Diane Swonk Sees U.S. Election Driving Bond Prices Lower(Audio)

four percent. Down Industrials dropping one hundred ninety six points and decline there of one point one percent, SMP five hundred index down sixteen the drop of eight tenths of one percent, and as stack is down seven tenths of one percent. Gold up thirteen thirty ounce to twelve seventy eight again there of one point one percent. Crude oil up a dollar forty seven and barrel forty six twelve. Right now again they're a three point three percent. I'm

Charlie Paloton. That's a Bloomberg Business Flash. Bloom or jaking stock. The FED in focus infest rates start too low for where the economy is going. The question is how much higher should they be? The FED has increased the fast yes, and in doing so, it has increased its liability. Keeping interest rates at zero for a long time is not going to cause inflation to go up. It's very controversial. I think what we need to do is find a way for the FED to integrate its policy and think

more about its impact on the world. The Fed, in focus on Bloomberg Radio, Better Reserve, are they going to raise interest rates in June? Or will market bets be right again? It will the Fed perhaps not raise rates until the end of the year. If then, this is the question on the market's mind and so many investors minds as well. To grapple with it, to look at the ECO data, to look at some recent comments from feder Reserve officials, including on this program. We're very happy

to welcome back to the show Diane Swank. She's founder of Diane Swank Economics based in Chicago. However, joining us today from our bureau in Washington, d C. Home of Bloomberg Point One. Welcome Diane. Good to be here so Washington, d c. Uh. Certainly the debate continues there as well. But in your mind, when you look at the probability of a FED rate hike, as reflected in the FED Funds futures contract, almost no chance the Fed moves in June.

And yet we have spoken recently to a couple of FED officials who certainly kept the door open to that possibility, including John Williams, President of San Francisco FED, just last week. This is the issues that we're still seeing, this break between, you know, within the FED about what they want to do. Clearly, carry Yelln has to corral the cats. She was able to do that to some extent at the last meeting, but there really is no clear direction on signaling from

the Fed. And I think that's why you're seeing the financial markets because of this dissonance, financial markets not pricing it in. And as much as I think it would be advantageous for the Fed to move in June, I also think that um the financial markets have been more right than the Fed at forecasting their own rate hikes. Diane Swanks will continue along on that thought. And if an investor is not necessarily concerned about the push and pull at the Federal Reserve but wants to concentrate on

making money in stocks, where would you suggest they look? Well, you know, I'm not an advisor on stocks, But you know, winners and losers in the US economy. I think what we're looking at is, even though we've seen some bad news from retailers, we also are seeing retailers that are going bankrupt. There's a restructuring in the retail sector. That

doesn't mean the consumer is anywhere near dead. In fact, we know that some of the consumer data from the first quarter was underestimated because of the way we account for the retail sales data. We look at retail sales by type of retailer, not by what they sell. And in fact, in January and February, when gas prices were plummeting at the pump, places like Walmart, Sam's Club, Cost Club, which sell gasoline, also saw softening and retail sales. But

it isn't actual softening. It was the prices of gas going down while people were spending more money inside the stores. So there really is a lot of noise out there in the data as well, which makes it really hard to get through this period in terms of finding winners and losers. I do think a key issue going forward, particularly from manufacturing beyond the retail sector. I think the consumer is going to still continue to spend. The question is where and beyond the retail sector is a strong

dollar and how will that affect manufacturing? Manufacturing looks like it's bottoming out there, but we still got a long way to go. When you're at the bottom of a barrel of oil, you've still got to climb your way out. Is it possible that some have said that the the markets are underestimating the FEDER reserves resolved. And if you take, for example, the fact the Fed in December raise its key rate the first time since two thousand and six, when in one of its key metrics inflation was far

from target. Does that is that perhaps a sign that, you know, guess what they could move in June because they're nervous about keeping the key rates so low and as they keep say is John william said in San Francisco last week, this is normalizing rates. Isn't necessarily tightening exactly, And I think that's one of the issues that's still very hard. Our markets operate in black and white. As the rates going up, by the rates going down, that's

