What'd You Miss This Week - The Fed is the Only Game in Town

This week, Nick Maroutsos, head of global bonds at Janus Henderson, offered his outlook ahead of the Federal Reserve's rate decision. Nick told us why he thinks the Fed is "the only game in town" as investors are looking past grim economic data and drivin

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This week we got an outlet from the head of global bonds at Janus Henderson the Federal Reserve the right decision. They told us why investors are being forced to take risk and investment grade credit think the FED is the only game in town and investors are looking posturing Equinox 800 and driving up on prices, but the FED that box of it we started by asking Nick it we can go even lower intestines West open get you put army training in the US.

I don't see why not. Let me know that affect his life. They're going to give some sort of forward guidance. So they want to keep rates in check. It's not beneficial for rates to be rising in the sort of environment particularly as were mired in trying to navigate through a crisis. So there's only one direction that they can go at. The question is how much value do they offer treasuries front-end treasuries yielding am easily, you know, 10 15 basis-point, you know about to the 10-year and your yielding 58 basis points does not that much bang for your buck. So I think your investors are being forced to take risks are the other places that includes investment-grade credit Market where we seen a huge appreciation in credit in credit spreads in credit just in general particular because of the guards to the potential for going negative release getting down to that water line. I fucking on an official Benchmark faces even need to really do that at this stage with

Some of it so I guess the levers that has a pool with regards to Kiwi as well as it's a General market response to seems as if we're pretty much already at negative rates does the FED really need to make it official in any sort of form volatility? Not an all-time low, you know 3 basis point move and treasuries today is considered a large move considering what we've had over the past few weeks in the past couple months does the move to negative really achieved much. I don't think so. Fortunately the feds in a much better position the US economy is in a much better position than let's say something like you're up or other areas of Japan that have had more negative yield for significant amount of time. Where is they have the ability to increase the level of kiwi they can do these unconventional monetary policy programs again introduced fiscal stimulus that ultimately

The bottom line and keep the economy are these Bridges the Gap as the economy tries to power through this coronavirus crisis team do is it all because it's just the feds hunting in liquidity or is this actually really attached to fundamentals because the economy isn't rebounding as quick as we think we all think you know, the funny thing is is that the FED is really the only game in town at the moment. No one's really looking at the data. No one's necessary talking about the election just yet. You know, we're all in an environment where are not that many people are back in their offices. People are working from home on businesses are shuttering shoulders and sing while the feds going to be there to back stop it in general is that Bond investors typically don't buy bonds.

Those are going to appreciate you can make more money than the yield actually return questionably more which is why people are looking to move out the curve to longer-dated asset or moving into other asset classes, like high-grade credit high-heeled acids where they can get higher ed is implicitly back stopping us the impression that environment at least for the rest of the year. We're all a sack last team to do. Well, they may not print the returns that we've seen over the last few months, but certainly you're going to see a Sac classes move higher because of that said backing

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And this is where the risks lies you at the end of the day, we're Bond investors and we are hired to manage defensive portfolios that achieve a stable consistent income level. It's very difficult at these prices. We are used to be buying corporate bonds at a discount and getting that pulls apart are getting some couponing come some capital appreciation. We're now we're buying assets with a 105 and 110 handle appreciation Prospect. Can we get Carrie from other countries like Canada Zealand Australia positive yield curves that maybe have a little bit more juice in them to to achieve some capital appreciation for the bar for be raising interest rates is extremely low. So if you can just capture that roll down over the course of the next year or so, at least you can get some sort of returns.

Market is just not going to happen. I am curious about the duration side of this in. I mean, I can understand the play on the short end of the lot of folks now starting to move a little bit further out induration. I guess. What are you seeing that makes you stay a little bit more pain towards the short end vs. Moving further out to the login. What's the best information ratio in the trades that we're trying to achieve Right Stuff the front end. Like I said the bar for the FED to be hiking interest rates is is Out Of Reach. It's completely out of reach zero on holes for 7 years. What we've been on hold at the feds no move to 0-3 months ago 4 months ago. Again. This is going to be a long drawn-out situation. So roll down in the belly of the curb because you're less focus on the risk. If if yields were to move higher due to some inflationary pressures tune that would come about again focus on that front end it becomes a lot.

Enter begin, you're not going to get the big return but you're going to get some return at least went over treasuries are high-yield at 5 basis points over treasuries. What provides you a better risk for turn you would be that the credit provides the high-grade credit provides the best risk-return Optics why the feds not in the business of losing money and these primary and secondary corporate credit facilities while they haven't been fully implemented the FED has 750 billion dollars worth of purchasing power in the credit market and a lot of people say, well that's not necessarily getting Main Street getting flu influencer Market. The question is can they influence the economy because lent big corporations in issue bonds actually get cheap funding but smaller corporations aren't aren't allowed to or can actually access.

