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Speaker 1: This is Bloomberg surveillance. If that's not really hiking, they're normalizing,

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Speaker 1: and I think that's a big difference in their mentality

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Speaker 1: in terms of how they're thinking. The stronger dollar creates

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Speaker 1: some challenges for emerging markets in genera and for China

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Speaker 1: in particular. What we're typically seeing is that the markets

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Speaker 1: get ahead of themselves in terms of how many red

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Speaker 1: hawnks they processed in for the feed, and then when

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Speaker 1: that's happening, the dollor strengthens. Bloomberg Surveillance your link to

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

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Speaker 1: Good morning everyone, Michael McKee and Tom Keene Bloomberg's Surveillance

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Speaker 1: on a Friday, and a most interesting Friday is markets

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Speaker 1: really across the globe. Try to get to a Fete

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Speaker 1: meeting June fifteenth and on to June twenty three and

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Speaker 1: that important vote in England. We will get to the

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Speaker 1: markets here with an extensive data check in a moment

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Speaker 1: and then John Sylvia joining us in Wells Fargo this morning.

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Speaker 1: Bloombergs Surveillance brought you by As always, invest Go, don't

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Speaker 1: subtle for averaging your portfolio to invest Goo the right

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Speaker 1: approach means investing with high conviction. Find out more in

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Speaker 1: investco dot com slash high conviction. Where to begin. Let's

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Speaker 1: start with the equity markets. Futures at negative nine, negative ten.

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Speaker 1: They deteriorate over the last two hours negative twelve right

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Speaker 1: now down features negative eighty five. All you need to

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Speaker 1: know is yields are in. They are compressed and stayed

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Speaker 1: compressed overnight in Asia, and start the morning compressed with

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Speaker 1: a little bit of good EBB. In the last twenty minutes,

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Speaker 1: a ten uere yield one point six five percent, the

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Speaker 1: German tenure a positive point zero three percent, that is

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Speaker 1: lower than twenty four hours ago. And the Swiss twenty year,

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Speaker 1: which went negative a few days ago plunged two hours

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Speaker 1: ago to a negative point zero eight, has come back

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Speaker 1: a little bit here dollar again. One of six have

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Speaker 1: any five. So we begin with John Sylvia. John, I

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Speaker 1: want to go to the markets and the feed and

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Speaker 1: all that talk, but I want to talk first about

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Speaker 1: your wonderful work on jobs. We know at the end

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Speaker 1: of a recession the unemployment rate comes down quickly. It has.

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Speaker 1: It's shocked everybody from the ten percent you predicted, and

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Speaker 1: I'm down we've come away under five percent. Are they

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Speaker 1: good jobs well? On average? The answers, Yes, they're good jobs,

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Speaker 1: but there are a lot of jobs with low wages

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Speaker 1: and not a lot of benefits, which a lot of

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Speaker 1: people are concerned about, and quite frankly, lay before participation

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Speaker 1: rates have been somewhat disappointing. So there's still a lot

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Speaker 1: enough good jobs. Are they jobs that are benefited? We talk,

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Speaker 1: I mean, I get the idea and I get huge

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Speaker 1: mail from our listeners on this of full time versus

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Speaker 1: part time, But it's a full time job now like

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Speaker 1: a full time job it was twenty or forty years ago.

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Speaker 1: I don't think it is well. Certainly in terms of

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Speaker 1: job security it is not. And again, yes, there are

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Speaker 1: significant benefits, but once again, a lot of folks are

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Speaker 1: really tied to those benefits and the uncertainty really eats

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Speaker 1: away at people. Over time, they've become more cautious. Uh,

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Speaker 1: they start saving a little bit more, They're not taking

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Speaker 1: out credit the way they did five or ten years ago.

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Speaker 1: So it's it's a very different ballgame. You were writing

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Speaker 1: about a low growth trap. Is America part of that

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Speaker 1: low growth trip? Oh? I think certainly it is. When

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Speaker 1: you look at the global growth and trade that's been disappointing.

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Speaker 1: When you look at our inability to get to two

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Speaker 1: and a half three percent economic growth on a sustained

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Speaker 1: basis just about one and a half two percent. I mean,

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Speaker 1: look at the potential GDP. A conversation we had earlier

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Speaker 1: with Dino uh the ability of labor force participation rates

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Speaker 1: being disappointing, and productivity again Robert Gordon really being disappointing.

