WEBVTT - Herrmann: data isn't as bad as sentiment 0:00:00.760 --> 0:00:05.840 Global business news twenty four hours a day at Bloomberg 0:00:05.880 --> 0:00:08.920 dot com, the Radio plus Mobile Act and on your radio, 0:00:09.680 --> 0:00:13.240 He's a Bloomberg Business Flash and I'm Karen Moscow. The 0:00:13.280 --> 0:00:16.520 US economy unexpectedly expanded at a faster pace in the 0:00:16.560 --> 0:00:20.400 fourth quarter than initially estimated, reflecting a higher value of 0:00:20.440 --> 0:00:23.880 business inventories, Gross domestic product the value of all goods 0:00:23.880 --> 0:00:26.680 and services produced to grow at a one percent annualized 0:00:26.760 --> 0:00:29.840 rate compared with an initial estimate of seven tenths percent, 0:00:30.120 --> 0:00:33.520 and consumer spending was revised lower. US Dock Index future 0:00:33.520 --> 0:00:36.760 has remained higher following that report, with SMP eveny futures 0:00:36.760 --> 0:00:39.959 of fourteen points, Dowie Mini futures of a hundred twenty two, 0:00:40.000 --> 0:00:42.760 and as DOCI many futures of thirty seven. We checked 0:00:42.760 --> 0:00:45.159 the markets every fifteen minutes throughout the trading day on 0:00:45.200 --> 0:00:48.680 Bloomberg Dacks in Germany's up two percent ten, your treasury 0:00:48.680 --> 0:00:51.680 down eleven thirty seconds, the yield one point seven five percent, 0:00:52.120 --> 0:00:54.360 Nimax crude oil of three point four per cent or 0:00:54.360 --> 0:00:57.520 a dollar eleven to thirty four seventeen a barrel Comax 0:00:57.600 --> 0:01:00.280 gold down six tenths percent or seven dollars ninety sense 0:01:00.320 --> 0:01:03.240 to twelve one announced, the euro a dollar O nine 0:01:03.360 --> 0:01:06.800 nine three the yen one thirteen point to five Euro 0:01:06.959 --> 0:01:09.720 area inflation looks to be cooling more than expected, but 0:01:09.760 --> 0:01:12.319 the prices in three other regions for the largest economies 0:01:12.319 --> 0:01:15.560 and missing estimates and strengthening the case for an expansion 0:01:15.600 --> 0:01:19.560 of the European Central Banks monetary stimulus in March. Consumer 0:01:19.600 --> 0:01:21.960 prices slit in Germany, France and Spain in the year 0:01:21.959 --> 0:01:25.760 to February figures show today and as a Bloomberg Business Flash, 0:01:25.800 --> 0:01:30.880 Thomas Scarlett Karen thank you so much. It is on 0:01:31.000 --> 0:01:35.360 Wall Street. The following is from Bloomberg View, opinions and 0:01:35.440 --> 0:01:40.360 commentary from Bloomberg columnists. A columnist for Bloomberg View. As 0:01:40.400 --> 0:01:43.400 Britain prepares to vote on leaving the European Union, President 0:01:43.400 --> 0:01:46.679 Obama is reportedly considering repeating as advice that it's stay 0:01:47.000 --> 0:01:50.040 silence is a better idea. Britain is our closest ally 0:01:50.120 --> 0:01:52.680 among the European powers, so it does often argue that 0:01:52.720 --> 0:01:55.400 its influence on the EU helps us, but it's up 0:01:55.400 --> 0:01:58.559 to the British to determine what relationship with Europe maximizes 0:01:58.600 --> 0:02:01.280 their influence in the world. Have an interest in that question, 0:02:01.360 --> 0:02:03.720 but it's not as great as theirs. If they think 0:02:03.760 --> 0:02:06.640 the EU sets back their interests, we can't reasonably ask 0:02:06.680 --> 0:02:09.639 them to stay because it suits us. The all administration 0:02:09.720 --> 0:02:12.120 is hinted that we might not have friendly