This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best an economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. Claudia som She has been front and center with this mystery of
a non recession. Her work on a recession at Michigan was just extraordinary years ago. She is with Sound Consulting on this fed day. Claudia Claudiasm. I want you to talk about what you got from Claudia Golden.
The idea here that it wasn't gonna be nice.
We're gonna play hardball, We're gonna do first order at research like you did at Michigan. Tell me what Claudia Golden meant to you.
Kadia Goldin's an absolute leader in the field of economics. She's a scholar. She's a hero to a lot of women and frankly men in the profession and it comes into the real world. She's one economist that really said, hey, we got to think about women in the workforce, and we saw this year women's employment rate for primge women hidden all time high. Right, So it's not just about the theory and the scholarship. It's about let's make this happen in the real world.
This goes to the American mystery of a non recession. You've provided a leadership on this this year. Do we misjudge women in the economy? Do we misjudge technology in the economy? Which means we have to have a humility about the Psalm rule in twenty twenty four.
So we absolutely, like I love that this is FED Day, but we have overplayed what the FED means to this economy. We need workers back, not fewer customers. The FED can only do the latter. We have seen workers come back. We have women, we have black men, have people with disabilities. And to your point, productivity, I mean, this is the
holy grail of prosperity. We've had some pretty good productivity numbers recently, and frankly, there are technologies in place like work from Home did a lot to help women who were on the sidelines, were those with disabilities. I mean, we really have some great stuff going. We just got to keep pushing.
Kludy, you were saying that the FED is not the end all be all, So then why are you so excited for today?
What are you hoping to hear from the press conference?
Oh?
I love the FED, so I FED Day is always a fun day for me. So I feel like the soft landings in the bag for next year. Two percent inflation, unemployment day is below around four percent and that. But my biggest risk factor outside of politics in the economic space is the FED. And frankly, what I worry about is them confusing markets and like, I really not fully emotionally prepared for the Summary of Economic Projections this afternoon
because I don't think it's going to markets clarity. They're all over the map on their cuts, like there's no way we're getting first border cuts from the FED. And I worried that they're going to create enough uncertainty that something breaks. We've been lucky so far, nothing's broken, and I could come back and put the soft landing in some danger.
What would break?
I mean, what we've seen is market's becoming more accommodative, A stabilization in a benchmark bond yields. Where is this potential for breaking coming from on the heels of FED communication?
Right, So if I could predict a financial breakage, I could make a lot of money. Right, Like, these don't come in an expected way. I think Silicon Valley Bank was kind of there was a scary moment, right, the FED set up an environment with interest rate risk, and then you had a bank that had made incredibly bad decisions. So that kind of came out of nowhere in a big picture sense. And yet market we got it under control. The FED stepped in, regulators stepped in, So you know,
I have a lot of faith. Again, this is a risk that I see, and it's a pretty low risk. But we've had a pretty good run of the FED like not things breaking in financial markets, and frankly, I'm a little surprised. I'm thankful, and I think we're on the right path. But they the FED needs to stop injecting uncertainty. They've got to get the message straight.
Although it's unclear to create certainty of time that's deeply uncertain. This is sort of the conundrum for FED officials and for economists and even for people in the market. You are saying that next year. The soft landing seems to be in the bag. But the biggest risk factor is the FED. What is the bigger policy error that you see them committing. Would it be cutting too soon or cutting too late?
I honestly don't think the FED matters much next year. This disinflation has not been about the FED. Jape is not landing this plane right, This is not about the FED.
Now.
One thing I would really like to see today is that j Palell articulate that they're going to go slowly and really get people off this first order call, like they're just not going to have enough data buy mar and they're going to be a little sea conservative and cutting because they don't want to have to raise again. They don't want to make it look like politics. Right, it's a collection year. So I just but there's been a lot of communication issues that you've got so many
FOMC officials out. Frankly, I think they should limit their airtime. Sorry, but you know, I think there's where there's been some confusion. But when I listen to them, I'm like, they're going to wait. So, yeah, you get to listen to a lot, but I think they're going to get it together. They know what they're doing.
