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Speaker 1: the German decks UH failing to translate into much of
Speaker 1: a lift for US docks right now, at least for
Speaker 1: the indexes, the down Jones and Duster laverage is down
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Speaker 1: That's a decline of about three tents of a percent.
Speaker 1: Among the shares most active so far this morning. Apple
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Speaker 1: They're up right now about half a percent. Smith and
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Speaker 1: eleven percent at a fourth quarter beat at views of
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Speaker 1: the markets right now in the early going. And we
Speaker 1: bring the market to checks to you every fifteen minutes
Speaker 1: during the trading day right here on Bloomberg Radio. Back
Speaker 1: to Tom and Mike, John Tucker, thank you so much.
Speaker 1: I've waited three days for this. My people talk to
Speaker 1: his people. His people said no, no, no, no, no
Speaker 1: no no. Finally we got John Herman and Mitsubishi UFJ
Speaker 1: with us everybody. It's differently in the game. We had
Speaker 1: Steve Roach in earlier today. Who writes a more thoughtful allegic, No,
Speaker 1: David mel passwords. John Derman wouldn't know thoughtful. He spits
Speaker 1: it out in sentences, in short paragraphs, lots of bullet points.
Speaker 1: And John, you stopped me in my tracks. The other
Speaker 1: very with a re gauging of the new terminal rate
Speaker 1: and potential DDP. Let's cut to the chase. Why is
Speaker 1: John Herman so cautious. We're unfortunately, we've been conscious for
Speaker 1: the last several years and it's a little bit out
Speaker 1: of think with our normal you know, our normal vibe
Speaker 1: and everything else. But the problem is is what we've
Speaker 1: what we've been seeing, uh is two fall one. We've
Speaker 1: been seeing very uh sluggish growth in labor force and vulnerabilities,
Speaker 1: where the labor force actually declines outright declines every month,
Speaker 1: every quarter every year from nine even assuming that millennials
Speaker 1: enter the labor force US with a participation rates, so
Speaker 1: even assuming that we still get outright declients because in
Speaker 1: our view, the government's are not going to encourage immigrations
Speaker 1: on to augment the labor for US, so we're gonna
Speaker 1: be stuck in one of these bad environments for the
Speaker 1: labor force. That's the first thing. So that means overall
Speaker 1: is going to be strained on the economy to really
Speaker 1: uh you know, grow employment going forward and to have
Speaker 1: that be the catalyst that growth the way it was
Speaker 1: from through last decade. So that's first problem. Second problem
Speaker 1: is business investment is extremely weak this decade and we
Speaker 1: think it remains weak next decade. So, um, you put
Speaker 1: the two pieces together, as Robert Solo up in my
Speaker 1: team would say, there's your trend growth in GDP and
Speaker 1: for US freend is around one four one four in
Speaker 1: Mike McKee, this is a major theme of Chairman Greenspan. Greenspan.
Speaker 1: Mike agrees with John Herman about the business investment dynamic.
Speaker 1: The question, uh, in terms of how you frame this
Speaker 1: is are you calling it secular stagnation? No? No, you
Speaker 1: know you know that. Second, I think I would agree.
Speaker 1: I would agree with many of the features of it.
Speaker 1: But what that suggests seculo secative to me. What it
Speaker 1: suggests is that no matter what they do in government,
Speaker 1: and no matter who you vote in, nothing can be done.
Speaker 1: And what I'm suggesting, and where we've been suggesting for
Speaker 1: the last several years, is if we can just um
Speaker 1: really get the two parties to really work together, because
Speaker 1: you can't expect one party to dominate, and you can't
Speaker 1: expect one party to be uh, you know, completely clairvoyant
Speaker 1: and and and just decide for the right path, which
Speaker 1: you we're hoping there's two parties work together and get
Speaker 1: a good set of growth policies in place, which means
Speaker 1: you number one, you've got to promote immigration, especially the
Speaker 1: H one DVISA class. You've gotta get that going. We
Speaker 1: need four hundred thousand people a year of this from
Speaker 1: this class times forty years. Okay, first thing. The second
Speaker 1: thing we somehow have got to encourage and incentivize business
Speaker 1: is to really make a investment in the country. And
Speaker 1: this is what green Spence saying. You know, investment in
Speaker 1: planting equipment lasting fifteen years or longer is the weakest
Speaker 1: discycle of any cycle since the fifties in our measurement,
Speaker 1: and green Spence is the weakest cycle of his lifetime,
Speaker 1: which pulls it back to the thirties. So this is
Speaker 1: very very bad. You must and what green Spence saying, well,
Speaker 1: we're saying is that it's business is concerned that the
Speaker 1: two parties are not going to be able to come
Speaker 1: together and resolve some of the issues around the retiring
Speaker 1: boomers and the entitlement programs and all this stuff. And
Speaker 1: if you can't do that, businesses are right to be cautious.
