Surveillance: Fed Vs. The Markets With MUFG's Rupkey

at that point. Iple I've never understood that. I've got to admit I don't enjoy it because everybody else does start eating lunch. And whilst whoever it is, whether it's the chairman or the vice chat does speak to the Economic club in New York or you. Here is the cutlery, the folks and knives hitting the plates for you because we're are your polite above the organist. Can you get to Mr Ruby, How are you doing? I'm trying. I'm doing okay, Chris. What are you looking for from the

vice chairman likes it today? Well, he's you know, it's kind of the Fed versus the markets. At this point, FED funds futures pretty much are discounting one and a half rate cuts by the December meeting. Eurodollar futures are looking for like three rate cuts by the end of next year. Come on the markets, twelve. The market totally disagrees, the market. The market knows all. Yeah, I think clad Chris,

I think the problem. Well, the FED messaging on this has been kind of messy, right, And they're gonna ask Clarada about this, because don't forget he's the guy who came out earlier this year and said, uh, talked about the risk risk management style rate cuts in the nineties. Where to me, those weren't risk risk management style just

in case rate cuts. They were done because we had a near miss with a recession in Claire is going to talk as he talked in his conversation with me, and as he spoke in his conversation to Michael McKee. Full disclosure, folks, McKee had a smarter interview. He talks about solid economy defined solid well at the moment, what we're creating upwards of two thousand jobs per month. We got a three point six percent low unemployment rate. We had three point two percent g d P. You know,

that's kind of rear view mirror stuff. But everything looks okay. I mean, look at consumer confidence. We used to think in the old days of FED would just open the newspaper and say what is a consumer think? And then vote accordingly the FED and consumer the consumers reckoning of where current conditions are. It's the best sense to thousand pimp Cooke column for rate cuts. Did that come up

in there? You know? Annuals Swarry, You're not something they're looking for immediately, not something that came up yesterday, not something they're looking for right now in the nit Chris, What I think is interesting about consumer confidences, I don't see it in the hard data. It's not translating into improved economic activity at the consumer level. No, not not yet. But we gotta wait and see retails sales. One of the problems I guess is h car and light truck sales.

I keep going back and forth or like seventeen point four than they're sixteen and a half. We pretty much know for this cycle the consumer is not going to go out and buy a lot more cars. Uh, it's gonna stick somewhere around seventeen million annual rate. But no, I think you could look forward to retail sales picking up in the next couple of reports. Retail sounds can pick up in the next couple of reports. It might have been it was a right. There's a lot of

seasonal summertime purchases. Maybe those were delayed, but you know, over the course of the summer, I think that consumer has money. One more question, if we could you do you are the best? It fed chat linked into full faith and credit charts. What is this three month ten year difference in yield that spread everybody's talking about it is inversion? Like it wasn't the last twelve out of the fourteen recessions or whatever? What does three months tend

mean to Chris Ruky? Yeah, I mean the crazy thing about the curve is that the two year tenure is not inverted, and most cycles two year ten years inverts then at the last minute the three month so it's flips that I don't know the markets are miss priced, but that the three month tenure year. Listen to you, you see like such an economist inverted. It inverted last Thursday on the market a m. I thanks market for

the plug there, thank you, Mr Rupkey. Anyway, the curve inverted last Thursday, and and that means it means recessions. So that's what we're working off. It's gonna take ten ye year olds have to come up to like three point three seven. The curve's not got Chris gonna stay in verdicts. Thank you so much, greatly, I'm kidding, thank you so much. A really good briefing before Vice Chairman clearitis speak. Take a listen to what Scott Marther of PIMCO had to say about credit risk and probably the

riskiest credit market that we've ever had. And you know it's true when you look at both the size of it, the duration of it, and the quality aspects of it. So there's a big vulnerability there as well as probably the least liquid uh you know, bond market in terms of credit markets that we've had in a long period of time. Joe Lemington joining us now Limberg Intelligence, Director of Credit Research, Joe, probably the riskiest corporate credit market

we've ever had. This was a catalyst for so much conversation yesterday after Scott said this, let's get your thoughts and then we'll start to explore a little bit further. Your reaction, well, I think you did a great job. John is is always the first place to start. But I think, but I think beyond that, you know, you are at a very interesting point in time because you have spreads that are still quite tight. Uh. You have a very mixed data that's out there and very bifurcated feelings.

