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tv   Fast Money Halftime Report  CNBC  September 18, 2019 12:00pm-1:00pm EDT

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last night which were pretty rough and dragging down the transports nearly 2% then the fed meeting today. >> yes, r although i guess equal weighted transports still outperforming the s&p so far this year. see how long that can last get to the judge back at hq. >> the countdown to the decision one that has so much riding on it the move and message likely to drive your money in less than two hours. yes, that was the back of steve weiss' head. it's all new and it's the halftime report. >> the fed expected to cut rates for the second time in a decade. will powell signal more are coming and what happens if investors don't like what they hear? the bond king making a big call. jeffrey gundl arach weighs in. roku soaring 350% this year, but
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the stock getting hit today despite a big upgrade. should you buy on this drop? it's our call of the day halftime report starts right now. >> welcome, good to have you with us on this wednesday. what a big day it is our investment committee is here joe, steve, carrie, we begin with the latest in the markets where stocks are clearly waiting on the fed i was going to go to you first, weiss, but -- >> you should. go to weiss. >> penalty box sometimes it's best not to lean in, steve. what has to happen today in that's what i want to know first. what has to happen today >> powell has to come out and not be overly hawk in what he is p projecting for the economy >> so you have to have a cut and you have to have a dovish cut. >> you have to have a dovish
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cut. i think that we have a market that could be disappointed after today. i think a lot has been priced in in terms of the construct of the market itself. let's keep in mind in january of '18, you had a cyclical pique. in september of '18, you had the fang pique and in july, you now have a growth pique. you need to have growth participating. when i say an s&p growth pique, hon hon honor honey well >> what has to happen today. >> fed has to cut a quarter of a point. the first thing they have to do. they have to cut there's -- >> you need more than that though, don't you? >> i don't think so. >> 25 basis points, but you node a message with the move, don't you? >> i think it's that we feel this is a level from which the
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economy can continue to move forward. that the slide back, the industrial production weakness, the orders that consumer spending will be able to remain strong at this level and that we don't have to do more. he has to give a sign of -- in the economy. >> there's a chance of disappointment today >> that would only become something if powell getting up there and stumbles twice >> hawkish -- >> if he gives you the wrong message after we've cut that quarter point and does not give us the confidence you were just talking about in the markets themselves, scott, yeah, then joe would be right i think this market tart starts to get some high level selling pressure on the market i don't think he's going the make that mistake. we all know, i think it was 100% after of liesman the oh day about the fact they're going to a quarter. say this is priced in because i think that it is but it's all about his communication afterward. >> liesman made the point earlier, you look at the data
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recently, again today, they could justify, there's really no reason to cut. but then you look globally and say okay, maybe there is a reason to cut. they've got to you know, work through both of those sides of the deal. >> yeah so i think their mandate has gotten away from them a little bit so instead of focusing on your dual mandate, employment and stability of prices, they're now take iing a look at what the rest of the world' doing and can that come over to our shores even though it hasn't. look i think at some point, the market is going to be disappointed and i think it's inconceivable he comes out and is hawkish while cutting i think that's off the table >> hey, if he says though steve, you know, if he reiterates that whole mid cycle adjustment stuff, not going to go over well >> i don't think he makes that mistake again. what i'd like to see him do is take, is have the market take a little bit of short-term pain and by that, i mean come out if you got to do 25 bips, do it, i don't think he should.
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steve doesn't think he should. i believe. and we've had some others come on here. the economy is doing fine. and they don't have a lot more powder you know dry powder to go so what i'd like to see is give the 25 the market's telling them to do that then say look, this is it for now. and we'll see how -- that's not hawkish. >> if he says that's it for now, that's hawkish >> he's not going to word i like that, but -- >> okay, that's the message. >> that's what we're talking about. >> let me tell you what the message should be. boowe're data dependent we recognize the risks in the global economy u.s. economy is doing fine data is fine we'll be data dependent before we make more cuts. if the market trades off, fine, let it be that way, but can't aafford to allow the market to continue to didictate what he ds there's little chance the fed
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would be cutting if fed futures -- >> doesn't want to dictate a move in the market by what he doesn't do he doesn't want to upset the market to the point where you get a real disappointing move in stocks he's done that before. >> no doubt and the president himself is obviously we all know how much he's looking at market right so does not want to stumble that one in front of the president. >> oh, i disagree. i absolutely do. >> do you think anything powe powell's done is the result of the tweets from the president? >> i think there's been an influence to what some of those who sit on the fed are voting for, yes i absolutely do. yeah >> it's not what he says and it's -- >> do you think powell wants to cut, so you're telling me, so what you're saying is that despite fact that trump's been pressuring these guys on getting our rates closer to zero and to try to compete with the rest of the world in that area, you're telling me that right now, they have the reason for this quarter point cut? is there a quality reason right now that you can come up with?
