WSJ Coverage Boosted Fed 'Message' on March Hike, Reinhart Says

SoundCloud and at Bloomberg dot com. There's been a lot of discussion about the big move that we've seen in stocks and hitting new highs today, but there's another move that I would argue has potentially even a bigger chance to affect markets on a broad level, Fed funds futures. This is a way that derivatives traders bet on when the Fed will next hike rates. The priced in probability of a March rate hike has gone from thirty six percent from the end of last week to more than

eighty percent today. This is getting a lot of people's attention, including Vincent Reinhardt. He's chief economist at Standish Melon Asset Management, and we are lucky to have Vincent in the studio with us in Bloomberg eleven three oh. Vincent, why has there been such a huge move and expectations for a March rate hike because Federal Reserve officials wanted it to happen, i e. At the FED, you never surprise markets. You

can't act if it isn't priced in. They are sometimes willing to disappoint markets, i e. Not act even though it's priced in. At of a probability of policy action, the March meeting was off the table. That was too much of a surprise. If you want the meeting to be live, you've got to get that probability a little higher.

But I just I'm struggling with that interpretation because we did not hear definitive language out of the Federal Reserve officials who have spoken at least certainly not Friday until yesterday. Right that. We did see some yesterday, but before that the prob ability was rising. So what was it the triggered this? Yesterday? President's Dudley and Williams confirmed the rise specifically, did they say that confirmed it? They said that the meeting is live, that March is definitely on the table.

John President Dudley said that the cases uh stronger I believe, and President Williams said the argument for acting in March is it makes the possibility of three more than free tightenings in two thousands seventeen possible, So they ratified the pick up in the Fed funds futures and added a bit to it. I think the move you had from the end of last week into the beginning of this week was importantly shaped by the Wall Street Journal's coverage

of the minutes from the January meeting. UH there was a front page headline saying that the Federals RVs minutes showed that it was eyeing aggressive rate increases. Nobody else covering the minutes characterized it that way, not your porters on bloom at Bloomberg. It was a pretty anodyne set of descriptions of the economy and even handed. Uh. I used to sign the minutes for six or seven years.

I know when you're not sending you a message, and there was no message there, But for a Wall Street Journal reporter to lean that far ahead would suggest to me they had a little help that perhaps some Federal Reserve officials suggested that markets had misinterpreted the minutes. They had to be so anodyne, and in fact, there was a message there. Well. As a professional Fed watcher, and just as you recalled a former employee of the Federal Reserve Bank of New York. You also economists for the

Federal Open Market Committee. What do you make of that? How is broaden that out to just give us more detail based on your experience. So, the Federal Reserve works with markets, and it is important that uh, there are people, right, I mean, it's not an amorphous. It's a big marble, yeah, I know, and there are a lot of people in it, I would imagine. Yeah, So staff at the Federal Reserve are desirous not to be out of sync with markets.

That if they are trying to convey a particular message and they don't here received correctly, they may help to nudge the ship back into the appropriate course. The fact that one Wall Street Journal reporter was different than everybody else and subsequent Federal Reserve officials told the story confirming that view makes me think that he got a little nudged. How how often did members of the Federal Reserve do this type of thing where they would go to one

reporter often Hills and Wrath was formerly the reporter. How often do they sort of lean on one person to kind of get the message right. Um, so there's two different parts of the story. The one is in normally just talking with market participants UM Federal Reserve staff, both the Board and the Reserve Bank presidents would be trying to tell a consistent story, and if it was currently different than what was in markets, then they were revealing

some news. Uh the outright shaping a story by going to a reporter and trying to to nudge things along. That's usually done at a higher level. All right, So now we've we've taken that into consideration. Give us your view. What will happen March? What is it? So now we got eight and ten chance of policy action priced in UM. The case isn't closed yet, even though it's a little stronger in in terms of President Dudley's view. Because Cherry Yellen speaks at the end of the week. She can

take that punch bowl away if she wants. Well, what do you make of the fact that the increase shorter term rates has led to a flattening of the yield curve? In other words, the bond market seems to be suggesting that a sooner rate hike will dampen growth and remove

some of the momentum that we've seen. So they're pricing in a FED mistake it's a little bit like December of last year when the FED tightening a quarter point, just a quarter points snuck in at the end of two thousand sixteen, UH seemed to vow to convey the view the FED was serious and tightening four times in two thousand sixteen. UH market participants viewed that as as inappropriate and there was a big sell off. And over the course of last year, FED guidance has been coming

down closer to where markets are. Two get the idea that there may be three or four tightenings this year is pulling guidance away from where markets are and so that they're thinking they're a mistake involved. I want to thank you very much. Vincent Reinhardt joining US at chief economist Standish Melon Asset Management m FOX. I hear there was a speech last night. Did you hear anything about that? Yes, not only did I hear that there was a speech,

