Bloomberg Surveillance TV: August 15, 2024

Published Aug 15, 2024, 4:00 PM

-Tom Steyer, Galvanize Climate Solutions Co-founder
-Harry Sommer, Norwegian Cruise Line Holdings CEO
-Tom Porcelli, PGIM Chief US Economist

Tom Steyer of Galvanize Climate Solutions discusses growing enthusiasm among the democratic donor class and Vice President Harris's economic and climate plans as she gears up to visit Western PA. Harry Sommer of Norwegian Cruise Line Holdings shares the company’s plans for disrupting travel trends. PGIM's Tom Porcelli breaks down today’s data points including Jobless Claims and Retail Sales, and what they mean for the Fed.

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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.

Here's the latest. Kamala Harrison President Biden are set to speak in Maryland today.

It is their first joint trip.

Since Biden dropped out of the race. This is coming ahead of Harris Israeli and North Carolina tomorrow, where she's expected to unveil details about her policy agenda. Joining us now is Tom Steyer, co founder of Galvani's Climate Solutions. Tom, great to have you back. Thank you so much for being with us. What are you hoping to hear from Harris's campaign given that we haven't heard so much in terms of how she differs from President Biden.

Well, what I'm expecting to hear Lisa and hoping to hear is that her agenda around the economy is going to be about opportunity. Then in fact, she understands that America is the land of opportunity and it gives everything the chance to do the most, and that is exactly what drives this economy, what makes our capitalism capitalistic economy so strong. At the same time that I expect her to continue most of the policies of the Biden Hairris administration.

So she will continue on this electrifying the grid. What more do you expect if she were to win, that they can add on to what Biden did. When it comes to the Inflation Reduction Act, well, I.

Think to a large extent, it is going to be about implementing the Inflation Reduction Act, which is really two things. It's not just about the grid. It's about deploying the existing technologies when solar batteries evs, but it's also about innovating and creating the next generation of any related companies and technologies. So that second part is absolutely critical. We're seeing deployment happen spurred by the IRA, but very much driven by private money. What we need to see is new companies solving some of the problems around energy in ways that work for consumers and companies.

Well, when it comes to the competition, and if you think climate is existential, why not let the cheap Chinese evs into the United States.

I'm square.

Here's my answer for you. Look, I am a huge believer in trade. I believe that the benefits, the dispersed benefits to American consumers of trade are huge and important, and we've all enjoyed them for a long time. And it's theoretically true too. What is true is that the Chinese economy is doing something strange. They are leading the manufacturing of almost every clean energy product wind turbines, solar arrays, batteries, evs. But what's also true is they're by far the biggest polluter in terms of carbon emissions, and they're using their carbon emissions to try and drive their economic program of leading this energy transition to pull their very weak economy out of the ditch. So, in fact, the idea that they should be charged for their emissions that are about a third of global emissions makes very good sense to me. And we're doing it in not direct way, but it's actually a way that turns out to be pretty fair.

The other big issue, not just national security when it comes to China, but the other big political issue in the election is who's going to win the union vote. How does Kamala Harris strike that tone the fact that they want to see more evs in the road. But actually this unnerves a lot of rank and file of those labor unions in places like Michigan, which is critical to Democrats maintaining the White House.

Absolutely, But let's take a step back, if we could, Henry, which is this We've all listened to Elon Musk and Donald Trump talk about their attitude towards organized labor and labor unions. In fact, they've been sued over what they said on Twitter. So the truth is, it's not a choice between Kamala, who is a very strong union person, and a blank person. It's someone who clearly is anti union, an anti working person. And that's been a long history over decades of where mister Trump has gone and where he's likely to go. So yes, it's absolutely clear that Michigan. Obviously, the UAW has a huge sway in Michigan and they're a really important part of the Democratic coalition. But the truth is that the person who supports working people and who supports organized labor is definitely Kamala Harris. And to go any other way is to ignore the facts of this week, let alone the last two decades.

And Tom, you're painting quite a dichotomy between the two candidates. And I just wonder in your conversations with not just investors but portfolio companies that want to do clean technology, if there's a sense that they're holding back on investing because of the uncertainty of the race, and it might continue to do so if it is a Trump presidency.

