1 00:00:00,120 --> 00:00:02,920 Speaker 1: Brought you by Bank of America, Mary Lynch. Investing in 2 00:00:03,000 --> 00:00:07,840 Speaker 1: local communities, economies and a sustainable future. That's the power 3 00:00:08,080 --> 00:00:12,360 Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated 4 00:00:12,760 --> 00:00:27,400 Speaker 1: Member s I p CEA. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,840 --> 00:00:31,520 Speaker 1: I'm Tom Keene with David Gura. Daily we bring you 6 00:00:31,560 --> 00:00:36,600 Speaker 1: insight from the best in economics, finance, investment, and international relations. 7 00:00:37,000 --> 00:00:41,600 Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and 8 00:00:41,680 --> 00:00:49,760 Speaker 1: of course on the Bloomberg Francie Lequai in London. David 9 00:00:49,800 --> 00:00:53,240 Speaker 1: Gura off David sentence Francine a photo of his seats 10 00:00:53,240 --> 00:00:56,280 Speaker 1: at the Super Bowl. It's unreally, he's like literally a kid, 11 00:00:56,320 --> 00:00:58,520 Speaker 1: you not at the forty seven yard line. It's just 12 00:00:58,600 --> 00:01:00,920 Speaker 1: I don't know which side he's on, like Patriots or 13 00:01:01,160 --> 00:01:05,160 Speaker 1: falcons um. This is beyond well timed. We take it 14 00:01:05,760 --> 00:01:08,160 Speaker 1: as a great privilege of Alan Krueger with us in 15 00:01:08,280 --> 00:01:11,640 Speaker 1: Jobs Day. But Professor Krueger, I think there can never 16 00:01:11,720 --> 00:01:15,120 Speaker 1: be a better time to speak to you now about 17 00:01:15,200 --> 00:01:19,760 Speaker 1: the raging academic debate that we've seen within Trump presidential 18 00:01:19,760 --> 00:01:22,400 Speaker 1: politics and that has led by Brad de Longa, Berkeley, 19 00:01:22,920 --> 00:01:26,679 Speaker 1: Danny Roderick of Harvard. Jared Bernstein weighing in as well 20 00:01:27,160 --> 00:01:31,760 Speaker 1: on the effects of NEFTA on jobs in America. And 21 00:01:31,800 --> 00:01:34,319 Speaker 1: it comes down to what you and card did years ago, 22 00:01:34,920 --> 00:01:39,480 Speaker 1: which is a distribution on low wage people. Let's start 23 00:01:39,520 --> 00:01:43,840 Speaker 1: with uh, the obvious first question, has neft been good 24 00:01:43,920 --> 00:01:48,000 Speaker 1: or bad for the American worker? Has been very positive 25 00:01:48,040 --> 00:01:52,480 Speaker 1: for the US, including for the vast majority of American workers. 26 00:01:53,840 --> 00:02:00,520 Speaker 1: You could give longer answers than that. Yeah, Um, I 27 00:02:00,600 --> 00:02:04,600 Speaker 1: think first of all, having a stable, prosperous Mexico on 28 00:02:04,600 --> 00:02:08,400 Speaker 1: our border is very much to our interest. Uh. Secondly, 29 00:02:09,160 --> 00:02:13,120 Speaker 1: there are synergies between US in Mexico. UM. I believe 30 00:02:13,200 --> 00:02:17,600 Speaker 1: that globalization and trade have had distributional effects. I think 31 00:02:17,720 --> 00:02:20,480 Speaker 1: China has A much has had a much more profound 32 00:02:20,560 --> 00:02:25,240 Speaker 1: effect on the wages of less skilled American workers than 33 00:02:25,880 --> 00:02:31,079 Speaker 1: trade with Mexico has um so Uh, I think the 34 00:02:31,120 --> 00:02:35,200 Speaker 1: research suggests that NAFTA has had a beneficial effect in 35 00:02:35,320 --> 00:02:38,720 Speaker 1: terms of lowering prices for consumers, which have been particularly 36 00:02:38,720 --> 00:02:43,040 Speaker 1: beneficial for low income Americans. So, professor, are we confusing 37 00:02:43,080 --> 00:02:50,119 Speaker 1: globalization inequality, innovation and actually just wealth distribution. Well, we've 38 00:02:50,120 --> 00:02:53,120 Speaker 1: had profound changes over the last thirty years and inequality 39 00:02:53,120 --> 00:02:55,680 Speaker 1: and wealth distribution in the US and in many countries 40 00:02:55,720 --> 00:03:00,280 Speaker 1: around the world. I think the driving force has been technology. Uh. 41 00:03:00,520 --> 00:03:04,360 Speaker 1: Manufacturing has been losing jobs around the world because of 42 00:03:04,480 --> 00:03:08,600 Speaker 1: increased productivity UM. At the same time, I think that 43 00:03:08,639 --> 00:03:10,880 Speaker 1: trade does create winners and losers, and we haven't done 44 00:03:10,960 --> 00:03:13,680 Speaker 1: enough to help those who were dislocated by trade. The 45 00:03:14,440 --> 00:03:18,320 Speaker 1: what this were distributional to labor economists like yourself is 46 00:03:18,360 --> 00:03:22,480 Speaker 1: a big deal. Defined distributional Professor Roderick Cuppett as a 47 00:03:22,520 --> 00:03:26,760 Speaker 1: school in Cambridge called Harvard. Distributional for Danny Roderick is 48 00:03:26,840 --> 00:03:30,040 Speaker 1: really front and center. Where Brad DeLong at Berkeley diminishes 49 00:03:30,040 --> 00:03:34,080 Speaker 1: that what is distributional effects little. Distribution is very simple 50 00:03:34,120 --> 00:03:36,320 Speaker 1: to define. It's who gets what, how we split up 51 00:03:36,320 --> 00:03:38,640 Speaker 1: the pie, and growth has to do with the size 52 00:03:38,640 --> 00:03:40,680 Speaker 1: of the pie. And I think one of the things 53 00:03:40,680 --> 00:03:43,200 Speaker 1: we've seen over the last thirty years is that growth 54 00:03:43,280 --> 00:03:46,320 Speaker 1: is necessary but not sufficient. You now, if you look 55 00:03:46,360 --> 00:03:49,120 Speaker 1: at this fascinating new study by Rods Chatting and his 56 00:03:49,200 --> 00:03:53,360 Speaker 1: co authors on the chances that children have higher income 57 00:03:53,400 --> 00:03:56,720 Speaker 1: than their parents, we've seen a massive shift over the 58 00:03:56,760 --> 00:03:59,000 Speaker 1: last forty years in the US, where we've gone from 59 00:03:59,000 --> 00:04:03,000 Speaker 1: over nine children earning more than their parents at age 60 00:04:03,000 --> 00:04:06,800 Speaker 1: thirty when you compare their comparable ages to about half 61 00:04:06,800 --> 00:04:10,160 Speaker 1: for the most recent cohort. That's driven by distributional changes, 62 00:04:10,240 --> 00:04:12,640 Speaker 1: not by slimmer growth in fantsy, this could jump into 63 00:04:12,680 --> 00:04:15,119 Speaker 1: your frenzy. With one more question, we'll have Professor kruckerback. 64 00:04:15,320 --> 00:04:18,839 Speaker 1: But Fretsy, that's the heart of the Mackenzie analysis of 65 00:04:18,880 --> 00:04:22,760 Speaker 1: this year is our children and the effect on them. Right, 66 00:04:22,800 --> 00:04:24,640 Speaker 1: But I mean, I guess that the question is even 67 00:04:24,640 --> 00:04:26,920 Speaker 1: if you know, could you not suppose that you want 68 00:04:26,960 --> 00:04:30,480 Speaker 1: to create a smaller pie? Right, But if you have 69 00:04:30,560 --> 00:04:35,560 Speaker 1: protectionist measures, then you actually directly, uh, we distribute wealth 70 00:04:35,800 --> 00:04:38,440 Speaker 1: as you make it. I think it's a very blunt instrument. 71 00:04:38,800 --> 00:04:41,120 Speaker 1: If we want to redistribute wealth, I think there are 72 00:04:41,120 --> 00:04:44,880 Speaker 1: far more efficient tools, more direct tools, particularly targeted to 73 00:04:44,880 --> 00:04:47,560 Speaker 1: those who struggled the most, which are those at the 74 00:04:47,640 --> 00:04:51,279 Speaker 1: very bottom of the wage distribution um, earned income, tax credit, 75 00:04:51,320 --> 00:04:55,320 Speaker 1: minimum wage. I think are much more targeted tools to 76 00:04:55,440 --> 00:04:58,080 Speaker 1: help that group, as opposed to trade, which is a 77 00:04:58,200 --> 00:05:02,800 Speaker 1: very blunt instrument. Professor Krueger, he's a former chairman of 78 00:05:02,800 --> 00:05:07,320 Speaker 1: the President's Council of Economic Advisers for President Obama, of 79 00:05:07,320 --> 00:05:12,640 Speaker 1: course at Princeton University, and it's done particularly recent work 80 00:05:13,520 --> 00:05:17,440 Speaker 1: among his many interests on the gig economy as well. 81 00:05:29,000 --> 00:05:32,240 Speaker 1: Francie la Quad London and Tom Keane in your Francine 82 00:05:32,320 --> 00:05:35,320 Speaker 1: Healthy here, you've done a lot of analysis falcons or 83 00:05:35,360 --> 00:05:41,000 Speaker 1: patriots falcons. I go with whatever Alarion says, there you go. 84 00:05:41,200 --> 00:05:43,880 Speaker 1: I'm sorry, Tom Okay, are you sure she gets one 85 00:05:43,960 --> 00:05:47,719 Speaker 1: question in the next one hour? Robert dahlw us here 86 00:05:48,360 --> 00:05:51,679 Speaker 1: and Bob, this is fabulous to have you here within 87 00:05:51,839 --> 00:05:56,880 Speaker 1: American corporations and your optimism on the bull market. Are 88 00:05:57,040 --> 00:06:00,320 Speaker 1: they the kind of jobs being formed that corporate agents 89 00:06:00,400 --> 00:06:03,120 Speaker 1: used to do for us? Or is this a different 90 00:06:03,200 --> 00:06:07,800 Speaker 1: job economy than what we think from Monsanto or DuPont 91 00:06:07,920 --> 00:06:15,240 Speaker 1: or Eastman Kodak of another time they improved as the 92 00:06:15,279 --> 00:06:17,400 Speaker 1: because of the cycle has going on early on remembers 93 00:06:17,480 --> 00:06:20,479 Speaker 1: all that criticism all low paying jobs. That's not the 94 00:06:20,520 --> 00:06:24,799 Speaker 1: case anymore. It's a wide swath across sectors and types 95 00:06:24,839 --> 00:06:29,640 Speaker 1: of jobs and quality of jobs. So I think we're 96 00:06:29,160 --> 00:06:32,560 Speaker 1: in a much better jobs picture than we were early 97 00:06:32,600 --> 00:06:34,760 Speaker 1: in the cycle, and we couldn't get the jobs thing going? 