WEBVTT - Hilltop's Grant Advises Looking At Closed-End Bond Funds(Audio)

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<v Speaker 1>You're listening to Taking Stock with Pim Box and Kathleen

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<v Speaker 1>Hayes on Bloomberg Radio. The selling may have been swift

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<v Speaker 1>and vicious in global equity markets overnight as UK citizens

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<v Speaker 1>went to the polls and voted to leave the European

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<v Speaker 1>Union by a narrow margin for sure, uh And the

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<v Speaker 1>buying in global bonds, particularly U S treasuries, was equally swift,

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<v Speaker 1>treasury surging, pushing benchmark yields down the most in nearly

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<v Speaker 1>five years. Well man, who's been looking for a couple

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<v Speaker 1>of things, Let's give him credit now. First of all,

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<v Speaker 1>he said no, they will vote to leave. And second

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<v Speaker 1>of all, he's been looking for a continued rally in

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<v Speaker 1>treasures that could take the yield on the US tenure

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<v Speaker 1>note down to one and a half percent, maybe even

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<v Speaker 1>one in a quarter. And we did see that tenure

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<v Speaker 1>touch about one point five at the lowest yield higher

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<v Speaker 1>price of the day. Let's welcome back to the show now,

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<v Speaker 1>Mark Grant, chief fixed income strategists at Hilltop Securities, joining

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<v Speaker 1>us from Fort Lauderdale, Florida. So Mark, congrats, hats off.

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<v Speaker 1>I guess he's overcome with my praise. Mark Grant, so

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<v Speaker 1>or maybe I think we've just got a little bit.

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<v Speaker 1>I think he fainted. PM I, well, maybe because he's

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<v Speaker 1>taken a look at the yield on the tenure at

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<v Speaker 1>one point five five percent. I mean, this was an

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<v Speaker 1>increase just today of more than one and a half

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<v Speaker 1>percent in the value of the ten here and the

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<v Speaker 1>thirty year a gain of more than five and a

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<v Speaker 1>half percent in value two point four one percent for

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<v Speaker 1>the thirty year US Treasury Mark Grant. Did you hear

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<v Speaker 1>me praising you up one side and down the other?

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<v Speaker 1>And I was turning red and I couldn't speak. Okay,

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<v Speaker 1>all right, so so you called it right. That's great.

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<v Speaker 1>Beyond that, though, what happens now, I mean, are they

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<v Speaker 1>Are they the Brits gonna wake up tomorrow morning and say, hey,

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<v Speaker 1>what the heck did we do? I wanted to express

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<v Speaker 1>my protest, but I never thought the vote would go

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<v Speaker 1>through because of me. Take it back, please, No, that's

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<v Speaker 1>garbage coming out of Brussels that they want to try

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<v Speaker 1>to get them to vote again. It's it's not they voted,

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<v Speaker 1>they voted. It's done, all right, they voted, they voted,

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<v Speaker 1>it's done. Give us your analysis of what the future

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<v Speaker 1>of the UK economy looks like I think they're going

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<v Speaker 1>to go through a couple of months of difficulty. The

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<v Speaker 1>most difficult part will be when they invote Article fifty.

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<v Speaker 1>I think that and I've been very square about this.

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<v Speaker 1>You know, the the offices for the European Union or

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<v Speaker 1>in Brussels, but they make the decisions in Berlin, and

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<v Speaker 1>I think there's going to be a tremendous amount of vengeance, retribution.

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<v Speaker 1>And now I think there's also going to be more

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<v Speaker 1>talk of referendums in other countries such as the Netherlands

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<v Speaker 1>and even France with the Marine le Pin. And of

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<v Speaker 1>course we have the Spanish election on Sunday, which I

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<v Speaker 1>think will be very interesting as a result of the

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<v Speaker 1>British vote. So, Mark, why do you say there's going

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<v Speaker 1>to be retribution and it's sort of a harsh stance

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<v Speaker 1>now towards the EU? Why not uh, something that maybe

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<v Speaker 1>in public talks tough, but a little bit more, you know,

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<v Speaker 1>behind the scenes, says hey, you know, this is really

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<v Speaker 1>not the best thing for you or for us, maybe

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<v Speaker 1>we can work this out. Well, they've voted to leave,

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<v Speaker 1>and you have a European construct that is questionable, has

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<v Speaker 1>been questionable since the beginning, because you know the look,

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<v Speaker 1>you have the southern nations Spain, Italy, Greece and so forth, Portugal,

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<v Speaker 1>and you have the Netherlands in Germany and Austria, and

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<v Speaker 1>there are two very different cultures. I'm not saying right

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<v Speaker 1>or wrong, bad or good, they're just very different cultures.

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<v Speaker 1>And they've tried to meld all this together. And finally

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<v Speaker 1>you add one country that said, that's enough. We want

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<v Speaker 1>to be governed by ourselves. We don't want you governing

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<v Speaker 1>us anymore. And I think, and from what I can

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<v Speaker 1>tell in speaking with a number of institutions today, including

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<v Speaker 1>some huge ones in Europe, people just said, we don't

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<v Speaker 1>want to be governed out of Brussels in Berlin. We

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<v Speaker 1>want to run our own country. And I think that's

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<v Speaker 1>certainly as an American, that's certainly the way I would feel.

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<v Speaker 1>So um, I think now they're going to be frightened

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<v Speaker 1>that the whole European Union might come apart, and the

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<v Speaker 1>first action is going to be some kind of vengeance

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<v Speaker 1>against the Britain to keep everybody else in. But we'll see.

