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The U.S. Housing Market Is Most Outperforming Sector In World · Bloomberg Intelligence

• 0:01
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Along
• 0:04
  Speaker 1: with my co host of Bonnie Quinn. Every business day
• 0:06
  Speaker 1: we bring you interviews from CEOs, market pros, and Bloomberg experts,
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  Speaker 1: along with essential market moving news. Find the Bloomberg Markets
• 0:13
  Speaker 1: Podcast on Apple Podcasts or wherever you listen to podcasts,
• 0:17
  Speaker 1: and on Bloomberg dot com. Well, US sales of previously
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  Speaker 1: owned homes rose in June for the first time in
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  Speaker 1: four months, as the economy reopened more broadly from coronavirus
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  Speaker 1: related shutdowns and buyers took advantage of record low mortgage rates.
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  Speaker 1: To get the latest on the housing market, we like
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  Speaker 1: to turn the Logan multa. Shami Logan is independent housing
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  Speaker 1: data analysts also a columnist for The Housing Wire based
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  Speaker 1: in Irvine, California. Logan thanks so much for joining us again.
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  Speaker 1: Some pretty solid numbers for the month of June. What
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  Speaker 1: do you make of the US market right now? The
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  Speaker 1: US housing market is the most outperforming economic sector in
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  Speaker 1: the world, and it's already completed a v shape recovery,
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  Speaker 1: and it's still has legs for sales to go higher.
• 0:59
  Speaker 1: And today's today's number is just the first of many
• 1:03
  Speaker 1: showing that we already hit a bottom UH in terms
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  Speaker 1: of demand and we should be able to have another
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  Speaker 1: five million plus total homesale year. What gives you that confidence, logan?
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  Speaker 1: I mean, if we don't get another round of stimulus,
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  Speaker 1: people won't be able to put food on their tables,
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  Speaker 1: never mind by a house. People that are taking the
• 1:24
  Speaker 1: ant benefits are rented. And I think this is the
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  Speaker 1: one thing that people missed early on the fear of
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  Speaker 1: the virus initially created. You know, four straight continuously down
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  Speaker 1: negative year over year print and purchased application And after
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  Speaker 1: that four weeks things started to come back up. And
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  Speaker 1: we already have nine straight weeks of positive year over
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  Speaker 1: year data and purchase application data. It's already hit eleven
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  Speaker 1: year high. This is looking out thirties and ninety days.
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  Speaker 1: So this today's existing home sales print is just one
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  Speaker 1: of many to come that show better data. And we
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  Speaker 1: already did hit the bottom. So even if even if
• 2:02
  Speaker 1: enhanced benefits come down to let's say four dollars UH,
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  Speaker 1: it's not going to impact the housing market because rates
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  Speaker 1: are low and the real main story is that the
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  Speaker 1: US housing market is in a period where demographics are
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  Speaker 1: the best ever in history, So demographics and mortgage rates
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  Speaker 1: are in the benefit of the US housing market. Actually, Paul,
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  Speaker 1: if I can just follow, there are you saying, then
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  Speaker 1: logan that because those thirty million people that were unemployed,
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  Speaker 1: and some of them many of them still are our renters,
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  Speaker 1: that it won't impact the housing market. And if that's
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  Speaker 1: what you're saying, how is that because they won't be
• 2:39
  Speaker 1: able to pay their rent, rents will go down, There'll
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  Speaker 1: be more supply, people moving out of urban areas to
• 2:44
  Speaker 1: suburban areas. How is this not all bad for housing
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  Speaker 1: in general? How is it? If you know, and it's
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  Speaker 1: not the velocity of inventory supplies being created, it's not.
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  Speaker 1: It's not like the stock market. The stock market margin
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  Speaker 1: debt goes up and down with stocks, So it takes time.
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  Speaker 1: So even if it even if let's say, assume a
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  Speaker 1: renter who can't pay a rent in the in the
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  Speaker 1: in the landlord can't pay his mortgage, that that is
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  Speaker 1: a story. But for for uh, the seasonality has already
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  Speaker 1: kicked in. We already hit eleven year highs and purchased
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  Speaker 1: application as longest purchase application data is flat deposit, we're
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  Speaker 1: pretty much we got the v shap recoveries here, there's
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  Speaker 1: not much that could change that. The only thing that
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  Speaker 1: would say that would change everything is if we the
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  Speaker 1: surge gets worse and people start to be afraid to
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  Speaker 1: uh to purchase anything anymore like they did, you know,
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  Speaker 1: the first four weeks of the virus. Because again, housing
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  Speaker 1: is primarily demographics and mortgage rate. This is time in
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  Speaker 1: our US history it's the best for both right now.
