WEBVTT - Cumberland's Mousseau on Munis: Cautions on Storm Preparedness

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<v Speaker 1>Global business news twenty four hours a day. It's Bloomberg

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<v Speaker 1>dot Com, the Radio plus mobile last and on your radio.

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<v Speaker 1>This is a Bloomberg Business Flash for on Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pellett. We have got thirteen minutes to go

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<v Speaker 1>ahead of the close. On this first trading day of September,

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<v Speaker 1>stocks repaired losses. NASTAK is higher. It is up eight

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<v Speaker 1>points now advancing two tenths of one percent. The down

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<v Speaker 1>Jones Industrial Average, which have been down one hundred five points,

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<v Speaker 1>now lower by two points. Little change there. The SMP

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<v Speaker 1>five hundred index down two points, a drop of one

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<v Speaker 1>tenth of one percent. The tenure of five thirty seconds,

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<v Speaker 1>with the yield there of one point five six percent.

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<v Speaker 1>Gold up six twenty fourteen, a gain of five tenths

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<v Speaker 1>of one percent. And crude oil West Texas Intermediate down

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<v Speaker 1>a dollar eighteen of row forty three fifty two, a

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<v Speaker 1>drop today of two point six percent. I'm Charlie Pellett,

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<v Speaker 1>and that's a Bloomberg Business Flash. You're listening to Taking

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<v Speaker 1>Stock with Pim Box and Kathleen Hayes on Bloomberg Radio.

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<v Speaker 1>I'm Kathleen Hayes. My Carl was Pim Fox on vacation.

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<v Speaker 1>For Pim, he's not live here with me at the

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<v Speaker 1>US Tennis Open Blushing Meadows, Corona Park. Queen's love coming

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<v Speaker 1>out here every year for many reasons. It's an exciting event.

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<v Speaker 1>Uh tennis has become quite a passion having come out

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<v Speaker 1>here so many times. And also the interesting people that

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<v Speaker 1>show up, not just tennis players, are people like Nick Bolletieri,

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<v Speaker 1>who is one of the people who really created this

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<v Speaker 1>whole tradition and business of coaching great champion tennis players.

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<v Speaker 1>It's the people who come from places like Complent Advisors,

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<v Speaker 1>people who love the markets and also love tennis just

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<v Speaker 1>like we do. We're very happy to welcome back to

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<v Speaker 1>our special US Open show. John mus So, Executive vice president,

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<v Speaker 1>director of Fixed Income at Cumberland Advisors. Welcome back, Kathleen.

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<v Speaker 1>It is great to be here, and it's not writing

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<v Speaker 1>on us now. It's stopped raining, so all things are

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<v Speaker 1>going to be going. I think we're gonna ask our

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<v Speaker 1>boss for a retractable roof for our our tennis broadcasts

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<v Speaker 1>out here, or at least three more ft of roof.

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<v Speaker 1>There you go, a free more feet of roof. But

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<v Speaker 1>let's First of all, let's get to the bond market.

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<v Speaker 1>You know, we got the weaker I s M manufacturing

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<v Speaker 1>report today, but the big jobs report tomorrow. I think

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<v Speaker 1>the markets everybody kind of shrugged off I s M

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<v Speaker 1>because the focus is still so strong on jobs. For

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<v Speaker 1>the bond market, okay, which has been in a very

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<v Speaker 1>tight range, still a lot of people bullish though, waiting

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<v Speaker 1>to rally more if the economy looks weak, vultable maybe

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<v Speaker 1>to a strong What what's the bond market looking for.

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<v Speaker 1>I think the bond market is looking really at two things, Kathleen.

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<v Speaker 1>It is looking at the fact that there is strength here.

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<v Speaker 1>We've seen it in better wage numbers, better labor participation rate, uh,

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<v Speaker 1>low growth, dropping unemployment. And if you look since the

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<v Speaker 1>end of June, it would reflect that the third year

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<v Speaker 1>bond is essentially where it is, maybe a basis point lower.

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<v Speaker 1>Every other point in the bond market is actually a

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<v Speaker 1>little higher, not dramatically higher, but higher since the end

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<v Speaker 1>of So I think we're expecting to FED to raise

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<v Speaker 1>rates at least once and maybe the lunatic fringe out there,

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<v Speaker 1>maybe even twice, the lunatic fringe. So what kind of

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<v Speaker 1>report tomorrow would the lumber consensus surveys for a hundred

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<v Speaker 1>seventies seven thousand. The previous month was like two thousand

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<v Speaker 1>the other one before that, but then the May report

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<v Speaker 1>was very weak. So what kind of number would make

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<v Speaker 1>bond traders like buy bonds like crazy because it wasn't

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<v Speaker 1>strong enough, or just start selling off because it's it's

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<v Speaker 1>too strong. I think unless you get an exceptionally weak number,

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<v Speaker 1>I think you're just gonna see more of the same

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<v Speaker 1>range bound, slow drift up in short term rates. And