not necessarily tightening or easin. It's less easy money. And stan Fisher has gone to great lengths to try to explain this saying, listen, we're trying to um ease up on the accelerator. We're not hitting the brake. And I think that's a subtlety that's getting lost in translation. Although the Feds of one doing the translation, so let's let's

face it, they're not giving the right message. I think it's also important though, that you know the break within the FED between the sort of more hawkish, say Vice Chairman Stan Fisher and Janet Yellen, who's not necessarily not hawkish, but she really does see She's a veteran in the nineties and she sees this opportunity to sort of overshoot unemployment.

She's seen the participation rate coming up, and she sees that ability that if you overshoot in a low inflation environment and over stimulate perhaps a bit, you might actually re engage all of these workers that we sort of thought could never even re enter the labor force back in the nineties. All he needed was a pulse to get a job. That's something we're far from right now, but to think that you could even get a little bit closer to that is something that I think is

enticing to her. Diana wonder if you have any thoughts about the automobile industry in the United States, and maybe then we'll talk about housing. But automobiles have been important for the economic recovery. Yeah, you know automobile. I'm from Detroit. I used to be an auto analyst. I grew up in the auto industry. It's like, you know, on only my blood. So you can take the girl out of Detroit,

you can't take the Detroit out of the girl. I know. Um, Tom King's always getting me on the auto industry as well, but you know, I mean, the issue is on autos is what's feeling the sales, And what worries me is the run up in two things right now, not only sub prime lending, which um, the auto industry got a way run when they got restructured, they were the ones to continue so prime lending, which helped to support vehicle sales. And we did have really strong vehicle sales snap back

in the month of April. But also we're seeing least sales pick up. And these are many of the problems that got the auto industry into it's um sort of racist in the first place. Beyond what was tied to the subprime mortgage crisis up until about two thousand and five. Many people who were up through two thousand and five a lot of home equity lines of credit. We're not just going to pay for homes and refinance homes and pay for mortgages. They're also going to pay for cars.

And then of course car sales collapsed as the equity market in housing collapse. I think I think the auto industry is being a little precarious with how they're juicing sales at the moment. We're going to continue the conversation with Diane Swank, the founder of Diane Swank Economics, more on the Federal Reserve and more on what the U s economy means for the direction of stock prices and bond fields. That's next on taking stock? Is the dollar

slump over Goldman Sachs says it is. Does the Federal Reserve play a role on? How about that Bank of England needing tomorrow? We're gonna look at all these questions coming up on Bloomberg Radio Broadcasting Live to New York, Bloomberg eleventh, Brio to Washington, d C. Bloomberg to Boston, Bloomberg twelve hundred to San Francisco, Bloomberg nine to the Country Series Exam General one nineteen and around the globe the Bloomberg Radio plus NAP and Bloomberg Got Gone Zeus

is taking stock. I'm Kathleen Hayes, along with Pim Fox, the Federal Reserve in focus, along with the Bank of England and the European Central Bank of Central Banks run out of bullets at the economy? Does falter in the U S? And globally We'll be asking Diane Swamp answer that question and more yes. And also coming up, we'll take a look at the impeachment of the President of Brazil, Tilma Russef. We've got Raymond Collett, Bloomberg Bureau Chief in Brazilia.

He'll be joining us later on in the program, but right now, let's go to Charlie Pellett in the Bloomberg news room for a Bloomberg Business Flat and I thank you, Pim Fox, Thank you, Kathleen Hayes. The dial the SMP nez dak all declining. We are brought to you by