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  Speaker 1: So this is why sales have rebounded and we should
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  Speaker 1: have new and existing home sales should easily be over
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  Speaker 1: five million this year. So talk to us about the
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  Speaker 1: demographic story here are are we finally getting the millennials
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  Speaker 1: and and even you know the gen z s. I
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  Speaker 1: guess are they uh finally coming into the housing market.
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  Speaker 1: Millennials were always buying homes. It's just that their biggest
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  Speaker 1: housing demographic patch is ages thirty two and the first
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  Speaker 1: time meeting at home buyer ages thirty three. So we're
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  Speaker 1: entering this kind of this five year phase. And then
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  Speaker 1: you have the first time homeowner who has a lot
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  Speaker 1: of echoity if they wanted to move, uh, they have
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  Speaker 1: the ability to move. It's all mortgage rates are low.
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  Speaker 1: As as long as mortgage rates stable four and a
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  Speaker 1: half percent. Housing seems to do fine when it goes
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  Speaker 1: above four and a half percent, that is that it
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  Speaker 1: cools down. So you have the demographics and then you
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  Speaker 1: have low mortgage rates. Those are the two things that
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  Speaker 1: drive to the housing markets. Everything else that is said
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  Speaker 1: about the housing markets for the last I would say
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  Speaker 1: seven or eight years are speculative. You know, the student
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  Speaker 1: loan debt crisis didn't shut off millennials from buying. You know,
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  Speaker 1: the affordability crisis didn't shut off housing from buying. We've
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  Speaker 1: always been able to keep abound six million total homesale.
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  Speaker 1: So the question is how much sales can rebound going
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  Speaker 1: into the year because we've had double digit euro three
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  Speaker 1: year growth in the last eight weeks and that looks
• 5:03
  Speaker 1: out thirty to ninety days. So the story is there.
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  Speaker 1: You just got to keep an eye on the mortgage
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  Speaker 1: persons application data that comes out every Wednesday. So look,
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  Speaker 1: I was just gonna say, look about the mortgage market here.
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  Speaker 1: We're just historically low rates and there's no reason to
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  Speaker 1: think that they're going to go up anytime soon given
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  Speaker 1: what we hear from the FED. Right, well, the only way,
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  Speaker 1: the only way with long term rates go up is
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  Speaker 1: that the economy in general starts to really grow again,
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  Speaker 1: and that probably means that you know, jobless claims really
• 5:33
  Speaker 1: start to go down, uh, and the economy is growing,
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  Speaker 1: you know, consistently GDP growth. So that's that's not going
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  Speaker 1: to be the case. And I think the credit story
• 5:44
  Speaker 1: is a really important story because I would argue that
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  Speaker 1: if Freddie Fannie were publicly traded companies that didn't weren't
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  Speaker 1: part of the government conservatives ship housing would have had
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  Speaker 1: problems because we we had a mortgage market meltdown in March.
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  Speaker 1: But I would say about four and a half to
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  Speaker 1: six point two of loans that could be done before
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  Speaker 1: March nine, we're harder to do because Freddie and Fanny
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  Speaker 1: f j they were able to flow credit. They were
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  Speaker 1: able to provide forbearance in a very quick fashion. Instead
• 6:11
  Speaker 1: of the US government trying to take them back into
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  Speaker 1: conservativeships because their stock prices are following, credit was able
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  Speaker 1: to flow this year. That is a huge story for
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  Speaker 1: the US housing v shape recovery this year. Logan, where
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  Speaker 1: will be the hot markets in the country come this
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  Speaker 1: time next year? You know, everyone's kind of making this
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  Speaker 1: city versus suburban story, But this has been happening for
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  Speaker 1: years now. People have been you know, you know, I
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  Speaker 1: always say people rent, they make, they date, they get married,
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  Speaker 1: three and a half years after marriage, they have kids,
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  Speaker 1: and then they talk. So yeah, so this is actually, um,
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  Speaker 1: this has been happening for some time. So I would
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  Speaker 1: say that suburbs I've always been the benefit of people
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  Speaker 1: getting married and having kids because the cities are very expensive,
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  Speaker 1: and the people at own homes in the cities, especially
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  Speaker 1: near water, make a lot of money. Is there's not
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  Speaker 1: a lot of them. So I just think that that
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  Speaker 1: movement to bigger, shaper homes in other areas is a
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  Speaker 1: good thing. It's been here for for years, and it
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  Speaker 1: is a big story for the housing market because again,
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  Speaker 1: when you have the biggest demographic patch ever in history
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  Speaker 1: and you have low mortgage rates, housing sales should be stable,
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  Speaker 1: which wasn't working from a very overheated market. We just
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  Speaker 1: had the weakest housing recovery ever recording the history. So
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  Speaker 1: we're not like working from seven or eight million total
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  Speaker 1: home sales like we were in two thousand five at
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  Speaker 1: with higher mortgage rates. So it'll be okay. Housing. Housing
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  Speaker 1: has already recovered. It'll be stable for twenty we'll deal
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  Speaker 1: with the issues in which, you know, some of these
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  Speaker 1: things are the forbearance plans and who's going to foreklose
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  Speaker 1: or not. But but yeah, twenties, the most outperforming sector
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  Speaker 1: in the entire world has been the US housing market.
