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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always

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Speaker 1: with Michael McKee. Daily we bring you insight from the

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Speaker 1: best in economics, finance, investment, and international relations. Find Bloomberg

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Speaker 1: Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course

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Speaker 1: on the Bloomberg. We're gonna wax philosophical here on economics

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Speaker 1: and some of the mysteries that are out there before. UH.

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Speaker 1: This job's report. Alan Krueger has given us exceptional value

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Speaker 1: over the years. He is the former chairman of the

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Speaker 1: President's Council of Economic Advisors. He is an eclectic author,

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Speaker 1: writing brilliantly on the game, theory of terror, and of

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Speaker 1: course his iconic work with Mr Card on the minimum

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Speaker 1: You just will give us an update on the minimum wage. Now,

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Speaker 1: what evidence have you learned from fifteen dollars an hour? Well,

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Speaker 1: I would would say, Tom, the most striking evidence comes

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Speaker 1: from the UK. Fifteen dollars an hour has only been

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Speaker 1: enacted in a handful of cities in the US so far,

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Speaker 1: in a couple of states. But uh, the UK went

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Speaker 1: from having no national minimum wage to having a pretty

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Speaker 1: sizeable national minimum wage. They appointed a commission which every

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Speaker 1: Year does a careful job analyzing the effects of the

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Speaker 1: minimum wage and has found that the minimum wage in

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Speaker 1: the UK has not had an adverse effect unemployment of

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Speaker 1: low wage workers. In fact, employment growth for low wage

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Speaker 1: workers has been considerably stronger in the UK than it

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Speaker 1: has been in the US, and it's helped to reduce inequality.

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Speaker 1: So I think it reinforces the iconic result that David Carton.

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Speaker 1: I found that the labor market doesn't correspond to the

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Speaker 1: textbook description. It's much more complicated, and moderate minimum wages

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Speaker 1: can have beneficial effects for low wage workers and the

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Speaker 1: economy overall. I've got a new chart of the year

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Speaker 1: candidate in August. You know, I don't know what it's

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Speaker 1: gonna be. I took G d P and I took

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Speaker 1: out consumption and it's absolutely original. What's happened in the

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Speaker 1: last number of years, including your tour of duty at

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Speaker 1: the White House. If you have ye will C plus

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Speaker 1: II plus JE plus and XT and you take the

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Speaker 1: sea out, it's pretty moldy on a four year moving average,

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Speaker 1: and it's rolling over again. I go back to what

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Speaker 1: I talked to Dr Rogoff about Dr Pool from Brown

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Speaker 1: about let's talk to Dr Krueger about it. Can you

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Speaker 1: do a government policy to stimulate investment? Lb J would

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Speaker 1: have said, yes, do it? We can't. Well, we tried

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Speaker 1: a little bit, you know, we had an investment tax

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Speaker 1: credit as part of the Recovery Act. Did it work?

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Speaker 1: I think it helped. And I'll tell you something else.

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Speaker 1: If you make the st ralph and take out g

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Speaker 1: growth looks a lot stronger. So uh, it's it's uh,

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Speaker 1: not only business investment which has been weak especially, it's

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Speaker 1: the austerity of austerity, a lot of its state and local.

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Speaker 1: When you fold in what Mr Kearney's dealing with with England.

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Speaker 1: Can there be a new, more beneficial, more constructive austerity

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Speaker 1: wrapped around that old American philosophy? If we need to

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Speaker 1: be austere or do we just need to jettison the

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Speaker 1: concept of austerity now? I think we need to be

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Speaker 1: lustier in good times and less auster when the economy

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Speaker 1: is weak. And one of the problems we had was, uh,

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Speaker 1: we just party too much before the Great Recession, had

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Speaker 1: tax cuts when they didn't seem to boost the economy,

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Speaker 1: and worse than our inequality problem, and a whole range

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Speaker 1: of programs, for example, just look at the funding for

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Speaker 1: unemployment insurance, which traditionally we raise more revenue in in

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Speaker 1: good times and we use that spend down the fund

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Speaker 1: in bad times. That's why the counterfectical policy. A number

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Speaker 1: of governors cut the unemployment insurance tax fund during the

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Speaker 1: boom years and their funds are struggling as a result.

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Speaker 1: When you see that in Kansas vote this week where

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Speaker 1: the arch Conservatives who really took a hard line, we're

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Speaker 1: basically tossed out of office, not just one guy, but

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Speaker 1: a son of guys, it does show that sometimes democracy works. Yeah, well,

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Speaker 1: I I don't know. I'm not going to give an opinion.

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Speaker 1: I'll let you give the opinion. I'm just gonna make

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Speaker 1: the observation. They got tossed out. There's no question about that.

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Speaker 1: UM I got a host of things to talk to

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Speaker 1: you about. I want to go right now to what

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Speaker 1: to me has occurred since Wednesday, which is given interesting economics.

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Speaker 1: The great unknowable in the future is always inflation, and

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Speaker 1: that Governor Kearney has a set of goals clearly to

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Speaker 1: stimulate grow and within the moving parts of the British economy.

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Speaker 1: Where inflation will be in twelve months is just total mystery.

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Speaker 1: Fitch was on yesterday a stunning three point one percent

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Speaker 1: statistic with arch currency depreciation. HSBC has a four handle

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Speaker 1: on UK inflation. That that just takes all the apples

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Speaker 1: off the apple cart, doesn't it. Well. Frankly, those would

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Speaker 1: be problems which I think Mr Carney wouldn't mind having,

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Speaker 1: Compared to what the Netherlands is going through now with

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Speaker 1: deflation UH and much of Europe UM. I think the

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Speaker 1: problems are now asymmetric, and central banks have been able

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Speaker 1: to handle the problem of inflation in the past. Deflation

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Speaker 1: puts them in new territory, like the Deatherland and like

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Speaker 1: the netherland Lands right now or Japan. And I think

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Speaker 1: the situation in the UK is very different than it

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Speaker 1: would be for the the US because we're much more

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Speaker 1: of a closed economy, so exchange rate movements effect our

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Speaker 1: inflation rate much less. And on top of that, most

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Speaker 1: invoices are done in dollars, so we're much more insulated

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Speaker 1: by the effect, much more insulated from the effect of

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Speaker 1: exchange rate swings on inflation in the US. But within that,

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Speaker 1: and if if there's a presumed appreciation of pounds sterling,

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Speaker 1: does that by definition lead to dollar strength, and I

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Speaker 1: think of William Klein's classic work at the Peterson Institute.

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Speaker 1: Or is that depreciation diffused out across many currency pairs. Well,

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Speaker 1: it does diffuse out, but the dollar will strengthen as

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Speaker 1: a result, and has been strengthening certainly against the pound.

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Speaker 1: So how do you advise a president in the Oval

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Speaker 1: Office on dollars strength? He's gonna go. What we need

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Speaker 1: is a strong dollar policy. Sasha, get over to Nancy's

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Speaker 1: and Martha's vineyard and get to work. I mean, his

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Speaker 1: daughter's working. She's arduous job. Can you imagine John Tucker,

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Speaker 1: the daughter of the president, working at Nancy's and Martha's vineyard,

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Speaker 1: the line out the door. I just I can't concert.

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Speaker 1: I just want my kids to get jobs. I don't

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Speaker 1: care about the president's kids. But but seriously, in the

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Speaker 1: Oval office, how do you advice on dollar policy? Yeah,

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Speaker 1: I'll tell you something amazing, Tom, In the time I

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Speaker 1: worked for the President, came up the Treasury and and

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Speaker 1: ce a nobody asked me about inflation. Inflation was so quiet.

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Speaker 1: I'm sure it was quite different in that position in

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Speaker 1: the nineteen seventies. Um, but it also I think it's

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Speaker 1: an indication that, uh, the US is immune from a

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Speaker 1: lot of the problems in the rest of the world.

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Speaker 1: Now that's not true of manufacturing, and I think the

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Speaker 1: struggles that we're seeing in manufacturing into some extent, uh,

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Speaker 1: mining and commodities as a result of a stronger dollar.

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Speaker 1: Alan Krueger, with this on jobs that you get us going,

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Speaker 1: we're taking a broader view here than just the moment

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Speaker 1: of the labor economy. Will do that with Jim Glassman,

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Speaker 1: onto Bill gross Abbey, Joseph Cohen as well later, But

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Speaker 1: right now, Professor Krueger of Princeton University, you have been

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Speaker 1: way out front. I'm saying, Okay, you take everybody and

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Speaker 1: you sum them into the American economy. And yet we

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Speaker 1: all know that John Edwards was onto something and that

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Speaker 1: there are two or three or even four America's when

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Speaker 1: you look at productivity capital we all know that story

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Speaker 1: labor dynamics and this strange thing of technological progress and

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Speaker 1: total factor productivity are all the gains going to a

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Speaker 1: small part of America. That certainly has been the case

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Speaker 1: over the last thirty or five years that the top

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Speaker 1: one percent has gotten a lion share of our economic growth.

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Speaker 1: And you can attribute a lot of that to the

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Speaker 1: productivity grow. Yeah, it'd be more elegant about it. The

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Speaker 1: top ten has gotten a huge or the fiferent, you know,

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Speaker 1: the one percent thing. It's a political thing. I get that.

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Speaker 1: But the massive hunk of this has gone to the top,

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Speaker 1: including the three people in the studio. No matter how

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Speaker 1: you cut the data, it looks fractile. You know, it

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Speaker 1: looks like inequality has been growing in virtually all segments

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Speaker 1: of the workforce. Um So, the top one percent has

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Speaker 1: done a lot better than the top fifteen percent, but

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Speaker 1: the top fifteen percent has done a lot better than

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Speaker 1: the bottom within that frecktile nature, can good economists of

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Speaker 1: all political persuasions affect a policy to benefit the without

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Speaker 1: diminishing good value to the fiferent? I think there's a

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Speaker 1: There are a number of things that could be done.

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Speaker 1: Uh tax policy, individual and corporate tax policy, I think

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Speaker 1: could bring about them more fair and stronger economy, investing

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Speaker 1: in infrastructure, improving our education system, providing greater access to

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Speaker 1: higher education. I think all of those things could help,

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Speaker 1: and some things have helped. The Affordable Care Act, for example,

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Speaker 1: is helped to bring twenty million more people. Everybody listening

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Speaker 1: nationwide is going okay, right, Dr Krueger, I get all that,

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Speaker 1: but Eton is walking away from the Affordable Care Act.

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Speaker 1: Come on three. I believe it's three major insurers have

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Speaker 1: just said this. You know, they've said it with all

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Speaker 1: great grace and good feeling. This is not working. I mean,

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Speaker 1: just as one example. Look, we've heard lots of complaints

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Speaker 1: throughout the last few years that is not working. But

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Speaker 1: what we've seen is slower growth and healthcare costs and

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Speaker 1: more people getting coverage. So there are certainly lots of

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Speaker 1: problems to fix, but I think Americans should be proud

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Speaker 1: that we have expanded coverage to a lot of people

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Speaker 1: who are having difficulty getting health insurance, either because of

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Speaker 1: previous conditions or because they couldn't afford it. Full disclosure, folks,

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Speaker 1: we like to be open and transparent. At Bloomberg Surveillance,

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Speaker 1: two mentionable offspring have benefited from the Affordable Care Act

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Speaker 1: by extending health coverage. What is it? John Tucker? The

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Speaker 1: President picks up healthcare for spoiled brats out to age

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Speaker 1: thirty five or is at forty? Just as long as

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Speaker 1: we don't have to well, yes we do, actually, but

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Speaker 1: there is John Tucker speaking. But but seriously, John Tucker

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Speaker 1: is speaking for America, not in my backyard. Do I

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Speaker 1: want to pay for healthcare? I mean, that's the reality. Well,

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Speaker 1: I think many of the components, like you just mentioned

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Speaker 1: the fact that coverage is now extended on parents plans

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Speaker 1: to twenty up to age twenty six, I've benefited from that,

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Speaker 1: although I have one about to roll off. I think

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Speaker 1: that's something that many Americans do appreciate. Tell us about

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Speaker 1: Jobs Day today, where are rising wages? Service sector inflation

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Speaker 1: three point two percent. If you look at just a

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Speaker 1: service sector, I've got wage deflation, don't I. Well, I

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Speaker 1: think wages are starting to edge up. Um, not as

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Speaker 1: strong as we'd like to see, but in part because

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Speaker 1: price inflation is so low. Wage infloation has been weak.

