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Economy Appears to Have At Least 6 More Solid Months: Goldstein · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Good
• 0:33
  Speaker 1: news from the Conference Board. The Conference Board Leading Economic
• 0:35
  Speaker 1: Index for the United States increased in December. Here to
• 0:38
  Speaker 1: help us understand the details is Ken Goldstein. He is
• 0:41
  Speaker 1: the economist with the Conference Board, and he joins us
• 0:43
  Speaker 1: here in our eleven three oh studios. Ken, always a pleasure,
• 0:46
  Speaker 1: Thanks for being here. Not only do we have the
• 0:49
  Speaker 1: information for December, but we have a number of revisions,
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  Speaker 1: and I'm wondering if you could just lay out the
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  Speaker 1: situation for us. Well, I look the revisions and the
• 0:58
  Speaker 1: re benchmarking. It's so data cleaning, um, and we didn't
• 1:03
  Speaker 1: find out very much that we didn't already know. What
• 1:06
  Speaker 1: is interesting I think is that not just this month,
• 1:09
  Speaker 1: but the last three months, we've seen this pickup in
• 1:12
  Speaker 1: the I S M index for new orders. If you like,
• 1:15
  Speaker 1: that's kind of an intention to new order. So even
• 1:18
  Speaker 1: though the ordering rate itself hasn't picked up, uh, that
• 1:22
  Speaker 1: sort of last you know, leg over the fence, if
• 1:25
  Speaker 1: you like, looks like it might be improving. So not
• 1:27
  Speaker 1: only is the economy continuing to move along with the
• 1:30
  Speaker 1: signal that this is going to continue into the spring,
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  Speaker 1: but maybe with a little bit more kick, if indeed
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  Speaker 1: new orders are going to start to give us more strength.
• 1:38
  Speaker 1: So ken we know that manufacturing is doing well, we
• 1:41
  Speaker 1: know that the stock market is doing well, we know
• 1:43
  Speaker 1: that credit markets are really robust. Um, I'm looking at
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  Speaker 1: these indications. The one thing that we don't know is
• 1:52
  Speaker 1: why people aren't getting paid more. And I noticed that
• 1:55
  Speaker 1: the one decline in the indicators was for average weekly hours. Yeah,
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  Speaker 1: that's that's just a bounce. I don't know that there's
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  Speaker 1: any trend there, but certainly the lack of more pickup
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  Speaker 1: in wages and therefore more pick up inflation has indeed
• 2:11
  Speaker 1: been one of the one of the strange things, one
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  Speaker 1: of the unanswered questions, not just this month, but really
• 2:17
  Speaker 1: for the last two years. We keep saying it's going
• 2:20
  Speaker 1: to come. The labor market keeps getting tighter. Um, the
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  Speaker 1: question is when, and indeed when it does come how much,
• 2:27
  Speaker 1: And that's tied two decisions about how much interstrates will
• 2:31
  Speaker 1: pick up. Noticed not just that the indicators are also up,
• 2:35
  Speaker 1: but that long term interest rates both US and now
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  Speaker 1: Germany are also starting to pick up. That's another sign
• 2:40
  Speaker 1: of optimism, not just for the US, but we did
• 2:43
  Speaker 1: across the globe can tell us about a commercial and
• 2:46
  Speaker 1: industrial loans. I was looking at those results, well, you know,
• 2:50
  Speaker 1: the combination and again coming back to what we're just
• 2:52
  Speaker 1: talking about. You know, where's the inflation here? And yet
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  Speaker 1: profits are still good, loan demand has started to pick up.
• 2:59
  Speaker 1: It's like it's hard to see any you know, any
• 3:02
  Speaker 1: party economy. Uh, that's beginning to stutter a little bit.
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  Speaker 1: In fact, just the opposite. If anything, there are these
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  Speaker 1: sort of signs that I'm suggesting that if growth doesn't
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  Speaker 1: continue at the same pace, it's more likely that will
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  Speaker 1: be a little bit stronger than a little bit weaker.