trade relations 0:02:12.120 --> 0:02:15.320 with a post EU Britain. Carrying through that threat would 0:02:15.320 --> 0:02:17.839 be harmful to us and serve no purpose, which means 0:02:17.880 --> 0:02:19.880 it's not a credible threat. What we should tell the 0:02:19.919 --> 0:02:22.000 British is that we trust them to make their own 0:02:22.000 --> 0:02:24.920 decision and will have a strong relationship with them either way. 0:02:25.040 --> 0:02:27.320 I'm a entrepreneurio. For more of you, please go to 0:02:27.320 --> 0:02:30.480 Bloomberg View dot com or view go on the Bloomberg terminal. 0:02:30.840 --> 0:02:34.639 This has been Bloomberg View and bloom Review commentary is 0:02:34.639 --> 0:02:37.399 can be here in hourly weekdays on Bloomberg Radio. Tom 0:02:37.480 --> 0:02:42.320 keenan Scarlet Foo with us today Michael McKee on assignment. 0:02:42.639 --> 0:02:45.680 Scarlett has decided to step in. Scarlett earlier in the 0:02:45.720 --> 0:02:48.760 week we saw the drop in the British pound. We 0:02:48.880 --> 0:02:52.400 come back to one. But on a Monday ago, five 0:02:52.480 --> 0:02:55.560 days ago, if we said it was a one, that 0:02:55.560 --> 0:02:59.120 would have been handline um making, and I guess we 0:02:59.200 --> 0:03:02.200 stagger arounded you and Brexit and all that. But it 0:03:02.240 --> 0:03:05.440 really folds into the G twenty meeting where the presumption 0:03:05.520 --> 0:03:09.000 interview after interviews, nothing's gonna happen. I don't buy it. Well, 0:03:09.160 --> 0:03:12.040 here's where I'm a little confused, because people came into 0:03:12.080 --> 0:03:14.320 this meeting thinking that there would be some kind of 0:03:14.360 --> 0:03:18.280 grand proclamation or there would be some uh work done 0:03:18.320 --> 0:03:21.919 where they might agree to come together and say de 0:03:22.000 --> 0:03:24.400 value the UN once and for all and get rid 0:03:24.400 --> 0:03:28.320 of this drip drab policy or not even policy approach 0:03:28.639 --> 0:03:31.959 to weakening the UN. Then the fact that Jack Luke 0:03:32.000 --> 0:03:35.480 came out on Bloomberg Television and told our David Weston that, uh, 0:03:35.640 --> 0:03:38.360 that kind of thing is not in the offing. Had 0:03:38.400 --> 0:03:43.360 everyone worried. Why Why would everyone think that the G twenty, 0:03:43.920 --> 0:03:47.440 separate members, everyone has their own interest, would be able 0:03:47.440 --> 0:03:49.920 to come together and come and come with any agreement. 0:03:50.000 --> 0:03:52.440 And Virginia Mason, who nailed this this morning with her 0:03:52.480 --> 0:03:56.880 experience of trotism PIMCO. She was on a surveillance on television. 0:03:57.240 --> 0:04:00.400 She's a portfolio manager with a bigger, broader, sixty thousand 0:04:00.440 --> 0:04:04.320 foot view and Ms Masin have made clear what is 0:04:04.440 --> 0:04:07.720 needed if you're going to get drama is level of 0:04:07.800 --> 0:04:11.760 crisis and we're just not there. Villain bowder It's City 0:04:11.760 --> 0:04:17.960 group is adamant that without financial instability, institutions are not 0:04:18.040 --> 0:04:19.960 going to come to the rescue and they're not going 0:04:20.000 --> 0:04:23.320 to save the day. And in fact, that's where we 0:04:23.360 --> 0:04:26.039 are right now. And in fact, his shop only estimates 0:04:26.040 --> 0:04:29.560 fifty chance of a recession, So you're saying fifty fifty 0:04:29.640 --> 0:04:33.039 anything could happen at this point. Yeah, I mean, I 0:04:32.360 --> 0:04:35.680 I just find it into the weekend, and of course 0:04:35.680 --> 0:04:39.159 we'll all do our reading over the weekend, uh and 0:04:39.200 --> 0:04:42.240 of course as we go to Super Tuesday as well. 0:04:42.320 --> 0:04:47.000 But the basic idea of what didn't happen this week 0:04:47.120 --> 0:04:48.720 is just as important as the news that we saw. 0:04:49.279 --> 0:04:52.680 What didn't happen this week, we're institutions writing to the rescue. 