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CalSTRS Ailman: Concerned For Markets When Fed Money Flood Ends · Bloomberg Intelligence

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  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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  Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
• 0:15
  Speaker 1: called Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. And I want to
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  Speaker 1: get to Chris Ailman. He is the chief investment officer
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  Speaker 1: for Calisters. I think one of the most important investors
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  Speaker 1: in the US because, um this is the California State
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  Speaker 1: Teachers Retirement system. It's definitely not evil. It's an investment
• 0:38
  Speaker 1: fund that wants to not only make returns but also
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  Speaker 1: do good. And it's great that they have Chris as
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  Speaker 1: a representative because he's such a good person. It's been
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  Speaker 1: so long Christ since I've talked to you, so I'm
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  Speaker 1: really excited to get your take on a number of things,
• 0:54
  Speaker 1: the first of which is Biden's infrastructure plan. I was
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  Speaker 1: talking to a former World Bank economist, yester Day Exotic Waba,
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  Speaker 1: who was saying, UM pension fund plans like Calisters should
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  Speaker 1: really um be helping to invest in infrastructure because this
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  Speaker 1: is a great way for you know, teachers, firemen, police officers,
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  Speaker 1: kind of the salt of the earth of America to
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  Speaker 1: make returns. What do you think. Well, first, Matt, thank
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  Speaker 1: you for that kind introduction, and I would like to
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  Speaker 1: get together again again in Berlin. That was the last
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  Speaker 1: last time, uh And I have to note from your
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  Speaker 1: conversation last time, I think it's just you that Germany
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  Speaker 1: wants to track when you move around. That's everybody else
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  Speaker 1: has to pull out those cards. So, hey, we already
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  Speaker 1: do invest in infrastructure and in a big way. I'm
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  Speaker 1: long term patient capital. You hit it on the head.
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  Speaker 1: I need a long term, stable return. Infrastructure provides that.
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  Speaker 1: But in the USA, infrastructures primarily funded through municipal bonds,
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  Speaker 1: so it's I always say it's built by by municiples.
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  Speaker 1: The problem isn't maintaining it. UM. A lot of our
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  Speaker 1: infrastructure in the US is is around the energy supplotline,
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  Speaker 1: not drilling, but just moving energy. And then it's about
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  Speaker 1: solar and when UM. Our international infrastructure is definitely linked
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  Speaker 1: to green energy UM and very successful. So I agree.
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  Speaker 1: Um Biden's plan though, is pretty pretty huge and all
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  Speaker 1: of the map, so it's tough to figure out exactly
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  Speaker 1: where private capital can sit in and owning some of
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  Speaker 1: that infrastructure. All right, Chris, we'd love to get your
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  Speaker 1: thoughts on the markets here. The you know, the bulls
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  Speaker 1: have certainly had their way here since those March loads
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  Speaker 1: of a year ago. Here, lots of fiscal stimulus, lots
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  Speaker 1: of uh uh, you know, the fedback stopping this market.
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  Speaker 1: I guess I want to talk to them, a pro
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  Speaker 1: like yourself, where is the risk in this market? What
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  Speaker 1: could go wrong? Because the bull are really having their
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  Speaker 1: way here. You know, if you step back and you know,
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  Speaker 1: you guys know, I'm very long term oriented. We have
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  Speaker 1: a thirty year investment horizon. But look back at the
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  Speaker 1: last say, fifteen months. In essence, the bulls are saying
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  Speaker 1: that a pandemic, a global pandemic, is good for global
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  Speaker 1: stocks and good to the economy, And obviously that's nuts.
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  Speaker 1: It's what it's the Fed. It's just the said that
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  Speaker 1: the Fed flooded the market with money. Jamie Diamond thinks
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  Speaker 1: it's going to continue to be easy money that comes
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  Speaker 1: at a price. You know, we have not faced the
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  Speaker 1: huge deficits that basically the government financed the economy for
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  Speaker 1: the last year and a half pushed the market to
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  Speaker 1: an all time high. That's artificial. It's got to be
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  Speaker 1: paid back at some point. Doesn't mean we're gonna have
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  Speaker 1: a bear market in the next say even twelve months maybe,
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  Speaker 1: but everything is priced perfection. A pandemic cannot be good
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  Speaker 1: for stocks. Yeah, that's what the lesson we've been taught.
