Transcripts For CNBC Fast Money Halftime Report 20240713

Anything and i have nothing to add to that. Because that seems absolutely positively correct the fed will keep rates unchanged and possibly have a message that they are kind of encouraging inflation to go higher one of the most important statements that i think has gotten less play than it should is jay powell said in late october we would have to see rise inflation persistent to consider raising Interest Rates to fight inflation so the fed wants inflation to be higher actually. And theyve contextualized this by saying 2 was our target for many years and we fell short and now we need to fill the gap of which makes no sense to me whatsoever i think it is cover for wanting Interest Rates to basically be below the inflation rate which is the game planner for central bangs and developed countries really around the world and so now we have the tenyear treasury yield and the core cpi is up higher than 2 and yet the Interest Rates are kept below that so foed knows that we have a det roche in the United States and the way to push it out, the day of reckoning out into the future is to have Interest Rates slower than the other rates. And you likened powell to a losing football couch. How is that fair well because powell had a framework of his out look for 2019, a framework of viewing the world and that was kwon tateive lightening and three weeks later it was the opposite. So it is difficult to give him a lot of credibility in the messaging because of the uturn that was taken and instead of raising rates successively in 2019, weve cut rates three times in 2019. So very different Playing Field for 2019 than what we expected i think the one reason that i give jay powell a cminus and not a d. , and i dont know if could believe him because of what he said last december, he does n does not believe negative Interest Rates are needed in the United States and i applaud that as loud as i can because i think it will be a problem for the Global Financial system. Le do large scale asset purchases to fight which means a Quantitative Easing Program and the next recession left alone to market forces, longterm Interest Rates would probably rise but jay powell has told us, because he changed his mind so quickly after the december statements but he told us he will control longterm Interest Rates to fight the next recession through quantitative easing. What the fed realize they made a mistake by raising rates last december and the Playing Field using your language has changed. There is the trade war and tariffs. Hes had to manage his way through all of that. Yes i suppose. Youre being kind of generous. When he did the quantitative tightening and the Interest Rate increasing the risk asset markets were already having trouble. It wasnt like him suddenly saying that led to the decline of over 20 in the stock market and the closure of the junk bond market where there were two months where you couldnt float a junk bond in 2018 because the yunk was closed and when the market flushed out in late december where the apology tour came out so i think what happened was the fed thought they had a framework that was working and the markets threw a temper tantrum and they were forced to go back to the fed model weve had for quite a few years now which is following the market rather than the great paul volcker just passed away this week at age 92 and he was the one that really had control over what the Interest Rate were and wasnt just listening to the market and if the Federal Reserve has a purpose it should be to have an outlook and follow it regardless of what the market does. And instead jay powell capitulated and went along with what the bond market said and now the bond market is in sync with the fed you have fed funds rate the same as the two year treasury which means that the fed is now comfortably on hold but what jay powell has done is he raised rates four times in 2018 and cut rates three times in 2019. Basically weve gone nowhere just put ourselves on a wild ride which i believe was unnecessary. Are you against the concept and the idea of an insurance policy because that is what it was. It was taking out an insurance policy unless things got bad because of trade war bee it geopolitical or otherwise and throw brexit into the stew and the uncertainty of knowing how that would play out, what is wrong with an insurance policy. Why would you raise rates four times in the first play there is nothing wrong with adjusting insurance policy or call it mid cycle adjustment but it doesnt seem to me there is much kans of the fed following through on the mid cycle adjustment because that could mean were going to raise rates again but he said in october to raise rates we need a substantial increase in inflation that is persistent so even if inflation goes up, there is no intention of raising Interest Rate unless the dynamics change dramatically we raised them four times to cut them three times, we should have just left them alone. Do you think he should be replaced hes been taking fire from the president he is not any different than what you replace him with. The Federal Reserve is a body that is essentially following the market and now the bond market is saying there is no purpose in raising rates or cutting rates so well be on hold for quite sometime. The bond market said well be unchanged Interest Rates until the Third Quarter of next year and that to me is what is motivating the fed labor markets pretty strong, the economy is good. Stock market at record high. Some would look at that and say, you know what, the fed has managed to do its job pretty well. Well some people give credit to the president too but on the labor market, what is interesting is people keep talking about how great the