Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: make some analysis and some thoughts on that latest FED decision.
Speaker 1: Kathleen Hayes, Global Economics and Policy editor at Bloomberg News.
Speaker 1: Right next to me in our Bloomberg Interactive Broker studio
Speaker 1: and along with us is Dave Wilson, Stocks Editor at
Speaker 1: Bloomberg News, also in our New York studio. Kathleen, let's
Speaker 1: start with you. Widely expected uh we got to uh
Speaker 1: FED lowering it's interest raced by a quarter of a point,
Speaker 1: also lowering it's right on overnight reverse repos by thirty
Speaker 1: basis points. As somebody said, not an enormous surprise for
Speaker 1: the markets. Bonds and the dollar move more than stocks,
Speaker 1: but there is no fireworks to report yet. And that
Speaker 1: makes from j Palis press contin what stands out for
Speaker 1: you well that this is basically what was expected. I
Speaker 1: think anybody who was previewing the FED on radio or
Speaker 1: television in the last twenty four hours was saying, yes,
Speaker 1: basis point cut baked in the cake. Uh. The descents
Speaker 1: by Esther George Present president of Kansas City FED, Eric Rosen,
Speaker 1: Grand President of Boston FED dissenting because they don't think
Speaker 1: a rate cut is needed exactly what happened in July
Speaker 1: also seemed to me and many others that Jim Bullard,
Speaker 1: he who recently argued for a fifty basis point rate cut,
Speaker 1: he dissented in favor of that. Uh. The cutting the
Speaker 1: interest on excess reserves will put more reserves into the
Speaker 1: system because the banks will have less incentive to put
Speaker 1: their reserves at the FED. The lord the rate is
Speaker 1: and they whole and people also were looking for something
Speaker 1: ten to fifteen, maybe the thirty basis points. So that
Speaker 1: should then take pressure off the repo rate. It should
Speaker 1: help people effective funds rate where the FED wants it again,
Speaker 1: that was pretty much expected. I don't and that. So
Speaker 1: this is now the fourth time they've been doing this
Speaker 1: since about the last year and a half. And this
Speaker 1: was also much bigger move in the past when they've
Speaker 1: tweaked that, when they've lowered the interest rate on excess
Speaker 1: reserves to make sure it stays below the FED funds
Speaker 1: rate and puts the reserves into keep the effective funds
Speaker 1: rate from getting too high, it's only been like a
Speaker 1: five basis point move five or ten. So this is
Speaker 1: a more aggressive move, and surely J. Powe is going
Speaker 1: to get so asked so many questions about this starting
Speaker 1: about a half an hour from now. What about the
Speaker 1: FED dot plot because I'm looking at it in terms
Speaker 1: of what we might see, because I think that was
Speaker 1: also very key, Right we got an update on this
Speaker 1: and what the expectations are, because I feel like the
Speaker 1: market expectations are pretty aggressive for more rate cuts to come.
Speaker 1: So it looks like one eight seven five percent um.
Speaker 1: The prior was two point three, same number prior was
Speaker 1: above that, So it looks like raining it in, pulling
Speaker 1: him in. But you tell me in terms of I'm
Speaker 1: trying to kick I'm trying to read really quickly and
Speaker 1: get a better look at the dot plots themselves, because
Speaker 1: it seems to me that there there may be a
Speaker 1: little more generous move here. But um, it's just this
Speaker 1: is one of the most hortant parts the boy. That's okay,
Speaker 1: check that out, because in the meantime, I want to
Speaker 1: take a look at the equity markets, because we did
Speaker 1: see equity losses steep and initially we're bouncing back off
Speaker 1: there's lows. But SNP was down about eight heading into
Speaker 1: the FED decision, now down about twelve. Dad was off
Speaker 1: about fifty eight points, now down about eighty six points,
Speaker 1: and the nastack was showing about a loss of forty
Speaker 1: four going into that rate decision. It's now down about
Speaker 1: fifty eight points, but it did dip even lower Dave.
Speaker 1: So we did see an initial reaction. Yeah, I mean
Speaker 1: you've you've seen some volatility really the spind of bouncing
Speaker 1: around a bit, though it's settled in at lower levels
Speaker 1: roughly where it was before the decision came out. And
Speaker 1: why would the reaction be what it is? Probably as
Speaker 1: much as anything, because you know, there seems to be
Speaker 1: a split along the you know, fed governors about what
Speaker 1: do you do from here and the need for more
Speaker 1: e absolutely, and that really becomes the question because you
Speaker 1: know you've got people in the markets looking for multiple
Speaker 1: rate cuts and with that two of them, but you
Speaker 1: know that they're anticipating that you were possibly get two
Speaker 1: more or three and more depending on who you pay
Speaker 1: attention to. So really it's it's that that kind of
Speaker 1: jumps out coming off our news desk here. Uh No
Speaker 1: surprising on the main action, but the dot plot of
Speaker 1: rate forecast, just to kind of layer on what Dave
Speaker 1: just said, is somewhat hawk is showing a split over
Speaker 1: the need for more easy not just in twenty nineteen,
Speaker 1: but in coming year. Seven officials see an end nineteen
Speaker 1: funds rate of one point six to five percent, with
Speaker 1: five at one point seven, five at two point one
Speaker 1: five percent, None see the rate going below one point
Speaker 1: six too. What's a lot of numbers. I just tho, yeah,
Speaker 1: I think what I think that's significant. First of all,
Speaker 1: this is what people expected that you might get what
Speaker 1: they would call a hawk ish cut, because if there's
Speaker 1: not a big move towards yes, we do need uh
Speaker 1: two or three more rate cuts this year. We need
Speaker 1: more next year, and you're right, we're not really seeing that.
Speaker 1: But it looks to me like actually for nineteen you
Speaker 1: now of you still have what about five who don't
Speaker 1: see anymore cuts, and then you have five holding steady,
Speaker 1: and then you still have about seven who are looking
Speaker 1: for another cut or so, and then um, there's just
Speaker 1: a division on the committee certainly this year and next year.
Speaker 1: And I can only imagine the heated debate, right, going
Speaker 1: back and forth. Well, and as someone a former FUNE
Speaker 1: official was telling me in the last twenty four hours,
Speaker 1: you know, and when a heated debate just means you
Speaker 1: very calmly state your case, voices, don't raise but he
Speaker 1: always and look at this a big difference. First of all,
Speaker 1: look at the recent data. The recent data has not
Speaker 1: been super weak, right, You've still got very weak investment,
Speaker 1: you still got trade war concerns. Manufacturing. I s M
Speaker 1: did flow Paul blow fifty contraction for the first day
Speaker 1: high since two thousand seven. We got that data to
Speaker 1: that that came out today. So I think that for
Speaker 1: for the bolster, the case for weight and see we're
Speaker 1: making a cut, let's see what happens next. And one
Speaker 1: more thing, let me say quickly because I want to
Speaker 1: hear what Dave thinks about this too. The dots are
Speaker 1: a snapshot of a point in time. If there's a
Speaker 1: big shift in the economy stronger or weaker. At the
Speaker 1: next time they update the Summary of Economic Projections in January,
Speaker 1: you could see a very different view of where they
Speaker 1: think rates are heading. They will tell you this is
Speaker 1: not it's not a forecast. It's based on my view vehicleimy. Now,
Speaker 1: this is why I think rates should be, but that
Speaker 1: too could change well. And I just want to point
Speaker 1: out that the FOMC reiterating we've heard this before that
Speaker 1: it will quote act as appropriate to sustain the expansion. UH.
