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Ruining us right now with SNBC Nco Securities Joe Livornia for years on Wall Street, always with a vibrant message, let's get the let's get the administration work basic. You were in the first Trump administration, are you affiliated with the second Trump?
This film?
I do know the Treasury Secretary. I think he is doing a great job.
And you made a joke. He was perfect. That was on any list. But my boss was Larry Kudlow.
So Larry created a role for me in actually Economic Council. That was Trump one point.
Oh.
So now I'm in the private sector.
Larry Cudlow and I are on the same page. Just goes back to Wayne Angel. That nominal GDP really matters. Top line current GDP is this administration with the chaos, whether Republican or Democrat. Have they dampened the animal spirit? Have they dampened Cudlow's nominal GDP? No?
Tom and I would argue that I'm going to give a counter narrative, and maybe it's that the chaos and confusion, which is the conventional wisdom for now, is actually not a bug of the system, but rather as a design so as to keep trading partners offside. If it continues, obviously the full year, that's a problem. But I would say that what worries me much more on the ansertainty side is.
What are we doing with tax policy?
Because if you look at the uncertainty index, what we see is concerns about taxes are sky high. So we need the Congress to figure out are these tax cuts getting extended, are they not? Are there additional tax cuts? How might we pay for them? And that's to me is a bigger concern for the economy and what it means for capacs ultimately growth and then nominal activity.
Seems like every company conference call is in to every guest we have in here, and we have roughly twenty five a day. Don't cite tax policy, they say the uncertainty when you do five hours, you get a lot just introduced into the system. Has simply been we just don't know where the policy is going to be you tell us where the roadmap is. Companies will adjust tomics to say that companies are just investors, won't just it just gives us a little bit of sensor, so we
understand the chaos from a negotiating perspective. That's fine, that is a strategy. But boy, it seems like the market's really craving.
Certainly around it does.
And I remember reading a book way back when by Michael Jensen Harvard Business Review. We talked about the short termsm of US corporate America, and maybe there's a little bit of that now where people want certainty, they're not going to get it. But also CEOs tend to be pretty opportunistic, and you're buying a free option, so if anything goes wrong. And by the way, the economy, we could debate about the economic outlook, you could just blame whatever is is convenience.
So it's probably part of that.
If you look at the small business side that generates forty percent of the jobs, their numbers look great. So I'm going to push back a little bit on that. Let's see how we go after April second, and what happens is we moved towards June.
Are you modeling sub two percent real GDP. We weren't doing that pre election, were we.
So here's the thing, Tom, I don't like the first quarter numbers.
They're going to look soft because the expenditure side happened before. It just happened before, slack right unusual.
But what's really bizarre is that if you look at like real income at least through January, it's up almost three percent.
So you have, like the expenditure.
Side from Atlanta fed down about two percent. You've got this huge increase on the real income side because job growth is still positive. I'm not sure how to square the circle right now. Yes, it does look like GDP will be on the lower side than the higher side. You're supposed to mark your numbers down for the year, but having done this for a while, we also know that you could drive a truck through the first and last estimates.
Fair But you know, given trickle down economics, where's the genie co official of the United States? I mean, is this an administration governing with a presumed tax cut for they have have halves against half of America flat on their back.
Yeah, So this is where I would say that where the Trump the Tax Cuts and Jobs Act tikcha, which by the way, President Trump wanted to call it the Cut Cut Cut Act ticchas. I like the former mob But anyway, but if you look at the data through the pandemic, and Kevin Hassett are current head of NEC, Lowry's old job had done some nice work on this
as well. But if you look at the income by quintile, the mid to lower ends and relative terms, that extraordinarily well under Trump one point zero and in terms of real meeting income was about six thousand dollars in those first three years, and that was about five to six times what had been in the prior sixteen years with both Democrats and Republicans. So if the tax cuts, in my opinions, the tax cuts are extended, you'll get that blue collar boom that Larry my O boss talked about.
And I'm optimistic we'll have good wage growth, but we'll see what happens.
You need to get this done.
I mean, judging just from your source of people you talked to, do you think that tax will be extended?
I do think it's extended. So one of the things people I thought it was interesting is when Speaker Johnson got that budget blueprint throw I thought that was a big deal because that told me we're going to get the cr So the fact we didn't shut the government, I think it was smart that Chuck Schumer kept the government open because I would have delayed things another several weeks. Depends is can we get a bill in place sometime maybe before June that it can be signed by year.