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<v Speaker 1>and remember there's other things pointing in the short term

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<v Speaker 1>interest rate market as you head into the middle of October,

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<v Speaker 1>and the change in net esset value pricing of leney

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<v Speaker 1>market funds that has the short term bond markets um

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<v Speaker 1>a little off. Okay, Now, when you look at who's

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<v Speaker 1>buying bonds right now, we know a lot of UH

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<v Speaker 1>global investors because when they look at their own sovereign bonds,

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<v Speaker 1>their own government bonds, their wheels are lower than here,

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<v Speaker 1>or they're even negative. Is that going to continue? I

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<v Speaker 1>think we're bottoming out. I think people have seen some

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<v Speaker 1>of the dangers of negative interest rates, not necessarily here

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<v Speaker 1>in the US, but if you looked in Japan and

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<v Speaker 1>went back about a month ago, a little less than

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<v Speaker 1>a month ago, you had a small period of about

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<v Speaker 1>seven days where the thirty year government bond rose from

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<v Speaker 1>point oh five to point forty five. That doesn't sound

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<v Speaker 1>like much, but your durations are so long at those

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<v Speaker 1>low levels that the change in the price was about

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<v Speaker 1>twelve points. There's a lot of volatility there at very

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<v Speaker 1>low interest rates, and I think that's scared some people.

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<v Speaker 1>And I think you've seen rates rise a little bit

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<v Speaker 1>since then. Is is this going to be a world?

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<v Speaker 1>But let let's say we know the federals are will

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<v Speaker 1>probably raise rates. We don't know. That's what it sounds like.

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<v Speaker 1>Don't one interest rate increases You said most likely one

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<v Speaker 1>month was saying to sound birth. But the hiked one

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<v Speaker 1>rates once a year ago. I mean the pace so far.

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<v Speaker 1>When they talk about gradual when we get one interest

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<v Speaker 1>rate increase a year, that's that's the most gradualist path

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<v Speaker 1>I've ever seen in my life. One of the points

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<v Speaker 1>that you can make is the fact that here you

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<v Speaker 1>are with a ten year government bond at a little

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<v Speaker 1>over one and a half and yet a core trailing

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<v Speaker 1>core CPI that's about two point two and went above

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<v Speaker 1>two percent a few months ago, and the States stubbornly

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<v Speaker 1>there unless the forces that start forcing inflation down. You

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<v Speaker 1>know that if you're in a FED hike cycle, whether

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<v Speaker 1>it's slow or medium, eventually some longer term rates rise

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<v Speaker 1>to reflect where inflation actually is. So what's the strategy

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<v Speaker 1>right now, Cumberland advises John Mauseill. You've been doing this

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<v Speaker 1>for many years. You have clients who want you to

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<v Speaker 1>make money for them, a lot of them investing in bonds.

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<v Speaker 1>What's the bond strategy right now. The bond strategy at

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<v Speaker 1>Cumberland is we have, for the first time in a

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<v Speaker 1>few years, started to rain in duration. Uh, take some

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<v Speaker 1>profits off the table. We do it with a barbell

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<v Speaker 1>strategy where we own some longer securities and shorter securities.

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<v Speaker 1>And this manute may mention, the long term meals haven't

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<v Speaker 1>really moved much. That's that's really been an anchor point.

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<v Speaker 1>And the idea is to have more ammunition. Uh. This

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<v Speaker 1>isn't a prediction, but one thing that might keep us

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<v Speaker 1>up at night. When we saw what happened with the

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<v Speaker 1>Japanese bond market. If you look at all the develop

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<v Speaker 1>bond markets, Germany, France, England, US, Japan. If they all

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<v Speaker 1>caught a cold at once, if would not be a

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<v Speaker 1>pretty trade. Certainly wouldn't. When you think of what's the

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<v Speaker 1>biggest risk right now? The outlook that the UK data

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<v Speaker 1>came in surprisingly strong today. We've had a number of

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<v Speaker 1>members you keep waiting for Brexit to oh, no confidence,

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<v Speaker 1>We're not gonna buy anything, We're not going to invest

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<v Speaker 1>in anything, and instead they're holding up quite nicely. What

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<v Speaker 1>is the risk right now? The outlook? I think the

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<v Speaker 1>risk is if you're talking about Britain specifically, it is

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<v Speaker 1>less than that forecast by a lot of people. Um.

