1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul Swinge. You, 2 00:00:05,360 --> 00:00:07,680 Speaker 1: along with my co host Lisa Brahma wits each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money. Whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor, find a Bloomberg penl podcast on Apple 6 00:00:15,520 --> 00:00:17,959 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:20,120 Speaker 1: at Bloomberg dot com. Just to give you a sense, 8 00:00:20,120 --> 00:00:22,520 Speaker 1: we are seeing a bit of those gains being paired, 9 00:00:22,560 --> 00:00:25,400 Speaker 1: with all the three main indexes up about seven tenths 10 00:00:25,400 --> 00:00:29,960 Speaker 1: of a percent. Heading into we see a consensus forming 11 00:00:30,000 --> 00:00:33,640 Speaker 1: that the fundamental economy, we'll be fine, We'll be strong, 12 00:00:33,760 --> 00:00:35,920 Speaker 1: We'll we'll continue to chug along, and we'll allow you 13 00:00:35,960 --> 00:00:38,440 Speaker 1: to clip coupons. Perhaps not deliver the same kinds of 14 00:00:38,440 --> 00:00:42,159 Speaker 1: returns we saw in twenty nineteen, but really the question 15 00:00:42,320 --> 00:00:45,280 Speaker 1: is what could go wrong? And Daniel D. Martino Booth 16 00:00:45,360 --> 00:00:47,800 Speaker 1: is joining us now here in our interactive broker studio. 17 00:00:47,800 --> 00:00:51,120 Speaker 1: She's chief executive officer and chief strategist for Quill Intelligence, LLC, 18 00:00:51,560 --> 00:00:54,120 Speaker 1: form advisor to the Dallas Federal Reserve, as well as 19 00:00:54,160 --> 00:00:57,480 Speaker 1: a Bloomberg opinion contributor. UH So, Danielle, what are you 20 00:00:57,560 --> 00:01:01,160 Speaker 1: seeing when it comes to the fundamental economy and signs 21 00:01:01,200 --> 00:01:03,480 Speaker 1: that the consensus is right that we're just going to 22 00:01:03,680 --> 00:01:06,680 Speaker 1: chug along through Well, I think if you, if you 23 00:01:06,800 --> 00:01:11,040 Speaker 1: study the headlines, everything looks really really good on the surface. Um. 24 00:01:11,080 --> 00:01:13,479 Speaker 1: But having worked at the FED for as long as 25 00:01:13,520 --> 00:01:17,480 Speaker 1: I did, we pay very close attention we I know 26 00:01:17,560 --> 00:01:19,679 Speaker 1: Powell pays close that he won't say it in public, 27 00:01:19,880 --> 00:01:23,200 Speaker 1: but he pays close attention to revisions to data. And 28 00:01:23,240 --> 00:01:26,200 Speaker 1: what we've seen so far through July with the preliminary 29 00:01:26,280 --> 00:01:28,680 Speaker 1: data is that we've had fifteen consecutive months of downward 30 00:01:28,680 --> 00:01:31,880 Speaker 1: revisions again through July. But every time we get three 31 00:01:31,920 --> 00:01:34,360 Speaker 1: months of data out, we tend to see another three 32 00:01:34,360 --> 00:01:36,800 Speaker 1: months of rolling downward revisions. And the Bureau of Labor 33 00:01:36,840 --> 00:01:39,160 Speaker 1: Statistics will will tell you that they have a very 34 00:01:39,160 --> 00:01:42,840 Speaker 1: hard time adjusting at economic inflection points. And that's why 35 00:01:42,920 --> 00:01:45,600 Speaker 1: at QUILL we've decided to try and look in the 36 00:01:45,640 --> 00:01:49,480 Speaker 1: weeds at other types of indicators to tell us, hey, 37 00:01:49,520 --> 00:01:51,440 Speaker 1: if non farm perils is the most lagging of all 38 00:01:51,480 --> 00:01:55,320 Speaker 1: economic indicators, what can we look at this real time? All? Right? So, 39 00:01:55,680 --> 00:01:57,400 Speaker 1: when we think about the economy, I think most people 40 00:01:57,400 --> 00:02:00,400 Speaker 1: are just falling back on the fact that the consumers strong. 41 00:02:00,640 --> 00:02:03,600 Speaker 1: They look at the employment numbers. How do you think 42 00:02:03,640 --> 00:02:07,919 Speaker 1: about the employment numbers? At QUILL, So we try every 43 00:02:07,920 --> 00:02:11,200 Speaker 1: week to track two things in the jobless claims data, 44 00:02:11,240 --> 00:02:14,040 Speaker 1: because it's very timely comes out on a weekly basis. Um, 45 00:02:14,080 --> 00:02:17,000 Speaker 1: we follow the number of states in the country, uh 46 00:02:17,080 --> 00:02:19,560 Speaker 1: that have rising jobless claims. So we're looking at the 47 00:02:19,560 --> 00:02:23,040 Speaker 1: breadth um how far across the nation or not um 48 00:02:23,120 --> 00:02:26,520 Speaker 1: jobless claims are rising and uh so far we're seeing 49 00:02:26,760 --> 00:02:30,240 Speaker 1: about fifty, so over fifty of the states have rising 50 00:02:30,280 --> 00:02:33,760 Speaker 1: initial jobless claims. And then we also study very closely 51 00:02:33,800 --> 00:02:37,359 Speaker 1: continuing claims, knowing that just because you apply for unemployment 52 00:02:37,400 --> 00:02:39,560 Speaker 1: insurance does not mean that you receive it. If you 53 00:02:39,600 --> 00:02:43,079 Speaker 1: look at not seasonally adjusted continuing jobless claims, you're actually 54 00:02:43,120 --> 00:02:46,080 Speaker 1: looking at hard weekly data on the number of Americans 55 00:02:46,240 --> 00:02:50,560 Speaker 1: currently collecting unemployment insurance. We we know Thanksgiving was a 56 00:02:50,680 --> 00:02:54,400 Speaker 1: very noisy um contributor to the data, so we've adjusted 57 00:02:54,440 --> 00:02:56,240 Speaker 1: it on a fifty three week year over year basis, 58 00:02:56,400 --> 00:02:59,200 Speaker 1: and what we found was ten consecutive weeks of rising 59 00:02:59,200 --> 00:03:02,359 Speaker 1: continuing this claims in this country. That's a red flag 60 00:03:02,400 --> 00:03:05,800 Speaker 1: to me. All right, so what does that mean? Translate that, Well, 61 00:03:05,840 --> 00:03:09,400 Speaker 1: what we're seeing is an increasing trend of what the 62 00:03:09,480 --> 00:03:13,520 Speaker 1: CFO Duke survey said yesterday that fifty percent of CFOs 63 00:03:13,560 --> 00:03:16,440 Speaker 1: are in a cost cutting mode. A cost cutting mode 64 00:03:16,480 --> 00:03:18,840 Speaker 1: is a polite way of saying we're trimming head count. 65 00:03:19,240 --> 00:03:22,239 Speaker 1: It's not, again, something we're seeing in the non farm 66 00:03:22,240 --> 00:03:25,000 Speaker 1: payalle unemployment data, but it's definitely something that is being 67 00:03:25,000 --> 00:03:27,919 Speaker 1: picked up in the weekly data. And actually to that point, 68 00:03:28,000 --> 00:03:31,800 Speaker 1: we did get jobless claims today that rose to two 69 00:03:31,880 --> 00:03:35,640 Speaker 1: hundred thousand versus the estimate of two thousand. So, Paul, 70 00:03:35,680 --> 00:03:38,360 Speaker 1: we are seeing that exactly. Well, yes, but I have 71 00:03:38,400 --> 00:03:40,200 Speaker 1: a really hard time with these two weeks. I mean 72 00:03:40,240 --> 00:03:41,960 Speaker 1: you kind of have to kind of have to marry 73 00:03:41,960 --> 00:03:43,840 Speaker 1: the two of them because thanks getting again is so 74 00:03:43,920 --> 00:03:46,560 Speaker 1: noisy that you can't really trust this big number either. 