That would make me more optimistic that we'll get good growth if we're waiting, and I think, by the way, we'll get the tax bill done, But if it happens in December, I'm going to lower my GDP numbers.
Joelivern, you're with us.
Joseph flavourna SMBC Nego Security is an extended conversation this morning.
Good morning on your commune across the nation. Good morning, ninety.
Ninety one FF in Washington, ninety two nine FM in Boston. Of course, good morning on YouTube. Subscribe to Bloomberg Podcast. Just stunned at the results there.
Good morning to all of you.
Good evening, I should say in the Pacific room, Paul Joe, from.
Your perspective, what are the long term gains that we may see in this economy for what may be some short term pain what are the long term gains that you're looking for.
It's clear that we can't sustain six percent budget f HISS to GDP ratios, and you know, fortunately it was ever party in power always blames the other site for not being a fiscal hawk. But it seems like we certainly need to do something on the spending side. And what I've highlighted to clients is if you look over the years, the GAO has done some interesting work about how we do have a lot of waste abuse, some
fraud in the system. The Pentagon's paying six hundred dollars for a hammer, the massive coss over runs for the F thirty five. By the way, anybody, any politician, typically wants something done that can.
Ever be touched.
It goes under procurement because we could always argue it's national defense, so that spending doesn't get touched.
But GAO had said that.
Anywhere from one hundred to three hundred billion we could get rid of per adum. Now I've heard people think Elon must give a higher number.
I don't know if that could be the case.
But at least the older stuff said, look, if here's one hundred to three hundred per year, over ten years, it's one to three trillion, So that to me is meaningful.
But we'll see.
I like to again, this comes back to the budget because I want things that are legislated, because if it's legislator, you can't undo it every four years.
Registration is quite a legislature, right, I mean again, the legislature's out of play. Well, right now, we got an executive branch judiciary chase it after him.
That's right, Tom, And that's why we kind of need to figure out. Okay, what you know, we haven't really legislated a lot. We've done a lot of executive order. That's why I'm relying. May not be the right word, but I'm assuming that there's going to be something codified in law in the House.
Okay, totally totally, Lavarn.
You're driving the market higher now, Futures up seventy, Joel, And this is totally unfair to you because you're not it's sixteen hundred Pennsylvania or those environs.
Right now. You say we need a tax cut.
Brilliant who listening or watching says we don't need a tax cut. The line is tariffs will pay for it. Supporting Canada in Mexico explain this.
Okay, so we I'm making the assumption there will be some minimal level of tariff, and I don't know what the numbers are going to be. Hopefully we'll know a little bit more April.
Second.
My gut is that will extend a little bit further than there. We'll get some clarity, but not everything we want. Again, I don't know what they're doing in terms of the tax cuts or sorry, the spending cuts, and I don't know what the tariffs will be. I mean, there's roughly three trillion of imports, so a ten percent tariff in theory could raise three hundred billion at least in the early years.
But I don't know what they're going to do with that.
Is that going to it's certainly not going to be legislated in all likelihood, But is there a tariff?
What is it?
How many spending cuts are actually implemented, and how does the economy perform?
You see legit work on this from year budget. Here's CBO from the CBO.
Well, let me say this.
I don't like the CBO scoring because if you look at they assume in the next to give you an idea over a ten year scoring period. The difference between using their revenue numbers, a difference between a three percent economy and a one point eight percent economy over ten year period is about four point three trillion of additional revenue.
So this notion CBO is.
Going along this current law versus baseline to me is a big problem and you can get a huge tax hike next year if it's not extended. To assume that your revenue share or GDP is going to go up, I think.
Is totally misplaced.
So there's a lot of things that are going on, but I think the scoring has been willfully inadequate. But again, Tom, until we see what's in these bills, I'm just speculating. I want to see actually what happens, then I'll make a judgment call at that point.
The most recent University in Michigan survey was disappointing to the marketplace in the sense that it reflected slower growth outlook and higher inflation outlook. How concerned are you about inflation moving higher, whether it's driven by tariffs or not.
What is your inflation call?
So the inflation is long, What I am optimistic is you are seeing money supply and it's hard to measure totally broad credit creation.
A lot of credit now is outside the public.
