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Speaker 1: This is Bloomberg surveillance. I think that the world's markets

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Speaker 1: and global economies are maturing. There are numerous peaks I

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Speaker 1: see by raising rights a federally signment to everybody, businesses, individuals,

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Speaker 1: everybody that the economy is in better shape of normalizing

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Speaker 1: the problem with low interest rates to steaming. It puts

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Speaker 1: all the focus on the benefits of borrowing and takes

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Speaker 1: away focus from the benefits of saving. Bloomberg Surveillance your

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Speaker 1: link to the world of economics, finance, and investment on

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Speaker 1: Bloomberg Radio. Good morning, it is seven am on Wall Street.

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Speaker 1: I'm Michael McKee along with Tom Keane. It's seven p m.

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Speaker 1: In Manila. Congratulations to stuff talking Rodrigo du Ducte. He

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Speaker 1: wins the presidency there. They call him Harry. He's a

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Speaker 1: guy who has threatened to bring the hammer down on

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Speaker 1: crime in the Philippines. It is a big deal for them.

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Speaker 1: Some people compare him to Donald Trump. Ex off it.

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Speaker 1: He actually has government experience as a long time politician there.

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Speaker 1: But it's going to be an interesting period ahead for

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Speaker 1: the Philippine government. Already talking about taking power away from Manila.

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Speaker 1: Philippine stocks higher, the pace higher in general, higher around

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Speaker 1: the world today. In Europe, the stock six hundred is

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Speaker 1: up by four points one percent. The DAX is up

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Speaker 1: by eighty three points. That's eight tense gain in London

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Speaker 1: a thirty six point game for the foot see six

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Speaker 1: tenths of a percent here. In the US, futures are

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Speaker 1: also higher seven points for the SMP, three tents four

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Speaker 1: tense gain. For Dow evening futures, they're up sixty four

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Speaker 1: now has that one evenis up thirteen points, a three

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Speaker 1: tense gain as well. The dollar is higher today, the

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Speaker 1: d X y and X ninety point three four four

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Speaker 1: a UH two tenths percent gain. The end falls to

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Speaker 1: one oh nine fifteen, the Euro one thirteen sixty three

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Speaker 1: the pound one twenty two UH. That's a problem for

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Speaker 1: Bill Dudley its themes. He notes that more than half

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Speaker 1: u s currency in circulation is held a Broughty me

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Speaker 1: of speech in Europe today countries have built huge forex

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Speaker 1: reserves in dollars, which means they buy US bonds. Tenure

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Speaker 1: note yield today one point seven six percent five year

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Speaker 1: one seventy two basis points for your two year UH.

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Speaker 1: Dudley's concern is that the value of the dollar and

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Speaker 1: bonds are affected by a lot more than US fundamentals.

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Speaker 1: Jeffrey Rosenberg is chief fixed income strategist at black Rock.

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Speaker 1: Jeff looking at what Bill Dudley had to say today,

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Speaker 1: can we say that bond prices and bond yields accurately

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Speaker 1: reflect the US economy? And is that a problem if

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Speaker 1: they are being pushed around by investors overseas. You know,

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Speaker 1: it's an interesting perspective because I think it flips on

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Speaker 1: its head the fundamental issue of debt and and the

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Speaker 1: value of the dollar. Because the fundamental issue that I

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Speaker 1: think explains why the financial markets are so concerned about

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Speaker 1: about the dollar is is that we have to appreciate

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Speaker 1: that the world's reserve currency is the dollar, so, whether

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Speaker 1: we like it or not, that the FED is not

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Speaker 1: just able to manage monetary policy with respect to the

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Speaker 1: domestic economy, they also have to consider the impacts for

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Speaker 1: the rest of the world. And one of the main

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Speaker 1: impacts for the rest of the world is that most

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Speaker 1: of the rest of the world's dollar about seventy of

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Speaker 1: the world's indebtedness is denominated in dollars. So what the

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Speaker 1: value of the dollar is for the rest of the

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Speaker 1: world matters. And here's the really key point, like is

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Speaker 1: that when the dollar goes up for us in the US,

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Speaker 1: that has some impact, has some impact on inflation, on earnings,

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Speaker 1: but the main impact is felt by the rest of

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Speaker 1: the world because when the dollar goes up, the rest

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Speaker 1: of the world's indebtedness effectively goes up. That means it's

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Speaker 1: that much harder to pay back their debt. Well, so

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Speaker 1: where do you see the dollar going. Is it going

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Speaker 1: to continue to trade higher as we talk about a

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Speaker 1: FED rate increase in is that going to rebound against

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Speaker 1: the global economy? Now I see the dollar more sideways here.

