WEBVTT - Wishes For Big Rate Cuts Foiled By Strong Consumer 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.800 at Bloomberg dot com. Time to check in with Bloomberg Opinion. 0:00:21.800 --> 0:00:24.319 We're joined by Bloomberg Opinion columnists Bob Burgess. He's an 0:00:24.360 --> 0:00:27.040 editor of Bloomberg Opinion, joining us here in our Bloomberg 0:00:27.080 --> 0:00:30.040 Interactive Broker studio. Bob, I think I speak for Lisa 0:00:30.080 --> 0:00:31.960 and most of our audience when I say, over the 0:00:32.040 --> 0:00:34.280 last two or three days, we've all had to brush 0:00:34.360 --> 0:00:37.199 up on the Repo market. What does it mean? Is 0:00:37.200 --> 0:00:41.159 it important? Do I care? So, Bob? Do I care 0:00:41.159 --> 0:00:43.000 about what's going on in the repo Market's been kind 0:00:43.000 --> 0:00:45.519 of scorely the last few days? Yes, and no. I 0:00:45.880 --> 0:00:50.160 think that um when people here that there's just locations 0:00:50.200 --> 0:00:53.840 going on in the Repo market, they have nightmares and 0:00:53.880 --> 0:00:57.320 flashbacks back to the financial crests, right, because this is 0:00:57.840 --> 0:01:03.680 one area that really royal markets. But there's a sense 0:01:03.720 --> 0:01:06.759 that was going on in the repo market now UH 0:01:06.920 --> 0:01:10.399 is much different than what happened back then. Now it's 0:01:10.440 --> 0:01:14.640 more of a technical move that we're seeing where you 0:01:14.680 --> 0:01:18.360 have a confluence events coming together that is pushing up 0:01:18.440 --> 0:01:23.880 these overnight borrowing costs. Back then, borrowing costs arising because 0:01:23.959 --> 0:01:27.640 banks didn't trust each other, which was a major problem. 0:01:27.680 --> 0:01:30.399 It's not really the reason why repo rates are rising 0:01:30.480 --> 0:01:32.520 right now. I guess that it gets to the heart 0:01:32.640 --> 0:01:35.880 of this real fear in markets right now. Will there 0:01:35.920 --> 0:01:39.200 be sort of a winning out of the global slowdown 0:01:39.240 --> 0:01:43.119 that will UH plunge a hole in the equity rally 0:01:43.280 --> 0:01:45.959 or will we see some sort of everything rally continue 0:01:46.000 --> 0:01:48.200 which we have been seeing. And I guess this is 0:01:48.200 --> 0:01:50.600 something you addressed in a recent column. We're talking about 0:01:50.680 --> 0:01:55.680 what markets need for this everything rally for bondstocks, currencies, commodities, 0:01:55.720 --> 0:01:57.920 everything to rally together. So what is it that they need? 0:01:58.400 --> 0:02:00.640 Right you know? This is one of those are years. 0:02:01.000 --> 0:02:03.760 You have the global stock market, the global bomb market, 0:02:04.080 --> 0:02:07.960 the global commodities market, and currency of returns all poised 0:02:07.960 --> 0:02:12.840 to deliver positive returns for the first time since two 0:02:12.880 --> 0:02:16.720 thousand ten Um Bank of America recently came out with 0:02:16.800 --> 0:02:21.840 their monthly survey of institutional clients, and they identify three 0:02:21.960 --> 0:02:24.920 things that would likely keep the as you put it, 0:02:25.000 --> 0:02:28.800 the everything rally going. One of those is German fiscal 0:02:28.840 --> 0:02:34.280 stimulus UH. The second is a fifty basis point rate 0:02:34.320 --> 0:02:38.720 cut from the Federal Reserve, and the third is Chinese 0:02:38.840 --> 0:02:42.520 infrastructure spending. But when you look at it, it looks 0:02:42.560 --> 0:02:47.040 like only two of those three things are likely to happen. Um. 0:02:47.280 --> 0:02:52.080 The Germans UM, instead of talking about borrowing UH to 0:02:52.160 --> 0:02:56.160 blow out his budget for infra, for phisical spending, it's 0:02:56.160 --> 0:03:00.600 actually talking about sticking with a balanced budget. UM. So 0:03:00.639 --> 0:03:02.480 the Germans are steer, So we're not gonna get any 0:03:02.480 --> 0:03:05.840 fiscal spending from the Germans. I'm not shocked at all. 0:03:05.880 --> 0:03:07.800 Nobody else I think should be shocked at all. As 0:03:07.880 --> 0:03:11.760 