Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg So
Speaker 1: when it's play rolls Friday, your median estimate in our
Speaker 1: Bloomberg survey one hundred and ninety thousand added to the
Speaker 1: month of May, the unemployment rate expected to stay at
Speaker 1: three point nine percent, and the closely watched wage growth figure.
Speaker 1: The estimate their two point six percent year on year,
Speaker 1: in line with the previous read. I'm really pleased to
Speaker 1: say to give us his personal read. It's Tom Porselli
Speaker 1: OBBC Capital Markets chief US economist who joins us in
Speaker 1: the studio morning. So, good morning, good to see. What
Speaker 1: are you looking for this morning? So we're looking for
Speaker 1: two fifteen headline and private, and we're looking for a
Speaker 1: three nine on the unemploymer No change there. Look, I
Speaker 1: think you know, let's be let me be the only
Speaker 1: honest economist on this point. Whether it comes in at
Speaker 1: consensus one nine d I think you said, are my
Speaker 1: two fifteen or even it comes a little lighter than that.
Speaker 1: To be honest, it's still very consistent with a totally
Speaker 1: rock solid labor backdrop. Tom and I were talking about
Speaker 1: this on on TV or earlier. I mean, I think,
Speaker 1: just look at sentiment with regard to the labor backdrop,
Speaker 1: um the conference boards, Uhum, sentiment measures as as good
Speaker 1: as any and what you see is that people continue
Speaker 1: to say that they have they're holding a really positive
Speaker 1: view on labor. So um, I think from not just
Speaker 1: from a numbers perspective, do I think things look good,
Speaker 1: but from a sentiment perspective, Um, people continue to feel
Speaker 1: good about the backdrop? What does it say about where
Speaker 1: we are that we can still get prints of? So
Speaker 1: I love this question because I really think it gets
Speaker 1: to drive home this one point. I think that there's
Speaker 1: a heck of a lot of people us but but
Speaker 1: time I love you though, and it doesn't love me,
Speaker 1: which is why I like being on with both of you.
Speaker 1: I get the best of both worlds. Uh. So I
Speaker 1: would say that what it what it really drives home is,
Speaker 1: you know, we're we're probably not quite at full employment
Speaker 1: yet in the United States, right. I mean, I think
Speaker 1: a lot of people think of full employment as somewhere
Speaker 1: between four and four and a half percent. I think
Speaker 1: it's reasonable to actually wonder allowed or really between three
Speaker 1: and a half and four percent from a full employment perspective.
Speaker 1: And if that's true, if that thesis is true, then
Speaker 1: what that means is that there's still pipeline wage pressure. Again,
Speaker 1: something else Tom and I talked about on on air
Speaker 1: a little earlier. But I would say that if you
Speaker 1: consider that, UM, the tighter labor markets get, or as
Speaker 1: labor markets get the most tight, I e. Once you
Speaker 1: get down toward full employment, that's when wage pressures really
Speaker 1: start to take off. So I would tell you that
Speaker 1: I think there's pipeline pressure, not just actual pressure. Today, Tom,
Speaker 1: you're thinking out loud, do you get the impression that
Speaker 1: the Federal Reserve is doing the same thing I do?
Speaker 1: In fact, you know, look at the beige book. I
Speaker 1: mean you know that that the Fed's homegrown piece, right,
Speaker 1: it's within the bage book. We have this great we
Speaker 1: have a couple of great indicators within the bage book. UM.
Speaker 1: We've we've sort of scraped the bage book over the decades,
Speaker 1: and we have something called the bage Book Labor Shortage
Speaker 1: Index UM. And if you overlay that with the unemployment rate,
Speaker 1: it actually has a fantastic relationship. UM. And guess what
Speaker 1: you continue to hear from the Page book, UM that
Speaker 1: their companies are really having a heck of a hard
Speaker 1: time finding qualified workers and they're paying up for it.
Speaker 1: And we should say this with great, great love and
Speaker 1: honor to the late Richard Yamarona Bloomberg, who was really
Speaker 1: out front and re re affirming the value of the
Speaker 1: Beige Book. And what you see there and what this
Speaker 1: comes down to, Tom Porcelli, Everyone listening coast to coast
Speaker 1: is saying, Okay, raise wages. So when you'll find the people. Yeah,
Speaker 1: so it's happening. So I I would tell you that
Speaker 1: it's happening already. So look at so the Atlanta Fed.