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  Speaker 1: I guess I'm struggling with this idea of inflation. I mean,
• 3:22
  Speaker 1: this is the big question. This is the reason why
• 3:25
  Speaker 1: there is so much disagreement with respect to the sort
• 3:28
  Speaker 1: of course of of bonds and where they're headed. I mean,
• 3:31
  Speaker 1: right now, we're seeing yields take up, perhaps because of
• 3:34
  Speaker 1: Mario Dragon what he said today. But but but but
• 3:38
  Speaker 1: by ten, your yields have been taking up. Yes, you're right,
• 3:40
  Speaker 1: well before that um still though, I mean, I understand
• 3:45
  Speaker 1: that the hourly wages is not a trend. But it's
• 3:47
  Speaker 1: concerning that there is no momentum there, certainly no. It's
• 3:51
  Speaker 1: concerning that it hasn't started yet, that we keep saying
• 3:55
  Speaker 1: it's still coming, and everybody believes it's still coming. That
• 3:58
  Speaker 1: as the as the labor market continues to generate more
• 4:01
  Speaker 1: than a d and fifty jobs a month, as the
• 4:05
  Speaker 1: unemployment rate droughts below four percent, So a tight labor
• 4:08
  Speaker 1: market getting even tighter, that's going to drive a wayes
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  Speaker 1: the question when does that begin to start, how strong
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  Speaker 1: is it going to be, and when does that trick
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  Speaker 1: tip off into a pick up in inflation. So that
• 4:20
  Speaker 1: Phillips Curve argument, very few people believe it's dead. All
• 4:24
  Speaker 1: of us believe it's been asleep and it's about to
• 4:27
  Speaker 1: wake up. So, just to be clear to Phillips Curve,
• 4:29
  Speaker 1: whenever people say these things, just in case anyone doesn't
• 4:31
  Speaker 1: know what that is, it's the idea of an inverse
• 4:34
  Speaker 1: correlation between a low jobless rate and inflation. So ideally,
• 4:41
  Speaker 1: when the market does get really tight and the jobless
• 4:43
  Speaker 1: rate goes very far down, you should see increases in
• 4:47
  Speaker 1: wages and increases in inflation. We haven't seen that correlation,
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  Speaker 1: and people are wondering why and whether it just has
• 4:53
  Speaker 1: to yet to start. So I just like to describe
• 4:55
  Speaker 1: it all. Ken can also help me understand the diffusion
• 4:59
  Speaker 1: index and what can we learn from the diffusion index. Well,
• 5:03
  Speaker 1: this is really important because as I was just saying before,
• 5:06
  Speaker 1: it's like, it's not just the labor market, it's not
• 5:08
  Speaker 1: just the financial market, really goes across the board um
• 5:12
  Speaker 1: into virtually every segment of the economy. So the fact
• 5:15
  Speaker 1: that not only do we have this strong upward momentum
• 5:18
  Speaker 1: in the economy, could you know, and we're only talking
• 5:21
  Speaker 1: about two to an a percent GDP growth, We're not
• 5:24
  Speaker 1: talking about more than that, and yet it's that much
• 5:27
  Speaker 1: could even take up a little bit higher. But it's
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  Speaker 1: spread out across the across all the sectors. They diffuse.
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  Speaker 1: Hence the name of this is not only diffused across industry,
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  Speaker 1: it's diffuse also across regions. Uh, And so that is
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  Speaker 1: a further suggestion that this thing is not going to
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  Speaker 1: fall apart any time real soon. How far out does
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  Speaker 1: this to the leading economic indicators predict maybe the next
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  Speaker 1: three to six months? Okay, because this is this is
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  Speaker 1: helpful to remember, because we're hearing from Davos a lot
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  Speaker 1: of big thinkers and big investors and big executives say
• 5:58
  Speaker 1: they expect the economy in the u US to be
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  Speaker 1: good and robust for the next twelve months. But this
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  Speaker 1: tells us nothing about what happens after that, right, This
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  Speaker 1: doesn't tell us anything about that. But this kind of momentum,
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  Speaker 1: as I was just suggesting, you know, it's not going
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  Speaker 1: to fall up the cliff in one day. If it's
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  Speaker 1: going to start to decline, that's going to happen gradually.
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  Speaker 1: And there's no sign here, not in the indicators, not
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  Speaker 1: in most of the forecast, not in terms of what
• 6:24
  Speaker 1: the bond markets telling us that in the next twelve
• 6:27
  Speaker 1: to eighteen months we're going to see any big significant
• 6:29
  Speaker 1: drop absent a big economic shock, really quickly ten seconds.
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  Speaker 1: How long does it take before you start seeing the
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  Speaker 1: signs in the leading indicators before the downturn actually starts?
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  Speaker 1: Three to six months? Thank you so much, really helpful
• 6:44
  Speaker 1: to have you on and break it down as always.
• 6:46
  Speaker 1: Ken Goldstein, who is an economist with the Conference Board,
• 6:49
  Speaker 1: talking about the December leading economic indicators showing ongoing strength
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  Speaker 1: certainly over the next three to six months in the
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  Speaker 1: United States, an increase of six tents of in December.