Markets or in the private credit markets. M two growth has slowed. You are seeing wage growth moderate, although I'm not a big proponent that wages drive inflation. Gas prices are dropping in some parts of the country. The energy side, to me, is going to be very important and if the administration is successful, and I think they will be,
but they need. One of my assumptions, they need gasoline and oil prices down because you could lose about a point on inflation headline and core if oil goes back to sixty or slightly below. So we need that. So that's how That's how I thinks see things shaping up.
Do you what do you.
Say to people who say tariffs are at tax on the consumer?
So what I would say is, it's so if you when you go through just a simple math of what President Trumpet said last year, ten percent across the board, sixty percent on China, you got like a nine tenths increase in the price level, assuming you know everything was passed through, which history suggests it's not. Some will be absorbed in the margin, some will be absorbed in the
exchange rate. But I would say to people, Look, if you're having to pay a one off higher price for a good, but if you're a blue collar worker, you have no tax on tips, no tax on overtime, which by the way, those are supply side factors, and you're getting paying no tax on social Security benefits and also having the benefit of low marginal rates and low corpor rates.
That to me is a great trade off because ultimately, in my opinion, it will drive long term productivity growth through capital expenditure.
Thank you so much out on YouTube for this idea of what our government does. And I adored an Admiral Zoomal was one of my heroes a million years ago. So we spent twenty four billion or whatever nine billion of research costs on the Zoom Wall destroyer. We went from x amount down to seven. It costs so much it was a failure. Now we're back to urly Bloke. I think Stravetis would say that's a good thing. Only
fourteen percent of the budget is controllable. What would be the proper rece responds of the parties against President Trump. Do you see a cogent response to the Trump economics.
So well, I'm not sure.
I don't ask you a question on the spending. I'm confused on the question.
It can be either. I'm confused on the moment as well. The confusion here is I don't see a cogent debate about our fiscal policy over into what it means for our family's investment policies as well.
Where's this debate in?
So I read six months?
So let me just sidetrack for a minute. Let's just talk about Trump and omics. So what I say is this isn't exactly what you ask, but at least we'll talk about the economic policy is what I see as a desire and intent to re engineer, reindustrialized the US manufacturing base, and a tariff is a necessary but not
sufficient criterion to try to do that. In addition to low corporate rates on domestic production, cheap and abundant energy because it's very key to produce things, Germany is basically isn't cost efficient anymore if you exclude the pandemic production there, industrial productions back to it was in twenty twenty ten. And of course any business friendly regulation permitting process I think needs to change a bit. Even I think the other side can agree on that. So that would kind
of encourage capital to come into the US. On the fiscal side time, which you raise, which is very interesting.
We need to have that debate.
But I don't think we've ever realized how much spending we just we just waste.
And if people talk about, oh, it's all entitlements.
And that's where the money is a thirty percent discretionary. But there is a lot of waste and abuse even on some of these titlement programs.
But people unfortunately.
Conflate getting rid of the abuse with oh, people are losing their service, and that's not the case. But we don't have that debate, and we should.
We have a debate here that we haven't talked about basic economics. Where does SMBC and ECO see the unemployment rate going given all this.
We've got the rate essentially in the low force four to four and a quarter.
So we think it'll stay going to stay there?
Yeah, well it's for one now and I would say out or call yes. That means to tell you the truth that doesn't surprise us. We tend not to look at other economists, in part because we don't want to be biased. But to get a higher rate, Tom, we'd have to be really pessimistic on growth also too, Oakin's law is useful, which is that you know what Oakins laws, but it's the relationship between potential GDP and what actually
happens in the economy. And the other thing is this is that even if we had a slow period of growth this year, maybe you talked earlier about the pain, Yes, we're gonna have somewhat of a pullback on the fiscal side. Secretary Besset mentioned detox. But if all of a sudden it looks like twenty twenty six is going to accelerate,
financial conditions will leaves in anticipation of that. Hopefully there'll be some clarity on the tax side, and companies wouldn't lay people off, so there'd be no reason for the unperpoint rate to rise if the twelve month forward was improving.
Joe, thank you so much.
Huge, Thank you guys, thank you, thank you.
Joel, Chief Economists, SNBC and Eco Securities, A swarm and formally working with mister Cuddler with the Trump administration version one.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am. E's durn Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube with that question.
Our equity discussion of Monday. Maybe dare I say of the week as well? Liz Anne Saunders joins us now with Charles Schwab. Lizzy Card to rule. I got to be in the game even when I'm stressed. Going to cash is a tough track record. How do you stay in the game given the cross currents of March of twenty twenty five.
