1 00:00:03,200 --> 00:00:07,040 Speaker 1: This is Bloomberg Surveillance. I've been thinking the ten years 2 00:00:07,080 --> 00:00:08,760 Speaker 1: in a one and a half two and a half 3 00:00:08,840 --> 00:00:11,200 Speaker 1: trade dam and that's where we've been, and I think 4 00:00:11,200 --> 00:00:13,000 Speaker 1: that's where we're going to stay. I think there's a 5 00:00:13,119 --> 00:00:16,600 Speaker 1: growing sentiment that maybe negative rates aren't all that they 6 00:00:16,600 --> 00:00:19,480 Speaker 1: were supposed to be in terms of stimulating growth and inflation. 7 00:00:19,640 --> 00:00:23,200 Speaker 1: Of precondition for a bear market is not necessarily a recession. 8 00:00:23,320 --> 00:00:26,200 Speaker 1: Bear markets can occur even at the US fails to 9 00:00:26,280 --> 00:00:29,920 Speaker 1: fall to recession. Bloomberg Surveillance your link to the world 10 00:00:29,920 --> 00:00:35,280 Speaker 1: of economics, finance, and investment on Bloomberg Radio. Good morning, 11 00:00:35,440 --> 00:00:38,160 Speaker 1: Michael McKee. It is seven am on Wall Street. Where 12 00:00:38,280 --> 00:00:41,480 Speaker 1: risk is that kind of off today? The screen read, 13 00:00:41,520 --> 00:00:45,479 Speaker 1: though not overwhelmingly so. Today on surveillance the debate of 14 00:00:45,560 --> 00:00:48,080 Speaker 1: sort Gary Shilling in a moment, who sees the red 15 00:00:48,120 --> 00:00:51,000 Speaker 1: as a harbinger, David Kelly of JP Morgan Funds, who 16 00:00:51,120 --> 00:00:55,120 Speaker 1: is an optimist, And this is must listen. Bill Emlyndi 17 00:00:55,120 --> 00:00:57,520 Speaker 1: Gates at eight am in their annual letter for the 18 00:00:57,520 --> 00:01:01,440 Speaker 1: Gates Foundation, a stern, stark warning Tom about the risks 19 00:01:01,480 --> 00:01:04,400 Speaker 1: of climate change. That is going to be must listen. 20 00:01:04,720 --> 00:01:07,520 Speaker 1: They have actually done it. They're one of the few 21 00:01:07,600 --> 00:01:11,720 Speaker 1: that has put money where mouth is an action, and 22 00:01:11,760 --> 00:01:15,880 Speaker 1: it's a beautiful thing. I mean, we don't understand what 23 00:01:15,959 --> 00:01:20,000 Speaker 1: he has done about the virology and microbiology of the world. 24 00:01:20,520 --> 00:01:24,880 Speaker 1: He has of them major credit for that interesting letter 25 00:01:24,920 --> 00:01:28,120 Speaker 1: this time aimed at young people. Uh. It seems to 26 00:01:28,160 --> 00:01:31,319 Speaker 1: be the market these days, from Bertie Sanders to Bill Gates. Anyway, 27 00:01:31,360 --> 00:01:35,800 Speaker 1: Bill Gates at eight am on surveillance. Markets on this Tuesday, 28 00:01:36,000 --> 00:01:40,520 Speaker 1: as I mentioned, are lower. These stockis under by a point, 29 00:01:40,680 --> 00:01:42,760 Speaker 1: that's four tenths of u percent on that index. The 30 00:01:42,840 --> 00:01:45,880 Speaker 1: docks is off by seventy eight that's your worst performer 31 00:01:45,920 --> 00:01:49,320 Speaker 1: of the day, eight tents of eight percent. The iPhone 32 00:01:49,320 --> 00:01:52,440 Speaker 1: Institute's Business Climate Index dropping to one oh five point 33 00:01:52,480 --> 00:01:55,440 Speaker 1: seven in February from one oh seven point three. Lead 34 00:01:55,480 --> 00:02:00,120 Speaker 1: lower by expectations. US futures are lower s and P 35 00:02:00,240 --> 00:02:02,360 Speaker 1: features by two points a tenth of a percent of 36 00:02:02,440 --> 00:02:05,559 Speaker 1: tenth drop for Dow futures there down by ten points. 