WEBVTT - MUFJ's Herrmann: Yellen's 'About Face' Is Not A Strategy(Audio)

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<v Speaker 1>Broadcasting live to New York Bloomberg eleventh, Rio to Washington,

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<v Speaker 1>d C. Bloomberg to Boston, Bloomberg, Well Under to San Francisco,

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<v Speaker 1>Bloomberg nine to the Country, Joey's Exam General one nine

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<v Speaker 1>and around the globe the Bloomberg Radio plus Dappen Bloomberg

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<v Speaker 1>got Gone. This is taking stock. I'm Kathleen Hayes along

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<v Speaker 1>with Pim Fox. Janet Yellen, the Fed Chair, wraps up

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<v Speaker 1>two days of testimony. It is clear that the Fed

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<v Speaker 1>Chair is no longer certain that rate hike rate hikes

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<v Speaker 1>are inevitable this year. Uh And having said that, she

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<v Speaker 1>also suggests that maybe we'll get lucky in the economy

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<v Speaker 1>and the labor market will show a little rebound. Pim,

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<v Speaker 1>We're going to talk to a guy who says he

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<v Speaker 1>thinks maybe there's a little too much hope in Janet

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<v Speaker 1>Ellen's outlook. Yes, that's John Herman, director of an interest

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<v Speaker 1>rate strategy at Mitsubishi e u f J Securities. He

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<v Speaker 1>says that the hope is not a strategy. I'm gonna

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<v Speaker 1>find out what he means by that. I remember that

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<v Speaker 1>as being a book by Rick pay Salesmanship. We'll find

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<v Speaker 1>out more right now, let's find out all about news

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<v Speaker 1>with Charlie Pellett of the Bloomberg News, and I thank

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<v Speaker 1>you him Fox sant Kikathleen Hayes that Dow is lower

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<v Speaker 1>SMP NEZZAC advancing the ten ure of five thirty seconds

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<v Speaker 1>looking at the yield of one point six eight percent.

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<v Speaker 1>The pound fluctuating amid speculation over whether the UK will

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<v Speaker 1>vote to leave the European Union. Oil slipping below forty

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<v Speaker 1>nine dollars of barrel right now though w T I

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<v Speaker 1>is at forty nine eleven, it is down one and

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<v Speaker 1>a half percent, dropping seventy three cents. Brent by comparison,

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<v Speaker 1>down two point three percent forty four right now on

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<v Speaker 1>Brent and again w e t I at forty nine twelve.

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<v Speaker 1>Tobias Lefkovitch, chief US equity strategist at City Group Global Markets,

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<v Speaker 1>was interviewed this morning on Bloomberg Television. Here's what he

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<v Speaker 1>had to say about uncertainty in the market. One of

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<v Speaker 1>the things that I've been fascinated by is this uh

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<v Speaker 1>constant reference to uncertainty. Um, they'll we have very high

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<v Speaker 1>degrees of uncertainty today. We've always had high degrees of

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<v Speaker 1>insert and date we probably get it a little bit

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<v Speaker 1>more in terms of the instantaneous technology feeds of that

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<v Speaker 1>news flow. But I can't remember a time in my

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<v Speaker 1>career that there wasn't uncertainty. And you know, if you

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<v Speaker 1>talk to people who grew up in the sixties and

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<v Speaker 1>the fifties who were told to hide under their desks

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<v Speaker 1>in case the Russians attacked UM with a nuclear barrage,

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<v Speaker 1>there's always uncertainty. And again recapping, we do have a

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<v Speaker 1>mixed picture for stocks. The SMP up two points now

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<v Speaker 1>at two thousand ninety one on the SMP five hundred.

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<v Speaker 1>In next sense, the game of point one percent, the

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<v Speaker 1>Dow down ten, a drop there of one tenth of

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<v Speaker 1>one percent to thirty two on Wall Street. Now, let's

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<v Speaker 1>take a look at other news from around the world

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<v Speaker 1>on Bloomberg Radio. Thank you, Charlie from the Bloomberg News Room.

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<v Speaker 1>I'm Rainey in a cen co. This news update is

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<v Speaker 1>brought to you by land Rover Manhattan, where New York

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<v Speaker 1>online at land Rover Manhattan dot com. Land Rover Manhattan

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<v Speaker 1>is at your service house Democrats, stage of protests on

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<v Speaker 1>the House floor over gun control, forcing the House into recess.

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<v Speaker 1>About thirty Democrats, led by George's John Lewis, are demanding

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<v Speaker 1>a vote on measures to expand background checks and block

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<v Speaker 1>gun purchases by some suspected terrorists. They want House Speaker

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<v Speaker 1>Paul Ryan to keep the House in session through its

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<v Speaker 1>planned weeklong recess next week to debate and vote on

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<v Speaker 1>gun legislation. Which presidential candidate would be better for your portfolio?

