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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot com, the radio plus mobile lapp and on your radio.

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Speaker 1: This is a Bloomberg Business Flash. And I'm Fair in Moscow,

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Speaker 1: and this update is brought to you by Well. We'll

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Speaker 1: have more on that in just a moment. But Bayer

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Speaker 1: is offering sixty two billion dollars to buy mon Santo,

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Speaker 1: deepening investor concerned that it's stretching its finances to become

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Speaker 1: the world's biggest seller of season farm chemicals. Monsanto shares

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Speaker 1: they are up almost eight percent this morning. Area's Capital,

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Speaker 1: the publicly traded lender managed by alternative investment firm Areas Management,

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Speaker 1: will acquire American Capital and a deal value at three

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Speaker 1: point four billion dollars. Interviewed Publishing and fused with a

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Speaker 1: seventy point five million dollar investment from Nant Capital, rejected

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Speaker 1: Ghanet's latest takeover offer, escalating the battle between newspaper publishers.

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Speaker 1: Futures a little changed, SNP Emity futures down, Apploying Dow

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Speaker 1: Emiti futures down three and nasdac ME Emiti futures up

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Speaker 1: three and a half. The decks in Germany's down seven

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Speaker 1: ns per cent. Can your treasury that'll change yield one

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Speaker 1: eight three percent yield then the two year point eight

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Speaker 1: nine percent. NIMEX screwed oil down one point seven percent

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Speaker 1: or eighty two cents to forty seven fifty eight of

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Speaker 1: Barrol Comics Gold is down half percent or five dollars

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Speaker 1: ninety cents at twelve forty seven. Announced the euro a

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Speaker 1: dollar twelve oh shooting in one oh nine point four nine.

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Speaker 1: That's a Bloomberg business flash. Tom and Mike Karen, thanks

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Speaker 1: so much Bloomberg Surveillance. This morning a bunch of by

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Speaker 1: d n y Melon, they proudly introduce assets Strategy View,

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Speaker 1: worldwide and in Boston for their support of what we do.

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Speaker 1: Michael Darda always gets our attention with m K m um.

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Speaker 1: Mr Partners will come to him in a moment, but

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Speaker 1: first it is nine on Wall Street. The following is

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Speaker 1: from Bloomberg View Opinions and commentary from Bloomberg columnists. I'm

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Speaker 1: a entrepreneur, a columnist for Bloomberg view interest rates are

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Speaker 1: on the way up. In the minutes from the Fed's

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Speaker 1: latest meeting, most participants said that a rate hike in

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Speaker 1: June would likely be appropriate if the economy continues to improve.

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Speaker 1: Presidents of two of the regional Fed said that two

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Speaker 1: more rate increases could follow later this year. These rate

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Speaker 1: hikes lack of convincing rationale, as the minutes acknowledge inflation

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Speaker 1: is currently below the FEDS two percent target and the

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Speaker 1: Fed does not think it will be hit before it

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Speaker 1: tightens monetary policy. The Cleveland Fed estimates that the market

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Speaker 1: expects an average inflation rate of one point seven five

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Speaker 1: percent over the next ten years. Perhaps then the Fed

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Speaker 1: views two percent inflation not as a target, but as

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Speaker 1: a ceiling, and inflation ceiling has drawbacks. However, it makes

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Speaker 1: the long run price level less predictable, and it ensures

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Speaker 1: that recoveries from future recessions will be weak. The FED

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Speaker 1: is also influenced by the view that today's low interest

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Speaker 1: rates are abnormal and need to change, which is awfully

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Speaker 1: close to saying that higher interest rates are an ending

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Speaker 1: themselves that dubious assumption seems like the only way to

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Speaker 1: make sense of the fence current plan. I'm reeu. For

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Speaker 1: more view, please go to Bloomberg View dot com or

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Speaker 1: view go on the Bloomberg terminal. This has been Bloomberg

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Speaker 1: View and blumber View commentary can be here to hourly weekdays.

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Speaker 1: I'm Bloomberg Radio, Michael Darter with this MKM partners. Michael.

