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Speaker 1: This is Bloomberg Surveillance says not much that Roody unites

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Speaker 1: the bricks a pomp from that science that huge, not

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Speaker 1: just in terms of that g D peveen in SMS,

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Speaker 1: the population. We're still underweight. We're not convinced that the

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Speaker 1: risker war trade off is all that attractive. And a

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Speaker 1: M after the fact is run below two percent targets

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Speaker 1: for very very many years. It shouldn't worry about over

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Speaker 1: shooting a little bit. Bloomberg Surveillance your link to the

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Speaker 1: world of economics, finance, and investment on Bloomberg Radio. Good

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Speaker 1: morning everyone, Bloomberg Surveillance, Michael McKee and Tom King. Mr

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Speaker 1: McKee off off of theor see Barry Ridholts and to

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Speaker 1: give great assistance. Thrilled to have Barry Ridhold's Masters in

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Speaker 1: Business is his show and also his podcast out on

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Speaker 1: iTunes as well as as we're doing that. You can

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Speaker 1: look to iTunes for follow ups on all our good interviews,

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Speaker 1: including on Algaria of the O E. C D. And

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Speaker 1: we just heard from Church Todd as well. Bloomberg Surveillance

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Speaker 1: this morning, this busy day for economics. Bloomberg Surveillance brought

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Speaker 1: for the strategy, the insight your business needs to move forward.

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Speaker 1: Find out what Cone restick things. Sign up for insights

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Speaker 1: do that A Cone Resnick dot com, c O H

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Speaker 1: N R e Z and I C K cone Resnick

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Speaker 1: uh dot com. We're thrilled to bring the Yakum Fells

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Speaker 1: of PIMCO for years with Morgan Stanley with a global view,

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Speaker 1: but also focusing of course on a US view. Is well, y'all,

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Speaker 1: coom explain to us your three d s. It's a

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Speaker 1: core foundation to your thinking on global markets. You've got

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Speaker 1: calmerce c S. I understand that China Commodity Central Bank,

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Speaker 1: but there's some ds as well. What is a D

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Speaker 1: besides DAS and David Well Tom, there's actually no d s.

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Speaker 1: And in my thinking, UM, I think other people are

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Speaker 1: using the three ds of debt, deleveraging, deflation, UM, but

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Speaker 1: I'm rather focusing on what I call the three bees,

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Speaker 1: the triple be economic expansion where growth is bumpy, below

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Speaker 1: power and brittle. I think that's a good description of

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Speaker 1: what's been going on for the past seven or eight years.

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Speaker 1: Is that linked to the d's though, well, it is

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Speaker 1: linked to the d's. They are linked to the d's

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Speaker 1: because one reason why growth is bumpy, below par and

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Speaker 1: brittle is the deleveraging that has been going on since

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Speaker 1: the financial crisis, right. And the deleveraging is the consequence

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Speaker 1: of the build up in debt that we had in

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Speaker 1: the previous cycle. Um, and it's also a consequence of

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Speaker 1: the deflationary pressures that we've we've seen. So yes, all

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Speaker 1: these acronyms and alliterations are linked quite quite quite fascinating

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Speaker 1: when you look at the three c's you referred to

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Speaker 1: China commodities in central bank. I know they're all inter related,

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Speaker 1: but which of the three cs H is the most significant?

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Speaker 1: Is it the central banks driving what's taking place in

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Speaker 1: currencies and yet another see and kamalies or is it

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Speaker 1: the state of China's economy that's the key driver. Well,

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Speaker 1: I think it's been changing over time. So for many years,

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Speaker 1: I think central banks were the main driver. Right, they

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Speaker 1: kept the system afloat, they kept growth going, they prevented

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Speaker 1: outright deflation. But I think what's happened over the past

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Speaker 1: year or so is that another seed China has become

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Speaker 1: the dominating force and would. I would go as far

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Speaker 1: as saying China, through its fex policy, now has a

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Speaker 1: major impact on on US monetary policy. So you could

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Speaker 1: argue US monetary policy is now to a significant extent

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Speaker 1: made in China. And that's because China has again and

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Speaker 1: again reacted to hawk ish talk from the FED or

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Speaker 1: the rate high in December by allowing more currency depreciation,

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Speaker 1: and that has then sent shock waves through the financial system.