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  Speaker 1: Look Multa semi, thank you so much. We appreciate that.
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  Speaker 1: Logan Multa Shami housing data analysts for UH. He is
• 8:00
  Speaker 1: looking at the housing market very very strong. Indeed that
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  Speaker 1: he is getting turned up on the Bunsen burner that
• 8:08
  Speaker 1: is U S China relations. The latest just a few
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  Speaker 1: minutes ago, China has vowed retaliation after the US forced
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  Speaker 1: the closure of its Houston councilate. That itself was quite
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  Speaker 1: the surprise to wake up to this morning. Let's bring
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  Speaker 1: in somebody who knows all about diplomatic relations. Nick wadhams
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  Speaker 1: our national security reporter in Washington, d C. Nick, how
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  Speaker 1: serious is this, you know, sort of popping up of
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  Speaker 1: a Houston problem? I mean it is literally Houston, we
• 8:34
  Speaker 1: have a problem, that's right. I mean Houston has long
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  Speaker 1: been in in the eye of the US government and
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  Speaker 1: the counter intelligence community FBI. There have been a string
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  Speaker 1: of high profile espionage and intellectual property theft cases that
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  Speaker 1: have gone through Houston involving either Chinese students uh coming
• 8:58
  Speaker 1: there or Chinese and Arikans who were accused, at least
• 9:02
  Speaker 1: in one case, of funneling cancer research back to China.
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  Speaker 1: So there's that element, um, But there's also you know,
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  Speaker 1: the broader context as you point out, of US China
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  Speaker 1: relations just on this steep downward spiral um, and you know,
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  Speaker 1: the inevitable result looks to be that China will almost
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  Speaker 1: certainly close a U s consulate there. So um, this
• 9:23
  Speaker 1: is by no means the end of the story, all right,
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  Speaker 1: n coount rare is it for a for the US
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  Speaker 1: to close down a foreign consulate in the United States.
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  Speaker 1: It's it's extremely rare, I mean, And this is something
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  Speaker 1: that in the past had only usually happened in in
• 9:42
  Speaker 1: the most high profile cases, Russia the obvious example, um Uh.
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  Speaker 1: The last time that happened was when when the US
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  Speaker 1: closed the Russian consulate in UM in San Francisco. The
• 9:54
  Speaker 1: big thing here, though, is that that came after a
• 9:57
  Speaker 1: whole bunch of deliberation, and Russia got a lot of
• 10:00
  Speaker 1: warning and there was a very clear uh sort of
• 10:04
  Speaker 1: landing ramp uh that led to that point, this one,
• 10:08
  Speaker 1: it looks, according to all the people I'm talking to,
• 10:12
  Speaker 1: that this was really a shot out of the blue.
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  Speaker 1: China was cut completely off guard, um with this decision,
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  Speaker 1: you know, seventy two hours to leave their burning documents
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  Speaker 1: and trash cans outside the embassy, a really different approach
• 10:26
  Speaker 1: um and and and the real surprise to the Chinese,
• 10:30
  Speaker 1: so you know, the rem and B is also you know, reacting.
• 10:33
  Speaker 1: It's it's below seven today, which is quite the you know,
• 10:36
  Speaker 1: the the move. And it would appear that, you know,
• 10:39
  Speaker 1: this isn't fun anymore. I mean, there were you know,
• 10:41
  Speaker 1: there was there was a suggestion perhaps in certain circles
• 10:44
  Speaker 1: that you know, this is all for for show, when
• 10:47
  Speaker 1: that really the US and China would get on fine
• 10:50
  Speaker 1: when it was necessary to. But it doesn't feel like
• 10:52
  Speaker 1: it's for show anymore. No, I think that's true. You know,
• 10:56
  Speaker 1: there's always been this bifurcation in US policy against China,
• 10:59
  Speaker 1: at least under Trump administration, where the president himself uh
• 11:03
  Speaker 1: kept talking about his good relationship with chij and Ping
• 11:05
  Speaker 1: and he really wanted that trade deal, and there was
• 11:07
  Speaker 1: a lot of evidence that he was essentially putting everything
• 11:11
  Speaker 1: else to the side because he was so focused on
• 11:13
  Speaker 1: the trade deal. Once coronavirus happened, it really changed everything
• 11:17
  Speaker 1: and it empowered the Hawks in the administration. There are
• 11:20
  Speaker 1: a lot of them. There's also bipartisan support for a
• 11:23
  Speaker 1: much tougher stance towards China on the Hill, and the President,
• 11:26
  Speaker 1: who had really been standing in the way and suppressing
• 11:29
  Speaker 1: a lot of that essentially cleared out of the way.