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Speaker 1: I am reading every word and every footnote of Stanley

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Speaker 1: Fisher's wonderful speech uh and support of Michael Woodford at

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Speaker 1: Columbia where he goes back and talks about the history

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Speaker 1: of DARTA which is nud vixel and folding it into

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Speaker 1: Maynard Keynes and onto Paul Samuelson, onto patink In, the

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Speaker 1: giant of nineties sixties economics, who vice Chairman Fisher's studied

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Speaker 1: with at M I T, and then onto the present

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Speaker 1: work of Michael Woodford. Does any of this matter? Is

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Speaker 1: our theory so broken now as we search for economic

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Speaker 1: growth that we have a central bank running theory? Lists Well, Tom,

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Speaker 1: thanks for having me on. I think what's broken is

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Speaker 1: this previous assumed relationship between the unemployment rate, or more broadly,

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Speaker 1: labor market slack and inflation. The FED really puts a

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Speaker 1: lot of stock in this, and their assumption in terms

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Speaker 1: of moving forward with the additional monetary tightening is that

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Speaker 1: the unemployment rate now down at about five so pretty

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Speaker 1: close to a cycle low, will in and of itself,

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Speaker 1: um help the Fed get back up to that to

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Speaker 1: percent inflation target over time, and in fact they're worried

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Speaker 1: about overshooting it, which is the whole reason for you know,

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Speaker 1: now recently guiding the markets towards a you know, a

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Speaker 1: summer additional rate rise, but the bond market is not

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Speaker 1: um you know, it's not impressed. And in fact, if

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Speaker 1: you look at the TIPS inflation break even market still

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Speaker 1: miles below what would be consistent with the Fed achieving

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Speaker 1: its target over time. So some of these relationships don't

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Speaker 1: look like they're holding up, and I think that puts

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Speaker 1: us in a bit of a box. The TIPS rates,

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Speaker 1: as Jim Bullard points out today in his comment, isn't

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Speaker 1: a lot of people look at that and say, well,

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Speaker 1: they're miles below the Fed, But it isn't comparable because

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Speaker 1: the Fed looks at PC and tips are based on

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Speaker 1: CPI exactly. No, that's a great point, Mike and it's

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Speaker 1: even worse because the CPI data runs about fifty basis

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Speaker 1: points above the pc data. Tips are priced off of

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Speaker 1: the cp I, so you know those if those tips

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Speaker 1: inflation break even spreads are south of two. Um, you

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Speaker 1: know it's even it's even worse than you know then

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Speaker 1: then would be suggested at first blush. So you know,

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Speaker 1: I'm afraid that the FET is on the run wrong

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Speaker 1: track here and the assumption, but the Phillips curve relationships

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Speaker 1: are going to hold up and the set can just

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Speaker 1: continue to move gradually and everything will be okay. I

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Speaker 1: think it's not likely to be the case. I think

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Speaker 1: we're on a court now where the Fed is almost

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Speaker 1: is going to ensure a return to the zero lower

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Speaker 1: bound in the next downturn, and that's not a good

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Speaker 1: place to be. Well, it's one of the reasons they

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Speaker 1: would argue it's important to get off the zero bound.

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Speaker 1: That's that's an argument that's being made. But I think

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Speaker 1: there's a key flaw in it, which is that they're

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Speaker 1: earlier they start, especially if it's premature and you know

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Speaker 1: they're going to damp and nominal growth and inflation. Uh,

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Speaker 1: that actually increases the probability that they won't get very

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Speaker 1: far along. If they want room to raise rates, they

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Speaker 1: really need to make sure that the equilibrium interest rate

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Speaker 1: where Tom started the idea of the ideas of new

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Speaker 1: fix cell is up there high enough relative to where

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Speaker 1: the feed is that they can raise rates without threatening

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Speaker 1: the business cycle. But that's really not the you know,

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Speaker 1: that's that's not the signal we're getting out of tips

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Speaker 1: and the yield curve. Even just looking at nominal GDP growth,

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Speaker 1: we're running three point two percent year to year. That's

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Speaker 1: the low end of the six year range. You know,

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Speaker 1: I guess the feeds feeling is that that's temporary, but

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Speaker 1: I wouldn't be so sure. Yeah, but is it going

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Speaker 1: to I mean twenty basis point move, Is that going

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Speaker 1: to threaten the economic cycle, the business cycle? Well, a

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Speaker 1: lot of people thought that, you know, that wouldn't and

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Speaker 1: couldn't be the case going into the December rate rise,

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Speaker 1: and you know, we had a fair bit of market panic. Uh.