98 00:06:35,160 --> 00:06:38,719 Speaker 1: Is it part time America? No, it's not. Um. Yeah, 99 00:06:38,800 --> 00:06:40,359 Speaker 1: are there a lot of part time jobs? Sure, I 100 00:06:40,360 --> 00:06:42,960 Speaker 1: won't deny that, But a lot of these jobs are 101 00:06:43,279 --> 00:06:48,440 Speaker 1: full time jobs. Companies are struggling to find good skilled workers, 102 00:06:48,480 --> 00:06:50,799 Speaker 1: and so that's why the amount of time it's taken 103 00:06:50,839 --> 00:06:53,600 Speaker 1: to fill an open position has doubled since the end 104 00:06:53,640 --> 00:06:57,400 Speaker 1: of the Great Recession. That's why we're seeing wages slowly 105 00:06:57,440 --> 00:07:00,599 Speaker 1: move higher. Uh. There the companies are hand up to 106 00:07:00,680 --> 00:07:04,360 Speaker 1: get good skilled workers. It's a it's a much healthier place, Bob, 107 00:07:04,360 --> 00:07:07,040 Speaker 1: who's hiring. If you look at the industry groups and 108 00:07:07,080 --> 00:07:09,279 Speaker 1: we're talking a little bit about small businesses compared to 109 00:07:09,680 --> 00:07:12,200 Speaker 1: bigger businesses earlier on on TV, it feels like a 110 00:07:12,240 --> 00:07:15,640 Speaker 1: million years ago. But is there a wave in the 111 00:07:15,680 --> 00:07:17,960 Speaker 1: business cycle that means they're hiring a lot more than 112 00:07:18,000 --> 00:07:22,240 Speaker 1: everyone else? I know, I don't. I don't think so. Um. Look, 113 00:07:22,280 --> 00:07:25,120 Speaker 1: we all know that over the long term, all the 114 00:07:25,160 --> 00:07:28,520 Speaker 1: net job growth takes place in small companies, big businesses 115 00:07:28,600 --> 00:07:32,480 Speaker 1: or net net approximately zero. So small companies are coming 116 00:07:32,520 --> 00:07:34,840 Speaker 1: back around. They're still slow because they still have the 117 00:07:34,920 --> 00:07:38,760 Speaker 1: healthcare concerns. They haven't had the tax relief that they're 118 00:07:38,800 --> 00:07:44,920 Speaker 1: hoping to get. So uh, it's it's it's healthcare, it's technology, um, 119 00:07:45,080 --> 00:07:49,360 Speaker 1: selected consumer areas, it's it's broadening out. In my view, 120 00:07:50,120 --> 00:07:53,680 Speaker 1: I look at how it's broadening out, and it just 121 00:07:53,800 --> 00:07:58,880 Speaker 1: assumes wage increase. Do you observe that? What do you 122 00:07:58,880 --> 00:08:03,120 Speaker 1: hear from corporations and the analysts at moving about actual 123 00:08:03,200 --> 00:08:06,840 Speaker 1: wage pressure companies? I don't see it yet. It's moderate, 124 00:08:06,880 --> 00:08:09,720 Speaker 1: but it's improving. I think we boughtened out at about 125 00:08:09,960 --> 00:08:13,000 Speaker 1: one and a half percent annual year over year wage growth. 126 00:08:13,040 --> 00:08:16,480 Speaker 1: Now we're running two point nine, and my guess is 127 00:08:16,520 --> 00:08:19,200 Speaker 1: that is heading into the threes. It's it's a slow 128 00:08:19,280 --> 00:08:22,480 Speaker 1: creep um you know, four, sort of a flash point. 129 00:08:22,520 --> 00:08:24,440 Speaker 1: I hope we don't get there anytime soon because that 130 00:08:24,520 --> 00:08:29,080 Speaker 1: begins to pressure corporate profit margins. So more and more 131 00:08:29,080 --> 00:08:31,760 Speaker 1: people are getting wage right gains, and that's a healthy 132 00:08:31,800 --> 00:08:34,520 Speaker 1: thing for the consumer and therefore for the economy. So, Bob, 133 00:08:34,559 --> 00:08:37,439 Speaker 1: you follow equities, and so you follow CEOs companies. Talk 134 00:08:37,480 --> 00:08:39,520 Speaker 1: to me about about the behavior of a CEO. When 135 00:08:39,559 --> 00:08:42,840 Speaker 1: does a cr a company decide to increase wages? Is 136 00:08:42,880 --> 00:08:47,720 Speaker 1: it because they're in a shortage of supply? Because it's 137 00:08:48,000 --> 00:08:50,959 Speaker 1: you know, extra skilled workers. Talk me through it. Yeah, 138 00:08:51,040 --> 00:08:52,719 Speaker 1: they look at lots of things. They look at how 139 00:08:52,720 --> 00:08:56,400 Speaker 1: hard is it to find the new incremental worker. They 140 00:08:56,480 --> 00:09:01,559 Speaker 1: look intensively at people who leave. When nobody's leaving, they 141 00:09:01,559 --> 00:09:06,120 Speaker 1: don't raise wages. But when the leavers increase, uh, wage 142 00:09:06,200 --> 00:09:08,679 Speaker 1: rates have to move up. They look around them to 143 00:09:08,720 --> 00:09:11,040 Speaker 1: see what other companies are doing. You know, the things 144 00:09:11,080 --> 00:09:13,600 Speaker 1: you and I would do to pay attention to the environment. 145 00:09:13,640 --> 00:09:16,800 Speaker 1: That's what they're doing, and that's leading to a slow 146 00:09:16,880 --> 00:09:19,800 Speaker 1: but steady increase in wage rates. Do you see investment? 147 00:09:19,840 --> 00:09:23,480 Speaker 1: I believe. I learned in school that investment creates jobs, 148 00:09:23,520 --> 00:09:26,560 Speaker 1: which creates consumption. It's something like that. Is that rule 149 00:09:26,640 --> 00:09:29,760 Speaker 1: still affect It's America. It's a good rule. We have 150 00:09:30,000 --> 00:09:32,920 Speaker 1: not seen the pick up an investment. It's been absent 151 00:09:33,120 --> 00:09:36,720 Speaker 1: um a significant degree this cycle for a whole bunch 152 00:09:36,760 --> 00:09:39,920 Speaker 1: of reasons. Corporations just don't have a lot of confidence 153 00:09:40,320 --> 00:09:44,200 Speaker 1: uh and conviction about the long term. Maybe the fiscal 154 00:09:44,280 --> 00:09:47,400 Speaker 1: policy and tax reform that is on the agenda will 155 00:09:47,440 --> 00:09:50,319 Speaker 1: cause them to begin to do more investment, more cash 156 00:09:50,360 --> 00:09:53,480 Speaker 1: back home if we get repatriation, But so far we're 157 00:09:53,520 --> 00:09:55,599 Speaker 1: not there. No, I mean, Bob, this is important, and 158 00:09:56,280 --> 00:09:58,160 Speaker 1: one of the high points for Bloomberg this week was 159 00:09:58,200 --> 00:10:01,679 Speaker 1: our conversation John Nichols Waite's UH a conversation with Mr 160 00:10:01,880 --> 00:10:05,680 Speaker 1: mL of General Electric Take GE is an industrial proxy. 161 00:10:05,960 --> 00:10:07,520 Speaker 1: I guess I could take U t X or you 162 00:10:07,600 --> 00:10:10,000 Speaker 1: name the company. But the answer is, can Bob Doll 163 00:10:10,080 --> 00:10:15,840 Speaker 1: be long GE like stocks? Yeah? You know GE in 164 00:10:15,880 --> 00:10:18,240 Speaker 1: particular if they just can't get out their own way 165 00:10:18,280 --> 00:10:21,640 Speaker 1: and the restructurings been late and the earnings games have 166 00:10:21,720 --> 00:10:24,079 Speaker 1: been so so and the revenue growth, so yeah, we're 167 00:10:24,080 --> 00:10:27,640 Speaker 1: pretty lukewarm one GE. But let's take an inger soul rand. 168 00:10:27,720 --> 00:10:32,320 Speaker 1: You know related businesses that companies growing, uh, it has 169 00:10:32,480 --> 00:10:36,920 Speaker 1: need for for for more workers and they're hiring some people. UM, 170 00:10:37,040 --> 00:10:40,360 Speaker 1: So you've got to still be selective in these industrial areas. 171 00:10:40,800 --> 00:10:45,800 Speaker 1: Our technology companies Bob hiring American yes, yes, and and 172 00:10:45,840 --> 00:10:50,600 Speaker 1: also hiring foreigners. They're hiring both. UM. I think that um, 173 00:10:51,040 --> 00:10:55,920 Speaker 1: when you look at the graduates from the big technology schools, 174 00:10:55,960 --> 00:10:59,199 Speaker 1: their the ability of those folks to get jobs has 175 00:10:59,280 --> 00:11:01,600 Speaker 1: moved up in in the last couple of years, but 176 00:11:01,720 --> 00:11:06,080 Speaker 1: they're still hiring workers outside the U s Indian for 177 00:11:06,120 --> 00:11:09,880 Speaker 1: the usual UM businesses that you see happening there. So 178 00:11:09,920 --> 00:11:13,480 Speaker 1: it's it is more geography than just the US. For sure. 179 00:11:13,880 --> 00:11:16,280 Speaker 1: Mr Trump may stop that, but for now, right, I 180 00:11:16,320 --> 00:11:17,839 Speaker 1: was going to know, but I was going through That's 181 00:11:17,880 --> 00:11:19,520 Speaker 1: exactly where I was going about. But if you have 182 00:11:19,600 --> 00:11:22,600 Speaker 1: immigration bands and if this goes into like working visas, 183 00:11:22,679 --> 00:11:26,000 Speaker 1: and if we see a lot of this UM you know, 184 00:11:26,080 --> 00:11:29,040 Speaker 1: going in and being expanded, does it mean that it 185 00:11:29,080 --> 00:11:31,959 Speaker 1: will actually create jobs in America or not necessarily because 186 00:11:32,000 --> 00:11:34,640 Speaker 1: it could hurt profit at the same time. Yeah, I 187 00:11:34,640 --> 00:11:37,360 Speaker 1: I think that once the more restrictions you put on, 188 00:11:37,760 --> 00:11:40,480 Speaker 1: the less efficient the economy is going to be. And 189 00:11:40,520 --> 00:11:43,880 Speaker 1: so uh, I'd love Mr Trump to make it it's 190 00:11:43,920 --> 00:11:48,080 Speaker 1: so attractive for UM businesses to hire workers here through 191 00:11:48,200 --> 00:11:52,120 Speaker 1: tax reform and economic growth that they do it naturally 192 00:11:52,200 --> 00:11:55,000 Speaker 1: rather than putting up barriers that you can't. Yeah. But 193 00:11:55,280 --> 00:11:57,040 Speaker 1: one more question. I want to go to Francine on 194 00:11:57,360 --> 00:12:00,680 Speaker 1: the greater picture on this job stay getting folks about 195 00:12:00,679 --> 00:12:02,880 Speaker 1: twenty minutes away from that report, Bob Doll with us 196 00:12:02,880 --> 00:12:05,679 Speaker 1: with Uvin and then Bill Gross will be with this 197 00:12:05,800 --> 00:12:08,640 Speaker 1: Neuvine as a bond house, that's your heritage out of Chicago. 198 00:12:09,000 --> 00:12:12,319 Speaker 1: You do the coupon at what point, did the bonds 199 00:12:12,400 --> 00:12:15,760 Speaker 1: become a competition for your equity world? To me, we're 200 00:12:15,760 --> 00:12:19,280 Speaker 1: nowhere near that. I agree, um so, so we've seen 201 00:12:19,320 --> 00:12:21,920 Speaker 1: the tenure treasury move from one thirties seven up to 202 00:12:21,960 --> 00:12:25,480 Speaker 1: two fifty. Um, you know, without a three handle, I 203 00:12:25,480 --> 00:12:28,080 Speaker 1: don't get worried, and even a three handle is not 204 00:12:28,160 --> 00:12:30,240 Speaker 1: a big deal part of its pace. Tom If we 205 00:12:30,320 --> 00:12:33,120 Speaker 1: get the three tomorrow morning, bonds will be competitive, but 206 00:12:33,160 --> 00:12:35,520 Speaker 1: if it's a gradual thing, stocks will be fine. Bob, 207 00:12:35,559 --> 00:12:38,520 Speaker 1: we're talking earlier about the equity market and when the 208 00:12:38,559 --> 00:12:43,240 Speaker 1: bond coupon begins to compete. Let's combine in your work 209 00:12:43,400 --> 00:12:46,480 Speaker 1: with the work of Bill gross over at Janis and 210 00:12:46,559 --> 00:12:50,520 Speaker 1: this idea of equities and bonds. From where you sit, 211 00:12:50,880 --> 00:12:54,760 Speaker 1: do you need to own both? Well, you know, diversification 212 00:12:54,880 --> 00:12:57,240 Speaker 1: says the answer that question is yes. So I think 213 00:12:57,240 --> 00:13:00,000 Speaker 1: it's a matter of proportion. And my view is whatever 214 00:13:00,040 --> 00:13:04,120 Speaker 1: for normal is for you, risk reward, time, horizon, income, neis, etcetera. 