So, I think within the equity space, thank factor focused. As you know, Tom, we have been very factor biased and oriented over the last couple of years, feeling like the monolithic sector calls are much more difficult to do.
There's much more volatility on a weekly week basis at the sector level, a little more consistency in terms of performance at the factor level, and one of the factors that we added to our focus list as we headed into this year was a low volatility For obvious reasons, you wanted to have a little bit of that protection with that low volatility factor, and that's been the best performing factor you guys track it at Bloomberg over the
past three months or so. So I think the best way to navigate is a little bit more defense, but not in the traditional defensive sectors, doing it via the factor level.
Lizane, I think one of the concerns out there in the marketplace is people are starting the question this economy. If in fact some of these tariffs come in, it could spell economic growth concerns, it could spell inflation concerns, and that calls into question kind of the overall health of the economy.
How material is that risk, because that would go to the earning story.
Oh absolutely, I think right now, if you look at if you look at betting odds, if you look at a consensus of economists, you're somewhere in the thirty ish percent probability of recession. But that's a completely moving target as a result of the nature of this uncertainty and the way we get tariff announcements, not to mention back
and forth pauses retaliations. But I think if we go to the extreme on the tariff front, it raises recession risks, not just in the United States, everywhere, and even if we were to have more resilience from a trade perspective, but as a country with less trade dependent, if you started to see more weakness show up globally. That obviously filters through in the United States, So not a better than even bet at this point for recession. But I think we all need to be dusting off recession watch
list to reflect this incredible amount of uncertainty. We're not seeing a huge impact yet on the hard data. We're seeing it obviously in the soft data. But at this point, unless we get a reprieve on tariffs, what's more likely to happen, like a couple of years ago, is the hard data is more likely to catch down to the soft data versus the other way around.
We've at the peak the trough. We did have a ten percent pullback in the S and P five hundred. We've rallied a few percentage points here, including the futures market today. How does that market moved with a little bit of hindsight here, was that a reasonable response to this uncertainty that's been brought into the discussion.
Probably, But I think the fuller story gets told under the surface of the indexes. You're right in the terms of the S and P five hundred maximum draw down has been ten percent this year, but if you look at the average member level, the maximum draw down has been fifteen percent. If you go down to the Nasdaq and you look at average member maximum drawdown, you're a date it's negative thirty three percent. So there's been a
lot of churn and weakness under the surface. We still have a large cap bias in terms of what has been leading from a broad style perspective this year. It's just been large cap value, not large cap growth. That still gives a lift to these capulated indexes in relative terms.
You and your team live on airplanes and outseeing the schwab world. Is when somebody asks the question from the chief seats Lizione Saunders, is the bullmarket over? Let me rephrase, Is the bull market broken?
No?
But I think we are clearly in a correction phase. It wouldn't surprise me if we continue this with this trade uncertainty, and particular if the tariffs do go into full effect on April second, that we could have a cyclical bear market. I'm not sure I would yet be at the point of stating that if the bull market is over, that we're entering into some sort of secular bear market. But we're in a cyclical pullback here, notwithstanding
some strength today. So I think that there is still risk related to the uncertainty regarding tariffs.
Lyzienne Saunders, with just all the experience she has at Charles Shrubs, she's with us for an extended conversation today. Good morning across America, Good noon in Europe on the Pacific Rim. We say good evening to all of you. Just humbled by the success out on YouTube of Bloomberg podcasts. Subscribe to Bloomberg Podcast Paul.
And some of the leading tech stocks that we've all grown accustoms seeing moving higher and high, whether it's Google or you know, Amazon or Microsoft, and you know peak to trough are down fifteen to twenty percent here. How do we think about the tech sector as potentially a leader for this market, which it's been for many, many, many many years.
Can we still rely on that?
I think you'd have to see stability and forward estimates. Whether it's the Magnificent seven, or it's the tech sector or maybe the growth trio that houses the Magnificent seven, which we tech, communication, services and consumer discretionary. We still have stronger earnings growth expected, or say the Magnificent seven cohort relative to the S and P four ninety three the other stocks within the SMP.
The problem is direction. Directionally, we're moving up.
