WEBVTT - Dysfunctions in Labor Markets with Jason Furman 0:00:06.320 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Leye. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.960 Bloomberg dot Com, and of course, on the Bloomberg So 0:00:33.960 --> 0:00:36.360 when it's play rolls Friday, your median estimate in our 0:00:36.400 --> 0:00:40.440 Bloomberg survey one hundred and ninety thousand added to the 0:00:40.560 --> 0:00:43.120 month of May, the unemployment rate expected to stay at 0:00:43.159 --> 0:00:47.320 three point nine percent, and the closely watched wage growth figure. 0:00:47.600 --> 0:00:50.880 The estimate their two point six percent year on year, 0:00:51.040 --> 0:00:54.000 in line with the previous read. I'm really pleased to 0:00:54.040 --> 0:00:56.120 say to give us his personal read. It's Tom Porselli 0:00:56.280 --> 0:00:59.280 OBBC Capital Markets chief US economist who joins us in 0:00:59.320 --> 0:01:01.720 the studio morning. So, good morning, good to see. What 0:01:01.760 --> 0:01:03.360 are you looking for this morning? So we're looking for 0:01:03.400 --> 0:01:06.360 two fifteen headline and private, and we're looking for a 0:01:06.360 --> 0:01:09.160 three nine on the unemploymer No change there. Look, I 0:01:09.440 --> 0:01:11.680 think you know, let's be let me be the only 0:01:11.680 --> 0:01:14.560 honest economist on this point. Whether it comes in at 0:01:14.600 --> 0:01:16.680 consensus one nine d I think you said, are my 0:01:16.760 --> 0:01:19.119 two fifteen or even it comes a little lighter than that. 0:01:19.319 --> 0:01:22.840 To be honest, it's still very consistent with a totally 0:01:23.000 --> 0:01:25.920 rock solid labor backdrop. Tom and I were talking about 0:01:25.920 --> 0:01:28.479 this on on TV or earlier. I mean, I think, 0:01:28.520 --> 0:01:32.040 just look at sentiment with regard to the labor backdrop, 0:01:32.319 --> 0:01:36.479 um the conference boards, Uhum, sentiment measures as as good 0:01:36.520 --> 0:01:39.160 as any and what you see is that people continue 0:01:39.200 --> 0:01:41.560 to say that they have they're holding a really positive 0:01:41.600 --> 0:01:44.240 view on labor. So um, I think from not just 0:01:44.280 --> 0:01:47.039 from a numbers perspective, do I think things look good, 0:01:47.080 --> 0:01:50.520 but from a sentiment perspective, Um, people continue to feel 0:01:50.560 --> 0:01:52.560 good about the backdrop? What does it say about where 0:01:52.600 --> 0:01:55.640 we are that we can still get prints of? So 0:01:55.720 --> 0:01:57.520 I love this question because I really think it gets 0:01:57.520 --> 0:01:59.160 to drive home this one point. I think that there's 0:01:59.200 --> 0:02:02.880 a heck of a lot of people us but but 0:02:03.000 --> 0:02:05.360 time I love you though, and it doesn't love me, 0:02:08.680 --> 0:02:10.120 which is why I like being on with both of you. 0:02:10.120 --> 0:02:13.320 I get the best of both worlds. Uh. So I 0:02:13.360 --> 0:02:16.240 would say that what it what it really drives home is, 0:02:16.800 --> 0:02:18.919 you know, we're we're probably not quite at full employment 0:02:18.960 --> 0:02:20.720 yet in the United States, right. I mean, I think 0:02:20.720 --> 0:02:22.440 a lot of people think of full employment as somewhere 0:02:22.440 --> 0:02:24.160 between four and four and a half percent. I think 0:02:24.200 --> 0:02:27.000 it's reasonable to actually wonder allowed or really between three 0:02:27.040 --> 0:02:29.240 and a half and four percent from a full employment perspective. 