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  Speaker 1: So I'm concerned that that we're over priced and that
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  Speaker 1: we're gonna be chopping for a while. Lots of Fed
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  Speaker 1: keeps providing free money, We're gonna be fine, but at
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  Speaker 1: some point they are going to have to start to
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  Speaker 1: tighten back up. And even just like they did before
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  Speaker 1: after oh eight, where it's just moving back to about
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  Speaker 1: three what's considered a normal interest rate, it would be
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  Speaker 1: enough to slow this market down a ton, which it
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  Speaker 1: probably deserves. P ratios are at two high of a level.
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  Speaker 1: Don't we have to pay the piper at some point? Chris,
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  Speaker 1: I mean we've now put I think five trillion dollars
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  Speaker 1: of stimulus into the economy. Biden's got a two point
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  Speaker 1: to five trillion dollar plan out there, and we know
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  Speaker 1: there's part two coming, plus the Fed has I mean,
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  Speaker 1: I don't know how much many trillions in emergency measures
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  Speaker 1: since this started, like twelve trillion. We're looking at a
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  Speaker 1: balance sheet that's um continues to be inflated. Like, is
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  Speaker 1: it true that as long as we continue to pump
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  Speaker 1: um we're gonna be fine. As long as we don't stop,
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  Speaker 1: it's gonna be okay, that the magic money tree is
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  Speaker 1: gonna somehow save us. Well, Matt, you know that sounds
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  Speaker 1: just like modern monetary theory. That's that's Bernie Sanders economics,
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  Speaker 1: which is the the US is still the country of choice,
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  Speaker 1: the dollar is the currency of choice, or oil and
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  Speaker 1: all the major commodities, so we can just borrow money
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  Speaker 1: endlessly and never pay it back. I just don't believe
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  Speaker 1: that's true. I'm worried about not just future generations, but
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  Speaker 1: the recognition that that this debt and we've had some
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  Speaker 1: was just a month ago, that we had a couple
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  Speaker 1: of options that didn't go as well as people expected.
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  Speaker 1: So but when did when did the problems comes? Or
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  Speaker 1: what or what assets get get hit first? When the
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  Speaker 1: house of cards starts to fall. Well, I've been saying
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  Speaker 1: for a while you gotta pay attention to the bond market.
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  Speaker 1: That really is I think the barometer for the equity market.
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  Speaker 1: The equity market has a lot of sugar and stimulus
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  Speaker 1: in it right now because of that money and all
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  Speaker 1: the all the rob and hood traders at home. But
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  Speaker 1: they're gonna we're all gonna have to go back to work.
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  Speaker 1: And I think that if bonds continue to back up
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  Speaker 1: right now, it's a nice, you know, reset, But that's
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  Speaker 1: what you got to focus on, and then it's gonna
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  Speaker 1: be equities will soften. Um. Obviously certain commodities have gone
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  Speaker 1: up through the roof, but they're gonna fall back in
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  Speaker 1: their price range. UM. I would just be worried about
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  Speaker 1: not just US, but global equities, UH setting back and
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  Speaker 1: seeing a slower economy for a period. All right, going
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  Speaker 1: back to work, Chris, what are you guys doing at Cowsters?
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  Speaker 1: What's your plan? You know? I I was just talking
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  Speaker 1: to Tassima and the team. I'm basically telling my staff,
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  Speaker 1: let's let's work remote through the summer. Everybody plan on
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  Speaker 1: being back on Labor Day. That seems to be a
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  Speaker 1: common phrase. Even though the economy is gonna open up,
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  Speaker 1: this has been such a mental stress on everybody. You know,
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  Speaker 1: people need to take vacations. None of us have taken
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  Speaker 1: any vacations for a good year and have people need
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  Speaker 1: to get out, go somewhere, refresh, reset, and then come back.
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  Speaker 1: Remote worker is going to be with us, I think
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  Speaker 1: for most industries forever. Uh, it's but it's I'm really
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  Speaker 1: concerned about that hybrid world. Instead of the best of
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  Speaker 1: both worlds of being internal and remote, I'm worried about
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  Speaker 1: it being the worst of both worlds, that that meetings
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  Speaker 1: are not convenient and not effective when you have people
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  Speaker 1: out and in trying to figure out whether somebody's online,
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  Speaker 1: off or on travel or in the office. It's crazy,
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  Speaker 1: but we're gonna work through it. It's twenty two is
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  Speaker 1: going to be a real trust transition. You're trying to
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  Speaker 1: figure this all out. Interesting. Yeah, I think you're a representative.