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Speaker 1: It has led to a tightening of financial conditions, and

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Speaker 1: that meant the FED had to push out rate hikes

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Speaker 1: uh first back in September and now again in March.

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Speaker 1: I look, yacum where we are, and once again it's

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Speaker 1: a first quarter growth disappointment. Nobody's gonna blame cold weather

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Speaker 1: across America. That's been true across all of the global economy.

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Speaker 1: Is well, what attributes are you looking for that will

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Speaker 1: signal the growth optimism that we're clearly going to hear

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Speaker 1: from Cherry yelling today, what are the things you or

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Speaker 1: she will look for a signal a better growth ahead.

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Speaker 1: But I think there are two things. The first thing

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Speaker 1: is manufacturing globally has been in a mild recession for

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Speaker 1: the last year or so. You could see that in

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Speaker 1: most of the purchasing managers in disease being below fifty,

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Speaker 1: including the U S I s M. But I think

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Speaker 1: there are some signs, some early signs that manufacturing is rebounding,

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Speaker 1: including in the US. Let's see what the I s

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Speaker 1: M on Friday, brains. But you know, our expectation is

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Speaker 1: that we bounced back above fifty. So that's the first thing,

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Speaker 1: so less of a drag from manufacturing second. And I

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Speaker 1: think that's what Janet Yellen is really focusing on, is

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Speaker 1: whether or not the job growth that has been quite

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Speaker 1: strong in the US will continue. She is looking for

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Speaker 1: a further erosion of slack in the labor market. I

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Speaker 1: think that's a key driver for the feds outlook for

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Speaker 1: moderate growth and also for some increase in underlying inflation.

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Speaker 1: So one of the headlines I've been reading now for

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Speaker 1: about three years has been the United States is on

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Speaker 1: the verge of slipping into a recession. But based on

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Speaker 1: your most recent report, I don't get the sense that

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Speaker 1: you're in that camp. That's right. I'm not in the

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Speaker 1: recession camp. Haven't been in there for quite some time.

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Speaker 1: The reason is that typically recessions happen when you have

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Speaker 1: a combination of imbalances building up in the economy and

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Speaker 1: fairly aggressive FED tightening or central bank tightening. But we're

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Speaker 1: seeing none of these imbalances in the economy. There is

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Speaker 1: no overconsumption. If anything, the US consumer, which is enjoying

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Speaker 1: decent income growth, has been gradually increasing her savings rate. Second,

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Speaker 1: there's no There hasn't been any overinvestment like we had

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Speaker 1: it in the late nineties boom, which then led to

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Speaker 1: a correction and a recession. We don't see the overheating

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Speaker 1: in the labor market, and we don't see the overkill

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Speaker 1: from monetary policy. And that's why I think there's We're

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Speaker 1: in a modest growth environment. Growth is bumpy, brittle, and

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Speaker 1: below power, but we are not facing the significant risk

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Speaker 1: of recession anytime soon. We're just joining us some Pimco

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Speaker 1: yakum fells, dr fels. How do you fill trade into

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Speaker 1: this has been a number of zero head. You had

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Speaker 1: a great shirt out the other day on the I'm

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Speaker 1: gonna us this where you can correct me if I'm wrong.

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Speaker 1: The collapse of world trade. Is that a fair statement? Yeah,

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Speaker 1: I think that's a fair statement. I mean, we all

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Speaker 1: got used to a situation where global trade was expanding

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Speaker 1: at at least twice the pace of global GDP over

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Speaker 1: the past twenty years or so. But that's history. So

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Speaker 1: what's happened is global trade growth has collapsed. It actually

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Speaker 1: fell below the growth rate of global GDP over the

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Speaker 1: past year. We're now back to about the growth rate

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Speaker 1: of global GDP. What this tells me is that the

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Speaker 1: days when global supply chains were widening, when companies were

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Speaker 1: outsourcing production of it puts, those days are long over.

