Fed's Half-Point Hike, Hospitality Continues Recovery

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 you all know our next guest. He's an executive producer and the star of Bar Rescue, where he helps transform struggling small businesses. He's also a New York Times bestselling author. He's also got a new book out. It's called The Power of Conflict. Speak your mind and get the results you want. John Taffer, it is good to have you with us in the

Bloomberg Interactive Broker Studio. How are you. I'm doing great, guys, Good to see you. Yeah, it's good to see you. You know. I want to start with with with the economy because given what you do, you have such a good look at small businesses. You talk to so many small business owners. You have a good understanding of their sentiment, how they're feeling, how they're doing. You've talked to us a lot about that. But I want to start with J.

Powell and the fedhairs comments earlier today. The economy is resiling at the economy is strong, uh. Inflation is high, yes, but the labor market is so tight that the economy can withstand higher interest rates. How do you see things? Well, you know, I think that those are fine public relations statements, but I think the lives that people are living in

the worlds that I travel are telling them otherwise. You know, they're seeing day to day differences in their economics, day to day differences and their perceived security, day to day differences in in so many areas of their lives that cause fear and concern that there isn't unsettling, if you will, disruption to too moving in positive ways. And I say that in a very very broad sense. I see that investors are holding back right, They're concerned the corporate tax

rates might go up. There's a lot of things going on around us that is causing a predictability. You know, I see employees being concerned with their workplace. I see them reassessing their careers and their jobs. We see people quitting their jobs at higher rates than ever before. But yet a huge percentage of American workers don't have more than a thousand dollars in the bank, but yet they're

quitting jobs. Something has happened that I think has struck the nerve of our country, which is changing the behavior of our workforce. And I think it's a very powerful dynamic that we have to overcome the next two years. And it's not spoken about enough. You know, John, I'm curious you read on sort of the bar and restaurant industry writ large. I mean, one of the saddest things. Obviously, the sickness and the loss of life was the saddest

thing of the pandemic. But to see all these really hard working bar and restaurant owners, you know, the small mom and pop shops, really struggle with the lockdowns and the closure. Where where is the industry right now? Is it almost back to where it should be or is there still a lot of room to go? Well, you know it's interesting is when you say that I think of the restaurants to existed for seventy eight years that went down in a pandemic. Four generations of ownership and

they didn't make it through the pandemic. You know, generally speaking, the industry is up twenty revenues above pre pandemic levels. So you know, look at the quarter Las Vegas head, I live in Las Vegas. The casinos had a great quarter. So we talked about that pent up demand and how long would it take people to came back. They came back. So from a top line standpoint, the industry is looking great. Here's the issue. We're losing brand equity because we can't

get employees to serve people properly. Obviously, the inflationary impact is huge upon our prime costs, food costs, and beverage costs. So we see the revenue opportunity is greater than we've experienced in years, but seizing those revenues is really a challenge. So companies that are so service oriented now are not achieving their own standards of service that are so important

to their brand equity. That's scary, John, What would you say to somebody who said, wait a second, people in the service industry low way workers have been left behind for so many years. It's about time that they saw better conditions or wage increases. You know better than anyone. This is really really tough work and they deserve higher pay now, of course they do. And you know, I'm all for increasing their wage, but I'm in a supportive

of doing it in steps. You know, I don't think that, for example, states that have employeed tip credit, you bring them up to fifteen dollars an hour, that's a six hundred percent increase in pay overnight. No business can sustain that. So let's bring it up in three or four steps. Let's get it there over two years. Let's allow the industry to adjust as we go. But I completely agree if we're going to retain employees and turn my industry back into a career based industry, we need to get

it to that level. But I also want to highlight that if you're a waiter in a good steakhouse, you're making yourself well over a thousand dollars a week in many steakhouses, So there are those in the industry who make an awful out of money as well. So some are do well, some we're not doing as well. I think as an industry. We need to step up. You made a really interesting comment, um, you know, saying that we live in interesting times these days. Um, what brings

you to that? I mean, I don't think anyone would argue with that, but what's top of mind for you? You know, I'm one Look, I took cultural anthropology in college, so I've always been one who studied behavior, human behavior. As a business person, I'm one who tries to change human behavior, right, I want to market you to buy things, and so I'm a real student of human behavior. And the past two years I see, you know, decisive changes

in our behavior as a society. The way we interact with each other, the way we interact with businesses, the way we can complete transactions, the traffic discycles. There are so many changes around us that it creates a certain unpredictability. Are people being more respectful? There was this moment where I think there was a sense of unity early on in the pandemic, where you know, here in New York City, we would go out on our you know, open our windows and bang pots and pans at seven pm for

healthcare workers each night. There was this idea that we were all in it together. Do you see that in your industry. I do. I certainly, because we're also seeing videos of you know, people getting kicked off of airplanes, dragging, you know, dragging, kicking, and screaming. I think that togetherness is sort of eroded a little bit, that we sort of experienced the earlier middle part of the pandemic. And that's one of the reasons why I wrote the book.

