WEBVTT - Mather: if Fed waits too long, it faces impossible situations

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<v Speaker 1>Broadcasting live to New York Bloomberg eleventh, Riyo to Washington,

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<v Speaker 1>d C, Bloomberg one to Boston, Bloomberg well Moneys to

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<v Speaker 1>plus Apen Bloomberg dot Com. This is Hoomwork, Surveillance and Governing.

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<v Speaker 1>I'm Karen Moscow along with Tom Keene and Michael McKee

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<v Speaker 1>on the opening val Brasso. You buy s c I

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<v Speaker 1>Imaginement Asset management. Servicing is unconstrained by infrastructure. CISCUS Global

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<v Speaker 1>Operating Platform can be your cantalyst for a business expansion

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<v Speaker 1>at se i C dot com. Slash Imagine stalks are

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<v Speaker 1>higher at the open. The SNP five hundred up a

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<v Speaker 1>tenth of upper cent or two points to ninete six

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<v Speaker 1>down Jones Industrial Average up a tenth of upper cent

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<v Speaker 1>or seventeen points to sixteen thousand, nine hundred sixty six.

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<v Speaker 1>The NASDAC up almost two tenths per cent or seven

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<v Speaker 1>points to forty seven fourteen ten. Your treasury down nine

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<v Speaker 1>thirty seconds. The yield one point at six percent yield

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<v Speaker 1>on the two year point eight six percent. Non Mex

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<v Speaker 1>screwed oil is up about eight ten percent or nine

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<v Speaker 1>dollars thirty cents to twelve sixty seven. Actually that was

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<v Speaker 1>Comic gold. Comex gold is up seven tens per cent

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<v Speaker 1>or nine dollars forty cents to twelve sixty seven. Seventy

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<v Speaker 1>ounce Nimex screwed oil is up eight ten percent or

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<v Speaker 1>twenty six cents to thirty four eighty five of barrel.

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<v Speaker 1>The Euro is at a dollar oh nine seven one.

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<v Speaker 1>The yen is at one thirteen point seven six. Tom

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<v Speaker 1>and Mike came Mosco. Thank you very much. Well, this

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<v Speaker 1>is really exciting because every job's day we have our

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<v Speaker 1>usual gang of analysts and they're all here today. Um

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<v Speaker 1>Muhammad has come to the mountain for for a change.

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<v Speaker 1>Scott Mather's chief investment officer at PIMCO, made his way

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<v Speaker 1>all away from Newport Beach into the snowstorm. Uh here

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<v Speaker 1>in New York not that's knowing that hard, but it's

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<v Speaker 1>still not Newport Beach weather and has joined us here

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<v Speaker 1>in studio. Thank you for coming in making that effort.

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<v Speaker 1>I know, did you tweeted it you'd be on at

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<v Speaker 1>six thirty am. You're thinking Pacific time, but it is

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<v Speaker 1>nine thirty here the jobs numbers today, we're seeing a

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<v Speaker 1>reaction in the market's tenure. Note yield is down about

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<v Speaker 1>a quarter of a point at this point, to yield

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<v Speaker 1>is up to one point eight seven percent. How high

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<v Speaker 1>do we go? How much do we read into the

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<v Speaker 1>strength of the economy right now? Yeah, it is sort

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<v Speaker 1>of a strange market reaction from my perspective. And the

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<v Speaker 1>markets sort of yawned at this number. I guess they

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<v Speaker 1>don't know what to make of the fact that there's

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<v Speaker 1>a lot of jobs being created, but wages appear to

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<v Speaker 1>be down, the work weeks down, um, so that's why

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<v Speaker 1>we're unchanged. But I think it's the type of employment

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<v Speaker 1>number that definitely puts the FED back in play. It

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<v Speaker 1>certainly didn't this month or well, I doubt March, but

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<v Speaker 1>certainly June. And I think that we'll hear more about

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<v Speaker 1>that at this upcoming meeting, So you know, I think

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<v Speaker 1>markets are a little bit unprepared for that and a

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<v Speaker 1>little bit uh too sanguent about the possibility of the

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<v Speaker 1>FED being on the move in the summertime. Again, certainly

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<v Speaker 1>not the type of employment number though that indicates there's

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<v Speaker 1>a recession you know, on the horizon, and of course

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<v Speaker 1>that was the concern, uh, you know, just to myth ago.