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Speaker 1: And I think the main driver, or the main force

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Speaker 1: behind the slowdown in global trade growth is that China

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Speaker 1: has become much much better um had much more sophisticating

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Speaker 1: in producing its own inputs. So you've had a collapse

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Speaker 1: of imports into China. This is not only commodities, but

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Speaker 1: this is also intermediate goods which they used to import,

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Speaker 1: capital goods which they used to import. No longer they

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Speaker 1: know know how to do it themselves. So this is

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Speaker 1: why for the next few years, I would expect global

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Speaker 1: trade to expand only at the pace of global GDP growth.

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Speaker 1: That's that's a really interesting discussion in China. What about

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Speaker 1: what's happening in Japan. We've seen retail sales slow, We've

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Speaker 1: seen all manner of central banking activity, and now we're

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Speaker 1: seeing the threat of the v tax go up by

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Speaker 1: a not in substantial amount next year. Are we ever

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Speaker 1: going to see real growth that of Japan and in

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Speaker 1: our lifetimes? Right? It depends on what what kind of

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Speaker 1: growth you're looking at. If you look at overall GDP growth, look,

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Speaker 1: it's very difficult to produce significantly positive GDP growth in

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Speaker 1: a country where the population and the labor force is shrinking.

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Speaker 1: So I think what we should look at is per

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Speaker 1: capita GDP growth, and on that measure, Japan is actually

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Speaker 1: looking quite good. Over the past ten years or so,

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Speaker 1: Japan has had about the same growth in per capita

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Speaker 1: GDP growth as the US has had, so so I

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Speaker 1: think that's the relevant measure. Looking at overall GDP growth

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Speaker 1: in a in a in a country with shrinking population,

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Speaker 1: I think there we have to get used to zero too,

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Speaker 1: maybe half a point of growth within your call of

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Speaker 1: two point to two point five down to two point

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Speaker 1: zero global GDP. Does that give you a new global

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Speaker 1: terminal value where everything gets reset lower? Yeah, I think

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Speaker 1: everything gets reset lower. Real growth, inflation and importantly also

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Speaker 1: interest rates and here at PIMCO, we've been talking about

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Speaker 1: the new neutral for a couple of years, which describes

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Speaker 1: the world where the neutual interest rate or the terminal

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Speaker 1: interest rate in this cycle is much much lower, will

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Speaker 1: be much much lower than in previous cycles. I think

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Speaker 1: everything you are seeing, low nominal GDP growth, plenty of

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Speaker 1: headwinds from the global savings squad, and excessive global savings

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Speaker 1: over investment, all of that argues for a much lower

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Speaker 1: terminal rate. Let's come back. Yakum falls with us with PIMCO.

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Speaker 1: Just thrilled that he has joined us for a generous

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Speaker 1: amount of time. That's warning. We will continue with the

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Speaker 1: Yakham fells on the American economy. Futures of negative five

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Speaker 1: down futures negative fifty four yields in two basis points

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Speaker 1: one six. And now the news in New York is

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Speaker 1: Michael Barr, Tom Berry, thank you very much. A hijacking

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Speaker 1: incident involving in Egypt airplane is over. According to a

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Speaker 1: Cypriot foreign minister. The lone hijacker was arrested and the

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Speaker 1: seven remaining people who were on the plane got out

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Speaker 1: of the airbus three twenty each of the air flight

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Speaker 1: one with about fifty five passengers on board, was heading

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Speaker 1: from Alexandria to Cairo when a hijacker forced the pilot

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Speaker 1: to land in Cyprus. One of the largest hospital chains

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Speaker 1: in the Washington area, the med Star system, remains crippled

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Speaker 1: by a virus that shut down its computers. Time is

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Speaker 1: ebbing away on a budget deal for Governor Andrew Cuomo

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Speaker 1: and New York State lawmakers. They're trying to find a

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Speaker 1: compromise on several issues, including minimum wage and paid family weave.

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Speaker 1: Lawmakers hope to have a new budget in place by

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Speaker 1: the start of the new fiscal year. On Friday. Global

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Speaker 1: News twenty four hours a day, powered by our twenty

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Speaker 1: four hundred journalists and more than a hundred fifty news

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Speaker 1: bureaus from around the world. I am Michael Barr, Tom

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Speaker 1: Michael Barr, thanks so much. Appreciate that ye six flat

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Speaker 1: the Yen one thirteen fifty seven Barry Redholtson from Michael McKee.

