Latest / Bloomberg Intelligence / Fed Chair Powell Should Love This Jobs Report: McCarthy (Podcast)

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Fed Chair Powell Should Love This Jobs Report: McCarthy (Podcast) · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa A. Brahmowitz. Each day
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  Speaker 1: we bring you the most important, noteworthy, and useful interviews
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• 0:32
  Speaker 1: Joining us now, Dr Ward McCarthy, chief economist for Jefferies,
• 0:35
  Speaker 1: and Matt Bosler, Bloomberg Fed reporter. Dr McCarthy want to
• 0:39
  Speaker 1: start with you, So, how does j Powell deal with
• 0:43
  Speaker 1: this job's report? Well, he has to be delighted with this.
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  Speaker 1: The FED has a dual mandate UM, one of which
• 0:51
  Speaker 1: is maximum employment, the other which is stable inflation near
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  Speaker 1: two percent. And it's quite clear that FED keeps hitting
• 0:58
  Speaker 1: home runs. This fire is the employment numbers of concern
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  Speaker 1: because the labor market went out of eighteen like a lion,
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  Speaker 1: and I think that he will be happy to point
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  Speaker 1: that out. He'll be happy to point to the fact
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  Speaker 1: that wage growth continues to gradually accelerate and so he
• 1:14
  Speaker 1: can declare victory on that front. Matt Bosler, we are
• 1:18
  Speaker 1: awaiting comments from a variety of Federal Reserve experts. One
• 1:24
  Speaker 1: of them, of course, the current federals are Chairman Jerome Pale,
• 1:27
  Speaker 1: also his immediate predecessors, the Janet Yelling and Ben Bernanke.
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  Speaker 1: There scheduled to speak today at the Atlanta Fed's American
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  Speaker 1: Economic Association's annual meeting. Do you expect them to reference
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  Speaker 1: today's jobs report? Well, I can't wait to see what
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  Speaker 1: he says, because, like we've been talking about, this is
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  Speaker 1: an amazing jobs report. It pushes the Fed in the
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  Speaker 1: direction of what they've been doing for the last several years,
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  Speaker 1: which is tightening in response to a strong labor market
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  Speaker 1: that should eventually generate inflationary pressure. This is what their
• 1:58
  Speaker 1: models are telling them to do. Yet at the same time,
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  Speaker 1: obviously they have this huge problem in financial markets that
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  Speaker 1: they also have to address. And so which message do
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  Speaker 1: we hear? How does he balance those two things? Well,
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  Speaker 1: and I actually want to push back Dr Ward of
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  Speaker 1: what Dr Ward McCarthy on what you just said, which
• 2:13
  Speaker 1: is that he's got to be thrilled about this job's report.
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  Speaker 1: Doesn't this make his job a whole lot more difficult
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  Speaker 1: because if he continues raising interest rates right now, the
• 2:22
  Speaker 1: market is implying that longer term growth will slow down
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  Speaker 1: as a result. Well, I think that right now the
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  Speaker 1: more important of the dual mandate objectives is going to
• 2:32
  Speaker 1: be inflation, because that's headed below target, and as a consequence,
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  Speaker 1: I think that there's going to be a reprieve of
• 2:39
  Speaker 1: several months before the Fed resumes hiking rates. So um,
• 2:45
  Speaker 1: I do not think this post is a problem for
• 2:47
  Speaker 1: the Fed. The Fed is very happy to have the
• 2:50
  Speaker 1: economy continued to grow, and especially I think they're probably
• 2:54
  Speaker 1: happy to see the labor force starting to uh increase
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  Speaker 1: again as well. But I don't do not think this
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  Speaker 1: increases pressure on the Fed to raise rates anytime soon,
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  Speaker 1: for the simple reason that inflation is headed in the
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  Speaker 1: opposite direction of what they wanted to and it will
• 3:10
  Speaker 1: continue to be weak so long as the trade war
• 3:14
  Speaker 1: continues to suppress commodity prices. So square with me. The
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  Speaker 1: idea that we have Dr McCarthy a really strong economy
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  Speaker 1: that cannot handle an additional twenty five basis point rate hike, Well,
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  Speaker 1: I think the economy can handle another twenty five basis
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  Speaker 1: point rate high. In fact, I think the account economy
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  Speaker 1: can handle a number of more rate hikes. But again,
• 3:35
  Speaker 1: the Fed has a dual mandate. Um, that is what
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  Speaker 1: drives their policy decisions. Uh, they're hitting on all cylinders
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  Speaker 1: on the labor side, but they're starting to fall behind
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  Speaker 1: as far as the inflation side is concerned. So given
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  Speaker 1: that their their decisions on policy and based on both
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  Speaker 1: inflation in the labor markets, I think we can expect
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  Speaker 1: that they will pause here for a period of time. Matt,
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  Speaker 1: A lot has changed since December the nineteen, hasn't it explained? Well,
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  Speaker 1: certainly in financial markets, you know, we've seen a lot
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  Speaker 1: of changes, and so, Um, this is really comes back
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  Speaker 1: to this interesting question of what is j. Powell going
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  Speaker 1: to say, Because if it's the case that they do
