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

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Speaker 1: Bloomberg to Boston, Bloomberg twelve hundreds to San Francisco, Bloomberg

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Speaker 1: to the Country six Channel one nineties and around the

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Speaker 1: globe the Bloomberg Radio plus Apen Bloomberg dot Com. This

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Speaker 1: is Bloomwork Surveillance. Good morning, eight thirty on Wall Street.

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Speaker 1: It's jobs Day. Let's go directly to Vinnie Dell Judais

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Speaker 1: at the First Word Desk, Michael Aleston Gangbusters report the

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Speaker 1: economy adding just thirty eight thousand jobs in May. Non

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Speaker 1: farm payrolls up by thirty eight thousand, the unemployment rate

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Speaker 1: though falling to four point seven percent. Average hourly earnings

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Speaker 1: in line with forecasts, up point two percent. Again, non

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Speaker 1: farm payrolls the big number may up just thirty eight

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Speaker 1: thousand the prior month April revised lower unemployment though four

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Speaker 1: point seven percent. Couple of our first work as company failed. Judice,

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Speaker 1: let's go back to me, if any thank you so much.

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Speaker 1: Markets with a seismic mover in five basis points one

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Speaker 1: point seven and the tenure the two year craters, there's

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Speaker 1: no other way to put it. Seven basis points seven

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Speaker 1: hundreds of a percentage point point eight two percent off

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Speaker 1: of point eight eight percent moments before the report. Yeah,

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Speaker 1: dramatically stronger, Mike, we may get a one oh seven. Yeah, Mike,

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Speaker 1: do some housekeeping here and then we need to dive

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Speaker 1: into this with Jim glass Well, I gotta tell you

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Speaker 1: are I came on a condicators are brought to you

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Speaker 1: by Commonwealth Financial Network. When it's time to change the conversation,

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Speaker 1: talk with a broker dealer r I A that's ready

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Speaker 1: to listen called each six two three six three eight.

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Speaker 1: Visit Commonwealth dot com to learn more. Jim Glassman, h

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Speaker 1: JP Morgan Chase, Senior Economist, A lot of surprising numbers

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Speaker 1: in here to a certain extent, not surprising because of horizon,

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Speaker 1: but magnitudes. Which of these takes you back the most?

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Speaker 1: You know? I think what's interesting if you didn't know

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Speaker 1: the headline pay weill remember, you'd say, oh, this feels

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Speaker 1: you know, unemployment is down to four point seven percent,

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Speaker 1: wages is doing a little holding up at that two

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Speaker 1: and a half percent rate, the labor force participation sixty

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Speaker 1: two point six. It feels like an economy that's getting there,

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Speaker 1: you know, if it weren't for the payroll headline and

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Speaker 1: the headline payroll not only is a Verizon striketh, but

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Speaker 1: there can be other things going on. We do have

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Speaker 1: other surveys of employment that are telling us things are okay.

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Speaker 1: So I wouldn't I wouldn't put too much weight on

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Speaker 1: the headline. We're gonna build Gross in here in a minute.

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Speaker 1: We're gonna keep Dr Glassman on with Mr Gross as well. Mike,

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Speaker 1: this is extraordinary. The non farm report with the net

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Speaker 1: revision is a negative statistic, negative twenty one thousand. I

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Speaker 1: think I can say no one saw this coming, Mike.

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Speaker 1: Do you see anything on a Verizon there? Well, I

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Speaker 1: haven't looked at the actual breakdown on Verizon yet, which

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Speaker 1: we can get to in just a second. But what

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Speaker 1: I what strikes me here is the numbers outside of

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Speaker 1: the headlines UH in terms of the UH payroll hours

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Speaker 1: and hourly earnings are normal two tents and thirty or

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Speaker 1: four point four. So no, it's an outlier. Throw it out.

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Speaker 1: And now joining us Michael McKee, Tom Keane, and Jim

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Speaker 1: Glassman with us, and now joining us Bill Gross from

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Speaker 1: Jana's capital bill. This is such a stunning report. We're

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Speaker 1: gonna keep Dr Glassman at JP Morgan on with us

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Speaker 1: for a few minutes. Uh. Well, Bill, this is something

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Speaker 1: you have spoken about in your notes for years and

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Speaker 1: that within all of consensus there can always be a shock.