A little bit in terms of X Magnificent seven, we're moving down such by the end of the year we're going to be not full convergence. But in this space on consensus numbers, you've got Magnificent seven looking at maybe twenty percent earnings growth versus mid teens for the rest of the s and P five hundred, and that is in contrast to a year ago where the Magnificent seven had about fifty five percent earnings growth and the rest of the SMP was very low single digit.
So it's it's the direction.
It's the direction of travel that matters, and I think that's been one of the fundamental reasons why we've seen that group of stocks lag this year.
What's your confidence level, Lezanne, in terms of the rest of the market, that load of mid teens kind of earnings growth, what's your confidence in that earnings number?
To the analystos bring those down.
Terribly high, not terribly high.
I think analy or at the mercy of the guidance that they're getting from companies. Companies are dealing with the grave uncertainty basically going into to hold pattern from a capex perspective. From a forward guidance perspective, it's not quite like it was back in the COVID era where you saw record percentage of companies just withdrawal guidance all together.
But it's such a murky environment, and what analysts have done is take that sort of collective wisdom from their companies and their bias has been to pair back estimate. So you've gone from at the beginning of the year about a fifteen percent expected growth rate for twenty twenty five and this is all the entire S and P five hundred. That's down now to around ten percent, which if that is accurate, that comes in at a lower
growth rate than twenty twenty four. I think that's been at play in terms of this corrective phase where at.
The multiple valuation, like you say, stay with large cap, but are we under a twenty multiple and a blended Liz and Saunders market.
Yeah, so you have to segment it.
You're still in the mid to high twenties for tech or the magnificent seven.
Then you get closer to twenty.
We've come down from about a twenty two to four in multiple about twenty. Then you can go equal weight or s and p X mag seven and you're into the teens there. So it really depends on how you segment. Think the problem is that we've had a declining numerator and a declining denominator. As I mentioned, I think we need to see stability in the denominator part of the equation to provide a little bit of a lift from evaluation perspective. We're not quite there yet.
I can't emphasize, folks, the partial dynamics Lilie and Saunders just effortlessly described there. So take it further, liz in I got a better valuation in Europe. Warren Buffet is buying in Japan because he's got a better valuation there. Can you with a just as a general statement, a pe ratio, Can you be a pe hog an underby going to a lower ratio. It's not going to lift when we.
So I think the international comp is an important one because clearly we have seen the rest of the world trade at a significant discount to what have been fairly lofty valuations in the US, and I think that's part of the reason for international app performance. It's a reminder to investors that even if US exceptionalism isn't dying here that there are merits to diversification across asset classes, inclusive
of international and that's clearly paid dividends. But one of the things we always like to remind folks is when you're comparing a region to a region, or a country to a country US versus anyplace else in the world, you have to understand the economic dynamics of the country or region. If you are a country, say like Australia that has a big mining component, the multiple afforded to that market in general is going to be lower than a more innovation driven economy like in the United States.
My colleague Jeff Clientopho, you guys know, is our international strategist talk about Germany is essentially an auto etf So I think there has to be interesting that understanding of the economic dynamics, not just in apples to Apple's valuation comparison, that needs to come into play.
Do you agree with my core theme?
I think everybody knows. I feel this way that the great unspoken is corporations adapt and adjust. Can standard impoors five hundred corporations and adapt and adjust to what they've been given?
In two thousand and twenty.
Five, Well tell them what they've been given. So a colleague of mine was at the business round table in DC and one of the themes coming from companies specific to tariffs was just tell us what they're going to be, and then we can adapt and adjust. But the back and forth a shoot from the hip. The uncertainty in terms of timing, magnitude, duration is what's causing such a
constraint right now. If we actually knew what the playing field look like, I think companies absolutely could adapt and adjust. We're just not there yet.
So Lizianne, giving all that uncertainty as a backdrop, is there any argument for small element cap stocks here today or no?
So I think there's some bottom fishing that is probably warranted. But I think more important, particularly important in the small cap space, is to stay up in quality. So focus on things like strength of balance sheet, the non zombie companies, strong free cash flow, high interest coverage, profit margin stability. That's the way I think to move down into the
small cap space. I wouldn't take an index approach to small caps, especially in an index like the Rustle two thousand, as we're still talking about at least forty percent of the stocks in the Rustle two thousand are some combination of zombie companies or not profitable. There are times where you get that leverage to a big turn up in the economy by going down the quality spectrum, and that
tends to work in small caps. I think we're still far away from the point where we can start to build in an expectation of a huge pivot back hire in economic rumetic We have to wait for that for broader small cap out performance. But I think that there are opportunities in the higher quality segments of the small cap indexes just brilliant.