• 7:02
  Speaker 1: That's right. Well, right now I'm looking at a headline
• 7:18
  Speaker 1: that gets me a little bit depressed. The doomsday clock
• 7:22
  Speaker 1: just moved. It's now two minutes to midnight, the symbolic
• 7:26
  Speaker 1: hour of the apocalypse. This is from the Washington Post.
• 7:29
  Speaker 1: Here to put my mind at ease, make me more worried.
• 7:32
  Speaker 1: Jack Divine He is founding partner and president of the
• 7:36
  Speaker 1: ark And Group, also a member of the Council of
• 7:38
  Speaker 1: Foreign Relations UH and he is also the author of
• 7:42
  Speaker 1: Good Hunting, a Spymaster's Story. Former acting director of the
• 7:48
  Speaker 1: c I A. Jack, I'm having too much fun in
• 7:54
  Speaker 1: life to be worried about doomsday, so I'm not miss
• 7:58
  Speaker 1: all right, let's talk about North Korea right now. Now,
• 8:01
  Speaker 1: now we can shift to doomsday. All right, So where
• 8:04
  Speaker 1: are we in this? You know, it's been one year
• 8:07
  Speaker 1: into Trump's tenure. We are seeing, uh, not a lot
• 8:12
  Speaker 1: of progress. Where's the throat right now? I think he
• 8:15
  Speaker 1: actually blinked. Who is he? Kim Jong? I mean, I
• 8:20
  Speaker 1: think the first of all, I would say off the right,
• 8:23
  Speaker 1: off the top, that I don't see any military resolution
• 8:26
  Speaker 1: of this. There is no good way to resolve this militarily.
• 8:30
  Speaker 1: I don't see how we could engage take out the site.
• 8:34
  Speaker 1: So I've been from the very beginning of the most
• 8:37
  Speaker 1: recent flare up in the relationships with with North Korea, UH,
• 8:44
  Speaker 1: pushing the thought that we need to return to the table.
• 8:46
  Speaker 1: So just the Trump administration adhered to that, do they Well,
• 8:50
  Speaker 1: it's it's I think the Trump administration has taken a
• 8:52
  Speaker 1: strong line. Uh. Interestingly enough, South Korea the new President
• 8:57
  Speaker 1: Moon have sort of tried to war arm up relations
• 9:01
  Speaker 1: and the question was whether Kim jongan was going to respond.
• 9:05
  Speaker 1: And I find it interesting that he has now going
• 9:08
  Speaker 1: to participate with the South Koreans and the Olympics and
• 9:12
  Speaker 1: and is talking to them now. I would hope that
• 9:16
  Speaker 1: behind closed doors, we're trying to expand those talks into
• 9:19
  Speaker 1: the old six parties China, Russia, South Korea ourselves and
• 9:24
  Speaker 1: try and come up with a eight some sort of
• 9:28
  Speaker 1: temporary solution just slow him down. We're not gonna he's
• 9:31
  Speaker 1: not gonna roll back his newclear program, but he's moving
• 9:35
  Speaker 1: too fast and we don't have a military solution. So
• 9:39
  Speaker 1: I think going back to the table, negotiating some sort
• 9:42
  Speaker 1: of temporary arrangement, I think it's our best course of action.
• 9:48
  Speaker 1: I was just gonna say on China, I was just
• 9:50
  Speaker 1: gonna say one thing in China that you know, the
• 9:52
  Speaker 1: Trump administration is putting a lot of it's betting on
• 9:58
  Speaker 1: China support. I've been agnostic about that at best all along,
• 10:02
  Speaker 1: but I do take some comfort recently if you believe
• 10:06
  Speaker 1: the Chinese official statement that they've cut off coal and
• 10:11
  Speaker 1: oil supplies, fuel supplies to China. I mean, if they
• 10:15
  Speaker 1: actually stay the course and increase the pressure, then there's
• 10:18
  Speaker 1: more more incentive to get the North Korea to the table.