labor market is and it is good for sure but the job growth under trump for three years it less than the job growth than the last three year obama it is 10 less that is not any better what is people are people arent getting laid off that is what is better about the labor market weekly unemployment claims are low. They are about 200,000 and that is the lowest tick in a long time they are down by about 30 from the last three years of obama. In the last three years job growth and payroll growth was good but people were getting laid off to the tune of 300,000 per week and now it is 200,000 per week and that is why it is better on the jobs market because the Labor Force Participation has increased. It was under a steep decline and starting at about 2016 and last year of obama, it finally started to improve and i think that is a very that is the good thing that is going on with the economy. You yourself have taken down your recession expectations. Absolutely. To like 35 that is right. That is almost half of what you predicted in the summer. When we last spoke. I dont know if it was close enough. Close enough. But the point is youre not expecting a recession any time soon now i think that unlikely to be a recession at this point the odds are against a recession occurring before the end of 2020 and what is happened is consumer evidence has held up and the year over year leading indicators from the conference board, were at 7 yearoveryear and youve never had a recession in the last several decades without leading indicators first going negative so that is the canary in the coal mine. You have sometimes had negative leading indicators without a recession. Well youve never had a recession without negative leading indicators so it is a necessary and not sufficient indication so leading indicators are low, around. 4. But the numbers rolling off for the december january period coming up are quite low so our forecast is that those will improve in the next couple of months which makes it very unlikely to have a recession in the next six months but in the summer dont forget there were white papers being released on wall street encouraging the foed to do an intermeeting 50 basis point cut and that is how bad it was getting globally there is a little bit of improvement in that as well so the recession outlook would really depend to forecast a recession at this point, there are two things you have to watch. The consumer view would have to deteriorate and that is high and the weekly unemployment claims would have to go up from 200,000 to 300,000 to 250,000 and they wont happen. How do you for see the trade war playing out. Could you have more tariffs as early as a handful of days from now . Is that potentially impacting your per spective and point of view. When it comes to the trade war, ive been consistently stating that there will be no trade deal until the 2020 election there is absolutely no reason for china to do a trade deal on the terms that the United States wants when there is an election coming up in less than a year and potentially they could have somebody else that is more old school and wants the jeanne back in the bottle and would take the tariffs away. Are you talking about a full scale trade deal. Yeah, a real trade deal. So you could have a phase one or phasetwo or whatever you want to call it. The phase one was a private language that came out of nowhere and some friday afternoon and then all of a sudden we have a phase one trade deal it looks like phase point one and that is just rhetoric to make it look like progress is happening. I think the phase one trade deal day, that press conference was the low point in trumps presidency i thought that was really almost shameful because we had never talked about phasing a trade deal it just came out of the blue and he said something about 50 billion tons of soybeans being bought by china and i learned on monday, i got a white paper from an Economic Consulting service and they said what china agreed to was thinking about buying some soybeans two years from now. So that doesnt sound like a trade deal to me the real numb the nub of the u is the intellectual property and china doesnt want to do anything on the intellectual property theft and that is the most important thing for the United States when you think longer term. And what is important in the trade deal is intellectual property and that is not going to happen and that is why we came up with this kind of escape hatch which is this phase one trade deal which i think is nothing and i dont think there is going to be anything resembling a substantive trade deal before the election i felt that all year i remember back in may, were talking about the tariffs were going to be removed it was like may 10th or something. The tariffs would come on and oh, no, they wont come on but they did i just think that this is something that is a longterm problem. Were not going to see a solution thanks to the fact that the president ial election is contested in november. Let me step away for two seconds and it is a good segue to go to my colleague kayla tushie what has a business alert. The business round table holds a quarterly briefing for reporters to talk about ceo confidence and the economy at large. Jamie dimon as outgoing chairman in the briefing made comments about the fed. He was asked about the repo market into the end of the year and he believes that repo continues to be a minor issue but that in his words it could become not minor if the u. S. Economy begins to weaken he also suggested that regulators should reconsider banks deputies on hold at fed. These are liquid assets like treasury and gold they hold for rainy day purposes he said banks have so much additional liquid capital on hand that perhaps that is one reason