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Speaker 1: This is Bloomberg Surveillance. I believe that this is going

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Speaker 1: to be in an interesting period for small cap managers,

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Speaker 1: as small caps in general underperformed. Yes, the proxivity growth

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Speaker 1: is not triumphed away it should be, but there's still

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Speaker 1: some innovation going on. There's a risk that the head

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Speaker 1: pays too much attention to market volatility and responds too

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Speaker 1: quickly when markets run into difficulty of Bloomberg Surveillance. Your

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Speaker 1: link to the world of economics, finance, and investment on

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Speaker 1: Bloomberg Radio. Good morning, Michael the Key with Tom Kate

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Speaker 1: at seven am on Wall Street. Six am. In the

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Speaker 1: Permian Basin where oil producers are making a little more

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Speaker 1: money this morning, but maybe there's a bit of a

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Speaker 1: new paradigm this morning as well. Oil prices are higher,

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Speaker 1: but stocks and bonds are lower. Is it a pause

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Speaker 1: ahead of new stimulus from the world central banks or

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Speaker 1: a sign of new concerns? We will ask today on Surveillance. Overnight,

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Speaker 1: China setting a new growth target six and a half

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Speaker 1: to seven percent for the year, ambitious but slower than

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Speaker 1: two thousand fifteen, caused a big reaction to the markets.

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Speaker 1: Iron Ore soaring the most ever on record, Chinese stocks

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Speaker 1: finish higher by eight tenths of a percent, but the

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Speaker 1: rest of the world is lower. The ECB meets on Thursday.

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Speaker 1: More stimulus expected. Will Mario come through right now? There

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Speaker 1: are concerns. It appears. The stock six hundered down by

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Speaker 1: three points nine tenths of eight percent, The DAX is

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Speaker 1: off ninety nine points one percent on the day, the

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Speaker 1: foot See lower by seventy one one point one percent.

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Speaker 1: An emergency meeting by the way of EU leaders underway

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Speaker 1: in Brussels to talk about the migrant crisis that may

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Speaker 1: also have an impact on the markets. Today here in

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Speaker 1: the US, we are seeing futures lower, SMP features down

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Speaker 1: by nine points four tents of a percent, Dow evenings

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Speaker 1: off by fifty three three tenths and nasdac immanies down

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Speaker 1: twenty two points right now half a percent on the day,

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Speaker 1: bobs falling as well. Yields are higher. Friday's strong jobs

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Speaker 1: reports still having an impact. A ten year over one

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Speaker 1: point nine one point nine percent, even UH five year

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Speaker 1: is at one point four percent, and the two year

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Speaker 1: eighty nine basis points. Right now. Oil I mentioned oil

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Speaker 1: prices are higher. They are closing in at least Brent

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Speaker 1: crude on forty dollars one right now up one. West

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Speaker 1: Texas at thirty six is up one and a half percent.

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Speaker 1: Are the markets telling us something? This morning? The Bank

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Speaker 1: for International Settlements with an interesting report warning we may

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Speaker 1: be seeing a calm before the storm in markets. Jim Paulson,

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Speaker 1: chief investment strategist for Wells Capital, He joins us now

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Speaker 1: and Jim, what do you make of what we're seeing today?

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Speaker 1: Is it's just a kind of a one off consolidation day,

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Speaker 1: people taking profits ahead of what the central banks may do,

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Speaker 1: or is the Bank for International Settlements onto something? Well?

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Speaker 1: I think I think the market has been responding time

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Speaker 1: to our Mike to better better news on the economy,

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Speaker 1: at least the nights dates and backing away from UH

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Speaker 1: sort of recession forecast which became so prevalenced a couple

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Speaker 1: weeks ago. UM. But I think the markets may take

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Speaker 1: a little pause here ahead of UH, you know, ahead

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Speaker 1: of the ECB announcement, ahead of the upcoming FET meeting.

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Speaker 1: UM and and see where that shakes out. UM. See

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Speaker 1: take a temperature read on where the feed is at

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Speaker 1: here with with you know, better economic data overall, UM,

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Speaker 1: Whether they have you know, getting more aggressive on the

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Speaker 1: idea of raising rates or whether they're uh more focused

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Speaker 1: on weak inflation and willing to wait and push that back.

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Speaker 1: I think we're gonna see a little pause. But perhaps

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Speaker 1: what is that suggest about what the central banks see

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Speaker 1: out there? And if they if they pause, does that

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Speaker 1: mean that they're not certain or that they think things

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Speaker 1: are getting better? You know, I for one think they

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Speaker 1: should continue to slowly raise rates here right I've been impressed,

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Speaker 1: not only you know, I think we've got the same

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Speaker 1: little over two percent growth going on the United States

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Speaker 1: economy that we've had probably for much of the last

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Speaker 1: seven years. But what's changed, I think is we've kind

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Speaker 1: of reached full employment, and there's a number of inflation

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Speaker 1: indicators that are finally coming to life here a little bit.