75 00:03:46,880 --> 00:03:50,440 Speaker 1: All Right. So, given that we may be seeing, maybe 76 00:03:50,440 --> 00:03:52,480 Speaker 1: from some of your data, a little bit slowing on 77 00:03:52,520 --> 00:03:55,080 Speaker 1: the consumer side with the employment, what do you do 78 00:03:55,160 --> 00:03:56,720 Speaker 1: on the on your kind of when you think about 79 00:03:56,720 --> 00:04:02,360 Speaker 1: the credit markets where you're allocating so um, you know it. Obviously, 80 00:04:02,400 --> 00:04:06,400 Speaker 1: I live on Twitter and the the mantra on Twitter 81 00:04:06,600 --> 00:04:09,560 Speaker 1: is it's only energy. Uh So I got so tired 82 00:04:09,600 --> 00:04:11,600 Speaker 1: of hearing that I kind of dug in the weeds. 83 00:04:11,920 --> 00:04:13,800 Speaker 1: And if you look at the Triple C universe, which 84 00:04:13,800 --> 00:04:16,400 Speaker 1: has refused to come in and this has been you know, 85 00:04:16,440 --> 00:04:19,320 Speaker 1: they're like, it's just an aberration, it's just energy. So 86 00:04:19,880 --> 00:04:23,920 Speaker 1: they're the Triple C universe is trading. So that's over 87 00:04:24,000 --> 00:04:26,279 Speaker 1: half of the Triple C universe is trading. It less 88 00:04:26,279 --> 00:04:30,200 Speaker 1: than nine cents on the dollar. So of that universe 89 00:04:31,920 --> 00:04:36,200 Speaker 1: is energy? What's the other so other stuff like not energy. 90 00:04:36,680 --> 00:04:38,839 Speaker 1: We've seen a lot of retails. We've seen retail, We've 91 00:04:38,880 --> 00:04:42,279 Speaker 1: seen some some some tensions in communications. Um, we've seen 92 00:04:42,360 --> 00:04:46,960 Speaker 1: some chemical downgrades so cyclical, but also retail as well. 93 00:04:47,000 --> 00:04:49,360 Speaker 1: What does this mean that we're going to see something 94 00:04:49,480 --> 00:04:53,719 Speaker 1: broader in or does this just mean frankly that there 95 00:04:53,760 --> 00:04:57,039 Speaker 1: is discretion and markets and people have been disciplined during 96 00:04:57,080 --> 00:05:00,440 Speaker 1: this rally. Well, so you would want for an vests 97 00:05:00,480 --> 00:05:03,240 Speaker 1: to be discerning and looking at companies that might, oh, 98 00:05:03,279 --> 00:05:06,160 Speaker 1: I don't know, go from Triple C to as for applebys, 99 00:05:06,160 --> 00:05:08,839 Speaker 1: for boy c'es, for cats, for default, So you would 100 00:05:08,839 --> 00:05:12,039 Speaker 1: want for them to be discerning and and for dog 101 00:05:12,360 --> 00:05:14,839 Speaker 1: but at the same time, you can't just look at 102 00:05:14,880 --> 00:05:17,359 Speaker 1: the data and say it's just an energy thing, because 103 00:05:17,360 --> 00:05:20,160 Speaker 1: it's so much broader than that. That being said, I'm 104 00:05:20,160 --> 00:05:22,000 Speaker 1: going to talk out of the other side of my mouth. 105 00:05:23,480 --> 00:05:25,680 Speaker 1: The entire Triple C universe, a undred and seventy one 106 00:05:25,680 --> 00:05:28,880 Speaker 1: billion dollars worth of debt, is only fifteen percent energy. 107 00:05:28,960 --> 00:05:32,000 Speaker 1: So we're definitely seeing a you know, twice the percentage 108 00:05:32,279 --> 00:05:36,159 Speaker 1: in terms of deeply distressed paper being in the energy sector. 109 00:05:36,240 --> 00:05:38,719 Speaker 1: And from everything that we know from the eleven billion 110 00:05:38,720 --> 00:05:43,120 Speaker 1: dollars Chevron right down yesterday, there's still a lot of 111 00:05:43,360 --> 00:05:46,479 Speaker 1: bad things going on in the shale complex. And you 112 00:05:46,520 --> 00:05:49,000 Speaker 1: know old melent of my buddy over Bank America, Meryl, 113 00:05:49,040 --> 00:05:51,480 Speaker 1: you know, he's been in high yield forever. He anticipates 114 00:05:51,480 --> 00:05:56,240 Speaker 1: that by the end of given the seven percent trailing 115 00:05:56,279 --> 00:05:58,560 Speaker 1: twelve month default rate and energy, that we will be 116 00:05:58,720 --> 00:06:02,080 Speaker 1: back up at when he's sixteen double digit default rates 117 00:06:02,320 --> 00:06:06,320 Speaker 1: or broadly defined, Are you seeing heightened credit quality issues 118 00:06:06,400 --> 00:06:08,320 Speaker 1: in the marketplace? If not, do you think we might 119 00:06:08,320 --> 00:06:12,159 Speaker 1: see them? I think that I think that after the 120 00:06:12,200 --> 00:06:15,640 Speaker 1: turn of the year, after after portfolio managers have finished 121 00:06:15,640 --> 00:06:18,080 Speaker 1: all their window addressing that we are either going to 122 00:06:18,080 --> 00:06:21,440 Speaker 1: see double bees uh, double bee spreads rise in other 123 00:06:21,560 --> 00:06:24,400 Speaker 1: in other words, credit stress spreading, or we're gonna see 124 00:06:24,400 --> 00:06:26,840 Speaker 1: triple cs spreads come down. It's got to be one 125 00:06:26,839 --> 00:06:28,599 Speaker 1: of the other, because we've never had a dislocation of 126 00:06:28,640 --> 00:06:31,599 Speaker 1: this persistence and and and and length in time. What 127 00:06:31,680 --> 00:06:35,440 Speaker 1: about loans, We've seen, for example, one prediction I believe 128 00:06:35,560 --> 00:06:39,600 Speaker 1: out of ubs that leverage loans will return a negative 129 00:06:39,960 --> 00:06:42,360 Speaker 1: return next year, Felt declined, lunch two per cent. Do 130 00:06:42,360 --> 00:06:45,760 Speaker 1: you agree? Uh? But yes. One of my favorite credit 131 00:06:45,839 --> 00:06:49,640 Speaker 1: rating high yield analysts will remain unnamed, basically said, look, Danielle, 132 00:06:49,839 --> 00:06:51,039 Speaker 1: if you really want to go to the quick and 133 00:06:51,040 --> 00:06:52,720 Speaker 1: dirty on this, if you can access the high yeld 134 00:06:52,760 --> 00:06:54,880 Speaker 1: bond market, go to the leverage loan market. They'll they'll 135 00:06:54,920 --> 00:06:57,479 Speaker 1: loan your money. So everything I'm saying about triple c's 136 00:06:57,640 --> 00:07:00,080 Speaker 1: you need to downgrade further if you're talking about the 137 00:07:00,160 --> 00:07:02,480 Speaker 1: leverage loan market. And we've and Molly Smith has done 138 00:07:02,520 --> 00:07:06,360 Speaker 1: a fabulous job reporting on this, we've definitely seen more 139 00:07:06,400 --> 00:07:09,320 Speaker 1: than just a few instances of leverage loans blowing up. 140 00:07:09,360 --> 00:07:11,440 Speaker 1: And when they blow up, because there's no covenants assigned 141 00:07:11,440 --> 00:07:14,240 Speaker 1: to them, they gap down very quickly, So I think 142 00:07:14,240 --> 00:07:16,920 