MARKETS.
IT'S A BIG MARKET DAY TODAY.
THE FEDERAL RESERVE IS GOING TO
RELEASE MINUTES FROM THE LAST
POLICY MEETING.
WILL THEY OFFER MORE CLARITY ON
JAY POWELL'S PLEDGE TO BE
PATIENT WHEN IT COMES TO FURTHER
RATE HIKES AND IS THE MARKET TOO
OPTIMISTIC.
GUYS.
>>> GOOD MORNING.
>> GOOD MORNING.
CHERYL:  TODD, FIRST TO YOU,
LOOKING AT FED FUNDS FUTURES
RIGHT NOW, PRICED IN, 0.9% OR
SOMETHING.
IT'S A FRACTION THAT THERE'S
GOING TO BE ANY RATE HIKES THE
REST OF THE YEAR.
I'M NOT SURE, TODD, THAT THAT'S
A SAFE BET.
ARE WE TOO OPTIMISTIC ABOUT FED
FUNDS FUTURES AND INTEREST RATES
FOR THE YEAR?
>> GOOD MORNING, CHERYL.
I THINK WE'RE BEING WAY TOO
OPTIMISTIC.
I THINK THE MARKETS HAVE PRICED
IN WHAT YOU'RE SAYING, WHICH I
THINK IS WELL OVERDONE.
I DON'T THINK THE FED CAN REALLY
SIT THAT FAR BACK.
IF THE ECONOMY IS REALLY AS GOOD
AS WE SAY IT IS AND WE THINK IT
IS, THEN IT SHOULD BE CREATING A
BIGGER DEMAND FOR MONEY WHICH
SHOULD INCREASE INTEREST RATES,
WHICH IS ACTUALLY HEALTHY BASED
ON THE ECONOMY.
SO I THINK WE'RE WELL OVERDONE
AND OF COURSE THE MAGIC ACT OF
THE FED IS NOW TO SAY I THINK
THAT ALL WE WORRY ABOUT IS WHAT
THE FED MINUTES ARE GOING TO SAY
OR WHAT JEROME POWELL IS GOING
TO SAY, VERSUS THE ACTUAL
FUNCTION OF THE MARKET.
CHERYL:  THE MARKET IS BANKING
ON THAT WE'RE NOT GOING TO GET
INTEREST RATE HIKES.
THE PRESIDENT OF THE FEDERAL
RESERVE BANK OF CLEVELAND, SHE
ACTUALLY SAID, LOOK, IF THE
ECONOMY STAYS STRONG BASED ON
OUR PROJECTIONS, SHE USED THE
WORD OUR, SHE THINKS AND
INTEREST REAL ESTATE HIKE IS
GOING TO HAPPEN LATER THIS YEAR
AND THAT WOULD BE A CORRECT MOVE
FOR THE FED.
THAT WOULD DERAIL MARKET
SENTIMENT.
>> IT MIGHT SET IT BACK A LITTLE
BIT.
I DON'T THINK THE FED WILL DO
TOO MUCH UNTIL THE 10 YEAR GETS
WAY ABOVE 3%, MAYBE AROUND 3.25
OR 3.4.
THEN THEY HAVE A LITTLE BIT OF
ROOM TO MOVE.
BUT UNTIL THEN, I CAN'T SEE THEM
REALLY MOVING.
I THINK INFLATION IS PICKING UP
A LITTLE BIT.
IT'S POSSIBLY LOOKING AT 2.5%
AND SO MAYBE THAT'S THEIR --
THEY NEED A LITTLE BIT OF A
LEVER THERE TO DO SOMETHING AND
IT WOULDN'T SURPRISE ME IF
INTEREST RATES GO UP, THAT THEY
DO HAVE A LITTLE BIT OF ROOM TO
MOVE ONE OR MAYBE TWO TIMES.
BUT YOU HAVE TO SEE RATES GO UP.
THEY'RE JUST NOT GOING TO DO IT.
CHERYL:  STAY WITH ME FOR A
SECOND I WANT TO TALK EARNINGS.
WE HEARD FROM WALMART BEFORE THE
BELL.
THEY HAD VERY STRONG SALES FOR
THE HOLIDAY QUARTER, THEY'RE
MAKING MOVES WHEN IT COMES TO
GROCERY AND DELIVERY, FLIP CARD.
THAT WAS A STRONG NUMBER.
THEY SAID THE ECONOMY FOR 2018
WAS GOOD FOR THEM.
EARNINGS WERE PRETTY MUCH 80%
BEHIND US NOW, 16% AND CHANGE
YEAR OVER YEAR FOR S&P 500
COMPANIES.
