Economy, UK Election, Home Sales

We've got to read today the consumer confidence in the US declined for a fourth straight month. The big question in my mind is are we seeing a sort of reversal where the consumer starts to sort of become less confident and less uh profligate when it's with its spending while Wall Street gets more excited about stock prices. Chris Rupkei, Managing director in chief financial economist at m UFG Union Bank joining us. Now, what do you make of this,

this waning consumer confidence? Yeah, it's interesting because don't forget there's two separate measures, and uh, the Michigan survey of consumers sent mint as opposed to confidence more or less the same. Uh, it's come back quite a bit. So it was down in the dumps in August when the stock market had that turmoil and purchasing managers said manufacturing was in a recession. Uh. That consumer confidence measure has come back and doesn't look as worrisome as the one

that came out today. So it's a bit of a mixed bag here. Yeah, it's Chris. We also have the again the housing data that come in very strong. Are you still confident that this consumer can continue to support this economy through well, so far, so good. We'll get another look at how many jobs are being created, uh next Friday. So that's really as long as it's not just what consumers or workers are spending, it's also how

many new workers are being added each year. And right now the jobs reports you know, running about a hundred thirty thousand per month of new jobs. Those are going to be new consumers that will spend uh the economy, will you know, spend dollars that helps the economy grow. But yeah, we are. It is interesting real GDP numbers have come down the estimates for the fourth quarter, so we'll see how that all plays out. So I want

to shift gears a little bit too. The housing market We've got a couple of better than expected data points out this morning showing that new home sales in the United States posted their best two months and more than twelve years. How much can we draw from that in terms of the broader economic reach. Yeah, people are surprised by this data. It gets revived dramatically sometimes. So the reason we the reason new home sales are so strong today is we had a wicked upward revision to the

September data a month ago. In other words, a month ago we thought there was a seven hundred one thousand new homes being purchased annual rate, now at seven d eight. So the difference is seven hundred thirty eight means we reached a twelve year high and we came off modestly so far. I mean, don't forget to put it in historical perspective. During the housing bubble years over a decade ago, new home sales were running easily above one point two million per year at an annual rate, and now we're

back to seven thirty eight thousand. Still, you know, it does show you that, you know, the consumer confidence can't be that bad off if they're buying the most new homes that they have in roughly twelve years. So you know, it's very mixed data today, I would say the underlying data is not that bad for the economy. We don't want to question the economic outlook for next year yet. Trade, Chris, it looks like we're making some headway on global trade,

maybe a Phase one deal. From an economics perspective, what would that mean to you? To get such a deal? That would be good? I mean there's two different things. There's kind of like the announcement, it's kind of like FED policy. There's the end anouncement effect of trade deals, which could affect you know, stock market levels and investor confidence. And you know, the trade war effect on the stock

market is nil. I mean maybe some of that is are always hopeful for an agreement, but with the SMP five closing up year to date last night, uh, people aren't worried about the you know, the these news headlines, but um, yeah, it would be big because the way I would approach this is that our next big deadline

is December. There there's potentially we're gonna put tariffs on the final tronch a hundred sixty billion of goods that consumers like, things like cell phones, laptop computers, video game consoles, So we'll see where that goes. The biggest effect for me is an economist, is if the five billion roughly imports from China a couple of years ago, if those imports all get terrif at, that would be a hit

of almost one percentage point to GDP. So if you're looking for two percent GDP next year, I'd have to market down closer to simply if the Troy. But you know, we got to go to tariffs across the board and we're not We're not there, and it looks like we're not going to get there, so that would be good news. One of the big challenges over the past year has been deciphering what is simply a global economy that is slowing down, the heels of China's economy decelerating, and what

is due to trade. And I think about Hewlett Packard's earnings, for example, we were talking about this with an entree of us in earlier this morning. He was talking about how capital expenditures when it comes to the cloud, when it comes to services, have been going down. I mean, do you take something from this that goes beyond just do we get some you know, prophylactic deal. Uh that that sort of gives a truce and allows people the

confidence to go forward. Well, one of the things I'm a little bit worried about is that this slowdown and business investment isn't completely due to China. I mean, China obviously the tariffs on some of the imports for manufacturers here isn't great. Equipment has been slowing, but don't forget what twelve year. I mean, we're ten years over ten years into an economic expansion, and there still is a