And there's the Divide between what's happening in the market forces what's happening the real economy. If you look at specifically I yield vs high grade our view is that high greater than is significantly safer purely because of that feedback stop.

General change in tone, which we don't think will happen if it has been a very quite clear in their messaging over the last few months, you know, there's some indication that they could give some guidance on inflation weather at set the multi-year look back on inflation, which eventually move the goalposts a little bit breathing room and allows them to down the track. But again, we're not huge Believers at the inflation train is moving ahead. We fighting it say opposite in you're getting more deflation eye pressures particularly as you have more issuance, but it's as long as possible for the sticks to the script and continues the fact that he's going to be there to back the markets. I think it should really be a non-event.

He also drove into this week with wings in global head of currency strategy of Brown Brothers Harriman TN on it started by asking when is giving dollar weakness from here on out.

Near-term absolutely right now using a balance sheet expansion start back in March to April and then now is the fact that it looks like the buyers numbers are rooted impact broken second half of Europe in Europe and China. What us the missing piece that hold back again. All stars are aligned against dollar right now you look at a yield expectation for tickly relative to the rest.

Does make a compelling case to go short the dollar I think back to 2018 a little bit. So when we also have that downturn in the dollar given how fast the shift has been to go short.

Cross currents in bars in control, it's hard to imagine. How do you delete a wolf head eventually catch up with you if you haven't done that successfully and that's going to hold us back.

I'm interested in the u.s. Justify going into the u.s. Behavior is more benefit against with Frank and I would posit that there is possible a relationship now.

You talk about gold. You talk about correlations a hedge against higher inflation. How much of gold is a hedge against weaker dollar lower rates and inflation eventually if we ever get it back to where they were born in March.

Digital gold plated is our potentially on whether this bill that the Republicans are working on the basic details that we know so far is that it's going to be an extension of some of the benefits that are already out there but not necessarily to the fullest. Do you think that this round of stimulus assuming it gets done? Do you think that's going to be enough between prices to the other side of this economic Abyss front in order to get us through this?

Nevermind. That's that's a good question to ask a job stole my gut feeling that this morning she done now in the playoffs, August 11th November reading for free.

benefit from the leader of the pack when it comes to measure moccasin wcrs, and I'm interested in that Forest weather the weather there is still some pools for salt when you think of the Cove in continuing


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When the US economy weekend black Americans are the first to feel the pain. I'm in the economy rebounds turn right in and make a policy decision becomes a democratic Presidential nominee. Joe Biden weed in on expanding the central bank till Monday this week saying he is going to be in the federal reserve put on racial equity and that he believes put the FED should ask the doctor possibility and wages and well-fed charge a Poulsen physical education and health. We spoke about the issue would mess up garage around associate dean of diversity equity and inclusion at the University of California Irvine.

Miss the results of the author of the book The Color of Money. We started by asking her how much impact the Federal Reserve could have on income inequality here in the US.

I think I want to start with some people tend to think that monetary policy does not have just putting in the quantity in the market over. The last Thirty realistically does have distribution effects of when you choose the the types of markets that you're going to infuse with liquidity that's going to have effects on the light and specifically it has contributed to racial inequality in equality. It was a pre-existing condition, but it has exacerbated it affect you take account of racial inequality isn't going to say that all this is a new thing they should do it's just that they should measure how their policies have actually exacerbated these these conditions.

How could they go about to unwind.

The choices they make how they use liquidity into market. So for example, you know instead of buying a commercial paper or repo double bonds from cities that are under really know at unusual circumstances headlining and invest the coronavirus and that the subprime crisis, why not and allow those cities to have the liquidity that otherwise other markets would get one one waist measurement the effects that goes a long way so those metrics could really help.

Those are some significant structural changes down some what day do you have to go back to the early nineteen hundreds and change the Federal Reserve Act in order to do that. We need to begin or there's some other structural issues. You can look at before starting.

At you definitely don't have to change the app is all interpretation me search history of the 1913 Federal Reserve Act. Unusual. What's a creative legal Maneuvers that the FED did I'm in 2008 to use 13-3 authority to infuse capital and liquidity into Market was not in any way for you. So faithful for the wall where this would not be under the 1930s was always meant to be Bebe abroad you wait for the FED to help communities as well as the way that the FED has already over the past two decades are you can close this is income inequality. But as to what other measures

The government to take Congress can take all what municipalities to take as you just mention one of those proposals from Cory Booker of New Jersey to Senator out there who talked about these baby bondhus idea of effectively setting up a trust for every every kid born and using it as a way to sort of help close all the wealth Gap. What do you make of that particular proposal? Do you think I could work?

I think baby boss is a great idea. I've also prefer.