For example, if you look internally at b I, you have people like Ira Jersey and Carl Rickadana saying the second half is gonna be very strong, uh, and that yields should be going up, which if you're a PM you'd be playing that on the short end or maybe through high yield, but that there are other people that think that you're headed into a recession, and if that's the case, then you have quite a different place to

be putting your money. What I thought was really interesting, speaking of Scott in a little bit more detail, was this comparison between now and potentially going into the mid two thousands, that kind of historic parallel, not because we're about to go into recession in the here and now, but because maybe we're about to go through that period where the excess is build, the mistakes are made. Joe, what do you think about that? Does that idea resonate

with you at all? Yeah? Well, as a guy that follows Tesla and I know we often talk about the five three percent bond that's now around nine. Um. Yeah, no, I mean I do think mistakes are being me. I guess you're looking at we Works as another example of that coming to the market yesterday, and you kind of scratch your head with these pre cash flow pre even businesses. We don't have time in the day. We need a long we need a long show for that one day

I I spent. Folks. It's common belief that John and I party the moment that you know, the month of music comes up at ten am, But actually we're working through the day. And Bloomberg Intelligence written up in zero Hedge had a tour de force on community based adjusted But uh, help me with the WE Work bond offering your interpretation of it led by our real estate people. Sure, yeah, no, Jeff Langenbaum. Um, and uh, what I would say is that, uh,

it's a great job of marketing. Much I think in the in the way a lot of these were not marketing. Should somebody step in? Should some institutional guys in a car and Topeka right now? Should he's stepping in? By we Work paper, what's a coupon. I think they're still determining what give me, give me, give me a touch

there six percent maybe maybe. But I think with all of these credits, whether it's an Uber or a Tesla or we Works, I think you have to look at it and say, do companies that don't generate cash flow and we know that they're not going to for several years, can they support any sort of debt? And I think the answer is no. So I can't see why a PM wouldn't want to get involved with any of those situations. Which is healthier credit market? Now start to jump into

you bring up Testa, and I think Tesla. The growth story of Tesla was captured by the equity a couple of years back. It was reflected in the debt, and that was a big problem for a lot of people. Several years later, now it was two summers ago, it

was August when Note came to market. A couple of years later, can you sit here and say definitively that this is a healthier credit market, but we are no longer doing those silly things where we reflect the growth story that should be captured by equity, but it's also captured in the debt. Market. No, I don't. I don't think we can join. I mean, in the case of Tesla, I think we can say that more clearly today than it was two years ago when we were ranting on that.

But if you look at we work, it's the same basic story right where people are looking at at hypothetical market valuations of the company and saying, well, it deserves to trade at a certain place when we know that it's going to be multiple years before it gets anywhere close to generating any sort of cash for though Joel levingson, Joel thinks you have to come back when you figure out the community adjusted even I still don't understand that.

I still don't understand that. And every time I guess mentioned I think people are judging intelligence and what they Joel and the others and Mr lang Voon, what he did yesterday and we worked was just a tourtive force. It was just brilliant in the change. Joel Levinson back Intelligence of Credit Research. Meredith Sumter joins us right now, and this is important. She writes brilliant notes for your

age group. And this was some of our guests, not all of our guests is not only expert on China, but understands not the King's English, but maybe President she's uh Mandarin. I was chastised this morning by one of our listeners in Mayfair because I said Chinese language instead of Mandarin as well. So I've been practicing, Meredith, Joe is weak. Neon is year? Did I get that right? Neon? Am I doing? Okay? Close? You know what do you want?

