Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well,
Speaker 1: at a time like this, when markets are full of uncertainty,
Speaker 1: it works to UH talk with someone who's gotten a
Speaker 1: lot of very big predictions right. And I want to
Speaker 1: bring in, uh that person, Mark Grant, chief strategistic Hilltop Securities,
Speaker 1: who nailed the fact that President Trump was going to
Speaker 1: win the election in November and also has gotten bond
Speaker 1: calls right as well as oil calls. Mark, thank you
Speaker 1: so much for joining us now. Uh. In your latest note,
Speaker 1: you were talking about oil, and as we see right now,
Speaker 1: oil is pois for its biggest weekly drop in at
Speaker 1: least four weeks. Um are we heading lower here? I
Speaker 1: think so, Lea's I think, first of all, thank you
Speaker 1: for your kind comments. I feel like if I could
Speaker 1: bow on the radio, I would do it. Yes, I
Speaker 1: think oils had probably fifty where we are exactly at
Speaker 1: this moment is the technical support level. I think we're
Speaker 1: gonna break it and head down towards I think the
Speaker 1: American shale oil producers are in a fabulous position, the
Speaker 1: best position we've been in fifty years, to begin exporting
Speaker 1: oil and bringing in revenues, increasing our tax base, and
Speaker 1: in fact the numbers are so bigly said that it
Speaker 1: can literally balance the budget if we start moving in
Speaker 1: that direction. Mark Grant, I want you to talk about
Speaker 1: risk and several of the items that you've recently written
Speaker 1: about having to do with risk and how people see
Speaker 1: not to be able to perceive it, and you use
Speaker 1: the quote from Warren Buffett. Risk comes from not knowing
Speaker 1: what you're doing. Yes, but I think that's the correct statement.
Speaker 1: I think Mr Buffett nailed at the There are a
Speaker 1: number of ruth areas right now that I will not
Speaker 1: be involved in, uh, just because that's personally the way
Speaker 1: I do business. With the big institutional accounts I talked to,
Speaker 1: Fannie Mae and Freddie Mack are both a lot of risk.
Speaker 1: I don't want anything to do with their bonds because
Speaker 1: we don't know what they're gonna do with those two
Speaker 1: agencies Um, you could look at the European Bank deet right,
Speaker 1: the European Bank debt, the Tier one bonds I think
Speaker 1: have a tremendous amount of risk. Banco Popular Air is
Speaker 1: likely to go over the edge of the cliff and
Speaker 1: then we're gonna have to see how Europe deals with
Speaker 1: that situation. Uh. There have been big pain trades in
Speaker 1: both bonds. I said yields were going lower. I think
Speaker 1: I may have been one of the three people in
Speaker 1: the world at set it and everybody talked that everybody
Speaker 1: we're gonna have three percent yields right now in the
Speaker 1: tenure were to sixteen this morning. And as Lisa mentioned,
Speaker 1: oils the other big pain trade. OPEC keeps saying, you know,
Speaker 1: they're going to cut back and cut back. The problem
Speaker 1: they have is we can produce more than they can.
Speaker 1: So just to continue that thread, cheap loans to buy
Speaker 1: things such as automobiles, commercial mortgage backed securities. Right, those
Speaker 1: are two other areas PIM, and I'm glad you mentioned
Speaker 1: one would be subprime auto loans. I think the automobile
Speaker 1: market has been saturated in a way almost like the
Speaker 1: sub prime real estate market was. Was very cheap credit
Speaker 1: and I think we're about to end get to the
Speaker 1: end of that cycle, so I want nothing to do
Speaker 1: with those securities. And then c mbs, a commercial mortgage
Speaker 1: asset back bonds of real estate, especially anything connected with
Speaker 1: retail stores. Amazon On and the Internet companies are just
Speaker 1: eating the lunch of the traditional retail stores, and I
Speaker 1: see a huge problem in that area of credit as well. Well,
Speaker 1: let's talk about what you do. Like I'm wondering now
Speaker 1: that we see a ten year yield on the treasury
Speaker 1: of two point one six percent, do you think that
Speaker 1: yields go lower from here? Are you advising clients to buy.
