Surveillance: Monetary Policy Can't Do It All, Says Rissmiller

do we have to wait for the crisis? Why do we have to wait for the recession for them to loosen the past race? Oh, it's an excellent, excellent question, and so the answer is we shouldn't have to, but there have been political reasons in the past that have meant we have not been preemptive globally. So I think the issue here is now you have the Bundesbank and others saying we may be getting to some sort of racist doesn't have to be as bad as the last crisis.

But that's what I think is being used to justify that this time could be different. There's enough intellectual support, there's enough academic support for some sort of spending fiscal policy is clearly the right answer in a world where monetary policy looks exhausted. And I'd say if you look at the amount of negative yielding debt in the world,

monetary policy is looking exhausted. Yeah, looking at the German tenual negative point six three and nine percent, So we've seen that for a long period of time, don I mean? So if I'm Germany, am I to what extent am I discounting a hard brexit at this point, because it seems like some of the rhetor are coming out of the UK is that is still very much on the table. Yeah, and certainly that has to be part of any contingency plan.

So if you're thinking about what could cause a crisis that's just a few months away here, Even if it's not the hard breaks that you're seeing a slowdown in the economy that's been affected by some of the uncertainty created by it, and that's impacted investment, and that's filtered through to the European economy. So hard or not, I think you're discounting some of those drags, whether they're coming from the UK side or the China side, which is

a whole other story. The mood of the markets is better this morning, but overwhelmingly, i'd say over the last couple of months, investors, economists desperately looking searching for a policy anchor. We have had a policy anchor throughout this whole expansion over the last ten years, whether it was the federal reserve, whether it was China and it's spending in a stimulus package, or whether it was the tax

cuts of a couple of years ago. Where does that policy anchor come from now, because quite clearly Chairman Powell is struggling to be that guy, struggling to distinguish what that policy actually is. Yeah, so that's an important point that markets like normal distributions, they're like a central tendency with tail outcomes there aren't all that likely. And in the world today we have some things that look not normal.

Whether it's Brexit where you could have a variety of tail outcomes, whether it's what's going on in Hong Kong where there could be tail outcomes that are quite different. It's hard to find what the central tendency is, and unfortunately it may come back to central banks at least in the near term. Fiscal policy can be an important tool, but it's going to take time. Even in the German case, monetary policy has to be the anchor, and that's the worry right now for a lot of paoples to whether

that can actually work. The thing that Jackson home is Friday the challenges of monetary policy, the current dynamic globally, the issues we have in this global economy, that is the ultimate challenge for monety policy. Can they really address it with monetary policy? So maybe we have to define what we mean by work here, and so I do think monetary policy could take care of an inverted yield curve. I think that is within the control of monetary policy.

Are we going to cut interest rates and have lower interest rates spur investment? That's much less clear. It's not clear that the problem there is the interest rate. It's the amount of uncertainty that's inhibiting CEOs and CFOs from making some of the decisions they would otherwise make. So

I think monetary policy has a role. I think monetary policy in particular with an inverted yield curve that's starting to come out of that position on the assumption that monetary policy could work, has a role, but monterrey policy can't do it all. So don I mean coming out of or going into Jackson Hole on Friday. What time of language do you think we're gonna get from Chairman Pal.

I think most of market participants are thinking about the next meeting will be basis points, perhaps fifty basis points, given some of the uncertainty that we've seen just in the last couple of weeks. I guess in the market place, what kind of language and body language more important do you think we're gonna get from Chairman Pal? So I think the market would love to see something that would, uh make a fifty basis point cut the right answer,

But I don't think we're gonna get that. I don't think the FED wants to guide towards a fifty basis point cut here. That's an emergency move and we don't have the financial crisis right now that would justify that maybe in the future, but not right now. So I think they want to be vigilant, but I don't think the language is going to be a whatever it takes type of outcome here. Outside of Chairman how we haven't heard very much from the governors and the board around him.