0:02:29.360 --> 0:02:31.919 And if that's true, if that thesis is true, then 0:02:31.960 --> 0:02:34.399 what that means is that there's still pipeline wage pressure. Again, 0:02:34.440 --> 0:02:36.040 something else Tom and I talked about on on air 0:02:36.080 --> 0:02:38.720 a little earlier. But I would say that if you 0:02:38.800 --> 0:02:42.720 consider that, UM, the tighter labor markets get, or as 0:02:42.840 --> 0:02:45.560 labor markets get the most tight, I e. Once you 0:02:45.600 --> 0:02:48.359 get down toward full employment, that's when wage pressures really 0:02:48.360 --> 0:02:49.720 start to take off. So I would tell you that 0:02:49.720 --> 0:02:53.639 I think there's pipeline pressure, not just actual pressure. Today, Tom, 0:02:53.680 --> 0:02:55.359 you're thinking out loud, do you get the impression that 0:02:55.400 --> 0:02:57.680 the Federal Reserve is doing the same thing I do? 0:02:58.040 --> 0:03:00.080 In fact, you know, look at the beige book. I 0:03:00.080 --> 0:03:02.040 mean you know that that the Fed's homegrown piece, right, 0:03:02.120 --> 0:03:04.120 it's within the bage book. We have this great we 0:03:04.120 --> 0:03:06.520 have a couple of great indicators within the bage book. UM. 0:03:06.760 --> 0:03:09.120 We've we've sort of scraped the bage book over the decades, 0:03:09.280 --> 0:03:11.320 and we have something called the bage Book Labor Shortage 0:03:11.320 --> 0:03:14.360 Index UM. And if you overlay that with the unemployment rate, 0:03:14.400 --> 0:03:17.400 it actually has a fantastic relationship. UM. And guess what 0:03:17.440 --> 0:03:19.640 you continue to hear from the Page book, UM that 0:03:19.720 --> 0:03:22.079 their companies are really having a heck of a hard 0:03:22.080 --> 0:03:24.799 time finding qualified workers and they're paying up for it. 0:03:25.120 --> 0:03:27.560 And we should say this with great, great love and 0:03:27.680 --> 0:03:30.959 honor to the late Richard Yamarona Bloomberg, who was really 0:03:30.960 --> 0:03:35.480 out front and re re affirming the value of the 0:03:35.480 --> 0:03:38.080 Beige Book. And what you see there and what this 0:03:38.160 --> 0:03:42.000 comes down to, Tom Porcelli, Everyone listening coast to coast 0:03:42.160 --> 0:03:47.960 is saying, Okay, raise wages. So when you'll find the people. Yeah, 0:03:48.040 --> 0:03:51.160 so it's happening. So I I would tell you that 0:03:51.160 --> 0:03:53.920 it's happening already. So look at so the Atlanta Fed. 0:03:54.000 --> 0:03:56.560 Right again just picking on sort of the Fed data. Um, 0:03:56.640 --> 0:04:00.280 look at the Atlanta Fed. They have the wage accord 0:04:00.360 --> 0:04:02.400 and when the breakdown of the tracker is pretty interesting, right, 0:04:02.560 --> 0:04:06.360 they have um wage wage tracker for job leavers, So 0:04:06.400 --> 0:04:08.520 someone who left a job to go take another and 0:04:08.560 --> 0:04:11.119 for jobs stay or someone who's just staying at a job, um, 0:04:11.120 --> 0:04:14.040 And the spread is about a full percentage point higher 0:04:14.640 --> 0:04:17.320 for people that are leaving to take a job, So 0:04:17.440 --> 0:04:20.160 you're being rewarded for taking a job right now. Um, 0:04:20.200 --> 0:04:22.840 So yeah, I think it's already happening. And again it's 0:04:22.880 --> 0:04:25.760 a speed question, right, like is it happening to the 0:04:25.800 --> 0:04:28.800 speed to which people want it to happening? That is 0:04:28.800 --> 0:04:31.880 a philosophical view, you know, Like I I can't get 0:04:31.880 --> 0:04:34.080 into that philosophical view on that. Tell me what your 0:04:34.080 --> 0:04:35.520 expectations were, and I'll tell you if you were going 0:04:35.560 --> 0:04:38.760 to be wrong, you know. Um, But the reality is 0:04:38.800 --> 0:04:41.960 wage pressures have already materializing, will continue to materialize given 0:04:42.000 --> 0:04:43.640 some of the things we just talked about. Sumple Sully 0:04:43.760 --> 0:04:45.679 right to catch up with this morning on scary thoughts 0:04:45.680 --> 0:04:48.000 on the on the labor market and payrolls coming out 0:04:47.880 --> 0:04:50.560 of eight thirty East and sample Sully jointing us from 0:04:50.600 --> 0:04:53.240 rb C. The capital market is chief US economists tell 0:04:53.480 --> 0:04:56.320 we would usually talk to Mr Purcelli for two to 0:04:56.400 --> 0:04:59.400 three hours here, but we can't today because we have 0:04:59.520 --> 0:05:02.479 national lose not a trade war. I'm not willing to 0:05:02.520 --> 0:05:05.800 say that yet, but boy was yesterday and eventful. As 0:05:05.800 --> 0:05:07.680 we