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Speaker 1: Robert Gordon said the one glimmer he was finally the

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Speaker 1: animal spirit of jobs would click in. I would suggest,

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Speaker 1: even with the moldy jobs report the other day, that

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Speaker 1: wage growth, in a little bit of inertial inflation that

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Speaker 1: we're getting is out front of the real economy. We're

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Speaker 1: not seeing in job count, unit count, body count. What

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Speaker 1: we're seeing with a little bit of more wage growth

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Speaker 1: is one of the surprises coming up. That wage growth

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Speaker 1: flattens again or even lessons a little bit. But I

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Speaker 1: I just don't see wage growth accelerating all that great

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Speaker 1: given the inflation and productivity numbers. I mean it hap

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Speaker 1: you can't work, doesn't work, and microeconomics just simply doesn't work.

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Speaker 1: When when we look at two America's and you've written

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Speaker 1: so much about this part of the confidence of a

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Speaker 1: better economy, and if we have a Jolt survey the

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Speaker 1: other day, that's better in that part of it is

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Speaker 1: I want to get up and move and go somewhere

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Speaker 1: to a new job. You're one of our experts on

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Speaker 1: our labor mobility. Are you seeing glimmers there of a

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Speaker 1: better labor accoun glimmers in terms of labor mobility, yes,

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Speaker 1: but nowhere near what we thought twenty thirty years ago.

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Speaker 1: And also some work that you know, Sarah House, my colleague,

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Speaker 1: and I have worked on is that when you're looking

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Speaker 1: at the labor mobility overall between income categories, that's pretty limited.

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Speaker 1: In other words, people are getting their jobs, but they're

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Speaker 1: not moving up in terms of the income quintiles in

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Speaker 1: the economy. And then that goes to this, I guess

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Speaker 1: that goes to Larry Summers and secular stagnation. How do

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Speaker 1: you define secular stagnation within the tumult of the markets

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Speaker 1: and your idea of a low growth trip. Well, the

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Speaker 1: anecdote for me is when you have a lot of

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Speaker 1: parents saying that maybe our kids won't achieve what we

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Speaker 1: have and then the kids, the millennials realizing, well, wait

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Speaker 1: a minute, what does that mean for me? That means

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Speaker 1: my opportunities are pretty limited. So there is a little

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Speaker 1: secular stagnation in the smallest cities, the industrial towns, that

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Speaker 1: lower middle income and middle income group. And that's a

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Speaker 1: chance lunge politically and economically. You see it in the election.

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Speaker 1: And one of the advantages of having you here is

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Speaker 1: is Wells Fargo has a few shingles they put up

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Speaker 1: in other territories besides three zip codes in New York City. I,

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Speaker 1: Mike and I talk about this every day. We are

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Speaker 1: completely deformed in our clarity of thought by living on

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Speaker 1: the island of Manhattan. That disparity, I mean, it borders

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Speaker 1: back to the nineteenth century, now, doesn't it. Oh? Absolutely.

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Speaker 1: We do a lot of regional work at Wells Frog

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Speaker 1: and doesn't what you call second tier cities and third

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Speaker 1: tier cities where we have a significant market presence, and

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Speaker 1: it is a challenge to see the difference in income

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Speaker 1: and employment growth in different areas. Let's get back to

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Speaker 1: the markets. We've talked about it all morning, but let's

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Speaker 1: reinvigorate our radio audience with a German tenure trying to

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Speaker 1: go negative point zero three right now. I guess John,

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Speaker 1: the best, the best vanilla ice cream of all this

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Speaker 1: tumult is the yield curve. The Wall Street Journal had

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Speaker 1: a nice summer of it yesterday, eight nine basis points,

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Speaker 1: less than one percent difference between the two year and

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Speaker 1: the tenure. What is the significance that all of that

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Speaker 1: movement in this too, Mulch just week has been out

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Speaker 1: at the ten year yield. Well, I would say start

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Speaker 1: out with the five year, five year forward inflation expectations.

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Speaker 1: They've really come down pretty dramatically. It says that inflation

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Speaker 1: expectations are not well anchored, contrary to what some people

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Speaker 1: might might claim to be true, and therefore you've got

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Speaker 1: lower and growth and expectations and inflation expectations. You know,

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Speaker 1: again with your friend Michael pent Uh talking about you

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Speaker 1: know what happens about the signaling process and economics, Well,

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Speaker 1: you know when Michael Spencer talks about that, he's saying that, hey,

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Speaker 1: the market is signaling lower wealth expectations, lower inflation. I

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Speaker 1: love that you're doing this. Michael Spence will say that

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Speaker 1: the lawyer from n y U. The real question to

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Speaker 1: me then is does the collective body of the FED

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Speaker 1: look at those market signals. Many suggest they're not big

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Speaker 1: fans of sophisticated five year gaming of what will be

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Speaker 1: out five years from now. Wow, that might have been

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Speaker 1: because Stanley Fisher ignored five year, five year forwards. I

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Speaker 1: cannot believe he does know that. I think that Layle

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Speaker 1: Brandon ignores the the international aspect of this whole story.

