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GDP, Markets, And Frontier Airlines (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. You know, I'm usually
0:22
Speaker 1: not that keen to talk to economists, you know, but
0:26
Speaker 1: there's a couple I really like that kind of make
0:29
Speaker 1: it simple that I can understand stuff. Elena, she left Diva,
0:31
Speaker 1: is one of them. She's the senior US economist for
0:33
Speaker 1: Bloomberg News, and Elana lots to parts over. I know
0:36
Speaker 1: you guys at Bloomberg Economics have been super busy. Uh
0:40
Speaker 1: this week. Let's talk about this morning's g d P print.
0:44
Speaker 1: UH much lower than expected, a negative number. What do
0:48
Speaker 1: you take away from it? So? I think in terms
0:51
Speaker 1: of recession and not I think maybe not yet, but
0:55
Speaker 1: that clearly significantly raises risks for recess to happen this year.
1:01
Speaker 1: And the reason is not just you know, the two
1:05
Speaker 1: consecutive negative readings, but if you look beneath the surface,
1:10
Speaker 1: you will see that, for example, final sales to domestic
1:13
Speaker 1: purchases that GDP that excludes a volatile categories such as
1:18
Speaker 1: trade and inventories that fail for the first time since
1:22
Speaker 1: the COVID recession. So that is telling you that underlying
1:25
Speaker 1: demand is weakening significantly. Another thing that I would like
1:29
Speaker 1: to highlight is real services. You know, we we were
1:33
Speaker 1: talking about people going on vacations. We were just discussing,
1:37
Speaker 1: we were planning some vacations too. That was supposed to
1:41
Speaker 1: be strong in June. But if you look at the
1:44
Speaker 1: data and you calculate, uh, the implied growth rate in
1:49
Speaker 1: June from the data we have, that will show you
1:52
Speaker 1: services spending is slowing into the end of the second quarter.
1:56
Speaker 1: I haven't seen my visable from July from my Hawaii trip,
2:01
Speaker 1: but the data telling you that things are slowing down
2:04
Speaker 1: quotes the end of the quarter, which creates risks for
2:07
Speaker 1: the third quarter. So it was an ugly headline. Sounds
2:10
Speaker 1: like the details under the surface where messy. Two When
2:13
Speaker 1: it comes to GDP, I do want to talk about
2:15
Speaker 1: the FED a little bit and where exactly they are
2:18
Speaker 1: on the curve because it caught my eye yesterday. I mean,
2:20
Speaker 1: everyone has an opinion about the FED. But we heard
2:22
Speaker 1: from Scott Minor and Order Guggenheim, So his fear is that,
2:26
Speaker 1: you know, perhaps the Central Bank opened the door a
2:28
Speaker 1: little bit too wide to the possibility of cooling down
2:31
Speaker 1: in terms of their rate hikes. Then you heard from
2:33
Speaker 1: double and Jeff Gunlock, for example, saying that the FED
2:36
Speaker 1: is no longer behind the curve. I would love to
2:39
Speaker 1: hear where you fall on that debate. So I think
2:42
Speaker 1: the FED will try to do as much as they
2:45
Speaker 1: can at this point, and you know, they are going
2:49
Speaker 1: to find reasons to keep saying that the economy remains strong,
2:54
Speaker 1: you know, as long as the labor market continues to deliver, right,
3:00
Speaker 1: I think that they will have to step back at
3:06
Speaker 1: some point, you know, if if you know, if we
3:10
Speaker 1: see the data start crippling. Look at jobless claims data
3:13
Speaker 1: for example, So we're like halfway through from the trophy
3:18
Speaker 1: and jobless claims in March to uh the level that
3:22
Speaker 1: is associated with the start of a recession. So we
3:25
Speaker 1: already halfway through in terms of the climb in jobless claims.
3:30
Speaker 1: But I think what will be interesting to see next
3:33
Speaker 1: week we're gonna get another Pail's report is where the
3:38
Speaker 1: deceleration in job creation is happening which sectors, like, is
3:42
Speaker 1: it just concentrated in housing and certain you know, goods
3:47
Speaker 1: related sectors, or is it a broader slowing in the
3:50
Speaker 1: labor So are you concerned about the labor market because
3:53
Speaker 1: that's certainly one of the pillars that the argument and
3:55
Speaker 1: the people that make the argument or we're not in
3:57
Speaker 1: a recession because the labor market is so strong. The
4:00
Speaker 1: data are so contradicting, and uh, you know, on the
4:03
Speaker 1: one hand, you see diffusion index for example, that shows
4:07
Speaker 1: breasts of job creation that was really strong in the
4:10
Speaker 1: previous report in June, But what will July data they're
4:15
Speaker 1: gonna tell us. On the other hand, I already mentioned
4:18
Speaker 1: jobless claims are creeping higher, and we can see some
4:21
Speaker 1: slow down in wage growth as well. Alright, so keep
4:24
Speaker 1: an eye on the labor market. Let's talk about inflation though,
4:27
Speaker 1: because it's interesting to me that if you look at,
4:29
Speaker 1: you know, some of the measures of inflation expectations, whether
4:32
Speaker 1: that's break evens in the bond market, if you look
4:34
Speaker 1: at some of these surveys, it seems that expectations at
4:39
Speaker 1: least have peaked. But when it comes to inflation itself
4:42
Speaker 1: on do you think we could actually maybe start to
4:44
Speaker 1: crest there. Well, it depends core versus headline, so uh,
4:50
Speaker 1: and that will really depend on geo political developments I think. So,
4:55
Speaker 1: you know, core has peaked, but there are some sticky
4:58
Speaker 1: categories in the core, such a shelter, that will continue
5:02
Speaker 1: to increase because it's just such a legging indicator. So
5:07
Speaker 1: in terms of the headline, and it's important because you know,
5:11
Speaker 1: the FED recently mentioned that they are looking at the
5:13
Speaker 1: headline numbers. Depends on energy prices, and you know, I
5:19
Speaker 1: am really scared to make any predictions on let's go
5:22
Speaker 1: to that front. The daily national average gasoline prices, which
5:26
Speaker 1: is the first ticker I bring up every morning, it
5:28
Speaker 1: continues to tick over four dollars and twenty seven cents
5:31
Speaker 1: per gallon UM. So it looks like at least at
5:34
Speaker 1: the gas pump, which is a piece of inflation that
5:37
Speaker 1: everybody feels except Tom Keane who doesn't have a car.