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Speaker 1: And in fact, I would argue that the set tightening

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Speaker 1: really began with the tapering of asset purchases in the

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Speaker 1: end of quantitative easing. At least that's what financial markets

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Speaker 1: told us. Credit markets and break even markets the long

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Speaker 1: end of the curve, the steepness of the curve, and

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Speaker 1: then the December rate rise you know, went ahead even

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Speaker 1: with a lot of credit market stress. Fairly unusual for

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Speaker 1: the Fed to be lifting short rates with the kind

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Speaker 1: of stress and credit markets that we saw late last year,

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Speaker 1: and markets you know, basically went into a you know,

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Speaker 1: a panic for the next two months until the FED

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Speaker 1: backed away. Now, the recent justification for restarting the rate

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Speaker 1: rises is that market volatility is settled down. The doesn't

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Speaker 1: seem to acknowledge that that is, in large measure the

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Speaker 1: result of them backing away. So right, how much? And Michael,

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Speaker 1: this goes to your study of the word chronic. How

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Speaker 1: much length of time of subpar nominal GDP do we

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Speaker 1: need to have before we almost revert to a prevok

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Speaker 1: er FED looking somewhat atnominal g d P I mean

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Speaker 1: chronic or the inertial force of low nominal GDP at

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Speaker 1: some point has to get somebody's attention, right, Yeah, And

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Speaker 1: there are two problems here. You know. Nominal GDP is

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Speaker 1: is weak in part because the FED has been undershooting

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Speaker 1: its two percent inflation goal, but it's also been weak

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Speaker 1: due to real forces that are outside of the fed's control.

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Speaker 1: If you look at the average growth rate of non

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Speaker 1: farm productivity over the last six years, it's been exceptionally slow,

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Speaker 1: just a tad above point five per annum. In working

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Speaker 1: age population is growing at about the same rate. So

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Speaker 1: if growth potential is only running around one per cent,

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Speaker 1: even if the SET is hitting its inflation target, that

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Speaker 1: gets us to about three nominal GDP growth. In other words,

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Speaker 1: at least the best case scenario, the way I see it,

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Speaker 1: unless there's a pick up in productivity growth is for

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Speaker 1: about three nominal GDP growth to persist. That's not very good,

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Speaker 1: but it's in part due to a quote activity in

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Speaker 1: labor force slow down, and it's in part due to

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Speaker 1: the FED undershooting its inflation objective. We can blame the

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Speaker 1: SET for the second part, but not for the first.

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Speaker 1: Us The U is um the current interest rate an

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Speaker 1: appropriate interest rate for the growth rate of the economy

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Speaker 1: that we have now and the unemployment rate that we

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Speaker 1: have now. Uh, you know, I think so. I mean

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Speaker 1: we know that because look, if the FED were miles

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Speaker 1: and miles below a quote unquote normal rate, I think

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Speaker 1: what ends up happening is people look at you know,

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Speaker 1: rates at fifty basis points. That's where the IOE R rates,

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Speaker 1: which is the Fed's primary tool now um for tightening policy.

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Speaker 1: And they say, well, that's very odd historically, but the

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Speaker 1: reality is three nominal g P growth is also odd historically.

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Speaker 1: The inflation rates we are seeing, you know, below two percent,

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Speaker 1: very low historically, and importantly, forward looking financial markets are

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Speaker 1: telling us that the FED is likely to undershoot, not overshoot,

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Speaker 1: even with these low rates. So if you go back,

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Speaker 1: you know, a week or so, even before the FED

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Speaker 1: started to try to guide the markets to a summer

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Speaker 1: rate rise, at funds futures markets were priced for the

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Speaker 1: next hike in December, and even then the tips markets

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Speaker 1: were well below what would be consistent with that targets.

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Speaker 1: So you know, so we so we know based on

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Speaker 1: you know, what's happening in the economy and where these

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Speaker 1: inflation expectations measures are that no, this low quart short

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Speaker 1: rate is not way out of whack. Well, let's come

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Speaker 1: back Michael Darta, where that's one of our most popular guests,

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Speaker 1: very suspect there Fed policy. We have another hour of

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Speaker 1: Bloomberg surveillance. We have another moment with Michael Darta, stay

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Speaker 1: with us. Good morning, This is Bloomberg Surveillance. I think

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Speaker 1: most experts would agree that the world needs more expansionary

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Speaker 1: fiscal policy. If I think that, if I'm is trying

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Speaker 1: to tell us, hey, guys, there is actually a good

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Speaker 1: case to be made for the economy reaching book capacity

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Speaker 1: and therefore for us hitting all duo mandate. Almakers don't

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Speaker 1: like changing policy without preparing markets. The fact that they

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Speaker 1: have in the preparing markets for a rate hip to

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Speaker 1: suggest that there will not be one in June. Bloomberg

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Speaker 1: Surveillance your link to the world of economics, finance, and

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Speaker 1: investment on Bloomberg Radio. Good Morning, have you one? Bloomberg

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Speaker 1: savenas Michael McKee and time Keena moments we continue our

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Speaker 1: conversation with Michael Darta MCAM Partners. Very critical of FED policy.