0:04:52.720 --> 0:04:55.120 Where the Jack lou interview, there's a distinct lack of 0:04:55.200 --> 0:04:58.360 urgency heading into this G twenty and I would say 0:04:58.360 --> 0:05:01.919 a distinct lack of urgency the barge and to the 0:05:01.960 --> 0:05:04.400 gloom cruise point. You know, you see this out on 0:05:04.839 --> 0:05:07.839 the different articles of people very cautious and very upset 0:05:07.920 --> 0:05:11.680 feel they're sort of waiting for something in March and 0:05:11.760 --> 0:05:16.279 that waiting has to come from action from crisis, and 0:05:16.320 --> 0:05:18.839 the jump moves for now aren't there. I'll give you 0:05:18.920 --> 0:05:21.920 one exception, though, I'm looking at the Bloomberg folks. It's 0:05:21.920 --> 0:05:24.039 the red Knight put the photo out before. In social 0:05:24.600 --> 0:05:28.960 the basic idea of the entire screen is complacent oil 0:05:29.000 --> 0:05:32.120 oil up a dollar twenty two, except the German two 0:05:32.240 --> 0:05:36.000 year negative point five one shows that angst For American 0:05:36.080 --> 0:05:41.240 GDP analysis John Herman with Mitsubishi, John, what was the 0:05:41.320 --> 0:05:44.359 thing you gleaned? How did this update? Okay, so the 0:05:44.440 --> 0:05:46.760 update what it call those couple of you know, a 0:05:46.839 --> 0:05:49.720 couple of important things. One is we didn't we were 0:05:49.880 --> 0:05:51.800 thinking that we were going to go through more of 0:05:51.839 --> 0:05:55.960 an inventory correction in the second half of last year, 0:05:56.000 --> 0:05:58.240 and we really didn't get it. So we still kind 0:05:58.240 --> 0:06:00.840 of have that oranging a little bit first quarter or so. 0:06:01.240 --> 0:06:04.600 But when we move that's all very very temporary, transitory 0:06:04.640 --> 0:06:07.440 and stuff like that. When we moved past that, uh, 0:06:07.480 --> 0:06:10.320 you know, what we're seeing is basically seeing a pretty 0:06:10.400 --> 0:06:15.359 decent residential construction sector, personal consumer. I mean, we're not 0:06:15.400 --> 0:06:17.600 we're not back in the nineties or last seconde or 0:06:17.600 --> 0:06:19.400 the eighties, but you know, we're running at that two 0:06:19.480 --> 0:06:23.360 percent clip. And the consumer which is you know, relatively good. 0:06:24.000 --> 0:06:27.560 We keep maintaining that business, spending a touch software on 0:06:27.600 --> 0:06:31.520 the revisions, but you know, nothing outlandish. So we're all 0:06:31.560 --> 0:06:35.760 trans we're all transforms. Is too people had gotten too pessimistic. 0:06:35.880 --> 0:06:39.200 You know. What they did was market participants. They say said, gee, 0:06:39.240 --> 0:06:41.640 you know, the economy is really going to underperform this year. 0:06:41.839 --> 0:06:45.240 Inflation is really an underperformance on what's happening is the data. 0:06:45.320 --> 0:06:49.000 The actual data rolling in is not quite as bad sentiment, 0:06:49.080 --> 0:06:50.760 so they might set that out. And that was like, 0:06:50.880 --> 0:06:53.320 you know, kind of crazy just because of time. I 0:06:53.360 --> 0:06:55.440 want to get to the thing you've been dead on on, 0:06:55.640 --> 0:06:59.600 and that's curve flattening. Vanilla two tends spread in a 0:06:59.760 --> 0:07:02.799 very John Herman way. Is it a hundred basis points? 