[bell] u.s. stocks closing higher and the s&p 500 on the longest winning streak in four months. the question is, "what'd you miss?" alix: is the s&p 500 party over? matt: we are looking at if there will be a correction in the equity market. joe: and our guest explains why we are not building more single family homes. >> and a chances of a said rate hike ahead ofrate the decision on wednesday. joe: we will kick it off with the market minutes. matt: looking at the dow jones average, looking at maintaining their longest average winning streak. newark are the again today -- new records again today. so those investors who got long

before the brexit and freaked out, as long as he did not sell you are good. >> we had a couple of down days. and we made fairly close to the highs of the days. >> it has shrunk in a little bit, but we are still going toward and posting new all-time highs. one has not passed the all-time high, the nasdaq. the tech stocks, looking at basically the high of the past months since they started the year. going back to july to see when the composite hit the all-time high. we are looking at a transition in the market as stocks do better. we will flip this over and look at the market, looking at sectors and we have had a reversal as the information technology stocks do pretty well and there is a little bit of weakness in the utility group, which today was a good day. if you look at the one week, it is about 1.5%, was is good.

that -- which is good. and staples dropping off a little bit. joe: on the government bonds front, the yield were up modestly across the curve. looking at the two year yield, 0.7. and a little bit of a pickup on the 10 year yield. nothing dramatic. and the pound, the one day chart on the pound, a big drop. that is the flash pmi that joe was excited about. it was a real disappointment, honestly. and look at the nigerian currency, this morning i was looking at it, realizing what was going on. 186 million people in the country, half a million in gdp. most of the people in the country cannot access this rate, so it goes to a new record of 305, so you have to go to the

black market if you want to get dollars. life is tough in nigeria. and looking at commodities, weakness in oil. we can pull this up, inventory data showing it is still building and one story lately has been a disconnect between equities and oil. going their separate ways. and i have been waiting for this to correct. remember? joe: gold on a two week losing streak. gold has had an extraordinary year, but you can see that the middle of the july, slipping for a wild. so it little bit of leicester coming off of -- luster coming off of gold. matt: taking a dive into the bloomberg, you can find the following charts that we use, it is at the bottom of the screen. they will be in the library. joe, you're looking at the vi

x. joe: i will first look at the u.k. services pmi, that was the big economic point of the day. one of the first real post brexit points. the red line is the headline number and you can see that it is really tumbling. 48.7, the lowest in a long time. the brexit results really showing the service industry. and the white bar is the monthly change, you can see how unusually large the collapse was versus anything else we have seen in recent years. something -- we have also collapse on a month-to-month basis, that was a jolt. and this is just survey data of 600 companies, not hard gdp data, but it lines up pretty good. it looks like there will be economic impact, despite the fact that on a market basis,

globally we have not see much. >> it seems like arguably we are looking at the manifestation of brexit, but there are still hard numbers. joe: we will get more over the coming weeks. >> i have a chart from the bloomberg intelligence, mike pointed out an awesome milestone for all of the central bank nerds. the white line is the fed balance sheet, holding steady. and the blue line is the bank of japan balance sheet, the yellow line is the european central bank, they are converted into dollars. look at the bank of japan, almost hits and at some point will probably clip the federal reserve's balance sheet, especially when we get more stimulus next week. 13% of the gain this year is from currency, but it is amazing that the bank of japan, in dollars, as far as the balance sheet that is 80% of their gdp,

where ours is only 25% of gdp. matt: i know that we have an econ related show. i want to make sure i get the stock stuff out of the way. mrs. index building with -- this is index building the data, assessing what is rallying this year. >> this is composed of a process by which, every week you go in and you buy companies in the s&p 500 or the russell 3000, and they register at in rsi of less than 30. if the company has one below 30, you keep it and to sell it on the weekend. and this is actually done pretty well this year. a little bit different from august and october, because through the first month you have a tremendous number of companies that were oversold, thrown out. this is then the selloffs. that would have been rewarding this year. i do not think the companies should be down this much. this index is up 30%.

