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Speaker 1: advisor dot com. Welcome to the Bloomberg Surveillance Podcast. I'm
Speaker 1: Tom Keene with David Gura. Daily we bring you insight
Speaker 1: from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and
Speaker 1: of course on the Bloomberg again. About niney minutes to
Speaker 1: go until we get the October job support. Joining us
Speaker 1: in studio is Ellen Center, chief US economist at Morgan Stanley. Morning. Ellen,
Speaker 1: what's the relative importance of this report? We had the
Speaker 1: FED meeting this week that the two a FED meeting,
Speaker 1: a dead meeting as we as we characterized it, looking
Speaker 1: ahead here to December. This is the first of two
Speaker 1: jobs reports will get before the next FED meeting in December.
Speaker 1: Put this into some context for us, Well, I hope
Speaker 1: that it's an unexciting report. Uh, but there's always with
Speaker 1: the employment reports, there's always the scope for a big surprise. UM.
Speaker 1: I think the sense is that, uh, you know, these
Speaker 1: employment reports are supposed to be that very important incoming
Speaker 1: data that the FED is watching as their data dependent
Speaker 1: UH and making decisions meeting by meeting. But they have
Speaker 1: lowered the bar so much for going in December. Uh.
Speaker 1: I can't say it's a foregone conclusion because everything can
Speaker 1: fall apart between now and then, But the employment report
Speaker 1: has a very low bar UH that it needs to
Speaker 1: rise above UM. And I think as long as we
Speaker 1: get UH anywhere between a hundred thousand and two hundred thousand,
Speaker 1: that's right in the pocket UM. And that's fine for
Speaker 1: the FED. And will it'll be sort of a hum
Speaker 1: report because it's going to come in not far from expectations.
Speaker 1: Is this report more important in the political context again?
Speaker 1: The election here next Tuesday. This is something that could
Speaker 1: be Trumpet died or bally hood or or the opposite
Speaker 1: here in the coming days. Is it more important how
Speaker 1: this is consumed by the political side of things in
Speaker 1: the FEDOM? Yeah, Well, you know, good data is always
Speaker 1: good for the incumbent party, and it's it's not unique.
Speaker 1: This happens every election cycle, where if the data looks
Speaker 1: really good and it's benefiting seems like it's benefiting one
Speaker 1: party the other party will exclaim that the government is
Speaker 1: manufacturing the numbers and that they are fake. You know
Speaker 1: what happens this morning, if we get a blowout three
Speaker 1: hundred thousand payrolls, you might see Uh, Republicans step up
Speaker 1: and say this data is manufactured in order to make
Speaker 1: a Hillary presidency look better. Um, And of course that's
Speaker 1: not the case. But we also want to be fair
Speaker 1: and say this is not different than any other election cycle.
Speaker 1: We always have these exclamations of of falsehood, if you will.
Speaker 1: If the data is looking one way or the other,
Speaker 1: looking ahead to that that next FED meeting on the
Speaker 1: of December, what are the near term risks that they
Speaker 1: could crop up aside from from an election result that
Speaker 1: maybe goes against what people expect. Well, I think certainly
Speaker 1: if you if you had some sort of collapse in
Speaker 1: the hiring rate, Um that that we came. We just
Speaker 1: got very weak job growth in this report, and we
Speaker 1: get another job's report before that December meeting. Um, if
Speaker 1: the job growth is weak enough that the unemployment rate
Speaker 1: starts to tick back up. Uh. That is something that
Speaker 1: Janet Yellen indicated in her Q and A after the
Speaker 1: September meeting that she was laser focused on the unemployment
Speaker 1: rate needed to fall further. Uh. So job growth just
Speaker 1: isn't strong enough in order to get the unemployment rate
Speaker 1: to continue to take down. Uh. That might be something
Speaker 1: that leads to softer expectations of December, and then the
Speaker 1: Fed has a big decision to make. Uh do they
Speaker 1: get out there and and talk down expectations for December
Speaker 1: high on those reports, or do they continue to guide
Speaker 1: towards a December and just say, but we're not going
Speaker 1: to do much on the other side of it. Evidence
Speaker 1: Ellen Zenter with us with Morgan Stanley. What a spirited
Speaker 1: conversation we just had. Ellen over with surveillance on television
Speaker 1: with Peter Navarro and support of Trump economics. I want
Speaker 1: to back up and talk about this strange word mercantile
Speaker 1: is um, which comes over to a zero sum worldview,
Speaker 1: and maybe we get a zero sum America, whether it's
Speaker 1: President Trump or President Clinton. Help our audience understand what
Speaker 1: zero sum means in a center world. Well, zero sum
Speaker 1: would mean that no one's running a current account deficit,
Speaker 1: and that trade is completely fair and balanced on both sides,
Speaker 1: and that uh, we we have a basically a neutral
Speaker 1: trade balance with everyone. Right, we export a lot to others,
Speaker 1: and we import a lot from others, and at all
Speaker 1: evens out. But that's never the case, right or ever
Speaker 1: one's currencies would be on par Uh. Currencies are the
Speaker 1: great equalizer, and it just so happens that, yes, growth
Speaker 1: doesn't feel great in the US, but you know what,
Speaker 1: it's better than elsewhere, and our currency reflects that, and
Speaker 1: it means that we do have to take one for
Speaker 1: the team, so to speak. If there's a global team,
Speaker 1: we're taking one for the team right now because we
Speaker 1: are on stronger footing than our major global trading partners.