Speaker 1: Right again just picking on sort of the Fed data. Um,
Speaker 1: look at the Atlanta Fed. They have the wage accord
Speaker 1: and when the breakdown of the tracker is pretty interesting, right,
Speaker 1: they have um wage wage tracker for job leavers, So
Speaker 1: someone who left a job to go take another and
Speaker 1: for jobs stay or someone who's just staying at a job, um,
Speaker 1: And the spread is about a full percentage point higher
Speaker 1: for people that are leaving to take a job, So
Speaker 1: you're being rewarded for taking a job right now. Um,
Speaker 1: So yeah, I think it's already happening. And again it's
Speaker 1: a speed question, right, like is it happening to the
Speaker 1: speed to which people want it to happening? That is
Speaker 1: a philosophical view, you know, Like I I can't get
Speaker 1: into that philosophical view on that. Tell me what your
Speaker 1: expectations were, and I'll tell you if you were going
Speaker 1: to be wrong, you know. Um, But the reality is
Speaker 1: wage pressures have already materializing, will continue to materialize given
Speaker 1: some of the things we just talked about. Sumple Sully
Speaker 1: right to catch up with this morning on scary thoughts
Speaker 1: on the on the labor market and payrolls coming out
Speaker 1: of eight thirty East and sample Sully jointing us from
Speaker 1: rb C. The capital market is chief US economists tell
Speaker 1: we would usually talk to Mr Purcelli for two to
Speaker 1: three hours here, but we can't today because we have
Speaker 1: national lose not a trade war. I'm not willing to
Speaker 1: say that yet, but boy was yesterday and eventful. As
Speaker 1: we try to do on surveillance, we try to bring
Speaker 1: you the nation's experts, people really thinking about this, and
Speaker 1: that would be Edward Old and Ted Alden of the
Speaker 1: Consul on Foreign Relations. I can't say enough about his
Speaker 1: book Failure to Adjust. Ted Alden, what is the failure
Speaker 1: to adjust that President Trump is doing right now? Well,
Speaker 1: he's you know, his basic approach is that there are
Speaker 1: you know a number of Americans have not done well
Speaker 1: in uh in recent years. You know. I talk about
Speaker 1: them as being those left behind in my book. And
Speaker 1: President Trump's approach to this is to say, well, the
Speaker 1: foreigners are to blame for what's gone wrong in your lives.
Speaker 1: And he's you know, going after our allies on trade.
Speaker 1: He's obviously doing the same thing on immigration in different ways.
Speaker 1: So so he's really trying to externalize this problem. And
Speaker 1: and I fear, unfortunately he's going to make the problem
Speaker 1: much bigger. You know, I know the economic news is
Speaker 1: pretty good, but there's a huge layer of uncertainty here
Speaker 1: as a result of these trade acts. In the in
Speaker 1: the micro theory, the microeconomics of terroiffs, and this applied
Speaker 1: to me on the typical martialian cross. There's all of
Speaker 1: this stuff, and part of it is the deadweight loss.
Speaker 1: Is the deadweight loss of this trade war different than
Speaker 1: the eight deadweight losses of the eight last trade wars
Speaker 1: going back to the seventeenth century. And we don't know
Speaker 1: the answer to that question yet. I mean, yeah, there's
Speaker 1: always you know, there's always huge deadweight loss in the
Speaker 1: trade war, and there will be in this one too.
Speaker 1: We just we just don't know how big it's gonna get.
Speaker 1: I mean, we this may be as far as it goes.
Speaker 1: If I had to predict, I would argue that there's
Speaker 1: several more shoes to drop. But but we just don't
Speaker 1: know yet. This president is obviously very unpredictable and uh
Speaker 1: and and so he keeps us all guessing about what
Speaker 1: the next move is gonna be. And is there something
Speaker 1: we could characterize at this point as a trite war
Speaker 1: if this is as far as it goes, um, I
Speaker 1: would actually, you know, and I'm among those, I'm among
Speaker 1: those who's been very reluctant to use that term. But
Speaker 1: to me, a trade war is tipped for had terror
Speaker 1: retaliation outside the rules of the trading system, and the
Speaker 1: US action here. This claim that this is based on
Speaker 1: national securities a bogus claim. It's a pretty clear violation
Speaker 1: of the w t O rules. And in fact, the
Speaker 1: retaliation by our trading partners also falls outside w t
Speaker 1: O rules. They they are making up this story that
Speaker 1: this is in a national security move. It's a conventional safeguard,
Speaker 1: and therefore they are justified in you know, in the
Speaker 1: language of trading grom suspending equivalent concessions. So it's bogus
Speaker 1: on both sides. So to me, that really is trade
Speaker 1: war territory. How is aluminum a national security concern? Well,
Speaker 1: I mean it can be right, and so can still
Speaker 1: be there important for for a lot of defense applications,
Speaker 1: for you know, for airplanes, for tanks, for other things.
Speaker 1: You can at times make an argument that these things
Speaker 1: are very important for national security. What what was very
Speaker 1: strange about the way this administration approached it is every
Speaker 1: time these analyzes have been done in the past, allies
Speaker 1: were included as part of the defense industrial base. You know.
Speaker 1: The notion that Canada somehow would not be a reliable
Speaker 1: supplier of stealing illumined to the United States in time
Speaker 1: of war is ludicrous. And yet that is the interpretation
Speaker 1: that the Trump administration made in order to justify these actions.
