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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Along

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Speaker 1: with my co host of Bonnie Quinn. Every business day,

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Speaker 1: we bring you interviews from CEO, market pros and Bloomberg experts,

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Speaker 1: along with essential market moving news. Find the Bloomberg Markets

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Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,

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Speaker 1: and on Bloomberg dot com. On a time when there's

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Speaker 1: just seemingly stunning news almost on a daily basis, this

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Speaker 1: weekend we heard of the passing of Justice Ginsburg from

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Speaker 1: the Supreme Court, raising and media questions about replacement of

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Speaker 1: uh Justice Ginsburg, as well as the political ramifications heading

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Speaker 1: into just the final weeks of the presidential election. Help

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Speaker 1: us kind of parsed through that we are fortunate have.

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Speaker 1: H Jennie is a no political science professor at I own,

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Speaker 1: a college professor. Thanks so much for joining us here.

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Speaker 1: Give us your sense of kind of the passing of

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Speaker 1: Justice Ginsburg. How does that change the narrative here in

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Speaker 1: the final weeks heading into the selection. Yeah, I mean,

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Speaker 1: I couldn't agree with you more. Even news just breaking

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Speaker 1: almost every moment, it seems, and to hear that news

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Speaker 1: late on Friday, particularly on a Jewish holiday so important

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Speaker 1: to so many Jewish Americans. She was the first woman, um,

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Speaker 1: who was Jewish to sit on the Court, only the

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Speaker 1: second woman on the court, and she served for so

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Speaker 1: long and so nobly and so beloved by so many people,

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Speaker 1: men and women that it was really just you know,

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Speaker 1: stunning and sad to hear the news. And of course

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Speaker 1: in the midst forty now forty three days to an election,

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Speaker 1: and we understand that she had dictated to her granddaughter

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Speaker 1: her wish that she not be replaced until the next

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Speaker 1: president was inaugurated. Um, So, you know, just stunning all around,

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Speaker 1: and an already really contentious election that seemed to be

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Speaker 1: you know, decided by you know, the big issues. We're

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Speaker 1: going to be COVID, they were going to be the economy,

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Speaker 1: and now of course you put into the mix the

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Speaker 1: future of the Supreme Court. And of course we are

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Speaker 1: talking about the future of the Supreme Court because she

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Speaker 1: was a solid liberal on the court that is increasingly

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Speaker 1: conservative and hanging in the balance, as Democrats have been

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Speaker 1: talking about for the last few days, or things like

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Speaker 1: the future of the Affordable Care Act, and of course

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Speaker 1: Roe v. Wade, abortion and so many other issues. So

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Speaker 1: what does the justice is passing due to the odds

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Speaker 1: of Democrats flipping the Senate. Does the passing mobilizer voting

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Speaker 1: base that wouldn't have been mobilized anyway. It's such a

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Speaker 1: good question because traditionally it's been conservatives Republicans who have

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Speaker 1: cared so much and voted, you know, year after year,

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Speaker 1: every four years on the future of the Supreme Court.

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Speaker 1: And in fact, we look back at sixteen and one

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Speaker 1: of the key reasons many Republicans who are in moderates,

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Speaker 1: who are on the fence about Donald Trump, decided to

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Speaker 1: vote for him was because he did something unprecedented. He

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Speaker 1: released a list of conservatives he would name to the Court,

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Speaker 1: and that really made them support him. And of he

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Speaker 1: was able to nominate and confirm two justices. But now

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Speaker 1: it seems like Democrats have suddenly caught up to the

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Speaker 1: fact that they too have a real interest in the court.