• 10:22
  Speaker 1: But they're not a band in the program. The question
• 10:24
  Speaker 1: is whether or not we can stabilize it about where
• 10:26
  Speaker 1: it is today. Well, since you mentioned China, then I've
• 10:29
  Speaker 1: got to ask you about this, uh continuing news story
• 10:33
  Speaker 1: about the Jerry should Shingle naturalized US citizen. He now
• 10:37
  Speaker 1: lives in Hong Kong. He was taken into custody at
• 10:40
  Speaker 1: the JFK Airport former c I a case officer, and
• 10:45
  Speaker 1: he's under unrest on charges of illegally retaining highly classified
• 10:48
  Speaker 1: information relating to US spy networks in China. Well, first
• 10:55
  Speaker 1: of all, let me self reveal again I'm of the
• 10:57
  Speaker 1: view that in the intelligence world, we always have a mall,
• 11:03
  Speaker 1: you know, if you're the director of CIA, and I've
• 11:05
  Speaker 1: talked a lot of them, and so they've gone in.
• 11:08
  Speaker 1: I've made the point that there somewhere in the institution
• 11:11
  Speaker 1: there's a there's a mall. It's part of the business.
• 11:14
  Speaker 1: We have malls within the Russian system, within the Chinese system,
• 11:18
  Speaker 1: I'm sure we have them and and have had for years.
• 11:21
  Speaker 1: And they have had ten hours. It's finding those malls
• 11:25
  Speaker 1: and finding out how much damage they've done. I was
• 11:28
  Speaker 1: very familiar with the Hansen and rick Games cases and
• 11:32
  Speaker 1: what was interesting, and this is from the public domain,
• 11:36
  Speaker 1: that at the beginning, when they started to lose so
• 11:39
  Speaker 1: uh the agency begin lose Chinese assets, it was well,
• 11:43
  Speaker 1: it must be bad tradecraft in China, and then it
• 11:46
  Speaker 1: was it must have been a communication, it must have
• 11:49
  Speaker 1: hacked into something that's very reminiscent of the hunt for
• 11:52
  Speaker 1: Rick Games at the beginning, no one could accept the
• 11:54
  Speaker 1: fact that you had a trader in your meds who
• 11:57
  Speaker 1: could do that, who could be in a be a
• 12:00
  Speaker 1: member and be a trader and people should hasten so well,
• 12:05
  Speaker 1: why do you think that others betray themselves in our
• 12:08
  Speaker 1: work in the system. But eventually it became obvious that
• 12:11
  Speaker 1: we had a there was a penetration, and it's part
• 12:16
  Speaker 1: of uh part of doing business. But part of doing
• 12:20
  Speaker 1: business is also being vigilant on this point. And I
• 12:24
  Speaker 1: think I think this is just another reminder too bad,
• 12:27
  Speaker 1: is so painful? All right, So I just wanted to
• 12:29
  Speaker 1: follow up with this because I'm wondering what your perspective
• 12:33
  Speaker 1: is on the president's comments and attitude. It seems to
• 12:37
  Speaker 1: be that is sometimes put out in public on Twitter
• 12:41
  Speaker 1: characterizing either the FBI but also the CIA and the
• 12:44
  Speaker 1: U S Security forces. I think the burden of the
• 12:48
  Speaker 1: criticism has been directed more to the FBI and surrounding
• 12:52
  Speaker 1: the correct investigation. UM. I think it's worthwhile remembering the
• 12:57
  Speaker 1: very first official government act and and visit was to
• 13:01
  Speaker 1: the CIA. Okay, I think it's a very good it's
• 13:05
  Speaker 1: demonstratively good with the director of of CI A One
• 13:10
  Speaker 1: thing about as I reflect on what people in CI
• 13:14
  Speaker 1: a military tender like is strong, decisive leadership, and then
• 13:19
  Speaker 1: from their flows it's less political after that. Half the
• 13:23
  Speaker 1: people in cee I A. I'm sure, sure, I'm inclined
• 13:27
  Speaker 1: to believe, vote Democratic Party and the other half vote
• 13:30
  Speaker 1: to Republican Party. It's made up pretty much of what
• 13:33
  Speaker 1: America is. But there is a common thing, which is
• 13:36
  Speaker 1: decisiveness and leadership. So I I question sort of just
• 13:41
  Speaker 1: how much um turmoil or is around this issue in
• 13:46
  Speaker 1: the CI. The FBI, of course, is going through what
• 13:48
  Speaker 1: I think is very horrendous situation. I hope they for
• 13:53
  Speaker 1: our country, I hope this passes quickly. For the we
• 13:56
  Speaker 1: need the FBI, but there are there are real problems
• 13:58
  Speaker 1: that need to be addressed. So with with respect to
• 14:02
  Speaker 1: UH President Trump, he's been in office a year, do
• 14:06
  Speaker 1: you think that the U. S Is in a more
• 14:09
  Speaker 1: dangerous spot because of our perhaps less robust relationships with
• 14:13
  Speaker 1: some of our allies like Canada. One of the things
• 14:17
  Speaker 1: that I think it always struck me through the years
• 14:20
  Speaker 1: is the public and private behavior of foreign governments, perhaps
• 14:25
  Speaker 1: even our own, and that is you might have public outcries,
• 14:28
  Speaker 1: but I will tell you in the back rooms around
• 14:30
  Speaker 1: the world. It's still the predominance of how do you
• 14:33
  Speaker 1: get along with the US governed. It's so important to
• 14:36
  Speaker 1: the lives of everybody in every country that most most
• 14:41
  Speaker 1: of our major allies are looking for ways to deal
• 14:45
  Speaker 1: with us. In Davos, it's gonna be very interesting the
• 14:47
  Speaker 1: sidebar discussions. So I think what they're not used to
• 14:51
  Speaker 1: right now the foreign government is that the president is exerting, uh,
• 14:58
  Speaker 1: pretty a very strong position that's not sort of consensus driven.