5:40
Speaker 1: Everybody feels. And that's coming down pretty steadily, which will
5:45
Speaker 1: be reflected in sentiment measures, I think, and perhaps you know,
5:50
Speaker 1: people will spend a little bit more in real terms. Uh.
5:55
Speaker 1: In the beginning of the third quarter. But I'm just
5:58
Speaker 1: worried this is a little bit more broad based and
6:02
Speaker 1: if you know, Europe goes into an energy crisis this full,
6:06
Speaker 1: this will not leave everybody else like just isolated. That's
6:10
Speaker 1: what my worry is. All right, there is a lot
6:13
Speaker 1: for you economists to keep busy at Bloomberg Economics. Helena
6:17
Speaker 1: Latti about senior US economists for Bloomberg joining us here
6:21
Speaker 1: in our Bloomberg Interactive Broker studio. So much better when
6:23
Speaker 1: people come in studio now, it's so nice see all
6:26
Speaker 1: these smiling faces. Kind lots of cross currents in these
6:32
Speaker 1: markets here and again we Sho could just see it
6:34
Speaker 1: in the trading, big big moves up yesterday and his
6:36
Speaker 1: Greg was just reporting giving some of that back today.
6:39
Speaker 1: It kind of reflects some of the uncertainty as the
6:42
Speaker 1: market tries at discount all these data points from the
6:44
Speaker 1: Fed yesterday to earnings, to the data eco data we're
6:47
Speaker 1: getting today in terms of GDP. Let's check them with
6:49
Speaker 1: the professional. Does this for a living? Rick pitt Karen,
6:52
Speaker 1: c io of Pitt Karen joins us. Rick, what's your
6:56
Speaker 1: takeaway from you know, the earnings from the Fed yesterday,
7:00
Speaker 1: from the g D pre print. How is your outlook changed,
7:03
Speaker 1: if at all? Well, Hot, Paul, how are you? And
7:07
Speaker 1: nice to be here today. It's an incredibly dynamic time
7:10
Speaker 1: for the markets, and that was underscored by Pale statements yesterday.
7:15
Speaker 1: You know, since November, they've placed in flight inflation fighting,
7:20
Speaker 1: uh and at an inflation fighting at the expense of
7:23
Speaker 1: all other economic issues at the forefront of their rhetoric
7:26
Speaker 1: and their actions. And yesterday he began to open the
7:30
Speaker 1: door in the second half of the speech to a
7:32
Speaker 1: possible pause, a possible pivot. The markets reacted super positively
7:38
Speaker 1: as we saw. I think our view is that it's
7:41
Speaker 1: still a time for more caution than aggression because, uh,
7:46
Speaker 1: there's a lot of dynamics, as you mentioned, going through
7:48
Speaker 1: this market, and I don't think we have all the
7:50
Speaker 1: answers yet. I think things are still subject to change,
7:53
Speaker 1: and I'm not sure if we're all the way through
7:54
Speaker 1: the tough times, even as strong as yesterday was. And Rick,
7:58
Speaker 1: let's talk about that more caution than aggression. How does
8:02
Speaker 1: that filter down into how you structure a portfolio? Where
8:05
Speaker 1: do you see opportunity? Where are you avoiding? Well, I'm
8:10
Speaker 1: lucky I've worked with high net worth individuals and high
8:15
Speaker 1: net worth families for my whole career. They tend to
8:18
Speaker 1: have a longer term view. They're all operating in the
8:21
Speaker 1: land of taxes. Uh, so tax drag is important. So
8:26
Speaker 1: you know, a pit care and portfolio will be a
8:28
Speaker 1: more diverse portfolio that will be in a more strategic
8:32
Speaker 1: than tactical in the way that it's laid out, and
8:34
Speaker 1: it will rely on a series of managers underneath that.
8:38
Speaker 1: And we see those managers pivoting right now to a
8:41
Speaker 1: little bit different kind of a time. You know, two
8:43
Speaker 1: years ago, long duration assets of stocks that were growing
8:47
Speaker 1: revenue regardless of earnings. Uh, we're really highly valued. I
8:52
Speaker 1: think in a land where liquidity is tighter, where the
8:56
Speaker 1: FED will be tighter rather than looser, you have to
8:59
Speaker 1: go to a different kind of a playbook. And and
9:02
Speaker 1: we've seen some different kinds of asset classes that weren't
9:06
Speaker 1: working in two thousands, sixteen, seventeen eighteen working very well
9:10
Speaker 1: right now, whether that's small value and equity, land commodities,
9:14
Speaker 1: certain kinds of hedge funds. So we're certainly emphasizing those
9:17
Speaker 1: in our portfolios. Rick, we're kind of I would say,
9:20
Speaker 1: kind of right in the middle of this earning season.