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>> yes, the president's own trade war. would they be cutting rates without that. >> no. >> you think they would? the data's good. >> it is we are going to cut -- >> everything's in question. >> i got to tell you something they have, jon's talk eed about this for a long time they are going to continue to cut. when you look offshore, that's the reason behind. the president's had an influence and if you don't think so, then why do we make such a big deal >> because the it's so unusual to have a president. >> it is but you don't think he's having some success >> i don't think he's influen influencing the fed at all i think if anything, the fed will take a hard line the other way because you've got to protect the sang sanctitity of the fed which the president doesn't do >> they're not going to answer that we. what we know is that federal express for example reported a terrible quarter and you had adobe dispoint aappoint and i th
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market is just react iing to what's going on in the economy the economy has underlying consumer structure it doesn't have underlying strength in a number of industries that are affected by world demand related to china. interest rates commodities. the fed has to look at that data and understand what the implications are so that's what he's going to use when he says we should cut >> the perfect time to bring in steve liesman. hooe he's live at the fed. i know you listened to the whole conversation and i'm sure you have thoughts on many different things >> aren't you the a little embarrassed z i've got to get my cake now and if i don't get i, i'm going to throw a tantrum and fit that's going to embarrass you like when your kid did it when you're in line at the air participant. i don't know if that's happened to you, but it's happened to me. that's what it sounds like i need my cake and a promise of more cake to come. >> i don't know, steve blame the fed chair somewhat he told people, he thought we were getting cake and then he
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change d the menu he chaked the menu on everybody after they started salivating over the cake. >> i think it's going to be a quarter point. and we'll see. that's what i think it's going to be, scott i think he's got, i think his -- look, the market is one of his masters. his committee is also his ma master i don't know that his committee right now given where the data are, is in a place where they can precommit. i think it's, the market is priced for a 53% probability of another cut in october and it's more fully priced in by december i don't think the market is priced crazy but i do think that the data has to catch up with where the fed is right now and it is not in a place where it is justifying massive cutting. i think actually, scott, you derided it earlier, but the mid cycle adjustment concept is
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probably the one the fed is still operating under. i do not think they're sitting in that room envisioning eight, nine, ten quarter point cuts down the road. i think it's a quarter we'll check it out >> that's fine if that's what you're operating. >> it's what it is it's mid cycle adjustment to people who are, who understand what he's talking about. meant three great cuts and we'll check it out that's the m.o. right now in if federal reserve if i had to make a guess. >> so, steve, we're going to get the announcement this afternoon and somewhat similar to july 31st is there anything that the president can do in the next 24 hours if he is dissatisfied with what he hears from the frrz? actual policies. weakening the dollar are there any steps that we could be prepared for? >> joe, interesting because the president has complaineded about the level of the dollar. it is actually within the per
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view of the purview of the treasury to adjust the value of the doll r lar if the president and treasury secretary want to go in and weaken the dollar, that's up to them to do and by the way, this is an interesting aspect to what we're talking about here i think it matters a good amount if the fed does too little, that could strengthen the dollar again and that would i think be counterproductive right now. but if the president wants to do that, you b obviously he has never shied away from criticizing the federal reserve. and i agree a bit. i think it was you know, pete or jon -- >> it's pete >> saying it does have an effect i think it does. you can't live in a vacuum these are human beings and are survey showed guys that 36% believe that -- >> he's talking about you, pete. >> 36% believe this has made monetary policy. >> so you think the president -- you agree with pete that the president's tweets have impacted the fed's decision making?