You start other proposals on the table that would do this but he'll fiscal policy is obviously the better more democratic way to get this done and I think parts of the calls for the FED to do this through monetary policy is a reflection of how broken our fiscal policy levers are adjusting. Like we can easily get things done with a fez that we can chew through Congress is not the best indication of where our democracy is. Absolutely. I think it's a book for the Democracy in for the community.

This week for the most powerful text videos when they have to help fending off accusations of spice in competition. Facebook Mark Zuckerberg Amazon's Jeff Bezos Sundar pichai of Google and look up old Facebook intro makers of the house and teach what's up with the captain alone investigation of market dominance in the industry the companies with Chrysler Pacifica issues Google and search Facebook on its acquisition of Instagram apple fritter Optical Road treatment of that also faced allegations of a concussion.

We spoke off to the heaven with Dina srinivasan fellow at the 07 Arnold is Wilson the author of the paper the antitrust case against Facebook why Google dominates appetizing rocket which actually got brought up at the hearing by congresswoman jayapal and how questions listen to pinch I the market reaction to the Herring my team to say that investors will be expected to look away from Capitol Hill. What is Avion space? We Austina she's pleased with.

Yeah, that is interesting. I mean, you know, I think that these hearings are very early stages and they helped raise issues. So I guess I guess I'd say it doesn't surprise me much.

Does it surprise you much I'm interested by what you think the next steps could be. This is been a very sour investigation in many ways one of the most concerning for the CEOs over to the steps. That could be taken. Do you see is it normal question?

Yeah, I mean, I think the initial stuff the initial things that are going to increasingly coming to focus our a just enforcement of current antitrust laws, which which is why you no competition authorities across the world who started their investigation and then I think the other thing that might come into focus more and more as time moves forward here before we even dive into any conversation as possible need for legislation or regulation and some of these markets to take the current antitrust laws, you take the current legislation out there with regards to competition to the names that we have on our screen their Facebook and alphabet pretty much control the digital ad Market ad hoc, and I'm just curious as to why you cannot make a compelling case right now legally within the current legal framework that those two companies have a monopoly in the ad space.

Yeah, I mean, I I I think I think that you can I think that you can and what you know what that the thing that I've researched and written about more recently which I had which I think is really fascinating is a lot of us know if you look at a lot of the things that come people are complaining about in terms of Facebook or Google behavior and advertising Marcus UC online ad are bought and sold in electronic marketplaces which industry called advertising exchanges. And in fact buyers and sellers also have to go through an intermediary to buy and sell laundry list of what people are complaining about a lot of it looks really similar to stuff. We make Weber Hibbett and other electronic trading markets like on stock exchanges and so on this lens provides a framework for understanding with a complaints are but why also legislation

Tina one of the arguments that has been made mr. Zuckerberg.

I I I totally I totally don't buy it. I think it's a I think it's a strategic argument. But at the end of the day if we're interested in having the free market through make sure that the best ideas in the best products and services when you need to have competition and so it's very important to tell us about that competition. And how do you say that because we've seen how powerful some of the co-star around him with a house Apple controls messaging to ascend extend how I'm as in making a foothold in advertisement. Google said, he doesn't House of one of the most used YouTube

Yeah, I think these comments are entertaining because I almost feel like in Silicon Valley. It's a bit of a a game of a Game of Thrones type of competition, you know, but trust me the question of competition and whether a company is a monopoly is much more methodical and focus. Do you know the question is? Okay a lot of people use Facebook do they use other products in substitute for Facebook, which means it do they close their Facebook account and then open a snap account and use those two products interchangeable. See if the answer to that question is yes, then they're in the same product market and it makes Facebook look smaller the problem that I think that that that type of argument has as you know, I have Facebook, but I also you know use the messaging app or maybe my children have a Facebook account and they also use ticked off until those products are not really interchangeable, which is a problem.

Dana what about the idea here of Market entry with regards to Newark competitors hear. There's been a lot of concerned specifically when it comes to Google and some of its products as well as a table as well as off Amazon and the way that it sort of control certain marketplaces at the any sort of organic competition really can just go to pop up and Thrive does that not serve reach any sort of legal threshold still give your concern?

It depends, you know, we'd have to head we have to get a little bit more specific because Google on so many different products. One thing that I think it's really interesting right now is how this Common Thread that that we see right now in conversations in terms of being concerned about how these platform self preference themselves. It may not rise to a concern under antitrust law. Sometimes it does but I think again the question here is

From a broader policy perspective do we want, you know, do we want something else? Do we want to make sure basically that Google search turns results that are best for consumers. Do we care about self preference saying do we care that Amazon service has its own Amazon brand batteries at the top of the search results.

That's it for this episode of what you missed this week. If you like the phone calls to make sure to subscribe and racist or wherever you just enjoy your poker and June and every weekday to a daily market closed from 3:30 to 5 p.m. On Bloomberg television on from 4 to 5 p.m. Streaming on Twitter and have a great weekend.

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