Transcripts For CNBC Power Lunch 20160815 : vimarsana.com

All right, michelle, welcome bark. By the way, everybody. Can you guess the price of this house game coming up. Hi. Im brian sullivan, happy monday. It is a happy monday if you own stocks because a new week and new record highs, dow up about 76 points right now. 12 dow stocks now up more than 10 this year. Four up more than 20 just so far in 2016. Caterpillar and United Health the best two performers so far this year. If youre wondering, only six dow names are down this year led by nike, which has lost 9 . Melissa. Speaking of nike we have a great interview with the ceo of under armour coming up. Im melissa lee, heres what else is happening at this hour. 4 billion real estate deal to kick off the new week. Mid America Apartment Communities buying post properties in a stock swap deal specializing apartments in sun belt states. Weather conditions are improving slightly in Coastal Louisiana following days of deadly rains. Well have the latest from the flood ravaged scene straight ahead. Team usa continues to dominate at the rio games with 70 medals in total, 26 are gold, tyler. Melissa, thank you. Im tyler mathisen. Welcome everybody. As brian mentioned, dow, nasdaq and s p all at record highs even as 13. 4 trillion worth of bonds globally now have negative yields. So what should you do with your money right now . Lets bripg in pimcos global credit cio mark kiesel. Good to have you with us. If so many bonds are in negative Interest Rate positions right now, that would suggest that u. S. Bonds are fairly well positioned because they have positive Interest Rates. Tyler, thats correct. I mean, our thesis is then dont buy assets which are being subsidized. Whats amazing about whats happening in the markets right now is as you said theres over 13 trillion of Government Bonds in developed markets at negative yields. Central banks around the world are taking out incomeproducing assets out of the marketplace. Whats happening with the bank of england is amazing. Over the next six months theyre going to buy more Government Bonds on the Central Banks Balance Sheet than theyre even going to issue. The ecb is set to basically buy 12 of the stock of Corporate Bonds over the next year. I mean, this is simply amazing but mark, when i read through your notes what i found interesting is you pointed out when you hedge for the currency, foreigners actually lose all that advantage, right . We shouldnt expect foreigners to be buying the u. S. Treasuries because once they send money hedging out the currency they dont gain anything, is that a correct understanding of what i read . Yes, michelle. In fact, this is the first time this has happened in three years. Its a significant development. Basically whats happened is the market starts to eventually price in fed rate hikes. And as other Central Banks are lowering ranks, the hedging costs increase significantly. So now u. S. Treasuries to both japanese and european investors are no longer a pickup relative to their own Government Bond markets. This is a Huge Development for markets. What it means is that 1. 5 u. S. Treasury, 10year maturity, is actually zero to a foreign investor. So i think what will happen is Foreign Investors will over time move to credit. We think Corporate Bonds will continue to do well. We also have become more positive on emerging market bonds. So give me some sense of what sort of returns i might expect in u. S. Bonds versus emerging markets bonds, corporates versus governments. Sure, tyler. So this has really been the year of credit. And credit is outperformed equities. Going forward were looking at more modest returns. But interestingly enough in a world where youve got 13 trillion of negative yield in Government Bonds, Corporate Bonds even today at current valuations can deliver 3 to 4 for Investment Grade Corporate Bonds in the United States, and roughly 5 to 6 for high yield bonds. And emerging markets, which we mentioned earlier, actually look very attractive on a relative basis. Investors in emerging market bonds today can earn 5 to 7 . Mark, if we got the boe and ecb stepping in and buying Corporate Bonds in their regions, what does that do to relative valuations to u. S. Corporate bonds . Hi, melissa. Yeah, really good question. You know, the bonds in both europe and increasingly in the uk now are very rich. The Corporate Bonds. Theyre trading at a positive basis, which we havent seen in a long time. It means those bonds are very rich. In contrast, the central bank of the u. S. , the fed, is not buying Corporate Bonds. So Corporate Bonds in the u. S. Are still attractive, and we think that will cause investors in europe and also in the uk and also in japan to have a preference for u. S. Credit when they buy Corporate Bonds Going Forward. You know, mark, and there are those, and we know who they are, who say this is all going to end terribly. That eventually the banks are going to have to sell. Theyll be no buyers, everything is doomed. They may be right. But weve been on that train for a couple years now and its paid off. How much longer will the strategy of get on the backs of the central bankers work . Well, brian, i think that basically when youve got an economy in the u. S. Where its 70 the consumer and the consumer is as healthy as theyve been in ten years with rising wages, declining unemployment rate, where the banks are lending. Loan growth in the United States is up over 7 . And basically youve got a situation where risk assets, financial conditions continue to ease. So i actually think the Recession Risk is probably