as as well UM. The second thing, the fifty basis 0:03:11.800 --> 0:03:15.680 point rate cut from the thread, is increasingly looking less 0:03:15.840 --> 0:03:19.480 likely by the hour. Um. You know, there's even a 0:03:19.520 --> 0:03:22.000 couple of strategies reports out over the past couple of days. 0:03:22.000 --> 0:03:24.920 I says, maybe the Fed shouldn't even cut rates, mainly 0:03:24.960 --> 0:03:28.200 because of the consumer is relatively strong in the US. 0:03:28.520 --> 0:03:30.720 You know, Brown Brothers Harriman is one firm that says, 0:03:30.760 --> 0:03:33.720 maybe the FED shouldn't cut rates. So a fifty basis 0:03:33.760 --> 0:03:36.760 point rate cut is definitely off the table. Might get 0:03:36.760 --> 0:03:39.520 twenty five basis point rate cut today. We'll see what 0:03:39.560 --> 0:03:43.080 they say about the outlook. The third point Chinese different 0:03:43.120 --> 0:03:46.400 structure spending that's actually happening. Um, you know, the Chinese 0:03:46.400 --> 0:03:52.160 recently introduced a proposal to allow local municipalities to sell 0:03:52.200 --> 0:03:55.960 bonds to increase your infrastructure. So the bottom line is 0:03:56.000 --> 0:03:59.560 the outlook for global risk assets seem to be dimming 0:03:59.720 --> 0:04:03.400 at the point. So, Bob, it is uh FED day today. 0:04:03.440 --> 0:04:06.120 It's not just REPO day, it's actually FED a rate 0:04:06.160 --> 0:04:08.960 decision day. If the FED were to come out with 0:04:09.040 --> 0:04:11.720 the you know, perhaps something less devilish, a little bit 0:04:11.760 --> 0:04:14.120 more Hawker saying, hey, the data is not is actually 0:04:14.160 --> 0:04:17.320 pretty solid. We're pretty good where we are. I'm not 0:04:17.360 --> 0:04:20.479 sure the markets are prepared for that. I would agree. 0:04:20.520 --> 0:04:24.719 I think the markets have been um have been anticipating 0:04:24.880 --> 0:04:27.679 a very devilish FED. But look at the housing starts 0:04:27.760 --> 0:04:31.599 data that came out to this morning. I mean, you know, 0:04:31.600 --> 0:04:34.480 the biggest monthly increase in housing starts since since two 0:04:34.520 --> 0:04:39.440 thousand seven, uh, consumer spending has been surprisingly strong. Uh 0:04:39.680 --> 0:04:42.200 So there are these metrics that suggest that the economy 0:04:42.240 --> 0:04:45.000 is doing pretty good. That said, we know from history 0:04:45.040 --> 0:04:48.960 that the consumers can lose confidence pretty quickly. If you 0:04:49.000 --> 0:04:52.880 look at every recession going back to at the very 0:04:52.920 --> 0:04:56.760 beginning of the recession is when the unemployment rate reached 0:04:56.800 --> 0:05:00.040 its bottom. Okay, so don't be fooled by a I 0:05:00.040 --> 0:05:02.800 want to employment rate saying the economy is strong. If 0:05:02.839 --> 0:05:06.200 companies feel that the outlook is getting dimmer, they'll start 0:05:06.440 --> 0:05:10.160 laying off workers, that unemployment rate will shoot up, and 0:05:10.160 --> 0:05:12.719 that's when you'll see consumers start pulling back. How much 0:05:12.720 --> 0:05:15.480 do you think that equity markets would sell off if 0:05:15.520 --> 0:05:17.720 the Fed indicate yes, they're going to cut twenty five 0:05:17.720 --> 0:05:21.919 bases points today, but going forward, who knows? You know, 0:05:22.000 --> 0:05:24.159 it's it's it's it's hard to say. But if you 0:05:24.240 --> 0:05:26.159 look at the rally this year in the U S 0:05:26.160 --> 0:05:33.160 stock market, the sp up, that's despite UM economists forecasting 0:05:33.200 --> 0:05:38.120 recession coming next year. That's despite strategists actually cutting their 0:05:38.120 --> 0:05:42.039 earnings estimates for this year. So how do you explain that? Well, 0:05:42.080 --> 0:05:44.520 the the only way you can explain the rally and 0:05:44.520 --> 0:05:48.480 the stock market this year is from ever lower interest rates. Right, 0:05:48.640 --> 0:05:53.159 simple discounted cash flow analysis suggests that you know future 0:05:53.160 --> 0:05:55.760 earnings are more valuable now when you assign a