Latest / Bloomberg Intelligence / Diane Swonk Sees U.S. Election Driving Bond Prices Lower(Audio)

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Diane Swonk Sees U.S. Election Driving Bond Prices Lower(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: I'm Charlie Pallet's stocks are falling for the first time
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  Speaker 1: in four days as disappointing numbers from Macy's to Walt
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  Speaker 1: Disney heightened concern that American consumers remain hesitant to booth spending.
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  Speaker 1: Macy's down fourteen percent now, Disney is down four point
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  Speaker 1: four percent. Down Industrials dropping one hundred ninety six points
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  Speaker 1: and decline there of one point one percent, SMP five
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  Speaker 1: hundred index down sixteen the drop of eight tenths of
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  Speaker 1: one percent, and as stack is down seven tenths of
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  Speaker 1: one percent. Gold up thirteen thirty ounce to twelve seventy
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  Speaker 1: eight again there of one point one percent. Crude oil
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  Speaker 1: up a dollar forty seven and barrel forty six twelve.
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  Speaker 1: Right now again they're a three point three percent. I'm
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  Speaker 1: Charlie Paloton. That's a Bloomberg Business Flash. Bloom or jaking stock.
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  Speaker 1: The FED in focus infest rates start too low for
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  Speaker 1: where the economy is going. The question is how much
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  Speaker 1: higher should they be? The FED has increased the fast yes,
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  Speaker 1: and in doing so, it has increased its liability. Keeping
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  Speaker 1: interest rates at zero for a long time is not
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  Speaker 1: going to cause inflation to go up. It's very controversial.
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  Speaker 1: I think what we need to do is find a
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  Speaker 1: way for the FED to integrate its policy and think
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  Speaker 1: more about its impact on the world. The Fed, in
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  Speaker 1: focus on Bloomberg Radio, Better Reserve, are they going to
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  Speaker 1: raise interest rates in June? Or will market bets be
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  Speaker 1: right again? It will the Fed perhaps not raise rates
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  Speaker 1: until the end of the year. If then, this is
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  Speaker 1: the question on the market's mind and so many investors
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  Speaker 1: minds as well. To grapple with it, to look at
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  Speaker 1: the ECO data, to look at some recent comments from
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  Speaker 1: feder Reserve officials, including on this program. We're very happy
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  Speaker 1: to welcome back to the show Diane Swank. She's founder
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  Speaker 1: of Diane Swank Economics based in Chicago. However, joining us
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  Speaker 1: today from our bureau in Washington, d C. Home of
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  Speaker 1: Bloomberg Point One. Welcome Diane. Good to be here so Washington,
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  Speaker 1: d c. Uh. Certainly the debate continues there as well.
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  Speaker 1: But in your mind, when you look at the probability
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  Speaker 1: of a FED rate hike, as reflected in the FED
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  Speaker 1: Funds futures contract, almost no chance the Fed moves in June.
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  Speaker 1: And yet we have spoken recently to a couple of
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  Speaker 1: FED officials who certainly kept the door open to that possibility,
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  Speaker 1: including John Williams, President of San Francisco FED, just last week.
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  Speaker 1: This is the issues that we're still seeing, this break between,
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  Speaker 1: you know, within the FED about what they want to do. Clearly,
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  Speaker 1: carry Yelln has to corral the cats. She was able
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  Speaker 1: to do that to some extent at the last meeting,
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  Speaker 1: but there really is no clear direction on signaling from
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  Speaker 1: the Fed. And I think that's why you're seeing the
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  Speaker 1: financial markets because of this dissonance, financial markets not pricing
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  Speaker 1: it in. And as much as I think it would
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  Speaker 1: be advantageous for the Fed to move in June, I
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  Speaker 1: also think that um the financial markets have been more
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  Speaker 1: right than the Fed at forecasting their own rate hikes.
