Speaker 1: You're listening to Taking Stock with Pim Box and Kathleen
Speaker 1: Hayes on Bloomberg Radio. The selling may have been swift
Speaker 1: and vicious in global equity markets overnight as UK citizens
Speaker 1: went to the polls and voted to leave the European
Speaker 1: Union by a narrow margin for sure, uh And the
Speaker 1: buying in global bonds, particularly U S treasuries, was equally swift,
Speaker 1: treasury surging, pushing benchmark yields down the most in nearly
Speaker 1: five years. Well man, who's been looking for a couple
Speaker 1: of things, Let's give him credit now. First of all,
Speaker 1: he said no, they will vote to leave. And second
Speaker 1: of all, he's been looking for a continued rally in
Speaker 1: treasures that could take the yield on the US tenure
Speaker 1: note down to one and a half percent, maybe even
Speaker 1: one in a quarter. And we did see that tenure
Speaker 1: touch about one point five at the lowest yield higher
Speaker 1: price of the day. Let's welcome back to the show now,
Speaker 1: Mark Grant, chief fixed income strategists at Hilltop Securities, joining
Speaker 1: us from Fort Lauderdale, Florida. So Mark, congrats, hats off.
Speaker 1: I guess he's overcome with my praise. Mark Grant, so
Speaker 1: or maybe I think we've just got a little bit.
Speaker 1: I think he fainted. PM I, well, maybe because he's
Speaker 1: taken a look at the yield on the tenure at
Speaker 1: one point five five percent. I mean, this was an
Speaker 1: increase just today of more than one and a half
Speaker 1: percent in the value of the ten here and the
Speaker 1: thirty year a gain of more than five and a
Speaker 1: half percent in value two point four one percent for
Speaker 1: the thirty year US Treasury Mark Grant. Did you hear
Speaker 1: me praising you up one side and down the other?
Speaker 1: And I was turning red and I couldn't speak. Okay,
Speaker 1: all right, so so you called it right. That's great.
Speaker 1: Beyond that, though, what happens now, I mean, are they
Speaker 1: Are they the Brits gonna wake up tomorrow morning and say, hey,
Speaker 1: what the heck did we do? I wanted to express
Speaker 1: my protest, but I never thought the vote would go
Speaker 1: through because of me. Take it back, please, No, that's
Speaker 1: garbage coming out of Brussels that they want to try
Speaker 1: to get them to vote again. It's it's not they voted,
Speaker 1: they voted. It's done, all right, they voted, they voted,
Speaker 1: it's done. Give us your analysis of what the future
Speaker 1: of the UK economy looks like I think they're going
Speaker 1: to go through a couple of months of difficulty. The
Speaker 1: most difficult part will be when they invote Article fifty.
Speaker 1: I think that and I've been very square about this.
Speaker 1: You know, the the offices for the European Union or
Speaker 1: in Brussels, but they make the decisions in Berlin, and
Speaker 1: I think there's going to be a tremendous amount of vengeance, retribution.
Speaker 1: And now I think there's also going to be more
Speaker 1: talk of referendums in other countries such as the Netherlands
Speaker 1: and even France with the Marine le Pin. And of
Speaker 1: course we have the Spanish election on Sunday, which I
Speaker 1: think will be very interesting as a result of the
Speaker 1: British vote. So, Mark, why do you say there's going
Speaker 1: to be retribution and it's sort of a harsh stance
Speaker 1: now towards the EU? Why not uh, something that maybe
Speaker 1: in public talks tough, but a little bit more, you know,
Speaker 1: behind the scenes, says hey, you know, this is really
Speaker 1: not the best thing for you or for us, maybe
Speaker 1: we can work this out. Well, they've voted to leave,
Speaker 1: and you have a European construct that is questionable, has
Speaker 1: been questionable since the beginning, because you know the look,
Speaker 1: you have the southern nations Spain, Italy, Greece and so forth, Portugal,
Speaker 1: and you have the Netherlands in Germany and Austria, and
Speaker 1: there are two very different cultures. I'm not saying right
Speaker 1: or wrong, bad or good, they're just very different cultures.
Speaker 1: And they've tried to meld all this together. And finally
Speaker 1: you add one country that said, that's enough. We want
Speaker 1: to be governed by ourselves. We don't want you governing
Speaker 1: us anymore. And I think, and from what I can
Speaker 1: tell in speaking with a number of institutions today, including
Speaker 1: some huge ones in Europe, people just said, we don't
Speaker 1: want to be governed out of Brussels in Berlin. We
Speaker 1: want to run our own country. And I think that's
Speaker 1: certainly as an American, that's certainly the way I would feel.
Speaker 1: So um, I think now they're going to be frightened
Speaker 1: that the whole European Union might come apart, and the
Speaker 1: first action is going to be some kind of vengeance
Speaker 1: against the Britain to keep everybody else in. But we'll see.
Speaker 1: Mark Grant, turn your attention to the Federal reserve interest
Speaker 1: rate policy here in the United States, when and if
Speaker 1: they raise rates, give us your analysis them. As you know,
Speaker 1: all year, I've said they're not going to raise rates anymore.