Don do you think there is a disagreement on the f WEBC that has been covering up over the last couple of weeks, we haven't heard much from the key players at the Federal Reserve. What do you think the reason is for that? So there has been disagreement, and we had two descents on the last vote. Usually the disagreement happens within the regions, So the regional Fed presidents who could say, in my district things look one way or another, would come in, fly in for the meeting

and vote a certain way, maybe descent on. We got that from the Boston Fed President Eric rosen Gren, who incidentally will be speaking of Bloomberg later on the southfternoon, but carry on, dump plays right, Yeah, So that happens from time to time. Often the vote is unanimous, but not always, and so one or two descents is something

that happens. But those descents usually come from the regional Fed folks, the group that all sit next to each other in Washington, d C. The Board of Governors very rarely descent and I think it's because the talk over some of their differences being in the same physical location. I do think that that matters and that lets the

chair guide uh the committee. So I do think there is some uncertainty depending on whether you look at the economic indicators, the typical numbers like jobs and consumer spending, or whether you look at financial market indicators like the Yel curve, and that tension I think is what's driving some of this disagreement. So, Tom, where do you stand in terms of outlook for a recession in the next twelve to eighteen months in the US? Because is John

let Off the show? I mean, you know, we look look at Europe weaker maybe perhaps then expected, China slowing. How do you kind of view the U s economy going into so with the Oel curve inverted, we thought of it like you're holding your breath. You could do this for a little while, and so you inverted curve, especially when we look at the three months to ten year versus the two year to ten year is telling us that there needs to be some policy action. The

Fed should cut interest rates. But if they cut interest rates, we don't have to have a recession. So the fact that we're holding our breath here means we could come up for air. That's a higher chance over session. That's a little more dangerous than average. But I don't think recession is the base case, given that the consumer still looks to be in good Chiape. They don't great to catch up with you, Don Rismuller, their strategous research chief

economists have a key week for the Federal Reserve. According to two people with direct knowledge of the matter, the German government is getting ready to act to shore up the economy by preparing a fiscal stimulus package that could be triggered by drum roll a deep recession, Class fistess and joining us now pantheon macroeconomics chief Eurozone economist. Class always love to get your insight. Why why why do we have to wait for a deep recession to do

fiscal stimulus in Germany? Yeah, that's that's it is very German. I do think that what's happening now though, is that we're seeing kind of a sequence by which it's very like that Germany is in a texical recession. We don't know yet, but it's very like that's going to happen. And now then what we're seeing is is UM. It's

slow movement towards UM, towards fiscal stimulus. I mean, the answer to your question is simply that the things that normally trigger fiscal stimulus in sort of a normal uh, sort of a normal economic context is the labor market. The labor market is like a ndicator. So if Germany is now in a technical recession and where growth has been slowing for since from the last for the last six and nine months, I mean, it takes it takes a while before the labor market starts to starts show

show showing the fact of that. And this is exactly what we're probably going to see in the next six or twelve months. So that's when you'll see the fiscal stimulus kick in. But just to get the dates, I mean, what we're hearing here now is going to affect the two thousand and twenty budgets probably right, this is pretty much as quick as they can do it. I think so, class I agree with you, and I think many people

were the optics of this are encouraging. The fact that the German government is even having the conversation is encouraging and perhaps build some optimism. But let's just be a little bit clear on what do you think this is contingent on at the moment? Are reporting and suggesting it will be triggered by deep recession? Are you saying it could be triggered by something a whole lot less severe than that. Yeah, I mean I don't I mean, I don't put a lot of emphasis on on this that

atteitive deep recession. I mean, fact that matter is Germany has had zero growth into the middle of last year. It's probably the technical recession. Now we don't really know. The labor market is already starting to suffer a little bit and probably will suffer more going forward, and that will probably enough for Germany to do something. But just to put some numbers on this, one number that's been bandied around is the sort of billions or sixty of stimulus.