Speaker 1: This statement containing minimal changes UH. And they have said
Speaker 1: that mainly. They noted household spending games have been strong,
Speaker 1: while business fixed investment and exports have weakened. UH. The
Speaker 1: mention of exports is new. There's a more explicit nod
Speaker 1: to trade tensions weighing on growth, which really mirrors, right, Dave,
Speaker 1: what we got from Federal express I feel like that
Speaker 1: was kind of a wake up call to everybody that's
Speaker 1: not taking a hit after its latest earnings and blaming
Speaker 1: trade absolutely and not only trade, but also just a
Speaker 1: general slowing that they're seeing, not just you know, in
Speaker 1: a broad sense, but you know, specifically since June when
Speaker 1: they last made a forecast. So you know, it's something
Speaker 1: that it's definitely creeping up on people in a sense.
Speaker 1: And FedEx you're looking at the biggest drop and the
Speaker 1: stop potentially since two thousand and eight. So it just
Speaker 1: goes to show you, you know, how much the outlook
Speaker 1: is really kind of raised questions about where this company
Speaker 1: is headed. Having said that day, we know that, let's
Speaker 1: say we get some resolution, although the conversations we've had
Speaker 1: around this table in our studio is that don't necessarily
Speaker 1: expect some kind of big resolution. Our own Andy Brown
Speaker 1: of the Bloomberg New Economy Team editor there um, you know,
Speaker 1: saying that we might see some little tweaks just to
Speaker 1: kind of get past it. But any kind of you know,
Speaker 1: calmness to that could certainly change the outlook when it
Speaker 1: comes to corporations, uh, potentially in terms of either spending
Speaker 1: on things or maybe feeling more calm or calmer about
Speaker 1: the global economy. Well, there's no doubt trade as a
Speaker 1: wild card. That said, I mean, you've gotten some indications
Speaker 1: that companies are at the very least waiting for things
Speaker 1: to shake out before they're willing to move on things
Speaker 1: like business investment. You know, we we had a tried
Speaker 1: out yesterday which I put on a Twitter feed just
Speaker 1: re making that point that you know, with the investment
Speaker 1: not being there, it's a concern that you know, you
Speaker 1: have to focus on in terms of where the economy
Speaker 1: is going. But I think I think that's also interesting
Speaker 1: that UM again look following our our our market Live blog,
Speaker 1: et cetera, pointing out that you know, five officials see
Speaker 1: no need for no nor more norma cuts at all.
Speaker 1: Five want to see basically one over the rest of
Speaker 1: the year, and seven want to see two. Now, remember
Speaker 1: we focused a lot on the voters, right and the
Speaker 1: and that's right now Esther, George, Eric Rosen Grin, and
Speaker 1: Jim Bullard, and they're voting until the end of the year.
Speaker 1: New York Fed President John Williams always votes, and we
Speaker 1: got the Board of Governors because but when they count
Speaker 1: the dots, it's everybody. So when you're looking at people
Speaker 1: who want more rate cuts than the than the guys
Speaker 1: who don't want it at all, probably you probably have
Speaker 1: the cary in that group. Who knows you've got maybe
Speaker 1: maybe you have J. Powell there, there's no way of knowing.
Speaker 1: I'll leave that to Blueberg Economics. Those guys just sort
Speaker 1: it out. You need to look at the voting members, right,
Speaker 1: But but you have to look at voting members. But
Speaker 1: remember it's not just Fed Bank presidents. It's also it's
Speaker 1: Rich clarin of the vice chair, it's J. Powell the chair,
Speaker 1: it's uh Low Brainerd on the board of governors. It's
Speaker 1: so many people. So if there's that many that still
Speaker 1: to me, it seems so many that still think there's
Speaker 1: going to be a need for a couple more rate cuts.
Speaker 1: You may have some heavy hitters in there, all right, interesting,
Speaker 1: So you know, I do wonder kind of where we
Speaker 1: go from here and what should be uh the line
Speaker 1: of questions, watch the data comes to J Powell, watch
Speaker 1: the data or J why your board is? You know
Speaker 1: the FOMAC is very divided. Where are you trying to
Speaker 1: figure it out? Where the vet chair himself is? That's
Speaker 1: one thing I'd want to know. Um, what how are
Speaker 1: you weighing the risks of the trade war continuing? Oh,
Speaker 1: by the way, Hong Kong all the geopolitical risks. How
Speaker 1: does that affect you in terms of your sense of
Speaker 1: where you want to go? Um And again, of course
Speaker 1: he's gonna get tons of questions about the rate and
Speaker 1: if adjusting the interest on access reserves that I E
Speaker 1: O R is enough? And are you gonna put your
Speaker 1: standing repo facility that's been discussed so long in place?
Speaker 1: And do you agree with people say you've got to
Speaker 1: do a little qui light to get some reserves in there.
Speaker 1: You know, he likes to wrap up those press conferences.
Speaker 1: He's pretty quick with them. And I do wonder if
Speaker 1: it will go on longer. Dave Wilson, come on in
Speaker 1: on it, because I do wonder what this means in
Speaker 1: terms of equity place. We've talked about momentum, We've talked
Speaker 1: about defense, and we talked about cyclicals. Bank stocks getting
Speaker 1: a little bit of a lift here on this news
Speaker 1: on the expectations that maybe RACHEL will be cut so much,
Speaker 1: and that's good for them, But tell me, you know
Speaker 1: how this might affect the trade. Well, I mean, you're
Speaker 1: right to focus on the banks, because let's face it,
Speaker 1: you know, when you think about the way that interest
Speaker 1: rates have been coming down in fact, with the yield
Speaker 1: curve going negative and still negative by the way, when
Speaker 1: you look at you know, the midpoint of the Fed
Speaker 1: funds target relative to even the tenure treasury yield, which
Speaker 1: is at one and three quarters per cent pretty much
Speaker 1: as we speak, you know, I mean, the banks have
Speaker 1: to work through the issues in terms of their profitabile
Speaker 1: you know, net interest margins, that gap between what they're
Speaker 1: paying depositors and what they're running on their loans and investments.