Speaker 1: And the trajectory most likely next decade is going to
Speaker 1: be Okay, they can't sort it all out. Okay, they
Speaker 1: still are paying all these entitlements, and they're just gonna
Speaker 1: raise taxes on on either corporations or or wealthy your individuals,
Speaker 1: and that's not going to really spur investments. So they've
Speaker 1: got to really come to grips with this stuff, work
Speaker 1: together and just being more collegial, and the and the
Speaker 1: two parties is so far apart. So that's basically our
Speaker 1: our issue. We think it and be done. But if
Speaker 1: if all two people are gonna do is a fight,
Speaker 1: then it's obviously Michael political stagnation. The other question of
Speaker 1: the morning is whether or not uh fed forward guidance
Speaker 1: in the form of the dot plot is useful anymore.
Speaker 1: Uh St Louis fed President Jim Bullard this morning out
Speaker 1: with a thoughtful paper suggesting it is not, and also
Speaker 1: admitting that he is the person who did not put
Speaker 1: a dot into the dot plot on Wednesday for the
Speaker 1: long term terminal rate and at a very low short
Speaker 1: term rate. He's changing the way he forecasts the economy
Speaker 1: to what he calls regime based instead a convergence base,
Speaker 1: and we just got off the phone with him. He
Speaker 1: spoke with reporters about his thoughts, and here is one
Speaker 1: of the things he said about the dot plot. The
Speaker 1: policy rate dot plot, in my opinion, puts too much
Speaker 1: weight on the idea that we quote no unquote the
Speaker 1: long run, steady state of the economy, and they're in reality,
Speaker 1: we are uncertain about the medium and longer run outcome
Speaker 1: for the economy. What we need is a manageable way
Speaker 1: to express this uncertainty. And his manageable way Tom is
Speaker 1: to use what he calls regime forecasting. Other words, say
Speaker 1: this is where we are for now and under the
Speaker 1: conditions that we have now, uh, this is the appropriate
Speaker 1: monetary policy of policy X would be. And then if
Speaker 1: the regime changes, if something changes, then you change the
Speaker 1: forecast rather than making a forecast now that you will
Speaker 1: change in the future very quickly. Is that doable? Is it?
Speaker 1: Can it be? I think I think it's gonna think
Speaker 1: it's gonna be a little tricky. You gotta remember with
Speaker 1: this guy, Bullet Bullard is the king of flip loops.
Speaker 1: So last September he was out there saying, okay, in
Speaker 1: his view, he had the highest dots on the interest
Speaker 1: rate trajectory the next three years and now he's gone
Speaker 1: nine months later to the lowest dot. I mean, this
Speaker 1: guy is all over the spectrum. So if it was
Speaker 1: a golfer, you would be so concerned to be hitting
Speaker 1: you in the gallery. But the deal is, what we
Speaker 1: have to do is this, We have to realize where
Speaker 1: we are. We have to calibrate where we are in
Speaker 1: the economic cycle. And our models keeps saying the years
Speaker 1: one most likely recession years, so we're very close. So
Speaker 1: you know, it's not like you're gonna get in the
Speaker 1: longer run in in three In three years, little more
Speaker 1: than three years, you're gonna be in a recession. So
Speaker 1: it's like, what are you talking about the longer run
Speaker 1: when you can and you have to be cutting rates.
Speaker 1: So this is where they're not waking up. I think
Speaker 1: that they're behind the curve on this stuff, but at
Speaker 1: least they're they're starting to say, O, g, maybe we
Speaker 1: are Maybe we only have another one, two or three
Speaker 1: years left in the cycle. And you know, why are
Speaker 1: we thinking of, you know, putting rates over three percent?
Speaker 1: That's crazy, totally crazy. Let's come back John Herman with
Speaker 1: us left to talk about. I want to quiz him
Speaker 1: on his interpretation of not rising inflation, but at least
Speaker 1: the obvious invisible inflation that we've got right now. John
Speaker 1: Herman again the headline with a terminal rate three five
Speaker 1: and eight years. It is gives pause to say the least.
Speaker 1: Will continue with John Herman and Missubishi u f J
Speaker 1: dow negative forty five vis time now to check in
Speaker 1: with Michael Barr and get the latest news headlines brought
Speaker 1: to you by Volvo Cars, White Planes. Visit Volvo Cars,
Speaker 1: White Planes dot Com. Mike Tom, thank you very much.
