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Joining us is Heidi Kreeve Iredica, senior fellow at the Council and Form Relations. Heidi, is there some secret little plan and do you have it with us this morning?
Yeah? I come bearing the secret plan.
No, I think I think you're consistent with with what many of your speakers have been have been talking about. This meeting today is really, you know, the best the best outcome is that they continue to talk and negotiate and open some you know a little bit of daylight, uh in the the ability to you know, to carry
on where this goes. There is no secret plan, and I think the most important thing that markets need to understand is that this is that we're in We're in unchartered territory right now because we you know, when we've had these these standoffs in the past, we haven't had such a polarized Congress and polarized politics. We haven't had such a narrow, narrow majority in the House, and we haven't had a speaker who's made it a deal that we don't We don't really know, you know, how much negotiating.
Power he has.
But he did just pass He did just pass a you know, a bill, and it gives him leverage. So there is no secret plan. I expect after this meeting today, everyone's going to take to the to to raw politics, going out to constituencies, whether it's business constituencies, whether it is going after brad you know, fragile red states where you have veterans, fentanyl, social security checks.
You're going to have a full blast.
On media about what's at risk here. And I don't think that the Republicans are necessarily going to budge. I don't think McCarthy has a lot of room to budge. So there is no secret plan.
So when you said markets need to understand there is a question about whether markets are being held hostage by this negotiation, that basically, as we heard from dalliep saying yesterday, if Peacham fixed income. Essentially, politicians are waiting for markets to freak out, for the S and P to tank before they go to their constituents and say we had no choice. Is that really what's going to basically have to happen before there's a deal.
So I think I would agree with Deleepe that there there needs to be market pressure.
There needs to be something, and we already have.
I mean, it's unfortunate that that's what we're looking to pressure Paula Tians. But without that market, that market signal, it makes it hard for McCarthy to go to the holdouts who are holding him hostage and say it is time to do a temporary left of the of the debt ceiling to get us through and get us a little bit of space to negotiate between so that nobody loses space at the end of this.
This is incredibly difficult because if the politicians are waiting for markets to respond, markets are thinking we've been through this before and we're just going to lose our shirts. We're going to lose money and be on the wrong end of this if we play into this game of chicken. As John put it earlier, that Washington is playing with markets, So at what point is it's just becoming circular before
markets don't respond and then there is no deal. It actually makes it more likely that we get some sort of default. So the.
Fact that we're talking in Washington about needing markets and markets art and wall streets looking at Washington saying you guys got to do your job, it just it shows you what a gap there is between between between DC and New York and it's it means that we have, you know, it means that the system is obviously broken. It also means that we're putting out this picture on the world stage of the United States as as being hugely dysfunctional and not not a leader and steward of
global markets and and the global economy. The the the pressure needs to come, and whether it comes from outreach to constituents and particularly in fragile states, or from or from markets, there needs to have We need to have the pressure that gets us to a relief period so you can align budget negotiations and debt ceiling negotiations so that everyone can walk away with some face saving at the end of this. And we hope we get there. It's more likely to be in the fall than than
over the summer. But in the meantime you're going to have a lot of a lot of politics playing out, and that is that is bad for well, it will give you a lot to talk about, which this story is not going to end just you know today after this meeting, Hi.
Do you alluded to something really important, Whether this compromise is the United States on the international stage going into the G seven Do you thymna's the case?
I think it. I think we have we lose credibility. We go in.
We go in with with a desire to project power, to project the strength of the dollar as the as the central reserve currency of the world that we use underpins our sanctions, our economics, state craft. We have the deepest, most liquid capital markets in the world.
We have you know, I don't think we.
Actually even have a threat to the dollar that is out there right now except from our own doing our our own you know, it's an own goal from from from you know, from from all from every way you look at it.
So Janet Yellen is coming, uh?
Is uh?
Your her G seven meeting? Is?
Uh?
Is cut short?
We have Biden heading out to a G seven and quad meeting at the leader's level later this month. This will this will all be background music to a president that wants to go out and talk about leadership, stewardship, responsibility, and at home, we're going to have this political morass of debt ceiling negotiations.
For a long, long time, the US had the luxury of doing questionable things. How do you think that luxury is no longer there?