why the market is seeing an impact there. That perhaps there could be some asymmetrical and unintended consequences because of the issues and also asked about the fed decision today he said that he would be happy if the fed did not cut rates further because the u. S. Economy was strong and he said even when the fed does cut rates, it only helps the market a little bit and not as much as everything thinks scott. We appreciate that. This idea, the repo market what has gone there throughout the balance of the last few months, since september really. September 17th is there was a day of tax payments and bills being issued in excess of the bills maturing so there was a little bit of a liquidity problem, september 17th. What is interesting is the overnight repo market had been struggling to stay in line with the fed funds ratd b funds rat but that day it blew out and in an hour it went up so and the fed had to panic and come to the rescue by adding reserves to the system that to me is worrisome development. Because it suggests that the market doesnt ratify the fed funds rate the fed the fed funds rate at a level that really isnt clearing the market in a free market way for overnight money and what theyre doing is theyre adding reserves to try to counteract that that corroborates my view point which i think is a minority opinion that in the next recession, if the fed doesnt do quantitative easing and jay powell has said he will, and if we believe him and he doesnt have a good track record on believable but the amount of bonds issued at the long end would be to horrifically high that i think Interest Rate in a normal free market would rise and fairly significant and that is what the repo market is telling us. On september 17th, overnight money was over 2 and the 10year treasury was over 2 and it is telling that you cant find buyers for overnight money in excess of 2 intellectual property and the 10year treasury is with inflation at 2 or higher and it tells you the interest levels are not market levels, they are manipulated levels right now in the National Debt is growing at over 6 of of the economy. So 1. 27 trillion was the growth in nominal dollars of the debt in fiscal 2019 that just ended that is more than the growth of nomineeinal gdp. In other words all of the growth has been the growth in the National Debt. Were at 6 National Debt growth is consistent with the depths of recession with stimulus. When the next recession comes it is likely that National Debt will go up to doubledigits growth which would mean bonds being issued in the many trillions of dollars and i dont think the Interest Rates would clear at that level without the fed getting involved with quantitative easing so the fed is on the case and they understand what the problem is and understand we have a debt problem and Interest Rates get completely out of control and lead to a megarecession. Imagine if a recession if Mortgage Rates went up but the fed will counter that and what theyre doing with the repo facility increase is kind of Proof Positive that they are manipulating Interest Rates and intend to do so in the next recession. Credit suisse made a stunning call, calling for qe 4 to deal with stresses in the repo market. Are they doing 4 already, but the Balance Sheets that taken back 40 of the quantitative tightening done in 2018 into the early part of to 19. So theyre already expanding the Balance Sheet to over 4 trillion. They dont call it qe because technically it is growing the repo facility and not buying coupon bonds so it is different from what they did during one, two and three. But stylistically it sure looks awfully similar. Youre offering stimulus to the economy which is helpful which is why i think the risk markets have had a second wind if the fed had executed on the rowe gram they were talking about 12 months ago we would be in horrific market conditions. It is just that the market broke the feds resolve. So given everything that weve discussed since we started the conversation at the top of the show, where are Interest Rate going into the near term . Okay. The shortterm rates are staying the same and i think that is perfectly corroborated by the shape of the yield curve. Fed funds are 1 and 5 8 so Interest Rates are on hold for the fed for sure and i cant emphasize enough that that october statement by powell where he said were not even considering raising Interest Rate unless we see a substantial and persistent rise inn inflatin and when you hear that and our models show that the cpi is 2 1 2 in a few months and our model has been incredibly accurate almost to the basis point and that means that the path of least resistance to the ten year is higher until such time as the fed manipulated it lower. How high . What is the level on the tenyear that youre willing to go out on . I think that the the tenyear now is about 183 or so. And it looks like there is some good yield resistant at about 205. That should be what contains this move up from 140. But there is a potential, i think, for if there is economic weakness, there is potential for shg that re for something that resembles an echo of the taper tantrum way back in the middle of 2013 we had 150 basis point rise in the tenyear in six weeks. That is because ben bernanke said were think being tapering our quantitative easing. I think that if we get economic weakness along the way which im not expecting in the near term you could see a move back up to 3. 