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  Speaker 1: see inflation slowing materially, as Dr McCarthy points out, at
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  Speaker 1: a time when they still have very strong labor market data,
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  Speaker 1: they're going to need to start to communicate a more
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  Speaker 1: fundamental shift in their strategy in the approach that they've
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  Speaker 1: been taking over the last several years. Because to date,
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  Speaker 1: what this type of labor market data has meant has
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  Speaker 1: meant higher interest rates, and so if that is starting
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  Speaker 1: to change now, Um, it's almost like the markets have
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  Speaker 1: sort of forced the Fed's hand, uh in terms of
• 4:48
  Speaker 1: you know, the strategy that they're pursuing, and so that
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  Speaker 1: would be, you know, a huge development. So I know
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  Speaker 1: we have to let you run. Matt Bosler. I know
• 4:55
  Speaker 1: you've got a lot going on today, Matt Bosler of
• 4:57
  Speaker 1: Bloomberg News. Dr Lord McCarthy, you're staying with us. Dr McCarthy.
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  Speaker 1: I do want to get your view on the balance
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  Speaker 1: sheet because on one hand, uh, perhaps the FED can
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  Speaker 1: afford to raise interest rates by another quarter of a
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  Speaker 1: percentage point, but what about the balance sheet rolloff? Couldn't
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  Speaker 1: afford to allow it to be on autopilot two and
• 5:15
  Speaker 1: a half trillion from four trillion where it is today. Well,
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  Speaker 1: the point is, we don't know what they what the
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  Speaker 1: final objective is as far as what the FED thinks
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  Speaker 1: the normalized size of the balance sheet should be. So
• 5:28
  Speaker 1: so far it is on automatic pilot. Uh. In the
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  Speaker 1: balance sheet is unscheduled to shrink by somewhere between five
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  Speaker 1: hundred and fifty billion and six hundred billion over the
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  Speaker 1: course of What we do not know is when they
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  Speaker 1: intend to stop. And I think that the normalized size
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  Speaker 1: of the balance sheet is going to become one of
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  Speaker 1: the more important policy issues and topics as this year unfold.
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  Speaker 1: And there's also not just the size issue. There's a
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  Speaker 1: compositional is you prior to the crisis, the Fed owned
• 6:02
  Speaker 1: only treasuries, and even with the rollops that are rundaway,
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  Speaker 1: should they continue for another couple of years, you still
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  Speaker 1: would have a trillion or so mortgages on the balance sheet. Um. So,
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  Speaker 1: I think at some point as well, they're going to
• 6:18
  Speaker 1: have to discuss how to get the mortgages off the
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  Speaker 1: balance sheet. Uh. And I think eventually what they'll do
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  Speaker 1: is start, once they get the size that they want,
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  Speaker 1: they will start ruling some of the mortgage proceeds into
• 6:30
  Speaker 1: bills so that they can also get bills back on
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  Speaker 1: the balance sheet as well, because currently they have none,
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  Speaker 1: and prior to the crisis, about of the balance sheet
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  Speaker 1: was treasury bills. Lord McCarthy, there are four new voting
• 6:44
  Speaker 1: members on the f O m C. You've got James
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  Speaker 1: Bullard and St. Louis Ester George from Kansas City, Charles
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  Speaker 1: Evans Chicago, and Eric Rosingrin Boston. You believe that they
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  Speaker 1: are going to vote for a pause and interest rate increases, well,
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  Speaker 1: they take it meet to meeting, So They're not going
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  Speaker 1: to at anyone meeting say oh, we're not going to
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  Speaker 1: raise rates for the next three or four meetings. But
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  Speaker 1: what they will be doing, and they've told us that
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  Speaker 1: going to do, is to become increasingly data dependent. As
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  Speaker 1: the Fed funds rate, it works further into their estimate
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  Speaker 1: of neutrality UH. And the inflation numbers at least over
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  Speaker 1: the next two to three months are going to be
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  Speaker 1: substantially weaker UH than we've seen for most of eighteen
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  Speaker 1: and substantially weaker than I think they're going to want
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  Speaker 1: to see. So it was a consequence. I think they
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  Speaker 1: will simply defer from their next rate hikes so long
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  Speaker 1: as inflation remains weak, which I expected to um, so
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  Speaker 1: long as the trade war continues. Dr Warden McCarthy, thank
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  Speaker 1: you so much for taking the time today. We really
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  Speaker 1: appreciate your insights. Dr Warden McCarthy, chief economist for Jefferies
• 7:55
  Speaker 1: talking about both the jobs number that we got earlier
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  Speaker 1: as well as what the Fed will do with them.
