CASE WE'RE FAR AWAY FROM THOSE
RECORDS.
MARIA: JOINING US TO TALK ALL
ABOUT THAT, PHIL ORLANDO.
GREAT TO SEE YOU, THANKS SO
MUCH.
>> THANKS FOR HAVING ME BACK.
MARIA: DOES THE BACKDROP IN
TERMS OF THE GREAT ECONOMIC NEWS
COINCIDE WITH WHERE MARKETS ARE
RIGHT NOW?
>> THIS IS EXACTLY THE TOPIC OF
THE PIECE I WROTE LAST WEEK.
I THINK THIS IS WHAT'S GOING TO
HAPPEN WITH THIS ELECTION.
THE CHOICE BETWEEN THE CIRCUS
AND THE NOISE HAD IN WASHINGTON
VERSUS THE STRONG UNDERLYING
FUNDAMENTALS OF THE ECONOMY.
DAY
WEY
WE'VE GOT THE STRONGEST ECONOMIC
GROWTH IN FOUR YEARS, THE
STRONGEST CORPORATE EARNINGS
GROWTH IN SEVEN YEARS, MANY OF
THE CONSUMER AND BUSINESS
CONFIDENCE METRICS THAT WE'RE
LOOKING AT ARE SITTING AT
MULTI-DECADE CYCLE HIGHS.
THAT DIDN'T HAPPEN JUST BY
ITSELF.
IT'S A FUNCTION OF A CHANGE IN
FISCAL POLICY.
SO ONE OF THE THINGS I FIND MOST
INTERESTING IS THAT THERE IS A
SIGNIFICANT CHANGE IN VOTER
DEMOGRAPHICS, JUST SINCE THE
ELECTION IN 2016.
DEMOCRATS HAVE LOST A COUPLE OF
TICKS.
THEY'RE SITTING AT 27, 28% OF
THE LEK
THE EEK
THE ELECTORATE.
REPUBLICANS ARE SITTING AT 26 OR
27%.
INDEPENDENT VOTERS HAVE
INCREASED TO ABOUT 44% OF THE
TOTAL VOTER POPULATION IN TERMS
OF REGISTERED VOTERS.
THAT'S THE BIGGEST VOTER BLOCK.
THE QUESTION IS, ARE THOSE FOLKS
ON BALANCE GOING TO BE OPTING TO
VOTE FOR THEIR POCKETBOOK OR FOR
OTHER ISSUES.
AND THAT'S SOMETHING THAT'S
GOING TO BE DECIDED IN THREE
WEEKS.
MARIA: YOU MAKE A GOOD POINT.
MOST OF US ARE NOT MONOLITHIC.
WE MIGHT LEAN TO THE RIGHT ON
CERTAIN THINGS AND LEAN TO THE
LEFT ON OTHER THINGS.
WHEN YOU LOOK AT THE ECONOMIC
STORY, YOU WOULD EXPECT THAT
PEOPLE ARE FEELING BETTER TODAY
THAN THEY WERE TWO YEARS AGO.
>> THERE'S NO QUESTION.
YOU TALKED ABOUT DR. SOMMERS AT
THE TOP.
WE COULD HAVE TALKED ABOUT
AUSTIN GOOLSBY.
MARIA: HOW ABOUT KRUGMAN.
>> THEIC ON
>> THE E ON
>> THE ECONOMISTS WERE MISSING
THE LARRY KUDLOW SUPPLY SIDE
STORY, IF YOU WILL.
WHAT WE'RE SEEING IN OUR VIEW IS
SUSTAINABLE.
IT'S NOT A ONE QUARTER SUGAR
HIGH.
THAT'S BEEN ONE OF THE
CRITICISMS.
MARIA: WITH BETTER GROWTH COMES
HIGHER INTEREST RATES.
JAMES?
>> PROFESSOR FELDSTEIN WAS
TALKING ABOUT WHAT HAPPENS TO
THE ECONOMY IF WE GET TO 4% OR
5% RATES.
SEEMS TO ME GETTING THE FED FUND
RATE UP TO 3% IS NOT THE END OF
THE WORLD.
IT'S STILL LOWER THAN IT HAS
BEEN OFTEN IN HISTORY.
HOW DO YOU SEE THE EFFECT OF
RATES ON THIS GROWTH WE'VE BEEN
TALKING ABOUT?
>> THIS IS ONE OF THE ISSUES
THAT HELPED TO SPARK THIS
CORRECTION WE SAW IN THE MARKETS
OVER THE COURSE OF SEPTEMBER AND
EARLY OCTOBER.
SO YOU LOOK AT -- WE NOW HAVE
THE MINUTES FROM THAT LAST FOMC
MEETING.
THERE'S A SIGNIFICANT DIVERGENCE
BETWEEN WHERE THE DOT PLOTS ARE
AND WHERE THE STREET IS.