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>> i think it does i think it perhaps creates a bias >> it's a psychological imbalance. >> the -- it creates a bias, scott, for them to be looser than they would be it's hard for them to say you know what, we're going to hold the line save our powder for later on when we have real weakness when in this context, the president and by the way, the president has his minions. it creates a public issue for the federal reserve which the fed has been trying to kind of unwind the negative public relations problems it had in the post financial crisis era. >> so, steve, let me ask the question specifically. which 25 basis point cut that powell has done and done one of them, is it the one he's done? this one coming up that's directly atritributed to trump'
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tweets >> i think you ask a good question, steve torks nail down how i feel about this, but i don't think i can answer it. i don't think there's one single thing. there have been, by the end of today, there will have been three meaningful steps one is is it reversed course from hiking and then it cut and then it's going to cut again today. so those are three meaningful steps. i don't know maybe there's one extra quarter point cut in there maybe the december hike, you were talking about that, steve, about their need to protect the credibility. maybe that hike would not have happened had the president been silent >> we'll see you're going to be busy later and we know twitter's going to be busy later, too see you in a little bit. >> can ask one more. >> weiss has one more thing. >> so you talked to the fed all the time to people that are involved. i don't expect you to identify who you're talking to, but is that statement the president's had influence upon fed policy
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coming from what you're picking up or is it purely based upon your view of what's going on >> it's based on two things. one is we did our fed survey and about you know, a third of the people think or actually 40% believe it's had an impact is that screen up? you guys are great in the background there really nicely done we didn't even plan. but there's the guys getting it together to show you the data that's one thing you know off the record, i'm not picking that up from fed officials. off the record though, they are saying they hear what the president's saying and it ain't easy to make policy in this context. >> well i hear you, but that's different. may not be easy. when you know you're going to g get smacked around on everything you do or don't, but that doesn't necessarily mean it's n influenced the decision making and vote taking behind the door. we'll see. steve, thank you as always steve liesman for us carrie mentioned while ago fedex
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getting hammered today missed earnings estimates. the big issue seems to be the commentary, is this a fedex problem? that they've had management missteps and failed to recognize it that was the deutsche bank comment. price targets coming down. bigger picture or fedex? >> i think this company has that had this series of mistakes for years and one could say the fact they've walked from the amazon business might be a mistake also or to figure out a way to compromise there on the other hand, they are an enormous carrier of product around the world and to see the level of weakness that you saw in the numbers, the volumes just weren't good and you have to attribute some of that to global demand that's softened so they're not the only company that's seeing it this may be a fedex problem. in particular, but i think it's emblemmatic of what you might see from other companies that are going to be reporting over
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the next few weeks that's fair. the analysts who i spoke to in the ls hour said you can't attribute everything to self-inflicted management issues that the global picture has something to do with this story. >> superior executions coming from which side though we heard from ups back in july >> they say not from fed eck >> they crushed it you look at fedex, their execution strategy has not worked ups has put more into what they're doing. their far larger ground transportation than fedex is because of that, they are similar companies. obviously. but i think when you really look at them, there is some differences that you could look at and say this one is more exposed here versus this one because of that, just take a look at coming into yesterday. the outperformance of ups versus fedex. i think that explains it to you right away you look at ups. had a great year it's gone with the market. tp sligs&p slight outperforminge s&p. fedex, struggling. i think says more about fedex, what we heard last night, than
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it does about the entire economy. >> upz ups has been the place to put money year to date either way with fedex, whether the economic contraction globally or self-inflicted problems at fedex, you really can't look at it right now, but in fedex's defense, i don't think people recognized the significant of the cyber attack on tnt when it happened. >> that's fair it was mention ed as well in tht interview. >> that's incredibly important and that's been allowing for a significant loss of market share in europe to ups >> buying fedex today? >> i'm looking at it it's historically ridiculously cheap. you take -- >> if their numbers are right. >> i would take when you cut your guidance by 20%, they're smart enough to make them right. >> hope so >> made that mistake before. with other companies so look, cheap enough to look at >> big interview comie ing up
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here's what else is coming up. >> a cnbc exclusive with jeffrey gundlach ahead of today's fed decision what he thinks powell should do and why he thinks interest rates have bottomed for the year and all day tomorrow on cnbc, the dlifing alpha investors summit is back for its ninth year in new york we'll explore the critical issues impacting today's markets with david taylor. nelson peltz and more. plus, we'll hear from sec chairman, jay clayton and joe kernen will sit down for a liriala.m. with vice president devengphco the halftime report is back in two minutes.