lower 0:05:55.800 --> 0:05:58.600 interest rate. If the Fed says maybe interest rates aren't 0:05:58.600 --> 0:06:01.040 going to be as low as and Wark is expecting, 0:06:01.680 --> 0:06:04.240 there's going to need to be a reprising Bob Bridgess, 0:06:04.240 --> 0:06:06.440 thank you so much for being with us. Bob Bridges 0:06:06.520 --> 0:06:09.120 as editor for Bloomberg Opinion, Joining us here in our 0:06:09.120 --> 0:06:26.760 Bloomberg Interactive Broker Studios. US home construction surged in August 0:06:26.839 --> 0:06:30.720 to the fastest pace since mid two thousand seven, showing 0:06:30.839 --> 0:06:34.719 ongoing strength and accelerating strength on the heels of lower 0:06:34.720 --> 0:06:37.680 mortgage rates. What does this mean for the United States 0:06:37.680 --> 0:06:40.640 housing market? Joining us here to discuss Melissa Reagan, head 0:06:40.680 --> 0:06:43.440 of US research for now Vina real Estate, which oversees 0:06:43.480 --> 0:06:46.000 a hundred and twenty five billion dollars of assets. Melissa 0:06:46.440 --> 0:06:49.200 joins us here in our Interactive Broker Studios to Melissa, 0:06:49.240 --> 0:06:51.839 can you just give us a sense of the increase 0:06:51.960 --> 0:06:54.840 in home construction? How do you see this sort of 0:06:54.880 --> 0:06:57.360 in the bigger picture and what's going on in how 0:06:57.440 --> 0:07:00.960 builders are responding to lower mortgage rates. Yeah, sure, absolutely, 0:07:01.720 --> 0:07:04.280 so I think the numbers are really strong. Housing starts 0:07:04.360 --> 0:07:07.240 up six point six percent year over year August twelve 0:07:07.240 --> 0:07:10.200 percent during the month. I really focus in on the 0:07:10.240 --> 0:07:12.760 multi family market and that was extremely strong as well, 0:07:13.600 --> 0:07:16.880 with it like four hundred and forty five thousand starts, 0:07:16.960 --> 0:07:19.400 And wasn't that kind of driving it was the apartment 0:07:19.440 --> 0:07:22.400 building like that. So the majorities driven by single family. 0:07:22.440 --> 0:07:24.760 So if he's in context of that, one point three 0:07:24.840 --> 0:07:29.280 six four million, uh nine and like nineteen was single family, 0:07:29.360 --> 0:07:34.200 and then the fot was was multi family. Um. So 0:07:34.240 --> 0:07:35.840 when you put in that context, I think a lot 0:07:35.840 --> 0:07:39.200 of it was driven by immigration in kind of the 0:07:39.240 --> 0:07:42.520 southern regions, and you think at the southeast southwest, that's 0:07:42.520 --> 0:07:44.320 where you saw a lot of really strong demand, and 0:07:44.320 --> 0:07:48.080 that's completely consistent with where you're seeing population in very 0:07:48.120 --> 0:07:51.360 strong levels of immigration. Right You've probably read the headlines 0:07:51.880 --> 0:07:54.880 population is actually falling in places like San Francisco, New York, 0:07:55.320 --> 0:07:57.360 UM to some extent l A. And I think this 0:07:57.440 --> 0:07:59.880 is a reflection of that and very strong to me 0:08:00.000 --> 0:08:03.800 and from multi family. Uh. Just as people still continue 0:08:03.840 --> 0:08:07.560 to want to rent, So is this strong housing market 0:08:07.560 --> 0:08:09.560 that we've been seeing. Is it just simply a function 0:08:09.600 --> 0:08:13.560 of everybody's got a job and mortgage rates are low 0:08:13.680 --> 0:08:15.400 and appear to be coming lower And are those the 0:08:15.480 --> 0:08:18.560 two main drivers? Partly? Right? So I look at it, 0:08:18.640 --> 0:08:21.560 that's definitely true. On the single family home starts angle 0:08:21.600 --> 0:08:24.080 of it. Uh morgates are low. But you also have 0:08:24.080 --> 0:08:25.800 to remember from that perspective, I think you need to 0:08:25.800 --> 0:08:30.080 put in context. You know, a single family starts peaked 0:08:30.360 --> 0:08:33.680 at like one point seven million right before the crisis, right, 0:08:33.720 --> 0:08:36.760 so this is so pretty low in a historical content 0:08:36.920 --> 0:08:40.840 from a peak perspective. From a multi family perspective, starts 0:08:40.840 --> 0:08:44.199 are actually I'm wouldna say historically high, but they've been 0:08:44.240 --> 0:08:46.600 elevated for a while. And that is definitely due to 0:08:47.200 --> 0:08:52.400 strong in migration demand for rentals, the millennials, you know, 0:08:52.440 --> 0:08:54.320 not being able to afford a home at this point. 