9:22
Speaker 1: A lot of big tech numbers coming out this week,
9:24
Speaker 1: while the Apple and Amazon after the close. Any takeaways
9:27
Speaker 1: so far for you during kind of what you've seen,
9:30
Speaker 1: what you've heard from managements. We were struck going into
9:34
Speaker 1: this session, this earning season because we had an eight
9:38
Speaker 1: point nine percent forecasted year over year earnings growth, and
9:42
Speaker 1: you know, with the employment situation, we have very strong
9:45
Speaker 1: employment market and very strong earnings growth. It's hard to
9:48
Speaker 1: contemplate a really tough recession when you have those two
9:52
Speaker 1: cornerstones on the positive side. So the conventional wisdom was, well,
9:56
Speaker 1: at eight point nine, can't hold it has We're going
9:58
Speaker 1: to go into recession area environment and that number is
10:01
Speaker 1: going to get creamed. And I think that number will
10:03
Speaker 1: come in based on the environment we have. But I
10:06
Speaker 1: think this earning season, uh probably has been better than
10:10
Speaker 1: the whispers in terms of forward guidance. The Honeywell number
10:14
Speaker 1: this morning, he said, you know, regardless of the slowing
10:17
Speaker 1: and the broader economy, our business lines have shown dynamic
10:21
Speaker 1: growth in the first six months and they're going to
10:23
Speaker 1: continue to show that growth throughout the rest of the year.
10:27
Speaker 1: That wasn't what the Whisper had in mind in late
10:29
Speaker 1: June they thought that forward guidance would be a little
10:32
Speaker 1: bit worse. I think that's been another reason we've had,
10:35
Speaker 1: you know, a stronger bounce back July in the speculative sectors.
10:41
Speaker 1: And that bounced back though that we've seen in the
10:43
Speaker 1: speculative sectors as you mentioned, I mean, or the past month,
10:46
Speaker 1: it's actually been a very robust rally. Uh How I
10:51
Speaker 1: guess what's your conviction there? Because I mean you look
10:54
Speaker 1: at volume, you look at volatility just falling off a cliff.
10:57
Speaker 1: Usually that means pretty low conviction. Wondering if that's the
11:01
Speaker 1: case on your end as well. Well. Our technical research
11:06
Speaker 1: doesn't really show that even though it's an impressive rally
11:08
Speaker 1: on price, particularly in the n azdec, the internals are great.
11:12
Speaker 1: They aren't just screaming, you know, like they did in
11:15
Speaker 1: say April of two thousand and nine. You know, this
11:19
Speaker 1: is a big time by here. There's a ton of
11:21
Speaker 1: internal momentum. It's a little more tepid than that. I
11:24
Speaker 1: would just tell investors, you know, we feel I think
11:28
Speaker 1: a little bit in our personal lives, like COVID is over,
11:31
Speaker 1: Like we can go to the restaurant we can get
11:33
Speaker 1: on the airplane, we can we can travel, we can
11:35
Speaker 1: do those things. But from a macro economic perspective, the
11:39
Speaker 1: scale of the of of the various impacts that COVID
11:44
Speaker 1: had on our economy, whether it was that massive liquidity
11:47
Speaker 1: impulse in two thousand and twenty that caused a great rally,
11:50
Speaker 1: now we're gonna pull that back. You know, I would
11:53
Speaker 1: be cautious to uh, to flash the all green light here.
11:57
Speaker 1: I think patients ain't patients is always a good thing,
12:01
Speaker 1: uh in investment world, And even in light of the
12:04
Speaker 1: last three weeks, which has thankfully been strong for markets',
12:08
Speaker 1: I'd still, you know, tighten my seat belt and and
12:11
Speaker 1: and keep an eye out for the changing data because
12:14
Speaker 1: I think it's going to continue to change. All right, Rick,
12:17
Speaker 1: good stuff there. We appreciate getting your thoughts, Rick pit Karen,
12:20
Speaker 1: He's a c I O at Pitcairn, been managing money
12:23
Speaker 1: for a long time. Getting his perspective here. All right,
12:30
Speaker 1: here's aligned from a recent research note. From our next guest, quote,
12:35
Speaker 1: pete fed hawkishness has passed. FED is preparing for a
12:38
Speaker 1: slower pace of tightening without a specific guidance. Equities are
12:43
Speaker 1: a go end quote. That line, and that content comes
12:47
Speaker 1: from Ben EM's, Managing director of Global macro Strategy at
12:50
Speaker 1: Medley Global Advisors. Ben I think the market yesterday kind
12:53
Speaker 1: of agreed with you give us your thoughts about what
12:57
Speaker 1: we heard from our Federal Reserve yesterday. Hey, Paul, thanks
13:01
Speaker 1: for having me again. Um. Yeah, So he was clear
13:04
Speaker 1: that they are now full mode data dependent, and therefore
13:08
Speaker 1: there's no guidance at least not until September. After that
13:11
Speaker 1: maybe it will return, but it does look like that
13:14
Speaker 1: what they want to do is get out of the
13:16
Speaker 1: Shenanigans of saying what we're going to do fifty or
13:19
Speaker 1: seventy five and then it has to become a hundred
13:21
Speaker 1: if a data point is more than expected and then
13:24
Speaker 1: guiding that back, and I think that will cost too
13:26
Speaker 1: much uncertainty in the markets and in the economy. So
13:30
Speaker 1: going back to data dependent leads to what we went
13:33
Speaker 1: through in sixteen on the Jennet Yellen right, and getting
13:36
Speaker 1: actually a multi policy that doesn't surprise you because of
13:40
Speaker 1: this data dependent and therefore it's not hawkish either. And
13:43
Speaker 1: that's I think the interpretation the market is taking, especially
13:46
Speaker 1: the bond market, today's stock market is as Katie reported
13:49
Speaker 1: like it always is to day after cells off on
13:52
Speaker 1: after fat day. But I do think the self is limited.