37 00:02:05,640 --> 00:02:08,120 Speaker 1: NASDAG features off by ten points, that's two tents on 38 00:02:08,240 --> 00:02:11,919 Speaker 1: that index. Bonds a touch weaker actually, with the tenure 39 00:02:11,960 --> 00:02:14,079 Speaker 1: yield up to one point seven eight percent to five 40 00:02:14,160 --> 00:02:17,400 Speaker 1: year at one point to five seventy six basis points 41 00:02:17,440 --> 00:02:20,320 Speaker 1: for year two year. And of course we are watching oil. 42 00:02:20,400 --> 00:02:24,040 Speaker 1: It was lower overnight, now it is mixed. West Texas 43 00:02:24,160 --> 00:02:26,880 Speaker 1: is still off by four tents at thirty three twenty seven, 44 00:02:26,880 --> 00:02:30,040 Speaker 1: but Brent's higher by four tents at thirty four eight. 45 00:02:30,240 --> 00:02:34,720 Speaker 1: One big oil conference underway in Houston. We'll see what 46 00:02:34,840 --> 00:02:37,640 Speaker 1: news develops out of that later today. Currencies where the 47 00:02:37,639 --> 00:02:41,680 Speaker 1: action is to the extent there is action today, with 48 00:02:41,919 --> 00:02:46,400 Speaker 1: the yen lower, the euro lower, the pound lower, Dollar 49 00:02:46,440 --> 00:02:50,200 Speaker 1: Index barely higher on the day, the Australian dollar, Canada's 50 00:02:50,240 --> 00:02:54,000 Speaker 1: looney stronger against the green bag. Those are commodity currencies. 51 00:02:54,000 --> 00:02:57,600 Speaker 1: Gary Shilling says that won't last. President of a Gary 52 00:02:57,600 --> 00:02:59,600 Speaker 1: Shilling and Company back with a long list of things 53 00:02:59,600 --> 00:03:05,960 Speaker 1: wrong with global outlook, currency pairs among them. Your February newsletter, Um, 54 00:03:06,040 --> 00:03:09,040 Speaker 1: quite the list of issues that we have to face 55 00:03:09,120 --> 00:03:12,560 Speaker 1: going forward. Well, well we do. I mean, I think 56 00:03:12,600 --> 00:03:14,600 Speaker 1: if you if you look around the world, we've got 57 00:03:14,680 --> 00:03:19,239 Speaker 1: we've got slow growth. Um, we have virtually every country 58 00:03:19,440 --> 00:03:24,040 Speaker 1: devaluing or trying to devalue against the dollar. They want 59 00:03:24,080 --> 00:03:27,800 Speaker 1: to have stronger economic growth, they don't have it domestically, 60 00:03:27,840 --> 00:03:29,560 Speaker 1: so they say we'll turn to exports. How do you 61 00:03:29,600 --> 00:03:31,919 Speaker 1: get more exports You make your currency cheaper, make them 62 00:03:31,919 --> 00:03:36,720 Speaker 1: more attractive to foreigners. UM. So that's going on. Commodity 63 00:03:36,760 --> 00:03:40,600 Speaker 1: prices are are declined too much supply and we're seeing 64 00:03:40,640 --> 00:03:44,640 Speaker 1: with VHP buillet In cutting our dividends today a clear 65 00:03:44,640 --> 00:03:47,560 Speaker 1: indication of that, and Glenn Core all all these other 66 00:03:47,840 --> 00:03:51,840 Speaker 1: commodity producers in trouble, um and uh all this does 67 00:03:52,160 --> 00:03:56,280 Speaker 1: feed into a considerable throat of deflation, which scares the 68 00:03:56,320 --> 00:04:00,480 Speaker 1: daylightes of central banks. Commodity prices have not im down 69 00:04:00,520 --> 00:04:01,840 Speaker 1: in a month and a half. As a matter of fact, 70 00:04:01,840 --> 00:04:04,200 Speaker 1: they're higher over the last month and a half UM 71 00:04:04,280 --> 00:04:08,440 Speaker 1: and oil prices have stabilized, and inflation, according to the 72 00:04:08,440 --> 00:04:13,560 Speaker 1: CPI last week is higher. So interesting thing about inflation, 73 00:04:13,600 --> 00:04:15,320 Speaker 1: a matter of fact, we've we've just taken a look 74 00:04:15,360 --> 00:04:19,360 Speaker 1: at that. And and one of the interesting things in 75 00:04:19,440 --> 00:04:23,440 Speaker 1: the c p I is u of that is what's 76 00:04:23,480 --> 00:04:26,760 Speaker 1: called owner imputed rent. The assumption is that you and 77 00:04:26,839 --> 00:04:29,640 Speaker 1: I run our houses from ourselves, assuming you own your house. 