WEBVTT - The Fed, Interest Rates, and JetBlue 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day, we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.360 --> 0:00:21.800 you listen to podcasts, and at Bloomberg dot com slash podcast. Now, Matt, 0:00:21.880 --> 0:00:25.919 we're gonna get some some smart conversation about Treasury refunding, 0:00:26.040 --> 0:00:27.600 Federal Reserve, all that kind of stuff. 0:00:27.600 --> 0:00:28.800 We can do that with Campbell Harvey. 0:00:28.960 --> 0:00:30.880 He's a professor of finance at the Fucal School of 0:00:30.920 --> 0:00:33.879 Business at Duke University, my former professor, and I can 0:00:33.960 --> 0:00:37.360 vouch that I did pass his Futures and Options class. 0:00:37.600 --> 0:00:39.400 I can't say I did more than pass, but pass 0:00:39.600 --> 0:00:42.720 is good enough back in the day, Hey, Cam, thanks 0:00:42.720 --> 0:00:45.960 so much for joining us here. Matt really wants to 0:00:45.960 --> 0:00:48.520 get smart on this Treasury refunding today. 0:00:48.720 --> 0:00:50.760 What are your takeaways from what they announced? 0:00:52.800 --> 0:00:55.920 So I think we need to look kind of beyond 0:00:55.920 --> 0:01:01.200 the refunding that was announced and just in general. So 0:01:01.920 --> 0:01:08.720 right now, the amount of debt service is about six 0:01:08.840 --> 0:01:13.280 hundred and thirty billion dollars a year, and the average 0:01:13.319 --> 0:01:17.919 interest rate on that is two point eight percent. Okay, 0:01:17.959 --> 0:01:21.840 so we know that rates are like four point eight 0:01:21.840 --> 0:01:26.520 percent or are up into the fives with the short term. 0:01:26.800 --> 0:01:32.520 So it's reasonable to assume that, given the needs and 0:01:32.600 --> 0:01:38.240 given the two trillion dollar deficet, that the debt service 0:01:38.360 --> 0:01:43.880 will explode. Indeed, it will in twenty twenty four be 0:01:43.959 --> 0:01:49.040 the second largest spending category. Right now, again, it's two 0:01:49.160 --> 0:01:53.760 hundred and thirty billion dollars a year, and that will 0:01:53.880 --> 0:01:58.560 will definitely go up to probably nine hundred over the 0:01:58.600 --> 0:02:01.160 next year. Just the deficit of. 0:02:01.320 --> 0:02:04.600 Nine hundred billion dollars that's going to be the interest costs. 0:02:05.400 --> 0:02:09.040 Yeah, so right now it's six hundred and thirty trillion. 0:02:08.600 --> 0:02:10.560 Dollars a year in interest costs. 0:02:10.800 --> 0:02:11.880 That is insane. 0:02:13.000 --> 0:02:16.800 I mean, we talk about big numbers, professor all the 0:02:16.840 --> 0:02:22.160 time here, but that's just bonkers. I mean, didn't like 0:02:22.240 --> 0:02:26.360 Treasury understand what was happening when we were at zero. 0:02:26.880 --> 0:02:28.959 Why didn't they just put out one hundred year bonds 0:02:29.000 --> 0:02:29.839 like the Austrians. 0:02:31.320 --> 0:02:35.000 Well, you know, I advocated that take advantage of the 0:02:35.120 --> 0:02:37.640 super low rates, and obviously when you do that the 0:02:37.720 --> 0:02:41.880 rates go up. But still it's not normal to have 0:02:41.960 --> 0:02:48.520 one percent rate on a ten year treasury given what inflation. 0:02:48.320 --> 0:02:51.560 Was we hit on a thirty year in twenty twenty. 0:02:51.639 --> 0:02:56.040 Yeah, so again you could argue you should take advantage 0:02:56.040 --> 0:02:58.840 of that, but look, the problem is a structural problem. 0:02:59.200 --> 0:03:04.720 So when we have reasonably good growth and to a 0:03:04.800 --> 0:03:08.800 trillion dollar deficit, you know that that's a big problem. 0:03:09.280 --> 0:03:10.880 And again that. 0:03:11.360 --> 0:03:17.519 So the the six hundred and thirty is carefully calculated, 0:03:18.000 --> 0:03:22.560 So for example, we need to be careful with the 0:03:22.600 --> 0:03:26.440 Fed balance sheet and stuff like that, which is kind 0:03:26.440 --> 0:03:28.720 of left pocket the right pocket for the government. 