Speaker 1: British Prime Minister David Cameron and Labor leader Jeremy Corbin
Speaker 1: paid tribute to a member of Parliament who was shot
Speaker 1: and killed yesterday. Joe Cox was meeting with constituents in
Speaker 1: the northern England town of Birstall when she was attacked.
Speaker 1: Cameron talked about Cox, who was considered a rising star
Speaker 1: in the Labor Party. If we truly want to honor Joe,
Speaker 1: then what we should do is recognize that her values service, community, tolerance,
Speaker 1: the value she lived by and worked by. Those are
Speaker 1: the values that we need to redouble in our national life.
Speaker 1: In the months and in the years to come, Britain's
Speaker 1: Parliament will meet Monday in honor of Cox, who was
Speaker 1: forty one. Security is tied in Charleston, South Carolina, as
Speaker 1: the city remembers nine people gunned down during a church
Speaker 1: Bible study a year ago. Streets are closed today around
Speaker 1: Emmanual A. M E. Church and the College of Charleston's
Speaker 1: t D Arena, where they will be a memorial service.
Speaker 1: Crews have found the flight data recorder from egypt Air
Speaker 1: flight eight oh four. The Egyptian Investigation Committee says it
Speaker 1: managed to successfully retrieve the memory unit of the flight
Speaker 1: data recorder, which is the most important component. It comes
Speaker 1: a day after the airs. A three twenties cockpit voice
Speaker 1: recorder was also retrieved. Global News twenty four hours a day,
Speaker 1: powered by ours twenty four hundred journalists more than a
Speaker 1: hundred fifty news bureaus around the world. Now Michael Barr,
Speaker 1: Tom Michael Barr thinks so much to down negative. There's
Speaker 1: some weight to the tape, is how I would put it.
Speaker 1: Michael McKee and Tom King. Mike's packing his bags. We're
Speaker 1: going to London. Bloomberg s Avalance brought you by Elbow
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Speaker 1: A dot org slash radio for the rally of European
Speaker 1: shearers have failed to translate into much of a lift
Speaker 1: for u S stocks down Jones Industrial Average right now
Speaker 1: forty seven points lower. That's down three tens of persuthly
Speaker 1: SMP five hundred down six that's down three tiens. And
Speaker 1: then has that Composite index down that's down a half
Speaker 1: a percent of the shares moving in the early going
Speaker 1: shares of the Apple they are down nine tenths of
Speaker 1: a recent regulators Invaijian st Apple iPhones violate a Chinese
Speaker 1: rivals patent and among other stocks moving in early New
Speaker 1: York trading MGM Resorts International that's up about two point
Speaker 1: four percent. The shares a jump like yesterday that you know,
Speaker 1: operator raised its profit growth forecast. Also the weapons maker
Speaker 1: Smith and Wesson that is rising this morning. That's up
Speaker 1: over eleven percent after a fourth quarter beat. And we
Speaker 1: checked the markets for you every fifteen minutes during the
Speaker 1: trading day. Right here Bloomberg Radio, I'm Black. Back to
Speaker 1: surveillance now with Mike and Tom John Tucker, thank you
Speaker 1: very much. Well, back again to Jim Bullard, the president
Speaker 1: of the St. Louis FED, who today announced a new
Speaker 1: regime regime forecasting for the least the St. Louis Fed.
Speaker 1: Will be interesting to see how the rest of the
Speaker 1: organization takes to the idea. But basically, he said, it's
Speaker 1: in response to the fact that what they have been
Speaker 1: doing has not really worked. The dot plot has not
Speaker 1: been serving us. Well, it's it's predicting, uh, that rates
Speaker 1: will go up on the order of for our forecast anyway,
Speaker 1: we had rates going up three fifty basis points. Uh.
Speaker 1: And you know, if we're if the committee's only moving
Speaker 1: once a year or you know, maybe a little faster
Speaker 1: than that, it can take up to fourteen years to
Speaker 1: get to make that kind of normalization. That's way outside
Speaker 1: of anything that's plausible about business cycle dynamics or monet
Speaker 1: policy dynamics. So I think you have to conceptualize things
Speaker 1: in a different way that you get rid of this
Speaker 1: idea of a long run steady state and two or
Speaker 1: three year convergence to that long run steady state. You're
Speaker 1: play sat with uncertainty about what the long run outcome
Speaker 1: is by by going to this regime idea and UH,
Speaker 1: and then UH you make policy optimally for the regime
Speaker 1: you're in and recognize there's upside risk because you can
Speaker 1: switch to the other regimes in the future. So I
Speaker 1: think it's more we're looking at the same data but
Speaker 1: with a different concept about how to think about the
Speaker 1: long run UH in this in this new new approach.