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  Speaker 1: Diane Swanks will continue along on that thought. And if
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  Speaker 1: an investor is not necessarily concerned about the push and
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  Speaker 1: pull at the Federal Reserve but wants to concentrate on
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  Speaker 1: making money in stocks, where would you suggest they look? Well,
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  Speaker 1: you know, I'm not an advisor on stocks, But you know,
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  Speaker 1: winners and losers in the US economy. I think what
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  Speaker 1: we're looking at is, even though we've seen some bad
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  Speaker 1: news from retailers, we also are seeing retailers that are
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  Speaker 1: going bankrupt. There's a restructuring in the retail sector. That
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  Speaker 1: doesn't mean the consumer is anywhere near dead. In fact,
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  Speaker 1: we know that some of the consumer data from the
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  Speaker 1: first quarter was underestimated because of the way we account
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  Speaker 1: for the retail sales data. We look at retail sales
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  Speaker 1: by type of retailer, not by what they sell. And
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  Speaker 1: in fact, in January and February, when gas prices were
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  Speaker 1: plummeting at the pump, places like Walmart, Sam's Club, Cost Club,
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  Speaker 1: which sell gasoline, also saw softening and retail sales. But
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  Speaker 1: it isn't actual softening. It was the prices of gas
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  Speaker 1: going down while people were spending more money inside the stores.
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  Speaker 1: So there really is a lot of noise out there
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  Speaker 1: in the data as well, which makes it really hard
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  Speaker 1: to get through this period in terms of finding winners
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  Speaker 1: and losers. I do think a key issue going forward,
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  Speaker 1: particularly from manufacturing beyond the retail sector. I think the
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  Speaker 1: consumer is going to still continue to spend. The question
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  Speaker 1: is where and beyond the retail sector is a strong
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  Speaker 1: dollar and how will that affect manufacturing? Manufacturing looks like
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  Speaker 1: it's bottoming out there, but we still got a long
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  Speaker 1: way to go. When you're at the bottom of a
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  Speaker 1: barrel of oil, you've still got to climb your way out.
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  Speaker 1: Is it possible that some have said that the the
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  Speaker 1: markets are underestimating the FEDER reserves resolved. And if you take,
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  Speaker 1: for example, the fact the Fed in December raise its
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  Speaker 1: key rate the first time since two thousand and six,
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  Speaker 1: when in one of its key metrics inflation was far
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  Speaker 1: from target. Does that is that perhaps a sign that,
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  Speaker 1: you know, guess what they could move in June because
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  Speaker 1: they're nervous about keeping the key rates so low and
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  Speaker 1: as they keep say is John william said in San
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  Speaker 1: Francisco last week, this is normalizing rates. Isn't necessarily tightening exactly,
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  Speaker 1: And I think that's one of the issues that's still
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  Speaker 1: very hard. Our markets operate in black and white. As
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  Speaker 1: the rates going up, by the rates going down, that's
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  Speaker 1: not necessarily tightening or easin. It's less easy money. And
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  Speaker 1: stan Fisher has gone to great lengths to try to
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  Speaker 1: explain this saying, listen, we're trying to um ease up
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  Speaker 1: on the accelerator. We're not hitting the brake. And I
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  Speaker 1: think that's a subtlety that's getting lost in translation. Although
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  Speaker 1: the Feds of one doing the translation, so let's let's
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  Speaker 1: face it, they're not giving the right message. I think
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  Speaker 1: it's also important though, that you know the break within
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  Speaker 1: the FED between the sort of more hawkish, say Vice
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  Speaker 1: Chairman Stan Fisher and Janet Yellen, who's not necessarily not hawkish,
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  Speaker 1: but she really does see She's a veteran in the
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  Speaker 1: nineties and she sees this opportunity to sort of overshoot unemployment.
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  Speaker 1: She's seen the participation rate coming up, and she sees
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  Speaker 1: that ability that if you overshoot in a low inflation
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  Speaker 1: environment and over stimulate perhaps a bit, you might actually
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  Speaker 1: re engage all of these workers that we sort of
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  Speaker 1: thought could never even re enter the labor force back
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  Speaker 1: in the nineties. All he needed was a pulse to
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  Speaker 1: get a job. That's something we're far from right now,
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  Speaker 1: but to think that you could even get a little
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  Speaker 1: bit closer to that is something that I think is
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  Speaker 1: enticing to her. Diana wonder if you have any thoughts
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  Speaker 1: about the automobile industry in the United States, and maybe
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  Speaker 1: then we'll talk about housing. But automobiles have been important
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  Speaker 1: for the economic recovery. Yeah, you know automobile. I'm from Detroit.