0:03:29.240 --> 0:03:33.480 But if you carefully calculate that, it's about six hundred 0:03:33.480 --> 0:03:38.200 and thirty billion dollars and that's at two point eight percent, 0:03:38.440 --> 0:03:42.600 it's reasonable to expect that rate will go up. And 0:03:42.880 --> 0:03:45.640 when it goes up, it'll be the second largest spending 0:03:45.680 --> 0:03:49.560 category just paying interest. That that is not a good situation, 0:03:50.240 --> 0:03:53.920 and especially if we have slower growth. So we had 0:03:53.920 --> 0:03:57.400 a great print, and this is kind of consumers running 0:03:57.440 --> 0:04:00.280 down their savings and if you look at kind of 0:04:00.280 --> 0:04:04.080 the leading data, you can see that those savings are 0:04:04.080 --> 0:04:07.560 pretty well depleted. The consumer is not going to bail 0:04:07.640 --> 0:04:11.720 out the economy in twenty twenty four like it did 0:04:11.840 --> 0:04:13.000 in twenty twenty three. 0:04:13.600 --> 0:04:15.680 Hey, Cam, when we hear from the FED Chairman J. 0:04:15.800 --> 0:04:17.880 Palace Effternoon, he's probably going to come out with the 0:04:17.960 --> 0:04:20.040 language that, as it relates to inflation, we have. 0:04:20.000 --> 0:04:22.599 A long way to go to defeat inflation. Do you 0:04:22.600 --> 0:04:22.919 buy that? 0:04:24.120 --> 0:04:24.360 No? 0:04:25.120 --> 0:04:29.240 And we've talked about this before. So if you calculate 0:04:29.279 --> 0:04:34.080 the inflation rate with kind of real time prices for 0:04:34.720 --> 0:04:39.240 housing and rents, the inflation rate is below two percent. Really, 0:04:39.240 --> 0:04:42.560 the only reason it's above three is we've got that 0:04:42.800 --> 0:04:47.839 lagged effect from rental and housing inflation that happened last year, 0:04:48.440 --> 0:04:50.800 so in real time we're below two percent. I have 0:04:50.839 --> 0:04:54.600 no idea what they're talking about and making policy based 0:04:54.680 --> 0:04:57.760 upon data from last year, that doesn't make any sense. 0:04:57.800 --> 0:05:00.760 You make policy based upon data today and what you 0:05:00.839 --> 0:05:03.520 anticipate will happen in the future. 0:05:04.920 --> 0:05:09.400 Isn't it frustrating to watch this happen? I mean, if 0:05:09.440 --> 0:05:12.760 you advocated for you know, longer term debt when we 0:05:12.760 --> 0:05:17.040 were at zero inustrate policy, I can't imagine who would 0:05:17.040 --> 0:05:19.600 push back against that. Why would the Treasury Secretary not 0:05:19.680 --> 0:05:22.240 do that? And then if you think the FED is 0:05:23.120 --> 0:05:28.320 using you know, clearly bad data in order to drive policy. 0:05:28.839 --> 0:05:32.000 That should I imagine annoy you too, like is it 0:05:32.040 --> 0:05:33.880 difficult to move around in this world? 0:05:35.640 --> 0:05:39.840 Yeah? I think annoying us the right word. This is 0:05:39.880 --> 0:05:43.800 not rocket science. Just look at the data. It's very 0:05:43.800 --> 0:05:49.560 clear of what's happening, especially with the housing inflation. So 0:05:49.640 --> 0:05:53.640 the housing inflation, if you believe the CPI is running 0:05:54.080 --> 0:05:57.320 at a rate over seven percent year over year, and 0:05:57.360 --> 0:06:00.280 that just doesn't squear with the data. It doesn't where 0:06:00.360 --> 0:06:02.880 with a year over year rents, it doesn't square with 0:06:03.000 --> 0:06:06.719 year over year housing prices. It's because it's reflecting what 0:06:06.880 --> 0:06:11.160 happened last year. So I think that there is a problem. 0:06:11.200 --> 0:06:14.520 We need to use data that is real time data. 0:06:15.720 --> 0:06:19.320 Housing inflation is not over seven percent, and that is 0:06:19.360 --> 0:06:23.840 the reason most of the print that we get, the 0:06:23.880 --> 0:06:26.919 prints that have been over three percent, is being driven 0:06:27.320 --> 0:06:32.200 by stale data on housing and that just doesn't seem right. 