but I watch I did watch it. Yeah. I think it was our president, President Trump speaking to Joint UH Congress yesterday. And for some impressions. Neil Dwayne is here with US global strategist for Alian's Global Investors, which has four eighty one billion dollars under management. So, Neil, what was your number one takeaway from President Trump speech? While have now watched to his inauguration speech and the one

last night. My my takeaway was actually that I was quite impressed with him, maybe for the first time as an orator. I felt he pitched the gravity of the situation very well and came over as very presidential. I think as an investor that we didn't learn anymore. And I think when one saw the body language and the reactions to many of his comments in the in his speech,

you could see how divided Congress is. So I think when we come to now the execution of the Trump agenda, we're going to see what gridlock looks like in in in Congress. So do you think that the rally that we're seeing today, particularly in financials, is a head fake? Well, I'm I'm very concerned that we've already had quite a strong rally. I think financials are now up since he

was elected. I think we can get too carried away with the opportunities to maybe soften regulation or change the you know, the d O L rules and and and some of the things that Trump has been talking about. I don't necessarily sarily see that they are central to what he wants to achieve in terms of making America grace again. The the US financials are wealth wealth financed, their wealth structured. They work in a very competitive industries.

We know with the price competition now between Fidelity and Schwab in the in the brokerage business, and I would are there's overcapacity in the banking industry, so margins are going to remain under pressure. But if people are want to borrow, at least the US banks have the capacity to lend. A lot of banks in Europe are still very financially weak and cannot create the credit that the

that the economy isn't it requires. Neil, I'm wondering if you could just give people a little bit of your background, because I know that you previously were at Kleinwood Benson and that may be an old name for people to remember, and then maybe transition into telling us about China. The

world isn't just all about one person. It's important. But I just want to get your thoughts because I know you've written a piece about taking advantage perhaps of what we when most people don't know about what's going on in China. Yes, I mean, I I think I've spent fourteen years working in Frankfurt, so I do feel as an Englishman I have a view on Europe which is not necessarily what you get from every Londoner who come

comes across. We're going to get that view and a set okay, But I think I think actually the moment that China is very interesting because we're about to get the new government formed for the next five to ten years, and so I think for US two thousand and seventeen is going to be a year of stability, all other things being equal, and I think where President Gjing Ping goes is going to be very important to the rebalancing of China and therefore the growth prospects for for all

of US global citizens. But what I would then finish by saying is, of course the unknown at this moment in time. And he was, to your opening question, very elliptical about it last night, was what is his position on China and training? Yes, President Trump, because I think there is a there is a concern that he said on day one in the White House, I'm going to accuse them of currency manipulation, and we're nowhere near that. But clearly for global investors and for the global economy.

Any sign of tariffs or trade friction is going to be bad news for US. I want to do get to Europe. There was a story on the Bloomberg today about n HSBC study showing that a good amount of money is flowing out of US equities and into European stocks. Are you seeing this? Was seeing it at the at the margin. But I think when I travel around the world, I think many investors have known they've got it right

by being along the US, including many US investors. But when one looks at just the headline valuations of the US against ay Asian or or European markets, I think there's a sense that the opportunities now lie outside the US equity market in general. But I think what we're also seeing and I think that is also driving You know that the rally at the moment in the US is people are now losing money in their bomb bomb portfolios.

You know, yields are rising, they've been they've been supported by enormous contents of KIWI and monetary policy which is now waxing. And therefore we're now going to get ourselves into a situation where bond portfolios are generating no return or negative return, and the only prospect for most clients is to invest in the equity market, where we're going to see some reflation and stimulus rather the more austerity, which of course is what we've seen in the last

five years. As an expert in putting together portfolios with different assets all over the world, what is it that you would recommend right now to investors? What should they sell? We've got an SMP five hundred at nine and I'm wondering what would they What do you recommend selling in order to rebalance? Well? I think I tend to feel like I have two conversations in my role as a

strategist with our clients. Some clients are looking to make money on their capital, and therefore I think you inevitably have to own the equity markets because the bond markets have become so so miss priced through the quant state of vising. But a lot of clients look at the headlines, look at the news you're carrying almost every day about politics somewhere, and go, oh, the world feels a risky place.

