Cumberland's Mousseau on Munis: Cautions on Storm Preparedness

now lower by two points. Little change there. The SMP five hundred index down two points, a drop of one tenth of one percent. The tenure of five thirty seconds, with the yield there of one point five six percent. Gold up six twenty fourteen, a gain of five tenths of one percent. And crude oil West Texas Intermediate down a dollar eighteen of row forty three fifty two, a drop today of two point six percent. I'm Charlie Pellett,

and that's a Bloomberg Business Flash. You're listening to Taking Stock with Pim Box and Kathleen Hayes on Bloomberg Radio. I'm Kathleen Hayes. My Carl was Pim Fox on vacation. For Pim, he's not live here with me at the US Tennis Open Blushing Meadows, Corona Park. Queen's love coming out here every year for many reasons. It's an exciting event. Uh tennis has become quite a passion having come out

here so many times. And also the interesting people that show up, not just tennis players, are people like Nick Bolletieri, who is one of the people who really created this whole tradition and business of coaching great champion tennis players. It's the people who come from places like Complent Advisors, people who love the markets and also love tennis just like we do. We're very happy to welcome back to our special US Open show. John mus So, Executive vice president,

director of Fixed Income at Cumberland Advisors. Welcome back, Kathleen. It is great to be here, and it's not writing on us now. It's stopped raining, so all things are going to be going. I think we're gonna ask our boss for a retractable roof for our our tennis broadcasts out here, or at least three more ft of roof. There you go, a free more feet of roof. But let's First of all, let's get to the bond market. You know, we got the weaker I s M manufacturing

report today, but the big jobs report tomorrow. I think the markets everybody kind of shrugged off I s M because the focus is still so strong on jobs. For the bond market, okay, which has been in a very tight range, still a lot of people bullish though, waiting to rally more if the economy looks weak, vultable maybe to a strong What what's the bond market looking for. I think the bond market is looking really at two things, Kathleen. It is looking at the fact that there is strength here.

We've seen it in better wage numbers, better labor participation rate, uh, low growth, dropping unemployment. And if you look since the end of June, it would reflect that the third year bond is essentially where it is, maybe a basis point lower. Every other point in the bond market is actually a little higher, not dramatically higher, but higher since the end of So I think we're expecting to FED to raise rates at least once and maybe the lunatic fringe out there,

maybe even twice, the lunatic fringe. So what kind of report tomorrow would the lumber consensus surveys for a hundred seventies seven thousand. The previous month was like two thousand the other one before that, but then the May report was very weak. So what kind of number would make bond traders like buy bonds like crazy because it wasn't strong enough, or just start selling off because it's it's

too strong. I think unless you get an exceptionally weak number, I think you're just gonna see more of the same range bound, slow drift up in short term rates. And and remember there's other things pointing in the short term interest rate market as you head into the middle of October, and the change in net esset value pricing of leney market funds that has the short term bond markets um

a little off. Okay, Now, when you look at who's buying bonds right now, we know a lot of UH global investors because when they look at their own sovereign bonds, their own government bonds, their wheels are lower than here, or they're even negative. Is that going to continue? I

think we're bottoming out. I think people have seen some of the dangers of negative interest rates, not necessarily here in the US, but if you looked in Japan and went back about a month ago, a little less than a month ago, you had a small period of about seven days where the thirty year government bond rose from point oh five to point forty five. That doesn't sound like much, but your durations are so long at those low levels that the change in the price was about

twelve points. There's a lot of volatility there at very low interest rates, and I think that's scared some people. And I think you've seen rates rise a little bit since then. Is is this going to be a world? But let let's say we know the federals are will probably raise rates. We don't know. That's what it sounds like. Don't one interest rate increases You said most likely one month was saying to sound birth. But the hiked one rates once a year ago. I mean the pace so far.

When they talk about gradual when we get one interest rate increase a year, that's that's the most gradualist path I've ever seen in my life. One of the points that you can make is the fact that here you are with a ten year government bond at a little over one and a half and yet a core trailing core CPI that's about two point two and went above two percent a few months ago, and the States stubbornly

there unless the forces that start forcing inflation down. You know that if you're in a FED hike cycle, whether it's slow or medium, eventually some longer term rates rise to reflect where inflation actually is. So what's the strategy right now, Cumberland advises John Mauseill. You've been doing this for many years. You have clients who want you to make money for them, a lot of them investing in bonds.

