WEBVTT - Darda: Fed is on the wrong track 0:00:02.160 --> 0:00:05.519 Global business news twenty four hours a day at Bloomberg 0:00:05.600 --> 0:00:08.680 dot com, the radio plus mobile lapp and on your radio. 0:00:08.960 --> 0:00:13.600 This is a Bloomberg Business Flash. And I'm Fair in Moscow, 0:00:13.640 --> 0:00:16.640 and this update is brought to you by Well. We'll 0:00:16.640 --> 0:00:18.239 have more on that in just a moment. But Bayer 0:00:18.360 --> 0:00:20.800 is offering sixty two billion dollars to buy mon Santo, 0:00:20.960 --> 0:00:24.160 deepening investor concerned that it's stretching its finances to become 0:00:24.200 --> 0:00:27.760 the world's biggest seller of season farm chemicals. Monsanto shares 0:00:28.120 --> 0:00:31.360 they are up almost eight percent this morning. Area's Capital, 0:00:31.400 --> 0:00:35.400 the publicly traded lender managed by alternative investment firm Areas Management, 0:00:35.640 --> 0:00:38.440 will acquire American Capital and a deal value at three 0:00:38.479 --> 0:00:41.839 point four billion dollars. Interviewed Publishing and fused with a 0:00:41.960 --> 0:00:45.680 seventy point five million dollar investment from Nant Capital, rejected 0:00:45.680 --> 0:00:50.520 Ghanet's latest takeover offer, escalating the battle between newspaper publishers. 0:00:50.800 --> 0:00:54.200 Futures a little changed, SNP Emity futures down, Apploying Dow 0:00:54.280 --> 0:00:57.360 Emiti futures down three and nasdac ME Emiti futures up 0:00:57.400 --> 0:00:59.840 three and a half. The decks in Germany's down seven 0:01:00.040 --> 0:01:02.760 ns per cent. Can your treasury that'll change yield one 0:01:03.040 --> 0:01:05.520 eight three percent yield then the two year point eight 0:01:05.600 --> 0:01:08.760 nine percent. NIMEX screwed oil down one point seven percent 0:01:08.920 --> 0:01:11.080 or eighty two cents to forty seven fifty eight of 0:01:11.160 --> 0:01:14.319 Barrol Comics Gold is down half percent or five dollars 0:01:14.360 --> 0:01:17.360 ninety cents at twelve forty seven. Announced the euro a 0:01:17.440 --> 0:01:20.240 dollar twelve oh shooting in one oh nine point four nine. 0:01:20.560 --> 0:01:23.560 That's a Bloomberg business flash. Tom and Mike Karen, thanks 0:01:23.560 --> 0:01:25.840 so much Bloomberg Surveillance. This morning a bunch of by 0:01:25.920 --> 0:01:30.880 d n y Melon, they proudly introduce assets Strategy View, 0:01:31.360 --> 0:01:35.480 a game changer for asset managers and asset owners. Visit 0:01:35.560 --> 0:01:37.919 b n y melon dot com to learn more about 0:01:37.959 --> 0:01:43.640 Asset Strategy View b and y melon dot com. Asset 0:01:44.040 --> 0:01:47.840 Strategy View b and y melon dot Com hans it 0:01:47.960 --> 0:01:49.720 for we think the people of b and y Melon 0:01:49.800 --> 0:01:55.280 worldwide and in Boston for their support of what we do. 0:01:55.800 --> 0:02:00.480 Michael Darda always gets our attention with m K m um. 0:02:00.600 --> 0:02:02.520 Mr Partners will come to him in a moment, but 0:02:02.600 --> 0:02:08.400 first it is nine on Wall Street. The following is 0:02:08.440 --> 0:02:12.639 from Bloomberg View Opinions and commentary from Bloomberg columnists. I'm 0:02:12.639 --> 0:02:16.040 a entrepreneur, a columnist for Bloomberg view interest rates are 0:02:16.080 --> 0:02:18.080 on the way up. In the minutes from the Fed's 0:02:18.160 --> 0:02:20.720 latest meeting, most participants said that a rate hike in 0:02:20.800 --> 0:02:24.280 June would likely be appropriate if the economy continues to improve. 0:02:24.520 --> 0:02:26.880 Presidents of two of the regional Fed said that two 0:02:26.880 --> 0:02:29.679 more rate increases could follow later this year. These rate 0:02:29.760 --> 0:02:33.600 hikes lack of convincing rationale, as the minutes acknowledge inflation 0:02:33.680 --> 0:02:36.240 is currently below the FEDS two percent target and the 0:02:36.280 --> 0:02:38.080 Fed does not think it will be hit before it 0:02:38.080 --> 0:02:41.560 tightens monetary policy. The Cleveland Fed estimates that the market 0:02:41.600 --> 0:02:44.639 expects an average inflation rate of one point seven five 0:02:44.720 --> 0:02:47.679 percent over the next ten years. Perhaps