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  Speaker 1: You know a lot of managers out there trying to
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  Speaker 1: figure out what's best for their team. And we'll see
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  Speaker 1: how this plays out. Chris Alman, thank you so much
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  Speaker 1: for joining us. We always appreciate chatting with you. We
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  Speaker 1: look forward to seeing you in our New York offices soon.
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  Speaker 1: Chris Alman, Chief investment officer for Calsters. They are the
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  Speaker 1: folks out in California managering the money for the teachers.
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  Speaker 1: Um it is a go to meeting if you're a
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  Speaker 1: cell side analyst. When you go at the California you
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  Speaker 1: got to see the folks at Cawsters. Now, UM, I
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  Speaker 1: mentioned JT is gonna like this story because you know,
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  Speaker 1: during the Great Financial Crisis he became uh internationally renowned
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  Speaker 1: for opening his four oh one case on air. And
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  Speaker 1: you know a lot of people got hit hard during
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  Speaker 1: the last couple of recessions, thrown out of the middle class.
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  Speaker 1: In the US, that's not as much of a concern,
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  Speaker 1: I think in the recovery from COVID, but worldwide it
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  Speaker 1: is huge. And in fact, we have an amazing story
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  Speaker 1: on the terminal. Millions are tumbling out of the middle
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  Speaker 1: class in an historic setback. And I don't just like
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  Speaker 1: this story because they said and historic, which we always should.
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  Speaker 1: It's not a historic setback. We should treat the h
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  Speaker 1: as a vowel there. Um. I read the story and
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  Speaker 1: I thought, well, it's no big deal, right, We're gonna
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  Speaker 1: bounce back next year or at least the year after.
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  Speaker 1: Everything will be fine. That's not the case. This is
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  Speaker 1: causing long term damage, that is changing a trend that
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  Speaker 1: hasn't changed for decades, and we're gonna bring in right now,
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  Speaker 1: Sean Donn, and senior trade and globalization reporter for Bloomberg
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  Speaker 1: to talk about it. He's part of the fantastic team
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  Speaker 1: that put this together. Sean, you know, I learned a
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  Speaker 1: ton reading this story. Um. First of all, that the
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  Speaker 1: middle class has been growing for decades since the nineties,
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  Speaker 1: and um, this last year was the first break of
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  Speaker 1: that trend we've seen, and it doesn't look like it's
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  Speaker 1: going to be repaired so quickly. Right. Yeah, Look, I
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  Speaker 1: mean that's the big question we have in front of us.
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  Speaker 1: We've got this unwinding of a big idea that has
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  Speaker 1: governed business decisions and investment decisions for decades. Now, that
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  Speaker 1: was this idea of you know, remember the bricks, uh,
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  Speaker 1: you know, Brazil, Indie, China, that these big emerging economies
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  Speaker 1: UH that surged onto the world scene in the last
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  Speaker 1: thirty forty years, and they brought with them a whole
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  Speaker 1: new set of consumers, this enormous middle class that has
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  Speaker 1: just been growing for the last thirty years. And last
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  Speaker 1: year the pandemic UH knocked that story on its side.
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  Speaker 1: And we now have a middle class that is shrunk.
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  Speaker 1: And we also have looking ahead, and the I m
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  Speaker 1: F has warned about this this week, really diverging paths
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  Speaker 1: in the global economy. We have the US and other
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  Speaker 1: advanced economies likely to recover very strongly from from the
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  Speaker 1: the economic hit they took in the pandemic, and a
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  Speaker 1: lot of developing economies that are gonna have a much
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  Speaker 1: slower path back. And who's that going to hurt. Well,
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  Speaker 1: that's going to hurt all of those people who have
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  Speaker 1: been hoping to, as we all do, to to find
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  Speaker 1: comfort and security in a middle class lot. Well. And
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  Speaker 1: if I can be a little bit superficial here, multinational
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  Speaker 1: corporations that have relied on this burgeoning middle class as
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  Speaker 1: the main pillar of their growth strategy, right absolutely, this
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  Speaker 1: is this is you know, of the world's consumers live
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  Speaker 1: outside of the United States. That's a mantra we've heard
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  Speaker 1: from CEOs for a long time. It's what was behind
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  Speaker 1: the trade policies of the last thirty years or so,
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  Speaker 1: and it's it's it's really a big bet that corporate America,
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  Speaker 1: and not just corporate America, you know, big multinationals in
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  Speaker 1: Europe and Japan and and and elsewhere have made on
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  Speaker 1: these new rising economies and these new consumers. One of
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  Speaker 1: the guys we talked to for the story is a
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  Speaker 1: guy called Rabbi Charmer. He's a great example, uh in
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  Speaker 1: India of this middle class. He's been saving up for
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  Speaker 1: years to buy himself at six thousand dollar Maruti Alto.