Speaker 1: So I tend what we have here really is a
Speaker 1: disagreement over the approach the administration is taking because I
Speaker 1: find it very hard to disagree with the problems the
Speaker 1: administration identifies. There are quite clearly substantial barriers to entry
Speaker 1: in foreign markets and heavily subsidized industries elsewhere. We do
Speaker 1: not have a level playing field. So Ted, let's talk
Speaker 1: more about the approach. You've taken issue with the approach.
Speaker 1: What should they be doing to get these barriers to
Speaker 1: entry to below with two level the playing field and
Speaker 1: the way they desire. Well, if you look at where
Speaker 1: the biggest barriers to entry are there in China, and
Speaker 1: you know, this administration has picked trade fights with its
Speaker 1: closest allies instead of building some kind of coalition to
Speaker 1: go after the underlying problems in China. To the extent
Speaker 1: that there are barriers in other countries, ensure they are
Speaker 1: you know, there are issues with you know, dairy access
Speaker 1: in Canada. The Europeans have a higher auto tariff than
Speaker 1: than we do. There are negotiating procedures to try to
Speaker 1: deal with those things under NAFTA into the w t O.
Speaker 1: The Europeans are willing to do a bilateral deal. They
Speaker 1: have been for a long time. So there are other
Speaker 1: ways to go after these problems. This administration's theory is
Speaker 1: that if they threaten and punish enough, other countries will
Speaker 1: make bigger concessions than they would have otherwise. So far,
Speaker 1: with the exception of South Korea, which agreed to a
Speaker 1: significant cut in its steel exports the United States, that
Speaker 1: theory has proven to be a failure. Instead, other countries
Speaker 1: are hitting back. They're they're not knuckling under to this
Speaker 1: kind of pressure. Ted, thank you so much for this
Speaker 1: timely interview. I'll put out, folks and feature on Tom
Speaker 1: king books Failure to Adjust How Americans got left behind
Speaker 1: in the global economy. And now, folks for your briefing
Speaker 1: and Deutsche Bank we are advantaged by Eliza Martin newsy
Speaker 1: Deutsche Bank stock is down a hundred and forty since
Speaker 1: Alisa started writing about Deutsche Bank more than a few
Speaker 1: years ago at Lisa Good Morning. What is different now
Speaker 1: versus the rationalizations of a year ago, or frankly, the
Speaker 1: rationalizations of Ackerman any number of years ago. What's different
Speaker 1: right now? I think if we want to take this
Speaker 1: particular moment, in this particular marriage of bad news and
Speaker 1: compare it to the last time they were in a
Speaker 1: similar situation. You want to look at two numbers. One
Speaker 1: is the liquidity buffer, and that shows how much liquidity
Speaker 1: the bank is sitting on at the moment, and that
Speaker 1: is higher than it was in when it was a
Speaker 1: bigger bank. So that points to the bank being in
Speaker 1: a much more comfortable position right now. Um. And the
Speaker 1: other metrics that investors might look at is the measure
Speaker 1: of financial strength, the common equity tier one way shot,
Speaker 1: and again that that number is significantly higher than it
Speaker 1: was in twenty sixteen when the bank was the midst
Speaker 1: of discussions about a large fine. You and I have
Speaker 1: read the articles of liquidity versus solvency, and this is
Speaker 1: really what happens when trust is at risk. Are we
Speaker 1: at that point where with Deutsche Bank, their customers are saying,
Speaker 1: let's measure the liquidity, let's measure the solvency. We're not
Speaker 1: getting that sense at all at the moment. Clearly they
Speaker 1: You know, the bank has communicated that it has been
Speaker 1: a difficult quarter, um, and we've seen that for for
Speaker 1: the last couple of years. The erosion of business that
Speaker 1: the bank has suffered, and not just in business's words
Speaker 1: for trenching, but beyond those just because you know, clients
Speaker 1: are not are not sure whether the bank is going
Speaker 1: to be around with the same remit in a in
Speaker 1: a couple of years, and that's led to them losing
Speaker 1: some businesses they didn't want to lose. And I think
Speaker 1: what they will investors will be looking for quickly from
Speaker 1: Christians Saving the new CEO is that he's able to
Speaker 1: draw a line under that and then you know, put
Speaker 1: a stop to that erosion and and and see the
Speaker 1: bank growing in the businesses and wants to keep and
Speaker 1: the Liza, we should highlight what you've basically touched on
Speaker 1: is that the downgrade from standard and pause in the
Speaker 1: last twenty four hours was not about liquidity. In fact,
Speaker 1: they highlighted that being okay, It was about execution risk
Speaker 1: of the overall strategy and significant execution risk. What can
Speaker 1: Christian Saving actually do to push away these concerns around
Speaker 1: the execution of his strategy. But one thing they'll be
Speaker 1: looking at is, you know how much you know the
Speaker 1: costs he can keep costs under control um and that
Speaker 1: was one error that the previous management failed in. And
Speaker 1: they also want to see that you know, he's pushing
Speaker 1: through the job cuts that he's announced um, and that
Speaker 1: he's retrenching where he said he would. So it's really
Speaker 1: the execution and delivering on that execution, and that is
Speaker 1: other banks have shown when they've undertaken on similar structuring.