Well, I think when we talk about the possibility of a Trump presidency, let's break it down into two things. One is what's going to happen in the United States of America. And I think that to a very large extent, when it comes to the deployment of the existing technologies, they're just cheaper. You know, if you look around the world last year, so twenty twenty three of new electricity generation, eighty six percent of it was renewable. They're not doing that to be nice. They're doing it because it's a cheaper, better deal. And those lines have crossed and there's nothing that mister Trump can do to change the economic forces. What is really important from the standpoint of addressing the climate crisis more broadly, is this, This is obviously a global issue. It requires global cooperation and American leadership. That is something that a Trump administration will never do. I mean, they famously withdrew from the Paris Accords. He's talking about getting out of NATO, let alone cooperating with the UN efforts around climate. So from the standpoint of the American economy, we're going to continue to deploy. I think that's baked in the cake, just because it's a better deal. Texas has tripled its solar since twenty eighteen, and that's the state where they love to say how bad renewables are, but they're a bigger win producer and producer than California.

Tell me, Joseph about thirty seconds. Do you think that Musk's friendship with Donald Trump will ensure that there will be a friendly environment for electric vehicles even if Trump gets since the office. No.

I think that mister Trump doesn't really have policies and he doesn't have friendships. So whatever he said on said this week, that's something that'll change over time because they don't even have a platform. They literally don't have a platform because they don't have policies. They just have instincts urges and vengeance.

Time Stier of Galvanized Climate Solutions, who really appreciate you coming in as always, thank you for being here. Here's the latest cruise lines of bucking the trend and travel industry. The signs of a consumer slowdown continue to mound, at least in certain corners. Norwegian Cruise Line Holdings, Carnival and Royal Caribbean all boosting their year end outlooks amid record setting demand. Harry Summer, Norwegian Cruise Line Holdings President and Chief executive Officer, joins us. Now, Harry, thank you so much for being with us. I want to just start with what you're seeing in terms of whether demand is sort of plateauing, accelerating or falling off. Just a touch on the.

Margins, Well, good morning. Thank you for having me. On Demand in the cruise industry right now is great. We're very very happy with what we're seeing with the consumer. You know, keeping in mind that the demographic that we're pursuing is mostly upper middle class, upper class demographic across our three brands, and those consumers certainly continue to have money to spend and are continuing to spend it on crucifigations.

At this point, Harry, I guess there's this key question of how divorced the upper echelons are from the rest of the economy. Essentially, do you find that your business is somewhat insulated from a cycle where you have consumers that aren't necessarily feeling the same kind of pinches elsewhere.

So I think there's a number of criteria, a number of things that really do help insulate us, as you mentioned now. Number one, we are fishing in the upper demographic pool, as I mentioned, but we also have a very long lead time for booking. So unlike hotels and air which are dependent on a lot of close in bookings, our average booking curve is six eight months into the future. So we have tremendous visibility into trends. If there is ever any weakness that we're not seeing any but every once in a while there's a few sailings that perhaps are doing less well, we can make adjustments six eight months in advance, small adjustments that put things back on track. It's really a unique feature of the cruise industry that allows us to continue to have more stable and higher returns. You know, fundamentally, cruises is a tremendous value. Our average yield, you know, versus a hotel ADR is anywhere from thirty to forty percent below what they expend on a hotel. And I think consumers, whether times are good, but especially if times are less good, certainly recognize that value and that accrues to us. I mean, the last couple of quarters, we've reported eight and six percent year over year yield increases compared to last year, where we're guiding to another six percent for Q three. We see that as a very strong consumer.

Harry, I just wonder about prices. I mean, are you in a position where you might even be able to rise raise prices given that level of demand?

You know, I think, yes, great question. I think what we've showed in our financewers for the last few quarters is pricing has been going up. We're guiding in Q three and Q four for prices to go up. I mean you may imagine, you know, with the long lead time I described, Q three and Q four are substantially sold out, so we have great visibility and we stand behind the guidance we just issued a few weeks ago in our quarterly earnings goal. Pricing will absolutely go up in both quarters, and it looks that way for twenty twenty five certainly as well, Harry.

I want to get your thoughts as a CEO of a major company. Lisa mentioned this fascinating statistics of CEO is being let go from companies at an unprecedented pace, going back to twenty seventeen. I wonder how you think about this moment in time. You're obviously the CEO of a company that's successful, but when you look among your peers again, not just the cruise industry, but CEOs of large companies, has something changed that there is more pressure in a way there hasn't been before.