Maybe I'll just hunt for income. And therefore I think what would I be buying is things like US high yield, where you can get five or six percent returns quite safely in dollars or Asia or emerging market bonds. Thanks very much for joining us. Neil Dwayne is the global strategist for Alliance A Global Investors, giving us a real diverse response to a last night's speech by President of

Donald Trump. You know, Lisa Abrama had, some of the wonderful things in the stock market are just expressions of human demand or human want. Because you know that snap the parent company of Snapchat, is hoping to raise three billion dollars with an initial public offering, And I thought, what better way to sort of phrase the conversation about this with Paul Sweeney, our head of director of North American Research media analysts for Bloomberg Intelligence, And he'll tell

us whether he uses Snapchat. But is this a silly fun app for people with more time than sense or Paul Sweeney, is it a trailblazing technology company with vending machines. Well,

it depends who you ask. I think if you talk to their demographic, which is the younger demographic eighteen to twenty four, eighteen to thirty four, maybe even a little bit younger than that, it is absolutely absolutely a utility for them and and in fact that the engagement, which is something the company talks about a lot, is very high on Snapchat. So it's not a loyal demographic UM historically no UM. So we'll have to see how it

ages on this platform. And you know, one of the concerns is um that this younger demographic can you know, not that loyal and that the new next cool thing that comes along, they could just leave Snapchat or Facebook or wherever they are to go to the new cool thing. So that's certainly a risk. But you know, right now snapchats talking about uh we may not be the biggest that would be Facebook with close to two billion monthly users, but our users are younger, which advertisers love, and they're

very engaged, which is another thing advertisers like. Uh So that is clearly the pitch that Snapchat makes to Madison Avenue and to advertisers and also to investors. So does just to give a sense of how signtive again this I p O is, are there other technology companies sort of waiting in the wings to see how this snap IPO goes to figure out whether they should also go the same route this year? I think so, I think if you think about some of the unicorns out there.

Most notable would probably be uber Um, Airbnb, for example. So there's a lot of companies out there that have been very successful raising capital in the private market, to have been a very liquid and very efficient market for

them over the last several years. But at some point they and their initial investors need liquidity, and that typically is achieved through an I P O. So I think this SNAP I PO is going to be not only important for UH SNAP itself and their investors, but really the technology technology sector overall, maybe even the whole new deal calendar overall, but certainly for some of these tech investors to see how far public investors will go in terms of valuation, in terms of going out on the

risk curve for some of these newer companies. UM. So, I think that's gonna be that makes this deal important on many levels. You get a chance to anyone about the road show. Yeah, the the road show, about the thirty five minute video, the thirty five minute video which kind of let Evan Spiegel in his twelve million dollar house in Los Angeles, right, and and he didn't show up.

I understand that the Boston UH lunch, but so, but it's this is a company that because of this video they can go right to Q and A. And I've heard that. Uh, you know, it's been standing room only at most of these lunch meetings. It's some of the big cities. They've been in London, New York, Boston, San Francisco. So the demand is clearly there. But the the the

challenging questions are also there. And some of the common ones obviously are uh the relatively small size of the uh snapchat platform versus say, on Facebook, but also the slowing user growth. It's still growing very quickly, but the growth rate is slowing, and is that a concern? It was almost flat for all of last year. No, No, I mean there's they're still adding a lot of subscribers,

but the growth rate is is clearly slowing. And you know, the question for you know, UM investors is ge we've kind of been, uh become accustomed to seeing these billion dollar, billion user platforms like Facebook. Uh and if you don't get there, what does that mean? Fifty million users last year were added and then they said five million in the last quarter of right that that that that's right? Yeah, So again that is clearly a concern and so again, what the snap is lost half a billion last year.

They lost half a billion on about four a million of revenue. But exactly, you know, the revenue growth is certainly there again, Yeah, exactly, they had form a million revenue last year. You know street consensus and that estimates are kind of out there for a billion this year, maybe two billion next year and maybe three billion year after that. UM. So clearly the revenue growth story is there.

But there's definitely some issues that investors are concerned about, including you know the fact that no shareholders will get any votes whatsoever. It's not that you get a smaller vote than the founders, you get zero votes, and that is very unusual. UM. And that is obviously a concern for some investors. So from from media to old we also are getting news about Time Inc. And how they're looking for potential suitors to to submit formal bids uh

for acquiring the company by next week. This is according to a New York Times story that came out on the news. Time shares are up almost seven percent. What do you make of this? Yeah, this is a company that's been arguably up for sale for a long time. Alex Sherman of OM any reporter. Bloomberg News has been all over the story for for many months, and uh, you know, I think the issue here is there's um even though that the magazine business, like all publishing businesses,

are greatly challenged in terms of advertising growth and subscription growth. Um, it is a you know, the vervirtually very little growth if any in the magazine business. However, some of these brands are still very relevant in the market place, and Time Ink clearly has with with People Magazine and Sports illustrat at some of the you know, the best brands

