Speaker 1: This is Bloomberg Surveillance. Europe and attachment to Europe looks
Speaker 1: worse and worse every single day. There's a security issue
Speaker 1: that the Brits field. I don't think the business cycle
Speaker 1: dynamics that we've seen since World War Two changed. I
Speaker 1: think it was the same and they're gonna start to
Speaker 1: manifest themselves. Many in markets on looking at tenure rates
Speaker 1: at a seventy five and are concluding, Wow, if rates
Speaker 1: on SOLU, that must mean that the U s economy
Speaker 1: is unhealthy. Bloomberg Surveillance your link to the world of economics,
Speaker 1: finance and investment on Bloomberg Radio. Good morning. It is
Speaker 1: seven am on Wall Street noon in London, where the
Speaker 1: Brexit debate is in full cry, and one pm in
Speaker 1: liver Clause in Germany, where the folks that buyer are
Speaker 1: sitting by the phone waiting for a response to their
Speaker 1: sixty two billion dollar offer for months. Santo and Michael
Speaker 1: McKee along with Tom Keane. We'll look at those stories
Speaker 1: and more here today on Surveillance. The UK government out
Speaker 1: a short time ago with a forecast that a vote
Speaker 1: to leave the EU would cause a year long recession,
Speaker 1: sparking a decline in the pound and costing hundreds of
Speaker 1: thousands of jobs. The foot see doesn't like that. Down
Speaker 1: twenty one points right now, three tenths of eight percent,
Speaker 1: and your pound is trading at sixty seven, down a
Speaker 1: quarter of a percent this morning. Buio shares this morning,
Speaker 1: well you would as you would expect, their lower three
Speaker 1: point four percent. But what's interesting is Monsanto shares. They're
Speaker 1: up eight point eight percent to hundred and ten forty eight.
Speaker 1: But that's a hundred and twenty two dollar share offer.
Speaker 1: So Tom, there's clearly something that investors aren't liking about this.
Speaker 1: And in the column in the morning, Yeah, the docks
Speaker 1: in Germany reflecting the decline in bioshares, down seventy five
Speaker 1: points right now three quarters of a percent. Stocks in
Speaker 1: Europe overall are lower by about two points half a
Speaker 1: percent on the day. UH in the US futures not
Speaker 1: getting a big boost from Monsanto at the moment when
Speaker 1: SMP features are off four points two tenths, Dow features
Speaker 1: down twenty nine two tenths, and it's a one tenth
Speaker 1: decline for nazdac Imani features. They are off five points
Speaker 1: right now. The fat, remember the fat three fed speakers today,
Speaker 1: Jim bowed out already nothing new from him. But bonds
Speaker 1: at the moment are mixed, the curve flattening some. The
Speaker 1: tenure NOE yield falls the basis point to one pot
Speaker 1: two percent, at the five year at one point three six,
Speaker 1: and the two year rises. Uh just a touch eight
Speaker 1: eight basis points for your two year. No yeld G
Speaker 1: seven ministers meeting over the weekend. No coordinated plan on growth,
Speaker 1: the usual. We'll cooperate on currencies. The dollar at the
Speaker 1: moment is we'll call it basically unchanged at three sixty two,
Speaker 1: after rising a little bit when the Fed suggested they
Speaker 1: will raise rates in June. It has sort of flattened out.
Speaker 1: The Euro trading at one twelve oh six. The end
Speaker 1: got stronger today one on nine forty five interview with
Speaker 1: Rohiko crew on CNBC overnight. Uh So it appears Tom
Speaker 1: the status quo ante weekend for investors. Not a whole
Speaker 1: lot has changed in the I was just commodities a
Speaker 1: little saggy, and we've seen that in the tape in
Speaker 1: the last number of minutes watching Luney on that LUNI
Speaker 1: sixty weaker Canada this morning. Where's the ruble haven't. Yes,
Speaker 1: weaker dollar ruble as well, just as a proxy watching
Speaker 1: German rates as well. They were lower rates earlier, but
Speaker 1: still lower rates. This morning on the two in the
Speaker 1: tenure German Bloomers Bloomers Savannas. This morning brought you by Investco.