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  Speaker 1: I used to be an auto analyst. I grew up
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  Speaker 1: in the auto industry. It's like, you know, on only
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  Speaker 1: my blood. So you can take the girl out of Detroit,
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  Speaker 1: you can't take the Detroit out of the girl. I know. Um,
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  Speaker 1: Tom King's always getting me on the auto industry as well,
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  Speaker 1: but you know, I mean, the issue is on autos
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  Speaker 1: is what's feeling the sales, And what worries me is
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  Speaker 1: the run up in two things right now, not only
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  Speaker 1: sub prime lending, which um, the auto industry got a
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  Speaker 1: way run when they got restructured, they were the ones
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  Speaker 1: to continue so prime lending, which helped to support vehicle sales.
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  Speaker 1: And we did have really strong vehicle sales snap back
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  Speaker 1: in the month of April. But also we're seeing least
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  Speaker 1: sales pick up. And these are many of the problems
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  Speaker 1: that got the auto industry into it's um sort of
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  Speaker 1: racist in the first place. Beyond what was tied to
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  Speaker 1: the subprime mortgage crisis up until about two thousand and five.
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  Speaker 1: Many people who were up through two thousand and five
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  Speaker 1: a lot of home equity lines of credit. We're not
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  Speaker 1: just going to pay for homes and refinance homes and
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  Speaker 1: pay for mortgages. They're also going to pay for cars.
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  Speaker 1: And then of course car sales collapsed as the equity
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  Speaker 1: market in housing collapse. I think I think the auto
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  Speaker 1: industry is being a little precarious with how they're juicing
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  Speaker 1: sales at the moment. We're going to continue the conversation
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  Speaker 1: with Diane Swank, the founder of Diane Swank Economics, more
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  Speaker 1: on the Federal Reserve and more on what the U
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  Speaker 1: s economy means for the direction of stock prices and
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  Speaker 1: bond fields. That's next on taking stock? Is the dollar
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  Speaker 1: slump over Goldman Sachs says it is. Does the Federal
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  Speaker 1: Reserve play a role on? How about that Bank of
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  Speaker 1: England needing tomorrow? We're gonna look at all these questions
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  Speaker 1: coming up on Bloomberg Radio Broadcasting Live to New York,
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  Speaker 1: Bloomberg eleventh, Brio to Washington, d C. Bloomberg to Boston,
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  Speaker 1: Country Series Exam General one nineteen and around the globe
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  Speaker 1: the Bloomberg Radio plus NAP and Bloomberg Got Gone Zeus
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  Speaker 1: is taking stock. I'm Kathleen Hayes, along with Pim Fox,
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  Speaker 1: the Federal Reserve in focus, along with the Bank of
• 8:29
  Speaker 1: England and the European Central Bank of Central Banks run
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  Speaker 1: out of bullets at the economy? Does falter in the
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  Speaker 1: U S? And globally We'll be asking Diane Swamp answer
• 8:37
  Speaker 1: that question and more yes. And also coming up, we'll
• 8:40
  Speaker 1: take a look at the impeachment of the President of Brazil,
• 8:45
  Speaker 1: Tilma Russef. We've got Raymond Collett, Bloomberg Bureau Chief in Brazilia.
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  Speaker 1: He'll be joining us later on in the program, but
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  Speaker 1: right now, let's go to Charlie Pellett in the Bloomberg
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  Speaker 1: news room for a Bloomberg Business Flat and I thank you,
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  Speaker 1: Pim Fox, Thank you, Kathleen Hayes. The dial the SMP
• 8:59
  Speaker 1: nez dak all declining. We are brought to you by
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  Speaker 1: Van Eck Vector's e t fs. Expect more from your
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• 9:21
  Speaker 1: stocks are slipping after the biggest gain in two months,
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  Speaker 1: as disappointing results from Disney and Macy's raised outs about
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  Speaker 1: the strength of the U. S. Consumer oil rose after
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  Speaker 1: an unexpected drop in inventories. The dollar fell, crewed up
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  Speaker 1: a dollar fifty one of barrel seventeen. Now again there
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  Speaker 1: of three point four percent, Gold up twelve seventy the
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  Speaker 1: ounce advancing one percent to twelve seventy seven. Fifty Billionaire
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  Speaker 1: hedge fund manager Paul Singer says Gold's best quarter in
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  Speaker 1: thirty years probably just the beginning of a rebound. Bob
• 9:53
  Speaker 1: Iachino is with Path Trading Partners in Chicago, when you
• 9:57
  Speaker 1: look at the fundamental picture of the FED losing credibility,
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  Speaker 1: global central banks continuing to have that pressure. We saw
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  Speaker 1: industrial production in Germany and France disappoint last week, and
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  Speaker 1: we're seeing now that in the same period of time
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  Speaker 1: from about December third of last year, the dollar index
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  Speaker 1: fell about six and a half percent. Gold is almost
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  Speaker 1: twenty two percent. So if you expect a couple more
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  Speaker 1: percentage points lower, if you expect the FEDS path to
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  Speaker 1: be a little more dovish, you can expect another large
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  Speaker 1: rising gold. Fossil Group shares plummeting to the lowest price
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  Speaker 1: in more than six years after the watchmakers slashed its
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  Speaker 1: full year earnings forecast. Shares now down by twenty eight
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  Speaker 1: point nine percent, the SMP down fifteen, a drop of
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  Speaker 1: seven tenths of one percent to thirty two on Wall Street.