Speaker 1: I'm advising clients to um go into a mixed picture,
Speaker 1: which I call cash flow investing, which is to buy
Speaker 1: corporate bonds five to ten years space to get a
Speaker 1: yield of around four percent. By the way, corporate bonds
Speaker 1: right now, even after taxes, have better yields, and municipal bonds,
Speaker 1: and then take half of their money and go into
Speaker 1: what I call closed in bond funds. They are about
Speaker 1: hundred or seven or so I like, and they're all
Speaker 1: yielding around at ten percent and higher, and they have
Speaker 1: a monthly check, which I think is critical. So a
Speaker 1: ten percent yield. Actually, because of the compound, interest is
Speaker 1: worth about eleven point one percent. So you put the
Speaker 1: two together, you're getting around seven and a quarter seven
Speaker 1: and a half percent on your money. And I think
Speaker 1: most of the run inequities is done, and I think
Speaker 1: that's a very good place to put money, both for
Speaker 1: institutions as well as for individuals. You know, Mark, I
Speaker 1: just want to push back a little bit because you
Speaker 1: said corporate bonds, in particular, leverage ratios have reached their
Speaker 1: all time highs with some of these particularly investment grade companies.
Speaker 1: They've been packing on debt at a faster pace than
Speaker 1: they've been increasing their revenues, and it's been heavily weighted
Speaker 1: towards telecommunication companies that face somewhat uncertain future. Does that
Speaker 1: concern you at least one? I think that's a fabulous
Speaker 1: point you're making. It. Does it concern me when interest
Speaker 1: rates are this low? No, that would be my short answer.
Speaker 1: You know, I pay attention to it, I look at it.
Speaker 1: But you have to bear in mind the additional debt
Speaker 1: is going in at such low interest rate. It's given
Speaker 1: profit margins that they're just increasing the size of their
Speaker 1: business we're doing stock buy backs in some cases, but
Speaker 1: I don't have a big concern about it now. So Mark,
Speaker 1: this looks like a very low yield picture that you're
Speaker 1: advising your clients to expect. How much have estimated forecasts
Speaker 1: for turns that you're talking with your clients about, how
Speaker 1: much have they come down? That've come down substantially. The
Speaker 1: reason we're in this very low interest rate environment, my opinion,
Speaker 1: is the ECB and the Japanese Central Bank now have
Speaker 1: bigger balance sheets and the FED. The yields in Europe
Speaker 1: and and Asia are much lower, some of them negative.
Speaker 1: At one point we had over eleven trillion dollars in
Speaker 1: negative yielding securities that we're now down to probably around
Speaker 1: eight trillion. But the the monetization of debt by the
Speaker 1: central banks all over the world has been huge, and
Speaker 1: that just is pushing yields down. And and then I think,
Speaker 1: of course with the FED, that Mr Trump has the
Speaker 1: ability at any point in time here to appoint four
Speaker 1: members of the FED, if not more, but we know
Speaker 1: for for sure. I think they are going to be
Speaker 1: business people. I think the FED is going to become
Speaker 1: much more pragmatic, and I think that a call for
Speaker 1: this return to normalcy, which is an economic theory I
Speaker 1: think is going to get too overturned. And as as
Speaker 1: the new members of the FED are appointed, Mark speak
Speaker 1: if you can just briefly about pension liabilities that exist
Speaker 1: in the United States when it comes to municipalities, their
Speaker 1: bond issuance and also UH, the risks that may be
Speaker 1: attended to those that people don't really understand. Certainly been
Speaker 1: the amount of pension liabilities is the biggest that's ever
Speaker 1: been unfunded pension liabilities. I've advised that the institutions I
Speaker 1: speak with, insurance companies, money managers to stay away and
Speaker 1: or take more assertive action in terms of I municipal
Speaker 1: pension funds. Uh, they're in a lot of them are
Speaker 1: in big trouble. We've seen, you know, some announcements in
Speaker 1: the press about some but it was recently estimated by
Speaker 1: the Houver Institute that Connecticut, for example, and their municipalities
Speaker 1: had about sixty five billion dollars and unfunded pension liabilities.
Speaker 1: We can look at Dallas, we can look at a
Speaker 1: number of other cities that have been mentioned in the
Speaker 1: press for worth, and they're just huge problems out there
Speaker 1: having to do with these pension funds. Thanks for sharing
Speaker 1: your thoughts with us. Smart Grant is the chief strategist
Speaker 1: at Hilltop Securities, giving us his view of risks that
Speaker 1: currently exist in the market that people may not be
Speaker 1: paying attention to. We were talking earlier about the report
Speaker 1: that came out today disappointing headline number also showing that
Speaker 1: wages are not going anywhere. But perhaps uh there is
Speaker 1: more optimism here uh than meets the eye. I want
Speaker 1: to bring in Neil Data, who's head of US economics
Speaker 1: for Renaissance Renaissance Macro Research, who joins us by phone. Neil,
Speaker 1: thank you so much for joining us. I want to
Speaker 1: start with the idea that perhaps this job's report shows
Speaker 1: that the FEDS policy of holding rates low is actually
Speaker 1: still helping get people off the sidelines. That was a
Speaker 1: sentiment that you seem to express in a Bloomberg News
Speaker 1: article yesterday. Uh is that how you read this? Well?