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roku shares are sliding. comcast unveiling a similar
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service, however the stock still up over 200% and googheim saying it's going higher. they keep the buy rating we've made it our call of the day. man, this thing has been a bonanza. up 355% year to date >> this volatility today is is not the first day. look, it's clearly been momentum stock. it's overcome fund mamentals and valuation. momentum in the fundamentals has been very strong, but b i don't believe this is the kind of market to go into for overvalued equities that are momentum trades so let it come back down to earth. i don't think it is yet then get involved >> talking about coming back down to earth. it is just touching the 50-day moving average just touching it now with this decline. something it hasn't done in many months, so i think steven is right. it's about momentum chases l and when does it come in again >> competition an issue.
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>> yes >> before today's announcement from our parent, competition has been maybe a central risk. >> there has been that thesis to it >> no one paid attention to it >> it's been impervious up to this point i would say streaming overall from a fundamental thesis of investing, i think i mentioned it last week akam $15 billion company. it's been named to several of the stock indexes recent ly tha focus on esg and way to play this wave into streaming i think it's a little bit less volatile than roku >> until they report a quarter i used to own this stock one quarter, they do well. next, they complete lly miss it then you have to start all over. maybe they've gotten religion now. >> if you look at disney, which had the enormous move when they
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announced the streaming service, since then, it's been basically flat you look at other participants, netflix for example, has not been a good stock recently comcast, not great i think roku is now beginning to be seen as another one of the players in a market that is costly and they're a participant where there's going to be more pressure and there's no reason where it should have that same level of the solution. it's right in with the mix >> if you're into low eer beta growth stocks. ubs, they have a top ten on there. not just talking about tech even though we associate growth and tech in the same conversation. next err energy. medtronic. boston scientific. dollar general diamond back energy. facebook >> at the top of the show, i mentioned sgx, if we could pull up the chart the s&p 500 growth etx
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got a focus on equal thety on low beta. the names we talk b about. american express honeywell. microsoft. names you were mentioning here that piqued in july. i think it would be very difficult for the overall s&p 500 index to continue to march higher after having a fang pique in '18, cyclical pique in early '18 and now a growth you have to see that being taken out once again and b i believe if you see rates begin to push lower, again, there's been a tremendous amount of volatility in the ten-year. 145 to 190 that's a lot of volatility if you're now going to push yields back lower, growth to me is going to be favored again >> pete, before we get to gundlach, unusual activity >> at&t today. very interesting because we don't really see this often, scott. it's really off the radar. couple of weeks ago, elliot management disclosed the fact they made a large position there. we know they're very activist n
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investor, but 10,000 of the swran 39 calls for bought about 60 cents is what they paid for those. is this going to be able to get up and close they could when you look at the time frame we've got now, three months, the january 39s have a shot to mayb get into play. the next is tri point. the home builders have been on fire this is a name that doesn't come up often trading underneath $15 a share and the january 15 calls were bought about 3,000 of those pay iing about a dollar for thoe it's interesting to see on a day we talk about this all the time, everything's short-term. today, i got you a january and a january. so people are looking out a little bit and maybe it has to do with rate cuts and where the rates are going. why at&t is on that list >> coming up, h halftime exclusive with double line's jeffrey gundlach what he thinks the fed should do on decision day. take a look at what's happening inside the s&p 500 today down about nine points
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utilities, obl space within the s&p in the green ahead of the fed. halftime's back right after this it was that voice asking me, "is your daughter ok?" that's where i felt relief. we're the rivera family and we plan to be with usaa for life. see how much you can save with usaa insurance. ♪ ♪ i've been a caregiver for 20 years. no two patients are the same. predicting the next step for them can be challenging. today we're using the ibm cloud to run new analytics tools that help us better predict and plan a patient's recovery. ♪ ♪ ultimately, it's helping thousands of patients return home. ♪ ♪
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the trump administration is revoking california's authority to set auto mileage standards that are tougher than national ones the move comes after the justice department recently opened an antitrust investigation into a deal between california and four automakers for tougher pollution and related mileage requirements than those sought by president trump. a human rights watch reports says that the deforestation in the amazon is driven by criminal networks and it blamed brazil's government for failing to protect the rain forest. >> through his words and actions, the president has effectively given a green light to the criminal networks engaged in illegal logging and by doing so, he has put enforcement agents and local forest defenders at great es risk and india has decided to ban e cigarettes
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while also causing breathing problems the ban was aprooued by the cabinet today. that's the news update this hour scott, back to you >> thank you very much the ten-year yield ticking lower today. fed, a big decision looming. eric and the futures now team tackles that >> that's right. te ten-year dropping back 1.8% as investors wait to hear what powell has to say our traders today, scott, start with you the fed still expected to cut rates but what are the chances we could see some kind of surprise >> right now, they're saying there's a 30% chance we get no change now that's up substantially from last week when it was about 10%. i think the federal reserve realizes what's going on in the overnight repo market. they realize there, market rs trading above the high-end of their range.