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  Speaker 1: Let's get the opinion of Jason Shanko, president of Prestige
• 8:18
  Speaker 1: Economics and chairman of the Futurist Institute, also a Bloomberg
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  Speaker 1: opinion columnist joining us now, Jason, what was your big
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  Speaker 1: takeaway from from this panel? Well, you know, I was
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  Speaker 1: this couldn't come at a better time, really because dove Fest,
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  Speaker 1: which is what this should be called. Uh, you know,
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  Speaker 1: I think is you know, well needed at a time
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  Speaker 1: where there's a lot of risk and uncertainty and concern
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  Speaker 1: about the fact that the FED is tightening raids and
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  Speaker 1: still has these only three week old, relatively hawkers set
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  Speaker 1: a forecast for what they're gonna do at a time
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  Speaker 1: that financial markets have been very, very concerned about, you know,
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  Speaker 1: what's going going to happen next, and I think that
• 9:02
  Speaker 1: as we look there is still a concern there are
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  Speaker 1: risks for the year, for the year ahead, and I
• 9:07
  Speaker 1: think there was you know, Paul had mentioned that it
• 9:09
  Speaker 1: is just going to be like you know, I think
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  Speaker 1: there are risks that we see contractions in business investment
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  Speaker 1: this year, but it's the consumer that's going to be strong,
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  Speaker 1: that's gonna be really critical. Yelling pointed out, that's two
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  Speaker 1: thirds plus of the economy, and after today's jobs number,
• 9:26
  Speaker 1: you know, you have to be optimistic that we're going
• 9:28
  Speaker 1: to get some growth this year, even if it's slower
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  Speaker 1: than last year because the consumer, the john market is
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  Speaker 1: in a really good place, Jason Shanka. While the excuse me,
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  Speaker 1: while the panel was going on the dollar weakening against
• 9:42
  Speaker 1: all major currencies against the euro one fourteen and the
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  Speaker 1: pound sterling twenty at the Japanese end level one and
• 9:51
  Speaker 1: Canadian dollar really moving higher against the US dollar one
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  Speaker 1: thirty four, do you believe that the comments about the
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  Speaker 1: balance sheet will have lasting effects on the movement of
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  Speaker 1: the US dollar. Yeah. So I think there's two things here.
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  Speaker 1: I think one is our opinion has been that the
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  Speaker 1: Feds overly hawkish. Last year October expected four rate heights
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  Speaker 1: and we didn't see any foreen at that time. Even
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  Speaker 1: now we see one at most in Q one, if any,
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  Speaker 1: because it's actually likely to be a base effect pushing
• 10:28
  Speaker 1: inflation lower in the year head. So even if wage
• 10:30
  Speaker 1: inflation means relatively strong, we think that lower oil prices
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  Speaker 1: year on ear could dampen some of the inflationary pressures
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  Speaker 1: and reduce the need for the FED to raise rates anyway,
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  Speaker 1: and that's before any of the market risks became priced in.
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  Speaker 1: Is everything on the table. Everything's always on the table,
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  Speaker 1: so that that isn't necessarily a new thing. But on
• 10:53
  Speaker 1: a day where the wage inflation was at three point
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  Speaker 1: two percent, accelerated from last month, the highest since April
• 11:00
  Speaker 1: two thousand nine, you've got a lot of wave inflation.
• 11:03
  Speaker 1: That's a bit of a concern. You couldn't have a
• 11:05
  Speaker 1: better day for um, you know, for folks who are
• 11:07
  Speaker 1: bearished the dollar, for folks who are worried about the
• 11:10
  Speaker 1: economy than they have. The FED chairman in the past
• 11:13
  Speaker 1: two chairs talking about, you know, potentially not being all
• 11:17
  Speaker 1: that hawk is and talking about a pretty outlook. Well,
• 11:21
  Speaker 1: you know, Jason. One one big question of the day,
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  Speaker 1: in my opinion, and one that's going to be gnawing
• 11:26
  Speaker 1: at a lot of market participants going forward, is why
• 11:29
  Speaker 1: is it that this economy is so strong and people
• 11:32
  Speaker 1: are saying that the US can continue going it alone
• 11:35
  Speaker 1: even as the rest of the world slows. Why is
• 11:37
  Speaker 1: it that market participants react so strongly at the suggestion
• 11:42
  Speaker 1: of a tightening FED. If the U S economy was
• 11:45
  Speaker 1: this strong, shouldn't it be able to withstand of a
• 11:48
  Speaker 1: sort of normalization of FED policy? Well and it should
• 11:53
  Speaker 1: right in theory. But the question is, you know that
• 11:56
  Speaker 1: there are there are real issues here that you see
• 11:59
  Speaker 1: interest rates going up, housing slows, auto slow, business investment slows,
• 12:04
  Speaker 1: equipment is going to slow. Those kinds of things slowing
• 12:08
  Speaker 1: will will drastically reduce the growth PACEE. But you look,
• 12:12
  Speaker 1: even if you look at the FED FED Zone forecast,
• 12:14
  Speaker 1: they see the unemployment rate going up from here, and
• 12:17
  Speaker 1: the only way it goes up is if growth slows.