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<v Speaker 1>Mark Grant, turn your attention to the Federal reserve interest

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<v Speaker 1>rate policy here in the United States, when and if

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<v Speaker 1>they raise rates, give us your analysis them. As you know,

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<v Speaker 1>all year, I've said they're not going to raise rates anymore.

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<v Speaker 1>I have said it continuously. I don't think that they can,

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<v Speaker 1>and especially after this and the difficulties this may cause

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<v Speaker 1>some banks European, the American banks, some hedge funds. There

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<v Speaker 1>were rumors running around about that this afternoon. I think

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<v Speaker 1>the FED does absolutely nothing. And while the Fed of

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<v Speaker 1>course never addresses the equity market, when you're down six

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<v Speaker 1>hundred ten points in a day, I can pretty much

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<v Speaker 1>assure you that the FED is paying attention. So I

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<v Speaker 1>think nothing for the rest of the year. Well, of

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<v Speaker 1>course the FED maybe I address it directly, but they

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<v Speaker 1>often speak publicly about that. One of the Fed's chief

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<v Speaker 1>missions is to keep markets stable. There, that's one of them.

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<v Speaker 1>They have to be working towards financial stability, which would

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<v Speaker 1>be perfectly consistent of what you're saying. They're not going

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<v Speaker 1>to come in and raise interest rates while there is

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<v Speaker 1>already instability in the markets. But a couple of things.

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<v Speaker 1>First of all, by the way, you should we should

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<v Speaker 1>point out one thing, Kathleen, and that's you all have

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<v Speaker 1>been focused appropriately on. We're down six hundred ten points.

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<v Speaker 1>But I want you also to look at the bottom market.

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<v Speaker 1>You know, the ten years at one fifty six up

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<v Speaker 1>one unmoss one in three quarters points, people that were

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<v Speaker 1>in bonds did tremendously well. Today, Oh we we actually

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<v Speaker 1>came into saying what a tremendous one this has been.

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<v Speaker 1>In the fact that you called the first one and

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<v Speaker 1>a half percent. I think you've also said maybe now

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<v Speaker 1>one in a quarter percent on the tenure, right, so

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<v Speaker 1>one in a quarter on the ten years my projection

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<v Speaker 1>by year end, but we might get there much quicker. Hey, Mark,

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<v Speaker 1>you're not ask you about you know now you're on

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<v Speaker 1>a cultural laquota. Former president of Minneapolis FED who seemed

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<v Speaker 1>to start out as as a hawk in Minneapolis on policy,

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<v Speaker 1>you know, fight inflation, et cetera, and then turned very devilish.

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<v Speaker 1>He says the FED should and must be considering negative

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<v Speaker 1>interest rates. He thinks, ultimately that's what it would take

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<v Speaker 1>to turn the economy around. Do you have do you

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<v Speaker 1>agree with that at all? And what happen would that

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<v Speaker 1>due to the US bond market, Well, the German ten

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<v Speaker 1>year is now underneath zero, and so it's what it

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<v Speaker 1>does is a couple of things. It's not such an

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<v Speaker 1>easy answer, but it does a couple of things. One,

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<v Speaker 1>it's very good for the government to have low interest

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<v Speaker 1>rates or negative interest rates. However, it's a tax, if

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<v Speaker 1>you will, on the people, the citizens, because savers, retirees,

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<v Speaker 1>um money that's managed, you can go through the whole

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<v Speaker 1>litany suffer tremendously because they can't get any return. One

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<v Speaker 1>of the arguments that the equity market who done as

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<v Speaker 1>well as it had this year was because they couldn't

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<v Speaker 1>get any return in the bond market. I kept saying

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<v Speaker 1>it was a far safer place to be, and I identified, Uh,

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<v Speaker 1>let me go back a little two years ago. I

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<v Speaker 1>said muties and taxable mutis were the place to be.

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<v Speaker 1>They've tightened tremendously against treasures. And then I went to

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<v Speaker 1>closed end bond funds, which trade like equities, but what

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<v Speaker 1>you really own as a portion of diversified bond portfolio.

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<v Speaker 1>The eleven that I like are yielding around ten percent.

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<v Speaker 1>And when the tenure treasuries at one and the Dow

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<v Speaker 1>Joe the SMPS flat for the year and has decked

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<v Speaker 1>down about six percent for a year, I am delighted

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<v Speaker 1>to get ten percent on my money from the flow

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<v Speaker 1>of bonds and you get a check every month. Mark Grant,

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<v Speaker 1>I'll just give you the details here. The SMP five

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<v Speaker 1>hundred down more than three and a quarter percent so

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<v Speaker 1>far this year, NASTACK down more than eight percent the

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<v Speaker 1>ten years so far this year, a gain of more

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<v Speaker 1>than thirty percent. If you own that ten year should

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<v Speaker 1>you sell some of your holdings now take some profits? No?

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<v Speaker 1>I well, I've gotten Addison fixed income bonds and have

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<v Speaker 1>advised a number of the large institutions, insurance companies and

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<v Speaker 1>big state pension funds that they should be looking carefully

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<v Speaker 1>and they are at going into these some of these

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<v Speaker 1>closed in funds. So I think if you owned um equities,

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<v Speaker 1>you're going to have to get more realistic because the

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<v Speaker 1>likelihood is we're going down further, not reversing course. And

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<v Speaker 1>if you own bonds and you have a nice profit,

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<v Speaker 1>I would look at these clothes in bond phones and

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<v Speaker 1>what I really like about him is unlike a normal

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<v Speaker 1>bond where you get a check twice a year. These

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<v Speaker 1>thanks very much, Mark Grant, Chief Fixed the strategist for

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<v Speaker 1>Hilltop Securities in Fort Lauderdale. This is Bloomberg Radio