Speaker 1: This is Bloomberg surveillance. We need to figure out a
Speaker 1: better way to get people into work. I think, you know,
Speaker 1: more flexible workplaces, childcare, investments in infrastructure. The number of
Speaker 1: people quitting their jobs has skyrocketed, which you know, people
Speaker 1: don't do that less. They're pretty comfortable that they're gonna
Speaker 1: find another one. If the umployment rate keeps following in
Speaker 1: the way that I think it will, at some point
Speaker 1: the set is probably going to have to tighten more
Speaker 1: aggressively than may expect. Bloomberg Surveillance your link to the
Speaker 1: world of economics, finance, and investment on Bloomberg Radio. Good
Speaker 1: morning and Happy Jobs Day, Michael McKee along with Tom
Speaker 1: Keene at seven am on Wall Street eight pm in Shanghai,
Speaker 1: where China intervened to support its stock market today, keeping
Speaker 1: it from a loss just as the National People's Congress
Speaker 1: gets underway. How convenient, as they say, manipulation or not,
Speaker 1: it encouraged investors around the world ahead of what may
Speaker 1: be a slightly less important than usual jobs report here
Speaker 1: in the US. We will of course have all the
Speaker 1: numbers for you at eight thirty Wall Street time, and
Speaker 1: we have an all star cast to set up the
Speaker 1: report and break it down for you. We will begin
Speaker 1: our conversation with Michael Darnett in just a moment. Also today,
Speaker 1: Robert Gordon, Alan Krueger, Mickey Levy and as always Bill
Speaker 1: Grows from Janice Capital, Scott Mather from Pimco, Black Rocks,
Speaker 1: Rust Custridge help us break everything down ahead of the numbers.
Speaker 1: Here's where we are. China did finish higher, but only
Speaker 1: by half a percent, and it took the government to
Speaker 1: get them there, but that's still enough to encourage buying.
Speaker 1: In the rest of Asia and in Europe, the stocks
Speaker 1: six up two points right now half a percent. The
Speaker 1: Dacks is up ninety eight points right now one percent.
Speaker 1: In London, the foot Sea's up sixty points. That's just
Speaker 1: about one percent. As the back and forth schizophrenia and
Speaker 1: the markets over Brexit continues there uh In the US,
Speaker 1: a more nuanced story, we are up not a lot,
Speaker 1: but ahead of Job's day. There is some green on
Speaker 1: the screen. SMP futures three points higher, tenth of a percent,
Speaker 1: two tenths for Dow Emning futures, twenty nine points at
Speaker 1: a twelve point game for nastac one futures. That's a
Speaker 1: three tenths game ahead of the job's report, bond yields
Speaker 1: actually lower. We'll see how they trade after the numbers
Speaker 1: come out. Ten year one point eight three percent, the
Speaker 1: five year one point three three eighty three basis points
Speaker 1: for your two year yield. Jim Buggle of FTN says
Speaker 1: anything south of a hundred and seventy five thousand or
Speaker 1: north of two hundred thirty thousand top will provoke a
Speaker 1: market reaction today. Interesting, that's nice to hear. We've been
Speaker 1: so distracted. We've been distracted. Yeah, a lot going on,
Speaker 1: and um, we'll get to all the politics and everything
Speaker 1: else as the show goes on. Currency is interesting today, Tom,
Speaker 1: the dollar lower, Um, if we were if we get
Speaker 1: a strong job report, you think it would go the
Speaker 1: other way. Yen one thirteen seventy two year one seven
Speaker 1: both the stronger against the dollar, the pound stronger against
Speaker 1: dollar one and look at gold twelve seventy getting up
Speaker 1: to the up twelve dollars um. What is behind that?
Speaker 1: I don't know. That may get Michael Dart's attention. He's
Speaker 1: the chief economist and m k M Partners Proud Wisconsin
Speaker 1: Whitehawk Warhawk, Whitewater Warhawk I noticed the Lady Warhawks in
Speaker 1: the n c A tournament this year, So congratulations to
Speaker 1: your team. Uh what do you make of the way
Speaker 1: the markets are setting up for this? Uh? It used
Speaker 1: to be bad news good news. Um, the FED was
Speaker 1: at the center of everything. But it doesn't look like
Speaker 1: we're trading that way going into the number today. Yeah,
Speaker 1: I think, Mike, if you just take a small step back. Um,
Speaker 1: you know, markets have jumped up after a big sell
Speaker 1: off coming into the year, basically because the fear when
Speaker 1: we were down almost from the highs of the cycle
Speaker 1: on the S and P, the fear was that manufacturing
Speaker 1: is in recession, the rest of the economy might follow.