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  Speaker 1: It's this entry level car. It's made by a joint
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  Speaker 1: venture between Maruti and Indian company and is Uki, the
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  Speaker 1: Japanese maker. And you know what, Robby last year lost
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  Speaker 1: his job, he had to move cities. He's got a
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  Speaker 1: new job at lower pay. He's not gonna be buying
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  Speaker 1: that car. Instead, he's gonna be faring around his family
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  Speaker 1: on a motorcycle for the coming years. And he said
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  Speaker 1: to us, you know what, my life's been set back
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  Speaker 1: by three years, and all of the dreams I had
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  Speaker 1: beforehand feel out of reach. What are those dreams? Those
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  Speaker 1: dreams are A lot of them are are buying consumer goods.
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  Speaker 1: They're they're buying things that big multinational companies make. Sean,
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  Speaker 1: what are some of the countries or regions of the
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  Speaker 1: world that are seeing the biggest losses in their middle class.
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  Speaker 1: So we've it's really been concentrated in two areas. India
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  Speaker 1: is such an enormous uh population one point four billion
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  Speaker 1: people that the hit that we saw there meant that
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  Speaker 1: South Asia really led the way in terms of the
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  Speaker 1: reduction of its middle class. But we've also seen Sub
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  Speaker 1: Saharan Africa take a take a big hit. And that's
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  Speaker 1: interest thing because we know that the pandemic, the actual
• 13:03
  Speaker 1: virus hasn't hit Africa as hard as it has some
• 13:06
  Speaker 1: other regions, and yet the economic consequences have been there
• 13:10
  Speaker 1: in a in a big way. I wonder if the
• 13:14
  Speaker 1: rebound that we see, I mean, has anyone measured how
• 13:17
  Speaker 1: long it's going to take an economy like that um
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  Speaker 1: to come back or do we just not know if
• 13:23
  Speaker 1: they're going to get vaccines out in terms of heard immunity. Yeah,
• 13:28
  Speaker 1: so look, I mean, vaccinations is the big question. Right.
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  Speaker 1: We know an economy like Brazil is still dealing with
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  Speaker 1: a huge outbreak. Have not got their handle on that. Uh,
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  Speaker 1: They're they're on a very different path from the US
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  Speaker 1: right now in terms of infections UH and vaccinations. And
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  Speaker 1: so the I m F kind of did the math
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  Speaker 1: and it figures that largely as a result of that
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  Speaker 1: slower recovery and emerging economies. The global economy is going
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  Speaker 1: to be about three percent smaller in are folks at
• 13:59
  Speaker 1: Bloomberg Economics have also done some calculations, and you look
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  Speaker 1: at a place like India, it's gonna be five smaller
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  Speaker 1: than it would there. My friend Sean Donn and senior
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  Speaker 1: Trade and globalization reporter Bloomberg News with a fascinating story
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  Speaker 1: here about the global middle class and the risk to
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  Speaker 1: that from this pandemic. Maybe it's just because I have
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  Speaker 1: a Bloomberg turminol sitting in front of me, but it
• 14:23
  Speaker 1: just seems like the day lugion information continues on a
• 14:26
  Speaker 1: daily basis for investors to digest that. We have Fed
• 14:29
  Speaker 1: minutes being released today at two pm Wall Street time,
• 14:32
  Speaker 1: We've got a fiscal stimulus plan that Washington is debating.
• 14:35
  Speaker 1: We've got earnings starting next week. There's never a shortage
• 14:39
  Speaker 1: of data for the market to digest. But fortunately, our
• 14:41
  Speaker 1: next guest can help us pass through all of that.