• 15:03
  Speaker 1: And I think they're making adjustments. But um, I don't
• 15:06
  Speaker 1: think any of the alliances are are at risk. It's
• 15:10
  Speaker 1: just they need to figure out how to deal with
• 15:12
  Speaker 1: the new president the United States. Jack Devine, thank you
• 15:16
  Speaker 1: very much. Please come back and spend more time with us.
• 15:19
  Speaker 1: We've barely touched on a variety of topics that, of
• 15:23
  Speaker 1: course are interesting to our listeners and around the world.
• 15:26
  Speaker 1: Jack Divine is the founding partner and president of the
• 15:29
  Speaker 1: ark And Group, and he is the author of Good Hunting,
• 15:32
  Speaker 1: a Spy Master's Story. And he of course is also
• 15:36
  Speaker 1: a former acting head of an associate director of the
• 15:39
  Speaker 1: CIA Central Intelligence Agency. Right now, I want to turn
• 15:57
  Speaker 1: our attention to airlines we talked about them a little
• 16:00
  Speaker 1: bit earlier. United shares down wow, oh my goodness, in
• 16:04
  Speaker 1: the past two days, down more than fourteen per cent,
• 16:08
  Speaker 1: the most for two days going back to June. Here
• 16:13
  Speaker 1: to talk about it is George Ferguson, Bloomberg Senior Aerospace,
• 16:16
  Speaker 1: Defense and Airline analyst for Bloomberg Intelligence. Uh, George, what
• 16:21
  Speaker 1: happened here? Can you just give us a lay of
• 16:23
  Speaker 1: the land? Yeah? So, investors very focused right now on
• 16:27
  Speaker 1: the amount of capacity coming to the airline market, especially
• 16:31
  Speaker 1: the domestic US market. Uh. And uh, you know, United
• 16:35
  Speaker 1: a big participant in that market, and so anything that
• 16:38
  Speaker 1: was well above GDP was going to concern investors that
• 16:41
  Speaker 1: they were going to dilute fairs, push push fairs, just
• 16:45
  Speaker 1: to be clear about what capacity is. In other words,
• 16:48
  Speaker 1: they are expanding the locations that they're serving. Correct. Oh, yeah, Well,
• 16:52
  Speaker 1: so United is trying to serve their hubs better. United
• 16:55
  Speaker 1: has a lot of great hubs in the US and
• 16:57
  Speaker 1: they want more frequency. They want more flights in and
• 17:00
  Speaker 1: out of those hubs, um so that they can. They've
• 17:04
  Speaker 1: basically had peeled back some of that service over the
• 17:06
  Speaker 1: last decade or so, and so they want they want
• 17:09
  Speaker 1: to expand that service. They want more of a domestic
• 17:11
  Speaker 1: US footprint. I think it's what it all boils down to.
• 17:15
  Speaker 1: Because domestic US yields, which is the price of a
• 17:18
  Speaker 1: customer pace per mile they're flown, are higher than any
• 17:21
  Speaker 1: other market in the world. Uniteds are lower in the
• 17:25
  Speaker 1: US and their peers over at Delta, and so they
• 17:30
  Speaker 1: want to change that. They want to get yields from
• 17:31
  Speaker 1: the US that are as good as Delta, and they
• 17:34
  Speaker 1: see that as their avenue to getting profitability as good
• 17:37
  Speaker 1: as Delta. So they're expanding capacity into their hubs. Hey, George,
• 17:41
  Speaker 1: do the airlines have a mismatch when it comes to
• 17:43
  Speaker 1: the actual equipment the aircraft that they're using on the
• 17:46
  Speaker 1: roots that they want to expand? Uh, you know, I
• 17:50
  Speaker 1: don't know. I don't know if they have a mismatch,
• 17:53
  Speaker 1: you know. I think one of the interesting things about
• 17:55
  Speaker 1: United is if you look at some of their service
• 17:56
  Speaker 1: in the United States as part of this expansion for
• 18:01
  Speaker 1: more US market share, you'll see them flying triple sevens
• 18:04
  Speaker 1: coast to coast into l A and things like that.