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Speaker 1: But I think we're seeing wage growth up to the

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Speaker 1: two point five two point six percent, and I'd like

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Speaker 1: to see it get above three percent by the end

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Speaker 1: of the year. Within this is the unemployment rate. Let

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Speaker 1: me go back to the Arch question four point eight

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Speaker 1: four point nine. Dan Mackie point seven too has a

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Speaker 1: vision of a four point zero percent unemployment rate. To

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Speaker 1: the great body of Americans represented by Mr Trump, and

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Speaker 1: Senator Sanders, Why are we so miserable if the unemployment

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Speaker 1: rate is so good. Well, we've gone through a very

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Speaker 1: difficult time. Uh, some Americans haven't. Well, I think I

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Speaker 1: take that back down. I think the Great Recession caused

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Speaker 1: harm throughout the distribution. Eight million Americans lost their job,

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Speaker 1: home price has felled by as much as thirty percent. Uh,

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Speaker 1: the stock market fell but has since come back. Um.

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Speaker 1: So I think we've gone through a very difficult economic time.

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Speaker 1: And on top of that, the vast majority of Americans

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Speaker 1: that's as you noted earlier, didn't see much of the

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Speaker 1: gains over the last thirty years. So I think there's

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Speaker 1: a lot of frustration that's built up. But I think

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Speaker 1: people also recognize that the economy has made big, uh

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Speaker 1: big steps to overcome the problems that were created by

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Speaker 1: the Great Recession, and the unemployment rate below five percent

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Speaker 1: as an indication of that. Alan Krueger, thank you so much, folks.

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Speaker 1: He's a former chairman of the President's Council of Economic Advisors.

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Speaker 1: There is never a bad time a double negative to

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Speaker 1: speak with Abby Joseph Cohen. It is particularly a good

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Speaker 1: time to speak to Abbey Joseph Cohen when the gloom

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Speaker 1: crew is out in force, Abby, Joseph Cohen c f

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Speaker 1: A with the Goldmen Sect Global Markets Institute their senior

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Speaker 1: investment strategist, Abby, have you ever seen the go to

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Speaker 1: the go to cash crowd so shrill um. They are

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Speaker 1: certainly very very enthusiastic about going to cash despite of

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Speaker 1: very low or in some cases non existent returns. And

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Speaker 1: so one of the things we all need to keep

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Speaker 1: in mind is that there are trading positions, but then

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Speaker 1: there should also be the view that's intermediate and longer

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Speaker 1: term in nature. And from that standpoint, it doesn't seem

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Speaker 1: to me that cash is really a particularly good place

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Speaker 1: to be at all. And as you and I have

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Speaker 1: discussed in the past, Tom, I'm also increasingly concerned about bonds. UM.

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Speaker 1: Many people have moved into bonds to try to pick

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Speaker 1: up a little bit of yield. I understand the relative

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Speaker 1: move within certain fixed income markets, but if we take

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Speaker 1: the point of view that this is an economy in

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Speaker 1: the US at least that is going to continue to grow, UM,

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Speaker 1: I would much rather be exposed to things that benefit

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Speaker 1: when the economy grows, and that obviously is equities, and

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Speaker 1: in some cases commodities if the supply demand is a

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Speaker 1: balanced in perpetuity is the length of Mr Ovetkin's contract

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Speaker 1: with the Washington Capitals. The idea of in perpetuity. Can

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Speaker 1: you bring that over to dividend growth? Is dividend growth

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Speaker 1: something that just goes on and on and on. Fascinating

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Speaker 1: question now, because it's not just dividend growth. It's also

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Speaker 1: a question of distinguishing those equities or those financial securities

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Speaker 1: that offer yield versus the growth um in dividends the

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Speaker 1: underlying income. And I think that we have to keep

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Speaker 1: in mind number one, that we now have equities writ

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Speaker 1: large offering higher yield than most fixed income securities. This

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Speaker 1: hasn't happened in a few decades, and in the past

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Speaker 1: um has typically been an opportunity to own stocks rather

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Speaker 1: than fixed income. Number two, Using dividend growth to distinguish

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Speaker 1: equities from one another is in fact something that works

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Speaker 1: quite well, but not in a vacuum. So, for example,

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Speaker 1: we all know that high yielding equities are often not

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Speaker 1: a good place to be because they have high yield

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Speaker 1: because the company doesn't really have anything else to do

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Speaker 1: with their cash. So we look for companies where there

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Speaker 1: is growth and dividends because it means there's good cash flow,

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Speaker 1: but we also look for companies with good returns on equity.

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Speaker 1: It's really that combination for a period of time that

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Speaker 1: tends to give you the best performing companies and also

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Speaker 1: the best performing stocks. How earnings do there's also an

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Speaker 1: earnings gloom, which is different than cash flow gloom, which

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Speaker 1: is different than corporation's abilities to manage the moment. You're

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Speaker 1: not gloomy on earnings, are you. There is a wide

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Speaker 1: variation tom between sector UM and we can talk about that,

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Speaker 1: but by and large, we see that earnings are continuing

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Speaker 1: to improve. And I'll make an analogy to a comment

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Speaker 1: at Alan Krueger, who by the way is my guru

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Speaker 1: on labor markets made, and that is after you've already

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Speaker 1: had big improvements, be it in the labor market or earnings.

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Speaker 1: Of course, the growth rate is going to slow. What

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Speaker 1: we need to look at, though, is the durability of it.

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Speaker 1: And we see that earnings and continue to grow for

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Speaker 1: an extended period of time. There will of course be volatility.

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Speaker 1: So for example, aggregate earnings has been held back by

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Speaker 1: what's been going on in the commodity section. UM If

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Speaker 1: that just becomes a neutral. Um, we begin to see

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Speaker 1: again interestingly high single digit and double digit and earnings growth.

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Speaker 1: It is jobs today with a lot going on, yields lower.

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Speaker 1: We saw that after Kearney press conference yesterday, Abbey, Joseph

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Speaker 1: Cohen with US, with Goldman Sax and of course the

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Speaker 1: Golden Sax Global Markets Institute. Abby. I still want to

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Speaker 1: ask questions on equity, but there's so much going on

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Speaker 1: in the world. Um, what original policy from Governor Kearney

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Speaker 1: yesterday to provide monetary stimulus going back three and twenty

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Speaker 1: two years to a low rate regime. Basically that means

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Speaker 1: we've never seen this before and yet will it actually

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Speaker 1: make fiscal authorities join the party? Um, We'll have to

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Speaker 1: wait and see, um what others do. But clearly the

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Speaker 1: message from Mr Karney and a number of other central

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Speaker 1: bankers is that monetary policy cannot do it alone. We

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Speaker 1: have really seen an absence of fiscal policy. Uh, not

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Speaker 1: just in the UK, but I would argue UM, fiscal

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Speaker 1: policy in the United States the last handful of years

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Speaker 1: has also not been up as active, perhaps as it

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Speaker 1: could be, particularly in a low interest rate environment where

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Speaker 1: the governments could be using very low cost money UH

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Speaker 1: to rebuild infrastructure UH and engage in a number of

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Speaker 1: other programs. You know, there's an interesting similarity, Tom, between

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Speaker 1: the people in the UK who voted for Brexit and

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Speaker 1: the people in the United States who are not fully

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Speaker 1: participating in the current recovery. You know, we always focus

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Speaker 1: on that unemployment rate of four point eight four point nine.

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Speaker 1: What we have to recognize is that there is a

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Speaker 1: group of American workers who have good skills, but perhaps

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Speaker 1: not high education Asian skills, whose jobs are fairly routine,

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Speaker 1: and many of these people have lost their jobs, not

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Speaker 1: to trade so much, but really to technology. If you

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Speaker 1: look at manufacturing, about eight of the job losses have

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Speaker 1: been due to technology the increased productivity of the existing workers,

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Speaker 1: only about twenty to trade. And if you look at Brexit,

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Speaker 1: what you see is that the areas in the UK

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Speaker 1: that voted to leave the European Union tend to have

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Speaker 1: workers in pretty much that same category. So they have

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Speaker 1: not been participating in the incredible job growth of the

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Speaker 1: so called information economy. UM. And what I think fiscal

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Speaker 1: policy has to address because monetary policy can't Monetary policy

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Speaker 1: doesn't have the tools to reach into various communities, to

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Speaker 1: enhance education, to enhance infrastructure, and some of the other

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Speaker 1: things that we know have been effective in previous periods.

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Speaker 1: I mean, I look at this and the basic idea is,

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Speaker 1: what can policymakers do? Do you see any evidence that

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Speaker 1: monetary fiscal political policymakers can establish policy for a bimodal system.

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Speaker 1: One of the problems tom has been that their hands

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Speaker 1: have been tied, particularly in the EU where because of

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Speaker 1: the so called Monstrous Accord, there have been limitations on

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Speaker 1: the use of fiscal policy. And then of course in

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Speaker 1: the United States we have had politically imposed UM obstacles

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Speaker 1: to using fiscal policy. And I would basically say what

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Speaker 1: many economists, both Democrat and Republican have been saying. In

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Speaker 1: an environment of extraordinarily low interest rates, why not why

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Speaker 1: not UM borrow the money now and use it for

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Speaker 1: long term projects. There has really been a paucity of

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Speaker 1: government spending UM in number of categories, basically those long

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Speaker 1: term investments that we used to make. Now, you know,

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Speaker 1: you go back to the Eisenhower administration and of course

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Speaker 1: the interstate highway system. UM. You know, so what is

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Speaker 1: the one century equivalent of it? Many people talking about

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Speaker 1: increases in broadband and and so on, also increases in

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Speaker 1: access to higher education at an affordable level for many people.

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Speaker 1: But let's not also forget that much of the infrastructure

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Speaker 1: that was built in the United States in the fifties

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Speaker 1: and sixties is in desperate need of updating. I get

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Speaker 1: all the new projects and the happy talk of it,

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Speaker 1: but I agree with you. I mean, you know, you know,

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Speaker 1: I mean, for the elite, it's sitting on airplane runways,

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Speaker 1: and for a huge body of America's just subways and

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Speaker 1: moving cars and such around everything. Also questioned Tom of

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Speaker 1: who's going to be doing that infrastructure construction, and a

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Speaker 1: lot of it is the same people who have really

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Speaker 1: been left out of the improvement in the labor markets.

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Speaker 1: Just because the time I want to move on, what

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Speaker 1: do you learn from Goldman's acts and Jeff Curry and

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Speaker 1: all those people about oil and then fold that into

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Speaker 1: your macro belief oil. Everyone suggests stability at forty barrel,

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Speaker 1: and yet there's a few people saying, yeah, but on oil?

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Speaker 1: Can oil find stability here? Um The sense of our

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Speaker 1: commodities team is that UM oil looks like it should

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Speaker 1: be stabilizing at about these levels once again the caution

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Speaker 1: about the difference between a trading view and an intermediate view. UH,

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Speaker 1: and the focus of course should be not just um energy,

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Speaker 1: but but other commodities. We also have to recognize that

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Speaker 1: the overhang in oil inventory has been one of the

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Speaker 1: things that has dragged down the reported GDP numbers. Now,

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Speaker 1: for thirteen of the last fourteen months, inventories in the

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Speaker 1: United States have declined UM. Some of that is related

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Speaker 1: to an excess of aircraft and autos and so on,

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Speaker 1: but there's also a big chunk that's related it to petroleum.