• 14:44
  Speaker 1: Danielle Di Martino, Booth CEO and Director of Intelligence at
• 14:48
  Speaker 1: Quill Intelligence, also a former advisor at the Dallas Federal
• 14:52
  Speaker 1: Reserve and a Bloomberg Opinion contributor. If that's not enough,
• 14:55
  Speaker 1: She's also the author of Fed Up and Insiders Take
• 14:58
  Speaker 1: on why the Federal Reserve is bad for America. Danielle,
• 15:02
  Speaker 1: thanks so much for Journeys taking some time out talking
• 15:05
  Speaker 1: about the Feeder Reserve. We're gonna get those minutes today.
• 15:07
  Speaker 1: Anything we should be looking out for. I think you're
• 15:11
  Speaker 1: gonna see the word transient and transitory um kind of
• 15:15
  Speaker 1: extrapolated through thess dot com. You're gonna see it whacked
• 15:20
  Speaker 1: six ways to Sunday. They're gonna emphasize and doubly emphasize
• 15:24
  Speaker 1: their patients. Uh, there's never any such thing as coincidence
• 15:27
  Speaker 1: with Fetch surveys. There was a fresh FETCH survey out
• 15:30
  Speaker 1: today that shows that of the stimulus checks are are
• 15:34
  Speaker 1: being spent, the remainders is being used to pay down
• 15:37
  Speaker 1: debts or saved. So the FET's gonna take note of this.
• 15:41
  Speaker 1: They're gonna take note of the fact. The Bank of America.
• 15:43
  Speaker 1: Michelle Meyer, a good friend of mine who's I'm sure
• 15:45
  Speaker 1: a guest on your show many times. She showed that
• 15:48
  Speaker 1: the check recipients spending peaked on day six. That would
• 15:52
  Speaker 1: be Marche when is when recipients spending peaked after those
• 15:57
  Speaker 1: direct depositive deposits hit their accounts on March the seventeen,
• 16:00
  Speaker 1: So we're gonna see a monstrous retail sales figure in March.
• 16:05
  Speaker 1: It's gonna come down in April, it's gonna come down
• 16:07
  Speaker 1: in May, and by then we'll be starting to talk
• 16:09
  Speaker 1: about that September the six fis school cliff and all
• 16:13
  Speaker 1: these unemployment insurance benefits that will be expiring. Then that's
• 16:17
  Speaker 1: going to give the FED pause and more reason to say,
• 16:20
  Speaker 1: you know what, We've still got very high permanent unemployment.
• 16:23
  Speaker 1: It's the same level as it was during the crisis.
• 16:25
  Speaker 1: We're gonna have to be patient here, and I think
• 16:27
  Speaker 1: you'll see a lot of patient talk in those minutes today.
• 16:30
  Speaker 1: So I think it was Novgrats on Bloomberg yesterday who
• 16:35
  Speaker 1: was saying, it'll be interesting to see if the FED
• 16:38
  Speaker 1: can stand pat um through you know, Jackson Hole next year.
• 16:43
  Speaker 1: Of course, these inflation numbers are gonna look transitory, but
• 16:48
  Speaker 1: um aren't we going to see the kind of growth
• 16:50
  Speaker 1: that will push real inflation through? You know, that's a
• 16:58
  Speaker 1: big unknown at this point. We we just we can't
• 17:02
  Speaker 1: say there are many unfilled job positions in this country,
• 17:06
  Speaker 1: but right now the vast majority of them are low
• 17:09
  Speaker 1: paying positions. So in this coming month, you're gonna see
• 17:12
  Speaker 1: complete perversity in the data. If you don't get an
• 17:15
  Speaker 1: o point four percent increase in average hourly earnings. When
• 17:19
  Speaker 1: we get the April labor report, you're gonna see a
• 17:22
  Speaker 1: negative print on your over year income. That that makes
• 17:25
  Speaker 1: your head swell when you think of the base effects
• 17:28
  Speaker 1: that that are going to cause us to see for
• 17:30
  Speaker 1: the next three months, huge prints for consumer Price Index
• 17:33
  Speaker 1: north of the feds f two percent target. I think
• 17:37
  Speaker 1: we have to keep in in mind SED thinking they're
• 17:41
  Speaker 1: looking back at two thousand eleven when cp I printed
• 17:44
  Speaker 1: it three and back then they said it was transitory.