do not start a hedge fund off of this, this is not a long-term thing, it will not perform well over the long-term. etf'sooking at the already. and you have a story coming out that you will have on the terminal, looking for that. last night, we heard donald trump described the american picture as mostly doom and gloom. but is it really all that bad? joining us is the head of u.s. economics for renaissance magic research. -- metrics research. thank you for joining us. is this apocalypse, misery, or is it better than how it was portrayed? guest: it is a lot better than it was portrayed. the misery index is low. for all of the talk about people feeling down on their luck, if

that is the case why is can simmer -- why is consumer confidence at such a high level? it is pretty much at the level it was in 2004. so i think the economy is fine. if you want to look for a job in the developed world, the u.s. is probably the best place to look for it. the economic outlook is positive. and relative to our peers, there is no debate. joe: i think one of the best statistics is jobs. matt: less than 5% unemployment, jobless numbers that joe looks at every week are at a low. we have funding wages and this year, 2.8% compared to 2.5% last year, people making more and more money and they are spending it, right? guest: seems like that. when you look at the second quarter, the consumer spending

is at about 4.5%. it could be the strongest quarter probably this cycle. there appears to be good momentum going into the third quarter. is nevers. recovery, as fast as anybody wants but it is doing the job. it is getting unemployment down and again, as i said, relative to other places we are doing pretty well. and i think a lot of that is the fountain of acting aggressively during the crisis in 2008-2009. precisely because we were so aggressive, we are now in the position to talk about higher rates. >> not to shift to the markets, but when you talk about consumer sentiment, you are looking at surveys showing americans are hesitant to take risk and the equity market is hesitant to put money in stocks. and you look at those companies

that are increasing and expanding less than the companies in the buybacks and the dividends, so is that not a gauge of the sentiment of the economy? guest: the consumer does not want to get into the equity market, that tells me that the bull market has more room to run. tell me when retail is getting back into the market and started to sell. with the corporate sector, that is right. there has been a lack of business investment. i would point out, remember a lot of the weakness in businesses started in 2014 when we had the tightening of the conditions, but those have eased this year. that will push growth and business investment into the outlook of the second half of the year. fundamentally, what is going on is a weak global economic environment and the accelerator will push the investment higher. -- and atded level

the spread has erased all of the stress. all of the events internationally have not had a financial ripple effect. was good, thet wage growth is continue to go higher. is there any reason in your view for the fed to wait on continuing the tightening cycle? guest: it is really about risk aversion. withthink what the fed -- them so close to 0%, they are going slowly. the one thing i will say is they laid out a number of conditions to get the next rate hike, better jobs, progress on inflation, if all of those things get checked off, you can make a guest -- nobody thinks it will happen in july or september. so there is something to say about their communication strategy.

it is a matter of intent. the fed does not intend to raise rates more than once this year. >> they are looking for an excuse not to raise? guest: not so much an excuse, i think it is about that they are trying to act as the global backstop. in that situation, you want to offsetlation run hot to everything else. so, uncertainty and other economies translate more quickly into dollar appreciation, which will slow the fed down. that is what they are looking at over the next few months. joe: thank you very much for coming. matt: coming up, we tell you the tale of two housing market in the u.s. and why is supply falling short of demand. this is bloomberg. ♪

♪ mark: let's get to first word news. we begin with the latest on the story we have been following throughout the day. in germany, at least six people have been killed and several wounded at a mcdonald's in a mall in munich. police are hunting for at least three shooters and the city is under alert. citizens have been told to stay inside. the mass transit system is frozen. today is the second attack in munich within the last week. and one of aviation's greatest mysteries could remain unsolved, the hunt for the missing malaysian jetliner will be suspended once the current area has been completely scoured. officials from malaysia, china and australia admit that the likelihood of finding the airplane is fading.

it disappeared more than two years ago. heather clinton could announce a running mate via text message today, according to a person familiar with the plans. all eyes focused on tim kaine as the likely choice. members of the obama administered have been advocating for tim kaine. mrs. clinton is in orlando and she made an unscheduled stop at the pulse nightclub where 49 people were killed earlier this year in a terror attack. and david duke says he plans to seek a u.s. senate seat in louisiana. he is a convicted felon comic -- felon, admitting to cheating on his taxes. he spent a year in federal prison. he ran for governor in 1991, but lost. day,l news, 24 hours a powered by more than 2600 journalists in more than 120 countries. this is bloomberg.

