WEBVTT - Surveillance: Dollar Is Overvalued About 10%, Vamvakidis Says 0:00:00.080 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.000 Bloomberg dot Com, and of course on the Bloomberg. So 0:00:33.080 --> 0:00:35.320 coming up, then, big week ahead the Federal Reserves Annual 0:00:35.320 --> 0:00:38.919 Policy Symposium kicking off this Friday in Jackson Hall, Wyoming, 0:00:38.920 --> 0:00:41.400 with FED Chair and J. Powell set to deliver the 0:00:41.520 --> 0:00:45.080 speech of the week. Joining us to discuss is Thanos 0:00:45.159 --> 0:00:48.400 van vakilis, head of g T and FX Strategy, Bank 0:00:48.440 --> 0:00:51.040 of America Merrill Lynch, and he joins us out of London. 0:00:51.040 --> 0:00:54.160 Good morning to your Thanos, Good morning for the Federal Reserve. 0:00:54.240 --> 0:00:56.400 Then and chare jpow speech? What are you looking out for? 0:00:56.440 --> 0:01:00.840 What's important? Well, the FETE has been not large in policies, 0:01:00.880 --> 0:01:03.720 has been hiking this year. The message has been consistent 0:01:04.040 --> 0:01:07.320 from power. So from this point of view, I think 0:01:07.520 --> 0:01:09.600 what will come out this week will be consistent with 0:01:09.680 --> 0:01:13.000 the normalization, but we will be looking for a more 0:01:13.200 --> 0:01:16.440 color how far the FED can go, how the balance 0:01:16.520 --> 0:01:18.720 the good data in the US we are seeing with 0:01:18.800 --> 0:01:22.960 global risks and trade tensions, and also about the side 0:01:23.000 --> 0:01:27.200 effects of the policy normalization and the tightening cycle on 0:01:27.560 --> 0:01:30.640 the rest of the world, particularly on emerging markets. How 0:01:30.760 --> 0:01:33.120 how the balance all these risks in order to have 0:01:33.200 --> 0:01:36.360 a better understanding of the policy reaction function will be important. 0:01:36.760 --> 0:01:39.160 So thant Us was reading through some of your recent 0:01:39.240 --> 0:01:41.920 research and I was struck by the idea that you 0:01:42.000 --> 0:01:46.240 saw a little further upside left for the euro US 0:01:46.319 --> 0:01:49.120 dollar cross, and yet you also think that the dollar 0:01:49.200 --> 0:01:51.440 could strengthen more. So, where is the dollar going to 0:01:51.520 --> 0:01:54.800 strengthen more if it's not against the era? I mean 0:01:54.880 --> 0:01:57.760 the short term, we do see the dollar appreciating further, 0:01:58.080 --> 0:02:00.720 even with respect to the euro or projects for September 0:02:00.800 --> 0:02:04.040 is one twelve, but we're not far from this level, 0:02:04.320 --> 0:02:07.760 and we have already seen a strong dollar rally since 0:02:07.800 --> 0:02:11.639 the mid April. The data are still supportive of the dollar, 0:02:11.720 --> 0:02:13.160 and at the end of the day, the fat is 0:02:13.160 --> 0:02:17.400 still hiking. Looking, however, more beyond the next few weeks, 0:02:18.120 --> 0:02:20.960 we believe that and looking particularly into next year, we 0:02:21.000 --> 0:02:24.200 believe that we're gonna see a gradual weakending of the dollar, 0:02:24.320 --> 0:02:27.360 including with respect to the euro. Uh the impact of 0:02:27.400 --> 0:02:30.200 the US physical stimulus is likely to start weekending some 0:02:30.280 --> 0:02:32.880 time and next year, uh, the c B will stop 0:02:32.919 --> 0:02:35.919 que and they will start hiking at some point next year, 0:02:35.960 --> 0:02:38.880 before or after the summer. The market also is long. 0:02:39.000 --> 0:02:41.519 The dollar these states is not stretched, but is long, 0:02:41.720 --> 0:02:44.960 and the dollars over valued by about ten percent. So 0:02:45.040 --> 0:02:47.760 from this point of view, we're waiting for one more 0:02:47.919 --> 0:02:50.440 leg higher to the dollar, and we'll be looking for 0:02:50.520 --> 0:02:53.200 an opportunity to buy the euro dollar deep and US. 0:02:53.200 --> 0:02:57.079 When you say the US dollars over price by ten percent, 0:02:57.160 --> 0:02:59.960 what does that mean? Any made a calculation? I mean 0:03:00.040 --> 0:03:03.120 you can use a number of models. Usually we just 