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Economy, UK Election, Home Sales · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you
0:05
Speaker 1: along with my co host Lisa Brahma Waits. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
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Speaker 1: you and your money. Whether at the grocery store or
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Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Wall Street confidence ahead of the
0:21
Speaker 1: year seems to be increasing. Consumer confidence not so much.
0:25
Speaker 1: We've got to read today the consumer confidence in the
0:27
Speaker 1: US declined for a fourth straight month. The big question
0:30
Speaker 1: in my mind is are we seeing a sort of
0:33
Speaker 1: reversal where the consumer starts to sort of become less
0:36
Speaker 1: confident and less uh profligate when it's with its spending
0:40
Speaker 1: while Wall Street gets more excited about stock prices. Chris Rupkei,
0:44
Speaker 1: Managing director in chief financial economist at m UFG Union
0:47
Speaker 1: Bank joining us. Now, what do you make of this,
0:49
Speaker 1: this waning consumer confidence? Yeah, it's interesting because don't forget
0:54
Speaker 1: there's two separate measures, and uh, the Michigan survey of
0:59
Speaker 1: consumers sent mint as opposed to confidence more or less
1:01
Speaker 1: the same. Uh, it's come back quite a bit. So
1:05
Speaker 1: it was down in the dumps in August when the
1:07
Speaker 1: stock market had that turmoil and purchasing managers said manufacturing
1:12
Speaker 1: was in a recession. Uh. That consumer confidence measure has
1:16
Speaker 1: come back and doesn't look as worrisome as the one
1:20
Speaker 1: that came out today. So it's a bit of a
1:22
Speaker 1: mixed bag here. Yeah, it's Chris. We also have the
1:25
Speaker 1: again the housing data that come in very strong. Are
1:29
Speaker 1: you still confident that this consumer can continue to support
1:33
Speaker 1: this economy through well, so far, so good. We'll get
1:37
Speaker 1: another look at how many jobs are being created, uh
1:41
Speaker 1: next Friday. So that's really as long as it's not
1:44
Speaker 1: just what consumers or workers are spending, it's also how
1:50
Speaker 1: many new workers are being added each year. And right
1:53
Speaker 1: now the jobs reports you know, running about a hundred
1:56
Speaker 1: thirty thousand per month of new jobs. Those are going
1:59
Speaker 1: to be new consumers that will spend uh the economy,
2:03
Speaker 1: will you know, spend dollars that helps the economy grow.
2:07
Speaker 1: But yeah, we are. It is interesting real GDP numbers
2:10
Speaker 1: have come down the estimates for the fourth quarter, so
2:13
Speaker 1: we'll see how that all plays out. So I want
2:16
Speaker 1: to shift gears a little bit too. The housing market
2:17
Speaker 1: We've got a couple of better than expected data points
2:20
Speaker 1: out this morning showing that new home sales in the
2:22
Speaker 1: United States posted their best two months and more than
2:24
Speaker 1: twelve years. How much can we draw from that in
2:27
Speaker 1: terms of the broader economic reach. Yeah, people are surprised
2:31
Speaker 1: by this data. It gets revived dramatically sometimes. So the
2:36
Speaker 1: reason we the reason new home sales are so strong
2:40
Speaker 1: today is we had a wicked upward revision to the
2:45
Speaker 1: September data a month ago. In other words, a month
2:48
Speaker 1: ago we thought there was a seven hundred one thousand
2:51
Speaker 1: new homes being purchased annual rate, now at seven d eight.
2:56
Speaker 1: So the difference is seven hundred thirty eight means we
3:00
Speaker 1: reached a twelve year high and we came off modestly
3:03
Speaker 1: so far. I mean, don't forget to put it in
3:05
Speaker 1: historical perspective. During the housing bubble years over a decade ago,
3:10
Speaker 1: new home sales were running easily above one point two
3:13
Speaker 1: million per year at an annual rate, and now we're
3:16
Speaker 1: back to seven thirty eight thousand. Still, you know, it
3:20
Speaker 1: does show you that, you know, the consumer confidence can't
3:24
Speaker 1: be that bad off if they're buying the most new
3:27
Speaker 1: homes that they have in roughly twelve years. So you know,
3:31
Speaker 1: it's very mixed data today, I would say the underlying
3:35
Speaker 1: data is not that bad for the economy. We don't
3:37
Speaker 1: want to question the economic outlook for next year yet. Trade, Chris,
3:42
Speaker 1: it looks like we're making some headway on global trade,
3:46
Speaker 1: maybe a Phase one deal. From an economics perspective, what
3:50
Speaker 1: would that mean to you? To get such a deal?