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Speaker 1: When we get to equilibrium in these various industries and sectors,

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Speaker 1: who will probably see g d P M be reported

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Speaker 1: out at the underlying grade of something like two to

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Speaker 1: two and a half percent. Okay, finally, and I want

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Speaker 1: to dive into this with you because you've you've done

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Speaker 1: some very good work on this. You know what a

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Speaker 1: fan distribution is, which is the guestimates of whatever you're

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Speaker 1: talking about. In this case, it's an inflation. I am

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Speaker 1: thunderstruck by the wide upset of opinions of where United

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Speaker 1: Kingdom inflation is going. Abby. Do you see any predictable

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Speaker 1: ability to guess inflation given all the other moving parts,

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Speaker 1: whether it's United Kingdom or the United States, do we

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Speaker 1: really have confidence um investors do not have confidence, and

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Speaker 1: quite frankly economist Stone either And you know, in my

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Speaker 1: way of thinking about things, underlying inflation is driven by

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Speaker 1: a number factors, but the most important by weight is

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Speaker 1: labor cost um. And in the United States we are

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Speaker 1: seeing that wages are now rising, let's call it three

391
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Speaker 1: percent or so. This is an in excess of the

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Speaker 1: reported level of inflation, and I think that the core

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Speaker 1: inflation is going to start to move up as well.

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Speaker 1: This has been such a peculiar period, tom because of

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Speaker 1: what's going on with commodity prices and also with the

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Speaker 1: prices of some manufactured goods that have come down because

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Speaker 1: of technology and so on. But if we take a

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Speaker 1: look at what's happening in labor markets per se, that

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Speaker 1: to me is probably one of the better measures of

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Speaker 1: intermediate to long term inflation. So critically here, if service

401
00:24:41,600 --> 00:24:45,400
Speaker 1: sector core service sector inflation is three point two percent,

402
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Speaker 1: and I'm not suggesting goods inflation, we'll catch up with that.

403
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Speaker 1: But do wait, does do real wages decline or as

404
00:24:54,000 --> 00:24:59,520
Speaker 1: inflation rises, do wages rise with it. Real wages are,

405
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Speaker 1: of course the key to help people feel and what

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00:25:02,800 --> 00:25:07,680
Speaker 1: we have seen has been this differentiation within even our

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Speaker 1: own labor market. We have seen real wages rise for

408
00:25:11,440 --> 00:25:16,040
Speaker 1: people in two categories. Category number one, the well educated

409
00:25:16,119 --> 00:25:20,720
Speaker 1: people who can UH contribute to abstract thinking, whether it's

410
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Speaker 1: in service or advanced manufacturing. We have also seen job

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Speaker 1: creation and some wage increase. Um for people who are

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Speaker 1: doing non routine work that requires a lower skill. Where

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Speaker 1: we've not seen real wages go up, and we've seen

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Speaker 1: in some categories real wages go down is that category

415
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Speaker 1: of people who have some skills, but what they do

416
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Speaker 1: is routine and that has made them vulnerable uh to

417
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Speaker 1: being mechanized as it used to be described. Also, some

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Speaker 1: laws not total, some laws due to trade and and

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Speaker 1: so what we have to be careful is to back

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Speaker 1: away from those aggregate data on the lay up markets

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Speaker 1: and really look down into individual sectors, individual industries and

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Speaker 1: see which of those categories are creating jobs and are

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Speaker 1: creating games in real wages, and prepare more of our

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Speaker 1: people to participate in those sectors. Abby twelve months out

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Speaker 1: or urine seventeen your SMP and alcohol please um on

426
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Speaker 1: the SMP UM. I think a number on the order

427
00:26:25,119 --> 00:26:29,960
Speaker 1: of twenty three D is likely. That's basically saying, you know,

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Speaker 1: I think that SMP earnings go up and not much

429
00:26:33,480 --> 00:26:37,480
Speaker 1: change in the PE ratio about thirty six SMP points.

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Speaker 1: We'll do the math on that in a bit. Abby

431
00:26:39,840 --> 00:26:42,160
Speaker 1: Joseph Cohin, thank you so much. With Goldvin Sechs, greatly

432
00:26:42,200 --> 00:26:58,119
Speaker 1: appreciate it. Dr Glasston with us with JP Morgan, um,

433
00:26:58,160 --> 00:27:01,119
Speaker 1: I am sobered. Seriously, we make jokes about it, but

434
00:27:01,119 --> 00:27:04,400
Speaker 1: it's not funny. Rarely do I hear Jim Glass would

435
00:27:04,440 --> 00:27:07,920
Speaker 1: say he's befuddled. Why are we funneled after the two

436
00:27:07,920 --> 00:27:12,560
Speaker 1: months whip saw that we saw? Yeah, you know the

437
00:27:13,000 --> 00:27:15,280
Speaker 1: we we know that data are volatile, but I think

438
00:27:15,280 --> 00:27:17,320
Speaker 1: people are still scratching their hands about what happened and

439
00:27:17,840 --> 00:27:20,040
Speaker 1: two payrolls in May. I think the bigger by funnel

440
00:27:20,080 --> 00:27:22,359
Speaker 1: met frankly, is the following. What if you went to

441
00:27:22,400 --> 00:27:25,639
Speaker 1: sleep ten years ago, you just woke up now, and

442
00:27:26,160 --> 00:27:28,520
Speaker 1: we asked you to describe the state of the U.

443
00:27:28,560 --> 00:27:31,200
Speaker 1: S economy, Well, you would look at our GDP growth

444
00:27:31,240 --> 00:27:33,720
Speaker 1: and you say, gee, that's pretty grim. And you see

445
00:27:33,760 --> 00:27:36,159
Speaker 1: the GDP growth had slowed down this year from two

446
00:27:36,200 --> 00:27:38,639
Speaker 1: percent growth to one percent, and you would and you

447
00:27:38,640 --> 00:27:41,760
Speaker 1: would conclude that the US economy must be performing, must

448
00:27:41,760 --> 00:27:44,760
Speaker 1: be subpower performance, growing slower than its long run potential.

449
00:27:44,920 --> 00:27:47,120
Speaker 1: But then you would look at the labor market data

450
00:27:47,320 --> 00:27:49,240
Speaker 1: and you would say, gee, that's like pretty normal, and

451
00:27:49,280 --> 00:27:52,440
Speaker 1: it looks like an economy that's growing above trend, Unemployment

452
00:27:52,480 --> 00:27:55,680
Speaker 1: pretty steady, slowing a little bit, unemployment rate coming down,

453
00:27:55,800 --> 00:28:00,720
Speaker 1: all the measures of hidden unemployment gradually coming down, and

454
00:28:01,040 --> 00:28:03,400
Speaker 1: jobless claims at all time lows, and you would say, gee,

455
00:28:03,440 --> 00:28:06,000
Speaker 1: the labor market is telling you that the economy is

456
00:28:06,040 --> 00:28:09,760
Speaker 1: growing faster and its underlying trend. Who's got the right story? Well,

457
00:28:09,760 --> 00:28:12,199
Speaker 1: obviously it's the labor market, because that labor market is

458
00:28:12,240 --> 00:28:14,320
Speaker 1: the real thing, that's what we care about, that tells

459
00:28:14,400 --> 00:28:16,600
Speaker 1: us we care about growth because we're trying to figure

460
00:28:16,640 --> 00:28:19,480
Speaker 1: out what gets us, what gets the labor market back

461
00:28:19,520 --> 00:28:21,600
Speaker 1: on its feet, and the labor market is getting back

462
00:28:21,600 --> 00:28:23,520
Speaker 1: on its feet. Let me start with the emotion. How

463
00:28:23,560 --> 00:28:28,680
Speaker 1: do you respond to the pervasive statement that the jobs

464
00:28:28,760 --> 00:28:32,199
Speaker 1: that are being created are not good jobs? Well, I

465
00:28:32,200 --> 00:28:35,400
Speaker 1: think that's a separate issue, and that's tied to this

466
00:28:35,440 --> 00:28:37,520
Speaker 1: whole thing that's been going on for a couple of decades,

467
00:28:38,040 --> 00:28:41,040
Speaker 1: lots of innovation disrupting a lot of jobs. I I

468
00:28:41,080 --> 00:28:44,680
Speaker 1: go to factories of our clients, it's amazing what you see.

469
00:28:44,760 --> 00:28:46,840
Speaker 1: There's a lot of there's a lot of automation in there,

470
00:28:46,880 --> 00:28:49,640
Speaker 1: a lot of robots running around. That's the problem. And

471
00:28:49,880 --> 00:28:51,960
Speaker 1: I think what happened is we went through this terrible

472
00:28:52,000 --> 00:28:54,120
Speaker 1: recession and people thought it was the recession that was

473
00:28:54,160 --> 00:28:56,200
Speaker 1: going to fix the problem when we got back on

474
00:28:56,200 --> 00:28:59,200
Speaker 1: our feet, but really something bigger and sweeping going on

475
00:28:59,760 --> 00:29:02,680
Speaker 1: that it's a bigger challenge. But I you know, I'm

476
00:29:02,760 --> 00:29:05,120
Speaker 1: hopeful about this because I look at what's going on

477
00:29:05,400 --> 00:29:08,040
Speaker 1: with our business clients. Everybody's working very hard to get

478
00:29:08,120 --> 00:29:11,320
Speaker 1: job skills training, going to help people get the skill

479
00:29:11,400 --> 00:29:13,880
Speaker 1: they know. They complain that they can't find people with

480
00:29:13,920 --> 00:29:16,640
Speaker 1: the right skills. But the business community is working on this,

481
00:29:16,760 --> 00:29:19,200
Speaker 1: and I think over time we're going to find that

482
00:29:19,320 --> 00:29:22,320
Speaker 1: all this innovation that's going on, which is creating opportunities,

483
00:29:22,360 --> 00:29:25,520
Speaker 1: I'll get that. I'll just stay that the day to day.

484
00:29:25,600 --> 00:29:28,920
Speaker 1: What I observe is a wide body of people who

485
00:29:28,960 --> 00:29:31,800
Speaker 1: have interest in parts of the economy where there's no

486
00:29:31,920 --> 00:29:35,040
Speaker 1: jobs growth and there's a whole another group where they're

487
00:29:35,080 --> 00:29:39,880
Speaker 1: desperate for skilled people. Desperate, Yeah, were desperate. And that's

488
00:29:39,960 --> 00:29:43,160
Speaker 1: that's actually, that's music to our ears that as economists,

489
00:29:43,160 --> 00:29:45,040
Speaker 1: because that tells you that there is a need for

490
00:29:45,080 --> 00:29:48,120
Speaker 1: people and it's just but you can't become an engineer overnight.

491
00:29:48,480 --> 00:29:50,800
Speaker 1: We just woke up one day and we everybody thought

492
00:29:51,040 --> 00:29:54,080
Speaker 1: manufacturing doesn't happen in the US, and so they weren't.

493
00:29:54,120 --> 00:29:56,440
Speaker 1: Really they weren't. No, we're not really prepared for the

494
00:29:56,520 --> 00:29:58,640
Speaker 1: new needs. I want to go touch on some of

495
00:29:58,640 --> 00:30:01,200
Speaker 1: the demographics that you're so expert at. Let's start with

496
00:30:01,200 --> 00:30:04,920
Speaker 1: one of your great research points. Are the kids getting jobs?

