Latest / Bloomberg Intelligence / Hilltop's Grant: 'Huge' Mistake for Fed to Raise Rates (Audio)

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Hilltop's Grant: 'Huge' Mistake for Fed to Raise Rates (Audio) · Bloomberg Intelligence

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  Speaker 1: seriously considering an interest rate increase in September. Our next guest,
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  Speaker 1: I'm Kathleen Hayes. My co host Kim Fox is on
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  Speaker 1: vacation this week, so he's gonna miss a very prific
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  Speaker 1: conversation now with Mark Grant, chief fixed income strategist Hilltop Securities.
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  Speaker 1: We know him as the Wizard for all his incifle
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  Speaker 1: comments on the U S Government bond market and more.
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  Speaker 1: He has been UH one of the biggest bulls UH
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  Speaker 1: so far over the last couple of years and continues
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  Speaker 1: to look for further games and bonds, particularly the FED missteps. Mark,
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  Speaker 1: welcome back to the show. Thanks and always a pleasure
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  Speaker 1: to be with you, well, let's start with there's so
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  Speaker 1: many places, but you know post, Jackson Hole Post and
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  Speaker 1: Fisher saying negative rates he thinks are working, ETCETERA very
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  Speaker 1: interesting I think, and maybe a little more nuanced. Charlie Evans,
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  Speaker 1: President Chicago FED, and Eric rosen Grin, President of Boston FED,
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  Speaker 1: speaking on a panel. I don't think they're exactly opposed
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  Speaker 1: to each other. But Charlie Evans focusing on UH rates
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  Speaker 1: could stay low for a longer time than people thought.
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  Speaker 1: According to his business contacts, the FED could move slowly.
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  Speaker 1: Eric rosen gran a little bit worried about accesses that
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  Speaker 1: could be building up in places like commercial real estate
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  Speaker 1: as a risk of the FED moving too slow. What
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  Speaker 1: do you see? Well, I think if the Fed does
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  Speaker 1: raise rates, it will be a huge mistake on two fronts.
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  Speaker 1: One Politically, it will be a mistake because whoever might
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  Speaker 1: win the election is not going to be happy with
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  Speaker 1: the Fed. If the Fed causes a disruption of the
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  Speaker 1: American economy too in terms of the um economics of it,
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  Speaker 1: if you look at what happens when the Fed raises rates,
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  Speaker 1: it means that commercial real estate, residential real estate, commercial loans,
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  Speaker 1: personal loans, everything becomes more expensive that are tied to
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  Speaker 1: the short end and may throw the economy into some
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  Speaker 1: kind of recession. And that means that you're going to
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  Speaker 1: get a flatter yield curve than we have now, or
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  Speaker 1: maybe even go into an inverted yield curve, and I
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  Speaker 1: think it would just be very negative for the country
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  Speaker 1: on both counts. Well, Mark, I guess your argument if
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  Speaker 1: you want to race rates pretty soon as you say, hey,
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  Speaker 1: wait a minute, you know you kind of look at
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  Speaker 1: the jobs market. The labor market is growing just fine.