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Speaker 1: You know. Part of what has been going on is

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Speaker 1: since the early seventies, the court has been largely liberal,

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Speaker 1: but increasingly conservative. Now Democrats seem to be energized. We

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Speaker 1: saw outrageous fundraising numbers, incredible on the Democratic side in

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Speaker 1: the days since Ruth Bader Ginsburg passed to indicate there's

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Speaker 1: a lot of energy there. So a long winded way

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Speaker 1: of saying, I think that whereas Republicans usually vote on

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Speaker 1: the Court in much larger numbers than Democrats, I think

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Speaker 1: this year we may see for the first time a

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Speaker 1: switch there. We don't know yet, but if Democrats are

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Speaker 1: able to do that and able to take the Senate,

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Speaker 1: that could really change the game, maybe not about this

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Speaker 1: nomination to replace Ruth Bader Ginsburg, but the court going forward,

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Speaker 1: because we've heard over the weekend Democrats talking about things

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Speaker 1: like packing the court. So I guess just in the

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Speaker 1: immediate term, professor, is it your sense that the Republicans

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Speaker 1: will be able to get a nominee through in time?

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Speaker 1: It's going to be very dicey. The Congressional Research Service

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Speaker 1: says it's traditionally about average sixty nine days. We're looking

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Speaker 1: at about forty three days until election day. But what

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Speaker 1: I would caution is that, you know, we have forty

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Speaker 1: three days until election day, but we have much longer

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Speaker 1: until the inauguration. So whether we get a nomination before

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Speaker 1: election day is I think a little bit tougher. But

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Speaker 1: I think certainly Republicans could push through a nomination before

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Speaker 1: inauguration day, and then depending on who won the presidency

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Speaker 1: and took the Senate, you could be talking about a

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Speaker 1: lame duck president's nomination going through and a lame duck

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Speaker 1: Senate confirming. So that I think would really add to

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Speaker 1: the firestorm and and really strong feelings out there. But

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Speaker 1: I do think it's possible. One thing to watch is

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Speaker 1: any of these Republicans that are on the fence. Of

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Speaker 1: course we know Lisa Murkowski for instance, Susan collinst Romney.

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Speaker 1: I think those are the people to watch right now.

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Speaker 1: Do they put a stop to this? Because it would

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Speaker 1: really take about four Republicans putting a stop to this.

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Speaker 1: And let's not forget the senators all want to go

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Speaker 1: home and campaign, many of them running in tight seats,

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Speaker 1: so it is a very difficult time for the Republicans

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Speaker 1: to push this through. It could be done, but I

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Speaker 1: think it's going to be an uphill battle. Genie, what

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Speaker 1: would be defectors motivations for not voting? So what would

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Speaker 1: be in it? Let's say, for any Republican senator that

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Speaker 1: decided they didn't want to back a nominee. I mean,

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Speaker 1: some of the nominees are probably people that they would

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Speaker 1: be quite happy to back in another year. Absolutely. I

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Speaker 1: think number one would be this issue of hypocrisy. Say,

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Speaker 1: they had publicly stated that they didn't want to vote

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Speaker 1: on Merrick Garland four years ago when Obama named him,

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Speaker 1: to now go back on that and to then half

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Speaker 1: of face voters in their district. So I think there's that,

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Speaker 1: you know, issue of quote unquote hypocrisy. But I also

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Speaker 1: think importantly it's that they have to face voters in

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Speaker 1: their district, many of whom are in purple states. They

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Speaker 1: are facing tough reelection bids. So people like Susan Collins,

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Speaker 1: she's already about twelve points down in her race. She

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Speaker 1: has got a lot of flack for supporting Judge Kavanaugh,

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Speaker 1: as we remember, and that's one of the reasons why

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Speaker 1: she's not doing so well in her race now. So

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Speaker 1: I think the combination of those two things makes it

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Speaker 1: very difficult for Republicans to say we should wait on

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Speaker 1: this professor. Is there since that the average American voter

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Speaker 1: cares about the Supreme Court? Yeah, you know, as since

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Speaker 1: I teach the court. I want to say, yes, yes, yes,

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Speaker 1: you know, But that's just self interested. It's usually not

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Speaker 1: the number one issue, but again for Republicans, it has

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Speaker 1: been an issue of real importance. And I think, and

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Speaker 1: this is something I think we're all going to have

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Speaker 1: to watch. It looks like we may see the same

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Speaker 1: thing happen with Democrats this time around. You know, the

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Speaker 1: numbers we're hearing ninety million dollars raised in you know,