lower than what the markets priced in, at least in the United States. And therefore this income coming into credit will continue. The reason why its coming in to credit is because the earnings are so extended for a lot of these equities. People are not going for growth. Theyre going for income. So this income theme is huge for credit. And its also, i think, going to pivot to emerging markets. Mark, with the situation in yields in the world, stock investors in the United States have to Pay Attention to whats happening to overseas bonds. And im wondering what you think of whats happened to the japanese 10year. If we bring up a chart over the last year, people are going to be able to see, well, its still negative. Its risen very, very sharply in the last week. Peter boockvar was on cnbc this morning saying, wondering, is that a canary in the coal mine . Is that something thats going to signal we might see a rise in Interest Rates around the world as a result . Which would be detrimental to the stock market. Well, one thing it could signal is that Monetary Policy around the world is reaching its limits, or its reaching its exhaustion. And it could mean that over time we are going to gradually tilt towards more fiscal. And if we do eventually get the fiscal engines to kick in around the world and people are going to be watching japan, theyre going to be watching the United States, then, yes, we could be at the lows end rates for these markets and we could see the rates go up and curves steepen particularly if the fiscal engines kick in. But what do you think that is . Are we at that moment . Are you willing to call it or no . Im not so bold as to call it, but what i would say if youve got negative yield in Government Bonds, theres not a lot of value there. Its clear that japan wants to tilt more fiscal, the yields as you said on 10year, jgbs in japan are 11 basis points negative, theyre 10 basis points negative in germany. Even in the United States where the 10year yield is 1. 5 , its very clear with clinton and even trump although it looks like clinton will win, that both candidates want to engage the fiscal Balance Sheet. So over time what this means, and particularly with the hedging costs going up there will probably be less support for treasuries Going Forward. Got it, thanks so much. Mark kiesel of pimco, thanks. On the housing front the nations Home Builders are feeling better about their business and they have good reason to. Diana olick is live in washington with that story. Diana. Well, right, because theres a severe shortage of existing homes for sale. The job markets improving, more households are forming and millennials are aging into their home buying years. Heres the grand finale, Mortgage Rates not only sitting near record lows, freddie mac just revised down forecast rates for 2017 saying the 30year fixed will average just 3. 7 next year. Whod thought that last december when the fed made its first move higher . So Builder Sentiment rose two points this month to 60. 50 is the line between positive and negative. We were one point higher a year ago, and buyer traffic is still weakening, but current sales are improving as are sales expectations. Now, the Biggest Issue for builders is weakening affordability. Theyre having trouble making money on entry level product, really just lennar and d horton are in that market, which may be why starts are 25 below normal levels. Fewer people are able to buy on whats being built today. Well be watching for that. Thanks, diana. Speaking of housing, get to seema mody for market flash. Lets get a check on the home builder stocks on the heels of that Strong Builders sentiment number. The spdr Home Builders etf ticker xhb gaining more than 1 at its highs of the session. Shares of d. R. Horton, lennar and pulte group seeing a lift all this ahead of home depot and lowes later this week which likely could be market moving and provide another indicator for the health of the u. S. Housing market. Seema, thank you very much. Heres a question, are foodies the new mall rats . Were going to take a look at the changing face of the american mall with restaurateur tim love. And later on, home prices gone wild. How much do you think each of these three california homes is up for sale for . Were going to play a little game and see if my fellow anchors here can guess it right. And speaking of home prices in the golden state, unbelievable story of one Planning Commissioner who is also a lawyer who has to move because her and her engineer husband cant afford it. A lot more to do on power lunch. Stick around. When it comes to healthcare, seconds can mean the difference between life and death. For partners in health, time is life. We have 18,000 people around the world. The microsoft cloud helps our entire staff stay connected and Work Together in real time to help those that need it. The ability to collaborate changes how we work. What we do together changes how we live. This is my new alert system for whenever anything happens in the market. But thinkorswim already lets you create custom alerts for all the things that are important to you. I guess we dont need the kid anymore. Custom alerts on thinkorswim. Only at Td Ameritrade. Welcome back to power lunch. Weve heard this a lot, american malls are dead. Turns out theyre not. Theyre just beginning to look very different. Courtney reagan is looking at the changing face of the american mall. Hi, michelle. So macys, sears, ralph lauren and walmart and other numerous stores announce closures, the u. S. Is overstored. Its a fact more than six times the square foot per