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  Speaker 1: We might get a strong jobs report on Friday. In
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  Speaker 1: a situation like that, we can afford to pay a
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  Speaker 1: little bit more for the money they borrow because they're
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  Speaker 1: making more money and they'd rather have more demand and
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  Speaker 1: more business and making more money than than they would
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  Speaker 1: care about keeping the rate little. See what I mean? Well,
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  Speaker 1: there are two parts of that argument. One is you
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  Speaker 1: have to look at the quality of jobs until you
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  Speaker 1: have to look at the product productivity in the job markets,
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  Speaker 1: and both are not very good. We've had some more
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  Speaker 1: jobs added, there's no question about that. But when you
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  Speaker 1: look at what kind of jobs they are, and then
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  Speaker 1: you look at the productivity in the labor force, it
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  Speaker 1: certainly looks less optimistic. And then again also I think
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  Speaker 1: you have to look at the inflation rate, and with
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  Speaker 1: oil now plunging down again, which has a big impact
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  Speaker 1: on inflation, means the freads are going to be nowhere
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  Speaker 1: near their desired goal two percent. So I think those
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  Speaker 1: are the offsetting parts and the and the third big
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  Speaker 1: part of it is what the other central banks in
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  Speaker 1: the world are doing. So we now, according to Fitch,
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  Speaker 1: have thirteen points in trillion and negative yielding bonds across
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  Speaker 1: the world. Bonds in Europe and Japan are substantially less
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  Speaker 1: yield than we have in the United States. So all
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  Speaker 1: you're gonna do is drag in more foreign money into
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  Speaker 1: the US market, which is what one of the major
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  Speaker 1: reasons I think yields even here going down because we're
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  Speaker 1: the last man standing with the positive yield. Hey, but
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  Speaker 1: the Japanese banking Japan might say thank you very much
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  Speaker 1: for to reserve. We've been trying like crazy the week
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  Speaker 1: in our end. If we have divergence, if the Fed hikes,
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  Speaker 1: the dollar rises, and the bo J goes the other way,
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  Speaker 1: it's more stimulus than the end weekends. They'd be very happy.
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  Speaker 1: This is their big bugaboo. Well, I think the FED
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  Speaker 1: is you may recall, is I'm not only recalls I
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  Speaker 1: know you know, is the central Bank of the United States.
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  Speaker 1: It's not the central Bank of Japan. And consequently, the
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  Speaker 1: FEED should be doing what it can for our country.
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  Speaker 1: Plus whoever is elected president, they're both are talking about
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  Speaker 1: very uh uh. You know, a huge growth in infrastructure
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  Speaker 1: coming at it from different patterns, but it's going to
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  Speaker 1: be even more debt for the Treasury, and the should
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  Speaker 1: be trying to hold rates down to accommodate that. In
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  Speaker 1: my opinion. Now, let's s the FED races rates and
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  Speaker 1: you're right, and it's the wrong thing to do, and
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  Speaker 1: the economy really slows down. That would just would that
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  Speaker 1: just opened the door to another big leg of a
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  Speaker 1: bond rally that pushes yields even lower, in prices even higher. Absolutely, Kathleen,
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  Speaker 1: You've got to add exactly right. So we're bond going work. Well,
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  Speaker 1: I think we're going to one at a quarter on
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  Speaker 1: the tenure by year end. I've said that since around
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  Speaker 1: February when the tenure was at a one seventy seven.
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  Speaker 1: Were the one fifty six today, But I think we're
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  Speaker 1: going to go back lower just because we have the
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  Speaker 1: only place in the world, as I said, with positive yields.
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  Speaker 1: I mean, it's like we're the last man standing. And
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  Speaker 1: then whoever is elected president wants to do more and
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  Speaker 1: terms of government infrastructure and growth, and the only way
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  Speaker 1: to really pay for that without causing even more massive
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  Speaker 1: problems is the lower interest rate. So the Fed may
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  Speaker 1: in fact at some point reverse course and add more
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  Speaker 1: to their balance sheets than the four chilion they already
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  Speaker 1: have about ten seconds. You're still a fan of closed
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  Speaker 1: end bond funds. I think closed in bond funds where
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  Speaker 1: if you pick the right ones, you can get about
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  Speaker 1: ten or the best option, especially for any person right now. Well,
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  Speaker 1: Mark ran, Mr Wizard the Wizard, we thank you so
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  Speaker 1: much for joining us. He's cheap fixed income strategists at
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  Speaker 1: Hilltop Securities based in Fort Lauderdale. What a lovely place
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  Speaker 1: to be, he said. It would be a huge mistake
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  Speaker 1: for the FED to raise rates. Now it's election year.
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  Speaker 1: You're gonna stir up a hornet's nest, and you're gonna
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  Speaker 1: make money cost more, and that's gonna hurt commercial real
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  Speaker 1: estate and residential real estate and more. I'm Kathleen Hayes.
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