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<v Speaker 1>So we think it's much more reasonable that the Fed

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<v Speaker 1>manages to to move two or three times this year. Uh.

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<v Speaker 1>And the market's not even priced for the full high

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<v Speaker 1>until you know, basically first quarter and the first quarter

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<v Speaker 1>of next year. So there's quite a disconnect between where

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<v Speaker 1>the market is, where we think the Fed will be,

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<v Speaker 1>and then further where the Fed things they'll be. What

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<v Speaker 1>where should we be then were if you were if

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<v Speaker 1>you were the market, where would you set the yield? Well,

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<v Speaker 1>I think that it's reasonable to expect the Fed still

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<v Speaker 1>wants to move about once a quarter until they get

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<v Speaker 1>to a level of of rates they believe is neutral,

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<v Speaker 1>which we think is is somewhere around two percent. The

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<v Speaker 1>Fed sort of things that that's the number two. They

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<v Speaker 1>talk about zero percent real being the right number. So

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<v Speaker 1>as we progress through the year and as inflation goes

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<v Speaker 1>back up, headline inflation goes back up uh to to

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<v Speaker 1>the Fed's target around two Um. You know, by that

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<v Speaker 1>time in theory they should be at neutral. That would

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<v Speaker 1>be the end of the year. That's the question is

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<v Speaker 1>how fast does it get there? Because the whole debate

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<v Speaker 1>is over whether the FED moves earlier to head it

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<v Speaker 1>off or whether they wait and have to move faster. Well, right,

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<v Speaker 1>And the longer they wait there, they're going to be

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<v Speaker 1>facing some you know, some impossible uh, some impossible situations. Right.

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<v Speaker 1>Imagine if we do begin to see inflation move up

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<v Speaker 1>to target, in fact exceed target. Uh, and yet they're

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<v Speaker 1>only at seventy basis points and telling the market that

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<v Speaker 1>neutral is that, you know, long term neutures and three

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<v Speaker 1>and a half and there and in short term might

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<v Speaker 1>be at two percent. I think that you know what

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<v Speaker 1>you could see happening sort of? What how do we

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<v Speaker 1>think this plays out? Is that the market will will

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<v Speaker 1>move from being overly obsessed about deflationary risks to putting

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<v Speaker 1>a decent probability on the Fed allowing or maybe engineering

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<v Speaker 1>and overshoot of inflation for a few years. And that

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<v Speaker 1>seems quite likely that shift will probably happen over the

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<v Speaker 1>course of this year. Scott. Your your background at PEN

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<v Speaker 1>is in material science, engineering and the Absolute Textbook, which

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<v Speaker 1>which I waited through a zillion years ago, it seems,

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<v Speaker 1>and statics and dynamics and forces in friction and all

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<v Speaker 1>that was Goldstein. What what I don't get is the

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<v Speaker 1>inertial forces were in right now things are so messed up.

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<v Speaker 1>We've got a great distortion, we've got financial repression. Now

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<v Speaker 1>we have negative interest rates overlaid upon that. How can you,

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<v Speaker 1>as a pro work within the Newtonian mechanics, physics, and

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<v Speaker 1>engineering of all the theory you and I learned where

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<v Speaker 1>we are right now? Tell us how you do that

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<v Speaker 1>day to day at PINCO if you don't know where

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<v Speaker 1>the risk free rate is, just as one example, Well,

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<v Speaker 1>that's a good question. I mean, there is no textbook theory,

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<v Speaker 1>there's nothing to go off of it your Monday morning

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<v Speaker 1>meeting and pimcoff I guess it's one of the reasons

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<v Speaker 1>we see the dangers of zero and negative interest rate

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<v Speaker 1>policy um growing over time. It's a function of time

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<v Speaker 1>in our opinion, So we think it's right for the

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<v Speaker 1>Fed to be moving further off of zero. We think

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<v Speaker 1>it doesn't have to be a bad thing for the economy.

