Could 2023 be worse than 2022? Absolutely

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. Well, the new issue of Bloomberg Business Week is out now. The cover story Shocks to the System. Yes, the global economy is in a fragile state, but here's a practical way to think about the risks. It's all about the new economy as well. We got with us this afternoon Christina Lynn Blatch. She's Global Economics editor for Bloomberg Business Week. She's with us

right now in the Bloomberg Interactive Broker's studio. Christina, before we get into specific stories, just give us an overview of the New Economy issue and you know, of course is associated with Bloomberg's New Economy Forum. Um. But what

was the goal here in putting this together? Well, one of the things when we started, we were looking at sort of where we were last year when we were putting this together, and we were feeling quite hopeful two years after COVID that the scars were starting to heal. Was not great, a lot better has been kind of brutal, and then well, you know, we were in the grips of a crazy virus and then all these other things started happening. More crazy people. They're back on the horizon

now on the stage rather um. Yeah. So I think part of the story, one of the stories that we did is is that now geopolitics are back as as a risk you know, which we hadn't. You know, we had biological risk for like a year or two write um and that, you know, and it's not like the pandemic has gone away. So it's basically risk on top of risk on top of risk, um and um. And then we thought, wow, the world feels so fragile right now. It does feel fragile, doesn't it talk about recession and well,

to your point that we've had biological risks. It feels like the pandemic has been so all consuming over the past two and a half years. But I like the framing of this story because you bring up Brexit, the U S. China trade war. Haven't thought about that in a while, Russia's invasion of Ukraine. To your point that the world is very fragile right now, I mean, what's what's next helped me. Well, it's actually hard to feel

very hopeful right now. By three, I mean, I think the best that we can hope for is is that you know, there's resilience, uh, that countries will get through what undoubtedly Europe will soon be in recession. Russia already is um. In the US, of course, Bloomberg Economics expects ite um. But I think that in a way, some of the things we thought were going great, like in the last chair, which was the resilience of the labor market in the US, has turned to have a huge

downside right in terms of fighting inflation. So it's like you can't even count like you're you know, the your you give thanks for some of these things before you realize that, oh no, you know, some of these things are actually weaknesses. Well, we learned about how intertwined the world is when it comes to supply chains, specifically when it comes to China. I think two has been about our reliance on oil in a different way with Russia's

invasion of Ukraine. When we think about the country is that. I don't want to say calling the shots in two, but to look forward to three, what are the countries we need to watch? Um? I think US and China

are still big protagonists. Of course, they're pulling apart from each other, and that has consequences for many many countries, countries that are going to potentially be forced to choose on which side you know they're on, maybe not yet, but like in subtle ways right, um, Well, Saudi Arabia we saw recently the people you count on as friends in the US may not always be there for you in terms of you know, what's happening in energy markets. I mean, if you think about it now, you know

countries have to look at their own well being. What Saudi Arabia is doing in terms of oil, it's like, you know, you're talking about a country that has one giant pilot of this commodity and which in twenty years may not be in demand much anymore, right, So they're

maximizing their benefits. So in a way, it's like what we're gonna be seeing next year again in our with a with a background of our recession, is people are going to be looking to maximize their own well being and countries are right, and so that is going to

cause further strains. Um And you have new governments in some places, you know, in the UK and Brazil, um and and the new government in the yeah, um you could or you could say though that he probably knows more about the inner working So what's happening in that country right now? Um And, And they're going to be making choices, I mean, domestic politics are going to be you know, foremost, although interestingly in the US there's been a tradition that lame duck presidents tend to focus very

much on international agenda. So we'll see what we see. You know, if there's if there's something that Biden he's already duck president, we don't know you heard it here first, we don't know your right space. I want to talk more about China though, because the idea that the US and China are pulling apart, what falls in the void and who you know which countries go along with either side. If the U S And China are pulling apart, is

that inherently inflationary? That's a good question, thank you. Um, because you think about bobalization, I mean, the thing you always hear is that it's been deflationary. You've gotten lower prices as technology and trade just continues to flow. So I don't know, is the is the complete opposite of that a globalization? Is that that? I don't know, what

does the logic follow that that's inflationary? Well, I mean, one of the reasons we are seeing some manufacturing coming back to the US isn't because you know, American policymakers have been standing on the shores, you know, calling companies to come back. Uh, it's because shipping costs got to be so high, you know, and and supply chains headaches, you know. So some companies believe they can actually manufacture closer to their main market at at a low cost.