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Speaker 1: I mean, she's got to be sitting there looking at

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Speaker 1: the South Korean situation, looking at global trade, looking at

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Speaker 1: interest rates in general. Christine Lagod talks about week of

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Speaker 1: global growth. I think it's all on there. I haven't

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Speaker 1: asked this question yet. Let me try it on you.

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Speaker 1: The shock is oil thirty to fifty. If we said

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Speaker 1: that in a vacuum, we'd be like, the world's gonna

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Speaker 1: come to an end? Are we anywhere near? We're rising

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Speaker 1: oil prices begin to dampen the marginal consumption, I think

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Speaker 1: at this point and the answer is no, I think

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Speaker 1: why not there? I mean, you see it, folks, fifty

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Speaker 1: one thirty nine cents on Brent Nimax below fifty ninety

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Speaker 1: three cents as well. I guess I got to come

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Speaker 1: back to the parlor game. You and Michael McKee and

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Speaker 1: I will talk about this here as well. Ju No

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Speaker 1: July No. I believe I heard you earlier hinting in September. Maybe.

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Speaker 1: I mean, where where are we one or two rate

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Speaker 1: rises this year? My answers, nobody as a clue. Nobody

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Speaker 1: has a clue. We have to get through Brexit. But

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Speaker 1: I don't like the signals that we talked about earlier

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Speaker 1: in terms of global economic growth, central banks lowering their

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Speaker 1: policy interest rates, and the inability TOM to move into

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Speaker 1: constructive fiscal policy moves, real restructuring in the economy. Uh.

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Speaker 1: In terms of rules and regulations, it just seems as

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Speaker 1: if we say the FED can't be the only game

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Speaker 1: in town, but no one seems to go to that

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Speaker 1: second inning or the third inning. Well they don't. But

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Speaker 1: this again, in the rhetoric that we're getting from sheer

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Speaker 1: yell and is absolutely original. If she is central banker

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Speaker 1: to the world, she's got to say that in the

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Speaker 1: press conference on June fift overtly I'm the central banker

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Speaker 1: of the world and I can't do this alone. I

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Speaker 1: think the personality of chair Yelling is that humility is

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Speaker 1: probably first and foremost. That claim might be a bit

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Speaker 1: too much, but in actions she can actually be that.

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Speaker 1: I'll go with you with the humility as well, John Sylvia,

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Speaker 1: where this was wells Fargo. Will continue this discussion much

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Speaker 1: more through the morning. Let me let me give you

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Speaker 1: um again a data check with a little bit of

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Speaker 1: color to it. Let's try four and exchange again was

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Speaker 1: a one oh seven. Briefly one oh six. Seventies six

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Speaker 1: were nowhere near the one oh five print, but nevertheless

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Speaker 1: persistent strong yend this morning euro one nine, with euro

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Speaker 1: again indicating one twenty point six four. On economics, finance, investment,

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Speaker 1: on international relations, Bloomberg's surveillance. This hour of surveillance brought

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Speaker 1: to by Volvo cars, white planes. Visit Volvo cars, white planes.

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Speaker 1: Duck um. Here's John Tucker with news headline, said a

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Speaker 1: Majority leader Mitch mcconnells is Donald Trump used to pick

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Speaker 1: and experience running eight because he doesn't know a lot

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Speaker 1: about the issues. He strongly urged him to change course

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Speaker 1: in its rhetoric. Elizabeth Warren and Hillary Clinton will meet

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Speaker 1: privately this morning. This according to the Washington Post, that

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Speaker 1: sit down may feel speculation about our prospects as the

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Speaker 1: potential VP pick for the second time and less than

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Speaker 1: a month golfing great Field. Nicholson's gambling has been linked

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Speaker 1: to court proceedings in which is suspected gambling associate faced

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Speaker 1: criminal charges, and Air France says it will maintain nine

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Speaker 1: of both domestic and long haul flights Saturday, at the

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Speaker 1: beginning of a four day pilot strike that threatens to

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Speaker 1: hamper travel for fans attending the twenties sixteen European Soccer

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Speaker 1: Championships in the country. Global News twenty four hours a day,