You know, people today engage in conflict without dignity, and and it's the loss of dignity that has really destroyed our political landscape and destroyed our professional landscape in very many ways. So when I wrote the book, I realized, you know, I've done two hundred and thirty episodes of Our Rescue, the last hundred and fifty or so. I haven't been angry. When you see me angry, I'm being deliberate. I'm being manipulative. I have a purpose, and I'm using

conflict as a tool to achieve an objective. And I started to realize, Wow, conflict is a dirty word that shouldn't be tim I'm trying to speed read this here, but I can I open up the page one thirteen. I can tell I like this book already. Let me just read the line here. There's never a show where I don't yell John. I mean, people know that, right. He's referring to the show Bar Rescue, the Big Hits show.

There's always that moment when I need to shock and owner into changing an unhealthy pattern, you know, John, and correct me if I'm wrong. But I get the impression that the bar and restaurant industry is one where there is a lot of you know, sort of heated moments and yelling and conflicts that everyone seems to go home and forget about it, have a drink, come back the

next day and their friends again. I don't know if that's a I think that's a safe and you know what it is, we get packed, right, if there's this high energy, we're in the weeds, we're fighting, we're fighting. Then finally it mellows out at the end of the night and everybody comes back to war again the next time. Because you know what's incredible about the bar industry. For example, the average bar will do sevent of its revenue sixteen hours a week. Wow, just that. So it's a crunch.

You know, it's it's high pressure. But I wonder, and I know you've looked at sort of not just the bar and restaurant industry, you sort of looked at conflicts in other business I mean, does conflict translate into all businesses or is it sort of you know, taboo to to sort of engage conflict and and and sort of you know, is the risk greater than the reward in other industries? You know? I think, I think the conflict is a critical aspect to every industry. But but what

is conflict? It's perceived as a dirty word. You see, if you want to win in conflict in business, in professional relationships, in any aspect of your life with another human being, we succeed when we pulled them in, not when we pushed them away. Success always comes, whether it's pulling an employee and pulling your boss in, pulling your spouse in. So conflict can't push people away, it needs to pull them in. So that's what the book is about,

is engaging in meaningful conflict, positive conflict. I love the Disney story that's in the book. You know, tell us about that Roy had the checkbook, Walt had the ideas. Walt's ideas would have made him go broke if Roy didn't have the check book, and they would talk about it all the time. There's a famous story where Walt went out of town on a business trip for two days. He had spent all the money in the company. When

he came home, Royce sold his car. But the greatest story of all was snow White, the movie and new with flickers in snow White a defect in the film. So Walt goes to Roy and says, I gotta fix the film. It's a hundred and fifty thousand hours. Roy says, no, you're not fixing the film. Well, they never fix the film, and if you watch snow White to this day, those flickers are still in it. If budget doesn't manage creativity,

there'll be no money for creativity. It's the conflict between those two elements of the business that create that success, if you will, that governance on either side, the big idea that creates the budget allocation, and the budget realities that limits the creative exercises. That's a conflict that drives every business China. Unlike you, I think Tim's gone about one million TV and radio shows without yelling at anyone. I don't know. We gotta get them what we do.

I don't know what to do to get tim to yell at me. Yeah, that's that's the trip. Well, it's it's true. Though. It actually makes me think about, you know, my own management style or or my own style of being managed. I wonder about the idea of the squeaky mouse, you know, getting the cheese, or the squeaky wheel getting the grease. How do you do this in a way that isn't alienating to people, Because when people hear conflict, that's a dirty word, especially in an environment where people

want to be liked. Yeah, you know, I think that that's the shame. And that's exactly why I wrote the book. It's completely non political, takes no sides on any political issues whatsoever. But I put forth the following premise, we as a society have forgotten how to engage in positive conflict, the disrespect online, the taking of people's dignity. Even in the political world. They're saying things to each other years

ago they would have never said to each other. So, if in fact, we hold our beliefs to ourselves, I'm concerned our beliefs are going to disappear. So we can't be silent. We need to stick off of the things that are meaningful to us. So I want to empower people, to teach them how to engage in meaningful conflict that isn't disruptive but is constructive. So it's all the premise of opening up people's minds, fighting for the values that

you believe. In bar Rescues not really the model because in bar Rescue, at these sixty or ninety days working four days, I'm a raving maniac. There's a clock ticking in my head every minute. I don't have time for you to get on a bust him. You gotta get on the bus right now, you know. So, So these are the things that that create a difference in the real world. No, you don't scream at people that way

that alienates them. You pull them in. You do things like put your hand on your chin, on your chin when they're talking to you, so they see you engaged. Great conflict creates great engagement, and great engagement is never bad. You know, John, There's there's sort of a power dynamic involved though. Two you know, I imagine, um, you know, a manager of a restaurant or a bar can get away with yelling at the bus boy. The bus boy can't get away as much with yelling at the boss.