215 00:13:04,400 --> 00:13:06,559 Speaker 1: Just be you know, ten fifteen higher than normal in 216 00:13:06,640 --> 00:13:09,400 Speaker 1: stocks than the fifteen lower in bonds because interest rates 217 00:13:09,400 --> 00:13:11,400 Speaker 1: are probably gonna creep higher, which means we have a 218 00:13:11,400 --> 00:13:13,600 Speaker 1: better economy, which we had better earnings. Therefore, I like 219 00:13:13,679 --> 00:13:16,400 Speaker 1: stock sober bonds. We have a joke that we do here, 220 00:13:16,520 --> 00:13:18,960 Speaker 1: which is with John Tucker the opening of the four 221 00:13:18,960 --> 00:13:21,840 Speaker 1: oh one k envelope, which is we sedate him and 222 00:13:21,880 --> 00:13:23,640 Speaker 1: he opens his four oh. Okay, they don't do that 223 00:13:23,679 --> 00:13:26,120 Speaker 1: with me, folks, because I'm in the double leverage all 224 00:13:26,200 --> 00:13:29,920 Speaker 1: cash fund. But but that's a new being product. But 225 00:13:29,920 --> 00:13:33,600 Speaker 1: but Bob, how do I catch up if I'm behind. 226 00:13:34,040 --> 00:13:36,120 Speaker 1: I've got a guy listening right now in New York. 227 00:13:36,400 --> 00:13:39,200 Speaker 1: He's in his fancy maserati. He's a hedge fund guy 228 00:13:39,280 --> 00:13:42,400 Speaker 1: who did four percent last year and he's scared, you 229 00:13:42,440 --> 00:13:45,560 Speaker 1: know what. Or I got a retiree out in Iowa 230 00:13:45,640 --> 00:13:49,240 Speaker 1: listening right now. Talk to them both about how you 231 00:13:49,320 --> 00:13:51,520 Speaker 1: catch up. So, if you have three hundred dollars on 232 00:13:51,559 --> 00:13:54,400 Speaker 1: the sidelines earmark for the stock market, and you don't 233 00:13:54,400 --> 00:13:56,440 Speaker 1: know when to get in, put a hundred in now, 234 00:13:57,440 --> 00:13:59,880 Speaker 1: take a hundred and dollar cost average over the next 235 00:14:00,320 --> 00:14:03,559 Speaker 1: six months, and if we get a dip like we 236 00:14:03,679 --> 00:14:06,480 Speaker 1: always do, take the last hundred and put in. Have 237 00:14:06,679 --> 00:14:09,880 Speaker 1: the guts of your conviction at the hardest time when 238 00:14:09,880 --> 00:14:11,959 Speaker 1: your stomach doesn't feel so good. Last year, that was 239 00:14:12,040 --> 00:14:16,959 Speaker 1: January February is different, and should we worry about dollar strength? Bob? 240 00:14:17,600 --> 00:14:20,640 Speaker 1: Every year is different. Obviously, dollar strength to the extent 241 00:14:20,760 --> 00:14:24,600 Speaker 1: it continues, will provide a head win for a multinational 242 00:14:24,640 --> 00:14:27,320 Speaker 1: companies here in the US. And so my view is 243 00:14:27,480 --> 00:14:33,080 Speaker 1: overweight domestic companies, underweight the multinationals. Why fight the strength 244 00:14:33,120 --> 00:14:36,200 Speaker 1: of the dollar plus weaker economic growth elsewhere? I want 245 00:14:36,240 --> 00:14:38,960 Speaker 1: those domestic companies right, But what is the one thing? 246 00:14:39,280 --> 00:14:41,480 Speaker 1: Is there a level on the dollar that which at 247 00:14:41,560 --> 00:14:45,200 Speaker 1: which you start worrying. I think it's more about pace 248 00:14:45,280 --> 00:14:48,960 Speaker 1: than it is level. If it's slow and steady increase, 249 00:14:49,080 --> 00:14:51,320 Speaker 1: we can live with it. But it's these big gaps 250 00:14:51,800 --> 00:14:53,600 Speaker 1: that we see from time to time that that that 251 00:14:53,800 --> 00:14:57,200 Speaker 1: create problems. Um, look, we've already we've already been through 252 00:14:57,200 --> 00:14:59,760 Speaker 1: and earnings recession over the last couple of years, and 253 00:15:00,120 --> 00:15:02,320 Speaker 1: half the reason with the strengthen the dollar, that could 254 00:15:02,320 --> 00:15:05,280 Speaker 1: come again, Let's hope not. Bob. I want to talk 255 00:15:05,320 --> 00:15:08,520 Speaker 1: about a mystery stock, Bob doll us. When I do this, 256 00:15:08,560 --> 00:15:11,760 Speaker 1: Bob can't talk about individual securities. That's part of the game, folks. 257 00:15:12,280 --> 00:15:15,120 Speaker 1: How about a mystery stock trading at three time sales 258 00:15:15,640 --> 00:15:19,640 Speaker 1: twenty seven times cash flow with a total enterprise value 259 00:15:19,680 --> 00:15:22,880 Speaker 1: to eat but uh A forty four point seven three. 260 00:15:23,200 --> 00:15:25,600 Speaker 1: All you need to know about that goofy ratio, folks, 261 00:15:25,960 --> 00:15:28,760 Speaker 1: is this is a richly prized beast. I'll give you 262 00:15:28,800 --> 00:15:31,760 Speaker 1: a hint. They're out in Seattle. How do you own 263 00:15:31,800 --> 00:15:35,440 Speaker 1: an Amazon, Bob when you're when you're read Graham, Dodd 264 00:15:35,480 --> 00:15:39,080 Speaker 1: and Coddle. Yeah, I'm with you. I you know, great 265 00:15:39,080 --> 00:15:42,000 Speaker 1: business model. They've been doing great things. But my goodness 266 00:15:42,200 --> 00:15:45,240 Speaker 1: is a price per per perfection. My view is it 267 00:15:45,560 --> 00:15:48,040 Speaker 1: is every time I look there, you know, I buy 268 00:15:48,120 --> 00:15:52,360 Speaker 1: something else where I can touch um the earnings and 269 00:15:52,400 --> 00:15:54,800 Speaker 1: the cash flow and and and sleep at night over 270 00:15:54,840 --> 00:15:57,560 Speaker 1: the valuation. It's an expensive stock and you know all 271 00:15:57,600 --> 00:15:59,800 Speaker 1: they have to do is, you know, not quite come 272 00:16:00,080 --> 00:16:02,640 Speaker 1: ruin revenues like they did last night, and they take 273 00:16:02,680 --> 00:16:05,040 Speaker 1: the stock down some Bob, I need to push back 274 00:16:05,040 --> 00:16:07,200 Speaker 1: a little bit on the the optimism that we see, 275 00:16:07,240 --> 00:16:11,200 Speaker 1: for especially from equity folk like yourself. What's good out 276 00:16:11,200 --> 00:16:13,280 Speaker 1: there in the world? Is there? There seems to be 277 00:16:13,360 --> 00:16:16,680 Speaker 1: much more upside risk than there was only six months ago. Yeah, So, 278 00:16:16,800 --> 00:16:19,160 Speaker 1: making no mistake about it, I'm I'm only looking for 279 00:16:19,320 --> 00:16:22,160 Speaker 1: five for the stock market to from dividends that gives 280 00:16:22,240 --> 00:16:24,880 Speaker 1: me a seven percent year. Stock selection is going to 281 00:16:25,000 --> 00:16:26,880 Speaker 1: be necessary to get me to ten if I'm going 282 00:16:26,920 --> 00:16:29,400 Speaker 1: to get there. So the long term return on stocks 283 00:16:29,400 --> 00:16:31,800 Speaker 1: is tanna. I'm looking for half that, so it count 284 00:16:31,840 --> 00:16:35,640 Speaker 1: me in the cautiously optimistic view. The tailwind is earnings. 285 00:16:36,280 --> 00:16:40,200 Speaker 1: Earnings growth is pacing at eight percent for the fourth quarter. 286 00:16:40,320 --> 00:16:42,720 Speaker 1: That's great news. That's great news. I mean, that's but 287 00:16:42,800 --> 00:16:45,200 Speaker 1: that's what we expect, right, It's like three d beats 288 00:16:45,240 --> 00:16:48,600 Speaker 1: above nominal GDP. But we haven't had eight percent for 289 00:16:48,800 --> 00:16:51,640 Speaker 1: many quarters. That's that's that's the issue. And now we 290 00:16:51,720 --> 00:16:54,760 Speaker 1: have that bit of a tailwind. Look if interest rates 291 00:16:54,800 --> 00:16:57,760 Speaker 1: and inflation creep a bit higher at some point, we'll 292 00:16:57,800 --> 00:17:01,600 Speaker 1: have a head wind called pressure on multiples, pressure on 293 00:17:01,720 --> 00:17:04,800 Speaker 1: valuations to a company, the tailwind and that's why i'm 294 00:17:04,840 --> 00:17:07,320 Speaker 1: five ish rather than ten or fifteen is ish, right. 295 00:17:07,359 --> 00:17:09,800 Speaker 1: I'm writing down to your folks off the terminal where 296 00:17:09,800 --> 00:17:12,560 Speaker 1: we are as we go to the job's report, Bob 297 00:17:12,600 --> 00:17:15,360 Speaker 1: doll very quickly here, just in a matter of seconds, 298 00:17:15,480 --> 00:17:21,199 Speaker 1: you can stay long equities given a two thousand statistics. 299 00:17:21,600 --> 00:17:25,040 Speaker 1: I agree, better than expected job growth and uh, the 300 00:17:25,080 --> 00:17:27,359 Speaker 1: fact is we're getting jobs and not having to pay 301 00:17:27,640 --> 00:17:30,760 Speaker 1: workers more, at least in this report. Remember last month 302 00:17:31,000 --> 00:17:33,880 Speaker 1: the number was wages up zero point four. You take 303 00:17:33,880 --> 00:17:37,000 Speaker 1: the two uh and you get three year every year number, 304 00:17:37,000 --> 00:17:38,840 Speaker 1: and that's kind of where we are. Bob Doland, Nuvine, 305 00:17:38,920 --> 00:17:49,680 Speaker 1: thank you so much. Brought you by Bank of America, 306 00:17:49,760 --> 00:17:53,960 Speaker 1: Mary Lynch. Dedicated to bringing our clients insights and solutions 307 00:17:54,280 --> 00:17:57,600 Speaker 1: to meet the challenges of a transforming world. That's the 308 00:17:57,640 --> 00:18:03,280 Speaker 1: power of global connections. Merrily Pierce Federan Smith Incorporated Member 309 00:18:03,920 --> 00:18:10,080 Speaker 1: s I p C. Bill Gross joins us now with 310 00:18:10,760 --> 00:18:13,919 Speaker 1: Jane's Capital Bill. This is the final jobs report for 311 00:18:13,960 --> 00:18:17,400 Speaker 1: President Obama. I would suggest you want to step forward 312 00:18:17,440 --> 00:18:20,959 Speaker 1: that this is a constructive jobs report for President Trump 313 00:18:21,040 --> 00:18:24,920 Speaker 1: as well. Yes, and I think a little schizophrenic, as 314 00:18:24,920 --> 00:18:27,040 Speaker 1: you just pointed out in the last minute or so. 315 00:18:27,600 --> 00:18:31,600 Speaker 1: You know, jobs grow grow strong, but wages revised down 316 00:18:31,640 --> 00:18:34,640 Speaker 1: by point two percent and instead of two point seven 317 00:18:34,640 --> 00:18:38,160 Speaker 1: percent annual, now two point five. I