13:55
Speaker 1: But that message in mind, we have a data dependent
13:57
Speaker 1: fat that isn't as hawkish at this point. Isn't as
14:01
Speaker 1: hawkish at this point. I mean, we've seen a lot
14:04
Speaker 1: of conflicting notes as to whether the Fed truly did pivot.
14:07
Speaker 1: But Ben, in your view, if equities are a go,
14:11
Speaker 1: I'm curious what you make of this bond market move
14:13
Speaker 1: because can equities and treasuries be ago at the same
14:17
Speaker 1: time or does it? Is it too black and white?
14:21
Speaker 1: There's some black and white in that, because I will
14:23
Speaker 1: agree with you that you know, if you think of
14:25
Speaker 1: the very short end of the Huker, so something of
14:28
Speaker 1: say six month debails out to two year treasury notes,
14:31
Speaker 1: they should be much more closer to the trajectory of
14:34
Speaker 1: the fat funds rate in the future. And the reason
14:38
Speaker 1: why is that Pow very clearly yesterday guided on on
14:41
Speaker 1: twice that they're looking at the two and mediant dots
14:46
Speaker 1: as they're objective to reach with the funds rate. So
14:49
Speaker 1: I do think there's some level of mispricing happening there
14:53
Speaker 1: on the on the equity side, on the other hand,
14:55
Speaker 1: you know, the more hawkish the fact may still sound,
14:58
Speaker 1: even though day depend is not hawkish. You know, long
15:00
Speaker 1: end yields are somewhat now contained, right, there's not much
15:03
Speaker 1: of a surprise from the fats with a sudden hounter
15:06
Speaker 1: based when hikes, say, for example, so the turn premium
15:09
Speaker 1: is decrining. I think that's will support I think in
15:13
Speaker 1: the long term stocks on the under the assumption that
15:16
Speaker 1: you do get a fund raiate that's high enough to
15:18
Speaker 1: bring inflation down. So I kind of come down to that,
15:20
Speaker 1: the short of the yuker looks to start to be
15:22
Speaker 1: somewhat miss priced. The long end of the curve is
15:25
Speaker 1: more about well, if you're reaching three and a half
15:27
Speaker 1: to send funds raids, maybe it is sufficient to bring
15:30
Speaker 1: inflation down. Why you don't see much traction and higher
15:33
Speaker 1: unser So Ben, there's you know, for strategists like yourselves
15:37
Speaker 1: and economist there's no shortage of data points here to
15:40
Speaker 1: try to get a handle where this market might be headed. Uh.
15:43
Speaker 1: Today we had GDP print for the second quarter came
15:46
Speaker 1: in a negative zero point nine percent. To get sensus
15:49
Speaker 1: was for positive zero point four percent. So that's two
15:52
Speaker 1: quarters in a row of a negative GDP print. What
15:56
Speaker 1: do you take away from that? More important, what do
15:58
Speaker 1: you think fetch JPL takes away from that? Yeah, and
16:02
Speaker 1: you could start again with that same kind of headlines speak.
16:05
Speaker 1: Hargus is like technically a recession, right, because you know
16:09
Speaker 1: that's what people say. So the inventory data is all
16:12
Speaker 1: over the map, right, and that was highlighted by the
16:14
Speaker 1: b A that the private investment in inventory is really
16:16
Speaker 1: declining and the PC is slowing. So I do take
16:20
Speaker 1: away from that it's an economy really slowing, but it's
16:23
Speaker 1: still an economy that is on an annualized basis above potential.
16:28
Speaker 1: And that's what Powell also said yesterday, right, he pushed
16:32
Speaker 1: back on the recession one because we don't have rising
16:35
Speaker 1: fast rising uneppoyment or any uneppoyment, but we also have
16:38
Speaker 1: an economy above potential. But even though this number is
16:41
Speaker 1: negative and the previous number was negative and technically says
16:45
Speaker 1: that it's the recession, the potential analysis I think is important.
16:48
Speaker 1: Come in here. Now. If we do start to slow
16:50
Speaker 1: to potential or lower, then then we we were like
16:53
Speaker 1: the r in the recession. So I think that's how
16:56
Speaker 1: the market is somewhat taking and find the agree market,
16:59
Speaker 1: you know, a limit to in its in its reaction
17:01
Speaker 1: to this negative number. But I want to go back
17:04
Speaker 1: to something that you said that data dependent in terms
17:06
Speaker 1: of the FED is not hawkish, And just to play
17:09
Speaker 1: Devil's advocate a little bit, I mean, isn't it entirely
17:13
Speaker 1: unknowable if it does depend on the data which who
17:17
Speaker 1: knows what it will come in? When we think about
17:18
Speaker 1: PC coming up for example, Yeah, for sure, and you know,
17:22
Speaker 1: and and back again the sixteen periods. I was at
17:27
Speaker 1: that time portfolio manager. I was debating that same idea.
17:29
Speaker 1: I was like, wait a minute, this data dependent actually
17:31
Speaker 1: makes it more volatile, right, we don't know what this
17:34
Speaker 1: data is going to be and how to react. Shouldn't
17:36
Speaker 1: be more uncertain. But the market takes to the opposite, right.
17:39
Speaker 1: It says basically that if you're going to be hawkish,
17:42
Speaker 1: you're going to guide us right to be hawkish, to
17:44
Speaker 1: say we really think we should hike by another fifty
17:47
Speaker 1: seventy five base points. That that brings like we had
17:50
Speaker 1: from the period May through July just now and again.
