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Jim Bianco on the FOMC Meeting: Fed Confusion Reigns (Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day at Bloomberg
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  Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters,
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  Speaker 1: son Charlie Pellett. Early gains fizzle, Treasury yields, the dollar
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  Speaker 1: extended declines after Federal Reserve officials signaled a slower pace
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  Speaker 1: of interest rate increases. The tenure yield one point five
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  Speaker 1: seven percent, Gold of eight seventy to twelve ninety six,
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  Speaker 1: a gain of seven tenths of one percent. Oil extending
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  Speaker 1: It's declines down two point one percent, forty seven forty
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  Speaker 1: six of barrel equities lower SMP five hundred index down
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  Speaker 1: three to end this FED Wednesday session at two thousand
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  Speaker 1: and seventy one, a drop of two tenths of one percent.
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  Speaker 1: The Dow also down two tenths of one percent, down
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  Speaker 1: thirty four points. Nastack Town eight also a drop of
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  Speaker 1: two tenths of one percent. I'm Charlie Pellett, and that's
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  Speaker 1: a Bloomberg business flash. Is he's taking stock the Fed
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  Speaker 1: in focus on bloom Word Radio. The Federal Reserve holding
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  Speaker 1: its benchmark lending rate steady today. Here to tell us
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  Speaker 1: more is Jim Bianco. He is the president of Bianco Research.
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  Speaker 1: He joins us from Chicago. Jim, always a pleasure. I
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  Speaker 1: was reading a note from Ward McCarthy of Jeffreys and
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  Speaker 1: he used words such as confused, conflicted, and policy that
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  Speaker 1: is a drift. Is that your impression? Yes, it actually is.
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  Speaker 1: I do think that the Fed is at least giving
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  Speaker 1: the appearance of confused, conflicted, and a drift. And the
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  Speaker 1: reason I think that is is that the Fed may
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  Speaker 1: not be telling us the real reason that they want
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  Speaker 1: to raise rates, which I do think is a belief
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  Speaker 1: that this whole queuee experiment either never worked or has
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  Speaker 1: run its natural course and has become ineffective. You could
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  Speaker 1: pick you the one. And they want to get back
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  Speaker 1: to normalizing interest rates. The thing that's holding them back
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  Speaker 1: is the market is fighting them with this. If you
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  Speaker 1: look at things like on your Bloomberg the w I
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  Speaker 1: R P GO function, which is the probability that the
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  Speaker 1: Fed is going to raise rates as measured by the market,
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  Speaker 1: We're already out to the fall of two thousand seventeen
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  Speaker 1: for the next rate hike. The Fed still thinks that
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  Speaker 1: there might be two more this year. And when there's
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  Speaker 1: that difference. It seems time and again the Fed caves
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  Speaker 1: to the market, and that's why they look confused, conflicted,
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  Speaker 1: in a drift, because they're not really saying, we want
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  Speaker 1: to just normalize. We don't think it works. We want
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  Speaker 1: to do it when the market's ready, and since the
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  Speaker 1: market is not ready, we're not going to do it.
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  Speaker 1: Jennet Yelling can't say that. And because you can't say that,
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  Speaker 1: confusion reigns m I often, Jim wish that they would
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  Speaker 1: just say, because I think that's a lot of people
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  Speaker 1: are assuming anyway. I think another very key thing, though,
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  Speaker 1: is they seem from December when they're I'm going four
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  Speaker 1: rate hikes, things are picking up, you know, boom March
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  Speaker 1: just two. Now today there's still a forecast, the median
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  Speaker 1: forecast for two interest rate increases in six But whereas
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  Speaker 1: only one of the Fed officials was saying, hey, there's
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  Speaker 1: only be one interest rate increase when they did their
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  Speaker 1: last forecast, their last economic projections, now there's six out
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  Speaker 1: of seventeen. What in your view is it the week
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  Speaker 1: job support? Is it a sense that you know, there
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  Speaker 1: the economy just isn't it just isn't firing of its
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  Speaker 1: engine as it should be by mid year to be
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  Speaker 1: on track for more rate Hiks, yeah, I think you
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  Speaker 1: know it is the ladder. It really isn't quite got
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  Speaker 1: the traction. The Fed puts out their statement in April.
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  Speaker 1: The first sentence of their statements said that economic growth
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  Speaker 1: was slowing, but the jobs employment situation looked good. That
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  Speaker 1: was April. Today they said the jobs employment is from
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  Speaker 1: a situation is slowing, but economic growth looks good. So
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  Speaker 1: they completely flip plopped those two. But the result was
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  Speaker 1: the same both ways. It was one of those was
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  Speaker 1: slowing in April, so we don't raise rates. One of
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  Speaker 1: those is slowing in June, so we don't raise rates.