497
00:30:04,920 --> 00:30:09,320
Speaker 1: Are they still going back to school to o tuition? One? There,

498
00:30:09,480 --> 00:30:11,960
Speaker 1: that's what's really interesting here. There's about two million kids

499
00:30:12,400 --> 00:30:17,000
Speaker 1: young people twenty to forty five years of age UM.

500
00:30:17,840 --> 00:30:22,080
Speaker 1: Two million people are still have have left. I think

501
00:30:22,120 --> 00:30:25,560
Speaker 1: that the whole generation has realized that more education is

502
00:30:25,600 --> 00:30:29,000
Speaker 1: going to is necessary. Maybe parents can help. But slowly,

503
00:30:29,040 --> 00:30:31,000
Speaker 1: as the job market gets better, we're starting to see

504
00:30:31,360 --> 00:30:34,040
Speaker 1: about ten percent of that problem has been getting fixed.

505
00:30:34,040 --> 00:30:35,880
Speaker 1: So I think that's one of the interesting things about

506
00:30:35,880 --> 00:30:37,680
Speaker 1: the job report is to see what's going on with

507
00:30:37,720 --> 00:30:41,160
Speaker 1: the participation rate of people in their in their prime

508
00:30:41,160 --> 00:30:44,560
Speaker 1: working years, and that's slowly beginning to come back bedding up,

509
00:30:44,600 --> 00:30:46,760
Speaker 1: but much more slower than I expected. Now that I'm

510
00:30:46,760 --> 00:30:48,520
Speaker 1: not going to say that you came up with this phrase,

511
00:30:48,600 --> 00:30:52,040
Speaker 1: I certainly did. Maybe John Tucker did the man's session.

512
00:30:53,000 --> 00:30:56,120
Speaker 1: It was a man's session. Have the men come back?

513
00:30:58,280 --> 00:31:01,760
Speaker 1: The women have done maybe better because of that manufacturing issue.

514
00:31:01,840 --> 00:31:05,280
Speaker 1: That really it's a manufacturing sector that's really been of

515
00:31:05,520 --> 00:31:08,400
Speaker 1: shedding jobs, and that was more male dominated in the

516
00:31:08,400 --> 00:31:11,160
Speaker 1: old days, less so now. But it's really the men

517
00:31:11,280 --> 00:31:14,760
Speaker 1: that have probably that's what you're hearing. Did the chart.

518
00:31:14,960 --> 00:31:20,160
Speaker 1: I did the chart this week of manufacturing as compared

519
00:31:20,200 --> 00:31:23,000
Speaker 1: to the population, and as you know, Jim, it's a

520
00:31:23,040 --> 00:31:27,320
Speaker 1: gradual decline and the bottom comes out about twelve years ago.

521
00:31:27,680 --> 00:31:31,640
Speaker 1: Absolute plummets on a log basis, absolute plummets straight down.

522
00:31:32,120 --> 00:31:34,760
Speaker 1: That happened because of technology. A lot of it was

523
00:31:34,800 --> 00:31:38,040
Speaker 1: and I think maybe the recession just forced the issue faster.

524
00:31:38,160 --> 00:31:41,280
Speaker 1: I think a lot of folks, you know, desperate need

525
00:31:41,360 --> 00:31:44,960
Speaker 1: to survive, just they had all this technology available to them,

526
00:31:44,960 --> 00:31:47,920
Speaker 1: and I think it really sort of bad times tend

527
00:31:47,920 --> 00:31:50,240
Speaker 1: to force you to do things Mackseys out with their

528
00:31:50,360 --> 00:31:54,239
Speaker 1: terrific study this week on inequality in America, and one

529
00:31:54,320 --> 00:31:56,760
Speaker 1: of the themes they have is the atomization of the

530
00:31:56,840 --> 00:32:01,240
Speaker 1: labor economy as compared to Sweden with high unions. Can

531
00:32:01,400 --> 00:32:08,959
Speaker 1: unions help solve our inequality and our separation of society?

532
00:32:09,160 --> 00:32:11,200
Speaker 1: You know, I'm not sure. I mean this, This was

533
00:32:11,240 --> 00:32:15,280
Speaker 1: an important dynamic in the early twentieth century. But the

534
00:32:15,360 --> 00:32:18,800
Speaker 1: thing is, the world has become much more competitive. The

535
00:32:18,840 --> 00:32:21,480
Speaker 1: innovation is so rampant. It's just I think if that

536
00:32:21,520 --> 00:32:24,200
Speaker 1: were the case, I think unions would regroup, and I

537
00:32:24,200 --> 00:32:26,680
Speaker 1: think people would find that they would you know, that

538
00:32:26,800 --> 00:32:30,480
Speaker 1: they maybe can do something, But I think limited. John

539
00:32:30,480 --> 00:32:33,840
Speaker 1: Tucker helped me here. For Jim Glass when he's so young,

540
00:32:34,440 --> 00:32:43,120
Speaker 1: the early twentieth centuries, the seven explain to him Walter Meany,

541
00:32:43,320 --> 00:32:46,160
Speaker 1: among others. It was all it was the time earlier

542
00:32:46,200 --> 00:32:49,560
Speaker 1: than that where the unions were really predominant, Doctor Glass.

543
00:32:50,000 --> 00:32:51,720
Speaker 1: What do you think you will see today? Let's let's

544
00:32:51,720 --> 00:32:54,320
Speaker 1: look forward here and then onto our next section. What

545
00:32:54,360 --> 00:32:57,200
Speaker 1: do we see today? I think we'll see back to

546
00:32:57,240 --> 00:33:03,280
Speaker 1: the trend that one probably I mean haves Uh, we're

547
00:33:03,280 --> 00:33:05,600
Speaker 1: not doing for big revisions. I mean May it was

548
00:33:05,760 --> 00:33:08,720
Speaker 1: very weak June pop back the average. That makes sense,

549
00:33:08,760 --> 00:33:11,480
Speaker 1: so I'd be surprised if we see much revision. And

550
00:33:11,520 --> 00:33:13,360
Speaker 1: I really think we've seen enough about the liber market.

551
00:33:13,440 --> 00:33:16,560
Speaker 1: Job is claims holding very steady low. The ADP survey

552
00:33:16,720 --> 00:33:19,040
Speaker 1: is a useful piece of information about the job market,

553
00:33:19,360 --> 00:33:21,800
Speaker 1: is telling you the trend isn't changing much. So I

554
00:33:21,800 --> 00:33:23,720
Speaker 1: think what we're learning is when you see an outlier,

555
00:33:23,760 --> 00:33:26,440
Speaker 1: you probably should fade it because everything about the US

556
00:33:26,520 --> 00:33:30,320
Speaker 1: labor market looks pretty steady, gradually slowing as we work

557
00:33:30,360 --> 00:33:33,440
Speaker 1: our way towards full employment. And I'm more interested, frankly,

558
00:33:33,480 --> 00:33:36,760
Speaker 1: and the hidden unemployment problem with the what's going on

559
00:33:36,880 --> 00:33:41,560
Speaker 1: with involuntary part timers. That's come down really dramatically. The

560
00:33:41,720 --> 00:33:44,840
Speaker 1: people who are unemployed for more than six months come

561
00:33:44,920 --> 00:33:47,760
Speaker 1: down way fast, and that's almost back to normal. We're

562
00:33:48,040 --> 00:33:50,160
Speaker 1: we're less than a million away from so we are

563
00:33:50,280 --> 00:33:54,520
Speaker 1: not part time America. We're rapidly getting back to full time.

564
00:33:55,240 --> 00:33:58,080
Speaker 1: For Yeah, folks do work, a lot of folks do

565
00:33:58,160 --> 00:34:00,680
Speaker 1: work part time voluntarily, but with the problem has been

566
00:34:00,880 --> 00:34:02,560
Speaker 1: a lot of people who were forced to work on

567
00:34:02,600 --> 00:34:05,600
Speaker 1: short and work schedules. Jenny Yellen was very focused on

568
00:34:05,640 --> 00:34:08,759
Speaker 1: that issue that's coming down very rapidly. It's under a

569
00:34:08,800 --> 00:34:11,239
Speaker 1: hundred million. It's it's really I mean a million. We're

570
00:34:11,239 --> 00:34:14,480
Speaker 1: really getting there quickly. My dumb question of the day.

571
00:34:14,600 --> 00:34:17,279
Speaker 1: If I have two or three part time jobs, am

572
00:34:17,280 --> 00:34:20,520
Speaker 1: I considered full time by guys like you? No? Not

573
00:34:20,600 --> 00:34:22,359
Speaker 1: if you want a full time job. If you if

574
00:34:22,360 --> 00:34:24,359
Speaker 1: you have several part time jobs and you're happy with that,

575
00:34:25,080 --> 00:34:28,160
Speaker 1: then you'll be considered voluntarily part time. But if you

576
00:34:28,200 --> 00:34:32,759
Speaker 1: really want one full time job, you would be considered underemployed.

577
00:34:33,200 --> 00:34:35,320
Speaker 1: But you really aren't because if you've got several jobs

578
00:34:35,960 --> 00:34:39,000
Speaker 1: part time jobs, you're kind of fully employed, but you're

579
00:34:39,040 --> 00:34:41,160
Speaker 1: not happy until you have the full time job. If

580
00:34:41,160 --> 00:34:43,480
Speaker 1: that's what you want. Edward emails in and says we

581
00:34:43,520 --> 00:34:46,960
Speaker 1: need to resuscitate. It's come on, Edward, it's too fancy

582
00:34:47,000 --> 00:34:52,600
Speaker 1: and the work resuscitate, got it vocational ed that really

583
00:34:52,600 --> 00:34:57,799
Speaker 1: worked for a while. Work now in a service sector economy.

584
00:34:58,320 --> 00:35:00,040
Speaker 1: What there are a lot of the needs are in

585
00:35:00,120 --> 00:35:04,320
Speaker 1: the manufacturing sector. So we are reviving that that concept.

586
00:35:04,520 --> 00:35:06,719
Speaker 1: And I hear a lot when I'm on the road,

587
00:35:06,760 --> 00:35:10,720
Speaker 1: a lot of job skills programs, community college programs, community colleges,

588
00:35:11,000 --> 00:35:14,000
Speaker 1: are generating a lot of these, So yeah, I think

589
00:35:14,040 --> 00:35:17,239
Speaker 1: that's an important that's an important effort. Job's day, Bill

590
00:35:17,280 --> 00:35:19,279
Speaker 1: Girls coming up. Jim Glassman with us now, we love

591
00:35:19,320 --> 00:35:22,040
Speaker 1: having the a team. You're usually glass Win's off on

592
00:35:22,160 --> 00:35:25,200
Speaker 1: like some three week vacation about now when we miss him.

593
00:35:25,200 --> 00:35:28,680
Speaker 1: But this year he's with us, which is fabulous. Jim,

594
00:35:28,840 --> 00:35:32,440
Speaker 1: I believe this job stay comes within a presidential derby.

595
00:35:32,600 --> 00:35:36,800
Speaker 1: Have you heard a job forming policy from either candidate.

596
00:35:37,840 --> 00:35:41,239
Speaker 1: You've heard a lot of talk about UH doing things

597
00:35:41,320 --> 00:35:44,320
Speaker 1: to help workers, but I think it's really more focused

598
00:35:44,360 --> 00:35:48,120
Speaker 1: on the pay issue. The folks who aren't doing as

599
00:35:48,160 --> 00:35:50,800
Speaker 1: well as they were in the previous in their previous jobs.