17:54
Speaker 1: I think that they wanted to get away from that.
17:57
Speaker 1: Not only that they probably recognize the economy softening it's
17:59
Speaker 1: just and statement, but also that they recognize it causes
18:03
Speaker 1: too much uncertainty because they had to scale up through
18:06
Speaker 1: the walls of journey, even leaking that they had to
18:08
Speaker 1: go for seventy five set of fifty. I think they
18:10
Speaker 1: wanted to get out of that sort of communication, and
18:13
Speaker 1: therefore I think it's not hawkish. Now are they hawkish?
18:17
Speaker 1: Every would agree that if you're going to move further
18:19
Speaker 1: bit the festival's rate above mutual, that's restrictive multip policy,
18:22
Speaker 1: as they call us, That is actually hawkish. I think
18:25
Speaker 1: for the ball markets more taking like you're not going
18:27
Speaker 1: to surprise us anymore, which a sudden major hike unless
18:31
Speaker 1: the data truly confirms it. And therefore your language currently
18:34
Speaker 1: is not considered as hawkish. So you know, it's interesting, Ben.
18:39
Speaker 1: One of the arguments that I hear from the camp
18:41
Speaker 1: of folks saying that we're not in a recession or
18:44
Speaker 1: it's not going to be that bad is that the
18:47
Speaker 1: labor market is still strong. That's something you pointed out to.
18:49
Speaker 1: But we had initial drobles. Claims today came in a
18:51
Speaker 1: little bit higher than expected. The revision was also higher.
18:56
Speaker 1: Is there some initial signs that the job market not
19:00
Speaker 1: be as stronger, maybe weakening, Yeah, I would say it
19:03
Speaker 1: more like loosening up in the labor market, which I
19:06
Speaker 1: think was with Powers referring to yesterday too and noticed right,
19:11
Speaker 1: the claims are the best indicative of the labor market.
19:14
Speaker 1: You know. That's the same as you follow the Sam
19:17
Speaker 1: rule for Claudia Sam. It's it's exactually a very linked
19:19
Speaker 1: to that. Once that that average starts to move up higher,
19:23
Speaker 1: it does indicate at least a softening or losing of
19:26
Speaker 1: labor market. I think in this case that is loosening
19:29
Speaker 1: because of so many people so out of the labor force.
19:32
Speaker 1: And now maybe on the retail level there some layoffs
19:35
Speaker 1: happening and some other things going on. Was striking though
19:38
Speaker 1: too that Powe mentioned the claims data specifically. But then
19:42
Speaker 1: that's kind of make much of it. We actually think
19:45
Speaker 1: it may not be real. So that's an interesting statement, right,
19:48
Speaker 1: because it is sticking up right as you say. So
19:50
Speaker 1: it's the note, all right, Ben, great stuff. Always appreciate
19:53
Speaker 1: getting your perspective here. Again, a lot of data points
19:56
Speaker 1: to part through here. Ben Emmett helps us do that.
19:58
Speaker 1: He's a managing director of Globe a macro strategy at
20:01
Speaker 1: Medley Global Advisors, Busy M and A times in the
20:10
Speaker 1: airline business. Jet Blue Airways today's acquiring deep discounter Spirit
20:15
Speaker 1: Airlines for at least three point eight billion dollars in cash,
20:18
Speaker 1: clinching a deal less than a day after Spirit called
20:21
Speaker 1: off a planned murder with Frontier Group Holdings. To get
20:24
Speaker 1: the latest on that deal, we're very happy to welcome
20:27
Speaker 1: Barry Biffle, CEO and President of Frontier Airlines. Barry, thanks
20:32
Speaker 1: so much for joining. I know it's been a crazy,
20:34
Speaker 1: crazy time for you and your company. Give us your
20:37
Speaker 1: perspective here on the news that Jet Blue appears to
20:40
Speaker 1: have won the day for Spirit. Hey, looks, thanks for
20:44
Speaker 1: having us on. And um, look, we're disappointed in the
20:48
Speaker 1: fact we weren't able to say consumers a lot of
20:50
Speaker 1: money by merging the two low cost carriers, but look,
20:53
Speaker 1: it's still a great day for Frontier. They have paved
20:55
Speaker 1: the way for Frontier to be the low cost carrier
20:58
Speaker 1: of the United States. And and I think is one
21:00
Speaker 1: of the analysts pointed out, we we just got handed
21:02
Speaker 1: the key, the keys to the kingdom of low costs.
21:05
Speaker 1: So so it's it's still a windfall for our shareholders.
21:07
Speaker 1: I think our employees are really gonna win because we've
21:10
Speaker 1: got the growth. But if you're a spirit consumer, you're
21:12
Speaker 1: you're you're facing increase in costs. So that's a challenge
21:15
Speaker 1: from But I invite them to come to fly Frontier
21:18
Speaker 1: dot com. We'll have low affairs for him. So I
21:20
Speaker 1: am curious, Barry, I mean, where does Frontier go from here?
21:24
Speaker 1: Like you said, you've got the growth, are you looking
21:25
Speaker 1: at any other mergers, any other airlines? Now, look, we're
21:30
Speaker 1: we're we're doubling down on what we're doing. I think,
21:32
Speaker 1: you know, while all this distraction was going on, I
21:35
Speaker 1: think what's what's interesting if you if you look, is
21:37
Speaker 1: we were able to increase revenues to queue BYT versus
21:42
Speaker 1: the same period in twenty nineteen had the highest RASM
21:46
Speaker 1: growth in our history, highest I think record for for
21:48
Speaker 1: the U S industry. And so we're we're we're all
21:51
Speaker 1: systems go. We're headed to be sub six cents, which
21:54
Speaker 1: is kind of a near o our kind of pre
21:56
Speaker 1: pandemic level from a cost perspective. So we're really excited
21:59
Speaker 1: about turning the profitability this quarter and um we expect
22:02
Speaker 1: the margins to continue to improve through the year end
22:04
Speaker 1: so we think it's great for organic growth, for frontier
22:07
Speaker 1: and and now that we're kind of kind of left
22:09
Speaker 1: to our own devices to have to have the whole
22:12
Speaker 1: space of the United States is the low cost carrier.