3:53
Speaker 1: That would be good? I mean there's two different things.
3:56
Speaker 1: There's kind of like the announcement, it's kind of like
3:58
Speaker 1: FED policy. There's the end anouncement effect of trade deals,
4:03
Speaker 1: which could affect you know, stock market levels and investor confidence.
4:09
Speaker 1: And you know, the trade war effect on the stock
4:11
Speaker 1: market is nil. I mean maybe some of that is
4:14
Speaker 1: are always hopeful for an agreement, but with the SMP
4:17
Speaker 1: five closing up year to date last night, uh, people
4:21
Speaker 1: aren't worried about the you know, the these news headlines,
4:26
Speaker 1: but um, yeah, it would be big because the way
4:29
Speaker 1: I would approach this is that our next big deadline
4:33
Speaker 1: is December. There there's potentially we're gonna put tariffs on
4:39
Speaker 1: the final tronch a hundred sixty billion of goods that
4:42
Speaker 1: consumers like, things like cell phones, laptop computers, video game consoles,
4:48
Speaker 1: So we'll see where that goes. The biggest effect for
4:51
Speaker 1: me is an economist, is if the five billion roughly
4:54
Speaker 1: imports from China a couple of years ago, if those
4:58
Speaker 1: imports all get terrif at, that would be a hit
5:03
Speaker 1: of almost one percentage point to GDP. So if you're
5:06
Speaker 1: looking for two percent GDP next year, I'd have to
5:10
Speaker 1: market down closer to simply if the Troy. But you know,
5:13
Speaker 1: we got to go to tariffs across the board and
5:16
Speaker 1: we're not We're not there, and it looks like we're
5:18
Speaker 1: not going to get there, so that would be good news.
5:20
Speaker 1: One of the big challenges over the past year has
5:22
Speaker 1: been deciphering what is simply a global economy that is
5:25
Speaker 1: slowing down, the heels of China's economy decelerating, and what
5:29
Speaker 1: is due to trade. And I think about Hewlett Packard's earnings,
5:32
Speaker 1: for example, we were talking about this with an entree
5:34
Speaker 1: of us in earlier this morning. He was talking about
5:37
Speaker 1: how capital expenditures when it comes to the cloud, when
5:40
Speaker 1: it comes to services, have been going down. I mean,
5:44
Speaker 1: do you take something from this that goes beyond just
5:47
Speaker 1: do we get some you know, prophylactic deal. Uh that
5:50
Speaker 1: that sort of gives a truce and allows people the
5:52
Speaker 1: confidence to go forward. Well, one of the things I'm
5:55
Speaker 1: a little bit worried about is that this slowdown and
5:58
Speaker 1: business investment isn't completely due to China. I mean, China
6:03
Speaker 1: obviously the tariffs on some of the imports for manufacturers
6:07
Speaker 1: here isn't great. Equipment has been slowing, but don't forget
6:10
Speaker 1: what twelve year. I mean, we're ten years over ten
6:13
Speaker 1: years into an economic expansion, and there still is a
6:16
Speaker 1: business cycle. A lot of this equipment that companies buy
6:19
Speaker 1: is very long live, so they're not going to come
6:21
Speaker 1: out and buy every single year a bunch of the
6:24
Speaker 1: new equipment. You know, they space it out every three,
6:27
Speaker 1: four or five years. So what if they've already bought
6:30
Speaker 1: the equipment they need given this ten year expansion. So
6:34
Speaker 1: we're already seeing data like durable goods orders not going
6:38
Speaker 1: up anymore, which tells me that companies have as much
6:41
Speaker 1: equipment as they need right now to meet the current
6:44
Speaker 1: demand for goods and services. So it's not just China,
6:47
Speaker 1: but it's complicated. It's complicated. We are kind of in
6:51
Speaker 1: an aging economic expansion where purchases should slow UM naturally,
6:58
Speaker 1: so Chris, just next thirty second, UM, given your economic outlook,
7:02
Speaker 1: do you think the FED. I guess the market's discounting
7:04
Speaker 1: one FED rate cut maybe in that September meeting. Is
7:06
Speaker 1: that consistent with your outlook? I don't want to talk
7:10
Speaker 1: about rate cuts. I don't think it does any good
7:13
Speaker 1: at this level. I mean, we're not yet at the
7:15
Speaker 1: level of negative rates like Japan and Europe, which did nothing.