Speaker 1: What that's done, though, is make it very difficult um
Speaker 1: to digest when we ourselves are not growing that strongly.
Speaker 1: We don't have a strong of a labor market as
Speaker 1: we like, businesses are not investing as much as they like.
Speaker 1: And the easiest thing to point a finger two is
Speaker 1: is that somebody else's fault, and it's because they're stealing
Speaker 1: share uh from from from our well being UM. And
Speaker 1: that leads to this populous sentiment, which is a global
Speaker 1: phenomenon now in rising right, and that has been the
Speaker 1: trend here in the US as well. How long are
Speaker 1: we going to have to take one for the team.
Speaker 1: Do you think looking at the dollar your ninety seven
Speaker 1: to fIF Uh, it's been strong for a while. How
Speaker 1: long do you think that's going to persist? Well, I
Speaker 1: think it's going to depend on the global business cycle. Um,
Speaker 1: how close or other major global central banks to uh
Speaker 1: coming off that easing bias. Right, we are on a
Speaker 1: tightening bias. The Fed hasn't done much, but we're on
Speaker 1: a tightening bias because we're just a different place in
Speaker 1: our business cycle. Um. But you have the the e
Speaker 1: c B and the b o J, you know major
Speaker 1: global central banks out there, um that are still on
Speaker 1: an easing bias, and that's going to continue to keep
Speaker 1: pressure upward pressure on the dollar. So to the extent
Speaker 1: that their economies start to bear the fruits of that
Speaker 1: labor and those central banks can come off at easing bias,
Speaker 1: then you start to take some of the pressure off
Speaker 1: the dollar. Um. But this is a global cycle that's
Speaker 1: taking a long time to play out. And uh, you know,
Speaker 1: areas of of Europe are years behind us in terms
Speaker 1: of where they are in reparation post financial crisis. In
Speaker 1: the radio, I didn't get to this before. What does
Speaker 1: Hans Hdecker say about dollar for this year. How does
Speaker 1: Hans Rhdecker at Morgan Stanley dovetail a Zentner vision into
Speaker 1: his dollar call? Well, it's it's it's a Zentner vision.
Speaker 1: I like the way you put that, Tom makes me
Speaker 1: feel very important. Excuse me. It's a red Hans. I
Speaker 1: know you're listening. It's a Hdecker vision. Well, but it's
Speaker 1: it's so uh So Hans Rhdecker sits down with our
Speaker 1: the global economists, right, so it's not just my team
Speaker 1: and says, well, what is your what is your thinking
Speaker 1: around monetary policy? If if if the feed is going
Speaker 1: to continue to tighten, other global central banks are going
Speaker 1: to continue to ease. Well, that's going to play into
Speaker 1: how he feels about flows into the dollar UM and
Speaker 1: driving the dollar higher. I will tell you that. And
Speaker 1: you've talked to Rhedecker plenty of times. UM. If you
Speaker 1: want to have an hour long program, he can. He
Speaker 1: can bring you to tears talking about current account deficits
Speaker 1: matters for his forecasts. But but let's keep it simple.
Speaker 1: Let's keep it simple. A lot of that global central
Speaker 1: bank divergence matters for his calls. When he's thinking about
Speaker 1: the dollar. Just to me, it's an extraordinary jumble here.
Speaker 1: And again we want to congratulate you on your call
Speaker 1: of eighteen months ago that this would be a FED
Speaker 1: that would delay and delay the dots, don't come down
Speaker 1: next year all that much. Well, here's the thing, and
Speaker 1: this is something that our clients have been very, very
Speaker 1: focused on. Last year, the Fed hiked in December, and
Speaker 1: they hiked because they said, look, you're expecting it. It's
Speaker 1: been extremely well communicated. We expect little market reaction. What
Speaker 1: they underestimated was the global reaction to the perceived promise
Speaker 1: that they were going to follow it up with four hikes.
Speaker 1: Here we are today. Have they delivered one of those
Speaker 1: no um at the September meeting that we've just had,
Speaker 1: they lowered the path of the dots quite a bit,
Speaker 1: and now they're showing us that they would like to
Speaker 1: hike in December, and they, at best, which is how
Speaker 1: we should look at it, at best, intend to follow
Speaker 1: it up with two hikes next year. That's a much
Speaker 1: slower pace than what they were showing last year. Our
Speaker 1: clients are asking us, so do we get the global
Speaker 1: fallout that we did last year? Same as last year
Speaker 1: last year, or is everybody going to digest it better?
Speaker 1: Showing us already that the path at best is going
Speaker 1: to be much slower. I think we'll go far and
Speaker 1: trying to appease global markets. Gotta leave it there, Ellen Saner,
Speaker 1: thank you so much. With Morgan Stanley, it is Job's day.
Speaker 1: Much coming up on economics. It is Job's day. It
Speaker 1: is Job's day. Four days before the matter of an election.
Speaker 1: He is darkened the door of the Oval Office and
Speaker 1: Public Service to the Nation of the former Chairman of
Speaker 1: the President's Council of Economic Advisors, Alan Krueger. Are you
Speaker 1: overtly in supportive Secretary Clinton? Are you you know? Neutral?
Speaker 1: Are you? Are you going to come out for Trump
Speaker 1: economics this morning? What are you doing? Ellen? Next? News here?