• 11:32
  Speaker 1: You know, he's really blamed China for the coronavirus pandemic.
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  Speaker 1: And we're coming into an election season where both sides
• 11:38
  Speaker 1: actually are are blaming China for this thing and accusing
• 11:41
  Speaker 1: the others of not being sufficiently tough on China. So
• 11:44
  Speaker 1: you see this element where essentially the Hawks have won
• 11:48
  Speaker 1: the day and a lot of these ideas that have
• 11:50
  Speaker 1: been percolating for many, many months about how to get
• 11:52
  Speaker 1: tough on China are now being rolled out. So how
• 11:56
  Speaker 1: does this actually play out? Practically? On the round in
• 12:00
  Speaker 1: Houston to the folks from the MBSCY just kind of
• 12:03
  Speaker 1: all hopping their cars for George Bush Airport in Houston
• 12:06
  Speaker 1: and hoped the next flight to Beijing. How does this
• 12:08
  Speaker 1: all work? Yeah, I mean they have seventy two hours
• 12:11
  Speaker 1: they have to leave. Um, they have to go home. There,
• 12:14
  Speaker 1: their their their status in the US will be illegal
• 12:17
  Speaker 1: if they if they stay. We've seen this before. Um,
• 12:20
  Speaker 1: you know when it happened with Russia and seventeen there
• 12:23
  Speaker 1: were little literally buses of Russian diplomats who were escorted
• 12:27
  Speaker 1: to the airport and put on planes home and then
• 12:30
  Speaker 1: given a hero is welcome when they got back. Um.
• 12:32
  Speaker 1: You know, the bigger question is, these are the world's
• 12:35
  Speaker 1: two largest economies. They are utterly interdependent on each other
• 12:40
  Speaker 1: as as global engines of growth, and there is a
• 12:43
  Speaker 1: lot of talk in the administration about really breaking that
• 12:46
  Speaker 1: bond and decoupling these two economies. Whether the whether the
• 12:50
  Speaker 1: Trump administration wants to risk that, given that, uh, you know,
• 12:54
  Speaker 1: China is so integral to American economic growth, is a
• 12:57
  Speaker 1: big question. But um, all signs points to there being
• 13:01
  Speaker 1: a lot of force, you know a lot of persuasive
• 13:04
  Speaker 1: voices in the administration saying they want to do that.
• 13:06
  Speaker 1: I mean, it's completely humiliating for the Chinese to have
• 13:09
  Speaker 1: to do that, right nick, I mean literally the symbolism
• 13:12
  Speaker 1: of that, and you can imagine the other pictures of
• 13:14
  Speaker 1: this if they are like literally burning or you know,
• 13:17
  Speaker 1: getting rid of documents and getting going outside, you know,
• 13:21
  Speaker 1: almost as if they're being deported by ice. Yeah, you
• 13:25
  Speaker 1: know it is. It's an extremely humiliating moment, and it's
• 13:28
  Speaker 1: one that China will will likely reciprocate. I mean, uh,
• 13:32
  Speaker 1: you just then there is a notion in this in
• 13:35
  Speaker 1: this administration that you have to establish reciprocity and if
• 13:38
  Speaker 1: you push back hard enough on the on the Chinese
• 13:41
  Speaker 1: in a public way, uh, that will deter them from
• 13:45
  Speaker 1: future aggressive action. Diplomats I've spoken to say, it's just
• 13:48
  Speaker 1: the office that really the way you have to do
• 13:50
  Speaker 1: this is do it privately. You don't want to have
• 13:53
  Speaker 1: a situation where you're publicly humiliating another country's diplomats. Chinese
• 13:58
  Speaker 1: officials are especially insitive to that, given a long history
• 14:02
  Speaker 1: of what they see as humiliation at the hands of
• 14:04
  Speaker 1: of Western powers. So it's almost certain we have not
• 14:08
  Speaker 1: seen the end of this. Nick Bottoms, thank you so
• 14:10
  Speaker 1: much for that. We appreciate that update. Nick Bottoms, foreign
• 14:13
  Speaker 1: policy reporter for Bloomberg News reporting on this. Uh U
• 14:16
  Speaker 1: s shutting down the Chinese consulate in Houston, Texas, will
• 14:20
  Speaker 1: have more on that story well. Judy Shelton, President Donald
• 14:26
  Speaker 1: Trump's pick for Federal Reserves. Board of Governors cleared a
• 14:29
  Speaker 1: key hurdle to confirmation by winning the approval of a
• 14:32
  Speaker 1: majority on the Senate Banking Committee. Get a sense of
• 14:34