0:08:54.480 --> 0:08:56.080 So he's all kind of one and the same, the 0:08:56.120 --> 0:09:00.000 homeownership versus the rental single family starts being down from 0:09:00.000 --> 0:09:03.400 their peak, It's it's all interrelated, so to speak. Well, 0:09:03.520 --> 0:09:05.640 uh So, Paul and I were in Nashville not so 0:09:05.720 --> 0:09:07.559 long ago, and I was struck by all of the 0:09:07.640 --> 0:09:11.040 construction cranes in downtown Nashville, which makes sense given the 0:09:11.080 --> 0:09:13.520 fact that a number of businesses are moving from places 0:09:13.600 --> 0:09:16.600 like New York to Nashville, and there certainly is outmigration 0:09:16.640 --> 0:09:19.520 from the bigger cities to places like Nashville. At what 0:09:19.640 --> 0:09:22.520 point is it over building, right? I mean, especially if 0:09:23.240 --> 0:09:25.800 there is somewhat of a downturn and the jobs remain 0:09:25.840 --> 0:09:27.720 in the big cities and some of these other ones 0:09:28.320 --> 0:09:30.199 do lose out like we saw in two thousand and 0:09:30.240 --> 0:09:33.720 eight and two thousand nine. Yeah, absolutely, I think. Listen, 0:09:33.760 --> 0:09:36.320 I think the big cities will They're not going anywhere, 0:09:36.320 --> 0:09:38.880 and so somebody who the headlines get a little overstated 0:09:38.880 --> 0:09:40.480 of population film and they try to make the same 0:09:40.520 --> 0:09:43.440 dramatic big cities are not going anywhere to the extent 0:09:44.040 --> 0:09:46.040 what I do think has happened in places like Nashville's. 0:09:46.120 --> 0:09:49.120 They have changed who they are from fifteen years ago. 0:09:49.360 --> 0:09:53.760 So Nashville and you can think of Charlotte, Raleigh, Austin 0:09:53.880 --> 0:09:57.240 all being in that same kind of category fifteen or 0:09:57.240 --> 0:09:59.959 twenty years ago did not have the vibrancy the people, 0:10:00.280 --> 0:10:02.880 the businesses, and today they do, and I think they 0:10:02.920 --> 0:10:06.680 will have staying power in a downturn in the next cycle. 0:10:07.320 --> 0:10:09.880 Um but yes, to the extent that you want to 0:10:09.920 --> 0:10:13.000 have a certain job, right, think about finance, that's that's 0:10:13.120 --> 0:10:16.360 largely going to still be in New York. So, you know, 0:10:16.400 --> 0:10:20.839 we're ten plus years into this economic cycle. So yet 0:10:21.000 --> 0:10:22.839 you know, the real estate, the consumer is still strong. 0:10:22.920 --> 0:10:25.760 How are you, Folcus at Novine on your real estate investments? 0:10:26.000 --> 0:10:28.200 How are you kind of positioning yourselves now? I mean, 0:10:28.240 --> 0:10:30.440 at some point this has all got to end. We 0:10:30.920 --> 0:10:33.520 you know, it's not that long ago that we still 0:10:33.520 --> 0:10:35.040 have the memories of the financial crisis and there in 0:10:35.040 --> 0:10:37.040 the real estate issues. So how are you guys positioning 0:10:37.080 --> 0:10:40.080 your portfolios? Yeah, I think at this point you realize 0:10:40.080 --> 0:10:42.360 you're you're late in the cycle. And I think that's 0:10:42.400 --> 0:10:44.719 just consensus at this point. We all we all know that. 0:10:44.800 --> 0:10:46.920 And so what we do is we think about the 0:10:46.960 --> 0:10:48.439 sectors we want to be in that we think will 0:10:48.480 --> 0:10:51.280 actually provide us with a protection in a downturn. So 0:10:51.320 --> 0:10:53.360 some of us have been more of the alternative property 0:10:53.400 --> 0:10:57.400 types which tend to still grow in a downturn. Alternative 0:10:57.559 --> 0:10:59.240 alternative Yeah, so when even so, you can think of 0:10:59.280 --> 0:11:01.440 self storage, or you can think of senior housing, or 0:11:01.440 --> 0:11:04.160 you can think of manufactured house