business cycle. A lot of this equipment that companies buy is very long live, so they're not going to come out and buy every single year a bunch of the new equipment. You know, they space it out every three, four or five years. So what if they've already bought the equipment they need given this ten year expansion. So we're already seeing data like durable goods orders not going up anymore, which tells me that companies have as much equipment as they need right now to meet the current

demand for goods and services. So it's not just China, but it's complicated. It's complicated. We are kind of in an aging economic expansion where purchases should slow UM naturally, so Chris, just next thirty second, UM, given your economic outlook, do you think the FED. I guess the market's discounting one FED rate cut maybe in that September meeting. Is that consistent with your outlook? I don't want to talk about rate cuts. I don't think it does any good

at this level. I mean, we're not yet at the level of negative rates like Japan and Europe, which did nothing. I think they've kind of turned the light switch on and off too many times for interest rates the Federal Reserve, and now they've kind of broken their tool. I don't think cutting rates from one point seven five is going to cause any US corporation to go out and spend

more on equipment, buy new offices or warehouses. I think the days of the FED running to the riding to the rescue and cutting rates and boost and growth, it's just not going to happen. I would prefer with the baby boom generation retiring, that they keep rates where they are, if not move them up in the next couple of years a little bit. Chris russ Ruki, thanks so much

for joining us. We appreciate your thoughts. Chris Rupkey, Managing director in chief Financial Economists for mu f G Union Bank, joining us on the phone time to check in with Bloomberg Opinion. We're joined by opinion columnist Marcus Ashworth. Marcus has a columns covering European markets for Bloomberg Opinion. He joins us from the London radio studio of Bloomberg. So, Marcus, we're getting close to the election. December twelve is the election. What if you could just give us an update on

how things are playing out there? Ha, well, um, yeah, it's pretty straightforward. Uh, if you want to look it in the round, which is never easy because it's always a new um comment or lead story of some form.

But the polls are pretty certain that the ruling Conservative party on the Boris Johnson will get a commanding majority which will enable them therefore to go ahead and probably before Christmas, complete the Brexit withdrawal bill passage, which will enable them to leave the European Union before the end of January and then indeed move forward to doing a trade deal and the transition period which they think will

end before the end of about this time in a year. Now, that's the conventional view, and there's lots of other people out there who would love to see lots of different things, and of course all all elections can go wrong and things can change. We have two and a bit weeks to go, and we certainly saw this time in two years ago that they all went horribly, horribly wrong for the previous Conservative Prime Minister tresam May. But this is a much more careful campaign from Boris Johnson. He's been

under wraps doing everything he should do. The manifesto has been understated. Uh, they flashed out the Labor Party very skillfully, I think, to expose himselves as this massive Marxist sort of spend spend spend, unbelievable amount of plans that they want to want to bring um, which doesn't scare that

many people, it would seem. With that, you know, if you look at the polls, it seems the Labor Party of actually shifted up slightly from a rock bed off we said, up towards thirty maybe early thirties now, So there is still a chance um of of not a conservative majority, but it's a pretty slim one. So I'm wondering what enthusiasm is in terms of the expected turnout for the December twelfth election. Well, you look at two things.

One is circled voter registrations have getting very excited about today, which is a three million people have signed up to vote. Sarcasm from you, because why are you being sarcastic about that? Because I've seen this all before so many times, and all the youth, uh you know vote youth quake which was came around last time. We actually analyze the numbers more of an old not turn up than a youth quake.

And it's not so much the youth, it's the middle band of sort of perhaps twenty five or forty five who have turned substantially more to the left in the UK over the last few years. And whether they turn up or they just just disperse, Uh, it is uh the question this time around. But that there is a definite lifting inverter registration is always an excellent thing in any democracy. By definitionally we can't command you know, decent turnout.

Then you don't really have a mandate. So I think that, um, whether these guys turn out, Um, traditionally you find the youth vote doesn't turn out quite so much. It was a nice rainy day on December twelve. Um, then you know we should see. But there's a lot of good things going about this campaign, a lot of bad things. I'm sure we we We saw some some pretty interesting comments from the UH chief Rabbi today. So there's a lot of a lot of invector coming into this campaign.

