WEBVTT - Stuart Frankel's Guilfoyle Expects The ECB To Hold Still(Audio)

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<v Speaker 1>a Bloomberg Business flash. Bloomberg Jakime Stock, the Fed in focus,

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<v Speaker 1>the interest rates start to row for where the economy

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<v Speaker 1>is going. The question is how much higher ship it be.

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<v Speaker 1>FED has increased to tass Yes, and in doing so

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<v Speaker 1>it has increased its liability. Keeping interest rates at zero

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<v Speaker 1>for a long time is not going to cause inflation

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<v Speaker 1>to go up. It's very controversial. I think what we

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<v Speaker 1>need to do is find a way for the FED

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<v Speaker 1>to integrate its policy and think more about its impact

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<v Speaker 1>on the world. The Fed in focus on Bloomberg Radio. Godzilla,

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<v Speaker 1>Godzilla versus Gegon, Godzilla versus Destroy Your Yah. Stephen Gilfoyle,

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<v Speaker 1>chief market economist of Stuart Frankel, joins us now. He

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<v Speaker 1>can be followed on Twitter at Sarge nine eight six.

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<v Speaker 1>Stephen gilfoil I started off with a little Godzilla courtesy

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<v Speaker 1>of your most recent note. I thought you were going

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<v Speaker 1>to tell me that the central banks around the world

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<v Speaker 1>where god Zilla and those other large characters fighting it out,

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<v Speaker 1>and that they would leave the world with a trail

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<v Speaker 1>of destruction. Tell us a little bit more, Oh, I

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<v Speaker 1>think that that's certainly the case. You're you're probably going

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<v Speaker 1>to see that my god Zilla reference this morning that

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<v Speaker 1>THO was having to do with this Pokemon in Japan.

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<v Speaker 1>But but yes, I think I think we'll stay with Japan,

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<v Speaker 1>the Bank of Japan with their with that program. We're

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<v Speaker 1>expecting them to go forward with next week, which really

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<v Speaker 1>amounts to either perpetual bonds or helicopter money however you

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<v Speaker 1>want to explain it is UH along with earnings. Part

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<v Speaker 1>of this goose move we're seeing in the markets here

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<v Speaker 1>with the record highs for the sp doubt for several

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<v Speaker 1>days running now as Japan continues at stimulus program, A

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<v Speaker 1>lot of that money is supposedly earmarked for infrastructure projects.

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<v Speaker 1>Those are projects that won't necessarily show up on any

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<v Speaker 1>balance sheet or in any budget item. What's that going

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<v Speaker 1>to do to the country's debt balance? Well, you see

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<v Speaker 1>when they spend fiscally, what they're gonna do. I mean,

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<v Speaker 1>even if they're spending it on infrastructure, it's going to

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<v Speaker 1>go towards things like like supplies is going to go

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<v Speaker 1>towards UH, towards salaries, things like that. The money will

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<v Speaker 1>be in the general economy, A lot of it will

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<v Speaker 1>be They're going to erase it from the balance sheet

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<v Speaker 1>of their central bank and from the liability side of

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<v Speaker 1>their treasury. So it's going to be a strictly an

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<v Speaker 1>increase in the monetary base with the money supply. So

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<v Speaker 1>the idea here is that they can maybe wash away

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<v Speaker 1>some of their debt by by getting some inflation. And

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<v Speaker 1>you know, I don't think it's really a good idea.

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<v Speaker 1>I don't. I'm not certainly on board with anything like this,

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<v Speaker 1>but it seems to be the way that ben Verniky

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<v Speaker 1>has led them. Is it a bad idea? Will it

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<v Speaker 1>create unintended consequences that may be worse than the original problem?

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<v Speaker 1>It may, I mean, we all know what happened in

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<v Speaker 1>Germany in the nineteen twenties. I'm not saying that's automatically

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<v Speaker 1>gonna happen. They've been trying to get inflation over there

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<v Speaker 1>for decades now and it hasn't worked. I myself come

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<v Speaker 1>from the Austrian school of economics, so I don't really

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<v Speaker 1>like these extra wild attempts at at goosing things. But

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<v Speaker 1>maybe you shouldn't. But they But in Japan's case, their

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<v Speaker 1>economy has been in a death spiral for some time

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<v Speaker 1>and they've tried almost everything else. So I do understand

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<v Speaker 1>the desperation, all right. So the death spiral that works

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<v Speaker 1>with a Godzilla character tell us about the European Central Bank.