Speaker 1: You can talk about housing picking up, but if the
Speaker 1: money isn't there in terms of what banks can earn
Speaker 1: from their mortgages, I mean that becomes an issue for
Speaker 1: their profitability down the line. So what's happening on the
Speaker 1: right front, uh, really front and center for the banks,
Speaker 1: And I just want to mention our Limberg Glive blog,
Speaker 1: our whole team on it, and they're saying it doesn't
Speaker 1: seem like there's any real worry about a slowdown on
Speaker 1: slowdown on the economic horizon by the members of the FOMC. Well,
Speaker 1: they're not seeing it yet coming through on the domestic side,
Speaker 1: so they're concerned about the global side. But there has
Speaker 1: been a bit of a move in bond yields on
Speaker 1: this right, not a big move, but the tenure yield
Speaker 1: was at one point seven four. It's at one point
Speaker 1: seven five, um, and I think we've had a bit
Speaker 1: of move in the shortest so anyway, it's not a big,
Speaker 1: big difference, but certainly people writing waiting for jap two
Speaker 1: years one sixty six now at one sixty nine. All right,
Speaker 1: Kathleen Hayes, you guys are the best global economics and
Speaker 1: policy editor at Bloomberg News, Dave Wilson, He's gonna be
Speaker 1: back a little bit later on Stocks editor at Bloomberg
Speaker 1: News s indeed, no surprise today's Fed decision. The Fed
Speaker 1: UH lowering interest rates as widely expected by a quarter
Speaker 1: of a point, but some concerns that maybe the Fed
Speaker 1: will't be as devish if you will in the future
Speaker 1: when it comes to UH lowering rates again later on
Speaker 1: this year and maybe into next year. So let's get
Speaker 1: into it, and let's get into market reaction. Our Jersey
Speaker 1: is with US Bloomberg Intelligence Chief US Interest rates strategist.
Speaker 1: He joins us on the phone from b I headquarters
Speaker 1: in Princeton, New Jersey. Also with us is Steve Skanky.
Speaker 1: He is former White House National Security Council staff member
Speaker 1: currently Chief Economic Advisor at keel Point based in Washington,
Speaker 1: d C. In our Bloomberg Interactive Broker studio in New York. UM,
Speaker 1: I want to start with you, Steve. Tell me your
Speaker 1: thoughts widely expected in terms of the rate cut. What
Speaker 1: stands out for you in this decision? The rate cut
Speaker 1: was so baked in it would have been impossible for
Speaker 1: them not to do it today, even with the the
Speaker 1: articulated reluctance on the part of many to cut it
Speaker 1: all some uh to actually dissented on it. There were
Speaker 1: a couple that wanted to cut more, but it was
Speaker 1: hard with what the markets were expecting not to cut
Speaker 1: even though the recent economic news as recently as housing
Speaker 1: starts this morning we talked about at the top of
Speaker 1: our broadcast such a positive rebound the job quit rate
Speaker 1: up again to expressing confidence in labor markets and among consumers.
Speaker 1: I think they just got boxed in and didn't know
Speaker 1: what else to do. All right, We're gonna dig down
Speaker 1: a little bit deeper. Are come on in on though
Speaker 1: what you've seen since the statement has come out, and
Speaker 1: of course we're waiting for j. Powell, which we will
Speaker 1: take Live. In about twelve minutes, we'll head to the
Speaker 1: Federal Reserve. But what stands out for you are not
Speaker 1: a huge market reaction in the rates markets. I think
Speaker 1: the thing that people were looking for in the rates
Speaker 1: markets was after the volatility in the reproaches degree at
Speaker 1: market um, they were thinking that maybe there would be
Speaker 1: some statement about either a modest expansion of the balance
Speaker 1: sheet so reserves didn't continue to fall as they have
Speaker 1: been even after quantitative tightenings ended, or some kind of
Speaker 1: repo facility, like a standing repo facility that would uh
Speaker 1: inject reserves whenever they were needed. And you didn't get
Speaker 1: either of those things. So I think that's something that j.
Speaker 1: Powell will be f in the press conference coming up,
Speaker 1: and I think that's going to be probably far more
Speaker 1: interesting than the statement was. Quite frankly, Yeah, I kind
Speaker 1: of can't wait for the press conference. And I think
Speaker 1: it's interesting that, you know, we had a earlier story
Speaker 1: that Jeff Gunlock of Double Line, you know, saying that
Speaker 1: we could get from the Fed kind of a quey light.
Speaker 1: You know, possibly Steve come on back in here, because
Speaker 1: I do find it fascinating that heading into this, and
Speaker 1: I feel like over the last month or so, especially
Speaker 1: when we saw the sell off on the equity side
Speaker 1: of things in August concerns about trade that people were thinking, well,
Speaker 1: maybe we get a half a point cut. How have
Speaker 1: we seen or how has it been possible that we've
Speaker 1: gotten such a disconnect between some of the data points
Speaker 1: that are out there and the expectations uh for the
Speaker 1: Federal Reserve. It's really an interesting phenomena that we see
Speaker 1: that because the data points don't really argue for a cut. Uh.
Speaker 1: And interestingly, if you look back six weeks ago the
Speaker 1: SMP in the daw we're basically six weeks ago before
Speaker 1: the July meeting exactly where they were on Monday, correct,
Speaker 1: and even oil prices with the machinations were about the same. UM.
Speaker 1: And recall that after the July thirty one announcement the
Speaker 1: market sold off a little bit. The next morning they rebounded,
Speaker 1: and then the President made a dramatic announcement about further tariffs,
Speaker 1: which of course we're problematic for the markets. Are you
Speaker 1: concerned that j. Powell is feeling pressure because the market
Speaker 1: was expecting it? I mean, you know, what is the
Speaker 1: role of the Chairman of the Federal reserve. We know
Speaker 1: about the MANDA, the dual mandate. I mean, but what
Speaker 1: is the responsibility to kind of, you know, remove yourself
Speaker 1: from the noise that's out there, whether it's the presidential
Speaker 1: tweets or the pressure from investors and just kind of
Speaker 1: do the right thing. Do you think that certainly is
Speaker 1: his responsibility, Carol. But but I think that he's been
Speaker 1: a little bit overwhelmed by the pressure. Uh, not only
Speaker 1: from the president, which I think he's been pretty good
Speaker 1: at resisting, but particularly from the markets, and with all
Speaker 1: the things that are going on, you know, the weakness
Speaker 1: in China, the continuing problems in Europe, the incident in
Speaker 1: Saudi Arabia, which is which is probably not a big deal,
Speaker 1: but it just increases the fragility or the perceived fragility
Speaker 1: of the markets and their inability to absorb bad news. Uh.
Speaker 1: And uh so here we are, we we get the cut.