-- theret'd you miss?" is a tale of two housing market, single and multi family construction and our next guest says apply is falling short of demand. joining us is laurie goodman from the urban institute. she recently held an event about the issue and we want to get your take on what you do. why are we not building enough single-family homes? guest: there is a number of reasons. first, labor shortages. that is dealing with the subcontractors. and -- joe: why are there labor shortages? there are not enough construction workers, did they all got out after the big crisis and bubble burst? guest: a lot of them did drop out. and housing is very localized. you do not have a shortage everywhere, just certain areas. the interesting thing is, when

you add together this eagle families with multifamily housing -- single family with multifamily housing, it falls short in demand. >> because of that shift in housing from locale to locale, how do we get a larger picture? you look at miami command there are empty apartments -- miami and in there are empty apartments everywhere, but then finding housing in new york is tough. how do you focus on the bigger picture? guest: the larger picture, we have more constructing, about one million units a year when you add single-family and multifamily. if you subtract out the number of units that have become obsolete because of a flood, earthquake, falling into disrepair, that is about 400,000. it gives you a net new construction of about 600,000

more units a year. and housing formation is about one million units a year, so we are falling about 400,000 units a year short of demand dictates that we need. joe: in one of the presentations from the event, one of the contributors to the shortage was there was some regulatory factors. are there policy moves that could be made to help alleviate the shortage? guest: absolutely. the problem is that the moves you make have positive and negative, benefits and drawbacks. five years ago, we saw that houston was terrible. no zoning, what a mess. now we are holding -- now we are looking at it as the poster child for affordable housing. those are two sides of the same coin. when you have a lot of zoning come a you are restricting the amount of construction you can

do, making land more expensive. so it is important to think, when you put on additional regulations, it must cross associate and where you fall out is unclear. matt: we say the tale of two housing market, in one sense that is people who are wealthy enough, when there is a shortage they can grab on to what is out there, but they have priced the less fortunate people out of the market. we are not looking at a lot of building of $100,000 homes. guest: very true. 15% of all home buyers would like to buy new homes under $150,000 and only 6% of new homes constructed are under that. so when you have a shortage period, it is the bottom end that is squeezed out. so we have a tale of two markets in a number of ways, high-end and low end, single-family and

multi family, the single-family construction is very low. matt: because of that factor. it is so expensive. you cannot find land that is cheap, you cannot find work that is cheap. you need to buy a multifamily home and get more money out of it. guest: right. robusta robust, the most it has been since 1986. >> i do not think that there are many economic indicators that they see overheating. one area we start to hear murmurs of a bubble is in housing, because prices have gone up. but it is largely a supply driven thing and not euphoria driven. guest: definitely supply driven. and remember, mortgage rates are at an extremely low rate, so affordability is better nationwide than it was in 2003, at least for purchasing the

homes, although not for rental. joe: what is the outlook? how do you see it you've all been over the next five years? guest: it will put upward pressure on the home prices and rentals, and it will put more pressure on the lower end of the market rather than the higher end, because that is where the shortages are the most acute. and over time we will work out the shortage, but it will take a very long time. so the revelatory burden will play a major role. joe: laurie goodman from the urban institute, fascinating stuff. thank you for coming. matt: coming up, tech and materials leading the s&p 500. what is the cyclical rally meaning? we have the expedition, next. this is bloomberg. ♪

♪ "what'd you miss?", a cyclical rally in stocks. going back to the beginning of the conversation, talking about the trends changing right now. and i will highlight an interesting development from the past month. the purple line is the ratio of the s&p material group. the blue line is the technology companies versus the s&p. look at the direction, up. that is not what we saw for the beginning of the year. at the same time, we have an economic surprise index climbing as we have been talking about the numbers continuing to come in. basically to conversations, one might these are cyclical sectors that they are buying because they will strengthen the economy and these are companies that will ride on the back of a strong economy. versus those that have been

rallying the rest of the year. or this is a traitor result, not based in the fundamentals -- trade reversal, not based in the fundamentals of the utilities. it will be important as we go to the earnings and i think if it does rivers, it will be interesting to see how that develops with the prices and a stocks across the market. joe: i am looking at stuff in the economy, to lines -- two lines that i put together. the white line is the index that measures the degree to which the economic data is surpassing expectations. it is surging, the highest level since 2014. it really speaks to how follow the data has been. and to blue line is the moving average of the jobless claims, which i flipped. up is good. i turned it over. and it is doing nicely and we had an impressive -- nicely.