Speaker 1: The uniformity of the economics profession against Donald Trump has
Speaker 1: been truly spectacular. I have to say I I am
Speaker 1: Tom and informal advisment to the Clinton campaign. Okay, very
Speaker 1: very good. I want to rip up the script here, folks,
Speaker 1: it's job today. We're gonna get to that in fifty
Speaker 1: minutes with all of our usual good guests. Professor Krueger,
Speaker 1: Jacob Winer in the forties, wrote the definitive piece on
Speaker 1: middle twentieth century mercantil is um. We didn't want to
Speaker 1: go back to that. We didn't want to repeat history,
Speaker 1: and a lot of courageous people from Atlantic Charter on said,
Speaker 1: we're not going to do it like we used to
Speaker 1: do it. Do we risk from Secretary Clinton and from
Speaker 1: Mr Trump tending towards zero sum America and an inward
Speaker 1: America that replicates the nineties. I think that's certainly a
Speaker 1: risk from the Trump campaign. I think Secretary Clinton has
Speaker 1: voted for a trade expansion in the past and voted
Speaker 1: against trade, so I think she's had a more nuanced view.
Speaker 1: But a candidate like Donald Trump, who says he wants
Speaker 1: to tear up long standing trade agreements, I think is
Speaker 1: a real risk to the global trading system that we have,
Speaker 1: and more importantly, to the stability that we've built up
Speaker 1: since World War Two. This overlays on your true expertise
Speaker 1: on the minimum wage and on labor in America to
Speaker 1: find how you hear the primal scream from Senator Sanders
Speaker 1: and Mr Trump's supporters well, the passion for doing more
Speaker 1: to help those who have been left behind in the
Speaker 1: economy I think is real and I think needs to
Speaker 1: be addressed. But I don't think the right solution is
Speaker 1: to turn inward to build walls. UH. That hasn't helped
Speaker 1: us in the past, and that will not help us
Speaker 1: going forward. I think that we need to look for
Speaker 1: solutions that grow the size of the pie and for
Speaker 1: solutions that lead to more equal sharing of the benefits
Speaker 1: of economic growth, and I think those are out there.
Speaker 1: For example, of responsible increase in theminum and wage would help. UH,
Speaker 1: A greater UH wide, more widespread program of trade adjustment
Speaker 1: assistance would help. We've seen we've seen the minimum wage
Speaker 1: rise at the local level at some state levels. UH.
Speaker 1: Is it at all likely that we would see it
Speaker 1: rise at the federal level? Or is that ship sale?
Speaker 1: And is this something that is percolating is happening at
Speaker 1: a more local level? Now, Well, we we've seen this
Speaker 1: movie before in the nineties when Congress didn't raise the
Speaker 1: federal minimum wage, the states acted and then remember a
Speaker 1: new Gang Ridge led Congress raised the federal minimum wage.
Speaker 1: So I think that there's UH some hope that will
Speaker 1: see a reasonable increase in the minimum wage in the future.
Speaker 1: What's the what's the one thing say that Hillary Clinton
Speaker 1: took away from the the economic platform that Bernie Sanders
Speaker 1: espoused when when he was when he was still running
Speaker 1: for president. How would she bent? Uh? In response to
Speaker 1: what what Tom called that primal scream, Well, I think
Speaker 1: there are a number of areas where Uh she took
Speaker 1: on his ideas and they infused her ideas. I think
Speaker 1: the most prominent has to do with access to post
Speaker 1: secondary schooling, making college affordable, making college debt free, which
Speaker 1: was a major theme for Bertie Sanders and one that
Speaker 1: Secretary Clinton has adopted an espoused and seems passionate about.
Speaker 1: I want to just quickly hear close a loop and
Speaker 1: we were talking about earlier to the Chinese want a
Speaker 1: bigger pie. We're talking mercantilism. You supose that we need
Speaker 1: a larger pie, dude, The Chinese want a larger pie
Speaker 1: of trade. I think clearly trade has been beneficial for
Speaker 1: their economic development. I think what they need to do
Speaker 1: in the future is to generate their own demand, particularly
Speaker 1: with household consumption um. But as an economic advisor, I
Speaker 1: would advise them that they benefit from from from a
Speaker 1: bigger pie. No question. Jobs day, oh forty minutes or so.
Speaker 1: We'll get to that, and among other worthies, William Gross
Speaker 1: of Jenna's Capital will join chief worthy right now was
Speaker 1: Alan Krueger of Princeton, the former chairman of the President's
Speaker 1: Council of Economic Advisors, were waxing political Professor Krueger let's
Speaker 1: now wax more job market. I did a chart today
Speaker 1: of the man's session, the idea of twenty four to
Speaker 1: fifty four year old men. Uh boy, it was good
Speaker 1: in the sixties and the structural change of women in
Speaker 1: the labor force, and it was ugly and they've come back,
Speaker 1: but they can't get back further. Give us your research
Speaker 1: now on that interesting separation and combination of men and
Speaker 1: women in the workforce. What's the dynamic you're focused on?
Speaker 1: Labor force participation rate trends are really fascinating in the US.
Speaker 1: In the post war period, labor force grew because more
Speaker 1: and more women joined the labor force. Men have been
Speaker 1: on this long term downward trend and that trend has continued.