Speaker 1: Take for example, the u B S is something they
Speaker 1: have to prove every quarter to maintain investor support. So
Speaker 1: we learned yesterday in several reports too. I believe that
Speaker 1: the bank, the US subsidiary of the bank, is on
Speaker 1: the f d i C Problem Bank List. How much
Speaker 1: of an issue is that if that is indeed true, Well,
Speaker 1: I think you know, you'd probably be looking at a
Speaker 1: couple of concerns. One is obviously the mark that leaves
Speaker 1: on the bank, so the pr associated with being on
Speaker 1: that list, which obviously isn't god. And you've also got
Speaker 1: to think about potential restrictions on on on some of
Speaker 1: the decision making process that we understand might have been
Speaker 1: imposed on the bank. Um. But you know, having said
Speaker 1: that there's no there's no measuring offense yet that it's
Speaker 1: led to a particular reaction from clients as a result
Speaker 1: of being on that list. And at the moment you'd
Speaker 1: have to say that morale Eliza must absolutely stink at
Speaker 1: the Bank, and I think Christian's Eving, the CEO of
Speaker 1: Dorge Bank, acknowledging that fact, how difficult is it working
Speaker 1: inside Dorge Bank at the moment. It's actually quite quite
Speaker 1: interesting because unlike his predecessor to and Servings message hitherto
Speaker 1: had been morather positive, today's message was you know, it
Speaker 1: seems seemingly much more realistic in that his acknowledging that
Speaker 1: you know, staff is fed up with all the bad
Speaker 1: news um, and it was much more intelle like crime
Speaker 1: used to be in underscoring just how tough that situation is.
Speaker 1: Right now, you're the board members Mark plat or Clee,
Speaker 1: Garrett Cox, Brittisy Hyder Rose, you're Game Matting's board, Douche
Speaker 1: Simon Eschelbach Schultz and a few others. What in God's
Speaker 1: name are they doing well. I think what we've seen
Speaker 1: on the recent management reshuffle, which was, you know, rather tumultuous,
Speaker 1: is that, you know, the governance UM and then the
Speaker 1: government's under Paul last night and the chairman's leadership has
Speaker 1: been questioned by investors because so much management change of
Speaker 1: the course of the last three or four years, so
Speaker 1: many strategy revamps. I mean, we're talking about three and
Speaker 1: three years have raised questions about you know exactly what
Speaker 1: you're asking, what you know, what has the board been doing?
Speaker 1: This has been brilliant at least a thing. You so
Speaker 1: much and thank you for your years of work on Italian,
Speaker 1: German and European banking as well. These are Martin Newsy
Speaker 1: with Bloomberg News this morning and now joining us William
Speaker 1: Gross of Janice Henderson. Bill Gross, Let's let's get to
Speaker 1: the jobs report before we go on to other issues,
Speaker 1: including our trade policy of the nation. But this is
Speaker 1: Bill Gross, a make America Great Again jobs report? Does
Speaker 1: that just solidify rate increases? And can those rate increases
Speaker 1: be uniformly beneficial for America? Well? I think it solidifies certainly,
Speaker 1: June tom and that's not saying much because I was
Speaker 1: percent going in. But you know, but perhaps another one
Speaker 1: if these types of numbers continue. I think the most
Speaker 1: important number to me was the average hourly earnings at
Speaker 1: point three and now annualized at the two point seven percent.
Speaker 1: And so, you know, are we making America great again?
Speaker 1: I guess from the standpoint of jobs and g d
Speaker 1: p M inflation moving higher in terms of wages and
Speaker 1: so you know, it's pretty much of a scenario where
Speaker 1: the Fed, the FED hawks basically think that they can
Speaker 1: move forward once twice, some say three times. I say
Speaker 1: June is the last. Oh, that's an important and that's
Speaker 1: a distinctive feature. We'll get to that in a moment.
Speaker 1: But Bill Gross, what's so important here? This goes to
Speaker 1: your work on financial repression out years. We get a
Speaker 1: higher rate regime, fine, but with that higher inflation, can
Speaker 1: you see a higher real rate? Can you see higher
Speaker 1: real wages? Well, we have seen higher real rates actually, Tom,
Speaker 1: Although yields have come down in the last several weeks,
Speaker 1: you know, most of the increase has has been on
Speaker 1: the real side. On the tips side, in terms of
Speaker 1: their yields, we have a ten year reel yield around
Speaker 1: seventy basis points um, a five year a little bit less,
Speaker 1: and so you know, real reels are not what they were,
Speaker 1: but they're better than zero. And it's not exactly the
Speaker 1: financial repression that we knew three or four years ago
Speaker 1: with interest rates closed to zero. But it's getting better still.
