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Speaker 1: Broadcasting live to New York, Bloomberg eleventh, LEO to Washington,

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Speaker 1: d C, Bloomberg one to Boston, Bluemberg twelve Hunde to

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Speaker 1: San Francisco, Bluemberg, Ninez to the Country series A Channel

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Speaker 1: one nine and around the globe the Bloomberg Radio plus

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Speaker 1: SAP and Bloomberg dot Com. This is Bloomberg Surveillance. Good morning,

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Speaker 1: I'm John Tucker, along with Tom keenan Michael McKee. The

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Speaker 1: Opening Bell Report this morning is being brought to you

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Speaker 1: by se I imagining your asset management firms operational infrastructure

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Speaker 1: as a competitive advantage. Lead se I show you how

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Speaker 1: at s e I C dot com slash imagine the

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Speaker 1: rally we saw in the foot see the CAC and

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Speaker 1: the German decks UH failing to translate into much of

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Speaker 1: a lift for US docks right now, at least for

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Speaker 1: the indexes, the down Jones and Duster laverage is down

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Speaker 1: twenty points, decline up about a tenth of a percent,

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Speaker 1: SMP five hundreds down two points, and then as they

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Speaker 1: composite index in the early going, Tom down fourteen points.

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Speaker 1: That's a decline of about three tents of a percent.

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Speaker 1: Among the shares most active so far this morning. Apple

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Speaker 1: shares down almost one percent. The Apple iPhones in China,

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Speaker 1: Beijing authorities say it violates a rival's patent. And also

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Speaker 1: we're seeing shares a Bank of America among the most active.

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Speaker 1: They're up right now about half a percent. Smith and

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Speaker 1: West and the gunmaker that is rising right now, up

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Speaker 1: eleven percent at a fourth quarter beat at views of

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Speaker 1: the top estimates. And uh that is a check of

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Speaker 1: the markets right now in the early going. And we

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Speaker 1: bring the market to checks to you every fifteen minutes

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Speaker 1: during the trading day right here on Bloomberg Radio. Back

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Speaker 1: to Tom and Mike, John Tucker, thank you so much.

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Speaker 1: I've waited three days for this. My people talk to

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Speaker 1: his people. His people said no, no, no, no, no

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Speaker 1: no no. Finally we got John Herman and Mitsubishi UFJ

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Speaker 1: with us everybody. It's differently in the game. We had

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Speaker 1: Steve Roach in earlier today. Who writes a more thoughtful allegic, No,

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Speaker 1: David mel passwords. John Derman wouldn't know thoughtful. He spits

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Speaker 1: it out in sentences, in short paragraphs, lots of bullet points.

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Speaker 1: And John, you stopped me in my tracks. The other

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Speaker 1: very with a re gauging of the new terminal rate

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Speaker 1: and potential DDP. Let's cut to the chase. Why is

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Speaker 1: John Herman so cautious. We're unfortunately, we've been conscious for

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Speaker 1: the last several years and it's a little bit out

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Speaker 1: of think with our normal you know, our normal vibe

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Speaker 1: and everything else. But the problem is is what we've

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Speaker 1: what we've been seeing, uh is two fall one. We've

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Speaker 1: been seeing very uh sluggish growth in labor force and vulnerabilities,

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Speaker 1: where the labor force actually declines outright declines every month,

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Speaker 1: every quarter every year from nine even assuming that millennials

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Speaker 1: enter the labor force US with a participation rates, so

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Speaker 1: even assuming that we still get outright declients because in

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Speaker 1: our view, the government's are not going to encourage immigrations

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Speaker 1: on to augment the labor for US, so we're gonna

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Speaker 1: be stuck in one of these bad environments for the

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Speaker 1: labor force. That's the first thing. So that means overall

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Speaker 1: is going to be strained on the economy to really

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Speaker 1: uh you know, grow employment going forward and to have

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Speaker 1: that be the catalyst that growth the way it was

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Speaker 1: from through last decade. So that's first problem. Second problem

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Speaker 1: is business investment is extremely weak this decade and we

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Speaker 1: think it remains weak next decade. So, um, you put

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Speaker 1: the two pieces together, as Robert Solo up in my

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Speaker 1: team would say, there's your trend growth in GDP and

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Speaker 1: for US freend is around one four one four in

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Speaker 1: Mike McKee, this is a major theme of Chairman Greenspan. Greenspan.