So if that is the case, then it shouldn't necessarily be inflationary that these you know, that these countries are pulling apart. The thing about this what we're seeing right now, though, is there's so many different factors also involved. In those calculations, right, because the strength of the dollar. You know, people have said, oh, the US is exporting inflation to other countries through that conduit.

And if you think about, for example, the fact that global commodities tend to be prized in dollars, what it is like for a country that is a net import or of oil uh to be having to you know, to to to pay for that commodity now in like you know, and and which is much more expensive, then you can understand that we've seen all sorts of traditional kind of that that that that those calculus is not a good word, are constantly shifting, and they've been shifting

in the last year. UM. I mean from a from a business perspective. UM. I think people companies have seen the downside of of how heavily they came to rely on one country for manufacturing uh. And I think that, you know, on the margin, when a company thinks, now, maybe not where am I going to move that plant out of China, but where am I going to with the second or third plant? Uh? And those are good

conversations to be having. Okay, twenty seconds left. There are a lot of stories in here that I want to get to we have time for one more birth control in developing countries. Um, why do we need to focus on sort of an old school method? Twenty seconds? Well, I think it's Africa in particular, because there's this thing called the demographic transition, and if you mismanage it, you get poorer before you know, you miss out on prosperity.

All right, Christina Lyndblad, Global Economics editor for Bloomberg Business Week, with us in the Bloomberg Interactive Broker Studio. Check out the current issue of Bloomberg Business Week. It's online, It's on newsstands now and of course it's also on the Bloomberg terminal. It's the new Economy issue of Bloomberg Business Week. This is Bloomberg Business Week with Carol Messer and Bloomberg

Quick Takes Tim Stinovic on Bloomberg Radio. Very pleased right now to be joined by Dr Tom Inglesby, Director for the Center for Health Security, the JOHNS Hopkins Bloomberg School of Public Health. It is supported by Michael R. Bloomberg, the founder of Bloomberg LP and Bloomberg Philanthropies. Doctor Inglesby joined us on the phone from Baltimore. Dr good to

have you back with us. As I mentioned just a few moments ago, Katie and I both moderated panels from the Bloomberg Growth Summit Bloomberg Live event here, and I gotta tell you, it feels like we are back to totally normal, pre pandemic uh activities, full full room, a couple of masks, but you know, not by the majority or anything. And you know there was you were able to join virtually, but there are people here in person. Uh are we out of this pandemic? Well, Hi, Tim

and Katie, thanks so much for having me. We are not out of the pandemic. Uh that things are obviously much better than they were a year ago or even six months ago. But if you look at the numbers every day, there still are fifty people on average dying from COVID every day in the United States. And you know that this the majority of people who are getting serious CODED infection are unvaccinated or have some kind of

underlying immune suppression. But there are people who are vaccinated and are still getting very serious COVID infections, And so it's importable to know. It's it's far far better than it was, but it's fairly steady. We are still in a pretty steady state of people having a fatal infection from COVID every day. If you look at the the stats across the country, it's still for adults something like the sixth or seventh leading cause of death in the

United States. So it's nothing to be kind of trifled with. It's still a very serious illness. And so I mean, is that just going to be sort of the new normal going forward? And to your point that they're still unvaccinated people in this country at this point, is it safe to say if you haven't gotten a vaccine by now, you're probably not going to go get the job. Well,

I hope that's not the case. I think, you know, the more that we learn about the vaccine and more than information is published about it, the more the doctors and nurses who take care of people and communities keep talking about the value of vaccine. I am hopeful that

more people will get vaccinated. You're right, only only about two thirds of the country or have gotten the first two shots of vaccine, and so the other third of the country is walking around pretty vulnerable, were very vulnerable to a COVID infection and maybe a very serious one or even a fatal one. So hopefully with time, as people see that the vaccine has been really well tolerated, that major side effects have not occurred, that more people will decide to get vaccinated. It is not too late.