then the Fed 0:02:47.760 --> 0:02:50.440 views two percent inflation not as a target, but as 0:02:50.440 --> 0:02:53.920 a ceiling, and inflation ceiling has drawbacks. However, it makes 0:02:53.960 --> 0:02:56.880 the long run price level less predictable, and it ensures 0:02:56.880 --> 0:02:59.919 that recoveries from future recessions will be weak. The FED 0:03:00.120 --> 0:03:02.440 is also influenced by the view that today's low interest 0:03:02.520 --> 0:03:05.240 rates are abnormal and need to change, which is awfully 0:03:05.280 --> 0:03:07.679 close to saying that higher interest rates are an ending 0:03:07.720 --> 0:03:11.000 themselves that dubious assumption seems like the only way to 0:03:11.080 --> 0:03:14.240 make sense of the fence current plan. I'm reeu. For 0:03:14.280 --> 0:03:16.639 more view, please go to Bloomberg View dot com or 0:03:16.720 --> 0:03:19.919 view go on the Bloomberg terminal. This has been Bloomberg 0:03:20.040 --> 0:03:23.240 View and blumber View commentary can be here to hourly weekdays. 0:03:23.840 --> 0:03:27.520 I'm Bloomberg Radio, Michael Darter with this MKM partners. Michael. 0:03:27.880 --> 0:03:30.760 I am reading every word and every footnote of Stanley 0:03:30.800 --> 0:03:34.920 Fisher's wonderful speech uh and support of Michael Woodford at 0:03:35.000 --> 0:03:38.080 Columbia where he goes back and talks about the history 0:03:38.080 --> 0:03:41.320 of DARTA which is nud vixel and folding it into 0:03:41.360 --> 0:03:45.000 Maynard Keynes and onto Paul Samuelson, onto patink In, the 0:03:45.120 --> 0:03:50.880 giant of nineties sixties economics, who vice Chairman Fisher's studied 0:03:50.920 --> 0:03:53.960 with at M I T, and then onto the present 0:03:54.000 --> 0:03:56.800 work of Michael Woodford. Does any of this matter? Is 0:03:56.840 --> 0:04:00.800 our theory so broken now as we search for economic 0:04:00.880 --> 0:04:05.600 growth that we have a central bank running theory? Lists Well, Tom, 0:04:05.640 --> 0:04:07.880 thanks for having me on. I think what's broken is 0:04:07.960 --> 0:04:13.040 this previous assumed relationship between the unemployment rate, or more broadly, 0:04:13.120 --> 0:04:15.800 labor market slack and inflation. The FED really puts a 0:04:15.840 --> 0:04:19.000 lot of stock in this, and their assumption in terms 0:04:19.000 --> 0:04:22.840 of moving forward with the additional monetary tightening is that 0:04:23.279 --> 0:04:27.080 the unemployment rate now down at about five so pretty 0:04:27.120 --> 0:04:30.480 close to a cycle low, will in and of itself, 0:04:30.960 --> 0:04:33.200 um help the Fed get back up to that to 0:04:33.400 --> 0:04:36.000 percent inflation target over time, and in fact they're worried 0:04:36.040 --> 0:04:39.840 about overshooting it, which is the whole reason for you know, 0:04:39.920 --> 0:04:42.760 now recently guiding the markets towards a you know, a 0:04:42.880 --> 0:04:46.920 summer additional rate rise, but the bond market is not 0:04:47.320 --> 0:04:49.920 um you know, it's not impressed. And in fact, if 0:04:49.920 --> 0:04:53.000 you look at the TIPS inflation break even market still 0:04:53.160 --> 0:04:56.640 miles below what would be consistent with the Fed achieving 0:04:56.680 --> 0:04:59.599 its target over time. So some of these relationships don't 0:04:59.640 --> 0:05:01.679 look like they're holding up, and I think that puts 0:05:01.720 --> 0:05:07.320 us in a bit of a box. The TIPS rates, 0:05:07.360 --> 0:05:10.680 as Jim Bullard points out today in his comment, isn't 0:05:11.160 --> 0:05:12.600 a lot of people look at that and say, well, 0:05:12.600 --> 0:05:15.240 they're miles below the Fed, But it isn't comparable because 0:05:15.240 --> 0:05:17.400 the Fed looks at PC and tips are based on 0:05:17.480 --> 0:05:21.240 CPI exactly. No, that's a great point, Mike and it's 0:05:21.279 --> 0:05:26.080 even worse because the CPI data runs about fifty basis 0:05:26.080 --> 0:05:29.039 points above the pc data. Tips are priced off of 0:05:29.040 --> 0:05:32.880 the cp I, so you know those if those tips 0:05:32.920 --> 0:05:37.599 inflation break even spreads are south of two. Um, you 0:05:37.600 --> 0:05:40.760 know it's even it's even worse