600
00:35:50,880 --> 00:35:54,560
Speaker 1: So I think everybody recognizes the labor the US labor

601
00:35:54,600 --> 00:35:57,160
Speaker 1: market is getting back on its feed and we're doing

602
00:35:57,160 --> 00:35:59,080
Speaker 1: it in the US economy done a pretty good job

603
00:35:59,480 --> 00:36:04,279
Speaker 1: recovery from the awful recession nine years ago. So the

604
00:36:04,280 --> 00:36:06,799
Speaker 1: the issues really are more about these structural issues and

605
00:36:07,239 --> 00:36:08,799
Speaker 1: a lot of folks are not doing are not doing

606
00:36:08,840 --> 00:36:11,120
Speaker 1: as well, a lot of folks are have been missing

607
00:36:11,200 --> 00:36:13,600
Speaker 1: out because of all these all of this innovation that's

608
00:36:13,600 --> 00:36:17,520
Speaker 1: been going on. Help us with and I give great

609
00:36:17,520 --> 00:36:22,799
Speaker 1: credit to your colleague Michael Faroli, the the responsible measurement

610
00:36:23,000 --> 00:36:25,919
Speaker 1: of what potential g d P, of what a good

611
00:36:26,000 --> 00:36:30,120
Speaker 1: run rate is for the economy. Take Farole's work and

612
00:36:30,200 --> 00:36:33,279
Speaker 1: bring it over to what non firm pay rolls should be.

613
00:36:33,520 --> 00:36:35,799
Speaker 1: The answer is a lower number. Yeah, I mean, the

614
00:36:35,840 --> 00:36:39,640
Speaker 1: only way to reconcile slow GDP but a job market

615
00:36:39,680 --> 00:36:42,560
Speaker 1: that is still growing faster and it's underlying labor force

616
00:36:43,200 --> 00:36:45,520
Speaker 1: is we must be growing above our potential and for

617
00:36:45,560 --> 00:36:48,040
Speaker 1: that to be true, potential growth has to have been

618
00:36:48,400 --> 00:36:50,680
Speaker 1: much lower. Now that now there is an issue. It's

619
00:36:50,880 --> 00:36:53,560
Speaker 1: it's conceivable all the GDP is not being measured properly.

620
00:36:54,040 --> 00:36:55,680
Speaker 1: But but the truth is, if you had to take

621
00:36:55,719 --> 00:36:57,960
Speaker 1: these numbers of face value, it implies that our potential

622
00:36:57,960 --> 00:37:00,719
Speaker 1: growth rate has come down, and labor productivity is a

623
00:37:00,719 --> 00:37:03,920
Speaker 1: big part of that. Part of it is also the demographics.

624
00:37:03,960 --> 00:37:07,359
Speaker 1: The working age population is growing more slowly. That means

625
00:37:07,400 --> 00:37:11,160
Speaker 1: you don't have to grow as rapidly to achieve full

626
00:37:11,200 --> 00:37:13,480
Speaker 1: employment as you might have thought. Yeah, but but it

627
00:37:13,600 --> 00:37:17,080
Speaker 1: might help me here. You guys can come up with

628
00:37:17,160 --> 00:37:20,719
Speaker 1: a number that's appropriate. But on the lawn of the

629
00:37:20,719 --> 00:37:25,040
Speaker 1: White House, when Dr Furman steps out there, that's a

630
00:37:25,040 --> 00:37:29,240
Speaker 1: tough sell. Acceptable, It's it's six whether it's President Clinton

631
00:37:29,320 --> 00:37:31,719
Speaker 1: or President it's a tough sell. And part of the

632
00:37:31,719 --> 00:37:34,960
Speaker 1: problem here is, uh, it is the reality. But part

633
00:37:34,960 --> 00:37:36,719
Speaker 1: of the problem is we do have a lot of

634
00:37:36,760 --> 00:37:40,520
Speaker 1: promises the public sector has made from Medicare and Medicaid,

635
00:37:40,560 --> 00:37:43,680
Speaker 1: social security, and so if our economy, whatever the reason,

636
00:37:43,840 --> 00:37:46,200
Speaker 1: is growing more slowly, it makes it very makes it

637
00:37:46,280 --> 00:37:49,719
Speaker 1: much harder for the government to pay for the promises

638
00:37:49,760 --> 00:37:52,080
Speaker 1: that we've made. Japan is struggling big time with this,

639
00:37:52,600 --> 00:37:55,960
Speaker 1: so it's important. It is the new reality, and it's

640
00:37:55,960 --> 00:37:58,000
Speaker 1: certainly not getting in the way of getting our economy

641
00:37:58,000 --> 00:38:01,680
Speaker 1: back to full employment. But the truth is, given all

642
00:38:01,760 --> 00:38:04,920
Speaker 1: the legacy promises we've made, too, folks, we need to

643
00:38:04,920 --> 00:38:07,440
Speaker 1: figure out how to get the economy moving faster. Is

644
00:38:07,480 --> 00:38:12,040
Speaker 1: there an economy off the books in America? In Europe,

645
00:38:12,080 --> 00:38:14,440
Speaker 1: there's a wide understanding. I'm gonna call it a black

646
00:38:14,480 --> 00:38:18,719
Speaker 1: Marketer show economy. Do we have one? We do have one. Um,

647
00:38:18,719 --> 00:38:22,520
Speaker 1: it's always been um uh, it's always been around. The

648
00:38:22,600 --> 00:38:25,760
Speaker 1: question is is it growing as a share of the economy.

649
00:38:25,800 --> 00:38:30,160
Speaker 1: Probably not, although a lot of the things like airbnb

650
00:38:30,280 --> 00:38:32,040
Speaker 1: s and ubers and things like that does make it

651
00:38:32,080 --> 00:38:35,200
Speaker 1: easier for you to be under the table. But my

652
00:38:35,320 --> 00:38:38,160
Speaker 1: guess is it's probably not growing as rapidly as that

653
00:38:38,320 --> 00:38:41,680
Speaker 1: it doesn't in um Europe. Let's go back to wages

654
00:38:41,719 --> 00:38:45,160
Speaker 1: and hours work. Uh, good morning to Tom Purcelli of

655
00:38:45,480 --> 00:38:49,320
Speaker 1: RBC Capitals, like you've done a lot of work on it.

656
00:38:49,480 --> 00:38:54,280
Speaker 1: I guess wages are rising measurements of inflation. Alan Kruger

657
00:38:54,400 --> 00:38:56,080
Speaker 1: just made a big deal rages there. You know, they're

658
00:38:56,080 --> 00:38:59,040
Speaker 1: in there in the right direction. But I gotta work

659
00:38:59,080 --> 00:39:01,600
Speaker 1: a number of hours too. Yeah, Is it is the

660
00:39:01,680 --> 00:39:05,880
Speaker 1: number of hours worked per week in archaic statistic No,

661
00:39:06,080 --> 00:39:09,200
Speaker 1: it's an important part. It's they sort of in the background.

662
00:39:09,320 --> 00:39:11,920
Speaker 1: It's sort of if we if we work longer hours,

663
00:39:12,000 --> 00:39:14,879
Speaker 1: that means there's more activity going on. So you can

664
00:39:14,920 --> 00:39:18,239
Speaker 1: get more g d P by just having people work

665
00:39:18,320 --> 00:39:20,640
Speaker 1: longer hours. But I have a number of family members

666
00:39:20,640 --> 00:39:22,960
Speaker 1: that would say that Dr glass one's got rocks in

667
00:39:23,000 --> 00:39:26,520
Speaker 1: his head. There's nobody my kids know who's working a

668
00:39:26,600 --> 00:39:30,080
Speaker 1: thirty eight work week, Nobody, you know. I think the

669
00:39:30,120 --> 00:39:34,680
Speaker 1: concept is lost some meaning because with all the when

670
00:39:34,719 --> 00:39:36,960
Speaker 1: you when you take take a snapshot of somebody who

671
00:39:37,040 --> 00:39:38,920
Speaker 1: was working twenty years ago, there was a lot of

672
00:39:38,960 --> 00:39:41,759
Speaker 1: dead time in your day. But today with all the

673
00:39:41,960 --> 00:39:45,360
Speaker 1: social networks and things the internet, access to the internet,

674
00:39:45,480 --> 00:39:47,719
Speaker 1: people are able to fill in dead time. So it's

675
00:39:47,719 --> 00:39:50,440
Speaker 1: hard to know how much time at that forty that

676
00:39:50,520 --> 00:39:53,680
Speaker 1: forty hour week are you actually working on the job

677
00:39:53,719 --> 00:39:56,440
Speaker 1: and how much is you know, filling in as you're

678
00:39:56,440 --> 00:40:00,680
Speaker 1: waiting for something to happen. So I think, frankly the

679
00:40:00,760 --> 00:40:03,880
Speaker 1: concept is getting a little blurred. We are thrilled to

680
00:40:03,920 --> 00:40:05,799
Speaker 1: have Jim Glassman with us. The j people are than

681
00:40:05,920 --> 00:40:10,800
Speaker 1: truly wonderful on the nuances in the deciles, the Quinn

682
00:40:10,800 --> 00:40:14,960
Speaker 1: tiles of our labor economy. Love to talk with him

683
00:40:15,239 --> 00:40:18,960
Speaker 1: away from the math, on more of the human characteristics

684
00:40:19,000 --> 00:40:21,200
Speaker 1: of our labor economy. We hope you enjoy it. Um.

685
00:40:21,320 --> 00:40:24,319
Speaker 1: What I noticed right away, Jim Glassman is a net

686
00:40:24,360 --> 00:40:29,280
Speaker 1: revision was positive eighteen thousand added in. That's two hundred

687
00:40:29,400 --> 00:40:33,799
Speaker 1: seventy three thousand and a. You know that that's two

688
00:40:33,840 --> 00:40:36,799
Speaker 1: back to back terrific months. Yeah, you know, you know

689
00:40:36,800 --> 00:40:38,840
Speaker 1: what's so curious about all this is it's instead of

690
00:40:38,880 --> 00:40:41,719
Speaker 1: been going on for a while, the job market just

691
00:40:41,719 --> 00:40:43,680
Speaker 1: just as steady as can be, and we get we

692
00:40:43,719 --> 00:40:45,919
Speaker 1: get a few out of hours now and then how

693
00:40:46,040 --> 00:40:50,680
Speaker 1: is this happening with GDPs slowing from two percent last

694
00:40:50,719 --> 00:40:52,880
Speaker 1: year to one percent this year. I think it's just

695
00:40:52,960 --> 00:40:56,839
Speaker 1: a reminder be cautious with all these numbers. We we

696
00:40:57,080 --> 00:40:58,759
Speaker 1: there are issues with a lot of them, and I

697
00:40:58,800 --> 00:41:00,600
Speaker 1: think the key here is to keep an eye on

698
00:41:00,640 --> 00:41:03,759
Speaker 1: the job market trends. Today's report backs up we've been

699
00:41:03,800 --> 00:41:06,160
Speaker 1: seeing from jobless claims and a DP and other trends,

700
00:41:06,200 --> 00:41:08,759
Speaker 1: so it tells us we're making project quickly. The three

701
00:41:08,760 --> 00:41:13,120
Speaker 1: months moving average is a hundred and ninety thousand. Yeah,

702
00:41:13,280 --> 00:41:15,439
Speaker 1: that's not a bad account. Not a bad economist. Growing

703
00:41:15,480 --> 00:41:18,040
Speaker 1: up faster than trend, we think the underlying trend. As

704
00:41:18,080 --> 00:41:21,360
Speaker 1: long as you're growing employment scoring faster than sred thousand,

705
00:41:21,719 --> 00:41:25,239
Speaker 1: you're growing faster than the underlying trend. Now, the reason

706
00:41:25,280 --> 00:41:27,480
Speaker 1: the underplumber raid didn't come down was because the labor

707
00:41:27,520 --> 00:41:30,640
Speaker 1: force jumped again. So as as the market gets better,

708
00:41:31,160 --> 00:41:33,400
Speaker 1: people are going to be coming back and looking for jobs.