• 17:48
  Speaker 1: You know what CPI year over year by two thou
• 17:51
  Speaker 1: fifteen was o point seven percent year over year. So
• 17:53
  Speaker 1: they're gonna look back and pat themselves on the back
• 17:55
  Speaker 1: in retrospect and say, we're not going to let the
• 17:59
  Speaker 1: markets hustle us into a rate hike because we know
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  Speaker 1: what transient looks like from recent history. All right, danielle Um,
• 18:08
  Speaker 1: that's the FED. Let's talk about fiscal stimius. A lot
• 18:11
  Speaker 1: of money has been thrown at this pandemic problem by
• 18:15
  Speaker 1: the US government. You know, call me old school, but
• 18:19
  Speaker 1: doesn't somebody have to pay for this? How should we
• 18:23
  Speaker 1: think about that? And is that a worry for you?
• 18:26
  Speaker 1: You are too young to be a funny dutty. The
• 18:32
  Speaker 1: bills actually come due? Is that? What is that? What
• 18:34
  Speaker 1: shows up? That's kind of what I'm asking. Yeah, he's
• 18:36
  Speaker 1: a dad, it's in his nature. If you're an individual,
• 18:40
  Speaker 1: if you're a corporation, bills actually matter. Uh. The assumption
• 18:44
  Speaker 1: that the bills don't matter is a very slippery slope.
• 18:48
  Speaker 1: Just because we've gotten away with this for as long
• 18:51
  Speaker 1: as we have doesn't mean that it's a perpetual environment
• 18:54
  Speaker 1: that we're going to be in. You know, we ignore
• 18:57
  Speaker 1: the fact that China is busily rolling out a central
• 19:00
  Speaker 1: bank digital currency and looking towards life after the dollar.
• 19:04
  Speaker 1: These are things that we want to wholly disregard. What
• 19:06
  Speaker 1: we can't. And if there's another incident, if there's another
• 19:10
  Speaker 1: disruption in the markets that prompts the said to move,
• 19:14
  Speaker 1: many are saying that it's going to go. It's going
• 19:17
  Speaker 1: to force them to go in the direction of some
• 19:20
  Speaker 1: kind of a digital currency too, to to deliver money
• 19:23
  Speaker 1: directly to the people. Think of Ben Bernanke helicopter vengit helicopter.
• 19:27
  Speaker 1: I still have that tie I gotta tie from. I
• 19:29
  Speaker 1: think it was Van Eck with Ben Bernankey and super
• 19:32
  Speaker 1: Mario hanging out a helicopter dropping um buckets of money.
• 19:36
  Speaker 1: And of course it would be cool or if it
• 19:37
  Speaker 1: were digital. But I wonder, you know, Danielle, markets really
• 19:41
  Speaker 1: don't care. I mean, everyone's still willing to lend money
• 19:45
  Speaker 1: to the US federal government with the debt to GDP
• 19:48
  Speaker 1: ratio of like one thirty right now, um for ten
• 19:52
  Speaker 1: years at one point six percent. I mean, even with
• 19:54
  Speaker 1: the gain and rates, even if we see that go
• 19:57
  Speaker 1: to two percent, it still tells me people are will
• 20:00
  Speaker 1: going to accept a nothing return basically less than nothing
• 20:03
  Speaker 1: if you look at real yields. So they must feel comfortable.
• 20:06
  Speaker 1: Investors must be totally complacent about trillions and trillions and
• 20:10
  Speaker 1: trillions of dollars in stimulus. Well, I think the complacency
• 20:16
  Speaker 1: is more a game of chicken. They're like, wait a minute,
• 20:18
  Speaker 1: this is nothing as magna. You know, nothing of of
• 20:21
  Speaker 1: the magnitude of the loss of reserve currency status is
• 20:23
  Speaker 1: going to happen overnight. People know that, and they're banking
• 20:27
  Speaker 1: on it, and they're banking on US treasuries being money
• 20:30
  Speaker 1: good and being the you know, the most attractive horse
• 20:33
  Speaker 1: in the glue factory for multiple years to come. And
• 20:38
  Speaker 1: that's that's kind of how investors see it. As long
• 20:40
  Speaker 1: as none of the wheels fall off, as none as there.
• 20:44
  Speaker 1: As long as there's not a disruptive, high rapid move
• 20:47
  Speaker 1: in rates that makes the NASDEC fall out of debt.
• 20:49
  Speaker 1: You know, that episode is ancient history as far as
• 20:52
  Speaker 1: investors are concerned with the NASDEC pressing into all time
• 20:55
  Speaker 1: highs following the down the ns and p Alright thirty seconds, Daniel,
• 21:00
  Speaker 1: what's your biggest worry? My greatest concern is jump on yield.
