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

We're going to continue FED a reserve in focus now taking a look at what we have heard from FED officials the last few days, including FED Vice Chair Stanley Fisher right here on Bloomberg Radio and television. What does it all mean for the bond market? The Fed is seriously considering an interest rate increase in September. Our next guest, Mark Ran from Hillside. Excuse me how Top Security says not so good? Well, he's always so good, and that's

Charlie Pellett. He is in the newsroom with a Bloomberg business class. Thank you very much, Athlete Hayes are way too kind to dial the SMP nez Dak not so kind today, stocks declining a sell off in oil, sending stocks slumping and We are brought to you by national Realty providers of one hundred percent satisfaction guaranteed New York City realty investments. See them at n r I a dot net. The SMP five hundred index has erased its monthly gain. Traders are awaiting Friday's jobs data to assess

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climbed by more than projected. Chris Gersh is director of strategy at Bell Curve Capital, and on Bloomberg Television this morning, he talked about the bigger picture for oil and oil prices, which I ran in Saudi Arabia ramping up production um there and also the strong dollar really causing what a lot of people perceived to be a slow down in the fourth quarter. Uh. We believe that the w t I contract and it will you know, correlate to Brent and pull that down, will be setting a new range

here below forty six handle. And right now we do have West Texas intermediated at seventy two, down three and a half percent. Brent crude is down two point eight percent, the tenure the yield there one point five six percent, the SMP down eight to sixty seven, a drop of four tenths of one percent. Then Stack Composite Index down fourteen points, a drop of three tenths of one percent. Down Industrials down seventy two, a drop of four tenths

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This is taking stock the FED in focus on Bloombird Radio. I'm Kathleen Hayes. My co host Kim Fox is on vacation this week, so he's gonna miss a very prific conversation now with Mark Grant, chief fixed income strategist Hilltop Securities. We know him as the Wizard for all his incifle comments on the U S Government bond market and more. He has been UH one of the biggest bulls UH so far over the last couple of years and continues

to look for further games and bonds, particularly the FED missteps. Mark, welcome back to the show. Thanks and always a pleasure to be with you, well, let's start with there's so many places, but you know post, Jackson Hole Post and Fisher saying negative rates he thinks are working, ETCETERA very interesting I think, and maybe a little more nuanced. Charlie Evans, President Chicago FED, and Eric rosen Grin, President of Boston FED, speaking on a panel. I don't think they're exactly opposed

to each other. But Charlie Evans focusing on UH rates could stay low for a longer time than people thought. According to his business contacts, the FED could move slowly. Eric rosen gran a little bit worried about accesses that could be building up in places like commercial real estate as a risk of the FED moving too slow. What do you see? Well, I think if the Fed does raise rates, it will be a huge mistake on two fronts.

One Politically, it will be a mistake because whoever might win the election is not going to be happy with the Fed. If the Fed causes a disruption of the American economy too in terms of the um economics of it, if you look at what happens when the Fed raises rates, it means that commercial real estate, residential real estate, commercial loans, personal loans, everything becomes more expensive that are tied to the short end and may throw the economy into some

kind of recession. And that means that you're going to get a flatter yield curve than we have now, or maybe even go into an inverted yield curve, and I think it would just be very negative for the country on both counts. Well, Mark, I guess your argument if you want to race rates pretty soon as you say, hey, wait a minute, you know you kind of look at the jobs market. The labor market is growing just fine.

We might get a strong jobs report on Friday. In a situation like that, we can afford to pay a little bit more for the money they borrow because they're making more money and they'd rather have more demand and more business and making more money than than they would care about keeping the rate little. See what I mean? Well, there are two parts of that argument. One is you have to look at the quality of jobs until you have to look at the product productivity in the job markets,

and both are not very good. We've had some more jobs added, there's no question about that. But when you look at what kind of jobs they are, and then you look at the productivity in the labor force, it certainly looks less optimistic. And then again also I think you have to look at the inflation rate, and with oil now plunging down again, which has a big impact on inflation, means the freads are going to be nowhere

near their desired goal two percent. So I think those are the offsetting parts and the and the third big part of it is what the other central banks in the world are doing. So we now, according to Fitch, have thirteen points in trillion and negative yielding bonds across the world. Bonds in Europe and Japan are substantially less

yield than we have in the United States. So all you're gonna do is drag in more foreign money into the US market, which is what one of the major reasons I think yields even here going down because we're the last man standing with the positive yield. Hey, but the Japanese banking Japan might say thank you very much for to reserve. We've been trying like crazy the week in our end. If we have divergence, if the Fed hikes, the dollar rises, and the bo J goes the other way,

it's more stimulus than the end weekends. They'd be very happy. This is their big bugaboo. Well, I think the FED is you may recall, is I'm not only recalls I know you know, is the central Bank of the United States. It's not the central Bank of Japan. And consequently, the FEED should be doing what it can for our country. Plus whoever is elected president, they're both are talking about

very uh uh. You know, a huge growth in infrastructure coming at it from different patterns, but it's going to be even more debt for the Treasury, and the should be trying to hold rates down to accommodate that. In my opinion. Now, let's s the FED races rates and you're right, and it's the wrong thing to do, and the economy really slows down. That would just would that just opened the door to another big leg of a

bond rally that pushes yields even lower, in prices even higher. Absolutely, Kathleen, You've got to add exactly right. So we're bond going work. Well, I think we're going to one at a quarter on the tenure by year end. I've said that since around February when the tenure was at a one seventy seven. Were the one fifty six today, But I think we're going to go back lower just because we have the only place in the world, as I said, with positive yields.

I mean, it's like we're the last man standing. And then whoever is elected president wants to do more and terms of government infrastructure and growth, and the only way to really pay for that without causing even more massive problems is the lower interest rate. So the Fed may in fact at some point reverse course and add more to their balance sheets than the four chilion they already have about ten seconds. You're still a fan of closed

end bond funds. I think closed in bond funds where if you pick the right ones, you can get about ten or the best option, especially for any person right now. Well, Mark ran, Mr Wizard the Wizard, we thank you so much for joining us. He's cheap fixed income strategists at Hilltop Securities based in Fort Lauderdale. What a lovely place to be, he said. It would be a huge mistake for the FED to raise rates. Now it's election year.

You're gonna stir up a hornet's nest, and you're gonna make money cost more, and that's gonna hurt commercial real estate and residential real estate and more. I'm Kathleen Hayes. This is Bloomberg. Ben in Focus is brought to you by Willoughby since eighteen ninety eight, New York City's boutique camera store for precision crafted, hostile, blood and Like a Camera's plus a full selection of go pro action adventure cameras. Willoughby's at the corner of Fifth Avenue and thirty first Street,