Some people may think I've missed the window. You haven't missed the window. You could get vaccinated today. It's free, uh in places around the country. And so I really would encourage people to do that. Okay, So in the last minute and a half that we have with you, Dr Englesby, give us, give us some lessons that we've learned over the past two and a half years that could help us deal with future viral outbreaks. And I got to tell you there are the virus I mean,

you know, my son had RSV last week. We know kids in the hospital with RSV. There's ten foot mouth going around at daycare, like there are other viruses out there. Oh, you're absolutely right. I think we're entering a wintertime where we're gonna have continued covid infection. We're gonna have a probably pretty serious flu season and a lot of RSB like like your son. I think, you know, one of the lessons is that we have tools to fight these viruses.

For many of them, I think rs V. Unfortunately, we don't have the same tools we have for flu and for COVID, but research and development in America matters a lot. We can actually still make a lot of progress against these viruses. Wearing a mask makes a big difference. That lowers your chance of getting infected. So if you're if you're vulnerable to one of these infections, then then that kind of intervention or UM that that kind of like

removing yourself from infection is important. And um getting tested also is really useful because it then leads to the potential for treatment. So we have now rapid tests available around the country for COVID, really easy to get flu tests as well, and getting those tests helps make a diagnosis and then can lead to rapid treatment and that can make a big difference for people. Dr Tom Angles, director of the Center Frail Security at the Johns Hopkins

Bloomberg School of Public Health. Dr Engels, be good to have you with us here on a Bloomberg Business Week Radio. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, the hotel search platform Tree Vago reported earnings earlier this week. Revenue for the third quarter beat, but it was a

miss when it came to the bottom line. The company reported a lost per share of nineteen euro cents versus an estimate of actually an earnings of four euro cents. We're gonna get more right now with Axel Heafer, he's the CEO of Tree Vago. He joins his via zoom right now from Dusseldorf, Germany. Axel, good to have you back with us. How are you. I'm very well. How

are you? We're doing well? Thanks? Hey, um, let's start with earnings and then I want to get to what you're seeing when it comes to travel demand in Europe and around the world. What happened when it came to the bottom line just expenses rose, No, not at all. I mean we had the highest adjustity but of all times,

so I record. What happened is that we have have quite a lot of goodwill on our balance sheet, which is coming from an acquisition ideal years back, and with a rising interest rate environment, you basically need to do impairment tests every quarter, and the impairment has basically brought down the net income and what was there any impact at all from the strong dollar. I feel like when you look over the third quarter earnings reporting season so far,

that has been a consistent theme. Was that a factor for Triviago as well? Not really. I mean, we are a global business, so we operated pretty much everywhere other than in China, and so um currencies have an impact, but but not a material impact on our numbers. Okay, well, let's move out and talk about broader travel environment right now, as I've been talking about this throughout the program. Today I did a panel for Bloomberg Live at the Bloomberg

Growth Summit. Katie did as well, and I started off. I asked the CMO in chief Digital officer of Virgin Atlantic, the airliner based in the UK part of Virgin Group also ready nine percent owned by Delta, about demanding what she's seeing, Chavonne pitz Fitzpatrick, and she told me that they are still seeing robust demand. They're not seeing any sort of slow down when it comes to what people want to purchase in terms of flights and traveling. And it kind of runs counter to what we've been hearing

about concerns about a recession globally. ACXL. What are you seeing on your platform. Yes, so the if you just look at the third quarter, the summer was very very strong for sure. Um, if you now look look at the fourth quarter and really at an automate winter, the the demand is very strong. So and what But on the other hand, what we are seeing is that they are very very first signs, tiny signs of changing consumer behavior in Europe, and we believe that Europe will be