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Speaker 1: Is this a report enough of a shock to alter

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Speaker 1: FED action? I think it's enough of a shock time

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Speaker 1: to to de lay June into July for sure. Um.

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Speaker 1: You know, the fedtest tried to convince us that one

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Speaker 1: or two hikes this year is in the cards, and

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Speaker 1: I think they want to renormalize the the yield curve

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Speaker 1: and renormalized short term rates. But a number like this

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Speaker 1: certainly cancels out to my way of think, in June

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Speaker 1: in combination with Brexit. So we'll wait for another one

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Speaker 1: and look for July. But you know, the number so

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Speaker 1: low that they've got to take a number like this.

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Speaker 1: But which number are you looking at? The FED cares

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Speaker 1: much less about the non farm number month to month

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Speaker 1: than they do about the unemployment rate. Yeah they do,

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Speaker 1: and we're at four point seven percent. The participation rate

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Speaker 1: went down a few ticks, and maybe that's part of it.

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Speaker 1: We have the verizon distortion. We've mentioned that a number

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Speaker 1: of times, so it's it's a confusing report. I would

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Speaker 1: agree with um with you and Jim Glassman that basically

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Speaker 1: it's a normal report without the number in terms of payroll.

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Speaker 1: So we'll we'll simply have to see going forward. This

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Speaker 1: is remarkable and Dr Glassman, I want you to give

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Speaker 1: us your perspective on this and help Mr gross is well.

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Speaker 1: The two year yield is point seven nine seven. May

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Speaker 1: I suggest the market in the vigilantes are a bit

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Speaker 1: away from the dots for a long time, so it's

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Speaker 1: not clear. It's not clear. Do people have a more

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Speaker 1: pessimistic view about the outlook the equity market doesn't seem

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Speaker 1: to share that. Or is it that people think that

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Speaker 1: the fat is just gonna be a lot more cautious.

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Speaker 1: And it's a global economy, we're much more interconnected, and

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Speaker 1: with rage close to zero elsewhere, we're we're feeling all that. Uh.

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Speaker 1: I just want to throw in here that I look

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Speaker 1: up the numbers, thirty seven thousand people off in the

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Speaker 1: telecommunications category, so that's essentially the net variety. Jim, let's

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Speaker 1: let's look one more question with you, Jim Glassman. We'll

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Speaker 1: let you get onto your JP Morgan clients. The fact

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Speaker 1: is we have a negative statistic and we add in

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Speaker 1: thirty seven thousand noise Rizon, this is within the dispersion

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Speaker 1: months to months. Help Bill Gross here, this is an

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Speaker 1: outlier report, right, But you know the BLS will tell

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Speaker 1: you that the standard air is plus thousand, right. We

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Speaker 1: don't like to hear that, but that's what they're saying

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Speaker 1: is this is probably there's a lot of noise month

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Speaker 1: and months. This is not the only report we look

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Speaker 1: to for guidance on what's going on the job market. Frankly,

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Speaker 1: jobless claims are at very low levels. The a DP

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Speaker 1: surveys in the ballpark steady. We have Jolts a separate

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Speaker 1: independent report on the labor market. So I would say

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Speaker 1: that the headline right probably aperation. Okay, Jim Blastan, thank

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Speaker 1: you so much for staying longer than usual today. Greatly

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Speaker 1: appreciate that perspective. Bill Gross, you just heard one of

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Speaker 1: our great market economists there go through the minutia. Do

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Speaker 1: you trust the minutia anymore? Well, it's hard to trust

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Speaker 1: the many numbers. Put it that way, it's hard to

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Speaker 1: trust the dots. Let me make a comment on as

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Speaker 1: Dost you just talked about, because I think it's in

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Speaker 1: the favor of the FED tom to bias their dots

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Speaker 1: to the highside, because that, you know, produces a more

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Speaker 1: positive yield curve than what we're normally experiencing. As flat

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Speaker 1: as it is in terms of the tens, the tools,

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Speaker 1: about as flat as it's been for the last two

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Speaker 1: or three years, and that narrows net entest margins on

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Speaker 1: banks and produces a flat curve, which is really destructive

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Speaker 1: for capital growth. And so I think there's a bias

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Speaker 1: on the part of the FED to keep those dots

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Speaker 1: high to make the market believe that somehow we're gonna

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Speaker 1: say two, three, four or five six nights going forward

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Speaker 1: over the next several years. And um, that's the reason

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Speaker 1: why we see that bill. We could keep you on

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Speaker 1: for four or five hours off of this shock hip report.

