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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot Com, the radio, plus Globo Last and on your radio.

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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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Speaker 1: I'm Katherine Cownery. Stocks remained higher and the dollars slept

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Speaker 1: after minutes from the Federal Reserve's last meeting did little

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Speaker 1: to alter perceptions for the timing of higher interest rates.

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Speaker 1: Concerns it fallout from the Brexit vote may spread drove

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Speaker 1: demand for havens. The SMP five thundered held games as

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Speaker 1: a minute indicated. May's week jobs report fueled uncertainty amount

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Speaker 1: among FETE officials about the economy. The data since, including

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Speaker 1: a report on the services industries today, helped rekindle investor optimism.

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Speaker 1: We check a Marcus every fifteen minutes throughout the trading day.

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Speaker 1: TOW Industrial Average currently up sixty four points a third

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Speaker 1: of a percent, trading at seventeen thousand, nine hundred five.

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Speaker 1: SMP five funded up nine points a half a percent

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Speaker 1: trading at two thousand ninety eight, then as to act

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Speaker 1: as hire by thirty three points, a gain of two

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Speaker 1: thirds of a percent, trading at forty eight fifty five.

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Speaker 1: West Texas intermediate crude oil up seventy five cents to barrel,

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Speaker 1: one point six percent to forty five spout rolled up

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Speaker 1: seven dollar sixty cents, agounts at thirteen sixty six thirty

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Speaker 1: and a ten year treasury unchanged with the yield of

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Speaker 1: one point three seven percent. And that's a Bloomberg business flash.

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Speaker 1: Thank you very much. Katherine Cowdery. It's time now for

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Speaker 1: the e t F report. Let's go to Catherine Cowndery

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Speaker 1: for news on exchange traded funds. It's another record for

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Speaker 1: Vanguard Group. The firm attracted one forty eight billion dollars

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Speaker 1: in new client money during the first half of the year.

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Speaker 1: Vanguard is benefiting from a growing preference for low cost

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Speaker 1: vehicles at track indexes. Bloomberg Intelligence analist Eric Beltuna says

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Speaker 1: Vanguard is branching out. They've got active ETFs in London

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Speaker 1: and in Canada now and they filled exempty relief to

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Speaker 1: launch them in the US. Here's why that's a big

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Speaker 1: deal is because right now, the average fee for an

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Speaker 1: active ETFs seventy six basis points. Vanguard's active ets would

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Speaker 1: probably cost in the range of twenty thirty right so

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Speaker 1: that would be a massive undercutting just like they always do. Right,

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Speaker 1: they come in a Vanguard a category. Beltuna says. When

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Speaker 1: Vanguard lowers its expense phase other firms follow suit. He

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Speaker 1: calls it a blessing in disguise. Remember, active managers have

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Speaker 1: to overcome their feed before they even get to zero.

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Speaker 1: Then they have to outperform from there. So the lower

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Speaker 1: their feed, the closer to the starting line they are,

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Speaker 1: and the more they all perform. Beltuna says, it could

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Speaker 1: lead to a renaissance in the active et F space.

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Speaker 1: That's your Bloomberg ETF report. I'm Katherine Calderie. This is

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Speaker 1: taking stock with Kathleen Hayes and Grim Fox on Bloomberg Radio.

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Speaker 1: The world wide bond rally, I think it might be

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Speaker 1: better to call it a stab peede continues as Japan's

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Speaker 1: twenty year government bond yield fell below zero for the

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Speaker 1: first time. As ultra low yields worldwide, many of them negative,

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Speaker 1: I now failed to deter investors from rushing to buy

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Speaker 1: government bonds, particularly as they'd rather get a little return

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Speaker 1: on their money if they can that benchmark ten your treasury,

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Speaker 1: as Katherine Calary just says at one point three seven,

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Speaker 1: the thirty year down to two point one. For what

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Speaker 1: does this mean? Are there signals from the bond market

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Speaker 1: we should be heating? Should we buy them now? Ira

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Speaker 1: Harris joins this now global macro trader and in house

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Speaker 1: analysts for Vine Street Trading out in Chicago, and his

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Speaker 1: fans in the bond world know him for his regular

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Speaker 1: missive notes from the underground. Ira, welcome back, Thanks you

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Speaker 1: great to be with you. Well, you know you've been

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Speaker 1: a bond guy for a long long time. When you

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Speaker 1: see so many bondyields turning negative, what do you think?