at it things that 0:11:04.160 --> 0:11:06.200 that actually do pretty well in the downturn, just because 0:11:06.200 --> 0:11:08.720 of the demand drivers. At the same time, when you 0:11:08.760 --> 0:11:12.800 think about apartments or offices, industrial or retail, we just 0:11:12.840 --> 0:11:15.640 get more selective UM and we get really focused on 0:11:15.760 --> 0:11:19.280 making sure we're focused on high quality location. Price. Obviously 0:11:19.559 --> 0:11:22.200 UM is a factor in that as well, So you 0:11:22.320 --> 0:11:25.560 just narrow down the opportunity set and be you'd be 0:11:25.600 --> 0:11:28.680 more selective in the investment process. One thing I'm trying 0:11:28.720 --> 0:11:32.240 to understand is the amount of money getting raised for 0:11:32.280 --> 0:11:34.840 real estate funds at this point in the credit cycle. 0:11:35.040 --> 0:11:38.800 Because you're saying it's consensus, we're late cycle. Why is Blackstone, 0:11:38.840 --> 0:11:42.040 for example, raising an unprecedented amount of money for commercial 0:11:42.040 --> 0:11:45.079 real estate? Uh, and you see a whole other host 0:11:45.240 --> 0:11:48.559 of fund managers doing the same. Is this for now 0:11:48.840 --> 0:11:52.040 or is this for a downturn? I do think in 0:11:52.080 --> 0:11:54.560 some sense, if you're an investor who looks at it 0:11:54.600 --> 0:11:57.080 from a multi asset perspective, If you're an investor who 0:11:57.160 --> 0:11:59.240 has stocks, bonds, and then you think about real estate 0:11:59.320 --> 0:12:02.360 or real asset, what you think about is in a downturn, 0:12:02.440 --> 0:12:04.520 real estate or real assets can provide me with some 0:12:05.440 --> 0:12:09.040 pure diversification relative to my stocker bond portfolio. And I 0:12:09.080 --> 0:12:11.120 think there's a lot of that going on. And I 0:12:11.160 --> 0:12:13.839 think investors saying, hey, I've probably been under allocated to 0:12:14.000 --> 0:12:17.160 real estate real assets, you know, for probably twenty years now, 0:12:17.240 --> 0:12:20.000 and it's time to start helping that allocation, you know, 0:12:20.040 --> 0:12:22.040 to call it ten or fifteen percent of my portfolio. 0:12:22.240 --> 0:12:25.160 It's almost just a pure diversification play of nothing else. 0:12:25.679 --> 0:12:28.560 Is there any sense that the commercial or real estate 0:12:28.960 --> 0:12:31.960 or residential real estate market is overheating at all at 0:12:31.960 --> 0:12:34.640 the moment? Yeah, you know, there's been a lot of 0:12:34.679 --> 0:12:38.280 discussion about that for probably five years now. I would say, 0:12:38.280 --> 0:12:41.520 I mean really, um and and because people have seen 0:12:41.559 --> 0:12:44.480 the cranes in Nashville for more than five years now, 0:12:44.800 --> 0:12:46.360 and so you have a lot of those questions. The 0:12:46.400 --> 0:12:50.760 demand has kept up, So from an apartment perspective, you 0:12:50.800 --> 0:12:54.160 still have rents growing above inflation. Demand is there. You 0:12:54.200 --> 0:12:58.920 do see oversupply in certain pockets of the southern regions 0:12:58.960 --> 0:13:01.120 like a Dallas or a Houston. And um, but by 0:13:01.160 --> 0:13:03.600 and large, I would say supply de man have kept 0:13:03.880 --> 0:13:07.400 in sync, so really strong demand for apartments even with 0:13:07.440 --> 0:13:10.400 the supply just quickly here, which market do you see 0:13:10.559 --> 0:13:14.240 as having the most potential upside here in the US 0:13:14.280 --> 0:13:18.440 at this point. That's a great question. UM. We're really 0:13:18.480 --> 0:13:21.360 favoring some of the more tech driven markets. UM. You 0:13:21.400 --> 0:13:25.360 could think of San Francisco, l A, San Diego, Portland. UM. 0:13:25.400 --> 0:13:27.679 But we also like some of the southern regions too. UM. 0:13:27.880 --> 0:13:30.320 I still think there'd be good demand in migration in 0:13:30.360 --> 0:13:33.640 places like Nashville, UM, who have really changed their stripes 0:13:33.640 --> 0:13:36.800 of who they are as a city. Melissa Reagan, thank 0:13:36.800 --> 0:13:38.640 