Claudia out on LinkedIn today, you allude back to the Voker fantasy, the idea of Powell being like Voker, and you even take it back to the emotion that no one wants to be Arthur Burns. He had the Smike pipe smoking and what was a cloud of smoke telling us in the meeting, tell us what we want to avoid that Arthur Burns did decades ago.
There were two things that Arthur Burns did that are at least seen as a mistake among monetary policy officials. One was, whenever unemployment started to drift up, he cut and then inflation came back even stronger. And there were a few episodes of this, and that meant when Bulker came in, there's real mass to cause of severe recession. J Powell has said on record that Bulker is his hero, right.
And the second thing that Burns did that actually lines up with next year is Nixon really pushed on Burns to cut those rates. There is no way they want to do that this time.
Let me channel from John Farrell this morning. Is Chair Yellen and Vice Chair Biden, are they pushing Powell to cut rates?
No, this White House I mean, this is not the Nixon White House, right.
They know better than that.
I mean the former vice chair of the FED running any See, you've got the Chair of the FED running the treasury. There's a visual way, right, they know better.
Claudia, congratulations on your impact this year. May a non recession trail you into two twenty four Doctor Somers and the SIME consulting in a absolute metric of original research to some rule front and center for so.
Many in academic and market and economic.
One of Wall Street's biggest balls.
He's calling for the SMP to rise nearly thirteen percent next year to fifty two hundred. John Stolfis of Oppenheimer, writing this, we look for twenty twenty four to be a year of transition as markets navigate what we expect will be the Fed's pivot from a restrictive monetary policy
setting to an easier stance. John Stelfer, some please to say, John, just right now, John, I actually think you call is original in the sense that I don't think it's too dependent on rate cuts next year in quite the same way as it is elsewhere. John, Can you just go through your framework the path to fifty two hundred on the SMP.
Great to be on surveillance as always.
John.
You know the thing about this is how when we look at it, we think the traders right now are pushing this dream of four rate cuts next year. We think the economy is showing significant resilience in the face of what is at eleven hikes and three pauses thus far, or skips as the Fed prefers to call it. The FED has shown remarkable sensitivity as it practices its mandate
to keep untoward levels of inflation in check. And so all in all, we think it's this looks good as it cuts likely to happen in the second half of the year and probably maintained mostly if it's going to happen, probably in the fourth quarter, and then only once or twice.
John, there is a shift going on.
I saw it from our Gina Martin Adams of Bloomberg Intelligence.
It's obviously Stolefus.
One on one, and also the great Urie and timor chart guy at Fidelity. There is a shift to earnings analysis. We're moving away from Fed naval gazing to OMG, look at revenues, OMG, look at earnings.
We've seen this before. How does the market react we.
Think that the market is actually well positioned to react positively to it. It's not only about traders, you know, it's intermediate, longer term investors and traders that create the environment. I mean, the markets are like music. It's math and emotion.
It's fear, greed, and need. So some people invest for need, others invest for the short term the fear and greed aspect, and we think it creates I don't want to call it a cocktail because that sounds a little bit too volatile, but it creates an opportunity where if we focus on earnings in an environment where it's the end of free money, where bond issuers have to pay for the privilege of
borrowing money and bond buyers get something in return. This just looks like a more normalized environment, and we like it.
Does it make you nervous that everyone seems to be agreeing with you these day?
I'm sure it does. That's the one thing.
You know.
We saw an awful lot of the bears last year.
We're telling us about the pending recession and the massive unemployment that was coming and all this stuff that was negative.
They took the negative pitch book sold.
Last year and it's what we believe really caused the market to decline as it did last year on things that were never realized, and so the bears have pivoted. But when they pivot, you get that feeling if you're on a boat. All of a sudden, everybody's on your side of the boat. You start looking for a little ballast.
And that might well be in terms of taking advantage of some of the diversification that fixed income offers, as well as other areas of the market that have the equity market that have yet to participate in this rally.
