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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App.
Joining us now is someone who really has inside knowledge and is a wonderful macro investor who has a ton of respect. Keysquare Group founder and CEO, Scott Besson.
Scott, thank you so much for being with us. I want to start with that the idea of.
The Federal Reserve and it's independence. What do you make of this actually being such a hot topic on the presidential campaign trail?
Well, I think it's kind of a canard. The final Joel Press is blown up. You know, all all presidents want a say, and I think they have a right. You know, Donald Trump is going to make his opinions known. I think Senator Warren before the FED decision, they recently the day before said they should cut. The day after, she came out and said they made a big mistake
not cutting. And I think that's within her right. And you know, I'm not sure you know what all this is you know, or what this allegedly means that you know, Donald people are saying Donald Trump thinks he should be in the room. Is you know, he's if he wins, he will get to choose a new FED chair. The Treasury Secretary meets on behalf of the administration with the FED chair every week, so the administration's opinion is known.
And you know, I've written and talked quite a lot about I already think politics are in the FED because I think Jennet Yellen's taken over the FED.
Well, Scott though, when it comes to what Trump is saying, and Evans really doubled down this yesterday and CNN, he said that fundamentally it should be a political decision, agree or disagree. Doesn't that thwart the independence.
Of this institution?
And have we seen that in the pants pass under Nixon and it didn't exactly work.
Well, I think again, I think it's all up to the FED chair. And you know, again, the president he or she always has input. You know, we saw from Joe Biden State of the Union, I expecting a FED cut. We saw a week later in Philadelphia. I'm expecting a FED cut. Then the inflation numbers got hot. I'm expecting a FED cut just a little later. So you know, again, presidents make their wishes known. And you know, I do
want to comment. I think this Wall Street Journal piece that referenced a ten page document, I would challenge them to produce that ten page document. I do not believe that document exists.
Okay, Well, I just want to dig into something that you said. You think that Jenny Yellen has already taken.
Over the FED.
I how much this is really in reference to the fact that the Treasure Department has been selling a disproportionate amount of tea bills, so people say it's been offsetting some of the quantity of tightening, as well as what we're seeing with respect to rate hikes over the past few years.
How much do you believe that the FED is.
Way more political than people expect and that that is something that you can trade around.
Even Well, look what I've been able to trade around, and we'll go back your question on Yellen Treasury highly political. Unfortunately, Secretary Yellen has thrust herself into the middle of campaign in a very inappropriate way. She gave a highly politicized speech in Arizona a couple of months ago. She was standing on stage with the governor of Pennsylvania campaigning for Kamala Harris, who is not even her president. Two weeks ago,
so it is politicized. The quarterly refunding schedule was changed for the first time ever. They gave Ford guidance. So how do you know what the conditions are going to be? Why do you have a treasury borrowing committee if you are going to give forward guidance?
So to come back to the FED.
Look, you know the FED, I think they try to keep politics out of it.
We all have biases.
Ninety three percent of this people at the FED or registered Democrats. But you know, I think in general that you know, they are doing what they can with what they've got. You know, your question in terms of you know, how do I trade around that. I've actually had very good luck this year trading against the FED that anytime they publish their so called dot plot, the SEP, the summary of economic projections, they've been wrong. So for all year they had three rate cuts. They know, ident think
be three rate cuts. Then at the GYM meeting they published that there would only be one rate cut, and they we traded against that, and that's proving to be wrong because now the market's pricing in three, you know, maybe three jumbo rate cuts.
Scott, if we could look into some policy that has to do with the Fed and the Treasury, it's well known that you're one of these individuals that talks to the former president potentially could be part of his future team if there's Trump two point zero. He gave an interview a business week and talked about a week or dollar. How would he see that through?
Look, I think that's a preference, not a goal that I think he believes. And again, you know, I think about it more in terms of our other currencies undervalued. You know, is there some kind of a manipulation you know, i e. The Bank of Japan running excuse me, ultra loose monetary pol se for twelve years and doing a gigantic appreciation of the yen where it goes to a fifty year under evaluation. Is there something that the Chinese are doing with their trade policy that is causing an
artificially weak the RMB, you know, versus a strong dollars. So, you know, I think remedying these under evaluations as opposed to remedying a strong dollar is a better way to think about it.
Well, probably no one would like that more than Japan. I mean, they have not liked the weakness that they've seen in their currency. So do you foresee something like Applaza accord? Is that what we should be looking at? Should there be a Trump administration with these against specific currencies? Remember en to right size some of the equilibrium that you're talking about?
Well, is your question? Should there be a mar Lago accord? So we can call it that way?
Not?
Well, I think that's what it would be called. That I.