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Speaker 1: Mike agrees with John Herman about the business investment dynamic.

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Speaker 1: The question, uh, in terms of how you frame this

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Speaker 1: is are you calling it secular stagnation? No? No, you

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Speaker 1: know you know that. Second, I think I would agree.

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Speaker 1: I would agree with many of the features of it.

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Speaker 1: But what that suggests seculo secative to me. What it

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Speaker 1: suggests is that no matter what they do in government,

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Speaker 1: and no matter who you vote in, nothing can be done.

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Speaker 1: And what I'm suggesting, and where we've been suggesting for

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Speaker 1: the last several years, is if we can just um

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Speaker 1: really get the two parties to really work together, because

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Speaker 1: you can't expect one party to dominate, and you can't

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Speaker 1: expect one party to be uh, you know, completely clairvoyant

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Speaker 1: and and and just decide for the right path, which

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Speaker 1: you we're hoping there's two parties work together and get

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Speaker 1: a good set of growth policies in place, which means

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Speaker 1: you number one, you've got to promote immigration, especially the

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Speaker 1: H one DVISA class. You've gotta get that going. We

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Speaker 1: need four hundred thousand people a year of this from

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Speaker 1: this class times forty years. Okay, first thing. The second

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Speaker 1: thing we somehow have got to encourage and incentivize business

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Speaker 1: is to really make a investment in the country. And

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Speaker 1: this is what green Spence saying. You know, investment in

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Speaker 1: planting equipment lasting fifteen years or longer is the weakest

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Speaker 1: discycle of any cycle since the fifties in our measurement,

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Speaker 1: and green Spence is the weakest cycle of his lifetime,

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Speaker 1: which pulls it back to the thirties. So this is

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Speaker 1: very very bad. You must and what green Spence saying, well,

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Speaker 1: we're saying is that it's business is concerned that the

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Speaker 1: two parties are not going to be able to come

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Speaker 1: together and resolve some of the issues around the retiring

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Speaker 1: boomers and the entitlement programs and all this stuff. And

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Speaker 1: if you can't do that, businesses are right to be cautious.

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Speaker 1: And the trajectory most likely next decade is going to

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Speaker 1: be Okay, they can't sort it all out. Okay, they

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Speaker 1: still are paying all these entitlements, and they're just gonna

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Speaker 1: raise taxes on on either corporations or or wealthy your individuals,

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Speaker 1: and that's not going to really spur investments. So they've

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Speaker 1: got to really come to grips with this stuff, work

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Speaker 1: together and just being more collegial, and the and the

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Speaker 1: two parties is so far apart. So that's basically our

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Speaker 1: our issue. We think it and be done. But if

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Speaker 1: if all two people are gonna do is a fight,

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Speaker 1: then it's obviously Michael political stagnation. The other question of

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Speaker 1: the morning is whether or not uh fed forward guidance

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Speaker 1: in the form of the dot plot is useful anymore.

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Speaker 1: Uh St Louis fed President Jim Bullard this morning out

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Speaker 1: with a thoughtful paper suggesting it is not, and also

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Speaker 1: admitting that he is the person who did not put

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Speaker 1: a dot into the dot plot on Wednesday for the

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Speaker 1: long term terminal rate and at a very low short

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Speaker 1: term rate. He's changing the way he forecasts the economy

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Speaker 1: to what he calls regime based instead a convergence base,

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Speaker 1: and we just got off the phone with him. He

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Speaker 1: spoke with reporters about his thoughts, and here is one

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Speaker 1: of the things he said about the dot plot. The

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Speaker 1: policy rate dot plot, in my opinion, puts too much

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Speaker 1: weight on the idea that we quote no unquote the

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Speaker 1: long run, steady state of the economy, and they're in reality,

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Speaker 1: we are uncertain about the medium and longer run outcome

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Speaker 1: for the economy. What we need is a manageable way

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Speaker 1: to express this uncertainty. And his manageable way Tom is

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Speaker 1: to use what he calls regime forecasting. Other words, say

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Speaker 1: this is where we are for now and under the

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Speaker 1: conditions that we have now, uh, this is the appropriate

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Speaker 1: monetary policy of policy X would be. And then if

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Speaker 1: the regime changes, if something changes, then you change the

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Speaker 1: forecast rather than making a forecast now that you will

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Speaker 1: change in the future very quickly. Is that doable? Is it?