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Speaker 1: Comar with us Street Camar of Comar Global, Street Comar
Speaker 1: Global and Economics, one of our most popular guests. A
Speaker 1: lot of our audience agrees with your caution, not skepticism,
Speaker 1: but caution about American economic growth. What do the growth
Speaker 1: optimists have now? Is it too much of an appreciation
Speaker 1: of what the consumers doing or is it other dynamics.
Speaker 1: I think the optimists had expected that once the financial
Speaker 1: crisis was over, Tom, that the recovery would be swift,
Speaker 1: because that's the history that we have had, especially after
Speaker 1: the serious one recession that did not happen. The second
Speaker 1: reason for the optimism was that the FED was giving
Speaker 1: you a tailwind in terms of quantitative easing and zero
Speaker 1: interest rates, and the tailwind helped the stock market, but
Speaker 1: it didn't help the economy. So I think those were
Speaker 1: the two major issues, the two major problems, and real
Speaker 1: growth cannot be got from monetary policy alone. I like
Speaker 1: to say that if you were a plumber when the
Speaker 1: month when the FED had an eight hundred billion balance sheet,
Speaker 1: now that it has four point five trillion, you have
Speaker 1: not become a nuclear physicist. You're still a plumber. And
Speaker 1: in order to change that, you need the change of
Speaker 1: the structure. You need education, you need vocational training, and
Speaker 1: monetary policy in the United States as well as in
Speaker 1: Japan and in the euro Zone gave you the illusion
Speaker 1: that you didn't have to make any other changes. Last week,
Speaker 1: Michael and I are recovering stam Fisher's comments at Columbia
Speaker 1: an Honor of Michael Woodford to the models, to the
Speaker 1: economic models of Michael Woodford, are they of benefit? Now?
Speaker 1: I mean? Do they? Do? They essentially work? I think
Speaker 1: the economic models simply don't work. If you go by again,
Speaker 1: Professor Woodford is a is a brilliant theorist, and he
Speaker 1: has all obviously worked very closely with Ben Bernanki at
Speaker 1: Princeton before he came to my alma mater, Columbia University.
Speaker 1: But if you looked to the environment in which the
Speaker 1: Michael Woodford policies are working, the Ben Bernankee policies are working,
Speaker 1: you are looking at a soggy monetary policy under very
Speaker 1: low interest rates. And I think that is essentially what
Speaker 1: all these monitors face, that they are in a world
Speaker 1: which is essentially hostile to their measures. What's the current
Speaker 1: low interest rate, the current level of interest rates? What
Speaker 1: is that accomplishing? I'm sorry, what does it cost? What
Speaker 1: is it accomplishing? Uh? What it accomplishes this market distortion.
Speaker 1: It forces you to stretch for yield, and people who
Speaker 1: should not be taking too much of risk, such as
Speaker 1: people with low income, people who are retired, people who
Speaker 1: don't have other financial backing, are all forced to go
Speaker 1: in for higher level of yield. And you see again
Speaker 1: in terms of the rash of mergers and acquisitions, the
Speaker 1: rash of foreign expansions, all of the low interest rates
Speaker 1: are making you behave in a way you wouldn't have
Speaker 1: done had the interest rates been more normal to begin with, Michael,
Speaker 1: and I think that's I think the crucial problem that
Speaker 1: you have both with consumers save us, as well as
Speaker 1: with businesses the way. Are you so negative on the
Speaker 1: FED raising rates? I mean, shouldn't shouldn't it be what
Speaker 1: they're doing. I'm not negative on the racing rates at all.