we had an impressive report this week. wasnd donald trump's speech not that bad? it has been one of the biggest topics. six out of 10 stories have to do with donald trump. matt: here you can see the issues that he hit the hardest in his announcement speech, china, china, china. remember? he also talked about mexico, obama. obviously things shifted and now you can see the dark orange lines is what he is talking about now. immigration, terrorism, hillary clinton huge as well. so we have not been talking about china as much, but moving toward immigration. today, president obama told us we have 2/3 fewer illegal elegance -- immigrants now they we did during the reagan era. a very interesting fact people

have been clicking on. a quick break and when we come back we will take a look ahead and next week's fed decision. this is bloomberg. ♪ [hip hop beat]

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get to first word news. german authorities are searching for three shooters who killed eight people and wounded several others in an attack in munich. the city is under a terror alert and citizens have been told to stay inside. president obama discussed the attack at the white house. obama: we don't know what is exactly happening there yet, but obviously our hearts go out to those who may have been injured. it is still an active situation and germany is one of our closest allies, so we are going to pledge all of the support they may need in dealing with

the circumstances. mark: this is the second attack in germany this week. diplomats from the united states in russia are gathered geneva for what is described as a fairly high-level meeting. it follows growing concern about humanitarian access. the u.n. official says the meeting will lead to the resumption of peace talks. wouldn'tump says he except ted cruz's endorsement even if the texas senator offers it. he might set up a super pac aimed at defeating ted cruz if he tries another presidential did in 2020. ted cruz says trump's attack on -- wife and father 88% of americans say they feel the nationt the food wastes yearly. they have no idea how to solve this would hundred $60 billion problem.

be difficultould to reduce household waste. 42% said they don't have enough time to worry about it. the study's published in the journal -- per dayews 24 hours powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg, back to you. matt: let's get a recap of today's market action. highs on the s&p 500 and the dow jones industrial average. streak for these two indexes in four months. the s&p's fourth straight week of gains. nasdaq, how far off are we? joe: 2%. i would throw into the mix -- daily average volume

was lowest this year. bloomberg and type in -- i'm going to show you the total exchange reported volume, how much is being traded each day. matt: next wednesday the fed will release its latest statements -- how the market will be prepared for a potential rate hike. let's get some insight from matthew basel are -- from matthew boesler. a 50% is almost back to chance of a hike in this year. what are you looking at? matthew: know it is expecting rate cuts anymore this year, which is good. it doesn't look like the fed is set to do much next week in terms of signaling. they are probably not going to signal that they are holding out rate hike.

we have gotten those strong jobs numbers, which took some concern about the labor market away. the u.s. consumer is booming. puzzlerd piece of the that fell into place between last month's meeting and this month's meeting is inflation expectation. inflation expectation has plunged. inflation expectations are the highest in 10 months. that is a big worry they can check off the list. >> there is not a conversation building that this could be a realistic possibility of a hike, so if they can inflation where they want, is the fed's hand

forced? or can they brush it off as overlying concerns about the geopolitical situation or do they have to go? matthew: i'm not sure they have to go. the market is pricing in higher chances of a hike. that is setting them up to do that if they would like. we have seen other expressions of financial conditions. the stock market is at an all-time high. credit default swaps on investment-grade companies, they are very low again. lot cheaper for companies to borrow 10 it was earlier this year. sort of tightening earlier in the year. now we are at a point where all the tightening we have seen has been erased. that is something that the fed definitely likes to see. that is just another one you can check off the list.

joe: i have been using this fed indicator. i noticed it finally has come back to a tightening bias. ifis in the chart library you want to check it out. michael, who is an economist from bloomberg intelligence, says he expects this to come down to a loosening bias because of the brexit data we are getting coming in. are they really data dependent or do they search for a reason not to hike? there are always things on both side of the ledger you can point to. for example today we have seen a lot of easing in financial conditions, certainly in the credit markets and the stock market. on the other hand the dollar at clips to death dollar eclipsed