suppose that's good 318 00:18:38,200 --> 00:18:41,040 Speaker 1: for corporate profits to keep wages down, but ultimately we 319 00:18:41,080 --> 00:18:44,840 Speaker 1: know that it's consumers and consumption that drives the economy, 320 00:18:44,880 --> 00:18:47,520 Speaker 1: and if they don't earn enough money or if their 321 00:18:48,000 --> 00:18:50,400 Speaker 1: money is only growing at two point five and that's 322 00:18:50,440 --> 00:18:53,560 Speaker 1: a slow growth economy. So so scopheric report. And I 323 00:18:53,560 --> 00:18:55,639 Speaker 1: can say how markets might interpret it one way or 324 00:18:55,680 --> 00:18:57,600 Speaker 1: the other. I want to bring this right over building 325 00:18:57,640 --> 00:19:00,600 Speaker 1: the bigger picture. This morning again futures advanced down, futures 326 00:19:00,680 --> 00:19:04,239 Speaker 1: up near the twenty tho level. But I like what 327 00:19:04,280 --> 00:19:07,280 Speaker 1: Bill said there about a schizophrenic tape bill. If we 328 00:19:07,440 --> 00:19:11,520 Speaker 1: get a reflation from where you sit, is it a 329 00:19:11,560 --> 00:19:15,040 Speaker 1: reflation that gives us an inflation boost or can we 330 00:19:15,119 --> 00:19:19,240 Speaker 1: actually hope that the real economy will boost with the 331 00:19:19,280 --> 00:19:23,560 Speaker 1: Trump stimulus? Well, sure, and that's the hope that real 332 00:19:23,640 --> 00:19:27,480 Speaker 1: GDP which is now around two percent and actually for 333 00:19:27,560 --> 00:19:31,040 Speaker 1: the quarter with Atlanta fed above three percent, but the 334 00:19:31,119 --> 00:19:32,840 Speaker 1: hope is that they we're in a three to four 335 00:19:32,920 --> 00:19:36,159 Speaker 1: percent real GDP economy. That was the promise from the 336 00:19:36,160 --> 00:19:39,440 Speaker 1: Trump administration. That's the hope in terms of fiscal policy 337 00:19:39,480 --> 00:19:43,720 Speaker 1: and stimulation, deregulation and so on that we look forward to. 338 00:19:44,160 --> 00:19:47,639 Speaker 1: I remain skeptacle. I guess I remain You know the 339 00:19:47,720 --> 00:19:51,439 Speaker 1: of the camp that the productivity is the key to 340 00:19:52,000 --> 00:19:54,640 Speaker 1: real GDP growth. We know labor force growth is less 341 00:19:54,640 --> 00:19:57,800 Speaker 1: than one percent, so it's all productivity and what produces 342 00:19:57,800 --> 00:20:01,960 Speaker 1: productivity investment and investment hasn't been there, as you've discussed 343 00:20:02,040 --> 00:20:04,159 Speaker 1: for the past thirty minutes. And to the extent that 344 00:20:04,240 --> 00:20:07,720 Speaker 1: it remains an amic, then productivity will remain an emic. 345 00:20:07,840 --> 00:20:10,000 Speaker 1: And I think we're stuck in a two percent real 346 00:20:10,080 --> 00:20:14,159 Speaker 1: GDP world, no matter what the fiscal stimulation and no 347 00:20:14,200 --> 00:20:17,840 Speaker 1: matter what the deregulation. One of the exogity shocks and folks, 348 00:20:17,920 --> 00:20:20,760 Speaker 1: we have to remind ourselves that Mr Gross for decades 349 00:20:21,119 --> 00:20:26,400 Speaker 1: has had an international perspective where dollar dynamics really are there. 350 00:20:26,440 --> 00:20:29,080 Speaker 1: A key conversation bill this week was with Barry iken 351 00:20:29,160 --> 00:20:33,440 Speaker 1: Green of the Universe University California at Berkeley, and Professor 352 00:20:33,480 --> 00:20:36,040 Speaker 1: iken Green was adamant that Mr Trump will lead us 353 00:20:36,040 --> 00:20:39,560 Speaker 1: towards dollar strength. Do you show up at every day 354 00:20:39,560 --> 00:20:45,639 Speaker 1: at Janice just assuming dollar strength? No. I mean the 355 00:20:45,760 --> 00:20:48,439 Speaker 1: dollar has had a good rally, and certainly against some 356 00:20:48,600 --> 00:20:52,639 Speaker 1: emerging countries like the Mexican pays a significant one. So 357 00:20:52,680 --> 00:20:56,879 Speaker 1: I don't assume continuing continuing dollar strength unless you know 358 00:20:56,920 --> 00:20:59,280 Speaker 1: the FED stays ahead of the e c B or 359 00:20:59,320 --> 00:21:01,480 Speaker 1: the FED stays ahead of the b O J, and 360 00:21:01,840 --> 00:21:04,000 Speaker 1: you know at the moment that's not the case. Both 361 00:21:04,000 --> 00:21:07,479 Speaker 1: those central banks are still uh, you know, stuck on 362 00:21:07,840 --> 00:21:13,159 Speaker 1: quantitatives in significant proportions, and that's led to the dollar rally, 363 00:21:13,240 --> 00:21:15,960 Speaker 1: and that's led to stronger growth in the United States. 364 00:21:16,000 --> 00:21:20,040 Speaker 1: But you know, I think there's some ketchup coming into 365 00:21:20,119 --> 00:21:23,959 Speaker 1: the equation from Japan and from Eural Land. Their growth 366 00:21:24,040 --> 00:21:26,800 Speaker 1: rates are close to two percent as well. And so yeah, 367 00:21:26,960 --> 00:21:31,120 Speaker 1: a dollar growth and dollar appreciation is certainly not assumed. 368 00:21:31,240 --> 00:21:33,920 Speaker 1: I don't think we have a new Plaza Court ahead 369 00:21:33,920 --> 00:21:36,720 Speaker 1: of us in which the dollar, the strong dollar, threatens 370 00:21:36,760 --> 00:21:40,119 Speaker 1: the global economy and we have to take some significant measures. 371 00:21:40,160 --> 00:21:42,560 Speaker 1: I don't see that. Bill Gross. Let me frame what 372 00:21:42,760 --> 00:21:45,560 Speaker 1: keeps surveillance going, which is two perspectives. We've got your 373 00:21:45,600 --> 00:21:48,840 Speaker 1: caution with a two percent GDP. Peter Hooper, the esteemed 374 00:21:48,840 --> 00:21:53,040 Speaker 1: economist at Deutsche Bank Securities, will suggest a more optimistic attack. 375 00:21:53,600 --> 00:21:57,440 Speaker 1: What is missing from the optimists? What are they missing 376 00:21:57,880 --> 00:22:01,439 Speaker 1: about their belief that we do get good, if not great, 377 00:22:01,600 --> 00:22:05,760 Speaker 1: economic growth and by definition a higher interest rate regime. 378 00:22:06,119 --> 00:22:09,600 Speaker 1: How will that not happen? Well, I think they have 379 00:22:09,600 --> 00:22:11,919 Speaker 1: a point. You know, if if you have a strong 380 00:22:12,359 --> 00:22:14,800 Speaker 1: fiscal program, we don't know what it is but if 381 00:22:14,800 --> 00:22:17,840 Speaker 1: it's a trillion to two trillion over ten years, you 382 00:22:17,840 --> 00:22:20,240 Speaker 1: know that that's a plus a half a percent over 383 00:22:20,280 --> 00:22:23,200 Speaker 1: the next several years. There's there's no doubt about that. 384 00:22:23,280 --> 00:22:26,040 Speaker 1: And with the corporate taxes being cut, there's the potential 385 00:22:26,119 --> 00:22:29,480 Speaker 1: for a near term stimulus. I'm I'm talking about real 386 00:22:29,560 --> 00:22:33,080 Speaker 1: GDP over a relatively longer prevent time three to five 387 00:22:33,160 --> 00:22:35,399 Speaker 1: to ten years. And I think we're stuck in this 388 00:22:35,480 --> 00:22:39,520 Speaker 1: two zone. But yeah, the short term optimists, uh, you know, 389 00:22:39,840 --> 00:22:43,200 Speaker 1: I'll grant them three perhaps over the next year or two. 390 00:22:43,240 --> 00:22:46,080 Speaker 1: And that's a that's a positive for equity markets. But 391 00:22:46,160 --> 00:22:50,200 Speaker 1: and and that's a positive as well for higher inflation 392 00:22:50,240 --> 00:22:52,800 Speaker 1: and a positive for higher bond yields. And I can 393 00:22:52,800 --> 00:22:54,919 Speaker 1: talk about that in a second. Well we'll talk about that, 394 00:22:54,960 --> 00:22:56,960 Speaker 1: but you know, the inflation, the idea of of a 395 00:22:57,000 --> 00:23:00,119 Speaker 1: higher bond yields. But critically here, I know, Bill, in 396 00:23:00,200 --> 00:23:02,680 Speaker 1: your office at Janie, you've got a Bloomberg terminal. It's 397 00:23:02,680 --> 00:23:05,560 Speaker 1: a vanity terminal. You barely look at it. You're still 398 00:23:05,560 --> 00:23:08,440 Speaker 1: wedded to your Monroe trader. The fact is you're still 399 00:23:08,480 --> 00:23:12,000 Speaker 1: back looking at the most basic calculator out there. Does 400 00:23:12,040 --> 00:23:16,000 Speaker 1: your Monroe trader tell you you can buy bonds right now, 401 00:23:16,280 --> 00:23:20,840 Speaker 1: whether full faith and credit or foreign or corporate. Yeah, 402 00:23:20,880 --> 00:23:22,919 Speaker 1: I think to a certain extent. And the and the 403 00:23:22,960 --> 00:23:27,320 Speaker 1: reason is tom is that other central banks are buying bonds. 404 00:23:27,600 --> 00:23:29,639 Speaker 1: You know, the the U S went off the habit, 405 00:23:29,720 --> 00:23:32,080 Speaker 1: so to speak to qui habit about two years ago. 406 00:23:32,160 --> 00:23:34,280 Speaker 1: But the E C B, the b O J, the 407 00:23:34,680 --> 00:23:36,360 Speaker 1: you know, the Bank of England are still in their 408 00:23:36,359 --> 00:23:38,880 Speaker 1: plug into a hundred and fifty billion a month. That's 409 00:23:38,920 --> 00:23:42,240 Speaker 1: a that's a lot of money. That's basically uh, you know, 410 00:23:42,280 --> 00:23:44,679 Speaker 1: one to two trillion dollars a year going into the 411 00:23:44,720 --> 00:23:47,639 Speaker 1: bond market. And that provides tremendous support. For instance, in 412 00:23:47,720 --> 00:23:50,639 Speaker 1: terms of arbitrage, you can move into the treasuries at 413 00:23:50,640 --> 00:23:53,560 Speaker 1: two forty five, you know, from buns at forty five 414 00:23:53,600 --> 00:23:56,359 Speaker 1: basis points and pick up two hundred currency adjusted. You 415 00:23:56,359 --> 00:23:59,520 Speaker 1: can even pick up you know, fifty to sixty basis 416 00:23:59,560 --> 00:24:02,399 Speaker 1: points for buns to treasury. Same thing with j G 417 00:24:02,600 --> 00:24:05,399 Speaker 1: B is at the basically tend the fifteen basis points. 418 00:24:05,440 --> 00:24:08,560 Speaker 1: Huge arbitrage there are even currency adjusted so to the 419 00:24:08,560 --> 00:24:10,520 Speaker 1: accentag you've got a hundred and fifty billion coming in 420 00:24:10,560 --> 00:24:13,520 Speaker 1: a month from these central banks. Basically, it means that 421 00:24:13,640 --> 00:24:16,280 Speaker 1: central banks are still supporting a low interest rate in 422 00:24:16,359 --> 00:24:19,119 Speaker 1: our environment. I don't like that, but you have to 423 00:24:19,160 --> 00:24:22,200 Speaker 1: recognize it as an investor. And this is very important, folks. 