• 18:07
  Speaker 1: You don't see that out of their competitors. I mean,
• 18:11
  Speaker 1: I think, you know, United is flying a lot of
• 18:13
  Speaker 1: business between their major hubs, and there's a lot of
• 18:17
  Speaker 1: traffic back and forth between places like Newark and l
• 18:20
  Speaker 1: a UM Actually LA is not their hubs, or in
• 18:22
  Speaker 1: Newark and San Francisco, h Newark in Chicago and and
• 18:27
  Speaker 1: and into Houston. So they're flying some bigger gauges and
• 18:29
  Speaker 1: I think that's part of the problem as United wants
• 18:32
  Speaker 1: to be servicing some of the smaller markets. You know,
• 18:35
  Speaker 1: I don't know right well, that's where I was going
• 18:37
  Speaker 1: because I mean, I was listening to comments from the
• 18:40
  Speaker 1: business from the commercial jet head of embra Air, and
• 18:45
  Speaker 1: I know embra Air and Boeing, you know, they're talking
• 18:47
  Speaker 1: about some kind of type. But they were saying that
• 18:50
  Speaker 1: the reason that Boeing is interested in Embra Air is
• 18:54
  Speaker 1: because Boeing and air Bus have more difficulty shrinking the
• 18:58
  Speaker 1: size of their equi in order to meet the right
• 19:02
  Speaker 1: size demand, and it's better to actually focus on smaller
• 19:06
  Speaker 1: aircraft that might have to be expanded. And that depends
• 19:09
  Speaker 1: what market you're going into. So as I was about
• 19:11
  Speaker 1: to say, if you're going into Rochester, Minnesota, which I
• 19:13
  Speaker 1: think is one of the examples we heard the other day, yeah,
• 19:16
  Speaker 1: you might want a hundred seeds or a hundred thirty
• 19:18
  Speaker 1: seed and that looks like an Umbrera, that looks like
• 19:23
  Speaker 1: a Bombardier C series. We heard in the jet Blue
• 19:26
  Speaker 1: call today. Jet Blue said they're sort of rethinking their
• 19:30
  Speaker 1: embraer onet and given the Airbus and Bombardier joint venture
• 19:36
  Speaker 1: with C series, they see new opportunities. They are very
• 19:39
  Speaker 1: air Bus focus shop. So that's an example where you
• 19:42
  Speaker 1: know an airline is looking for the right gauge to
• 19:44
  Speaker 1: get into those smaller markets, the right side. What's the
• 19:48
  Speaker 1: rational of United and why do they think it's going
• 19:52
  Speaker 1: to be good for their business and why is it
• 19:54
  Speaker 1: being taken exactly the opposite by the market. Yeah, so
• 19:58
  Speaker 1: you know they're they're adding a lot of capa looking
• 20:00
  Speaker 1: at four to six percent more capacity this year, which
• 20:03
  Speaker 1: is well above GDP growth, which is typically dilete of affairs.
• 20:07
  Speaker 1: And what they want to do is they they're trying
• 20:10
  Speaker 1: to go after these better fairs that they see in
• 20:12
  Speaker 1: the US at Delta an American have captured over the
• 20:16
  Speaker 1: last decade or so, going into those smaller markets like
• 20:20
  Speaker 1: Rochester and connecting Rochester into a major hub. Because if
• 20:23
  Speaker 1: you're if your service, you know there's one or two
• 20:27
  Speaker 1: airlines servicing a small market, there's less competition for that flyer.
• 20:31
  Speaker 1: That flyer pays more money. United let that go to
• 20:35
  Speaker 1: their competitors, and now they want it back because US
• 20:39
  Speaker 1: fairs are better than the rest of the world. That's
• 20:41
  Speaker 1: going to create a market share battle that's going to
• 20:43
  Speaker 1: cost everybody. Uh, you know the fair price. You have
• 20:47
  Speaker 1: to push the fair price lower to fill those airplanes.
