: Fed Signals Confidence; Flooding Death Toll Rises; Mars Space Station; Collapse Of Middle Class - Part 2



Station; Collapse Of Middle Class - Part 2>

Gerry Baker, Bob KingS >

The fed is still very, very reluctant to get -- to do any kind of normalization of interest rates. You've seen the dollar, as a result, falling against the yen. There is no -- even if they raise rates, even if they do move towards a long term normalization, it's going to be extremely slow.

CHAN: I would not call it even normalization because all we are talking about is 25 basis points sometime between now and end of the year. One of the things that John Williams said and other researchers have said is that real fed funds rate or the equilibrium fed funds rate is much, much lower.

So given that as backdrop John Williams as you mentioned came up with idea may be should raise the inflation target to me seems a little -- strange, because they can't meet the current inflation target, raising it even higher certainly is an bigger challenge.

MCDOWELL: I thought yesterday, it was almost unusual Bill Dudley seemed to be sounding a warning to bond investors, about 10-year treasury that the yield at 1.5 percent, I'm paraphrasing, of course. But that investors are complacent about that and that you know, losses could be on horizon if you are piling into treasuries at this point. That was what I took away from what he said. I thought that was a pretty big step.

CHAN: I will tell you what is going is that the Federal Reserve, and this environment never wants to raise rates if the market is not anticipating it. When you look at the fed futures contracts, basically not telling you, telling you not more than one rate hike between now and the end of 2017. That according to many people in the fed is completely unacceptable and they are trying to print market for a little bit more than that.

BAKER: You go from one month good employment numbers and they start to talk a little bit about the possibility of raising rates. You get another month -- you know, we have had a bumpy few months with employment numbers. You have another month where it doesn't look so good and then everybody signalling the rate --

MCDOWELL: And retail sales were garbagy last night --

BARTIROMO: Europe, Europe is a mess, right? Look at Europe in terms of no growth there. Any expectations that that is going to turnaround -- markets are still stucked.

CHAN: If you look at the United Kingdom. There is not going to be any growth in the next 12 months that is why they have been so aggressive, but if you look at some of the confidence numbers, even the business confidence numbers in the Eurozone. They are suggesting that growth in the next 12 months will be at least 1 percent may be even a little bit more.

But no question that there is going to be fallout from Brexit even into Eurozone less so into United States further you leave or move away from United Kingdom less fall out but there is some fallout.

BAKER: What do you make of this argument now that even more wildly that low interest rates may actually be harming the economy. The actually the effect on savers with negative interest rates particularly for the banking sector that's being hit pretty hard -- essentially a tax on banks.

That actually this belief is that central banks had so long that you just keep priming the pump with lower and lower interest rates that actually that may not be working at all.

CHAN: I have heard that argument many times and they've said that these low interest rates are causing people to save more, which slows down the economy, except that in the last savings rate, the savings rate actually went down so it didn't actually work out that way.

And as the retail sales numbers, one of the things that I have done in my research is to look at the relationship between retail sales and consumer confidence. And of course, for August consumer confidence did edged up a little bit so we are likely to see retail sales bouncing back in August from that dire number.

MCDOWELL: And the numbers we got from Home Depot yesterday and TJX, there are pockets of strength, but broadly speaking the retail sales numbers were weak.

BARTIROMO: On the home part of the story like Home Depot and also online, you have to look at online. Let me ask you about another story in the "Journal" this morning and that is about this hedge fund battle losses.

Because people continue to take money out of hedge funds because they are under performing and then the story here is that there is exodus. Hedge funds continue to underperform the broader market.

"The Journal" reporting two of the biggest hedge funds, (inaudible) are no exception. Gerry, talk a bit about this trend -- I was reading earlier, the average hedge fund is up 3 percent year-to-date.

BAKER: Yes, I mean, it's really a very disappointing --

BARTIROMO: Most are a lot worse than that.

BAKER: Hedge funds, they are expensive, 2 and 20 rule, that is often more in the breach and the observance these days, but they still charge a very, very high fee, for getting what is supposed to be outsized returns.

For the last couple years, they have not been getting those returns. There is a view I mentioned that, that there are too many hedge funds, used to be 200 hedge funds. Now 15,000 hedge funds.

There are too much of that money chasing those returns, and they have become they are all you know suffering in this incredibly low yield environment.

The story today was significant about it is these are two very well-known kind of iconic names in hedge funds sector, Brevan Howard and (inaudible), significantly pulling back.

CHAN: There is no question that in a world where rates of returns are much lower and growth all over the world is much lower it is a little bit more challenging, but the purpose I think of these hedge funds is to diversify away the risk. It's not always to outperform to that extent. But of course, with the fees you want them to outperform, but there is going to be a shake out, no question about it.

BARTIROMO: If it starts 2 and 20, they better outperform.

MCDOWELL: But that's the point, it's like despite kind of like gods of the financial universe, they are just like mutual fund managers. They charge a lot more in terms of the inconsistency of performance like Breven Howard during the credit crisis did extremely well. Since then, not so much.