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Speaker 1: forty eight hours or whatever that number was since Ruth

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Speaker 1: Pader Ginsburg passed on the Democratic side. Those are huge

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Speaker 1: numbers and indicate that Democrats do care. Now, do they

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Speaker 1: care more than they care about the pandemic, more than

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Speaker 1: they care about getting rid of Donald Trump or supporting

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Speaker 1: Donald Trump, depending on their side. We don't know yet,

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Speaker 1: but I do think that, you know, if there's any

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Speaker 1: year where the court is important, it's going to be

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Speaker 1: this year. Yeah, that's for sure. And President Trump saying

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Speaker 1: this morning on Fox that we will have a name

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Speaker 1: on Friday, so we shall see that may or may

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Speaker 1: not happen, but that's at least his plan today anyway, Genie,

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Speaker 1: thank you so much for jumping on with us. Really

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Speaker 1: just wonderful perspective there from Jennie's political science professor at

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Speaker 1: Iona College. And indeed, if we have a name on Friday.

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Speaker 1: You know, we already have a short list, and obviously

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Speaker 1: the President has already said he wants his pick confirmed

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Speaker 1: by the November three elect and so whether the confirmation

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Speaker 1: itself is possible or not, there would at least be

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Speaker 1: a big effort in that direction. We know, of course

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Speaker 1: that majority leader Mitch McConnell is all on board with

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Speaker 1: that idea. Well, it's Charlie Fellert was just reporting markets

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Speaker 1: are plumbing their lows right here, with the STP off

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Speaker 1: about two and a quarter percent. Is this an entry

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Speaker 1: point for Tom Keene to get out of his triple

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Speaker 1: leverage all cash fun or is this signaling something new

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Speaker 1: for the markets? We're fortunately Matt Maley joined us to

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Speaker 1: answer some of those questions. Matt is a managing director

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Speaker 1: and chief market strategist at Miller, tay Back and Company. Matt,

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Speaker 1: let's just start off real quickly. What do you make

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Speaker 1: it today's action and even that of the last several days. Well,

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Speaker 1: you know, it's something I thought that uh uh, we

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Speaker 1: were kind of right for anyway. I mean, obviously, we

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Speaker 1: have some new news out here that has has raised

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Speaker 1: concerns about what's going on in the marketplace. But you know,

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Speaker 1: we have to remember that back in the beginning of September,

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Speaker 1: I mean, we had the market, the market overall, and

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Speaker 1: especially these mega cap tech names had become incredible. We overbought,

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Speaker 1: incredibly over valued, and uh, usually when you get the

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Speaker 1: huge extremes we had then, I mean, they weren't the

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Speaker 1: extremes we saw, but they were still very, very big.

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Speaker 1: And usually when you see a pullback like that, it

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Speaker 1: comes in more than one wave. The first wave kind

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Speaker 1: of makes people a little nervous, but it's usually not

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Speaker 1: enough to u wash out the froth it's in the marketplace.

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Speaker 1: It's usually a second wave, which we seem to be

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Speaker 1: getting right now, that finally kind of washed the things out.

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Speaker 1: So in many ways, this is scary, but but it

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Speaker 1: was predictable, and uh, it's also normal and healthy. How

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Speaker 1: much is this an election trade mat with all of

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Speaker 1: the healthcare stocks released, the insurance component and healthcare lower, Well,

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Speaker 1: it's it's certainly a big part of it because we

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Speaker 1: now have even more uncertainty involved. I mean a lot

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Speaker 1: of people have strong opinions about what, uh what the

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Speaker 1: should happen here with with the passing of Ruth Bader Ginsburg,

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Speaker 1: and what what should you know? Should we have somebody

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Speaker 1: before should President Trump have to be able to nominate

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Speaker 1: and and and get somebody installed before the election. We

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Speaker 1: can talk about that all we want, but a lot

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Speaker 1: of people are don't have strong opinions and are very

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Speaker 1: unsure about what it will mean for the for the election.