0:06:32.839 --> 0:06:38.440 And also we've seen the long rates increase pretty dramatically, 0:06:39.440 --> 0:06:43.880 and this is kind of flattening the yell curve, but 0:06:44.000 --> 0:06:49.599 in a very bad way. So usually what happens before 0:06:50.000 --> 0:06:54.200 kind of recessions that you've got a yield curve inversion 0:06:55.000 --> 0:06:59.240 where the long rates are below the short rates, but 0:06:59.400 --> 0:07:04.799 then it becomes normal. And usually what happens is that 0:07:05.600 --> 0:07:10.400 the short rates decrease to cause the normal yokur, that's 0:07:10.480 --> 0:07:13.000 not what we're seeing. We're seeing the long rates go up. 0:07:13.240 --> 0:07:17.640 That's very bad. That increases the cost of capital, and 0:07:18.280 --> 0:07:22.720 that serves to slow the economy. So this is not 0:07:22.960 --> 0:07:27.239 a good situation in any dimension. And don't be fooled 0:07:27.520 --> 0:07:29.320 by that GDP print? 0:07:30.440 --> 0:07:30.680 Yep? 0:07:30.920 --> 0:07:32.760 So does is the risk here, professor? 0:07:32.800 --> 0:07:37.120 That the Fed is overdoing it and will in fact 0:07:37.200 --> 0:07:38.400 push us into recession? 0:07:38.480 --> 0:07:40.920 GDP will fall off a cliff. Plus, our interest payments 0:07:40.920 --> 0:07:42.440 are ballooning at a level that's going to make it 0:07:42.480 --> 0:07:45.720 hard to invest in things like solving diseases and funding 0:07:45.760 --> 0:07:46.320 the military. 0:07:46.360 --> 0:07:48.760 That's not not bueno. So is that the recession risk? 0:07:49.840 --> 0:07:50.080 Yeah? 0:07:50.160 --> 0:07:55.400 So the Fed should have stood down in January of 0:07:55.480 --> 0:08:00.560 this year. So I agree that they've made things worse. 0:08:01.120 --> 0:08:05.120 And it's especially bad given what we've seen happened to 0:08:05.160 --> 0:08:11.280 the long term rate that ripples through and just think of, 0:08:12.040 --> 0:08:15.480 you know, the these firms with commercial real estate loans 0:08:15.520 --> 0:08:18.840 and things like that, where that market is already cretered, 0:08:19.760 --> 0:08:23.080 and what's going to happen so we saw kind of 0:08:23.120 --> 0:08:28.320 a mini banking crisis in March and then as hush hush, Well, 0:08:28.640 --> 0:08:31.160 I'd like to see what's going to happen in the 0:08:31.200 --> 0:08:34.520 next few months, because we're not going to have four 0:08:34.559 --> 0:08:40.760 plus GDP growth. That consumer spending has been depleted, savings 0:08:40.760 --> 0:08:44.319 have been drawn down, and on the investment side, we've 0:08:44.360 --> 0:08:49.040 already seen that decrease in twenty twenty three. So I 0:08:49.080 --> 0:08:53.439 do believe that the FED has overdone it, unnecessarily shot 0:08:53.480 --> 0:08:57.120 themselves in the foot and the economy at the same time. 0:08:57.520 --> 0:08:59.679 All right, Cam, thanks so much for joining us. A 0:08:59.679 --> 0:09:01.679 bunch of us class at ninety one. We're coming down 0:09:01.720 --> 0:09:05.240 to Fuqua next weekend, so watch out. Cam Harvey, Professor Finance, 0:09:05.320 --> 0:09:07.600 a Fucal School of Business at Duke University that can 0:09:07.640 --> 0:09:10.120 vouch he has no basketball game, but he's a genius 0:09:10.120 --> 0:09:12.120 on the world of finance and economics and all that 0:09:12.160 --> 0:09:14.080 kind of stuff. 0:09:14.120 --> 0:09:17.520 You're listening to the team. Can's our live program, Bloomberg 0:09:17.559 --> 0:09:20.920 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:09:21.000 --> 0:09:24.160 the iHeartRadio app, and the Bloomberg Business app, or listen 0:09:24.240 --> 0:09:26.520 on demand wherever you get your podcasts. 0:09:28.040 --> 0:09:32.040 Jen Reed joins us here. George Ferguson joins us via 0:09:32.480 --> 0:09:34.320 the Princeton office. The camera there. 