709
00:41:33,600 --> 00:41:46,920
Speaker 1: Jim Glass One was always thank you so much, and

710
00:41:46,960 --> 00:41:50,319
Speaker 1: now joining was Bloomberg Television Worldwide and Bloomberg Radio close.

711
00:41:50,400 --> 00:41:53,840
Speaker 1: Good Morning is Well with William Gross of Jane's Capital.

712
00:41:53,880 --> 00:41:57,719
Speaker 1: I've got Facebook Live going to make it more attractive

713
00:41:57,760 --> 00:41:59,799
Speaker 1: for Mr Gross and Jim Glass one with us as well,

714
00:42:00,120 --> 00:42:03,440
Speaker 1: the JP Morgan Bill Gross. Is this enough of a

715
00:42:03,600 --> 00:42:09,080
Speaker 1: job's report on first blush to make Shure Yelling really

716
00:42:09,200 --> 00:42:14,520
Speaker 1: really really reassess policy. Three months moving average a hundred

717
00:42:14,520 --> 00:42:19,239
Speaker 1: and ninety thousand on non farm payrolls. That's good job growth. Um.

718
00:42:19,360 --> 00:42:21,720
Speaker 1: You know, I would point out that the household survey,

719
00:42:21,760 --> 00:42:24,680
Speaker 1: which is the uh the twin to this report, was

720
00:42:24,840 --> 00:42:27,520
Speaker 1: rather strong too, although for the prior three months that

721
00:42:27,600 --> 00:42:30,719
Speaker 1: had been negative. So yeah, that this month shows some

722
00:42:30,800 --> 00:42:33,799
Speaker 1: good gains in wages, some good games and jobs. Is

723
00:42:33,800 --> 00:42:38,120
Speaker 1: it enough for Janet Yelling in September? I don't think so.

724
00:42:38,239 --> 00:42:41,040
Speaker 1: I think she's still focused on global conditions. She's still

725
00:42:41,480 --> 00:42:45,520
Speaker 1: worried about a strong dollar relative to merging markets and

726
00:42:45,560 --> 00:42:49,319
Speaker 1: other developed economies, and so um yeah, perhaps one to come,

727
00:42:49,320 --> 00:42:52,200
Speaker 1: but maybe in December if dis continues, but not for now,

728
00:42:52,880 --> 00:42:56,000
Speaker 1: if she begins a one step move. Have you done

729
00:42:56,000 --> 00:43:01,920
Speaker 1: the econometric guest guesswork of how much the dollar in advance? No?

730
00:43:02,040 --> 00:43:06,200
Speaker 1: Not really. Um, you know the dollar would be stronger

731
00:43:06,200 --> 00:43:08,440
Speaker 1: than it would be otherwise, that I would think, But

732
00:43:09,600 --> 00:43:11,359
Speaker 1: you know, the dollar has been in an uptrend for

733
00:43:11,520 --> 00:43:13,840
Speaker 1: the past three or four months, and I think that's

734
00:43:14,280 --> 00:43:19,520
Speaker 1: something that that bothers the FED if it continues. And so, um,

735
00:43:20,280 --> 00:43:23,520
Speaker 1: we're gonna have to play the globalization game as opposed

736
00:43:23,600 --> 00:43:27,520
Speaker 1: to the domestic game going forward. I mean, I think

737
00:43:27,520 --> 00:43:30,240
Speaker 1: what all of our viewers and listeners would agree, Bill Gross,

738
00:43:30,680 --> 00:43:33,360
Speaker 1: We're in this great distortion. It used to be the

739
00:43:33,400 --> 00:43:38,280
Speaker 1: Bondo market was distorted. Now it seems everything is distorted.

740
00:43:38,680 --> 00:43:43,400
Speaker 1: How should our viewers and listeners treat the economic debate

741
00:43:43,880 --> 00:43:48,839
Speaker 1: to assist them with their jobs, their family, and their investment. Well,

742
00:43:48,920 --> 00:43:51,160
Speaker 1: I think the economic debate is more than just jobs.

743
00:43:51,200 --> 00:43:54,200
Speaker 1: I heard Jim Glassman about thirty minutes ago talk about

744
00:43:54,200 --> 00:43:57,919
Speaker 1: the importance of jobs versus the importance of the real

745
00:43:57,960 --> 00:44:02,000
Speaker 1: economy itself, which is chugging along a uh point at

746
00:44:02,040 --> 00:44:05,600
Speaker 1: two percent or a little bit less. And I think, um,

747
00:44:05,640 --> 00:44:07,840
Speaker 1: you know that the real economy is the key. And

748
00:44:08,360 --> 00:44:11,319
Speaker 1: what I've seen in the past three months is, yes,

749
00:44:11,440 --> 00:44:14,919
Speaker 1: a a strong surge in terms of consumers spending real

750
00:44:15,520 --> 00:44:19,440
Speaker 1: PC and nominal PC almost at a seven percent rate,

751
00:44:19,480 --> 00:44:21,319
Speaker 1: but it's been basically due to a draw down in

752
00:44:21,320 --> 00:44:23,600
Speaker 1: the savings rate from about six point two to five

753
00:44:23,640 --> 00:44:27,240
Speaker 1: point one that can't continue. In other words, the consumers

754
00:44:27,280 --> 00:44:29,680
Speaker 1: have basically been eating their seed corn and their nuts

755
00:44:29,760 --> 00:44:32,920
Speaker 1: and in the wintertimes. So um, you know, to my

756
00:44:33,000 --> 00:44:36,239
Speaker 1: way of thinking, it's spending power, disposable income which has

757
00:44:36,239 --> 00:44:38,799
Speaker 1: only been growing at a two point one percent rate,

758
00:44:38,840 --> 00:44:41,840
Speaker 1: and and jobs help and higher wages help, but we

759
00:44:41,880 --> 00:44:44,239
Speaker 1: haven't really seen a significant push in terms of the

760
00:44:44,280 --> 00:44:46,960
Speaker 1: ability to spend money. It's been in terms of the

761
00:44:47,080 --> 00:44:49,120
Speaker 1: draw down in the savings rate. Right, this is critically

762
00:44:49,239 --> 00:44:51,640
Speaker 1: Let's bring Dr Glass and break into assist Bill gross

763
00:44:52,200 --> 00:44:56,760
Speaker 1: with this. I mean, the savings rate paradox is absolutely critical,

764
00:44:56,840 --> 00:44:59,680
Speaker 1: Gym Glassman, isn't it. But keep in mind, what one

765
00:44:59,680 --> 00:45:02,240
Speaker 1: thing going on here is when oil prices came down,

766
00:45:02,760 --> 00:45:07,000
Speaker 1: are energy outlays by the consumer sector plunge. Consumers are

767
00:45:07,080 --> 00:45:09,759
Speaker 1: kind of slow on the draw there, so what's going on.

768
00:45:09,840 --> 00:45:12,080
Speaker 1: The saving rate jumped up when that happened, and what's

769
00:45:12,120 --> 00:45:14,640
Speaker 1: really going on is people are beginning to spend that windfall.

770
00:45:15,040 --> 00:45:16,600
Speaker 1: So I don't worry about it as much. I really

771
00:45:16,600 --> 00:45:20,120
Speaker 1: think the consumers are at their back and bill grows.

772
00:45:20,160 --> 00:45:22,080
Speaker 1: I'm gonna go back to when you look at the

773
00:45:22,080 --> 00:45:26,280
Speaker 1: economy and you take out that consumers spending their seat corn.

774
00:45:26,640 --> 00:45:29,000
Speaker 1: There's not much going on there. Some would say it's

775
00:45:29,000 --> 00:45:32,520
Speaker 1: a dearth of investment. Alan Krueger of Princeton says it's

776
00:45:32,560 --> 00:45:36,399
Speaker 1: a dearth of government spending. Which is it, Bill Gross, Well,

777
00:45:36,440 --> 00:45:39,239
Speaker 1: I think it's a dearth of investment spending, And you're right.

778
00:45:39,680 --> 00:45:43,239
Speaker 1: The economy absent consumer spending is basically in a recession.

779
00:45:43,320 --> 00:45:46,480
Speaker 1: That's not a it's a significant statement. It's just barely

780
00:45:47,080 --> 00:45:49,840
Speaker 1: below the line, but nonetheless in terms of investment, in

781
00:45:49,960 --> 00:45:53,160
Speaker 1: terms of manufacturing, in terms of anything that doesn't depend

782
00:45:53,239 --> 00:45:56,160
Speaker 1: upon the consumer spending some money, which I again maintain

783
00:45:56,280 --> 00:45:58,680
Speaker 1: is due to a draw down in the savings right,

784
00:45:58,719 --> 00:46:02,960
Speaker 1: and a low rate of disposable income going forward. You know,

785
00:46:03,000 --> 00:46:08,480
Speaker 1: I think we have to worry about consumer spending versus investment,

786
00:46:08,520 --> 00:46:10,759
Speaker 1: and investment certainly is lagging due to a number of

787
00:46:10,800 --> 00:46:14,080
Speaker 1: structural things that we can talk about. Bill, I want

788
00:46:14,080 --> 00:46:16,360
Speaker 1: to talk first of all about the portfolio, and folks,

789
00:46:16,400 --> 00:46:20,439
Speaker 1: just to recap your futures, advanced yields higher to build Bill,

790
00:46:20,480 --> 00:46:23,719
Speaker 1: When I say yields higher, that makes you sad, right,

791
00:46:23,880 --> 00:46:27,799
Speaker 1: Are you losing money with the unconstrained fund as we speak? No,

792
00:46:28,040 --> 00:46:32,400
Speaker 1: only if you have a significantly higher duration relative to

793
00:46:32,440 --> 00:46:34,680
Speaker 1: your bogey. The unconstrained fund is a bogie of live

794
00:46:34,840 --> 00:46:37,680
Speaker 1: or and doesn't have a duration per se. So if

795
00:46:37,719 --> 00:46:40,920
Speaker 1: interest rates go up, it's only an opportunity basically to

796
00:46:41,040 --> 00:46:45,120
Speaker 1: invest going forward then to increase your duration. So I

797
00:46:45,120 --> 00:46:48,759
Speaker 1: haven't seen the numbers, but I think Jenison constraints having

798
00:46:48,760 --> 00:46:50,920
Speaker 1: a good day. Okay, well, we like that. It's very

799
00:46:50,960 --> 00:46:53,640
Speaker 1: important what he said there about the maturity of where

800
00:46:53,680 --> 00:46:57,200
Speaker 1: you are bill for our regular investors who are going

801
00:46:57,600 --> 00:46:59,560
Speaker 1: I need a two year piece, of three year piece

802
00:46:59,600 --> 00:47:03,440
Speaker 1: of ten your piece. Where's the appropriate duration or maturity

803
00:47:03,920 --> 00:47:08,200
Speaker 1: for mere mortals? Uh? Depends on your age, and depends

804
00:47:08,280 --> 00:47:12,200
Speaker 1: upon your risk proclivity, and depends upon the obviously the

805
00:47:12,280 --> 00:47:14,560
Speaker 1: yield curve, and that's all mixed into one. I haven't

806
00:47:14,560 --> 00:47:17,280
Speaker 1: given you one answer yet. I think at this point

807
00:47:17,320 --> 00:47:20,240
Speaker 1: that you know the proper duration is close to zero.

808
00:47:20,320 --> 00:47:23,480
Speaker 1: I put out an investment outlook this week that basically

809
00:47:23,520 --> 00:47:26,640
Speaker 1: said I don't like bonds, um, I don't like stocks.