actually hit harder than than the US. What are those tines? What are those tiny signs? So what we are seeing, I mean, what what you would expect in in in a more difficult time that people will try to mitigate the increase in in prices by somehow trading down. And there are three ways how you can trade down. One is you just reduce the length of your trip, and we've seen some very early signs of a reduction in the length of stay in Europe. The second one is

that you are taking a cheaper destination. And the destination can be cheaper either because it's cheaper to get there you can drive there rather and have to fly there, or the destination is as such cheaper, and again we've seen some very early signs there in Europe and the third one is that you just compare more, which is obviously for US great because that's what we offer. We

help users to compare hotel prices. So so actually just sticking with this because this is really interesting, interesting data that you guys have. Are you talking about this just for European customers or is this globally? We can't see it in America's yet. And and that that also makes sense because the impact of the current crisis is much more severe in in Europe. Inflation obviously has hit the Western world everywhere, but in Europe you have you have

a lot more visibility and you have real shortage. So there there is concerned that you will run out of certain basic goods over winter because they are supply shortages. And in addition you have rapidly increasing prices. So the sentiment is much worse than than in the US. And that's why I would also expect for next year the recession or the cool down of the economy to be worse in Europe versus the US. Actually you mentioned that in Europe, what you're seeing is that people are not

staying for as long. Uh, their stays have been shortening up. And it's interesting, I mean comparing and contrasting that with what we heard from Airbnb, who reported earlier this week as well. They give a week forecast. There was weakness in high end rentals, maybe people not using rentals as a place to work from home. Is it a similar read and what's going on in Europe with people shortening

their stays. I think it's very different. I mean, the the mix of all the travel companies is obviously very different, and geographic makes Europe versus the US, but also the business makes and I think Whateverbnb is referring to is really this this remote working which is um in a way, an upper class phenomenon, and so we we don't have the same exposure, not as strong asposure as they have. But that that again makes sense because they you have more and more companies that moved to a hybrid model

or some even returned fully to the office. So that's not a surprise to me that that you have a less demand for fully flexible housing. A lot of people think about Triviago as a hotel search platform, but what kind of visibility do you have when it comes to flights and when it comes to car rentals? Zero it's it, but you can book those services on Trivago. No, not really. I mean so, so we've run some tests where we have actually used wide labeled solutions of other partners. But

but we we are ourselves. We only operate as an accommodation search class. It's interesting and find what I'm seeing the problem what we see here see here in the US must be a white label version because we can go ahead and book those here in the US. We were talking earlier about the signs of trouble that you're starting to see in Europe. You said you're not seeing

it here in the US yet. But what do you expect to see as a as a person running a company that operates in what pretty much every country except for China, How are you planning for? So we think that actually the absolute spend on travel will be up next year, and and why is that the prices will

continue to rise. You have inflation on pretty much everything in the Western world, and we do think that that will continue um, but consumers will and that's to a different degree in Europe and the US will try to counter that that increase in prices. But that that we do expect that the overall spending will be up in absolute terms. Well, Okay, overall spending, you expect to see it up. But tell us about how inflation is impacting the business now and pacting travelers. Now, do you see

an effect? I mean that right now, you see very little effect, to be perfectly honest, and in a way with that's that's more or less what we've expected. I mean, we expected the very very strong summer as we've seen the last two years as well, even during the pandemic, because in summer is really the time to travel where you really want to get a break, um, and where you want to see friends and family, et cetera. And

we've seen that to a very very strong degree. The other thing that helped the summer is obviously that the savings rate has been very high and in a lot of countries, in most countries actually through the pandemic, So people have saved money that they could spend on expensive travel this year. Um and uh. And they were just a lot of a lot of things that were promised that were they were pushed out, that that you needed

to needed to do. I don't know, Disneyland was one of our top destinations and you can really imagine how many kids were promised that they would they would be taken to Disneyland in the last two years, and at some point in time you need to honor your promise. Um. So, so that's why you can't really see it right now