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they may say we don't want to cut. that would be silly. so i think the fed realizes this is a really dangerous moment for them >> that's right. that would be a big surprise that 30%, much higher than 10% a few days ago in the repo market. powell is going to take the podium going to give explanations do you expect yields to move which direction? >> not on the cut itist itself, but look for the guidance and the outlooks that's what's going to move yeld yields right now, 129.25 is the 50-day moving average 130.27 is the 21-day i think the fed cuts and we probably get there >> thanks. that does it for us. for more futures now, check out our website. bob k back to you. >> thank you speaking of rates, double line's ceo jeffrey gundlach is straight ahead. talk to him next
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the fed's decision about 90 minutes away with most expecting a quarter point rate cut our next guest, jeffrey gundlach joins me now in a cnbc exclusive. good to have you back. >> good to be here >> what's the fed going to do today? >> i think everybody knows they're going to cut rates by 25 basis points interesting that just a few weeks ago people were talking about a 50 basis point potential cut and even an intermediate cut that was sort of in the wind there back at the end of august but now the bond market is really taken away the possibility of a 50 basis point cut with the back up in rates that's happened globally of about 25 or 30 basis points over the last couple of weeks so the fed has a pretty easy job. bond market says one cut no need for anything drastic and yet the stage is perfectly set
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for that interest rate cut today. the real question is what's going to happen with the dots? i think the fed almost wishes hadn't come wup this because they've had a hard time predi predicting their future past would be for the past year so we'll see what happens with the dots you'll might remember that at the june meeting, the idea was that they wouldn't be cutting rates here in 2019 but then just one meeting later, they had to cut them once and had no cut for 19, but one for 2020 be interesting to see if they bring that cut in 2020 forward to 2019. i think that's going to happen and maybe say that 2020 they won't have to cut rates. economic data got really soft global ly there for a while but it has improved a little bit. if you watch it closely. in the past few weeks. so the sort of urgency that was out there for more drastic things went away except for the kerfuffle with the repo market
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not having enough reserves and leading to this amazing spike in the overnight rate yesterday to almost 10% briefly before the fed did the repo work so the fed might have to start qe light as i call it. meaning they go back to expanding their balance sheet in line with the inkrecrease in currency to get the free reserves in the system higher than what seems to be this toggle point of where it is right now at about under 11.4 trillion have to get that hire. be interesting to see if powell talks about in in the press conference i think he has to. >> i think he'll be asked about it i mean not more q ere is not the only solution you would admit to what's taken place in the repo market it's the one you've mentioned. it's i think maybe undoubtedly the most dramatic one, but it's not the only solution and how worried should we bo aboe aboutt
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>> that's a good question, how worried you should be. clearly a short rate's getting out of the fed's control even briefly is problem atic because of the template of the past surrounding lehman brothers. doesn't seem like that's likely to happen, but there's not enough verves in the system to provide the liquidity. what they used to do before the global financial crisis, i call it qe light. they expand the balance sheet in line with the growth and currency they could always do a permanent repo facilities and the like, but seems to me the fed is almost anxious to start increasing their balance sheet again. back in january in a u turn from the december disaster where they said qt for ever in spite of economic realities, you know they started to eed talking aboe potential of qe not being an extraordinary policy anymore, but a regular policy tool. seems the skids are greeced for
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the fed to go and do that growth of the balance sheet in line with the growth in the currency like they did prior to the global financial crisis. but the fact short rates are spiking obviously is in no way a positive the fact that the reserves seem to be at the right level except they're not, there are obviously pockets in the system and a cause for concern especially because the marktds are in a fairly table place right now you imagine what would happen if you were in a situation where there was a real quesqueeze at a quarter end or year end during a risk off experience in the markets. so the fed will address this i think, but again, i think it's going to be through expanding the balance sheet. look what draghi did swrjust la week said $20 billion of qe, euros rather of qe per month, on an open ended basis i was in europe at the time last week and i was meeting with a lot of very, veriage asset
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allocators and i noticeded a real change in sentiment regarding what's happening with negative interest rates and policy the changes i observe d would yo describe there's been a pivot away from this idea that the circumstance that we're in in the ecb and banking system there is temporary time i was in europe, there was this feeling that negative interest rates were a novelty that you had the live through and suffer through and endure if you were a financial institution, but the mood now seems to be there's an awareness growing that this is a fundamental policy that central planners want to get the inflation rate substantially higher than the interest rate or put i, to keep the sbes rate below for negative real interest rates. i think they're starting to realize this debt problem that we have in the developed world is really starting to show up in the financial system just look at the underperformance of bank stocks as a sector in japan and europe pretty much persistently ever
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since interest rates went negative they're starting to realize this was a situation we've got ourselves in that has a long-term problem. weirdly, there's a contradiction between long-term problem b being exacerbated by short-term solutions. so the way that central planners are dealing with the long-term planning of negative interest rates being fatal to the banking system is weirdly more negative interest rates because they think it's going to help in the short-term but eventually, and this is a team i've been thinking about a lot as this year has progressed, eventually, a lot of short-term solutions that exacerbate long-term problems lead you into a reality where finally, enough short-term things lead to the future, the long-term, being now. and i think that's starting to happen with negative interest rates. the solution in terms of slowing down the long-term come sboog our reality is to keep interest rates below the inflation rate in other words, negative real interest rates as much possible.