  Speaker 1: what this means and for the FED overall. We welcome
• 14:37
  Speaker 1: Michael McKee, international economics and policy correspondent for Bloomberg News,
• 14:42
  Speaker 1: joins us in the Bloomberg and Reactor Brooker studio. So Michael,
• 14:45
  Speaker 1: give us a censor. I understand that this pick is
• 14:47
  Speaker 1: particularly contentious. Why is that, Well, there are three charges
• 14:51
  Speaker 1: against Judy Shelton. One is that she's been a longtime
• 14:53
  Speaker 1: advocate of the gold standard, which almost no economists believe
• 14:57
  Speaker 1: is a good idea. The other is that she's been
• 14:59
  Speaker 1: a political opportun who is changing her views on interest
• 15:01
  Speaker 1: rates and on inflation when it looked like those might
• 15:05
  Speaker 1: derail her nomination. And the third is that she is
• 15:07
  Speaker 1: beholden to President Trump rather than to the US economy
• 15:10
  Speaker 1: and would inject politics into FED deliberations. But Republicans seem
• 15:15
  Speaker 1: to have made their peace with those charges, and they
• 15:18
  Speaker 1: did vote her out on a straight party line vote
• 15:21
  Speaker 1: out of the Banking Committee. We don't know when the
• 15:23
  Speaker 1: floor vote will be or even if given everything else
• 15:26
  Speaker 1: Congress is doing right now, but it appears she would
• 15:29
  Speaker 1: be likely to be confirmed when and if there is
• 15:32
  Speaker 1: a vote. What role does he remember the FED Board
• 15:35
  Speaker 1: of Governors play, Michael, in the sense of how important
• 15:39
  Speaker 1: will she be? It depends on the individual governor. In
• 15:42
  Speaker 1: her case, she'd be one of twelve voters um and
• 15:46
  Speaker 1: probably have very little influence on the board. Certainly, nobody
• 15:50
  Speaker 1: at the FED likes the gold standards, so that's not
• 15:52
  Speaker 1: even gonna be a starter. And if she were to
• 15:54
  Speaker 1: make controversial statements or advocate for something seen as political,
• 15:58
  Speaker 1: she'd be kind of isolate. Lated she could get a
• 16:01
  Speaker 1: lot of headlines by making speeches or writing op eds
• 16:04
  Speaker 1: or things like that, but her actual influence would be
• 16:08
  Speaker 1: very limited. How how politicized is the FED in general? Michael,
• 16:13
  Speaker 1: I don't think we talked about it that often, but
• 16:15
  Speaker 1: maybe a little bit more during this administration. But typically overall,
• 16:18
  Speaker 1: how politicized is has the FED been historically? Historically they've
• 16:22
  Speaker 1: been very a political with the one exception of under
• 16:26
  Speaker 1: President Nixon, when Arthur Burns, as the FED chairman, agreed
• 16:29
  Speaker 1: to goose the economy to help Nixon re election in
• 16:32
  Speaker 1: nineteen seventy two. And that helped uh touch off the
• 16:35
  Speaker 1: Great inflation that Paul Vulker became famous for killing off
• 16:39
  Speaker 1: with a couple of recessions. So the FED learned a
• 16:41
  Speaker 1: lot from that episode, and they try very hard to
• 16:44
  Speaker 1: stay out of politics. That doesn't mean they don't make
• 16:46
  Speaker 1: decisions that are seen as political, but they like to
• 16:50
  Speaker 1: believe that they're making them in the best interests of
• 16:52
  Speaker 1: the economy. There's an old canard that the Fed doesn't
• 16:55
  Speaker 1: act in election years, but they do. I just doubt
• 16:59
  Speaker 1: they'll be any action this year ahead of the election,
• 17:02
  Speaker 1: unless they decide to add more stimulus somehow, ramp up
• 17:06
  Speaker 1: KWEE or something which I'm sure President Trump would actually like.
• 17:10
  Speaker 1: What is the term for a governor and does it
• 17:13
  Speaker 1: ever get shortened? Yes, governor's terms, by law are set
• 17:18
  Speaker 1: at fourteen years. However, if you are nominated to replace
• 17:21
  Speaker 1: a governor whose term is not up, you assume the
• 17:24
  Speaker 1: number of years that they have on their term. And
• 17:27
  Speaker 1: Judy Shelton was nominated to Janet Yellin's old seat, actually,
• 17:30
  Speaker 1: so she has three more years before she could be
• 17:34
  Speaker 1: reappointed for another fourteen year term, and of course that
• 17:37
  Speaker 1: would certainly depend on who the president is at the time.