• 21:05
  Speaker 1: Right now, they're at their lowest jump on spreads. Excuse me,
• 21:08
  Speaker 1: there at the lowest since June of two thousand seven.
• 21:11
  Speaker 1: So the rubber band has been stretched extremely tight, and
• 21:15
  Speaker 1: we're not paying close enough attention to Corporate America's balance
• 21:19
  Speaker 1: sheets which have not been repaired. Yeah, and so many
• 21:21
  Speaker 1: investors that we talked to, um, that's one of their
• 21:24
  Speaker 1: favorite investments right now because they'll do anything for a return,
• 21:27
  Speaker 1: right UM. So junk bonds still look good. Um. And
• 21:32
  Speaker 1: if you have a giant fund, they're willing to let
• 21:34
  Speaker 1: you take massive leverage with their balance sheets right now. So, um,
• 21:37
  Speaker 1: it's it's pretty insane out there. Daniel, great to have
• 21:40
  Speaker 1: you on the program. Always good to get your insight
• 21:43
  Speaker 1: really important to us. Daniel DeMartino Booth is the CEO
• 21:46
  Speaker 1: and director of Quill Intelligence. Formerly an advisor at the
• 21:50
  Speaker 1: Dallas Federal Reserve Movie he joins US equity analyst for
• 21:59
  Speaker 1: c f R A research and before we get into
• 22:02
  Speaker 1: the cruise ships, um, Paul Sweeney says, you're the best
• 22:06
  Speaker 1: dressed analysts. So I never thought I would ask this
• 22:08
  Speaker 1: of a guest, but what are you wearing? That's guys,
• 22:12
  Speaker 1: good oneing to you. Um. You know, we we try to, um,
• 22:16
  Speaker 1: you know, do the best we can. But I really
• 22:18
  Speaker 1: appreciate those compliments from from my Matt. See the thing
• 22:22
  Speaker 1: is here. Tune is the only one I know that
• 22:24
  Speaker 1: can give Tom Keane a run for his money in
• 22:27
  Speaker 1: terms of wearing the boat tie. He sports a sporty
• 22:30
  Speaker 1: boat tie every time I see him out there on
• 22:33
  Speaker 1: Wall Street in the trenches. Tuna, again, thanks so much
• 22:35
  Speaker 1: for joining us here talk to us about Carnival. They
• 22:37
  Speaker 1: put out some really interesting guidance about bookings. People are
• 22:41
  Speaker 1: going to go back on those cruise ships, aren't they. Yes. Indeed,
• 22:44
  Speaker 1: Paul um as I was kind of Parson through the
• 22:47
  Speaker 1: comments on the on the ironings call today, UM, there's
• 22:50
  Speaker 1: definitely UM some excitement UM that clearly pent up demand.
• 22:55
  Speaker 1: The company said that is actually pasting much higher than
• 22:59
  Speaker 1: the pre pandemic nineteen, which was an all time record
• 23:03
  Speaker 1: before UM you know, volumes of bookings and also prizing
• 23:07
  Speaker 1: training significantly higher. But that being said, there's still been
• 23:12
  Speaker 1: some fits and starts in terms of when the CDC
• 23:14
  Speaker 1: is actually going to UM allow things to get back
• 23:18
  Speaker 1: to some semblance of normalcy. Right, So Carnival UM say
• 23:22
  Speaker 1: today that they're looking forward to this summer UM kind
• 23:25
  Speaker 1: of when they start to um, you know, sail again
• 23:29
  Speaker 1: the US with limited capacity. They're already UM doing that
• 23:33
  Speaker 1: in some parts of over the world. But it's pretty
• 23:36
  Speaker 1: clear to us, Paul, that there there is going to
• 23:38
  Speaker 1: be a major heavy lifting to come. You know, it's
• 23:42
  Speaker 1: not anywhere close close to business as as usual, and
• 23:46
  Speaker 1: we think it could not. It could take beyond three
• 23:49
  Speaker 1: for the industry um as a whole to get back
• 23:52
  Speaker 1: to anywhere close to normalcy. And remember the most of
• 23:57
  Speaker 1: the cruise operators Carnival included, have significantly reduce their capacity.