We don't really know what that's supposed to do, but that's super sanity t P, which would mean that Germany would go from from a surplus to balanced by right. So, I mean, the numbers we've seen so far is still fairly modest in terms of sort of where we are now. So class just give us a sense some background of kind of what's been happening in the German economy over the last eighteen months in terms of manufacturing and the consumer. What's kind of tilting the German government to think about

this type of stimulus. Well, but then then this is one of the issues for the German government because the domestic economy has actually held up all right, which is to say, the consumer has has been doing okay. The construction sector up until very recently has been doing okay,

although I think that's rolling over now. But it's been all manufacturing and net experts and in some sense, if you are an expert oriented economy, and Germany is probably the world's most export oriented economy, and you get a hit to the expert for um and to to external demand while you're at full employment um and and so you so the government's ability to to come out quickly with with a fiscal stimulus program to to counteract that

is not um um is limited a little bit. Also, if you look at a sort of economic orthodopcy in Germany is that you know, this is why a lot of German politicians have been telling as well, you know, there's not much we can do. We just have to write this out. Although again to to to this conversation we're having here, I do think that's changing. But yeah, net exports manufacturing are the two areas where Germany has really suffered in the last six and nine months. Solus.

It just give us a sense of that fifty five billion dollar number two extent that that's somewhat accurate, just gives a sense of what you think that could do to the economy over the next couple of years, how helpful it could be, how stimulative it could be. Yeah, So the fifty five billion number that's banding around, I have to assume that's that's going to be sort of a standard changing stop gap in terms of sort of tax cards, things that that work immediately, right, because I

think there are two stories here. There are things that Germany can do in the short run that that would work very quickly in terms of getting growth up um sort of that tax cards for the for the lows middle in come, perhaps an increase in social chance. Also, remember Germany has very strong automatic stabilizes that kicking if job job jobless clam starts to increase it, that will also shield the German economy a little bit. But that's

not what we're really talking about. If you look at the story in general of the idea, is that Germany is supposed to, you know, do this multi year infrastructure spending in in its in its auto bonds or whatever. It's it's it's it's broadbands or like climate change or more defense. I mean, that's great, but I mean you're not gonna see me or any other years on FOECAST has moved the needle on on our economic forecast. Is that because that takes I mean that takes a long

time to come through. So there are kind of two stories here. And one thing I'll say is obviously that the bund market is really trading this now, which I think is really fascinating in some sense given where budd deals are now. I think, you know, more fiscal talk can really unsettled that market. But you know, markets will be disappointed with whatever Germany does because markets now expect

a lot. I think in terms of want a lot, there's a there's a normative narrative here that Germany really to do a lot, and I think that, well, it might be difficult for them to to to fulfill those expectations. Class we've got to talk about how you define success

as well. Morgan Stanleys Russia's Shama running in the New York Times over the weekend a really interesting article about some of the challenges the global economy faces, including Germany, an economy a country that faces a shrinking labor force and Russia. Schama running the following the forty six countries around the world, including major pass like Japan, Russia, and

China now have shrinking populations. And with that in mind, class whether we can just look at GDP figures, inflation figures and decide whether a country is failing or succeeding, whether we need to redefine the metrics that we use to define success and failure. Claus, does that resonate with you, No, hope, So I mean preach. I mean that this is this is the main story for me, and I think that there are kind of to two elements of this story.

One is that that that element of the story, which I think is completely turned in in the Eurozone now, train growth is probably in the structural in a structural decline because the working age population is not it's not rising anymore. But you still have a central bank that is to shooing the same inflation targeted as it was ten fifteen years ago. This is the same thing in Japan. They're not reaching it, so therefore they reach for net

more and more, negative interest rates more and more. QUI creates a lot of access liquidity flows out into the global economy and and and and that you know, and then now you have politicians in the US, especially Trump, you are very grumpy about trade death certain and trading balances.

And oddly enough, we are now moving towards a situation where it seems like we're more likely to double down, right, We're more likely to double down with even more steams, even more fiscal stimulus or monitor steams in order to try to counterbalance this store. And I just think that, you know, I so I agree with that sentiment. I mean, it's not it's not going to be it's not clear to me where that you know, nominal growth of whatever we wanted to be five to six percent in the

Euros I'm just going to come from. I mean, I don't see it anywhere, no matter what we do. And and so maybe that that's that's that's a that's a tricky world for markets to navigate. But I think the main story is that so far we're much more likely to get more stimulus than less stimulus, both fishal and monetary, because that's kind of like where we're where we're going. And Sharma is making that argument as well, that potentially this just leads to more fruitless stimulus campaigns in class.