-- the other hand the dollar eclipsed the post brexit vote. that rises going to cause some concern for the fed. the other interesting thing going on right now, if you look at money markets where banks are going to get funding, they are having a lot more trouble getting funding recently. that is one area where financial conditions have been tightening a lot. , or kind of tracks libor the difference between libor and the fed funds rate. you can see banks are having to pay up a lot more. if you think the fed raising rates is all about raising bank borrowing costs, that is already happening. that is another thing that will probably cause them to step back and say we don't need to hike right away. are fed funds going lower or is the bank seen a higher cost to borrow?

all of these money market funds that invest in paper,ial paper, bank have to convert over to government only funds. they can invest in treasuries going forward by october. they are kind of in that process where they have $10 billion a week going out of bank commercial paper into treasuries. we have seen this deadline coming for a while, but no one expected the move to be so fast and sharp. it has people scratching their heads as to what is going on in the moment. >> is this about a buyer of short-term bank credit having to hit out of the market, with the insinuation that it will level out once all that movie moves outcome as opposed to say this representing something about actual bank credit risks? matthew: we are seeing this at a point where a lot of these

banks, european banks, for example, are already having a tough time. you are increasing costs on them sort of against that backdrop and it is not clear what that affect in itself will have. people are looking for it to level off at some point. people thought that spread would go to 35, so now everybody is saying 50. it is an open question. >> banks want fed to raise rates of it can higher interest markets. those -- matthew: you have those funding costs at the short end. it is just squeezing those interest margins. >> what specifically will you be looking for in this statement? atthew: i will be looking the first paragraph of the statement. they will probably upgrade their outlook for the job market, and maybe even inflation

expectations. that will give us a good idea how they are looking at the economy between now and the next meeting in september. joe: thank you for coming on. oliver: the bond rally will extend into next year. we will hear from him next. ♪

matt: time now for the bloomberg business flash, a look at the biggest is the stories in the news right now. apple watch sales plunged 55% in the second quarter as potential customers took a wait and see

approach for upgrades expected this year. that is according to idc, which says global smart watch sales fell 32%. apple is still the industry leader with 47% of the market. planned ipoan's could value the bank at $3 billion to $4 billion. it filed its initial perspective earlier this month with a $100 million placeholder. sneaking past warren buffett to become the third richest person on earth. founder's.com wealth has increased by $5.4 billion this year, marking a resurgence after it fell as low as $43 billion in february amid turbulent global markets. and that is your bloomberg

business flash. oliver: the selloff is running counter to bond goals, who say domestic economic strength is a delusion. matthew hornbach, head of global strategy at morgan strategy, explains why a troubled bond rally will keep the market going. matthew: we have had a tremendous rally this year, the 10 year treasury yield has fallen 75 basis points and we are expecting it to fall another 25 into the end of the year, continuing to rally into 2017. the issue is the global economy. our economists are expecting global growth, particularly in the g 10, to suffer over the next couple of years. we had 1.9% growth in the g 10 in 2015. we think that will fall to 1.4% this year. and then down again to 1.2% in

2017. we have global economy slowing in terms of their growth, and we think for inflation will remain below central-bank target. that is going to mean that center banks will keep there a caught made of -- keep their economy to -- keep their accommodative policies. i think the rest of the world is continuing to slow. that is the real issue when talking about longer-term treasury yields. what is going on in the global economy? the u.s. looks ok but the rest of the world not so much. that is what we think is determining the direction of longer bond yields globally. biggest flowe coming from into the treasury markets? matthew: a lot of the buying is coming from japan. that makes sense when you look at yields in japan. for example when we are looking at treasury yields, we have

yields above what they were in 2012. when you look at yields in japan , they are talking about yields 100 basis points lower. you can start to see why investors in japan are coming to the united states to enjoy the higher yields that are offered here. going to carry on doing what it is doing for a .ery long time so is the trajectory come at the one we have seen the last 15 years, that yields continue to crawl ever lower and lower? matthew: we are not expecting the federal reserve to take interest rates negative, and we are not expecting them to do much of anything for the next 18 months.