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Speaker 1: powered by our twenty journalists in more than one d

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Speaker 1: fifty news vials around the world. I'm John Tucker, Tom

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Speaker 1: and Michael. All Right, John Tucker, thank you very much,

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Speaker 1: Tom said, a day to check with color. Well, the

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Speaker 1: color is red. This morning sp features down eleven, Dow

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Speaker 1: at Bloomberg dot Com, the Radio plus Mobil and on

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Speaker 1: your radio. This is a Bloomberg Business Flash and I'm

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Speaker 1: Cameron Moscow. This updates brought to you by van Eck

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Speaker 1: Index future is lower amid declines across markets and asset

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Speaker 1: classes as investors grow cautious following the recent rally. We

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Speaker 1: checked the markets every fifteen minutes throughout the trading day

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Speaker 1: on Bloomberg SNPE. Many futures are down eleven points, DOWI

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Speaker 1: mini futures are down seventy eight, and NASDAKI mini futures

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Speaker 1: down twenty seven. The decks in Germany's down to first

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Speaker 1: set ten year treasury up eight thirty seconds, the yield

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Speaker 1: one point six five percent yield on the two year

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Speaker 1: point seven five per set. Now I'm ex screwed. Oil

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Speaker 1: down one point three percent or sixty seven cents to

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Speaker 1: forty nine eighty nine, A barrel called Mike School down

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Speaker 1: to ten per cent or two dollar sixty cents. At

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Speaker 1: twelve seventy ten. Announced the euro An ollar thirteen o one.

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Speaker 1: The end when I was six point eight two and

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Speaker 1: as a Bloomberg Business flash, Tom and Mike Cabaska, thank

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Speaker 1: you very much. I am Michael mckeelong with Tom Keene

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Speaker 1: and John Sillia Chief economistood Wells Fargo. I was listening

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Speaker 1: in your guys conversation before and I was sort of thinking,

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Speaker 1: maybe what we need to do is just all give up,

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Speaker 1: go have a drink and forget about the world is

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Speaker 1: falling apart here. Well, this is important that we have

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Speaker 1: to give up. John and I are guy hard Red

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Speaker 1: Sox fans, that we have an agreement that we never

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Speaker 1: talked when the Red Sox are in the first place. Well,

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Speaker 1: I was going to ask what his biggest concern was about,

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Speaker 1: you know, the world these days, whether it's Brexit, or

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Speaker 1: whether it's the U S slowing down, or whether it's

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Speaker 1: whether Big Poppy can you know, keep hitting throughout the

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Speaker 1: whether Red Sox have enough pitching you know, get to

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Speaker 1: the World Series. But um, I think they had their

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Speaker 1: October in September in April with the problems. But the

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Speaker 1: problem for people who are Red Sox fans and and

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Speaker 1: the fans of any team is how do you hedge

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Speaker 1: you know, that risk. It's just no way to do it, um,

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Speaker 1: But what is your leave the red Sox out of

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Speaker 1: it for a moment um? Sorry sorry in Boston, Um,

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Speaker 1: what's your biggest concern? The long list of things we've

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Speaker 1: been talking about, And it's kind of funny. I was

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Speaker 1: just on Bloomberg Go and we were talking about the

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Speaker 1: reasons people are buying treasuries and each country has a

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Speaker 1: some sort of you know, overhang that is putting investors

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Speaker 1: into it, and then of course the US is everybody's having.

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Speaker 1: What worries you the most? Well, I think if first

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Speaker 1: of all, when you're buying all those try injuries, Uh,

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Speaker 1: then there's the pricing of corporate and other debt off

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Speaker 1: of treasuries. And the question is, as Tom was suggesting earlier,

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Speaker 1: if we really don't know the risk free rate in

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Speaker 1: the marketplace, because it's really not driven by the market

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Speaker 1: itself but actually by central bank activity, then what is

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Speaker 1: our benchmark for pricing corporate debt and investment grade, high

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Speaker 1: yield agencies, any kind of debt. So that's a concern.

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Speaker 1: Out of that, my biggest concern is the inter relationship

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Speaker 1: between central bank policy, exchange rates, and economic growth. And

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Speaker 1: I'll go back to the South Korea situation. Um, you know,

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Speaker 1: there's a signaling process going on, and when a central

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Speaker 1: bank lowers it's interest rates, it's signaling that either their

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Speaker 1: inflation expectations or their growth expectations have moderated. And I

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Speaker 1: think that's into relationship is really struck the markets hard.