try to do on surveillance, we try to bring 0:05:07.760 --> 0:05:11.960 you the nation's experts, people really thinking about this, and 0:05:12.000 --> 0:05:14.000 that would be Edward Old and Ted Alden of the 0:05:14.040 --> 0:05:17.000 Consul on Foreign Relations. I can't say enough about his 0:05:17.040 --> 0:05:20.960 book Failure to Adjust. Ted Alden, what is the failure 0:05:21.000 --> 0:05:25.120 to adjust that President Trump is doing right now? Well, 0:05:25.160 --> 0:05:29.680 he's you know, his basic approach is that there are 0:05:30.040 --> 0:05:32.320 you know a number of Americans have not done well 0:05:32.680 --> 0:05:34.920 in uh in recent years. You know. I talk about 0:05:34.960 --> 0:05:37.560 them as being those left behind in my book. And 0:05:37.760 --> 0:05:39.839 President Trump's approach to this is to say, well, the 0:05:39.880 --> 0:05:42.680 foreigners are to blame for what's gone wrong in your lives. 0:05:43.200 --> 0:05:46.320 And he's you know, going after our allies on trade. 0:05:46.320 --> 0:05:48.720 He's obviously doing the same thing on immigration in different ways. 0:05:48.760 --> 0:05:52.800 So so he's really trying to externalize this problem. And 0:05:52.800 --> 0:05:55.080 and I fear, unfortunately he's going to make the problem 0:05:55.200 --> 0:05:57.640 much bigger. You know, I know the economic news is 0:05:57.640 --> 0:06:00.320 pretty good, but there's a huge layer of uncertainty here 0:06:00.600 --> 0:06:02.440 as a result of these trade acts. In the in 0:06:02.480 --> 0:06:06.679 the micro theory, the microeconomics of terroiffs, and this applied 0:06:06.680 --> 0:06:09.880 to me on the typical martialian cross. There's all of 0:06:09.920 --> 0:06:12.440 this stuff, and part of it is the deadweight loss. 0:06:12.600 --> 0:06:15.800 Is the deadweight loss of this trade war different than 0:06:15.839 --> 0:06:19.080 the eight deadweight losses of the eight last trade wars 0:06:19.400 --> 0:06:22.880 going back to the seventeenth century. And we don't know 0:06:22.920 --> 0:06:24.920 the answer to that question yet. I mean, yeah, there's 0:06:24.960 --> 0:06:27.200 always you know, there's always huge deadweight loss in the 0:06:27.200 --> 0:06:29.520 trade war, and there will be in this one too. 0:06:29.560 --> 0:06:31.719 We just we just don't know how big it's gonna get. 0:06:31.839 --> 0:06:33.920 I mean, we this may be as far as it goes. 0:06:33.960 --> 0:06:36.560 If I had to predict, I would argue that there's 0:06:36.600 --> 0:06:38.760 several more shoes to drop. But but we just don't 0:06:38.760 --> 0:06:42.600 know yet. This president is obviously very unpredictable and uh 0:06:42.960 --> 0:06:44.680 and and so he keeps us all guessing about what 0:06:44.720 --> 0:06:46.320 the next move is gonna be. And is there something 0:06:46.360 --> 0:06:49.039 we could characterize at this point as a trite war 0:06:49.080 --> 0:06:51.720 if this is as far as it goes, um, I 0:06:52.200 --> 0:06:55.760 would actually, you know, and I'm among those, I'm among 0:06:55.760 --> 0:06:57.880 those who's been very reluctant to use that term. But 0:06:57.920 --> 0:07:00.520 to me, a trade war is tipped for had terror 0:07:00.600 --> 0:07:04.240 retaliation outside the rules of the trading system, and the 0:07:04.360 --> 0:07:06.800 US action here. This claim that this is based on 0:07:06.920 --> 0:07:10.040 national securities a bogus claim. It's a pretty clear violation 0:07:10.080 --> 0:07:11.840 of the w t O rules. And in fact, the 0:07:11.960 --> 0:07:16.360 retaliation by our trading partners also falls outside w t 0:07:16.400 --> 0:07:19.800 O rules. They they are making up this story that 0:07:19.880 --> 0:07:23.200 this is in a national security move. It's a conventional safeguard, 0:07:23.560 --> 0:07:26.360 and therefore they are justified in you know, in the 0:07:26.440 --> 0:07:31.120 language of trading grom suspending equivalent concessions. So it's bogus 0:07:31.160 --> 0:07:32.920 on both sides. So to me, that really is trade 0:07:32.920 --> 0:07:38.640 war territory. How is aluminum a national security concern? Well, 0:07:38.680 --> 0:07:40.520 I mean it can be right, and so can still 0:07:40.560 --> 0:07:44.040 be there important for for a lot of defense applications, 0:07:44.120 --> 0:07:46.880 for you know, for airplanes, for tanks, for other things. 