0:03:03.240 --> 0:03:06.440 use an econometic model, which will look at different determinants 0:03:06.440 --> 0:03:10.400 of exchange rates such as the current account balance rate 0:03:10.560 --> 0:03:14.079 differentials in terms of trade, and we look based on 0:03:14.240 --> 0:03:18.920 historical evidence to what extent these variables justify the level 0:03:19.000 --> 0:03:21.280 of the dollar. Or you can just use a much 0:03:21.360 --> 0:03:24.040 similar approach. You can just look at the deviation of 0:03:24.120 --> 0:03:27.840 the trade weighted dollar from historical average. No matter what 0:03:27.919 --> 0:03:30.440 you lose, you come up with close to the estimates. 0:03:30.440 --> 0:03:33.120 For example, for euro dollar the long term, making liberty 0:03:33.360 --> 0:03:37.520 somewhere between one to one. Again, we're not that far 0:03:37.600 --> 0:03:40.320 from this level, but this is where we will expect 0:03:40.360 --> 0:03:42.560 the euro dollar to convert in the medium term to 0:03:42.680 --> 0:03:45.400 long term. So I want to take a step back 0:03:45.400 --> 0:03:48.320 here because really the drama this year has not been 0:03:48.480 --> 0:03:51.560 in the euro dollar cross. It has been in emerging 0:03:51.600 --> 0:03:56.240 markets and what the strengthening dollar has done to developing worlds. 0:03:56.240 --> 0:03:58.880 And I want to get your perspective and how you 0:03:59.040 --> 0:04:01.680 viewed what we've seen so far. I mean, we've seen 0:04:01.840 --> 0:04:04.560 the Turkish lar lot of bed certainly in the Argentinian pace. 0:04:04.680 --> 0:04:08.240 So but going forward, do you expect more rough spots 0:04:08.280 --> 0:04:11.360 like this, more sort of sort of air holes with 0:04:11.520 --> 0:04:14.119 emerging market currencies falling through them, or do you think 0:04:14.160 --> 0:04:17.480 that we're gonna gonna reach a more stable point there. 0:04:18.000 --> 0:04:19.840 I mean, you're absolutely right to a lot of extent. 0:04:19.920 --> 0:04:22.599 This year he has been about emerging markets. We started 0:04:22.600 --> 0:04:25.880 the year with the market being long a very stretched position. 0:04:26.360 --> 0:04:30.840 The trade tensions, the FED hikes all have been affecting 0:04:30.920 --> 0:04:39.200 emerging markets negatively and also had local risks in different regions, 0:04:39.240 --> 0:04:43.320 in different emerging markets Argentina, Morrisson, Turkey, So all these 0:04:43.360 --> 0:04:46.279 factors have affected looking forward, I think one will have 0:04:46.360 --> 0:04:49.719 to be more selective position. He has definitely adjust. It 0:04:49.839 --> 0:04:52.919 is clean. The market is not short emerging markets, but 0:04:53.000 --> 0:04:56.200 definitely is not long anymore. One will still have to 0:04:56.240 --> 0:04:59.560 be careful on cases like a Turkey where things could 0:04:59.600 --> 0:05:03.240 become before getting better. But I think beyond that, assuming 0:05:03.279 --> 0:05:05.920 that we are not going to a full blown trade war, 0:05:06.160 --> 0:05:09.880 emerging markets could offer opportunities in the months ahead. They 0:05:09.880 --> 0:05:13.360 are definitely a very attractive valuations and in some cases 0:05:13.360 --> 0:05:15.200 the data has been good. Hold on one second, are 0:05:15.240 --> 0:05:17.719 the specific emerging markets that look really good and like 0:05:17.800 --> 0:05:21.880 opportunities here, For instance, Korea is an interesting case assuming 0:05:21.920 --> 0:05:25.359 we don't get the trade war between China and UH 0:05:25.360 --> 0:05:29.000 in the US. Mexico is another case where we are 0:05:29.080 --> 0:05:33.240 quite optimistic on having enough to deal UH in the 0:05:33.240 --> 0:05:35.800 months ahead before the end of of of of the year. 0:05:36.080 --> 0:05:39.200 So again, to a large extent, the emerging market trade 0:05:39.279 --> 0:05:42.400 is just waiting for more clarity on the trade tensions. 0:05:42.600 --> 0:05:46.360 If the worses avoided, then we can see emerging markets rallying. 0:05:46.480 --> 0:05:49.080 Senos Vambacatis great. I can't champ with the joinings from London. 