78 00:04:30,440 --> 00:04:32,760 Speaker 1: That's the way it is in there. And because rests 79 00:04:32,760 --> 00:04:35,359 Speaker 1: of going up, a lot of younger people cannot afford 80 00:04:35,839 --> 00:04:39,479 Speaker 1: their own houses, uh, and so running has been where 81 00:04:39,520 --> 00:04:43,240 Speaker 1: the action is that index is up three point two 82 00:04:43,240 --> 00:04:46,640 Speaker 1: percent versus a year ago. If you take that out, 83 00:04:47,120 --> 00:04:49,040 Speaker 1: and what matter does it mean? If you own your house, 84 00:04:49,040 --> 00:04:50,400 Speaker 1: you you look around and say, this is what I 85 00:04:50,440 --> 00:04:52,800 Speaker 1: can run it from my from myself. For if you 86 00:04:52,839 --> 00:04:56,600 Speaker 1: take that out, it knox the it knox the core 87 00:04:56,200 --> 00:04:59,080 Speaker 1: if you if you took that out, that inflation wouldn't 88 00:04:59,080 --> 00:05:02,640 Speaker 1: have fallen. Is when home prices were going down. So 89 00:05:02,680 --> 00:05:05,400 Speaker 1: that's sort of a where would the core rate be 90 00:05:05,520 --> 00:05:07,880 Speaker 1: right now? If you take a imputer, the core rate 91 00:05:07,920 --> 00:05:10,080 Speaker 1: would be one of y're over here one point two 92 00:05:10,200 --> 00:05:14,320 Speaker 1: versus one versus one point Bloomers surveillance. This morning, folks, 93 00:05:14,880 --> 00:05:19,080 Speaker 1: This Tuesday, a morning brought you by Investco. Investco believes 94 00:05:19,080 --> 00:05:22,000 Speaker 1: it's time to bench the benchmarks and to consider active 95 00:05:22,000 --> 00:05:25,560 Speaker 1: management in factor based strategies. Find out more in investco 96 00:05:26,200 --> 00:05:30,599 Speaker 1: dot com Slash high Conviction. Gary, We started the morning 97 00:05:30,839 --> 00:05:33,040 Speaker 1: looking at the five year five year forward, which is 98 00:05:33,080 --> 00:05:36,960 Speaker 1: a chart very shilling friendly and just disinflation and deflation. 99 00:05:37,160 --> 00:05:41,400 Speaker 1: To be clear, can the US be in deflation or 100 00:05:41,440 --> 00:05:44,680 Speaker 1: is that something that happens abroad? Well, I think it's 101 00:05:44,800 --> 00:05:48,239 Speaker 1: it's a universe. It's a universal situation. And of course 102 00:05:48,400 --> 00:05:51,080 Speaker 1: what has happened so far as it's been largely in 103 00:05:51,240 --> 00:05:55,040 Speaker 1: commands and spreading from there. The real question, though, Tom, 104 00:05:55,200 --> 00:05:58,280 Speaker 1: is will it spread to services? If you look at 105 00:05:58,680 --> 00:06:02,640 Speaker 1: if you're looking at in the consumer US consumer, uh, 106 00:06:03,320 --> 00:06:06,000 Speaker 1: goods prices are are declining at about a three percent 107 00:06:06,080 --> 00:06:10,280 Speaker 1: annual rate, but services are still increasing about two. They 108 00:06:10,279 --> 00:06:12,719 Speaker 1: are starting to roll over, and there is an effect 109 00:06:12,760 --> 00:06:15,920 Speaker 1: from good to services. For example, people are laid off 110 00:06:15,920 --> 00:06:18,120 Speaker 1: in the energy industry, they're not going to as many 111 00:06:18,160 --> 00:06:21,640 Speaker 1: bars they're they're not they're not going to as many 112 00:06:21,800 --> 00:06:24,640 Speaker 1: movies they're not they're not getting as many haircuts. If 113 00:06:24,680 --> 00:06:28,440 Speaker 1: they have hair I don't have come to the services. 