So I'm guessing there's always been pressure in the CEO role. But I think we're in a world of a rapidly involving consumer. You know, tastes change over time and consumers change over time, and we have to be constantly thinking and innovating in the future. I mean, right now, as an example, we're planning for ship deliveries through twenty thirty six. I mean, we have to have a pretty good crystal ball and a pretty good feel for what the consumers are going to want for you know, years, even a decade into the future, and it's really important to keep that future focus if we're going to be successful.

Harry, we had the Sea of Marriott on yesterday and I'm talking about Marriotte yachts. Now, are you concerned on the higher end consumer the competition that's coming into the industry.

You know, I've always said that our competition is not other cruises. I mean, cruises in general make up about two to three percent of the overall vacation market. You know, we're keenly focused on what hotels do in general, and we believe cruising is a wonderful vacation alternative to hotels. I mentioned before the huge gap in value or price thirty to forty percent below hotel. But also, you know, hotels have their asset light model as being a competitive advantage in their industry. It's also a competitive disadvantage because they lose control of the product. We own all thirty two ships in our fleet, fully own them one hundred percent ourselves. We have thirteen more ships on order, by the way, and we can ensure that we deliver an outstanding consistent product across the fleet, and I think guests are beginning to realize that that consistency is something you don't always get in the hotel space.

I've been on cruises before, and when you get on board all the extras you have to spend more on, especially things like some of these excursions. Are you seeing consumers start to ratchet back some of that spending.

You know, not at all. Our onboard spend continues at record levels, you know, you know, we get weekly reports, you know, as our ship's travel of our fifty five to sixty thousand guests that we're carrying at any given time, on board spend shows no cracks. We're very very happy. You know. It's another advantage I mentioned the long lee time that consumers have in making bookings, so they're paying for their cruises four or five months in advance. By the time they come on the cruise, that money spend, it's already paid for off their credit card. They come on the ship with the full whilet ready to spend more. And unlike hotels where people don't really stay at a hotel, although the tent to sleep, people stay on the ship to do everything, shop, spa casino, they arrange their short tours for us, so we really have we really getting much larger share the consumer's wallet on the ship as well.

It is literally a captured audience. Harry Summer, Thank you so much for being with us. Harry Summer, Norwegian Cruise Line Holdings, President and chief executive Officer, bond market selling off of but yields Hire you are seeing good news is good news across the equity sphere. Joining us now Tom Porcelli a PGM fixed income which is a good and beautiful thing. Tom, always wonderful to see.

Thank you for being here. Good to be with you all.

So what's your initial take? This actually wouldn't suggest that the Fed is behind the curve and needs to cut rates aggressively.

So I think it depends how you define behind curve, right, because I don't know that you're supposed to be looking for notable consumer weakness today. But let's just use the sort of the FED zone forecast against them for a second. If you look at what they're forecasting for the unemployment rate next year, what they're forecasting for inflation next year, and what they're forecasting for the FED funds rate next year, the unemployment rate and the inflation rate are we have that right now, and they have one hundred basis points of cuts next year. So I would argue that you pulled forward all of this. You've pulled forward the slowing and labor, you've pulled forward the slowing in the unemployment rate. So I think there is justification for pulling forward this hundred basis points worth of cuts that they actually are forecasting for next year to this year. So to me, that's the sort of the right calculus of it.

I would actually also.

Argue that, you know, when you think about cuts, even if and again it's not our forecast, we're not saying they're going to do one hundred basis points worth of cuts, But I have a lot of sympathy for the idea, which is what the market is pricing in.

You know.

I think what we have to keep in mind is you're even at one hundred basis points. If you cut one hundred basis points, defend is still restrictive. I mean, that's sort of the interesting thing. Policy was calibrated or is calibrated for a meaningfully higher inflation rate and is calibrated for meaningfully lower unemployment rate. But those things have now moved.

Okay, that said, you have to wonder, if this is incredibly restrictive, why the economy isn't feeling it, why you're seeing an acceleration in retail sales.