0:05:49.120 --> 0:05:53.000 They had Jeets and Effect Strategy and Bank America Merrill Lynch. 0:06:07.080 --> 0:06:08.720 One thing that we are going to be watching this 0:06:08.760 --> 0:06:11.240 week other than going back to school for a select 0:06:11.279 --> 0:06:15.440 group of kids, will be that Jackson Whole symposia where 0:06:15.440 --> 0:06:17.240 we're going to hear from central bankers around the world. 0:06:17.279 --> 0:06:21.159 But most importantly, probably for most people watching, we're gonna 0:06:21.200 --> 0:06:23.160 be hearing from j Powell, the head of the FED, 0:06:23.279 --> 0:06:27.440 joining US now Tim Quinlin Wells Fargo Security senior economists 0:06:27.720 --> 0:06:30.800 to talk about this. And Tim, what's your take? What 0:06:30.800 --> 0:06:33.520 are you expecting to hear today or not today Friday? 0:06:33.640 --> 0:06:35.600 I guess I'm trying to jump ahead because it's Yeah, 0:06:35.640 --> 0:06:37.760 I guess you know. What we're trying to see here 0:06:38.000 --> 0:06:40.719 is UM you know, broad outlook for the FED and 0:06:40.920 --> 0:06:44.520 no UM, you know, influence from any perceived political pressure 0:06:44.520 --> 0:06:46.640 in one way or another. I mean the UM. I 0:06:46.680 --> 0:06:50.440 expect Powell to reaffirm that they're looking at UM an 0:06:50.480 --> 0:06:55.560 objective to maintain full and full employment and price stability, 0:06:55.640 --> 0:06:57.800 and and they're more or less on track with both 0:06:57.800 --> 0:06:59.920 of those objectives at this point. Is there any chance 0:07:00.000 --> 0:07:02.000 as that it's going to be really exciting and that 0:07:02.120 --> 0:07:05.400 he could pull a Ben bernanke back ahead of the 0:07:05.400 --> 0:07:08.880 taper tantrum in two thousan Yeah, I mean, it wasn't 0:07:08.880 --> 0:07:10.760 just then either. I mean it was sort of like 0:07:10.840 --> 0:07:14.280 the uh, this was Bernanke's big stage to announce major 0:07:14.320 --> 0:07:17.920 inflection points and FED policy, and um, it became sort 0:07:17.920 --> 0:07:21.680 of the uh, you know, woodstock for central bankers to 0:07:21.760 --> 0:07:24.040 some extent. But UM, I don't think that you're gonna 0:07:24.040 --> 0:07:26.480 get into those kind of fireworks this week. I expect 0:07:26.880 --> 0:07:29.160 um Powell to just sort of stay on script and 0:07:29.160 --> 0:07:32.240 and continue the forward guidance that they've been maintaining throughout 0:07:32.280 --> 0:07:35.120 the last couple of years. Sam, there are some investors 0:07:35.120 --> 0:07:37.440 out there that think we might be approaching an inflection 0:07:37.480 --> 0:07:40.400 point in monetary policy, not over rate, but perhaps with 0:07:40.520 --> 0:07:43.520 the balance sheet. How do you anticipate the balance sheet 0:07:43.640 --> 0:07:46.520 policy is going to evolve over the coming months, coming quarters. 0:07:47.360 --> 0:07:49.360 I think that's really gonna be a tricky question for 0:07:49.360 --> 0:07:51.520 the said because when I think about that, there's there's 0:07:51.560 --> 0:07:55.160 two major things that can influence longer term rates. One is, Um, 0:07:55.240 --> 0:07:57.640 you know, we're gonna be running much bigger budget deficits 0:07:57.640 --> 0:08:00.440 over a trillion dollars by twenty That means Treasury is 0:08:00.440 --> 0:08:02.120 gonna have a lot of new issuance, which was going 0:08:02.160 --> 0:08:04.280 to put a lot of supply out there. Now you've 0:08:04.320 --> 0:08:07.160 got the saied not only not soaking up that new supply, 0:08:07.240 --> 0:08:10.880 but potentially allowing things to mature and roll off their 0:08:10.880 --> 0:08:12.920 balance sheet. So, you know, it's the extent that that 0:08:13.000 --> 0:08:15.120 happens and the influence that that could have on the 0:08:15.600 --> 0:08:17.400 shape of the curve the FED is gonna have to be, 0:08:17.600 --> 0:08:20.520 you know, pretty pretty deliberate and careful about, you know, 0:08:20.560 --> 0:08:22.720 how it allows this stuff to wind off. I think 0:08:22.960 --> 0:08:25.320 maybe the interesting thing to say