you so much for joining us. Melissa's the head of 0:13:38.880 --> 0:13:42.160 US research for Moving real Estate with about a hundred 0:13:42.160 --> 0:13:45.559 and twenty five billion dollars under management on the real 0:13:45.679 --> 0:13:48.040 estate side. She joins us here in our Bloomberg Interactor 0:13:48.080 --> 0:13:51.520 Broker studio. We saw again more evidence today with a 0:13:51.559 --> 0:13:53.800 new housing starts and new uh. You know, the real 0:13:53.880 --> 0:14:14.280 estate market in the US remains very solid. Well, it 0:14:14.360 --> 0:14:16.640 is FED day, but it's not your typical FED day. 0:14:16.679 --> 0:14:19.200 Instead of obsessing over what we might hear from the 0:14:19.240 --> 0:14:21.400 Fed this afternoon, we're talking about a little known part 0:14:21.480 --> 0:14:24.440 of the capital markets, and that is the overnight federal 0:14:24.600 --> 0:14:27.200 repo market. They get the latest. We welcome Hugh Nicola, 0:14:27.400 --> 0:14:30.080 Principal and head of fixed Income at gent Trust with 0:14:30.080 --> 0:14:32.880 about two billion dollars under management, and Alex Harris, Bond 0:14:32.920 --> 0:14:35.360 reporter for Bloomberg News, both joining us here in our 0:14:35.360 --> 0:14:38.560 Bloomberg Interactive Broker Studio. So Alex, let's start with you. 0:14:38.640 --> 0:14:40.680 Just give us the latest on what is going on 0:14:40.800 --> 0:14:45.360 with this three day story about the federal repo market. Um. Well, 0:14:45.560 --> 0:14:48.680 so it kind of had started building actually last Friday. 0:14:48.800 --> 0:14:51.320 You were starting to hear about withdrawals from the money 0:14:51.360 --> 0:14:54.320 market funds to cover that corporate tax payment. And then 0:14:54.360 --> 0:14:56.440 Monday everything kind of came to a head because you 0:14:56.480 --> 0:15:00.960 had collateral coming in and so from these treasury coupon 0:15:01.040 --> 0:15:04.400 auction settlements. Um. But then you know, there's some X 0:15:04.440 --> 0:15:06.280 factors and things that we're still trying to sort through. 0:15:06.320 --> 0:15:09.000 There were rumors flying around about you know, Saudi Arabia 0:15:09.040 --> 0:15:12.120 pulling cash out of the funding markets to shore you know, 0:15:12.200 --> 0:15:15.000 their liquidity after the attacks. You were you know, so 0:15:15.040 --> 0:15:17.320 I'm hearing a few different things, but ultimately that was 0:15:17.360 --> 0:15:19.280 sort of the crux of it is a supply demand 0:15:19.280 --> 0:15:23.200 and balance, and so you repo got really unstable, and 0:15:23.280 --> 0:15:25.880 with it, it just pulled all these other rates up, 0:15:26.120 --> 0:15:29.600 the security overnight financing rate, which regulators are looking at 0:15:29.640 --> 0:15:32.560 is sort of the air presumptive to Liebor shot up. 0:15:32.600 --> 0:15:35.760 And even today, you know, the setting for as of 0:15:35.840 --> 0:15:38.680 yesterday was five five point five percent. That was a 0:15:38.680 --> 0:15:42.160 two basis point move. And then more concerning is that 0:15:42.280 --> 0:15:45.680 the FED funds rate, the FEDS policy target rate moved 0:15:45.680 --> 0:15:47.960 out of the range. Today it's at two thirty and 0:15:48.000 --> 0:15:50.880 the FEDS benchmark range is two to two and a 0:15:51.000 --> 0:15:54.720 quarter percent. And that's more concerning here. And even though 0:15:54.840 --> 0:15:57.920 repo's starting to sort of normalize, things are calming down. 0:15:58.320 --> 0:16:01.240 What's what's more worrisome in long run is that the 0:16:01.240 --> 0:16:04.440 FED has lost control. It's the perception that the FED 0:16:04.480 --> 0:16:07.320 has lost control of the benchmark and of policy and 0:16:07.360 --> 0:16:10.480 the transmission mechanism. And so I think that's now what 0:16:10.560 --> 0:16:13.560 the meeting becomes today is you know what kind of 0:16:13.600 --> 0:16:16.480 steps is Jerome Powell on the FOMC gonna take here 0:16:16.760 --> 0:16:19.800 to kind of you know, help keep you know, the 0:16:19.800 --> 0:16:22.280 FED funds rate within its target range and keep things 