Speaker 1: that's going to affect recovery rates um in the next 143 00:07:16,920 --> 00:07:20,000 Speaker 1: credit downturn. Daniel D. Martino Booth, thank you so much 144 00:07:20,040 --> 00:07:22,400 Speaker 1: for joining us. We really appreciate it. Daniel's CEO and 145 00:07:22,400 --> 00:07:25,600 Speaker 1: director of intelligence for Quill Intelligence UH and also a 146 00:07:25,640 --> 00:07:29,000 Speaker 1: former advisor of the Dallas Federal Reserve. Any Bloomberg opinion columns, 147 00:07:29,040 --> 00:07:30,800 Speaker 1: you can read all of her work, and that of 148 00:07:30,840 --> 00:07:34,000 Speaker 1: all the Bloomberg opinion on Bloomberg dot com, slash Opinion 149 00:07:34,080 --> 00:07:36,120 Speaker 1: or on the terminal O P I n GO. I 150 00:07:36,160 --> 00:07:39,200 Speaker 1: will say it raises an interesting question because it sort 151 00:07:39,200 --> 00:07:42,240 Speaker 1: of raises a challenge to the consensus heading into and 152 00:07:42,240 --> 00:07:45,320 Speaker 1: this was sort of my takeaway is that we have 153 00:07:45,560 --> 00:07:50,320 Speaker 1: this belief in stability, despite the political risk, despite the 154 00:07:50,360 --> 00:07:53,160 Speaker 1: fact that we have a number of headwinds to growth, 155 00:07:53,560 --> 00:07:58,360 Speaker 1: and if that gets upended, that upends the vast consensus 156 00:07:58,440 --> 00:08:00,760 Speaker 1: across Wall Street. And there are some warning signs that 157 00:08:00,800 --> 00:08:03,440 Speaker 1: there is not necessarily the strength to sort of keep 158 00:08:03,520 --> 00:08:06,480 Speaker 1: chugging through some of the uncertainty that could come up. Yeah, 159 00:08:06,680 --> 00:08:09,760 Speaker 1: absolutely right, And Daniel kind of calling out the labor market, 160 00:08:09,760 --> 00:08:11,840 Speaker 1: you should be again the print that we just had 161 00:08:11,880 --> 00:08:14,200 Speaker 1: this week on the labor market front was very strong, 162 00:08:14,240 --> 00:08:17,080 Speaker 1: and the market took that very in a bullish light, 163 00:08:17,160 --> 00:08:20,160 Speaker 1: and certainly the Fed did saying that the economy is 164 00:08:20,200 --> 00:08:37,920 Speaker 1: generally in very good shape. This is Bloomberg. I think 165 00:08:37,920 --> 00:08:39,800 Speaker 1: this is going to be my favorite game to play, 166 00:08:40,120 --> 00:08:43,959 Speaker 1: heading into your end, which is, let's name the consensus 167 00:08:44,080 --> 00:08:46,840 Speaker 1: and then decide whether or not we think it is 168 00:08:47,040 --> 00:08:50,240 Speaker 1: likely or not. Very red Holds joining us here to 169 00:08:50,280 --> 00:08:52,080 Speaker 1: play the game with us. Do do do do? Do Do? 170 00:08:52,080 --> 00:08:55,480 Speaker 1: Do do? We should have like a soundtrack for alright. 171 00:08:55,559 --> 00:08:58,000 Speaker 1: Very red Holts, Bloomberg opinion columnist and host of Masters 172 00:08:58,000 --> 00:09:01,800 Speaker 1: and Business on Bloomberg Radio, also founder of Redhol's Wealth Management, 173 00:09:01,840 --> 00:09:05,240 Speaker 1: joining us here in our interactive Broker Studios first consensus, 174 00:09:05,559 --> 00:09:08,280 Speaker 1: the economic fundamentals will stay strong and it will be 175 00:09:08,320 --> 00:09:13,360 Speaker 1: a coupon clipping year. So we have the industrial sector 176 00:09:13,440 --> 00:09:16,679 Speaker 1: in a recession already, and admittedly that's a much smaller 177 00:09:16,720 --> 00:09:19,560 Speaker 1: part of the economy than it used to be. Um 178 00:09:20,040 --> 00:09:24,120 Speaker 1: I hate the phrase uncertainty. I think it's a completely misused, 179 00:09:24,800 --> 00:09:28,680 Speaker 1: but you do have company executives saying we don't know 180 00:09:28,720 --> 00:09:30,680 Speaker 1: how the trade and tariff war is gonna be resolved. 181 00:09:30,720 --> 00:09:33,079 Speaker 1: We don't know where our supply chain is going to 182 00:09:33,160 --> 00:09:38,080 Speaker 1: be hit next, and that causes a slowdown in all 183 00:09:38,120 --> 00:09:41,599 Speaker 1: sorts of capital investment, from from trucks and rails to 184 00:09:41,920 --> 00:09:45,400 Speaker 1: new plants and ships. And it's a self inflicted wound. 185 00:09:45,400 --> 00:09:47,800 Speaker 1: And as long as this just continues to as long 186 00:09:47,840 --> 00:09:50,920 Speaker 1: as Lucy keeps pulling the football away and Charlie Brown 187 00:09:51,040 --> 00:09:53,520 Speaker 1: keeps being a soccker for it, two feet forward, two 188 00:09:53,559 --> 00:09:56,400 Speaker 1: feet backwards, we've made no forward progress with that. So, 189 00:09:56,760 --> 00:09:59,599 Speaker 1: you know, an okay year, maybe two to and a 190 00:09:59,679 --> 00:10:02,160 Speaker 1: quarter g g d P. Maybe towards the end of 191 00:10:02,160 --> 00:10:04,880 Speaker 1: the year, things start to soften. Hard to tell much 192 00:10:04,960 --> 00:10:06,920 Speaker 1: more than a quarter or two out. So this is 193 00:10:06,960 --> 00:10:09,240 Speaker 1: in other words, yes, he agrees with the consensus. Is 194 00:10:09,280 --> 00:10:11,600 Speaker 1: that is that the consensus? I honestly don't know. Yeah, 195 00:10:12,440 --> 00:10:15,880 Speaker 1: all right, another call here. The short term fed repo 196 00:10:16,080 --> 00:10:18,959 Speaker 1: market could in fact be a big problem for the markets. 197 00:10:19,080 --> 00:10:22,080 Speaker 1: You know, that's the silliest thing I hear everybody is is, 198 00:10:22,520 --> 00:10:24,360 Speaker 1: you know, the old line is to a man who's 199 00:10:24,400 --> 00:10:26,760 Speaker 1: only tool is a hammer, everything looks like a nail. 200 00:10:27,160 --> 00:10:30,120 Speaker 1: To the people who missed the financial crisis in oh 201 00:10:30,160 --> 00:10:32,439 Speaker 1: seven or eight or nine, and now they have a 202 00:10:32,440 --> 00:10:36,240 Speaker 1: little PTSD and they're just fearful of the next crisis. 203 00:10:36,760 --> 00:10:41,240 Speaker 1: They're scared of their own shadow. Everything they see is 204 00:10:41,280 --> 00:10:42,880 Speaker 1: the next book, you man, that's going to cause the 205 00:10:42,920 --> 00:10:46,600 Speaker 1: next market to get slashed and half and so everything 206 00:10:46,679 --> 00:10:51,240 Speaker 1: becomes We had a liquidity price crisis during the during 207 00:10:51,280 --> 00:10:53,320 Speaker 1: the O eight or nine period, so now everything else 208 00:10:53,400 --> 00:10:56,440 Speaker 1: is going to lead to a liquidity crisis. I first 209 00:10:56,440 --> 00:10:58,960 Speaker 1: of all, I don't imagine the FED would tolerate more 210 00:10:59,000 --> 00:11:01,520 Speaker 1: than a little bit of a problem. And you saw 211 00:11:01,559 --> 00:11:04,440 Speaker 1: their last response when things got gummed up. This is 212 00:11:04,480 --> 00:11:09,720 Speaker 1: a problem with the plumbing, not a systemic problem. Admittedly 213 00:11:10,920 --> 00:11:13,080 Speaker 1: was a plumbing problem that spun out of the out 214 00:11:13,080 --> 00:11:15,920 Speaker 1: of control. But this just doesn't look or smell like, 215 00:11:16,600 --> 00:11:19,240 Speaker 1: you know, an O eight o nine disaster. We should 216 00:11:19,240 --> 00:11:23,320 Speaker 1: have like a noise for rejected. It's rejected, all right. 