in that context is 0:08:25.360 --> 0:08:27.800 if you think back to, you know, maybe where we 0:08:27.800 --> 0:08:31.760 were in prior cycles with the Greenspan conundrum, where you've 0:08:31.800 --> 0:08:34.120 got this problem where the FED can't raise rates again 0:08:34.160 --> 0:08:37.440 without taking short term rates above longer term rates. To 0:08:37.520 --> 0:08:40.720 an extent, the size of the balance sheet gives them 0:08:40.760 --> 0:08:43.640 a little bit of flexibility in that regard and allowing 0:08:43.679 --> 0:08:46.200 them to shape the curve a little further out. So, Jim, 0:08:46.280 --> 0:08:48.560 I want to follow on with that, which is what 0:08:48.800 --> 0:08:52.560 is the outstanding amount of securities on the Fed's balance 0:08:52.559 --> 0:08:54.320 sheet when they're done with this runoff? And I'm looking 0:08:54.360 --> 0:08:56.199 right now at but at a balance sheet that's four 0:08:56.240 --> 0:08:59.200 point two trillion dollars, I'm wondering, are we going back 0:08:59.240 --> 0:09:01.760 down to two trillion dollars three and a half. So 0:09:02.400 --> 0:09:07.400 pre crisis we were like eight billion, which seems almost laughable. 0:09:07.440 --> 0:09:10.480 Now there's there's no way we go back to normal. Um, 0:09:10.600 --> 0:09:12.320 you know, I I you know, to too is probably 0:09:12.360 --> 0:09:14.959 a reasonable starting point. I mean, they've said they're gonna 0:09:15.080 --> 0:09:17.199 you know, kind of the terminal rate for FED funds 0:09:17.200 --> 0:09:20.640 in this cycle will be at around three percent, So um, 0:09:20.679 --> 0:09:23.360 you know, once they've more or less achieved that, their 0:09:23.440 --> 0:09:26.640 only real influence on policy will be the shape of 0:09:26.679 --> 0:09:30.120 the composition of the balance sheet and um, the extent 0:09:30.160 --> 0:09:33.520 that they allow treasuries or mortgage backed securities to wind 0:09:33.520 --> 0:09:35.880 off and in what ratio, And I think, um, that 0:09:35.960 --> 0:09:38.520 will be you know, one, the FED looking at its 0:09:38.559 --> 0:09:41.000 objectives and how is it doing in terms of inflation 0:09:41.000 --> 0:09:42.920 and labor. And then too, you know, what is the 0:09:42.960 --> 0:09:44.720 shape of the yield curve and what are they what 0:09:44.760 --> 0:09:46.840 are they trying to achieve there? So I think that 0:09:46.840 --> 0:09:49.720 that will add an interesting level of complexity, will go 0:09:49.760 --> 0:09:52.560 into these FED meetings talking more about the balance sheet 0:09:52.559 --> 0:09:54.720 than we are about you know, the actual FED funds 0:09:54.800 --> 0:09:57.120 rate itself. To what extent is this just sort of 0:09:57.120 --> 0:09:59.240 holding your finger up in the air and guessing where 0:09:59.280 --> 0:10:01.240 the balance sheet will end them where it should end. 0:10:01.240 --> 0:10:03.440 And to what extent? Is there actually a methodology for 0:10:03.480 --> 0:10:05.439 thinking about this? How do we get to two trillion 0:10:05.640 --> 0:10:08.080 two and half trillion? I mean, there's a couple of 0:10:08.080 --> 0:10:10.839 ways you can think about it. The only rational methodology 0:10:10.880 --> 0:10:13.440 that I can apply is what's the fays normal share 0:10:13.440 --> 0:10:16.000 of the treasury market? And over time that's around fourteen 0:10:16.080 --> 0:10:18.680 or fifteen percent or so, so you know, by the 0:10:18.720 --> 0:10:21.280 time it gets back there, it'll be you know, about 0:10:21.280 --> 0:10:23.360 two and a half trillion. So that's that's one kind 0:10:23.360 --> 0:10:26.080 of dead reckoning way of doing it. Now you might think, well, 0:10:26.080 --> 0:10:27.720 how can that be if we if they've if they've 0:10:27.720 --> 0:10:30.800 gone from billion to four and a half trillion UM, 0:10:30.840 --> 0:10:33.080 it's because there was so much more issuance in this 0:10:33.240 --> 0:10:36.199 cycle too. You know, when we had one point four 0:10:36.240 --> 0:10:38.840 trillion dollar budget deficits, treasury is issuing a lot of 0:10:38.840 --> 0:10:41.640 this stuff. So the although the said