0:07:47.120 --> 0:07:49.559 You can at times make an argument that these things 0:07:49.920 --> 0:07:52.560 are very important for national security. What what was very 0:07:52.640 --> 0:07:55.400 strange about the way this administration approached it is every 0:07:55.440 --> 0:07:59.000 time these analyzes have been done in the past, allies 0:07:59.040 --> 0:08:01.560 were included as part of the defense industrial base. You know. 0:08:01.600 --> 0:08:04.880 The notion that Canada somehow would not be a reliable 0:08:04.960 --> 0:08:08.120 supplier of stealing illumined to the United States in time 0:08:08.160 --> 0:08:12.360 of war is ludicrous. And yet that is the interpretation 0:08:12.440 --> 0:08:15.920 that the Trump administration made in order to justify these actions. 0:08:15.960 --> 0:08:17.520 So I tend what we have here really is a 0:08:17.560 --> 0:08:20.680 disagreement over the approach the administration is taking because I 0:08:20.680 --> 0:08:22.920 find it very hard to disagree with the problems the 0:08:22.920 --> 0:08:27.000 administration identifies. There are quite clearly substantial barriers to entry 0:08:27.000 --> 0:08:30.480 in foreign markets and heavily subsidized industries elsewhere. We do 0:08:30.600 --> 0:08:33.200 not have a level playing field. So Ted, let's talk 0:08:33.200 --> 0:08:36.320 more about the approach. You've taken issue with the approach. 0:08:36.920 --> 0:08:38.959 What should they be doing to get these barriers to 0:08:39.080 --> 0:08:41.079 entry to below with two level the playing field and 0:08:41.120 --> 0:08:43.600 the way they desire. Well, if you look at where 0:08:43.600 --> 0:08:46.600 the biggest barriers to entry are there in China, and 0:08:46.800 --> 0:08:49.800 you know, this administration has picked trade fights with its 0:08:49.840 --> 0:08:53.320 closest allies instead of building some kind of coalition to 0:08:53.440 --> 0:08:56.520 go after the underlying problems in China. To the extent 0:08:56.559 --> 0:08:58.679 that there are barriers in other countries, ensure they are 0:08:58.760 --> 0:09:01.280 you know, there are issues with you know, dairy access 0:09:01.320 --> 0:09:03.920 in Canada. The Europeans have a higher auto tariff than 0:09:04.000 --> 0:09:07.480 than we do. There are negotiating procedures to try to 0:09:07.520 --> 0:09:09.800 deal with those things under NAFTA into the w t O. 0:09:10.160 --> 0:09:13.040 The Europeans are willing to do a bilateral deal. They 0:09:13.080 --> 0:09:15.080 have been for a long time. So there are other 0:09:15.080 --> 0:09:18.920 ways to go after these problems. This administration's theory is 0:09:18.960 --> 0:09:22.440 that if they threaten and punish enough, other countries will 0:09:22.440 --> 0:09:25.440 make bigger concessions than they would have otherwise. So far, 0:09:25.559 --> 0:09:28.040 with the exception of South Korea, which agreed to a 0:09:28.120 --> 0:09:31.080 significant cut in its steel exports the United States, that 0:09:31.240 --> 0:09:33.760 theory has proven to be a failure. Instead, other countries 0:09:33.760 --> 0:09:35.920 are hitting back. They're they're not knuckling under to this 0:09:36.000 --> 0:09:37.920 kind of pressure. Ted, thank you so much for this 0:09:38.040 --> 0:09:41.000 timely interview. I'll put out, folks and feature on Tom 0:09:41.080 --> 0:09:44.880 king books Failure to Adjust How Americans got left behind 0:09:45.240 --> 0:10:03.439 in the global economy. And now, folks for your briefing 0:10:03.559 --> 0:10:08.040 and Deutsche Bank we are advantaged by Eliza Martin newsy 0:10:08.240 --> 0:10:11.240 Deutsche Bank stock is down a hundred and forty since 0:10:11.280 --> 0:10:14.520 Alisa started writing about Deutsche Bank more than a few 0:10:14.600 --> 0:10:18.880 years ago at Lisa Good Morning. What is different