Speaker 1: And uh, recently we've had some better data, at least
Speaker 1: some data that suggests while manufacturing is weak, it perhaps
Speaker 1: is stabilizing. The consumption figures for January in particular came
Speaker 1: in better than expected. That's a big chunk at GDP obviously,
Speaker 1: and so that is catalyzed a bit of optimism. Whether
Speaker 1: that will sustain itself, you know, is another question. And
Speaker 1: then of course, you know, we'll see what the numbers
Speaker 1: bring it, you know, at a thirty. But I always
Speaker 1: tell listeners to to look at a moving average and
Speaker 1: not to get too excited about any one number, but
Speaker 1: you know, we end up focusing a lot on a
Speaker 1: one single number every time we get to one of
Speaker 1: these reports. Unfortunately, one of the great themes is wage growth.
Speaker 1: I believe last time we had, you know, a philip
Speaker 1: of interest there Michael mckew was, so I'm straight looking
Speaker 1: at the optimism on wage growth. Will that optimism continue? Well,
Speaker 1: important to remember TOMA, when you're looking at hourly wages,
Speaker 1: it's really the result of not you know, not just
Speaker 1: current nominal GDP, but test past nominal GDP growth and
Speaker 1: how tight the labor market is. So what we're seeing
Speaker 1: is a visible but moderate acceleration in hourly wage growth.
Speaker 1: Unit labor costs have also been growing somewhat faster. Now
Speaker 1: that's caused some optimism that inflation will be rising towards
Speaker 1: the Fed's target. But keep in mind that nominal GDP
Speaker 1: is actually slowing now. We've gone from almost five percent
Speaker 1: in late down to three on nominal GDP UH currently.
Speaker 1: And if top lines are weakening as the cost structure
Speaker 1: is levitating as they set up for a profit squeeze,
Speaker 1: margins look like they peaked for the cycle, GDP profits
Speaker 1: have been weak. On the where I am is for,
Speaker 1: I would recommend that investors stayed defensively, postured and and cautious.
Speaker 1: If we see this market run up to the highs
Speaker 1: of the cycle, I would recommend taking some chips off
Speaker 1: the table. I think we're probably in the last year,
Speaker 1: year and a half business So I wanted to get
Speaker 1: into that where where we are in the cycle because
Speaker 1: a lot of people looking at the markets say recession coming. Yeah,
Speaker 1: well that was the fear coming into the year. The
Speaker 1: data doesn't support that yet. Um, you know, but I
Speaker 1: I do think if we look at weakness in monetary
Speaker 1: indicators and one growth is now down below four percent
Speaker 1: year to year. Obviously, the monetary basis flat post quei
Speaker 1: uh and credit markets under a lot of stress. The
Speaker 1: last couple of weeks we've seen some easing, but we
Speaker 1: have a lot of indicators that are suggesting a late
Speaker 1: cycle environment. Not the least of which I mentioned was
Speaker 1: corporate profits from the GDP accounts. Those tend to peak
Speaker 1: relative to the economy and relative to corporate bond rates
Speaker 1: about two years before a downturn. The peak in this
Speaker 1: cycle so far was um which means that we're quite
Speaker 1: late cycle unless there's a new high. Hard to see
Speaker 1: that with top line growth slowing, wages accelerating moderately. In
Speaker 1: the FED, you know out there having already tightened policy
Speaker 1: and probably would tighten it again if there are signs
Speaker 1: that the growth is re accelerating. The FED has hemmed
Speaker 1: us in the dictates of the Phillips curve model are
Speaker 1: simply that this business cycle will not be allowed to accelerate.
Speaker 1: And unfortunately, if there's a misjudgment, that could mean a
Speaker 1: termination in the cycle, if the FED is out there
Speaker 1: too far in front with them. What we all see
Speaker 1: in the equity market, and there's there's a fair number
Speaker 1: of bulls out there even within whatever the kind of
Speaker 1: bear market you want to describe. It is animal spirits.
Speaker 1: That is emine without question, the merger's low nominal GDP.
Speaker 1: Let's combine to find growth. That's we've seen that in history.