than you know then 0:05:40.920 --> 0:05:44.000 then would be suggested at first blush. So you know, 0:05:44.040 --> 0:05:46.320 I'm afraid that the FET is on the run wrong 0:05:46.400 --> 0:05:50.279 track here and the assumption, but the Phillips curve relationships 0:05:50.279 --> 0:05:52.039 are going to hold up and the set can just 0:05:52.080 --> 0:05:55.159 continue to move gradually and everything will be okay. I 0:05:55.200 --> 0:05:57.080 think it's not likely to be the case. I think 0:05:57.200 --> 0:06:00.000 we're on a court now where the Fed is almost 0:06:00.040 --> 0:06:02.479 is going to ensure a return to the zero lower 0:06:02.520 --> 0:06:05.160 bound in the next downturn, and that's not a good 0:06:05.200 --> 0:06:07.919 place to be. Well, it's one of the reasons they 0:06:07.960 --> 0:06:10.560 would argue it's important to get off the zero bound. 0:06:11.440 --> 0:06:15.479 That's that's an argument that's being made. But I think 0:06:15.520 --> 0:06:17.840 there's a key flaw in it, which is that they're 0:06:17.880 --> 0:06:21.800 earlier they start, especially if it's premature and you know 0:06:21.839 --> 0:06:25.600 they're going to damp and nominal growth and inflation. Uh, 0:06:25.760 --> 0:06:29.400 that actually increases the probability that they won't get very 0:06:29.400 --> 0:06:32.240 far along. If they want room to raise rates, they 0:06:32.240 --> 0:06:35.200 really need to make sure that the equilibrium interest rate 0:06:35.200 --> 0:06:38.760 where Tom started the idea of the ideas of new 0:06:38.839 --> 0:06:41.760 fix cell is up there high enough relative to where 0:06:41.760 --> 0:06:44.479 the feed is that they can raise rates without threatening 0:06:44.480 --> 0:06:46.919 the business cycle. But that's really not the you know, 0:06:46.960 --> 0:06:49.640 that's that's not the signal we're getting out of tips 0:06:49.720 --> 0:06:53.240 and the yield curve. Even just looking at nominal GDP growth, 0:06:53.480 --> 0:06:56.440 we're running three point two percent year to year. That's 0:06:56.480 --> 0:06:58.840 the low end of the six year range. You know, 0:06:58.880 --> 0:07:01.479 I guess the feeds feeling is that that's temporary, but 0:07:01.640 --> 0:07:04.680 I wouldn't be so sure. Yeah, but is it going 0:07:04.720 --> 0:07:08.280 to I mean twenty basis point move, Is that going 0:07:08.320 --> 0:07:13.080 to threaten the economic cycle, the business cycle? Well, a 0:07:13.080 --> 0:07:15.440 lot of people thought that, you know, that wouldn't and 0:07:15.480 --> 0:07:17.960 couldn't be the case going into the December rate rise, 0:07:18.520 --> 0:07:22.680 and you know, we had a fair bit of market panic. Uh. 0:07:22.760 --> 0:07:24.880 And in fact, I would argue that the set tightening 0:07:24.960 --> 0:07:27.760 really began with the tapering of asset purchases in the 0:07:27.880 --> 0:07:30.679 end of quantitative easing. At least that's what financial markets 0:07:30.720 --> 0:07:33.440 told us. Credit markets and break even markets the long 0:07:33.560 --> 0:07:36.560 end of the curve, the steepness of the curve, and 0:07:36.560 --> 0:07:39.320 then the December rate rise you know, went ahead even 0:07:39.360 --> 0:07:42.920 with a lot of credit market stress. Fairly unusual for 0:07:42.920 --> 0:07:44.800 the Fed to be lifting short rates with the kind 0:07:44.840 --> 0:07:47.360 of stress and credit markets that we saw late last year, 0:07:47.960 --> 0:07:50.440 and markets you know, basically went into a you know, 0:07:50.480 --> 0:07:52.680 a panic for the next two months until the FED 0:07:52.720 --> 0:07:56.960 backed away. Now, the recent justification for restarting the rate 0:07:57.080 --> 0:08:00.400 rises is that market volatility is settled down. The doesn't 0:08:00.400 --> 0:08:03.400 seem to acknowledge that that is, in large measure the 0:08:03.440 --> 0:08:08.120 result of them backing away. So right, how much? And Michael, 0:08:08.160 --> 0:08:11.040 this goes to your study of the word chronic. How 0:08:11.160 --> 0:08:16.760 much length of time of subpar nominal GDP do we 0:08:16.960 --> 0:08:20.680 need to have before we almost revert to a prevok 0:08:20.760 --> 0:08:25.160 er FED looking somewhat atnominal g d P I mean 0:08:25.320 --> 0:08:29.240 chronic or the inertial force of low nominal GDP at 0:08:29.360 --> 0:08:33.319 some point has to get somebody's attention, right, Yeah, And 0:08:33.440 --> 0:08:36.640 there are two problems here. You know. Nominal GDP is 0:08:36.920 --> 0:08:39.640 is weak in part because the FED has been undershooting 0:08:39.640 --> 0:08:42.439 its two percent inflation goal, but it's also been weak 0:08:42.559 --> 0:08:45.800 due to real forces that are outside of the fed's control. 