22:14
Speaker 1: Things are looking pretty up from an organic perspective. Tell
22:18
Speaker 1: us marriage, remind us kind of for those of us
22:20
Speaker 1: that have not been following the deal, what was your
22:23
Speaker 1: rationale for looking to get together with Spirit? So our
22:29
Speaker 1: rationale was, you take two ultralow cost carriers, you combine them,
22:33
Speaker 1: you provide a true ultralow cost alternative to the Big
22:37
Speaker 1: four and high cost carriers across the United States, and
22:40
Speaker 1: we would actually lower affairs for more people in more places.
22:44
Speaker 1: But in the end, um, you know, our board was
22:46
Speaker 1: a very discipline and unwilling to overbid and overpay because
22:50
Speaker 1: we've gotta look out for our own shareholders and our
22:52
Speaker 1: own employees. And so if if Jeff Blue wants it
22:54
Speaker 1: that bad, that's fine. But sadly, I think some of
22:57
Speaker 1: the Spirit consumers, you know, millions of them, are going
23:00
Speaker 1: to be faced with a increase in the middle of
23:03
Speaker 1: some some great inflation. This is actually a heck of
23:05
Speaker 1: a heck of a bill that people are gonna have
23:06
Speaker 1: to pay so Um, So that's disappointing. But for us
23:09
Speaker 1: and and and our stakeholders are shareholders and our employees,
23:13
Speaker 1: we're really excited today. So I mean we have to
23:16
Speaker 1: talk about antitrust concerns because I mean the Jet Blue
23:20
Speaker 1: Spirit tie up a lot of speculation about what regulars
23:24
Speaker 1: might say about that. I'm curious about what it would
23:27
Speaker 1: have looked like on your end had this deal with
23:30
Speaker 1: Spirit gone through, what pressure you might have faced, and
23:34
Speaker 1: what you anticipated now potentially the Jet Blue and Spirit
23:37
Speaker 1: uh tie up coming under Well, look, I think you know,
23:40
Speaker 1: the Department of Justice is is a is an organization
23:43
Speaker 1: that would have I'm sure done its job and it
23:45
Speaker 1: would have you know, validated what we were saying, which
23:48
Speaker 1: is we were gonna lower prices for consumers. Um. I
23:51
Speaker 1: think this is a more challenging path that they've chosen, right,
23:54
Speaker 1: I mean, they're gonna raise prices for consumers and that
23:57
Speaker 1: has obviously a lot more risk of getting through the
24:00
Speaker 1: o J. But you know, I'm not gonna speculate whether
24:01
Speaker 1: they get it done. In the end. Um, Spirit shareholders
24:05
Speaker 1: were had access to the information and they made a
24:08
Speaker 1: decision that even with higher risk, it was a risk
24:10
Speaker 1: they were willing to take. So, um, we wish them luck.
24:13
Speaker 1: All right, Barry, let's st back. Take take a look
24:15
Speaker 1: at the industry as a whole. Here, Um, you know
24:17
Speaker 1: it's been in the industry had a very difficult time
24:19
Speaker 1: dealing with a surgeon demand. Uh there's a shortage of pilots,
24:23
Speaker 1: which I don't understand. And I put a lot of
24:25
Speaker 1: blame on the airlines. There's a shortage of backhounds. Again,
24:27
Speaker 1: I put it on the airlines. Tell me why I'm wrong.
24:30
Speaker 1: Why can't the industry Your job is to forecast demand.
24:35
Speaker 1: How did the industry so mismatched the demand and the supply? Well,
24:41
Speaker 1: I think, look, you said you didn't know a lot
24:44
Speaker 1: about it. I think there's I don't know that I
24:46
Speaker 1: would blame the industry, but I do because I just
24:48
Speaker 1: got I've had some very bad experiences this summer. So
24:52
Speaker 1: I am firmly blaming the industry. But tell me why
24:55
Speaker 1: I'm wrong there. Well, the industry has been warning about
24:58
Speaker 1: this for years and we are unique in in in
25:02
Speaker 1: the world requiring fifteen hours, which is an arbitrary, uh
25:08
Speaker 1: number of minimum hours. I mean, you're you're in a
25:11
Speaker 1: few hundred hours in most countries in the world to
25:13
Speaker 1: become a pilot. So that arbitrary thing, and rather than
25:18
Speaker 1: focusing on safety and the training quality and so forth,
25:22
Speaker 1: UM is actually put a barrier to entry to people
25:25
Speaker 1: being able to afford to get through it. And so
25:27
Speaker 1: that has resulted in a in a dried up supply. So,
25:30
Speaker 1: you know, argument to make barry because we have the
25:33
Speaker 1: safest guys in the world, and we take that for granted,
25:36
Speaker 1: I would argue, or some would argue that why are
25:39
Speaker 1: you putting all the onus on the individuals to get trained.
25:42
Speaker 1: Why don't the airlines themselves train their pilots so they
25:45
Speaker 1: have a ready pool of pilots. Well it's funny. Well
25:47
Speaker 1: it's funny you mentioned that. So so the shortage is
25:50
Speaker 1: what it is. And so yesterday we announced a cadet program.