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Speaker 1: I want you, Bill Gross to fold in the larger

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Speaker 1: macro view. The yen is obionomics negative one oh seven

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Speaker 1: ninety one, the German tenure. I know you went along

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Speaker 1: the German tenure on Monday, Bill point zero seven eight percent.

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Speaker 1: There's something going on your bill on an international basis

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Speaker 1: that Chair Yelling will have to digest. Is it just

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Speaker 1: a follow on of global deflation in disinflation. Well, let's

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Speaker 1: be fair, it's both because central banks employee quantitative easing

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Speaker 1: and in euro Land and in Japan are responding to

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Speaker 1: the potential for deflation. There is relatively no inflation in

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Speaker 1: eural Land and there's no inflation in Japan, and so

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Speaker 1: that's the response. But to be fair, the recent interest

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Speaker 1: rates are this lower, and not only the policy rates

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Speaker 1: that are being set by central banks, but the eighty

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Speaker 1: billion dollars a month that the e c B is

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Speaker 1: buying and now they're buying corporate bonds and so um.

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Speaker 1: You know, that's a lot of firepower. To see the

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Speaker 1: tenure German Bund at the seven basis points. Wow. Um,

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Speaker 1: But you know that suggests to me that there's not

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Speaker 1: much more room to go in terms of price increases

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Speaker 1: and yield declines because it's relatively destructive in the long

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Speaker 1: term for capitalism. If you're just joining us on Bloomberg

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Speaker 1: Radio and Bloomberg Television from our radio studios in New York,

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Speaker 1: Michael McKee and Time Keen office stunning jobs report. We're three.

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Speaker 1: We're thrilled to bring you bill gross of Jana's capital

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Speaker 1: here until the nine o'clock hour, Michael, Well, Bill, I

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Speaker 1: want to ask you, we were talking about what you

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Speaker 1: make of this number? Does it really matter? Jenny Elms

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Speaker 1: speaks on Monday. What do you think she says, given

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Speaker 1: the FEDS posture towards interest rates and the fact that

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Speaker 1: there are questions about the feds credibility. I think she

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Speaker 1: continues to say and she has changed a little bit

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Speaker 1: passion out she was Hawkey is relatively hawkishtandavish, and now

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Speaker 1: you know, inclined to move higher over the next six

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Speaker 1: to twelve months. I think she is being influenced by

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Speaker 1: many of the FED governors to try to try to

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Speaker 1: renormalize interest rates because you know, there's a contingent that believes,

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Speaker 1: and I believe this for two or three years, that

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Speaker 1: negative interest rates and low interest rates are destructive for

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Speaker 1: business models and destructive ultimately for long term growth. I

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Speaker 1: don't think the FED really has that in their model making.

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Speaker 1: But but ultimately, I think Janet Yelling will continue to suggest,

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Speaker 1: you know, one or two hikes over the bell of

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Speaker 1: two thousand and sixteen, and perhaps the same for two

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Speaker 1: thousand and seventeen unless we get back to one or

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Speaker 1: one and a half or two percent, you know, normal

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Speaker 1: short term interest rates. Then the many business models, insurance companies, banks,

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Speaker 1: pension funds, the household savers are basically um in deep

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Speaker 1: deep due to I wounded. It's a technical term of course,

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Speaker 1: if you have a uh, what's your dot plot? If

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Speaker 1: you're talking about the FED going forward, you suggest maybe July.

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Speaker 1: Then what do they do next? And how quickly do

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Speaker 1: they move going into two thousands seventeen? Well, I think

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Speaker 1: they wait until December. You know, look and see and

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Speaker 1: do it gradually. And I think that's the appropriate um

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Speaker 1: you know, the type of approach, because you know, this

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Speaker 1: is a highly levered not only domestic economy, not in

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Speaker 1: the household area, but highly levered domestic economy and global economy.