0:07:03.000 --> 0:07:06.359 Spending the week beneath that? Give us an update on 0:07:06.520 --> 0:07:10.960 what curve flattening tells you? What it What it tells 0:07:10.960 --> 0:07:13.320 you is this, Uh, it's like you said, it's it's 0:07:13.360 --> 0:07:16.600 plain vanilla, but you know we're we're an environment that 0:07:16.600 --> 0:07:18.560 that kind of fits it. What it tells you is 0:07:18.640 --> 0:07:21.120 is it tells you the economy is going to continue 0:07:21.120 --> 0:07:24.200 to run at sort of this two percent clip. The 0:07:24.400 --> 0:07:26.320 first thing. The second thing is inflation is going to 0:07:26.440 --> 0:07:29.520 gradually grind its way up to about you know, one 0:07:29.560 --> 0:07:32.240 point six, one point seven percent this year, one point 0:07:32.320 --> 0:07:35.920 eight percent this year. That keeps the FED in the game. 0:07:36.000 --> 0:07:38.040 Although people have priced to fed out, they're gonna have 0:07:38.040 --> 0:07:40.360 to start pricing the fedback in. Uh. And what it 0:07:40.400 --> 0:07:43.600 just tells you is that the economy doesn't have um 0:07:43.680 --> 0:07:46.600 sort of the acceleration to move and break out of 0:07:46.640 --> 0:07:50.320 this this sort of um stasis. It doesn't have the 0:07:50.360 --> 0:07:53.040 ability to accelerate past it. But on the other hand, 0:07:53.760 --> 0:07:57.400 we're grinding up enough that you know, the FED you 0:07:57.480 --> 0:08:00.040 cannot really tries to fed out of the game. You 0:08:00.160 --> 0:08:02.760 just can't do it. Okay, that was the mistake people. Man. 0:08:03.000 --> 0:08:06.280 When we look at the curve flattening, are we do 0:08:06.360 --> 0:08:09.000 we presume that it will lead to an inversion? And 0:08:09.120 --> 0:08:11.000 what would that tell us about the prospect of recession? 0:08:11.360 --> 0:08:13.720 I think, I think where you get you're getting this 0:08:14.080 --> 0:08:15.880 on the back end of the curve. You do have 0:08:16.040 --> 0:08:18.960 kind of you know, you have the inflation that's up 0:08:18.960 --> 0:08:21.760 but not accelerat, but you have a negative rates everywhere 0:08:21.760 --> 0:08:24.440 else in the world, and those investors need to get 0:08:24.520 --> 0:08:26.280 some kind of yield, and they're coming here to get 0:08:26.280 --> 0:08:29.960 their yields. So Europeans, Japanese, Asian accounts. I'm on the 0:08:29.960 --> 0:08:32.320 phone with the Central Bank of Brazilian five minutes. You know, 0:08:32.440 --> 0:08:37.400 they're looking to buy treasuries so that the overseas markets, 0:08:37.520 --> 0:08:39.720 the investors are buying, so that keeps the back end 0:08:39.760 --> 0:08:42.360 yeels low. So that's what part of our thesis. The 0:08:42.520 --> 0:08:45.360 second part is that you cannot the economy is going 0:08:45.440 --> 0:08:47.959 decent enough that you cannot price to fed out to zero, 0:08:48.280 --> 0:08:49.839 which is you know people were talking about just a 0:08:49.840 --> 0:08:51.360 couple of weeks ago, Oh, the father is gonna go 0:08:51.400 --> 0:08:53.920 negative rates. I mean, you just can't. You know, you 0:08:53.960 --> 0:08:55.640 may go negative rates, but it may not be until 0:08:55.640 --> 