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<v Speaker 1>I like to think of what's going on in Britain

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<v Speaker 1>as they voted to go from full country club membership

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<v Speaker 1>to a social membership, and I think economically they're gonna

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<v Speaker 1>be okay. Might be a little bit of a downdraft,

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<v Speaker 1>but they will be fine. You guys watching the b

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<v Speaker 1>O J Bank of Japan, whether or not it stimulates

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<v Speaker 1>more right now, it seems like the Bank of Japan's

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<v Speaker 1>profile and among investors has gotten a lot higher. Is

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<v Speaker 1>people wait to see boy then to make their negative

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<v Speaker 1>rates more negative? Are they going to buy more? E

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<v Speaker 1>T s hold more equities. I think if they're gonna

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<v Speaker 1>go on a route of more stimulus, you're going to

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<v Speaker 1>see them buy more things other than by So think

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<v Speaker 1>about reeds, think about et F, think about the S

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<v Speaker 1>and P in this country, and I think that's that's

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<v Speaker 1>their route. I think they've seen some of the volatility

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<v Speaker 1>of zero interest rates, and I think they're gonna level

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<v Speaker 1>off on the bond side already. What keeps you up

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<v Speaker 1>most at night chong on specifically on the municipal side,

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<v Speaker 1>do you worry about pensions? We see some slow, slow

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<v Speaker 1>progress us, but it is slow. Specifically, you look at

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<v Speaker 1>things that are going on in the Gulf of Mexico

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<v Speaker 1>with the storm, and you worry about municipalities preparedness are

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<v Speaker 1>You look at the state like Louisiana, where uh, they're

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<v Speaker 1>already battling problems from the floods. Financially, they're in tough

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<v Speaker 1>shape because of the drop in the price at oil

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<v Speaker 1>and the fact that they get rid of a billion

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<v Speaker 1>dollar budget surplus. And you hope that you don't look

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<v Speaker 1>at this. You go into the end of the hurricane season,

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<v Speaker 1>they get hit with a Category three or four hurricane,

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<v Speaker 1>which could really cause damage for a state that's not

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<v Speaker 1>financially prepared well, certainly here for the U S Tennis Association,

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<v Speaker 1>they've done a trific job financing all this expansion they're doing,

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<v Speaker 1>and the and the real the big one this year.

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<v Speaker 1>The star is this retractable group which Rock and the

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<v Speaker 1>doll usual last guy Andy Murray. Uh. They easily sold

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<v Speaker 1>all the finance they needed to do that. Um. What

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<v Speaker 1>about the importance of the U S open to you

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<v Speaker 1>as a tennis fan? You know what it means to

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<v Speaker 1>you is someone who's watched it is forever and I

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<v Speaker 1>been coming for thirty five years. Um. I started coming

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<v Speaker 1>in and I was about twenty four years old. It

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<v Speaker 1>is a great thing, not only for the New York

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<v Speaker 1>area but for tennis fans in the United States. It

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<v Speaker 1>is our national championship, but it is a particularly New

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<v Speaker 1>York event, and they've embraced that and every year they

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<v Speaker 1>make it better without having to be asked to make

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<v Speaker 1>it better. This year it's the roof, and it's the new,

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<v Speaker 1>brand new grandstand, a fabulous place to watch tennis. And

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<v Speaker 1>so I think that the net result is you should

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<v Speaker 1>go for the next few years. You're gonna see two

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<v Speaker 1>thousand seven or eight thousand more fans a day coming

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<v Speaker 1>in here, and if that promotes the growth of tennis nationwide,

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<v Speaker 1>so much the better. Would you buy more bonds from

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<v Speaker 1>to finance out here if you were advising your clients,

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<v Speaker 1>says it? Or is that where your love for tennis stops? No? No, No,

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<v Speaker 1>It's funny because you can distinguish we're not a big

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<v Speaker 1>fans of stadiums and arena bonds that are back because

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<v Speaker 1>a lot of times the public is paying for them. Here.

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<v Speaker 1>If you look time the last time and they financed

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<v Speaker 1>the Arthur Ash Stating, which is early twenty years ago,

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<v Speaker 1>they did it with bonds that were insured and they

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<v Speaker 1>were backed by future television revenues. They could do that

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<v Speaker 1>again if you put another roof on what will become

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<v Speaker 1>the new Louis Armstrong. So um, you know, if you

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<v Speaker 1>look at the growth numbers here, you would like the

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<v Speaker 1>coverage rations that would provide. Okay, final question, who are

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<v Speaker 1>you rooting for on the men's side. On the men's side,

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<v Speaker 1>I think you're gonna see Stanford Ranca. Uh. You know,

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<v Speaker 1>he's got two majors under his belt and he'd like

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<v Speaker 1>to have a US open. And on the women's side,

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<v Speaker 1>I think you're gonna see Angela Carber. That'll nail her

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<v Speaker 1>second major for the year. Wow, beating Serena. Correct? All right, Jonas,

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<v Speaker 1>So thanks so much. Thanks Kathleen Stark Bonds talking fed,

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<v Speaker 1>talking job support, talking about how very efficient this US

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<v Speaker 1>Tennis Association has been with its financing using municipal bonds,

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<v Speaker 1>which of course come in. Advisors is very well known

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<v Speaker 1>for their their investments and management of municipal bond funds

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<v Speaker 1>and money for so so many years. John must thank

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<v Speaker 1>you for joining us. He is Director of Fixed In

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<v Speaker 1>at Cumberland Advisors. I'm Kathleen Hayes, alive at the US Open,

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<v Speaker 1>and this is Bloomberg perfectly