810
00:47:26,680 --> 00:47:29,439
Speaker 1: And I think it's obvious that you know, with ten

811
00:47:30,400 --> 00:47:35,320
Speaker 1: trillion dollars worth of bonds globally in a negative camp,

812
00:47:35,880 --> 00:47:38,600
Speaker 1: that common sense would tell you that bonds aren't attractive,

813
00:47:38,680 --> 00:47:41,080
Speaker 1: you have to pay them. Bonds aren't an asset. Bonds

814
00:47:41,080 --> 00:47:43,799
Speaker 1: are a liability and a negative interest rate. And so

815
00:47:44,440 --> 00:47:46,560
Speaker 1: why would someone want to own bonds only if he

816
00:47:46,640 --> 00:47:49,400
Speaker 1: thought that they were going even more negative? And I

817
00:47:49,440 --> 00:47:51,319
Speaker 1: think we're reaching out? Okay, Bill, I want to rip

818
00:47:51,400 --> 00:47:53,440
Speaker 1: up the script here and drill down. Thanks to Scarlet

819
00:47:53,440 --> 00:47:56,719
Speaker 1: Food for great interview with Mr Gross the other day. Bill,

820
00:47:56,800 --> 00:47:59,680
Speaker 1: you made world headlines. You said, get out of bonds,

821
00:48:00,160 --> 00:48:03,799
Speaker 1: lukewarm on stocks, and you want to buy intangibles. There

822
00:48:03,880 --> 00:48:07,920
Speaker 1: was a day where you bought a z Grill Benjamin

823
00:48:08,000 --> 00:48:11,239
Speaker 1: Franklin stamp for more money than God. You made some

824
00:48:11,360 --> 00:48:13,600
Speaker 1: kind of trade to do it. Are you telling our

825
00:48:13,680 --> 00:48:17,120
Speaker 1: audience we all need to be stamp collectors? Oh? No,

826
00:48:18,040 --> 00:48:20,480
Speaker 1: because most of the good ones are gone. Um, so

827
00:48:21,200 --> 00:48:25,759
Speaker 1: you know they can't possibly find the good. What's an intangible? Think? What? Well?

828
00:48:25,840 --> 00:48:30,120
Speaker 1: And intangible? It's something that's not the financialized that you

829
00:48:30,160 --> 00:48:35,000
Speaker 1: can't really buy in significant numbers or significant quantities on

830
00:48:35,120 --> 00:48:38,240
Speaker 1: the New York Stock Exchange or in the bond markets.

831
00:48:38,440 --> 00:48:42,640
Speaker 1: I think we're talking about real assets, meaning property, land.

832
00:48:42,640 --> 00:48:44,839
Speaker 1: We're talking about gold to some extent, although you can

833
00:48:44,880 --> 00:48:48,239
Speaker 1: buy gold in terms of e t f s, but

834
00:48:48,400 --> 00:48:51,719
Speaker 1: we're talking about assets that have been left behind, so

835
00:48:51,800 --> 00:48:55,400
Speaker 1: to speak, in terms of the drop in in nominal

836
00:48:55,400 --> 00:48:58,480
Speaker 1: and real interest rates mentioned earlier than MetLife tobacco and

837
00:48:58,600 --> 00:49:03,359
Speaker 1: real jobs being law it met life, folks. The actuarial assumption,

838
00:49:03,760 --> 00:49:07,920
Speaker 1: which is a is a loaded phrase, is essentially a

839
00:49:08,080 --> 00:49:11,600
Speaker 1: careful calculation of how much you need to make out

840
00:49:11,640 --> 00:49:16,279
Speaker 1: a long time bill. Gross. What's the actuarial assumption you

841
00:49:16,320 --> 00:49:21,240
Speaker 1: would guess for the nation's pension funds? For our insurance company?

842
00:49:21,360 --> 00:49:25,759
Speaker 1: Quiet money? What's the actual assumption from my lousy two

843
00:49:25,760 --> 00:49:30,719
Speaker 1: oh one K, Well, it's seven percent? Come on that

844
00:49:31,960 --> 00:49:35,359
Speaker 1: that high? Well, that's that's what the assumption is. Yes,

845
00:49:35,440 --> 00:49:38,560
Speaker 1: that's what the actuary is basically saying. It's coming down slowly.

846
00:49:38,640 --> 00:49:41,200
Speaker 1: But the state of California and CalPERS, you know, they're

847
00:49:41,200 --> 00:49:43,640
Speaker 1: all around seven or seven a half percent. And so

848
00:49:44,000 --> 00:49:46,720
Speaker 1: what does that mean? It means that basically, with bonds

849
00:49:46,719 --> 00:49:49,360
Speaker 1: at one, two, three, and four, in terms of the

850
00:49:49,640 --> 00:49:52,760
Speaker 1: entire list of corporate bonds and government bonds, that stocks

851
00:49:52,800 --> 00:49:56,400
Speaker 1: basically have to produce a you know, a double digit

852
00:49:57,719 --> 00:50:00,759
Speaker 1: return in order to get right. And unless they do, um,

853
00:50:00,880 --> 00:50:05,279
Speaker 1: then pension funds and and moment pop on main Street, Tom,

854
00:50:05,320 --> 00:50:07,359
Speaker 1: which is the important thing Moment pop on Main Street

855
00:50:07,400 --> 00:50:10,000
Speaker 1: are looking forward to. In therefore, one case which you

856
00:50:10,080 --> 00:50:12,759
Speaker 1: mentioned to seven or eight percent, they don't know a

857
00:50:12,880 --> 00:50:14,960
Speaker 1: number exactly, but that's what they're used to, and so

858
00:50:15,200 --> 00:50:16,880
Speaker 1: they don't get it, or if they don't get it,

859
00:50:16,920 --> 00:50:19,000
Speaker 1: they are in trouble. I would to pinion down this

860
00:50:19,080 --> 00:50:22,879
Speaker 1: morning on this where dos v Body at Boston University,

861
00:50:23,280 --> 00:50:27,120
Speaker 1: one of our great financial theorists, has an actual assumption

862
00:50:27,320 --> 00:50:31,440
Speaker 1: way way down bill grows. Where's your working number for

863
00:50:31,520 --> 00:50:34,400
Speaker 1: our viewers and listenersers? It's not seven or eight percent,

864
00:50:34,680 --> 00:50:37,320
Speaker 1: is it? No? I think it has to be around

865
00:50:37,400 --> 00:50:39,800
Speaker 1: four percent? What does that assume? As soon as maybe

866
00:50:40,200 --> 00:50:43,040
Speaker 1: five percent? For stocks? We've got dividends at two and

867
00:50:43,400 --> 00:50:46,239
Speaker 1: earnings growth perhaps at two to three percent. In this

868
00:50:46,360 --> 00:50:49,200
Speaker 1: new world, we've got bonds in terms of corporate bonds

869
00:50:49,200 --> 00:50:52,160
Speaker 1: and investment grade bonds around you know, three percent two

870
00:50:52,200 --> 00:50:54,000
Speaker 1: and a half to three percent, and so you mix

871
00:50:54,080 --> 00:50:56,160
Speaker 1: them together in a fifty fifty type of mix and

872
00:50:56,200 --> 00:50:59,040
Speaker 1: it's a forty five percent number. It's not what we're

873
00:50:59,120 --> 00:51:02,400
Speaker 1: used to. And what does that mean? It means that Ultimately,

874
00:51:03,000 --> 00:51:05,920
Speaker 1: the uh pensions have to adjust, they have to have

875
00:51:05,960 --> 00:51:09,920
Speaker 1: more contributions or they have to rid you know, benefit payments,

876
00:51:09,960 --> 00:51:12,560
Speaker 1: and and both of those are negative in terms of

877
00:51:12,560 --> 00:51:15,680
Speaker 1: the financial structure and markets that we're seeing today and

878
00:51:15,719 --> 00:51:17,880
Speaker 1: have seen for the past thirty years. I want to

879
00:51:17,920 --> 00:51:19,920
Speaker 1: break a rule here, Bill Gross. I want to in

880
00:51:20,000 --> 00:51:21,840
Speaker 1: a time that we've got left with you and thanks

881
00:51:21,840 --> 00:51:24,799
Speaker 1: for the ample time on Bloomberg Radio and Bloomberg Television

882
00:51:25,120 --> 00:51:29,600
Speaker 1: with Mr Gross. We have to talk about our presidential derby.

883
00:51:29,640 --> 00:51:33,000
Speaker 1: It has been front in center. Do you glean an

884
00:51:33,160 --> 00:51:37,960
Speaker 1: economic policy from either candidate that will drag us further

885
00:51:38,120 --> 00:51:42,040
Speaker 1: from this financial crisis? I don't see much time. I

886
00:51:42,040 --> 00:51:46,319
Speaker 1: see infrastructure spending. I think both sides can agree on that,

887
00:51:46,440 --> 00:51:49,200
Speaker 1: the size of which is probably you know, up for

888
00:51:49,280 --> 00:51:52,800
Speaker 1: debate in terms of whether the Republicans maintain significant control

889
00:51:52,880 --> 00:51:56,000
Speaker 1: of the Congress. But aside from that, I don't see

890
00:51:56,000 --> 00:51:59,040
Speaker 1: anything from Clinton. I don't see anything from Trump in

891
00:51:59,160 --> 00:52:03,280
Speaker 1: terms of you know, actual policies. I see tax cuts, perhaps,

892
00:52:03,320 --> 00:52:05,920
Speaker 1: I see you know, taking care of student loans, but

893
00:52:06,000 --> 00:52:09,480
Speaker 1: I don't see anything other than infrastructure spending. I think

894
00:52:09,560 --> 00:52:13,959
Speaker 1: ultimately that's where most of the developed world is going.

895
00:52:14,080 --> 00:52:16,719
Speaker 1: I saw that in Japan uh in the last week

896
00:52:16,719 --> 00:52:20,320
Speaker 1: when a big came out with his proposals, and significantly

897
00:52:20,400 --> 00:52:23,520
Speaker 1: tom he talked about giving away of a hundred and

898
00:52:23,520 --> 00:52:27,640
Speaker 1: fifty dollars to thirty million people. That's helicopter money. And

899
00:52:27,680 --> 00:52:30,360
Speaker 1: so if we begin to move in that direction, helicopter

900
00:52:30,400 --> 00:52:36,000
Speaker 1: and infrastructure Kanzian types of policies, then I think that

901
00:52:36,000 --> 00:52:37,719
Speaker 1: that's the where we where we should go. And they

902
00:52:37,719 --> 00:52:39,839
Speaker 1: don't see it at the moment. Now, many of our

903
00:52:39,880 --> 00:52:43,600
Speaker 1: listeners and viewers would suggested Secretary Clinton is a Keynesian?

904
00:52:43,760 --> 00:52:47,120
Speaker 1: Is Mr Trump a Kayanzian? Oh, I don't think Mr

905
00:52:47,120 --> 00:52:51,040
Speaker 1: Trump is anything. I'm not to dinner great Mr Trump,

906
00:52:51,080 --> 00:52:55,200
Speaker 1: But I don't think he's advanced a specific policy of

907
00:52:55,920 --> 00:52:59,840
Speaker 1: either Canzi m Keynesianism. He has talked about monetary policy,

908
00:53:00,080 --> 00:53:03,040
Speaker 1: suggest that the interest rate should go up, but other

909
00:53:03,080 --> 00:53:05,880
Speaker 1: than that, I don't think he has a formative type

910
00:53:05,880 --> 00:53:10,000
Speaker 1: of policy that could be put into legislation at the moment.