So I think that this. You know, our friends are watching us very closely. We're heading into a polliction of a presidential election cycle, so we're you know, our friends are wanted watching us closely, but we're literally playing into the hands of our foes, those who would be we're you know, we're handing the talking points to two adversaries right now about the US is losing its ability to lead the global global economy, you know, to lead the
global global alliances. And it's just the timing is very bad. It's at a time when we are really trying to reassert that leadership and we're not showing it at home.
Hidi, appreciate your time. Let's catch up soon. Wonderful input and insight as always from Heidi Kreboretica of the Council on Foreign Relations please to side that joining us NAS. Robert Tip, chief investment strategist, had a global bonds at PGIM Fixed Income. Robert, we talked about the eleventh hour. Someone corrected us very quickly and said, it won't be
the eleventh hour. It will be the eleventh hour, the fifty ninth minute, and the fifty ninth second, And Robert Tip, maybe that's the case when we get to the eleventh the fifty ninth minute, and the fifty ninth second, if it gets messy, Robert, are we buying go selling treasuries.
Right?
Well, in the short term, I.
Think you're buying treasuries right. It'd be a risk off event, and there may be variations in how the curve deals with it. It could be bad for the back end of the curve, the long end could underperform. But in a flight to quality, treasuries usually do well. We saw that in the SVB crisis, and we've seen it in past debt crises in the US before, and I think
that would be the case this time as well. I think it's worth keeping in mind of that twelve to twenty four months down the road, unless we happen to be right out another debt ceiling debate. You know, I don't think this is going to matter. I think it is extremely important in the short term how it gets resolved, and it may be of epic proportions if you've got certain kinds of outcomes, some that are are widely envisioned
and some may be less. But twelve to twenty four months from now, I think the basics the risk here, alluding to your curve, which is expecting rate cuts, is that we may have evolved into a different kind of secular environment where the growth is not so much so debt driven, and that as a result, growth continues here and we end up seeing the FED holding or doing war hikes and getting some upward adjustment in the belly of the yield curve.
Interesting. So, Robert, two time horizons there and two things to unpack. Let's deal with them separately. Let's deal with the first one the short term. Do you and the team think this gets solved anytime soon the debt ceiling gets addressed, and what informs that view? What do you look to, Robert to get that idea?
Sure?
Well, I think the easy part is that nobody it's nobody's interest to cave early. Everybody wants to show that they negotiated up until very last minute, and the system, in a way is in place. You know, the United States, this freak of nature, with this messy system that's been you know, ultimately very successful, is designed to prevent any one idea, any one party, any one group from getting too much power. So it's very hard to move anything forward or stop anything. This is going to go right
down to the last minute. I think what'll be interesting in a way though, is if Joe Biden goes for a power play of sorts, since it being kind of a sleeper in the sense of continues to say, you know, this is the best budget that you could pass, and all of the spending, all the taxes, these are the best policies that you could come up with. You need
to have the borrowing capacity. And if they do not give him a clean increase in the net ceiling, that he invokes the fourteenth Amendment, goes ahead and makes the payment, and the worst case scenario would be that then you know, the government is sued effectively. I'm not a legal expert, and either it's upheld or it's shot down. If it's shot down, well then every time you come up against
the debt ceiling. You have to get it raised. But on the other hand, if it's upheld and prioritization of principle and interest payments is allowed, then this thing has gone forever. In a way, that's a loss in that it allows profligate increases in det GDP to continue ad nauseum, But in terms of traders and anxiety, it would be a big win.
Well, this is something that Jenny Allen is called the constitutional crisis should it be invokes, So it's not necessarily what they want to have happen at a time when they do not want the legal challenges and they want some sort of consensus. Let's put that aside for one minute, Robert, and get your sense of how this is going to work.
If the market just sits on its hands, are you concerned that a lack of reaction as everyone waits for the eleventh hour, fifty ninth minute and fifty nine second to make any kind of moves will mean that this actually will not get done in time.
I think that you are going to see an increase in anxiety as the balances run low, and you know, if there's an accidental default, you will see a dropping stock prices, a dropping yields into widening your credit spreads. But I think that the economy is pretty resilient to
those kinds of shocks. I mean, whether you're looking at October nineteen eighty seven and the stock market decline them, whether you're looking at the volatility surge in twenty eighteen, the economy is not derailed by those incidents of volatility. And most like the current cycles, the increase in interest rates, saying in nineteen ninety four quick fed rate hike cycle, a lot of volatility in the markets. Economy powers through that.