25 on the tenure and i think that would get the fed back into quantitative easing. So i dont think theyll be right in the next three weeks. So in terms of the forecast and how we should position ourselves as investors and those watching the program for actionable ideas from you, today you urged investors should start, quote, playing defense now. What does that mean . Well, what i said in my september webcast for my total return fund and i think weve seen the low for the tenyear and that is the case so you should be playing defense relative to Interest Rate risk because Interest Rates at the long end, the path of the least resistance for qe 4 is higher than that but im talking about credit risk because to me right now it is very dangerous there is a whole cocktail of fundamentals that i think lead to wanting to be early on exiting the Corporate Bond market and i think the time to be exiting the Corporate Bond market is presently. Because the Corporate Bond market is enormously bigger than it was prior to the Global Financial crisis it was around 5 trillion then and it is around 11 trillion now and the Corporate Bond market i believe is misreaded. There is a study by Morgan Stanley research that ive been reading and theyve been doing this for quite a few years and said lets pretend that Morgan Stanley is a Rating Agency and completely objective but s simplistic so they use leverage of corporations debt. The Research Department said if you simply use leverage ratio that 39 , fully 39 of the Investment Grade Corporate Market should be rated junk right now. Imagine that they are not rated junk nowba theyre being a little bit lenient relative to the downgrade system at the Rating Agency but if 35 would be downgraded to junk you would see horrific movement against the back drop of corporate debt to gdp being an alltime high and the leverage ratio of net debt to ebidta are at all time record highs. So spreads are extremely narrow in Corporate Bonds in fact they are narrowing than people think people look at historical charts and go back decades and say how much is it versus treasury and it is low by history standards so that raises a caution flag. However the procession single rate or higher is at an alltime low. It used to be twothirds of the bond market was single rate or higher 25 years ago and now it is 35 of the market so the rating is worse so the yield spread should be higher than average not at near a low level. So that is a very bad sign also there is a yield grab that has gone on because of yield starvation in japan and european primarily that has caused tremendous buying of u. S. Assets, particularly Corporate Bonds because there is a yield there. If you look at the net position of the United States, it collapsed over the last several years with 49 of gdp value is the net negative investment position of the United States. So this is all Foreign Investment that has come in. Foreigners you can understand are buying u. S. Bonds because their bonds are negative if youre an Insurance Company in europe, what are you going to do you cant buy bunds of negative 20 basis points. That is a sure money losers so theyre buying u. S. Assets and that helped the u. S. Market and the Corporate Bond market but the problem is if you buy the Corporate Bonds as a european Insurance Company, if you hedge the currency risk and buy the dollars and hedge back them into euro, guess what happened . You have a negative yield. More negative than the german ten year bund and so european investors have been buying u. S. Corporate bonds and not hedging them and that is one of the reasons the dollar has held up because theyre not hedging it back so there is incremental dollar demand the dollar has been stable for sure this year the dixie index started at 96 1 4 and it was at 97 1 2 yesterday and it was basically unchanged but it should be following based on two things. First, when the fed is easing it is highly correlated to dollar weakness because the Interest Rate is let attractive when the twin deficits are rising, as a percentage of gdp, which happened for sure in the last few years, it is highly correlated to dollar weakness. The dollar has held up because of the naked buying by Foreign Investors who are yield starved thanks to the negative Interest Rate policy. You have to think about is what happened if the dollar starts weakening and or Corporate Bond prices start dropping youll see a huge loss start to develop in the naked Dollar Holdings for these entities and my belief based upon 35 years of experience in how investors behave when they start to experience losses is they will then start to have waves of selling. And the exits. So this is why were supposed to be playing defense i believe this is like 2006 relative to some of the overleverage in some of the sivs and stuff that went on that caused the Global Financial crisis it doesnt matter if the problem happens today or a year from now, youre picking up a tiny amount of money in excess yield and yet the down side flush will be such that you will see tremendous losses accruing and i think that is the fundamental risk that faces investors and it is all happened because of the cumulative effect of this now not shortterm negative Interest Rate policy. I was in europe in september and i hadnt about there for a while and i was struck by how the mood had changed since the last time i was there. The question used to be we have to suffer through. How do we suffer through this temporary policy of zero or negative Interest Rates. That is off the table now. Now the conversation in europe from the large Pension Plans that i spoke to was what are we supposed to do were stuck with this forever almost is the mindset. Should we take bonds, these negative yielding bonds, just out of the efficient Frontier Analysis altogether and should we even forget about bonds as an asset class in our tension plan. I said well negative yielding bonds, yeah, i think you should forget about them. That is what i mean by defense the consequences of the policies are building up. And when the dam breaks it is going to be a big