was buying a lot, 0:10:41.760 --> 0:10:45.920 but the overall share grew a lot in that time. So, um, 0:10:46.040 --> 0:10:47.640 do you have to make adjustments for that form the 0:10:47.679 --> 0:10:49.520 fact that there's been a lot more issuance. I don't 0:10:49.559 --> 0:10:51.720 know if we're gonna be running trillion dollar budget deficits 0:10:51.760 --> 0:10:54.520 going forward. Maybe maybe not. Maybe that's kind of the 0:10:54.960 --> 0:10:57.320 new speed limit for the rate of issuance. And on 0:10:57.320 --> 0:11:01.000 that basis, UM two trillions a rational. It's really interesting 0:11:01.000 --> 0:11:04.600 that the biggest cries for to stop, for the balance 0:11:04.640 --> 0:11:07.400 sheet process to slow down, it's coming from abroad, tip, 0:11:07.400 --> 0:11:10.640 it's coming from international, it's coming from emerging market central 0:11:10.640 --> 0:11:13.679 bank governors. I don't hear much domestically. What's the domestic 0:11:13.760 --> 0:11:18.720 russianale to slow down? Well, you know, I mean when 0:11:18.720 --> 0:11:21.720 you look at who's been buying this stuff. Um, you know, 0:11:21.760 --> 0:11:24.439 the foreign central banks had a much bigger interest in 0:11:24.520 --> 0:11:27.559 this stuff earlier in this cycle. So when you know, 0:11:27.600 --> 0:11:29.960 the sovereign debt crisis was at its high water mark 0:11:30.000 --> 0:11:34.480 back in eleven, when there's worries about China slowing down. 0:11:34.520 --> 0:11:39.920 In more recently though, um, there hasn't been as much 0:11:39.920 --> 0:11:42.760 foreign appetite for a lot of this issuance. And UM, 0:11:42.800 --> 0:11:45.000 I think that that contributes, at least to the margin 0:11:45.080 --> 0:11:47.439 to some of that. Well, I guess that to follow 0:11:47.440 --> 0:11:50.280 on with John's question, there's a question of how good 0:11:50.360 --> 0:11:52.760 the U s economy is right now. Are we seeing 0:11:53.240 --> 0:11:56.319 a peak or are we seeing just momentum building and 0:11:56.360 --> 0:11:58.800 i'd love your since just based on the economic data 0:11:58.840 --> 0:12:01.920 that we've seen recently. Yeah, I mean, we're certainly closer 0:12:01.920 --> 0:12:03.320 to the end than we are at the beginning of 0:12:03.360 --> 0:12:06.000 the cycle, There's no doubt about that. But um, I 0:12:06.000 --> 0:12:08.280 think when the FED looks at this, they're they're not 0:12:08.320 --> 0:12:10.520 thinking so much of where we are in the economic cycle. 0:12:10.559 --> 0:12:12.640 Of course they have to consider that, but I think 0:12:12.720 --> 0:12:15.760 they're their primary thing is to look at um inflation 0:12:15.760 --> 0:12:18.240 in the jobs market, and the job market, by any 0:12:18.280 --> 0:12:21.439 reckoning is white hot right now. And when you look 0:12:21.480 --> 0:12:24.360 at not just a low unemployment rate, but you know, 0:12:24.760 --> 0:12:28.920 quits being near all time highs UM the initial jobless 0:12:28.920 --> 0:12:31.120 claims for week moving average of that hitting levels not 0:12:31.160 --> 0:12:34.520 seen since the nineteen sixties. So um, the labor markets 0:12:34.520 --> 0:12:37.679 certainly there. And the inflation side of things is you know, 0:12:38.240 --> 0:12:41.480 for you know, nine years in this expansion, we couldn't 0:12:41.480 --> 0:12:43.720 buy two percent inflation and we're kind of there now. 0:12:43.840 --> 0:12:46.439 So um, is it late in the cycle. Most assuredly 0:12:46.640 --> 0:12:49.800 it is. But from the Fed's perspective, it's it's mandates 0:12:49.920 --> 0:12:52.600 is it's it's firing right online with where it needs 0:12:52.640 --> 0:12:54.600 to be. Tim great to catch out with you ahead 0:12:54.600 --> 0:12:58.520 of Jackson, rewhoming. Tim mc quindon wast Fogga security scene, 0:12:58.600 --> 0:13:13.160 mcconomist joining us right here, Blomberg Surveillance. A ton of 0:13:13.200 --> 0:13:16.320 housing data coming through, sort of bleeding through, drip feeding 0:13:16.400 --> 0:13:18.480 us through the week on the update of the U 0:13:18.559 --> 0:13:21.160 s housing sector. John, I think that the housing market 0:13:21.240 --> 0:13:24.720 has not gotten quite enough attention, especially because homebuilders as 0:13:24.720 --> 0:13:28.400 a sector are down nearly eighteen percent so far this year. 0:13:28.440 --> 0:13:31.000 And this comes as there's broad strength across the board 0:13:31.000 --> 0:13:33.640 and almost every other sector. Um So there's a big question, 0:13:33.640 --> 0:13:36.280 you know, how healthy is the US housing market? And 0:13:36.679 --> 0:13:39.360 maybe someone can answer that. Maybe that person is Ken Simonson. 