Speaker 1: I would say that we're in for a long period
Speaker 1: of financial repression. As real yields that should be around
Speaker 1: two percent real or at seventy basis points, so that
Speaker 1: the average saver has been robbed by a percent or
Speaker 1: two a year. But I didn't want to take the
Speaker 1: opportunity to talk about your performance. It's been a week
Speaker 1: which many people have reported on your funds performance, and
Speaker 1: I think it's only right and only fair that we
Speaker 1: give you the opportunity and the right to respond to
Speaker 1: some of what has been criticism um of your strategy.
Speaker 1: Can you just walk us through what did happen this
Speaker 1: week build and how you set up coming out of
Speaker 1: a side Well, you give me some time on this
Speaker 1: and and the strategy basically, which was the basis of
Speaker 1: your question, has been a strategy that has been short
Speaker 1: the German Bund and long U S treasuries. You know,
Speaker 1: the spread between the two is historically high. For instance,
Speaker 1: on on the tenure U S Treasury versus the tenure Bund,
Speaker 1: it's a two fifty basis points. It's never been at
Speaker 1: that level. And for those that would cite the inflation differences,
Speaker 1: I would say, you know, in terms of the linker
Speaker 1: market for buns and the tips market for us on
Speaker 1: the five year basis, real yields on five year tips
Speaker 1: are two in twenty basis points difference two point two
Speaker 1: percent higher in the US and in Germany. And I
Speaker 1: would suggest it at some point, um, you know, this
Speaker 1: has got to reverse because that the two Germany and
Speaker 1: the United States are equal credits. And what's the difference
Speaker 1: is simply the function between the ECB in terms of
Speaker 1: their monetary policy and the FED in terms of their
Speaker 1: monetary policy. And so um. You know, that was the
Speaker 1: basis for the uh, you know, the bad day and
Speaker 1: the bad trade, but certainly not the basis for some
Speaker 1: of the negative publicity from the New York Times that
Speaker 1: intertwined my financial trade with my divorce of six to
Speaker 1: twelve months ago. I think it was outrageous and I
Speaker 1: can talk about that, but you probably talk about some
Speaker 1: other things. Well, I don't know, we can talk about
Speaker 1: that bill. We've got a lot of time here as well.
Speaker 1: I don't know. I'd rather talk about your stamp collection
Speaker 1: or the forty nine years. But this is so important, folks.
Speaker 1: I want to bring us in because you know, we
Speaker 1: we showed the articles the other day on Mr Gross
Speaker 1: and on Janice Henderson unconstrained took a hit here off Italy.
Speaker 1: I want to go to the chart and John Farroll,
Speaker 1: I'm going to go to you, to go to Mr Gross.
Speaker 1: This is what Bill Gross is talking about. Folks, We're
Speaker 1: gonna use the Lumberg ramy come in here. This is
Speaker 1: the linkage of the US and Germany. And Mr Gross
Speaker 1: is looking at sustained higher US yields and at the
Speaker 1: same time this reduced German tenure yield And there's been
Speaker 1: a little bit of upset here, John. So that that
Speaker 1: gap John, between Germany US ten years is massive, is
Speaker 1: the only way to describe it. A Bill Gross, we
Speaker 1: are not going to make you talk about a divorce
Speaker 1: live on Blombag TV and live on block Back Radio.
Speaker 1: So let's keep on the market. Excuse me, No, we
Speaker 1: have a few other divorces we could talk about, Mr.
Speaker 1: We could talk about a few of Tom's and that's
Speaker 1: for sure, we can watch yourself. But we could talk
Speaker 1: about the bund market. Let's talk about buns. The j
Speaker 1: g B market for such a long time was called
Speaker 1: the widow maker, and I just wonder whether the bund
Speaker 1: market could become the same thing. What are your thoughts
Speaker 1: on that? Bill, Well, let's uh, let's let's talk about buns.
Speaker 1: Why are they so low and yield and why basically
Speaker 1: our half of the the buns in terms of the
Speaker 1: maturities all the way out to two thousand and twenty four,
Speaker 1: so we're going out six years, where are they still negative? Well,
Speaker 1: obviously for one reason, the e C b still is
Speaker 1: succeedingly low in terms of their short rate. But secondly,
Speaker 1: and you bring up Italy, you know, I haven't really
Speaker 1: dealt in Italy or been short Italy or along Italy.