424 00:24:22,200 --> 00:24:24,000 Speaker 1: What you just heard for Mr Gross there is a 425 00:24:24,040 --> 00:24:27,600 Speaker 1: classic long short of what you do nation and nation 426 00:24:27,720 --> 00:24:30,679 Speaker 1: given divergence? Are you picking up dimes in front of 427 00:24:30,680 --> 00:24:33,159 Speaker 1: a bulldozer? Are you going to get run over by 428 00:24:33,200 --> 00:24:37,439 Speaker 1: the Trump administration doing you're cute arbitrage? Well, I think 429 00:24:37,480 --> 00:24:40,120 Speaker 1: you have to be careful, and that's why janison constraint. 430 00:24:40,160 --> 00:24:42,199 Speaker 1: We've we've got a zero duration, but we've got the 431 00:24:42,280 --> 00:24:45,879 Speaker 1: arbitrage between buns and treasuries. I'm of the persuasion, and 432 00:24:45,920 --> 00:24:49,119 Speaker 1: I think I've talked about this last month that you 433 00:24:49,160 --> 00:24:51,520 Speaker 1: know US treasury is at two point six or two 434 00:24:51,520 --> 00:24:54,280 Speaker 1: point six five is a critical area and that's a 435 00:24:54,320 --> 00:24:59,240 Speaker 1: technical type of interpretation, but it's a long term trend line, tom, 436 00:24:59,280 --> 00:25:02,160 Speaker 1: you know, going down from four and it's been hit 437 00:25:02,400 --> 00:25:05,640 Speaker 1: on the upside by seven, eight, nine times. Two point 438 00:25:05,680 --> 00:25:08,320 Speaker 1: six is very critical. And if we get higher inflation 439 00:25:08,760 --> 00:25:11,600 Speaker 1: and higher yields relative to two point six, then we've 440 00:25:11,600 --> 00:25:13,639 Speaker 1: got a bear market. It is Job's day and we 441 00:25:13,720 --> 00:25:17,240 Speaker 1: say good morning everyone. Bill Gross with us with Janice 442 00:25:17,359 --> 00:25:21,560 Speaker 1: Capital Francine. Uh, let me talk to Mr Gross here 443 00:25:21,600 --> 00:25:24,640 Speaker 1: about what we're observing in Europe. Bill, there are telltale 444 00:25:24,720 --> 00:25:29,040 Speaker 1: signs of inflation in Europe in massive divergence. Is it 445 00:25:29,119 --> 00:25:32,680 Speaker 1: an opportunity for you to see the difference in yield 446 00:25:32,720 --> 00:25:36,240 Speaker 1: between Italy and Spain, or the difference and yield between 447 00:25:36,280 --> 00:25:40,200 Speaker 1: Germany and Italy. Is that an opportunity when you're unconstrained 448 00:25:40,320 --> 00:25:45,040 Speaker 1: like Bill Gross, Well, sure it's an opportunity. Uh. You know, 449 00:25:45,080 --> 00:25:48,480 Speaker 1: the difference between Italy and Germany is really a risk 450 00:25:48,560 --> 00:25:53,640 Speaker 1: spread and dependent to some extent on developments, and in Italy, 451 00:25:54,119 --> 00:25:57,800 Speaker 1: same thing I suppose in France, although the the spreads 452 00:25:57,800 --> 00:26:01,280 Speaker 1: are are very tight, but moving out and widening to 453 00:26:01,359 --> 00:26:05,280 Speaker 1: some extent based upon fears of elections later in the year. 454 00:26:05,359 --> 00:26:08,240 Speaker 1: So you know, it's a political type of situation in 455 00:26:08,359 --> 00:26:11,840 Speaker 1: terms of those particular countries. But they're all, as you know, 456 00:26:12,080 --> 00:26:16,280 Speaker 1: joined by the the ECB policy rate and the bigger 457 00:26:16,359 --> 00:26:19,280 Speaker 1: arbitrage to my way of thinking is between buns and 458 00:26:19,560 --> 00:26:23,560 Speaker 1: U S treasuries. Buns are so overvalued and under yielded 459 00:26:23,920 --> 00:26:27,480 Speaker 1: at the point four or five percent one of these days. 460 00:26:27,880 --> 00:26:31,920 Speaker 1: When quantitative easing disappears or at least as reduced, uh, 461 00:26:32,000 --> 00:26:35,640 Speaker 1: you know what the ECB, then then buns will lose 462 00:26:35,680 --> 00:26:38,720 Speaker 1: a bid and start to move higher in terms of yields. 463 00:26:38,760 --> 00:26:40,600 Speaker 1: So I like that spread the best in terms of 464 00:26:40,600 --> 00:26:43,480 Speaker 1: a short and along bill. Are you expecting if you 465 00:26:43,480 --> 00:26:45,760 Speaker 1: look at the European recovery, is it for real? And 466 00:26:45,760 --> 00:26:48,000 Speaker 1: if it is for real, when will the ECB start 467 00:26:48,040 --> 00:26:53,120 Speaker 1: scaling back some of this QUEUEI I think it's for real. 468 00:26:53,359 --> 00:26:57,160 Speaker 1: I mean the euro has gone down and and appreciated, 469 00:26:57,200 --> 00:27:00,240 Speaker 1: which provides a push. And in terms of their partcular 470 00:27:00,320 --> 00:27:03,240 Speaker 1: economy relative to the rest of the world, I think 471 00:27:03,280 --> 00:27:07,280 Speaker 1: all global are many global economies are stronger simply because 472 00:27:07,359 --> 00:27:10,680 Speaker 1: the Chinese over twelve eighteen month period of time have 473 00:27:10,800 --> 00:27:14,080 Speaker 1: been so strong in terms of fiscal spending and debt 474 00:27:14,160 --> 00:27:18,840 Speaker 1: accumulation and debt growth. You know, ultimately it's a potential disaster. 475 00:27:19,000 --> 00:27:21,160 Speaker 1: Right for the moment, the Chinese are leading the way. 476 00:27:21,160 --> 00:27:25,399 Speaker 1: They're the locomotive in terms of fiscal stimulation. Uh. The 477 00:27:25,480 --> 00:27:28,800 Speaker 1: e c B is the locomotive in terms of monetary stimulation. 478 00:27:28,880 --> 00:27:33,119 Speaker 1: So I think it's real temporarily um and and the 479 00:27:33,280 --> 00:27:36,320 Speaker 1: Eurland can support a two percent growth rate, and therefore, 480 00:27:36,720 --> 00:27:40,280 Speaker 1: you know, there's a huge arbitrage between as I mentioned, 481 00:27:40,560 --> 00:27:44,640 Speaker 1: German boons and US treasury. Same thing with j GPS. 482 00:27:44,920 --> 00:27:48,840 Speaker 1: It's an enormous spread and provides an opportunity. How are 483 00:27:48,840 --> 00:27:52,960 Speaker 1: you expecting this ten in seventeen you have very possibly 484 00:27:53,040 --> 00:27:57,960 Speaker 1: explosive political elections in France and German and Netherlands at 485 00:27:57,960 --> 00:28:02,000 Speaker 1: a time where also Peter Navarro is accusing Germany of 486 00:28:02,119 --> 00:28:07,760 Speaker 1: cheating America by having a surplus. Well, I think they 487 00:28:07,800 --> 00:28:12,320 Speaker 1: have for a long time, you know, ever since uh, 488 00:28:12,359 --> 00:28:15,879 Speaker 1: you know, the the the EU was was put together 489 00:28:15,920 --> 00:28:19,280 Speaker 1: in terms of exchange rates, I think Germany came in 490 00:28:19,359 --> 00:28:22,440 Speaker 1: at a very favored level and for a long long 491 00:28:22,520 --> 00:28:25,520 Speaker 1: time now relative to their own neighbors, relative to Italy, 492 00:28:25,560 --> 00:28:29,240 Speaker 1: relative to Spain, France, uh. And I think there's a 493 00:28:29,280 --> 00:28:33,760 Speaker 1: common agreement there for for most observers that Germany is, yes, 494 00:28:34,440 --> 00:28:38,080 Speaker 1: picking their own neighbors and picking the United States. Uh, 495 00:28:38,200 --> 00:28:41,200 Speaker 1: you know, in terms of the euro uh, in terms 496 00:28:41,200 --> 00:28:43,800 Speaker 1: of a significant surplus, what they have a nine percent 497 00:28:44,480 --> 00:28:48,480 Speaker 1: trade balanced surplus against their own neighbors, and Germany says, well, 498 00:28:48,480 --> 00:28:50,880 Speaker 1: that's just because we're doing well. I think it's because 499 00:28:50,920 --> 00:28:54,440 Speaker 1: of how they came into the system itself. I want 500 00:28:54,440 --> 00:28:56,560 Speaker 1: to remind everyone that Bill Gross was known as a 501 00:28:56,560 --> 00:29:01,560 Speaker 1: bond exploiter for years. Uh well, Bill, help me here 502 00:29:02,280 --> 00:29:06,120 Speaker 1: with something you made worldwide headlines on and surveillance years ago, 503 00:29:06,160 --> 00:29:08,880 Speaker 1: which is where one day you said, yes, a Procter 504 00:29:09,040 --> 00:29:13,080 Speaker 1: and Gamble growth of dividend can be a yield proxy. 505 00:29:13,120 --> 00:29:16,800 Speaker 1: Are we still in the vicinity of a stock dividend 506 00:29:17,400 --> 00:29:21,040 Speaker 1: and dividend growth being a yield equivalency or is that 507 00:29:21,080 --> 00:29:24,160 Speaker 1: going to shift with a venge at some point? Well, 508 00:29:24,160 --> 00:29:28,160 Speaker 1: I think you can. You can talk about an equivalency 509 00:29:28,160 --> 00:29:32,320 Speaker 1: as long as the fear of deflation is off the board, 510 00:29:32,360 --> 00:29:34,600 Speaker 1: and we're beginning to see that time right with the 511 00:29:35,080 --> 00:29:38,120 Speaker 1: pots central for reflation as opposed to deflation. You know, 512 00:29:38,280 --> 00:29:40,920 Speaker 1: a yield proxy Procter and Gamble two or two an 513 00:29:40,920 --> 00:29:44,560 Speaker 1: af percent yield, you know, the high quality company than 514 00:29:44,600 --> 00:29:48,000 Speaker 1: it is in a period of deflation. You know, provides 515 00:29:48,480 --> 00:29:52,160 Speaker 1: or allows for risk to that dividend. And so, you know, 516 00:29:52,280 --> 00:29:56,720 Speaker 1: yield proxies for stocks become more and more certain and 517 00:29:56,760 --> 00:30:00,360 Speaker 1: more and more stable as we moved from d fflation 518 00:30:00,440 --> 00:30:04,160 Speaker 1: to reflation. And so I think that is a consideration 519 00:30:04,240 --> 00:30:08,640 Speaker 1: that stock investors relative to bonds should should Vader seems 520 00:30:08,680 --> 00:30:11,400 Speaker 1: ages ago, Bill, and again, thanks for your generosity of 521 00:30:11,480 --> 00:30:13,480 Speaker 1: joining us here on our fed coverage and our job 522 00:30:13,520 --> 00:30:17,000 Speaker 1: stay coverage as well. We greatly appreciate it. But Bill Gross, 523 00:30:17,280 --> 00:30:21,160 Speaker 1: you've had two weeks to observe Trump politics in the 524 00:30:21,200 --> 00:30:24,800 Speaker 1: Trump presidency. Do you get a sense of an industrial 525 00:30:24,920 --> 00:30:29,200 Speaker 1: policy from Mr Trump? Is there a vision yet of 526 00:30:29,240 --> 00:30:34,240 Speaker 1: what we're going to see for the coming four years? Well, 527 00:30:34,360 --> 00:30:39,160 Speaker 1: but perhaps in terms of at least proposals for lower 528 00:30:39,200 --> 00:30:43,760 Speaker 1: corporate tax rates and proposals for less regulation. You know 529 00:30:43,840 --> 00:30:47,360 Speaker 1: that to a certain extent as as a corporate policy. 