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Speaker 1: And to the extent that the US is the leader

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Speaker 1: in terms of interest rates, is the global sent or

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Speaker 1: bank um to the extent that they moved too fast,

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Speaker 1: and you have the potential for another layman in two

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Speaker 1: thousand and seventeen and two thousand and eighteen. So I

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Speaker 1: think it's gradual. And there's one more after the hike

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Speaker 1: in Bill Grosser, this ten twelve minutes. Here we thank

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Speaker 1: all of Blomberg Television and radio for joining US worldwide

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Speaker 1: with Bill Gross. There's a number of themes. I do

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Speaker 1: want to get to Mexico later, but right now I

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Speaker 1: want you to address the shock of a number of

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Speaker 1: years ago when Bill Gross said we would have financial

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Speaker 1: repression for decades. I would suggest, looking at my Bloomberg screen,

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Speaker 1: you can aggressively reaffirm that this morning. Is that right?

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Speaker 1: I think that's true. I mean, that's that's how central

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Speaker 1: banks do it. Or that's one of the ways to

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Speaker 1: get out of in debt crisis. There are several ways

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Speaker 1: you can grow your way out of it. We're not

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Speaker 1: doing a very good job at that. You can inflate

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Speaker 1: your way out of it, or you can hold negative

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Speaker 1: interest rates, negative real interest rates in order to basically

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Speaker 1: take the out of savers pockets. Rogoff and Reinhardt, you know,

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Speaker 1: have I have written about this for years and given

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Speaker 1: us an extensive history going back into the early part

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Speaker 1: of the twentieth century. That's how central banks do it.

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Speaker 1: They basically stripped savers of their real investment. And so

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Speaker 1: how long will this continue? You know, there's a biblical

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Speaker 1: extension in terms of seven and seven. But you know,

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Speaker 1: we had high real interest rates for five years, and

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Speaker 1: perhaps we need longer than seven in order to rebund

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Speaker 1: Okay within a biblical span. Bill Gross. We have not

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Speaker 1: had a presidential campaign like this. When you take your

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Speaker 1: prism of financing economics and you bring it over to

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Speaker 1: President Clinton or President Trump, do you have an optimism

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Speaker 1: that their politics can deal with America's financial repression. I don't, because,

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Speaker 1: you know, governments, to my way of thinking, need uh,

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Speaker 1: you know, some fiscal balance. Actually, monetary authorities have been

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Speaker 1: talking about the fiscal for a number of years now.

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Speaker 1: Bernankee was three or four or five years ago. I

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Speaker 1: think everyone's need to spend money, and we're seeing that

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Speaker 1: in Japan, but we're not really seeing that in Eurland.

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Speaker 1: Germany is very tight fisted and actually has a law

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Speaker 1: that mandates a fiscal balanced budget. In the United States,

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Speaker 1: I think both Clinton and Trump are influenced by, you know,

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Speaker 1: the prevailing logic that says you should, you know, try

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Speaker 1: to balance a budget and in order to solve a

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Speaker 1: dead crisis. I think that's just the wrong way to

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Speaker 1: do it. I think we need a new canes. I

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Speaker 1: think we need to spend money. The obvious alternatives are infrastructure, etcetera. Etcetera.

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Speaker 1: But the government needs to get in there and start

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Speaker 1: writing checks as opposed to the private sector, which is not.

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Speaker 1: Remember Bill Clinton, in after he was elected said he

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Speaker 1: wanted to die and come back as the bond market

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Speaker 1: because they run everything. Uh, you run everything there for Bill,

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Speaker 1: since you're the bondom market. If if they were to

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Speaker 1: do as some sort of fiscal effort, what would you

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Speaker 1: tell people in Congress who are terrified that bond yields

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Speaker 1: are going to go up and that's going to cost

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Speaker 1: us so much money a taxpayers, You're gonna have to

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Speaker 1: pick up the tab and it's a terrible thing. Well,

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Speaker 1: bond yields might go up, certainly on the longer end

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Speaker 1: and on the tenure end, and to my way of thinking,

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Speaker 1: that's a rebalancing of the financial sector. Yes, does that

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Speaker 1: cost some corporations money? Yes? Does that you know narrow

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Speaker 1: profit margins in terms of corporations is yes, you know.