other than the very first signs of it. But if you look at the world around us and the world we are currently living on, everything is getting very expensive and the the real wages in a lot of our core markets are under pressure, which means that people have to save. Um. And so I don't think it's it's prudent to assume that, um, that the market will will just go up with inflation. Um. We believe that that consumers will will save and and and encounter some of

the inflationary pressure on travel costs. So how are you dealing with this internally right now? At the end of last year, you had what about eight hundred employees Actel talk to us about what you're doing inside the company

to potentially plan for some sort of downturn. Yeah, I mean we we actually took a decision that was quite tough in summer, and then in summerre he said, Okay, it's very clear that we were entering more turbulent times or we were in more turbulent times already in summer and being based in Europe, obviously we're in the middle

of it. And we said what it was quite clear that inflation will be around us for the foreseeable future, and that will saving money and comparing prices for pretty much everything from milk to t shirts to hotels will be on top of everybody's mind. So we decided to focus on our core value proposition and we've shut down some of our more adjacent products, which which basically allows us to to really focus on our core and to serve our customers with the product that we think is

most suitable. On the other hand, it also helped us to reduce our costs and because of that, we do believe that will be able to reduce our cost twenty two to twenty three, even though inflation will will push up our expenses. And actually we have a little less than a minute left with you. But of the regions that you have visibility on, which is the closest to pre pandemic times, I would say pretty much all of the West, so western Europe and northern America's um in

this summer, people were traveling like crazy. Um So, yeah, it was it goes as as good as it could go for a travel company. Alright, Axel Hea for for CEO at Trivago, joining us via zoom from Dusseldorf, Germany. Always going to chat with you. Excellent. Get an idea for what's happening when it comes to the world of travel and specifically hotels and lodging room a journal. Yeah, but you let me drive? Oh no, no, no, no, please, I'll do the right gravels. I want to drive. It's

good question. This is good Drive to the clothes on Bluebird Radio. It's that time already less than ten minutes ago in until the bells here for our drive to the clothes. We are very pleased to be joined by Mona Mahajan, a senior investment strategist at Edward Jones. She joins us this afternoon via zoom from Warren, New Jersey. Mona, good to have you with us. How are you great? Thanks for having me? Great to be here on a beautiful day, beautiful day maybe outside, beautiful day here at

the office. But you take a look at the markets and there's not a lot of beauty to see. Um, how do you explain it? Yeah? Look, it was a big week in markets, and the FED was probably the culprit of what's causing not only yesterday's volatility, but some of the follow through we're seeing today. Um, you know, we went into yesterday hopeful that the FED would move

at a more moderate pace going forward. Well we got that message loud and clear from Joe Powell, but we also got the messages that, um, not only would they perhaps be moving at a more gradual page, but they would be doing so for potentially longer, moving rates higher than what they had outlined in the September meeting. And interestingly, I thought it was a notable that Jerome Powell outlined that the risk he sees at least is to ease and you know, pause too soon rather than overtighten and

then have the ability to cut rates a later. So clearly his bias and perhaps out of the f O m C, is to keep moving forward, of course, until we start to see that infamous inflation CPI print start to move more lower at a more consistent and clear pace. And so Mona, can I tell you how wrong I was?

I had been, you know, hearing and seeing chatter about peak hawkishness for example, maybe that you know, Jerome Powell would somehow make some sort of non to that pivot trade, maybe that they would dial back the pace of rate highs. It feels like we almost got that in the statement that quickly went away as soon as he started talking. But I WinCE your time inline for when maybe we

do start to discuss peak hawkishness in the rear view mirror. Yeah, you know, Look, I think the bottom line is we're certainly closer to the end than we are at the beginning. So that's a good news for investors. You know, keep in mind, the Feds already done four basis points in the span of probably about eight months. You know, that's pretty unprecedented in terms of pace of tightening UM. But of course inflation has remained sticky. It's broadened out to

some extent. But keep in mind, and the Fed did acknowledge this that there are lag impacts not only from their rate hikes, but also the CPI prints that we're getting don't quite reflect some of the underlying fundamentals that we're seeing. You know, certainly areas like housing, parts of even the rental markets are starting to show signs of softening weakening UM. Some forlooking indicators of inflation are starting