ARE YOU FEELING PRETTY GOOD
ABOUT WHAT WE'VE SEEN?
>> I THINK THERE'S BEEN A
BARRAGE OF LOWERED EARNINGS
EXPECTATIONS WHICH SETS US UP
WELL FOR FIRMS TO CONTINUE TO
OUTPERFORM EARNINGS ESTIMATES
NOW BECAUSE WE'VE LOWERED THEM.
BUT, YES, WALMART IS DEFINITELY
MAKING SOME IN-ROADS AGAINST
AMAZON.
THEY HAD GOOD NUMBERS AND
THEY'RE LOOKING LIKE THEY'VE GOT
THEIR HOUSE IN ORDER THERE TO
TAKE ADVANTAGE OF THIS.
BUT THE ECONOMY IS GOOD.
THIS IS WHAT WE HAVE TO REALIZE,
IS THAT WE USE THE WORD
RECESSION A MILLION TIMES IN
DECEMBER WHEN THE MARKET WAS
DOWN.
I HAVEN'T REALLY HEARD IT THAT
MUCH LATELY.
THAT'S BECAUSE THINGS ARE
ACTUALLY PRETTY GOOD.
CHERYL:  SEEMS LIKE WE'RE FAR
AWAY FROM A RECESSION, AND ALSO
I WAS SURPRISED TO SEE HOME
BUILDER CONFIDENCE COME IN AT
THE RECORD LEVELS THAT IT WAS.
IT WAS AT A FOUR-MONTH HIGH FOR
FEBRUARY.
I WOULD HAVE THOUGHT THAT WAS
GOING TO GO THE OTHER DIRECTION
BECAUSE OF THE INTEREST RATE
JUMP.
AND ALSO YOU HAVE TO WONDER NOW,
WITH CONSUMER CONFIDENCE KIND OF
STABILIZING, IF THE ECONOMY IS
IN PRETTY GOOD SHAPE STILL.
>> WELL, CHERYL, I THINK THE
ECONOMY'S IN GOOD SHAPE.
I THINK THE HOME BUILDERS, WHEN
INTEREST RATES STARTED TO FALL
-- REMEMBER, THE 10 YEAR'S COME
FROM 3.2 ALL THE WAY BACK TO
2.6.
SO THAT SHOULD CREATE SOME OF
CONFIDENCE BECAUSE OBVIOUSLY IT
MAKES MONEY EASY TO GET FOR THE
HOME BUILDERS.
BUT I THINK THAT THE OVERALL
CONSUMER CONFIDENCE, IF WE GO
BACK TO WHERE IT WAS, WE GO BACK
YEARS AGO, WE HAD HIGH LEVELS
THAT USUALLY SIGNIFIES WE'RE
COMING CLOSER TO THE END THAN
JUST THE BEGINNING.
I WOULD THINK THERE'S A
RECESSION COMING SOONER THAN WE
THINK AND I THINK IT WILL TIE
INTO THE FED'S INABILITY TO DO
THE RIGHT THING FOR THE MARKET
AND KEEP IT UNDER CONTROL.
CHERYL:  YOU THINK THE FED'S
GOING TO CAUSE A RECESSION?
>> I DON'T THINK THE FED IS
GOING TO CAUSE THE RECESSION.
I THINK BECAUSE THEY'VE KEPT
RATES SO LOW AND EVERYTHING'S
BEEN DONE, THEY'LL BE FORCED TO
RAISE AT SOME POINT.
I THINK THE BANKS ARE FINDING
LEVERAGE PROBLEMS HERE BECAUSE
THEY'RE BUYING A LOT OF LOANS
THROUGH ALL THESE THIRD PARTY
LENDERS.
I THINK THAT BECOMES A BIGGER
PROBLEM.
WHEN YOU HAVE TO HAVE PEOPLE
COME OUT, LIKE STEVE MNUCHIN
CAME OUT AND SAID THE BANKS ARE
IN GOOD SHAPE, NO PROBLEM,
THAT'S THE SAME THING THAT
PAULSON SAID IN 2008, THAT
EVERYTHING IS FINE, NOTHING TO
WORRY ABOUT.
I'M NOT PREDICTING A CRASH.
I'M JUST SAYING THERE ARE CAUSES
TO THINK HERE AND TAKE A PAUSE.
THESE MARKETS ARE KIND OF
MELTING UP LIKE THERE'S NEVER
GOING TO BE ANOTHER DOWN DAY
AGAIN.