0:08:45.840 --> 0:08:48.920 If you look at the average growth rate of non 0:08:49.000 --> 0:08:53.240 farm productivity over the last six years, it's been exceptionally slow, 0:08:53.600 --> 0:08:57.280 just a tad above point five per annum. In working 0:08:57.320 --> 0:09:00.520 age population is growing at about the same rate. So 0:09:00.679 --> 0:09:04.400 if growth potential is only running around one per cent, 0:09:05.400 --> 0:09:07.800 even if the SET is hitting its inflation target, that 0:09:07.880 --> 0:09:11.960 gets us to about three nominal GDP growth. In other words, 0:09:12.440 --> 0:09:14.959 at least the best case scenario, the way I see it, 0:09:15.280 --> 0:09:17.640 unless there's a pick up in productivity growth is for 0:09:17.720 --> 0:09:22.200 about three nominal GDP growth to persist. That's not very good, 0:09:22.760 --> 0:09:25.079 but it's in part due to a quote activity in 0:09:25.600 --> 0:09:28.679 labor force slow down, and it's in part due to 0:09:28.760 --> 0:09:31.599 the FED undershooting its inflation objective. We can blame the 0:09:31.679 --> 0:09:34.280 SET for the second part, but not for the first. 0:09:36.440 --> 0:09:42.880 Us The U is um the current interest rate an 0:09:42.920 --> 0:09:46.880 appropriate interest rate for the growth rate of the economy 0:09:46.960 --> 0:09:49.920 that we have now and the unemployment rate that we 0:09:50.040 --> 0:09:53.120 have now. Uh, you know, I think so. I mean 0:09:53.200 --> 0:09:56.280 we know that because look, if the FED were miles 0:09:56.320 --> 0:09:58.959 and miles below a quote unquote normal rate, I think 0:09:59.000 --> 0:10:01.400 what ends up happening is people look at you know, 0:10:01.559 --> 0:10:04.600 rates at fifty basis points. That's where the IOE R rates, 0:10:04.679 --> 0:10:09.840 which is the Fed's primary tool now um for tightening policy. 0:10:09.880 --> 0:10:12.400 And they say, well, that's very odd historically, but the 0:10:12.520 --> 0:10:17.520 reality is three nominal g P growth is also odd historically. 0:10:17.800 --> 0:10:20.920 The inflation rates we are seeing, you know, below two percent, 0:10:21.200 --> 0:10:25.600 very low historically, and importantly, forward looking financial markets are 0:10:25.640 --> 0:10:28.760 telling us that the FED is likely to undershoot, not overshoot, 0:10:28.840 --> 0:10:31.120 even with these low rates. So if you go back, 0:10:31.400 --> 0:10:34.079 you know, a week or so, even before the FED 0:10:34.200 --> 0:10:36.480 started to try to guide the markets to a summer 0:10:36.600 --> 0:10:40.040 rate rise, at funds futures markets were priced for the 0:10:40.160 --> 0:10:44.360 next hike in December, and even then the tips markets 0:10:44.400 --> 0:10:48.160 were well below what would be consistent with that targets. 0:10:48.240 --> 0:10:51.240 So you know, so we so we know based on 0:10:51.720 --> 0:10:54.000 you know, what's happening in the economy and where these 0:10:54.040 --> 0:10:58.439 inflation expectations measures are that no, this low quart short 0:10:58.520 --> 0:11:00.960 rate is not way out of whack. Well, let's come 0:11:01.000 --> 0:11:03.600 back Michael Darta, where that's one of our most popular guests, 0:11:04.120 --> 0:11:07.520 very suspect there Fed policy. We have another hour of 0:11:07.520 --> 0:11:11.320 Bloomberg surveillance. We have another moment with Michael Darta, stay 0:11:11.360 --> 0:11:21.200 with us. Good morning, This is Bloomberg Surveillance. I think 0:11:21.520 --> 0:11:26.320 most experts would agree that the world needs more expansionary 0:11:26.400 --> 0:11:28.480 fiscal policy. If I think that, if I'm is trying 0:11:28.480 --> 0:11:30.320 to tell us, hey, guys, there is