We'll feature Lizien Saunders and single Best Idea today. Thank you so much, Lizzie Sounders and Charles Sharp really really appreciate this this morning.
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Let's to talk about this morning, busy morning. Futures up sixty seven. Nice lift to the.
Market, and some of that that's because of our political news flow.
Here in America. Henrietta Tresh joins she's a Vada partner, as we've.
Really enjoyed her valuable briefs once twice a week here. Henrietta, I guess we're up because we're going to get tariff light.
Is it as simple as that?
I probably the interpretation the headline reads is tarreflight. I think if you dig underneath the surface, you'll see that it's still tariff really heavy. We have twenty percent new tariffs on five hundred billion dollars worth of goods coming in from China.
Already those are going to rise to higher rates.
They go on top of the Section three oh one tariffs that are bet in place for seven years, So we're already up in the nearly fifty percent range that should take higher on all goods coming in from China. And you can say that story across the globe as well, with Canada and Mexico. I expect EU auto tariffs around the April second new investigations, so there's a lot to come.
Are Republicans pushing back against as a general statement the White House? See percolations of that, But do you see Congress animals pushing back against the Trump administration.
No, not at all.
I was just on the hill with a whole host of Republicans from all different states Tennessee, North Carolina, Arkansas, and the response function is basically to diminish the severity of the tariffs and then talk about how they might
be short lived. Because the senators and lawmakers don't have information from the White House, they don't have a sense of what's coming any more than the street does, because so much of this is moving target and being crafted at the White House without their input and in many cases directly against what they.
Would like to see.
What you see the members doing is really downplaying the import of these terraffs. So there's a widespread view, for example, that it's just the uncertainty around the.
Terraffs, not the tariffs themselves, that are the problem.
And then it really delineates between states. Do you a lot of union members in your state. If so, maybe you're kind of supportive of the tariffs. Do you have a lot of manufacturers in your state, then maybe you're supportive of the tariffs.
So it really ranges. But I don't see any material pushback from Republicans at all.
No, well, how about the Democrats. I'm not even sure we know who the voice of the Democratic Party is here. Yeah, I don't know, Chuck Schumer, I don't know much less seeing a coherent countermeasures from the Democrats.
Where is this party?
Democrats are absolutely nowhere. So it's also in with Democratic leadership over the last week. And what's what's exactly the problem is the same things on the Republican side. Because President Trump's agenda is more populist. There are some Democrats who support the tariffs. Bernie Sanders, for example, is going to support some of these tariffs, and senators or congressmen from the heavy Union states and the russ Belt are
going to be supportive of the tariffs. So the Democratic Party a can't find a message around how to demonstrate that, you know, twenty five percent tariffs on aluminum directly trans to every bottle of beer that you're buying. They cannot also get their caucus united and in line to say, hey, we don't like these taxes on Americans that are coming. We don't support using current policy baseline to blow out the deficit.
They're nowhere.
Andrew.
This came up this weekend over a beverage of my choice. I'm gonna try to keep politics out of it. Henrietta Trace. Is there any indication whatsoever that the liberals of the Democratic Party want to move to the center.
I don't think that's something that anybody should make in from the far left. I mean, Bernie Sanders has been Bernie Sanders for forty years.
You know, so I don't see that change.
I do see the far left getting louder, and there's some fracture there as well. You know, when you think about a senator like Fetterman out of Pennsylvania differing with maybe some of the more quintessential far left folks that you would think of with AOC or Bernie Sanders. There's just a lot of divide, I would say, in the Democratic Party.
And is there not a belief of the Democratic Party leadership that the left wing of the party is weakening perhaps the overall Democratic Party and if to any extent they want to be competitive in two years, that they need to move more to the centers? Are not a belief there?
Yeah?
No, absolutely there is.
I mean, but man, how long have we been having that fight? You know, when Democrats were, you know, upset at Bernie Sanders for running againt Hillary Clinton. It was the exact same conversation, and that was way back in the day, you know. So it's not that Democrats don't have the same fights that they've always had.
They're just still warring faction.