Speaker 1: I think he felt that he needed to do it
Speaker 1: because the markets expected it, even though perhaps even he
Speaker 1: doesn't believe that a real cut is needed. You know,
Speaker 1: I think I think one of the things that we
Speaker 1: have to remember here is that a lot of the
Speaker 1: data that we're saying that is good. It's really services
Speaker 1: sector data. The manufacturing sector continues to slow. So when
Speaker 1: you look at things like I S M New Order,
Speaker 1: you know that's below fifty, that's a sign potentially of
Speaker 1: contraction in the manufacturing sector. And even though it's a
Speaker 1: relatively small part of the US economy now it's an
Speaker 1: important part of the economy, and that can feed through
Speaker 1: to all of the other sectors of the economy and
Speaker 1: can be a real worry. And you know, the market
Speaker 1: even though the markets pricing these things, and one of
Speaker 1: the reasons is UM, the market tends to follow things
Speaker 1: like manufacturing, new orders and UM and and because of that,
Speaker 1: you really I think the FED wants to see a turnaround,
Speaker 1: at least the doves in the FED want to see
Speaker 1: a turnaround in some of the the kind of forward
Speaker 1: looking data before they think about, you know, stopping the
Speaker 1: easing cycle. Well, how are folks on Wall Street, uh,
Speaker 1: you know, in the world of fixed income and fixed
Speaker 1: rates and the rate environment kind of rethinking some of
Speaker 1: their formulas going forward because of what we got so
Speaker 1: far today. Well, yeah, I think rethinking the formulas. We've
Speaker 1: been trying to do that for a couple of years
Speaker 1: now because we are in a different environment when it
Speaker 1: comes to you know, inflation and growth. And you know
Speaker 1: he'll b s again. I'm sure j. Powe will be
Speaker 1: asked about the Phillips curve again and whether or not
Speaker 1: it still exists. That's relationship between inflation and employment and
Speaker 1: why we haven't seen a significant uptaken inflation. And in fact,
Speaker 1: since the last meeting, the inflation expectations baked into the
Speaker 1: Treasury Inflation Protected security or the TIPS market has actually
Speaker 1: come down about thirty basis points because of some of
Speaker 1: the global inks that have been going on, and as
Speaker 1: well as a little bit lower oil prices until very recently,
Speaker 1: so you know, and they didn't change that part of
Speaker 1: their their statement, um which I had anticipated them noting
Speaker 1: a little bit that that inflation measures had come down
Speaker 1: a little bit. Instead they just say inflation compensation has
Speaker 1: remained low. Steve, you know, I'm curious to you about
Speaker 1: what your expectations are about kind of where we are
Speaker 1: in this economic secle. I feel like it's been a
Speaker 1: guesting game for many years now at this point. Uh,
Speaker 1: there was a survey out I believe it was by
Speaker 1: Duke and half of the CFOs in the service US
Speaker 1: recession within a year. Um, where are we on that possibility?
Speaker 1: Because Jason and my coast UH and I resently caught
Speaker 1: with James Gorman over at Morgan Stanley and said, you know,
Speaker 1: look at something like Australia, that economic cycle has gone
Speaker 1: on for a long time. There's no necessarily any reason
Speaker 1: why we can't kind of continue UH as we have
Speaker 1: over the last couple of years. What's your take on that, Carol,
Speaker 1: I think the big question will be what does the
Speaker 1: President doing a trade deal right now? The uncertainty that's
Speaker 1: in the market about where tariffs and trade matters are
Speaker 1: probably overwhelms everything else, and the Fed really can't counteract
Speaker 1: that with a quarter or a half a point cut.
Speaker 1: And we we've seen that along the way, and there
Speaker 1: are positives and negatives. And I agree with what Irish said,
Speaker 1: but but just looking at consumer confidence, consumer sentiment, small
Speaker 1: business optimism index, the continuing spending within small business are
Speaker 1: real drivers of of what's going on in the economy.
Speaker 1: So it's hard to see what would trigger a recession
Speaker 1: in the next twelve months. Notwithstanding the Duke survey that
Speaker 1: was pretty interesting. There's just so much st that there
Speaker 1: would have to be an external event like a major
Speaker 1: trade war or a big disruption that would push the
Speaker 1: economy toward recession. Otherwise it's hard to see how we
Speaker 1: we don't get through with the economy and sad Yeah,
Speaker 1: I actually agree with that sentiment. And I think one
Speaker 1: of the reasons why a lot of people are thinking
Speaker 1: there's a recession is basically twofold. One is that you know,
Speaker 1: we've just it's been so long since we had a
Speaker 1: recession and people aren't used to, you know, having much
Speaker 1: more than a decade. But time is not a variable
Speaker 1: that recessions necessarily need to care about. And number two
Speaker 1: is I think people look at some market indicators like
Speaker 1: an inverted three Montenure yield curve and say, oh, that's
Speaker 1: been a recession indicator. But that's a poor recession indicator
Speaker 1: in my opinion, because it's really you know, the market
Speaker 1: forward expectations of where that's going that matter now. And
Speaker 1: I think, ironically, um, that might not be the same
Speaker 1: kind of indicator as it's been in the past, primarily because,
Speaker 1: as with interest rates so low and with the Fed
Speaker 1: Reserve easing interest rates, at some point, if interest rates
Speaker 1: get to zero again, the market's going to anticipate more
Speaker 1: quantitative easing, and because they expect more quantitative easing, curves
Speaker 1: will remain flatter than they would otherwise. Be all right,
Speaker 1: I just want to remind everybody of the big news
Speaker 1: at this hour, of course, the FED meeting coming out
Speaker 1: with their rate decision at the top of the hour,
Speaker 1: Federal policymakers lowering their main interest rate for a second
Speaker 1: time this year, while splitting over the need for further easing.
Speaker 1: They're kind of caught between the uncertainty of our trade
Speaker 1: and global growth and also a domestic economy as you've
Speaker 1: been hearing from both Ira and Steve that is holding
Speaker 1: up well. So what does it mean for the markets.
Speaker 1: We have seen a deepening when it comes to the
Speaker 1: equity cell off Right now, the SMP is down just
Speaker 1: about twenty two points down Jones Industrial Average. We're looking
Speaker 1: at a loss of about a hundred and sixty four points.
Speaker 1: It was down just about sixty prior to the Fed decision,
Speaker 1: and the NASDAC, which was off forty four before the
Speaker 1: rate decision, now down about eighty four points. In terms
Speaker 1: of UH the fixed income market, let's get an update there,
Speaker 1: because we have seen a little bit of an uptick
Speaker 1: in yields ten year note right now with the yield
Speaker 1: of one seventy six, the five year note yielding one
Speaker 1: sixty three, and the two year note with the yield
Speaker 1: of one seventy one. Steve the press conference, we're getting
Speaker 1: ready to head to d C and listen to J. Pow.