Could see, you know, something or a policy specifically targeted at the different countries that are in violation, you know, maybe rather than a global thing like Plasa loub was. You know, if you go back and look, I've studied this a lot. What's different this time is if you go back and look at the history of the Plaza coord the Lover accord, Soviet Union was never mentioned because their economy was so small, you know, so you had
a security threat and then an economic threat. Now with China, I think we should view China as both a security threat and an economic threat. And it is going to require a lot more finesse with them just because they are such a big part of the global economy. So you don't want to upset the apple cart, but you want to be proven in terms of supply chains and national security.
How do you then view a week dollar though, if Trump is saying that he's going to put the walls for the tariffs ten percent ring around the United States, sixty percent of imports coming from China, as well as what he says mass deportations.
Right, So, I think we've discussed this before. President Trump speaks in a different way than many politicians. He speaks like a New York City real estate developer, and I think that is the opening the gambit. You know, I've used the term it is a maximalist negotiating position. I think a lot of the analysis around this in terms
of inflation has been quite sloppy. You know, at our firm, we try to have better models, and you know our models show that a those are maximalist positions and be everything that I've seen, you know, in cell Side Research and other firms and commentators, you know, assumes that there is a jump on day one, which will not happen.
You know.
I have been spoken to the President, spoken to his team, and I think everyone is on board with a kind of Ford guidance or a phased in tariff. So, you know, here's president she Here's sixty percent, might be two and a half percent a month for twenty four months, tell us when you've had enough, and you know, at the end of the day, I think that Donald Trump views tariffs as a way not to you know, as an ind too free trade. You know, if you bring down your tariffs, we will bring down ours.
You know.
Recall that at the G seven meeting when he was president, he left Ottawa to go to North Korea, and on the way out the door he said to all the leaders, I'll get rid of my terraffs if you get rid of yours.
So I think he views like the terraffs.
As you know, kind of negotiating is almost almost like a sanctions policy.
Well, Scott Besant of Key Square Group, will you be living in Connecticut or will you be living in Washington, d C. Next year we will find out Scott best.
You'll have to come back of Key Square Group.
Eric Resdant, co founder of KSL Capital Partners, is focusing on the consumer and the outlook for travel and joins us now and Eric first, so.
Great to have you on the show. Thank you for being here. Thank you and your firm.
Overseas tons of some of the most popular names that people go and visit, whether it is you know, the Icon Passes of ski Lovers, or whether it is the Marriott's and the Riz Carlton's and the Four Seasons that people attend. Do you think that there is too much pessimism right now about this sort of pace of spending, particularly on the discretionary front.
I think there's too much reaction, too much reaction, reactionary thoughts happening based upon short term data when you look long term. And I'm really here to thank you for being a customer of the Icon Pass.
I'm on a swing.
I'm on a swing thanking each one of our customers personally, and this is my morning to thank you.
You can call him up if you've got an icon past and that's right, I'm here.
Feel free to call me, no problem at all.
Okay, but the long term trends for travel are really positive. People don't realize how actually resilient travel is even in the face of economic volatility.
We make what you were just saying, we have to embrace the mess.
Life's messy, as you were saying, and the reality is in that mess, what do you want to do? You want to escape, You want to be able to have special memories and experiences with your friends and family. So we see the long term trends being favorable, we do see the same type of softening of trends.
Still fine, still.
Good, but it's not as robust growth in some of the segments that we invest in that we saw over the last two years coming out of COVID.
I guess there's a bigger question.
We were talking about this with Neila Richardson of ADP.
Earlier this morning, and she.
Was talking about how the pace of job creation is actually still above twenty nineteen. You can point to similar types of trends and travel. People still spending more on travel now than say twenty nineteen. Is this the new normal where we can expect more spending and an accelerated pace, or are we going back to the old normal where people actually had to work, well, they have.
To work things an interesting one.
I do think that the trend of remote work, of people having leisure trips. We were just talking about this on the break, combining purposes of trips. I think that's all positive for travel because when you want to combine things, what do you tend to do. You're combining something that's vacation oriented or recreation oriented with what you're doing at work. So we see skier visits, for example, are growing more rapidly midweek than they are on the weekends.
Well, that's a.
Better experience for the guests, it's better for everybody.
I'm not sure about people saying.
They're working from home on Friday if we know that skier visits are op disproportionately on Fridays.
But be that as it may, we're pro that.
So I think the new normal is, you know, we're all on all the time. We want to combine purposes and be more efficient with what we do. So I think in the end that's probably good. It probably creates more balance for people and for us. It creates more opportunity for them to vacation and recreate and do those things that we certainly like to invest behind.