Speaker 1: That hasn't been the problem with the trade. But Italy
Speaker 1: affects German buons because ultimately, if Italy, from the standpoint
Speaker 1: of a political direction, you know it decides to leave
Speaker 1: the EU, then the consequences are severe and and Germany
Speaker 1: if the EU breaks up. You know, back in the
Speaker 1: day when when Greece was a significant problem, there was
Speaker 1: talk about Germany leaving the EU because they didn't want
Speaker 1: to share the burden. And so if if Germany leaves
Speaker 1: the EU, then all of a sudden, their bonds, their
Speaker 1: buons become denominated in German marks and that makes them
Speaker 1: appreciate significantly. So Italy affects the German bund market basically
Speaker 1: because of the potential for Italy leaving the EU, and
Speaker 1: that's what's happened in the past week or two. Bill
Speaker 1: Gross with us, said Jennie Henderson. We will return. We've
Speaker 1: got lots to talk about, as John correctly mentions, really
Speaker 1: interesting dynamics within the bond market that Mr Gross and
Speaker 1: off other bond managers have had to deal with. And
Speaker 1: of course the backdrop here is a really strong jobs
Speaker 1: report which good again reaffirms stronger dollar, d X y
Speaker 1: higher as well with yen one euro eight three, lifting
Speaker 1: yields in the bond market using the thirty year bond
Speaker 1: as a proxy three point out six percent. We had
Speaker 1: a lot higher yields here not too long ago Bloomberg
Speaker 1: surveillance with William Gross of Janice Anderson. We continue John
Speaker 1: Brian Allen, Professor Kruger back with us. Alan, I know
Speaker 1: we had some problem with the connection. You are joining
Speaker 1: us from Europe, so we appreciate your time ahead of
Speaker 1: that payroll to release. Let's just talk about the president's
Speaker 1: tweet looking forward to seeing the employment numbers at eight
Speaker 1: thirty this morning. It seems like a very innocent tweet.
Speaker 1: The problem is for market participants fully aware that the
Speaker 1: president has access to those numbers before their release. How
Speaker 1: unprecedented is it for the president to be talking about
Speaker 1: the payrolls and number the morning golf ahead of time.
Speaker 1: I can't remember another example, certainly president tweeting or even
Speaker 1: commenting on the job numbers. They're treated like state secrets.
Speaker 1: So surprising within the Professor Krueger is how this is
Speaker 1: actually done? What do you do hand an envelope to
Speaker 1: the president and say here's one statistic? Does he get
Speaker 1: a full briefing? I mean, is there a procedure to this?
Speaker 1: Like the military guy that carries the bomb codes behind
Speaker 1: the president? How do you actually tell a president what
Speaker 1: the jobs report will be? Excellent question? Uh. First of all, Tom,
Speaker 1: going back to the Nixon administration, the Office of Management
Speaker 1: the Budgets has procedures for how sensitive economic indicators are
Speaker 1: to be treated and UH they require that government administration
Speaker 1: officials did not comment on sensitive numbers until after one
Speaker 1: hour after they released. UH. Is dictates who can receive
Speaker 1: the numbers ahead of time and how they should be
Speaker 1: UH transmitted. Um. Different presidents do things differently. I could
Speaker 1: tell you with President Obama on most Thursdays before the
Speaker 1: job release, I would head over to the Oval office
Speaker 1: and greets among the numbers. In person, I would also
Speaker 1: bring a one page memo with me which talked about
Speaker 1: h top line numbers and on job roots and the
Speaker 1: table survey, plummer rate before participation, wage growth, the key
Speaker 1: UH component of the report. And of course if something
Speaker 1: else stood out and there was an issue with the
Speaker 1: weather or something like that, the metal would cover it.
Speaker 1: But normally I would spend tent to teen minutes reefing
Speaker 1: the President on the report, and if he was not
Speaker 1: in the White House, sometimes I would reach him by
Speaker 1: secure phone. I remember I called him once on Air
Speaker 1: Force one on a secure phone. I called him the
Speaker 1: night before the Democratic Convention before his speech at the
Speaker 1: convention on the secure phone. UM and a member of
Speaker 1: Time where I just sent in a memo, didn't actually
Speaker 1: talk to him by phone or in person. I am seeing.
Speaker 1: Are we gotta be very careful, folks. We welcome all
Speaker 1: of you worldwide with Alan Krueger of Princeton University. These
Speaker 1: are delicate matters, and John and I and our team,
Speaker 1: Collin Tipton and others, we're really trying to keep this
Speaker 1: in order. Futures were up twelve, they're now fractually up thirteen,
Speaker 1: And you know, Alan, if I look, it'll log interday
Speaker 1: chart of the two year yield. The fact is I
Speaker 1: have a move of a hundred and thirteen pips from
Speaker 1: two point four four ish up to two point four
Speaker 1: five one three, which I would suggest, Professor correlates with
Speaker 1: that word good, doesn't it. Well, you know, the reason
Speaker 1: why the O and B has its procedures is to
Speaker 1: prevent unnecessary politization of the numbers, which the nixt administration did, uh,
Speaker 1: and to reduce unnecessary volatility. I think at this point,
Speaker 1: see how he said, like next to new it's very
Speaker 1: he doesn't because I would always I would also take
Speaker 1: the view this morning, Tom that it's very hard to
Speaker 1: infer price action off the back of this tweet. What
Speaker 1: I do think, this tweet writes, though, is a question
Speaker 1: as to whether that privileged access should ultimately exist. What
Speaker 1: are the benefits of having that privilege access. Why should
Speaker 1: the president of any color, Republican, Democrat, whatever that political
Speaker 1: stripes might be, Alan, why should they have access to
Speaker 1: that data? Well, you know, that's an interesting question, John,
Speaker 1: and Um. We want the statical agencies to be independent,
Speaker 1: we want them to have credibility. I think it's very
Speaker 1: unfortunate that people have criticized UH, good regis statistics, made
Speaker 1: unfounded allegations about them making up the numbers. Well, we've
Speaker 1: got another problem there. That's right where I was gonna
Speaker 1: go with my next question. Let's leave it there. With
Speaker 1: Alan Krueger, we thank him from Trent to Italy. Has
Speaker 1: been an extraordinary moment one morning in the history of
Speaker 1: economic analysis, economic statistics, in the communication of said statistics.