217 00:11:23,440 --> 00:11:25,360 Speaker 1: The television show that does that already, I don't know 218 00:11:25,360 --> 00:11:28,720 Speaker 1: if it's ratings. Well. I want to get to the 219 00:11:28,760 --> 00:11:32,760 Speaker 1: next issue, which is developing markets versus developed markets. Developing 220 00:11:32,800 --> 00:11:36,839 Speaker 1: markets have that people expect them to perform better pretty 221 00:11:36,920 --> 00:11:40,800 Speaker 1: much across as a classes next year versus developed ones. Well, 222 00:11:40,920 --> 00:11:44,439 Speaker 1: E M is having a fantastic two day run. This 223 00:11:44,480 --> 00:11:46,520 Speaker 1: is the best two day run we've seen in emerging 224 00:11:46,559 --> 00:11:51,160 Speaker 1: markets in a long time. The gap on valuations between 225 00:11:51,160 --> 00:11:53,280 Speaker 1: the US and the rest of the world, the US 226 00:11:53,320 --> 00:11:57,600 Speaker 1: and and UM, e M or we won't even talk 227 00:11:57,640 --> 00:12:01,520 Speaker 1: about frontier markets is as large as it's ever been. 228 00:12:02,120 --> 00:12:05,960 Speaker 1: And if you believe in mean reversion, you would say 229 00:12:06,600 --> 00:12:09,679 Speaker 1: lighten up on the US by emerging market. However, you 230 00:12:09,720 --> 00:12:11,440 Speaker 1: could have said the same thing every year for the 231 00:12:11,480 --> 00:12:14,600 Speaker 1: past five years, and you would have been wrong. And 232 00:12:15,200 --> 00:12:18,240 Speaker 1: full disclosure, I've been wrong about this for a couple 233 00:12:18,240 --> 00:12:21,920 Speaker 1: of years. My only caveat is I've said I will 234 00:12:21,960 --> 00:12:24,200 Speaker 1: look like an idiot for two or three years and 235 00:12:24,240 --> 00:12:26,600 Speaker 1: then look like a genius. So now we're in year 236 00:12:26,640 --> 00:12:30,600 Speaker 1: two of looking like an idiot recommending e M. Who 237 00:12:30,640 --> 00:12:33,080 Speaker 1: knows how much longer I could go. We're starting to 238 00:12:33,160 --> 00:12:36,199 Speaker 1: see signs that the rest of the world is catching 239 00:12:36,280 --> 00:12:39,479 Speaker 1: up to the U. S okay, so that's with consensus. 240 00:12:39,840 --> 00:12:43,160 Speaker 1: I think so well. I was early wrong early, and 241 00:12:43,280 --> 00:12:46,520 Speaker 1: and as all traders know, early equals wrong. UM. But 242 00:12:46,679 --> 00:12:49,440 Speaker 1: I'm you know, I'm doubling down. My cognitive dissonance doesn't 243 00:12:49,440 --> 00:12:52,559 Speaker 1: see anything separate from what I've been seeing. The US 244 00:12:52,720 --> 00:12:55,600 Speaker 1: is fully valued I won't even say richly value. The 245 00:12:55,600 --> 00:12:57,520 Speaker 1: rest of the world is pretty cheap. If you want 246 00:12:57,520 --> 00:12:59,600 Speaker 1: to buy value, you look out side of the US. 247 00:12:59,640 --> 00:13:03,439 Speaker 1: If you want by momentum straight to the sp FED 248 00:13:03,520 --> 00:13:08,920 Speaker 1: is gonna do nothing in so I don't buy. So 249 00:13:08,960 --> 00:13:14,360 Speaker 1: here's the consensus. The consensus is quantitative tightening and rising 250 00:13:14,440 --> 00:13:17,600 Speaker 1: interest rates throttled back the economy and that's what caused 251 00:13:17,600 --> 00:13:22,800 Speaker 1: the Q drop. And I think that's utter nonsense. It 252 00:13:22,960 --> 00:13:27,120 Speaker 1: is a classic after the fact explanation that nobody said, Oh, 253 00:13:27,160 --> 00:13:29,240 Speaker 1: by the way, we're too tight and we're gonna see 254 00:13:29,240 --> 00:13:32,719 Speaker 1: a big drop. The president, Um, well he's he's been 255 00:13:32,720 --> 00:13:35,679 Speaker 1: saying that since the day he gets worn in um 256 00:13:35,760 --> 00:13:38,520 Speaker 1: after saying Janet Yellen should be ashamed of our low 257 00:13:38,600 --> 00:13:41,920 Speaker 1: rates previously. So I don't believe that we're too tight. 258 00:13:42,240 --> 00:13:46,680 Speaker 1: We are still very close to emergency footing. Um. I'm 259 00:13:46,720 --> 00:13:48,920 Speaker 1: not a big fan of higher rates, but I do 260 00:13:49,040 --> 00:13:52,840 Speaker 1: like the idea of the FED normalizing rates, normalizing their 261 00:13:52,880 --> 00:13:55,880 Speaker 1: balance sheets. I've been saying this for I don't know 262 00:13:56,040 --> 00:13:58,800 Speaker 1: seven years. Now it's time for the FED to stop 263 00:13:58,800 --> 00:14:04,319 Speaker 1: their extraordinary acommodation, which effectively has the result of driving 264 00:14:05,400 --> 00:14:08,240 Speaker 1: asset prices higher and not a whole lot more. No, 265 00:14:08,320 --> 00:14:10,199 Speaker 1: one is not buying a house, not buying a car, 266 00:14:10,400 --> 00:14:13,600 Speaker 1: not buying building a plan because rates fed fund rates 267 00:14:13,640 --> 00:14:15,720 Speaker 1: would go up to three or three and a half percent. 268 00:14:16,120 --> 00:14:18,120 Speaker 1: Borry Dholts, thanks so much for joining us and playing 269 00:14:18,120 --> 00:14:20,680 Speaker 1: our game with us. Bloomberg Opinion columns and host of 270 00:14:20,800 --> 00:14:23,800 Speaker 1: Masters in Business that's on Bloomberg Radio. He's also a 271 00:14:23,800 --> 00:14:26,040 Speaker 1: founder of Ridholts Wealth Management. Joining us here in our 272 00:14:26,040 --> 00:14:30,800 Speaker 1: Bloomberg Interactive Broker's studio. Consensus throw down, consensus, throw it 273 00:14:30,840 --> 00:14:33,160 Speaker 1: down like a bit. We'll take that to Anthony from Sparta, 274 00:14:33,200 --> 00:14:51,400 Speaker 1: see what he thinks. So we'll see. A couple of 275 00:14:51,480 --> 00:14:54,120 Speaker 1: days ago, the House passed the U s m c 276 00:14:54,360 --> 00:14:58,080 Speaker 1: A bill Mexico Canada, the US that trade build the 277 00:14:58,120 --> 00:15:00,600 Speaker 1: new NAFTA if you will. The question is now, when 278 00:15:00,800 --> 00:15:04,400 Speaker 1: will the Senate approve it? As well? To get some details, 279 00:15:04,440 --> 00:15:07,280 Speaker 1: we welcome Shannon O'Neil. She's a Senior Fellow for Latin 280 00:15:07,280 --> 00:15:10,120 Speaker 1: American Studies at the Council on Foreign Relations and also 281 00:15:10,120 --> 00:15:13,040 Speaker 1: a Bloomberg Opinion calumnist. Shannon, thanks so much for joining us. 282 00:15:13,200 --> 00:15:15,720 Speaker 1: I guess there's some