What's the bond strategy right now. The bond strategy at Cumberland is we have, for the first time in a few years, started to rain in duration. Uh, take some profits off the table. We do it with a barbell strategy where we own some longer securities and shorter securities. And this manute may mention, the long term meals haven't really moved much. That's that's really been an anchor point. And the idea is to have more ammunition. Uh. This isn't a prediction, but one thing that might keep us

up at night. When we saw what happened with the Japanese bond market. If you look at all the develop bond markets, Germany, France, England, US, Japan. If they all caught a cold at once, if would not be a pretty trade. Certainly wouldn't. When you think of what's the biggest risk right now? The outlook that the UK data came in surprisingly strong today. We've had a number of members you keep waiting for Brexit to oh, no confidence, We're not gonna buy anything, We're not going to invest

in anything, and instead they're holding up quite nicely. What is the risk right now? The outlook? I think the risk is if you're talking about Britain specifically, it is less than that forecast by a lot of people. Um. I like to think of what's going on in Britain as they voted to go from full country club membership to a social membership, and I think economically they're gonna be okay. Might be a little bit of a downdraft,

but they will be fine. You guys watching the b O J Bank of Japan, whether or not it stimulates more right now, it seems like the Bank of Japan's profile and among investors has gotten a lot higher. Is people wait to see boy then to make their negative rates more negative? Are they going to buy more? E

T s hold more equities. I think if they're gonna go on a route of more stimulus, you're going to see them buy more things other than by So think about reeds, think about et F, think about the S and P in this country, and I think that's that's their route. I think they've seen some of the volatility of zero interest rates, and I think they're gonna level off on the bond side already. What keeps you up most at night chong on specifically on the municipal side,

do you worry about pensions? We see some slow, slow progress us, but it is slow. Specifically, you look at things that are going on in the Gulf of Mexico with the storm, and you worry about municipalities preparedness are You look at the state like Louisiana, where uh, they're already battling problems from the floods. Financially, they're in tough shape because of the drop in the price at oil and the fact that they get rid of a billion dollar budget surplus. And you hope that you don't look

at this. You go into the end of the hurricane season, they get hit with a Category three or four hurricane, which could really cause damage for a state that's not financially prepared well, certainly here for the U S Tennis Association, they've done a trific job financing all this expansion they're doing, and the and the real the big one this year. The star is this retractable group which Rock and the doll usual last guy Andy Murray. Uh. They easily sold

all the finance they needed to do that. Um. What about the importance of the U S open to you as a tennis fan? You know what it means to you is someone who's watched it is forever and I been coming for thirty five years. Um. I started coming in and I was about twenty four years old. It is a great thing, not only for the New York

area but for tennis fans in the United States. It is our national championship, but it is a particularly New York event, and they've embraced that and every year they make it better without having to be asked to make it better. This year it's the roof, and it's the new, brand new grandstand, a fabulous place to watch tennis. And so I think that the net result is you should

go for the next few years. You're gonna see two thousand seven or eight thousand more fans a day coming in here, and if that promotes the growth of tennis nationwide, so much the better. Would you buy more bonds from to finance out here if you were advising your clients, says it? Or is that where your love for tennis stops? No? No, No, It's funny because you can distinguish we're not a big fans of stadiums and arena bonds that are back because a lot of times the public is paying for them. Here.

If you look time the last time and they financed the Arthur Ash Stating, which is early twenty years ago, they did it with bonds that were insured and they were backed by future television revenues. They could do that again if you put another roof on what will become the new Louis Armstrong. So um, you know, if you look at the growth numbers here, you would like the coverage rations that would provide. Okay, final question, who are you rooting for on the men's side. On the men's side,

I think you're gonna see Stanford Ranca. Uh. You know, he's got two majors under his belt and he'd like to have a US open. And on the women's side, I think you're gonna see Angela Carber. That'll nail her second major for the year. Wow, beating Serena. Correct? All right, Jonas, So thanks so much. Thanks Kathleen Stark Bonds talking fed, talking job support, talking about how very efficient this US Tennis Association has been with its financing using municipal bonds,

which of course come in. Advisors is very well known for their their investments and management of municipal bond funds and money for so so many years. John must thank you for joining us. He is Director of Fixed In at Cumberland Advisors. I'm Kathleen Hayes, alive at the US Open, and this is Bloomberg perfectly