Speaker 1: So John Herman is with us from Mitsubishi, apparently not
Speaker 1: a fan of Jim Bullard, but um, he's basically saying
Speaker 1: that whether you agree or disagree with the FEDS view
Speaker 1: of where the terminal rate is, the terminal rate is
Speaker 1: far enough away that you can't really know. Because we've
Speaker 1: been we've been we've been very critical of where they
Speaker 1: thought we thought that we've been arguing for the last
Speaker 1: few years at the terminal rate based on our analysis
Speaker 1: of the trend growth from GDP. This potential is Robert
Speaker 1: solo idea from M I. T. You know, of productivity,
Speaker 1: sustainable productivity growth, sustainable labor force growth, where is it estimated?
Speaker 1: And then put a Fed funds rate that's basically spot
Speaker 1: on that and um so we've been always arguing for
Speaker 1: about one and a half percent, possibly lower in the
Speaker 1: terminal Fed funds rate. And in the meantime, the Feds
Speaker 1: start out saying, you know, over four percent, and they
Speaker 1: cut at the four and now they're at three. And
Speaker 1: even as Bullard just fessed up in the in that
Speaker 1: in that segment he said, he said, you know, we
Speaker 1: were thinking three fifty basis points terminal rate, and but
Speaker 1: at one high year we won't get there for fourteen years.
Speaker 1: It's like, why are they saying three hundred fifty paces points?
Speaker 1: It's incredible. I mean, there's you know, and in we
Speaker 1: go through an inflection point in labor force in the
Speaker 1: year eighteen and every year after that we're biased to
Speaker 1: shrink the labor force. How are you telling me that
Speaker 1: sustainable GDP growth is going to be above one and
Speaker 1: a half percent. How are you possibly going to convince
Speaker 1: me of that, especially when productivity grows as weak as
Speaker 1: this is, and and so on. So I think I
Speaker 1: think the FETs has been really offsides on this issue.
Speaker 1: That's what we've been critical about them. We view two
Speaker 1: stands is very flat. We think gets much flatter from here. Uh.
Speaker 1: We we were concerned that the thirty year bond would
Speaker 1: stay below three percent for the next three years. It's
Speaker 1: now after the performance this this first half of the
Speaker 1: year is definitely supporting that view that thirty year bond
Speaker 1: yeels come lower and like ten year yeels lower than
Speaker 1: two point three percent and so on. And that was
Speaker 1: very much an outline forecast. But you know, um, we
Speaker 1: still think that the set is going to go very
Speaker 1: gradual over the next three years. And we're concerned that this.
Speaker 1: You know, we're in a kind of a soft patch
Speaker 1: now with jobs now, but we're worried that the sort
Speaker 1: of structural secular forces on the weakness in the labor
Speaker 1: force really grinds us to us. Uh, you know, an
Speaker 1: economic slowdown in one we're really worried about that and
Speaker 1: the timing of that with the boomer retirements, this is
Speaker 1: just not a good thing. So, um, we would be
Speaker 1: very concerned, and if we were in yelling shoes, we
Speaker 1: would be telling the Congress of this, so that maybe
Speaker 1: the Congress could do something and try to you know,
Speaker 1: improve like we've been saying, improve the immigration, get the
Speaker 1: H one B visa program in large and so on,
Speaker 1: really try to spur business investment, sort of dialed down
Speaker 1: the acrimony between the two parties and so on. Uh,
Speaker 1: you know, give everyone a little more confidence to do
Speaker 1: things and to borrow and to invest. And uh, they
Speaker 1: just the Congress just is just not about that game anymore.
Speaker 1: It's just unbelievab them. Yeah, so I'm wondering what the
Speaker 1: utility of your forecast five years or six years out is, um,
Speaker 1: given the inability to know what what what's going to
Speaker 1: happen between now and then, you you can forecast one
Speaker 1: data point. But you know, I think I think in
Speaker 1: in three years, in three years of song, I think
Speaker 1: you're gonna see that this cycle is very long in
Speaker 1: the tooth, you know, So it's not gonna you know,
Speaker 1: at that point, even if you do bring in a
Speaker 1: you know, a new government and new regime and so on.
Speaker 1: I think you know, you're looking at you know, the
Speaker 1: potential maybe helping growth, you know, much further past there.