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Speaker 1: Will it be more positive for President Trump, will be

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Speaker 1: more positive for Biden? We don't know. So there's already

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Speaker 1: a lot of uncertainty of that. In that issue, it

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Speaker 1: creates more uncertainty, and of course markets just don't like uncertainty,

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Speaker 1: as we all know. All right, mat So, how are

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Speaker 1: you approaching the market these days? Are you constructive here?

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Speaker 1: And if so kind of are you still in that

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Speaker 1: growth techie trade or you suggesting perhaps people think about

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Speaker 1: rotating into some more cyclical names to the extent that

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Speaker 1: we can look to the other side of this pandemic. Yeah,

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Speaker 1: I think people should be looking to rotate a little bit. Now. Again,

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Speaker 1: we had, you know, what, do you want to call

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Speaker 1: it a bubble or not. We certainly had a huge

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Speaker 1: overvaluation situation with the tech stocks, but again not like

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Speaker 1: two thousands, so it's not like, oh my gosh, dump

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Speaker 1: all your tech stocks. There's I mean, these may attact

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Speaker 1: tech stocks that we're doing so well. We're doing well

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Speaker 1: for a reason. They just went to far. So you

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Speaker 1: don't want to dump the whole group. You still want

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Speaker 1: to be uh invested in in these tech names, especially

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Speaker 1: on any further weakness, so you can add to them.

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Speaker 1: But I do you know, you look at what the

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Speaker 1: what's happened, and some of these uh economically sense of group,

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Speaker 1: like the railroad stocks and some of these material names,

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Speaker 1: and of course housing has done very well all along.

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Speaker 1: So these are typic groups you want to be rotating

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Speaker 1: towards uh as as if the market comes back in

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Speaker 1: a little bit more, which I think it will, and

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Speaker 1: that will really bode well I think for a for

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Speaker 1: the longer term. You've always been a specialist in bank

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Speaker 1: stocks both sides of the Atlantic. I'm curious as to

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Speaker 1: your thoughts on this report that banks might have been

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Speaker 1: engaged more than normal in dodgy behavior, and particularly some

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Speaker 1: of the European banks. And now we have the f

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Speaker 1: c A, the Financial Conduct Authority in Britain, saying that

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Speaker 1: it is launching a probe and that it will, you know,

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Speaker 1: decide on on what to do with that probe later on. Yeah,

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Speaker 1: I mean, it's the group has been such a tough

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Speaker 1: one for for a long time. Know, it's it's it's

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Speaker 1: funny that all the group certainly had a nice rally

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Speaker 1: off the March lows, but it was, you know, except

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Speaker 1: for one little period there in May, the it's have

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Speaker 1: still continued to lag and it's been doing so for

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Speaker 1: almost three years, three years now, And this just throws

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Speaker 1: another rent of the works. If anybody has been bullish

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Speaker 1: on the group, they say, well, jeez, the valuations look good,

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Speaker 1: you know, trading sometimes below book value in some cases.

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Speaker 1: But again, this is this also has something to do

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Speaker 1: with confidence. I mean, we had this problem where you know,

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Speaker 1: the same thing with this Nicola uh situation. It's like, oh, jeesus,

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Speaker 1: something going on there. Every time we get a sneak

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Speaker 1: and pull back on the stock market, it exposes something

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Speaker 1: out there. And jeez, we bailed out all these banks

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Speaker 1: and yet they were still doing uh, still doing these

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Speaker 1: things they shouldn't have been doing. What's going on here,

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Speaker 1: And it just takes away some of the not only

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Speaker 1: confidence in the overall market, but certainly confidence in the group.