Am I reading that wrong, is it? I wonder least the word yelling, because if I was that bus boy, I would pull the manager over and say, boy, we both want to have a great restaurant, don't we. I got a couple of ideas that I think would make the restaurant better, and suddenly they're engaged in meaningful dialogue about something that the manager might not agree with. So again, conflict isn't yelling. Conflict is communicative. But conflict always should

have a purpose. You know, I used to fight with the politicians during the last presidential elections. Think of how many arguments and conflicts to our over trivial things Nascar and crazy things that why are we fighting about things that don't mean it? But John, it's it doesn't seem like it's getting any better. No, That's why I felt I really how to write this book. I'm trying to bring dignity to the premise of conflict and respect. You know,

it's interesting. One of the I think it's the biggest headphone in the world. Bridgewater Associates is famous for exactly what you're talking about. They have a culture where they really try to knock each other down a peg, and that might be a harsh way of saying it, but constructive criticism is very much part of the transparency. Transparency

part of their culture, part of their culture. So is I guess it depends to some degree what the culture in your company is to you know, if if it should more companies sort of embrace that benefits of conflict and debating. Uh. You know, it seems to be what one of the messages you're trying to get through here.

You know, it's interesting you can have a company where that type of high energy engagement is a part of the company, and then you hire somebody who's quiet, who's submissive, who doesn't engage in those kind of ways, and they get fired because they don't fit in that culture. It goes both ways. But I would tell you the most innovative companies in the world have elements of conflict, you know, and it is push and pull. And look at a

great coach of a sports team. If he's a great coach, he'll get you to perform better than you even thought you could, right, and he does that forcefully. It is so great to have you joined us, and especially in person here really feels like returning your corner with these in person guests. It's fun to have everyone back in the studio. John Taffer is the host and executive producer of Bar Rescue with Us in the Bloomberg Interactive Broker Studio.

His new book is called The Power of Conflict. Speak your mind and get the results that you want. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Let's get a view on the macro environment, specifically when it comes to travel. We're gonna speak to Axel He for the CEO of

tree Vago. He joins us on the phone via Zoom from Germany, shares the hotel search and travel search platform, hitting a fifty two week low today after the company reported a lost per share for the first quarter that missed the average analyst estimate. Axel, good to have you back with us. Was today's miss Was that all about concern in Europe? And was that related to Russia's invasion of Ukraine? Not really, to be honest, I mean from

our prospective, we didn't miss the numbers. I guess it's very difficult to to predict from the outside what the trend is looking like and there is one one one of the facts that is in the numbers, which is UM. It's basically a fine from a very old investigation that has been going on for many years in Australia. Well accellent. What's your read on the traveler? The health of the traveler? Writ large these days? Has that demand to take vacations, to take air travel recovered to sort of the pre

pandemic level. There's a sense that it's even stronger. That there was a big bottleneck of demand for vacation and travel and that we're seeing even perhaps stronger, stronger impulse to travel. Is that Do your numbers suggest that as well? Or is that off? Yeah, it's it's UM. It depends very much to which segment of the travel market you're looking at. I mean, generally speaking, we've seen it as

the last two summers as well. There is a huge desire to together rest and to to break out of the daily routine, even stronger coming out of a time of restrictions and lockdown. So the classical family vacation, going to the beach, going to the mountains UM sees hugely mount UM and if you're strong in that business, you see numbers that are at or above levels. Um. The traditional city trips where you go to I don't know,

the Broadway, music, etcetera. Are now slowly coming back, and for that, obviously we needed the restrictions to to be lifted. And then the last segment, the business travel is obviously lagging, and depending on your business makes you you see more or less recovery. But what what we see as very positive that we think that we are now in a in a situation where we really see fundamental recovery and really a gradual improvement, whereas the last two years were