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<v Speaker 1>What movie would they would they inhabit if indeed they

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<v Speaker 1>were making a film or a documentary about the Mario

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<v Speaker 1>Draggy and the European Central Bank. I don't know if

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<v Speaker 1>I can think of a movie for you, But they're

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<v Speaker 1>going to They're probably gonna hold still tomorrow. I mean,

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<v Speaker 1>they're trying pretty desperate measures themselves. We all know they've

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<v Speaker 1>kept interest rates very low. They're buying everything from corporate

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<v Speaker 1>bonds to government bonds to pretty much everything accept goods

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<v Speaker 1>and services, so they've been very aggressive themselves. I think

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<v Speaker 1>they have to give it a little more time. It's

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<v Speaker 1>their first meeting since the brexit. We I think it's

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<v Speaker 1>playing to see for orl right now that the brexits

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<v Speaker 1>hurting Europe more than it's going to hurt the UK

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<v Speaker 1>UH and I think they're probably gonna need another meeting

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<v Speaker 1>or two to see what they need to do. I

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<v Speaker 1>don't think they, I think will be imprudent of them

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<v Speaker 1>to get more aggressive with their monetary policy at this time.

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<v Speaker 1>I don't know whether you've been following the details of

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<v Speaker 1>what's been going going on by at the European Union's

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<v Speaker 1>top court, but they denied Italy's request that taxpayers, not bondholders,

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<v Speaker 1>be on the hook to a bail out to the

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<v Speaker 1>banking industry. What are your views on the Italian economy

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<v Speaker 1>and the banking industry there, Well, they're going to they're

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<v Speaker 1>going to have to allow Italy or maybe the the

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<v Speaker 1>Eurostone itself to bail out the Italian banks. If not.

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<v Speaker 1>A lot of our premise here for the move higher,

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<v Speaker 1>which I know I just blamed a few other things,

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<v Speaker 1>but also part of the part of the move here

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<v Speaker 1>high was because that the worry that we saw a

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<v Speaker 1>week or two ago over of a Deutsche banks exposure

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<v Speaker 1>and and the Italian banks themselves, really it seemed to

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<v Speaker 1>go away a little bit. It seemed to be we

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<v Speaker 1>seem to be a little bit at ease over it,

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<v Speaker 1>because we had believed that the Italians would be able

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<v Speaker 1>to monetize their banks, capitalize their banks if they needed

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<v Speaker 1>to once those banks fled dry. If they don't let

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<v Speaker 1>them do that, then it's going to be a different ballgame. Well,

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<v Speaker 1>Luftanza has just cut its forecast for earnings before interesting

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<v Speaker 1>taxes for twenties sixteen. A bit more on Europe. Is

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<v Speaker 1>there anything that you believe that the European Central Bank

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<v Speaker 1>can do without the support of the politicians to some

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<v Speaker 1>way figure out how to get the economies and the

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<v Speaker 1>banks in Europe to start growing again, you know right now.

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<v Speaker 1>But they're basically paying the banks to len right And

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<v Speaker 1>is it working? Not really. You saw the zoo numbers

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<v Speaker 1>out of Germany. You say, there's e W numbers. I mean, so,

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<v Speaker 1>so things seem to be going the wrong way there.

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<v Speaker 1>I'm I am concerned over Europe, but I my first

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<v Speaker 1>concern is here in the US, and I you know,

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<v Speaker 1>if we can it's going to hurt us in the

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<v Speaker 1>long run, if we're being the cleanest shirt and the

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<v Speaker 1>dirty hamper analogy. But I mean it's it's ready to

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<v Speaker 1>hurt us in trade because our dollar is going to

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<v Speaker 1>become too strong. It's all, what's the Dixie over ninety

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<v Speaker 1>seven right now? Our yields are are low enough already.

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<v Speaker 1>We don't need them going any lower. And I think

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<v Speaker 1>it's just it's going to hurt all of our multinationals

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<v Speaker 1>in the long run. Not that valuations can't stretch, because

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<v Speaker 1>we all know that fundamentals aren't what they used to be.

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<v Speaker 1>In stock valuations are not they are not what they

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<v Speaker 1>used to be either. I like them. Maybe we can

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<v Speaker 1>use that as your quote of the day. Fundamentals aren't

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<v Speaker 1>what they used to be. Well, maybe maybe they are

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<v Speaker 1>what they used to be. But how we how we

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<v Speaker 1>attach ourselves to them is the interpretation isn't what it

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<v Speaker 1>used to be? Well, thanks very much, Stephen. Sergeant gilfoil

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<v Speaker 1>He is the chief market economist for Stuart Franklin. He's

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<v Speaker 1>joining us from the floor of the New York Stock Exchange.

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<v Speaker 1>He can be followed on Twitter at serge nine eight six.

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<v Speaker 1>You're listening to taking Stock. I'm pim Fox and this

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<v Speaker 1>is Bloomberg coming up on taking Stock. What are the

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<v Speaker 1>expectations for the next f O m C meeting next week.

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<v Speaker 1>We'll find out more details when we speak to Marvin

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<v Speaker 1>Lowe of b n Y Melan