flush down it is not worth picking up 50 basis points today when youre going to be losing 30 or 40 . In bonds you make money slowly and you lose money quickly. You know that there are going to be people listening to this saying that gundlach and others have been making these dire predictions about Corporate Bonds and high yield for years that is not true. And youre saying well you would rather be that is just not true ive been making dire predictions about Corporate Bonds for years. That is just not true. I made dire predictions about Corporate Bonds at times over the past years but they have been predictions lets say at times. Look at Fourth Quarter of 2018 bonds were terrible. But this is taking it to another level. Im talking about yeah, it is another revel youre right it is another level. It is a cyclical level it is a fundamental economic level. There were problems in the past that had to do with shorter term considerations im really zooming back and thinking longterm it was interesting, i gave a speech to a big a really big aggregator audience a few months ago and the head of the thing said lets do a fireside chat format and i said that is great and he said i want to focus on the next six or eight years. And i said thats great because that is exactly the way im thinking im not thinking six months. Im thinking by the mid 2020s, and i know that is not imminent, but by mid 2020s this is going to happen and i think that the consequences of it happening are so substantial that that is the fundamental driver of how sl allocation should be set just like in 2006 or even 2005, the idea is this nutty underwriting cycle that weve found ourselves in is going to end with such a catastrophe that you want to sidestep it and it is fine if youre a year or two early. Im glad you put context on it i think that is helpful for everybody to hear. This is not something iminnocent. No. Because the chance of recession is and that is causing the bull. Is the recession it could be 2022 or 2021. I dont think it is in the next 12 months month. Lets take a quick break and have more with Jeffrey Gundlach on this topic including he predicted trump winning in 2016. And well get more of his out look for 2020 straight ahead to hate problems. But why is that . Problems inspire us to rewrite the rule books. The history books and future books. Thats why so many people work with ibm on everything from city traffic to ocean plastic. From flight delays to food safety. Problems even got us to the moon and back on one tank of gas. And who knows where theyll take us next. But at fidelity, value is more than just talk. We offer commissionfree online u. S. Stock and etf trades. And, when you open a new Fidelity Brokerage account, your cash is automatically invested at a great rate thats 21 times more than schwabs. Plus, fidelitys leading price improvement on trades saved investors hundreds of millions of dollars last year. Thats why fidelity continues to lead the industry in value while our competition continues to talk. Talk fidelity. Welcome back im sue herera here is your update at this hour. Harvey weinsteins bail was increased from 1 million to 5 million over allegations he violated bail terms by mishandling his electronic ankle moner tor. The judge rejected the calls to jail him weinstein arrived at court using a walker his lawyers saying that he will undergo back surgery on thursday a powerful suicide bombing targeted a medical facility under construction near Bagram Air Base six afghans were reported injured. There were no casualties, though the attacker struck the facility that is being built to help the Afghan People living in that area irans Telecommunications Minister said they have diffused a cyber attack on the electricity but provided no specifics. Saying authorities are investigating the exact dimensions. And the gown that Princess Diana wore when she danced with actor John Travolta at the white house was sold at auction for more than 280,000 the gown offered by the charity that looks after her former palace it was expected to fetch between 320 and 385,000. That is the update scott, ill send it out to you. Her gown or the banana. Thank you so much once again were live at double line headquarters in Downtown Los Angeles with Jeffrey Gundlach you were saying about the gown as an art collector. They said princess dianes gown went for 230,000 and i have to laugh because codlins banana sold for roughly the same amount that banana is just genius stuff. I have to tell you i have one hanging up over there and it cost us 40 cents and kata line sold them he bought a banana and some duct tape and it went up in a minute. There is inflation somewhere. So lets pivot and talk about politics if we could because youll probably get credit until the end of time for your prediction that trump would win before the primaries started. So now what what happens in 2020 well the base kate right now is trump is going to win reelection that is the base case right now. Because the Democratic Party is kind of in disarray it seems to me you look at the polling and weve been at this now for what, nine months, tens month or Something Like that since the candidates got in and there isnt a single candidate that has captivated the imagination of the Democratic Party. You have joe biden who they say is durable because hes not collapsing in terms of his polling but hes also not going up if you are going to be a frontrunner, you need to show momentum and joe biden has been at the same level since before he announced, really and he just doesnt seem it doesnt seem like it would be enjoyable to watch the des imation of joe biden on a oneonone debate with donald trump. I dont think he could formulate paragraphs the way he used to when you see him in the debates and