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Speaker 1: And so it's still one I'm afraid I want to

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Speaker 1: avoid right now. So Mat, I mean, when we think

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Speaker 1: about the financials, I mean that net interest margin story,

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Speaker 1: it just seems like a tough, tough story for that

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Speaker 1: next several years, particularly if you're take into account, you know,

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Speaker 1: some of the recent comments of that chairman Pal. It

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Speaker 1: just doesn't that that revenue driver. It just doesn't seem

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Speaker 1: to be there for the banks now. And it's it's

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Speaker 1: it's funny because I look back to the well in

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Speaker 1: several different cases in the past. But you can go

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Speaker 1: all the way back to the early nineties when we

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Speaker 1: had the after coming out of the SNL crisis back then,

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Speaker 1: and of course uh the financial crisis of of ten

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Speaker 1: to twelve years ago. Each time, uh, the kind of

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Speaker 1: the core banking and like you said, Nishi margins were

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Speaker 1: something that they relied on. I mean in back on

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Speaker 1: the nineteen nineties, they was called right, they rode the

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Speaker 1: yield curve back to uh to solvency and not they're

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Speaker 1: not gonna be able to do that right now. I mean, again,

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Speaker 1: I'm not worried about the banks like we were back

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Speaker 1: in two thousand and nine, two thousand and eight, but

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Speaker 1: it's still your question, where is the reward? At some

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Speaker 1: point this is going to be a great group to buy.

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Speaker 1: But I've been cautious on it for three years and

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Speaker 1: I think it's, uh, it's still something that you want

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Speaker 1: to avoid. And again it's it's not so much you're

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Speaker 1: gonna lose money, but they're just other places that you're

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Speaker 1: gonn I do much better, all right, Matt. It is

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Speaker 1: always great to speak with you. Lots of insight into

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Speaker 1: market movements, both day by day and sort of longer

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Speaker 1: term Matt mainly as chief market strategist at Miller's hay Back,

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Speaker 1: founder of the Maine Report. And we have a little

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Speaker 1: bit of a deterioration again, the SMP down two point

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Speaker 1: four percent, the Dow actually down two point eight percented

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Speaker 1: is the NASDAC that is leading if you like, it's

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Speaker 1: only quote unquote down one point eight percent. And again

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Speaker 1: those headlines that I was speaking about the Financial Conduct

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Speaker 1: Authority in Britain saying it has several probes open into

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Speaker 1: money laundering and will make decisions by the end of

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Speaker 1: the year on those probes. This after Buzzfeeds big article

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Speaker 1: about the various banks that have been engaged in shady activity,

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Speaker 1: to say the least. Shelley Banjo, senior writer for Bloomberg,

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Speaker 1: giving us the latest on what's going on with TikTok,

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Speaker 1: and Shelley, thanks so much for joining us here. But

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Speaker 1: I have to be honest, I'm kind of confused here.

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Speaker 1: I thought the initial expectation here was that President Trump

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Speaker 1: was saying, Hey, you have to say l your US

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Speaker 1: operations or we're going to close it. But that's not

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Speaker 1: what's happening here, is it. No, And I don't think

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Speaker 1: you're the only one confused. It's been a roller coaster

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Speaker 1: a ride with TikTok and it's still going so definitely

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Speaker 1: we don't have a done deal yet, but the Trump

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Speaker 1: and Trump came out over the weekend and gave his

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Speaker 1: blessing to a deal on the table. I'm what Trump

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Speaker 1: had initially asked for is an outright sale of TikTok

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Speaker 1: to a US, to an American company, and as well

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Speaker 1: as a cut to the U. S. Treasury you know,

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Speaker 1: key money as it's been referred to. So neither of

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Speaker 1: those things happened. What deal we actually ended up getting

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Speaker 1: so far on the table is one in which by Dance,

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Speaker 1: the Chinese parent of TikTok. Uh maintains a majority stake

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Speaker 1: UM in the company of TikTok and ument of this

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Speaker 1: new company. Up to of the new company will be

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Speaker 1: owned by UM, by Walmart, and by Oracle. The hope

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Speaker 1: of doing a pre I p O fundraising round and

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Speaker 1: then listing doing an I p O on an American

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Speaker 1: exchange in about a year so complicated, and China hasn't

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Speaker 1: even agreed. In fact, last I heard, well, we did

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Speaker 1: get the headline this morning that the Global Times is

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Speaker 1: reporting that China is not going to accept the deal

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Speaker 1: the way it is. But previously, the last I had

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Speaker 1: heard from China was that they'd rather kill off the

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Speaker 1: US operations of TikTok then sell out. Yeah. I mean,

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Speaker 1: just like everybody else there, it's gone up and down

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Speaker 1: with China as well. You know, Global Times was an

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Speaker 1: interesting example because over the weekend, the editor in chief

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Speaker 1: came out and said, you know, this isn't great, but

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Speaker 1: you know, I think it's just something China can stomach.