actually a good 0:11:30.400 --> 0:11:32.600 case to be made for the economy reaching book capacity 0:11:32.600 --> 0:11:35.440 and therefore for us hitting all duo mandate. Almakers don't 0:11:35.559 --> 0:11:39.000 like changing policy without preparing markets. The fact that they 0:11:39.040 --> 0:11:40.839 have in the preparing markets for a rate hip to 0:11:40.920 --> 0:11:44.000 suggest that there will not be one in June. Bloomberg 0:11:44.120 --> 0:11:47.800 Surveillance your link to the world of economics, finance, and 0:11:48.000 --> 0:11:51.320 investment on Bloomberg Radio. Good Morning, have you one? Bloomberg 0:11:51.320 --> 0:11:54.520 savenas Michael McKee and time Keena moments we continue our 0:11:54.600 --> 0:11:59.360 conversation with Michael Darta MCAM Partners. Very critical of FED policy. 0:11:59.440 --> 0:12:03.800 In the toolbox that the FED has moving forward. Part 0:12:03.840 --> 0:12:05.920 of that toolbox is looking at the markets, looking at 0:12:05.920 --> 0:12:10.720 the equities, bonds, commodities, commodities challenge Today iron Ore very weak, 0:12:10.840 --> 0:12:14.040 oil down seventy eight cents on Brent forty seven ninety 0:12:14.080 --> 0:12:16.679 god gold down down six dollars. It was better earlier. 0:12:17.040 --> 0:12:20.559 Troll forty six ounce about twenty dollars away from resistance. 0:12:20.640 --> 0:12:23.839 That bears watching this morning as this foreign exchange The 0:12:23.920 --> 0:12:27.240 for X brief brought to you by Interactive Broker's winner 0:12:27.280 --> 0:12:30.240 of f X Weeks two thousand and fifteen award for 0:12:30.320 --> 0:12:33.920 the best Retail for ex trading platform visit ib at 0:12:33.960 --> 0:12:39.800 ib r dot com slash four x n one Stronger 0:12:40.320 --> 0:12:43.880 En A bit of a surprise with dollar stronger the 0:12:44.000 --> 0:12:49.280 blended dollar UH four, I should say, why is that 0:12:49.480 --> 0:12:53.400 obviously stronger Yen stronger dollar must being weak hero through 0:12:54.240 --> 0:13:02.600 eleven sterling, commodity currencies weaker. Good morning Canada, one weeker 0:13:02.960 --> 0:13:10.079 Looney as well. David Wilson diluted this morning. He was 0:13:10.120 --> 0:13:14.720 a creative on Friday. It's an all cash deal. Come on, David, 0:13:14.760 --> 0:13:17.640 you've been doing this for thirty years. I get the 0:13:17.760 --> 0:13:21.240 pr it's an all cash deal, but it's assumed they're 0:13:21.240 --> 0:13:24.520 gonna go get a cash call from the current shareholders, 0:13:25.120 --> 0:13:29.960 which means it's dilutive. Monday, am. I right, you're telling 0:13:30.000 --> 0:13:33.120 the story, Tom and I present. It's all about Monsanto 0:13:33.360 --> 0:13:37.400 and Bear or if you like buyer buyer Bear, indeed 0:13:38.440 --> 0:13:42.000 that bears the buyer. Mine Santa shares are up eight 0:13:42.040 --> 0:13:45.360 and a half percent in early trading. And that's the key. Yes, 0:13:47.000 --> 0:13:50.400 only they're not up to the ship the offer price, 0:13:50.480 --> 0:13:53.880 which is what's fascinating about this hyos A share, that's 0:13:53.920 --> 0:13:56.800 what bears offering. We know that now, we knew there 0:13:56.880 --> 0:13:59.800 was an offer last week, but we didn't know the terms. 0:14:00.280 --> 0:14:03.839 That details out front Monsanto at the moment at one 0:14:03.880 --> 0:14:05.760 oh nine sixties, so it's a long way from that 0:14:05.880 --> 0:14:08.839 hundred and twenty two dollar price months center with the 0:14:08.880 --> 0:14:12.280 moment reviewing the terms of that offer. So we don't 0:14:12.320 --> 0:14:16.360 know yet whether they're going to accept. And there's a 0:14:16.520 --> 0:14:18.599 few more developments on the take on the front, and 0:14:18.679 --> 0:14:23.200 I'm fine. It's been that kind of morning already. You know, 0:14:23.320 --> 0:14:26.160 you've got the Wall Street Journal reporting that Anthem and 0:14:26.320 --> 0:14:29.920 Signa are bickering with each other as they seek approval 0:14:30.000 --> 0:14:33.120 for their merger. Their top officials are accusing each other, 0:14:33.360 --> 0:14:37.280 violating the murder agreement, fumbling submissions to regulators. You put 0:14:37.360 --> 0:14:40.280 that all