now 0:10:20.000 --> 0:10:24.000 versus the rationalizations of a year ago, or frankly, the 0:10:24.080 --> 0:10:28.320 rationalizations of Ackerman any number of years ago. What's different 0:10:28.480 --> 0:10:31.080 right now? I think if we want to take this 0:10:31.120 --> 0:10:34.480 particular moment, in this particular marriage of bad news and 0:10:34.559 --> 0:10:36.959 compare it to the last time they were in a 0:10:37.000 --> 0:10:40.360 similar situation. You want to look at two numbers. One 0:10:40.480 --> 0:10:44.160 is the liquidity buffer, and that shows how much liquidity 0:10:44.200 --> 0:10:45.920 the bank is sitting on at the moment, and that 0:10:46.080 --> 0:10:49.600 is higher than it was in when it was a 0:10:49.600 --> 0:10:51.880 bigger bank. So that points to the bank being in 0:10:51.880 --> 0:10:55.520 a much more comfortable position right now. Um. And the 0:10:55.559 --> 0:10:59.080 other metrics that investors might look at is the measure 0:10:59.080 --> 0:11:01.800 of financial strength, the common equity tier one way shot, 0:11:01.840 --> 0:11:04.599 and again that that number is significantly higher than it 0:11:04.640 --> 0:11:07.640 was in twenty sixteen when the bank was the midst 0:11:07.640 --> 0:11:10.480 of discussions about a large fine. You and I have 0:11:10.559 --> 0:11:15.520 read the articles of liquidity versus solvency, and this is 0:11:15.559 --> 0:11:18.400 really what happens when trust is at risk. Are we 0:11:18.559 --> 0:11:22.880 at that point where with Deutsche Bank, their customers are saying, 0:11:23.480 --> 0:11:28.440 let's measure the liquidity, let's measure the solvency. We're not 0:11:28.480 --> 0:11:31.200 getting that sense at all at the moment. Clearly they 0:11:31.360 --> 0:11:33.360 You know, the bank has communicated that it has been 0:11:33.400 --> 0:11:36.560 a difficult quarter, um, and we've seen that for for 0:11:36.600 --> 0:11:40.840 the last couple of years. The erosion of business that 0:11:40.920 --> 0:11:43.440 the bank has suffered, and not just in business's words 0:11:43.440 --> 0:11:46.480 for trenching, but beyond those just because you know, clients 0:11:46.480 --> 0:11:48.400 are not are not sure whether the bank is going 0:11:48.440 --> 0:11:50.840 to be around with the same remit in a in 0:11:50.880 --> 0:11:53.240 a couple of years, and that's led to them losing 0:11:53.240 --> 0:11:55.480 some businesses they didn't want to lose. And I think 0:11:55.520 --> 0:11:58.319 what they will investors will be looking for quickly from 0:11:58.400 --> 0:12:01.120 Christians Saving the new CEO is that he's able to 0:12:01.200 --> 0:12:03.120 draw a line under that and then you know, put 0:12:03.120 --> 0:12:05.920 a stop to that erosion and and and see the 0:12:05.960 --> 0:12:07.959 bank growing in the businesses and wants to keep and 0:12:08.040 --> 0:12:10.200 the Liza, we should highlight what you've basically touched on 0:12:10.320 --> 0:12:12.839 is that the downgrade from standard and pause in the 0:12:12.920 --> 0:12:15.480 last twenty four hours was not about liquidity. In fact, 0:12:15.480 --> 0:12:19.000 they highlighted that being okay, It was about execution risk 0:12:19.040 --> 0:12:22.760 of the overall strategy and significant execution risk. What can 0:12:22.840 --> 0:12:26.720 Christian Saving actually do to push away these concerns around 0:12:26.760 --> 0:12:29.960 the execution of his strategy. But one thing they'll be 0:12:30.000 --> 0:12:32.440 looking at is, you know how much you know the 0:12:32.480 --> 0:12:35.480 costs he can keep costs under control um and that 0:12:35.679 --> 0:12:38.840 was one error that the previous management failed in. And 0:12:38.880 --> 0:12:41.520 they also want to see that you know, he's pushing 0:12:41.600 --> 0:12:45.200 through the job cuts that he's announced um, and that 0:12:45.280 --> 0:12:47.559 he's retrenching where he said he would. So it's really 0:12:47.559 --> 0:12:50.640 the execution and delivering on that execution, and that is 0:12:50.679 --> 0:12:54.120 other banks have shown when they've undertaken on similar structuring. 