7:19
Speaker 1: I think they've kind of turned the light switch on
7:22
Speaker 1: and off too many times for interest rates the Federal Reserve,
7:25
Speaker 1: and now they've kind of broken their tool. I don't
7:28
Speaker 1: think cutting rates from one point seven five is going
7:31
Speaker 1: to cause any US corporation to go out and spend
7:34
Speaker 1: more on equipment, buy new offices or warehouses. I think
7:39
Speaker 1: the days of the FED running to the riding to
7:41
Speaker 1: the rescue and cutting rates and boost and growth, it's
7:45
Speaker 1: just not going to happen. I would prefer with the
7:48
Speaker 1: baby boom generation retiring, that they keep rates where they are,
7:51
Speaker 1: if not move them up in the next couple of
7:53
Speaker 1: years a little bit. Chris russ Ruki, thanks so much
7:56
Speaker 1: for joining us. We appreciate your thoughts. Chris Rupkey, Managing
7:59
Speaker 1: director in chief Financial Economists for mu f G Union Bank,
8:02
Speaker 1: joining us on the phone time to check in with
8:19
Speaker 1: Bloomberg Opinion. We're joined by opinion columnist Marcus Ashworth. Marcus
8:23
Speaker 1: has a columns covering European markets for Bloomberg Opinion. He
8:26
Speaker 1: joins us from the London radio studio of Bloomberg. So, Marcus,
8:30
Speaker 1: we're getting close to the election. December twelve is the election.
8:33
Speaker 1: What if you could just give us an update on
8:35
Speaker 1: how things are playing out there? Ha, well, um, yeah,
8:42
Speaker 1: it's pretty straightforward. Uh, if you want to look it
8:45
Speaker 1: in the round, which is never easy because it's always
8:48
Speaker 1: a new um comment or lead story of some form.
8:53
Speaker 1: But the polls are pretty certain that the ruling Conservative
8:58
Speaker 1: party on the Boris Johnson will get a commanding majority
9:03
Speaker 1: which will enable them therefore to go ahead and probably
9:07
Speaker 1: before Christmas, complete the Brexit withdrawal bill passage, which will
9:13
Speaker 1: enable them to leave the European Union before the end
9:17
Speaker 1: of January and then indeed move forward to doing a
9:21
Speaker 1: trade deal and the transition period which they think will
9:24
Speaker 1: end before the end of about this time in a year. Now,
9:28
Speaker 1: that's the conventional view, and there's lots of other people
9:30
Speaker 1: out there who would love to see lots of different things,
9:33
Speaker 1: and of course all all elections can go wrong and
9:37
Speaker 1: things can change. We have two and a bit weeks
9:39
Speaker 1: to go, and we certainly saw this time in two
9:42
Speaker 1: years ago that they all went horribly, horribly wrong for
9:44
Speaker 1: the previous Conservative Prime Minister tresam May. But this is
9:49
Speaker 1: a much more careful campaign from Boris Johnson. He's been
9:55
Speaker 1: under wraps doing everything he should do. The manifesto has
9:59
Speaker 1: been understated. Uh, they flashed out the Labor Party very skillfully,
10:05
Speaker 1: I think, to expose himselves as this massive Marxist sort
10:10
Speaker 1: of spend spend spend, unbelievable amount of plans that they
10:14
Speaker 1: want to want to bring um, which doesn't scare that
10:18
Speaker 1: many people, it would seem. With that, you know, if
10:21
Speaker 1: you look at the polls, it seems the Labor Party
10:22
Speaker 1: of actually shifted up slightly from a rock bed off
10:27
Speaker 1: we said, up towards thirty maybe early thirties now, So
10:31
Speaker 1: there is still a chance um of of not a
10:34
Speaker 1: conservative majority, but it's a pretty slim one. So I'm
10:36
Speaker 1: wondering what enthusiasm is in terms of the expected turnout
10:41
Speaker 1: for the December twelfth election. Well, you look at two things.
10:44
Speaker 1: One is circled voter registrations have getting very excited about today,
10:48
Speaker 1: which is a three million people have signed up to vote.
10:52
Speaker 1: Sarcasm from you, because why are you being sarcastic about that?
10:56
Speaker 1: Because I've seen this all before so many times, and
10:59
Speaker 1: all the youth, uh you know vote youth quake which
11:03
Speaker 1: was came around last time. We actually analyze the numbers
11:05
Speaker 1: more of an old not turn up than a youth quake.