• 17:40
  Speaker 1: How about this FED nominee, Christopher Waller. What's the story there,
• 17:44
  Speaker 1: because he was also his nomination passed. I think wall
• 17:48
  Speaker 1: Street is focusing on the wrong person when they focus
• 17:50
  Speaker 1: on Judy Shelton, and they should pay much more attention
• 17:52
  Speaker 1: to the views of Christopher Waller. He's a standard mainstream economist,
• 17:55
  Speaker 1: but very much on the dovish side. He was a professor,
• 17:59
  Speaker 1: has a PhD in economics, and then has been for
• 18:02
  Speaker 1: the past three or four years the research director at
• 18:04
  Speaker 1: the St. Louis FED, and he played a role in
• 18:07
  Speaker 1: helping develop Jim Bullard, the St. Louis FED President's view
• 18:11
  Speaker 1: of regime change that you don't change monetary policy unless
• 18:14
  Speaker 1: the economic regime the status of the economy changes. So
• 18:19
  Speaker 1: he'll be seen as a strong dubbish addition to the FED,
• 18:24
  Speaker 1: and he will probably because of his mainstream view or
• 18:28
  Speaker 1: his his mainstream economic training put it that way, and
• 18:31
  Speaker 1: his familiarity with the FED system have a lot more
• 18:33
  Speaker 1: influenced people on wall Street will pay a lot more
• 18:36
  Speaker 1: attention to what he says, and others in the FED
• 18:39
  Speaker 1: will as well. So I would focus more on him
• 18:42
  Speaker 1: getting on the board than Judy Shelton until and unless
• 18:46
  Speaker 1: we see if Donald Trump is reelected and the Senate
• 18:48
  Speaker 1: it stays Republican sociate Good in theory become the next cheriff.
• 18:52
  Speaker 1: Trump wanted to do that. How do they meet? When
• 18:55
  Speaker 1: do they meet? How does it all happen? They meet
• 18:58
  Speaker 1: every six every eight weeks. There's eight meetings a year,
• 19:02
  Speaker 1: and they get together for two days of discussions. Uh.
• 19:08
  Speaker 1: The Fed has UH is supposed to have seven board governors.
• 19:13
  Speaker 1: They've had five for a very long time. And there
• 19:17
  Speaker 1: are twelve regional Fed bank presidents, so nineteen members of
• 19:20
  Speaker 1: the Open Market Committee, but twelve voted any one time.
• 19:22
  Speaker 1: The New York Fed has a permanent vote and the
• 19:24
  Speaker 1: other four bank presidents rotate. And at this point we've
• 19:30
  Speaker 1: had only ten voters for well almost seven years. The
• 19:34
  Speaker 1: last time I can see we had a full compliment
• 19:36
  Speaker 1: was two thousand thirteen. So just Mike McKay real quickly,
• 19:41
  Speaker 1: if you can President Biden, if President Vice President Biden,
• 19:45
  Speaker 1: if he were to be elected president next in this election,
• 19:48
  Speaker 1: could he reverse some of these appointments that are being
• 19:50
  Speaker 1: made now or you have to wait to the end
• 19:52
  Speaker 1: of the term. Uh, he would have to wait till
• 19:54
  Speaker 1: the end of term. You can't fire governors for anything
• 19:57
  Speaker 1: except doing something illegal. But as you say, this particular
• 20:01
  Speaker 1: term is only three years as opposed to the typical fourteen,
• 20:03
  Speaker 1: so there would be an opportunity for the next Senate,
• 20:06
  Speaker 1: I guess, on the next version of Congress to do
• 20:09
  Speaker 1: something right. If if Biden were elected, you would assume
• 20:13
  Speaker 1: that he probably would not reappoint her. Yeah, yeah, Michael McKee,
• 20:16
  Speaker 1: thank you, as always again encyclopedic, this time on the
• 20:20
  Speaker 1: Fed and the economy. Michael McKee is our international economics
• 20:23
  Speaker 1: and policy correspondent here at Bloomberg, And of course this
• 20:25
  Speaker 1: on Judy Shelton clearing a key hurdle to confirmation to
• 20:29
  Speaker 1: the Federal Reserves Board of Governors. She won the approval
• 20:33
  Speaker 1: of a majority on the Senate Banking Committee. That obviously
• 20:35
  Speaker 1: has to go to the entire Senate and also the House,
• 20:37
  Speaker 1: but it looks like she is going to be a
• 20:41
  Speaker 1: FED board member. One of the frequent topics of consideration
• 20:47
  Speaker 1: is whether we're going to see some kind of an
• 20:48
  Speaker 1: economic recovery when we'll see it, how bad the economy
• 20:52
  Speaker 1: is going to get before we see it again. This morning,
• 20:54
  Speaker 1: data showing existing home sales coming in almost as anticipated
• 20:57
  Speaker 1: at a four point seven two million dollar in June
• 21:00
  Speaker 1: of twenty points I present. So some of the data great,
• 21:03
  Speaker 1: some of the data not so good. Let's bring in
• 21:05
  Speaker 1: somebody who's been looking at restoration restoration for the US economy,
• 21:09
  Speaker 1: Fred Cannon as Global director of Research at Keith, Riette
• 21:12
  Speaker 1: and Woods, which has a new KBW Restoration Index. So Fred,
• 21:17
  Speaker 1: welcome and tell us why you put this index together
• 21:20
  Speaker 1: and what's actually in it. Um. Thanks Foh, it's great
• 21:24
  Speaker 1: to be on and we appreciate being on. Yeah. So
• 21:26
  Speaker 1: basically what we're trying to do here is is to
• 21:29
  Speaker 1: look at all this real time data that we're getting
• 21:31
  Speaker 1: on the economy and put it into an index to
• 21:34
  Speaker 1: see where we are relative to where we were before
• 21:36
  Speaker 1: the pandemic. Because it's you know, for the market as
• 21:40
  Speaker 1: a whole, and especially for financial stocks, which we specialize in.