0:12:54.400 --> 0:12:56.640 Take for example, the u B S is something they 0:12:56.679 --> 0:13:00.160 have to prove every quarter to maintain investor support. So 0:13:00.200 --> 0:13:03.440 we learned yesterday in several reports too. I believe that 0:13:03.520 --> 0:13:06.920 the bank, the US subsidiary of the bank, is on 0:13:06.960 --> 0:13:09.760 the f d i C Problem Bank List. How much 0:13:09.760 --> 0:13:13.560 of an issue is that if that is indeed true, Well, 0:13:13.600 --> 0:13:15.360 I think you know, you'd probably be looking at a 0:13:15.360 --> 0:13:20.680 couple of concerns. One is obviously the mark that leaves 0:13:20.679 --> 0:13:23.360 on the bank, so the pr associated with being on 0:13:23.360 --> 0:13:26.520 that list, which obviously isn't god. And you've also got 0:13:26.520 --> 0:13:30.200 to think about potential restrictions on on on some of 0:13:30.240 --> 0:13:33.240 the decision making process that we understand might have been 0:13:33.240 --> 0:13:36.480 imposed on the bank. Um. But you know, having said 0:13:36.520 --> 0:13:39.400 that there's no there's no measuring offense yet that it's 0:13:39.480 --> 0:13:43.520 led to a particular reaction from clients as a result 0:13:43.559 --> 0:13:45.960 of being on that list. And at the moment you'd 0:13:45.960 --> 0:13:49.400 have to say that morale Eliza must absolutely stink at 0:13:49.400 --> 0:13:51.280 the Bank, and I think Christian's Eving, the CEO of 0:13:51.280 --> 0:13:54.360 Dorge Bank, acknowledging that fact, how difficult is it working 0:13:54.360 --> 0:13:57.480 inside Dorge Bank at the moment. It's actually quite quite 0:13:57.480 --> 0:14:01.320 interesting because unlike his predecessor to and Servings message hitherto 0:14:01.400 --> 0:14:04.200 had been morather positive, today's message was you know, it 0:14:04.200 --> 0:14:07.680 seems seemingly much more realistic in that his acknowledging that 0:14:07.800 --> 0:14:10.360 you know, staff is fed up with all the bad 0:14:10.400 --> 0:14:13.760 news um, and it was much more intelle like crime 0:14:13.920 --> 0:14:17.640 used to be in underscoring just how tough that situation is. 0:14:17.720 --> 0:14:20.320 Right now, you're the board members Mark plat or Clee, 0:14:20.320 --> 0:14:25.280 Garrett Cox, Brittisy Hyder Rose, you're Game Matting's board, Douche 0:14:25.560 --> 0:14:29.520 Simon Eschelbach Schultz and a few others. What in God's 0:14:29.600 --> 0:14:33.320 name are they doing well. I think what we've seen 0:14:33.400 --> 0:14:37.400 on the recent management reshuffle, which was, you know, rather tumultuous, 0:14:37.600 --> 0:14:40.840 is that, you know, the governance UM and then the 0:14:40.840 --> 0:14:43.920 government's under Paul last night and the chairman's leadership has 0:14:43.960 --> 0:14:47.720 been questioned by investors because so much management change of 0:14:47.760 --> 0:14:49.840 the course of the last three or four years, so 0:14:49.920 --> 0:14:52.400 many strategy revamps. I mean, we're talking about three and 0:14:52.480 --> 0:14:55.280 three years have raised questions about you know exactly what 0:14:55.320 --> 0:14:57.640 you're asking, what you know, what has the board been doing? 0:14:58.600 --> 0:15:00.320 This has been brilliant at least a thing. You so 0:15:00.400 --> 0:15:03.120 much and thank you for your years of work on Italian, 0:15:03.200 --> 0:15:06.280 German and European banking as well. These are Martin Newsy 0:15:06.600 --> 0:15:26.280 with Bloomberg News this morning and now joining us William 0:15:26.320 --> 0:15:29.280 Gross of Janice Henderson. Bill Gross, Let's let's get to 0:15:29.320 --> 0:15:31.560 the jobs report before we go on to other issues, 0:15:31.600 --> 0:15:36.000 including our trade policy of the nation. But this is 0:15:36.120 --> 0:15:41.480 Bill Gross, a make America Great Again jobs report? Does 0:15:41.520 --> 0:15:46.440 that just solidify rate increases? And can those rate increases 0:15:46.520 --> 0:15:53.720 be uniformly beneficial for America? Well? I think it solidifies certainly, 0:15:53.840 --> 0:15:56.280 June tom and that's not saying much because I was 0:15:57.440 --> 0:16:01.120 percent going in. But you know, but perhaps another one 0:16:01.160 --> 0:16:03.960 if these types of numbers continue. I think the most 0:16:03.960 --> 0:16:07.280 important number to me was the average hourly earnings at 0:16:07.320 --> 0:16:10.960 point three and now annualized at the two point seven percent. 