So does that mean John, that you're broadening out to small caps some of the less loved areas away from just focusing on big tech.
Yeah.
You know, at LISA, we've been we've been working with better quality small caps on an alpha basis and in terms of on a beta basis, or using passive indexes, using the S and P six hundred ETFs versus the Russell two thousand for that purpose for quite a while. It's heard as in terms of overall performance, but it's given a stability. We can't help but notice on days when there's volatility in the market that's caused by nervous
money pulling out of the large caps. Usually these days they're going into the S and P four hundred mid caps, or the S and P six hundred, or when all when the tide comes in at all ships are floating, they roar into the Russell two thousand.
John, what's a comfortable price to earnings ratio? Right now we're twenty one SPX. Obviously there's been multiple expansion, But what's a historically comfortable pe for our viewers and listeners?
I think tomboyend it comes to historically. You got to think the generations. I can't help but think Leon Cooperman's ratio is probably about twelve. It is the most twelve times. For most boomers it's around sixteen. And as you get younger, the generations keep pushing that multiple up. Some of that is probably because they wreck some of them. It's just
a more aggressive positioning, okay. But it also has to do with the need that I think people are beginning to realize that social security will not be in the same instead that it was for many decades for generations to come and people need to invest. And it's just like real estate in New York, you know, back in seventy eight, you could buy a co op really cheap, even today with all the problems the city has.
Gosh, if you look at the prices on co ops, at.
Least the ask is just you pale looking at it when you give it a historic comparison. We think equities move higher here, so probably twenty one to twenty two.
And I'm not a gunslinger.
It's just that the demand for equities when private equity has taken so many stocks out of the market that it creates demand that is chasing supply.
John Iyes have a good bank co op phase another day. Love that.
John steff Is Offenheimer Asset Management. John, have a wonderful Christmas. It's going to catch up with the set.
Michael Schumacher, Global ahead of macro Strategy at Wells Fargo, joins us right now. Michael, I love your calculus illusion. We're on a down escalator or a down elevator. What does twenty twenty four look like? Am I on the escalator or AM on the lower yield elevator?
Think you're on the escalator. So it's going to be a slow move down in yields time. From art perspective, I thought it was really interesting to hear about the move since the last FED, meaning it's been phenomenal in terms of equities, bonds, what have you. But we do think the market's a bit overdone. It's probably overdone as yields went up. We think it's overdone as yields have
gone down. We like the direction, we think it makes sense, but the ghost slow path here is our preferred route right now.
How do you follow Jay Brison's economics into your study? Is it a study of global weakness as the IMF structures out to twenty twenty eight or can there be the surprise resiliency we saw at Q three US.
You can always get a resiliency. There's a potential for your surprise. China is probably a decent example. Expectations are solo. Wouldn't take much for China to surprise to the upside. But I agree with Jay and his team. You think about the global backdrop economically, frankly, it's not that great, whether it's especially Europe. Canada looks like it's either in recession or very likely to go into one pretty soon. US probably lagging behind a bit so weakening but not as fast.
But it's not a pretty picture.
And yet that's really what you want from a power standpoint, you to take the wind out of the sales of inflation.
You said that the move is overdone, and I'm curious which move in particular. Is it the fact that we're going to get so many rate cuts next year, is it the fact that we're going to have a strong economy that persists despite where we are in this economic cycle, or is it that this inflation can continue at the pace that we've seen.
Now, what I was talking about, Lisa was the yield move up and then down. We think the volatility and bonds has been extraordinary, too much, so thinking about other things that are probably a bit overcooked as well. Think about market expectations for easing by pick your favorite central bank, the FED, ecb Bank of Canada, whatever it might be. They seem pretty aggressive to us right now for next year. That's not to say the central banks won't get there,
but the market's ahead of the policy makers. So, for instance, the FED price to ease forty five basis points something like that by June of next year. It might actually do it, but the market, we think, is running too far ahead of j. Powle on team right now. So I think that also is a bit ahead of the game and overdone.