530 00:30:47,480 --> 00:30:51,320 Speaker 1: But uh, you know, Trump ran basically on a policy 531 00:30:51,400 --> 00:30:55,960 Speaker 1: for middle class America for providing jobs, you know, presumably 532 00:30:56,000 --> 00:31:00,760 Speaker 1: through industrialization, and perhaps those are tied together there. Um. 533 00:31:00,800 --> 00:31:03,920 Speaker 1: You know, I'm yet to see proposals in terms of 534 00:31:04,280 --> 00:31:11,200 Speaker 1: middle class America Wisconsin, Ohio, Michigan, the states that put 535 00:31:11,280 --> 00:31:13,920 Speaker 1: him over the top. Um, So we'll have to wait 536 00:31:13,960 --> 00:31:17,200 Speaker 1: and see. I'm fearful that when they lower corporate tax 537 00:31:17,320 --> 00:31:20,360 Speaker 1: rates that there won't be a quid pro quo in 538 00:31:20,840 --> 00:31:26,680 Speaker 1: terms of higher revenue um or or balanced type of revenue. 539 00:31:26,840 --> 00:31:29,240 Speaker 1: I think those types of things always work out to 540 00:31:29,360 --> 00:31:32,720 Speaker 1: the favor of corporations, and good for corporations in terms 541 00:31:32,720 --> 00:31:35,640 Speaker 1: of the stock market, but bad for people in terms 542 00:31:35,720 --> 00:31:40,560 Speaker 1: of you know, their percentage of of GDP. What does 543 00:31:40,560 --> 00:31:43,480 Speaker 1: the Donald Trump presidency mean for the rest of the world? 544 00:31:43,560 --> 00:31:46,080 Speaker 1: Bill This is one thing. You know, all the leaders 545 00:31:46,080 --> 00:31:49,880 Speaker 1: are gathering today in Malta and the meeting, they're not 546 00:31:49,920 --> 00:31:53,320 Speaker 1: talking about bregsit. It's all overshadowed about what Trump means 547 00:31:53,320 --> 00:31:57,800 Speaker 1: for them and for this block. Sure and more uncertainty, 548 00:31:58,160 --> 00:32:02,320 Speaker 1: not only in terms of fiscal policy and and um 549 00:32:02,640 --> 00:32:07,560 Speaker 1: you know, government policies relative to taxation and export import 550 00:32:07,720 --> 00:32:10,760 Speaker 1: you know, those are all important considerations uncertainty in terms 551 00:32:10,800 --> 00:32:13,640 Speaker 1: of geopolitical as well. And so you know, I think 552 00:32:13,640 --> 00:32:15,600 Speaker 1: in the last few weeks you've seen that in terms 553 00:32:15,640 --> 00:32:18,280 Speaker 1: of markets, a recognition that you know, it's not all 554 00:32:18,560 --> 00:32:21,960 Speaker 1: hunky dory in terms of the proposals, that the uncertainty 555 00:32:22,040 --> 00:32:25,000 Speaker 1: that he brings to the presidency almost on a daily 556 00:32:25,040 --> 00:32:29,840 Speaker 1: basis is uh, you know, has a potential real consequence. 557 00:32:29,880 --> 00:32:32,520 Speaker 1: And so you know that builds in a risk factor 558 00:32:32,560 --> 00:32:35,720 Speaker 1: and equity risk premium that's higher, and therefore you know, 559 00:32:35,760 --> 00:32:39,080 Speaker 1: puts a damper on stock prices going forward. I think 560 00:32:39,720 --> 00:32:43,160 Speaker 1: and I guess, and I'm asking you the biggest implication 561 00:32:43,240 --> 00:32:45,360 Speaker 1: is what for emerging markets or if there is a 562 00:32:45,400 --> 00:32:48,520 Speaker 1: trade war that actually materializes, what does it mean for 563 00:32:48,560 --> 00:32:53,360 Speaker 1: these emerging markets involved and therefore for their bonds. Yeah, 564 00:32:53,360 --> 00:32:56,720 Speaker 1: and certainly for the ones that there are specifically pointed out. 565 00:32:56,800 --> 00:33:00,320 Speaker 1: I mean, a strong dollar is a negative concert wins 566 00:33:00,320 --> 00:33:03,360 Speaker 1: for almost all emerging markets because almost all of them 567 00:33:03,400 --> 00:33:06,640 Speaker 1: have high debt dollar debt relative to GDP, but from 568 00:33:06,720 --> 00:33:11,240 Speaker 1: Mexico for others that you know, become targets for Trump, 569 00:33:11,320 --> 00:33:13,600 Speaker 1: And obviously it's a negative in the short term, at 570 00:33:13,640 --> 00:33:17,080 Speaker 1: least in terms of investor optimism. Bill. One final question 571 00:33:17,080 --> 00:33:18,720 Speaker 1: that I've got to get to the important business of 572 00:33:18,760 --> 00:33:21,800 Speaker 1: the day. The most mail I get on William Gross 573 00:33:22,040 --> 00:33:25,400 Speaker 1: is about financial repression. Do you see any end of 574 00:33:25,440 --> 00:33:30,440 Speaker 1: the financial repression, particularly for conservative savers, in the coming two, 575 00:33:30,640 --> 00:33:35,240 Speaker 1: three or four years. Yeah, I I don't tell. And 576 00:33:35,360 --> 00:33:37,880 Speaker 1: the end of the history of financial repression suggests that 577 00:33:37,880 --> 00:33:41,640 Speaker 1: it could be thirty forty years. It's basically an attempt 578 00:33:41,680 --> 00:33:43,720 Speaker 1: on the part of the government to uh to pay 579 00:33:43,760 --> 00:33:46,720 Speaker 1: its bills and a and a cheaper fashion to reduce 580 00:33:46,840 --> 00:33:51,400 Speaker 1: that policy rate below neutral for a long long time, 581 00:33:51,440 --> 00:33:55,800 Speaker 1: and that that favors borrowers but at disadvantages those with 582 00:33:55,880 --> 00:34:00,480 Speaker 1: long term liabilities and savers like insurance companies, banks, pension 583 00:34:00,560 --> 00:34:03,800 Speaker 1: funds and the like. And so we see this in balance. 584 00:34:03,840 --> 00:34:06,960 Speaker 1: As long as repression continues, we see the potential for 585 00:34:07,000 --> 00:34:10,759 Speaker 1: imbalance is tipping economies and tipping markets over the long. 586 00:34:11,239 --> 00:34:13,120 Speaker 1: Bill one final question, if I could I know Tom 587 00:34:13,160 --> 00:34:15,560 Speaker 1: Brady's gonna end the game and go I'm going to Disneyland. 588 00:34:15,600 --> 00:34:17,480 Speaker 1: I get all that, But what I want to know 589 00:34:17,560 --> 00:34:22,080 Speaker 1: from Bill Gross is Kyle Shanahan, the offensive coach for 590 00:34:22,120 --> 00:34:24,760 Speaker 1: the Atlanta Falcons. Is he gonna walk off the field 591 00:34:24,800 --> 00:34:27,600 Speaker 1: and say I'm going to San Francisco. Is Shannon An't 592 00:34:27,600 --> 00:34:31,640 Speaker 1: gonna coach the gross forty Niners? Well, I thank you. Will, 593 00:34:31,880 --> 00:34:35,359 Speaker 1: I mean, that's that's the probability, and will he helped 594 00:34:35,360 --> 00:34:39,600 Speaker 1: the forty Niners. The forty Niners need a quarterback very badly, 595 00:34:39,680 --> 00:34:43,520 Speaker 1: and uh an offensive coordinator becoming head coach? What can 596 00:34:43,560 --> 00:34:46,160 Speaker 1: they do without a quarterback? So we'll see. We'll see 597 00:34:46,200 --> 00:34:49,880 Speaker 1: about that on draft day. Okay, Bill Gross, thank you 598 00:34:49,960 --> 00:34:52,160 Speaker 1: so much. Moving forward to see how Gross does that 599 00:34:52,280 --> 00:34:55,320 Speaker 1: John Tucker. He just migrates right past the Super Bowl 600 00:34:55,560 --> 00:34:59,160 Speaker 1: to Draft Day. He's such a vision. He doesn't even 601 00:34:59,200 --> 00:35:01,840 Speaker 1: do you know? He does not care about the Atlanta 602 00:35:01,920 --> 00:35:08,400 Speaker 1: Falcons and the New England Patriots. Okay, thank you, Francy 603 00:35:10,640 --> 00:35:12,840 Speaker 1: no Vomer help me here? Do you care about the 604 00:35:12,880 --> 00:35:16,640 Speaker 1: Super Bowl? I spent all morning reading the seventeen page 605 00:35:17,120 --> 00:35:19,880 Speaker 1: Super Bowl preview of the New York Post. Thank you 606 00:35:19,960 --> 00:35:23,000 Speaker 1: New York Post, Thank you Bill Gross. This is Bloomberg. 607 00:35:36,400 --> 00:35:38,560 Speaker 1: This is a joy, folks, to go from Alan Krueger 608 00:35:38,800 --> 00:35:42,440 Speaker 1: to Robert dal to William Gross to one James Grant 609 00:35:42,520 --> 00:35:46,680 Speaker 1: and his Grants Interest Rate Observer, and and Jim, I 610 00:35:46,760 --> 00:35:50,480 Speaker 1: love what you wrote here. What card carrying contrarian can 611 00:35:50,600 --> 00:35:55,360 Speaker 1: resist the invitation to fade the mass consensus of the 612 00:35:55,400 --> 00:35:57,759 Speaker 1: New York Times, of Financial Times of New York, of 613 00:35:57,800 --> 00:36:02,080 Speaker 1: The Guardian, the Washington Post, in the Brooklyn Heights Press 614 00:36:02,080 --> 00:36:04,879 Speaker 1: and Cobble Hill News. The market's got a one way 615 00:36:04,920 --> 00:36:10,280 Speaker 1: bet going right, It would seem to um. We propose 616 00:36:10,360 --> 00:36:12,760 Speaker 1: that if there were a common stock and the ticker 617 00:36:12,800 --> 00:36:17,440 Speaker 1: would say d j T in that stock, perhaps represented 618 00:36:17,480 --> 00:36:20,239 Speaker 1: to certain someone in the White House, what you would 619 00:36:20,239 --> 00:36:23,760 Speaker 1: observe is it seemed to continue to make new highs, 620 00:36:23,800 --> 00:36:25,880 Speaker 1: or at least two apparently want to go up in 621 00:36:25,920 --> 00:36:30,719 Speaker 1: the face of almost unanimous negative sentiment from the analytical community, 622 00:36:30,840 --> 00:36:33,960 Speaker 1: mainly the press. It's a little bit glib, but then again, 623 00:36:34,080 --> 00:36:37,439 Speaker 1: this is the mass media, right, I mean, yeah, Bill 624 00:36:37,640 --> 00:36:40,319 Speaker 1: Francine laquoans to jump in here very quickly. Is this 625 00:36:40,400 --> 00:36:43,839 Speaker 1: a gilded age? Can we just finally say, as you've 626 00:36:43,840 --> 00:36:47,520 Speaker 1: written about for years, that it is a plutocracy and 627 00:36:47,920 --> 00:36:50,960 Speaker 1: that everybody has gold knobs in their bathroom, you know, 628 00:36:51,080 --> 00:36:56,640 Speaker 1: cotton cold knobs. Well, um, uh, there's not enough goal 629 00:36:56,760 --> 00:36:59,279 Speaker 1: that seems to me. For one thing, in view of 630 00:36:59,360 --> 00:37:03,160 Speaker 1: the evident tail risk, you know, Donald Trump, it seems 631 00:37:03,160 --> 00:37:06,320 Speaker 1: to me is the is the avatar or the personification 632 00:37:06,480 --> 00:37:08,520 Speaker 1: of what they call in the trade tail risk, meaning 633 00:37:08,560 --> 00:37:14,000 Speaker 1: me um, the possibility of extreme outcomes, both good and bad. Um. 634 00:37:14,360 --> 00:37:17,680 Speaker 1: Trump is uh will seemingly say anything. I don't think 635 00:37:17,719 --> 00:37:22,160 Speaker 1: you'll actually do anything. But he is a most unpredictable entity. 