Speaker 1: What's changed is that women are now mirroring men in
Speaker 1: terms of labor force. Participation of women peaked into thousand
Speaker 1: UM and that I think is significant because it means
Speaker 1: unless we have more population growth, primarily through immigration, it's
Speaker 1: unlikely we're going to see a major rebound in labor
Speaker 1: force participation. But now getting to the men, I have
Speaker 1: a new study that I presented at the Boston Federal
Speaker 1: Reserve Conference on October four where I found that around
Speaker 1: half of the prime working age men are out of
Speaker 1: the labor force suffer from a serious disability UH, either
Speaker 1: mental or physical. Almost half are taking pain medication on
Speaker 1: a daily basis. So I think we need to address
Speaker 1: the health concerns UH in order to raise labor force
Speaker 1: participation for for for that group in particular, when when
Speaker 1: when you look at the numbers today, what will they
Speaker 1: tell us about where the jobs your your your paper
Speaker 1: at that Boston Fed cards, Where the jobs? Where all
Speaker 1: the workers gone? Where the jobs today? Who is hiring?
Speaker 1: Is this still hiring? That's largely confined to the to
Speaker 1: the service sector. Well, we largely have a service sector economy.
Speaker 1: One of the interesting developments, however, is that in the recovery,
Speaker 1: manufacturing has started to increase jobs. I was talking with
Speaker 1: the CEO at Party City yesterday, and they're bringing jobs
Speaker 1: back because expenses are getting higher or abroad so I
Speaker 1: think we're seeing reassuring and manufacturing, but certainly it's the
Speaker 1: case that the bulk of job growth currently and in
Speaker 1: the future is going to come from the service sector.
Speaker 1: Take a quick diversion here for a sect. You mentioned
Speaker 1: the Boston FED conference. You were there, of course, Jenny
Speaker 1: Ellen giving that speech on on running a high pressure eccunty,
Speaker 1: suggesting that it could be done, not committing to it
Speaker 1: by any means, but introducing the concept. How did that
Speaker 1: play in the room. That's a good question. I spoke
Speaker 1: right after her, so I was kind of focused on
Speaker 1: my remarks, but I did read her remarks that I
Speaker 1: was there for them. UM economists have known for a
Speaker 1: long time that there are benefits of a high pressure economy.
Speaker 1: There's a famous paper by Arthur Oakin and the Brookings
Speaker 1: Papers with the title the high Pressure Labor Market. Larry
Speaker 1: cats and I wrote a paper nine on the high
Speaker 1: pressure labor market of the nineties, which I was actually
Speaker 1: pleased to see that Cherry Ellen had cited. So I
Speaker 1: think there are many benefits of the high pressure economy.
Speaker 1: UM wage growth is one. I think we see more
Speaker 1: opportunity for disadvantaged workers, for younger workers, I don't think
Speaker 1: it has that big an effect on labor force participation,
Speaker 1: but I do think there are many benefits of a
Speaker 1: high pressure labor market. Professor Krueger ellen Sander was on
Speaker 1: earlier and she I believe made the statement. I don't
Speaker 1: want to put words in her mouth, but she suggested
Speaker 1: that too many of the jobs today are what we
Speaker 1: would call less quality jobs. Are they? I mean, how
Speaker 1: do I you know, I know when you're you know,
Speaker 1: darker than the door of the Oval Office. You got
Speaker 1: to say a certain tune. And Jason Furman has done
Speaker 1: that with terrific research at the White House. But help me,
Speaker 1: here are these quality jobs. I think the job growth
Speaker 1: that we've seen looks a lot like the makeup of
Speaker 1: jobs that we have, and I think what we need
Speaker 1: to focus on is how do we raise wages? In fact,
Speaker 1: Jason Furman and I have an op ed in the
Speaker 1: Wall Street Journal this morning where we uh point out
Speaker 1: that in many cases, companies are taking non competitive practices
Speaker 1: to keep wages low. There was an example of a
Speaker 1: court case in Detroit where eight hospitals settled a suit
Speaker 1: for non competitive practices where they raised nurses pay, gave
Speaker 1: out a settlement of ninety million dollars because they had
Speaker 1: suppressed pay. Non compete classes are far too common. So
Speaker 1: I think that there are steps that we can take
Speaker 1: to make the labor market more competitive. Little rays pay
Speaker 1: across the board. Thank you monopson No, no, this is
Speaker 1: a major deal, folks. I go One of the great
Speaker 1: tests I have of an economics textbook is I literally
Speaker 1: go to the index and see if they even mention
Speaker 1: monopsony because Monopsony, to me, Professor Krueger is white underrated
Speaker 1: political debate. This is not monopoly. We're not trying to
Speaker 1: get Oriental and I don't want Baltic Mediterranean, Professor Krueger,
Speaker 1: we need a clinic right now on how man opsity
Speaker 1: is important and it's not monopoly? Is it? To me?
Speaker 1: It is rubber plantations in Singapore. That's always a model
Speaker 1: I'm used where your price you just you get the
Speaker 1: price you get. Monopsony is the flip side of monopoly,
Speaker 1: means that there's one buyer as opposed to one seller. Now,
Speaker 1: one of the things that we've learned in economics research
Speaker 1: is that you can have monopsony apart from a company town,
Speaker 1: not only in those rubber plantations. But companies can reduce
Speaker 1: competition by requiring their workers to sign on compete agreements.
Speaker 1: Adam Smith, if you go back to the Wealth of
Speaker 1: Nations and which you wrote an incredible introduction for within
Speaker 1: the world that at the moment, but thank you. If
Speaker 1: you go back to the Wealth of Nations, Adam Smith
Speaker 1: said that employers, whenever they get together, they tacitly talk
Speaker 1: about how do they collude to keep wages low. So
Speaker 1: there's been this pressure in the job market for a
Speaker 1: long time, and I think that's one of the reasons
Speaker 1: why we've seen job vacancies rising. Company he's saying they
Speaker 1: can't get enough workers, but they've been reluctant to wages.