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Speaker 1: There is nothing to think because nobody in there. I mean,

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Speaker 1: I've been doing this almost thirty nine years going on

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Speaker 1: forty and I never saw anything. I didn't nobody could

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Speaker 1: have thought anything like this, And it only gets more

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Speaker 1: protracted and from me an investor's point of view, or

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Speaker 1: savers worse. So it's there really are no words to

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Speaker 1: describe it. All you can do. It's just that the

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Speaker 1: Fed has their reaction function and everybody who trains bonds

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Speaker 1: as their reaction function, and never the twain shall meet.

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Speaker 1: All right, let's talk about something that meets in the

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Speaker 1: European Union, and this is a sort of a brexit

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Speaker 1: vote that has to at least sort of work itself

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Speaker 1: out in some kind of reality. Is it? Is it

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Speaker 1: too crazy to think that perhaps if the European Union

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Speaker 1: isn't a sinking ship, that maybe it's taking on a

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Speaker 1: lot of water, and then in the future it's going

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Speaker 1: to look as though this Brexit vote was an intelligent

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Speaker 1: move them. I couldn't agree with you more. I think

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Speaker 1: that's exactly what's going on and why, because we know

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Speaker 1: that there's a rush for the ECB to purchase as

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Speaker 1: much as they're able to purchase and keep loading that

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Speaker 1: balance sheet up, and that's I would make it that

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Speaker 1: it's the most distorting factor going on in the market

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Speaker 1: right now because everything is a relative value. And I

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Speaker 1: was just going through Limburg's sheet that I look at

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Speaker 1: the two ten yields curves for most of the countries

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Speaker 1: and the two tens, you know, there's so much debt

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Speaker 1: right now that the UH, the ECB cannot even buy.

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Speaker 1: So they're moving down the quality ladder um quite a bit.

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Speaker 1: You know, as I'm looking at the sheet right in

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Speaker 1: front of me, they cannot buy uh. Certainly of the

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Speaker 1: two years they can't buy or they're close to not

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Speaker 1: being able to buy Ireland, they can buy Spain, they

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Speaker 1: can buy Italy, and I'm talking about the two year

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Speaker 1: debt here. They cannot buy the Netherlands, they cannot buy

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Speaker 1: a little Denmark, they cannot buy Germany, they cannot buy Frances.

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Speaker 1: They can do because they can only pay the the

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Speaker 1: rate overnight rate there is negative forty, so they cannot

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Speaker 1: die anything that is yielding less than negative forty. So

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Speaker 1: if you're at negative fifty, they cannot buy of that duration.

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Speaker 1: So if they keep pushing the some pustion, this was

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Speaker 1: less and less to buy, which is why they just

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Speaker 1: announced that they were lower in the quality of the

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Speaker 1: assets that they were able to buy. So the question

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Speaker 1: I have it's I think it's hard to sort out

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Speaker 1: any other time. If we had never heard of quantity

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Speaker 1: of these things, central banks buying bonds, if we've never

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Speaker 1: heard we've never heard of a central bank like the

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Speaker 1: Bank of Japan consciously moving towards negative rates, uh, we

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Speaker 1: would take via tremendous drop in bond yields and unprecedented

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Speaker 1: negative territory as a sign that the world economy must

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Speaker 1: be falling apart. Now it's not doing great, but it

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Speaker 1: doesn't seem to be falling apart. Is there a signal

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Speaker 1: other than just wow, I gotta grab some yell before

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Speaker 1: it goes even lower. Yes, you know I think that.

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Speaker 1: And plus you know Pim and uh Get you know,

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Speaker 1: you two have been reporting and around long enough to

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Speaker 1: understand this that they're in today's world, you know, with

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Speaker 1: the huge expanse of and you know Bloomberg has built

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Speaker 1: their life on it on the repall market. And when

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Speaker 1: you need repot, you need quality assets in order to repot.

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Speaker 1: Otherwise the market, as we saw back in two thousand

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Speaker 1: and seven, two thousand and eight, when people stop lending

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Speaker 1: the assets that you needed to facilitate the repot market,

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Speaker 1: it dried up. Now it's drying up only because there's

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Speaker 1: just not enough assets to back, you know, for quality repot,

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Speaker 1: I need a bund. If I'm going to go to

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Speaker 1: a repot in the European market, I need high quality assets.