So do you think that essentially the equity bet that the economy will remain strong is the correct one, but the idea that disinflation will come down enough to edify rate cut bets is not going to really follow through? Is that your call.
It seems to me, is really an equity layman that what's going on now in risk markets is risk markets are reacting to what they think central bankers will do. So as it becomes less likely central bankers will hike or let's assume that's off the table, extra pan, more likely they're going to cut pretty soon. Risk markets like that. I think it's been about that simple. Chris Harvey can give you a chapter and verse, but to me, that seems to be the picture right now.
Mike sure Maker, part of this is just folding in what the dollar would do. John mentioned Euro earlier, Wells Fargus did some great work on Euro, and all of this comes back to just the assumption weaker dollar. I don't want to make theater out of it, but just an ebbing dollar, if you will, is that your call.
Dollar probably weekends somewhat, Tom, But I think there's a consensus for you out there and we disagree with it that the dollar files out of bed. And the basic thesis behind that argument is, Hey, the Fed's hiked a lot, the Fed's got the highest policy rate, therefore the Federal cut the most dollar weekends. Well, okay, but it's really all driven by the idea of the Fed goes first. Why should the Fed go first? Why shouldn't the ECB
lead the way, or maybe the Bank of Canada. So we think that view the dollar really I wouldn't say collapses, but takes a big help.
We think it's off base.
A bit of weakness, yes, but massive weakness, no, we don't think that's on tap.
Let's play that game. Just priced in a lot of rate cuts over the Bank of England. Growth not great, Mike, who do you think goes first?
So let's say the candidate's John are, FED, Bank of Canada, ECB, BOE. I'll put the ECB in first place, Bank of Canada second, boees kind of a strange one to handicap.
Fed's probably or BOE fourth?
Is that growth call or a disinflation coll.
Now it's the inflation comfort level call. I guess I would call it.
So, how how certain are you as a policymaker, whether it's Andrew Bailey, J Powell, whomever, that inflation is not just down, but it's actually out.
That to me is what's going to dictate the path.
Hey, Mikey, one of the best. Thank you sir, and enjoy the holiday. It's happy Christmas. Always great to catch up my Schumacher there of Wells Falco.
Our stress is to get the right person to talk to. Christopher mcgrety is with KBW. They are the institutional investor.
Mid Camp bank.
Do you look at JP Morgan at all or do you just ignore Fortresstein?
Now you have to look at it. You have to look at it. There's another whatever for the industry.
So what it's like the midcalf So I want to go to Tacoma, Washington, one of the banks you follow.
I don't even know where Dacoma is on.
The map, Tacoma nine eighty four or three. Columbia Banking system, Where are they going to be in a year?
Where are the mid caps like Columbia Banking going to be five years?
Right?
I think consolidation is part of the question. Tom. The Colombia is a bank that's doubled in size over the past two years, and so we think scale is really important in this In this industry, we've done a lot of work and there's a really strong correlation between the size of your bank and the degree of profitability. And importantly, the market rewards scale. They also punish scale, and regulation is one of the things that we have to deal with the out of the COVID.
Have you been surprised by how little consolidation we've seen between the stress of spring and now?
No.
I think it's an evolution, right. The spring was forced consolidation, it was failures. We saw three or four notable failures. But as the industry picks up the pieces from from March and that is that is happening, we will see consolidation. The industry still has four thousand banks, uh, that's the only developed country in the world that has this level
of fragmentation. And I think one of the one of the consequences of failures and stress is that we need to pick up the pieces and and move forward.
What's the right number of banks.
A fewer, But I think what's important about the number of banks is we need more competition for the top three or four. Right, the biggest banks are the most regulated in the world, but there's really a general hesitation by the regulators to let the bigger banks get bigger. So the regionals the one hundred billions of two hundred billions, they need to be bigger to compete more effectively with the JP Morgans of the world, the Wells Fargo's of
the world. We think once the rules are written on regulation, and there's a lot of pushback on regulation, that is an opportunity over the next several years.