Which is which is you know, making it a pretty seminal election. I think, Marcus, I want to turn into a columny. You were published today talking about all right, Brexit asidement. But if and when Boris Johnson wins the selection, how is he going to relate to the Bank of England. Well, you know, one has to feel for central bank is not not much really, but you know this time around, I mean I've been pretty harsh on Mark Karney for for getting involved in the Brexit debate, where I think

he shouldn't have done. Nonetheless, he's been pretty good at modernizing the Bank of England. But the economy is evidently going into a bit of a little slamp here, as is Europe, as of the rest of the world is not as not sort of necessarily but you know, a little bit of Brexit push behind it. Um I think first quarter, second quarter next year are going to be close to zero. I think in the in the UK.

And that's going to mean does the Bank having have to actually cut interest rates which would be seemed countertutive. Off or we're reading is that there is huge fiscal spending coming from you know, if labor gets in it's it's karamba, I mean the lift uplifts. Yeah, it is karamba. It is literally ridiculous. And of course it won't happen. One was they won't get elected to even they get later to the minority government, other parties will stop them.

But nonetheless that there is even on the expected Conservative when there will be a very big uplifting in fiscal spelling from should say simply from a two percent of budget deficit ratiator GDP to a three percent. That's a fifty uplift on your fiscal rule. That's big numbers actually for what one off you know into a into a new government and that's going to be a big spend. But how does the bank having in the Central Bank handle that well, obviously you think they would not want

to raise rates. The trouble is is a short term they may be fools to Marcus Ashworth, Thank you so much, Marcus Ashworth, Bloomberg Opinion columnist joining us from London. Note where those elections are going to be held in short order December twelve, and we will be abiding by a whole host of rules ahead of that, where they're sort of phased in periods where we can't talk about it, but now we can talk all about it. So have

no fear we're gonna go Brexit crazy. Ahead of this Thanksgiving break, well, new home sales posted the best two months in more than twelve years, really giving us another data point that the housing market remains quite resilient in the world of extraordinarily low interest rates mortgage rates. Jeff Tylor, co founder managing director for Digital Risk, joins us on the phone. So Jeff, what do you make of these

numbers regarding the US home market. Well, thank you so much for having me, Paul today, a pleasure to be here. If you look at this entire year, coming into twenty and nineteen, it was projected to be at one point six trillion residential um mortgage market for this year. We're coming out at the end of the year, we're gonna be somewhere around two point three, So, you know, a

statement of the obvious, It's been absolutely incredible year. For the housing market, and a lot of it has been driven by the volatility and interest rates which are down close to over a point. So right now we see extremely strong housing market nationally for new home sales, existing home sales and expecting that to go into a very

strong Also, how monolithic is the US housing market? And I wonder whether the gains that we're seeing are being driven by the sun Belt in places that have been incredibly popular for tax reasons and weather reasons, and we have not seen the same strength in other places. So I think it can very You make a very good point. I mean it real is it's always location, location, location, I think post tax reform, I still we are starting to see more significant gains in areas like like Florida

and Texas if people look to to relocate. But still in the Northeast and the Midwest, we're still seeing strong incremental price increase and demand in the marketplace. So on a national level, we have a very, very very strong mortgage market and haven't seen much weakness anywhere at all.

The only thing that we are continue to see sometimes is the supply and demand with the home builders are actually being able to build, you know, the first time first on homebuyers in that price point that they're looking for, somewhere in the two to four and a thousand all that range. So, Jeff, give us a sense of the mortgage market today compared to say, you know, prior to the financial crisis, when uh, you know, it got very easy on the credit side. Where are we today? Is

it a healthy market? It is? And so one of the things that we do at the Risk is were the largest quality control provider in the countries. On top of originations, we have that lens. The defect rate, to give you perspective today is somewhere about a point of three. The underwriting standard, the products that are in the market place are solid, are extremely solid. So when people talk about we're going to have a housing crisis potentially in a couple of years, that's not the case at all.

This is not a bubble. These are subtle, subtle, solid standards. Regulatory rules are in place, really are very focused on making sure that people who qualify for loans are loans that they can't afford and that they can pay for. So we're very very happy at the quality of the mortgage zones being done nationally. Yeah, that's something a lot of people have talked about that will stave off another crisis.

