Michael Dominguez: Overall, surprisingly, we're doing okay. The deficit and the debt are the thing that kind of gets mis-correlated. The deficit is our annual financial budget and if it runs in a negative, we have a deficit that gets added to our debt. The debt is sitting at $35 trillion and when we had interest rates at 0% from a Fed's fund rate, that wasn't a problem. It's a problem when our Fed's fund rate is 5.3%. We are now paying more in interest payments than we are in national defense and that is over a $1 trillion. It's unsustainable long-term. Washington knows this on both sides of the aisle. That is why this will be a discussion point and my only concern is you're in an election year. That continuing resolution you talked about only expands until October, which means right before the election, there's going to be a lot of drama and a lot of chaos around this discussion. It's a serious discussion and where I'm concerned, we cannot tax our way out of this. There has to be some conversation of, yes, even if we're going to raise more, we have to be able to know that that money is going to deficit reduction or debt reduction. That's my own personal view, but you cannot raise more and spend more and still have big deficits and think it's helping at all. If we're going to raise extra tax revenues, can we actually pass a law that says 50% of that new tax revenue has to go to reducing debt? We have to have a balanced budget so we're not continuing to add to it. You'll still be able to raise, you'd still be able to spend. At the same time, we would have some discipline around debt reduction. That's the thing that has to come out of this. I don't know if it will, but I will tell you there's enough concern because you asked about the bond market, it's getting harder to sell our bonds and the bonds have to be sold to finance our debt. I am a believer that this rate environment may exist for a longer period of time and it may never get back to zero. That makes this very problematic.
Past Reports
June: Olympics Drive European Hotel Compression
May: International Trade, Geopolitical Upheaval
April: How Does an Election Cycle Impact Meeting Industry
March: How Supply, Demand Impact Travel, Hotels, Meetings
February: Global Economy Mostly Good News for Hotel Industry
January: New ALHI Series to Examine Key Global Issues
Altbaum: Discipline in (Washington) D.C., not something we hear of. It’s a perfect segue to what I wanted to talk about next because you just pretty much are about to unpack everything that CEOs are going through. You're talking about the bonds; you're talking about the deficit and budgeting, and it's in October all of a sudden, it's going to be we have an election year. What are we doing about the economy? Are we going to pass a new budget? Are you left, are you right? With interest rates above 5%, talk about CEOs who are deciding what they're going to do with their money and the decisions that they're trying to make and oftentimes these are emotional decisions, but they have to be backed by finance. I think you have a saying around that emotion versus actually having facts. What would you say about how your feelings are with regards to how CEOs are thinking next?
Dominguez: I like to say that how we feel is how we behave, and that's as consumers and as CEOs. If we feel confidence in the environment and stability in the environment, then we're going to feel good and we're going to behave that way. Would that mean we're going to spend, we're going to invest, capital expenditures will continue to move? That's what you want to see in an economy. Nobody likes uncertainty and the uncertainty right now is an election. That'll end pretty quickly. The uncertainty around, is the Fed going to start lowering rates? You saw the markets take off just recently over the last couple of weeks because (Federal Reserve) Chairman (Jerome) Powell is telling us he's going to start reducing, but probably towards later in the year. It'll be less than what we expected, but at least we're going the right way and the certainty is we're not going higher. That's what everybody needs. But the CEOs overall, if you look at the CEO Confidence Index, where I'm optimistic, it's all positive. You look at all the trend lines, they're all moving up. A chief executive looks at a CEO index. Looking over the next 12 months, it's positive. Hiring, positive. Capital investment, positive. There's less than 20% of companies that are actually reducing capital expenditures in the next year. That's telling me people are feeling pretty good about the economy overall. Something that was a positive out of a big negative, the Great Recession, because so many companies had more debt than cash on hand, is the reason we had the Great Recession. Because of that, companies spent, going back to discipline, companies spent a decade getting rid of debt. The one thing I can tell you right now is the majority of companies in Pantheon Macroeconomics are cash heavy and debt light at the moment. That is why we've been talking about recession for two and a half years, and you haven't felt everyone tighten up because we're sitting on good cash, earnings are still positive, and that is the one thing that keeps surprising everybody. Overall, earnings of corporations are continuing to be positive. JLL (Jones Lang LaSalle) has this great forecast moving forward, that shows you the earnings are getting more aggressively positive towards the end of this year, to the point of their forecasting in Q4, a 14% in the S&P 500. It's massive. That's just telling me CEOs are feeling pretty good about the environment.
In August: Bullish on the Economy