together and Signal shares are down two and 0:14:40.320 --> 0:14:42.880 a half percent in early trading, and then you look 0:14:42.920 --> 0:14:45.320 at Viacom, which is up to and a half percent 0:14:45.640 --> 0:14:48.200 in the wake of chairman some of the rev STOs 0:14:48.280 --> 0:14:52.960 decision to get rid of the Viacom CEO of Fillip 0:14:53.000 --> 0:14:57.520 Dowmand and director George Abrams from the trust that controls 0:14:57.600 --> 0:15:02.960 the company. So definitely, so moves there. You got gold 0:15:03.040 --> 0:15:05.720 stocks higher along with the price of the precious medal 0:15:05.800 --> 0:15:09.200 in New York trading, I should say lower. Actually, uh, 0:15:09.400 --> 0:15:12.120 Newmontain Mining, Barrack Gold amongst stocks are down. They were 0:15:12.160 --> 0:15:15.760 talking maybe two percent to clients there. Krysler's down four percent. 0:15:16.120 --> 0:15:18.760 German regulators found the automaker used the legal software to 0:15:18.840 --> 0:15:21.840 cheat on missions tests. According to the newspaper Build I'm 0:15:21.960 --> 0:15:26.000 Sontai or if you prefer, build on Sunday. Chrysler said 0:15:26.000 --> 0:15:28.880 all its vehicles comply with the missions rules. Back to 0:15:29.000 --> 0:15:32.000 the deal front American Capital at three and a percent, 0:15:32.440 --> 0:15:35.440 the business development company accepted a takeover offer from Areas 0:15:35.520 --> 0:15:38.120 Capital that's valued at three point four billion dollars in 0:15:38.240 --> 0:15:42.200 cash and stock. And the deal excludes American Capital Mortgage Management, 0:15:42.240 --> 0:15:45.080 which is being sold separately to American Capital Agency for 0:15:45.560 --> 0:15:48.600 five hundred sixty two million dollars. So you definitely have 0:15:48.760 --> 0:15:51.560 some deals going on there. Sure you're publishing down eight percent. 0:15:51.840 --> 0:15:54.080 The owner of the Chicago Tribune in Los Angeles Times 0:15:54.120 --> 0:15:57.480 rejected Gannette's latest takeover proposal value at eight U sixty 0:15:57.520 --> 0:16:00.960 four million dollars. Tribute also agreed to sell a twelve 0:16:01.000 --> 0:16:05.360 point nine percent stake twid billionaire drug executive Patrick Soon's 0:16:05.440 --> 0:16:08.960 Young at the fifteen dollar share price of Cannet's offer. 0:16:09.200 --> 0:16:11.760 David Wilson, thank you for a dilutive report this morning. 0:16:12.000 --> 0:16:15.520 There'll be a creative tomorrow. Michael. Data with US is 0:16:15.880 --> 0:16:18.960 we look at the search phenominal GDP and mergers. I mean, 0:16:19.040 --> 0:16:21.720 if you can't grow by somebody, I mean that's one 0:16:21.760 --> 0:16:25.360 of the effects. Michael Darta of weaker nominal GDP, What 0:16:25.440 --> 0:16:29.200 does weaker nominal GDP mean for our listeners? What does 0:16:29.240 --> 0:16:33.000 it mean for consumption? What does it mean for wage growth? Well, 0:16:33.120 --> 0:16:36.479 means that we're in an overall, you know, slower growth environments, 0:16:36.520 --> 0:16:40.600 and nominal GDP is effectively equivalent to top line growth 0:16:40.680 --> 0:16:44.000 for companies. So if we're in the very low single digits, 0:16:44.240 --> 0:16:47.840 and then investors really shouldn't be expecting profits to be 0:16:47.960 --> 0:16:51.640 growing at you know, high single digits are certainly double digits, 0:16:51.760 --> 0:16:54.800 especially now with the labor market tightening up some. So 0:16:54.960 --> 0:16:57.760 wage growth is still quite low. It'll likely stay low. 0:16:57.880 --> 0:17:01.920 But the fact that it's it's excess elerating moderately relatively 0:17:02.200 --> 0:17:06.280 relative relative to a decelerating nominal growth rate, meaning of 0:17:06.400 --> 0:17:08.560 top line growth is weakening, and it has over the 0:17:08.680 --> 0:17:11.800 last year and a half. And nominal wage rates, which 0:17:11.800 --> 0:17:15.479 are more sticky, you know, are steady to rising slowly, 0:17:15.560 --> 0:17:18.760 then that's going to crimp corporate profit margins margins. And 0:17:18.840 --> 0:17:22.440 in fact, these GDP based profits, the so called NIPPO 0:17:22.520 --> 0:17:26.920 profits which cover all US corporations, peaked