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Speaker 1: But to my way of thinking, the Fed has been

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Speaker 1: focusing on Wall Street, as always focused on Wall Start

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Speaker 1: as opposed to Main Streak. Not that they don't care

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Speaker 1: about Main Street, but it's one two in terms of

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Speaker 1: Wall and Maine, and it's about time that that wages

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Speaker 1: become less of a focus, and and that um that

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Speaker 1: other distortions become into play. That is a savings room

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Speaker 1: that is justified by higher real interest rates. Mike, I

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Speaker 1: want you to keep on this scene, but right now

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Speaker 1: I want to show the market re action. We're with

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Speaker 1: Bill Grosser, Jana's Capital, Bloomberg Television, and Bloomberg Radio worldwide.

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Speaker 1: Here's the two year chart I've shown for years. These

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Speaker 1: are all San Francisco forty niner losses over the last season.

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Speaker 1: I'm kidding. That's Bill Gross's team. It's f O m

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Speaker 1: C meetings and Bill, I just want to show the

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Speaker 1: abrupt retracement of the two year yield. Here is the

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Speaker 1: enthusiasm that we've had over the last number of months,

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Speaker 1: and it is a massive reversal, Uh, Mike McKee in

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Speaker 1: the two year yield this morning, point seven nine three

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Speaker 1: four percent. Michael, Well, obviously get a knee jerk reaction

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Speaker 1: to numbers like this. Bill, and I'm looking at the

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Speaker 1: w y r P FED Funds probability of a raid

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Speaker 1: hike function on the Bloomberg We're down to four percent

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Speaker 1: chance of a hike in June according to this and

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Speaker 1: only a thirty percent chance in July. Those numbers still

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Speaker 1: seem too low for me. Uh, you're saying July, you

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Speaker 1: think the Fed stays on track or could you combine

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Speaker 1: this with the idea of low GDP and maybe we

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Speaker 1: are heading into a slowdown that we should be afraid of. Yeah,

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Speaker 1: you could. I'm with you, Mike. In terms of the

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Speaker 1: probability for July, I think it's higher, probably fifty or more.

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Speaker 1: But you know, let's let's get back to you know,

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Speaker 1: recent economic statistics in the Atlanta Fed Now survey that

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Speaker 1: basically says we're looking at a two point eight percent

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Speaker 1: two point nine percent real GDP quarter. If the Fed

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Speaker 1: can't raise interest rates with real growth close to three

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Speaker 1: percent in a particular quarter, um, then when can they

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Speaker 1: raise interest rates? And so it's my way of thinking,

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Speaker 1: they must back up what they've been talking about for

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Speaker 1: the past few months about renormalizing and taking gradual steps.

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Speaker 1: If they don't, then ultimately the market bubbles even more, currencies, uh,

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Speaker 1: you know, become even more distorted, and it's not a

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Speaker 1: it's not a healthy state for capitalist. Has the Fed

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Speaker 1: lost some credibility with the markets because they keep threatening

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Speaker 1: to do something and then pulling back. Well, they did

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Speaker 1: raise interest rates and in December and and so they've

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Speaker 1: begun the journey. Um. You know, like I said with

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Speaker 1: the dots, I think it's to the advantage of financial

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Speaker 1: markets and certainly banks and financial institutions to work with

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Speaker 1: a positive real cord for a more positive veal curve

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Speaker 1: that we're seeing today as opposed to a flatter curb

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Speaker 1: because margins, you know, do better with a with a

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Speaker 1: steeper curve. So I think the Fed wants to talk

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Speaker 1: up short term interst rates. I think ultimately they have

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Speaker 1: to follow through or they lose credibility. Mike, stay with

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Speaker 1: Bill Gross on this. I want to mention Jim Vogel,

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Speaker 1: who gave us great perspective yesterday from ft N Financial.

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Speaker 1: He has a very balanced report, not the hysteria that

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Speaker 1: we see in other reports, and he says a series

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Speaker 1: of increasingly negative revisions is not a sign of labor

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Speaker 1: market health one of his insights Mike this morning. But

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Speaker 1: he's also suggesting maybe you throw out the number because,

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Speaker 1: as he says, payrolls go haywire on occasion. I'm wondering, Bill,

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Speaker 1: if if the FED UH needs to say something here

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Speaker 1: to reassure people to to give forward guidance to people

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Speaker 1: that they're still on track, Uh, so that they don't

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Speaker 1: seem to be being pushed around by market reaction. Yeah,