0:16:11.040 --> 0:16:14.520 And so, you know, are we making America great again? 0:16:15.200 --> 0:16:17.160 I guess from the standpoint of jobs and g d 0:16:17.280 --> 0:16:21.200 p M inflation moving higher in terms of wages and 0:16:21.240 --> 0:16:24.280 so you know, it's pretty much of a scenario where 0:16:24.280 --> 0:16:28.200 the Fed, the FED hawks basically think that they can 0:16:28.400 --> 0:16:32.160 move forward once twice, some say three times. I say 0:16:32.880 --> 0:16:35.400 June is the last. Oh, that's an important and that's 0:16:35.400 --> 0:16:37.520 a distinctive feature. We'll get to that in a moment. 0:16:37.560 --> 0:16:39.880 But Bill Gross, what's so important here? This goes to 0:16:39.960 --> 0:16:43.880 your work on financial repression out years. We get a 0:16:43.960 --> 0:16:48.520 higher rate regime, fine, but with that higher inflation, can 0:16:48.560 --> 0:16:52.000 you see a higher real rate? Can you see higher 0:16:52.280 --> 0:16:57.760 real wages? Well, we have seen higher real rates actually, Tom, 0:16:57.800 --> 0:17:01.200 Although yields have come down in the last several weeks, 0:17:01.560 --> 0:17:04.520 you know, most of the increase has has been on 0:17:04.600 --> 0:17:06.800 the real side. On the tips side, in terms of 0:17:06.800 --> 0:17:09.600 their yields, we have a ten year reel yield around 0:17:09.640 --> 0:17:13.960 seventy basis points um, a five year a little bit less, 0:17:13.960 --> 0:17:17.440 and so you know, real reels are not what they were, 0:17:17.640 --> 0:17:21.239 but they're better than zero. And it's not exactly the 0:17:21.240 --> 0:17:24.920 financial repression that we knew three or four years ago 0:17:25.000 --> 0:17:28.840 with interest rates closed to zero. But it's getting better still. 0:17:28.920 --> 0:17:31.479 I would say that we're in for a long period 0:17:31.480 --> 0:17:36.080 of financial repression. As real yields that should be around 0:17:36.119 --> 0:17:39.919 two percent real or at seventy basis points, so that 0:17:40.160 --> 0:17:43.520 the average saver has been robbed by a percent or 0:17:43.680 --> 0:17:45.440 two a year. But I didn't want to take the 0:17:45.480 --> 0:17:48.680 opportunity to talk about your performance. It's been a week 0:17:48.720 --> 0:17:51.359 which many people have reported on your funds performance, and 0:17:51.520 --> 0:17:53.080 I think it's only right and only fair that we 0:17:53.080 --> 0:17:55.600 give you the opportunity and the right to respond to 0:17:55.880 --> 0:17:59.120 some of what has been criticism um of your strategy. 0:17:59.160 --> 0:18:01.200 Can you just walk us through what did happen this 0:18:01.280 --> 0:18:03.560 week build and how you set up coming out of 0:18:03.640 --> 0:18:07.920 a side Well, you give me some time on this 0:18:08.000 --> 0:18:10.920 and and the strategy basically, which was the basis of 0:18:11.000 --> 0:18:15.399 your question, has been a strategy that has been short 0:18:15.480 --> 0:18:19.960 the German Bund and long U S treasuries. You know, 0:18:20.200 --> 0:18:25.760 the spread between the two is historically high. For instance, 0:18:25.840 --> 0:18:29.920 on on the tenure U S Treasury versus the tenure Bund, 0:18:30.000 --> 0:18:33.520 it's a two fifty basis points. It's never been at 0:18:33.560 --> 0:18:37.120 that level. And for those that would cite the inflation differences, 0:18:37.160 --> 0:18:39.240 I would say, you know, in terms of the linker 0:18:39.320 --> 0:18:42.919 market for buns and the tips market for us on 0:18:43.000 --> 0:18:47.560 the five year basis, real yields on five year tips 0:18:47.840 --> 0:18:50.719 are two in twenty basis points difference two