Speaker 1: The price economics think in Chicago. Here Chicago is his school.
Speaker 1: It's out West, Professor Krueger, it's just just sell of
Speaker 1: the cubs. You're the white sox um. If you look
Speaker 1: at the price theory of Monopsony, our listeners are saying,
Speaker 1: Professor Krueger, you don't know what you're talking about. If
Speaker 1: we have to raise wages, we're going out of business.
Speaker 1: How do you respond to entrepreneurs in America who say,
Speaker 1: we've got a collude, whether it's direct, indirect, monopsusy whatever,
Speaker 1: or we go out of business. How do you respond
Speaker 1: This clearly isn't the case. I mean, we hear this
Speaker 1: whenever the minimum wage goes up, and we only see
Speaker 1: more and more job growth. If workers have more wages,
Speaker 1: that's going to help the macro economy, that's going to
Speaker 1: help consumption, and the whole economy will grow. I was
Speaker 1: astonished reading your your piece with Jason from this morning. Uh,
Speaker 1: the portion about non compete clauses you write of American
Speaker 1: workers have signed them. Why Why are we seeing so
Speaker 1: many noncompete clauses in employment contracts today? What's remark well
Speaker 1: to me as we're seeing him in places where they
Speaker 1: clearly don't belong, for warehouse workers, for fast food restaurant workers.
Speaker 1: And it's I think a very clear example of companies
Speaker 1: trying to restrict competition to make it so that they
Speaker 1: have more of a tied workforce, to make it so
Speaker 1: that they don't leave for higher wages down the street.
Speaker 1: And that's restricting competition. Uh, and that has really run
Speaker 1: a muck and I think it's a sign of the
Speaker 1: imbalanced and bargaining power between workers and companies help us.
Speaker 1: Let's circle around here the minute a half we've got
Speaker 1: left with you, Professor Krueger. If we have an election
Speaker 1: in both candidates say we don't want to be a
Speaker 1: rubber plantation in Singapore. We don't want to have monopsimistic
Speaker 1: tendencies in the United States. State the case for your candidates,
Speaker 1: Secretary Clinton, how is she going to make us less monopximistic. Well,
Speaker 1: I think she got both the positive and the negative.
Speaker 1: I mean, Donald Trump has stiffed his workforce in the past,
Speaker 1: has really shown no commitment to raising wages for middle
Speaker 1: class workers. Certainly his tax plan wouldn't help middle class
Speaker 1: compared to high income folks. Uh. Secretary Clinton has spent
Speaker 1: her career trying to provide more opportunities for disadvantaged workers.
Speaker 1: And there's a lot that the administration could do. One
Speaker 1: of the things we point out in our ed. In
Speaker 1: addition to raising the minimum wage, which I think would
Speaker 1: help to counteract some monopsny power as long as it's
Speaker 1: raised to a reasonable level, the administration can more actively
Speaker 1: enforce antitrust laws which prevent companies from or legally should
Speaker 1: prevent companies from occluding to keep pay low One of
Speaker 1: the things the Obama administration and the Justice Department just
Speaker 1: did was to announce a hotline for human resource professionals
Speaker 1: to call in and report instances of uh illegal competitive
Speaker 1: behavior in the labor market. And I think that could
Speaker 1: help identify these cases and we could bring more court
Speaker 1: cases like the one in Detroit. Does that move jobs abroad?
Speaker 1: Does that move jobs to states that are more sympathetic
Speaker 1: to ober plantation psychology? You know, that's a great question,
Speaker 1: and this is really a win win solution because the
Speaker 1: answer that is no. If companies are colluding to keep
Speaker 1: pay load, they can't get enough workers. That's why they
Speaker 1: have vacancies. Um. And what you see with monopsony is
Speaker 1: if you do raise pay if you do force the
Speaker 1: cartel to break down, employment actually rises. So it could
Speaker 1: be a win win situation where we raise wages and
Speaker 1: raise jobs. David, did we get them fired up enough? Sugar?
Speaker 1: I'm going to send out on Twitter a whole bunch
Speaker 1: of attachments on this. This happens to be a pet
Speaker 1: project of my monopsionistic dynamics. Furman Krueger, the Wall Street
Speaker 1: Journalist Morning on your rubber plantation. Who you put your
Speaker 1: trust in matters. Investors have put their trust in independent
Speaker 1: registered investment advisors to the tune of four trillion dollars.
Speaker 1: Why they see their roles to serve, not sell. That's
Speaker 1: why Charles Schwab is committed to the success over seven
Speaker 1: thousand independent financial advisors who passionately dedicate themselves to helping
Speaker 1: people achieve their financial goals. Learn more at find your
Speaker 1: Independent Advisor dot com. Joining us now, Bill Gross will
Speaker 1: join us, and we welcome Bloomberg Television as well. Bill,
Speaker 1: Good morning to you. The basic idea I would I
Speaker 1: would suggest is this does not derail December, and it
Speaker 1: certainly doesn't affect the election. It's another good report, and
Speaker 1: yet you continue to counsel caution I do. I would
Speaker 1: admit it's a it's a good report. I zeroed in
Speaker 1: on two important factors. That work week was a point four,
Speaker 1: which is higher than average, and earnings. You know, we're
Speaker 1: growing more than a normal as well, and so you
Speaker 1: combine those together and that's good for the consumer going forward.