So again I think twelve to twenty four months from now, there is not going to be a major economic event. It could, though in the short term, be very drawing for the markets.
Well how do you play that? I mean, is it frustrating for you? Do you feel like you're being used as a pawn as a market participant in Washington's games? Or is this a good trading opportunity or perhaps you can get ahead and have an edge.
Yeah, I think there's a little bit of each. I think that in the CBS markets, you know, the in terms of the term structure there, I mean, people are paying real money to protect against the default in the short term, and you know, there could be a trade to do there. But I think as an investor, everybody has their edge, and I would think, you know, for some for investors, their edge may be in as fascinating. What's the twelfth to twenty four month environment. How are
fundamentals dramatically differently priced from where they should be? And I think right now is one of those environments where the market is heavily biased towards pricing and a recession and having a more optimistic view is going to be the best approach. Tactical trades on the debt ceiling. I think you can do on the margin, but should not be a major aspect.
Did you buy some Apple debt yesterday, Robert, Yeah, I'm.
Not going to comment on the trades.
Yeah, but you can build a little bit, Robert, if you can, I think, yeah.
I think the market here, you know, is supportive. Here sees yields as having traversed the range of the last ten twenty years, and yields are attractive. And I think some of the inversion of the curve, the demand for corporate bonds, the fact that spreads are supported in the face of what people think is going to be a recession is indicative of the fact that people need yield and if the market is well supported and that you're
likely to see spreads. The range that we've seen over the last year is going to hold.
Robert Tip the page and diplomatic at the end there. Thank you, sir, Robert Tip on a credit market constructive. Lisa Chalett joins US now chief investment officer at Margan
Stanley Worth Management. Lisa, thanks for ving with us. I won't ask you to translate, Lisa, We'll ask you this though, just how frustrating is this market, Lisa, when you look at things like all the right cuts that are being priced, yet at the same time there is this feeling that we will continue to live with durable growth.
Yeah.
So, look, I think there are a lot of conundrums in this current market, and I think that probably the single most frustrating thing is the benchmark.
At this point.
You know, most institutional investors, most retail investors define the market as the S and P five hundred index. That index, as we know, is up almost eight percent a year to date, up seventeen percent from last October's low, but certainly for the last you know, four or five months.
A huge portion of that move, at least, you know, since January thirty first, has essentially come from seven stocks, the megacap tech stocks who led for most of the prior thirteen years, the you know what we you know, I think affectionately nicknamed the fangs or fangs M plus whatever. And I think what has been frustrating is that underneath the surface, a lot of the indicators that are flashing
recession have crushed the cyclicals. We've seen the devastation of the regional banking system as the FED has raised rates and as the implications of tightening have.
Begun to show.
And yet there's that benchmark, you know, supported by that heavy concentration at the top, you know, chugging along. When low the surface there seems to be you know, some pain and suffering and damage.
Small caps in particular have been crushed.
So, Lisa, the question we've got to ask then is can this persist? And if it come, what would bring down some of the big tech heavy weights that have supported this market.
Yes, I think the reality is that in the short term it can persist, you know, certainly as long as we're you know, kind of in this stalemate, I think to your point between you know, some labor market resilience, the power of pricing power, and some of the nominal growth drivers that can support some of those names.
Now, ultimately, you know, our.
Thesis has been that, you know, there are no companies that ultimately are immune from recession or significant economic slowing, and we don't think that this time ultimately will be different, even though it has felt that way at moments. So our best gas continues to be that there are some
earnings disappointments out there. I mean, one of the things that folks have to digest is that the way earnings are modeled, it looks like we're on a hockey stick towards recovery over the next couple of quarters, with you know, this first quarter that's being completed representing a trough in earnings growth, and then we kind of, you know, kind of get year over year earnings that are better and better every quarter until we get to twenty twenty four,
where the market's looking for up thirteen percent earnings.
Now, you know, we're still very close to.
Peak economic growth and peak corporate profit margins. So that's going to be a feat to achieve those expectations.