11:09
Speaker 1: And it's not so much the youth, it's the middle
11:12
Speaker 1: band of sort of perhaps twenty five or forty five
11:16
Speaker 1: who have turned substantially more to the left in the
11:20
Speaker 1: UK over the last few years. And whether they turn
11:23
Speaker 1: up or they just just disperse, Uh, it is uh
11:28
Speaker 1: the question this time around. But that there is a
11:31
Speaker 1: definite lifting inverter registration is always an excellent thing in
11:34
Speaker 1: any democracy. By definitionally we can't command you know, decent turnout.
11:40
Speaker 1: Then you don't really have a mandate. So I think that, um,
11:44
Speaker 1: whether these guys turn out, Um, traditionally you find the
11:48
Speaker 1: youth vote doesn't turn out quite so much. It was
11:50
Speaker 1: a nice rainy day on December twelve. Um, then you
11:54
Speaker 1: know we should see. But there's a lot of good
11:56
Speaker 1: things going about this campaign, a lot of bad things.
11:58
Speaker 1: I'm sure we we We saw some some pretty interesting
12:01
Speaker 1: comments from the UH chief Rabbi today. So there's a
12:06
Speaker 1: lot of a lot of invector coming into this campaign.
12:09
Speaker 1: Which is which is you know, making it a pretty
12:13
Speaker 1: seminal election. I think, Marcus, I want to turn into
12:15
Speaker 1: a columny. You were published today talking about all right,
12:18
Speaker 1: Brexit asidement. But if and when Boris Johnson wins the selection,
12:23
Speaker 1: how is he going to relate to the Bank of England. Well,
12:26
Speaker 1: you know, one has to feel for central bank is
12:28
Speaker 1: not not much really, but you know this time around,
12:31
Speaker 1: I mean I've been pretty harsh on Mark Karney for
12:35
Speaker 1: for getting involved in the Brexit debate, where I think
12:37
Speaker 1: he shouldn't have done. Nonetheless, he's been pretty good at
12:40
Speaker 1: modernizing the Bank of England. But the economy is evidently
12:45
Speaker 1: going into a bit of a little slamp here, as
12:47
Speaker 1: is Europe, as of the rest of the world is
12:49
Speaker 1: not as not sort of necessarily but you know, a
12:52
Speaker 1: little bit of Brexit push behind it. Um I think
12:55
Speaker 1: first quarter, second quarter next year are going to be
12:58
Speaker 1: close to zero. I think in the in the UK.
13:01
Speaker 1: And that's going to mean does the Bank having have
13:03
Speaker 1: to actually cut interest rates which would be seemed countertutive.
13:08
Speaker 1: Off or we're reading is that there is huge fiscal
13:11
Speaker 1: spending coming from you know, if labor gets in it's
13:14
Speaker 1: it's karamba, I mean the lift uplifts. Yeah, it is karamba.
13:20
Speaker 1: It is literally ridiculous. And of course it won't happen.
13:22
Speaker 1: One was they won't get elected to even they get
13:25
Speaker 1: later to the minority government, other parties will stop them.
13:27
Speaker 1: But nonetheless that there is even on the expected Conservative
13:32
Speaker 1: when there will be a very big uplifting in fiscal
13:34
Speaker 1: spelling from should say simply from a two percent of
13:37
Speaker 1: budget deficit ratiator GDP to a three percent. That's a
13:41
Speaker 1: fifty uplift on your fiscal rule. That's big numbers actually
13:46
Speaker 1: for what one off you know into a into a
13:49
Speaker 1: new government and that's going to be a big spend.
13:52
Speaker 1: But how does the bank having in the Central Bank
13:54
Speaker 1: handle that well, obviously you think they would not want
13:57
Speaker 1: to raise rates. The trouble is is a short term
14:00
Speaker 1: they may be fools to Marcus Ashworth, Thank you so much,
14:02
Speaker 1: Marcus Ashworth, Bloomberg Opinion columnist joining us from London. Note
14:06
Speaker 1: where those elections are going to be held in short
14:09
Speaker 1: order December twelve, and we will be abiding by a
14:13
Speaker 1: whole host of rules ahead of that, where they're sort
14:16
Speaker 1: of phased in periods where we can't talk about it,
14:18
Speaker 1: but now we can talk all about it. So have
14:20
Speaker 1: no fear we're gonna go Brexit crazy. Ahead of this
14:22
Speaker 1: Thanksgiving break, well, new home sales posted the best two
14:40
Speaker 1: months in more than twelve years, really giving us another
14:43
Speaker 1: data point that the housing market remains quite resilient in
14:47
Speaker 1: the world of extraordinarily low interest rates mortgage rates. Jeff Tylor,
14:51
Speaker 1: co founder managing director for Digital Risk, joins us on
14:54
Speaker 1: the phone. So Jeff, what do you make of these
14:56
Speaker 1: numbers regarding the US home market. Well, thank you so
15:01
Speaker 1: much for having me, Paul today, a pleasure to be here.