0:09:00.160 like but you know, in but like in the foreseeable future, 0:09:00.400 --> 0:09:02.959 you know, most likely you may see a couple of 0:09:03.040 --> 0:09:05.680 rate hikes and there's your two cents later. You don't 0:09:05.679 --> 0:09:08.960 get the escape velocity that pushes the back right meaningfully 0:09:08.960 --> 0:09:11.880 above you, and you kind of keep yourself in this game, 0:09:12.080 --> 0:09:13.959 right John, And when the minute we've got left with 0:09:14.040 --> 0:09:16.160 you at the bottom of your latest research note, and 0:09:16.160 --> 0:09:19.360 you are the king of Granular, you have an unemployment 0:09:19.480 --> 0:09:22.839 rate fractionally below four percent out a couple of years, 0:09:23.480 --> 0:09:28.400 and the labor participation rate goes nowhere. Why is fortunately? 0:09:28.760 --> 0:09:32.480 Why is that we we unfortunately when you compare the US, 0:09:32.760 --> 0:09:34.800 this is very unfortunate, and I wish we would get 0:09:34.800 --> 0:09:37.520 more attention to this. When you compare the US to 0:09:37.559 --> 0:09:40.080 the other G seven economies, we have the for the 0:09:40.120 --> 0:09:42.360 prime age mails and primate females. We have one of 0:09:42.400 --> 0:09:46.280 the lowest prime age participation rates for men and women 0:09:46.320 --> 0:09:48.920 in the United States versus reside G seven economies. Only 0:09:48.960 --> 0:09:51.120 Italy is worse than US. So that's first thing, So 0:09:51.160 --> 0:09:54.040 that gives you should give you a reality check. The 0:09:54.080 --> 0:09:56.400 other problem is we have you know, when you pass 0:09:56.480 --> 0:09:59.000 the prime age is we've got baby boomers retiring and 0:09:59.040 --> 0:10:02.319 exiting the labor for at a pace that's much faster 0:10:02.800 --> 0:10:07.000 than what their natural offspring we are able to replace 0:10:07.040 --> 0:10:09.320 them at because it's just it's just it's just too 0:10:09.360 --> 0:10:13.240 slow and replacement. So you get the participation rate for 0:10:13.280 --> 0:10:16.439 both reasons the prime age structure, and but we're also 0:10:16.480 --> 0:10:21.320 seeing young kids not participating enough. Parents have to encourage it. 0:10:21.520 --> 0:10:25.600 I mean, you're blaming me, You're blaming me. I'll say this, 0:10:25.760 --> 0:10:27.600 I'll say this song. When you look back, you know 0:10:27.640 --> 0:10:29.800 we had we had something similar in the early nineteen 0:10:29.960 --> 0:10:32.400 sixties when you know when they did that wrote that 0:10:32.440 --> 0:10:35.160 book to Graduate, you know with Dustin Hoffins, that that 0:10:35.200 --> 0:10:37.640 was early seen. It wasn't in the end of the sixties. Earlier. 0:10:37.920 --> 0:10:39.280 And what they were saying, they were saying, they were 0:10:39.320 --> 0:10:41.839 saying that America was so wealthy at that time that 0:10:41.840 --> 0:10:46.160 that kids were, you know, foregoing work because they are 0:10:46.200 --> 0:10:49.680 parents like this. This is the talk you get. This 0:10:49.760 --> 0:10:53.880 is people have, John Herman. This is the kind of 0:10:53.960 --> 0:10:57.600 talk you get from newly made fathers who have brand 0:10:57.600 --> 0:11:01.400 new babies and rail about teenagers and lazy college students. 0:11:03.480 --> 0:11:06.480 Chad Herman, thank you so much, and congratulations again on 0:11:06.720 --> 0:11:10.240 a newly born Hermit Scarlet Foom and Tom came another 0:11:10.280 --> 0:11:12.360 hour of Bloombridge surveillance.