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Speaker 1: You know, we had the big theme over the last

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Speaker 1: two years of policy divergence the expectation, meaning that the

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Speaker 1: expectation that the FED was going to raise rates while

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Speaker 1: the rest of the world wasn't. Higher interest rates in

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Speaker 1: the US raises the attractiveness of holding fixed income in

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Speaker 1: the US. That raises the value of the dollar. And

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Speaker 1: you saw in anticipation of this long awaited policy divergence,

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Speaker 1: which finally showed up at the end of last year

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Speaker 1: in the form of the FED raising interest rates by

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Speaker 1: twenty five basis points when everybody else was doing the opposite.

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Speaker 1: You saw markets anticipate that with nearly a twenty increase

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Speaker 1: in the value of the dollars. So much of that

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Speaker 1: shift in relative monetary policy across the world is already

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Speaker 1: impacted in the dollar. I think the big moves going

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Speaker 1: forward there's not going to be uh that repeat in

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Speaker 1: terms of that kind of big move and and and

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Speaker 1: what we've seen in the last six weeks, so except

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Speaker 1: the exception of the last six days or so, the

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Speaker 1: dollar has been weakening. And it's been weakening because you

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Speaker 1: pulled back on the expectations for how fast the FED

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Speaker 1: is going to raise rates and positioning and markets was

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Speaker 1: way too overexposed to the expectation that the that the dollar.

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Speaker 1: What kind of the bottom line question where this gets

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Speaker 1: to is how much ConTroll does the FED have over

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Speaker 1: where the yield curve in the United States is going

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Speaker 1: to be? Well, you know, the FED has pretty good

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Speaker 1: control over the yield curve in the US in the

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Speaker 1: front end, right, So when we talk about monetary policy,

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Speaker 1: when we talk about traditional monetary policy, that's setting the

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Speaker 1: front end very short term interest rates. What unconventional monetary

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Speaker 1: policy has been about is about influencing. Some people might

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Speaker 1: say controlling or dictating the longer end of the yield curve,

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Speaker 1: and unconventional monetary policy allows the FED the scope to

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Speaker 1: do that. You know, there's a bit of policy debate

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Speaker 1: about what should the next FED policy be in One

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Speaker 1: of those policy choices is setting interest rates, fixing interest rates.

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Speaker 1: But now we're talking about fixing interest rates on the

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Speaker 1: long end of the yield curve, and the FED can

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Speaker 1: do that. They've done that in the past. I got

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Speaker 1: a twist star, I want to get through the minute,

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Speaker 1: Jeffrey Rosenberg with this with black Rock futures were up

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Speaker 1: more earlier, up six right now again the fixed trading

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Speaker 1: fourteen point to three. That's an extraordinary number on the

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Speaker 1: VIX Bloomberg surveillance this morning. But you by Investco, factor

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Speaker 1: based strategies can help investors focus on high quality, low volatility,

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Speaker 1: and more. Learn more at investco dot com. Slash high Conviction,

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Speaker 1: Jeff Rosenberg. Is something we've talked a lot to Peter

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Speaker 1: Fisher about over the years, and Mr Trump has talked

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Speaker 1: about this a little bit and others extending the duration

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Speaker 1: of our debt. You mentioned that the FED controls the

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Speaker 1: yield curve. I get all that and you know, that's great.

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Speaker 1: But if we wander back to a tenure benchmark being

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Speaker 1: a twelve year benchmark, I mean if extenderation of debt,

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Speaker 1: what does that do? So it's interesting, it's a loaded question.

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Speaker 1: So it's just a couple of things. The FED. What

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Speaker 1: I want to say is the Fed can control the

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Speaker 1: yield curve. The markets obviously have a huge impact in that,

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Speaker 1: and then the global influences on the yield curve also impact.

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Speaker 1: The FED hasn't deployed its full arsenal of control if

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Speaker 1: it wanted to, UH, it could certainly do that out

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Speaker 1: the yield curve. Some debate about whether or not how

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Speaker 1: effective that might be. But to the impact on the

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Speaker 1: issuing side, what does treasury do in terms of financing?