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which is a really problem for investors who are fixed income focused. like they are particularly in europe where they're say iing t objective of the l central planners is to make bondholders lose purchasing power systemically over time >> yeah. >> and that's kind of happening here in the u.s. i mean the fed funds rate's about to be cut down below 2% and yet the core cpi came out at 2.4. the highest number in a decade, so i guess they're succeeding at get iting the inflation rate up with the policies and we're now, inflation rate in the yunited states is higher than the yield on anything. >> help me understand why you said this week you wouldn't bet on lower interest rates and you think that rates have put in a bottom this year while at same time, you're suggesting here that the fed could do more qe and they could continue cutting. how does that all play together? >> well, first of all, the fed cutting short-term interest rates doesn't necessarily mean
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that long-term interest rates will go down and also, his ttorically, quantitative easing has actually been correlated with rising long-term interest rates this has been something that's been a problem for a decade. that ef time the fed ramps up qe, people think it's going to suppress interest rates but the opposite has happened pretty much every time, that when they do qee weird the market sees it and it raises long-term interest rates the reason i say that i think long-term interest rates have seen their low for the year is primarily due to the action that we saw into the bottom of interest rates in august which was the kind of panic, the kind of one sided, this is a freight train forever type of feeling, which was the same as how it felt in july of 2016 when the ten-year treasury did bottom at 132, the low in august, we got to 144
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amid almost an identical e set up u of really a panic for a buying of treasuries and a deflationary sort of feeling this idea fed needed to cut rates and the president saying we should have negative or zero interest rates this is kind of a shen doe of sentiment that i believe has been rejected. now that the 30-year treasury is well above 2%. got down into the 195 zone or so on a 30-year, but now we're above the pivot point, the low of 2012 and 2016 rather. so i just think that we have one of these exhaustion moves. one thing i think is interesting, i haven't heard anybody talk about in financial markets, is the volatility indices which judge, we talk ed about back in may when i was with you in out there in the beautiful day in new york city the day after the sohn conference that volatility was going to spike and it did almost immediately. the vix index went way up but
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now the vix index has settled down to about 15, which is kind of an historical average number. a lot of people thought it would never get there again when it was living below ten in 2017 for so long, but the move index, really the idea of volatility on bonds, reb mains elevated in spite of the fact that bonds have really kind of stabilize and aren't showing a lot of volatility the move index is double nearly where it was in may. may 7th when we got dotogether new york, which kind of suggests that somehow, there's a belief in the bond market that volty is not going to go away and i view with the markets stabilizing the way it has in terms of yields, seems to me the move index being higher is is a little bit of a danger singal that maybe rates will move higher in a more aggressive fashion because they've stopped falling on the long end. so there's a weird contradiction between settling down of volatility ideas in the stock market which is understandable
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given the fact it's been relatively stable although it's a seesaw ride from the end of july to where we aretoday. and yet the bond market is showing real nervousness about volatility, which weirdly did show up not on the long end, the move index is what that's talking about, but rather on the short-term interest rates with that incredible spike yesterday. so i think the economic data has gotten better. yet i still think when we put it together, look at our indicators if for a session, it seems there's an increasing b probability of recession before the 2020 election obviously the yield curve being flat and inverted at least at this moment. out from the curve that's clearly something that's a precursor of recession you heard a lot in the media, after the curve inverts, they like to focus on the twos tens spread, not sure why exactly, but seems like when the 210 spread goes negative by a tiny amount, you start to hear all these, is this a recession
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signal but the way history has proved to work is that when the curve inverts for the first time, and i really look at not twos, ten, but we can look at that if you want i look at the fed funds rate to the ten-year and 30-year what happens is the curve inverts before a recession i've heard in guests on cnbc over the past months point out this correctly what people don't understand is that when the recession's getting to be close to your doorstep, the curve steepens out because the fed get it is joke finally that they're behind the curve and they need to cut sbres rates r more z >>f you get in a rate cut cycle, it could steepen. it would steepen the curve su sure. >> absolutely. that's what's happened when the curve steepens out, people say oh, this is a sigh of relief it shows that the fed's on the