I guess my final question for you is how many more fruitless stimulus campaigns do we need to have to get some of these central banks to look away from dated metrics for whether they're succeeding or failing. Well, quite a lot, I mean, I think, so look at the HV. We're having a change of gardener. Obviously a drug is

out and Madame mcgard is coming. I mean, we don't really know what she thinks about the different different things, but it's much more likely I think that we're going to get more of the same than less um and and all. Let me put it like this, if we're going to get less I mean, bond markets are sitting duck here, and then this is you know, in some sense markets have already made made up their mind and at the moment posting are following their lead. So you know,

I think you know most the same line. He class, great to catch you with. This conversation will continue, and if we get more of the same, I imagine some of these arguments are going nowhere. Pantheon macro economists, chief Eurozone economists joining us from the UK. There so much to look forward to through the week, all of it really centered around the Federal Reserve and the US economy joining us to weigh in. Lanta rain FS Investments Chief

US Economists, Good morning, chi Laura. Just walk me through what you're looking for this week. The minutes are really going to be the focus, and I think news from the rest of the developed world. We've had news overnight that Germany is considering a stimulus package. I think that we have to keep in mind the last several large moves that we've had in the US have come from down u S data point that we're really focused on this idea of a global slowdown, global market moves, and

really pessimism in the global bond market. So, Lauren, let's focusing on Jackson Hole this week. Obviously, as you mentioned, the minutes will be critically important. What kind of tone do you think we're going to get from the Fed, in from Chairman Pal You know, I think it's going to be a tone that takes us back to a time before we had the tenure at close to one and a half percent, at the time when there was a lot less cohesion on the set about what the

next great move should be. Remember, we had two dissenters at that meeting. In favor of not changing rates. So surely there will be a much more active discussion at that FOM meeting, with some participants thinking that the economy, domestic economy was strong enough to not move rates at all.

I think what we're going to look at is a really um you know, this difference between reacting to the fundamentals of the US economy versus a lot of the concern that we're seeing to financial markets and volatility coming from abroad. On Friday, the headline the topic the theme of this year's Jackson host Symposium the challenges of Monetary policy.

And I just wonder, Laura, whether that is the ultimate challenge of monetary policy right now, that these central banks don't really have the tools to address some of the economic challenges we have globally, and front and center that challenge being trade. I completely agree with you. I think I've long said that monetary policy gets both too much

credit and too much blame. The reality is that some of the big problems these economies are having, like slowing labor force growth, low productivity, even the trade tensions that we're seeing rock equity market. The said can only really put a band aid on what is a very big, larger psychological break um, and the tools that they have simply are not going to be able to ease a

lot of the bigger problems that we have. Really, the big concern is that over the long run, we're making a policy mistake by expandinging valuable ammunition with FED RAID cuts when really they're not going to impact what is

causing the larger volatility and financial discomfort. So, Lara, do you expect I mean, you know, I think there's a growing concern that the U S E. Commuquad has generally been slowing obviously but generally very strong, certainly relative to what we're seeing in Europe, for example, or even a slowing growth in China. What odds do you kind of put it at a US recession in next twelve of

the eighteen months. I am still in the camp that expects the US economy to slow potentially to uncomfortably low levels, but to avoid a recession, we may get one quarter of negative growth somewhere in the middle of but I think we're still looking at full your growth this year of two percent and next year maybe more like one percent. I think to get a recession, we're going to need a real event to happen. But you know, you can't

fight gravity with the rest of the world slowing. And I don't know what the ark of Europe so down will be, but certainly the headlines and the data are looking worse than many of us had expected. So it's hard to fight that. Gravity is going to impact the US economy, and particularly these large caps stocks are going to be impacted because they're prong tens of purpose as international.