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  Speaker 1: Now we'll look at other news from around the world.
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  Speaker 1: On Bloomberg Radio, Charlie, Thank you from the Bloomberg news
• 10:47
  Speaker 1: Room by Mark Crumpton. House Speaker Paul Ryan says the
• 10:50
  Speaker 1: Republican Party needs to come together to defeat likely Democratic
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  Speaker 1: presidential nominee Hillary Clinton in November. To pretend where unified
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  Speaker 1: as a party after coming through a very bruising primary
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  Speaker 1: which just ended like a week ago. Um to pretend
• 11:05
  Speaker 1: reunified without actually unifying, then we go into the fall
• 11:07
  Speaker 1: at half strength. Speaker Ryan meets with presumptive GOP presidential
• 11:12
  Speaker 1: nominee Donald Trump in Washington tomorrow. At BI director James
• 11:16
  Speaker 1: Comey is speaking out on the investigation into the private
• 11:19
  Speaker 1: email server account that Hillary Clinton used when she was
• 11:23
  Speaker 1: Secretary of State. Director Comey told reporters quote, I remained
• 11:27
  Speaker 1: close to that investigation to ensure that it's done well
• 11:30
  Speaker 1: and has the resources it needs. End quote. ABC News
• 11:34
  Speaker 1: reported last week the FBI was seeking to interview Secretary
• 11:37
  Speaker 1: Clinton soon, but a Clinton spokesman says she hasn't received
• 11:41
  Speaker 1: an invitation from the FBI to answer questions. In Italy,
• 11:45
  Speaker 1: the Lower Chamber of Deputies has voted to grant legal
• 11:48
  Speaker 1: recognition to civil unions. The bill pass three sixty to one.
• 11:53
  Speaker 1: The legislation stopped short of authorizing gay marriage, but it's
• 11:57
  Speaker 1: significant because Italy was the last holdout in Western Europe
• 12:00
  Speaker 1: to extend some rights to gay couples. A new right
• 12:03
  Speaker 1: to Die bill has been introduced to New York's legislature.
• 12:06
  Speaker 1: It would allow terminally ill patients to request life ending
• 12:10
  Speaker 1: drugs from a physician. The proposal would require two doctors
• 12:14
  Speaker 1: to certify that the patient's illness is in fact terminal.
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  Speaker 1: Global News twenty four hours a day, powered by our
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  Speaker 1: two hundred journalists in more than one hundred fifty news
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  Speaker 1: bureaus around the world. From the Bloomberg News Room, I'm
• 12:28
  Speaker 1: Mark Crumpton, Charlie, and we thank you and again recapping
• 12:32
  Speaker 1: a move law for US equities. Right now the SMP
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  Speaker 1: down fifteen points to two thousand sixty nine to drop
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  Speaker 1: seven tenths of one percent, ten year up nine thirty seconds.
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  Speaker 1: The yield there one point seven to I'm Charlie Palatine.