15:04
Speaker 1: If you look at this entire year, coming into twenty
15:06
Speaker 1: and nineteen, it was projected to be at one point
15:08
Speaker 1: six trillion residential um mortgage market for this year. We're
15:12
Speaker 1: coming out at the end of the year, we're gonna
15:14
Speaker 1: be somewhere around two point three, So, you know, a
15:17
Speaker 1: statement of the obvious, It's been absolutely incredible year. For
15:21
Speaker 1: the housing market, and a lot of it has been
15:22
Speaker 1: driven by the volatility and interest rates which are down
15:26
Speaker 1: close to over a point. So right now we see
15:28
Speaker 1: extremely strong housing market nationally for new home sales, existing
15:33
Speaker 1: home sales and expecting that to go into a very
15:35
Speaker 1: strong Also, how monolithic is the US housing market? And
15:39
Speaker 1: I wonder whether the gains that we're seeing are being
15:43
Speaker 1: driven by the sun Belt in places that have been
15:45
Speaker 1: incredibly popular for tax reasons and weather reasons, and we
15:48
Speaker 1: have not seen the same strength in other places. So
15:52
Speaker 1: I think it can very You make a very good point.
15:53
Speaker 1: I mean it real is it's always location, location, location,
15:56
Speaker 1: I think post tax reform, I still we are starting
15:59
Speaker 1: to see more significant gains in areas like like Florida
16:02
Speaker 1: and Texas if people look to to relocate. But still
16:05
Speaker 1: in the Northeast and the Midwest, we're still seeing strong
16:08
Speaker 1: incremental price increase and demand in the marketplace. So on
16:12
Speaker 1: a national level, we have a very, very very strong
16:16
Speaker 1: mortgage market and haven't seen much weakness anywhere at all.
16:20
Speaker 1: The only thing that we are continue to see sometimes
16:23
Speaker 1: is the supply and demand with the home builders are
16:26
Speaker 1: actually being able to build, you know, the first time
16:28
Speaker 1: first on homebuyers in that price point that they're looking for,
16:31
Speaker 1: somewhere in the two to four and a thousand all
16:33
Speaker 1: that range. So, Jeff, give us a sense of the
16:35
Speaker 1: mortgage market today compared to say, you know, prior to
16:39
Speaker 1: the financial crisis, when uh, you know, it got very
16:42
Speaker 1: easy on the credit side. Where are we today? Is
16:44
Speaker 1: it a healthy market? It is? And so one of
16:47
Speaker 1: the things that we do at the Risk is were
16:49
Speaker 1: the largest quality control provider in the countries. On top
16:51
Speaker 1: of originations, we have that lens. The defect rate, to
16:55
Speaker 1: give you perspective today is somewhere about a point of three.
16:58
Speaker 1: The underwriting standard, the products that are in the market
17:01
Speaker 1: place are solid, are extremely solid. So when people talk
17:05
Speaker 1: about we're going to have a housing crisis potentially in
17:08
Speaker 1: a couple of years, that's not the case at all.
17:10
Speaker 1: This is not a bubble. These are subtle, subtle, solid standards.
17:13
Speaker 1: Regulatory rules are in place, really are very focused on
17:17
Speaker 1: making sure that people who qualify for loans are loans
17:21
Speaker 1: that they can't afford and that they can pay for.
17:23
Speaker 1: So we're very very happy at the quality of the
17:25
Speaker 1: mortgage zones being done nationally. Yeah, that's something a lot
17:27
Speaker 1: of people have talked about that will stave off another crisis.
17:31
Speaker 1: At the same time, there's some pretty fundamental shifts in
17:33
Speaker 1: the way that loans are extended in terms of what
17:37
Speaker 1: you call an online data, social media, etcetera. In order
17:42
Speaker 1: to extend credit. Can you talk a little bit about
17:44
Speaker 1: how that's transforming the real estate market at a great point,
17:49
Speaker 1: and I could go a little broader, even the consumer
17:51
Speaker 1: lending and to your point, the way that that consumer
17:53
Speaker 1: loans are being made to the millennials and Generation Z.