to roll over. We're seeing it in you know, I S M prices paid in manufacturing at least certainly in supply chain pressure indices. Even areas like inflation expectations are moderating and so, you know, good signal leading indicators. We would love to see them show up in the CPI prints ultimately. Um. But I think we're, you know, probably hopefully in the next couple of quarters, close to that

peak hawkishness. Okay, So give us an idea of what you're thinking about when it comes to the terminal rate and how long the Fed will keep interest rates there. Yeah. You know, I think interestingly, the market didn't really move much in terms of the terminal rate between let's say Monday and Tuesday of this week. Um, and then you know, after the FED meeting on Wednesday, we're still at about that five five and a quarter percent terminal rate for

the FED funds. And how we get there could be interesting, whether it's you know, two fifties and twenty five or seventy five and you know, a couple of but I do think that we're probably headed towards that five percent, and maybe it's five and five and a quarter percent level UM, just so you know, the CPI giving some time for the CPI inflation prints to to catch up, UM, but hopefully also for that supply picture to fully you know, get back into shape as and so I do think

we're heading towards that direction. But UM, keep in mind, historically, you know, when we do hit peak FED funds rate where whenever that may be, whether it's March or in sometime in mid three, historically the twelve months after we hit the terminal FED funds rate has been very good for markets. In fact, SMP is up on average about fift in that twelve month period following that peak rate. So we're heading towards you know, that type of backdrop, hopefully in the months ahead. So what do you do

in the meantime? Where do you position your portfolio and kind of hang out a little bit? Yeah? Absolutely, you know, first and foremost of course, for longer term investors, trying to time yourself in and out of the market UM is much tougher than you know, probably time in the market. And keep in mind when you do try to go in and out, you have to make two decisions. You have to decide the best time to leave in the best time to re enter. And you know, timing markets,

as we all know, is notoriously difficult. But what we would say for both equity and bond investors there are interesting opportunities forming. You know, in equities there has been this concentration um and probably relative outperformance and the value and defensive parts of the market, uh, certainly energy, but

also areas like healthcare, staples, utilities. Over time, we would think that as you know, yields peak, that funds peak um and start to stabilize and potentially roll over, that's a better environment for growth, and we would say quality growth. So start maybe thinking about the opportunities forming to complement you know, maybe not wholesale shift out of your your value and defensive. Similarly, in bonds, you know a lot of concentration in that shorter end CDs one to two

year bonds, which have been providing very interesting value. But as we get closer to peak rates, there could be value in that longer duration trade as well, especially in the investment great space. Okay, start thinking, start thinking about opportunities forming in the equity market. At what point do

you start to deploy that capital? Yeah? Absolutely, you know, look, we'll probably get bouts of volatility between you know, call it now and your end now and peak fed funds UM, and those are the opportunities that you have to look

for to deploy. And we do think as people as investors are starting to plan for a year ahead, that tends to be a time where money flows into the markets and we tend to get and we hear Santa Claus Rally various terms for this, but that's really when people start to think about their three portfolios UM, and so perhaps you start thinking about it UM in the

weeks ahead of the new year as well. But also keep in mind we have midterm elections coming up next next week as well, and and historically that's been a good time the twelve months post midterm elections, and this year it may coincide with hopefully UM a peak and Fed funds rate and also a potential rollover in inflation more meaningfully at least mona twenty seconds. What is the

pain trade right now? You know, I think people are still positioned for volatility, and so maybe a move higher or at least straight higher would be more painful for a lot of investors, especially after yesterday. I think a lot of bets were, or at least more bets were on a FED moving more in a more devish direction than they got the hawk ish tilt. So keep in mind volatility probably not going away anytime soon, but that's

the opportunity, all right. Monamahajan, Senior investment strategist at Edward Jones Running spas um from Warren New Jersey. Checker out on Twitter. Mona Mahajan view on Twitter. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com. And you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Search to Bloomberg Global News