0:13:39.960 --> 0:13:44.040 He is Associated General Contractors Chief economist. He also is 0:13:44.240 --> 0:13:48.960 a survey analyst for the National Association for Business Economics. Ken, 0:13:49.000 --> 0:13:50.960 thank you so much for being with us. I want 0:13:50.960 --> 0:13:53.000 to start with the housing market, and I was struck 0:13:53.080 --> 0:13:56.440 by the University of Michigan survey that came out last 0:13:56.480 --> 0:14:00.319 week that showed the smallest proportion of people that they 0:14:00.360 --> 0:14:02.480 talked to saying that it was a good time to 0:14:02.559 --> 0:14:05.480 buy a home since two thousand and eight. What do 0:14:05.520 --> 0:14:09.720 you make of that, Well, it's a pretty striking data point. 0:14:10.280 --> 0:14:14.360 I'm never confident though, that the confidence surveys capture what 0:14:14.400 --> 0:14:17.960 people are actually going to do. They may say it's 0:14:18.040 --> 0:14:20.680 not a good time, but it takes a fairly small 0:14:20.760 --> 0:14:23.120 percentage of people to actually go out and buy, to 0:14:23.240 --> 0:14:27.760 move the needle on home sales. So I'm more interested 0:14:27.760 --> 0:14:31.640 in seeing what those hard data indicate about what's happened 0:14:31.920 --> 0:14:35.080 in the latest month. So what do you expect this 0:14:35.120 --> 0:14:39.480 Wednesday and this Friday. Well, again, that's a series that's 0:14:39.520 --> 0:14:44.080 quite volatile, but um, I think the trend has been 0:14:44.080 --> 0:14:47.960 pretty flat so far. Clearly people are having a hard 0:14:48.000 --> 0:14:52.960 time find finding houses at the right price point. And 0:14:53.240 --> 0:14:57.320 then there's also a lot of reluctance among millennials in 0:14:57.360 --> 0:15:02.000 particular to commit. I know people have been saying for years, Oh, 0:15:02.040 --> 0:15:04.160 as the monials get older, they're going to do the 0:15:04.240 --> 0:15:08.560 same thing as their parents did. Uh. Surveys about intentions 0:15:08.600 --> 0:15:12.640 to buy at some point indicate that. And yet people 0:15:12.640 --> 0:15:15.880 are still waiting longer to get married, longer to have kids. 0:15:15.880 --> 0:15:18.760 They're having fewer kids than even when they're doing uh 0:15:19.560 --> 0:15:22.880 having those kids. Many of them now are in the 0:15:23.280 --> 0:15:27.120 cities or older suburbs where UH they find the school 0:15:27.160 --> 0:15:31.680 systems have adequate choices and they're not fleeing to ever 0:15:31.800 --> 0:15:34.880 further out suburbs. So I think we're gonna see very 0:15:34.880 --> 0:15:38.560 slow growth and single family home growing home buying. What's 0:15:38.600 --> 0:15:41.640 been interesting to me is that the multi family that 0:15:41.760 --> 0:15:44.760 appeared to have been overbuilt for a while as actually 0:15:44.760 --> 0:15:48.200 showing some strength. John, do you like that millennials just 0:15:48.240 --> 0:15:51.800 have commitment problems? What are you trying to say? I'm 0:15:51.840 --> 0:15:55.120 just saying that that's maybe that's what you try to 0:15:55.400 --> 0:15:59.400 trying to personalize the segment alright, So ken Im not 0:15:59.400 --> 0:16:01.320 going to get into commitment problems. But you have to 0:16:01.320 --> 0:16:03.240 wonder how much this has to do with sort of 0:16:03.760 --> 0:16:05.760 oh millennials these days, and how much this has to 0:16:05.760 --> 0:16:07.960 do with higher interest rates in the fact that price 0:16:08.480 --> 0:16:10.640 the prices of homes have gotten so high. And I 0:16:10.680 --> 0:16:13.320 guess I'm just wondering, we are we reaching a tipping points? 