636 00:37:23,040 --> 00:37:26,440 Speaker 1: You know. The characteristic of this age with respect to 637 00:37:26,520 --> 00:37:29,960 Speaker 1: money is that it is lighter than air. Indeed, it 638 00:37:30,120 --> 00:37:32,920 Speaker 1: is the lacks any substance at all. It's you know, 639 00:37:32,960 --> 00:37:35,160 Speaker 1: it's just a digital thing, it's an X or an OH, 640 00:37:35,280 --> 00:37:38,279 Speaker 1: it's a piece of paper, and it's most tangible. And 641 00:37:38,440 --> 00:37:42,640 Speaker 1: in the central banks, we have institutions that that manipulate 642 00:37:42,680 --> 00:37:46,360 Speaker 1: interest rates the most critical prices in capitalism. So it's 643 00:37:46,400 --> 00:37:49,080 Speaker 1: it's we have a unique presence, it seems to me 644 00:37:49,080 --> 00:37:53,279 Speaker 1: in the White House, and we have an unusual, if 645 00:37:53,760 --> 00:37:57,920 Speaker 1: not unique set of monetary institutions, all of which I 646 00:37:57,960 --> 00:38:01,480 Speaker 1: think points to the again the likely hood of really 647 00:38:01,560 --> 00:38:05,640 Speaker 1: really surprising outcomes. And I think it's really good for 648 00:38:05,680 --> 00:38:09,320 Speaker 1: the journalism trades. I know we're in the journalism business 649 00:38:09,320 --> 00:38:11,319 Speaker 1: with the scum of the earth. I think I read 650 00:38:11,360 --> 00:38:15,560 Speaker 1: that some authority, but I think it's I think it's 651 00:38:15,560 --> 00:38:18,160 Speaker 1: going to be wonderful. What twelve years he has or 652 00:38:18,360 --> 00:38:23,799 Speaker 1: sixteen years? Jump in here, James, I guess the you know, 653 00:38:24,040 --> 00:38:26,759 Speaker 1: my confusion in some points is that people say he's 654 00:38:26,760 --> 00:38:29,560 Speaker 1: really unpredictable, But so far he's just implemented what his 655 00:38:29,600 --> 00:38:32,520 Speaker 1: campaign was, right, It's just people didn't want to see 656 00:38:32,520 --> 00:38:36,200 Speaker 1: it or believe it. Perhaps, although you'll know that he 657 00:38:36,280 --> 00:38:38,319 Speaker 1: wants the dollar to go up and to go down. 658 00:38:38,440 --> 00:38:41,560 Speaker 1: He thinks that the CIA is akin to the um, 659 00:38:41,680 --> 00:38:43,800 Speaker 1: the old Nazi Party, and then it's the most beautiful 660 00:38:43,800 --> 00:38:48,480 Speaker 1: thing in Washington. Um So, I think there is a 661 00:38:48,600 --> 00:38:52,400 Speaker 1: great deal of tension between what he professes to believe 662 00:38:52,400 --> 00:38:55,799 Speaker 1: in what he says. Um. I think that there that 663 00:38:56,080 --> 00:38:59,480 Speaker 1: his better angel, for example, a better angels would be 664 00:38:59,520 --> 00:39:03,319 Speaker 1: pointing to something in the way of a freer trade, um, 665 00:39:03,960 --> 00:39:08,160 Speaker 1: that is to say, less bureaucratized trade. But then you 666 00:39:08,200 --> 00:39:12,080 Speaker 1: wonder when he does such things as threatened to cut 667 00:39:12,080 --> 00:39:15,920 Speaker 1: off whole countries because they seem to pique him. Um 668 00:39:15,960 --> 00:39:20,279 Speaker 1: So I root for him, I've I've voted for I 669 00:39:20,280 --> 00:39:23,120 Speaker 1: will actually voted for Mike Pence. Donald Trump happened to 670 00:39:23,120 --> 00:39:25,600 Speaker 1: be on that same ticket, you know. But even for 671 00:39:25,600 --> 00:39:27,560 Speaker 1: people who voted for him, I think every other day 672 00:39:27,560 --> 00:39:29,960 Speaker 1: as a freak out on Tuesday, Thursday and Saturday or 673 00:39:30,000 --> 00:39:32,120 Speaker 1: frind but Monday, Wednesday and Friday or just you know, 674 00:39:32,160 --> 00:39:35,440 Speaker 1: you wonder, all right, what do you wonder about foreign policy? 675 00:39:35,480 --> 00:39:38,040 Speaker 1: And when will the market starts take notice? Because for 676 00:39:38,040 --> 00:39:43,280 Speaker 1: the moment it's largely discounted. Right. Uh, I'm not sure 677 00:39:43,360 --> 00:39:45,680 Speaker 1: it's discounting because I'm not sure what people know what 678 00:39:45,760 --> 00:39:49,920 Speaker 1: they ought to discount. Um, there's something um, as a 679 00:39:49,960 --> 00:39:52,600 Speaker 1: friend of mine remarket is something charming about a a 680 00:39:52,719 --> 00:39:57,520 Speaker 1: secretary of state Texas oil man named Rex. This promises 681 00:39:57,640 --> 00:40:01,880 Speaker 1: something fresh and wholesome in America with regard to foreign policy. 682 00:40:01,920 --> 00:40:04,360 Speaker 1: But that that's the secretary of state. Above him is 683 00:40:04,440 --> 00:40:09,880 Speaker 1: his boss, the president, who seemingly Uh, I think the 684 00:40:09,920 --> 00:40:11,960 Speaker 1: problem with respect to foreign policies, I don't know what 685 00:40:12,080 --> 00:40:16,879 Speaker 1: the what the theory is. I know what the tweets are, 686 00:40:16,920 --> 00:40:19,400 Speaker 1: but I'm not sure the overarching theory is. Jim Grant 687 00:40:19,480 --> 00:40:23,240 Speaker 1: very quickly here. Uh, it's a huge event, folks, March fifteenth. 688 00:40:23,239 --> 00:40:25,840 Speaker 1: It's a closed event, Grants Spring two thousand and seventeen 689 00:40:25,880 --> 00:40:29,759 Speaker 1: conference with Chuck Royce, Robert Not and Peter Fisher. You're 690 00:40:29,760 --> 00:40:32,759 Speaker 1: gonna have it at the Plaza in Manhattan? Are you 691 00:40:32,840 --> 00:40:36,120 Speaker 1: timing that perfectly for another plaza accord? Are we going 692 00:40:36,160 --> 00:40:40,239 Speaker 1: to see dollars strength, Jim Grant to perfectly coincide with 693 00:40:40,360 --> 00:40:44,400 Speaker 1: your March fifteenth conference. I think if we see dollar strength, 694 00:40:44,440 --> 00:40:47,800 Speaker 1: it will be against the will of the sitting president. 695 00:40:47,880 --> 00:40:50,280 Speaker 1: I think Donald Trump is a low interest rate guy, 696 00:40:50,320 --> 00:40:52,840 Speaker 1: and he's a he's a he's a weak dollar person, 697 00:40:53,400 --> 00:40:56,360 Speaker 1: and what he wants is a profusion of bank credit 698 00:40:56,719 --> 00:41:00,680 Speaker 1: at at easily accessible rates of interest. So I think 699 00:41:00,719 --> 00:41:03,279 Speaker 1: that the surprise would regard to monetary policy, and the 700 00:41:03,320 --> 00:41:07,920 Speaker 1: trouble administration will be um not a rigorous or an 701 00:41:08,000 --> 00:41:10,799 Speaker 1: orthodox monetary policy of some of us hoped. I think 702 00:41:10,800 --> 00:41:13,880 Speaker 1: it will be a reversion of something much more akin 703 00:41:13,960 --> 00:41:17,359 Speaker 1: to what we had in the seventies, a central bank 704 00:41:17,440 --> 00:41:20,480 Speaker 1: doing the president's bidding and doing it at low interest 705 00:41:20,560 --> 00:41:24,840 Speaker 1: rates and with lots and lots of dollar bills. Interesting, 706 00:41:24,920 --> 00:41:27,839 Speaker 1: Jim Grant, not enough time, We'll do this again, Mr 707 00:41:27,880 --> 00:41:32,239 Speaker 1: Grant's Grant's interest rate Observer is truly I must read 708 00:41:32,719 --> 00:41:35,600 Speaker 1: on Wall Street. Jim Grant, of course, looking for higher 709 00:41:35,680 --> 00:41:40,040 Speaker 1: rates within the cacophony of where we are right now, 710 00:41:51,400 --> 00:41:53,719 Speaker 1: joining yourself, this has become a real joy. Scott Mather 711 00:41:53,840 --> 00:41:56,399 Speaker 1: is with PIMCO, and it's wonderful to talk to Mr 712 00:41:56,480 --> 00:41:59,680 Speaker 1: Mather here an hour on from the Job's report that 713 00:41:59,760 --> 00:42:02,279 Speaker 1: Dala up hundred and fourteen. We're about ready to print 714 00:42:02,320 --> 00:42:05,000 Speaker 1: twenty again. It's a new Pimco rule. We can only 715 00:42:05,040 --> 00:42:09,000 Speaker 1: talk to Scott when we print twenty. Scott, you are 716 00:42:09,040 --> 00:42:12,400 Speaker 1: the torture of writing a joint memo with one Libby 717 00:42:12,440 --> 00:42:17,560 Speaker 1: Cantroll about the new administration and investment, And the buried 718 00:42:17,640 --> 00:42:21,400 Speaker 1: sentence is Scott Mather is more defensive. Why are you 719 00:42:21,480 --> 00:42:26,480 Speaker 1: more defensive given President Trump? Well, that's uh, it's really 720 00:42:26,520 --> 00:42:29,520 Speaker 1: because of the uncertainty that that we think is out there. 721 00:42:29,520 --> 00:42:32,040 Speaker 1: I mean, the market right now is is really romancing 722 00:42:32,120 --> 00:42:35,680 Speaker 1: all the all the sugar that can come from increased 723 00:42:35,680 --> 00:42:39,799 Speaker 1: economic activity. But with respect to uncertainty, both on the 724 00:42:39,840 --> 00:42:43,000 Speaker 1: political front, with respect of trade policy, with respect to 725 00:42:43,040 --> 00:42:46,600 Speaker 1: some of the adjustment problems that that may that may 726 00:42:47,000 --> 00:42:50,000 Speaker 1: occur in the next several quarters, we think the market's 727 00:42:50,040 --> 00:42:52,120 Speaker 1: a little bit complacent. So when we look at pricing today, 728 00:42:52,120 --> 00:42:54,480 Speaker 1: we're you know, in the corporate market where we're at 729 00:42:54,520 --> 00:42:57,360 Speaker 1: multi year tights and spreads. When we look at implied 730 00:42:57,400 --> 00:43:00,120 Speaker 1: volatility and the equity market and other measures of of 731 00:43:00,160 --> 00:43:03,400 Speaker 1: sort of market complacency, it appears that people are just 732 00:43:03,440 --> 00:43:07,200 Speaker 1: far too complacent about a sanguine, smooth path to a 733 00:43:07,320 --> 00:43:10,200 Speaker 1: to a better destination, and we don't think that's likely. 