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• 13:10
  Speaker 1: us now as Dianne Swank, founder of Dianne Swank Economics. Diane,
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  Speaker 1: just to continue the conversation, I know that we were
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  Speaker 1: talking about the automobile industry. Tell us your thoughts about
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  Speaker 1: the housing industry in the United States. You know, this
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  Speaker 1: is really an interesting area where we've got prices going
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  Speaker 1: up very rapidly because demand is outstripping supply and what's
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  Speaker 1: still a tepid overall market. Some of the supply problems
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  Speaker 1: we're finding our very structural in nature. Um, what we've
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  Speaker 1: seen is at the local level, in particular in more
• 13:38
  Speaker 1: urban areas and in close by suburbs. Many cash stat
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  Speaker 1: strapped municipalities have raised fees and all the costs of
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  Speaker 1: the land for builders to build in order to make
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  Speaker 1: up for the shortfall they felt in real estate revenues
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  Speaker 1: during the height of the crisis. The result has made
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  Speaker 1: it really hard for builders to move downstream and build
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  Speaker 1: more product for entry level for a time buyers, and
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  Speaker 1: as a result, they've stayed higher in the market which
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  Speaker 1: is really constrained supply. We also have seen the South
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  Speaker 1: not really come back at which is the driver of
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  Speaker 1: housing starts and the real activity out there, and that's
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  Speaker 1: really Florida has been sort of a laggered. It was
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  Speaker 1: the epicenter of the subprime crisis. Some of those markets
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  Speaker 1: are starting to finally firm, and I do think that
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  Speaker 1: will help. But you really got an issue where housing
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  Speaker 1: is actually very constrained and the result is showing up
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  Speaker 1: in price, and the prices are going up much more
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  Speaker 1: rapidly than incomes and eroding some affordability even at a
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  Speaker 1: time when housing and interest rates are still relatively affordable.
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  Speaker 1: I think these are real issues we need to sort
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  Speaker 1: of look at because that housing price appreciation is also
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  Speaker 1: going to show up in some of the measurements of
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  Speaker 1: inflation as well. Diane, Why are bond yields staying soul below?
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  Speaker 1: Is it because investors around the world. Number one, they're saying, oh,
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  Speaker 1: we can get some yield in the US, which we
• 14:56
  Speaker 1: can't get almost any place else. Our investors saying, oh
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  Speaker 1: the economy is weak. Are they saying, well, the FED
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  Speaker 1: is going to move but so slowly. I might as
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  Speaker 1: well keep my money and bonds because that's the main
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  Speaker 1: reason you've got these terrific mortgage rates, and a lot
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  Speaker 1: of people are refining now. It's it's really stunning, isn't that.
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  Speaker 1: I mean one seven on a on a tenure. And
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  Speaker 1: I laugh because you know, we we've all been I've
• 15:14
  Speaker 1: been humbled more than once by my own forecast that
• 15:16
  Speaker 1: bonnield should rise at some point in time, and it's
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  Speaker 1: like waiting for the good Oh um. I think all
• 15:21
  Speaker 1: of the above is really important. You know, the seek
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  Speaker 1: for yield. The US is a safe return. And if
• 15:26
  Speaker 1: you don't think inflation is high, and think about you know,
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  Speaker 1: in other countries where you've got inflation much lower than
• 15:31
  Speaker 1: the US and the risk of deflation still there, it
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  Speaker 1: looks pretty good to get one seven on the tenure.
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  Speaker 1: So I think all of these factors are coming into play.
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  Speaker 1: I also think they're really you know, there is a
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  Speaker 1: sort of reluctance to believe the FED will raise rates,
• 15:44
  Speaker 1: and that's because the FED has not been consistent in
• 15:46
  Speaker 1: their message. There really is a credibility issue here. There's
• 15:49
  Speaker 1: a communication issue here, and you know that's sort of
• 15:51
  Speaker 1: a residual of the transparency that we saw come under
• 15:54
  Speaker 1: Ben Berniky. He really felt that everyone should see the
• 15:57
  Speaker 1: spectrum of debate and instead, you know, we see the
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  Speaker 1: sausage getting made and we don't really like the blood
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  Speaker 1: and everything that goes with it. Dian, who is going
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  Speaker 1: to take the loss on bonds? You mentioned the tenure
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  Speaker 1: right now at one point seven two. If you were
• 16:13
  Speaker 1: to buy that, or if you're in an institution and
• 16:16
  Speaker 1: you're gonna buy it to trade it, someone's going to
• 16:19
  Speaker 1: have to be on the other side of the trade
• 16:20
  Speaker 1: when you finally sell it. Is everyone going to rush
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  Speaker 1: to the exit at the same time and we're gonna
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  Speaker 1: have a bond collapse? Um? Well, you know who knows.