Where is the growth going to come from.
Is it going to come from deposits, Is it going to become from consumer lending. Is it going to come from some of the areas where they suddenly have some real competition.
From private credit and private equity firms.
I think your term there isn't going to be a lot of growth. Just to be very candid, I think the banks are deleveraging. If you go back to the financial crisis, they had credit first and deleveraging second. This cycle, we are deleveraging. We are shrinking balance sheets, we are raising capital and liquid and I think, you know, going forward, that's going to be a challenge for the next one to two years.
David Conrad, your shop covers the larger regionals like PNC Financial and all they do for the Pittsburgh Pirates great. When do they finally merge to compete with the major banks? I mean it's ridiculous. We used to have five, six, seven major banks. Now we've got four with an asterisk that's called City Group. Okay, but we got to get more major banks. When do the pncs get to play?
I think we need to know what the rules are going to be. Basel three is a big, a big development. That's that's being debated right now. I think a near term with the credit uncertainty in the economy, I think pencils are down for M and A, but I think over time there will be there will be more consolidation.
Think about what you just said, we got to get more major banks. Does anyone in Washington agree with something?
No?
No, not right now?
No no.
So why would that be the direction to travel any time soon?
Because every other nation's done this, you mentioned it.
I'm with you. You totally goes this is Wendy Schiller. Okay, So we have.
To figure out why we say in care in this so lonely developed nation with four thousand banks.
We're here because someone wants us to be here, right.
But regulation changes.
Right.
So for two thousand and eight global financial crisis, the fifty billion systemic level was put a line in the sand that was walked back in twenty sixteen after the Trump administration. So without getting political, there is there is an element of political consideration that you have to think about.
I mean, I just remember John being in London as a paperback writer. Was just released by the Beatles. I'm walking around there's no banks. I mean I remember.
Looking around compared to America. There's a bank in America on every corner. And that's not true.
You bring it up a different conversation. The footprint on the high street, on main Street in the UK has changed massively. We've seen a lot of closures. I don't see that in quite the same way here in the States.
Why is that the bank the branch you are, you're seeing smaller and fewer. But certainly there's a lot of regulation. You have to also pay attention to fair lending, you know, making sure a bank has exposure in certain pockets of the economy in different markets.
What's the advantage to having strong regional banks. I mean, with all due respect, I mean there's this question of whether banks have been saved again and again, particularly on the smaller end, who didn't hedge appropriately when it came to some of their interest rate exposure, who invested in a lot of commercial real estate that was faulty, and a lot of those activities in terms of consumer loans
are moving to other investment firms. What's the argument for beefing up this industry in a more material way?
The smaller banks that are the lifeblood of the economy. JP Morgan, Great Company, City, grow Wells Fargo, big powerful institutions, but at the local level, you do need the local small bank to give that customer service. Now you're right, a lot a lot of mistakes were made with interstratement, interst rate risk, and interstrate management, and those shareholders and
those companies certainly paid paid the ultimate price. But I think for a healthy and thriving economy, you do need more scale it and size across the gamut.
If you took the three of us, we haven't been in a branch since I think, you know, the Red Sox were.
In first place.
Going to say the same, we do.
Everything Zell this zell that all the rest of it in our banking, How does Colombia Savings Bank to Coma Washington compete with the digital investment of the major banks.
I just don't understand that, right.
The smaller banks are certainly one A. The bigger banks are going to move first. The small banks are going to adapt second. But certainly they have they have built out capabilities these smaller banks to compete effectively. Maybe not to the sophistication of an international international.
Example of that, what's a capability they have?
And Tacoma, Washington where they don't want Brian moynan to come in from Bank of America.
So I would say, turn around in online speed for deposit captures. Right, we can go in deposit money without going into a branch. I haven't been to a branch either in years, and.
Certainly show goes in every day. Be careful what you say personally, KBW.
We do, we do, But I mean the capabilities for you and I as a consumer. Certainly the smaller banks can accommodate that. Maybe not, they're not going to have the budget initially, but.