17:57
Speaker 1: They're getting really really creative between I've called a combination
18:01
Speaker 1: of a consumer loan UM and a home eq we
18:04
Speaker 1: loan if you already have a house, and then the
18:06
Speaker 1: way that they're reaching out and you know, through this
18:09
Speaker 1: digital uh digital omni channels to be able to get
18:12
Speaker 1: the first time HomeBuyer is interested in potentially buying a house.
18:16
Speaker 1: So you know, things like all the advertising via social
18:20
Speaker 1: media being that's really driving a lot of people who
18:24
Speaker 1: may be still be renting and trying to give them
18:25
Speaker 1: a different way of thinking about how they would come
18:27
Speaker 1: into the how they would come into the housing market
18:30
Speaker 1: for the first time as their current rentors. On the
18:32
Speaker 1: flip side, there also has been a lot of advancement
18:34
Speaker 1: made when it comes to digitally pricing homes and moving
18:38
Speaker 1: away from just a human assessor that comes in and
18:40
Speaker 1: designates a value to your apartment in your house. Can
18:44
Speaker 1: you give us a sense of how much that's getting
18:46
Speaker 1: adopted in invaluation models, that's a great question. So specifically
18:52
Speaker 1: in big cities where you have a lot of comparable
18:54
Speaker 1: A d MS automation valuation models are very accurate and
18:58
Speaker 1: can be used a lot by banks, and especially if
19:00
Speaker 1: they're refinancing a house. So let's say that the house,
19:02
Speaker 1: maybe it was sold a year ago, but the interest
19:05
Speaker 1: rates drop a point, so they come back in and
19:07
Speaker 1: do an a v M. That's used quite a bit then.
19:10
Speaker 1: But again, when you get out more in the rural areas,
19:13
Speaker 1: a lot of times you still probably need some of
19:15
Speaker 1: that human input to make sure that you're getting the
19:18
Speaker 1: right price points that you're learning against because there's not
19:21
Speaker 1: as many comps. So the A v M models really
19:24
Speaker 1: I think work well in larger urban areas, but when
19:27
Speaker 1: you get into some of the more rural areas in
19:29
Speaker 1: the country, you still need a combination of the data
19:31
Speaker 1: and technology, but probably having a person to put an eyeball,
19:35
Speaker 1: set of eyeballs, toll that helps to make sure you
19:36
Speaker 1: have a right price point. So, Jeff, I know there
19:38
Speaker 1: was a narrative out there for a while the millennials
19:41
Speaker 1: and gen Z folks were not buying homes similar to
19:45
Speaker 1: maybe past generations. Is that still the case or is
19:48
Speaker 1: that evolving? It's evolving and we're actually starting to see
19:51
Speaker 1: millennials and gen Z, which is you know, as defined
19:54
Speaker 1: it's twenty four years old, starting to look to buy
19:57
Speaker 1: much more right now. And so what's driving that? Which
19:59
Speaker 1: drive it is you know, they're able to move, specially
20:02
Speaker 1: millennials are able to move into the suburbs and so
20:05
Speaker 1: they can actually find a house that they can afford.
20:08
Speaker 1: The different here, though, is the way the workforces in
20:10
Speaker 1: America are changing. Think about how many of us have
20:12
Speaker 1: the opportunity to work remotely from home. So if you
20:15
Speaker 1: can work remotely from home, now, all of a sudden,
20:18
Speaker 1: they're not thinking about that commute like our parents might have,
20:21
Speaker 1: you know, five days a week. If they can work
20:22
Speaker 1: three days remote now let's saying okay, I can work
20:25
Speaker 1: from home. I want to go live in the suburbs.
20:27
Speaker 1: I can afford this, And then on top of that,
20:30
Speaker 1: you're seeing a lot of smarter the developers putting together,
20:33
Speaker 1: as the term called hip hip Serbia, where they're putting
20:36
Speaker 1: together these communities in the areas that really kind of
20:39
Speaker 1: make it feel more like it's an urban area. So
20:42
Speaker 1: you've got, you know, walkable restaurants, you've got restaurants that
20:46
Speaker 1: you would have want, places you want to go out, bars,
20:48
Speaker 1: things that you can do in a very very nice,
20:51
Speaker 1: uh central locations. So that's driving people from renting and saying,
20:54
Speaker 1: you know what, we're gonna go ahead and we're gonna
20:57
Speaker 1: buy what's all those new again hip strip malls? All right?