Speaker 1: That's not unusual, right. What will be the outcome of
Speaker 1: it as we see a consolidation of American business, Well,
Speaker 1: I mean, I think you know, unfortunately, at this juncture
Speaker 1: of the cycle, the outcome is that, you know, we're
Speaker 1: probably looking at the last year year and a half
Speaker 1: of the expansion. That's just a very rough guests best
Speaker 1: on guests based on business cycle history and how long
Speaker 1: expansions go after you have important peaks in profits. So
Speaker 1: you know, we're probably getting towards the tail end of
Speaker 1: the of the M M and A cycle and of
Speaker 1: the business cycle at large. Unfortunately, Tom, I'd like to
Speaker 1: be more optimistic, you know, me as somebody who is
Speaker 1: typically runs with the bulls. I was even being because
Speaker 1: you're hanging out with Robert Gordon, no good timing and
Speaker 1: having us, you know, come on today because we do
Speaker 1: share uh, you know, more of a pessimistic view, maybe
Speaker 1: for somewhat different reasons, but usually I'm upbeat and optimistic.
Speaker 1: I've even been called a permable um. But we just
Speaker 1: try to call the cycle and an accurate way with
Speaker 1: the right indicators. And you suggest that the ft is
Speaker 1: Hymnsson and won't let the expansion go there. They have
Speaker 1: been talking some of the some of the core like
Speaker 1: Bill Dudley, but letting the economy run hot. They've only
Speaker 1: raised five basis points. You could probably go a couple
Speaker 1: more increases in the economy won't notice. So what do
Speaker 1: you mean by that they seem to be willing to
Speaker 1: let things go for low Uh. Well, that's true. They've
Speaker 1: talked about a modest overshoot in terms of unemployment falling
Speaker 1: below the level that you know that they think is sustainable,
Speaker 1: which is essentially where it is now. Uh. And their
Speaker 1: view is that that's a leading indicator of inflation, that's
Speaker 1: the Phillips curve. I think that, you know, there's some
Speaker 1: problems with that. Historically the relationships have been anything but tight. Um.
Speaker 1: And you know, I would also be quite concerned about
Speaker 1: the notion that the economy wouldn't notice with a few
Speaker 1: more rate hikes. Consider the fact that the taper, the
Speaker 1: end of QUI in the first twenty five basis point
Speaker 1: rate rise was associated with severe moves in inflation expectations,
Speaker 1: credit market spreads, uh. And you know, volatility in global
Speaker 1: equity prices. And so I do think that the FED
Speaker 1: is powerful, very important. Uh. And has you know, this
Speaker 1: has global public asians. So you know, twenty five basis
Speaker 1: points may not sound like a lot, but it can matter.
Speaker 1: Consider the fact that there have been important downturns associated
Speaker 1: only with small amounts of rate hikes. The Eurozone twenty
Speaker 1: eleven Japan in two thousand and again in oh six
Speaker 1: and oh seven. Michael Darta, thank you so much, Really
Speaker 1: pleased to have you in on this job today. Bloomberg
Speaker 1: surveillance this morning watched by Investco. Factor based strategies can
Speaker 1: help investors focus on a high quality, low volatility and more.
Speaker 1: Learn more and investco dot com slash high conviction. Michael
Speaker 1: Darty gets us started at this hour. Robert Gordon of
Speaker 1: Northwestern University next, and then Bill Gross will follow on
Speaker 1: after the job's report. Alan Krueger with us. Mickey Leady
Speaker 1: as well this morning. Futures up to DOBT futures of
Speaker 1: twenty four gold up ten dollars twelve sixty nine the ounce. Now,
Speaker 1: let's bringing Michael bar with the latest world inational headlines. Michael,
Speaker 1: Mike Tom, thank you very much. Donald Trump used last
Speaker 1: night's Republican presidential debate to fire back at former Massachusetts
Speaker 1: government Romney, who called trampafoni and a conman. Trump called
Speaker 1: theelve Republican nominee failed candidate who just wants to be
Speaker 1: relevant of the Republicans from out Speaker Paul Ryan. The
Speaker 1: Senator John McCain also blasted Trump yesterday Japanese Prime Minister
Speaker 1: Shinzo Abe has decided to temporarily suspend work on moving
Speaker 1: a US marine base in Okinawa and will resume talks
Speaker 1: about the plan. The central government and Okinawa's government have
Speaker 1: been locked in a legal bottle over relocating the base,
Speaker 1: which opponents one off the island entirely. A new trade
Speaker 1: deal with Europe promises to put about two hundred thousand
Speaker 1: Syrian refugees to work. In Jordan's Global News twenty four
Speaker 1: hours a day, powered by our two d journalists and
Speaker 1: more than a hundred fifty news bureaus from around the world.
Speaker 1: I'm Michael bar Night, Tom and Michael, thanks so much.
Speaker 1: It is job's day. We will at eight thirty turn
Speaker 1: to Bill Gross for his perspective not only on the report,
Speaker 1: but on the American economy. Bloomberg s Avalance brought to
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