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<v Speaker 1>It's going to create some volatility and financial markets, no

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<v Speaker 1>question about it, but we think that's probably the right

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<v Speaker 1>thing to do to stabilize growth, to return some normalcy

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<v Speaker 1>to the Because we get normalcy. You want that. Vice

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<v Speaker 1>Chairman Fisher wants that. Chairman Greenspan wants that, and on

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<v Speaker 1>and on. As we move that vector to normalcy, what

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<v Speaker 1>will be the ramifications to portfolio volatility? Even if the

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<v Speaker 1>portfolio is diversified, so portfolio volatility will be going up.

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<v Speaker 1>And that has to be sort of one of the

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<v Speaker 1>you know, the key tenants of of your outlook yield up,

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<v Speaker 1>price down. They'll they'll be two way actions, just like

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<v Speaker 1>we've seen this year. You'll have choppiness in the markets.

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<v Speaker 1>You'll certainly have uh used the VIX as a proxy.

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<v Speaker 1>We think the VIX will spend most of his time

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<v Speaker 1>around twenty rather than the low teens for the next

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<v Speaker 1>few years. That's the statement of the week for all

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<v Speaker 1>of you. You know, we do all this mumbo jumbo

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<v Speaker 1>on economics, and that what Scott Mather just told you

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<v Speaker 1>is extremely important. The complacency and lassitude that we've seen,

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<v Speaker 1>it's not a to be there. That's that's right. So

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<v Speaker 1>it's gonna you know, this adjustment process is going to

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<v Speaker 1>result in a lot of financial market of altity, probably

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<v Speaker 1>not as much real economic volatility as people are concerned about, though,

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<v Speaker 1>and that's what we've seen so far. Look at the

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<v Speaker 1>look at the draw down of aultility we had in

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<v Speaker 1>August and September, you had no appreciable effect on underlying

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<v Speaker 1>economic momentum. Probably the same thing is true of of

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<v Speaker 1>what happened in January and February. Well, that's interesting because, um,

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<v Speaker 1>even some FED people have started looking at those numbers

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<v Speaker 1>and what happened and saying it may have an impact.

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<v Speaker 1>And you have people saying, well, inflation expectations appear to

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<v Speaker 1>have become unmoored by looking at the markets. You seem

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<v Speaker 1>to be taking issue with that. Well, I'm taking issue

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<v Speaker 1>with that of it. I think one of the one

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<v Speaker 1>of the features of zero rate policy, low rate policy,

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<v Speaker 1>and certainly negative interest rate policies. It pulls down nominally yields.

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<v Speaker 1>We would say that also pulls down inflation expectations embedded

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<v Speaker 1>in the bond market. You know, nobody really talks about

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<v Speaker 1>that too much, but mechanically, if you pull down the

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<v Speaker 1>you know, tenure in amo yield, you decompose it into

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<v Speaker 1>inflation and real components. You know, it's it's it's illogical

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<v Speaker 1>to assume that all the reduction and interest rates can

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<v Speaker 1>be attributed to the real component. You sort of will

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<v Speaker 1>have to also pull down the expected inflation component. I'm

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<v Speaker 1>gonna want to chase Ford to equity. We saw Honeywell

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<v Speaker 1>ut X that fell apart, or we can see a

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<v Speaker 1>lot of M and A this year. I mean within

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<v Speaker 1>the dynamics of growth the global macro system to CFOs

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<v Speaker 1>have a feeding frenzy even bigger than last year. We

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<v Speaker 1>we would think. So that's a trend that probably continues.