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case and recession could be averted. what happens is once the curve starts steepening out, recession's getting closer and closer the indicator for a recession that is the most compelling in terms of watching and being concerned about is consumer sentiment comparing how consumers in the united states feel about the present contrast to how they feel about the fuf what happens before a sessions every time in a very convincing pattern is that first, consumers start to feel bad about the future they say the future looks worse than how i feel about the present. that started quite a while ago now where the view of the future was much grimmer than the view of today that puts you on kind of a notice just like the yield curve invert iing that maybe you're supposed to be on recession watch then the consumer continues to be pessimistic about the future, but then their attitudes about the present start to deteriorate that's started to happen in
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europe and in the united states to a more minor but not insignificant degree consumer's view of the president is starting to deteriorate pretty rapidly and the view of the future continues to be grim and this is really a very common sign of the consumer maybe being poised to. the consumer poised to pull back we haven't seen that that much >> the data again today suggests otherwise. >> yeah, that's right. but consumer spending, consumer attitudes and consumer spender are notorious for being very strong right at the last minute before a recession the consumer idea about how things are going that collapse last with new orders really in a freefall we've seen manufacturing not doing well that's when production came out higher than expected yesterday but still declined on a year over year basis because the number that rolled off from a year ago was even higher than last time. so, there's some indications i mean the ism manufacturing is
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below 50 that's not a good sign it's much more of a mixed bag. sometimes when we talked in the past, we talked about how there is really no compelling case that a recession might come within the next 12 months. but now even the new york fed model which uses the shape of the yield curve has recession possibilities in the next 12 months about the same of the probabilities that succeeded since 1985 so -- go ahead >> given all that you said and how we started with what you told me you think the fed will do, what do you think the fed should do? you think the fed should cut today? the data has been pretty good. it's the insurance aspect. >> actually, i don't think the fed should cut actually. but they will because the bond market has given them the full green light and there's all this kind of pressure for them to do
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it i think what the fed needs to do is step back a little bit. first of all, i think they need to develop more of a framework seems like every press conference that jay powell gives the message is very different from the one six weeks prior so, just think about how the journey we've been on since december in terms of changing the rhetoric and that last, i guarantee one thing you're not going to hear from the fed today. you're not going to hear mid-cycle adjustment which is the centerpiece of the press conference at the end of july. i think the problem with that, it drops, the dow drops 1600 points after that press conference and now it's rebounded. i think the problem is, nobody even knows what mid-cycle adjustment means that's not a standard industry term what does he mean? does he mean that he believes the economy is mid-cycle after ten years of growth and the yield curve inverted does he believe that that doesn't seem credible or means he is halfway through
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the tightening cycle and that he will raise interest rates another 200 basis point after the insurance policy type of activity no insurance policy going on here this is responding to weaker data the weaker data is no where near as scary as it was basically a month ago. so, the fed doesn't really need to cut rates it got into this place where there was this call for an intermeeting, 50 basis point kind of cut that kind of got the market in gear for the fact that this is going to be a cut meeting. i don't think they will cut rates, i don't see the purpose of it. underneath the surface of all of this to get interest rates substantially below the inflation rate and keep them there. that is what the doj has been trying to do forever and it seems that we have been pivoting the united states towards more a warm embrace of
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that type of a policy and it is sort of succeeding it is a way of slowing down the debt compounding problem i have been talking about we do know that the national debt, sorry, the budget deficit, which understates the growth of national debt is already higher than it was here in fiscal '19 than it was in fiscal '18 by over 25% >> but if you think, jeffrey, that you're going to have, you could have a recession before the next election and you're worried about some of the things happening around the globe, what is wrong with the idea of an insurance. part of the fed's job is to prolong the economic expansion if this is the way that they think is best to do it, why is that such a bad idea >> i don't know. i think that basically what you have is inflation seems to be at the fed's target they say that the target is sort of 2%. sounds like more of a floor now than a target, but that's where they are i mean, the stock market has been, you know, it's been