0:16:22.320 --> 0:16:25.360 sort of under control and controlling the short term interest rates. Hugh, 0:16:25.960 --> 0:16:29.880 how are you viewing the rebot disruption of this week? So, um, 0:16:29.960 --> 0:16:32.600 first of all, thank you for having me here. Um 0:16:32.680 --> 0:16:36.280 I don't think uh in you know, in ah in summery, 0:16:36.320 --> 0:16:38.320 I don't think it's a huge deal, right, I mean, 0:16:38.360 --> 0:16:40.200 we need to worry about this market, right, I mean 0:16:40.200 --> 0:16:42.360 there is an important market for the financial industry, right, 0:16:42.360 --> 0:16:46.160 I mean, for it's a lifeblood essentially financing of the 0:16:46.240 --> 0:16:48.080 of the financial industry. So we've got to keep an 0:16:48.080 --> 0:16:50.160 eye on if there are issues with liquidity or if 0:16:50.200 --> 0:16:52.440 there's some break in the system. We need to know 0:16:52.480 --> 0:16:55.560 what's going on. But that being said, you know, this 0:16:55.600 --> 0:16:58.040 isn't a problem that the Fed isn't was unaware of. 0:16:58.080 --> 0:17:00.920 I mean they talked about essentially a repo facility and 0:17:00.960 --> 0:17:04.639 premier repo facility in UM in June, putting it in place. 0:17:04.680 --> 0:17:06.840 They knew that they were drawing down on access reserves 0:17:06.880 --> 0:17:09.000 over time. I mean that's been a long standing trend 0:17:09.000 --> 0:17:11.320 we've seen reserves coming down, So we knew reserves were 0:17:11.359 --> 0:17:14.639 leaving the system. Um So, I think the shock was 0:17:14.760 --> 0:17:18.200 just how dramatic it was. Right So um, as Alex mentioned, 0:17:18.200 --> 0:17:20.720 you had essentially the auctions that settled on Monday, you 0:17:20.760 --> 0:17:23.679 also had talked corporate tax payments, took a lot of 0:17:23.680 --> 0:17:25.960 money on the system, and suddenly you see reaper rates 0:17:26.119 --> 0:17:29.720 up eight. Just to be clear, as we talked about this, 0:17:29.920 --> 0:17:32.280 for people who don't know what repro rates are, aren't 0:17:32.280 --> 0:17:35.280 familiar with what we're actually talking about. It's basically banks 0:17:35.440 --> 0:17:39.560 offering treasuries other high quality securities. Uh, it's a sort 0:17:39.560 --> 0:17:45.080 of as collateral for cash from other firms, and basically 0:17:45.320 --> 0:17:48.480 because there wasn't enough cash on the balance sheets of 0:17:48.520 --> 0:17:51.919 these other firms, they were demanding a much bigger premium 0:17:52.600 --> 0:17:55.119 for that cash. Right, just to sort of lay this 0:17:55.200 --> 0:17:56.880 out there, to give people sense of what we're talking 0:17:56.880 --> 0:18:01.399 about exactly, it's a collateralized loan, right, So Okay, I mean, 0:18:01.440 --> 0:18:03.680 I think it's important to think about this because basically 0:18:03.760 --> 0:18:06.240 that's why people are talking about a cash crunch, because 0:18:06.280 --> 0:18:09.679 there was not enough physical cash on the balance sheets 0:18:09.720 --> 0:18:13.639 of other firms to make this a sort of seamless process, right, 0:18:13.680 --> 0:18:16.080 I mean that's yes, well, I mean, but the other 0:18:16.160 --> 0:18:18.480 issue is is that you also have to think about 0:18:18.480 --> 0:18:20.520 it from the collateral side that there is. You know, 0:18:20.640 --> 0:18:23.240 one of the takeaways from this is just there are 0:18:23.280 --> 0:18:26.119 just too many treasuries in the system, and this is 0:18:26.160 --> 0:18:30.280 a problem because treasuries pile of debt is only gonna grow. 0:18:30.480 --> 0:18:33.400 I don't see anything about deficit reductions. I don't see 0:18:33.400 --> 0:18:36.440 anything about debt reduction, Like that's only going to continue 0:18:36.480 --> 0:18:38.440 to grow. And that's why people are really now getting 0:18:38.480 --> 0:18:41.919 nervous about the fourth quarter, because treasury bill supply is 0:18:41.960 --> 0:18:45.439 going to resume its March higher treasuries cash buffer is 0:18:45.440 --> 0:18:48.400 going to continue to grow, and that actually pulls reserves 0:18:48.400 --> 0:18:51.200 out of the system. So, like you talked about, with this, 0:18:51.280 --> 0:18:54.080 you know, reserve scarcity level with the Fed, it becomes 0:18:54.080 --> 0:18:57.640 a bit more problematic because you're really hitting those precarious 0:18:57.720 --> 0:19:00.000 levels and that's what the market is really worried about 0:19:00.040 --> 0:19:03.359 going forward. So he does this affect your kind of 0:19:03.760 --> 0:19:06.520 overall investing view in any way, shape or form, or 0:19:06.600 --> 0:19:10.200 you kind of viewing everything the same way you did before? 