Speaker 1: We were honored with Alan Krueger with us earlier today,
Speaker 1: who was cordially scathing in his critique of the president
Speaker 1: releasing UH an early tweet. UM Lawrence Summers, uh is
Speaker 1: well put out a tweet, UH said, uh quite simpler.
Speaker 1: Lawrence Summers put out a tweet the Washington Post as
Speaker 1: if during the clintoner Obama administrations there had been a
Speaker 1: statement from the President or anyone senior official in the
Speaker 1: morning before the employment report, it would have been a
Speaker 1: major scandal, with all sorts of investigations following on the
Speaker 1: moments ago. Yeah, let me share this with you. Does
Speaker 1: a counterpoint to that White House Economic advisor Larry Cudlow
Speaker 1: says that President Trump, that's about the jobs report last night? Yeah,
Speaker 1: I get it, and he says it wasn't meant to
Speaker 1: send a signal. Here's the reality, folks, we deal with
Speaker 1: before we bring in Jason Furman. Here's the reality. You
Speaker 1: and I pim can't move markets. And I've been honor
Speaker 1: it's a very flattering I moved the Japanese yen ones. Great,
Speaker 1: blah blah blah. We're not here to move the two
Speaker 1: year yield. The fact is I observed the two year
Speaker 1: yield with log convexity off of the tweet go up
Speaker 1: ever so slightly. That's our precursor to bringing in dr firm.
Speaker 1: And he's a former chairman of the President's Council of
Speaker 1: Economic Advisors. Jason, you were out first and you were
Speaker 1: scathing discuss the president's tweet. Here, Tom, I got these
Speaker 1: numbers every month in advance. I was authorized to share
Speaker 1: them with the Chair of the Federal Reserve, the Treasury Secretary,
Speaker 1: the NBC director, and the President of the United States.
Speaker 1: I took that really, really seriously and worked hard to
Speaker 1: protect the integrity of the data. Um I can tell
Speaker 1: you that if President Obama had done this tweet, I
Speaker 1: would have had exactly the same action and conveyed it
Speaker 1: directly to him and everyone else in the White House
Speaker 1: that it was a major, major problem that he had
Speaker 1: done it. UM, and I would hope that that's what's
Speaker 1: happening right now in the White House. I mean, I'm
Speaker 1: seeing Mr Cutler and CNBC as we speak, rationalizing this.
Speaker 1: And I'm sure that you know you've always been collegial
Speaker 1: with Dr hess at the present chairman of the president
Speaker 1: Council of Economic Advisors. What do they suggest to General
Speaker 1: Kelly or to the President so this doesn't happen again,
Speaker 1: I don't know, you know. In one would be reminding
Speaker 1: him of the seriousness and importance of this and telling
Speaker 1: him to make sure it doesn't happen again. A second
Speaker 1: option would be not giving him the number. A third
Speaker 1: option to the DLS not giving the number to the
Speaker 1: White House. And the fourth that b LS might want
Speaker 1: to consider is doing what is done by government statistical
Speaker 1: agencies for other data, which is, when part of the
Speaker 1: data comes out in advance, they provide the full release
Speaker 1: immediately before the release time UM. And it's something that
Speaker 1: they might need to be prepared to do UM in
Speaker 1: the event that that ever happens in the future. I
Speaker 1: think these are you know, these are all terrible options.
Speaker 1: I I don't think we should do any of them.
Speaker 1: I don't think we should be happy about doing any
Speaker 1: of them. But I think we have to, um, we
Speaker 1: have to be seriously considering it. Uh. Well, you know,
Speaker 1: Mr Ferman, I'm wondering, just to play devil's advocate here,
Speaker 1: is it possible that you know in previous years, uh,
Speaker 1: that you know there were news conferences that were called
Speaker 1: suddenly for the non farm payroll report on Friday, and
Speaker 1: you have a news conference if that was good, but
Speaker 1: not a news conference if it was bad. I mean,
Speaker 1: hasn't this kind of already been telegraphed in one way
Speaker 1: or another? Is it all that different now in a
Speaker 1: world of instant communications? Should we just expect this to happen?