• 12:19
  Speaker 1: And you know, I mean, I think this is part
• 12:23
  Speaker 1: of the cycle as it is. Should it be able
• 12:26
  Speaker 1: to handle more maybe, but right now they don't know.
• 12:29
  Speaker 1: You know, this is always sort of an experiment in
• 12:32
  Speaker 1: situ where we don't really know what's going to happen,
• 12:34
  Speaker 1: and they're kind of testing things along the way. Jason
• 12:38
  Speaker 1: Shanka Ben Bernanke, former Chair of the Federal Reserves, said
• 12:42
  Speaker 1: that long term low interest rates low long term interest
• 12:47
  Speaker 1: rates around the world since the financial crisis have made
• 12:50
  Speaker 1: the job of central banking more difficult. Can you comment
• 12:55
  Speaker 1: on that, Yeah, I mean there's a couple of things
• 12:58
  Speaker 1: around this, right. I mean, look, there were folks who
• 13:01
  Speaker 1: have made managing director at some of the world's biggest
• 13:03
  Speaker 1: investment banks who had at the time where they made
• 13:06
  Speaker 1: empty had never seen a FED rate hike, had never
• 13:08
  Speaker 1: seen interest rates above zero. So what happens is and
• 13:11
  Speaker 1: this times into your first point about, you know, mixing
• 13:14
  Speaker 1: financial market understanding with macroeconomic theory. What happens if you
• 13:20
  Speaker 1: have practitioners who have never seen a recession, You've never
• 13:22
  Speaker 1: seen a downturn, We've never seen interest rate hikes. It
• 13:25
  Speaker 1: increases uncertainty because decision makers in funds and incorporations are
• 13:32
  Speaker 1: really going to be looking at their their first chance
• 13:35
  Speaker 1: of these things. That introduces uncertainty and risk in terms
• 13:38
  Speaker 1: of actual corporate actions, capital allocations, and and other dynamics
• 13:43
  Speaker 1: within financial markets. In the autonomy right now, I just
• 13:46
  Speaker 1: want to bring you up to speed because we are
• 13:48
  Speaker 1: seeing a very big rally in US equity markets and
• 13:51
  Speaker 1: Nasdaq is up three point seven percent. Ten year treasury
• 13:54
  Speaker 1: yields are experiencing their biggest sell off by at least
• 13:57
  Speaker 1: one measure in at least a year. Uh So, Jason,
• 14:01
  Speaker 1: I'm just wondering going forward here, what do we need
• 14:04
  Speaker 1: to see to sustain this rally and risk assets and
• 14:07
  Speaker 1: sort of the uh the pain that we're seeing in
• 14:10
  Speaker 1: the safe bond. Well, I think the most important thing
• 14:15
  Speaker 1: from a technical standpoint in the equity markets for the
• 14:18
  Speaker 1: last five years has been the day moving average were
• 14:21
  Speaker 1: well below that on the NASDAC in the DAO. If
• 14:23
  Speaker 1: we were to go back above that, I think there'd
• 14:25
  Speaker 1: be you know, a lot more room above. But right
• 14:27
  Speaker 1: now we're still in a in a zone that's reflecting
• 14:30
  Speaker 1: a lot of pressure, uncertainty, and risk. I think as
• 14:33
  Speaker 1: we look forward at the data, housing data is going
• 14:35
  Speaker 1: to be important, Auto data is going to be important, uh,
• 14:38
  Speaker 1: and business investment, We're going to watch that line item
• 14:40
  Speaker 1: in the next couple of g d P reports. I
• 14:41
  Speaker 1: think that's gonna be really really important because there's a
• 14:45
  Speaker 1: lot of risk there. As you see higher interest rates,
• 14:47
  Speaker 1: I think companies might have pulled forward a lot of
• 14:49
  Speaker 1: their purposes in the presents some downside risk to those sectors.