25:52
Speaker 1: So if you're interested in leaving Bloomberg Radio and becoming
25:55
Speaker 1: a pilot UM with zero hours, you can you can
25:59
Speaker 1: join with us in in two years you could be
26:01
Speaker 1: flying an airplane for us. And you know, we've we've
26:05
Speaker 1: arranged financing and it's as little as eighty thousand dollars
26:08
Speaker 1: to become a pilot and you'll easily make that back
26:11
Speaker 1: with the wages that are out there. So we're doing
26:13
Speaker 1: a lot to to coach them through it and get
26:15
Speaker 1: them through the process and get them through this cadet program.
26:18
Speaker 1: And the response in the last twenty four hours has
26:20
Speaker 1: just been huge. So so we're excited. But the truth
26:23
Speaker 1: is is what what actually helps us even more is
26:26
Speaker 1: that we are one of the highest growth airlines in
26:28
Speaker 1: the world. And so one of the biggest pay raises
26:30
Speaker 1: you get as a pilot is moving from the right
26:32
Speaker 1: seat to the left seat and so to be captain.
26:35
Speaker 1: And so because of our growth, you upgrade the captain
26:38
Speaker 1: within four years, whereas you might be sitting. You might
26:40
Speaker 1: be sitting you know, you know, it's in sitting reserve
26:44
Speaker 1: in JFK for Jeff Blue, Whereas whereas you could already
26:47
Speaker 1: be a captain with us potentially, so so they see
26:50
Speaker 1: that so you can make more money and you have
26:52
Speaker 1: better options for more basis. We have bases all over
26:55
Speaker 1: the United States and really desirable places. So that's why
26:57
Speaker 1: we actually have a surplus of pilot. To say very
27:00
Speaker 1: we only have thirty seconds left. But before we let
27:02
Speaker 1: you go, I have to ask should the Spirit Jet
27:04
Speaker 1: Blue deal fall through? I mean, would you try to
27:07
Speaker 1: tie up with Spirit again. So I'm not gonna speculate,
27:11
Speaker 1: but look, we're always looking for ways to save more consumers, Mike,
27:14
Speaker 1: so so I'm not gonna close the door in it.
27:16
Speaker 1: But let's let's let them, uh, you know, pursue their
27:20
Speaker 1: path and we'll see how it goes. All right, Barry,
27:22
Speaker 1: I really appreciate you taking a time to come on.
27:24
Speaker 1: I know it's been busy times for you and the company.
27:25
Speaker 1: Barry Billfe was a ceto on president of Frontier Airlines.
27:31
Speaker 1: Earlier today, Kat we're talking with ivery Jersey Bluemer markets
27:35
Speaker 1: rate strategist, and he was talking about just kind of
27:37
Speaker 1: the markets, what's going on and a real liquidity problem
27:40
Speaker 1: and it really rears its head, um, you know, when
27:43
Speaker 1: you get some volatility in the market, and we've had
27:45
Speaker 1: so much data come out and recently there's been a
27:47
Speaker 1: lot of volatility here, Um, and he kind of sites
27:50
Speaker 1: that's just the big investment banks are not stepping up
27:52
Speaker 1: as much as I used to for variety of reasons,
27:54
Speaker 1: some of them regulatory. So our next guest here, I'm
27:56
Speaker 1: sure has some thoughts in that. Chris kun Cannon, CEO
27:59
Speaker 1: and president of Market Access that is a publicly traded company.
28:02
Speaker 1: M k t X is what you put into your
28:05
Speaker 1: Bloomberg terminal. It's got a ten billion dollar market cap. Chris,
28:08
Speaker 1: thanks so much for joining us here in the fixed
28:10
Speaker 1: income markets. Give us a sense of kind of where
28:12
Speaker 1: we are in terms of liquidity lack of liquidity, Is
28:16
Speaker 1: it a problem? If so, what are some of the
28:18
Speaker 1: solutions potentially well? First, thanks Paul and thanks Katie for
28:22
Speaker 1: having me. It's great to be on the show. And uh,
28:25
Speaker 1: absolutely right. There are some liquidity challenges in our market.
28:30
Speaker 1: UM definitely the result of the volatility that we're seeing,
28:33
Speaker 1: and we've been seeing some volatility in the market throughout
28:36
Speaker 1: the course of two and we would expect that volatility
28:40
Speaker 1: to continue, particularly given UM the moves that the SAID
28:45
Speaker 1: and and other central banks are are taking to really
28:48
Speaker 1: ward off the inflation that we're seeing in the market.
28:51
Speaker 1: So I would expect volatility UM to UM continue in
28:56
Speaker 1: that market, and that does create challenging liquidity UM liquidity
29:02
Speaker 1: challenges for our clients, but particularly around the large investment thanks,
29:07
Speaker 1: they have to be very careful about their inventory and
29:10
Speaker 1: what they take on onto their balance sheet, particularly given
29:14
Speaker 1: many of the regulations that they're subject to christ and Cannon. First,
29:18
Speaker 1: let me say it is thrilling to talk to you
29:20
Speaker 1: no new for a long time. Second, I want to
29:22
Speaker 1: dig into the numbers of the market access business because
29:25
Speaker 1: I'm looking at your latest Sarnings report grown market share
29:29
Speaker 1: to of the composite corporate bond market. But when I
29:32
Speaker 1: think about electronic trading platforms, specifically for corporate bonds, it
29:37
Speaker 1: almost feels like a duopoly. You have market access, You've
29:40
Speaker 1: trade Web. It's almost like an uber lift sort of situation.