our chief u.s. economist is calling for the fed to remain on hold for the next 18 months. but i think that the bond markets could very well price in some additional action if ellen and her team are correct on what is happening with u.s. growth over the coming period. >> 10%'s on the u.s. treasury, couldn't go lower than that? base is the investor going to start to smell some qe on the horizon. i think it is possible investors could start to anticipate some qe from the fed if our numbers are correct. curve -- the yield what does that say about the short end? doesn't that automatically basically have to call for some sort of fed cut or rate cut? you are talking

about qe, yes. yields can go lower. you are not seeing any term premium. to your point, ultimately the rate expectation in the yield curve does come from expectations of fed policy rates. when you are talking about the additional yield investors demand to take on duration risk, term premiums aren't near zero or negative in some models. joe: those matthew hornbach -- that was matthew hornbach earlier today. theer: we will tell you why beach retreat is seeing a slump in sales. this is bloomberg. ♪

theou don't have to be missing out on high-end hampton homes. way concernsrs over hedge fund closures, financial issues, and china's deteriorating economy. here to talk about that and more with hamptons real estate market is --, who wrote the story. what is going on? guest: it is really sales that are going down right now. frenzy a yearge ago. sales across the board are going down. they are especially pronounced in the luxury category. there is just so much to buy. spec house beats -- spec house built some beautiful products. now there is a lot of it.

how: we just did a segment there is not enough housing supply in the market. joe: on the low end there is not -- the entire country is not enough. is this more of a supply story at this end? of luxury have a lot happening in manhattan and happening in the hamptons as well. everywhere, you say you mean new york, l.a., miami, and the hamptons. mortgagefter the crisis, the great idea was let's build for people who don't need mortgages. thing to do,e everybody is building luxury. and now may be that moment has been played out. matt: are the big wealthy hedge fund guys try to keep it on the down low?

like, they are not trying to show their wealth as much. so why do it, why going spent more than $3 million on a hampton? you don't have to rented out. there is -- the hansen second is a discretionary purchase, a luxury good. if you are concerned about bonuses and where the world is going, you wait and see. oliver: i'm curious about the secondary market that has evolved. there are a lot of people that run these houses on the weekend, if you can't find a buyer is there an alternative where people have another home and are renting this out. is that becoming a prosperous market? oshrat: that has owes been a

thing. every spring you have people renting out their houses. $800,000 rentals. that has always been a thing. oliver: airbnb made that easier? oshrat: i don't know. that is a pretty big business. joe: in addition to your coverage of the slowdown and high-end hamptons, you wrote about similar stuff happening in the city of new york. withlly in manhattan luxury real estate. this big building boom. is the story the rough -- is this story roughly the same? oshrat: it is hugely a supply story. joe: what is the connection between a slowdown and volume transaction and a fall in price? does a slowdown usually proceed a price fall?

oshrat: some builders are locked into their price. they have to sell at a high price to make a go of it. you are going to see builders who can lower their price cutting some deals on the side. some builders actually cannot lower their price. joe: how long until we see prices going down? matt: that is the high end of the market, what about the less fortunate underprivileged people in the hamptons who have a to $.5 million home? what do those prices look like, or even a $1 million home? oshrat: rices are rising. for that category prices are rising. there is a lot of demand. and probably not enough supply. carmiel, thank

you for coming on to bloomberg. coming up, what you need to know to gear up for next week. this is bloomberg. ♪

oliver: it is an importer exporter -- u.s. i'm looking at the fed rate decision. obviously you are not going to miss that because we will be covering it wall-to-wall. even though no increase is expected. >> and everybody is wondering, more easing, helicopter money.

there was that interview that seemed to have thrown it off. oliver: thanks for watching. we will see you back

♪ >> on the show tonight hillary clinton's running mate search reaching new highs. she is expected to announce her pick next time in the next tony four hours. it could leak out at any -- next 24 hours. it could leak out and any moment. horrific tragedy overseas. multiple gun man have carried out a coordinated attack at a shopping mall in munich, germany. nine people h