conflicting signals from Senator to Mitch 283 00:15:15,800 --> 00:15:19,360 Speaker 1: McConnell about whether this UMS m c A bill can 284 00:15:19,400 --> 00:15:22,640 Speaker 1: get ratified in the Senate this year or is it 285 00:15:22,640 --> 00:15:25,560 Speaker 1: gonna be pushed into next year. What are your thoughts, Well, 286 00:15:25,600 --> 00:15:27,920 Speaker 1: he has said that he wants to wait until after 287 00:15:28,120 --> 00:15:31,680 Speaker 1: impeachment proceedings go far, which would be in the new year. 288 00:15:31,720 --> 00:15:34,320 Speaker 1: And also he hasn't been personally a big fan of 289 00:15:34,360 --> 00:15:37,280 Speaker 1: the changes to the to NAFTA, the new NAPTA called 290 00:15:37,280 --> 00:15:39,360 Speaker 1: the U S m c A UM but whether it 291 00:15:39,760 --> 00:15:42,000 Speaker 1: will probably push them too next year. But I would 292 00:15:42,240 --> 00:15:45,440 Speaker 1: highly doubtful that the Republicans would turn down this bill, 293 00:15:45,560 --> 00:15:48,600 Speaker 1: especially since the Democrats and the Trump administration have finally 294 00:15:48,600 --> 00:15:51,800 Speaker 1: gotten to a guess, Shannon, let's talk about the winners 295 00:15:51,840 --> 00:15:54,120 Speaker 1: and the losers from this steal. Can you give us 296 00:15:54,120 --> 00:15:56,920 Speaker 1: a sense of what we've learned so far as people 297 00:15:56,920 --> 00:16:00,920 Speaker 1: pass through the details. Well, I think there are political 298 00:16:00,960 --> 00:16:04,440 Speaker 1: winners on both side Trump administration had he Trump during 299 00:16:04,480 --> 00:16:06,920 Speaker 1: his campaign said he was going to renegotiate NAFTA, and 300 00:16:07,080 --> 00:16:10,440 Speaker 1: lo and behold, he has renegotiated NAFTA. On the same time, 301 00:16:10,480 --> 00:16:13,080 Speaker 1: the Democrats have wins there. They said that they would 302 00:16:13,080 --> 00:16:15,080 Speaker 1: fix the bill that they weren't on board with what 303 00:16:15,160 --> 00:16:19,080 Speaker 1: had originally negotiated, and they got, particularly in Mexico but 304 00:16:19,120 --> 00:16:22,040 Speaker 1: also Canada to move on something so they can go 305 00:16:22,120 --> 00:16:24,080 Speaker 1: back and say they have a win on labor issues 306 00:16:24,120 --> 00:16:27,200 Speaker 1: and environmental issues and the like. UM. As we look 307 00:16:27,240 --> 00:16:29,480 Speaker 1: at the U S economy, you know, I think American 308 00:16:29,520 --> 00:16:34,200 Speaker 1: companies in general, there's there's some wins there. Definitely Internet companies, 309 00:16:34,280 --> 00:16:37,720 Speaker 1: Amazon dot Com there are wins. They're both because you'll 310 00:16:37,760 --> 00:16:40,200 Speaker 1: see more e commerce going to the other countries. You 311 00:16:40,240 --> 00:16:43,000 Speaker 1: have the U taxes of what they called diminimus, the 312 00:16:43,040 --> 00:16:45,440 Speaker 1: amount of money you are allowed to send duty free 313 00:16:45,480 --> 00:16:48,600 Speaker 1: has increased in both Canada and Mexico. And also the 314 00:16:48,640 --> 00:16:51,720 Speaker 1: internet and tech companies fought back some changes that were 315 00:16:52,280 --> 00:16:56,360 Speaker 1: suggested by Democrats to uh to UM increase sort of 316 00:16:56,400 --> 00:16:59,360 Speaker 1: their obligations in terms of responsibility about what goes back 317 00:16:59,360 --> 00:17:03,080 Speaker 1: and forth US the borders. So internet side are winners 318 00:17:03,520 --> 00:17:07,720 Speaker 1: the losers. Actually, the biggest loser was the pharmaceutical industry. UM. 319 00:17:07,880 --> 00:17:10,040 Speaker 1: Things that they had wanted in U S. M c 320 00:17:10,160 --> 00:17:11,959 Speaker 1: A that had been in the first round got stripped 321 00:17:11,960 --> 00:17:13,439 Speaker 1: out in the second round. So I think they came 322 00:17:13,480 --> 00:17:15,920 Speaker 1: out the biggest losers this time around. And what looks 323 00:17:15,920 --> 00:17:19,040 Speaker 1: like we'll pass through the US House and Senate Shannon. 324 00:17:19,119 --> 00:17:21,680 Speaker 1: Some critics are suggesting that this is you know, much 325 00:17:21,720 --> 00:17:24,000 Speaker 1: ado about nothing, that the new NAPTA is not a 326 00:17:24,040 --> 00:17:28,240 Speaker 1: whole lot different from the existing NAFTA, and all we've 327 00:17:28,240 --> 00:17:30,399 Speaker 1: done has taken a year here to kind of you know, 328 00:17:30,760 --> 00:17:34,399 Speaker 1: banning about and get political and but nothing really changed. 329 00:17:34,840 --> 00:17:39,800 Speaker 1: Is that parity think? So there are some updates in 330 00:17:39,800 --> 00:17:42,119 Speaker 1: this in this version of it. And you NAFTA was 331 00:17:42,160 --> 00:17:45,080 Speaker 1: passed back in the world was a really different place 332 00:17:45,119 --> 00:17:48,879 Speaker 1: back then. So this version has different regulations for e 333 00:17:49,000 --> 00:17:52,440 Speaker 1: commerce and and digital flows of information that wasn't even 334 00:17:52,480 --> 00:17:55,400 Speaker 1: on the horizon really back in, so that is new. 335 00:17:55,960 --> 00:17:59,840 Speaker 1: We see updates in intellectual property right, some other types 336 00:17:59,880 --> 00:18:02,639 Speaker 1: of things that most of which were frankly included in 337 00:18:02,680 --> 00:18:05,399 Speaker 1: the t PP, the Transpacific Partnership, which was a big 338 00:18:05,560 --> 00:18:08,720 Speaker 1: Obama administration initiative with the countries in Asia as well 339 00:18:08,760 --> 00:18:11,399 Speaker 1: as Latin America. UM so some of that stuff is 340 00:18:11,440 --> 00:18:14,480 Speaker 1: new to NAFTA. Uh. Some of the things that just 341 00:18:14,600 --> 00:18:17,359 Speaker 1: came in this latest version sort of round three in 342 00:18:17,480 --> 00:18:21,840 Speaker 1: terms of labor oversight and enforcement and some environmental issues. 