• 20:51
  Speaker 1: Thanks very much, George Ferguson, our senior aerospace, defense and
• 20:54
  Speaker 1: airlines analysts for Bloomberg Intelligence. It's a big day to day. Uh.
• 21:12
  Speaker 1: In currency markets, I'm looking at the dollar spot right
• 21:16
  Speaker 1: now at the weakest level since December fourteen, the euro
• 21:21
  Speaker 1: strengthening against the US dollar that has reached the strongest
• 21:26
  Speaker 1: levels since twent sixteen. Have we reached a tipping point?
• 21:31
  Speaker 1: Steve England are joins us now. He is head of
• 21:34
  Speaker 1: research and strategy at Raffiki Capital Management. He is also
• 21:38
  Speaker 1: a Bloomberg profit Stephen, thank you so much for being
• 21:42
  Speaker 1: with us. So are we are we at some kind
• 21:45
  Speaker 1: of threshold of a bigger move? Is this a capitulation?
• 21:49
  Speaker 1: Is this sort of the calm before a bigger storm? Look,
• 21:53
  Speaker 1: the euro has moved the dollars moved a certain amount,
• 21:57
  Speaker 1: and I think to some degree, the questions go to
• 22:00
  Speaker 1: be how the FED responds to this. Um. I think
• 22:04
  Speaker 1: if they show any kind of tolerance for inflation drifting
• 22:07
  Speaker 1: and you know, staying temporarily above two percent, the dollars
• 22:10
  Speaker 1: got much further to go. Um. You already see that
• 22:14
  Speaker 1: in that US real interest rates haven't gone up despite
• 22:17
  Speaker 1: the upward movement inflation expectations, so the market doesn't really
• 22:20
  Speaker 1: see that much hawkishness there. Um. You know, if they
• 22:24
  Speaker 1: come up and they say, look, two percent is two percent,
• 22:26
  Speaker 1: and that's our target, then then what probably see the
• 22:28
  Speaker 1: dollars stabilized within a couple of percent of where we
• 22:31
  Speaker 1: are right now. Stephen England, could you comment on China,
• 22:35
  Speaker 1: It's US treasury holdings and what you see for the future. Yeah, look,
• 22:41
  Speaker 1: you know, I think that the UM. I think conventional
• 22:45
  Speaker 1: thinking is that they have the US over a barrel
• 22:48
  Speaker 1: because they hold so many treasuries. Um. You know, I
• 22:51
  Speaker 1: think correct thinking is that their U S has them
• 22:54
  Speaker 1: over a barrel. Both ways. One is that they're very
• 22:56
  Speaker 1: much dependent on trade with the US. Obviously they ship
• 22:59
  Speaker 1: a lot more to the U S and the U
• 23:01
  Speaker 1: S ships to them. So if there's a full fledged
• 23:04
  Speaker 1: trade ward, there's a lot more Chinese factories and jobs
• 23:06
  Speaker 1: are going to be lost in US jobs. And the
• 23:08
  Speaker 1: second is that, yeah, they can fire a cannonball through
• 23:11
  Speaker 1: the U. S. Treasury market, but that cannonball is going
• 23:13
  Speaker 1: to do a boomerang and go right through them because
• 23:16
  Speaker 1: they own so many of it and it's really hard
• 23:17
  Speaker 1: to sell. So I think that right now they would
• 23:20
  Speaker 1: love to be in a different position, but they're they're
• 23:22
  Speaker 1: actually kind of on the weaker side. I think of
• 23:25
  Speaker 1: these uh, you know, trade issues. Okay, So having said that,
• 23:28
  Speaker 1: why is it that you continue that that it's possible
• 23:31
  Speaker 1: to find, you know, very smart people who give you
• 23:34
  Speaker 1: the opposite version. I mean, clearly they don't pay. They've
• 23:37
  Speaker 1: never played poker with some of that owes the money. Um. Yeah, look,
• 23:42
  Speaker 1: I I think, you know, it's hard to explain things
• 23:45
  Speaker 1: two people that you know to to make a market.
• 23:47
  Speaker 1: But there are different ways of approaching gets. And they
• 23:49
  Speaker 1: would say that the one advantage of China has not
• 23:51
  Speaker 1: all the stickering is that, um, they can pull together
• 23:55
  Speaker 1: an army of formal and informal lobbyists to argue their
• 23:58
  Speaker 1: case in Washington. Um, you know, it's much harder for
• 24:02
  Speaker 1: the US do that to do that in Beijing. So, um,
• 24:05
  Speaker 1: they may not have the best position, but they probably
• 24:08
  Speaker 1: can handle their position better than the US can, at
• 24:12
  Speaker 1: least in you know, the public sphere. So Stephen uh
• 24:17
  Speaker 1: Leaving China aside, the US Treasury Department is going to
• 24:21
  Speaker 1: sell treasuries in larger chunks throughout the year. This year.