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  Speaker 1: And that's where I think the market comes in. The
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  Speaker 1: market is saying, oh, you know what, I get this
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  Speaker 1: that unless everything is lined up perfect, they're not going
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  Speaker 1: to raise rates. And since nothing is lined up perfect
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  Speaker 1: and we don't think it will be lined up perfect,
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  Speaker 1: that's why the market has less than a chance at
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  Speaker 1: the Federal raise rates through December. And you've got to
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  Speaker 1: go out over a year to find the next time
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  Speaker 1: the market things are gonna raise rates, even though, like
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  Speaker 1: you said, the Fed thinks there's gonna be two more
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  Speaker 1: rate HIX. That's what needs to be squared be in
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  Speaker 1: the next several months between what the market things with
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  Speaker 1: the FED things and it comes back to that data.
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  Speaker 1: It just never quite lines up. But if the fit's
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  Speaker 1: gonna wait for perfect data, then they're gonna be like
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  Speaker 1: they've been all year. They're not going to raise rates.
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  Speaker 1: Jim Bianca, You've got more than four institutional clients around
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  Speaker 1: the world. They include central banks, public and private pension plans,
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  Speaker 1: as well as institutional money managers and hedge funds. They
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  Speaker 1: can't operate in a world of confusion, conflicted advice and
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  Speaker 1: policy that is a drift. What are you recommending that
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  Speaker 1: they do with their money? That's a good question because
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  Speaker 1: they're so when you talk about confusion and policy drift.
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  Speaker 1: I mean we haven't even you know, broached the word brexit,
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  Speaker 1: which is like the FED on steroids as far as
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  Speaker 1: confusion goes um right now, I think a defensive posture
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  Speaker 1: is warranted. That means that interest rates, especially sovereign bonds.
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  Speaker 1: Longer term sovereign bonds have been an ideal place to
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  Speaker 1: be all year. The thirty year treasury in United States
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  Speaker 1: is up four this year, where the SMP is up
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  Speaker 1: less than two. Gold is up this year where the
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  Speaker 1: SMP is up less than two. So those defensive types
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  Speaker 1: of plays where you would be in bonds, you'd be
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  Speaker 1: in gold, have been big winners in this period of
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  Speaker 1: uncertainty and with unsured nous about the FED, and with Brexit,
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  Speaker 1: and with the election and with Donald Trump. I think
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  Speaker 1: that all of those will continue to play out throughout
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  Speaker 1: the bulk of the year as well too. Don't think
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  Speaker 1: this is a time to be looking for growth. I
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  Speaker 1: don't think this is a time to be looking to
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  Speaker 1: take on risk. To use Wall Streets phrase, I think
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  Speaker 1: that those cycles have larger left us, and that's reflected
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  Speaker 1: to and the very poor earnings numbers. Um the sp
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  Speaker 1: numbers have been growing at a negative pace now for
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  Speaker 1: about five or six quarters and look like they're at
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  Speaker 1: least going to continue to do that until the fall,
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  Speaker 1: if not longer. Jim Bianco, if you look at the
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  Speaker 1: US bond market usually got negative rates. You have German
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  Speaker 1: blend is negative. You've got the ten year note on
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  Speaker 1: the Treasury note down to one point five seven. How
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  Speaker 1: much more can this rally go? I mean, unless we
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  Speaker 1: really are heading into recession, Unless the economy is really
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  Speaker 1: down shifting. Does this level of long term note and
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  Speaker 1: bond yields makes sense? Um? If you're asking worldwide based
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  Speaker 1: on fundamentals as we used to understand them, the answers no,
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  Speaker 1: it doesn't make sense. If you're asking why are they sold? Oh,
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  Speaker 1: and if you throw in that there is a buyer
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  Speaker 1: with a printing press being the central banks around the
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  Speaker 1: world buying these bonds, forcing them to levels that we
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  Speaker 1: thought were impossible to understand. That's why we're going there. Um.
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  Speaker 1: Switzerland has got the most negative rates in the world.
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  Speaker 1: They've gone to almost negative two percent in some of
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  Speaker 1: their cases. They're still room to go on that negative
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  Speaker 1: lung as long as you've got a buyer with printing presses.
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  Speaker 1: They being the ECB, to Bank of Japan, not the
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  Speaker 1: FED yet, but at least those two, the second and
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  Speaker 1: third largest central banks buying, can continue to do it. Yes,
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  Speaker 1: bonds can continue to rally and mid you capital games.
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  Speaker 1: Jim Bianco, President, founder of Bianco Research. This is taking
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  Speaker 1: stock on Bloomberg Radio. Taking Stock a special Federal Reserve
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