343 00:18:22,240 --> 00:18:25,199 Speaker 1: Those are a step up from the first NAFTA, so 344 00:18:25,240 --> 00:18:28,200 Speaker 1: I think there are changes there, but overall, what all 345 00:18:28,240 --> 00:18:31,119 Speaker 1: of this negotiation has done is kept the agreement between 346 00:18:31,119 --> 00:18:34,359 Speaker 1: the three countries, the United States, Canada, and Mexico to 347 00:18:34,640 --> 00:18:37,560 Speaker 1: continue trading and working with each other. When we heard 348 00:18:37,880 --> 00:18:41,359 Speaker 1: the press conference announcing this deal and that all parties 349 00:18:41,400 --> 00:18:44,000 Speaker 1: were going to be signing onto it, UH, there was 350 00:18:44,119 --> 00:18:48,000 Speaker 1: discussion about some heated phone calls with screaming on both 351 00:18:48,160 --> 00:18:52,160 Speaker 1: ends of negotiators, particularly with US and Mexico. I'm wondering, 352 00:18:52,440 --> 00:18:57,480 Speaker 1: after these negotiations are basically done and dusted, what's the 353 00:18:57,520 --> 00:19:02,160 Speaker 1: relationship going to be like between the US and Mexic go. Well, 354 00:19:02,200 --> 00:19:04,720 Speaker 1: when I've talked with people who have negotiated trade agreements 355 00:19:04,720 --> 00:19:07,400 Speaker 1: with all sorts of countries, it's there's always a few 356 00:19:07,440 --> 00:19:10,200 Speaker 1: moments where heated debate happen. So so I think the 357 00:19:10,240 --> 00:19:13,840 Speaker 1: screaming was not totally out of the UH the ordinary 358 00:19:13,840 --> 00:19:16,720 Speaker 1: when people get to this. But as we look, especially 359 00:19:16,760 --> 00:19:20,159 Speaker 1: at US Mexico relations, the trade issues have now been 360 00:19:20,200 --> 00:19:22,320 Speaker 1: taken off the table, and I think those in Mexico 361 00:19:22,359 --> 00:19:25,199 Speaker 1: are breathing a huge sigh of relief. Companies that operate 362 00:19:25,240 --> 00:19:26,840 Speaker 1: on both sides of the border at least now they 363 00:19:26,840 --> 00:19:28,959 Speaker 1: know what the rules are going to be going forward. 364 00:19:29,400 --> 00:19:32,000 Speaker 1: But we have other issues on the agenda with Mexico 365 00:19:32,119 --> 00:19:35,240 Speaker 1: and the United States, and the two biggest ones are migration, 366 00:19:35,760 --> 00:19:38,760 Speaker 1: not just Mexicans coming north, but particularly Central Americans that 367 00:19:38,800 --> 00:19:41,640 Speaker 1: have been coming through Mexico and coming to the United 368 00:19:41,640 --> 00:19:44,960 Speaker 1: States seeking asylum from violence and other problems in their countries. 369 00:19:45,280 --> 00:19:48,600 Speaker 1: And the other issue is security. Mexico has seen a 370 00:19:48,680 --> 00:19:52,080 Speaker 1: huge increase in homicides and other violence, and we've seen 371 00:19:52,080 --> 00:19:55,120 Speaker 1: a couple of high profile cases involving U S citizens 372 00:19:55,119 --> 00:19:57,840 Speaker 1: where they have been murdered, and so there are tensions 373 00:19:57,880 --> 00:20:01,000 Speaker 1: there between the countries. That will be the next big 374 00:20:01,040 --> 00:20:03,560 Speaker 1: issues on the agenda for the two of them. Shannon, So, 375 00:20:03,640 --> 00:20:07,840 Speaker 1: both the White House and Congress, particularly Democratics, Democrats and 376 00:20:07,840 --> 00:20:11,240 Speaker 1: Congress taking credit for this deal, saying it's a good 377 00:20:11,240 --> 00:20:14,840 Speaker 1: deal for America. How did the Canadians and Mexicans view 378 00:20:14,920 --> 00:20:19,240 Speaker 1: Did they view it as a good deal for them? 379 00:20:19,280 --> 00:20:21,560 Speaker 1: You know, a deal is a good deal for them. 380 00:20:21,600 --> 00:20:24,119 Speaker 1: So I think both countries were playing a bit defense 381 00:20:24,200 --> 00:20:27,879 Speaker 1: to make sure that NAFTA stayed together, the three countries 382 00:20:27,920 --> 00:20:30,920 Speaker 1: stayed together in a trading block. There are some things 383 00:20:30,920 --> 00:20:32,640 Speaker 1: in this that are good for both of those countries, 384 00:20:32,680 --> 00:20:34,480 Speaker 1: and and a lot of these updates to the old 385 00:20:34,560 --> 00:20:37,680 Speaker 1: NAFTA will be good for all three countries and their economies. 386 00:20:38,000 --> 00:20:40,680 Speaker 1: The Canadians actually in the latest round came out ahead 387 00:20:40,800 --> 00:20:43,000 Speaker 1: some of the things that they had not wanted to 388 00:20:43,040 --> 00:20:45,879 Speaker 1: do that they've given as a concession, particularly some of 389 00:20:45,920 --> 00:20:49,040 Speaker 1: the pharmaceutical issues that got stripped out. The Canadians one 390 00:20:49,119 --> 00:20:50,600 Speaker 1: on that because they had not wanted it in the 391 00:20:50,640 --> 00:20:54,159 Speaker 1: first place. But overall, I think this is a small 392 00:20:54,280 --> 00:20:57,760 Speaker 1: update is brings some new stuff into the overall mix. Uh. 393 00:20:57,840 --> 00:21:00,439 Speaker 1: It has some wins and loses in particular sectors that 394 00:21:00,440 --> 00:21:03,200 Speaker 1: we've talked about, But overall, what it does is keep 395 00:21:03,280 --> 00:21:05,520 Speaker 1: masked in from Mexico and Canada. That is what they 396 00:21:05,520 --> 00:21:08,080 Speaker 1: wanted in the first place. Shannon, just real quick here, 397 00:21:08,080 --> 00:21:10,720 Speaker 1: I'm wondering what your outlook is just in general on Mexico. 398 00:21:10,760 --> 00:21:13,000 Speaker 1: I know Mexican assets have had kind of a rocky year. 399 00:21:13,480 --> 00:21:18,080 Speaker 1: Uh so far, what are you looking for? Well, Mexico 400 00:21:18,160 --> 00:21:21,520 Speaker 1: has seen a huge decrease in investment, be foreign direct 401 00:21:21,560 --> 00:21:25,280 Speaker 1: investment but also domestic investment. Some of that was masked 402 00:21:25,359 --> 00:21:27,600 Speaker 1: uncertainty whether or not this deal is going to get passed, 403 00:21:27,800 --> 00:21:30,320 Speaker 1: but a lot of it comes from the domestic policies 404 00:21:30,400 --> 00:21:32,720 Speaker 1: of the Locus overdoor government. So as I look forward, 405 00:21:32,800 --> 00:21:34,960 Speaker 1: I look to see what he is going to be doing. 406 00:21:35,320 --> 00:21:36,639 Speaker 1: What is he going to be doing in terms of 407 00:21:36,640 --> 00:21:38,800 Speaker 1: the energy sector and the contracts that might be with 408 00:21:38,840 --> 00:21:42,480 Speaker 1: private companies, whether domestic or international. How is he going 409 00:21:42,520 --> 00:21:45,200 Speaker 1: to treat other sectors. Is there going to be investment 410 00:21:45,200 --> 00:21:47,879 Speaker 1: in infrastructure that would help the manufacturing sector, And like, 411 00:21:48,000 --> 00:21:50,200 Speaker 1: those are the things that in the end, I think 412 00:21:50,240 --> 00:21:53,760 Speaker 1: are going to determine whether Mexico grows faster than it 413 00:21:53,800 --> 00:21:56,160 Speaker 1: has been or if it continues to fall into recession. 414 00:21:56,480 --> 00:21:58,479 Speaker 1: Shannon O'Neill, thank you so much for being with us. 415 00:21:58,640 --> 00:22:01,640 Speaker 1: Shannon O'Neill a Senior Fellow for Latin American Studies at 416 00:22:01,640 --> 00:22:05,960 Speaker 1: the Council on Foreign Relations. She's also a Bloomberg Opinion calumnist, 417 00:22:06,560 --> 00:22:09,840 Speaker 1: joining us via phone. Really interesting to see the shake 418 00:22:09,840 --> 00:22:12,439 Speaker 1: out as people are trying to determine the winners and 419 00:22:12,480 --> 00:22:16,280 Speaker 1: the losers. Interesting the pharmaceutical industry is being pinpointed as 420 00:22:16,280 --> 00:22:18,840 Speaker 1: a big loser here. Like the way Shannon characterizes this 421 00:22:18,880 --> 00:22:21,600 Speaker 1: deal is it's essentially an update of the existing NAFTA 422 00:22:21,680 --> 00:22:24,119 Speaker 1: deal to take into account some of the changes that 423 00:22:24,160 --> 00:22:27,600 Speaker 1: have occurred in the economy and society since the early nineties. Yeah, 424 00:22:27,600 --> 00:22:29,480 Speaker 1: and we're hearing that from a number of people, just 425 00:22:29,520 --> 00:22:31,040 Speaker 1: to give you a sense of what's going on in markets. 