We're sumker, good luck, Meredith. Meredith. The President is scheduled to speak here this morning, is on his way to Colorado, to the United States Air Force Academy in Colorado Springs. And how do they interpret in the Chinese language the

Trump bluster, the Trump discourse, how does that translate into Mandarin? Well, actually, originally before I would say this latest escalation in tariffs, and also that the move to place halfway on the entity list, which really is a game changer for Beijing, I would say that the Trump was actually somewhat popular with the Chinese people. Um they see him as ta fund is standing up for US interests. But it's also safe to say that that the U. S. President has

now crossed a line with the Chinese. And as we are speaking earlier, Tom, we are watching very closely a lessening of moderation on the Chinese side and an uptick in nationalism that is not just in propaganda, but you're also beginning to see a sense from the Chinese people on wave wall and other sort of social media channels that they're beginning to feel like they're being bullied and they're not listening to the viable concerns on the U

S side that this economic relationship between the two the world's too largest economies, needs to be rebalanced and rejiggered for the twenty one century. A lot of people trying to understand what that means for economic activity within the country. Meredith, and whether there could be a boycott of US products and services. What's your read of that situation at the moment. I think there's certainly an increasing risk of that, and and really I think watching what happens with Huawei is

the key here. It's really that the focal point that the Chinese are are using to to gauge US intent

towards China. So if Huawei is essentially brought to its knees in a way that it will no longer be a successful global Chinese telecommunications company, you can expect that Beijing itself will find ways to reciprocate, but even more interestingly, watch what the public does, because the risk here not only for the US, but also for Beijing, UH is that if sentiment becomes nationalists to the point where Beijing can no longer control that, then it goes from Beijing

being able to finally dial up or dial down escalation with the US according to its plan, to Beijing no longer being in full control of how its own people, how the Chinese people are responding, so that the risks to UM high profile US companies in China, I would say, is certainly on the rise. How close do you think

we are? So that's hipping point Meredith, Well, so the with Huawei, the US issued a ninety day temporary general license, but already we're beginning to see strains on that company with um other it's global trading partners, it's global um UM business partners are beginning to to step away from

that company. Uh. So what to watch now between now and say the G twenty, crucially is whether or not there is any back channel that is opened or even a front channel between Trump and She to do something about Huawei, to to come to a deal with Huawei, and absent that, we're unlikely to see a productive or constructive conversation. Happened at the G twenty uh in Osaka at the end of June. That's the last best chance for both sides to avert and onward escalation from here.

What is a calculus right now between the leader of China and his communist party. I'm going to use the word pollet burro as an amateur, but what is the dynamic you see among the leadership of China. I know there's a huge mystery their meredith, but is there something new? Surprise? Really?

Huawei was the nuclear option. They expected that there would be onward pressure from from President Trump, and I would say that that the way that the US government has come out against Huawei by placing the company on its entity list in addition to the executive order, has really caught Beijing unaware, and it took them several days to sort of collect their thoughts and first and foremost gauge what has to be done to save that company and

then what is politically feasible for Shijianping to do. So what we're hearing is that Chinese are basically telling Washington we're not interested in talking at all about trade or about economic relations with you until the White issue is resolved. And to my knowledge, there is at this point no meeting between Trump and She officially scheduled for g twenty, and no active communication channel between the two on a way forward with either Huawei or with the broadest or

economic relationship. Is what you're discussing priced in the markets. I know that's not your razor group question, but do you perceive that the Western zeitgeist is up to speed with your razor groups? Caution No, No, And I think systematically we've seen markets sort of under bake the risk that we see moving forward in this relationship. Meredith has been really interested to see how financial markets respond, how

investors react to commentary and state media. I think to a certain degree, and you can define to what extent the perception of shin a stounce in this tride dispute is being shaped almost exclusively at the moment by commentary and state media. Do you think that gives us an