• 14:54
  Speaker 1: In Ben bernanke Is said that expansions don't die of
• 14:59
  Speaker 1: old age, that they get murdered. Do you agree, Well,
• 15:06
  Speaker 1: you know, I think it it might be more that
• 15:08
  Speaker 1: they die unexpectedly, right and and and bernanke hit and
• 15:12
  Speaker 1: probably think it had referenced sort of what the expectations were, uh,
• 15:16
  Speaker 1: you know, before the financial crisis, and you know, here
• 15:20
  Speaker 1: we are, you know, ten years plus later. I think
• 15:24
  Speaker 1: that it comes as a surprise too many When the
• 15:26
  Speaker 1: things go bad, they tend to go bad a lot
• 15:29
  Speaker 1: more quickly than people anticipate, and so it doesn't die
• 15:32
  Speaker 1: of old age. It sort of ends swiftly once the
• 15:35
  Speaker 1: smart money knows that the party's over. Thanks very much
• 15:38
  Speaker 1: for being with us. Jason Schenker is the president of
• 15:41
  Speaker 1: Prestige Economics. He is also the chairman of the Futurist
• 15:44
  Speaker 1: Institute and a Bloomberg Opinion contributor based in Austin, Texas,
• 15:49
  Speaker 1: and you can follow Jason and his work on Twitter
• 15:52
  Speaker 1: at Prestige ECN. It is the four day of the
• 16:14
  Speaker 1: partial government shutdown in the United States. Today there is
• 16:18
  Speaker 1: going to be a meeting of Democrats and Republicans, including
• 16:21
  Speaker 1: President Trump, to tried to breach the impass and get
• 16:24
  Speaker 1: government open again. Here to tell us about how realistic
• 16:28
  Speaker 1: this is is Marty Shanker, chief content officer for Bloomberg News,
• 16:32
  Speaker 1: joining us here in our Bloomberg Interactive Broker Studios. So, Marty,
• 16:35
  Speaker 1: how hopeful are you that we're going to get a
• 16:36
  Speaker 1: resolution today? Well? Hopeful we are not going to get
• 16:40
  Speaker 1: a resolution today. And I just you know, as a journalist,
• 16:44
  Speaker 1: this is a great story moving forward. But as for
• 16:47
  Speaker 1: the people affected. It's not pleasant at all, But I
• 16:50
  Speaker 1: do not think there's any chance of this getting settled.
• 16:53
  Speaker 1: Why is this a great story as a journalist considering
• 16:56
  Speaker 1: all of the other sort of back and forth in
• 16:58
  Speaker 1: gridlock that's sort of has gone on over the number
• 17:01
  Speaker 1: of years in the past. Well, we had this little
• 17:03
  Speaker 1: thing called the mid term elections, and leading up to that, uh,
• 17:07
  Speaker 1: was a fascinating story. And this essentially extends that narrative
• 17:13
  Speaker 1: past the mid terms themselves, because this is the first
• 17:16
  Speaker 1: time Donald Trump is having to confront a Democratic controlled
• 17:21
  Speaker 1: House of Representatives under the leadership of Nancy Pelosi, and
• 17:25
  Speaker 1: I think it is going to color how that relationship
• 17:28
  Speaker 1: moves on for the rest of Donald Trump's term. Another
• 17:33
  Speaker 1: thing that might color the relationship is that while federal workers,
• 17:37
  Speaker 1: at least those that have not been deemed essential, those
• 17:40
  Speaker 1: federal workers are not being paid and will not be paid. Yes,
• 17:45
  Speaker 1: cabinet secretaries, deputy secretaries, and top administrators, even Vice President
• 17:52
  Speaker 1: Mike Pence, they might get an annual increase of ten
• 17:57
  Speaker 1: thousand dollars a year. That's not gonna look so great
• 18:02
  Speaker 1: because this has to do with the caps on spending
• 18:07
  Speaker 1: for federal workers. Without the legislation going into effect, those
• 18:13
  Speaker 1: caps are removed and these pay increases will go forward, right. Uh. Look, Uh,
• 18:21
  Speaker 1: the optics of the shutdown are not great. Uh and
• 18:25
  Speaker 1: and I really do think they're not great for the
• 18:28
  Speaker 1: Democrats as well as the Republicans. Um. You know, once
• 18:32
  Speaker 1: you get outside of the news centers on the coasts
• 18:34
  Speaker 1: in the middle of America, this just reinforces the whole
• 18:37
  Speaker 1: idea that governments don't the government doesn't work for them,
• 18:41
  Speaker 1: and it is only part of uh, you know, uh,
• 18:45
  Speaker 1: the state of affairs where everything is politics and nothing
• 18:51
  Speaker 1: is about creating solutions. So I don't think it's great
• 18:55
  Speaker 1: for either side. I do think it's true that the
• 18:59
  Speaker 1: that president and Trump and the GOP will get the
• 19:02
  Speaker 1: majority of the blame. But you know, so what I mean,
• 19:06
  Speaker 1: for eight hundred thousand people who are not getting paid,
• 19:09
  Speaker 1: it doesn't matter who's to blame. I can't make car payments,
• 19:11
  Speaker 1: they can't make mortgage. But it goes beyond just those people,
• 19:14
  Speaker 1: because yesterday Kevin Hassett, the chief economic advisor to President Trump,
• 19:18
  Speaker 1: said at the White House. He told reporters uh that
• 19:22
  Speaker 1: the ongoing partial government shutdown would cut economic output in
• 19:25
  Speaker 1: the nation by about zero point one percent every two weeks.