Speaker 1: But I counsel caution on the basis of structural changes,
Speaker 1: on the basis of a recent report by the Federal
Speaker 1: Reserve itself done over you know uh six to twelve
Speaker 1: month period of time. That spoke to demographics and a
Speaker 1: negative influence on growth over the past several decades and
Speaker 1: the potential for it to continue to be negative. UM.
Speaker 1: I focus on structural items such as a high debt
Speaker 1: and leverage and technology displacement of jobs over a longer
Speaker 1: term basis, and so UM, you know, the economy tamed
Speaker 1: to me is in a one to one and a
Speaker 1: half percent real growth mode. And you know, as we
Speaker 1: shift to markets and the influence of that growth on markets,
Speaker 1: which is an important consideration. UM. Earnings not earnings per share,
Speaker 1: but earnings don't really grow at one to one and
Speaker 1: a half percent growth rates. And that's been the case
Speaker 1: for the past five quarters. GDPs average one and a
Speaker 1: half percent, and we've had an earnings recession mild as
Speaker 1: it is, So UM, you know, markets had better look
Speaker 1: to real growth as opposed to unemployment and unemployment which
Speaker 1: Janet Yell intends to do for an accurate forecast as
Speaker 1: to where asset prices headed, Bill, you bring up growth.
Speaker 1: We got those GDP numbers a few days ago that
Speaker 1: the headline number there of two point nine percent. Look
Speaker 1: under the hood, maybe some worrying signs there. What does
Speaker 1: that say? How does that influence the FEDS path forward? Well, um,
Speaker 1: I think they're not necessarily sensitive to GDP. I heard
Speaker 1: your discussion with Jim Glassman in terms of the FED
Speaker 1: not necessarily focusing on a specific growth measure, and that's true.
Speaker 1: They focus on two percent inflation. But you know, ultimately
Speaker 1: that type of growth rate to influences financial markets, and
Speaker 1: I do think the FED is focused on financial markets.
Speaker 1: Should we get a shock, for instance, in terms of
Speaker 1: an election, should we get an ultimate realization that the
Speaker 1: major reason and equity markets are being held up is
Speaker 1: due to the magic of central banks and quantitative easing,
Speaker 1: then you know, at some point, if markets start to
Speaker 1: decline and the FED will back off, the FED as
Speaker 1: a slave to the financial markets as opposed to vice versa,
Speaker 1: which is what I experienced and many of you have
Speaker 1: experienced over the past ten, twenty and thirty years. Been
Speaker 1: a few weeks back, you made the analogy of central
Speaker 1: bankers to Martin Gale gamblers. Here, Macau is Frankfort, I suppose,
Speaker 1: and the strip is thread Needle Street. From what we've
Speaker 1: seen here in the intervening couple of of weeks. Do
Speaker 1: you see central bankers now taking stock reevaluating, becoming introspective
Speaker 1: they've been all of these policy reviews. Are central bankers
Speaker 1: coming to think about or maybe accept the limits to
Speaker 1: what they're doing? I think, I think to some extent,
Speaker 1: you know, to me, the ultimate question, uh, is what
Speaker 1: is the new neutral policy right? Not just for the
Speaker 1: real economy and it's reflection and financial markets and asset prices,
Speaker 1: but for savers and savings institutions such as life insurance companies,
Speaker 1: pension funds for one k individual savers. And I think
Speaker 1: an increasing number of FED members as well as uh,
Speaker 1: you know, other spokes men and women for other central
Speaker 1: banks are coming over to the side gradually. We've seen
Speaker 1: two descents three descents recently in the in terms of
Speaker 1: the FED statement, but they're coming over to the side
Speaker 1: that considers savers and return on savings instead of just
Speaker 1: a rate that stabilizes asset markets. Bill, who are you
Speaker 1: going to support for president? I mean, I don't want
Speaker 1: to be direct, but it's four days to go here, uh,
Speaker 1: Mr gross And and I look at the job economy.
Speaker 1: I look how prescient you've been on our financial repression.
Speaker 1: Do you have a preferred candidate that can give us
Speaker 1: less bill gross financial repression. I don't you know. Trump
Speaker 1: is uh minor ely attacked the FED, and I don't
Speaker 1: think I'm quite sure what would happen if he became president,
Speaker 1: whether yelling would be asked to leave or not. So
Speaker 1: that's that's not positive, But it doesn't speak to financial
Speaker 1: repression and the fact that interest rates may gradually move
Speaker 1: higher and remove some of that repression. I think, um,
Speaker 1: Hillary is a status quote type of candidate, and therefore
Speaker 1: the financial repression that's existed for seven or eight years
Speaker 1: now in terms of low interest rates would be part
Speaker 1: of our mantra to my way thinking. But he hasn't
Speaker 1: really spoken to that, has you Bill very quickly? Here?
Speaker 1: I spoke with Nicholas Comfort and farm for today the
Speaker 1: effects of negative interest rates on commerce Bank of Germany.
Speaker 1: Negative interest rates are out there. You know, it's a
Speaker 1: raging debate. Do we need to pull ourselves away from
Speaker 1: this experiment of negative rates? Do we maintain it in
Speaker 1: the next year? What would be your counsel to global
Speaker 1: leaders now? I think we need to pull away. I
Speaker 1: think that's one of the reasons, uh you know, yeah,
Speaker 1: has been influenced, but some of the the Fed members
Speaker 1: in terms of just that, uh, you know, consideration. I
Speaker 1: think it's an experiment, uh to raise interest rates in
Speaker 1: a period of time in which you know, inflation is quiescent,
Speaker 1: so to speak. But you know, subjectively, as I've spoken
Speaker 1: for the last year or two and others. Um, you know,
Speaker 1: negative interest interest rates have a influence on the real economy,
Speaker 1: and it's not always positive. It's not always trickled down.