accurate picture of what is actually happening. That's a fascinating question here, um, and I would say that that broadly accurate, probably, But key here is that uh in the past, Beijing would use its state media to focus this messaging on its domestic population, and they used a separate channel to

message to the global audience. But now that you have so many of us, non non Chinese who are paying attention to to um state propaganda and state media, we are reading messages that Beijing might be intending for domestic audience, not a global audience. And there's a key difference there. Meredith helped me here. This is really important. I'm taking uh introductory Chinese with Anthony from Sparta, and here's my first sentence. Meredith, help me with the pronunciation woe en fongloa,

which is I took a day off yesterday? Like whoa is I right? Well? Yeah? Whoa close up? Yes? Whoa war Tom? You and I were gonna work on tones together, some great dumplings. Well, I did this at a bar in Shanghai with cash flow, and I flunked. Every time when you reach Chinese, it sounds like a speaking French. Really well, I was in the French quarter when we did shots. Every time I miss pronounced something, We're gonna let you run, whoa shoot eat Angia, I took a

day off yesterday? What a great first sentence for learning Chicks the fund getting slammed down by she is so good. I can't say enough on the briefing notes from you raise your group on China. They've been just brilliant. This is a joy, and this is odd. As you know, there are four thousand, seven hundred people running for president of the Democratic Party, and it is good to have someone dark in the door who's a little bit different

as all of you know, whatever your political persuasion. Uh, there is a small matter that Democrats have to take territory and votes where the Republicans live. The Cook Report puts Montana at a our plus eleven wal to wald Trump Heights from Bozeman to Grizzly Park, whatever it's called up there in the northern border. The governor of Montana joins us now, Stephen Bullock, who is a really interesting guy because it's so out of touch here you are in your state of the state a few years ago.

We need each other if we are going to make progress. You don't have a chance. How are you How are you gonna run for president? How are you going to gain traction within this this vast Democratic party in a polarized time? How do you get the message across you know? And Tom first, thanks for having me, Tom and Paul. But it is a polarized time. Look, I'm the only one in this field that actually one in a Trump state. In two thousand sixteen, Uh, Donald Trump took Montana by

twenty one points. I won by four of my voters voted for Donald Trump. If we don't win back some of the places that we lost in two thousand sixteen, this guy is gonna be president. But I've also my legislature six Republican and we've been able to do everything from have a fair tax system to investing in education and getting healthcare for a hundred thousand Montana's to Medicaid expansion. And if we don't actually, you know, the whole goal of this isn't just a win, it's actually a governed

Montana State University. They're the only place in Montana where there are socialists. We know that. I mean it's to the left of the they of course, is like COMI three oh two. Okay, Well, how do you respond to the democratic socialists that won't listen to southwest Pennsylvania or

from Montana across the entire state, And you respond to it. Yeah. Look, look, I am capitalist, but I think the capitalist system doesn't always work right now when tax laws are being written, when a Senator literally says, we have to do this to make our donors happy, or we can't even talk about climate change anymore because the outside influence of dollars. We have to fix some things, but that doesn't mean

necessarily abandoning what our country has always been founded on. Well, Governoren, what we saw certainly in the congressional elections on the Democratic side that we took the House but very much moved to the left for the Democrats. Do you think a centrist all Bill Clinton ken win a the primary and be the general election? Sharon, Look, I'm in many ways when comes to healthcare and getting actually things done.

When it comes to getting dark money out of our elections, I'd say I'm more progressive than anybody else, or as progressive as anybody else in the field. When it comes to actual accomplishments. I'm also you know, as a governor, I've had to balance a budget. So there are some conservative elements where I'll look at a tax cut and say, well, are we really putting this on our kids and grandkids? Or I'll look at plants and say, well, how are

we going to pay for it? I think what most folks want, any Democrats want, is somebody that can win and then start getting things done. And the values of everybody ought to have access to healthcare, education, ought to be affordable. Those same values are I think what both unites the Democratic Party but is transcends beyond that. How did you get Trump votes in Montana? You don't look Republican, You don't you don't walk republican, your entourage is not Republican.