And I think what the problem might be from the establishment front, with the Chuck Schumer wing of the party is that they're seeing the current dissatisfaction with Donald Trump translate out into the ether and the general public and Democrats and special elections. I think I pointed out a couple of weeks ago are up ten percentage points more than they were.
Just in November.
So it's almost like this the work of uniting the party or getting the party excited to turn out is happening in spite of, or because of, or as a secondary function of this conversation.
So they're not overly concerned.
Great first brief of the week, Henrietta Trace, Thank you so much from all of us a team Absurveillance really really appreciate it.
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Talking about United Airlines and you know, the lounges and all that.
Let's talk to somebody who actually knows what they're talking about. How dare we do that?
Out of Dartmouth and Tuck Stephen Trent joins the City Group Iconig on the airlines this morning. Robert Crandall once told me that the revolution was persistent cash flow. Are the bigger United States airlines? Are they finally delivering persistent cash flow?
Great question and thank you for having me on. I would say post pandemic, the network airlines are doing a very good job of that. United, Delta, America, and Alaska, the four of them last year had several billion dollars worth a free cash flow.
Paul, I'm looking at the pandemic got in the middle of this all Gottom some steck. United is killing it ten year track record, three point four percent per year.
Yeah, shareholder return.
Talk to us Steven about what we heard from the airlines.
I guess a couple of weeks ago, in front of a investor conference, we saw the majors take their guy Ford gttence down talk to just about what's driving that, what are they seeing?
Yeah, absolutely, so you do have some issues in terms of where people are trying to get their heads around the economy. You know, are we going to have a slowdown or not? Are we going to get sort of coherent statements from Washington which give consumers and investors confidence or not. So some of the noise we're getting on that level have indeed bleded least short term into the booking curve. But I think beyond that as well. You know, unfortunately you had one Q is.
A tough quarter.
You had several unfortunately high profile aviation accidents, several of them were fatal, sadly enough. And then whether there's already a tough period for one queue, we had California wildfires in January, So the confluence of those factors certainly weighed on what happened in short term guides going forward in terms of getting into some common orders here. You know, fundamentally speaking, we're constructive.
Where are the airlines in terms of capacity and how quickly can they move capacity if the economy were to weaken.
Sure, so if one looks at domestic capacity per se, looking at the entire group, we may have kind of a flatish to slightly up picture, you know, in terms of how quickly this stuff can get moved. We already went through sort of a mini review of this last July, when on a short term basis there was a little too much capacity relative to demand three months or so of that situation and there was enough of a pulldown that we got that nice inflection point in domestic unit
revenue in September, so they can move fairly quickly. What's sort of hard to sort at this time, to sort out at this time, excuse me, is what will happen from the perspective of the economy. Do we get a slowdown or is this just a hiccup?
Steven Chatt with is a city group right now in the airline business, how do you respond to the question there really a bank with frequent flyer miles and all the marketing and the dumb lounges da da da da dah that happens to fly an airline? How do you respond to the financial side of the business versus moving bodies.
Yeah, that's a great one, you know. I would argue that the model has evolved. So if you look at the airlines twenty years ago, you know, doing the credit crunch, for example, Delta Airlines was doing just over a billion dollars of loyalty and pro branded card revenue for example.
Now they're doing several billion dollars a year. So I'm not saying that these businesses have suddenly become card companies or their consumer companies, but that free casual contribution is now significant versus what it used to be, and that will play a role in valuation and earnings quality. So, you know, we think that it's a good thing that they've moved in that direction.
United, American, Delta, the big three. Do investors differentiate between the three, and if so, on what basis?
Yeah?
Absolutely, you know, I think traditionally Delta has been the goal standard of the trio, the one that people look to, management look to the air nin stream, the strength of its co branded card. I would say United has moved significantly in that direction. American Airlines was a little bit more of a of a high beta play, and we've seen some strategic changes from American over the last couple
of years. I think the most recent one is really a good move in the right direction for American re engaging with managed business travel I want to get.
You in troubled compliance. Where's JEP blue in five years? You got a neutral in jet blue? Yeah, where's chip blue in five years?
Help me?
Yeah?
Absolutely, Lisa is paying attention.
Yeah, you know, I would say that in terms of where that carrier moves, the unit revenue side of the fence and the route strategy is sort of one piece of the picture where it looks like they're moving in the correct direction. I would say the piece of the pie that looks a lot more challenging for them is the balance sheet.