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Speaker 1: That's a trade off between today's interest expense and tomorrow's

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Speaker 1: interest expense. And every individual household faces this decision when

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Speaker 1: you think about do I have a fixed rate mortgage

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Speaker 1: or do I have an adjustable rate mortgage. Adjust worry

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Speaker 1: of mortgage benefit is lower interest expense today because I

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Speaker 1: have lower UF I have a floating rate and that

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Speaker 1: floats off of the shorter maturity. I'm gonna cash the

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Speaker 1: coupon Mike, I've got this bond sitting at home. The

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Speaker 1: French May of two thousand sixties six may have two

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Speaker 1: thousand and sixty six. The yield is one of three

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Speaker 1: quarters per cent. You expect to be around till sixty. Yes,

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Speaker 1: price to the discount to yield one point eight zero

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Speaker 1: percent for fifty years five. Oh, Mike, we got to

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Speaker 1: do that two thousand sixty six. There's a there's a

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Speaker 1: lot of talk about the Treasury should be turning out

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Speaker 1: its holdings, but they've been doing that, and of course

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Speaker 1: the Fed's been buying them all up. Uh. Is there

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Speaker 1: any call for more issuance at the very long end

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Speaker 1: thirty years or even beyond for the US because you've

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Speaker 1: got the French doing these forty year things. Sure, and

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Speaker 1: the Treasury, the Treasury management of the debt stock is

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Speaker 1: they don't want to dramatically change the issuance patterns. There's

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Speaker 1: been a slow x extension of the average maturity. But

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Speaker 1: there's a tradeoff that I was mentioning before, which is

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Speaker 1: if I if I go at an issue. While those

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Speaker 1: yields are exceptionally low, the tradeoff is it does increase

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Speaker 1: today's interest expense relative to having a shorter maturity profile.

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Speaker 1: So the Treasury is trying to balance, uh, stabilizing the

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Speaker 1: market expectations for what does the debt issuance look like,

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Speaker 1: and managing today's interest expense. And certainly the calls for

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Speaker 1: extending the debt is because you're at historic levels of

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Speaker 1: interest rates and like any individual would benefit from locking

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Speaker 1: that in. The offset of that is that you end

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Speaker 1: up paying higher interest expense today. That benefits. That's the

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Speaker 1: key point. And and that's a calculation treasury, and that

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Speaker 1: has a budget and that has a budgetary impact, and

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Speaker 1: that budgetary impact is part of the part of the

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Speaker 1: political debate. Jeffrey Rosenberg where this black rock will continue

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Speaker 1: this discussion, I want to migrate back to real your

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Speaker 1: yields in the financial repression that's so many, particularly the

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Speaker 1: elderly are facing now just continues and continues. That is

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Speaker 1: certainly not news, but it's always something worth discussing. Also,

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Speaker 1: a data check features up five, they've retreated up twelve earlier,

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Speaker 1: up five right now. Doubt features up forty six oil churns.

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Speaker 1: I mean that forty forty three dollars forty three cents

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Speaker 1: on West Texas sprint forty four oh six and gold

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Speaker 1: pulling back as well twelve sixty six. Uh the ounce

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Speaker 1: so some real gyrations. Just a most odd time with

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Speaker 1: a lot of gloom equity notes. I've seen in the

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Speaker 1: last uh number of days Yen one oh nine o eight.

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Speaker 1: That's maybe the big mover on the Bloomberg terminal, a

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Speaker 1: weaker yen over the last six seven trading sessions one

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Speaker 1: oh nine zero seven on en seven ten. I loll

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Speaker 1: straight time for Bloomberg surveilance news update brought to you

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Speaker 1: by BMW mount Kisso visit b m W mount Kiss

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Speaker 1: go dot com. Here's Michael bar my time. Thank you

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Speaker 1: very much. Republican John Casey isn't expressing enthusiasm for being

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Speaker 1: Donald Trump's running mate. The Ohio governor is said to

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Speaker 1: be on a short list to run with the presumptive

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Speaker 1: Republican presidential nominee. Trump also had Florida Senator Marco Rubio

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Speaker 1: on the list too, but Rubio and a statement posted

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Speaker 1: on Facebook says I have never sought, will not seek,

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Speaker 1: and do not want to be considered for a vice president.

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Speaker 1: The storm that spawned tornadoes in Oklahoma that killed at

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Speaker 1: least two people could settle in the Ohio and Tennessee Valleys. Today.

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Speaker 1: He was held for three years by the Taliban in Afghanistan. Today,

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Speaker 1: the son of a former Pakistani prime minister has been rescued.

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Speaker 1: Pakistan's foreign ministers says a joint raid by US and

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Speaker 1: Afghan force has rescued Ali Hyder Galani, who was found safe. Today.