426 00:22:31,040 --> 00:22:34,080 Speaker 1: You're actually seeing those gains get paired quite a bit, 427 00:22:34,119 --> 00:22:36,600 Speaker 1: with the DAZ dec now just up three tenths of 428 00:22:36,600 --> 00:22:39,879 Speaker 1: a percent, down from more than a percent earlier in 429 00:22:39,920 --> 00:22:43,320 Speaker 1: the trading session. I'm Lisa Bramoy. It's alongside my coast 430 00:22:43,359 --> 00:23:00,440 Speaker 1: and colleague Paul Sweeney, and this is Bloomberg. A big 431 00:23:00,520 --> 00:23:03,919 Speaker 1: question mark facing the market has been the housing market, 432 00:23:04,080 --> 00:23:07,720 Speaker 1: which had been showing signs of softness, seemed to stabilize 433 00:23:07,800 --> 00:23:11,840 Speaker 1: and even show signs of strength on the lower mortgage rates. 434 00:23:11,880 --> 00:23:16,240 Speaker 1: But there's a question now with affordability, with the prospects 435 00:23:16,480 --> 00:23:19,360 Speaker 1: going forward of uncertainty. Doug Duncan joining us right now. 436 00:23:19,400 --> 00:23:21,840 Speaker 1: He has senior vice president in chief economist at Fannie 437 00:23:21,840 --> 00:23:24,480 Speaker 1: May based in Washington, d C. He trekked up to 438 00:23:24,520 --> 00:23:27,400 Speaker 1: our interactive Brooker Studios today. Doug, thank you so much 439 00:23:27,440 --> 00:23:30,280 Speaker 1: for being here. I want to start with a survey 440 00:23:30,400 --> 00:23:34,120 Speaker 1: that you recently did of mortgage lenders. What is that 441 00:23:34,200 --> 00:23:37,320 Speaker 1: telling you right now about how people feel going into 442 00:23:38,680 --> 00:23:41,440 Speaker 1: sorry in a quarterly basis. It covers the whole spectrum 443 00:23:41,440 --> 00:23:46,120 Speaker 1: of lenders. What it's saying is that after three quarters 444 00:23:46,200 --> 00:23:51,280 Speaker 1: of increased after three quarters of increased profit expectations, those 445 00:23:51,320 --> 00:23:54,720 Speaker 1: expectations have leveled off, but at a high level. And 446 00:23:55,000 --> 00:23:58,040 Speaker 1: the reason for that leveling is that there's been a 447 00:23:58,080 --> 00:24:01,080 Speaker 1: burst of refinancing, which is slow wing, but there is 448 00:24:01,119 --> 00:24:03,560 Speaker 1: continue to be a pick up on the purchase side. 449 00:24:04,119 --> 00:24:07,639 Speaker 1: Uh So, on balance, they have stable and a strong 450 00:24:07,800 --> 00:24:11,919 Speaker 1: expectations for profits. Okay, so just a bit ago, the 451 00:24:11,920 --> 00:24:16,040 Speaker 1: Wall Street Journal was reporting on some trade negotiations and 452 00:24:16,080 --> 00:24:19,480 Speaker 1: how uh the US is offering to cut existing teriff 453 00:24:19,560 --> 00:24:22,919 Speaker 1: rates by up to fifty uh. They also are potentially 454 00:24:23,200 --> 00:24:25,720 Speaker 1: going to cancel the new tariffs that are said to 455 00:24:25,760 --> 00:24:29,200 Speaker 1: take effect on December fifteenth, and we saw longer term 456 00:24:29,320 --> 00:24:32,800 Speaker 1: treasury yields go up quite a bit. What's the tipping 457 00:24:32,880 --> 00:24:36,360 Speaker 1: point for the housing market for rates to go up 458 00:24:36,400 --> 00:24:41,800 Speaker 1: that would impede the progress? Well, the pay The question 459 00:24:41,920 --> 00:24:45,199 Speaker 1: is how fast and how far? So they could go 460 00:24:45,880 --> 00:24:48,880 Speaker 1: up two hundred basis points or two percentage points over 461 00:24:48,920 --> 00:24:53,040 Speaker 1: a three year period and have relatively slow and little impact. 462 00:24:53,280 --> 00:24:56,119 Speaker 1: But if they did that in a year like in 463 00:24:56,160 --> 00:24:58,680 Speaker 1: two thousand and eighteen where they rose a full percentage 464 00:24:58,680 --> 00:25:01,760 Speaker 1: point first half an and teams slow down in housing 465 00:25:02,200 --> 00:25:04,120 Speaker 1: rates of come back down, which is why you said 466 00:25:04,160 --> 00:25:07,080 Speaker 1: at the outset things have picked up or stabilized. So 467 00:25:07,400 --> 00:25:10,680 Speaker 1: household budgets don't adjust. You don't get a pay raise 468 00:25:10,720 --> 00:25:15,440 Speaker 1: every month. If interest rates go up monthly, you don't 469 00:25:15,440 --> 00:25:17,879 Speaker 1: get the same adjustment in household incomes. So there's a 470 00:25:18,000 --> 00:25:23,080 Speaker 1: lag on which households react. On the purchase side, in particular, 471 00:25:23,280 --> 00:25:26,480 Speaker 1: refinances more immediate because it's just a change of coupon 472 00:25:27,200 --> 00:25:29,800 Speaker 1: from the difference between your existing coupon and the market, 473 00:25:30,000 --> 00:25:31,800 Speaker 1: and you can act on that quickly. You're not moving 474 00:25:31,800 --> 00:25:33,879 Speaker 1: your family, so that One of the aspects of the 475 00:25:33,880 --> 00:25:37,720 Speaker 1: housing market that I don't fully understand is this concept 476 00:25:37,800 --> 00:25:40,720 Speaker 1: or this issue of the shortage of affordable housing UH 477 00:25:40,760 --> 00:25:43,520 Speaker 1: for for first time virus. Is that something because home 478 00:25:43,560 --> 00:25:48,200 Speaker 1: builders aren't buying entry level homes or what's really driving this, 479 00:25:48,240 --> 00:25:50,040 Speaker 1: Because it seems like if there's demand from Gen X 480 00:25:50,040 --> 00:25:52,600 Speaker 1: and the millennials, there should be supplyed to meet it. Well, 481 00:25:52,600 --> 00:25:55,200 Speaker 1: the builders are moving in that direction over the last 482 00:25:55,240 --> 00:25:58,040 Speaker 1: couple of years, the average square footage of a new 483 00:25:58,119 --> 00:26:02,199 Speaker 1: home being constructed has been bawling. But it's not the 484 00:26:02,280 --> 00:26:05,040 Speaker 1: core of builder market. The core of the builder market 485 00:26:05,080 --> 00:26:08,000 Speaker 1: is the move up buyer excuse me, not the entry 486 00:26:08,080 --> 00:26:11,880 Speaker 1: level bar So they're moving in that direction because there 487 00:26:12,040 --> 00:26:15,480 Speaker 1: is very strong demand and in every market if you 488 00:26:15,520 --> 00:26:17,639 Speaker 1: look at the