Speaker 1: What would you ask him? I would I would ask
Speaker 1: him if he can give us forward guidance on where
Speaker 1: they're going to keep rates rather than continuing to cut.
Speaker 1: You know, the Fed used forward guidance very effectively in
Speaker 1: the past, and they haven't done it recently except to
Speaker 1: say that we will follow the data. And the following
Speaker 1: the data issue is so complicated because the the market
Speaker 1: really doesn't know what data they're following anymore and what
Speaker 1: makes a difference in what doesn't. So to hear the
Speaker 1: chairman speak as to that, I think would be really
Speaker 1: helpful and I would certainly ask him that question if
Speaker 1: I were in the room, I want to ask you
Speaker 1: to just if I may follow, because you're at the
Speaker 1: intersection of Washington and markets. We just had President Trump
Speaker 1: tweet and here's the tweet. J Powell and the Federal
Speaker 1: Reserve fail again. No guts, no sense, no vision, a
Speaker 1: terrible communicator, Um, Steve, he's wrong. Well, the Chairman of
Speaker 1: the Federal Reserve hasn't exhibited the communication skills that some
Speaker 1: of his predecessors have, and that's been challenging for the
Speaker 1: market when they're hanging on every word. Uh. He's a
Speaker 1: very bright and skilled later at the Federal Reserve. But
Speaker 1: when you look at the deft that Janet Yellen and
Speaker 1: Ben Bernankey had in really saying a lot but not much,
Speaker 1: it left the market guessing just enough that they were
Speaker 1: really quite happy with what they did. I think Chairman
Speaker 1: Powell has had the disadvantage of maybe being a little
Speaker 1: bit too specific as to what he says and what
Speaker 1: he means. All right, and what are your thoughts on that.
Speaker 1: I think that the President likes Jim Jim Bullard because
Speaker 1: he dissented and wanted fifty basis points and hem, I'm
Speaker 1: not sure. I think the President is not acting rationally,
Speaker 1: like if he wanted lower interest rates, the Feds delivering that,
Speaker 1: it's just maybe not at the pace that he had hoped.
Speaker 1: I mean, it's you know, the FEDS job. The Fed
Speaker 1: tends to move incrementally. The only time that really they
Speaker 1: move very quickly and cut introduced very quickly is when
Speaker 1: we're already in recession, which you know, as we've noted,
Speaker 1: you know, we're not nearer recession right now, but the
Speaker 1: Fed wants to, you know, make these incremental cuts to
Speaker 1: try and avoid a recession because you know, some data
Speaker 1: is bad, some global data is not looking good. But
Speaker 1: as a whole, the US um, the U S economy
Speaker 1: is holding up, you know, much better than others. Gentlemen,
Speaker 1: thank you so much, really appreciate your input and analysis.
Speaker 1: Our Jersey chief US interest rate strategist at Bloomberg Intelligence
Speaker 1: on the phone from URBI headquarters in Princeton, New Jersey,
Speaker 1: and Dr Steve Skanky, thank you, thank you, a chief
Speaker 1: economic advisor at kill Point form, a White House National
Speaker 1: Security Council staff member based in Washington, d C. But
Speaker 1: finding his way to our Bloomberg and director Broker studio
Speaker 1: on this Wednesday, all right, just to rehash, of course,
Speaker 1: we're waiting comments by J. Powell, the Chairman of the
Speaker 1: Federal Reserve, will take you there as soon as he
Speaker 1: begins speaking the news Federal Reserve policymakers lowering their main
Speaker 1: interest rate for a second time this year, while splitting
Speaker 1: over the need for further easing, and we have seen
Speaker 1: the equity markets dip lower as a result on that
Speaker 1: news um and the FED being maybe not as uh,
Speaker 1: indicating that there are a lot more rate cuts to come,
Speaker 1: if you will, in the future, which the markets have
Speaker 1: been highly expecting. That's a great song, man, It's so relevant.
Speaker 1: Alex Harris is in the house bond reporter at Bloomberg News.
Speaker 1: Here in our interactive broker studio. Josh Wright was like,
Speaker 1: what did I miss? What did I miss? Maybe we'll
Speaker 1: play it on the way out. His chief economists at
Speaker 1: I SIMS also in our Bloomberger Directive broker studio, perfect too,
Speaker 1: individuals to talk to about the FED rate decision j
Speaker 1: Powell's press conference. They've been listening closely. I've been watching
Speaker 1: and listening closely. We did see, uh, some market reaction,
Speaker 1: but we've kind of bounced back, certainly on the equity
Speaker 1: side of things. So let me start with you, Josh.
Speaker 1: What stood up for you? What's up for me is
Speaker 1: how much the power FED continues to get away with
Speaker 1: this divergence between what they're projecting and versus what the
Speaker 1: market expects. So the market expects lots of recuts, more
Speaker 1: re cuts this year and continuing on, and the FED
Speaker 1: continues to say, you know, we're just gonna take it
Speaker 1: step by step. We're not going to provide any forward guidance,
Speaker 1: any formal forward guidance, and even with our rap projections,
Speaker 1: we're gonna say we don't expect anything to move. And
Speaker 1: the market apparently just expects that the FED will deliver
Speaker 1: um and that they are right and the and the
Speaker 1: Fed is wrong. Is this just like a spoiled child
Speaker 1: and just wants what it wants or is it you
Speaker 1: know that in terms of the market kind of you know,
Speaker 1: ignoring some of the economic data points that are out
Speaker 1: there that do show that things seem to be okay.
Speaker 1: I think that every time you have a new FED chair,
Speaker 1: and although you know, Chair Powell has been in office
Speaker 1: for a little while now, there's always this process of
Speaker 1: the market getting to know the FED and the FED
Speaker 1: getting to know the market, how they're going to communicate
Speaker 1: with each other, and it seems like they've worked out
Speaker 1: m oh, you know, they're they're okay with the style
Speaker 1: of communication at this point. So j Pala does something
Speaker 1: and the President tweets, because we know that the President
Speaker 1: did tweet saying j Pala, the FED fail again, no guts,
Speaker 1: no sense, no vision, A terrible communicator. Not my words,
Speaker 1: but the president. Um, Alex, come on in on this
Speaker 1: and what you saw today in terms of the decision,
Speaker 1: the statement, the press conference, Oh goodness. Well, you know,
Speaker 1: the reporters exceeded. They went over. You know, Usually I
Speaker 1: joke with some people about the number of questions that
Speaker 1: you know, reporters will tend to ask about reserves, balance sheet,
Speaker 1: all the toolkit things that that I love to talk about.
Speaker 1: And we set that number to I mean, today was
Speaker 1: an easy beat. We were we were over on that one.