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<v Speaker 1>That is the basis of a new national poll Bloomberg

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<v Speaker 1>S Michael Barr has more when it comes to investor cabinets,

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<v Speaker 1>and new Bloomberg poll shows more voters with money in

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<v Speaker 1>the stock market say Donald Trump would be better as

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<v Speaker 1>president for their portfolios than Hillary Clinton. Bloomberg Morning Consult

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<v Speaker 1>National polls shows voters with money in the market picked

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<v Speaker 1>Trump over Clinton tote. The poll also shows nearly eight

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<v Speaker 1>out of ten Republicans say Trump would be better for

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<v Speaker 1>their holdings, while about six out of ten Democrats say

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<v Speaker 1>Clinton would. As for independent voters, the polls shows they

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<v Speaker 1>are twice as likely to big Trump as better for

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<v Speaker 1>the report folios. Michael Barr Bloomberg Radio, New York's Attorney

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<v Speaker 1>General says that Jimmy John Sandwich Chain has agreed to

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<v Speaker 1>stop including non compete agreements in hiring packets used for

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<v Speaker 1>low wage workers. Eric Schneiderman says such agreements quote bully

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<v Speaker 1>workers into staying under threat of being sued, and companies

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<v Speaker 1>should stop using them for minimum wage employees. Global News

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<v Speaker 1>twenty four hours a day, powered by more than journalists

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<v Speaker 1>and analysts in more than one under twenty countries. From

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<v Speaker 1>the Bloomberg News Room. I'm Rainy in Essensio. This is Bloomberg, Charlie,

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<v Speaker 1>and we thank you, and again recapping S and P

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<v Speaker 1>five index higher a little change right now, up one

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<v Speaker 1>point at two thousand ninety eight. That is a gain

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<v Speaker 1>of less than point one percent. I'm Charlie Pollock, and

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<v Speaker 1>that's a Bloomberg business flash. Is taking stock The FED

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<v Speaker 1>in Focus on Bloomberg Radio, The Fed in Focus. Our

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<v Speaker 1>next guest says that Chair Janet Yellen's current outlook is

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<v Speaker 1>entirely based upon hope, and he goes on to add

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<v Speaker 1>that it is never ever a strategy. Here to tell

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<v Speaker 1>us more about this is John Herman. He's the director

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<v Speaker 1>of rate Strategy at Mitsubishi u f J Securities. John

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<v Speaker 1>always a pleasure. So go ahead, explain what you mean

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<v Speaker 1>by this. Gave him So you and you and Kathleen

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<v Speaker 1>and I go way way back a couple of decades

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<v Speaker 1>at this point. So let's just you know, we have

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<v Speaker 1>to really fess up on a couple of things. One um,

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<v Speaker 1>you know, she all the issues, just just you know,

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<v Speaker 1>a few weeks ago, four weeks ago, she was telling everyone,

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<v Speaker 1>get prepared for rate high, get prepared for rate high.

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<v Speaker 1>But basically, the john market has lost a lot of

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<v Speaker 1>momentum very rapidly over the last five or six months,

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<v Speaker 1>and that totally caught them off guard. And up until

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<v Speaker 1>this point, she's been saying things that, you know, there's

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<v Speaker 1>a couple of head winds that the economy faces, and

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<v Speaker 1>she expects them to fade over time and for rates

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<v Speaker 1>to go back up and you know, growth to go

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<v Speaker 1>back up and flash. And now she's basically thing, you know,

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<v Speaker 1>maybe those head winds are really only going to slowly

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<v Speaker 1>fade over time, and we're really uncertain over it. So

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<v Speaker 1>she's had a major about faith and she's listed and

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<v Speaker 1>now an enormous list of headwinds. It used to be

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<v Speaker 1>just a couple of headwinds. It used to be just

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<v Speaker 1>oh there's some weak productivity goes, household formation rates amongst millennials,

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<v Speaker 1>not where we wanted to be. We've got some overseas

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<v Speaker 1>economic and financial developments were concerned about. Now we've got

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<v Speaker 1>a whole laundry list of stuff. And she said today

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<v Speaker 1>at the beginning with the House testiment, she said, you know,

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<v Speaker 1>I don't want to send a message of pessimism on economy.

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<v Speaker 1>That's the exact quote from her. I don't want to

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<v Speaker 1>say so. She doesn't want to delivers. But the thing

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<v Speaker 1>is she has to. She has to tell people what

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<v Speaker 1>is really going on so that maybe policy makers can

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<v Speaker 1>do something about it. And that's my issue. But go ahead, okay,

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<v Speaker 1>which I think we gotta put a couple of things

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<v Speaker 1>on the table. Yeah. Number one, Uh, there is no

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<v Speaker 1>conclusive evidence that we're heading into her session. You see

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<v Speaker 1>recession signs, people are looking for them, because once the

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<v Speaker 1>economy peaks and you know, yields bottom and job has

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<v Speaker 1>claims bottom, the next move is frequently towards recession. There's

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<v Speaker 1>no definitive sign of that right now. And there are

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<v Speaker 1>even people people number one and number two, people uh

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<v Speaker 1>would criticize her like crazy you want the FED chair

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<v Speaker 1>to come out and go, yeah, I think maybe recession.