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Speaker 1: In the toolbox that the FED has moving forward. Part

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Speaker 1: of that toolbox is looking at the markets, looking at

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Speaker 1: the equities, bonds, commodities, commodities challenge Today iron Ore very weak,

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Speaker 1: oil down seventy eight cents on Brent forty seven ninety

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Speaker 1: god gold down down six dollars. It was better earlier.

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Speaker 1: Troll forty six ounce about twenty dollars away from resistance.

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Speaker 1: That bears watching this morning as this foreign exchange The

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Speaker 1: En A bit of a surprise with dollar stronger the

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Speaker 1: blended dollar UH four, I should say, why is that

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Speaker 1: obviously stronger Yen stronger dollar must being weak hero through

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Speaker 1: eleven sterling, commodity currencies weaker. Good morning Canada, one weeker

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Speaker 1: Looney as well. David Wilson diluted this morning. He was

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Speaker 1: a creative on Friday. It's an all cash deal. Come on, David,

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Speaker 1: you've been doing this for thirty years. I get the

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Speaker 1: pr it's an all cash deal, but it's assumed they're

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Speaker 1: gonna go get a cash call from the current shareholders,

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Speaker 1: which means it's dilutive. Monday, am. I right, you're telling

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Speaker 1: the story, Tom and I present. It's all about Monsanto

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Speaker 1: and Bear or if you like buyer buyer Bear, indeed

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Speaker 1: that bears the buyer. Mine Santa shares are up eight

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Speaker 1: and a half percent in early trading. And that's the key. Yes,

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Speaker 1: only they're not up to the ship the offer price,

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Speaker 1: which is what's fascinating about this hyos A share, that's

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Speaker 1: what bears offering. We know that now, we knew there

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Speaker 1: was an offer last week, but we didn't know the terms.

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Speaker 1: That details out front Monsanto at the moment at one

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Speaker 1: oh nine sixties, so it's a long way from that

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Speaker 1: hundred and twenty two dollar price months center with the

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Speaker 1: moment reviewing the terms of that offer. So we don't

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Speaker 1: know yet whether they're going to accept. And there's a

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Speaker 1: few more developments on the take on the front, and

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Speaker 1: I'm fine. It's been that kind of morning already. You know,

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Speaker 1: you've got the Wall Street Journal reporting that Anthem and

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Speaker 1: Signa are bickering with each other as they seek approval

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Speaker 1: for their merger. Their top officials are accusing each other,

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Speaker 1: violating the murder agreement, fumbling submissions to regulators. You put

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Speaker 1: that all together and Signal shares are down two and

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Speaker 1: a half percent in early trading, and then you look

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Speaker 1: at Viacom, which is up to and a half percent

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Speaker 1: in the wake of chairman some of the rev STOs

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Speaker 1: decision to get rid of the Viacom CEO of Fillip

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Speaker 1: Dowmand and director George Abrams from the trust that controls

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Speaker 1: the company. So definitely, so moves there. You got gold

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Speaker 1: stocks higher along with the price of the precious medal

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Speaker 1: in New York trading, I should say lower. Actually, uh,

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Speaker 1: Newmontain Mining, Barrack Gold amongst stocks are down. They were

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Speaker 1: talking maybe two percent to clients there. Krysler's down four percent.

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Speaker 1: German regulators found the automaker used the legal software to

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Speaker 1: cheat on missions tests. According to the newspaper Build I'm

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Speaker 1: Sontai or if you prefer, build on Sunday. Chrysler said

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Speaker 1: all its vehicles comply with the missions rules. Back to

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Speaker 1: the deal front American Capital at three and a percent,

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Speaker 1: the business development company accepted a takeover offer from Areas

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Speaker 1: Capital that's valued at three point four billion dollars in

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Speaker 1: cash and stock. And the deal excludes American Capital Mortgage Management,

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Speaker 1: which is being sold separately to American Capital Agency for

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Speaker 1: five hundred sixty two million dollars. So you definitely have

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Speaker 1: some deals going on there. Sure you're publishing down eight percent.