Speaker 1: Nothing's gonna stay confidential. Oh, we actually took pains to
Speaker 1: avoid that. So if you know, if we would have
Speaker 1: gotten President Obama the number at five pm, but he
Speaker 1: was going to be out at five thirty and taking
Speaker 1: a question, we'd wait until after that to make sure
Speaker 1: it was I understand all that, but but I guess
Speaker 1: what I'm trying to get it, and this is not
Speaker 1: to come down one way or the other. It's to
Speaker 1: recognize that the world is a very different place when
Speaker 1: no communication that is electronic is any longer confidential, and
Speaker 1: that we live in a world where instantaneous communication exists.
Speaker 1: But just the fact that I would suggesting this is
Speaker 1: away from Dr Furman's expertise. We've got a president who's
Speaker 1: alone and by himself in the ramifications are here. The question,
Speaker 1: Jason Furman is if we've seen this, and yes, we
Speaker 1: saw the market move, I'm willing to say that now, folks,
Speaker 1: even though I wasn't saying it in real time. What
Speaker 1: do we do next month? Do we need to have
Speaker 1: a White House debate on this, Jason Furman? Or do
Speaker 1: we just say, oh, it's a president, that's the way
Speaker 1: it is. I just think, you know, if we are
Speaker 1: in a world of instantaneous communication, that maybe the president
Speaker 1: shouldn't get this anymore because, um, you know, it makes
Speaker 1: me worried. I'm also worried by the way Tom sour
Speaker 1: President talks a lot of people late at night on
Speaker 1: his phone. President who likes to brag about things, I
Speaker 1: think without even being malicious, without intending to be conveying
Speaker 1: insider information. Is he talking to his friends at night
Speaker 1: and telling them, hey, you know, great jobs number coming tomorrow.
Speaker 1: I don't have confidence that that's not happening. I really
Speaker 1: wish I could say I did, but I you know,
Speaker 1: I'm not sure. The question comes up and let us
Speaker 1: move on now. Is this will be a topic certainly
Speaker 1: within economics and Dame and Poletta has it on the
Speaker 1: cover of the Washington Post, So it's not just like
Speaker 1: an inside Bloomberg story, folks. This has really reached the
Speaker 1: so of the zeitgeist of the nation right now as well.
Speaker 1: Dr Ferman, three point eight percent is a victory lap
Speaker 1: for anybody. Is our three percent unemployment the same as
Speaker 1: it was in the nineteen fifties? You know, we have
Speaker 1: dysfunctions in our labor market we didn't have in the
Speaker 1: nineteen fifties. We have a much lower participation rate for
Speaker 1: men than we had UM in the nineteen fifties. UM,
Speaker 1: we also have a hired one for women UM than
Speaker 1: we had in the nineteen fifties. I think from a
Speaker 1: cyclical perspective though, assessing what the FED is doing, how
Speaker 1: we're doing in the recovery from the recession, UM, the
Speaker 1: unemployment rate is the right number to focus on, and
Speaker 1: that number tells a very positive story about our recovery.
Speaker 1: Tom Percelly earlier today noticed the vector of real wage
Speaker 1: growth actually rising. Do you agree read with that? And
Speaker 1: can we get to a positive and constructive real wage growth?
Speaker 1: We're not there yet, but can we get there? It's
Speaker 1: going to be hard. UM. The biggest constraints on our
Speaker 1: real wage growth is our lack of productivity growth. You know,
Speaker 1: if you look at the difference between what we've seen
Speaker 1: in real wage growth of the last couple of years
Speaker 1: and what we saw in real wage growth in es UM,
Speaker 1: that difference almost entirely explained by we had much faster
Speaker 1: productivity than than now. So I think a tight labor
Speaker 1: market will help. I'm in favor of a tight labor market. UM,
Speaker 1: it's one of the dials that we have. But until
Speaker 1: we get more innovation, productivity, capital investment in our economy, UM,
Speaker 1: we can't have more sustainable wage growth. Do you believe
Speaker 1: that there's going to be an acceleration and inflation. We're
Speaker 1: already seeing some firming up of inflation, and UM, I
Speaker 1: would expect to see more firming up of inflation. Could
Speaker 1: we have a two and a half percent rate? UM?
Speaker 1: At some point over the next year. Absolutely, because that
Speaker 1: I'm worried very very much. UM, not at all. The
Speaker 1: feed has said their target is symmetric. I no, I
Speaker 1: agree it should be symmetric, and so you know, after
Speaker 1: a lot of years below two, you know, some years
Speaker 1: of a bit about two. UM, I think that would
Speaker 1: be just fine. Jason Firman, thank you so much. He's
Speaker 1: a former chairman of the President's Council. Are you can
Speaker 1: have advisors? Greatly appreciate his attendance on short notice this morning.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before
Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.