i dont think hes viable and then you go to the socialists bernie is flatlined. Bernie is bernie you know what youll get and i give him credit for bouncing back from the heart attack he came back and was exactly the same guy two weeks after a heart attack got to give him credit for that. And there is nothing new there and he isnt going anywhere in the polls. Elizabeth warren, once you go from 52 cents to win a dollar an predict it which is where she was a few months ago and at 14 cents yesterday and when you go from 52 to 14 it is over and so it is over for her. And then you have pete buttigieg. Buttigieg, when i heard the mayor of south bend, indiana, was running for president i literally laughed out loud and then i heard him speak and hes good he is a great speaker. Probably the best on his feet of any politicians since Ronald Reagan he is so good. However hes so young. I have a hard time believing you go from mayor of a city of 102,000 people how many votes did he get when he won mayor of south bend, indiana . 20,000 maybe 15,000 so a big step to go from 15,000 votes to 60 million votes and i just think he looked he looks so young hes 37 and he looks like hes in his 20s. Youre leaving out a big name and the newest entry bloomberg yeah he has no chance. I think there is no chance there. I think that he right out of the gate he has a lot of big problems the first is i dont think mayor of new york city is a great credential for running for the president. New york is a unique place it is kind of like Kamala Harris they said shes senator from california so in a means shes got a spring board no, california is different from the rest of the country and new york city is more like california than the rest of the country. And bloomberg with his stop and frisk, that is a problem that is a really big problem and with his regressive taxes on the poor for soda and other manipulative types of behavior, behavior manipulation taxes, i dont think that will work and also it is tough when you are already late to the game so i give him very little chance. Even with the 50 billion. I dont think that is a positive in the Democratic Party today where villification of wealth is a common them, it seems like a delicious irony that one of the people that is running is the eighth richest guy in the world with 50 odd billion dollars. And it is so out of step with the tone of the party. I think the strongest democratic candidate would be hillary clinton. Now you said that on the webcast yesterday. You were serious i am serious. Shes the strongest candidate the democrats have that doesnt mean shes a great candidate. It it just shows the fractured nature of the party and the consequences of that fracturing are a lot of it is really two or three parties it is very much the Democratic Party here for 2020 is like the Republican Party extrump was in 2016 a whole bunch of kind of norn impressive candidates that were somehow trying to fit themselves into a mold without a real overarching ideology and so i think that is the problem there. So the base case is that donald trump will win reelection . Are you supporting . I dont support political candidates. If the status quo remains and trump does win, what does that mean for markets well, its probably more positive than him losing i would say because the rhetoric and the themes of the opponents certainly are are probable antimarket. One of the questions you mentioned my webcast yesterday and one of the questions is someone said is the market over reacting to Elizabeth Warren and i said what are you talking about . Elizabeth warren is obviously not being taken seriously by the market if the market was taking Elizabeth Warren seriously it would not be near an alltime high it would be down substantially because she clearly would want to have anticorporate policies. One of the reasons that the stock market did well under trump is when you cut taxes you turbo charge the bottom line and earnings go up on a net basis and Elizabeth Warren vows devoutly to reverse that and so do the democrats so the market is telling you the base case is trump will win and that will continue to be supportive aspect to the market. Is that playing into where you think money will be made in the couple of years ahead expecting that trump is going to win and then positioning therefore . I think because if youre worried about it is a news type situation i think the reality of the market positives for trump are in the market. I think the market has absorbed those and believes in it i think that much more than politics, i think what is really important for making money in a couple of years ahead is i think you have to start fundamentally believing that the dollar is going to get weaker. And i think it is supposed to orient your thinking around that which means that foreign currency investment should be superior to u. S. Dollar investments. The dollar topped almost three years ago on the dixie basis it was at 103 and it is down at 97 handle today. And i think that we go back and take really big picture views, my favorite chart of this year, we may have talked about this before but it is worth repeating if we didnt or even if we did, if you go back to the 1980s. So very longterm view divide the world into four regions, japan, europe, United States, and emerging markets and something very interesting has happened over the that 35 year or so period, every one of the four regions has had a moment where they were World Leaders and viewed to be invincible. First it was japan it was invincible. The value of theeem peeral palace land was viewed to be the same as all of california. Japan was that strong. They were manufacturing everybody out of business. The nick then the nikkei hasnt come close to the 1989 level and then came the