0:19:10.480 --> 0:19:13.200 You know, I think the Fed, uh, we'll have a 0:19:13.280 --> 0:19:15.440 handle on this. I mean, we'll bound the scene announcement 0:19:15.440 --> 0:19:18.439 today on something um particularly with the meeting coming up 0:19:18.520 --> 0:19:23.400 later today. So no, I'm not worried. Uh right now, 0:19:23.520 --> 0:19:25.600 I'm not worried. It doesn't really affect us per se. 0:19:25.960 --> 0:19:28.639 How does this affect investors in general? It's essentially if 0:19:28.680 --> 0:19:30.879 this kind of panic bleeds into other markets, right, and 0:19:30.920 --> 0:19:34.080 then from other financial markets into the real economy. That's 0:19:34.080 --> 0:19:36.280 the worried. Um. I think we've got to handle on 0:19:36.320 --> 0:19:38.800 it right now. So no, not concerned at the moment. 0:19:38.880 --> 0:19:41.000 Are you buying bonds or do you think yields go lower? 0:19:42.080 --> 0:19:44.600 Well on this new I wouldn't. I'm not buying it's 0:19:44.600 --> 0:19:48.880 not in this but just in general, you know, Um, 0:19:48.920 --> 0:19:50.760 you know, I've been on the mind that you you 0:19:50.840 --> 0:19:54.080 buy dips because I think that it seems recently that 0:19:54.200 --> 0:19:56.399 you know that a lot of once first we had 0:19:56.400 --> 0:19:58.840 a lot of good news for bonds, trade war being 0:19:59.000 --> 0:20:02.000 good news for bonds, and then we had UH and 0:20:02.040 --> 0:20:03.800 then we had to sell off, we had some negative news. 0:20:03.800 --> 0:20:06.080 So it's difficult to see that this that the trade 0:20:06.080 --> 0:20:08.720 ward tweeting, et cetera won't continue and won't ramp up 0:20:08.720 --> 0:20:11.119 at some stage, and that you know, I like bonds. 0:20:11.640 --> 0:20:13.479 Hugh Nicola, thank you so much for being with us. 0:20:13.480 --> 0:20:16.120 Principle and had a fixed income at gen Trust, overseeing 0:20:16.160 --> 0:20:18.159 about two billion dollars. Of course he likes bonds. He 0:20:18.160 --> 0:20:21.480 focuses on fixed income, although it doesn't necessarily translate always. 0:20:21.480 --> 0:20:23.280 Alex Harris, thank you so much for being with us. 0:20:23.359 --> 0:20:26.960 Bloomberger News Bond reporter, explaining how the report market is 0:20:27.040 --> 0:20:46.119 kind of affecting everything right now. Well, diversity in the 0:20:46.160 --> 0:20:49.880 workplace continues to be a challenge for most industries, including 0:20:49.920 --> 0:20:52.320 the financial services industries. I think at the latest we 0:20:52.320 --> 0:20:56.280 welcome Tracy Davies. She's President of Money based in London, 0:20:56.280 --> 0:20:58.520 but joining us here in our Bloomberg Interactive Broker studio. 0:20:58.560 --> 0:21:01.400 So Tracy, thanks so much for joining us. And I've 0:21:01.440 --> 0:21:03.760 spent most of my career in the financial services industry, 0:21:03.760 --> 0:21:08.840 and I've seen the challenge of promoting and creating diversity 0:21:09.000 --> 0:21:11.720 in the workplace, and I know the industry tries very hard, 0:21:11.760 --> 0:21:13.439 has been doing it, you know what, I think a 0:21:13.480 --> 0:21:16.280 pretty good job. But still at the highest levels there's 0:21:16.280 --> 0:21:19.000 probably isn't the proper representation of women, for example, What 0:21:19.040 --> 0:21:22.000 do you think is going on in the financial services industry? Yeah, well, 0:21:22.040 --> 0:21:25.720 I think the financial services industry is not alone. There 0:21:25.720 --> 0:21:28.280