Speaker 1: So I think you're we're going towards the slowdown, and
Speaker 1: you know we're you know, some of the signals, some
Speaker 1: of the job market signals are signaling that you know,
Speaker 1: it could be just you know, eighteen months away, you know,
Speaker 1: and that's not our core view, but some of the
Speaker 1: signals are pointing to Buried in your note, John, Yeah,
Speaker 1: is an inflation what certain geography is? Good morning New York,
Speaker 1: San Francisco, Washington, Boston. Not all geographies inflations about rent?
Speaker 1: Are you setting inflations low without rent? Uh? In? The
Speaker 1: government I think has got this one measured right when
Speaker 1: you when you strip out rent has been running three
Speaker 1: over three percent for the last couple of years and
Speaker 1: around three in a quarter. Now. Wage growth over that
Speaker 1: time period was somewhere between two and two and a
Speaker 1: half percent, significantly lower than rental growth rate, which means
Speaker 1: rent has been attacks on the basics. And you're stuggist
Speaker 1: singing the ability your numbers one your numbers one point
Speaker 1: for core inflation x rent? How does how does Jane
Speaker 1: yell and treat that she should say, okay, look, what
Speaker 1: that suggests is that the inflation pressure is broadly, are
Speaker 1: still pretty benign for quiet in the way green Spanish
Speaker 1: to say it. So it should tell her, look, don't
Speaker 1: be in a hurry to raise. It's not like you're
Speaker 1: behind the curve. So go slowly, go cautiously, be careful,
Speaker 1: and hope that the economy develops even more momentum, hopefully,
Speaker 1: and hopefully the recovery broadens out to be include more
Speaker 1: families and more businesses, and you know, maybe then we
Speaker 1: can start to build you know, more sustainable inflation. It
Speaker 1: would say, you know, go cautiously and slowly. When you
Speaker 1: when you say go cautiously and slowly, bullets regime calls
Speaker 1: for one more rating. And now now he's here, now
Speaker 1: he's yeah. We were thinking three. We were thinking before
Speaker 1: all this, the theatrics of the last few weeks, we
Speaker 1: were thinking three to four over the next three years.
Speaker 1: And so we're more like three now. And you know,
Speaker 1: and that sounds like one a year, but you know
Speaker 1: they may only do two over the next three years.
Speaker 1: I mean, it's remarkable. Well, so, um, I, given what
Speaker 1: you say about Mr Bullard, I would say that the
Speaker 1: same is probably true for you three years, but right now, uh,
Speaker 1: where should in a half to one? I mean, that's crazy.
Speaker 1: We've gone from three or four to three. What is
Speaker 1: pretty consistent? What is the appropriate and accurate? What is
Speaker 1: the appropriate rate right now? Is what I'm trying to get.
Speaker 1: I think, I think you know, as Yellen is saying,
Speaker 1: and I think she's she's now really keen in on it.
Speaker 1: She thinks that the real interest, the real neutral rate,
Speaker 1: is close to zero, and I think that's the right idea.
Speaker 1: So that means enough nominal rate this cycle if we
Speaker 1: think inflation is gonna stay lower than two for the
Speaker 1: rest of the I mean the nominal rate of one
Speaker 1: and a half a lower. John, I don't have a
Speaker 1: lot of time. I got thirty seconds. Would you explain
Speaker 1: to me how a small business, a middle business, or
Speaker 1: a ginormous business runs their business on a zero real rate?
Speaker 1: Help me with that. I think what they what they
Speaker 1: what they should be. Unfortunately, what they have been doing
Speaker 1: is they've been using these low borrowing rates to the
Speaker 1: bigger companies at least to buy back stocks and pay
Speaker 1: dividends and so on, funded at very low borrowing rates
Speaker 1: like the way Apple does. Unfortunately, the best thing for
Speaker 1: them to do is to say, look, we have uh,
Speaker 1: you know, we we have investment ideas where they return
Speaker 1: on these investments well exceed these very borrowing costs, and
Speaker 1: we're gonna go and do those investments. Unfortunately, they're not
Speaker 1: doing that. If we make it back from London, I
Speaker 1: promise you will be on against John Herman always with
Speaker 1: interesting take and whatever you say, folks. Mr Herman has
Speaker 1: nailed the flattening yield curve view and the idea of
Speaker 1: what some people would suggest is a run rate of
Speaker 1: g d P a little bit. Uh lord, this has
Speaker 1: been a wonderful day. I did not realize Mr Bullard
Speaker 1: would make it an interesting uh to day. Thanks particularly
Speaker 1: Mike for a terrific work with James Bullard. We are
Speaker 1: on our way to London. Tune in Monday. Bloomberg Surveillance
Speaker 1: from London