They will follow.
This isn't really hot runny off the lives for the regional. We're still down about twenty five percent from the highs of the year. Any reason to believe we reclaim those highs next year?
Right, We're still market weight to the US banks we moved. This is the one year anniversary of moving to market weight, and what we've seen over the past twelve months is a thirty point divergence between the S and P and the banks. And so the first part of the year, the spring was really about net interst margin, netatures, income, deposit flows, and systemic risk. That leg of the relay race has largely played out and that's stabilized. What we're feeling now is what is credit going to look like
as interest rates have risen. How much of a credit normalization process are we going to go through and how much will this weigh on earnings estimates going forward? The key for us is the direction of earnings dictate the direction.
Of the stocks, not just the direction of the tenure yield.
The last few months has definitely been a trade on the tenure.
It's been amazing, Lisa, all of it pretty much off the back of this move in a bond.
Market, and completely counterintuitive because usually higher rates were good for banks and now lower rates going down and pretty racily are better for banks. This is default risk concern about withdrawals of consumer deposits.
This is concerned about breaking the system.
If that's taken off the table, people can get perhaps a bit more optimistic.
In twenty seconds. Any reason for that to change anytime soon? The correlction between bones and rachel os.
I think the question of why rates are coming down? Our rates coming down because inflation is moderating, or is it because growth is slow? Your prior guests talked about that if we get a softish landing, which KBW is in the camp of softish, I think the banks can work. But I think if it's because we see something break in the system, and if the I think the future's market one hundred basis points a little ahead of itself. Yeah, but if credit credit's a.
Big wildcer, maybe the thing's breaking out of this.
Yeah.
Chris is going to say, yeah.
We're going to digress here for a little minute, because some of my heritage goes way back to Thanksgiving.
The world stopped.
Yep, and a m with the core can that stand freezing would play a small team from Austin and lose. That was always the case in the world is moved on to the fight in Texas Aggies now one of the great universities of America, and before we talked the airline business here on Southwest Airlines and their CEO, Bob Jordan. We're going to talk to him about how College station has changed from.
When my father went there seventy years ago. Tell us about the new college station.
It's changed considerably. And I'll have you know we did not lose every Thanksgiving that was uncalled for. But no, it's really changed A and n When I was there was probably thirty thousand students. We are now the largest university in the country twenty five thousand students in engineering as an example.
No chiography, I mean they reinvented it.
We don't have twenty five thousand, but we do have twenty five thousand engineering, but no fabulous place. And we just named a new president, General Mark Welsh, yesterday and he will do a fabulous job.
Honitive with us, just meant today fight in Texas Aggie as well, usually doing equities with us, but with Bob Jordan of Southwest Airlines, the airline business, I don't get I was looking at what I was paying for a year ago, eighteen months ago.
How do you manage the new capacity and the fair declines.
We're all celebrating, you know, the Southwest is born out of low cost that produced low fairs. We Southwest Airlines created the low fair industry and really gave Americans the freedom to fly. And fares are up, but if you go back to pre pandemic, fairs are only up about eight percent from twenty nineteen. So while they're up, they have absolutely not risen with inflation. And our goal as always is to keep costs low and keep fares low.
So Bob, talk to us about kind of we know the holiday We're hearing from a lot of from you, your earnings you reported, and from some of your peers. Holiday travels strong. How about post holiday travel? Now investors are trying to ask about post holiday travel. What are you see in terms of demand AF fairs, that type of thing.
Yeah, the holiday bookings are really strong, especially close in November December. In fact, we've got an eight k out this morning that is revising our guidance and revenue to the better end of the range. I'm very proud of that. The travel demand is different. It's really driven by the fact that for the most part, business is strong. Leisure is strong, but business travel is not restored to twenty nineteen pre pandemic, and so we're all adapting our schedules
to deal with that. In the first quarter, for example, we took out some capacity and it's really about drawing down Tuesdays and Wednesdays because those are the days you're just missing business travel that was there. But I have confidence that business will recover. We're seeing sequential improvements from order to quarter to quarter, but no bookings are strong, both on the leisure and the business side.