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Speaker 1: Global News twenty four hours a day, Michael Barr, Tom

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Speaker 1: and Michael, thanks so much, with Jeffrey Rosenberg and Black

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Speaker 1: Rocket discussion and fixed income, A discussion on disinflation, A

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Speaker 1: discussion on financial repression. This is Bloomberg Surveillance. Bloomberg Surveillance

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Speaker 1: headlines crossing the Bloomberg Allerghan to buy back up to

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Speaker 1: ten billion dollars worth of shares stops meanwhile arrising around

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Speaker 1: the world as oil prices climbed toward forty four dollars

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Speaker 1: barrel and bass metals clawed back some of Monday's losses.

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Speaker 1: We checked the markets every fifteen minutes throughout the trading

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Speaker 1: day on Bloomberg SNP Emity futures at five points, DOWI

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Speaker 1: Mini futures of forty six, and nasdachimedy futures up seven

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Speaker 1: docks in Germany's up four tens per cent ten your

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Speaker 1: treasury down three thirday seconds, the yield one point seven

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Speaker 1: six per cent. NIMEX screwed oil is a little change

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Speaker 1: now it's at forty three forty four cents of arrol

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Speaker 1: comex school and also little change at twelve sixty six

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Speaker 1: fifty ounce the Euro at dollar thirteen sixty six again

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Speaker 1: one oh nine point oh six. That's a Bloomberg business flash,

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Speaker 1: Tom and Mike, thanks so much. Karen, it is a

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Speaker 1: wonderful time to talk about getting too narrow. Jeffrey Rosenberg

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Speaker 1: with us with black Rock. Now you're you're in like

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Speaker 1: the fixed income of division, right, such a great skill

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Speaker 1: as you spread things out. I think of your colleague

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Speaker 1: Roberts Sinch from years ago and crime now it ammers

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Speaker 1: pure pond and the magic of Bob Sinch and the

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Speaker 1: magic of jeff Rosenberg is you don't stay narrow, you

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Speaker 1: look across asset class is it seems like right now

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Speaker 1: that's more important than it's really ever been in my time,

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Speaker 1: you know, you know it has been certainly we we

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Speaker 1: went through the global financial crisis and and it's been

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Speaker 1: a market where macro issues can dominate and and have dominated,

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Speaker 1: and and the big macro story today is China. And

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Speaker 1: you know, interestingly, in in in looking at the headlines

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Speaker 1: and what people are talking about, I don't think people

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Speaker 1: are talking enough about that. People's daily article, Yes, thank you,

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Speaker 1: thank you, thank you so much. I thought the same

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Speaker 1: thing discussed that. It's it's incredibly important. You know, we

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Speaker 1: when we follow Mario Draggy or Janet Yellen, we have

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Speaker 1: incredible transparency to policymaking. When it comes to China, we

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Speaker 1: don't have the same degree of transparency, and the manner

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Speaker 1: in which they communicate their policy is in often cases

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Speaker 1: the third time that we've seen this authoritative person sort

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Speaker 1: of approach taken out of the official mouthpiece of their

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Speaker 1: state controlled media. And that's really the important because there

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Speaker 1: there's a policy being signaled, and the policy that's being

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Speaker 1: signaled is is a change with regards to expectations. Are

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Speaker 1: trying to manage expectations around the credit growth. Now, what

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Speaker 1: what financial markets and participants I think have realized is

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Speaker 1: that mid February and February eleven we hit a low point.

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Speaker 1: And why we hit that low point had a lot

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Speaker 1: to do with concerns around China. And then we had

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Speaker 1: a policy intervention by China and that had a lot

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Speaker 1: to do with the rally and the rallying is petering out.

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Speaker 1: And while there are many things that are going on,

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Speaker 1: one of the big macro stories here is really the

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Speaker 1: success of bringing back growth expectations from those traditional credit channels.

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Speaker 1: And what that article was talking about is don't expect

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Speaker 1: that to continue forever. There are limits to how much

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Speaker 1: credit fueled growth can drive growth in China, drive growth

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Speaker 1: in commodity prices, and that's as a major story here

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Speaker 1: from macro investing. But when does that here? That's the question.

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Speaker 1: The Chinese seemed to have seemed to be doing what

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Speaker 1: the Europeans are so good at, and that's kicking the

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Speaker 1: can down the road. They've made things okay for two

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Speaker 1: thousand and sixteen. But once they start cleaning up the

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Speaker 1: mess they've created, how badly does that affect the world?