• 19:29
  Speaker 1: After a while, this is gonna have a real drag, right,
• 19:32
  Speaker 1: that is correct. Uh. And there are all these ancillary
• 19:35
  Speaker 1: businesses that rely on these people who are not spending
• 19:41
  Speaker 1: money that they don't have. There's contracts that are not
• 19:44
  Speaker 1: going to be executed, and frankly, uncertainty breeds uh in
• 19:50
  Speaker 1: decision and companies are going to have second thoughts about
• 19:54
  Speaker 1: doing anything while this shutdown extends longer and longer, so
• 19:58
  Speaker 1: it could have an even more dramatic impact the longer
• 20:01
  Speaker 1: it goes. And you know, looking at this job number,
• 20:06
  Speaker 1: that's not going to continue if we have an economic slowdown.
• 20:10
  Speaker 1: The other unintended effect is you have closures of many
• 20:15
  Speaker 1: federal facilities, for example, the park system, many places not
• 20:21
  Speaker 1: being cleaned up, not being taken care of. It also
• 20:25
  Speaker 1: affects the small and mid sized businesses that count on
• 20:28
  Speaker 1: people making visits to those locations in order to survive.
• 20:32
  Speaker 1: That's right. And there are other things about uh, you know,
• 20:37
  Speaker 1: how companies get visas process, passports issued. Um. There are
• 20:43
  Speaker 1: all kinds of ways in which this slow down will
• 20:47
  Speaker 1: little by little have an impact on people's lives. The
• 20:51
  Speaker 1: I guess the silver lining to that is is those
• 20:54
  Speaker 1: things trickled down to Main Street, there is more political
• 20:58
  Speaker 1: pressure on getting solved. But right now this has become
• 21:02
  Speaker 1: a Nancy Pelosi versus Donald Trump issue, and neither side
• 21:07
  Speaker 1: is going to give in. Well, I want to talk
• 21:08
  Speaker 1: about exactly that before the effects trickled down. Let's talk
• 21:12
  Speaker 1: about who has the leverage here, the balance of leverage
• 21:15
  Speaker 1: as these two go into the negotiating room. Who has
• 21:19
  Speaker 1: a better position right now? Well, I don't think there's
• 21:21
  Speaker 1: any question that the leverage sides with Nancy Pelosi and
• 21:26
  Speaker 1: the Democrats. They have passed two separate bills that would
• 21:30
  Speaker 1: reopen the government. Uh, that would fund homeland security without
• 21:35
  Speaker 1: a wall, uh for a month while they negotiated on
• 21:39
  Speaker 1: that issue, but it would essentially reopen the government. So
• 21:43
  Speaker 1: it's you know, it's this rather fascinating point where uh,
• 21:48
  Speaker 1: Mitch McConnell has basically seated the Senate to the president.
• 21:51
  Speaker 1: He's not going to put it to a vote unless
• 21:54
  Speaker 1: the President is going to sign what what the Senate passes. So, um,
• 21:59
  Speaker 1: it is definitely the Democrats who have the advantage here.
• 22:02
  Speaker 1: Can I ask you a question, how popular is the
• 22:04
  Speaker 1: wall among Americans? The latest polling shows that most majority
• 22:11
  Speaker 1: a majority of Americans don't support the wall, and they
• 22:14
  Speaker 1: certainly don't support a shutdown on that issue. Um, but
• 22:20
  Speaker 1: I think it's really gotten beyond whether they support a
• 22:24
  Speaker 1: wall or not. It's a question of trust, and the
• 22:28
  Speaker 1: Democrats have basically said that they don't trust Donald Trump
• 22:33
  Speaker 1: to execute any kind of border security based on a
• 22:38
  Speaker 1: campaign promise rather than what experts in his own administrations
• 22:43
  Speaker 1: say is an effective border security plan. Well, I guess
• 22:47
  Speaker 1: this is just going to continue until we see some
• 22:49
  Speaker 1: men we actually Monday, Well, we hope. So. Yeah, I
• 22:53
  Speaker 1: think the president is shutdown, not US shutdown. We're we're
• 22:58
  Speaker 1: not shutting down. Just that's the point that this has
• 23:01
  Speaker 1: become a slanging match, hasn't it. It's it's it's kind
• 23:03
  Speaker 1: of taken on a personal tone, right with Chuck Schumer,
• 23:07
  Speaker 1: Senator from New York, minority leader in the Senate, saying
• 23:10
  Speaker 1: that President Trump is a terrible negotiator. Yeah, I mean,
• 23:14
  Speaker 1: I don't think anybody is being particularly um shy about
• 23:22
  Speaker 1: taking advantage of personal attacks in the age of Donald Trump.