Lisa, what would it take for you to throw in the towel and basically just say this time is different.
I think the fundamental issue for us is if we see a reacceleration in economic growth, if the consumer really does prove to be resilient, if the slowing that we expect to emanate really from the credit crunch does not materialize, if there's enough savings cushion, and we.
Would probably see that in the next.
Two quarters where these earnings that look like a hockey stick recovery are achieved. If those earnings are achieved, then quite frankly, our thesis is wrong.
There's another aspect to this that some people keep bringing up, which is perhaps the largest companies are consolidating market share to such a degree and taking it away from smaller companies. So you could see small cabs basically blown up, absolutely decline dramatically, which is something that we have seen in certain pockets, even as the large cabs continue to chug
along and chart really impressive growth. Do you expect that kind of environment, that that's going to be the new reality for a while.
Look, I think it is possible.
Anything is possible, and certainly there are a host of these companies that have very, very dominant positions. But I do think that we're at a political point of a political moment where, you know, the tolerance for you know, further, big company consolidation does start to be debated as an antitrust issue in a way that perhaps it hasn't been quite frankly for over forty years since since the Reagan administration.
And look, some of you know, government in action is what's gotten us here, and so you know what may break the log jam? Maybe you know some attempts at reregulation.
Have we done the debt saving yet?
Bromo nod to do that?
Now go for it, Lisa, stick around place, just for sixty seconds, least of the dead sailing. When clients ask you about this, what are even the team telling them at the moment.
The fundamental thing that we're telling them is, Look, it's not a question of if, it's a question of when and how. The question of when. What's critically important from where we sit is what will Janet Yellen do after she gets approval.
To extend borrowing?
And what we mean by that is at what pace and what duration is she going to issue? Because if you're down to kind of a zero in the Treasury General Account. It is very possible that in the you know, last four months of the year, you know, she's going to be issuing to the tune of you know, six hundred and fifty to seven hundred and fifty billion dollars, which is a drain of liquidity at the same time that we may have some of these credit fronch issues
where we're continuing to pursue quantitative tightening. So the first thing that we're telling clients is beware of the liquidity implications. On the other side, the second thing that we're talking about is the how it matters, uh, you know, to forward looking expectations of growth in terms of what is cut if if that's what it takes to get a deal done, commitments to cut fiscal spending.
What's cut?
Are there rollbacks of some of the Inflation Reduction Act Act spending related opportunities, some of the infrastructure spending that is kind of in motion, and those things have been a support to growth, uh, And if we need to, you know, take that out of the forward forecasts, that is going to dampen economic growth.
Lisa, wonderful response. Thank you, Lisa, Shannader moment Stanley Wealth Management. In fact, there was fantastic.
One of my favorite economists ever, Neil dad I joining us now. I always love hashing this through with you. He's head of US economic research at Renaissance Macro.
I want to start there. What's going to win here?
The consumers who keep spending and now are borrowing or companies that are pulling back spending and being more conservative.
No, I think the consumers will win. Historically the causality goes from consumers to businesses, right, So I think the issue is that, you know, companies have been preparing now for several quarters for a recession that hasn't yet arrived,
and I think they're moving further away. You know, they're further off sides on growth, and you know, if the consumer continues to hang in there, there may be a period of catch up that happens where they have to restock their inventories, maybe adjust their capex budgets, maybe hire a bit more post more openings. So I definitely, you know, I mean to me, it's also so Lisa, as you know, it's really about what is the consensus pricing in and
then what is the likely outcome? You know going to be and then you try to pick your battles as wisely as you can. And you know, to me, the consensus right now is expecting a recession to start really in this quarter, I mean June Q three. I mean the Bloomberg News consensus I think is for flat growth in each of the next two quarters. And I don't know. I mean, it just doesn't seem like that's going to happen. And we had a strong auto sales number for April.
We had it looks like core retail sales will come in stronger for April. We know from the public builders that April was a very strong month for new home sales.
So you know, I mean, good, Okay, take me a step back. Let's tesus out a little bit. You said when you're talking about how the consensus is the consensus of a survey of economists, or is the consensus what's priced into stock valuations, because they're two different things and they haven't been agreeing with each other.