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Speaker 1: I'm Tom Keane with a Shakum Fells. Stay with us

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Speaker 1: on the American economy Next. Global Business News twenty four

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Speaker 1: hours a day, if Bloomberg dot Com, the Radio plus

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Speaker 1: mobile lapp and on your radio. This is a Bloomberg

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Speaker 1: Business flash and I'm Camra in Moscow. US Dock Index

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Speaker 1: future is lower this morning. Let's go to the First

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Speaker 1: Word Breaking news desk for today's morning call. Here's Bill Maloney.

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Speaker 1: Good morning Bill, Good morning Karen. If you just have

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Speaker 1: added to their losses since the last time we spoke,

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Speaker 1: douf you just lower by fifty four points has to

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Speaker 1: be stropped five and as a futures declined by seven

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Speaker 1: US ten yel at one point eight six and upm

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Speaker 1: markets are trading mixed this morning on the US economic

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Speaker 1: front at ten o'clock Consumer comp and it's at twelve

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Speaker 1: twenty fed Jellen speaks at the Economic Club of New

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Speaker 1: York and after the bellas night sent x missed and

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Speaker 1: regarding earnings this morning, homebuilder Lenar beat in dealing news,

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Speaker 1: Origin pulled its seventeen dollars to share offer for afro Metrics.

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Speaker 1: And finally, some of your Wallstreet upgrades and downgrades at

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Speaker 1: Barkley's eBay cut to underweight, LinkedIn cut to equal weight

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Speaker 1: at Sea Group, Borg Warner and Skyworks cut to neutral,

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Speaker 1: Amburrel raised to overweight at Morgan Stanley. Mike Ron cut

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Speaker 1: to underperform at need Um and Universal Health upgraded to

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Speaker 1: outperform over at Wells Fargo Live in the first breaking

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Speaker 1: news to ask on Bow Maloney Karen, all right, thanks

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Speaker 1: billan to hear live breaking news of your Bloomberg type

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Speaker 1: squawk go on your terminal, that's sq you a w

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Speaker 1: K and go and that's a Bloomberg business flash, Tom

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Speaker 1: and Barry, Karen, thanks so much. Bloomberg Surveillance this morning

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Speaker 1: brought you buy Investco to the day's headlines. Have you

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Speaker 1: investco dot com slash us to subscribe. Very results on time.

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Speaker 1: King Bloomberg's of Answers smikiov Yakom Fell's with us with

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Speaker 1: Pimico Yacolm. I am told that CAPEX investment by corporations

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Speaker 1: in America is actually pretty good. There's a lot of

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Speaker 1: people saying we need investment to create jobs. Maybe that

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Speaker 1: investment is going abroad. Is there a new globalization now? Well,

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Speaker 1: I think that's been the story for the past ten

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Speaker 1: fifteen years. US companies have invested a lot, the multinationals

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Speaker 1: have invested a lot but mostly abroad. Some of that

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Speaker 1: has been coming back in the past several years, and

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Speaker 1: that was a reflection of the weak dollar that we

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Speaker 1: had for many years, and also lower energy prices in

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Speaker 1: the US due to the share revolution. So if you

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Speaker 1: look outside of the energy sector, where over the past

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Speaker 1: one or two years, of course capex has has fallen dramatically,

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Speaker 1: but outside of the energy sector, ethics is holding up

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Speaker 1: quite well. In the US, quite quite interesting. What about

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Speaker 1: the overall share buy back versus diving an issue that

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Speaker 1: we keep seeing mentioned alongside um the Kapas question. Do

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Speaker 1: you does PIMCO have any preference when it comes to

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Speaker 1: whether they'd rather see more money find its way into

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Speaker 1: dividends or keep the financial engineering going and the level

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Speaker 1: of buy backs continuing near near a record pace. Why

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Speaker 1: we don't have any preference per se on what companies

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Speaker 1: should be doing with with that money. I mean, I

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Speaker 1: look at it from my economists perch, and what I'm

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Speaker 1: seeing is that, as you say, Barry, there's a lot

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Speaker 1: of financial engineering going on. I think from an economic perspective,

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Speaker 1: what you would rather like to see is that companies

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Speaker 1: use more of the cash they have on that balance sheet,

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Speaker 1: or that they're using for either stock buy backs or