So the vision of someone like with their laptop on a ski lift, blurring out the background, saying don't pay attention to the wings, the winds swinging back and forth, and what you're saying. Okay, so you're talking about this the trend and the spend and how much that is normalizing. What about just what people expect when they go to
a luxury hotel. Has something fundamentally changed after the COVID era of not being able to get it out and they now want something different with their hotel experience that they didn't before.
I think that's fair.
I think they want to have more than just your basic hotel experience. During COVID, we saw an expectation that it's okay to reduce services at hotels. Right We couldn't staff, we didn't want to have physical contact, so we eliminated some of those things. That type of expectation has now come back. But the guest wants more than that. They want to be able to go on a trip. Business travel is different, but for leisure travel, they want to be able to go on a trip and have more meaning.
So for some that meaning is well and it's oriented and they want to do it could be as simple as a spot treat mean, it could be something that's more holistic in terms of in terms of mental health, or it could be something physical. Right, So I think the consumer they just want more.
Out of everything that they do.
They want to feel that that's value.
What does that mean for the Airbnbs of the world. Where do they fit into that? Because they're not exactly providing that kind of service.
They're not.
I mean those look Airbnb and others in that business. They are trying to wrap around experiences. And you see, experiences is a watchword that you hear on whether it's earnings calls, or you see in consumer conversations. But I think Airbnb has that challenge, which is it's great if you're in a city because I don't need the restaurant necessarily or retail experience to be in my hotel in New York City. It's the city is my is my canvas, is my resort. But you know, if you're in a
resort destination, you want those amenities that you know. On the one hand, Airbnb offers wonderful value because you're getting more space and you can cook your own meals.
And congregate easily at your home, but it doesn't have the amenities.
And I think they're trying to address that and I think I think they'll have some success doing that, which is which is good for the consumer and I think good for the business.
Where travelers going right now.
I mean you're seeing a bit of an ecotomy and that Europe is hot, Japan is hot. Recurrency is part of that. Part of that is you took international away. What happens when you take something away from someone, you know, I mean, if you have if you're a parent of teenagers, you realize this, you take something away, they want it more.
And COVID took international travel, especially away from US. And with currency being or the US dollar being strong and foreign currency is being a bit weaker, combined with coming out of COVID, you're seeing a lot of the luxury consumer.
Want to go to Europe, want to go to Japan.
And so that's creating, you know, kind of a normal or not yet a normalization of travel patterns. I expect that you'll we're seeing in some segments, but thensumers, you know, the affordable, the more budget contrast consumer is cutting back a bit more right now. The luxury consumer is going more abroad. Witness at least going abroad last week, but.
Not out.
You're there, But it's okay, everyone's doing it this morning, so.
Why not can stay back to vacation. It's what we all do, okay.
So you're seeing a real bifurcation and where consumers are going a bit.
If you look at like select service spending for hotels, those trends are a bit softer than the higher end. In the last year, you saw red par for more luxury travel to be positive still three four percent, while select service red pars down. I think that's indicative of that. But again, it's not dramatic, right These are evolutionary, not revolutionary shifts and consumer behavior that we're seeing normal normal volatility, not abnormal volatility.
One thing that you have is a really good lens on what the balance sheet equation really looks like right now, especially at a time where we are talking about.
Increasing oil prices.
Maybe on the margins you see increasing commodity prices. You talk about how suddenly workers and that sort of consumer experience is much more important how much a margin's getting squeezed.
If if you look over the last four years or I guess now five years since pre COVID twenty nineteen, margins for our margins are up.
We've been able to We've been able to move.
Price more than our costs, even though costs are up a lot, right, I mean, the average worker wages in our sector are probably twenty percent in the last four years, which is a lot. A price is up twenty to twenty five percent, so that equation still works. I think if you have less distinctive properties or less distinctive experiences, you don't have that same pricing power, and margins are being hit more.
And that's a challenge.
I think right now, if you look at urban hotels, their margins are under a lot of pressure. Still it's getting better as the business traveler has.
Been coming back, but it's something to watch out for.
Are you seeing hotels trying to spend to be able to deliver that and then what does that mean for margins? If in order to get the larger margins you need to have this all around experience, But to get the all around experience, you have to build a lot of capability.
Like everything, it's a paradox in life. I mean, you have to be able to do two things at once, right, And so I think hotels that have the ability to spend on the consumer experience to create more differentiation and therefore justify a higher price to that consumer because they're providing that value.
They're doing that. I think you see that.
But other hotels that don't have that ability, I think they're seeing more more challenges. We're seeing that. We've got some wonderful resorts in Italy and St. Bart's that they put tremendous emphasis on the consumer and guest experience, investing in SPA programming, wellness, off site activities, picking up from the airport and with a great car.
Those types of things.