Well, look, I mean the bond market's also out there pricing in rate nuts and I think what like two hundred bases points worth of cuts between now and the end of next year. I mean, that's hard to see in the context of a strong economy, right, so, or even an economy that's treading water. I mean, people clearly expect some weakness in the economy. I think, you know, with respect to equities, I mean, equities are still well off the highs obviously. I mean we've seen some rally
of late. But yeah, I mean, I think you can make a case to say that the outlook for stocks is somewhat ambiguous, right, I mean, if recession risk gets priced out, that should be good for earnings, But at the same time, that probably leaves the FED. The prospect of the Fed, you know future, right, heakes still on the table, which could weigh on stock.
What will we have to see tomorrow for the CPI report to shock this market to say, wait a second, we have to start thinking about the FED staying at five percent, possibly going up to five point fifty, more than rate cuts which are being significantly priced in.
Well.
I mean, I do think that the scope for some upside surprises on inflation. The question is whether the Fed is going to lean into that by continuing to hike over the summer. I don't think they will. I think that they probably take a pause you know, we have you know, essentially they're captured to some extent by events, right, I mean the regional banking issues. Obviously there's still an
issue there. We also have the debt limit negotiations, So there are things out there that they can point to to kind of keep them away from hiking over the summer. But ultimately, I think if the inflation numbers stay relatively firm, if the economy is still holding up, we're clearly not growing below trend, right the unemployment rate is not going to rise as much as the FED expects. Right when we're at three point four percent, the Fed's looking for
a percentage point increase. Bet we're now in the end of the year. I don't really see anything in the outlook that justifies that kind of a move. So you could be well, coming back in September talking about maybe they're revising down their unemployment forecast, maybe there taking up GDP, and that could you know, push them towards hiking again.
It's difficult to know what's going to happen in the future. It's incredibly difficult to even know what's happening right now because the signals are muddied, and perhaps you disagree. I'd love the argument, but I do see that, for example, the Senior Loan Officer survey to me, even though perhaps nothing was that surprising with credit tightening, we did see a huge drop off in demand. Again, the c suite confidence factor not there or else not willing to pay
for the credit. And when you look at optimism among business executives and anecdotally they say, we are very concerned about what's coming down the pike, about inflation, about how much we have to pay our workers, about our squeezed margins. So how do you pair these ideas with the strength that we're seeing in the overall kind of numbers that we're getting out of these sort of regular surveys.
I mean, CEO confidence and business confidence more generally has been quite sluggish pretty much since last June, and companies have been slowly cutting back cap X inventories have been a significant drag on growth over the last year so, and consumers have been you know, their confidence has been pretty weak also. But ultimately, to me, it's what are
they actually doing? Companies are still hiring people, right, I mean this, you know, these depressed businesses, they're still going out and hiring two hundred thousand people a month every month, if you know, for the last three months, if you I mean, the hiring it rate is basically stable at around four percent. You know, see, you haven't really seen, right, So there's a disconnect between how people say they may feel about things, but what they're actually going on and doing.
And I'm more concerned about what people are actually doing.
Although you did see that businesses are not engaging in mergers and acquisitions. They're not doing capital expenditures, which directly goes into economic trajectory. They're not pulling the deal on pulling the trigger on things, right, which has been one of the things the reason some.
Things will get clipped Lisa in a higher interest rate environment like M and A. But you know, I mean you talk about cap X, I mean talk to I mean Boeing orders are going up, right, Boeing production is going to go up. That's going to be a huge telement for transportation equipment, right, I mean that those are capital goods, those are big ticket purchases. So but again, it's not that the economy has to be booming here, right, So there's this sort of there's this expectation that oh,
you know, GDP needs to be like three percent. No, it doesn't. I mean the issue is where's the consensus thinking it's going to be right? And to me, look, the FEDS forecast is zero point four percent Q four Q four this year. That's highly unlikely just given what we have on hand for the for the second quarter.
We're talking about the short term or the relatively near term in terms of growth continuing longer term, there is this question of whether we're bringing forward growth, especially in light of what everyone loves to talk about, the debt ceiling debate, which we've been talking about all morning, and this question of whether they're going to be cutting spending
going forward. How do you sort of pair the short term versus the long term, the short term optimism in ongoing strength in the economy versus long term perhaps sluggishness.