euro in the late 1990s and there was tremendous enthusiasm and reserve and cooperation and the ascendency of europe and the european stock market was by far the best in the late 90s and then the recession in the early oos and it got kneecaped and hasnt been there later. And then in the 00s it was a week dollar and china was very much on the rise and emerging markets were by far the best stock market in the world. And what happened, Global Financial crisis and virtual markets got wiped out and who is the world leader now for the last ten years by far it is the United States the s p 500 has blown emerging markets and japan and europe totally out of the water p partially because earnings are better and Financial Engineering which ties to the Corporate Bond where you are able to get free money for corporations to do buybacks and then also the tax cut. My view is this pattern will repeat in the next recession the United States will be the worst stock market in the world, the dollar will be weak and i dont believe well get back to whatever high is put in again in my career. Similar to what happened to japan, then europe, then emerging markets so i think that is what youre supposed to be thinking about. And the linchpin to that thesis is that the dollar will be weaker thanks to the exploding deficits and the fed going back towards zero. Lets take another quick break. Well have more coming up with Jeffrey Gundlach plus we are catching up with our Investment Committee theyre back at the shop stock wear stocks and 2020 and well debate that. D anjon is tracking unusual activity well have that for you when we come back. Driving specific sectors of outperformance. Where a rising middle class powers a booming auto industry. A leap into the digital era draws youthful populations to mobile banking and ecommerce. Trade and travel surge between emerging markets. Every day, our 1,100 investment professionals around the world search out opportunities for alpha. Partner with pgim, the Global Investment management businesses of prudential. Im part of a community of problem solvers. We make ideas grow. From an everyday solution. To one that can take on a bigger challenge. From packaging tape. To tape that can bond materials to buildings. And planes. One idea can unlock a breadth of solutions. At 3m, we are solving problems that improve lives. According to our data partners after similar gains the trend continues. With the etf outperforming the s p 500 three months later and trading positively 77 of the time for more, go to cnbc. Com kensho. Were back cohen naming top software place salesforce, the top player for the year and were making that the call of the day. And weiss, you get the first crack at this. No one on the desk owns salesforce and it is up is a and you chose adobe and cloud over this. Why. Adobe i got because they crashed and it was an opportunity to get involved in a company that i dont think really has much k competition the reason ipo hasnt done well and it is expensive and ive been looking at salesforce and i will own it within the next year and it is consolidating but done nothing this year but i think it is a Quality Company with phenomenal management. The guidance was weak for salesforce they need to lift the margins. In the last 24 months theyve been acquisitions and the tradeoff is docu sign. Worth 12 billion in the document and they get acquired by either salesforce or adobe. It is interesting, having this conversation coming off the last couple of days, that we had in San Francisco where it is all about software oh, yeah. Software is the rage. The cloud is the rage. And it is going to be moving forward. And shames of of ambarella are open and options traders are betting on more upside and jon you have unusual activity what do you see shares began at 36 this year and screamed up to in and buyine 55 calls, scott. Aggressively, theyve been buying these calls today so semiconductor for video and hd and all that. I bought these calls ill probably be in them, lets see, probably january 10th expiration second one real quick, williams. Wmb. Oil and Gas Infrastructure in particular, pipeline, scott a lot of play on this one. They came in aggressively buying february, 23 calls you got a lot more time with this ill be in there about a month and a half love the activity. Over 12,000 traded so far. Okay. Good stuff get your questions ready, guys were going to take a quick break. Were going to come back well have more of our exclusive in two minutes and q and a from the Investment Committee with the bond king is next. Countdown is on to the fed Decision Just over an hour away. Plus, chairman powells News Conference coming up dont want to miss that. There is the countdown clock were about two minutes ay om return with the bond team at leaf blowers. You should be mad your neighbor always wants to hang out. And you should be mad your smart fridge is unnecessarily complicated. Make ice. Making ice. But youre not mad because you have e trade which isnt complicated. Their tools make trading quicker and simpler so you can take on the markets with confidence. Dont get mad get e trade and start Trading Commission free today. Trading floor in Downtown Los Angeles back with jeffrey gunlock today. Joe, im going to open the floor to you you have a question for jeffrey. Thank you, scott. Fantastic content so far, jeffrey and scott. Im ready to go out and buy my tips, jeffrey, after listening to you but i want to ask you about the Mortgage Market. I like tips. Yeah. Certainly, the certainly, the way you sound today, we we both like tips but the Mortgage Market. The lion share of allocation for taxable fixed income, portfolio managers, has been in the mortgagebacked security market. How am i thinking about mortgages in 2020 in the environment, as you described . Because there seems to be a significant overweight to that im not really sure that i agree with that. I i think that theres more of an overweight into corporate debt than there is into mortgage debt although, theres certainly funds like my total return fund th that have a lot of mortgage debt our analysis actually shows that mortgages are relatively cheap at the present time. Versus Corporate Bonds and Treasury Bonds so i dont really think that its been an underperforming sector this year the sectors that have really performed have been the riskier sectors in the bond market emerging market debt is up 12. 