21:00
Speaker 1: Like this, this is, this is It's been a phenomenal,
21:03
Speaker 1: phenomenal conversation. Jeff Taylor, co founder managing director at Digital Risk,
21:07
Speaker 1: joining us on the phone. Well, I think the market
21:22
Speaker 1: consensus seems to be that the US and China are
21:25
Speaker 1: inching along towards a trade negotiation, maybe a phase one
21:30
Speaker 1: type of trade dealer. Next guest isn't so sure. Kamal
21:33
Speaker 1: shri Kumar, president of Shri Kumar Global Strategies, good friend
21:37
Speaker 1: of the show, joins us on the phone from Santa Monica. Shree,
21:39
Speaker 1: thanks so much for joining US again. I know you've
21:42
Speaker 1: generally been cautious about the I guess the progress that's
21:47
Speaker 1: being made here between US and China. What's your current view? Uh,
21:51
Speaker 1: thank you for having me, Paul, And in terms of views,
21:55
Speaker 1: they haven't changed much at all. In terms of the
21:57
Speaker 1: last several months b c. These trade talks start and
22:02
Speaker 1: go on from about March at May two eighteen onwards,
22:07
Speaker 1: so we have been on for more than a year
22:09
Speaker 1: and a half. We have heard several times that progress
22:12
Speaker 1: is being made. We even heard we were imminently completely
22:16
Speaker 1: resolved with the accord, and then we have gone back
22:19
Speaker 1: every time, probably with a Trump tweet or with a
22:23
Speaker 1: with a different move or different camps within the Trump administration.
22:28
Speaker 1: I don't think this is any different. I think the
22:30
Speaker 1: basic problem is what the United States is demanding of
22:34
Speaker 1: the Chinese, namely in terms of protection of intellectual property rights,
22:39
Speaker 1: the ability to supervise that it is being done and
22:43
Speaker 1: to make sure that forced mergers don't take place. That
22:47
Speaker 1: is something it is going to be impossible for the
22:49
Speaker 1: Chinese to concede. So either President Trump declares victory and
22:54
Speaker 1: then comes away with whatever he has, or else does
22:58
Speaker 1: nothing happen. I think in either case, we are left
23:02
Speaker 1: with no complete accord before the November twenty twenty elections. Okay,
23:07
Speaker 1: so that's what a lot of people are actually saying
23:09
Speaker 1: that we're heading into with the best case scenario a
23:13
Speaker 1: removal or a lack of implementation of the December tariffs
23:16
Speaker 1: that would hit some of the consumer products in the
23:18
Speaker 1: United States more extremely and just sort of a sense
23:22
Speaker 1: that we're on hold here given that backdrop, let's make
23:26
Speaker 1: that assumption. What does that mean in terms of the
23:29
Speaker 1: effect on growth. Is it just sort of all systems
23:31
Speaker 1: to go, everything is set to rally in given that, Lisa, Then,
23:37
Speaker 1: as far as the US reaction to it is concerned, though,
23:41
Speaker 1: the equity markets, which went up in anticipation of something
23:45
Speaker 1: being reached once it is clear that there will be
23:48
Speaker 1: nothing for another year to day back off because the
23:52
Speaker 1: discounting of the trade accord is one part of the
23:55
Speaker 1: equity run up. Second thing, the uncertainty for capital spending
24:00
Speaker 1: in the United States, which has affected a capital spending
24:03
Speaker 1: in recent quarters, is not going to go away, especially
24:07
Speaker 1: with the trade uncertainty continuing. Third, we are finding out
24:12
Speaker 1: that global trade has has slowed significantly based on numbers
24:17
Speaker 1: which were released in the last couple of days, and
24:20
Speaker 1: that too said just to me, that is going to
24:22
Speaker 1: go hand in hand with slower global growth. And so
24:27
Speaker 1: my expectations still continues to be, Lisa, that we go
24:31
Speaker 1: into a recession starting about the middle of twenty twenty
24:35
Speaker 1: in the United States and global growth being significantly slower
24:39
Speaker 1: than in the past. So the Hong Kong situation is
24:44
Speaker 1: making it presumably much more difficult on the trade front,
24:47
Speaker 1: even though, uh, you know, there's talk that maybe they're
24:50
Speaker 1: trying to keep separate parallel paths there. How do you
24:53
Speaker 1: think the two are intertwined. The two are very intertwined.
24:58
Speaker 1: Whatever they say, whatever, the two side may come out
25:00
Speaker 1: and say, I don't think they can keep them apart.
25:03
Speaker 1: And the reason is, let's assume that we have some
25:07
Speaker 1: form of a tentative trade accord in the next few days,
25:10
Speaker 1: and then the Hong Kong protests continue and the Chinese
25:14
Speaker 1: forces in turn are sent across the water into Hong
25:18
Speaker 1: Kong from the mainland in order to put down the demonstration.