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Speaker 1: And then over the UM over just the last hour,

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Speaker 1: UM tweeted to say, um, you know, this is not

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Speaker 1: actually something that that China can accept, and so you know,

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Speaker 1: we are in the stage where the you know, the

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Speaker 1: words are going back and forth like a tennis match. Um,

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Speaker 1: and uh, you know right now the company is stuck

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Speaker 1: in between all of this is, of course TikTok, So Shelley,

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Speaker 1: I mean, clearly, there are reasonable arguments to be made

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Speaker 1: as relates to national security and what data the Chinese

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Speaker 1: may or may not be gathering about US consumers. Does

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Speaker 1: this deal address that at all? So most of the

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Speaker 1: national security and privacy experts that we've spoken to over

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Speaker 1: the last few years, last few days I'm sorry, um,

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Speaker 1: have said that this doesn't address that, but it was

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Speaker 1: really about national security, then it really wouldn't matter that

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Speaker 1: TikTok was creating twenty thousand jobs, as as Trump had

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Speaker 1: head said over the weekend, and none of those things

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Speaker 1: would really enter into the discussion. By including Oracle as

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Speaker 1: a technology partner, what that does is it gives Oracle

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Speaker 1: access to to look at the source code and to

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Speaker 1: look at the algorithm. Um, but it doesn't give them

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Speaker 1: ownership of it, and so they can kind of monitor it.

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Speaker 1: And um, you know that too many national security experts

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Speaker 1: is just not enough to really identify a threat if there,

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Speaker 1: if there is one. It's so strange because it's effectively

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Speaker 1: an administration picking the companies that are allowed access to

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Speaker 1: this information. Right, So we know that other companies were interested,

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Speaker 1: but it's Oregon and Walmart now that are the chosen

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Speaker 1: to Shelley, have we ever seen this before? No. I

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Speaker 1: mean the issue with other companies that were interested, like Microsoft,

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Speaker 1: was that they got in them too the game. When

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Speaker 1: they thought it was going to be an all out sail,

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Speaker 1: they said, yeah, of course we want to own this asset,

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Speaker 1: you know, own this this popular company. Um. But when

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Speaker 1: it became clear that it would just become a partnership,

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Speaker 1: Microsoft um, you know, didn't end up didn't end up

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Speaker 1: actually wanting to go much further and invite Dance the

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Speaker 1: same way. They couldn't reach an agreement. And so you know,

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Speaker 1: all of this jarekicking of companies and banning them and

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Speaker 1: things like that. It's just completely completely unprecedented, um in

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Speaker 1: the US, particularly for social media company. So Shelly, just

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Speaker 1: real quickly here is this expected to close? Was well,

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Speaker 1: I think there's still a few hurdles that have to happen.

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Speaker 1: I mean, Trump it was the biggest one and gave

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Speaker 1: his you know to using his words, gave his blessings

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Speaker 1: over the weekend. Um, but it's anything but done deal there.

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Speaker 1: There's a lot of momentum within the administration to get

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Speaker 1: this across the finish line. Um. But again, a lot

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Speaker 1: of these things can be delayed. You know, Donald Trump

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Speaker 1: put out it. This is all being done, you know,

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Speaker 1: via executive order. So if you just put out another delay,

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Speaker 1: he can delay it again. Um. You know, we can

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Speaker 1: keep going with these delays until after the US presidential

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Speaker 1: election and then who knows what happened. Okay, Shelley, thank

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Speaker 1: you so much for joining us. We really appreciate you

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Speaker 1: coming on and sharing your knowledge share of this ever

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Speaker 1: changing issue. Here, Shelley Banjo, senior writer for Bloomberg TikTok Oracle.