Yeah, So what I would say is that there have been so many buffers in place, right, Like, if you think back to how this whole thing started, all that fiscal stimulus, all of that excess saving, the idea that there was a wealth effect because home prices were rising a lot, equity prices were up a lot. This made people sort of, you know, sort of exist in this feel good environment, and I think that really sort of propelled consumption in so many ways. So I would argue that the hikes that we saw, that aggressive tightening cycle really didn't have a chance to sort of clamp down because of all of those sort of extra factors that were in play. But I would highlight that you are starting to see delinquency rates on the rise, modestly, but they're rising. You are starting to see the unemployment rate rise again. It's still relatively low, but it's up to seven ten to percent at this point. So I think you're starting to see some of the tight policy now start to show through.

Well, it's this idea that you're not cutting to react or cutting just to get us in the right place. When you think about ray cuts, what even is that line, because I know you're saying, just what the Fed's projections one hundred makes sense? Or is the idea of cutting a hundred basis points something that looks like a recession?

Where's kind of that cutoff for them?

I think it's such an important idea, and that's why I think, you know, and I've said this before, I think when the FED starts cutting, I don't think classically, when the FED starts cutting, it's like, oh, you know, it's over right, the recession is here. I don't think that's what this is. I think the narrative coming from the FED has to be, hey, look, we're just looking to extend the cycle, right, We're looking to extend the expansion. I think so the FED has a real opportunity here to sort of shift the narrative. And I would argue that they're starting that process now. You know, when Powell finally shifted to focusing on labor over inflation, which I would argue is long overdue, I think that's that's step one. And I think the next step is, hey, look, we don't think that things are really sort of slowing in a notable way, but we are recognized that policies calibrated for a completely different inflation regime than what we have right now, and so we can take back some of that aggressive tightening.

Well, Rauffa al Bostic certainly one of those individuals that is starting to recalibrate. But if that's the case, and they're going to message that this isn't in deterioration, but we're trying to land the plane, how do they do that before the US election?

You know?

So I love this question, and I have We've done this analysis. I'm sure so many others have.

You know.

We went back and we just went back to nineteen eighty four. It seemed like a fine round number. We looked at every single election from nineteen eighty four through to today, and what you see is that history, that modest history, is littered with examples of the FED adjusting policy during election years. In fact, not just during election years, but in and around the election month. All they needed was the sort of the justification from a data perspective, and I would argue that the unemployment rate being up as much as it is. Inflation being down as much as it is is your justification.

How do we know though, that it isn't actually headed in the other direction that we already saw the slowdown, especially because Joba's claims are actually going down and you're seeing, for example, Walmart increasing its expectation for profits. You're seeing companies actually doing better out of the four hundred and ninety three other than the magnificent seven and accelerating earnings. How do we know are not the prespose of an acceleration that will only be turbocharged by rate cuts.

So it's again a super important question. And what I would say is Walmart. Walmart is maybe the exception to what's going on broadly, right, because we know from a lot of other retailers that things are starting to they're starting to feel some of the pressure of the consumer that's really sort of really looking around for value. And if Walmart's really the value player, then it actually makes a lot of sense that they performed well. And I didn't look at the numbers directly today, but I heard that they did pretty well, So I think that that is an important idea. But again, I think this is this is exactly my point, I think, let this continue to roll out, right, Let the economy continue to sort of expand by just removing some of the aggressive tightening that they have in place. I don't know that unless you think that inflation is going to reaccelerate to you know, four handles, which is what this policy is calibrated for. I think the it can feel very comfortable that alls you're doing is taking back some of the aggressive commodation that we don't need anymore because inflation has slowed so much. And sorry this so I'll make this one last point. You know, just keep in mind when we think about inflation, just think about how labor it is doing. The unemployment rate again, I hate to say it again, but the unemployment is up. But in combination with that, hours are down. I think Mike mentioned that earlier, but that broadly speaking, hours are down a lot, wages are down a lot, quit rates are down a lot. The consumer's not feeling that great about labor right now. And if you think about the thing that really does the driving from a consumption perspective, it is the unemployment rate. The unemployment rate rises and consumption tends to slow just quickly.

Here, what would you have to see in the non farm Payrolls report in September to change your view.

So I think that you need a dud of a report, right Like you know, I don't know how you quantified dut I've fully acknowledged that, but I think you need a number that really sort of that that has even worse contours than the one that we saw last and last report. And I think if you get that, I think that's the FEDS justification from going.

For Tom Prosellio of PGM Fixed Income. Always wonderful to see you, Thank you for being here.

This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am 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

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