6 year to date if you do it in dollar terms and its not much difference in local currency terms corporate debt is shockingly high junk bonds are up over 12 and investmentgrade Corporate Bonds are up over 14 year to date which is kind of amazing because tre Treasury Bonds are only up about 7. My opinion is mortgages have lagged over this Interest Rate decline thanks to prepayment fears with the Mortgage Rates having fallen so much with the tenyear treasury dipping down below 150. We saw an increase in prepayment rates, which are problematic for mortgagebacked securities so with Interest Rates going up a little bit since august. In my viewpoint, they might go up a little higher the Mortgage Market is probably one of the better places to be in the investmentgrade bond market right now i think so i im not really worried about that at all. Much more worried as we talked about with scott about the longerterm problems of overindebtedness. You mention your total return fund you have no corporate debt. Never have. Never owned a single Corporate Bond now, we do own a small amount of the very top of the capital structure in clos, which are bank loan resecurization. So with that exception, we have never weve never owned, like, an at t bond or any other sort of corporate name its one of the ways that we basically have developed lower volatility over many years because the lower volatility sectors, the Corporate Bond markets the higher volatility sector. Steve weiss, you have something for jeffrey . Yeah. So im curious about about just our economy and our debt load so the fed Balance Sheet is back up to 4 trillion, which is where it was during the worst of times. Will there ever be a catalytic event that will cause the markets to care about it because right now, the markets just dont care. We can add debt after debt after debt and you, as a bond guy, youre right in the heart of this yeah. Yeah its a really good question. You know, i see two parallel things that are kind of metaphorically equivalent that are going on that have to do with shortterm considerations versus longterm considerations one of them is the debt level of the United States, which is certainly a longterm consideration. But its been talked about for so long. And its never really been a problem yet. So weve glued many, many short terms together in terms of using debtbased ek nconomic grh scheme but at some point, it it turns into the longterm whats metaphorically similar to that is negative yields in europe and japan particularly, europe where they are trying to battle problems in the economy and try oh g to get stimulus with negative Interest Rates but they know negative Interest Rates are ultimately fatal to the Banking System if you keep them forever, you ultimately end up bankrupting all your banks and insurance companies. So what we have is this odd world were living in where we know our policies in terms of u. S. Debt are fatal in the longterm. We continue to do them thinking that, well, over the shortterm, it doesnt matter. I really think that the big event thats going to make all of this start to become relevant and people care about will be the next recession the fed and the ecb and the boj are fighting the an economic downturn with everything that they have. And theyve been able to forestall it but they cant forestall it forever. And when the recession comes, the debt to gdp will be so high, as i said earlier, that Interest Rates left to their own devices and market pricing, would go up on the long end. I think fairly substantially so thats we have to wait for and the reaction to that will be some pretty shocking policies. I mean, weve seen shocking policies already through qe and negative Interest Rates and the like and now, we have canada talking about free money andr andrew yangs made the debate stage for the seventh democrat and his one policy is free money to people and i think that will ultimately be the way out of our indebtedness and that will cause inflation, i think, once we get there so tips, yes we like tips tips have done okay this year. I think inflation is being encouraged higher by the fed well probably hear rhetoric from jay powell in a short while that talks about wanting inflation to run hot i dont know if hes going use that word. But thats going to be the theme. And thats not exactly music to bond holders ears. We will hear what the fed chair says we have probably 30 seconds left you got your 10th anniversary this week. Unbelievable you got another ten years in you . Oh, yeah. I got another ten in me. I dont know about 30. I want to see how this movie ends were in what we call the fourth turning. There is a book by neil howe called the fourth turning. I think everybody should read it its kind of a political philosophy sociological philosophy. And it talks about how we have to go through a new building of institutions that people can buy into because right now, no nobodys buying into the institutions that were set up in 1950 and weve got to get past that its going to be very, very interesting. And i hope to share it with your viewers on cnbc. We look forward to that as well thanks again