person than many other countries. Shopping center reits though surprisingly okay with the store closures too. Anchor stores like sears and jc penney that used to be exactly what a mall wanted. But as the sectors productivity and traffic continues to fall, Department Stores are not always the most attractive tenants anymore. That mall shifting is to things like fitness, education, medical, government, food and beverage and even religious tenants. A decade ago food and beverage was just 5 of the malls tenant mix. Now its 30 . This is according to jll, the new guard brings in new leases and higher rents. For example, a Department Store could be paying single digit rents per square foot, a new nonDepartment Store tenant could pay double digits for the same space. The preference is also for much shorter leases. Jll says in Shopping Centers with over 50,000 square feet, leases under a year in length have surged in popularity. Now making up more than 16 of all leases with long leases half of that. You can see a big change even in just the last year. Brian. All right, courtney, thank you. So are restaurants really going to rescue americas malls . Lets bring in tim love, restaurateur, investors and cnbc contributor. Tim, i dont think, i know you have a lot of business interest, you dont have anything in a mall, do you . Not in a mall. Ive got airports and ive been in strip malls as well. But would you go into a traditional mall right now . You know, i think that would be according to the landscape of the mall, i mean, ive seen a lot of malls, you know, shrinking just like she spoke of with retail fading quickly. Its funny how people look to restaurants to be anchors these days whether it be in a new development, a new Live Entertainment center or like you said in malls, the good thing about a restaurant tenant is they come in and improve the property without a doubt. The value of the property goes up when a restaurant comes in as compared to retailer may just add some racks or lights. And it used to be, tim, you go to a mall and you get, we all know it, cinnabon, chickfila, no offense to those companies, but now darden, theyve gone higher in. Do you think theres one or two d can you name one or two of these nicer chains that tim love would endorse or go to . Say you see something and say im not a big restaurant guy, but id go there. Thats very true. Im not a big chain restaurant guy obviously. You know, i think you see malls going more towards independents, which is a bigger draw. Theres a couple of i think higher end chains that are that have like a large selection of beers or something that has a little hook like that, i cant really think of them but i really like. Most of the food like that i wouldnt really participate in except for chickfila. Otherwise most of the restaurants that i would sit down in tend to be somewhat regional or at least local as opposed to like a national chain. I have to say honestly though i really dont go to many malls for that reason. I prefer to be outside and shop the independents. So this underlying premise then that having a restaurant replace a big anchor tenant that used to be a Department Store, do you think thats going to work or its not going to work . Well, i think its certainly going to do better than adding Something Like sears or jc penney. I mean, they take up a large amount of square footage, you dont hardly ever see anybody shopping in one when you go in to one except for like december 20th. Whereas restaurants theyre going to fill seats. And the idea of a mall if i was somebody who was planning on a mall, i want to find out whats going to draw the most amount of people in to my facility. Thats whats going to sell the rest of the tenants. So a restaurant is a great idea, especially one if you can draw people. Thats why they love movie theaters and malls because it draws people. Once you get people, you get tenants. Youve got to figure out a way to make the mall a destination. Its either with entertainment or with dining or with any number of things, but that seems to me the way you do it. Thats why youre seeing these new developments like l. A. Live, one in arlington called texas live. All building a complex where that mall used to be, used to be a place where kids would hang out and not be scared tyler was going to tell you his ideas. You said this repeatedly. Serve drinks. I say that the Big Chain Stores would do a lot better if they had bars and cocktail hours. Theyre trying it. Tim, i dont know if you know, remember urban outfitters, philadelphia based urban outfitters, young hip store, they recently you probably know mark vetri, very famous philadelphia guy. Correct. They bought his restaurant empire and pizza change for 100 million a year or two ago because theyre going to put the p p pizzerias in, do you think thats going to work . 100 i think thats going to work. The thing is people love to drink and eat, if you can provide that in a place where you want to do other things. As simple as that, isnt it . People just love to eat and drink. You also need to or you will perish. Thats right. My feeling is they used to be, and my mother when she would go out with the ladies to lunch, shed go up to the restaurant at the top, thats not what im talking about. Im talking about putting the bar right there on the on the rack. Right next to the rack, exact pli. Right next to the cash register. The more you drink, the more youre going to spend. The more you buy. Yep. I agree. You know, if you can provide food and beverage, people stay longer, they get into a better mood generally. Yes. Get drunk, go into a swim