Speaker 1: I don't read this report that way, because the labor
Speaker 1: force participation rate uh fell and um you know, it
Speaker 1: fell for prime age workers as well, so to fifty
Speaker 1: four year old Um you know. But I think the
Speaker 1: general trend for for prime aged participation has been up
Speaker 1: broadly speaking since early UM. You know, if you look
Speaker 1: at UM, I think what you're trying to get at
Speaker 1: is UM. It is definitely true that UM. I think
Speaker 1: easy monetary policy generally is UM. You know, pulling people
Speaker 1: back into the workforce. UM. You know at the margins, right,
Speaker 1: so you know, for example, UM, part time for economic reasons,
Speaker 1: that's down, right, the U six unemployment rate, that's down.
Speaker 1: If you look at those not in the labor force
Speaker 1: that want a job right now, that's down. So UM.
Speaker 1: You know that's the sign of a healthy labor market,
Speaker 1: is that's your you know, long term unemployment is down.
Speaker 1: So I mean that that tells you that if the
Speaker 1: labor market is strong enough to pull down the unemployed,
Speaker 1: for the people that are the most difficult to bring
Speaker 1: into employment. UM, that's saying something. I mean. So if
Speaker 1: you take a look at, for example, within the Peril Report,
Speaker 1: I mean leisure and hospitality earnings, UM, that number relative
Speaker 1: to total private sector earnings hourly earnings is over six.
Speaker 1: So you know, when you have a sector like leisure
Speaker 1: and hospitality, which is you I think most would agree
Speaker 1: a low wage sector UM rising relative to other industries
Speaker 1: in terms of wage growth. Um, So that's that income
Speaker 1: inequality in some respects of declining. Right. So, UM, I
Speaker 1: mean I think the labor markets are tightening. Um, I
Speaker 1: think the FED is going in June. Um. I think
Speaker 1: there was enough in this report, and I mean it's
Speaker 1: about taking a holistic approach. I mean, I think there's
Speaker 1: been enough to date to suggest that, you know, the
Speaker 1: headline payroll number today is probably not quite as weak
Speaker 1: as as this was reported, and I think the underlying
Speaker 1: trend rather is is probably so much stronger than the
Speaker 1: number we got today. UM. So you know, and I'm
Speaker 1: and I'm I think there's enough in there to, um,
Speaker 1: you know, to kind of draw some encouraging signs about
Speaker 1: the outlook, Neil, Is there enough in there to draw
Speaker 1: any conclusion about what's going on with the yield curve
Speaker 1: and why it is flattening so much? Oh? Well, I
Speaker 1: mean I think that. I mean, I think that's um,
Speaker 1: that's me. That's all vious. I mean, the wage number
Speaker 1: was sluggish and labor force participation rate fell, which implies
Speaker 1: lower potential GDP. At the same time, I think, you know,
Speaker 1: the odds of a June hiker fairly much set in
Speaker 1: the stone at this point. Um. You know, while this
Speaker 1: number was weak, it's not quite as week to shift
Speaker 1: the odds of June. So you know, the FED hiking
Speaker 1: and potential growth is slowing someone at the margin based
Speaker 1: on this data point at least, and so you get
Speaker 1: you get a flatter yeel curve. UM. Now I do
Speaker 1: think that, you know, you have to weigh this, as
Speaker 1: I say, against the data that's come in, and GDP
Speaker 1: tracking is in the vicinity of around three to four
Speaker 1: percent in the current quarter. That was the Atlanta FED report, right,
Speaker 1: Well that was yesterday. I mean, we'll see what what
Speaker 1: what number they come up with today. I mean the
Speaker 1: trade numbers, for example, probably pushed that number a little
Speaker 1: bit lower. Um, you know, but at the end of
Speaker 1: the day, I mean GDP growth in the second quarter
Speaker 1: is going to show a meaningful rebound relative to the
Speaker 1: first UM. And you know, I think the odds are
Speaker 1: that when you average out the first two quarters of
Speaker 1: the year, you're growing at about two and alf for sense,
Speaker 1: So you have to weigh that against against this job's number.