25:21
Speaker 1: Then all bets are off. Hong Kong loses its special
25:24
Speaker 1: trade privileges according to US Congress determination in the next
25:30
Speaker 1: ten days. In fact, only a week left for the
25:33
Speaker 1: President to decide whether he's going to sign off on
25:36
Speaker 1: the Hong Kong Support Bill, which passed unanimously in the
25:40
Speaker 1: U S. Senate and with only one descent in the U. S. House.
25:44
Speaker 1: Is if he does not do anything, it becomes law
25:46
Speaker 1: at the passage of ten days, and that's not going
25:49
Speaker 1: to please the Chinese all putting it all together, even
25:53
Speaker 1: if you announce an accord, it doesn't get implemented or
25:57
Speaker 1: there is. There are a few tweets essentially backing off
26:00
Speaker 1: from the accord after that. So I think they are
26:02
Speaker 1: very closely intertwined, and I see no easy resolution to
26:07
Speaker 1: the Hong Kong situation. You cannot let the protests continue
26:11
Speaker 1: indefinitely because that in turn gives a signal to minority
26:15
Speaker 1: groups on the mainland that it's okay to do so.
26:18
Speaker 1: On the other hand, if it is put down violently,
26:21
Speaker 1: that wouldn't go well with the US Congress. Even if
26:25
Speaker 1: President Trump may tolerate it, US Congress is not going
26:28
Speaker 1: to So you have growing unrest in Hong Kong and
26:30
Speaker 1: the questions about what the international response is going to
26:33
Speaker 1: be in terms of toward Beijing. Those tensions rising US
26:37
Speaker 1: China not getting necessarily closer to any kind of real
26:40
Speaker 1: trade deal. The idea of that actually solidifying seems somewhat
26:44
Speaker 1: more remote now than I did, say, twelve or eighteen
26:47
Speaker 1: months ago. So by stocks um by stocks in the setup, no,
26:53
Speaker 1: I would say this is this is not a good
26:55
Speaker 1: scenario for buying stocks at all. Right, Well, so that's
26:58
Speaker 1: that's actually I mean that that's counterintuitive. And the reason
27:01
Speaker 1: why I said that is because everyone comes on and says, well,
27:04
Speaker 1: there bearish, there, there bulls on risk heading into the
27:07
Speaker 1: first half of I'm not bullish on risk coming into
27:12
Speaker 1: twenty twenty. I see the fourth quarter. We have already
27:15
Speaker 1: seen the Federal Reserve Bank of Atlanta looking for something
27:19
Speaker 1: like a half a percent growth. This is much slower
27:22
Speaker 1: than earlier quarters. We are going as we today we
27:25
Speaker 1: found out that the U S. Consumer confidence number is
27:28
Speaker 1: down for the fourth month in a row. You're going
27:31
Speaker 1: to go into twenty twenty and if a LISA on
27:34
Speaker 1: top of all this, you're going to add trade uncertainty.
27:37
Speaker 1: I don't see how risk sets are benefiting. Lastly, look
27:41
Speaker 1: at the signal from the U. S. Treasury market in
27:44
Speaker 1: the last couple of days, even as the equities have rallied,
27:48
Speaker 1: Treasury yields have come down, and if you look back
27:52
Speaker 1: at past recessions, particularly the two thousand seven two nine recession,
27:57
Speaker 1: the bond market was a very act. You're predictor of
28:01
Speaker 1: the recession to come and the equities who are rallying
28:04
Speaker 1: eight months into the recession, so you have to see
28:08
Speaker 1: which signal you're going to take. It is possible that
28:11
Speaker 1: equity investors will still hold on in the first part
28:14
Speaker 1: of twenty twenty, in which case I think disappointment will
28:17
Speaker 1: come more like mid to late twenty twenty. Kamal Street Kumar,
28:21
Speaker 1: thank you so much for being with us. Of three
28:24
Speaker 1: Kumar Global Strategies, President of the company. Thanks for listening
28:29
Speaker 1: to the Bloomberg Penl podcast. You can subscribe and listen
28:31
Speaker 1: to interviews at Apple Podcasts or whatever podcast platform you prefer.
28:35
Speaker 1: I'm Paul Sweeney. I'm on Twitter at pt Sweeney and
28:38
Speaker 1: Lisa Bramwo It's I'm on Twitter at Lisa A. Bramo.
28:40
Speaker 1: It's one before the podcast. You can always catch us worldwide.
28:43
Speaker 1: I'm Bloomberg Radio