• 23:26
  Speaker 1: Although Nancy Pelosi has made it clear she wants people
• 23:29
  Speaker 1: they disagree with they want to be civil with them.
• 23:33
  Speaker 1: We'll see whether that continues as this slowdown shutdown continues.
• 23:37
  Speaker 1: Thanks very much as always, Marty Shanker, Chief content Officer
• 23:41
  Speaker 1: for Bloomberg. Our focus on municipals is brought to you
• 23:57
  Speaker 1: by Build America Mutual BAM Star Bonds finance projects that
• 24:02
  Speaker 1: protect and restore the environment with more renewable energy and
• 24:05
  Speaker 1: efficient transportation and buildings. Visit build America dot com, slash
• 24:11
  Speaker 1: Green Star, BAM, Building America. Time to bring in Joe Maisak,
• 24:17
  Speaker 1: editor for the Bloomberg Brief for municipal markets. He joins
• 24:20
  Speaker 1: us here in the Bloomberg Interactor Broker Studios. Joe Maisak,
• 24:23
  Speaker 1: Let's begin with a look at where investors are putting
• 24:27
  Speaker 1: their money. They are pouring money into municipal bond exchange
• 24:31
  Speaker 1: traded funds. What has changed, Well, Exchange traded funds are easier,
• 24:42
  Speaker 1: a little more transparent, less in fees than mutual funds.
• 24:47
  Speaker 1: And there are relatively recent entry into the municipal market.
• 24:53
  Speaker 1: And it turns out, and this was a kind of
• 24:57
  Speaker 1: a funny thing. Alan Shankele of Jannie Montgomery brought this
• 25:01
  Speaker 1: up the other day and he said, take a look.
• 25:03
  Speaker 1: I know, we just started getting inflows back in the
• 25:07
  Speaker 1: mutual funds. But over the last several weeks we've got
• 25:11
  Speaker 1: more than six hundred million dollars have been flowing into
• 25:14
  Speaker 1: munique exchange traded funds well. But is this just an
• 25:17
  Speaker 1: issue of transferring out of mutual funds into e t
• 25:20
  Speaker 1: F s or is this a sort of vote of
• 25:21
  Speaker 1: confidence on this particular market by retail investors. I think
• 25:26
  Speaker 1: it's the latter. Ear Lisa a very good point there.
• 25:28
  Speaker 1: It's not because you don't see, you know, a one
• 25:31
  Speaker 1: to one. It's not just transferring out. It's hey, let's
• 25:34
  Speaker 1: look at this new product. And I think the E
• 25:37
  Speaker 1: t F families are getting a little bit more uh
• 25:41
  Speaker 1: savvy about how they pitch, and you know, it's one
• 25:44
  Speaker 1: of those things a product like this takes some time
• 25:47
  Speaker 1: to get going, especially because you have mutual funds and
• 25:50
  Speaker 1: people's habits are so entrenched. So I'm wondering why why now?
• 25:53
  Speaker 1: I mean, is it just basically the bid for bonds
• 25:55
  Speaker 1: that we've seen generally until today, uh permeate throughout the
• 25:58
  Speaker 1: markets that's driven this, or is it some hope for
• 26:01
  Speaker 1: an infrastructure spending plan Because Nancy Pelosi, who is sworn
• 26:05
  Speaker 1: in as the Speaker of the House yesterday indicated that
• 26:08
  Speaker 1: they were going to move for above bipartisan infrastructure bill,
• 26:12
  Speaker 1: which could potentially help. Well, Uh, there's that, but I
• 26:18
  Speaker 1: I really think it's more of the haven investment. You know,
• 26:21
  Speaker 1: the stock market got so beat up over the last
• 26:24
  Speaker 1: but the last quarter. Uh that you know, people have
• 26:28
  Speaker 1: been looking at municipal bonds, municipal ETFs, mutual funds and
• 26:33
  Speaker 1: you know, maybe mutual funds it's not as sexy as
• 26:36
  Speaker 1: it was. Hey, the CTF thing, let's let's give this
• 26:38
  Speaker 1: a whirl, and it's muties, which are renowned as your
• 26:42
  Speaker 1: safe investment. Well, and just looking at the yields that
• 26:45
  Speaker 1: are available on some specific states California two point three,
• 26:51
  Speaker 1: New York two point one six percent, Illinois. While that's
• 26:55
  Speaker 1: a separate case, but we've seen those yields move lower.