0:09:34.360 --> 0:09:34.880 Why we have. 0:09:34.880 --> 0:09:38.559 Jenery and George Ferguson here together. They're from Bloomberg Intelligence 0:09:38.640 --> 0:09:40.680 because we want to talk about Spirit and Jet Blue. 0:09:40.720 --> 0:09:43.880 Those airlines are trying to merge or one by the other. 0:09:43.880 --> 0:09:45.839 Matt doesn't believe in mergers. One is buying the other. 0:09:46.080 --> 0:09:49.040 Obviously Jet Blue is trying to buy Spirit, but. 0:09:49.040 --> 0:09:51.679 The Department of Justice is saying, whoa whoa, whoa whoa whoa. 0:09:51.480 --> 0:09:55.480 Wo Yeah, George. He follows the airlines for Bloomberg Intelligence. 0:09:55.559 --> 0:09:58.120 Jen follows all the anti trustuff for Bloomberg Intelligence. Jen, 0:09:58.240 --> 0:10:00.640 let's start with you, sir, why can't we these two 0:10:00.840 --> 0:10:04.240 little ittybity airlines get together? I mean, it's not United 0:10:04.240 --> 0:10:04.960 in Delta here. 0:10:05.320 --> 0:10:07.400 You know, it is exactly the way you look at it. 0:10:07.440 --> 0:10:09.800 So this is what Jeff Blue says. We're two little, 0:10:09.840 --> 0:10:13.640 itty bitty airlines right Nationally, we're tiny, maybe eight percent 0:10:13.679 --> 0:10:16.680 combined share. But from an anti trust perspective, that isn't 0:10:16.720 --> 0:10:18.760 how you look at it. When you look at the 0:10:18.760 --> 0:10:21.440 way antitrust might impact a consumer, you look at it 0:10:21.480 --> 0:10:24.360 from a consumer's viewpoint. So when you're looking at it. 0:10:24.400 --> 0:10:26.880 You don't look at airlines nationally. You look at them 0:10:26.920 --> 0:10:29.440 city to city. You look at routes that consumers buy 0:10:29.679 --> 0:10:34.040 to travel, right, and if you reduce the options in 0:10:34.080 --> 0:10:36.280 a route from let's say New York to Los Angeles, 0:10:36.320 --> 0:10:39.080 a consumer can't choose some different route because the prices 0:10:39.120 --> 0:10:41.880 went up. So you're looking route to route much more 0:10:41.960 --> 0:10:44.720 narrowly and in route to route. This is a different 0:10:44.800 --> 0:10:47.160 kind of merger than the way you'd look at it nationally. 0:10:47.760 --> 0:10:50.520 Hey, George, how important is this merger for either of 0:10:50.559 --> 0:10:52.600 these companies if it doesn't happen? 0:10:54.600 --> 0:10:58.000 I don't know, right. I guess we'll see, right because 0:10:59.240 --> 0:11:01.640 right now both these up. But he's are losing money, 0:11:02.960 --> 0:11:06.120 so clearly, I think the fares that gen is concerned about, 0:11:06.840 --> 0:11:10.520 they aren't enough to support even profitability. And I think 0:11:10.559 --> 0:11:13.079 that the Jet Blue CEO is going to have to 0:11:13.080 --> 0:11:16.679 figure out soon how bad he really wants to spirit airlines, 0:11:16.720 --> 0:11:20.200 because he's gonna have to raise three and a half 0:11:20.200 --> 0:11:23.160 four billion dollars to buy it at interest rates that 0:11:23.200 --> 0:11:27.360 are probably going to be above eight percent, and again 0:11:27.400 --> 0:11:29.120 in a marketplace that looks like it has too much 0:11:29.160 --> 0:11:32.640 capacity and fares can't support profitability. 0:11:32.640 --> 0:11:35.720 Hang on, I assumed that Jet Blue had that money 0:11:35.760 --> 0:11:39.520 stashed aside already, aren't they No, I. 0:11:39.440 --> 0:11:41.200 Don't see it's I don't see it's dashing. 0:11:42.000 --> 0:11:43.040 Okay. 0:11:43.080 --> 0:11:45.880 The other thing I find it they may not need it, George. 