Yeah, I mean I think so, right, I mean that's I think my primary I guess disagreement with the consensus is really over the timing, right. I mean, I don't see a recession as imminent. I don't see one as likely at any point in the next you know, let's say, twelve months. But the FED has told us that they believe a period of below trend growth is required to quell the inflation issue. So that's where the caution comes from.
So I think if you want to be honest with yourself, you know, ultimately there's going to be some kind of economic slump that's out there that the FED will try to engineer to bring inflation back towards its target. If you really believe in the soft landing at this point, you need to be hanging your hat on two things. Number one, some kind of productivity boom that brings unit labor costs down, or you know, the FED basically accepts the higher rate of inflation, and I don't see either
as as a baseline expectation going forward. So again it's it's about the momentum in the economy right now. To me, that doesn't speak to a recession. But as I said, the FED still believes that below trend growth is required to quality inflation issues. So to me, that that that leaves you know, you have to kind of stay cautious.
I mean, I know, it's not it's not. It's sort of a it's a difficult environment, I think for for investors because it's hard to be sort of sustainable, sustainably optimistic on equities here, right, So I think that that that's part of the frustration.
Just before you go, I would love your thoughts on the debt ceiling and what we're seeing and the excitement that you expect in markets as a response.
I mean, that's sort of a bit. I mean, I think we're going through a very public and open negotiation from both sides politically, whether the deadline's actually June first or not. I think the House Republicans have done what they needed to do. I think the administration is doing what they need to do, and I think ultimately there will be some sort of negotiation that that that resolves the issue. I mean, to me, it's not a binary thing, right, I mean, you either go over the cliff or not.
I suspect they won't, And if they do get to a point where they're prioritizing payments, I mean, that'll be an opportunity to be buying bonds because I mean basically you're basically forcing a recession on the economy over the summer at that point.
So you don't think longer term.
And this is where I wanted to go, that this will reduce the US as ability to borrow cheaply and the ability for the dollar to be used globally in sort of the.
What's the alternative, it's what's the alternative? I don't, I don't. I mean, this is just I mean to me, it's it's it's political rancoring. We'll see, we'll see what happens. But I don't. I don't really subscribe to those ideas.
So is this basically the most fun time you've ever had as an economist?
No, the most fun time actually was one. The job was a lot easier in the period immediately following the financial crisis, right, I mean, because back then it was everyone was looking for recession literally every you know, it's around the corner, two years away, and it was never it was never really in the cards for that entire cycle. And pushing back on that was actually quite easy, and the data easily bore that out. Now it's actually quite
challenging because there are so many mixed signals. And I prefer much easier job than not.
So I think a lot of people would agree with you. Neil Zada, thank you so much of renaissance macro research. We really appreciate it.
Helene Becker joins us now to talk about how long's continue, whether margins just keep expanding, and when we start to get some of the pushback that we heard from the likes of President Biden himself yesterday. Helene Becker, Senior research analyst at Cowen, so's to start there, why has it been that consumers are not pushing back more to these incredible price increases.
Well, I think there are two reasons, Lisa. The first is that a year ago, in the first quarter, there was still omicron, so that was one issue. And then the second issue has a lot to do with summer travel, especially international travel, because remember a year ago, the US didn't remove restrictions until June eleventh, and a lot of
people had already missed. Summer trips are planned between mid May and mid March, actually the other way around, right March in May, and they had already decided where they were going, and a lot of stuff wasn't open yet. So now everything is open. People are tired of being home, they want to travel. They feel like they've missed out
on a lot in there, and they're going. And you have huge, huge demand where we're about equal to where we were in twenty nineteen, but we have between ten and twenty percent fewer seats available, and the result is that with demand, even with business travel and international not being one hundred percent back, with demand being so strong and exceeding supply, airlines are pushing up bears and we'll continue to do so until there's significant pushback.
And you're not seeing any significant pushback so far.
I'm not seeing it in the summer months, for sure. I'm a little worried about once we get past Labor Day in general, because we normally see a dip. But also I'm a little worried because I think by then people may be exhausted by the prices. And of course we don't think this summer is going to be significantly better than last summer, especially in the New York area where we have a decided lack of air traffic controllers. And the government and ask the airlines if they would
help by reducing capacity in the market. And most of the airlines who are operating now have employment that exceeds their pre pandemic levels, so the airlines were ready, the government is not.