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Speaker 1: The owner of the Chicago Tribune in Los Angeles Times

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Speaker 1: rejected Gannette's latest takeover proposal value at eight U sixty

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Speaker 1: four million dollars. Tribute also agreed to sell a twelve

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Speaker 1: point nine percent stake twid billionaire drug executive Patrick Soon's

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Speaker 1: Young at the fifteen dollar share price of Cannet's offer.

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Speaker 1: David Wilson, thank you for a dilutive report this morning.

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Speaker 1: There'll be a creative tomorrow. Michael. Data with US is

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Speaker 1: we look at the search phenominal GDP and mergers. I mean,

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Speaker 1: if you can't grow by somebody, I mean that's one

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Speaker 1: of the effects. Michael Darta of weaker nominal GDP, What

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Speaker 1: does weaker nominal GDP mean for our listeners? What does

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Speaker 1: it mean for consumption? What does it mean for wage growth? Well,

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Speaker 1: means that we're in an overall, you know, slower growth environments,

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Speaker 1: and nominal GDP is effectively equivalent to top line growth

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Speaker 1: for companies. So if we're in the very low single digits,

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Speaker 1: and then investors really shouldn't be expecting profits to be

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Speaker 1: growing at you know, high single digits are certainly double digits,

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Speaker 1: especially now with the labor market tightening up some. So

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Speaker 1: wage growth is still quite low. It'll likely stay low.

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Speaker 1: But the fact that it's it's excess elerating moderately relatively

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Speaker 1: relative relative to a decelerating nominal growth rate, meaning of

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Speaker 1: top line growth is weakening, and it has over the

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Speaker 1: last year and a half. And nominal wage rates, which

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Speaker 1: are more sticky, you know, are steady to rising slowly,

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Speaker 1: then that's going to crimp corporate profit margins margins. And

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Speaker 1: in fact, these GDP based profits, the so called NIPPO

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Speaker 1: profits which cover all US corporations, peaked relative to the

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Speaker 1: economy back in two thousand twelves. Only two business cycles

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Speaker 1: in history lasted this long after such an occurrence. So

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Speaker 1: I'm afraid we're in a late cycle environment. So my

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Speaker 1: message for investors would be to be diversified and in

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Speaker 1: somewhat cautious here by a mattress, well not necessarily by

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Speaker 1: a mattress, but to you know, if you're investing in

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Speaker 1: index funds, just you know, matched the stock exposure with

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Speaker 1: some bonds in cash and then you can sleep at right. Uh.

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Speaker 1: When you talk about um top line shrinking and and

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Speaker 1: that is happening, you have to ask why, uh, I mean,

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Speaker 1: you can either grow the top line by investing, and

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Speaker 1: companies aren't doing that, or you can have it appear

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Speaker 1: in the bottom line by buying back stock or by

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Speaker 1: cutting expenses. Uh, if we live in this zero rate

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Speaker 1: world and the FED should not be raising rates, then

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Speaker 1: how do you ever get out of that? Well, I mean,

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Speaker 1: I think there are two steps. One, you know, would

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Speaker 1: be if the said you know, the FED needs a

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Speaker 1: better target and more explicit target, it would be better

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Speaker 1: for them to commit to level targeting. If we're going

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Speaker 1: to target inflation to make up for undershoots and overshoots.

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Speaker 1: Even better would be something like nominal GDP targeting. But

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Speaker 1: even that, if it's optimal, and that's my view and

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Speaker 1: the view of the market monitorists at this point in

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Speaker 1: the business cycle, is not going to create miracles. If

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Speaker 1: we have very weak productivity growth, and that's the other

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Speaker 1: end of this. We're not exactly sure why productivity is slowed.

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Speaker 1: It's I think it's you know, it's more obvious why

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Speaker 1: the demographic issues are there in terms of working age

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Speaker 1: population growth being slower. We know that that's likely to

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Speaker 1: persist on the productivity side, and you know, it's a

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Speaker 1: more open question. But I think that we know enough

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Speaker 1: about economic history to understand that moving forward, with things

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Speaker 1: like trade protectionism, a massive multimillion person shock to the

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Speaker 1: labor force, you know, federally imposed wage shocks. These are

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Speaker 1: the kinds of things that are not going to help

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Speaker 1: protect giving. So unfortunately, the angst out there is giving

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Speaker 1: way to certain populist proposals on the left and the

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Speaker 1: right that are likely to only do damage. Within the

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Speaker 1: populist proposals is eight years. I'm likely have been wonderful

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Speaker 1: on this of a need to clear market. So we

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Speaker 1: all give the US high score for clearing banking versus Europe, etcetera, etcetera.