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Speaker 1: And when we look today and picking up on Karen's

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Speaker 1: comment about the negatives in terms of the markets opening

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Speaker 1: up this morning, it shows that they too are reevaluating

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Speaker 1: the pace of economic growth. Well, it's a beautiful, gorgeous

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Speaker 1: day outside in New York City, so scared the heck

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Speaker 1: out of me? Uh, draw me a negative scenario. What

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Speaker 1: could happen here? Just continued slow growth, not a pickup

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Speaker 1: in economic growth to the some of the three percent

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Speaker 1: numbers some people are talking about. Even to an alf

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Speaker 1: the US growth stays about one and a half to

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Speaker 1: two percent. We continue with the discussion about the labor market. Yes,

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Speaker 1: there are a lot of great opportunities and a lot

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Speaker 1: of great jobs that will open up for those that

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Speaker 1: are very well educated. And again can do the math

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Speaker 1: and the science and quadratic equations. Um, but you're not

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Speaker 1: going to create enough growth for the opportunities necessary for

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Speaker 1: a lower middle income, middle income type of worker. And

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Speaker 1: that's the challenge America faces and why there is such

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Speaker 1: frustration and a political year. I just had an offspring

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Speaker 1: get back from Norway. In the first comment off the

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Speaker 1: plane they lost their luggage, thank you, But the first

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Speaker 1: comment off the plane was the roads are so smooth.

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Speaker 1: You were with Wells Fargo. You do some of the

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Speaker 1: best best regional work nationwide. How come we can't have

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Speaker 1: some form of marginal infrastructure policy while in terms of

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Speaker 1: public policy, roads take a long time to pay off.

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Speaker 1: Is a long way away, uh, two, three, five, ten years. Uh.

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Speaker 1: And in a political system that's a hard way to

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Speaker 1: get votes at this point in time. I mean, we've

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Speaker 1: got things, we got exciting things like LaGuardia they're gonna

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Speaker 1: redo and New York hearing. You know, everybody listening to

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Speaker 1: this knows an infrastructure project that's happening. But given the

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Speaker 1: need for fiscal stimulus to get away from John Sylvia's

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Speaker 1: one and a half to two percent growth rate, it

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Speaker 1: just seems to be a no brainer. Well, once again

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Speaker 1: we get into discuss discussion about the Central Bank being limited.

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Speaker 1: The FED cannot be the only game in town. Okay,

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Speaker 1: if it can't be the only game in town, what

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Speaker 1: are the other games we need to play? I mean,

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Speaker 1: you talk about Poppy and Boston. No team's gonna win.

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Speaker 1: I mean the Red Sox used to have Ted Williams

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Speaker 1: all the time. It was great and thank you very much.

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Speaker 1: But where's the rest of the team. You can't depend

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Speaker 1: upon one player, Noll? Can you depend upon only one

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Speaker 1: versions of Frank mil Zone? I love how everything comes

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Speaker 1: back here with these two guys to the Red Sox.

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Speaker 1: Uh to the male Zone family listening this morning on

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Speaker 1: Bloomberg Boston. Don't go after Frank mill Zone like that?

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Speaker 1: All right? Can I can? We got one minute left?

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Speaker 1: Can I do a Red Sox analogy? Here? Bill Gross

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Speaker 1: yesterday tweeting gout. If this keeps up, you know we're

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Speaker 1: set up a supernova. We could have a disaster because

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Speaker 1: everybody's potting into the same trade because of what central

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Speaker 1: banks are doing. Could we have a Bucky Dent moment

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Speaker 1: for the global economy? Um? While I would go back

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Speaker 1: to the graphs that we talked about it earlier this morning,

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Speaker 1: and when you're dealing with two standard deviations on any graph,

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Speaker 1: they're just on enough other people on the other side

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Speaker 1: of the trade, and that warries me that the market

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Speaker 1: is um you know, especially in the fixed income area,

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Speaker 1: a little bit imbalanced because we really don't have a

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Speaker 1: lot of people dealing with persistent negative interest rates over time.

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Speaker 1: That is a new phenomenon. I don't think a lot

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Speaker 1: of people were in position, yes, going to negative rates

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Speaker 1: as we saw in this earlier graphum On Bloomberg. Yeah,

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Speaker 1: it was a surprise initially, but persistent negative rights, yeah,

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Speaker 1: that's a very different story, John Sylvia, thank you so much.

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Speaker 1: He is with Wills Fargo their chief economists, Michael McKee

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Speaker 1: and Tom Keen. Futures of negative eleven. Bloomberg's surveillance, Thank you,

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