114 00:06:28,480 --> 00:06:32,240 Speaker 1: But that's the real question. Uh, what's your probability on that? Well, 115 00:06:32,240 --> 00:06:34,760 Speaker 1: I think I think, I think it probably is over 116 00:06:34,839 --> 00:06:37,760 Speaker 1: fifty fifty that it will because you simply have so 117 00:06:37,839 --> 00:06:40,719 Speaker 1: much access supply in the world, and it's only a 118 00:06:40,760 --> 00:06:43,599 Speaker 1: matter of time until people, when the goods industry simply 119 00:06:43,960 --> 00:06:49,960 Speaker 1: simply uh, curtailer, they're spending on services. Services. Inflation in 120 00:06:50,200 --> 00:06:54,640 Speaker 1: the most recent CPI report was up three tenths after 121 00:06:54,680 --> 00:06:57,520 Speaker 1: being up one tenth. Yeah, and I explained that that 122 00:06:58,360 --> 00:07:00,720 Speaker 1: was that was because of this, that was because of 123 00:07:00,960 --> 00:07:05,400 Speaker 1: extraordinary increase in this homeowner rent on a on a 124 00:07:05,480 --> 00:07:08,040 Speaker 1: year over year basis, it's unchanged two and a half percent. 125 00:07:08,160 --> 00:07:11,720 Speaker 1: I mean, I'm not sure where the rolling over is. Well, 126 00:07:12,400 --> 00:07:14,400 Speaker 1: if you if you look at if you look at 127 00:07:14,680 --> 00:07:17,920 Speaker 1: I'm looking at the I'm looking at the components of 128 00:07:18,040 --> 00:07:21,800 Speaker 1: the of not the c p I, but the the 129 00:07:21,840 --> 00:07:26,400 Speaker 1: consumer consumer spending indexes. What the FED looks at. It's 130 00:07:26,400 --> 00:07:28,640 Speaker 1: not the CPI, it's it's a variation on that. But 131 00:07:28,720 --> 00:07:31,320 Speaker 1: that's one that I concentrate. We should We showed the 132 00:07:31,400 --> 00:07:36,400 Speaker 1: Mike's point. We did show the Cleveland FED measurement of inflation, 133 00:07:36,920 --> 00:07:42,240 Speaker 1: which unambiguously is concaveable. Well, you know, he and I 134 00:07:42,320 --> 00:07:44,520 Speaker 1: met with any of these things. You can prove anything 135 00:07:44,560 --> 00:07:47,040 Speaker 1: you want if you throw out enough stuff. I do 136 00:07:47,080 --> 00:07:48,960 Speaker 1: that every day. How do you know? That's our formula 137 00:07:49,000 --> 00:07:52,960 Speaker 1: and surveillance. But that's what you know. But that's what 138 00:07:53,000 --> 00:07:55,600 Speaker 1: the Cleveland Fed and and there's nothing wrong with it. 139 00:07:55,600 --> 00:07:57,040 Speaker 1: It's just a question what do you what do you 140 00:07:57,080 --> 00:07:59,480 Speaker 1: want to believe? Uh, As they say in this case, 141 00:07:59,760 --> 00:08:02,320 Speaker 1: I don't think you ought to include his owner imputed 142 00:08:02,360 --> 00:08:05,120 Speaker 1: rent because nobody really thinks about it. But if it didn't, 143 00:08:05,120 --> 00:08:09,520 Speaker 1: their behavior. But they look at the they look at 144 00:08:09,560 --> 00:08:13,040 Speaker 1: the things that people buy every day. Uh. And and 145 00:08:13,280 --> 00:08:15,520 Speaker 1: you know, but you can come to almost any conclusion 146 00:08:15,520 --> 00:08:19,239 Speaker 1: you want depending on where you start on this oil prices, 147 00:08:19,320 --> 00:08:22,920 Speaker 1: ten dollar oil your call win. Uh. Well, you know, 148 00:08:22,960 --> 00:08:26,080 Speaker 1: one of the great forecasters historically said you should forecast 149 00:08:26,160 --> 00:08:28,160 Speaker 1: what will happen or what will happen, but not both. 150 00:08:28,880 --> 00:08:31,040 Speaker 1: I don't have a time raising on that. But you know, 151 00:08:31,080 --> 00:08:33,600 Speaker 1: my rationale, Mike and I've talked about it many times, 152 00:08:33,600 --> 00:08:37,040 Speaker 1: starting literally over a year ago on on this show. Uh. 153 00:08:37,240 --> 00:08:39,480 Speaker 1: The rationale is that when you're when you're in a 154 00:08:39,840 --> 00:08:42,520 Speaker 1: price war, and that's what's going on, and OPEC is 155 00:08:42,720 --> 00:08:46,000 Speaker 1: you know, Bullpeck has ceased to exist as an effective cartel. 156 00:08:46,400 --> 00:08:49,200 Speaker 1: The action has shifted to American frackers. But when you're 157 00:08:49,200 --> 00:08:52,520 Speaker 1: in a situation whereas every man for himself and everybody's 158 00:08:52,559 --> 00:08:55,120 Speaker 1: trying to produce more oil. You know, it's it's like 159 00:08:55,200 --> 00:08:57,559 Speaker 1: if you have a if you have an intersection with 160 00:08:57,600 --> 00:09:00,800 Speaker 1: four gas stations, one in each corner, somebody starts up 161 00:09:01,200 --> 00:09:04,240 Speaker 1: cut prices the other the other stations have to cut 162 00:09:04,280 --> 00:09:07,120 Speaker 1: their prices in response, and it keeps going around the 163 00:09:07,520 --> 00:09:11,600 Speaker 1: around the circle that the intersection. Where does it stop. 164 00:09:11,880 --> 00:09:14,559 Speaker 1: It stops not at the price of running the station, 165 00:09:14,760 --> 00:09:17,400 Speaker 1: not the not the full cost. It stops at the 166 00:09:17,400 --> 00:09:20,800 Speaker 1: price the marginal cost, the cost of getting the gas 167 00:09:20,840 --> 00:09:24,959 Speaker 1: off a tanker, the tank truck plus plush taxes. Well. 168 00:09:25,000 --> 00:09:28,440 Speaker 1: In the case of oil, the marginal cost is somewhere 169 00:09:28,480 --> 00:09:30,520 Speaker 1: to tend to twenty bucks of barrel and the Permian 170 00:09:30,600 --> 00:09:33,560 Speaker 1: basion in Texas and even lower in the Persian Gulf. 171 00:09:33,640 --> 00:09:35,520 Speaker 1: In other words, once the holes are drilled, once the 172 00:09:35,559 --> 00:09:39,400 Speaker 1: oil is flowing, where where what is the cost of 173 00:09:39,400 --> 00:09:42,320 Speaker 1: getting com Where does free class flow does very quickly 174 00:09:42,360 --> 00:09:46,120 Speaker 1: within that Newtonian analysis, Does the US drive the oil 175 00:09:46,160 --> 00:09:49,360 Speaker 1: price boat? Or is it Opeque or is it not Opec? 176 00:09:49,520 --> 00:09:51,880 Speaker 1: Now it's it's it's the U s I think it's 177 00:09:51,880 --> 00:09:54,200 Speaker 1: the U s Now it's it's not Opec. Opec is 178 00:09:54,400 --> 00:09:57,679 Speaker 1: producing flat out. Opec has some low cost oil, they 179 00:09:57,720 --> 00:10:01,160 Speaker 1: have some high price oil. But in a second cartel 180 00:10:01,200 --> 00:10:03,559 Speaker 1: and I Sho had a report on that the conditions 181 00:10:03,600 --> 00:10:06,679 Speaker 1: for a cartel were wonderful. Earlier with olpack there were 182 00:10:06,679 --> 00:10:09,000 Speaker 1: only a few members. They've got a product. Well, there's 183 00:10:09,000 --> 00:10:12,000 Speaker 1: not many substances. Everybody wants it now they don't have it, 184 00:10:12,000 --> 00:10:15,120 Speaker 1: their lots of substitutes, and they no longer have control. 