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Speaker 1: Will a deal happen? Will it really be material to

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Speaker 1: national security? We will see. And we have a VIX

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Speaker 1: that is above thirty today. That's a pretty big increase,

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Speaker 1: but not to rising when you see the volatility in

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Speaker 1: the Market's another down day for the in disease, and

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Speaker 1: we are dipping further into down territory with the Dow

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Speaker 1: back down below three percent three point three percent lower

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Speaker 1: at this point, and it's picking up as well. The

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Speaker 1: steam for the SMP and the NASDAC and of course

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Speaker 1: a big move in the thirty year yield as well.

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Speaker 1: Today Paul the third year yield now yielding just below

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Speaker 1: one one. This presumably a little bit to do with

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Speaker 1: Robert Camplan's commons to Bloomberg. Yeah. Absolutely, I think the

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Speaker 1: you know, no matter how you slice it here, um,

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Speaker 1: we are lower for longer as it relates to rates

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Speaker 1: and uh um, you know you hear Chairman Pal talking

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Speaker 1: about three maybe even beyond that in terms of being

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Speaker 1: accommodated here and injecting liquidity into the marketplace, and we're

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Speaker 1: seeing that in the in the yields. But I think

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Speaker 1: the market today just a lot more uncertainly about political

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Speaker 1: issues and the pandemic as well. Indeed, and somebody that

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Speaker 1: might know a lot about this is somebody who watches

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Speaker 1: rates constantly. He's a fixed income senior portfolio manager and

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Speaker 1: also head of the Municipal bond group at Federated Hermes,

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Speaker 1: so basically spends his entire day watching these rates and

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Speaker 1: watching spreads and all sorts of markets. R J. Gallo

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Speaker 1: joins us, Now, are J the move in the thirty

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Speaker 1: year Is it a big move relatively speaking? I mean

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Speaker 1: we saw a six basis point move basically. Oh, it's

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Speaker 1: certainly material. I mean we've been in a very constrained

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Speaker 1: interest rate environment now for many months, pretty much since

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Speaker 1: the highly dramatic, crazy days of of March COVID as

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Speaker 1: a crisis really took off. We've been constrained to a

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Speaker 1: narrow range in treasury yields. We've been in a risk

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Speaker 1: on environment for corporate bonds relative to treasury yields of

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Speaker 1: high yield and investment grade. So when you see moves

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Speaker 1: like you're saying today, I don't want to overstate it,

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Speaker 1: but I think this is a material shift in the outlook. Um,

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Speaker 1: I understand the election is a asking a big shadow

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Speaker 1: over everything, and it just got bigger with the passing

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Speaker 1: of Justice Ginsburg. Everything has gotten a little bit more complicated,

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Speaker 1: and I think that the rates market is reacting to that.

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Speaker 1: One of the areas that the Fed obviously is looking

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Speaker 1: at his inflation and you know, talking about Chairman Powell

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Speaker 1: and as jackson Hole address, suggesting that the Fed would

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Speaker 1: allow inflation to go above two percent for a certain

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Speaker 1: period of time. To me, I just want to kind

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Speaker 1: of how you how you take that in because we've have.

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Speaker 1: It's been a long time since we've had two percent inflation.

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Speaker 1: I'm just wondering what the policy is behind that and

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Speaker 1: how you view inflation going forward. The FED has disappointed,

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Speaker 1: to put it mildly, in terms of its ability to

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Speaker 1: hit its inflation target. We've had two percent written down

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Speaker 1: in black and white by the FED since you know,

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Speaker 1: since twelve in a formal sense, but well before that

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Speaker 1: in an informal sense, and we've spent most of the

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Speaker 1: last decade plus with inflation below that. So I think

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Speaker 1: there's a tendency in the markets to look at what

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Speaker 1: the FED said at Jackson Hole, what they reaffirmed at

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Speaker 1: the FOC meeting on September sixteenth. I think it was

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Speaker 1: UM saying, Okay, you didn't tell us anything new. You

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Speaker 1: basically said that it's it's no, it's no, it's not

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Speaker 1: a target. It's it's a long run objective. You can

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Speaker 1: go above it, you can go below it due to

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Speaker 1: the now clear overlay of an average inflation inflation objective. UM.