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  Speaker 1: I mean that we do tend to have big movements
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  Speaker 1: and bonds. My biggest concerned about the bond market is
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  Speaker 1: actually depending on what happens in November, we are really
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  Speaker 1: under pricing political risk out there, and that could be
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  Speaker 1: a turning point um as we finally we're not pricing
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  Speaker 1: in political risk or policy risk because there's still many,
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  Speaker 1: so many uncertainties out there, and the marketing bond prices
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  Speaker 1: could rally. I actually think they could go. They could
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  Speaker 1: go the other direction. But if you have political risk,
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  Speaker 1: woulden people buy US treasuries? Political risk in the US?
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  Speaker 1: I see, and I think there's we uh, there's other
• 16:59
  Speaker 1: those over saying that if you look at the global forces,
• 17:02
  Speaker 1: they are still more disinflationary and even deflationary, and that
• 17:06
  Speaker 1: in fact p M. You may recall just a couple
• 17:08
  Speaker 1: of weeks ago, we had David kotok On from Cumblent
• 17:10
  Speaker 1: Advisors and we were looking at Europe. He's predicting that
• 17:12
  Speaker 1: you're going to have very low inflation and very low
• 17:15
  Speaker 1: and even some negag rates in Europe till the end
• 17:18
  Speaker 1: of the decade. And he said that is going to
• 17:21
  Speaker 1: support these yields and prices on US treasuries and we
• 17:25
  Speaker 1: could see a further rally. What do you think, Well,
• 17:30
  Speaker 1: you know. I mean, um, there certainly is a possibility
• 17:33
  Speaker 1: for a further rail and we can't roll it out. Um.
• 17:35
  Speaker 1: One of the things that I think we're gonna have
• 17:37
  Speaker 1: to see is whether or not we get a snap
• 17:38
  Speaker 1: back and growth. I do think the GDP numbers, we've
• 17:41
  Speaker 1: got to deal with the disconnectre syne unemployment data versus
• 17:44
  Speaker 1: the overall GDP data. Is productivity growth? Really that week,
• 17:48
  Speaker 1: if it is, any acceleration in wages would be dry
• 17:51
  Speaker 1: tinder for some inflation. I don't think that's necessarily the case,
• 17:55
  Speaker 1: but I do think that reality is somewhere in between
• 17:57
  Speaker 1: the GDP figures, which were you know, a point five
• 18:00
  Speaker 1: percent in the first quarter, and the employment data, which
• 18:02
  Speaker 1: was much stronger. So I think my own sense is
• 18:05
  Speaker 1: that we will see a bit of a snap back
• 18:07
  Speaker 1: in growth. The question is what happens when we get
• 18:10
  Speaker 1: to the elections. Because it used to just be noise.
• 18:12
  Speaker 1: And here I am sitting in Washington and it used
• 18:14
  Speaker 1: to just be noise to us as an economist. But
• 18:16
  Speaker 1: the policy risks of trade protective protectionism, of tariffs, increasing,
• 18:21
  Speaker 1: of immigration, you know, being even further cut back, all
• 18:25
  Speaker 1: of those things undermine growth. There's sort of a misconnect,
• 18:28
  Speaker 1: a disconnect between correlation and causality. The globalization of the U. S.
• 18:32
  Speaker 1: Economy was gonna kernel matter what the problem is, many
• 18:35
  Speaker 1: people were sidelined by that globalization. We just didn't prepare
• 18:38
  Speaker 1: them for the operating in a global economy, that the
• 18:41
  Speaker 1: skills they needed to earn what they needed to earn cancel.
• 18:44
  Speaker 1: I love that new word you just made, misconnect a misconnect.
• 18:46
  Speaker 1: I'm gonna tweet that out. Diane Swonk is founder of
• 18:48
  Speaker 1: Diane Swonk Economics, joining us from Washington, d C. Today
• 18:53
  Speaker 1: to put the feeder Reserve in focus on Kathleen has Long.
• 18:56
  Speaker 1: Pin Flock were taken stock on Blueberg Radio. Coming upon
• 19:01
  Speaker 1: taking stock, Brazil's president Dilma Rousseff could be hours away
• 19:06
  Speaker 1: from being forced out of office, at least temporarily. We've
• 19:10
  Speaker 1: got an update next