• 26:59
  Speaker 1: Oh man. Uh the you know, you would you have
• 27:05
  Speaker 1: the January effect taking place, you know, coming up here.
• 27:08
  Speaker 1: But yeah, we've again it's because of you know, bond
• 27:13
  Speaker 1: market safe haven. Muni's safe haven and the yields have
• 27:17
  Speaker 1: been going down. Plus the last two weeks, the calendar
• 27:20
  Speaker 1: in municiples has been dead nothing there. Uh, next week
• 27:24
  Speaker 1: we have the first deals being priced in the new year.
• 27:27
  Speaker 1: Pretty good week too. I think it's about eight billion dollars. Alright,
• 27:31
  Speaker 1: so let's talk about yield. Let's talk about where you
• 27:33
  Speaker 1: can get it. You were a column looking at yields
• 27:35
  Speaker 1: that can be found in smaller liberal arts colleges. Will
• 27:38
  Speaker 1: took you there. Oh, you know. I I at the
• 27:43
  Speaker 1: end of the year, I was looking at the calendar
• 27:46
  Speaker 1: and I said, Okay, what haven't I written about most recently?
• 27:50
  Speaker 1: And I saw there was an issue for Randolph College
• 27:53
  Speaker 1: and I've never heard of that, and there was an
• 27:56
  Speaker 1: issue for Hampton Sydney College, and there was also a
• 27:58
  Speaker 1: big issue for Tufts. And as we talked about in
• 28:01
  Speaker 1: the last conversation of last year, Georgetown is selling taxable
• 28:06
  Speaker 1: bonds to a century BOMs. So I said, gee, you know,
• 28:09
  Speaker 1: let me take a look at those, uh colleges. And
• 28:13
  Speaker 1: you know, the more you you look into these official
• 28:15
  Speaker 1: statements and it just describes a completely different world for you.
• 28:21
  Speaker 1: And it just got so interesting that I finally did
• 28:23
  Speaker 1: a column just focused on Randolph and Hampton Sydney, which
• 28:28
  Speaker 1: you're both in Virginia, and you know, you talk about
• 28:30
  Speaker 1: yield on some of those maturities. You're picking up more.
• 28:35
  Speaker 1: You're getting more than four percent, which has pin pointed
• 28:38
  Speaker 1: out before. What are we seeing now in the market
• 28:40
  Speaker 1: point to ten years, we're seeing the two So you know,
• 28:47
  Speaker 1: this is a nice pick up. But now these are
• 28:49
  Speaker 1: risks though, tell us about the risks. Look, these these
• 28:53
  Speaker 1: are lower rated. One is rater today. I think one
• 28:56
  Speaker 1: is right triple B plus. Uh. Very small, you're tell
• 29:00
  Speaker 1: talking about, uh, you know, a total total enrollment of
• 29:05
  Speaker 1: you know, six hundred to a thousand. Uh, so they're
• 29:08
  Speaker 1: they're much smaller. And you know, schools have been under
• 29:13
  Speaker 1: pressure the last several years as and I remember looking
• 29:18
  Speaker 1: at in the Randolph College issue, it had this thing
• 29:22
  Speaker 1: called tuition reset where the uh, the school has been
• 29:26
  Speaker 1: asked by the board to take a look at rolling
• 29:30
  Speaker 1: back tuition, which you know, if you're a parent, you
• 29:33
  Speaker 1: know it grows three, four or five percent a year.
• 29:36
  Speaker 1: And uh, that was the first time I saw, wow,
• 29:40
  Speaker 1: tuition reset. Randolph is also selling its selling its horses,
• 29:44
  Speaker 1: closing down it's equestrian program, a lot of interesting things,
• 29:48
  Speaker 1: you know, fascinating, but but you know, at the same time,
• 29:52
  Speaker 1: these smaller schools, they have very devoted alumni and they
• 29:56
  Speaker 1: have endownmonds. Joe Sac, thank you so much for being
• 29:59
  Speaker 1: with us. Joe my Sac is the editor of the
• 30:01
  Speaker 1: Bloomberg Brief, focused on the Missal Boom market for us
• 30:04
  Speaker 1: here at Bloomberg. Thanks for listening to the Bloomberg P
• 30:10
  Speaker 1: and L podcast. You can subscribe and listen to interviews
• 30:13
  Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 30:17
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 30:21
  Speaker 1: on Twitter at Lisa Abramo wits one. Before the podcast,
• 30:24
  Speaker 1: you can always catch us worldwide on Bloomberg Radio