0:11:46.040 --> 0:11:48.440 The other thing I wonder about is, you know Jet 0:11:48.480 --> 0:11:53.840 Blue yesterday George said there's basically a dearth of travelers, 0:11:53.960 --> 0:11:56.920 or said differently, in the airline industry, there are way 0:11:56.960 --> 0:12:01.480 too many empty seats in the domestic US. But then 0:12:01.559 --> 0:12:05.480 somebody tweeted at me the TSA checkpoint travel numbers and 0:12:05.800 --> 0:12:09.640 looks pretty pretty healthy to me. I mean, we're last 0:12:09.679 --> 0:12:12.319 week we had two point three million, the week before 0:12:12.320 --> 0:12:15.560 that two point five million, much better than we had 0:12:15.600 --> 0:12:18.960 in twenty twenty two or twenty twenty one or twenty twenty. 0:12:19.200 --> 0:12:21.560 It's it's basically up there with twenty nineteen. 0:12:23.440 --> 0:12:26.560 So I would say, you can't always judge airline health 0:12:26.600 --> 0:12:27.199 by numbers. 0:12:27.280 --> 0:12:27.439 Right. 0:12:27.520 --> 0:12:32.040 So in the new world of airline revenue management, you 0:12:32.040 --> 0:12:35.520 know load factors, we're seeing eighty five ninety percent, right, 0:12:35.520 --> 0:12:38.800 These are really high load factors. Those revenue managers, they 0:12:38.800 --> 0:12:41.240 don't let an airplane go down the runway without it 0:12:41.280 --> 0:12:45.120 being almost full The secret, though, is you got to 0:12:45.160 --> 0:12:47.800 get people to pay the price that's going to cover 0:12:47.840 --> 0:12:50.640 the cost of the airline. And what we're seeing right 0:12:50.679 --> 0:12:53.560 now in the marketplace is that the low end is 0:12:53.600 --> 0:12:56.880 that you know, that consumer that may not be as 0:12:56.920 --> 0:13:02.880 well healed, they they're seeing softness and their fares are 0:13:02.920 --> 0:13:06.280 going down. We saw yield at Jeff Blue fall a 0:13:06.440 --> 0:13:10.560 thirteen percent since the year prior, right, So that's not 0:13:10.720 --> 0:13:12.480 I mean, that's not a healthy environment. 0:13:13.000 --> 0:13:15.760 So Jen, when does his trial start? You're going to 0:13:15.600 --> 0:13:17.360 go to this trial. You're going to attend this trial. 0:13:17.679 --> 0:13:19.319 Where is it, When is it and what do you expect. 0:13:19.400 --> 0:13:22.240 So it's in Boston. It started yesterday. I reviewed that 0:13:22.280 --> 0:13:25.600 transcript from yesterday, which was mostly opening statements. I'm heading 0:13:25.600 --> 0:13:27.480 out today. I'll be there the rest of this week 0:13:27.520 --> 0:13:30.480 and next week it will go to December fifth, non 0:13:30.520 --> 0:13:34.559 consecutive days. I think we'll probably get a decision in January. 0:13:34.840 --> 0:13:36.960 The judge said he may try to do something by 0:13:36.960 --> 0:13:38.760 the end of December, but that was when the trial 0:13:38.960 --> 0:13:41.160 was supposed to start in early October, so I think 0:13:41.240 --> 0:13:43.760 January is more likely. And I just have to one 0:13:43.800 --> 0:13:45.920 comment about what George said. I mean, this judge is 0:13:46.000 --> 0:13:48.280 concerned actually about the health of the airlines, which is 0:13:48.360 --> 0:13:51.000 unusual in an anti trust case. He has asked not 0:13:51.040 --> 0:13:53.959 about Jeff Blue, but actually about Spirit and Spirit survive 0:13:54.280 --> 0:13:57.200 if this merger doesn't go through. And you know, we're 0:13:57.240 --> 0:13:59.439 just getting in, but we'll see what the documents look 0:13:59.520 --> 0:14:01.640 like with back to Spirits growth plans. 0:14:01.720 --> 0:14:04.400 Well, it was just looking I mean at George's common 0:14:04.400 --> 0:14:06.359 I went to the FA function for both. 0:14:07.679 --> 0:14:09.200 Spirit Airlines and Jet Blue. 0:14:09.440 --> 0:14:13.520 Neither company is making money. What extent historically do the 0:14:13.520 --> 0:14:15.320 courts think about that kind of stuff? 0:14:15.480 --> 0:14:17.480 Well, you know, there's a history here. So we've had 0:14:17.520 --> 0:14:19.920 a lot of consolidation in the airlines and there's a 0:14:19.920 --> 0:14:22.120 lot of concern about that from the DOJ, and they're 0:14:22.120 --> 0:14:23.920 going to be using that to their benefit and trial. 