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<v Speaker 1>You know, when there's low, when there's little top line growth,

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<v Speaker 1>everyone you gotta go find it. Yeah, PIMCO can emerge

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<v Speaker 1>with Franklin. I think that's quite unlikely. But okay, thank

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<v Speaker 1>you what surveyless exclusive there we will make clearer than

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<v Speaker 1>mr Mr Mather is not responsible for opining on that

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<v Speaker 1>for the Pacific Investment Management Company. We're gonna come back

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<v Speaker 1>with Scott Mather and important discussions. Thrilled he's in our

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<v Speaker 1>studios in New York to We're also thrilled to tell

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<v Speaker 1>you oil with it better than good week, West Texas

0:09:05.679 --> 0:09:11.320
<v Speaker 1>eight Brent thirty seven. Oil crisis over. That's all it means.

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<v Speaker 1>Futures the market rather up nine points alright. Time now

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<v Speaker 1>to check in with Michael var and get the latest

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<v Speaker 1>world in national headlines, Michael, Mike, Tom, thank you very much.

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<v Speaker 1>Donald Trump's Republican presidential rivals say they will support him

0:09:26.000 --> 0:09:28.599
<v Speaker 1>if he wins the nomination. At last night's debate on

0:09:28.720 --> 0:09:31.520
<v Speaker 1>Fox News and Detroit, Ted Crew said he would prefer

0:09:31.640 --> 0:09:35.720
<v Speaker 1>Trump to either of the Democratic presidential contenders. He also

0:09:35.880 --> 0:09:37.920
<v Speaker 1>says that he is calling for getting rid of the

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<v Speaker 1>Internal Revenue Service. When we get rid of all the

0:09:41.520 --> 0:09:44.640
<v Speaker 1>corporate welfare, all the subsidies, all the car about in

0:09:44.720 --> 0:09:48.000
<v Speaker 1>the i r S code, it dramatically simplifies it. And

0:09:48.080 --> 0:09:50.920
<v Speaker 1>under Obama, the i r S has become so corrupt

0:09:51.120 --> 0:09:54.040
<v Speaker 1>and so politicized. We need to abolish it all together.

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<v Speaker 1>We will bring you more on the Republican presidential race

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<v Speaker 1>from former nomineem ad Rom Needle will speak with Bloomberg

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<v Speaker 1>All It Takes, Managing editor Mark Halperin at one thirty

0:10:02.600 --> 0:10:06.760
<v Speaker 1>pm Wall Street Time on Bloomberg Television and Radio. Federal

0:10:06.920 --> 0:10:09.000
<v Speaker 1>and state authorities are looking for the source of a

0:10:09.080 --> 0:10:14.000
<v Speaker 1>mysterious blood infection blamed for eighteen deaths in Wisconsin. French

0:10:14.040 --> 0:10:17.160
<v Speaker 1>aviation investigators are looking into a report that a drone

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<v Speaker 1>narrowly missed a passenger plane during its approach to Paris's

0:10:21.360 --> 0:10:24.600
<v Speaker 1>Charles de Gaulle Airport. The cold pilot spotted the drone

0:10:24.600 --> 0:10:26.840
<v Speaker 1>within about sixteen feet of the wing of the airbus

0:10:26.920 --> 0:10:30.040
<v Speaker 1>A three twenty as it came in for landing. The

0:10:30.160 --> 0:10:33.840
<v Speaker 1>incident happened on February nineteenth. Global News twenty four hours

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<v Speaker 1>a day, powered by our journalists and more than a

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<v Speaker 1>hundred fifty news bureaus from around the world. Now Michael

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<v Speaker 1>bar night time. Michael, thanks so much, immensely appreciated. See

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<v Speaker 1>you on Monday. We will continue Scott Mather with us

0:10:46.559 --> 0:10:49.839
<v Speaker 1>with Pimco as we look for the week forward. What

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<v Speaker 1>to think of an economics finance investment don't forget Mit

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<v Speaker 1>Romney one thirty with Mark Helper in worldwide Blueberg Surveillance

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<v Speaker 1>brought you by a Bank of America Merrill Lynch committed

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