How did you get What did you do in the diner? You know, Fox News goes out to the diner and doesn't touchy feeling thing. What did you do to the diner two hundred miles west of Bozeman to get that Trump vote? And first of all, I actually show up at the diner and not You know, we're getting to the point where I don't have the luxury of just going to pockets of blue in Montana expecting folks to win. I listen, I try to understand where they are now.

Folks don't agree with me on every issue, But if I can turn around and say healthcare is important for a community, because if we lose that rural hospital, that town's gone, then they'll get over this issue of Obamacare. Does policy work? I mean, I mean uh. Paul Sweeney mentions President Clinton the ultimate policy want up all time, and yet he'd always go back to the visceral to

get things done. Our Democratic candidates now over policying versus talking to the emotion and the residents that we heard from President Obama and President Trump. Well, I think that the emotion and the values everyone and that's demo crats are Republicans want to save community, They want to roof over their head. They don't want to have economic anxiety, you know, they want a decent job, the one good public schools, clean air, clean water, the belief you can

do better for your kids and grandkids than yourself. And I think that transcends both the Democratic Party, but it also transcends a lot of voters that ought to be with us along the way. If they're really voting their economic or their healthcare or their educational interests. So covernor I know this is is the beginning of a long process.

Few and for the other twenty some odd candidates for the Democratic primary, how do you get how do you stand out and particularly against you know, someone has a better name recognition, whether it be at Joe Biden or Bernie Sounders, it's Bloomberg Radio. That's what's going to change to their all for me, Paul. Now that that and look it is still even a feel the thirty seven or hundred and twelve or twenty three. You know, the

early States are going to sort out things. So I think that in those early states, me showing up making those connections along the way. Let's go back four years ago. Scott Walker was polling number one, Jeb Bush was polling number two. So there's a lot of time to make the case of that we need to not only bring out our base, but also bring some of these voters back. We need to get to the point where we can actually get things done, and we gotta get washing DC

working for us. Which state matters for you? The early States? Which one is really the one you're focused on? Russ? Is this I ask a rude question. Not not not at all. And I'm only two weeks in because my legislature was still going on and had to get my job done. But I had like a real job through the rest of them. Are you behind myself? That's I make a joke about it. But do you feel like

you're behind in the campaigning? That's sick? Where are Yeah? Yeah, in some respects because people are already saying all the pollings here and the numbers are here. But I did have you know, if I had jumped in two months ago, when my legislature was still going on, I wouldn't been able to freeze college tuition. I wouldn't have been able to get foreign money out of our elections. Well be frozen college tuition. I've frozen college tuition six of my years.

We have the fourth lowest tuition fees in the nation. That's not by starving our universities. That's by putting additional state dollars into the system. And the way can you like talk to the other four institutions. Paul and I are dealing with your get what's the pixie does he has? State of Colorado just wrote a big check to the university. Yeah, and and part of that when I was pitching in

that legislature, I said, you increase college tuition. That's a tax on about forty Montana's right, folks that actually need that. So but I don't think it's too late a couple of weeks in I've made number of trips to Iowa. I was in New Hampshire before announced, long before us in South Carolina. So that's where I'll start. Who's your

running mate? I mean, let's cut to the chase, un mate, you get out front of it a little early for that, Tom, but look, I want somebody Tuesday compliment my skills and values, have a different life experience, and step in if anything ever happened. I mean, there's a lot of good folks in the field, but I think it's a little early to figure out one. So I like to wrap up her interviews well, like, what did we learn in this interview? Steve Bullock frozen tuition? Okay, thank you, Governor of the

state of Montana. We'll be hearing much more, I'm sure about Governor Bullock here in the coming days. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast, you can always catch us worldwide. I'm Bloomberg Radio