the theory, that yes, this is partly
because of what's going on right now with policy uncertainty
and the actual policies putting and being put in place,
but it also has to do with the build up
over so many years that you call a bubble. How
much further do we have to go to create a
level that you feel more comfortable investing in?
Speaker 10 (31:37):
Well, I think that this marks a major regime shift,
which is that the US market had outperformed the rest
of the world for fifteen years, as you know, and
in the last couple of years that reached what we
call a parabolic stage where it just went completely vertical,
where US markets totally disconnected from the rest of the world.
They in fact was sucking capital out from the rest
(31:59):
of the world. I think that this has many years
to go, that what we're seeing today is the opening
act of this major trend reversal and capital flows. But
this is a multi year trend. You know that people
love to say that don't bet against America. The American
stock market eventually always comes back, and it's been a
great performer over very long stretches of time. All true,
(32:23):
But if you look at those very long stretches of time,
which go back to year nineteen hundred, when we have
data that the US stock market in six of the
past eleven decades has in fact underperformed the rest of
the world. And we've just had a fifteen year incredible
spell of US market outperformance with both the dollar doing
well and the US stock market doing well. I suspect
(32:44):
for at least the rest of the decade both the
dollar and the US stock market to significantly underperform the
rest of the world. So I think that this is
a regime shift precipitated by what Trump is doing, but
something which predates it.
Speaker 1 (32:58):
In this regime shift, do you think we need to
start working about potentially Affirm blowing up like Melvin Capital
Management did in twenty twenty two, Well, I think, you know, there.
Speaker 10 (33:08):
Is a lot of leverage out there which we only
know about when this happens. Like what are the marks
today for private credit for example, have they, you know,
started marking their assets down or not? Private equity? So
I think that there is a lot of follow through
action that we have to see. What we've seen so
far is only in the public markets. My concern is
that the longer this last, which I think it could,
(33:29):
then you have to sort of start marking down private
assets and then we have to see what really happens,
because that's where a lot of the build up in
excesses has taken place. So I think that yes, we
are going to find out where all the leverage is,
and that's what the fair should be doing now. It
should be out there looking at where will this stress
emerge of this big decline in public markets because so
(33:51):
much of the frauth and so much of the excesses
are lying in the private markets outside of the regular eye.
Speaker 2 (34:00):
We've heard that this morning. Russia Shama of Rockefeller International, Russia.
Appreciate your time, sir. This is the Bloomberg Surveillance Podcast,
bringing you the best in markets, economics, and geo politics.
You can watch the show live on Bloomberg TV weekday
mornings from six am to nine am Eastern. Subscribe to
the podcast on Apple, Spotify or anywhere else you listen,
(34:20):
and as always on the Bloomberg Terminal and the Bloomberg
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