Speaker 1: I said they should have raised two years ago. But
Speaker 1: what I'm negative about is that pretending that they would
Speaker 1: raise in December and that would have no impact on
Speaker 1: the markets, or that they have a chance to raise
Speaker 1: interest rates on June fifteenth, eight days before the Brexit vote,
Speaker 1: and expect that it's not going to have much of
Speaker 1: an impact on the markets. That is where I think
Speaker 1: the FED is wrong. That's where I think the FED
Speaker 1: is a prisoner of its own policies. I'm not saying
Speaker 1: that the fend shouldn't raise it, but why don't you
Speaker 1: raise it? Get ready for a big market correction and
Speaker 1: then go your way up and then keep normalizing grates.
Speaker 1: Do you assume the curved flattening that we've seen is
Speaker 1: not a signal of recession. We're now we're near the
Speaker 1: two year being saying yelled as a tenure. But the vectors.
Speaker 1: There gets a lot of concern from the gloom crew.
Speaker 1: You're not gloomy, You've just been cautious. Does the two
Speaker 1: stents spread signal economic slowdown or contraction? The two tents
Speaker 1: spreads so far is signaling an economic slowdown? Could it continue?
Speaker 1: And then talk to you about an actual recession. It
Speaker 1: depends on what further movements you have. What I've been saying, Tom,
Speaker 1: is that the tenure is going to go toward one percent.
Speaker 1: Today we had the two years, the tenure tenure one
Speaker 1: year is going close to one percent over the next
Speaker 1: one point zero zero one point zero zero. And if
Speaker 1: you do that, if you look at even the spread
Speaker 1: between the four the federal funds rate and the ten year,
Speaker 1: it is flattened enormously, even if the tenure, if the
Speaker 1: federal funds rate were to increase, Mike, that's positively America.
Speaker 1: Can you have blows through HSPCs one zero? Tell me why?
Speaker 1: Because the two reasons. One, I don't think inflation is
Speaker 1: picking up, Michael. Secondly, and I don't think I cannot
Speaker 1: growth is going to pick up if you have very
Speaker 1: slow economic growth and it starts to slow down even
Speaker 1: further with the passage of time. Uh. They're talking about
Speaker 1: the nominal ten uere interest rate being a product of
Speaker 1: both your expectation for real growth and your inflationary expectations.
Speaker 1: Just don't add up to anything like even one point five.
Speaker 1: That's that's my arithmetic. You were not impressed by the
Speaker 1: API numbers this last week. I'm not impressed by the
Speaker 1: CPI numbers. But the code inflation is still well below
Speaker 1: the Fed's target. You have the euro Zone which is
Speaker 1: dealing with deflation. The Japanese deflation is getting worse. The
Speaker 1: Chinese wholesale price index has been negative about four years. Quickly,
Speaker 1: you're part of your calculus as we import their deflationla exactly.
Speaker 1: US is not an island. It can't have a high
Speaker 1: inflation when the rest of the world is going down.
Speaker 1: I just put this out on Twitter. We're going to
Speaker 1: rip up the script here, folks, and come back and
Speaker 1: really dig into this. With three COMAR, the idea of
Speaker 1: moving from one point eight two HSBC with an outlier
Speaker 1: call one point five for a major bank of three
Speaker 1: COMAR blows way through that to a lower yield futures
Speaker 1: negative three. This our surveillance is brought to you by
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Speaker 1: Michael bar with the latest news headline, Thank you very much.