BARTIROMO: Yes. And with ETFs and all these cheap alternatives, why should I pay 2 and 20 into hedge fund if they are not going to perform. That is what's going on.

CHAN: That is going on, but if you look as you mentioned before, they tend to do a lot better when conditions are much worse and they tend to do, not as well when conditions are improving, and that is a fact of life.

BARTIROMO: Anthony, great to see you. Thanks so much. Good to have you weigh in. Anthony Chan, JPMorgan.

Coming up, Cisco employees looking for new jobs. More on reported 14,000 worker layoffs at Cisco. That's coming next.

And then NASA wants to camp out at Mars. Details on the plans to build a new space station near the red planet. Stay with us.


BARTIROMO: Welcome back. We are looking at a quiet market this morning at this early time. We've got the market searching for direction. The Dow Jones Industrial Average, the futures indicating a decline at the opening of trading this morning.

A couple names on move, we are watching Cisco. The technology giant reportedly planning to cut up to 14,000 jobs equal to nearly 20 percent of the company's workforce. The move is said to be part of a shift from a traditional hardware to a software focus at Cisco. The announcement expected to be confirmed in the next couple of weeks.

We are watching shares of Apple this morning. The company reportedly planning to open its first research and development center in China later this year. The report coming as Apple CEO Tim Cook is visiting China for the second time in three months. We'll watch those stocks.

Louisiana this morning still reeling from historic flooding as the death toll is rising this morning. Cheryl Casone with that and the other headlines right now. Cheryl, good morning to you.

CHERYL CASONE, FOX BUSINESS: Yes, Maria. Good morning. Officials say 11 people are confirmed dead and at least 40,000 homes have been damaged. These floodwaters are receding in some parts of the state, but they have been rising in others. Governor John Bel Edwards is asking residents to be patient.


GOVERNOR JOHN BEL EDWARDS, LOUISIANA: We understand there is a lot of people who are suffering, and those people who have been evacuated they are not entirely comfortable in their circumstances either although we are doing dead level best at shelters to make sure that we are taking care of them.


CASONE: The governor says that some parishes with widespread flooding damage have been placed under curfew because there are reports of looting in Louisiana. The National Weather Service says the southern half of Louisiana could get as much as two more inches of rain through Friday. We will keep you posted.

And also this, Taylor Swift, the singer, she is donating $1 million to help the state recover from this massive flooding. The pop singer saying, quote, "We began the 1989 world tour in Louisiana and the wonderful fans there made us feel completely at home, the fact that so many people in Louisiana have been forced out of homes this week is heart breaking."

In business headlines, Barnes & Noble has fired its CEO, Ron Boire. The retailer's board says he was not, quote, "a good fit." Sales of Barnes & Noble had been falling for the past two years because of rising competition from Amazon. The executive chairman, Leonard Riggio, now postponing his retirement as he takes over as the company's CEO.

And finally this, Maria, NASA wants to build a space station in orbit above Mars by 2028. Check this out, the plans were outlined by Lockheed Martin and Deep Space System. Lockheed Martin's plan calls for 132-ton space station to be constructed around the red planet.

It would be able to host six astronauts for one year. The Mars base camp as it has been called used by astronauts for a year as they prepare for a manned landing. So if I am still alive by this point, Maria, I will be watching it with my oxygen take on my count.

BARTIROMO: Mars spacestation, Dagen, what do you think about that?

MCDOWELL: I'm very sad about the current state of the American space program so I am kind of optimistic in the future about what private industry is doing even with Elon Musk. Even though Elon Musk had some issues pointed out in "The Wall Street Journal" this week. I just think that in terms of -- I hope that the days ahead are much brighter for American space exploration.


BAKER: This is a program that you know America led world in 1960s -- 70s, still a lot -- understandably a lot of people saw it as an expensive program after that and what was the point of sending repeated missions to the moon.

But it clearly is value to be had there whether or not we are going to get to this situation whether it's Richard Branson or Elon Musk or actually we are going to be able to fly to that moon or Mars for our vacations is another matter.

But there is clearly, genuine value to be had in some of this extra- terrestrial scientific exploration and let's hope they can do it.

BARTIROMO: Would you want to go?

MCDOWELL: I would.


MCDOWELL: I flew with Thunder Birds and have never been sick like that in my entire life. No, I -- pulled nine Gs in the jet so I was sick for about 24 hours after that I don't know about space travel for me.

CASONE: But the thing about the space program is how many dreams were born out of seeing that kind of innovation, about seeing those kind of things come out. We need a generation who sees the impossible happen.

MCDOWELL: My brother took my father to the Air and Space Museum for his 80th birthday and so that kind of goes to where they come from. I hope future generations do the same.

BARTIROMO: I love it. Coming up, Donald Trump and Hillary Clinton sparring over keeping American companies competitive. Up next, one CEO tells us what it means for the middle class. Stay with us. Back in a moment.


BARTIROMO: Welcome back. The demise of the middle class, a major policy point in the 2016 election and the proof is in the numbers. According to Pew Research, just 50 percent of American households fall into the middle class category now. That is down from 61 percent, back in 1971.