911
00:53:10,360 --> 00:53:12,440
Speaker 1: When I look built at the moment we're in and

912
00:53:12,440 --> 00:53:16,560
Speaker 1: you've been so good about defining our financial repression. I've

913
00:53:16,560 --> 00:53:20,319
Speaker 1: got service sector inflation at three point two percent, other

914
00:53:20,440 --> 00:53:24,840
Speaker 1: measures down below, What are the ramifications if chair yelling

915
00:53:24,880 --> 00:53:29,480
Speaker 1: gets her best outcome, first discussed by Olivier Blanchard, of

916
00:53:29,520 --> 00:53:33,000
Speaker 1: an overshoot, we get an overshoot and we all allow

917
00:53:33,120 --> 00:53:36,360
Speaker 1: inflation to move on. Those of us have a certain

918
00:53:36,480 --> 00:53:40,000
Speaker 1: vintage look back to the sixties and Walter Heller in

919
00:53:40,360 --> 00:53:44,800
Speaker 1: ugly outcomes of an overshoot. Can there be a constructive

920
00:53:44,960 --> 00:53:48,759
Speaker 1: inflation overshoot? Yeah, I think they can, And I think

921
00:53:48,760 --> 00:53:51,400
Speaker 1: that's been talked about lightly over the past few years.

922
00:53:51,440 --> 00:53:54,239
Speaker 1: But there's been an undershoot, has there not for a

923
00:53:54,320 --> 00:53:57,319
Speaker 1: significant under number of years. And the cp I not

924
00:53:57,400 --> 00:54:00,600
Speaker 1: in terms of the annual percentage rate, but the CPO itself,

925
00:54:00,960 --> 00:54:04,160
Speaker 1: you know, it's significantly under shooting, you know, the trend

926
00:54:04,239 --> 00:54:07,480
Speaker 1: line of two percent going forward, and so sure there

927
00:54:07,480 --> 00:54:09,800
Speaker 1: can be an overshoot. I think FED governors and presidents

928
00:54:09,840 --> 00:54:14,200
Speaker 1: have talked about that. I think we could see it perhaps,

929
00:54:14,320 --> 00:54:18,160
Speaker 1: But yeah, you know, let's let's forget about inflation for

930
00:54:18,200 --> 00:54:21,000
Speaker 1: the moment, because it's a deflationary world and let's worry

931
00:54:21,040 --> 00:54:25,160
Speaker 1: about yes, I say Kensie and fiscal policy, which might

932
00:54:25,239 --> 00:54:28,800
Speaker 1: provide a push and going forward, I think monetary policy

933
00:54:28,920 --> 00:54:33,440
Speaker 1: is basically um it's it's certainly weak, and it's dying

934
00:54:34,280 --> 00:54:36,920
Speaker 1: in terms of its impact. Bill. In the time that

935
00:54:36,960 --> 00:54:39,520
Speaker 1: we've got left with you, I think it's so important

936
00:54:39,520 --> 00:54:42,200
Speaker 1: to get to handle on the yield market, the two

937
00:54:42,280 --> 00:54:46,360
Speaker 1: year yield. I was flabbergasted off the FED meeting of

938
00:54:46,400 --> 00:54:48,879
Speaker 1: a number of days ago, from point seven six down

939
00:54:48,880 --> 00:54:52,640
Speaker 1: to point six seven. What does it signal to see

940
00:54:52,960 --> 00:54:56,080
Speaker 1: the bond vigilantes Not Bill Gross of course, but the

941
00:54:56,080 --> 00:55:00,480
Speaker 1: bond vigilantees. What is its signal when they say a

942
00:55:00,520 --> 00:55:04,680
Speaker 1: price up, yield down, no chair yelling you're not going

943
00:55:04,719 --> 00:55:07,960
Speaker 1: to get your way? What is that signal? Well, it

944
00:55:08,080 --> 00:55:13,239
Speaker 1: signals to some extent, you know, structural changes in um

945
00:55:13,880 --> 00:55:19,560
Speaker 1: in monetary policies. I mean, the regulatory environment has completely

946
00:55:19,680 --> 00:55:24,160
Speaker 1: changed the money market uh field. As you know, lots

947
00:55:24,160 --> 00:55:29,080
Speaker 1: of investors are moving from uh non government to government

948
00:55:29,200 --> 00:55:32,359
Speaker 1: only types of money market funds and that's changing live

949
00:55:32,520 --> 00:55:35,120
Speaker 1: or in terms of its movement up and down. So

950
00:55:35,160 --> 00:55:38,640
Speaker 1: there there are changes from a regulatory standpoint. And to

951
00:55:38,760 --> 00:55:41,680
Speaker 1: be fair, you know, the you know, a lot of

952
00:55:41,719 --> 00:55:44,680
Speaker 1: the decline is based upon expectations. But what happened in

953
00:55:44,680 --> 00:55:47,279
Speaker 1: the UK and what we're seeing globally, so it's it's

954
00:55:47,320 --> 00:55:50,960
Speaker 1: a it's a global market and and I think the

955
00:55:51,040 --> 00:55:55,520
Speaker 1: vigilantes sort of go along to get along. Bill. Finally, Um,

956
00:55:55,600 --> 00:55:58,440
Speaker 1: David blanche Flower of Dartmouth, who has been in great

957
00:55:58,480 --> 00:56:01,760
Speaker 1: sympathy with much of what you have said, has published

958
00:56:01,840 --> 00:56:05,640
Speaker 1: moments ago in The Guardian in England on the risk

959
00:56:05,760 --> 00:56:11,200
Speaker 1: of central banks sleepwalking into another financial crisis. He says,

960
00:56:11,200 --> 00:56:15,840
Speaker 1: commodity prices are falling, crude oil tumbling, market confidence crashing

961
00:56:16,440 --> 00:56:20,560
Speaker 1: in central banks. Well, they're just slow and just slowly

962
00:56:20,600 --> 00:56:26,799
Speaker 1: getting to a more accommodative policy. Areur central banks sleepwalking? Oh?

963
00:56:26,840 --> 00:56:29,120
Speaker 1: I think they've been sleepwalking for a long time. And

964
00:56:29,239 --> 00:56:32,400
Speaker 1: I'll take that back to Bernanke and back to Alan Greenspan.

965
00:56:32,480 --> 00:56:35,279
Speaker 1: They've been following and Grinsband admitted it, did he not

966
00:56:35,360 --> 00:56:38,480
Speaker 1: that he was following a wrong model. Um. I don't

967
00:56:38,480 --> 00:56:40,680
Speaker 1: think Yellen has admitted it to this point. But she

968
00:56:40,880 --> 00:56:44,520
Speaker 1: follows the tailor rules, she follows the Phillips curve, she

969
00:56:44,600 --> 00:56:48,920
Speaker 1: follows the unemployment rate. She doesn't see the destruction on

970
00:56:48,960 --> 00:56:50,960
Speaker 1: the other side that we've talked about in terms of

971
00:56:51,000 --> 00:56:56,080
Speaker 1: financial institutions that ultimately reduced growth as supposed to expand growth.

972
00:56:56,280 --> 00:56:59,680
Speaker 1: It's all focused on asset prices. The stock market. Stock

973
00:56:59,719 --> 00:57:03,400
Speaker 1: market goes up. You know, policies fine. Otherwise, you know,

974
00:57:03,680 --> 00:57:06,600
Speaker 1: she's missing the point that the market has changed. It's

975
00:57:06,680 --> 00:57:10,040
Speaker 1: highly levered, it's got a lot of debt, and ultimately,

976
00:57:10,040 --> 00:57:13,520
Speaker 1: these negative interest rates and low interest rates are job negative.

977
00:57:14,040 --> 00:57:17,480
Speaker 1: What would happen, Bill gross if they raised rates? I mean,

978
00:57:17,800 --> 00:57:20,120
Speaker 1: I guess there would be turmoil and you know your

979
00:57:20,160 --> 00:57:23,760
Speaker 1: monro trader would heat up for an hour or two Janice.

980
00:57:23,920 --> 00:57:28,760
Speaker 1: But Bill, seriously, what would happen if we began to

981
00:57:28,800 --> 00:57:31,600
Speaker 1: normalize our curve? Well, it wouldn't be good. And it

982
00:57:31,640 --> 00:57:34,920
Speaker 1: depends upon the pace, but I think more than twenty

983
00:57:34,960 --> 00:57:38,720
Speaker 1: five basis points every year. It is something that needs

984
00:57:38,760 --> 00:57:41,360
Speaker 1: to be done in order to renormalize faster than what

985
00:57:41,560 --> 00:57:44,440
Speaker 1: they're doing it. It's like going to the dentist. Tom,

986
00:57:45,120 --> 00:57:47,440
Speaker 1: you know you've got a toothache, You go to the dentist,

987
00:57:47,560 --> 00:57:50,600
Speaker 1: you don't like the dentist, it doesn't doesn't feel good,

988
00:57:50,640 --> 00:57:53,440
Speaker 1: but ultimately the tooth feels better. And so you know,

989
00:57:53,440 --> 00:57:56,240
Speaker 1: it's a process of getting back closer to where we

990
00:57:56,320 --> 00:57:59,360
Speaker 1: should be, not where we were. Because real interest rates

991
00:57:59,360 --> 00:58:02,760
Speaker 1: are lower now than there have been for the past

992
00:58:02,760 --> 00:58:05,520
Speaker 1: thirty or four years, and we'll both belong. Bill, You've

993
00:58:05,520 --> 00:58:08,960
Speaker 1: had a better than good year being unconstrained. It's a

994
00:58:09,000 --> 00:58:12,320
Speaker 1: single digit world and you're developing alpha. What is the

995
00:58:12,320 --> 00:58:16,880
Speaker 1: biggest constraint you face with the options you have of

996
00:58:16,920 --> 00:58:21,360
Speaker 1: being unconstrained. What's the biggest challenge day to day? Well,

997
00:58:21,400 --> 00:58:24,880
Speaker 1: the biggest challenges that all assets are overvalued. In my opinion,

998
00:58:24,960 --> 00:58:29,960
Speaker 1: negative interest rates, near zero percent interest rates lead to

999
00:58:30,120 --> 00:58:33,880
Speaker 1: higher than normal pe ratios and expectations for growth, which

1000
00:58:34,280 --> 00:58:37,240
Speaker 1: um you know ultimately are are are much too high.

1001
00:58:37,280 --> 00:58:40,040
Speaker 1: And so if you take the view that all assets

1002
00:58:40,040 --> 00:58:42,760
Speaker 1: are overvalued, it becomes a question of which ones are

1003
00:58:42,880 --> 00:58:46,880
Speaker 1: least overvalued. And so the unconstrained universe, certainly you know

1004
00:58:46,920 --> 00:58:50,600
Speaker 1: it comes in in in and and your face with

1005
00:58:50,720 --> 00:58:54,200
Speaker 1: limited choices in terms of risk and return. I've talked

1006
00:58:54,200 --> 00:58:57,560
Speaker 1: about capitalism and and how does it, you know, begin

1007
00:58:57,640 --> 00:59:01,200
Speaker 1: to erode. It begins to erode when when investments offer

1008
00:59:01,320 --> 00:59:03,760
Speaker 1: too little return for too much risk. And so for

1009
00:59:03,840 --> 00:59:07,680
Speaker 1: the most part, any asset universe, any portfolio managers faced

1010
00:59:07,800 --> 00:59:11,640
Speaker 1: with the problem a significantly over varied asset universe, and

1011
00:59:12,000 --> 00:59:15,440
Speaker 1: which ones are least over valued? Mr Gross, thank you

1012
00:59:15,480 --> 00:59:18,280
Speaker 1: so much more than generous with your time. This morning,

1013
00:59:18,320 --> 00:59:24,040
Speaker 1: Bill Gross is with Jana's Capital. Thanks for listening to

1014
00:59:24,120 --> 00:59:30,200
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud,

1015
00:59:30,600 --> 00:59:34,520
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

1016
00:59:34,600 --> 00:59:39,360
Speaker 1: Tom Keane, Michael McKee is at Economy Before the podcast.

1017
00:59:39,480 --> 00:59:41,560
Speaker 1: You can always catch us worldwide