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Speaker 1: I think next week Yellen can can address this situation. Let's,

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Speaker 1: you know, let's talk about that fourward point seven percent

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Speaker 1: unemployment rate. You know, I think yelling and the FED

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Speaker 1: basically follows the tailor model, the model that was initiated

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Speaker 1: in the late nineteen eighties that factors in unemployment and

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Speaker 1: excess capacity you know, to produce, you know, some type

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Speaker 1: of real interest rate to the extent that it's at

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Speaker 1: four seven yelling, old fashioned yelling to my way of thinking,

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Speaker 1: we'll take that into consideration and basically continue to suggest

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Speaker 1: a hike in July and one additional one in December.

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Speaker 1: As they move along, Bill, how can she do that?

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Speaker 1: With dollar yen screaming ever stronger yet? One oh seven

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Speaker 1: sixty three, and I'm looking at German yields that are

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Speaker 1: jaw dropping? Are we back to record yields? No? But

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Speaker 1: a negative a two year negative yield negative point five

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Speaker 1: three two doesn't that overwhelm any rational American discussion? Well,

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Speaker 1: not exactly, Tom, because because the fed's the global central banker,

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Speaker 1: and and and it sets the lead, and and there

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Speaker 1: is evidence, and there has been comment from eural Land,

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Speaker 1: despite the wonder of lower interest rates and higher bond

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Speaker 1: prices and higher asset prices, that ultimately these negative interest

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Speaker 1: rates have been very destructive and in many ways for

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Speaker 1: the the Eurland banking industry. And so I think at

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Speaker 1: some point they have to stop. Despite what Drug has

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Speaker 1: said about whatever it takes, and how as it continues

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Speaker 1: with his press conferences saying whatever it takes, I think

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Speaker 1: at some point, uh, lower and lower short term rates

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Speaker 1: on the negative side, you know, we'll be destructive for

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Speaker 1: your land and our destructive and so um, you know

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Speaker 1: we've about reached it in my not only in terms

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Speaker 1: of low interest rates and higher bond prices in your land,

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Speaker 1: but also in the United States. Bill Gross, thank you

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Speaker 1: so much, very generous of you to take such a

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Speaker 1: long time with us this morning. Bill Gross is with

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Speaker 1: Jane's Capital. Michael again, I go back to the headline number,

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Speaker 1: not the market reaction, but the actual number, thirty eight thousand,

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Speaker 1: and I get all the noise and all that, but

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Speaker 1: with the revision, I just didn't think we would ever

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Speaker 1: see a negative statistic. It's a thirty eight thousand less

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Speaker 1: whatever it was, the revisions taking down fifty nine thousand

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Speaker 1: and subtract thirty eight thousand from that um and it.

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Speaker 1: Jim Vocal does make a good point about a series

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Speaker 1: of increasingly negative revisions not assigned of labor market health,

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Speaker 1: except this is a turning point maybe in the economy.

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Speaker 1: And the anecdotal evidence is that companies, and we saw

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Speaker 1: this in the base book, companies are having trouble finding

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Speaker 1: workers now manufacturing lost jobs. But in general, most of

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Speaker 1: what we saw here was a a lack of job

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Speaker 1: creation and uh, you know, very weak job creation. So

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Speaker 1: what's the real reason here? That's the FETE has to

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Speaker 1: parse out. We're gonna dive into this in the next hour,

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Speaker 1: Michael McKee and Tom Keene. I'll tell you, folks, it

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Speaker 1: was gonna be a bland report, no stunning market statistics

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Speaker 1: on the Bloomberg screen. For those of you with an

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Speaker 1: international band, the yin one oh seven sixty one point

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Speaker 1: to six figures. It has been an ugly, ugly week

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Speaker 1: for Albionomics. Northerway to put it, Bloomberg surveillance this morning,

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Speaker 1: this job say brought you by Brown University, where the

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Speaker 1: We thank Brown University for their support of Bloomberg surveillance,

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Speaker 1: and we thank Bill Gross, Jim Blastman, and Alan Krueger

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Speaker 1: for giving us what we think is the best in coverage,

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Speaker 1: economic and financial coverage of any job stay in particularly

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Speaker 1: this stunning day. Gold up twenty six dollars futures a

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Speaker 1: negative ten worldwide Bloomberg surveillance