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Speaker 1: And yes, you know. That of course gets a bigger

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Speaker 1: question that I wrote about last night and talked about

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Speaker 1: in that. I asked the question about zero risk weighted assets.

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Speaker 1: And I don't want to get too complicated here and

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Speaker 1: dig into this, but if you have a zero risk

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Speaker 1: weighted asset. And by law right now, by banking regulations,

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Speaker 1: I should say sovereign debt, all sovereignett is considered zero

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Speaker 1: risk weighting, so banks can buy this and not have

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Speaker 1: to old and he reserves against it. Now, tell that

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Speaker 1: to an Italian bank right now, you know him. That's

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Speaker 1: exactly right. So I asked that question to a jero

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Speaker 1: And Powell last week when he was in Chicago. I

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Speaker 1: always I like to go to see these people when

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Speaker 1: they come through. Yeah, And I asked him, you know,

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Speaker 1: point blank, and he said, well, that's just the way

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Speaker 1: it is a zero risk. Now. That was interesting to

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Speaker 1: me because two months earlier at the same forum we

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Speaker 1: had uh Homi Karuna, who used to be the big

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Speaker 1: Spain who is now at the b I S. And

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Speaker 1: I asked him that similar question now that he was

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Speaker 1: at the b I S, because he have a different

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Speaker 1: mindset about this, and his answer was very telling. He says, yeah,

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Speaker 1: I look at it quite differently, and he thinks that

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Speaker 1: savagn debt should not be equally zero risk ways because

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Speaker 1: Spanish debt is not the equivalent of German debt. Spanish

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Speaker 1: debt is not the equivalent of U S treasury debt.

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Speaker 1: It's just not the same and therefore why should it

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Speaker 1: carry this waiting. But we know the answer to that.

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Speaker 1: They're not going to change in the midstream right now

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Speaker 1: because can you imagine if they didn't have a zero

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Speaker 1: roust waiting on Italian debt what the impact would be

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Speaker 1: to the Italian banks who would have to go out

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Speaker 1: and raising Well, interesting because that's one reasons why the

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Speaker 1: banks said they bought Greek sovereign bonds, as you know,

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Speaker 1: Ira they said, but they were rated equally with the

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Speaker 1: German sovereign. So you're raising a very important point. Does

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Speaker 1: this mean anything for central banks? Well, they re should

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Speaker 1: they rethink their quantitative easing strategy? No, Ariana cultural Lakota

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Speaker 1: Um he's the former head of the Minneapolis Fed at

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Speaker 1: this point, very devish thinks the Fed should be lowering

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Speaker 1: it's Fed funds rate targets. Thinks they should consider considering

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Speaker 1: negative rates and all kinds of tools would But this

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Speaker 1: make the problem better or worse. Maybe not the problem

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Speaker 1: just this following yields Well, it is a real problem.

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Speaker 1: But let's take it to a bigger level, because we're

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Speaker 1: talking about central banks and the European Central Bank in

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Speaker 1: my mind is an anomaly because you know, and again

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Speaker 1: I asked your own power. The first part of the

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Speaker 1: I asked him a two part question, the risk zero

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Speaker 1: risk wading was the second part. The first part was

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Speaker 1: who guarantees the e c B? And of course he

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Speaker 1: gave me the classic answer, which is, all, the ECB

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Speaker 1: has a printing press, you know, And I really when

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Speaker 1: I pondered that, and I knew that's what he would say.

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Speaker 1: But well, let's think about that. Just because you have

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Speaker 1: a printing press with a fiat currency, that's kind of scary.

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Speaker 1: You know, the FED has a printing press, but they

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Speaker 1: still have to answer to the fiscal authorities, and the

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Speaker 1: and and the legislative authorities. He should be answers to nobody,

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Speaker 1: and they don't have a harmonized fiscal situation. So who

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Speaker 1: stands behind that balance? She of the e c B.

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Speaker 1: If it's only a printing press, I'm more you know,

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Speaker 1: which I know it is. It's pretty scary though, Thank

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Speaker 1: you very much for frightening us. Thank you very much.

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Speaker 1: Ira Harris is a global macro trader in house analyst

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Speaker 1: for a Vine Street of Trading based in Chicago. He

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Speaker 1: can be followed on Twitter at Ira Harris, that's y

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Speaker 1: R A H A double r i S. You're listening

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Speaker 1: to taking Stock and this is Bloomberg. H