Speaker 1: Usually we're sellers on that um, you know. But so
Speaker 1: it was kind of interesting. The one thing I did
Speaker 1: wish they would have asked and they missed, is not
Speaker 1: only did they lower the interest on excess reserves rate,
Speaker 1: which they had done three other times before this, but
Speaker 1: they also were the rate on its overnight reverse repurchase
Speaker 1: agreement facility, which has sort of acted like a de
Speaker 1: facto floor here. And so that's what I think a
Speaker 1: lot of people, at least in the front end now
Speaker 1: we're confused about UM. And I talked to him, my
Speaker 1: clority at RBC, and we just put out kind of
Speaker 1: what his thoughts on it, and and he's like, look,
Speaker 1: you know, if like, if you have funds flowing into
Speaker 1: that facility, it actually drains reserves from the system, so
Speaker 1: it just induces more volatility. So this is sort of
Speaker 1: their way maybe of getting ahead of it UM. But
Speaker 1: we don't know. But it says to me that maybe
Speaker 1: they are a little bit more concerned about reserve scarcity
Speaker 1: than maybe they wore before. And I think Powell said, hey, look,
Speaker 1: we have six weeks to evaluate this to see like
Speaker 1: how much of a problem is He's like, reserves move. Well,
Speaker 1: come on, Josh, talk to me a little bit about
Speaker 1: what happened this week in terms of the overnight UM market, uh,
Speaker 1: and what the Fed had to do. How do you
Speaker 1: see it? Because we certainly have a lot of folks,
Speaker 1: including our Alex Harris, you know, and others, kind of
Speaker 1: explaining logically what happened. Are you concerned about it or
Speaker 1: how do you see it? I think eventually the Feed's
Speaker 1: gonna sort this out, but we are in an awkward
Speaker 1: moment here where the FETE has really been wrong footed.
Speaker 1: They thought they had some sense of where the market
Speaker 1: was they knew, they weren't sure. But it turns out
Speaker 1: that we are in that seat part of the curve
Speaker 1: when you think about you con one oh one, this
Speaker 1: is the demand curve, and that curve has got a
Speaker 1: slope that shifts depending on how much money you've got
Speaker 1: out there. And we are not where we thought we were.
Speaker 1: That's the big story here. The Fed is surprised that
Speaker 1: actually they need to manage reserves in a much more
Speaker 1: dynamic and proactive way than they expected to be doing
Speaker 1: for you months. How did they miss it? What go
Speaker 1: ahead out? How did they miss it? Um? I really
Speaker 1: think that this is again a trargery supply story. And
Speaker 1: know Powell had some comments towards the end and what
Speaker 1: he said, he goes, we kind of knew this was
Speaker 1: coming right. There had been stories that had been written
Speaker 1: about this and the expectations, but but the magnitude of
Speaker 1: it was yeah, and you know, and this is the
Speaker 1: other issue is that you know the treasury, it's it's
Speaker 1: really on the treasury side, and it's a fiscal problem.
Speaker 1: And I and I think Powell sort of hinted at that,
Speaker 1: is that and you have the treasury supply growing by
Speaker 1: this much, it's gonna put pressure on everything else. The
Speaker 1: cash balance is getting bigger, that drains reserve, so that
Speaker 1: adds to reserve scarcity. So there's all these issues at
Speaker 1: play here and and really at the end of the day,
Speaker 1: I was talking to something about this earlier, like what
Speaker 1: we've learned from the volatility and the funding markets this
Speaker 1: week is that we have too much debt and it's
Speaker 1: only getting bigger. And that's very problematic here. I'm not
Speaker 1: considered commercially, I'm talking about treasury data and it's only
Speaker 1: going up and this is a problem. So ultimately, what
Speaker 1: they're going to have to do with everyone calling for,
Speaker 1: you know, the FED to start looking at you know,
Speaker 1: expanding the balance sheet again and doing what everyone's calling
Speaker 1: KWI light and buying assets again is you know, it's
Speaker 1: almost like, in a way, like an m m T
Speaker 1: kind of light that you know you're using, you're using
Speaker 1: monetary problem. You know, you're you're going to monetize the
Speaker 1: debt and essentially, you know, give them more room because
Speaker 1: now if you're buying treasuries, you're absorbing a lot of
Speaker 1: that supply that the keeps bringing into the market. The
Speaker 1: irony is that We've been so conditioned to think of
Speaker 1: this as being unprecedented times and it's the new normal
Speaker 1: that we all want to talk about it as que
Speaker 1: light and something that's really dramatically different. The reality is
Speaker 1: that this is going back to the way the FED
Speaker 1: ran operations before the financial crisis. They didn't want to
Speaker 1: go there. They wanted to stick with the new normal.
Speaker 1: In fact, we are currently, at least temporarily revisiting the
Speaker 1: old normal. So this is kind of how it used
Speaker 1: to be. Yes, And that's a reminders step in every
Speaker 1: day and just you know, try to you know, shave
Speaker 1: things very thinly in order to get the rate where
Speaker 1: they want it. So what, no, no, please help us
Speaker 1: out because I feel like this has been an interesting
Speaker 1: week because of what happened in Saudi Arabia and all
Speaker 1: of a sudden, you know, we're worried about the energy
Speaker 1: markets and the potential for a shock globally because of that,
Speaker 1: and then of course you had concerns with the overnight markets,
Speaker 1: and I do wonder how do we put all of
Speaker 1: that together with what's going on in the global economy,
Speaker 1: the US economy. You know, how much of that that
Speaker 1: has happened potentially can have some kind of longer inter
Speaker 1: longer term impact on the US economy s scifically that
Speaker 1: will cause the FED to maybe have to be more
Speaker 1: aggressive or potentially back off at some point. Sorry, there's
Speaker 1: a lot. There's been a crazy week already and it's
Speaker 1: only Wednesday. But those are two big macro stories that
Speaker 1: have consumed a lot of time here at Bloomberg, and
Speaker 1: I'm wondering, are we spending too much time on it?