very much an up and down. It does not feel like the business traveler here in the United States axel is struggling. I perhaps it's just because I just got back from the Milk and Institute Global Conference and it was truly back to nineteen levels, uh, you know, for the first time since the pandemic. But everyone I talked to you had trouble finding flights to and from and we booked some travel in the upcoming months and we're having trouble even finding flights. And I'm wondering if it's

because flights are being uh managing a different way. They're they're reducing the number of them, or if it's because we're seeing a different level of business travel here in the US than you are in Europe. Yeah, I think you're at a very interesting point. I mean there there is is now with the demand coming back, we do

experience supply shortages and there are a couple of factors. Um. There there are labor shortages everywhere, um, and I'm sure you've seen it in hotels, at the airport, security checks, ground handling, all of the above everything and so so that is reducing the capacity that that is on offer. Um. The other thing is that depending on the routes that you're you're taking by by air, there is also less capacity.

And I guess the airlines are to a certain extent more disciplines to put in particularly longhold routes again back to service and have also decommissioned quite quite a few planes. So again it depends very much on on the destination of the specific trip. But but overall in Europe, I would say that that that business travel is definitely not back to where it used to be, and and given what we are seeing in the US, it is neither um.

But obviously it is coming back. Actcell Trovaco had a nice string of several quarters of profitability before the pandemic, and then obviously the pandemic UH in two when it really started affecting travel UH sent company back to a loss, then another couple of quarters last year at the end of the year back to profitability. Is any sense of when sort of we can see consistent positive earnings from Trivago? Yeah,

it's I mean, I guess we we were. We were fortunate in a way that we realized that the pandemic would not be a temporary problem, but really a problem that would stay with us for multiple years. So we um we cut our costs very early, already April twenty in the pandemic and as a result managed to come out of it with a positive cash flow. So the lower cost base has helped us a lot to really manage and navigate through the very very tough times in

the pandemic. And and now we and and also most of the other online players are obviously investing into into winning back the customers, into giving travelers confidence to travel. So there are investment quarters ahead of us, and you can really see that with many companies, and I guess it will take it will take a few quarters and perhaps even a few years to get to a market that is truly stable. Um. But yeah, but we will, we will. We will invest into marketing this summer for sure.

Actual last minute that we have with you, getting getting back to what we learned from executives from around the world at milk in just a couple of days ago, it seemed to be there was cautious optimism here in the US, but there was some serious concern about Europe, specifically about the health of the European consumer. What's your take, Yeah,

it's a difficult question. I think the biggest concern that I would have is it's really it's global, which is is the skyrocketing inflation and and like I said, that's where where you you're starting before we start the discussion. That is is obviously a concern and it puts pressure on on people around the globe. But but other than that, yeah, I I do believe that there is not that much of a difference, um, in terms of economic outlook. All right,

we're gonna have to leave it there. Actual, we always love it when you join us on Bloomberg Business Week. That's actual here for the CEO of the travel platform tree Vago, joining us live from Germany the Journal. Yeah, but you let me drive. Oh no, no, no no, no, who's home? Honey? Please, I'll do the ride, Revels. Let me. I want to drive. It's the question that drive. This is the drive to the Globekay, we'll drive up down on Bluebird Radio. Mike, let's get right into it with

Brad McMillan. He's chief investment officer at Commonwealth Financial Network. He joins us on the phone from Waltham, Massachusetts. He's got approximately two and two point five billion dollars in assets under management. Brad, give us your takeaways from what we just heard from FED Chair J Powell, because I gotta tell you the equity market is loving it, and they should. I mean, I'm sorry. The real message here

from Chair Pale is we've got this. The FED is under control, you know, and we see the economy growing, we see the inflation. We're doing what we need to do and we're going to continue with the path. And there's a plan and the market loves the plan, you know. Brad. It's it's Mike Reagan. There seemed to be just uh spike higher in equities and risk assets right around is like two forty two. There are were a few remarks of pals right around that time. I'm curious, what do

you think really lit that fire? There was some remarks where he basically said we can still attain a soft landing, but he also said they've pretty much ruled out a seventy five basis point hike. Was it sort of the one who punch? Do you think or do you think it was one or the other? I guess some people really were worried about the chance of a seventy five basis point hike. What do you think really is driving this rally? We're looking at three percent now up in

the SMP, just eye popping gains. Well, as I said, I really think it comes down to does the FED have a handle on this and how rightly or wrongly conveyed a strong sense that they see another couple of fifty basis point hikes, you know, which is in line with yes, we're going to get inflation under control, but it's not so far out of control that they need to get crazy. I mean, the real message from a pipe would have been, Wow, this is a crisis. We've