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<v Speaker 1>Oh probably not. There'd be one headline, I think we

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<v Speaker 1>might have a recession and you see stocks creater O.

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<v Speaker 1>Let's go through, Kathany, and let's go through it. So

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<v Speaker 1>if you're right for this year, we don't see a

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<v Speaker 1>recession this year. She doesn't see it. We don't see it,

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<v Speaker 1>and most other people in the business don't see it.

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<v Speaker 1>But when you look out past this year, uh, you know,

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<v Speaker 1>and you look in twenty you know, towards the twenty

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<v Speaker 1>end of the labor fourth has a very strong bias

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<v Speaker 1>to contract after the year eighteen. It's it's even assuming

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<v Speaker 1>a hundred percent participation rate amongst millennials, were biased to

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<v Speaker 1>contract every month, every quarter every year from twenty end through.

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<v Speaker 1>So this is is you know, the likelihood of a

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<v Speaker 1>of a major slowdown at that point is going to

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<v Speaker 1>be you know, very high. So that's as as a

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<v Speaker 1>very basic but the other things, you know, even in

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<v Speaker 1>the nearer turn, there's there's some things to concern people,

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<v Speaker 1>which is that you know, business profits and basically started

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<v Speaker 1>to roll over for the last three quarters. So that

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<v Speaker 1>is a leading indicator of slowing activity, and and more

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<v Speaker 1>cautious business investment, more cautious hiring and so on, and

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<v Speaker 1>potentially some layoffs. And as this stuff starts to work,

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<v Speaker 1>potentially work at Swains and Country, then you would see

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<v Speaker 1>the spill over to consumer spending and the like and

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<v Speaker 1>risk taking and so on. So you know, we're not

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<v Speaker 1>out of the clear by any stretching imagination. She's now

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<v Speaker 1>seems to be more open and receptive to these risks,

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<v Speaker 1>and now she's guiding us that she's gonna really really

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<v Speaker 1>raising rates very gradually, very slowly. And the next rate

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<v Speaker 1>hike isn't really even on the table just right now

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<v Speaker 1>because you can't she can't even convincingly argue right now

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<v Speaker 1>when the next hike is coming. So that's so she's

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<v Speaker 1>done a big about face. But there's a ton, uh,

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<v Speaker 1>you know, a ton of issues here, and and what's

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<v Speaker 1>amazing to me is that, you know, she has to

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<v Speaker 1>really be pushed. You know, the the Senate Q and

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<v Speaker 1>A was fairly collegial and polite and a lot of

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<v Speaker 1>niceties and so on. But the House, both sides were

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<v Speaker 1>you know, you know, much more harsh in their criticism

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<v Speaker 1>of the policy and the questioning and so on and

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<v Speaker 1>so there was she was more disclosing of what some

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<v Speaker 1>of her concerns really are. And and suddenly there's like

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<v Speaker 1>this long list of things everything from again like the

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<v Speaker 1>millennials in their situation, the formation rates, their their indebtedness, etcetera.

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<v Speaker 1>These big strains in the income and wealth gaps in

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<v Speaker 1>the US, especially between you know, educated whites versus you know,

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<v Speaker 1>less educated uh, you know, minorities. I mean, there is

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<v Speaker 1>huge things. And and then the questions about what that

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<v Speaker 1>does to the local communities where people reside and so on.

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<v Speaker 1>I mean, these are very big issues. The things about uh,

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<v Speaker 1>you know, productivity being weak and protest it has been

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<v Speaker 1>weak for seven years now, business capex has been weak

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<v Speaker 1>for eight years now. I mean, it's a whole bunching,

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<v Speaker 1>the hollowing out the middle class. She said, you know,

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<v Speaker 1>this has been going on, you know for years and

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<v Speaker 1>decades and decades, and you know, and now she's more

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<v Speaker 1>disclosing on that. And and and you know, the regulation,

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<v Speaker 1>the excessive regulation that's being burdened on community banks and

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<v Speaker 1>on businesses more generally, the high corporate tax rates more generally,

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<v Speaker 1>all these things are just starting to you know, to

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<v Speaker 1>come out in her testimony, but she has to really

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<v Speaker 1>be pushed by, you know, a fairly contentious group of

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<v Speaker 1>representatives to get it out, all right, John German, thank

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<v Speaker 1>you so very much. Director of Interest Rate Strategy Mitsubishi

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<v Speaker 1>U s J Securities UH saying Jenna Ellen is not

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<v Speaker 1>being negative enough on the economy. He sees the session

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<v Speaker 1>signs and at least he says she has backed off

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<v Speaker 1>on her course of interest rates. Kathleen Hayes, pim Fox

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<v Speaker 1>Tavy stuff we've been radio. The FED in Focus is

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