Clinton and Trump have been attacking one another on a nearly daily basis when it comes to their plans for the working middle class.


HILLARY CLINTON (D), PRESIDENTIAL CANDIDATE: He is even called for a new tax loop hole. Let's call it the Trump loophole because it would allow Trump to pay less than half the current tax rate on income for many of his companies, a pretty sweet deal. He would end up paying a rate lower than millions of middle-class families.

DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: Hillary Clinton literally will be four more years of Obama. That means high taxes, she wants to double up taxes, and double taxes won't take care of what she is doing. I mean, people's taxes are going to be doubled.


BARTIROMO: Joining us right now is the CEO of Humanscale, Bob King. Bob, it is good to have you on the program this morning. Thanks so much for joining us.


BARTIROMO: As a manufacturer with two U.S. based manufacturing facilities and a design studio in New York City, your company and you have a real viewpoint in terms of why this is happening to the middle class. Tell us.

KING: I think what happened in the United States is we've switched from a manufacturing based economy 50 years ago in 70s when 30 percent of the -- of our workers were employed in manufacturing to today when less than 9 percent of our workers are employed in manufacturing.

We are really a service based economy now. The nature of a service based economy is it creates a small number of jobs at the top. Not many jobs in the middle, middle class jobs, but a lot of jobs at the bottom people providing the services.

Manufacturing, particularly, high value manufacturing creates a lot of good middle class jobs people that are engineers, manufacturing experts, information technology experts, those jobs are largely gone.

BARTIROMO: How do those jobs come back? When you look at Hillary Clinton's plan for jobs and Donald Trump's plan for jobs, is it about taxes or actual manufacturing? Which plan will create more jobs?

KING: I would say neither plan will help manufacturing. I think both plans are destructive toward manufacturing. What we have to do to bring manufacturing back in the United States is we have to create an environment where growing manufacturers can thrive.

Right now we have environment -- where growing manufacturers are literally crushed by our tax code. We have the worst tax code in the world for growing -- particularly for growing manufacturers.

BAKER: What is the -- you know, the debate about the extent to, which manufacturing jobs as you say high conveying quality jobs have gone because of trade, but also the technology factor. The fact a lot of manufacturing jobs increasingly even service sector jobs are becoming redundant because of technological innovation.

If it is technology, how do we get -- it's not just a question about, and I take your point absolutely about taxes, but whether it's Trump saying that we need to bring American jobs back to America or whether it is -- whether it is you know, Bernie Sanders saying we need to impose trade embargo, how do you deal with the problem that so many jobs are just being replaced by machines now.

KING: The jobs in America are not low paying assembly line jobs. Those jobs we've lost. We've lost to low cost countries like China and that's a really good thing for America, by the way, and it's actually good for U.S. manufacturing.

Because number one it allows American families to buy goods and services -- goods primarily at very low cost. It also allows American manufacturers to buy parts and components from low cost countries that they can use to build products in America, high value products in America.

Automation, when you talk about automation talking about automating the -- the assembly line workers, those are jobs we don't want in America anyway. When you automate, you create a huge number of jobs that are middle class, high-paying jobs.

So that is not unhealthy situation. If you look at the German economy, 20 percent of their work force is employed in manufacturing. They are highly automated. They have a vibrant middle class unlike United States.

They have a vibrant middle class because 20 percent of the workforce is in manufacturing, and those are great middle class jobs. We don't have those jobs. We've lost them. The way to get them back is to create an environment where innovative growing manufacturers can thrive.

BARTIROMO: You go back to tax code.

KING: The tax code makes it impossible.

BARTIROMO: So compare the tax codes between Donald Trump and Hillary Clinton and what do you think?

KING: Donald Trump's approach is let's put -- let's put duties on countries like China that provide low cost goods to United States, that is a very bad idea and could be really destructive for two major reasons, one those duties are simply a tax on the American consumer, right?

American consumer doesn't need more taxes. Also what is going to happen to consumption that is going to reduce consumption in the United States, slower economy even more.

We can't afford to be slow anymore. We are around 1 percent growth as it is. The other thing is U.S. manufacturers and no one seems to understand this rely heavily on low cost parts components from countries like China to be able to make effectively make products in the United States.

We have free trade agreements with 20 countries around the world including Mexico and Korea. We have a trade surplus with those free trade countries of $12 billion last year, free trade important for manufacturing in the United States.

BARTIROMO: So you like Hillary Clinton's tax plan then?

KING: No, I don't.

BARTIROMO: You don't like that one --

KING: In the United States, there roughly 250,000 manufacturing companies, all but 3,700 of them are small companies. The owners of those companies are going to be taxed higher so she is going to tax these manufacturers.

BARTIROMO: There you go. Bob, good to see you. Thanks so much, Bob King. We'll be right back.


BARTIROMO: Welcome back. Good Wednesday morning, everybody. I'm Maria Bartiromo. It is Wednesday, August 17th. Here are your top stories at 7 a.m. East Coast.


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