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Speaker 1: Can it be? I think I think it's gonna think

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Speaker 1: it's gonna be a little tricky. You gotta remember with

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Speaker 1: this guy, Bullet Bullard is the king of flip loops.

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Speaker 1: So last September he was out there saying, okay, in

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Speaker 1: his view, he had the highest dots on the interest

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Speaker 1: rate trajectory the next three years and now he's gone

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Speaker 1: nine months later to the lowest dot. I mean, this

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Speaker 1: guy is all over the spectrum. So if it was

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Speaker 1: a golfer, you would be so concerned to be hitting

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Speaker 1: you in the gallery. But the deal is, what we

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Speaker 1: have to do is this, We have to realize where

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Speaker 1: we are. We have to calibrate where we are in

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Speaker 1: the economic cycle. And our models keeps saying the years

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Speaker 1: one most likely recession years, so we're very close. So

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Speaker 1: you know, it's not like you're gonna get in the

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Speaker 1: longer run in in three In three years, little more

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Speaker 1: than three years, you're gonna be in a recession. So

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Speaker 1: it's like, what are you talking about the longer run

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Speaker 1: when you can and you have to be cutting rates.

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Speaker 1: So this is where they're not waking up. I think

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Speaker 1: that they're behind the curve on this stuff, but at

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Speaker 1: least they're they're starting to say, O, g, maybe we

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Speaker 1: are Maybe we only have another one, two or three

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Speaker 1: years left in the cycle. And you know, why are

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Speaker 1: we thinking of, you know, putting rates over three percent?

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Speaker 1: That's crazy, totally crazy. Let's come back John Herman with

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Speaker 1: us left to talk about. I want to quiz him

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Speaker 1: on his interpretation of not rising inflation, but at least

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Speaker 1: the obvious invisible inflation that we've got right now. John

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Speaker 1: Herman again the headline with a terminal rate three five

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Speaker 1: and eight years. It is gives pause to say the least.

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Speaker 1: Will continue with John Herman and Missubishi u f J

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Speaker 1: dow negative forty five vis time now to check in

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Speaker 1: with Michael Barr and get the latest news headlines brought

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Speaker 1: to you by Volvo Cars, White Planes. Visit Volvo Cars,

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Speaker 1: White Planes dot Com. Mike Tom, thank you very much.

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Speaker 1: British Prime Minister David Cameron and Labor leader Jeremy Corbin

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Speaker 1: paid tribute to a member of Parliament who was shot

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Speaker 1: and killed yesterday. Joe Cox was meeting with constituents in

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Speaker 1: the northern England town of Birstall when she was attacked.

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Speaker 1: Cameron talked about Cox, who was considered a rising star

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Speaker 1: in the Labor Party. If we truly want to honor Joe,

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Speaker 1: then what we should do is recognize that her values service, community, tolerance,

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Speaker 1: the value she lived by and worked by. Those are

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Speaker 1: the values that we need to redouble in our national life.

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Speaker 1: In the months and in the years to come, Britain's

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Speaker 1: Parliament will meet Monday in honor of Cox, who was

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Speaker 1: forty one. Security is tied in Charleston, South Carolina, as

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Speaker 1: the city remembers nine people gunned down during a church

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Speaker 1: Bible study a year ago. Streets are closed today around

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Speaker 1: Emmanual A. M E. Church and the College of Charleston's

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Speaker 1: t D Arena, where they will be a memorial service.

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Speaker 1: Crews have found the flight data recorder from egypt Air

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Speaker 1: flight eight oh four. The Egyptian Investigation Committee says it

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Speaker 1: managed to successfully retrieve the memory unit of the flight

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Speaker 1: data recorder, which is the most important component. It comes

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Speaker 1: a day after the airs. A three twenties cockpit voice

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Speaker 1: recorder was also retrieved. Global News twenty four hours a day,

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Speaker 1: powered by ours twenty four hundred journalists more than a

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Speaker 1: hundred fifty news bureaus around the world. Now Michael Barr,

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Speaker 1: Tom Michael Barr thinks so much to down negative. There's

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Speaker 1: some weight to the tape, is how I would put it.