point two 0:18:50.760 --> 0:18:54.199 percent higher in the US and in Germany. And I 0:18:54.200 --> 0:18:57.199 would suggest it at some point, um, you know, this 0:18:57.280 --> 0:19:00.560 has got to reverse because that the two Germany and 0:19:00.560 --> 0:19:04.160 the United States are equal credits. And what's the difference 0:19:04.240 --> 0:19:07.879 is simply the function between the ECB in terms of 0:19:07.920 --> 0:19:10.720 their monetary policy and the FED in terms of their 0:19:10.760 --> 0:19:13.879 monetary policy. And so um. You know, that was the 0:19:13.920 --> 0:19:17.439 basis for the uh, you know, the bad day and 0:19:17.480 --> 0:19:20.560 the bad trade, but certainly not the basis for some 0:19:20.640 --> 0:19:24.040 of the negative publicity from the New York Times that 0:19:24.280 --> 0:19:29.480 intertwined my financial trade with my divorce of six to 0:19:29.560 --> 0:19:32.199 twelve months ago. I think it was outrageous and I 0:19:32.240 --> 0:19:35.199 can talk about that, but you probably talk about some 0:19:35.320 --> 0:19:37.160 other things. Well, I don't know, we can talk about 0:19:37.160 --> 0:19:39.000 that bill. We've got a lot of time here as well. 0:19:39.080 --> 0:19:41.440 I don't know. I'd rather talk about your stamp collection 0:19:41.520 --> 0:19:44.640 or the forty nine years. But this is so important, folks. 0:19:44.680 --> 0:19:46.680 I want to bring us in because you know, we 0:19:46.680 --> 0:19:49.159 we showed the articles the other day on Mr Gross 0:19:49.200 --> 0:19:52.919 and on Janice Henderson unconstrained took a hit here off Italy. 0:19:53.280 --> 0:19:55.240 I want to go to the chart and John Farroll, 0:19:55.240 --> 0:19:57.159 I'm going to go to you, to go to Mr Gross. 0:19:57.200 --> 0:19:59.360 This is what Bill Gross is talking about. Folks, We're 0:19:59.359 --> 0:20:02.199 gonna use the Lumberg ramy come in here. This is 0:20:02.240 --> 0:20:05.879 the linkage of the US and Germany. And Mr Gross 0:20:05.960 --> 0:20:09.600 is looking at sustained higher US yields and at the 0:20:09.640 --> 0:20:14.119 same time this reduced German tenure yield And there's been 0:20:14.160 --> 0:20:16.560 a little bit of upset here, John. So that that 0:20:16.760 --> 0:20:21.440 gap John, between Germany US ten years is massive, is 0:20:21.480 --> 0:20:23.399 the only way to describe it. A Bill Gross, we 0:20:23.440 --> 0:20:25.200 are not going to make you talk about a divorce 0:20:25.640 --> 0:20:28.080 live on Blombag TV and live on block Back Radio. 0:20:28.160 --> 0:20:30.960 So let's keep on the market. Excuse me, No, we 0:20:31.000 --> 0:20:33.959 have a few other divorces we could talk about, Mr. 0:20:34.240 --> 0:20:35.920 We could talk about a few of Tom's and that's 0:20:35.920 --> 0:20:37.880 for sure, we can watch yourself. But we could talk 0:20:37.920 --> 0:20:41.479 about the bund market. Let's talk about buns. The j 0:20:41.560 --> 0:20:44.280 g B market for such a long time was called 0:20:44.280 --> 0:20:46.720 the widow maker, and I just wonder whether the bund 0:20:46.760 --> 0:20:49.080 market could become the same thing. What are your thoughts 0:20:49.119 --> 0:20:53.679 on that? Bill, Well, let's uh, let's let's talk about buns. 0:20:53.680 --> 0:20:56.480 Why are they so low and yield and why basically 0:20:56.560 --> 0:21:00.119 our half of the the buns in terms of the 0:21:00.280 --> 0:21:02.840 maturities all the way out to two thousand and twenty four, 0:21:02.920 --> 0:21:06.280 so we're going out six years, where are they still negative? Well, 0:21:06.840 --> 0:21:10.320 obviously for one reason, the e C b still is 0:21:10.359 --> 0:21:13.560 succeedingly low in terms of their short rate. But secondly, 0:21:13.600 --> 0:21:16.359 and you bring up Italy, you know, I haven't really 0:21:16.400 --> 0:21:19.560 dealt in Italy or been short Italy or along Italy. 0:21:20.240 --> 0:21:23.080 That hasn't been the problem with the trade. But Italy 0:21:23.119 --> 0:21:28.080 affects German buons because ultimately, if Italy, from the standpoint 0:21:28.080 --> 0:21:32.720