Speaker 1: And to the extent that bank interest rate margins are
Speaker 1: narrowed and profits uh in that sector aren't doing well.
Speaker 1: And to the extent that pensions and four one case
Speaker 1: and insurance companies are hurt by negative and narrow interest
Speaker 1: rate margins, then ultimately that affects the real economy, and
Speaker 1: it has for the last year or so. David Gurr
Speaker 1: and Tom Keene worldwide and joining us now in the studio.
Speaker 1: He's not wearing a wig like the justices in England.
Speaker 1: John Farrell with us this morning, and uh they will
Speaker 1: jump in here in a moment with do Good, Bill
Speaker 1: Gross of Janice Capital of David David Gray here on
Speaker 1: Bloomberg Surveillance. Greetings to our listeners on Bloomberg Radio around
Speaker 1: the world, our viewers on Bloomberg Television as well. John Fair,
Speaker 1: the anchor of Daybreak Americas on Bloomberg Television, Daybreak Europe
Speaker 1: on Bloomberg Radio, joins me. But we're with Bill Gross
Speaker 1: of Janis Capital and Bill, let me ask you about
Speaker 1: how the clarion call for more fiscal stimulus is ringing
Speaker 1: out in Newport Beach. How are how are you responding
Speaker 1: to the growing chorus of cries for physical stimulus from
Speaker 1: central bankers around the world. Well, we don't have that
Speaker 1: many potholes and new Form beachs. The Irvane company ceased
Speaker 1: to that, and uh, you know, the infrastructure seems to
Speaker 1: request seems to be just that, a a plea for
Speaker 1: fixing our bridges and fixing our potholes, and that's fine. Uh.
Speaker 1: You know what amazes me, though, is that the word
Speaker 1: canes rarely comes up on either side, rarely comes up
Speaker 1: in the press. It's almost like he's um, you know,
Speaker 1: been disked in history, and that the canes in solution
Speaker 1: to economic growth when it lags significantly in terms of
Speaker 1: fiscal spending, it is never addressed. It's addressed in terms
Speaker 1: of infrastructure shovel ready. Even Obama has suggested that his
Speaker 1: shovel ready program didn't really do much and took one
Speaker 1: to two years to get going. So, you know, to
Speaker 1: my way of thinking, it's it's vastly insufficient on either side.
Speaker 1: And what we really need is a fiscal spending program
Speaker 1: of significant proportions, perhaps as much as one to two
Speaker 1: of g d P on an annual basis, in order
Speaker 1: to pull us out of this thing. We'll play it
Speaker 1: out for us here real quick. Tom Keene asking you if,
Speaker 1: if if you have a candidate in this election, both
Speaker 1: of them promising to do significant infrastructure spending, looking at
Speaker 1: how that will affect the markets. If we have many
Speaker 1: billions of dollars spent on infrastructure, any measurable effect that
Speaker 1: you see in the near term and even in the
Speaker 1: long term, sure on the markets. You know, in a
Speaker 1: large Kansian stimulation, if it went that way, even infrastructure
Speaker 1: spending of you know, hundreds of billions of dollars is
Speaker 1: a is a negative for for the bond market. Bond
Speaker 1: the bond market likes to see monetary stimulation, a fiscal stimulation,
Speaker 1: and so you know, I would expect after next week
Speaker 1: any result that that came out in the form of
Speaker 1: larger government spending as a percentage of g d P
Speaker 1: would be slightly bond negative. On the other hand, let
Speaker 1: me suggest that interest rates the tenure treasury for instances
Speaker 1: this sort of pinned by what other countries and other
Speaker 1: central banks are doing. But with the b o J
Speaker 1: at zero percent on their tenure, that's a significant magnet
Speaker 1: for US interest rates to stay relatively low. Japanese investor
Speaker 1: can sell a j g B to their central bank
Speaker 1: at UH at minus six basis points for the tenure
Speaker 1: and reinvested in treasuries at a currency hedged level of
Speaker 1: maybe forty or forty five basis points pick up. So
Speaker 1: it's import and where in Japan is. It's important where
Speaker 1: the e c B is, and it's obviously important what
Speaker 1: happens in the election. But you have to blend all
Speaker 1: of that into consideration, and that to me speaks to
Speaker 1: interest rates. Take the tenure being in a relatively tight
Speaker 1: range because of the Japanese magnet and because of the
Speaker 1: potential for higher government spending after the election. So let's
Speaker 1: break out of the six months range and talk about
Speaker 1: a thirty year bull market. Are you seeing anything on
Speaker 1: the horizon that suggests the thirty year bull market is over. Well,
Speaker 1: I see a suggestion that perhaps the rates bought them.
Speaker 1: That's not the definition of a bull market being over.
Speaker 1: I I would suggest a definition of bull market being
Speaker 1: over would be the initiation of a bear market. And
Speaker 1: I I simply don't see that. As long as central
Speaker 1: banks continue to do what they do. Uh. You know
Speaker 1: the three banks that are actively engaged now in the UK,
Speaker 1: the e c B and the Bank in Japan. Yeah,
Speaker 1: it's a hundred and eighty billion dollars a month in
Speaker 1: terms of spending towards towards bonds that ultimately flows into equities,
Speaker 1: and even those countries are buying equities and corporate bonds.