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Speaker 1: Michael McKee and Tom King. Mike's packing his bags. We're

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Speaker 1: going to London. Bloomberg s Avalance brought you by Elbow

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Speaker 1: four hours a day at Bloomberg dot com. The radio

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Speaker 1: A dot org slash radio for the rally of European

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Speaker 1: shearers have failed to translate into much of a lift

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Speaker 1: for u S stocks down Jones Industrial Average right now

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Speaker 1: forty seven points lower. That's down three tens of persuthly

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Speaker 1: SMP five hundred down six that's down three tiens. And

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Speaker 1: then has that Composite index down that's down a half

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Speaker 1: a percent of the shares moving in the early going

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Speaker 1: shares of the Apple they are down nine tenths of

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Speaker 1: a recent regulators Invaijian st Apple iPhones violate a Chinese

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Speaker 1: rivals patent and among other stocks moving in early New

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Speaker 1: York trading MGM Resorts International that's up about two point

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Speaker 1: four percent. The shares a jump like yesterday that you know,

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Speaker 1: operator raised its profit growth forecast. Also the weapons maker

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Speaker 1: Smith and Wesson that is rising this morning. That's up

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Speaker 1: over eleven percent after a fourth quarter beat. And we

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Speaker 1: checked the markets for you every fifteen minutes during the

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Speaker 1: trading day. Right here Bloomberg Radio, I'm Black. Back to

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Speaker 1: surveillance now with Mike and Tom John Tucker, thank you

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Speaker 1: very much. Well, back again to Jim Bullard, the president

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Speaker 1: of the St. Louis FED, who today announced a new

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Speaker 1: regime regime forecasting for the least the St. Louis Fed.

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Speaker 1: Will be interesting to see how the rest of the

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Speaker 1: organization takes to the idea. But basically, he said, it's

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Speaker 1: in response to the fact that what they have been

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Speaker 1: doing has not really worked. The dot plot has not

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Speaker 1: been serving us. Well, it's it's predicting, uh, that rates

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Speaker 1: will go up on the order of for our forecast anyway,

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Speaker 1: we had rates going up three fifty basis points. Uh.

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Speaker 1: And you know, if we're if the committee's only moving

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Speaker 1: once a year or you know, maybe a little faster

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Speaker 1: than that, it can take up to fourteen years to

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Speaker 1: get to make that kind of normalization. That's way outside

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Speaker 1: of anything that's plausible about business cycle dynamics or monet

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Speaker 1: policy dynamics. So I think you have to conceptualize things

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Speaker 1: in a different way that you get rid of this

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Speaker 1: idea of a long run steady state and two or

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Speaker 1: three year convergence to that long run steady state. You're

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Speaker 1: play sat with uncertainty about what the long run outcome

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Speaker 1: is by by going to this regime idea and UH,

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Speaker 1: and then UH you make policy optimally for the regime

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Speaker 1: you're in and recognize there's upside risk because you can

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Speaker 1: switch to the other regimes in the future. So I

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Speaker 1: think it's more we're looking at the same data but

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Speaker 1: with a different concept about how to think about the

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Speaker 1: long run UH in this in this new new approach.

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Speaker 1: So John Herman is with us from Mitsubishi, apparently not

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Speaker 1: a fan of Jim Bullard, but um, he's basically saying

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Speaker 1: that whether you agree or disagree with the FEDS view

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Speaker 1: of where the terminal rate is, the terminal rate is

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Speaker 1: far enough away that you can't really know. Because we've

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Speaker 1: been we've been we've been very critical of where they

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Speaker 1: thought we thought that we've been arguing for the last

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Speaker 1: few years at the terminal rate based on our analysis

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Speaker 1: of the trend growth from GDP. This potential is Robert

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Speaker 1: solo idea from M I. T. You know, of productivity,

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Speaker 1: sustainable productivity growth, sustainable labor force growth, where is it estimated?