So Laura, for the chairman this way, you at checks in Hole that speech on Friday, what do you think the challenge the objective should be for him going into this weekend. I mean, he is in a tough spot because markets have clearly priced and aggressive said rate cuts. After the f MC meeting, he worked hard to really

limit market expectations and walk those back. I think we're going to need to see if he sticks to his mid cycle adjustment language, which would imply one, they need two more rate cuts this year, or if he's really on board with the fact that the US is now in danger of slipping into a recession, which would imply a much more radical rate cut trajectory and larger real quickly. What is your I know it's back and forth, back

and forth, back and forth. Your sense on kind of trade and how this plays out over the you know, next several months, or is this something that's gonna be a post election I think this is really you know, we are now in this ground war for the long haul.

I think you know, there were deep divisions UM going into any kind of negotiations, and we may get a short term sort of trade deal announced almost like a like a mission accomplished, not the aerograph character UM, but I was a lasting, enduring trade agreement I think is quite far away at this point. Laura, great to catch out with you to get your thoughts in another key week for the global economy. Laura Rein, the FS Investments Chief US Economists, Going back to this story with Apple.

Apple CEO Tim Cook had dinner apparently Friday night with President Trump at the President's Golf Club in New Jersey. I don't see it reported that they played golf. But what they did do is talk trade. They talked tariffs, and I think Mr Cook was clearly trying to make the argument that tariffs are not good for Apple and certainly put them at a competitive disadvantage against some of

their competitors, including Samsung Electronics. So to dig a little bit deeper about what this could mean for Apple, we turned to Rob Schiff and Rob covers all Things Technology for Bloomberg Intelligence on the credit side. Rob, thanks so much for joining us here on a Bloomberg Interactor broker studio.

First of all, just give us a sense from you know, from the business perspective, you're looking at the balance sheet and the P and L. How much do these tariffs if they go full effect, Well, they have a big impact on Apple. Thanks Paul. You know, the reality is from a bondholder's perspective, it almost doesn't make a difference. From a stockholder's perspective though, it makes a huge difference

in terms of growth rate and trajectory. What Trump is clearly trying to do is get stocks to stay up high, and there's no better way to do it than to try to prop up Apple. So if there's a concept that you're going to have lower towerfs on Apple and product costs are going to be lower, Christmas is going to be booming for the company and helped rise the entire the hot entire market. I think when you think about it from a bottled perspective. As you know, I'm

a credit guy. It's almost Christmas every day because Apple just continues to generate massive amounts of free cash flow. So regardless of what the tariff situation is, um we we don't see much risk to Apple's massive cash flow. I think when you're projecting out revenues from quarter to quarter, you're gonna have significant ebbs and flows. And quite frankly, the equity market consistently has just gotten Apples growth traject

story in the near term wrong. And you see that by by big balances in volatility of its stock price. When you start looking over an extended period of time, let's just say twelve eighteen, twenty four months, I think there's less questions about longer term growth rates of Apple, and we can sort of wash through short term teriff issues. So when you take a look at the balance sheet here, I'm looking on the Bloomberg terminal here, and I see as of June about a hundred eight billion dollars of

total debt. That's a big number. But then I look up a little bit higher on the balance sheet and in the cash I see two billion dollars of cash. And you mentioned that I'm also looking on the terminal here about sixty billion dollars of free cash flow for Apple. So with that kind of free cash flow, why does Apple even go to the debt market. Well, they haven't since post tax repatriation changes. They haven't funded UM, nor of some of the other big tech players as well.

You know, Microsoft hasn't been in the market, Amazon hasn't been in the market, Cisco hasn't been in the market. UM. The concept of bringing stuck cash back from international coffers is no longer an issue. So what you're seeing our companies trending towards lower absolute debt balances. The problem that that Apple has is that they generate so much cash every single quarter it's hard to meet their goal. Their

goal is to get to a cash neutral position. As you just said, their cash position right now still over two is well over a hundred billion more than what their debt position is. So if every quarter they're pumping in an incremental fifteen billion dollars of free cash, how do they get there? They just re up their buyback program in May to another hundred billion dollars. You know, our sense is that it's going to take multiple years