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Speaker 1: But the bottom line is on a high and basis,

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Speaker 1: we haven't cleared markets. Were just postponing, postponing, hoping for

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Speaker 1: a workout. Are we heading to It's a disequilibrium or

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Speaker 1: instability because we just keep postponing clearing our various and

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Speaker 1: sundry balance sheets. Well, I mean, you know, the critical

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Speaker 1: theme here is that you can't expect markets to clear

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Speaker 1: if you have a big monetary disruption where nominal GDP crashes.

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Speaker 1: And that was really an no wage oh nine story.

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Speaker 1: So we have seen labor markets recovering as nominal growth,

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Speaker 1: as you know, has has started to you know has

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Speaker 1: been recovering. Now it's slowing unfortunately, um But you know,

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Speaker 1: beyond that time, I would say if we take a

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Speaker 1: look back at the thirties, economist Scott Sumner has written

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Speaker 1: a book on this, The Midas Paradox, So I'll give

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Speaker 1: him a bit of a plug here, but it's fascinating.

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Speaker 1: Sumner goes back to that period and looks at basically

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Speaker 1: disentangles the monetary shocks and some of the real shocks

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Speaker 1: on wages, and essentially the conclusion is, um, absolutely, do

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Speaker 1: not try to artificially force wages highers, especially if you're

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Speaker 1: in an environment where monetary policy is tightening, because what

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Speaker 1: happens is profits and investment collapse, right, and that seems

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Speaker 1: to be where we're heading with some of these proposals.

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Speaker 1: You've got the FED tightening. Now, phenomenal growth is slowing,

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Speaker 1: and it wasn't growing that fast a year and a

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Speaker 1: half ago anyway, And now we're you know, we have

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Speaker 1: trade protectionism and and you know, federal minimum wages and

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Speaker 1: on all kinds of stuff out there that would just

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Speaker 1: damage economic efficiency and hurt profits, corporate investment. We don't

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Speaker 1: see enough. Michael Darter. I'll look forward to speaking to

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Speaker 1: you again soon. He's with them caming advisers. Michael McKee.

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Speaker 1: H Josh Brown, always smart, writes a brilliant tweet this morning.

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Speaker 1: This Weekend's Barrens had Byron Ween on the cover in

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Speaker 1: a feature on Laslo Berrini. They really need to stop

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Speaker 1: pandering the millennials. I'm sorry. That's very good, Josh Brown.

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Speaker 1: If you're listening, and Laslow and Byron we say good

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Speaker 1: morning to you. I'm sure that Byron Ween and Laslow

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Speaker 1: were smart in Barons this morning. Future is negative two.

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Speaker 1: I'm to check in with Michael Barr and get the

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Speaker 1: latest world in national headlines nighttime. Thank you very much.

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Speaker 1: President Obama says the death of Taliban leader Maha Mohammed

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Speaker 1: aktar Man Seur marks an important milestone in the effort

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Speaker 1: to bring peace to Afghanistan. And Sear was killed when

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Speaker 1: the US drone fired on his vehicle in Southwest Pakistan.

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Speaker 1: President Obama says the US is lifting a ban on

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Speaker 1: lethal arms sales to Vietnam. The President, speaking in Hannoy today,

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Speaker 1: says this change will ensure that Vietnam has access to

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Speaker 1: the equipment that it needs to defend itself. We are

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Speaker 1: here to shape a different future. That's what UN Secretary

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Speaker 1: Genderal Bonki Moon said today when he opened the first

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Speaker 1: World Humanitarian Summon in his Stan bowl U and is

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Speaker 1: hoping that the two day meeting will help countries better

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Speaker 1: tackle the world humanitarian crisis and estimated one million people

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Speaker 1: worldwide require humanitarian assistance. Global news twenty four hours a day,

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Speaker 1: Howard By now it's twenty four hundred journalists more than

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Speaker 1: a hundred fifty news bureaus around the world. How Michael

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Speaker 1: Bark Mike to Michael, thanks so much. Remimby that you

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Speaker 1: want the Chinese, you want six point five six grinding Ever,

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00:23:12,400 --> 00:23:21,200
Speaker 1: weaker on dollar and Midby stay with Sploomberg Surveillance. Market

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