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Speaker 1: And then put a Fed funds rate that's basically spot

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Speaker 1: on that and um so we've been always arguing for

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Speaker 1: about one and a half percent, possibly lower in the

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Speaker 1: terminal Fed funds rate. And in the meantime, the Feds

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Speaker 1: start out saying, you know, over four percent, and they

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Speaker 1: cut at the four and now they're at three. And

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Speaker 1: even as Bullard just fessed up in the in that

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Speaker 1: in that segment he said, he said, you know, we

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Speaker 1: were thinking three fifty basis points terminal rate, and but

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Speaker 1: at one high year we won't get there for fourteen years.

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Speaker 1: It's like, why are they saying three hundred fifty paces points?

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Speaker 1: It's incredible. I mean, there's you know, and in we

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Speaker 1: go through an inflection point in labor force in the

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Speaker 1: year eighteen and every year after that we're biased to

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Speaker 1: shrink the labor force. How are you telling me that

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Speaker 1: sustainable GDP growth is going to be above one and

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Speaker 1: a half percent. How are you possibly going to convince

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Speaker 1: me of that, especially when productivity grows as weak as

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Speaker 1: this is, and and so on. So I think I

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Speaker 1: think the FETs has been really offsides on this issue.

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Speaker 1: That's what we've been critical about them. We view two

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Speaker 1: stands is very flat. We think gets much flatter from here. Uh.

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Speaker 1: We we were concerned that the thirty year bond would

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Speaker 1: stay below three percent for the next three years. It's

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Speaker 1: now after the performance this this first half of the

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Speaker 1: year is definitely supporting that view that thirty year bond

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Speaker 1: yeels come lower and like ten year yeels lower than

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Speaker 1: two point three percent and so on. And that was

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Speaker 1: very much an outline forecast. But you know, um, we

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Speaker 1: still think that the set is going to go very

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Speaker 1: gradual over the next three years. And we're concerned that this.

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Speaker 1: You know, we're in a kind of a soft patch

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Speaker 1: now with jobs now, but we're worried that the sort

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Speaker 1: of structural secular forces on the weakness in the labor

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Speaker 1: force really grinds us to us. Uh, you know, an

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Speaker 1: economic slowdown in one we're really worried about that and

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Speaker 1: the timing of that with the boomer retirements, this is

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Speaker 1: just not a good thing. So, um, we would be

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Speaker 1: very concerned, and if we were in yelling shoes, we

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Speaker 1: would be telling the Congress of this, so that maybe

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Speaker 1: the Congress could do something and try to you know,

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Speaker 1: improve like we've been saying, improve the immigration, get the

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Speaker 1: H one B visa program in large and so on,

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Speaker 1: really try to spur business investment, sort of dialed down

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Speaker 1: the acrimony between the two parties and so on. Uh,

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Speaker 1: you know, give everyone a little more confidence to do

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Speaker 1: things and to borrow and to invest. And uh, they

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Speaker 1: just the Congress just is just not about that game anymore.

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Speaker 1: It's just unbelievab them. Yeah, so I'm wondering what the

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Speaker 1: utility of your forecast five years or six years out is, um,

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Speaker 1: given the inability to know what what what's going to

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Speaker 1: happen between now and then, you you can forecast one

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Speaker 1: data point. But you know, I think I think in

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Speaker 1: in three years, in three years of song, I think

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Speaker 1: you're gonna see that this cycle is very long in

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Speaker 1: the tooth, you know, So it's not gonna you know,

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Speaker 1: at that point, even if you do bring in a

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Speaker 1: you know, a new government and new regime and so on.

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Speaker 1: I think you know, you're looking at you know, the

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Speaker 1: potential maybe helping growth, you know, much further past there.

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Speaker 1: So I think you're we're going towards the slowdown, and

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Speaker 1: you know we're you know, some of the signals, some

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Speaker 1: of the job market signals are signaling that you know,

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Speaker 1: it could be just you know, eighteen months away, you know,

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Speaker 1: and that's not our core view, but some of the

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Speaker 1: signals are pointing to Buried in your note, John, Yeah,

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Speaker 1: is an inflation what certain geography is? Good morning New York,

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Speaker 1: San Francisco, Washington, Boston. Not all geographies inflations about rent?