really got to do something. So I think that sweet spot, you know, between doing enough and not having to do too much is what the market sees right here, Go ahead, Mike, Yeah, Brat, where do you think this sort of embracive risk today in the market. Is it kind of counterproductive to the Fed's goal to tighten financial conditions a little bit too, you know, as a way to tamp down the inflation. Is this kind of maybe not the outcome power Power would have hoped for. We're going instance, what I do

you think. I actually think that makes a certain amount of sense. But given the amount of decline we've seen Gassett, you know, over the past couple of months, I don't think it's going to worry them too much. I also think that this kind of a relief rally, you know, after the worries we've seen, is probably the evaluations start to move back up. That's what I think that that is going to start to worry about the market. I think today I think the Fed's reaction is going to

let them have their fun. They've learned it at this point. I thought it was really remarkable, Brad, the way that Powell opened his press conference speaking to the American people saying that he understands that inflation is too high that he understands the pain associated with rising prices. Brad, What did you make of that? I think there's two things here.

First of all, I think that um, the FED is in a difficult place politically, you know, they're they've been seen as perhaps not being as sensitive to the needs of the average person. And I thought Powell made a very good case that what we're doing actually is aimed at helping the average person, and he came back to that again and again throughout the press conference. You know, I think the FED is trying to build the political base for what might actually turn out to be a

difficult campaign against inflation. As an example that one of the people asked, you know, what does this mean? You know, are you willing to create a recession like Volker did? And Pal's answer was interesting. He basically said, yeah, we'll do what's necessary, but you can't do that and you can't hold onto it without that political backing. And so I read that as kind of a preemptive strike on the FED doesn't understand the little guy, you know, Brad.

In addition of stocks, just an eye popping move in the treasury market too. I'm looking at the two year yield it's down almost fifteen basis points. UH tenure yield is down a lot. Do you think we've seen the worst of this UH steady march higher in interest rates? Where is there really more room to go for for rates to go higher? Do you think? I think we've

about topped out. And the reason I say that is the last time we saw a rate hiking cycle was in you know, obviously pre pandemic, and things topped out about three out right now, obviously we have much higher inflation, but there's also signs that's starting to top out as well, and there's still a tremendous amount of demand for long duration US Treasury assets. So I'd be surprised if we

didn't start to see things back off. Maybe as the number of expected hikes goes back, we see rates start to roll over a little bit as well as we start to price in more rate cuts in the next couple of years. I can't see if pushing too much

higher than where we are. Brad. I did think that FED share Powell's comments regarding the blunt instruments that the FED has and that they're not precision tools were pretty remarkable, Specifically the part about him not being able to control supply side elements, supply chain issues, uh, effects of war on commodities. He specifically said that the FED can't do anything about commodity prices or snarled supply chains. Um, what

can the FED do to bring down prices there? Well, I think once again this is kind of a combination of educating the public and laying the political groundwork for what could be a difficult campaign. I mean, what the FED can control is how much it costs to buy stuff here in the US, cars, houses, and that's going to hit the average person. But that's not going to show up in the price of gas. So the question becomes that you're an average person, what am I suffering

all of this paying for? And to be able to do that To make the PET that as little of a punching bag as he can, he needs to get the average person to think, yes, I understand where this is coming from, and part of that is acknowledging what he can't do. Again, I think it's a preemptive strike against what's sure to be political attacks as we get into the midterms. You know, Brad, speaking of those commodity and energy markets, the other big story today is just

a huge rally in oil. This is coming as the EU is threatening to come pletely banned Russian supplies. Some of the US regional fuel inventory data show drops to two record lows in some cases, looking at West Texas intermediate oil up five and a half percent to over

eight dollars of barrel. To bring it back to that equity market, obviously, energy shares have just been far and away the best performing style sector among the main ones in the SMP really the only one with with a steady positive gain this year thirty some percent for the group. Is that is that play still in place? Do you think his energy poised to really continue that out performance? Uh? Do you think as long as this Russian Ukraine situation continues.

I do think it's poised to continue the apt performance for two reasons. First of all, the supply situation the world has changed. It's different this time, and I never say that it really is. You know, you have you have a very significant exporter off in the market, and depending on whether or not that does damage to their infrastructure, and there's reason to believe it will, that might be off for years. So the supply situation has changed significantly.

And the other significant thing that I don't think is getting enough attention is us drillers especially, are showing a lot more capital discipline than they've done in the past. In other words, they're not just going out and going crazy and drilling. They're actually managing their capital expenditure. So we're not going to see the kind of explosion of So we gotta we gotta leave it there. Brad McMillan, chief investment officer at Commonwealth Financial Network, joining us on

the phone from Waltham, Massachusetts. 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. Sara to Bloomberg Global News.