At the same time, there's some pretty fundamental shifts in the way that loans are extended in terms of what you call an online data, social media, etcetera. In order

to extend credit. Can you talk a little bit about how that's transforming the real estate market at a great point, and I could go a little broader, even the consumer lending and to your point, the way that that consumer loans are being made to the millennials and Generation Z. They're getting really really creative between I've called a combination of a consumer loan UM and a home eq we loan if you already have a house, and then the way that they're reaching out and you know, through this

digital uh digital omni channels to be able to get the first time HomeBuyer is interested in potentially buying a house. So you know, things like all the advertising via social media being that's really driving a lot of people who may be still be renting and trying to give them a different way of thinking about how they would come into the how they would come into the housing market

for the first time as their current rentors. On the flip side, there also has been a lot of advancement made when it comes to digitally pricing homes and moving away from just a human assessor that comes in and designates a value to your apartment in your house. Can you give us a sense of how much that's getting

adopted in invaluation models, that's a great question. So specifically in big cities where you have a lot of comparable A d MS automation valuation models are very accurate and can be used a lot by banks, and especially if they're refinancing a house. So let's say that the house, maybe it was sold a year ago, but the interest rates drop a point, so they come back in and do an a v M. That's used quite a bit then.

But again, when you get out more in the rural areas, a lot of times you still probably need some of that human input to make sure that you're getting the right price points that you're learning against because there's not

as many comps. So the A v M models really I think work well in larger urban areas, but when you get into some of the more rural areas in the country, you still need a combination of the data and technology, but probably having a person to put an eyeball, set of eyeballs, toll that helps to make sure you have a right price point. So, Jeff, I know there was a narrative out there for a while the millennials and gen Z folks were not buying homes similar to

maybe past generations. Is that still the case or is that evolving? It's evolving and we're actually starting to see millennials and gen Z, which is you know, as defined it's twenty four years old, starting to look to buy much more right now. And so what's driving that? Which drive it is you know, they're able to move, specially millennials are able to move into the suburbs and so they can actually find a house that they can afford. The different here, though, is the way the workforces in

America are changing. Think about how many of us have the opportunity to work remotely from home. So if you can work remotely from home, now, all of a sudden, they're not thinking about that commute like our parents might have, you know, five days a week. If they can work three days remote now let's saying okay, I can work from home. I want to go live in the suburbs.

I can afford this, And then on top of that, you're seeing a lot of smarter the developers putting together, as the term called hip hip Serbia, where they're putting together these communities in the areas that really kind of make it feel more like it's an urban area. So you've got, you know, walkable restaurants, you've got restaurants that you would have want, places you want to go out, bars, things that you can do in a very very nice,

uh central locations. So that's driving people from renting and saying, you know what, we're gonna go ahead and we're gonna buy what's all those new again hip strip malls? All right? Like this, this is, this is It's been a phenomenal, phenomenal conversation. Jeff Taylor, co founder managing director at Digital Risk, joining us on the phone. Well, I think the market consensus seems to be that the US and China are inching along towards a trade negotiation, maybe a phase one

type of trade dealer. Next guest isn't so sure. Kamal shri Kumar, president of Shri Kumar Global Strategies, good friend of the show, joins us on the phone from Santa Monica. Shree, thanks so much for joining US again. I know you've generally been cautious about the I guess the progress that's being made here between US and China. What's your current view? Uh, thank you for having me, Paul, And in terms of views,

they haven't changed much at all. In terms of the last several months b c. These trade talks start and go on from about March at May two eighteen onwards, so we have been on for more than a year and a half. We have heard several times that progress is being made. We even heard we were imminently completely resolved with the accord, and then we have gone back every time, probably with a Trump tweet or with a with a different move or different camps within the Trump administration.