Speaker 1: Is it important in terms of how it my impact
Speaker 1: as I said, US economy, global economy, and then ultimately
Speaker 1: what the FED has to do well. This is the
Speaker 1: hard and important important work or trying to figure out
Speaker 1: what is going on in real time. But I think
Speaker 1: so far, the early indications are that these are bumps
Speaker 1: that we're going to get over. I think we are
Speaker 1: going to be in a period where people will be
Speaker 1: more closely attuned, of course to what's going on in
Speaker 1: oil and what's going on in short term markets. But
Speaker 1: the FED has the tools. I mean, ultimately, what we're
Speaker 1: looking at right here is it's nothing like two thousand seven,
Speaker 1: two thous We're not dealing with concerns about stigma or
Speaker 1: specific lenders or borrowers not being credit worthy. We're not
Speaker 1: worried about the collateral in the system. This isn't a
Speaker 1: question of contagion. This is right back in ironically the
Speaker 1: FED sweet spot, which is just the absolute supply of
Speaker 1: money out there. This is about, you know, companies or
Speaker 1: banks are not wanting to lend to others right because
Speaker 1: of concerns about risks. Correct, It's just they need the cash,
Speaker 1: they need the dollars, and somehow that hasn't been calibrated correctly. Yeah,
Speaker 1: it's sort of like I mean, you know, we've talked
Speaker 1: about it. If you think about it as like a
Speaker 1: giant like it's plumbing, you know, and so there's there's
Speaker 1: a lot of certain cash like assets and you know,
Speaker 1: but it's creating blockages in the system and that's ultimately
Speaker 1: what we're dealing with here, and the FEDS just trying
Speaker 1: to figure out how to keep that moving to avoid
Speaker 1: situations like this. Do you feel like, are you satisfied
Speaker 1: with what we got from j Powell on what happened
Speaker 1: this week overnight markets? I think he I think he
Speaker 1: actually went further. This was the funny thing. Someone just said.
Speaker 1: He exceeded my expectations and addressing in in addressing it, um,
Speaker 1: you know, he provided more information than I think people asked,
Speaker 1: even like, uh, CNBC Steve Leesman asked a question and
Speaker 1: Powell went further to answer it. But at the end
Speaker 1: of the day, like everything is going to be dependent
Speaker 1: on where that FED funds rate trades and whether or
Speaker 1: not the FED can continue to control it, and and frankly,
Speaker 1: what we're seeing and a money fund manager said this
Speaker 1: to me when describing this week as eye popping, is like,
Speaker 1: I don't think they realized how much work needs to
Speaker 1: be done in order to control the FED funds right now.
Speaker 1: And I think they've underestimated that. As if FED still
Speaker 1: have control of rates, Josh, it needs it needs to
Speaker 1: get the supply right in order to control them, so
Speaker 1: it has temporary loss control, but it has the tools
Speaker 1: to addrest them. I actually thought it was interesting his
Speaker 1: response as well, because it was kind of like he
Speaker 1: was going back to a very non j Pell kind
Speaker 1: of playbook. He likes to be the straight shooter, talking
Speaker 1: very briefly and concisely. I took that answer as really
Speaker 1: being I'm going to drown you with details, and but
Speaker 1: he didn't really answer any of the big questions about
Speaker 1: what's going to happen with a standing REPO facility or
Speaker 1: any kind of longer term fixed what the operational framework
Speaker 1: will be. He just said, look, we've got it covered
Speaker 1: and here all the details of the things that we're moving,
Speaker 1: all the levels one of those, Honey, don't worry. I'm
Speaker 1: going to take care of it. But you know, again,
Speaker 1: it's going to be a wait and see thing. All right,
Speaker 1: we just get a few more minutes. But what about
Speaker 1: up beyond all of this? Uh? In terms of his
Speaker 1: expectations and what he talked about in terms of inflation
Speaker 1: pressures clearly remained muted. He still expects the economy to
Speaker 1: expand at a moderate Rady talked about trade tensions, about
Speaker 1: signs of weakness abroad. Um, Josh, what of note in
Speaker 1: terms of kind of the normal stuff that we typically
Speaker 1: talk about when it comes to the Fed. Well, we're
Speaker 1: still in a period of incredible uncertainty. And we see
Speaker 1: just how hard that is making it for the Fed
Speaker 1: to communicate, because you've got these two sided descents going
Speaker 1: on and they can't provide the forward guidance. Um. But
Speaker 1: amazingly the market is still giving them a pass on
Speaker 1: that Alex and I don't know. I mean, again, like
Speaker 1: Josh said, yeah, I think the market is giving them
Speaker 1: a pass. But ultimately I almost feel like after listening
Speaker 1: to all this, I don't know where to turn, Like
Speaker 1: I feel like my head I'm just on a swivel.
Speaker 1: There's so much to focus on here, and you know,
Speaker 1: a lot of this is just going to write on
Speaker 1: like the FED and what they're able to do, you know, globally,
Speaker 1: because again everyone is looking to them. I mean, the
Speaker 1: e c B in the BOJ are negative rates. I'm
Speaker 1: not looking at them for any sort of guidance here
Speaker 1: because they're a bit dysfunctional. So the FET is really
Speaker 1: the only game in town here, and they have a
Speaker 1: lot on their plate to be worrying about and not
Speaker 1: just don't even know where to look today and trying
Speaker 1: to once again push the baton back to lawmakers, saying
Speaker 1: fiscal policy can do more than monetar in the long run.
Speaker 1: So A remindered everybody that we can do just so much,
Speaker 1: although physical policy just seems to be exploding the debt
Speaker 1: and the deficit, and that's a big problem and that
Speaker 1: we need to get under control. All right, Thank you guys,
Speaker 1: Really appreciate your analysis. Alex Harris, Bon reporter at Bloomberg News,
Speaker 1: Josh Wright, chief economist, and I Sims, both of them
Speaker 1: in or Interactor Broker Studio journal Now, but you let
Speaker 1: me drive none please, I want to drive. This is
Speaker 1: the drive to the globe community. Thanks. We'll try us
Speaker 1: on Bloomberg Radio list. Indeed, everyone, just a few minutes
Speaker 1: left in today's trading session. It is time to take
Speaker 1: a look at what's going on in the market, says
Speaker 1: we drive to the close Charlie, of course, breaking down
Speaker 1: the numbers, and we're pretty much on the equity side
Speaker 1: of the universe at our best levels of the desh
Speaker 1: of the session. So slight gains on the SMP and
Speaker 1: the dawn a little bit lower still on the nasdac
Speaker 1: Win Wicker is back with us. He is chief investment
Speaker 1: officer Advantage Point Investment Advisors, twenty nine billion dollars in
Speaker 1: assets under management, based in Washington, d C. He's been
Speaker 1: on the road a lot, and he found some time
Speaker 1: for us here in our Bloomberg Interactor Broker studio in
Speaker 1: New York. Welcome back, Hi, Carol. How are you. I'm
Speaker 1: doing well? So what's the conversation that you're having most
Speaker 1: with your clients as you partake on your travels. Well,
Speaker 1: I think everybody is concerned about what's going on outside
Speaker 1: the United States. Certainly teariffs down in Washington, d C.