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volatile hasn't really been going up. it isn't going down. when we got together in may i took a look at it this morning i think the stock market is up 1% since we met way back there on may 7th but at least it's not down it's acting completely in a stable fashion so, why, why would you need to cut rates as insurance policy when gdp is running from the atlanta feds gdp now at 1.8 i know it's not 3% everybody hopes for. but not terrible the president says it's the greatest economy of all time that's really kind of an average economy right now. if you look at where we've been over the past post-global financial crisis great recession period we're about on average where we've been so, i don't know, why should the fed for most of that time period the fed has been in a do nothing mode then they tell you rates nine times and now cutting them
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a little bit i don't exactly see what the real urgency is for cutting interest rates >> what you laid out, more q/e more cuts. this could be music to the person's ears, the president wants rates to be cut and would be fine with negative interest rates. what do you make of the whole dynamic we've seen over the last several months >> well, it's obvious that president trump wants the dollar to be lower and the way to get there is to cut interest rates very dramatically. so that you eliminate the interest rate differential that exists between the united states and the negative yielding areas of japan and europe. he wants that to happen. the president seems to want as much debt as possible. and as much borrowing as possible and he wants zero interest rates. interest rates to facilitate an
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open-ended debt binge and, obviously, the democratic party is running on immense spending programs i suppose that they, they don't talk about the fed the way the president does, i suspect they want lower interest rates, too we're in this place of extreme bond supply coming at us in the next recession and i think that is fundamental starting point to think about portfolio allocations looking for multiple years when the next recession comes, it's going to be a real issue as to how we deal with the amount of bonds that are going to be flooding the market. we saw this week, again, with the repo emergency that the fed had to enact yesterday that was brought on because we had a mismatch in terms of maturities of bonds and cash payments for income tax and the like and a small amount of maturing bonds and issuances that was about $54 billion
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it was $54 billion the hiccup in the short-term interest rate funding market imagine what would happen if we had $3 trillion of long term bonds floated in the wake of a recession that's coming. i think that's really important. so, i think as the deficit explodes, we should expect the dollar to be falling we should expect the dollar to fall in the next recession i think that's fundamental in the way we think about how we allocate assets. my favorite chart of the year and i used it in my webcast yesterday which will be up pretty shortly i went back and looked at the four major regions of the major stock market going back to the 1980s. what happened is that the japanese market was the world leader in the late '80s. it was perceived to be invincible the nikkei outperformed every market every other region the euro zone, the united states and the emerging markets by a
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huge amount in the late '80s the recession came and capped the nikkei and never made it back to that level ever again in spite of the fact that it's 30 years later. then with the advent of the euro, there was a lot of, i think, misplaced optimism about the euro zone's possibilities and europe massively outperformed the rest of the world going into the dotcom bust and then the european market completely collapsed after that. it's never made it back all this time 20 years never made it back to where it was in the advent of the euro. and then the emerging markets were absolute world leaders from into the global recession, the great financial crisis that crushed every other market in the world. and interestingly in that recession, the great recession, emerging markets got decimated and they never made it back to the peak that they were in >> less than 30 seconds left time goes way too fast >> let me finish my point.
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>> go ahead. >> going into this coming recession, whenever it comes the united states has clearly been the world leader and has massively outperformed everybody else in the next recession, we'll see the same pattern repeat where the u.s. ends up underperforming the rest of the world with the dollar weak pg i think for that reason, you look forward six or eight years long-term planning here. you should be allocating incrementally, gradualistically to nondollar investments and nonu.s. stock market >> we'll leave it with that thought. although i wanted to ask you whether you think jay powell will finish his term >> he will >> job is safe according to jeffrey gundlach that's jeffrey gundlach. that does it for us "the exchange" begins right now thank you, scott hi, everybody. 60 minutes to go the fed is set to make its call on interest rates on


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