Speaker 1: President Obama has removed a fifty year old ban on
Speaker 1: selling arms to Vietnam. The President is on a three
Speaker 1: day visit to the country before heading to Japan. Officials
Speaker 1: say two suicide bombers hit Yiman, southern port city of
Speaker 1: Aiden today, killing at least forty five people. Security officials
Speaker 1: say young men seeking to join the army were targeted
Speaker 1: today at judge in Baltimore schedule to announce his verdict
Speaker 1: in the trial of one of six city police officers
Speaker 1: charged with the death of Freddie Gray. Prosecutors say officer
Speaker 1: Edward Nero arrested Gray without probable cause and was negligent
Speaker 1: when he did not buckle him into a seat belt
Speaker 1: in the police van. Global News twenty four hours a day,
Speaker 1: powered by our twenty four hundred journalists more than a
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Speaker 1: Tom and Michael. Thanks so much. Shout out to the
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Speaker 1: see a headline right now crossing the Bloomberg Tribute and
Speaker 1: Publishing is rejecting the Gannet bid offering and it offers
Speaker 1: mutual talks. Will have more in that story as it
Speaker 1: crosses the Bloomberg. But again that cross seconds ago. Government
Speaker 1: bonds meanwhile rising the yen strengthening as investors way the
Speaker 1: time we get the federal reserves, next increase in interest
Speaker 1: rates and the outlook for inflation. Commodities sliding led by metals,
Speaker 1: will stalks in eure up to flim. We checked the
Speaker 1: markets every fifteen minutes throughout the trading day. On Bloomberg
Speaker 1: SNP EVENI futures down three points down, EVENI futures down
Speaker 1: twenty three nasadac Emity futures down to dacks. In Germany's
Speaker 1: down eight tenths per cent. Pen your treasury up five
Speaker 1: thirty seconds, the yield one point eight two percent. NIMEX
Speaker 1: screwed oil down one point two percent or sixty cents
Speaker 1: to forty two A barrel call. Make school down three
Speaker 1: tenths per cent or three dollars eighty cents at twelve
Speaker 1: forty nine ten announced the euro a dollar twelve twelve
Speaker 1: the end one oh nine point three nine. That's a
Speaker 1: Bloomberg business flash, Tom and Mike Charine, thanks so much.
Speaker 1: Buyer Beyer. However, you want to look at it on
Speaker 1: Monsanto breaking down not through this morning weakness, but in
Speaker 1: Germany trading three percent down, down a good fifteen percent
Speaker 1: from the peak of May twelve. So there's the shareholders voting.
Speaker 1: Michael McKee, we have sophisticated listeners worldwide. One of them
Speaker 1: works for Wells Fargo and takes issue. He goes twenty
Speaker 1: basis points higher in yield versus three comar looking for
Speaker 1: the yield to go a d basis points lower. Well,
Speaker 1: there's not a lot of people calling for a one
Speaker 1: per cent tenure yield, so she is is occupying any
Speaker 1: space of his own almost there. Um, your view does
Speaker 1: get a little bit of support this morning tree from
Speaker 1: the New York Fed. They've just put out their most
Speaker 1: recent in time. You're gonna like this because I know
Speaker 1: you love d s g E. They they have run
Speaker 1: the numbers, and their latest DSGE forecast is that she's
Speaker 1: wrong on growth but right on prices. They see growth
Speaker 1: picking up throughout the rest of the year. But they
Speaker 1: think the recent rise in inflation is temporary. Um. So uh,
Speaker 1: for whatever faith you put in models, you have some
Speaker 1: support for either side of the equation. Um, how much
Speaker 1: faith do you have sure in the accuracy of bond
Speaker 1: prices or the the our square of bond prices to economy?
Speaker 1: Right now, given the fact that everybody in the world
Speaker 1: puts is putting their money into the United States, which
Speaker 1: is driving down bond yields, the fat is still buying
Speaker 1: tenure notes as part of its reinvestment plan. So is
Speaker 1: there a real price on bonds at this point? How
Speaker 1: do you separate it out and say the economy is
Speaker 1: going to lead us to this? Very good questions, Mike.