Speaker 1: So if you have stronger GDP growth but somewhat slower
Speaker 1: employment growth, what does that mean? That means productivity is
Speaker 1: going up right, and that's yeah, sorry, good, No real
Speaker 1: quick question. If this report does signal some kind of
Speaker 1: slowing down of the the employment picture, do you think
Speaker 1: this takes the third hike for off the table for
Speaker 1: the Fed. It's possible. It's certainly possible. I mean, it's
Speaker 1: also possible that the GDP numbers are relatively healthy and
Speaker 1: that core inflation firms and the FED can still go
Speaker 1: in in um in September. I mean, I think the
Speaker 1: big story is, you know, in sten the FED needed
Speaker 1: overwhelming evidence to hike. Now they need overwhelming evidence not
Speaker 1: to and we're not there yet. I want to thank
Speaker 1: you very much for joining us. Neil Data is the
Speaker 1: head of US economics for Renaissance Macro Research, giving us
Speaker 1: his thoughts about today's jobs report and also about the
Speaker 1: future of US GDP performance. We want to take a
Speaker 1: moment to let you know about something new from Bloomberg.
Speaker 1: Starting right now, you can use our I O s
Speaker 1: app or our new Google Chrome extension to scan any
Speaker 1: news story on any website, instantly revealing relevant news and
Speaker 1: market data from Bloomberg and other sources related to the
Speaker 1: companies and people you're reading about. So no matter where
Speaker 1: you're reading the news. You can bring the power of
Speaker 1: Bloomberg's news and data with you. It's pretty amazing. Download
Speaker 1: our io s app or search for the Bloomberg extension
Speaker 1: on the Chrome Store to try it out. Learn more
Speaker 1: at bloomberg dot com slash lens. Yesterday we got the
Speaker 1: announcement from President Trump that he plans to withdraw the
Speaker 1: US from the Paris Climate Accord, making the US one
Speaker 1: of three nations g tobally that are not part of
Speaker 1: this pact. To get a better sense of what the
Speaker 1: implications really are, I want to bring in Rob Barnett.
Speaker 1: He is based in London, our senior energy policy analysts
Speaker 1: for Bloomberg Intelligence. Rob, you know, after some closer examination,
Speaker 1: we're getting a lot of reports that perhaps this will
Speaker 1: make no difference whatsoever with respect to the US is
Speaker 1: adoption of UH environmentally friendly sources of energy. What's your
Speaker 1: take on this, Well, depends on whether you have a
Speaker 1: medium term or long term view. In the medium term,
Speaker 1: it really doesn't make a difference. Trump had already signaled
Speaker 1: that we weren't going to do the Clean Power Plan
Speaker 1: and other types of policies in the US, so frankly,
Speaker 1: being in the Paris agreement or not didn't really change
Speaker 1: the landscape for policy in the US. But to your
Speaker 1: earlier point, the the industry has already been shifting to
Speaker 1: lower emissions without having the Paris Agreement or without having
Speaker 1: many of the policies that President Barack Obama was pushing for.
Speaker 1: Emissions were declining by an average of about one point
Speaker 1: three percent a year in the US for the last decade.
Speaker 1: So we've seen market declines without really having the policy.
Speaker 1: None of those fundamental underlying factors have changed that have
Speaker 1: been allowing for that decline to occur, Rob, Can you
Speaker 1: tell us a little bit about cap and trade programs,
Speaker 1: how they currently work, and whether they are successful. Sure? So,
Speaker 1: capin trade, one thing is that often gets used in
Speaker 1: almost synonymous terms with Paris, the Paris Agreement, or any
Speaker 1: of the policies being discussed in the United States. But
Speaker 1: the thing is cap and trade is far from the norm.
Speaker 1: Less than ten percent of emissions around the world are
Speaker 1: subject to cap and trade programs, and that's where you
Speaker 1: have a tradeable credit for where emitters trade for the
Speaker 1: right to emit carbon oxide into the atmosphere. Now there
Speaker 1: are use such programs in the US, for instance, out
Speaker 1: in California if you want to admit CEO too, it
Speaker 1: costs about a little over fourteen dollars per ton right now.