low end of the market, the price 489 00:26:17,680 --> 00:26:20,879 Speaker 1: appreciation there is very strong. This is the millennial is 490 00:26:20,920 --> 00:26:23,359 Speaker 1: doing what they said they're gonna do when they add 491 00:26:23,760 --> 00:26:26,359 Speaker 1: uh an stable job and income, they're gonna buy a house, 492 00:26:26,400 --> 00:26:29,400 Speaker 1: and since two thousand fifteen, they're driving it. But their 493 00:26:29,640 --> 00:26:33,640 Speaker 1: entry level borrowers. And typically the entry level barrower buys 494 00:26:33,680 --> 00:26:37,280 Speaker 1: an existing home with the boomers aging in place like 495 00:26:37,320 --> 00:26:39,639 Speaker 1: they said they were gonna and the gen xer is 496 00:26:39,680 --> 00:26:42,480 Speaker 1: tearing the roof off, putting on a second floor because 497 00:26:42,520 --> 00:26:45,240 Speaker 1: they already own the land. Those two things are keeping 498 00:26:45,280 --> 00:26:49,400 Speaker 1: supply out from the entry level barrower. Where is there 499 00:26:49,520 --> 00:26:52,080 Speaker 1: a risk of over supply at this point? I mean 500 00:26:52,160 --> 00:26:55,400 Speaker 1: one feature of this housing cycle. People come on they 501 00:26:55,440 --> 00:26:57,879 Speaker 1: say there hasn't been overbuilding. Well, if you go to 502 00:26:57,880 --> 00:27:00,119 Speaker 1: certain cities, you see cranes all over the place. I'm 503 00:27:00,160 --> 00:27:03,240 Speaker 1: wondering where have we reached that tipping point in in 504 00:27:03,280 --> 00:27:07,320 Speaker 1: the United States. I actually think the risk is more 505 00:27:07,359 --> 00:27:10,080 Speaker 1: in the cost of living in that space and whether 506 00:27:10,240 --> 00:27:15,919 Speaker 1: companies move because the cost to their workers of attaining 507 00:27:15,960 --> 00:27:19,440 Speaker 1: housing is higher than their ability to pay wage rates 508 00:27:19,560 --> 00:27:22,240 Speaker 1: and stay profitable. So I think the risk is not 509 00:27:22,400 --> 00:27:25,439 Speaker 1: over building. It's a shift in demand because of a 510 00:27:25,600 --> 00:27:29,320 Speaker 1: change in where jobs are going. And you're seeing that now. 511 00:27:29,359 --> 00:27:33,400 Speaker 1: You're seeing some, uh, some companies in high cost markets 512 00:27:33,520 --> 00:27:36,879 Speaker 1: move jobs, say to Salt Lake City or to Reno 513 00:27:37,240 --> 00:27:40,479 Speaker 1: or to Phoenix, where housing is much more affordable, because 514 00:27:40,560 --> 00:27:42,879 Speaker 1: they're at the wage rates that they can pay and 515 00:27:42,920 --> 00:27:46,080 Speaker 1: remain profitable. They simply can't find housing for people. That's 516 00:27:46,080 --> 00:27:49,439 Speaker 1: why you see people like Google and Facebook and folks 517 00:27:49,480 --> 00:27:53,000 Speaker 1: like that saying we're going to build affordable housing is 518 00:27:53,119 --> 00:27:56,320 Speaker 1: because it's so expensive they at some point they can't 519 00:27:56,320 --> 00:27:59,280 Speaker 1: afford to pay higher wages to to house people there. 520 00:27:59,760 --> 00:28:03,320 Speaker 1: That's something we're looking at from a mobility perspective because 521 00:28:03,400 --> 00:28:05,720 Speaker 1: the question is if if you start moving jobs out 522 00:28:05,720 --> 00:28:08,200 Speaker 1: of the market, will prices start to come down because 523 00:28:08,280 --> 00:28:10,920 Speaker 1: demand for housing will fall right and people start to sell. 524 00:28:11,320 --> 00:28:14,159 Speaker 1: That's more of the risk than overbuilding. Uh. There's not 525 00:28:14,240 --> 00:28:17,679 Speaker 1: really a place where there's too much inventory at the 526 00:28:17,760 --> 00:28:22,719 Speaker 1: high end. That's that's a different story because high income 527 00:28:22,760 --> 00:28:25,960 Speaker 1: households have pretty much prepositioned themselves where they want to 528 00:28:26,000 --> 00:28:28,719 Speaker 1: be and taking advantage of low rates and locked in 529 00:28:28,960 --> 00:28:32,199 Speaker 1: very low rates and are unlikely to move, so that 530 00:28:32,280 --> 00:28:35,080 Speaker 1: part of the market is softer than you see at 531 00:28:35,080 --> 00:28:37,359 Speaker 1: the entry level. Dog Duncan, thank you so much. We 532 00:28:37,400 --> 00:28:40,520 Speaker 1: appreciate your comments as always on the housing market. Dug Duncan, 533 00:28:40,600 --> 00:28:43,320 Speaker 1: Senior Vice President, chief Economist for Fannie May joinings here 534 00:28:43,440 --> 00:28:46,719 Speaker 1: in our Bloomberg Interactive Broker Studio and Lisa Continued strength 535 00:28:46,920 --> 00:28:49,440 Speaker 1: across the in the financial markets s and P up 536 00:28:49,440 --> 00:28:52,160 Speaker 1: over one percent on again the tweet from President Trump 537 00:28:52,160 --> 00:28:54,560 Speaker 1: about trade, and then of course that report coming out 538 00:28:54,560 --> 00:28:56,920 Speaker 1: of down Jones in the Wall Street Journal about tears 539 00:28:57,080 --> 00:28:59,040 Speaker 1: rolling back not just some of the existing tearrits or 540 00:28:59,080 --> 00:29:00,960 Speaker 1: some of the newer tariffs holding off on those, but 541 00:29:01,040 --> 00:29:03,680 Speaker 1: maybe rolling back some of the existing terrorists in the market. 542 00:29:03,720 --> 00:29:06,480 Speaker 1: Taking that as a bullish sign, is that December fifteen 543 00:29:07,080 --> 00:29:11,960 Speaker 1: deadline for additional tariffs ways on the market. Yeah, Negotiators 544 00:29:12,000 --> 00:29:15,480 Speaker 1: are reportedly offering to cut Chinese tariffs up to fift 545 00:29:15,960 --> 00:29:19,440 Speaker 1: on three hundred and sixty billion dollars in imports that 546 00:29:19,560 --> 00:29:22,240 Speaker 1: said the U s would reimpose the original tariff level 547 00:29:22,240 --> 00:29:24,480 Speaker 1: of China failed to carry out pledges. These are some 548 00:29:24,560 --> 00:29:27,160 Speaker 1: of the offers that are being reported uh that are 549 00:29:27,200 --> 00:29:29,400 Speaker 1: a part of the discussions that the US and Chinese 550 00:29:29,480 --> 00:29:32,800 Speaker 1: trade negotiators are having. I'm Lisa bram Woe's alongside Paul Sweeney. 551 00:29:32,880 --> 00:29:36,200 Speaker 1: This is Bloomberg Markets. Thanks for listening to the Bloomberg 552 00:29:36,240 --> 00:29:38,920 Speaker 1: pen L podcast. You can subscribe and listen to interviews 553 00:29:38,960 --> 00:29:42,800 Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, 554 00:29:42,840 --> 00:29:45,560 Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa abram Woids. 555 00:29:45,600 --> 00:29:48,560 Speaker 1: I'm on Twitter at Lisa A. Bramwoits one before the podcast. 556 00:29:48,640 --> 00:29:51,240 Speaker 1: You can always catch us worldwide on Bloomberg Radio.