How much are we looking at a real divergence between the international airlines versus the more domestic airlines, And I ask, with also a focus on first class, which is commanding the biggest premium in years relative to economy. How much is really the gains that we have seen entirely driven by that international flight path the traveler that has that much more discretionary spending.
So, Lisa, we're seeing international outbound very strong from the US, I think because the dollar has been relatively strong. Inbound we're still down versus where we were, but outbound were above. So I think that's one thing. I think the other part of your question with respect to how the divergence between the two, you know, I think that's definitely a summer twenty twenty three event, maybe into twenty four when you get to Asia Pacific which is reopening now, and
then domestic, I don't know. Maybe people will be so overwhelmed by the price of some tickets that they'll pivot and either shift days that they travel, or shift location instead of going to Europe because fares are so high, maybe go to Latin America, Northern South America. Domestic, I think you'll see some of that pivoting because of the differential in fairs.
Do you think that there's going to be some sort of decline in business travel or is it coming back nearly to the level that it was pre pandemic or even more because people are just working from home and then traveling right.
So I don't know the specific answer to that question, because my thought has been that business travel will come back in different measures, so you need to see your clients after a while. Zoom calls don't cut it. Number one. Number two, when you get to time zone differences. It's one thing to be US East Coast to London or western Europe, where you're dealing with a five or six hour time change. You can kind of make that work.
But when you start to get into the nine hour time changes that exist in the middle of the East, or fifteen hours or twelve hours that exist to Asia, Australia, Japan, I think people realize it's hard to do zoom calls at one o'clock in the morning for somebody while they're doing these calls. So I think at some point it
does start to come back. We've thought that it would be international business would be would come back faster than domestic, But I think the days of if it's Tuesday, it must be Rome kind of thing are past us, and to the extent you might have a meeting that would be three hours long. You can probably get away with a one hour or two one hour zoom calls, not
necessarily back to back. But I remember days when I flew to London for due diligence and flew home the next you know, the same day, land in the morning, fly home at night. I mean, that kind of stuff isn't happening anymore.
How much are we seeing, actually the resurgence of the Chinese economy percolate into air travel.
Yeah, not yet. So what you're seeing is what we experienced in the US. You see domestic first, So Golden Week, as I understand it was fairly strong. We should get the numbers tonight or tomorrow, but last week was a very strong week for them. Domestic international hasn't come back yet because the flights haven't come back. In twenty sixteen, there were over one hundred flights a week between the US and China and more between China and Europe, and
now there are fourteen between the US and China. So flights haven't come back yet. And until that happens, which was probably a twenty four event at the earliest, given the political situation, maybe even later. I don't think you're
going to see that that dynamic come back. From a tourist perspective, I think what you'll see, and what you're probably seeing right now is family travel people who haven't seen family in a couple of years because of the Chinese COVID policy which had the country virtually shut down. I think you see students making their way back home who maybe were trapped outside of China. But I think it's domestic is where you're seeing the strength versus international.
Just real quick, here we see oil prices coming down, which means that a lot of the margins probably will only expand. At what point do the widening margins become a political liability for some of the airline companies that are facing a lot of criticisms about the experience.
Yeah, I think that's a great question, Lisa. So I think a couple of things. Fuel prices come down, typically ticket prices follow with something like a three to four month lag in both directions. So that's one thing to think about. Oil prices come down. If oil prices are coming down because we're in a recession, that should bring ticket prices down as well, maybe take some of the pressure off the airlines. The airlines do a really good
job this summer, probably remove some political pressure. I mean, the airlines are one of those industries everybody loves to hate, and even though it brings people together, even though to have a good economy you need a robust airline industry, it's one of those industries everybody likes to pick on, and so they really need to do a better job than they're doing. And I think you'll I mean, I guess we're kind of hoping all that that's not a strategy.
I think we're thinking that as they invest in technology, things will start to improve for them. But certainly the lack of seats is a problem in terms of recovery from irregular operations. So a lot, kind of a lot to unpack there. At least that you asked a great question.
Well thanks, Elaine Becker of Gowan.
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