At the luxury end, right, they're seeing prices that are exceptionally high and still able to push prices at the other end, you know, if you're a non more nondescript hotel. I mean, it's tougher today because the consumer is being more discerning and how they spend their money.
So you talk about bleasure, which is a difficult word for me to get my head around.
Bleasure, it's fun to say, actually, and how.
Increasingly businesses are mixing business with leisure.
What's your life like?
I mean, do you basically just go around and just experience the different experiences that you're properly and you just basically go there and you say, you know, I need a spa treatment to really understand the value that you're providing.
That massage wasn't quite as good as it should have been. I need to do another one, exactly. Yeah, it's a lot of that.
Yeah, it's not as interesting, just as you would like to believe. Business trips do tend to be to probably some more leisure arning to destinations than most.
So it's fortunate in that regard.
I spent a lot of time talking to the leaders of our businesses. We have about twenty five business leaders across our portfolio. I spent a lot of time meeting with investors, meeting with other owners or constituents in the travel leisure business. It's a large and growing sector. It's a third larger sector of the global economy. It's ten percent of global GDP, ten percent of global employment. But you have to stay connected to the round of what
actually is happening. Not quite the massage, the massage in the spa, although I tried ever taken that once in a while, but I try to get a sense of what the consumers is looking for, and so I spent a lot of time on the road and a lot of time trying to understand consumer trends, investor trends, and the mindset of our management teams and the challenges that they deal with day to.
Day, and on the ski slope on a Friday to see how many people are auditating from working from the slopes. Eric Resnik of KSL Capital Partners, thank you so much for being with us.
Truly a pleasure having you here.
Thank you, Thank you all for.
Sticking with retail.
Danielle Bretdauer of HSBC maintaining her reducing rating on a home depot, but lowering her price target to three hundred and eighteen dollars, citing the pressure of higher interest rates and lingering pandemic effects with do it yourself customers stuck on the sidelines.
Daniella joins us. Now, Daniella, thank you so much for being with us. Just an overview.
Level, where are we in terms of the normalization post pandemic where everyone went to sort of shore up their homes because they were going to be stuck there for the foreseeable future.
Hi, good morning everyone, Thanks for having me on the show.
Let me begin by.
Sharing you our base case scenario for the US economy, which stands the FAD should start easing in September and the US economy avoids the recession. So that's HSBC base case scenario for the economy. And according to our regression models, currently the market is pricing a thirty percent chance of our recession, up from ten percent of the risk of our recession last week. So with this easing, the US
economy would avoid a recession. And we recently increased the number of rate cuts this year to three twenty five basis points to a relative cut of seventy five bibs. And with regards to Home Depot, the current rise is broadly in line with the stocks value. In the last six months, it has been a favorite name for income investors, investors that look for give the youth. We have a two and a half percent give danude for Home Depot.
But you know, Home Depot has missed Wall Streets revenue estimates three times over the last two years, and we consumer spending, higher interest rates and the economic downturn recently could hinder sales recovery for the home improvement projects and negatively impact Home Depot's growth.
Danielle, We've been talking a lot about the bifurcated consumer that you're seeing weakness on the low end. Is there any sign in any of these earnings that it is starting to migrate upwards?
So yeah, thanks, great question, because over the past few months we saw more evidence of a tired consumer. Large cap names such as Walmart that operate in a more defensive sector of consumer staples tend to outperform under risk of scenario and Walmart which reports on Thursday, it's usually perceived as a good proxy to the state of the US.
Consumer, Danielle.
Though it's not just a good proxy for the US consumer according to on the lower end. According to Walmart's last earnings report, they talked about wealthier consumers trading in trading down. So is this just say something about the consumer as a whole, or is it about Walmart taking market share from other players.
So the takeaways from the Walmart quarterly results are one, consumer wallets remained stretched, but they responded well to Walmart's strong value proposition. Second, food inflation continues to moderate. It's down from where it was at the end of least quarter, and it should stay at low single digit rates. For
the rest of twenty twenty four. And third, the US consumer, even the wealthiest one, is now shopping at Walmart, so they do have reported market share gains among higher income consumers.
Just quickly, Daniello, is there anything in the earnings or some of the commentary that you've been really focused on that suggests that we're headed into about of real consumer spending weakness beyond what people are expecting.
No, I think that it has, as you put it, it has been biffurcated since the beginning of this year. So consumers are spending more on travel and you know, other discretionary purchases rather than complex housing projects or remodelings
of their homes. So I think this scenario until we get again a clear picture from the fat But even if we do get the K cuts this year, it's something that only in twenty twenty five, given the new government and the results of the election, then I think that's where we'll get more defined scenario for the US consumer.
Danielle read our HSBC Thank you so much for being with us.
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