for Apple to get to a cash neutribe position. You know, you could get there a bit quicker if you use your cash to pay down debt as well, and they've been doing that. You can see their total debt balances have shrunk almost twenty billion dollars over the last couple of years, and I think that will will happen, but I don't see them coming back to the debt market quite frankly, unlike other tech players, there's no M and A for them. Uh, there's just I think there's a

big media company which people speculate about Listen. We'd love to see it because it would be more interesting, but I just don't see that happening. I think they have enough organic growth potential um that they don't need to spend their money buying it. There's a lot of other companies that need to do that, like a broad Com or an ibm um or maybe even UH an Oracle eventually an Intel, but I don't see that for For Apple again, it's it's Christmas every single day exactly. Keep

getting so much. I think they're gonna meaningfully increase this buyback program, though over the next two years, a hundred billion dollars might grow to a hundred fifty around eighteen months out. Because for these tech companies between when they threat these huge numbers like a hundred billion dollar buyback, that a that that is a big number, certainly, and it does reduce the flow, But they also are issuing stock all the time, stock based compensation, which is a

big part of the compensation structure in Silicon Valley. So a lot of the buy back is just kind of off setting the new stock coming onto the marketplace. Is Apple actually reducing a share count? So the answers, yes, but it's relative to cash flows, it's still somewhat meaningless. So there's um there's a lot of stock to buy back just to keep the company neutral in terms of shares outstanding. They're buying back massively in excess of what

compensation issues are UM. So I don't really think that's the worry. UM. Again, from an equity holders perspective, you get stuck in a name like this because there really is no financial engineering that's going to change the story significantly. There's no large transaction. You almost can't buy back enough stock, and it really does boil down much more to fundamentals. When it comes to the credit side. I think it

becomes a little bit of a yawner. These names trade super tight and are likely to continue to trade super tight. The advantage with an Apple, though, is relative to a Google or an Amazon, is when you have a hundred billion dollars of dead outstanding relative to someone else with or four billion, you're gonna get incremental spread for that

because technicals are going to be meaningfully weaker. So you could buy Apple bonds ten wide to some of their tech peers that are lower rated, with less cash, lower cash flow trajectories, and still get incremental yield you don't. Luckily,

rates have really helped everybody this year. So when you think about a name like Apple that trades fift or sixty over a ten year curve, you think would be near impossible to get double digit returns, And in fact, across the Apple curve you're seeing ten eleven, twelve percent returns a year to date. That's going to be tougher as we head into next year, where rates are not

going to be your friend. So from an Apple perspective, obviously, the key question is, you know, as they can they successfully pivot away from being really dependent upon the phone two more of building up their services business and and having that be the growth driver. I mean, kind of how do you feel like that's going to play out for the company. Well, I think that's that's already playing out. The ability to on an absolute basis to grow handsets

on a on a global perspective becomes somewhat limiting. It becomes the law of large numbers. One everyone has a phone to everybody believes that the incremental upgrade of a new phone is not that much. More So, the way that you squeeze more dollars out of anyone is to put more services layered on top of that phone. And they're doing a fantastic job services across the board for them continue to grow. And I think ultimately, you know, we're not going to think about Apple as a phone company.

We're going to think about it much more as an application services based company with a broad wet ray of hardware. So the phone gets them in the door into everybody's house, car, business, and now all the things that we're seeing layered on top are really going to be the drivers of growth

in the future. Tariffs are going to have a smaller and smaller impact on that as you start worrying less about hardware generating the majority of your revenues and you shift ultimately in a few years to all these services driving the majority, and that kind of scenario that you just laid out, kind of a slower growth, but a predictable growth is great for bond holders and maybe not

so much for equity holders. Just looking at the stock kind of flat on a trailing twelve month basis, So equity investors kind of looking for that longer term growth story. Whereas as you say, it's every day is Christmas for an Apple creditor, Rob Shift, and thanks so much for joining us. Rob covers all things technology for Bloomberg Intelligence. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple podcasts, so Cloud, or whichever

podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.