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Speaker 1: And we do do have to position yourself now for that. Well,

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Speaker 1: there's two things. In terms of when it hits it

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Speaker 1: it hit yesterday, I mean, the Shanghai was down almost

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Speaker 1: three percent. The rest of the market seem to ignore it.

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Speaker 1: And I think again that goes to this concept of

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Speaker 1: this isn't an official policy statement from a recognizable official

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Speaker 1: People don't know exactly how to interpret that, and so

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Speaker 1: there's a bit of a bit of a debate. But

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Speaker 1: we'll see this show up in the next month. We'll

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Speaker 1: see it show up in the next quarter in terms

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Speaker 1: of what we see coming out of China in terms

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Speaker 1: of credit growth, what we're seeing already in terms of

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Speaker 1: the impact of the clamp down on the speculation in

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Speaker 1: Chinese traded commodities, you're seeing that already in financial markets.

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Speaker 1: So this stuff shows up now. The bigger picture stuff, Mike,

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Speaker 1: is really about the long term story, which is the

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Speaker 1: credit It the the hangover after the party, the implications

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Speaker 1: of all the credit growth, and how much of that

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Speaker 1: credit growth has been good and how much of it

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Speaker 1: has led to losses and the recognition of those loss Mike,

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Speaker 1: here's the People's Daily quote that Mr Rosenborg is talking about.

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Speaker 1: After comprehensive judgment, our economic recovery cannot be you shaped,

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Speaker 1: cannot be V shaped, but will be L shaped. That

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Speaker 1: from zero hedge, Mike, what's L shaped? Yeah, in China,

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Speaker 1: that's your hockey stick. I think, well, what you what

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Speaker 1: you don't want is L shaped on the way down

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Speaker 1: where you fall a lot and then you just stay flat.

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Speaker 1: But well, if if I can just throw in you know,

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Speaker 1: L shaped means that they're stabilizing at the six and

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Speaker 1: a half to seven percent, So trying to dampen expectations

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Speaker 1: that the growth that you saw in the first quarter

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Speaker 1: coming out of the spectacular increase in credit, that's not

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Speaker 1: going to be a plan to get back to higher

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Speaker 1: levels of growth. But it's also saying we're not going

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Speaker 1: to see growth collapsing, so they're trying to create an

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Speaker 1: expectation for stable growth. Can you ask your question because

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Speaker 1: you're you know you, you and I a mike working

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Speaker 1: to rarefied zip code? Are we just talking about a

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Speaker 1: lot of macro mumbo jumbo which benefits the guilded age

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Speaker 1: and the plutocracy. Where's the benefit to our listeners? Going great?

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Speaker 1: Mr Rosenberg brilliant? When does my real rate go up?

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Speaker 1: So so a big part in terms of in terms

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Speaker 1: of the savings impact, right, so, negative interest rates. It's

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Speaker 1: all been about create a wealth effect. The wealth effect

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Speaker 1: has some unsavory side effects that it creates distributional impacts,

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Speaker 1: meaning the wealth effect benefits people who have assets and

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Speaker 1: the savers. If you don't have enough assets, so you

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Speaker 1: don't have your savings in the right kind of assets

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Speaker 1: that the FEDS policies are favoring, then you then you

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Speaker 1: then you you can be you can be left behind.

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Speaker 1: When do interest rates finally start to go up? And

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Speaker 1: why is the China peace sort of important to that?

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Speaker 1: Is this is about the global growth environment, and China

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Speaker 1: hasn't been contributing that may be clear. It contributes tremendous

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Speaker 1: to overall economic growth. But the contribution has been falling

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Speaker 1: because their growth rate has been falling, and that has

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Speaker 1: led to a contribution greater towards falling inflation rather than

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Speaker 1: rising inflation. And that's held down interest rates. And the

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Speaker 1: man listening on the drive in that's made the income

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Speaker 1: available on your savings lower because there's less demand for

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Speaker 1: those savings. It's all I get mail on. I mean,

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Speaker 1: the macro is great. People are living this in real time,

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Speaker 1: including that five year inflation adjusted chart. This morning, Jeffrey

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Speaker 1: Rosenberg with wisdom, this winting. He is with black Crock Mike.

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Speaker 1: The theory this morning has been great. Jo Mickey Leady

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Speaker 1: was just brilliant. He's gonna come back to talk to

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Speaker 1: him in a little bit. With Barrenburg Capital Markets as well.

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Speaker 1: This is most interesting. It is always interesting on economics, finance,

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Speaker 1: investment on your international RelA issues from New York. Bloomberg Surveillance.

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