734 00:43:10,280 --> 00:43:12,759 Speaker 1: And then when we look at uh, say core interest rates, 735 00:43:12,760 --> 00:43:15,040 Speaker 1: you look at tenure rates, we've obviously backed up and 736 00:43:15,120 --> 00:43:17,800 Speaker 1: yield over a hundred basis points, So there's there's there's 737 00:43:17,880 --> 00:43:21,960 Speaker 1: a lot more value in high quality fixed income uh 738 00:43:21,960 --> 00:43:25,719 Speaker 1: than there was a couple of quarters ago. So that, yes, 739 00:43:25,960 --> 00:43:29,000 Speaker 1: what's unlikely the the better destination or the smooth path. 740 00:43:29,400 --> 00:43:33,400 Speaker 1: Smooth path is very very unlikely in our opinion, And 741 00:43:34,080 --> 00:43:36,600 Speaker 1: when we just observe investor behavior so far, it seems 742 00:43:36,600 --> 00:43:38,520 Speaker 1: like people have been sort of pricing in a very 743 00:43:38,560 --> 00:43:42,280 Speaker 1: smooth path. And one of the things that we noted, uh, 744 00:43:42,400 --> 00:43:44,399 Speaker 1: that Libby and I have been talking about, is that, 745 00:43:45,120 --> 00:43:49,440 Speaker 1: you know, the markets focused on that destination, but really 746 00:43:49,480 --> 00:43:54,080 Speaker 1: the easiest things to get done that are on trade policy, 747 00:43:54,120 --> 00:43:55,759 Speaker 1: and those are some of the things that can cause 748 00:43:55,800 --> 00:44:00,480 Speaker 1: the most investor consternation and and confusion and an an 749 00:44:00,560 --> 00:44:05,200 Speaker 1: upset because clearly, you know, industry by industry, company by company, 750 00:44:05,200 --> 00:44:07,719 Speaker 1: it creates big differences in winners and losers. And so 751 00:44:07,719 --> 00:44:09,520 Speaker 1: when you look at the whole agenda, what's likely to 752 00:44:09,560 --> 00:44:12,439 Speaker 1: get done, it's all those things that cause uh, sort 753 00:44:12,480 --> 00:44:15,879 Speaker 1: of maximum adjustment problems, maximum pain that are more likely 754 00:44:15,920 --> 00:44:18,760 Speaker 1: to happen first. And the things that happened from lower taxes, 755 00:44:18,800 --> 00:44:23,279 Speaker 1: increased fiscal spending, infrastructure spending, and maybe even regulatory reform. 756 00:44:23,320 --> 00:44:26,120 Speaker 1: You know, those those are things that probably take take 757 00:44:26,120 --> 00:44:30,279 Speaker 1: hold later. What's priced in at the moment. Well, if 758 00:44:30,280 --> 00:44:34,799 Speaker 1: you look at in terms of in terms of interest rates, right, 759 00:44:34,840 --> 00:44:37,600 Speaker 1: we're looking at the market pricing in just about two 760 00:44:37,680 --> 00:44:40,920 Speaker 1: hikes this year, two hikes next year. Um. If you 761 00:44:40,960 --> 00:44:44,240 Speaker 1: look at what's priced in and other parts of the market. 762 00:44:44,280 --> 00:44:46,880 Speaker 1: Once again, we would say the markets pricing in a 763 00:44:47,040 --> 00:44:49,680 Speaker 1: return to a higher trajectory of growth, and that that's 764 00:44:49,680 --> 00:44:53,239 Speaker 1: the only thing that can sort of explain uh, low 765 00:44:53,640 --> 00:44:57,040 Speaker 1: high equity prices, low implied volatility, and very tight credit 766 00:44:57,080 --> 00:45:00,160 Speaker 1: spreads at this point. And that's that's really what we're 767 00:45:00,160 --> 00:45:02,359 Speaker 1: taking issue with. We're saying that the pricing for that 768 00:45:02,560 --> 00:45:06,400 Speaker 1: is is probably incorrect. Help me here with a dividend proxy. 769 00:45:06,440 --> 00:45:09,120 Speaker 1: I did a study Scott Mather of Proctor. I just 770 00:45:09,160 --> 00:45:12,080 Speaker 1: picked on Procter and Gamble and they're divoting growth over 771 00:45:12,160 --> 00:45:15,319 Speaker 1: twenty years and basically you've got a coupon this year 772 00:45:15,360 --> 00:45:19,520 Speaker 1: off your investment of twenty years ago of about because 773 00:45:19,560 --> 00:45:23,640 Speaker 1: of that dividend growth is dividend growth within the Pimco shop. 774 00:45:24,360 --> 00:45:27,040 Speaker 1: Is it a proxy for yield or has there been 775 00:45:27,080 --> 00:45:33,560 Speaker 1: a shift? Well, Candy a proxy uh for for yield 776 00:45:33,600 --> 00:45:35,360 Speaker 1: of bed and there and there we would just not 777 00:45:35,480 --> 00:45:37,479 Speaker 1: you know, it's good to look at the last twenty years, 778 00:45:37,520 --> 00:45:40,920 Speaker 1: but you know that dividend growth has to be highly 779 00:45:40,920 --> 00:45:44,640 Speaker 1: associated with nominal GDP growth. And for a big international company, 780 00:45:44,640 --> 00:45:45,840 Speaker 1: it's not just the U S, it's the rest of 781 00:45:45,880 --> 00:45:48,920 Speaker 1: the world. So we would just note that now that 782 00:45:49,080 --> 00:45:52,640 Speaker 1: dominal GDP growth has been slowing substantially for years, at 783 00:45:52,680 --> 00:45:55,080 Speaker 1: the same point in time that people have have been 784 00:45:55,480 --> 00:45:59,640 Speaker 1: looking for fixed income proxies going into equities, counting on 785 00:45:59,719 --> 00:46:02,799 Speaker 1: as an amount of dividend growth going forward. And and 786 00:46:02,800 --> 00:46:07,160 Speaker 1: there's probably an intersection of of of of reality that's 787 00:46:07,200 --> 00:46:09,040 Speaker 1: likely to hit when people see the dividends can't grow 788 00:46:09,040 --> 00:46:10,879 Speaker 1: at the same rate they've grown in the last twenty years, 789 00:46:10,880 --> 00:46:13,480 Speaker 1: and unless there's a big uptick in UH in that 790 00:46:13,600 --> 00:46:17,959 Speaker 1: global GDP growth. What is the one thing that people 791 00:46:18,000 --> 00:46:20,600 Speaker 1: are miss pricing when when you look at and Scott 792 00:46:20,600 --> 00:46:23,000 Speaker 1: you talked a little bit about, you know, readjusting what's 793 00:46:23,040 --> 00:46:26,840 Speaker 1: priced in. But is there something fundamentally that the markets 794 00:46:26,880 --> 00:46:29,680 Speaker 1: are ignoring because they're either too afraid of looking at 795 00:46:29,719 --> 00:46:34,000 Speaker 1: it or because we measure things wrong. Well, a couple 796 00:46:34,000 --> 00:46:36,440 Speaker 1: of big things that come to mind. I mean, we 797 00:46:36,440 --> 00:46:38,239 Speaker 1: we've been talking about this one for a while but 798 00:46:38,320 --> 00:46:42,240 Speaker 1: we've pretty pretty persistently. We think investors have under priced 799 00:46:42,239 --> 00:46:46,200 Speaker 1: the possibility of of central banks UH, and not just 800 00:46:46,239 --> 00:46:48,840 Speaker 1: the FED, but global central banks engineering and return to 801 00:46:48,920 --> 00:46:51,799 Speaker 1: inflation target and perhaps even an overshoot of inflation. So 802 00:46:51,840 --> 00:46:53,799 Speaker 1: that's something we think investors are miss pricing, and that 803 00:46:53,840 --> 00:46:57,200 Speaker 1: has implications of course, across all asset classes. And the 804 00:46:57,239 --> 00:47:00,560 Speaker 1: other the other really big miss pricing is even despite 805 00:47:00,560 --> 00:47:04,319 Speaker 1: recent historical experience where we've seen markets UH jump to 806 00:47:05,440 --> 00:47:08,480 Speaker 1: very different valuations and volatility increased substantial and we've seen 807 00:47:08,560 --> 00:47:10,680 Speaker 1: multiple examples of that in the past couple of years, 808 00:47:10,880 --> 00:47:13,759 Speaker 1: even though real economic activities not jumping around, that's what 809 00:47:13,840 --> 00:47:16,040 Speaker 1: happens in the financial markets for a host of reasons, 810 00:47:16,120 --> 00:47:19,839 Speaker 1: and yet markets still UH continue to price volatility going 811 00:47:19,880 --> 00:47:22,880 Speaker 1: forward very low, as if they know with certainty what 812 00:47:22,960 --> 00:47:25,920 Speaker 1: the economic or policy trajectory looks like. And so those 813 00:47:25,960 --> 00:47:28,359 Speaker 1: are the two big miss pricings were really focused on, 814 00:47:29,200 --> 00:47:32,000 Speaker 1: Scott One final question, if we could get you onto 815 00:47:32,040 --> 00:47:35,040 Speaker 1: your busy UH a day. When we look at the 816 00:47:35,120 --> 00:47:38,120 Speaker 1: equity market, I think a lot of investors want to 817 00:47:38,120 --> 00:47:41,960 Speaker 1: know the tilt of allocation of a four oh one 818 00:47:42,040 --> 00:47:45,440 Speaker 1: K right now, is the tilt domestic is the tilt 819 00:47:45,600 --> 00:47:50,239 Speaker 1: foreign investment, Well, that's a it's a good question. And 820 00:47:50,280 --> 00:47:53,759 Speaker 1: our multi asset products where we focused on well, when 821 00:47:53,760 --> 00:47:55,719 Speaker 1: we're not so far away from what we consider sort 822 00:47:55,719 --> 00:47:58,880 Speaker 1: of a neutral allocation between fixed income and equities, we 823 00:47:58,880 --> 00:48:01,160 Speaker 1: think that's the right way to be positioned right now. 824 00:48:02,000 --> 00:48:04,720 Speaker 1: We do think when you look at valuations around the world, 825 00:48:05,080 --> 00:48:06,520 Speaker 1: you know, you already had a huge bee pricing and 826 00:48:06,520 --> 00:48:09,840 Speaker 1: domestically oriented US stocks, so yes, is there more value 827 00:48:09,920 --> 00:48:12,920 Speaker 1: in other developed world stocks? Yes, when you look in 828 00:48:13,239 --> 00:48:15,960 Speaker 1: Europe for instance, is an example. So we have slide 829 00:48:15,960 --> 00:48:18,920 Speaker 1: overweights there. But it's uh, you know, it's not a 830 00:48:18,960 --> 00:48:20,880 Speaker 1: time to be all in on for are all in 831 00:48:20,960 --> 00:48:23,839 Speaker 1: on emerging markets or or any one sector. We're taking 832 00:48:23,920 --> 00:48:26,799 Speaker 1: much more balanced approach. Scott Mather, thank you so much 833 00:48:26,800 --> 00:48:36,560 Speaker 1: with PIMCO. Greatly appreciated this morning. Thanks for listening to 834 00:48:36,600 --> 00:48:42,640 Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 835 00:48:43,080 --> 00:48:47,320 Speaker 1: or whichever podcast platform you prefer. I'm out on Twitter 836 00:48:47,400 --> 00:48:51,200 Speaker 1: at Tom Keene. David Gura is at David Gura. Before 837 00:48:51,239 --> 00:48:55,600 Speaker 1: the podcast, you can always catch us worldwide. I'm Bloomberg Radio. 838 00:49:00,040 --> 00:49:10,479 Speaker 1: M brought to you by Bank of America. Mary Lynch 839 00:49:10,560 --> 00:49:14,839 Speaker 1: dedicated to bringing our clients insights and solutions to meet 840 00:49:14,840 --> 00:49:18,360 Speaker 1: the challenges of a transforming world. That's the power of 841 00:49:18,360 --> 00:49:23,480 Speaker 1: global connections. Mary Lynch, Pierce, Fenner and Smith Incorporated, Member 842 00:49:24,120 --> 00:49:24,759 Speaker 1: s I p C