29:44
Speaker 1: And I'm curious whether right now you know this increase
29:47
Speaker 1: in market share that you're seeing is that is that
29:49
Speaker 1: the pie growing larger? Are you chipping away at some
29:53
Speaker 1: of your competitors market share? Well, it's great to talk
29:56
Speaker 1: to you as well, Katie, and um. Really what we're
30:00
Speaker 1: seeing is the overall market. When you look at the
30:03
Speaker 1: global bond market, you're talking about a hundred and thirty
30:06
Speaker 1: trillion dollar market. It's one of the largest asset classes
30:08
Speaker 1: on the planet, and it is still in early innings
30:12
Speaker 1: in developing true electronic solutions, and clearly in the US
30:17
Speaker 1: close to that market is still manual that means over
30:20
Speaker 1: the phone via chat. So the market opportunity that we
30:24
Speaker 1: have at market access is is truly sizeable. UM. Where
30:28
Speaker 1: as you mentioned of the US corporate bond market, that
30:32
Speaker 1: means close to one in every five bond trades in
30:35
Speaker 1: the US take place on market access, but that's still
30:38
Speaker 1: at a very low rate given the overall electronic um
30:42
Speaker 1: the electronic adoption UH in the US bond market and
30:46
Speaker 1: more importantly globally, we offer electronic trading and in emerging
30:51
Speaker 1: market bonds and euro bonds and US treasuries, and and
30:55
Speaker 1: my favorite in the municipal bond market, which is still
30:58
Speaker 1: far from adopting electronic trading. It's very early days. And
31:03
Speaker 1: in the US municipal bond market. I'm sorry you're saying
31:05
Speaker 1: the municipal bond market is your favorite. It actually is.
31:10
Speaker 1: It has it just has such great attributes. For obviously,
31:14
Speaker 1: the tax benefits of the municipal bond market continue to thrive.
31:18
Speaker 1: And UM, just this recent quarter we traded over twenty
31:22
Speaker 1: three billion in muni bonds on our trading platform. So
31:25
Speaker 1: we are delivering some benefits in that market and some
31:27
Speaker 1: elect um sorely needed electronic trading in the municipal bond market.
31:32
Speaker 1: All right, Well, Bloomberg's Joe Meazac would be thrilled to
31:34
Speaker 1: hear that, But I do want to get your thoughts
31:36
Speaker 1: on portfolio trading. Of course, I cover E t F
31:39
Speaker 1: specifically fixed income et f s an important component there,
31:43
Speaker 1: and portfolio trading. It was sort of presented as the
31:46
Speaker 1: next big boom on Wall Street in terms of you know,
31:50
Speaker 1: when it comes to bond trading, it feels like it's
31:53
Speaker 1: stalled out a little bit. I mean, I'm looking at
31:55
Speaker 1: some numbers from February where you saw it come down
31:58
Speaker 1: in terms of total you US corporate bond volume. Curious
32:01
Speaker 1: what insight you can provide there. Well, the we tracked
32:06
Speaker 1: the portfolio bond trading, portfolio trading in our bond market,
32:10
Speaker 1: particularly in the US, where we saw it grow UM
32:13
Speaker 1: really most rapidly, probably in one UM. I would call
32:18
Speaker 1: portfolio trading in the bond market as a very expensive trade.
32:23
Speaker 1: You're obviously trading a full basket UH typically trading with
32:27
Speaker 1: one or two dealers, and UM, the spread of that
32:30
Speaker 1: trade is quite expensive, UM, but it provides some useful
32:35
Speaker 1: UM ways of deploying capital and and UM moving portfolio
32:40
Speaker 1: at a much rapid pace. We actually had record trading
32:43
Speaker 1: portfolio in our in our last quarter volume of twenty
32:48
Speaker 1: two billion in portfolio trades on our platform, So we
32:51
Speaker 1: we do provide an electronic solution in portfolio trading as well.
32:55
Speaker 1: But as I mentioned, it's it's only about between five
32:58
Speaker 1: and six percent of the overall mark, and we've really
33:00
Speaker 1: seen it stabilize around that rate. It's very hard to
33:04
Speaker 1: do portfolio trading in a volatile market, and as we
33:09
Speaker 1: talked about the you know, the the liquidity challenges makes
33:13
Speaker 1: portfolio trading that much harder in this type of market.
33:17
Speaker 1: And Chris, we only have about thirty seconds left. But
33:19
Speaker 1: I mean, if I look at some of these numbers
33:21
Speaker 1: again from February, it seems like the peak in terms
33:24
Speaker 1: of portfolio trading came in November. Like you said, I mean,
33:27
Speaker 1: perhaps it doesn't make as much sense involvedal markets, but
33:31
Speaker 1: how how big do you think it could grow again?
33:33
Speaker 1: If you look at the total share of corporate bond volume.
33:37
Speaker 1: I you know, we saw portfolio trading hit its peak
33:41
Speaker 1: in the stock market back in the in the late
33:44
Speaker 1: nineties actually, and it it really hit a peak and
33:47
Speaker 1: then really ebbed down. Um, so I wouldn't expect it
33:51
Speaker 1: to grow anywhere over Chris, really good stuff. I really
33:56
Speaker 1: appreciate getting your time. Chris con Cannon, CEO and president
34:00
Speaker 1: of Market Access, talking about the automation of trading, particularly
34:03
Speaker 1: in the fixed income space, a growing trend for sure.
34:09
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
34:12
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever
34:16
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
34:20
Speaker 1: at Matt Miller three. On Fall Sweeney, I'm on Twitter
34:24
Speaker 1: at pt Sweeney before the podcast. You can always catch
34:27
Speaker 1: us worldwide at Bloomberg Radio.