0:14:24.160 --> 0:14:27.120 But we've also had a lot of bankruptcies, right, and 0:14:27.200 --> 0:14:30.640 bankruptcies aren't good for consumers either, and the judge is 0:14:30.680 --> 0:14:32.560 going to be looking at that and thinking about that. 0:14:32.720 --> 0:14:35.600 But the bottom line is the most difficult part about 0:14:35.600 --> 0:14:38.480 this trial for Spirit and Jet Blue is that they themselves, 0:14:38.840 --> 0:14:42.080 They Spirit have argued that this is an anti competitive 0:14:42.120 --> 0:14:44.880 deal when they preferred Frontier as a buyer and there 0:14:44.960 --> 0:14:47.840 was a fight. So these documents have already been admitted 0:14:47.840 --> 0:14:50.680 by the judge against the objections of the lawyers, and 0:14:50.720 --> 0:14:52.400 they're going to have to explain those away. 0:14:52.640 --> 0:14:55.040 Hey, George, if the judge put you on the stand 0:14:55.080 --> 0:14:58.520 as an expert witness of you know, Wall Street analysts, 0:14:58.840 --> 0:15:02.200 would you testify that if these guys don't merge, neither 0:15:02.240 --> 0:15:03.240 of them is going to make it, or one of 0:15:03.320 --> 0:15:04.880 them is not going to make it, what would your 0:15:04.880 --> 0:15:05.440 forecast be? 0:15:06.520 --> 0:15:10.080 I guess I would testify that the market clearly appears 0:15:10.120 --> 0:15:16.760 to be overcapacitized, if that's a word, and that it 0:15:16.960 --> 0:15:21.440 needs some rationalization, and putting these two together could rationalize 0:15:21.440 --> 0:15:24.920 that and would improve their potential to create profits. So 0:15:24.920 --> 0:15:25.840 that's I would argue that. 0:15:25.880 --> 0:15:28.359 And I will say that the DJ opened an investigation 0:15:28.400 --> 0:15:31.800 of the airlines just for saying exactly that, because rationalization 0:15:32.280 --> 0:15:34.320 in the anti tryst world is a bad thing. It 0:15:34.400 --> 0:15:38.680 means let's reduce demand to increase prices, and antitrust don't 0:15:38.760 --> 0:15:39.600 doesn't want that. 0:15:40.040 --> 0:15:44.000 Right, So can't they just say, all right, on a 0:15:44.000 --> 0:15:46.400 couple of these routes where we're going to overlap or 0:15:46.400 --> 0:15:49.720 we'd have too much pricing power, We'll just divest these routes. 0:15:49.760 --> 0:15:50.520 Can't we do that? 0:15:50.520 --> 0:15:52.560 That's exactly what they're trying to do. And you know what, 0:15:52.640 --> 0:15:54.760 the judge might accept that. You know, it's it's this 0:15:54.840 --> 0:15:56.840 is just the beginning of trial. It's not a done deal. 0:15:57.040 --> 0:15:59.520 The judge might say, these divestriss are good enough. You 0:15:59.560 --> 0:16:02.960 go ahead, merge, that's the healthier option. The issue is 0:16:03.000 --> 0:16:05.600 that DJ is also concerned about routes where they do 0:16:05.680 --> 0:16:09.400 not overlap, because they believe that blues fares are higher 0:16:09.440 --> 0:16:12.000 than spirits fares in those routes and it'll take out 0:16:12.000 --> 0:16:13.200 that lower cost option. 0:16:14.200 --> 0:16:17.160 I mean, none of this is low cost compared to 0:16:17.160 --> 0:16:20.120 what I experienced living in Germany for the past six years. 0:16:20.280 --> 0:16:21.760 You can point for. 0:16:21.880 --> 0:16:26.000 Ninety dollars, yes, and somehow that just keeps going. You know, 0:16:26.040 --> 0:16:29.440 that's been happening for at least a decade, right, low 0:16:29.480 --> 0:16:33.720 cost airlines in Europe. I don't know states that the 0:16:33.880 --> 0:16:35.640 that the industry would be good for the industry to 0:16:35.680 --> 0:16:37.720 have that here? Probably not. But can we get that? 0:16:40.280 --> 0:16:43.920 So you're asking me that, yes, George, I mean, look, 0:16:44.040 --> 0:16:46.640 I think you can. You know, I think that when 0:16:46.880 --> 0:16:49.280 when you know, we look at a lot of analysis 0:16:49.720 --> 0:16:54.080 of these ultra low cost carriers and the low cost carriers, 0:16:54.760 --> 0:16:58.000 and even the full service carriers. When you take all 0:16:58.080 --> 0:17:02.040 that ancillary cost that they unbundle and try to put 0:17:02.080 --> 0:17:04.399 back on top of you when you get to the 0:17:04.440 --> 0:17:07.440 airport and check your bags, blah blah blah, the fares 0:17:07.600 --> 0:17:11.879 aren't a lot different than full service carriers. And so 0:17:13.160 --> 0:17:16.639 I think the whole thing is, you know, it's sometimes 0:17:16.359 --> 0:17:19.360 it seems a little bit bait and switches, right, because 0:17:19.840 --> 0:17:23.439 you sign up for like a fifty or seventy dollars fare, 0:17:23.880 --> 0:17:25.960 and next thing you know, there's all these added costs. 0:17:26.000 --> 0:17:29.880 And so I think that we can have the industry 0:17:30.400 --> 0:17:33.160 because they are getting fares that again are probably as 0:17:33.160 --> 0:17:36.840 good as some of the big full service carriers. What 0:17:36.880 --> 0:17:39.640 I will say, though, there's an extraordinary challenge I think 0:17:40.080 --> 0:17:43.359 in the US, and that is that we just gave 0:17:43.400 --> 0:17:47.320 away some really large pay increases to the pilots. And 0:17:47.400 --> 0:17:51.280 what you didn't see under that pilot headline was that 0:17:51.520 --> 0:17:54.000 everyone else got paying increases to the flight attendants are 0:17:54.040 --> 0:17:57.119 looking for theirs, but line maintenance, all those folks have 0:17:57.160 --> 0:18:00.960 gotten increases. That's going to drive up the average cost 0:18:01.000 --> 0:18:03.840 of fares, right. And when you drive up the price 0:18:03.880 --> 0:18:08.440 of something less needs to be consumed, right because because 0:18:08.440 --> 0:18:11.280 you just can't offer as much. So that's one of 0:18:11.320 --> 0:18:13.360 the major challenges in the US market right now. 0:18:13.400 --> 0:18:15.240 All right, George, thanks so much for joining us. George 0:18:15.240 --> 0:18:18.280 Ferguson covers the airlines for Bloomberg Intelligence and generally senior 0:18:18.359 --> 0:18:21.760 legal analysts covering an android trust for Bloomberg Intelligence. 0:18:21.880 --> 0:18:24.960 You're listening to the tape Can's our live program Bloomberg 0:18:25.000 --> 0:18:28.600 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:18:28.640 --> 0:18:31.880 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:18:31.920 --> 0:18:34.760 You can also listen live on Amazon Alexa from our 0:18:34.760 --> 0:18:39.879 flagship New York station. Just say Alexa, play Bloomberg eleven thirty. 0:18:42.000 --> 0:18:43.960 The story of the day, and that is interest rates, 0:18:44.000 --> 0:18:47.600 the Federal Reserve, the US Treasury refunding that balance you 0:18:47.720 --> 0:18:49.960 all that good stuff. Tim Dewey joins is chief US 0:18:50.000 --> 0:18:54.040 Economists from SGH Macro Advisors. Tim, thanks so much for 0:18:54.080 --> 0:18:55.480 taking the time here to join us here. What do 0:18:55.480 --> 0:18:58.560 you expect to hear from our Federal Reserve this afternoon? 0:19:00.000 --> 0:19:02.199 I think the Fed's going to sound very much like 0:19:02.720 --> 0:19:07.479 we've seen in recent comments, particularly in Sairman Paul's speech. 0:19:07.640 --> 0:19:12.439 Basically they think that they might have to raise rates again, 0:19:12.600 --> 0:19:15.640 but they're more and more confident they're near the top 0:19:15.720 --> 0:19:16.560 peak of the cycle. 0:19:18.440 --> 0:19:21.320 So I'll ask you the same question I was just 0:19:21.359 --> 0:19:23.479 asking Tim Fiori. Do you see some kind of cliff 0:19:23.520 --> 0:19:25.560 here that we're about to fall off? As there some 0:19:25.920 --> 0:19:30.440 way that we go into recession? You know in Q four, 0:19:30.600 --> 0:19:33.720 Q one, Q two from five percent Q three. 