185 00:10:15,200 --> 00:10:17,680 Speaker 1: It's the American front. Well, come back, Gary's shilling with 186 00:10:17,760 --> 00:10:20,959 Speaker 1: us UH as we look at price change amid an 187 00:10:21,000 --> 00:10:26,240 Speaker 1: interesting mix of economics, finance and investment. Michael mckeeon Tom Keane. 188 00:10:26,280 --> 00:10:29,559 Speaker 1: We do data checks. We do them cross asset sterling 189 00:10:29,760 --> 00:10:33,199 Speaker 1: one forty nine two. It is weaker sterling today with 190 00:10:33,280 --> 00:10:35,160 Speaker 1: a one forty hand and we have not gotten to 191 00:10:35,280 --> 00:10:39,679 Speaker 1: one nine yet, which would be headline making dollar elevated 192 00:10:39,920 --> 00:10:44,640 Speaker 1: slightly looking at strong yen one twelve twelve, we had 193 00:10:44,760 --> 00:10:53,160 Speaker 1: one eleven dollar again earlier this morning, our Surreilan's brought 194 00:10:53,160 --> 00:10:55,400 Speaker 1: to you by Vulvo Cars White Planes. Visit Volvo Cars 195 00:10:55,400 --> 00:10:57,760 Speaker 1: White Planes dot com. Here is John Tucker with the 196 00:10:57,800 --> 00:11:01,480 Speaker 1: latest news headlines. Michael and Thomber with Publican presidential candidates 197 00:11:01,640 --> 00:11:04,640 Speaker 1: took last minute appeals for support across Nevada on the 198 00:11:04,679 --> 00:11:08,400 Speaker 1: eve of today's caucuses. Marco Rubio, meantime, has been gathering 199 00:11:08,440 --> 00:11:13,000 Speaker 1: support from Republican establishment figures since Friday. He's added twelve 200 00:11:13,080 --> 00:11:16,839 Speaker 1: new congressional or globlatorial endorsements. Will Donald Trump and ts 201 00:11:17,080 --> 00:11:20,240 Speaker 1: TED crews have added none. The Syrian government says it 202 00:11:20,280 --> 00:11:23,400 Speaker 1: accepts the proposed truce in that country. The official announcement 203 00:11:23,440 --> 00:11:25,800 Speaker 1: comes a day after the US and Russia agreed on 204 00:11:25,840 --> 00:11:28,439 Speaker 1: a new cease fire for Syria that will take effect 205 00:11:28,679 --> 00:11:32,199 Speaker 1: on Saturday. In the Eastern Netherlands, and commuter train derailed 206 00:11:32,240 --> 00:11:34,920 Speaker 1: after slamming into a crane which was crossing the tracks. 207 00:11:35,160 --> 00:11:38,640 Speaker 1: One person reported dead, six others injured. More than one 208 00:11:38,720 --> 00:11:41,840 Speaker 1: hundred sixty passengers and crew slid down, emergency shoots and 209 00:11:41,920 --> 00:11:45,520 Speaker 1: swirling snow after an engine fire forced the japan Airlines 210 00:11:45,600 --> 00:11:49,360 Speaker 1: domestic flight to aboard takeoff. Today, Global News twenty four 211 00:11:49,400 --> 00:11:51,880 Speaker 1: hours a day, powered by twenty four hundred journalists, had 212 00:11:51,920 --> 00:11:54,400 Speaker 1: more than one hundred fifty news pres around the world. 213 00:11:54,760 --> 00:11:57,880 Speaker 1: I'm John Tucker, Tom Jim, Thanks so much, Gary showing 214 00:11:57,920 --> 00:12:02,440 Speaker 1: with US an economics finance investment. Your destination Bloomberg surveillance. 215 00:12:05,760 --> 00:12:08,120 Speaker 1: Bloomberg Surveillance has brought you by your try State BMW 216 00:12:08,200 --> 00:12:10,439 Speaker 1: Center's visit the on line it try State BMW dot 217 00:12:10,480 --> 00:12:12,800 Speaker 1: com at BMW that make only one thing, the ultimate 218 00:12:13,040 --> 00:12:19,240 Speaker 1: driving machine