0:16:13.320 --> 0:16:16.160 You have seen declines in a lot of major markets, 0:16:16.160 --> 0:16:19.920 and are you seeing sort of ongoing dips sort of 0:16:20.160 --> 0:16:23.400 for telling a larger and longer slowdown in the US 0:16:23.440 --> 0:16:27.240 housing market. Well, again, it's the interesting I think there 0:16:27.320 --> 0:16:31.480 was widespread assumption with the uh FED ratcheting up short 0:16:31.600 --> 0:16:35.320 term rates and that the long term rates would also 0:16:35.440 --> 0:16:39.320 move up steadily. But instead we've seen that third year 0:16:39.600 --> 0:16:44.720 and the fifteen year mortgage rates really fluctuated around pretty 0:16:44.720 --> 0:16:48.880 moderate levels. So I don't think people are being panicked 0:16:48.880 --> 0:16:52.440 into going out and buying now before interest rates get 0:16:52.520 --> 0:16:57.000 much higher. I think people may think, yes, there is 0:16:57.040 --> 0:17:01.040 going to be a long term upward trend, but I 0:17:01.120 --> 0:17:03.560 think that may have more effect on those who have 0:17:03.720 --> 0:17:07.480 houses available to sell. They're saying, wait a minute, if 0:17:07.520 --> 0:17:10.000 I sell and want to buy another one, I'm going 0:17:10.080 --> 0:17:12.720 to be trading in a super low mortgage for one 0:17:12.760 --> 0:17:15.920 that's higher. People who haven't yet thought they're saying, I 0:17:15.960 --> 0:17:18.240 can afford to wait a while longer. Interest rates are 0:17:18.240 --> 0:17:20.639 not shooting through the roof, all right, So Ken, I 0:17:20.680 --> 0:17:22.840 want to shift gears a little bit because, aside from 0:17:22.960 --> 0:17:25.040 wearing a housing hat, you also are one of the 0:17:25.480 --> 0:17:30.200 uh survey analysts for this National Association from Business Economic Study. 0:17:30.200 --> 0:17:34.200 And I'm wondering you were looking at tariffs right, Yes, 0:17:34.480 --> 0:17:37.800 and this was a survey of two and fifty one 0:17:37.920 --> 0:17:42.560 members of the National Association for Business Economics, the professional 0:17:42.640 --> 0:17:45.560 organization for folks who use economics in the workplace. I 0:17:45.560 --> 0:17:48.359 guess you guys should be members too. All right, that 0:17:48.400 --> 0:17:51.879 was a good pitch. Would you find real quick that 0:17:52.560 --> 0:17:58.080 overwhelmingly they believe that terrorists are harmful to the economy, 0:17:58.119 --> 0:18:01.680 even if they may do some short term good, that uh, 0:18:01.720 --> 0:18:06.040 they're likely to do more harm than good. Well, I 0:18:06.040 --> 0:18:08.040 shouldn't come as too much of a surprise considering the 0:18:08.080 --> 0:18:10.560 fact that right now we're seeing that across the board, 0:18:10.560 --> 0:18:13.320 and of course this morning we saw that MARIKSK, the 0:18:13.320 --> 0:18:15.480 biggest shipping company in the world, that the CEO is 0:18:15.520 --> 0:18:20.800 saying that he expects the trade the trade potential attentions 0:18:20.840 --> 0:18:22.760 having a bigger effect on the US than the rest 0:18:22.800 --> 0:18:24.720 of the world. Ken Simonson, thank you so much for 0:18:24.760 --> 0:18:27.199 being with us. A pleasure speaking with you about the 0:18:27.240 --> 0:18:30.080 housing market and also the fact that economists think that 0:18:30.119 --> 0:18:34.840 tariffs are bad. Ken Simonson is Associated General Contractors chief economist. 0:18:48.560 --> 0:18:51.600 We've had a fewer question coming through the Bloomberg terminal. 0:18:51.800 --> 0:18:54.280 We love questions from you, guys, We love hearing from you. 0:18:54.440 --> 0:18:56.560 So just I'll go in to the Bloomberg terminal, go 0:18:56.680 --> 0:19:00.560 onto GTV go and then click well click underneath the 0:19:00.640 --> 0:19:03.080 video screen. So this is another question from inal Patel. 