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Speaker 1: dividend payout um to increase investment further, because if you

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Speaker 1: look at it from a global perspective, even though US

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Speaker 1: capex is not that bad, there is still a lack

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Speaker 1: of investment in the world as a whole. We have

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Speaker 1: an excessive desired saving over desired investment. That helps to

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Speaker 1: explain why aggregate demand is so weak, why inflation is

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Speaker 1: below target, why interest rates are so low. So I

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Speaker 1: think from an economic perspective, you would rather want to

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Speaker 1: see companies using more of the cash for investment in

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Speaker 1: the real economy. So talking about the real economy, we

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Speaker 1: just had the Secretary General of the o E c

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Speaker 1: DN and we were discussing infrastructure spending around the world,

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Speaker 1: and it seems like the United States is lagging much

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Speaker 1: of Asia and and almost all of Europe in terms

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Speaker 1: of our commitment to things like our highway system, our

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Speaker 1: rail system, our electrical grid. What is in United States

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Speaker 1: need to do in terms of bringing its infrastructure up

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Speaker 1: to a competitive level level with the rest of the world. Well,

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Speaker 1: I think that's that's an important theme. People like Larry

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Speaker 1: Summers have been talking about this for ages that there

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Speaker 1: is a need for more infrastructure investment in the US.

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Speaker 1: But of course, in the end, the government plays an

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Speaker 1: important role in infrastructure investment. And as we all know,

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Speaker 1: there is gridlock. There has been gridlock in Washington for

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Speaker 1: a long time. Let's see whether that changes after the

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Speaker 1: presidential election. I'm not very hopeful that we will see

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Speaker 1: you boost to a large boost to US infrastructure investment

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Speaker 1: over the next few years. This is a real general question.

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Speaker 1: I guess it's my dumb question of the week, and

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Speaker 1: you get it, yelcome with your with your wonderful German

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Speaker 1: education as well. The basic US theme and tone and

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Speaker 1: culture is we're broke? Is the United States broke? I

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Speaker 1: don't buy it. Well, if the US is broke, then

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Speaker 1: everybody else is even more broken. Right? We can't We

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Speaker 1: can't fixed fifty eight Street in any city. It happens

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Speaker 1: to be in New York, but our fifty ninth Street.

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Speaker 1: But is it? The tone is were broke and we

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Speaker 1: can't do anything? Where did that come from? But I

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Speaker 1: think it's an illusion. I mean it's true that debt

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Speaker 1: to GDP. If you look at general government debt, which

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Speaker 1: includes all levels of government federal, state, and local, federal,

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Speaker 1: general government debt to GDP percent in the US roughly right,

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Speaker 1: So that sounds high. It's higher than in in in

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Speaker 1: that it's been in the past, but in international comparison

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Speaker 1: that's still low. I mean, Japan is a two d

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Speaker 1: and forty five debt to GDP ratio and it's not broke.

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Speaker 1: J g b Us trade at negative levels up to

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Speaker 1: the ten year point in the curve. So if you

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Speaker 1: can borrow at oh nominal and even negative real interest rates,

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Speaker 1: and the US government can do that, then it's I

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Speaker 1: don't think this country is broke. And also I think

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Speaker 1: it's difficult to imagine that you cannot find investment out there,

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Speaker 1: and we've talked about infrastructure investment that will bring higher

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Speaker 1: returns and the cost of borrowing. Just fabulous, jackom Fils,

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Speaker 1: thank you so much for your time this morning. He

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Speaker 1: is with PIMCO. What a wonderful setup to the radio

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Speaker 1: coverage we will have today Bloomberg Radio twelve Noon of

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Speaker 1: Jenny Yellen Berry. What will you listen for from Cherry Ellen?

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Speaker 1: You know, anything unexpected? Were we know what the speech

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Speaker 1: is gonna say. We know she's going to talk about

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Speaker 1: growth being uh in the sweet spot that we don't

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Speaker 1: really see a lot of inflation, and you know, one

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Speaker 1: or two more raises the rest of the year, and

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Speaker 1: that's pretty much it. I'm gonna listen for the questions

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Speaker 1: of Alan Blinder in Dean Hubbard and Columbia as well.

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Speaker 1: I think they will us turn thinking on the American economy.

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