Van Eck Vector's e t fs. Expect more from your muni's target tax exempt income by maturity and credit quality, all with low cost e t f s. Visit Van eck dot com slash Muni van Eck access the opportunities stocks are slipping after the biggest gain in two months, as disappointing results from Disney and Macy's raised outs about the strength of the U. S. Consumer oil rose after an unexpected drop in inventories. The dollar fell, crewed up

a dollar fifty one of barrel seventeen. Now again there of three point four percent, Gold up twelve seventy the ounce advancing one percent to twelve seventy seven. Fifty Billionaire hedge fund manager Paul Singer says Gold's best quarter in thirty years probably just the beginning of a rebound. Bob Iachino is with Path Trading Partners in Chicago, when you look at the fundamental picture of the FED losing credibility,

global central banks continuing to have that pressure. We saw industrial production in Germany and France disappoint last week, and we're seeing now that in the same period of time from about December third of last year, the dollar index fell about six and a half percent. Gold is almost twenty two percent. So if you expect a couple more percentage points lower, if you expect the FEDS path to be a little more dovish, you can expect another large

rising gold. Fossil Group shares plummeting to the lowest price in more than six years after the watchmakers slashed its full year earnings forecast. Shares now down by twenty eight point nine percent, the SMP down fifteen, a drop of seven tenths of one percent to thirty two on Wall Street. Now we'll look at other news from around the world. On Bloomberg Radio, Charlie, Thank you from the Bloomberg news

Room by Mark Crumpton. House Speaker Paul Ryan says the Republican Party needs to come together to defeat likely Democratic presidential nominee Hillary Clinton in November. To pretend where unified as a party after coming through a very bruising primary which just ended like a week ago. Um to pretend reunified without actually unifying, then we go into the fall at half strength. Speaker Ryan meets with presumptive GOP presidential

nominee Donald Trump in Washington tomorrow. At BI director James Comey is speaking out on the investigation into the private email server account that Hillary Clinton used when she was Secretary of State. Director Comey told reporters quote, I remained close to that investigation to ensure that it's done well and has the resources it needs. End quote. ABC News reported last week the FBI was seeking to interview Secretary Clinton soon, but a Clinton spokesman says she hasn't received

an invitation from the FBI to answer questions. In Italy, the Lower Chamber of Deputies has voted to grant legal recognition to civil unions. The bill pass three sixty to one. The legislation stopped short of authorizing gay marriage, but it's significant because Italy was the last holdout in Western Europe to extend some rights to gay couples. A new right to Die bill has been introduced to New York's legislature. It would allow terminally ill patients to request life ending

drugs from a physician. The proposal would require two doctors to certify that the patient's illness is in fact terminal. Global News twenty four hours a day, powered by our two hundred journalists in more than one hundred fifty news bureaus around the world. From the Bloomberg News Room, I'm Mark Crumpton, Charlie, and we thank you and again recapping

a move law for US equities. Right now the SMP down fifteen points to two thousand sixty nine to drop seven tenths of one percent, ten year up nine thirty seconds. The yield there one point seven to I'm Charlie Palatine. That sub Bloomberg Business Flash. The FED in Focus on Taking Stock is brought to you by Commonwealth Financial Network. When it's time to change the conversation, talk with a broker dealer r I A that's ready to listen called eight six six four six two three six three eight,

or visit Commonwealth dot com to learn more. Is taking Stock the FED in Focus on bloom Bird Radio joining us now as Dianne Swank, founder of Dianne Swank Economics. Diane, just to continue the conversation, I know that we were talking about the automobile industry. Tell us your thoughts about the housing industry in the United States. You know, this is really an interesting area where we've got prices going up very rapidly because demand is outstripping supply and what's

still a tepid overall market. Some of the supply problems we're finding our very structural in nature. Um, what we've seen is at the local level, in particular in more urban areas and in close by suburbs. Many cash stat strapped municipalities have raised fees and all the costs of the land for builders to build in order to make up for the shortfall they felt in real estate revenues

during the height of the crisis. The result has made it really hard for builders to move downstream and build more product for entry level for a time buyers, and as a result, they've stayed higher in the market which is really constrained supply. We also have seen the South not really come back at which is the driver of housing starts and the real activity out there, and that's really Florida has been sort of a laggered. It was

the epicenter of the subprime crisis. Some of those markets are starting to finally firm, and I do think that will help. But you really got an issue where housing is actually very constrained and the result is showing up in price, and the prices are going up much more rapidly than incomes and eroding some affordability even at a time when housing and interest rates are still relatively affordable.