0:19:34.720 --> 0:19:39.000 You know, I would be I would be surprised. Really 0:19:39.119 --> 0:19:41.960 is the economy and the GDP almost certainly has to 0:19:41.960 --> 0:19:44.600 slow from the third quarter pace. I mean, it was 0:19:45.400 --> 0:19:48.920 probably it doesn't really represent the true underlying pace to 0:19:48.960 --> 0:19:51.879 the economy. However, there's not really a lot of signs 0:19:51.880 --> 0:19:54.760 out there that the economy is about to roll over hard, 0:19:54.760 --> 0:19:57.320 that we're about to walk off the cliff. And so 0:19:57.600 --> 0:20:00.000 I'm you know, I'm still skeptical we're going to see 0:20:00.160 --> 0:20:02.479 that sort of in the fourth quarter, because we're already 0:20:02.480 --> 0:20:06.119 in it, but you know, before the first the second 0:20:06.200 --> 0:20:09.280 half of the next year. So trying to try to 0:20:09.720 --> 0:20:13.280 pin down the exact time of a recession is really 0:20:13.680 --> 0:20:14.880 a very very difficult. 0:20:15.000 --> 0:20:18.479 Well, but there seemed to be look drunken. Miller was 0:20:18.520 --> 0:20:22.560 on stage with Paul Tudor Jones last week. That's an 0:20:22.600 --> 0:20:26.200 All Star conference already, right, he says, he's he says 0:20:26.200 --> 0:20:29.280 he started to get really nervous. He says he has 0:20:29.440 --> 0:20:35.879 massive bullish positions in two year notes leveraged. So he 0:20:35.920 --> 0:20:39.160 says there's too much risk in the world. And Bill 0:20:39.200 --> 0:20:43.159 Ackman's saying this similar thing. Bill Gross was saying something 0:20:43.240 --> 0:20:48.959 similar to these big albeit old names are worried about something. 0:20:49.000 --> 0:20:49.480 What is it? 0:20:50.640 --> 0:20:56.200 Well, I honestly don't know why. The way the enhancedphere, 0:20:56.240 --> 0:20:58.120 I mean, there's a good reason to think that you're 0:20:58.200 --> 0:21:00.720 near you know, you're near peak heels, so, you know, 0:21:00.800 --> 0:21:04.280 putting aside any worry about you know, the broader economy. 0:21:05.160 --> 0:21:06.960 You know, we are at a point where the FED 0:21:07.960 --> 0:21:11.119 is close to being done hiking. The more it looks 0:21:11.160 --> 0:21:15.160 like that's that's going to happen. Traditionally, long yield eventually 0:21:15.240 --> 0:21:19.639 fall after that point. So from from from a strategic perspective, 0:21:20.000 --> 0:21:23.720 thinking about this as a peage is certainly not not 0:21:23.800 --> 0:21:28.000 crazy at all. As far as the warning signs. You know, 0:21:28.600 --> 0:21:33.680 remember a year ago in October, everyone thought the chance 0:21:33.760 --> 0:21:35.840 of recession in the US economy over the next year 0:21:35.960 --> 0:21:39.680 was one hundred percent, and that obviously did not work 0:21:39.680 --> 0:21:43.760 out that way. So the world has changed, the world 0:21:43.840 --> 0:21:46.919 is different. It is in some sense risk here. Is 0:21:46.960 --> 0:21:49.280 it any risk yer than it was, you know, during 0:21:49.320 --> 0:21:51.680 the Cuban missile crisis? I don't know about that. 0:21:52.920 --> 0:21:54.880 So it's interesting, Tim. 0:21:54.880 --> 0:21:57.439 We just had Cam Harvey on financial professor at the 0:21:57.440 --> 0:21:58.840 Fucal School of Business at Duke. 0:21:59.280 --> 0:22:00.320 He was really bear. 0:22:00.640 --> 0:22:03.120 He thinks the FED has gone way, way too far, 0:22:03.200 --> 0:22:06.040 and he thinks inflation, if you really look at current data, 0:22:06.119 --> 0:22:10.199 not historical data, inflation is already below two percent. How 0:22:10.240 --> 0:22:11.000 do you respond to that? 0:22:12.200 --> 0:22:16.399 Well, so I didn't did see the interview. If you 0:22:16.640 --> 0:22:21.480 if you look at the the recent core PC numbers, 0:22:21.280 --> 0:22:24.679