Are you going to pay fourteen hundred dollars for a lounge to get a free gin and tonic?
No, I won't do that.
Is the whole lounge thing like done. You know, you actually had some.
Post pandemic shop in all the lounge stuff when everybody started flying again and you had, yeah, you had a lot of people with frequent flyer status who were flooding lounges. So that's a great signal in terms of demand. But some of that has to be sort of a little better, and I think some of the airlines have already started to do that. So I think people still like the lounges.
I get twenty seconds when you were at Dartmouth. Did you fly into Lebanon you feel like you're landing on a Caribbean island.
Yes, my goodness, I did fly in the Lebanon a couple of times.
Not true.
It was sitting on my lap. Stephen Trent, thank you so much, really appreciate it.
We're city group. Just definitive here, lots of green in the screen. Buys he likes United in the American airlines. I believe you mentioned as well.
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The newspapers Lisa Matteo, Lisa, what do you have?
Okay? So next month, the White House hosts the annual Easter egg roll, Right, all the kids come out. It's a big, one hundred and forty seven year tradition. But the New York Times saying this year could be a little bit different because it could be funded by corporate sponsors. So that's the difference. But they're saying, though it's raising some ethical legal concerns from President Trump because he's allowing companies to profit from the event.
What are we talking about?
How much right could a corporate company bring in? So they're saying, there's three options. It costs between seventy five five thousand dollars and two hundred thousand dollars. That's what they would pay for the little perks to what.
Okay?
So for example, they get the corporate booth, they get the logo placements, they get the branded snacks, they get to have exclusive tickets to brunch with the first Lady. They get one hundred and fifty tickets themselves for the event.
Does the Easter Bunny come into Cyber.
Can't know, but it's a different kind of feel to it. I guess it could be if if it brings in these corporate sponsors next supposed to be focused on their childrendiness.
Let's raise a little cash, I guess we.
Raise a little cash.
Yes, it goes to the White House Historical Association.
So there you go, all right.
Paul Sunday Duke right Pounded Baylor eighty nine sixty six. No doubt they're a good team, but the Washington Post is saying a big reason behind their success is this age old strategy. Their height. So yeah, the tallest team in the country seventy nine point eight inches across fifteen players, so it arranges from a seven foot two center to a five eight guard yep, yep in between. They have
no other player listed below six and five. I mean, it's crazy the height that they do, but it's an advantage.
Dumb question, Paul, you're qualified, Okay? Should they raise the hoop? Not eleven feet? Twelve feet? Now?
They if they do anything, and they might push back to three point line at some point, but they'll start in to pros there for that. But yeah, so Douke is a the tallest team, but they're also I think and probably the ranked third in terms of defense. But they're the best defensive team I've ever seen.
I mean, moment of silence here, You've nailed this. Why does your bracket show your brilliance?
I have no idea exactly because I tried to get cute.
But I should have just picked all the all the higher seats.
You gotta be dumbes would like me and Lisa.
Yes, I gotta do that.
Too much bracket talk.
I'm like, we lost so much money in our two to oh one k is, we're talking bracket next, all right, we go from two.
Okay, we go to roth I raise.
That's what we're talking about. This is actually the new trend with young savers roth I raise.
Okay.
The Wall Street Journal is saying they're taking the advice of their parents, financial coaches, tax advisors. They using it is the save for retirement big purchases they're actually opening in addition to saving for the workplace retirement plans. So that's something a little bit different. But with tax safe and not far off, they're actually making all these last minute contributions to it too. On top of it. So we're talking about people forty and under. That's who's starting
to use this a little bit more. And that's they're seeing me.
I think my three of those kids, they're between twenty five and twenty.
Nine, they do both well.
They all I'm thinking is my two older ones. Yeah, they were little kids.
They remember nine to eleven because that they were preschool nine to eleven, they remember the financial crisis big time, and then they have the pandemic. Their whole life, they've had crazy, crazy, crazy stuff happened, and I think that's made them a little bit more cautious in terms of saving That's what. That's the conversations I have with my guys and they're all four one k's and doing all that kind of stuff, and.
Forks from Paul Swende there's it's the single smartest thing I've heard in ninety days here. Our kids are different and one of the things that they've seen family members or friends'.
Parents run out of money. That's something we didn't really know. Yeah, it's different, Absolutely brilliant. Thank you, Lisa. I just can't say no. I'm about the value of the newspaper segment as well.
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