in the magazine business. So clearly there's interest from from certain players, whether it's private equity UM or even some strategic are such as A Meredith for example, who's been in talk. So there's clearly some interesting that Edgar Bronfman absolutely who's got a lot of experience in media, and I just want to correct myself, Alex Sherman actually did

break this. Yeah, So it's uh, you know, so surprisingly that there's a lot of interest in these marquee properties because um, you know a lot of people feel like magazines can in fact live in a digital world. Um that advertise them. But we're talking about maybe we need to think of new terms for it, because magazine obviously refers to some paper product that you hold, which they

may or may not continue to print. But when you take a look at everything that they publish, whether it is Health Magazine, Travel and Leisure, Entertainment, Weekly, Coastal, I mean, departure, it just goes on and on. There's that's content and last time I check, you gotta have something to put on the Internet. That's right, and that's right. And so it all comes down to brands. The value of brands, whether it's in an analog world inc on paper or

in a digital world. You'll you'll hear even all the big media companies, whether it's the commer Time owner not talk about their cable networks. They talk about their brands. ESPN is a brand, UM CNN is a brand and things like that. Fox News is a brand. And so the question is can you monetize those brands in a

digital world. And that's very true for the magazine company UM as well, and they've really spent a lot of money kind of pruning their brands and their their portfolio and trying to, you know, make sure that they can live in a digital world and get paid whether it's through advertising or subscriptions. Paul Sweeney, thank you so much for joining us. A lot to talk about and a lot to keep track of going forward, Director of North

American Research and media analyst for Bloomberg Intelligence. I want to bring in Bloomberg's own Eric Schatzker now to give us more detail about Ray Dahlio stepping down as the co chief executive of Chief Executive Office. Getting that I can't keep the titles in check a much easier way to think about this. Another management shake up at Bridgewater. Yes, how one constant at Bridgewater is Ray Dalio. He runs the world's largest hedge fund manager. Bridgewater has an excess

of a hundred and fifty billion dollars under management. It's pure alpha fund has historically been one of the most successful. Bridgewater also was at the forefront the vanguard of the creation of risk parity funds. The All Weather Fund is the risk parody fund Bridgewater runs and advanced eleven point six last year parody funds. You know what I'm going to say, that's a bit of a diversion and suggest that we get back to what happened. John Rubinstein, the

former Apple executive sixteen years at Apple job. Ray Dalio, brought in last year to be co CEO, is leaving after only ten months. Why Ray Dalio himself says in his statement, we mutually agree that he, meaning Rubinstein, is not a cultural fit for Bridgewater. Bridgewater is an unusual place. Some people would go so far as to say it's an odd place. John Rubinstein was an odd hire. He was brought in as a leader and also as a

technology pioneer. Ray says he was successful in creating a new technology architecture for Bridgewater, but clearly as a co CEO, it really didn't work out. The big issue here is that it hasn't worked out for Bridgewater on a management level in a long time. Eileen Murray, who remains a co CEO, was brought in back in two thousand nine. She's still there. But Bridgewater has experimented now with Rubinstein, with Greg Jensen, who was once a co CEO and remains a co c i O, with Dalio himself as

a co CEO, nothing seems to work okay. So so yes, we have known that it is an odd place and has an idiosyncratic way uh of managing its culture. Beyond the gossip factor. What's the practical implication of the turnover here? I mean, Bridgewater is, as you pointed out, Eric, the biggest hedge fund firm in the world, at least believed to be. And uh, yet they've continued to see inflows despite the fact that their hedge funds have seen outflows,

They've continued to do deliver performance. So what's the implication, Well, the big practical question is how is it going to affect investment performance? If you believe Ray Dalio, this is going to help the co chief investment officers remain focused on managing the one and fifty billion dollar pile. That's what the limited partners, the LPs, the investors in Bridgewaters funds should care about. The problem is that this creates

a diversion. These constant this constant management turnover has been a distraction and a diversion for Ray, the founder, the chairman, and until now the interim chief executive co chief executive officer. So if this works, if Eileen and David McCormick, who's been at Bridgewater for eight years as a former Treasury under secretary, can together run this firm in a way that Ray approves of, that will allow him and Bob Prince and Greg Jensen, together the three co chief investment officers,

to worry about generating returns. There were macro fund Pure Alpha. Pure Alpha two is a macro fund. We know how challenge the macro strategy has been. Pure Alpha two generated a two point six percent excuse me, two point four percent return last year. Not great, but better than a lot of other macro funds. The investors want more. Bloombergs Eric Shatska, thank you so much for joining us. We'll

be following this as we learn more. And this is a story that does have implications about for the broader market, given just the size of it and it's importance to the hedge fund world. Thanks for listening to the Bloomberg pien L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one

before the podcast. You can always catch us worldwide on Bloomberg Radio.