• 24:02
  Speaker 1: Carnival divested nineteen ships out of its ninety fleet. But
• 24:06
  Speaker 1: the liquid is another thing we keep an eye. I
• 24:09
  Speaker 1: have to wonder do they not have a whole new
• 24:12
  Speaker 1: consumer because you know, um like Paul has never been
• 24:16
  Speaker 1: on a cruise. The only time I ever took a
• 24:19
  Speaker 1: cruise with my grandmother. So that tells you, you know,
• 24:22
  Speaker 1: what I expect to the clientele. On the other hand,
• 24:25
  Speaker 1: once we get our vaccines, We're gonna feel freaking invincible,
• 24:30
  Speaker 1: Like I will go to anything. I'm willing to try
• 24:33
  Speaker 1: new stuff, including getting on a giant boat with hopefully
• 24:38
  Speaker 1: not all old people, and then going around like drinking
• 24:41
  Speaker 1: as much as I can. Like, are are not a
• 24:44
  Speaker 1: lot of new customers gonna be you know, happy to
• 24:46
  Speaker 1: do this once they've gotten vaccinated. That's a great point, um,
• 24:50
  Speaker 1: you know, Matt, I think there's a core um consumer
• 24:54
  Speaker 1: out there, the core customer for cruise lines for those
• 24:57
  Speaker 1: people that are UM kind of repeat um you know
• 25:00
  Speaker 1: cruisers if you will. And talking about myself, I had
• 25:03
  Speaker 1: my first cruise left in twenty nineteen. But I think
• 25:08
  Speaker 1: I think as I think about you know, yeah. Well, frankly,
• 25:11
  Speaker 1: I think it was. It was a very interesting experience,
• 25:14
  Speaker 1: but not something I would personally rush to rush back,
• 25:17
  Speaker 1: do we understand, Yeah, yeah, So the consumer is out
• 25:21
  Speaker 1: there waiting to get out there. Um, and the company
• 25:23
  Speaker 1: said the vaccine is going to be a game changer.
• 25:26
  Speaker 1: We agree, just at the timing is somewhat sporadic in
• 25:30
  Speaker 1: terms of when they can get back to to to
• 25:32
  Speaker 1: what should be a new normal. What are the companies
• 25:36
  Speaker 1: saying about their operating procedures. Are they going to change
• 25:39
  Speaker 1: how a typical cruise goes, I mean the buffets and
• 25:43
  Speaker 1: crowding people into big rooms for dining events and other
• 25:46
  Speaker 1: things indoors. How are they going to change going forward?
• 25:49
  Speaker 1: It's a great question because the CDC has released this
• 25:52
  Speaker 1: voluminous um you know, things of what they might consider,
• 25:55
  Speaker 1: you know, the protocols that cruise lines are going to
• 25:58
  Speaker 1: be implementing. Uh, the bunch of things that no one
• 26:01
  Speaker 1: really knows how you know that's going to go in
• 26:03
  Speaker 1: terms of temperature checks and you know, vaccine passports and
• 26:06
  Speaker 1: things of that nature. So um, you know, I think
• 26:10
  Speaker 1: it's really a moving target at this point. And I
• 26:12
  Speaker 1: think given the cruise lines themselves are wondering, but there's
• 26:15
  Speaker 1: no question that it's going to create a very different
• 26:18
  Speaker 1: dynamic for both the company and not in the customer.
• 26:21
  Speaker 1: And as far as the financials, I think there's gonna
• 26:24
  Speaker 1: be additional costs um in the business that's going to
• 26:28
  Speaker 1: probably make the long term business profile to be much riskier. Uh.
• 26:32
  Speaker 1: That being said, I think the the what you know,
• 26:34
  Speaker 1: depend on demand is quite tremendous and that's something that
• 26:38
  Speaker 1: as we cycle through this uh you know, this year,
• 26:41
  Speaker 1: which I think will be in a holding pattern, there's
• 26:43
  Speaker 1: definitely some costs to be optimistic. All right, Tuna, thank
• 26:49
  Speaker 1: you so much for joining us. We appreciate it. As always,
• 26:51
  Speaker 1: we always go to Sooner for all things on the
• 26:53
  Speaker 1: consumer side, including media. Thanks for listening to the Bloomberg
• 26:58
  Speaker 1: Markets podcast. You can subscribe and listen to interviews of
• 27:02
  Speaker 1: Apple podcasts or whatever podcast platform you prefer. I'm Matt Miller.
• 27:07
  Speaker 1: I'm on Twitter at Matt Miller three. On Fall Sweeney,
• 27:11
  Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
• 27:14
  Speaker 1: can always catch us worldwide at Bloomberg Radio.