Speaker 1: So as long as that continues, it's very hard for
Speaker 1: a bear market. It doesn't mean, and I will put
Speaker 1: it right out front, as I have for the past
Speaker 1: twelve to twenty four months, that this artificial stimulation one
Speaker 1: day will end in in ruin. But as long as
Speaker 1: the money keeps being pumped out and you have a
Speaker 1: buyer for bonds in the face of higher inflation, uh,
Speaker 1: you know, whether it's two or two and a half
Speaker 1: percent still to be defined. In various countries, then it's
Speaker 1: hard for a bear market to begin. We'll belly you
Speaker 1: that buyer. What we've seen recently is a steepening of
Speaker 1: the yield curve. I just wonder whether the flattener returns.
Speaker 1: You came on too Limberg television a couple of months
Speaker 1: ago and set the shortened duration as you portfolio changed.
Speaker 1: Since then, yeah, the duration has been short you know,
Speaker 1: centering around zero my point, and I've talked to Tom
Speaker 1: about this and Mike about this over the past uh,
Speaker 1: you know several quarters. Is that in this type of environment,
Speaker 1: If if your main theory is that yields a range
Speaker 1: bound within a basis point range, then it's not the
Speaker 1: buying or selling um on a trading basis that that
Speaker 1: you know, produces a total return, but it's the the
Speaker 1: selling of volatility around those ranges that produces a much
Speaker 1: higher yield and a much higher return. You have to
Speaker 1: be right on that range. And if the ranges are broken,
Speaker 1: obviously um, you're not making money. But the selling of
Speaker 1: calls and puts on a range bound market is perhaps
Speaker 1: the most attractive way to make money in that type
Speaker 1: of market, and that's what Janice has been doing. And
Speaker 1: that's why we're you know, had by five point three
Speaker 1: percent this year, beating stocks and beating bonds. So you've
Speaker 1: written with with alarm and in sweeping terms about what
Speaker 1: central bank policy is going to mean for for capitalism,
Speaker 1: transformation of capitalism. Uh, do you see that transformation underway
Speaker 1: right now? Is it inevitable? Where does that stand? Oh?
Speaker 1: We do, and you can see it. Uh, there's a
Speaker 1: there's a counter argument to what I'm about to disclose,
Speaker 1: but there's you can see it. I think in the
Speaker 1: form of capital expenditures relative to g d p UM.
Speaker 1: You know what what zero interest rates and negative interstrs
Speaker 1: rates do is bring consumption forward in a multitude of fashions.
Speaker 1: And to the extent that consumption has been brought forward,
Speaker 1: and corporations since that, in other words, they sense that
Speaker 1: future consumption will not match past consumption. Then capitalism itself,
Speaker 1: the willingness to invest money in capital, plant and equipment,
Speaker 1: you know, is diminished, and we've seen that. We also
Speaker 1: see it in terms of productivity numbers. Yes, they were good,
Speaker 1: Uh this week around three percent, but year on year
Speaker 1: it's a flat zero percent, you know, productivity increase, and
Speaker 1: so yeah, we're beginning to see capitalism as we once
Speaker 1: knew it, Uh, you know, fade at the margin? Um
Speaker 1: and and is it because of zero percent interest rates?
Speaker 1: Or is it because of some savings glad as a
Speaker 1: ex chairman Bernanke would describe, I think it's the former
Speaker 1: as opposed to the latter. I don't think any economists
Speaker 1: with common sense as opposed to you know, uh university
Speaker 1: trained modeling, would deny that the zero percent interest rates
Speaker 1: distroyed capitalism. Capitalism can't can't function. Uh, if there's no
Speaker 1: return on short term money or low return on long
Speaker 1: term money, just is common sense. Let's return here your
Speaker 1: lastly to the jobs numbers today. I'm curious about how
Speaker 1: that factors into your investment strategy. What you're looking at
Speaker 1: these job numbers for. Uh. Your sense of the role
Speaker 1: of central banks here seems very well well established. When
Speaker 1: we get a monthly report like this one doesn't change
Speaker 1: anything measurably for you, Well, it does it from December
Speaker 1: the December is to mess slam dunk. This is a good,
Speaker 1: good report and there's no reason now for yelling to
Speaker 1: continue to bluff and to bluff and to suggest that
Speaker 1: at the next meeting they would consider it seriously. They
Speaker 1: will raise the funds rate in December. The question becomes
Speaker 1: how often will they raise it after that? What is
Speaker 1: the pace of normalization? And I know that the markets
Speaker 1: only believe that FED funds in short rates will be
Speaker 1: raised by twenty five or even less over a twelve
Speaker 1: month period of time. But but in any case, um,
Speaker 1: you know, what today's reports suggested is that the Feds
Speaker 1: on the move, But I suggest they'll move very very slowly,
Speaker 1: and that interest rates and financial uh intermedial intermediation will
Speaker 1: continue to exist as it has. Bill Gross, thank you
Speaker 1: so much. Just remember Bill Gross, it's a great Southern
Speaker 1: California tradition. Vote early, vote often. I'm sure you will
Speaker 1: assist in the Mr Gross, thank you so much. Here
Speaker 1: is with Jannis Capital, and of course I do urge
Speaker 1: you to read his essays at Jannis Capital widely available
Speaker 1: and of course, with his great influence on the bond market.
Speaker 1: People pay attention. Thanks for listening to the Bloomberg Surveillance podcast.
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