Speaker 1: Where we're based, Uh, takes front and center. I think
Speaker 1: in most conversations, right, Yeah, And what do you think
Speaker 1: about trade? Well, I think everybody, I think underestimates how
Speaker 1: long it takes. The more folks I talk on Capitol
Speaker 1: Hill about this issue, uh, they come back and say, well,
Speaker 1: you know, the only thing that we have to benchmark
Speaker 1: this current trade War two is Japan back in the
Speaker 1: late eighties. And then they remind me it took fifteen
Speaker 1: years and forty two treaties to get a trade agreement
Speaker 1: put together with them. So that gives you some idea
Speaker 1: of how complicated some of these things. But not apples
Speaker 1: to apples. I mean, China is not Japan. And I
Speaker 1: know Japan if you think about when it was buying
Speaker 1: all the real estate in the US and we thought
Speaker 1: it was going to take over the world. But what's
Speaker 1: interesting is China is realistically an incredible economic might, you know,
Speaker 1: with goals of its own and you know, our talk
Speaker 1: that we've been having here is you know, don't expect
Speaker 1: any major trade deal that they will try and maybe
Speaker 1: patch up something just to kind of of make everybody happy.
Speaker 1: But you know, it's different. It's different. China, you know, has,
Speaker 1: as I mentioned, it's mission, its goals of what it
Speaker 1: wants to be in this world, and maybe we're not
Speaker 1: going to get the concessions that everybody's expecting. Well, I
Speaker 1: think that last time you and I talked, that's what
Speaker 1: we said. You know, we said that, uh, we thought
Speaker 1: the market was too optimistic about getting something done quickly,
Speaker 1: and that on both sides they have very opinionated views
Speaker 1: and China has a lot longer time frame to deal
Speaker 1: with that than we probably do. When do you think
Speaker 1: we ultimately end up in a world where it's China
Speaker 1: versus the United States and basically China and its allies
Speaker 1: and a trading block, and then you've got us and
Speaker 1: its allies and a trading block. Well, it certain seems
Speaker 1: to be lining up that way right now, correct. I Mean, look, Carol,
Speaker 1: we saw last weekend some of the things that happened
Speaker 1: with Saudi Arabia, and the first thing that comes to
Speaker 1: my mind is this is one of the reasons why
Speaker 1: China is starting to make inroads with Russia because they
Speaker 1: could be an alternative trading partner for energy. And so
Speaker 1: your analogy of could that be one side against the other,
Speaker 1: I think you're actually starting to see some of these
Speaker 1: sides lining up. So if that's what plays out, what
Speaker 1: does it mean then potentially you know for the business environment,
Speaker 1: the market environment, and what does it mean for investors. Well,
Speaker 1: for investors, I think it it makes it life a
Speaker 1: lot more complicated, right, because you've got to determine, you know,
Speaker 1: how much of the revenues of these multinational companies are
Speaker 1: going to be uh impacted by some stringent trading policies
Speaker 1: that may go into effect. I think that for those
Speaker 1: that are looking at some of the domestic companies around here,
Speaker 1: it's going to be life as as usual. But for
Speaker 1: those multinational companies where we are seeing a lot of growth,
Speaker 1: whether it's technology or uh you know, some of the
Speaker 1: industrials or even somebody like Boeing for instance, who they're
Speaker 1: really focusing on China as the next big partner in
Speaker 1: terms of the number of airplanes they have to build
Speaker 1: over the next twenty years. All Right, So if you're
Speaker 1: having a conversation with an investor. I know this is
Speaker 1: very simplistic, but I'm just going to go there. So
Speaker 1: if they say, all right, Waite, that's your outlook Bowing,
Speaker 1: should I get out of it? So I think a
Speaker 1: company like Boeing, if we're going to take that one
Speaker 1: for an example, I think Boeing is going to be
Speaker 1: fine over the long run. I know that there's a
Speaker 1: lot of issues right now with the seven thirty seven max,
Speaker 1: but if you look at their balance sheet, you look
Speaker 1: at what they are doing on the defense side, which
Speaker 1: is one of the themes that I think. I'm very
Speaker 1: and UH. Those contracts really go a long time, and
Speaker 1: they have a very strong UH management team in place.
Speaker 1: So Bowing, for example, I feel pretty comfortable with over
Speaker 1: the long run. We'll talk to a little bit about
Speaker 1: the defense. I mean, then that is often seen as
Speaker 1: kind of a safe play because certainly if you've got
Speaker 1: you know, money coming from the government allocated towards it,
Speaker 1: that's a good thing. Typically for the defense companies that
Speaker 1: it's no longer just a republican play. It seems like
Speaker 1: both sides of the aisle U commit money. So you
Speaker 1: like that area, Yeah, well, we're remember this last summer,
Speaker 1: Congress agreed on a new budget agreement that's going to
Speaker 1: bolster our defense spending. Now, some of it is being
Speaker 1: I think put into play for the wall that that
Speaker 1: President Trump wants to put together. But if you take
Speaker 1: the bigger picture into play, that is an area where
Speaker 1: we are going to see uh, significantly more money going
Speaker 1: into that. And I think things like last weekend play
Speaker 1: into the hands of some of these defense contractors as
Speaker 1: we get more concerned about some of the geopolitical issues
Speaker 1: that are going on around the world. You also like
Speaker 1: and tell me a little bit about energy, because you're
Speaker 1: thinking that the market, the equity markets, that ultimately we
Speaker 1: could see it expand out to energy, which certainly got
Speaker 1: to kick uh this this week because of concerns about
Speaker 1: supply concerns. I find it kind of ironic. We went
Speaker 1: from you know, we have so much supply that all
Speaker 1: of a sudden, and I understand it was a big
Speaker 1: shock here in terms of what happened to Saudi Arabia,
Speaker 1: but all of a sudden, now we're concerned about supply. Well,
Speaker 1: I think some of that was a knee jerk reaction, uh.
Speaker 1: And I think that My focus on energy is that, uh,
Speaker 1: it's the most under owned sector around these days, right,
Speaker 1: I mean, everybody hates energy, so it's more of a
Speaker 1: contrarian play. But I think for those investors looking for
Speaker 1: a stream of dividends, uh, they've been playing reads, have
Speaker 1: been playing utilities. Uh. You know, a lot of the
Speaker 1: big multinational energy companies have been washed out to levels
Speaker 1: there where you have yields of four to seven percent. Interesting. Yeah,
Speaker 1: we've heard a lot of our guests talk about that
Speaker 1: if you're kind of unsure with what's going on in
Speaker 1: the world, um, whether it's global concerns, domestic concerns. Look
Speaker 1: at some of those dividend paying stocks. Energy, by the way,
Speaker 1: it's up for the year, up as a whole about
Speaker 1: seven percent, but it's your second worst performing group among
Speaker 1: those eleven major groups in the SMP five Waynwicker, nice
Speaker 1: to have you here, Thanks alright, Chief investment Officer, Advantage
Speaker 1: Point Investment Advisors, twenty nine billion in assets under management,
Speaker 1: based in Washington, d See in our Bloomberg Interactive Broker Studio.
Speaker 1: Thanks for listening to Bloomberg Business Week. You can subscribe
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