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Speaker 1: But they did say something that was very significant. They

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Speaker 1: basically overturned decades have said precedent when they said that

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Speaker 1: only shortfalls unemployment will be considered in setting policy. In

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Speaker 1: other words, when unemployment is really low, say three and

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Speaker 1: a half per cent, where it wasn't all that long ago,

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Speaker 1: the said won't by itself look at that variable and

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Speaker 1: preemptively tightened for fear that inflation will build from tight

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Speaker 1: labor markets. That's very different than what Paul Volker or

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Speaker 1: Alan Greenspan or even Bernankee and Yellen would have told you.

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Speaker 1: So that is a big change. Yeah. And in fact,

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Speaker 1: I don't know if you managed to see the comments

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Speaker 1: from Robert Captain speaking with Swimberg earlier, but essentially you

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Speaker 1: dissentered last month and said we have carefully or because

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Speaker 1: the pandemic world pass at some point. Yes, I feel

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Speaker 1: that I did see just the headlines on from from

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Speaker 1: the fetes chaplain and I felt when I saw his descent, Uh,

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Speaker 1: he probably has a little bit more consistency with the

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Speaker 1: FEDS framework that has prevailed for decades, which I just

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Speaker 1: alluded to. UM. I do think that Chairman Powell was

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Speaker 1: asked directly in the press conference following the FROMC meeting, UM,

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Speaker 1: how do you square ultra low rates and basically tabling

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Speaker 1: the whole idea of being preemptive when labor markets are tight,

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Speaker 1: how do you square that with financial stability? Won't that

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Speaker 1: change in framework that asymmetry with respect to labor markets

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Speaker 1: build excesses in the financial system. Chare Powell came back

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Speaker 1: and basically echoed chair yelling from years ago that they

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Speaker 1: don't believe monetary policy is the primary means by which

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Speaker 1: you regulate stability in the financial system. They have other

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Speaker 1: tools macropredential tools, regular relation to be specific, to try

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Speaker 1: to prevent accesses from building. Jury is out on that

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Speaker 1: in my opinion. I mean, when when rates are very

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Speaker 1: very low, when the set is telling you they're going

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Speaker 1: to target zero rates, that can help to fuel imbalances

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Speaker 1: accesses in the financial system are It's not clear that

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Speaker 1: our financial regulatory framework has evolved so much that we'll

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Speaker 1: be able to tamp down those accesses from becoming regrettable,

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Speaker 1: you know, building the next bubble if you will. And

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Speaker 1: that's basically where Kaplan was coming out. I think, hey,

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Speaker 1: r J, thank you so much for joining us. We

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Speaker 1: appreciate that got to be tough work for a fixed

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Speaker 1: income manager in a zero rate environment. R J. Gallows,

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Speaker 1: senior portfolio manager, is also head of the municipal bond

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Speaker 1: group at Federated hermes Um based in Pittsburgh. We appreciate

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Speaker 1: his comments. And Vannie, it's again that no matter where

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Speaker 1: you look here, it just screams out at your lower

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Speaker 1: rates for longer. Uh. And it seems like the FET

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Speaker 1: is very comfortable with that outlook. No shorties of supply

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Speaker 1: at least if there's a silver lining pool. I mean,

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Speaker 1: everywhere you look, you're just getting bonds thrown at you

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Speaker 1: from the media markets right through treasuries. It's it's really

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Speaker 1: pretty phenomenal for somebody like R. J. Gallo. I'm sure

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Speaker 1: thanks for listening to Bloomberg Markets podcast. You can subscribe

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Speaker 1: and listen to interviews at Apple Podcasts or whatever podcast

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00:26:17,880 --> 00:26:21,119
Speaker 1: platform you prefer. I'm Bonnie Quinn, I'm on Twitter at

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00:26:21,160 --> 00:26:24,360
Speaker 1: Bonnie Quinn. And Paul Sweeney I'm on Twitter at pt Sweeney.

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Speaker 1: Before the podcast, you can always catch us worldwide at

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Speaker 1: Bloomberg Radio