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Speaker 1: Are you setting inflations low without rent? Uh? In? The

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Speaker 1: government I think has got this one measured right when

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Speaker 1: you when you strip out rent has been running three

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Speaker 1: over three percent for the last couple of years and

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Speaker 1: around three in a quarter. Now. Wage growth over that

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Speaker 1: time period was somewhere between two and two and a

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Speaker 1: half percent, significantly lower than rental growth rate, which means

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Speaker 1: rent has been attacks on the basics. And you're stuggist

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Speaker 1: singing the ability your numbers one your numbers one point

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Speaker 1: for core inflation x rent? How does how does Jane

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Speaker 1: yell and treat that she should say, okay, look, what

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Speaker 1: that suggests is that the inflation pressure is broadly, are

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Speaker 1: still pretty benign for quiet in the way green Spanish

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Speaker 1: to say it. So it should tell her, look, don't

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Speaker 1: be in a hurry to raise. It's not like you're

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Speaker 1: behind the curve. So go slowly, go cautiously, be careful,

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Speaker 1: and hope that the economy develops even more momentum, hopefully,

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Speaker 1: and hopefully the recovery broadens out to be include more

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Speaker 1: families and more businesses, and you know, maybe then we

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Speaker 1: can start to build you know, more sustainable inflation. It

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Speaker 1: would say, you know, go cautiously and slowly. When you

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Speaker 1: when you say go cautiously and slowly, bullets regime calls

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Speaker 1: for one more rating. And now now he's here, now

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Speaker 1: he's yeah. We were thinking three. We were thinking before

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Speaker 1: all this, the theatrics of the last few weeks, we

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Speaker 1: were thinking three to four over the next three years.

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Speaker 1: And so we're more like three now. And you know,

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Speaker 1: and that sounds like one a year, but you know

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Speaker 1: they may only do two over the next three years.

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Speaker 1: I mean, it's remarkable. Well, so, um, I, given what

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Speaker 1: you say about Mr Bullard, I would say that the

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Speaker 1: same is probably true for you three years, but right now, uh,

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Speaker 1: where should in a half to one? I mean, that's crazy.

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Speaker 1: We've gone from three or four to three. What is

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Speaker 1: pretty consistent? What is the appropriate and accurate? What is

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Speaker 1: the appropriate rate right now? Is what I'm trying to get.

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Speaker 1: I think, I think you know, as Yellen is saying,

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Speaker 1: and I think she's she's now really keen in on it.

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Speaker 1: She thinks that the real interest, the real neutral rate,

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Speaker 1: is close to zero, and I think that's the right idea.

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Speaker 1: So that means enough nominal rate this cycle if we

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Speaker 1: think inflation is gonna stay lower than two for the

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Speaker 1: rest of the I mean the nominal rate of one

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Speaker 1: and a half a lower. John, I don't have a

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Speaker 1: lot of time. I got thirty seconds. Would you explain

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Speaker 1: to me how a small business, a middle business, or

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Speaker 1: a ginormous business runs their business on a zero real rate?

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Speaker 1: Help me with that. I think what they what they

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Speaker 1: what they should be. Unfortunately, what they have been doing

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Speaker 1: is they've been using these low borrowing rates to the

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Speaker 1: bigger companies at least to buy back stocks and pay

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Speaker 1: dividends and so on, funded at very low borrowing rates

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Speaker 1: like the way Apple does. Unfortunately, the best thing for

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Speaker 1: them to do is to say, look, we have uh,

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Speaker 1: you know, we we have investment ideas where they return

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Speaker 1: on these investments well exceed these very borrowing costs, and

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Speaker 1: we're gonna go and do those investments. Unfortunately, they're not

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Speaker 1: doing that. If we make it back from London, I

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Speaker 1: promise you will be on against John Herman always with

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Speaker 1: interesting take and whatever you say, folks. Mr Herman has

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Speaker 1: nailed the flattening yield curve view and the idea of

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Speaker 1: what some people would suggest is a run rate of

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Speaker 1: g d P a little bit. Uh lord, this has

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Speaker 1: been a wonderful day. I did not realize Mr Bullard

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Speaker 1: would make it an interesting uh to day. Thanks particularly

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Speaker 1: Mike for a terrific work with James Bullard. We are

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Speaker 1: on our way to London. Tune in Monday. Bloomberg Surveillance

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Speaker 1: from London