Speaker 1: I think when you're looking at the correlation between the
Speaker 1: tenure yield and economic growth, think about it more like
Speaker 1: a multiple regression. In other words, the yield depends not
Speaker 1: only on the growth rate, but also measures of liquidity,
Speaker 1: measures of fought in confidence or lack of confit ins
Speaker 1: in their own countries. So if you put those three
Speaker 1: variables together, I think you're our squared would be significantly
Speaker 1: higher than if you just considered economic growth. Here and
Speaker 1: regarding going toward one percent for the ten year yield,
Speaker 1: I was alone a couple of years ago when I
Speaker 1: didn't agree that the ten year was going to go
Speaker 1: to three percent three and a half percent, which was
Speaker 1: universally believed, and I said it was going down to
Speaker 1: two percent, which seemed heretical at that time. Now it
Speaker 1: has gone to one eighty, and I think you will
Speaker 1: see that going below one fifty because nothing much has
Speaker 1: changed since then. And again, going back to your own points,
Speaker 1: the world is even more worried about leaving the money there.
Speaker 1: The rest of the world, one to nine year German
Speaker 1: yields are negative or close to being negative. Why is
Speaker 1: the United States alone at one eighty two? It is
Speaker 1: just way too high to survive and I at that level,
Speaker 1: And that's one more reason why I see you going down.
Speaker 1: So if you want to boost your our squared you
Speaker 1: need much more explanatory powered on the right hand side
Speaker 1: of the equation. Tom, we didn't get John Tucker's permission
Speaker 1: to do a math Monday, but I think we've gone
Speaker 1: down that. No, but it is high squared Tuesday tomorrow,
Speaker 1: which will be permanently Well, come on, if you if
Speaker 1: you keep it up, Tucker, we're doing crotosis three. If
Speaker 1: I look to your point in any kind of moving
Speaker 1: average of the ten year yield, it is out of
Speaker 1: a great moderation. Are we still in the great moderation?
Speaker 1: You know, eighty years of just forty years rather of disinflation.
Speaker 1: You know I'm starting in roughly, And are we still
Speaker 1: within that trend? I think we are, Tom, And the
Speaker 1: reason we are continuing is because again we did not
Speaker 1: take the plunge. And Mike asked earlier why shouldn't the
Speaker 1: Fed hike interest rates if they had not had seven
Speaker 1: eight years of quee and zero interest rates, and if
Speaker 1: we had artent interest rates going up, let's say by
Speaker 1: two and quantitative easing had completely come to an end,
Speaker 1: the stock market would have taken a connection, but you
Speaker 1: would not given reading over the weekend on this equal
Speaker 1: the basic idea here, we're trying to have a painless
Speaker 1: clearing of market econ the Friedrich Kayak painless clearing of
Speaker 1: the markets. Do you see that within your call of
Speaker 1: a software economy or are there going to be a
Speaker 1: lot of volatility and jump conditions, brutal moves. It's most
Speaker 1: would put it is more the latter. I think you're
Speaker 1: going to have a lot of volatility in terms of
Speaker 1: how the market moves. The softness of the economy doesn't
Speaker 1: mean you also have everything working well with you. Because
Speaker 1: you have given or you have sacrificed economic growth. Therefore
Speaker 1: you're due to get other benefits. You have continued with
Speaker 1: this inflation of the policies for the last seven or
Speaker 1: eight years, you have to pay the piper, and that
Speaker 1: mean at some point in time you have to have
Speaker 1: a massive connection. Shoot Camar thank you so much so
Speaker 1: when you'll put this chart out on Bloomberg Radio plus,
Speaker 1: the one year moving average of the ten year yield
Speaker 1: is two point zero seven and it has just rolled over,
Speaker 1: ever so slightly, but a little bit of a rollover
Speaker 1: in a more smooth approximation of the ten year ye
Speaker 1: Michael John, Sylvia, it was far Ago saying, you know,
Speaker 1: within the good debate of economics, Mars too cautious. He's
Speaker 1: looking for two yield higher you okay, over there. I
Speaker 1: stayed up to watch Game of Thrones, So watch the
Speaker 1: hockey game exactly. You know. It was a game of Thrones,
Speaker 1: hold or hold or was playing for the Tampa Bay
Speaker 1: Lightning something like that. Futures negative to town futures negative
Speaker 1: nineteen the yield street comers yield one point eight two.
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