• 21:43
  Speaker 1: When we can get back to that previous period of
• 21:46
  Speaker 1: economic activity is key to how much companies can earn,
• 21:50
  Speaker 1: how much banks can Credit losses are going to be
• 21:53
  Speaker 1: in all these factors that drive from drive stock. So
• 21:55
  Speaker 1: that's really why we put it together, and we gathered
• 21:58
  Speaker 1: about thirteen different UM indicators that are more real time
• 22:02
  Speaker 1: they were weekly in daily numbers that we're getting put
• 22:04
  Speaker 1: into this index. All right, So Fred, what's the index
• 22:07
  Speaker 1: been telling you over the last you know, four or
• 22:10
  Speaker 1: five six weeks. Yeah, Basically, what it's been showing us
• 22:13
  Speaker 1: is that the UH speed of the recovery is slowed um.
• 22:17
  Speaker 1: You know, essentially last week we had actually picked down slightly,
• 22:20
  Speaker 1: it was down zero point two pc, but it was
• 22:23
  Speaker 1: then that was the first downtick that we've seen since April.
• 22:26
  Speaker 1: But really what we've seen recently is is that these
• 22:28
  Speaker 1: numbers are showing a slow a slowing of the of
• 22:32
  Speaker 1: the recovery, which really I would say is in line
• 22:35
  Speaker 1: with the way most of us feel about what's going
• 22:38
  Speaker 1: on economically, and in line with some of the slow
• 22:41
  Speaker 1: down and the opening up of many of the states. So, Fred,
• 22:45
  Speaker 1: what will be the leading indicators? I mean, everybody would
• 22:48
  Speaker 1: like a V shaped recovery, and there's a lot of
• 22:51
  Speaker 1: letters out there, a lot of shapes and so on,
• 22:53
  Speaker 1: But what what will we see and then be able
• 22:57
  Speaker 1: to say, Okay, we're on the way back. Well, I
• 23:01
  Speaker 1: think what we need to see is we need to
• 23:03
  Speaker 1: see these indicators of UM UH mobility UM continue to
• 23:09
  Speaker 1: pick up those have been continued to be quite low.
• 23:11
  Speaker 1: We need to. We've seen some pretty good recovery in
• 23:14
  Speaker 1: the consumer um and the commercial side, but the employment numbers,
• 23:18
  Speaker 1: as as we all know, continue to be weak. So
• 23:20
  Speaker 1: I think right now, what we're looking at in terms
• 23:22
  Speaker 1: of shape, and you can see this in our chart
• 23:24
  Speaker 1: in terms of our index, is it's too much more
• 23:26
  Speaker 1: of a slush um as as one sporting goods apparel
• 23:30
  Speaker 1: UH logo looks like M And the real question, at
• 23:34
  Speaker 1: least in our minds is, you know what's going on
• 23:36
  Speaker 1: in Congress, what's going to happen with consumer income? When
• 23:41
  Speaker 1: this weekend? When when a lot of consumers who are
• 23:43
  Speaker 1: unemployed are going to quick getting that extra six hundred
• 23:45
  Speaker 1: dollars a week. So, Fred, you know KBW guys have
• 23:50
  Speaker 1: you know, really specialized in the financial services industry and
• 23:53
  Speaker 1: are really leading thought leaders there. What are you seeing
• 23:57
  Speaker 1: out of the bank earnings that we had last week
• 24:00
  Speaker 1: and we're still getting here? What are you hearing from
• 24:02
  Speaker 1: some of the banks as it relates to their outlook
• 24:05
  Speaker 1: for the economy? Uh, you know, their outlook for the
• 24:09
  Speaker 1: economy has um dissipated a bit recently, I think, especially
• 24:14
  Speaker 1: even as as soon as a month ago when we
• 24:16
  Speaker 1: came into their earnings they were into the reports, they
• 24:18
  Speaker 1: were still pretty optimistic. I think what we've seen is
• 24:21
  Speaker 1: they continued to post large provisions for future losses even
• 24:25
  Speaker 1: though there's few losses coming through. UM. They've actually seen
• 24:28
  Speaker 1: some good news on terms of the deferrals of loans.