0:19:03.640 --> 0:19:07.560 It says sanctions risk facing Russia have resurfaced again. And 0:19:07.600 --> 0:19:09.959 so given we know that you said you probably like 0:19:10.400 --> 0:19:12.920 Rubal longer term, what are the chances of it more 0:19:13.000 --> 0:19:15.880 sanctions hurting the economy there? Yeah, I mean, I think 0:19:15.880 --> 0:19:18.359 and that's an important question because obviously we like the 0:19:18.400 --> 0:19:21.520 fundamentals of Russia and the economic story there, but as 0:19:21.520 --> 0:19:23.679 we've seen with other countries, sanctions are now posing a 0:19:23.760 --> 0:19:26.560 risk UM. And what's becoming concerning is that the US 0:19:26.560 --> 0:19:29.480 administration almost using it like a policy tool in order 0:19:29.520 --> 0:19:31.680 to ahead of sort of the midterm elections in November 0:19:31.960 --> 0:19:35.679 to UM, to advance their their position a little bit 0:19:35.720 --> 0:19:37.520 more UM. And if we think about some of the 0:19:37.560 --> 0:19:40.240 sanctions and tarrits that have come through with regards to 0:19:40.240 --> 0:19:42.800 to China and Turkey, every time hes are coming through, 0:19:42.960 --> 0:19:46.480 Trump's approval state ratings with his base is starting to 0:19:46.520 --> 0:19:49.360 increase even further. So ahead of the midterm elections, there 0:19:49.440 --> 0:19:51.320 is always that risk and that chance that you do 0:19:51.359 --> 0:19:54.000 see those sanctions sanctions being broadening out to other countries 0:19:54.359 --> 0:19:56.159 UM and Russia is one of those that post is 0:19:56.240 --> 0:19:59.639 that risk, But ultimately we're sticking to the course story 0:19:59.680 --> 0:20:02.520 of the fundamental long term, medium term story with Russia. 0:20:02.760 --> 0:20:06.639 But obviously sanctions could sort of sort of disrupt that 0:20:07.119 --> 0:20:08.840 story a little bit in the nit term. You know, 0:20:08.920 --> 0:20:11.199 if there's a you know, duopolitic exploring up again like 0:20:11.280 --> 0:20:12.720 we saw a couple of months ago, do you go 0:20:12.760 --> 0:20:15.800 to cash UM. I don't think you need to necessarily 0:20:15.800 --> 0:20:18.359 go to cash UM. I think that's a lot of 0:20:18.400 --> 0:20:20.920 people would probably think that it's the right place to go. 0:20:21.040 --> 0:20:25.320 But no, you do see volatility and markets and and ultimately, 0:20:25.320 --> 0:20:27.720 if you if you think back to sort of last year, 0:20:27.960 --> 0:20:31.119 volatility has been a lot lower than where historically we 0:20:31.119 --> 0:20:33.040 would have expected it to be. So these types of 0:20:33.080 --> 0:20:37.399 things coming through are not unusual when it comes to 0:20:37.480 --> 0:20:40.560 how markets perform um. So it always pays to stay 0:20:40.600 --> 0:20:42.800 invested in markets. I don't think you should flood back 0:20:42.840 --> 0:20:46.000 into casha completely, but you might want to rebalance slightly 0:20:46.000 --> 0:20:48.359 and and sort of change that balance of equity exposure 0:20:48.440 --> 0:20:51.720 or put some protection strategies in place regards regards to 0:20:51.720 --> 0:20:54.600 your risk exposure. But ultimately, I don't think you necessarily 0:20:54.600 --> 0:20:57.119 to move everything into cash. Just going into the Russia question, 0:20:57.760 --> 0:20:59.480 the big disteing Russia and a lot of other markets 0:20:59.520 --> 0:21:01.840 emerging mark It's not a lot, but but many is 0:21:01.840 --> 0:21:04.200 that it's it's an oil story, yeah, and that's a 0:21:04.240 --> 0:21:05.959 big difference between it in Turkey. I had to come 0:21:05.960 --> 0:21:09.879 back to our previous question with Crescent. If oil stays 0:21:09.880 --> 0:21:12.439 in those kinds of ranges, Russia is looking like a 0:21:12.440 --> 0:21:15.520 pretty is going to benefit from there exactly. And I 0:21:15.560 --> 0:21:19.479 think those fundamentals are really important. Is that the global 0:21:19.520 --> 0:21:22.040 growth story, the baseline is that we should see a 0:21:22.080 --> 0:21:24.399 continuation of that, and that should help to support the 0:21:24.400 --> 0:21:27.280 oil market. We should. You know, we're looking at an 0:21:27.280 --> 0:21:31.240 average of this year sixty seven dollars dollars pervarily for 0:21:31.280 --> 0:21:33.200