Speaker 1: I have said it continuously. I don't think that they can,
Speaker 1: and especially after this and the difficulties this may cause
Speaker 1: some banks European, the American banks, some hedge funds. There
Speaker 1: were rumors running around about that this afternoon. I think
Speaker 1: the FED does absolutely nothing. And while the Fed of
Speaker 1: course never addresses the equity market, when you're down six
Speaker 1: hundred ten points in a day, I can pretty much
Speaker 1: assure you that the FED is paying attention. So I
Speaker 1: think nothing for the rest of the year. Well, of
Speaker 1: course the FED maybe I address it directly, but they
Speaker 1: often speak publicly about that. One of the Fed's chief
Speaker 1: missions is to keep markets stable. There, that's one of them.
Speaker 1: They have to be working towards financial stability, which would
Speaker 1: be perfectly consistent of what you're saying. They're not going
Speaker 1: to come in and raise interest rates while there is
Speaker 1: already instability in the markets. But a couple of things.
Speaker 1: First of all, by the way, you should we should
Speaker 1: point out one thing, Kathleen, and that's you all have
Speaker 1: been focused appropriately on. We're down six hundred ten points.
Speaker 1: But I want you also to look at the bottom market.
Speaker 1: You know, the ten years at one fifty six up
Speaker 1: one unmoss one in three quarters points, people that were
Speaker 1: in bonds did tremendously well. Today, Oh we we actually
Speaker 1: came into saying what a tremendous one this has been.
Speaker 1: In the fact that you called the first one and
Speaker 1: a half percent. I think you've also said maybe now
Speaker 1: one in a quarter percent on the tenure, right, so
Speaker 1: one in a quarter on the ten years my projection
Speaker 1: by year end, but we might get there much quicker. Hey, Mark,
Speaker 1: you're not ask you about you know now you're on
Speaker 1: a cultural laquota. Former president of Minneapolis FED who seemed
Speaker 1: to start out as as a hawk in Minneapolis on policy,
Speaker 1: you know, fight inflation, et cetera, and then turned very devilish.
Speaker 1: He says the FED should and must be considering negative
Speaker 1: interest rates. He thinks, ultimately that's what it would take
Speaker 1: to turn the economy around. Do you have do you
Speaker 1: agree with that at all? And what happen would that
Speaker 1: due to the US bond market, Well, the German ten
Speaker 1: year is now underneath zero, and so it's what it
Speaker 1: does is a couple of things. It's not such an
Speaker 1: easy answer, but it does a couple of things. One,
Speaker 1: it's very good for the government to have low interest
Speaker 1: rates or negative interest rates. However, it's a tax, if
Speaker 1: you will, on the people, the citizens, because savers, retirees,
Speaker 1: um money that's managed, you can go through the whole
Speaker 1: litany suffer tremendously because they can't get any return. One
Speaker 1: of the arguments that the equity market who done as
Speaker 1: well as it had this year was because they couldn't
Speaker 1: get any return in the bond market. I kept saying
Speaker 1: it was a far safer place to be, and I identified, Uh,
Speaker 1: let me go back a little two years ago. I
Speaker 1: said muties and taxable mutis were the place to be.
Speaker 1: They've tightened tremendously against treasures. And then I went to
Speaker 1: closed end bond funds, which trade like equities, but what
Speaker 1: you really own as a portion of diversified bond portfolio.
Speaker 1: The eleven that I like are yielding around ten percent.
Speaker 1: And when the tenure treasuries at one and the Dow
Speaker 1: Joe the SMPS flat for the year and has decked
Speaker 1: down about six percent for a year, I am delighted
Speaker 1: to get ten percent on my money from the flow
Speaker 1: of bonds and you get a check every month. Mark Grant,
Speaker 1: I'll just give you the details here. The SMP five
Speaker 1: hundred down more than three and a quarter percent so
Speaker 1: far this year, NASTACK down more than eight percent the
Speaker 1: ten years so far this year, a gain of more
Speaker 1: than thirty percent. If you own that ten year should
Speaker 1: you sell some of your holdings now take some profits? No?
Speaker 1: I well, I've gotten Addison fixed income bonds and have
Speaker 1: advised a number of the large institutions, insurance companies and
Speaker 1: big state pension funds that they should be looking carefully
Speaker 1: and they are at going into these some of these
Speaker 1: closed in funds. So I think if you owned um equities,
Speaker 1: you're going to have to get more realistic because the
Speaker 1: likelihood is we're going down further, not reversing course. And
Speaker 1: if you own bonds and you have a nice profit,
Speaker 1: I would look at these clothes in bond phones and
Speaker 1: what I really like about him is unlike a normal
Speaker 1: bond where you get a check twice a year. These
Speaker 1: thanks very much, Mark Grant, Chief Fixed the strategist for
Speaker 1: Hilltop Securities in Fort Lauderdale. This is Bloomberg Radio