• 24:26
  Speaker 1: That is the expectation of a lot of people. The
• 24:28
  Speaker 1: US has to fund a deficit that is widely expected
• 24:31
  Speaker 1: to increase by a trillion dollars or more over the
• 24:34
  Speaker 1: next decade. Um. I'm looking at a ten year treasury
• 24:39
  Speaker 1: yield that is the highest in a very long time.
• 24:42
  Speaker 1: I'm looking at a German tenure yield also breaching the
• 24:45
  Speaker 1: highest levels and years. How high are we headed with
• 24:48
  Speaker 1: the US tenure yield? And what's going to be sort
• 24:51
  Speaker 1: of the trajectory here? Is it going to be at
• 24:55
  Speaker 1: some point a steady upward climb or are we going
• 24:58
  Speaker 1: to see kind of a choppy give some takes, some
• 25:02
  Speaker 1: give some takes. Well, look, you know, in wallets in motion,
• 25:07
  Speaker 1: it's always choppy in retrospect. You know, you can look
• 25:09
  Speaker 1: on the chart and state that was a pretty straight line.
• 25:12
  Speaker 1: The U S nominal GDP growth is going to be
• 25:15
  Speaker 1: somewhere between four and a half and five percent UH
• 25:18
  Speaker 1: this year. Treasuries running to sixty five by historical metrics
• 25:22
  Speaker 1: are are pretty low. And we've spent the last you know,
• 25:27
  Speaker 1: six or seven years telling ourselves that we're in a
• 25:30
  Speaker 1: different world that you know, the the the phrase the
• 25:32
  Speaker 1: FED talks about our star real insuri strate equity real
• 25:36
  Speaker 1: in strates or zero UM. Now it looks as if
• 25:40
  Speaker 1: we're kind of getting back into a world that we're
• 25:42
  Speaker 1: familiar with, where you know, we've become slightly more worried
• 25:45
  Speaker 1: about inflations and disinflation, and where um confidence that investment
• 25:49
  Speaker 1: is going to pick up housing is relatively strong. That's
• 25:52
  Speaker 1: back there. So yeah, upward pressure on rates, I think
• 25:54
  Speaker 1: it is still going to be there. To six five
• 25:57
  Speaker 1: is not that high relative to where we are. Steve
• 26:00
  Speaker 1: in Englander just quickly, do you think that a falling
• 26:03
  Speaker 1: the fallen value of the US dollar is going to
• 26:05
  Speaker 1: help the US economy marginally? I I look, you know,
• 26:09
  Speaker 1: the sad fact of the last ten years or twenty
• 26:12
  Speaker 1: years is that everybody talks about the currency, but the
• 26:14
  Speaker 1: actual impact on activity is low. Impact on earnings is
• 26:19
  Speaker 1: much higher because of translation effects. But how many jobs
• 26:22
  Speaker 1: a week er dollar creates I say it's pretty minimal,
• 26:26
  Speaker 1: So no effect in terms of things. Also, like trade policy,
• 26:29
  Speaker 1: you think that's going to help the economy, No small effect, right,
• 26:32
  Speaker 1: the you know ten percent appreciations with dollars, like you
• 26:34
  Speaker 1: put a ten percent subsidy to exports, ten percent tariffy
• 26:38
  Speaker 1: and imports. It matters, but it just doesn't matter that much,
• 26:42
  Speaker 1: all right. Thanks very much for helping us understand that.
• 26:44
  Speaker 1: Steve england Or is the head of research and Strategy
• 26:46
  Speaker 1: at Rafiki Capital. He is also a Bloomberg profit. In Bloomberg,
• 26:51
  Speaker 1: profits are professionals offering actionable insights on markets, the economy,
• 26:56
  Speaker 1: and monetary policy, and contributors may have a stake in
• 26:59
  Speaker 1: the areas about which they write. Thanks for listening to
• 27:06
  Speaker 1: the Bloomberg p m L podcast. You can subscribe and
• 27:09
  Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
• 27:13
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• 27:17
  Speaker 1: pim Fox. I'm on Twitter at Lisa Abramo. It's one
• 27:21
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• 27:23
  Speaker 1: Bloomberg Radio.