Speaker 1: But the interesting thing about that is for the jurisdictions
Speaker 1: that do have captain trade California, Europe, parts of Asia,
Speaker 1: they don't care whether Trump's in the Climate Paris Climate
Speaker 1: Agreement or not. So right now, the withdrawal of the
Speaker 1: US has very little impact on the resolve of lawmakers
Speaker 1: and those jurisdictions to continue with those kind of programs.
Speaker 1: You know, Robbie started out talking about how in the
Speaker 1: short term it's hard to see that there's going to
Speaker 1: be a significant difference. What about the long term, Well,
Speaker 1: over the long term, it is quite likely that policy
Speaker 1: is going to be needed to continue to drive emission's lower.
Speaker 1: Uh if we're going to hit this uh you know,
Speaker 1: two degree warming threshold, so having temperatures go no more
Speaker 1: in two degrees. So interesting to note that Paris itself
Speaker 1: didn't get us to that to degree threshold. So even
Speaker 1: if you if all countries complied with Paris, you wouldn't
Speaker 1: get there. So an incremental policy, new policy is needed
Speaker 1: to drive emissions lower over the long term, at least
Speaker 1: with the current technology mix. So if you had a
Speaker 1: future president who thought like President Donald Trump does on
Speaker 1: this issue, you might not see those kinds of policies
Speaker 1: coming in and driving those new technologies into the marketplace.
Speaker 1: But at least in the short run, it's not that meaningful.
Speaker 1: Long term though, if you look out over kind of
Speaker 1: twenty thirty, forty years, UH, it would be meaningful. So
Speaker 1: it just depends on how long we continue with the
Speaker 1: president who doesn't really want to tackle the issue. Well.
Speaker 1: The President yesterday and speaking in the Rose Garden about
Speaker 1: the US withdraw from the Paris Climate Accord, mentioned the
Speaker 1: coal industry. What are your thoughts about the coal industry
Speaker 1: and is there a revival likely to happen? Certainly not
Speaker 1: in the US, and we're seeing the UH use of
Speaker 1: coal slow globally, so uh the plants that have already
Speaker 1: closed in the United States, they're not coming back. It's
Speaker 1: interesting the note, even with President Trump and his pro
Speaker 1: coal rhetorical stance, we're continuing to see coal plants UH
Speaker 1: closures being announced from companies like A E. S and
Speaker 1: others that have said even since he's been elected that
Speaker 1: they're going to close their coal plants. And over in
Speaker 1: Europe and elsewhere, you're seeing a lot of resolve to
Speaker 1: tackle coal. So France, Emmanuel mccrolan has said he wants
Speaker 1: to close all of the coal plants in France. Bye.
Speaker 1: Here in the UK they're aiming to have all coal
Speaker 1: plants closed by so none of them is changing in
Speaker 1: spite of the rhetorics that's coming out of President Donald Trump.
Speaker 1: So in our view at least, it's going to be
Speaker 1: very difficult to uh drive incremental new coal demand from
Speaker 1: loosening some of this policy. In the U S. It's
Speaker 1: just not gonna work. Just gonna mention that just yesterday
Speaker 1: Brighton Point power Station in Somerset in Massachusetts, that's the
Speaker 1: largest qualifier plants in New England UM went dark on Wednesday.
Speaker 1: It's part of the shutdown. It's been underway for several years.
Speaker 1: That's right. You've got to keep in mind that New
Speaker 1: England is one of the parts of the US that
Speaker 1: is pushing very hard on the issue of climate whether
Speaker 1: you have a president like Donald Trump in place or not.
Speaker 1: In the Northeast, just like in California, they've got cap
Speaker 1: and trade in place, so Brighton Point would have been
Speaker 1: subject to that trading program and it and it increases
Speaker 1: the cost of using cold if you if you have
Speaker 1: to pay for those emissions. So uh certainly uh in
Speaker 1: any state where you have that kind of program in place,
Speaker 1: you're gonna see less uh less emphasis on using cole,
Speaker 1: more emphasis on natural gas and renewables. Thank you very much.
Speaker 1: Rob Barnett as our senior Energy policy analyst for Bloomberg Intelligence,
Speaker 1: joining us from London. Just go to b I go
Speaker 1: on the Bloomberg for more information. Thanks for listening to
Speaker 1: the Bloomberg P and L podcast. You can subscribe and
Speaker 1: listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast
Speaker 1: platform you prefer. I'm pim Fox. I'm on Twitter at
Speaker 1: pim Fox. I'm on Twitter at Lisa abramowits one before
Speaker 1: the podcast. You can always catch us worldwide on Bloomberg Radio.