I think these are real issues we need to sort of look at because that housing price appreciation is also going to show up in some of the measurements of inflation as well. Diane, Why are bond yields staying soul below? Is it because investors around the world. Number one, they're saying, oh, we can get some yield in the US, which we can't get almost any place else. Our investors saying, oh the economy is weak. Are they saying, well, the FED

is going to move but so slowly. I might as well keep my money and bonds because that's the main reason you've got these terrific mortgage rates, and a lot of people are refining now. It's it's really stunning, isn't that. I mean one seven on a on a tenure. And I laugh because you know, we we've all been I've been humbled more than once by my own forecast that bonnield should rise at some point in time, and it's like waiting for the good Oh um. I think all

of the above is really important. You know, the seek for yield. The US is a safe return. And if you don't think inflation is high, and think about you know, in other countries where you've got inflation much lower than the US and the risk of deflation still there, it looks pretty good to get one seven on the tenure. So I think all of these factors are coming into play.

I also think they're really you know, there is a sort of reluctance to believe the FED will raise rates, and that's because the FED has not been consistent in their message. There really is a credibility issue here. There's a communication issue here, and you know that's sort of a residual of the transparency that we saw come under Ben Berniky. He really felt that everyone should see the spectrum of debate and instead, you know, we see the sausage getting made and we don't really like the blood

and everything that goes with it. Dian, who is going to take the loss on bonds? You mentioned the tenure right now at one point seven two. If you were to buy that, or if you're in an institution and you're gonna buy it to trade it, someone's going to have to be on the other side of the trade when you finally sell it. Is everyone going to rush to the exit at the same time and we're gonna have a bond collapse? Um? Well, you know who knows. I mean that we do tend to have big movements

and bonds. My biggest concerned about the bond market is actually depending on what happens in November, we are really under pricing political risk out there, and that could be a turning point um as we finally we're not pricing in political risk or policy risk because there's still many, so many uncertainties out there, and the marketing bond prices could rally. I actually think they could go. They could go the other direction. But if you have political risk,

woulden people buy US treasuries? Political risk in the US? I see, and I think there's we uh, there's other those over saying that if you look at the global forces, they are still more disinflationary and even deflationary, and that in fact p M. You may recall just a couple of weeks ago, we had David kotok On from Cumblent Advisors and we were looking at Europe. He's predicting that you're going to have very low inflation and very low and even some negag rates in Europe till the end

of the decade. And he said that is going to support these yields and prices on US treasuries and we could see a further rally. What do you think, Well, you know. I mean, um, there certainly is a possibility for a further rail and we can't roll it out. Um. One of the things that I think we're gonna have to see is whether or not we get a snap back and growth. I do think the GDP numbers, we've got to deal with the disconnectre syne unemployment data versus

the overall GDP data. Is productivity growth? Really that week, if it is, any acceleration in wages would be dry tinder for some inflation. I don't think that's necessarily the case, but I do think that reality is somewhere in between the GDP figures, which were you know, a point five percent in the first quarter, and the employment data, which was much stronger. So I think my own sense is that we will see a bit of a snap back in growth. The question is what happens when we get

to the elections. Because it used to just be noise. And here I am sitting in Washington and it used to just be noise to us as an economist. But the policy risks of trade protective protectionism, of tariffs, increasing, of immigration, you know, being even further cut back, all of those things undermine growth. There's sort of a misconnect, a disconnect between correlation and causality. The globalization of the U. S. Economy was gonna kernel matter what the problem is, many

people were sidelined by that globalization. We just didn't prepare them for the operating in a global economy, that the skills they needed to earn what they needed to earn cancel. I love that new word you just made, misconnect a misconnect. I'm gonna tweet that out. Diane Swonk is founder of Diane Swonk Economics, joining us from Washington, d C. Today to put the feeder Reserve in focus on Kathleen has Long.

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