• 24:32
  Speaker 1: A lot of folks have been able to pay those.
• 24:34
  Speaker 1: But there's a lot of nervousness right now, especially on
• 24:36
  Speaker 1: the consumer side, where you have a situation where the
• 24:40
  Speaker 1: savings rate in America has gone up significantly as consumers
• 24:44
  Speaker 1: have used these payments from the government to get a
• 24:46
  Speaker 1: handle on their debt. But this next phase for again
• 24:49
  Speaker 1: is something that I think UM is universally of some concern.
• 24:52
  Speaker 1: The good news on the financial side is that the
• 24:55
  Speaker 1: capital markets, as you know, UM, which you both are
• 24:58
  Speaker 1: watching on a on a real time bay, this has
• 25:00
  Speaker 1: been quite robust and that piece of the financial businesses
• 25:03
  Speaker 1: has done well. We saw so many banks put away
• 25:06
  Speaker 1: so many reserves. Will they be necessary, UM, Well, I
• 25:12
  Speaker 1: think we can all say we hope not, UM, but
• 25:15
  Speaker 1: we have to remember they have put in these big reserves. UM.
• 25:18
  Speaker 1: There's an accounting changes that required banks to be more
• 25:22
  Speaker 1: forward looking than they would have in the past UM,
• 25:24
  Speaker 1: and that's why we're seeing these big reserves even before
• 25:27
  Speaker 1: we see UM losses. Now we do think there will
• 25:30
  Speaker 1: be UM when we look at the stress and small
• 25:32
  Speaker 1: business UM and on the consumer. Unless there's this continued
• 25:36
  Speaker 1: UM kind of cares act level of support, you know,
• 25:39
  Speaker 1: we have to expect some bankruptcies and other issues to
• 25:42
  Speaker 1: pick up UM. Hopefully. The good news is is if
• 25:45
  Speaker 1: we see even UM U U shape recovery or kind
• 25:50
  Speaker 1: of not necessarily a V shape, that the reserves that
• 25:54
  Speaker 1: have been put up in the first half of this
• 25:55
  Speaker 1: year should get these financials through this crisis without having
• 25:59
  Speaker 1: to raise capital or cut dividends further. So Fred, just quickly,
• 26:03
  Speaker 1: the banks have been beaten up, the stocks UM. Where
• 26:06
  Speaker 1: does the good folks at k b W, where do
• 26:08
  Speaker 1: you guys see some opportunity. Well, like a couple of
• 26:11
  Speaker 1: areas we see Number one is, you know, selectively, we
• 26:14
  Speaker 1: think some of the banks, especially those you know that
• 26:17
  Speaker 1: are very strong in the capital markets UM can continue
• 26:20
  Speaker 1: to do well. We think the highest quality banks are
• 26:23
  Speaker 1: in a good position to get through this m JP
• 26:25
  Speaker 1: Morgan UM and we are recommending golden sacks based on
• 26:29
  Speaker 1: the capital markets activity. We also think that UM, that
• 26:33
  Speaker 1: folks should look over to Europe. Those banks over there
• 26:35
  Speaker 1: have been UM beat up much more than the US
• 26:37
  Speaker 1: banks and they're actually seen UM better indicators of recovery
• 26:43
  Speaker 1: than we are. UM. And also we don't have the
• 26:46
  Speaker 1: you know, the interest rates have come down significantly in
• 26:49
  Speaker 1: the US and is as you know, I think on
• 26:50
  Speaker 1: deals are below sixty basis points today and that's that's
• 26:53
  Speaker 1: a tough environment for U. Yeah. Hey, Fred, thanks so
• 26:56
  Speaker 1: much for joining us. Really appreciate your thoughts on the
• 26:59
  Speaker 1: KBW restoration Index. Will be following that, Fred Cannon, Global
• 27:02
  Speaker 1: director of Research at Keith Bruette and would based in
• 27:06
  Speaker 1: New York City. Again the KBW Restoration next, trying to
• 27:09
  Speaker 1: get a handle on the recovery of the US economy
• 27:14
  Speaker 1: on this side of the pandemic. Well, have more coming up.
• 27:17
  Speaker 1: This is Bloomberg. Thanks for listening to Bloomberg Markets podcast.
• 27:22
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
• 27:26
  Speaker 1: or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm
• 27:29
  Speaker 1: on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm
• 27:32
  Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can
• 27:35
  Speaker 1: always catch us worldwide at Bloomberg Radio.