I don't think this is any different. I think the basic problem is what the United States is demanding of the Chinese, namely in terms of protection of intellectual property rights, the ability to supervise that it is being done and to make sure that forced mergers don't take place. That is something it is going to be impossible for the Chinese to concede. So either President Trump declares victory and then comes away with whatever he has, or else does

nothing happen. I think in either case, we are left with no complete accord before the November twenty twenty elections. Okay, so that's what a lot of people are actually saying that we're heading into with the best case scenario a removal or a lack of implementation of the December tariffs that would hit some of the consumer products in the United States more extremely and just sort of a sense that we're on hold here given that backdrop, let's make

that assumption. What does that mean in terms of the effect on growth. Is it just sort of all systems to go, everything is set to rally in given that, Lisa, Then, as far as the US reaction to it is concerned, though, the equity markets, which went up in anticipation of something being reached once it is clear that there will be nothing for another year to day back off because the discounting of the trade accord is one part of the

equity run up. Second thing, the uncertainty for capital spending in the United States, which has affected a capital spending in recent quarters, is not going to go away, especially with the trade uncertainty continuing. Third, we are finding out that global trade has has slowed significantly based on numbers which were released in the last couple of days, and that too said just to me, that is going to

go hand in hand with slower global growth. And so my expectations still continues to be, Lisa, that we go into a recession starting about the middle of twenty twenty in the United States and global growth being significantly slower than in the past. So the Hong Kong situation is making it presumably much more difficult on the trade front, even though, uh, you know, there's talk that maybe they're trying to keep separate parallel paths there. How do you

think the two are intertwined. The two are very intertwined. Whatever they say, whatever, the two side may come out and say, I don't think they can keep them apart. And the reason is, let's assume that we have some form of a tentative trade accord in the next few days, and then the Hong Kong protests continue and the Chinese forces in turn are sent across the water into Hong Kong from the mainland in order to put down the demonstration.

Then all bets are off. Hong Kong loses its special trade privileges according to US Congress determination in the next ten days. In fact, only a week left for the President to decide whether he's going to sign off on the Hong Kong Support Bill, which passed unanimously in the U S. Senate and with only one descent in the U. S. House.

Is if he does not do anything, it becomes law at the passage of ten days, and that's not going to please the Chinese all putting it all together, even if you announce an accord, it doesn't get implemented or there is. There are a few tweets essentially backing off from the accord after that. So I think they are very closely intertwined, and I see no easy resolution to

the Hong Kong situation. You cannot let the protests continue indefinitely because that in turn gives a signal to minority groups on the mainland that it's okay to do so. On the other hand, if it is put down violently, that wouldn't go well with the US Congress. Even if President Trump may tolerate it, US Congress is not going to So you have growing unrest in Hong Kong and the questions about what the international response is going to

be in terms of toward Beijing. Those tensions rising US China not getting necessarily closer to any kind of real trade deal. The idea of that actually solidifying seems somewhat more remote now than I did, say, twelve or eighteen months ago. So by stocks um by stocks in the setup, no, I would say this is this is not a good scenario for buying stocks at all. Right, Well, so that's

that's actually I mean that that's counterintuitive. And the reason why I said that is because everyone comes on and says, well, there bearish, there, there bulls on risk heading into the first half of I'm not bullish on risk coming into twenty twenty. I see the fourth quarter. We have already seen the Federal Reserve Bank of Atlanta looking for something like a half a percent growth. This is much slower

than earlier quarters. We are going as we today we found out that the U S. Consumer confidence number is down for the fourth month in a row. You're going to go into twenty twenty and if a LISA on top of all this, you're going to add trade uncertainty.

I don't see how risk sets are benefiting. Lastly, look at the signal from the U. S. Treasury market in the last couple of days, even as the equities have rallied, Treasury yields have come down, and if you look back at past recessions, particularly the two thousand seven two nine recession, the bond market was a very act. You're predictor of the recession to come and the equities who are rallying eight months into the recession, so you have to see

which signal you're going to take. It is possible that equity investors will still hold on in the first part of twenty twenty, in which case I think disappointment will come more like mid to late twenty twenty. Kamal Street Kumar, thank you so much for being with us. Of three Kumar Global Strategies, President of the company. Thanks for listening to the Bloomberg Penl podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer.

I'm Paul Sweeney. I'm on Twitter at pt Sweeney and Lisa Bramwo It's I'm on Twitter at Lisa A. Bramo. It's one before the podcast. You can always catch us worldwide. I'm Bloomberg Radio