relative to the 0:17:26.960 --> 0:17:31.320 economy back in two thousand twelves. Only two business cycles 0:17:31.480 --> 0:17:35.159 in history lasted this long after such an occurrence. So 0:17:35.400 --> 0:17:38.760 I'm afraid we're in a late cycle environment. So my 0:17:38.880 --> 0:17:43.000 message for investors would be to be diversified and in 0:17:43.160 --> 0:17:47.959 somewhat cautious here by a mattress, well not necessarily by 0:17:48.000 --> 0:17:50.280 a mattress, but to you know, if you're investing in 0:17:50.359 --> 0:17:53.359 index funds, just you know, matched the stock exposure with 0:17:53.480 --> 0:17:57.639 some bonds in cash and then you can sleep at right. Uh. 0:17:59.080 --> 0:18:03.600 When you talk about um top line shrinking and and 0:18:03.720 --> 0:18:07.359 that is happening, you have to ask why, uh, I mean, 0:18:07.400 --> 0:18:09.800 you can either grow the top line by investing, and 0:18:10.200 --> 0:18:13.800 companies aren't doing that, or you can have it appear 0:18:13.840 --> 0:18:16.960 in the bottom line by buying back stock or by 0:18:17.200 --> 0:18:21.760 cutting expenses. Uh, if we live in this zero rate 0:18:21.880 --> 0:18:24.159 world and the FED should not be raising rates, then 0:18:24.200 --> 0:18:27.719 how do you ever get out of that? Well, I mean, 0:18:27.760 --> 0:18:29.960 I think there are two steps. One, you know, would 0:18:30.000 --> 0:18:32.280 be if the said you know, the FED needs a 0:18:32.400 --> 0:18:35.080 better target and more explicit target, it would be better 0:18:35.160 --> 0:18:37.400 for them to commit to level targeting. If we're going 0:18:37.480 --> 0:18:41.480 to target inflation to make up for undershoots and overshoots. 0:18:42.040 --> 0:18:45.440 Even better would be something like nominal GDP targeting. But 0:18:45.560 --> 0:18:48.119 even that, if it's optimal, and that's my view and 0:18:48.200 --> 0:18:50.879 the view of the market monitorists at this point in 0:18:50.960 --> 0:18:53.679 the business cycle, is not going to create miracles. If 0:18:53.720 --> 0:18:56.280 we have very weak productivity growth, and that's the other 0:18:56.440 --> 0:18:59.520 end of this. We're not exactly sure why productivity is slowed. 0:19:00.280 --> 0:19:03.160 It's I think it's you know, it's more obvious why 0:19:03.280 --> 0:19:05.840 the demographic issues are there in terms of working age 0:19:05.880 --> 0:19:08.800 population growth being slower. We know that that's likely to 0:19:09.200 --> 0:19:12.080 persist on the productivity side, and you know, it's a 0:19:12.119 --> 0:19:14.440 more open question. But I think that we know enough 0:19:14.480 --> 0:19:17.760 about economic history to understand that moving forward, with things 0:19:17.880 --> 0:19:23.359 like trade protectionism, a massive multimillion person shock to the 0:19:23.480 --> 0:19:27.679 labor force, you know, federally imposed wage shocks. These are 0:19:27.800 --> 0:19:29.600 the kinds of things that are not going to help 0:19:29.640 --> 0:19:33.840 protect giving. So unfortunately, the angst out there is giving 0:19:33.880 --> 0:19:37.119 way to certain populist proposals on the left and the 0:19:37.240 --> 0:19:39.920 right that are likely to only do damage. Within the 0:19:40.000 --> 0:19:43.560 populist proposals is eight years. I'm likely have been wonderful 0:19:43.640 --> 0:19:46.159 on this of a need to clear market. So we 0:19:46.240 --> 0:19:50.520 all give the US high score for clearing banking versus Europe, etcetera, etcetera. 0:19:50.600 --> 0:19:53.640 But the bottom line is on a high and basis, 0:19:53.680 --> 0:19:57.480 we haven't cleared markets. Were just postponing, postponing, hoping for 0:19:57.640 --> 0:20:01.480 a workout. Are we heading to It's a disequilibrium or 0:20:01.680 --> 0:20:07.560 instability because we just keep postponing clearing our various and 0:20:07.680 --> 0:20:11.160 sundry balance sheets. Well, I mean, you know, the critical 0:20:12.119 --> 0:20:15.280 theme here is that you can't expect markets to clear 0:20:15.320 --> 0:20:19.720 if you have a big monetary disruption where nominal GDP crashes. 0:20:19.800 --> 0:20:21.879 And that was really an no wage oh nine story. 