THE FED TOLD US WE'VE GOT ONE
MORE HIKE THIS YEAR, THREE HIKES
NEXT YEAR, ONE HIKE IN 2020.
THAT WILL TAKE THE FUNDS RATE UP
TO 3-POINT
TO 3.5OINT
TO 3.5%.NT
THE STREET IS THINKING THE FED
OUGHT TO BE DONE AT 3% BY THE
MIDDLE OF NEXT YEAR.
WHAT THE STREET IS QUESTIONING
IS WHAT DOES THE FED SEE THAT WE
DON'T SEE.
IS THE FED -- IS THERE A POLICY
ERROR BREWING?
DO THEY HAVE THE POTENTIAL TO
OVER-TIGHTEN THE ECONOMY IN 2020
AS THINGS ARE STARTING TO TOP
OUT AND THEN THE VIGILANTES COME
IN AND START TO PUT MONEY INTO
THE BOND MARKET.
WE DON'T KNOW THE ANSWER TO THAT
QUESTION.
BUT THAT'S SOMETHING THAT I
THINK THE MARKET WAS CONCERNED
ABOUT AND WE'RE PAYING ATTENTION
TO.
DAGEN: IN TERMS OF INTEREST
RATES, THOUGH, WE'VE BEEN IN A
MULTI-DECADE TREND OF LONGER
TERM INTEREST RATES FALLING.
AND PEOPLE ALWAYS SAY WELL, I --
YOU KNOW, THE ECONOMY WAS FINE
AND I REMEMBER WHEN A MORTGAGE
WAS AT 4.9%, ABOUT 5%, 30 YEAR
FIXED RIGHT NOW, I REMEMBER WHEN
THEY WERE 8 THERE'S THE
EARLY '90S.
WELL, YEAH, AND THAT HOUSE IS
SELLING FOR $1.3 MILLION OUTSIDE
OF NEW YORK CITY, IT SOLD FOR
$300,000 WHEN MORTGAGE RATES
WERE 8%.
PEOPLE NEED TO FACTOR IN THE
ASSETS WILL BE WORTH LESS IF
INTEREST RATES GO UP TOO FAR,
TOO FAST, RIGHT, PHIL?
>> THERE'S NO QUESTION.
I KNOW THAT TRUMP HAS BEEN
CRITICAL OF THE FED TIGHTENING
POLICY BUT THE REALITY IS THAT I
THINK WHAT POWELL AND THE FED
HAVE DONE IS EXACTLY THE RIGHT
POLICY, TRYING TO NORMALIZE
RATES, BEGIN THE MUCH STRONGER
ECONOMIC BACKDROP.
THE QUESTION IS, WILL THEY GO
TOO FAR, TOO HIGH?
AND IN OUR VIEW, 3% FOR THE
FUNDS RATE IS A GOOD VALUE.
WE THINK TREASURY YIELDS WILL
GET UP TO 3.5% BY THE END OF
NEXT YEAR.
DAGEN: BY THE END OF NEXT YEAR.
>> BY THE END OF NEXT YEAR.
OUR TARGET WAS THREE AND A
QUARTER FOR THIS YEAR.
WE HIT THAT A COUPLE WEEKS AGO.
WE THINK THAT THE PROCESS IS
GRINDING HIGHER, INFLATION
GRINDING HIGHER, TREASURY YIELDS
WILL GET A LITTLE HIGHER.
BUT WE DON'T SEE THE 5% TREASURY
YIELD THAT JAMIE DIMON FOR
EXAMPLE TALKED ABOUT A FEW WEEKS
AGO.
DAGEN: I MENTIONED 8% MORTGAGE
RATE, THE REASON THAT I USED
THAT AS A BENCHMARK, BECAUSE
SINCE THE EARLY '70s, SINCE
1971, ACCORDING TO CHARLIE
BRADY, THE 30 YEAR FIXED RATE
MORTGAGE HAS AVERAGED 8.1%.
WE'RE TALKING ABOUT A RATE
THAT'S THREE PERCENTAGE POINTS
HIGHER THAN IT IS RIGHT NOW.
>> THERE'S NO HE QUESTION THAT
THE HOUSING MARKET HAS BEEN ONE
OF THE AREAS THAT'S BEEN SLOW
HERE OVER THE COURSE OF THE LAST
YEAR.
I THINK AT THE MARGIN THE HIGHER
MORTGAGE RATES, THE PRESSURE ON
FIRST TIME HOME BUYERS FROM A
TRILLION AND-A-HALF DOLLARS OF P
STUDENT LOAN DEBT, HIGHER WAGES,
HIGHER RAW MATERIAL PRICES,
THEY'VE CONTRIBUTED.
DAGEN: AND CHANGE IN TAX