The Texas boom just met and jump in here.
Well, there's so much debate about whether or not we're headed for an impending recession, but you look at the consumer spending data is still very resilient. From your point of view as the CEO of one of the major airlines, where do you see things headed and are we headed toward a recession or not?
It is so hard to predict, and there's been a call for a soft landing, a o landing, a hard landing for nearly a year now, and as we look forward, bookings are strong and again on the on the business and the leisure side, again, travel is different, so we've actually modified our twenty twenty four capacity. We've taken a little capacity out, will grow sixty eight percent next year, and it's really to reflect the network to the new
demand trends. This morning we also announced that our longer term growth plans twenty twenty five and forward, we moderated those from signed mid single digit growth each year to low to mid single digit. That's really a reflection of that. And second, it gives us a chance with a little bit lower capacity to manage our capex and really make
a push to hit shareholder returns. Our goals are to have returns that exceed our weight at average cost of capital, and we will not stop until we get there well above.
In fact, Bob, talk to us about your fleet. Boeing seven three seven backbone of your fleet. How's Boeing doing and delivering what they are contracted to deliver to you guys.
You know, Boeing's a fantastic partner, always have been. We've been with Boeing since the very beginning in nineteen seventy one, and they dealt with supply chain issues like we all have. They are in my mind, in really good shape. We have a new Boeing order that we put in place recently. It flows out aircraft are evenly, allows for very even capacity growth about ninety aircraft a year, very cost effective
aircraft purchases. But no Boeing has been a very good partner and it has really gotten their delivery house and shape. In my mind. Now we need the Max seven, which is not certified yet Boeing. I think their latest guidance is January of next year. It's a little smaller than the Max eight, and we have some routes that are you know, we've got the larger aircraft on really could use the Max seven. But I've got a lot of confidence that Bowey's going to get that done and get that done soon.
We get two more questions, and I think one of them is your best practice to say no to all the people around you are going we've got a flight to London or you know the romance of Delta United all the bigger airlines as well. And you have to have a discipline among people that desire for Southwest to do something different. How do you respond to those endless requests?
Southwest history is to manage ourselves and manage ourselves well, we've got a very strong balance sheet. We have a net cash cash cash above debt. Her Boys said he he planned for ten of the next two recessions. But we manage ourselves well. We have a lot of domestic opportunities. We have the best domestic.
Give me a city, Give me a city you're not covering now where you say we.
Got to go there.
I'm not going to give you a city. I'm just telling you some news because I'll hear from them tomorrow. But we always have I'll tell you we always have a lifts, a list of fifty or so in front of us. During the pandemic, I'm sure you know this, we added eighteen new cities. We grew the network during the pandemic. We did not shrink the network, and those cities are performing. We also grew our Hawaii franchise, and we will have continued steady growth that includes new city openings.
But our focus for twenty twenty four really is to optimize the network for the new travel patterns because it helps us get to returns faster, returns that exceed and well exceed our way at average cost to cap.
My focus is someday I will get to college Station Texas to go to the Hullabaloo Diner.
I mean, that's what you gotta.
I mean, it's like it's like it's a New York diner folks that a million years ago, before Southwest existed, was transported by you know, I don't know, Storks or whatever.
Have you been there a college even I have?
But I've got to tell you know where you really need to go is the Dixie Chicken. I agree, I mean, yeah, Jess, nice cold beer, best burger ever.
It's the best burger you can have, Fries, chicken wings, all that good stuff, but the beer, of course, Shiner Bock.
Fondest hope in Michael Barr's not here now, Arch Detroit Lions fan. But my fondest hope is is that you get Texas A and M University of Texas football back Thanksgiving morning.
We played next November thirtieth. It's a Saturday because it's not it's not back to Thanksgiving, but we'll work to get it there.
Am I going to the.
Fort making Pleasant?
Just metten in charge of our daykiller Bob Jordan's Southwest Airline.
He is from College Station.
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