0:20:22.720 --> 0:20:25.920 So we have seen labor markets recovering as nominal growth, 0:20:26.040 --> 0:20:28.560 as you know, has has started to you know has 0:20:28.680 --> 0:20:33.159 been recovering. Now it's slowing unfortunately, um But you know, 0:20:33.240 --> 0:20:35.159 beyond that time, I would say if we take a 0:20:35.240 --> 0:20:38.639 look back at the thirties, economist Scott Sumner has written 0:20:38.680 --> 0:20:40.880 a book on this, The Midas Paradox, So I'll give 0:20:40.960 --> 0:20:43.040 him a bit of a plug here, but it's fascinating. 0:20:43.160 --> 0:20:46.280 Sumner goes back to that period and looks at basically 0:20:46.400 --> 0:20:50.440 disentangles the monetary shocks and some of the real shocks 0:20:50.520 --> 0:20:56.000 on wages, and essentially the conclusion is, um, absolutely, do 0:20:56.200 --> 0:21:00.760 not try to artificially force wages highers, especially if you're 0:21:00.800 --> 0:21:03.840 in an environment where monetary policy is tightening, because what 0:21:04.000 --> 0:21:08.560 happens is profits and investment collapse, right, and that seems 0:21:08.600 --> 0:21:10.639 to be where we're heading with some of these proposals. 0:21:10.680 --> 0:21:14.160 You've got the FED tightening. Now, phenomenal growth is slowing, 0:21:14.200 --> 0:21:15.960 and it wasn't growing that fast a year and a 0:21:15.960 --> 0:21:18.399 half ago anyway, And now we're you know, we have 0:21:18.800 --> 0:21:22.119 trade protectionism and and you know, federal minimum wages and 0:21:22.359 --> 0:21:25.040 on all kinds of stuff out there that would just 0:21:25.720 --> 0:21:30.440 damage economic efficiency and hurt profits, corporate investment. We don't 0:21:30.480 --> 0:21:32.600 see enough. Michael Darter. I'll look forward to speaking to 0:21:32.640 --> 0:21:37.040 you again soon. He's with them caming advisers. Michael McKee. 0:21:37.480 --> 0:21:42.399 H Josh Brown, always smart, writes a brilliant tweet this morning. 0:21:42.920 --> 0:21:46.440 This Weekend's Barrens had Byron Ween on the cover in 0:21:46.520 --> 0:21:49.680 a feature on Laslo Berrini. They really need to stop 0:21:49.760 --> 0:21:53.480 pandering the millennials. I'm sorry. That's very good, Josh Brown. 0:21:53.520 --> 0:21:57.080 If you're listening, and Laslow and Byron we say good 0:21:57.200 --> 0:21:59.360 morning to you. I'm sure that Byron Ween and Laslow 0:21:59.440 --> 0:22:03.720 were smart in Barons this morning. Future is negative two. 0:22:07.359 --> 0:22:08.920 I'm to check in with Michael Barr and get the 0:22:09.000 --> 0:22:11.800 latest world in national headlines nighttime. Thank you very much. 0:22:11.880 --> 0:22:14.960 President Obama says the death of Taliban leader Maha Mohammed 0:22:15.000 --> 0:22:18.040 aktar Man Seur marks an important milestone in the effort 0:22:18.080 --> 0:22:21.199 to bring peace to Afghanistan. And Sear was killed when 0:22:21.240 --> 0:22:24.520 the US drone fired on his vehicle in Southwest Pakistan. 0:22:25.080 --> 0:22:27.520 President Obama says the US is lifting a ban on 0:22:27.680 --> 0:22:31.639 lethal arms sales to Vietnam. The President, speaking in Hannoy today, 0:22:31.760 --> 0:22:34.879 says this change will ensure that Vietnam has access to 0:22:35.000 --> 0:22:38.040 the equipment that it needs to defend itself. We are 0:22:38.160 --> 0:22:41.680 here to shape a different future. That's what UN Secretary 0:22:41.760 --> 0:22:44.280 Genderal Bonki Moon said today when he opened the first 0:22:44.320 --> 0:22:47.399 World Humanitarian Summon in his Stan bowl U and is 0:22:47.480 --> 0:22:49.920 hoping that the two day meeting will help countries better 0:22:50.000 --> 0:22:54.800 tackle the world humanitarian crisis and estimated one million people 0:22:54.880 --> 0:22:59.880 worldwide require humanitarian assistance. Global news twenty four hours a day, 0:23:00.040 --> 0:23:02.600 Howard By now it's twenty four hundred journalists more than 0:23:02.600 --> 0:23:04.920 a hundred fifty news bureaus around the world. How Michael 0:23:04.960 --> 0:23:07.440 Bark Mike to Michael, thanks so much. Remimby that you 0:23:07.560 --> 0:23:12.280 want the Chinese, you want six point five six grinding Ever, 0:23:12.400 --> 0:23:21.200