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Speaker 1: And and uh it's what what is most impressive is

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Speaker 1: everything outside of commodity prices, whether you look at the

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Speaker 1: core CPI, the the PC deflator, wages, most of that

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Speaker 1: is climbing and has been for the last year. And

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Speaker 1: if we are now stabilizing commodity prices um and we are,

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Speaker 1: you know, we've have unemployment in the fours I think

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Speaker 1: the Fed needs to needs to slowly but steadily lift

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Speaker 1: rates to a more U level, which more appropriately reflects

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Speaker 1: that Um. I don't know what they're thinking. Sometimes sometimes

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Speaker 1: I wonder, but I think their argument to pause is

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Speaker 1: falling apart. Jim. The argument to pause is falling apart

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Speaker 1: is really where we are right now? Help me with

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Speaker 1: the cardinal rule. The good economic data always leads to

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Speaker 1: a better animal spirit. What are the dynamics for the

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Speaker 1: next twelve months of increasing real g d P and

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Speaker 1: then what does inflation do? Yeah, I think I think, Uh,

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Speaker 1: you know, I think the real wild card for me

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Speaker 1: I I see economic data improving the United States. I

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Speaker 1: think you know that that's becoming increasingly obvious. Uh, And

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Speaker 1: but I think I still think we're gonna be growing

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Speaker 1: in the two somewhere. But the real wild card is

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Speaker 1: does data pick up internationally? Do we see better data

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Speaker 1: out of the ural zone? Do we see a bottoming

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Speaker 1: out in Chinese economy? If that happens, then I think

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Speaker 1: you could see animal spiritually pick up. I think the

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Speaker 1: one thing that's really held back capital spending is that

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Speaker 1: CEOs look around the world at various markets, and they're

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Speaker 1: all having a problem getting out of their own way,

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Speaker 1: if we saw a synchronized bouncing growth, even if it

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Speaker 1: wasn't a strong bounce, it was just consistent across most markets.

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Speaker 1: I think that could bring uh more animal spirits from businesses.

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Speaker 1: But more importantly, it would bring a sense of optimism

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Speaker 1: about this recovery that we just has been opposite for

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Speaker 1: a while. Problem in the United States is if we

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Speaker 1: bounce here with growth, I think we are going to

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Speaker 1: have quicker inflation and a need to have multiple rate

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Speaker 1: hikes by the fet Jim Paulson with US Wells Capital

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Speaker 1: Management Bloomberg Surveillance This Monday, watch you buy Investco. Looking

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Speaker 1: for investment views, Experienced experts are just to click away.

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Speaker 1: Go to investco dot com, slash us to subscribe to

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Speaker 1: the investco blog, and follow at investco US on Twitter.

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Speaker 1: Jim Paulson, what's your run rate for the US economy?

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Speaker 1: I mean, can you get out to three percent GDP

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Speaker 1: as a run rate? I think it's possible. I don't

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Speaker 1: think we're gonna do much more on that from here

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Speaker 1: when the number one, we're in a mature, much mature

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Speaker 1: part of this cycle now with sub five percent unemployment

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Speaker 1: uh time, and I think that I think to get

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Speaker 1: much about that, UH is going to be difficult. We also,

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Speaker 1: I think that the central thing holding us back throughout

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Speaker 1: this recovery has been lack of demo graphic growth and

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Speaker 1: that's not changing anytime soon. The one key ingredient would

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Speaker 1: be if productivity picks up. If productivity, which is we're

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Speaker 1: in the worst productivity cycle of any recovery and post

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Speaker 1: war history the United States with productivity is barely one

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Speaker 1: percent per annum in this recovery. If that were to

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Speaker 1: pick up closer to two percent in the balances recovery,

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Speaker 1: I think we would exceed three percent growth. What the

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Speaker 1: only thing that would probably get us there is business

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Speaker 1: spending un proving productivity and doesn't like anybody's interested in

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Speaker 1: spending their cash right now, we've had nothing from the

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Speaker 1: public sector. Public sector real investment in this country as

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Speaker 1: a percentage GDP recently fell that was sixty four year low.

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Speaker 1: And investment in this country really has been weak now

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Speaker 1: for fifteen years since the dot com top, and we're

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Speaker 1: paying the price in the form of lower productivity. The

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Speaker 1: one place, Mike where there's some hope is we have

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Speaker 1: had weak but above post war trend growth in capital

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Speaker 1: spending over the last couple of years, and maybe with

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Speaker 1: a lag that could promote a little bit better protivity. Look,

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Speaker 1: we're not talking about super great productivity, just a little

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Speaker 1: better than the worst ever. So if we got just

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Speaker 1: a little better than the worst productivity performance of any

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Speaker 1: post war recovery, that could make a big difference, uh

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Speaker 1: in terms of growth being more like three than two.

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Speaker 1: And the beautiful thing, if it's productivity driven, it wouldn't

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Speaker 1: necessarily aggravate inflation and interest rate pressures. What what role

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Speaker 1: is politics playing in the markets these days? If anything,

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Speaker 1: I'm not a big one on that it has a

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Speaker 1: huge role. I think as an investor there's so many

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Speaker 1: more important things to worry about. My it seems pretty

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Speaker 1: clear to me, and it's been made pretty clear that

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Speaker 1: whoever wins the White House, I just don't have much

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Speaker 1: conference then get much done anyway. I don't care it's

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Speaker 1: right or it's left wing. Um. The problem is that

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Speaker 1: I would get more exercised if we get the try

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Speaker 1: power going in one direction, House, State and White House

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Speaker 1: all in one direction. That that that's would catch your attention,

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Speaker 1: either negatively or positive. But otherwise I just think it's

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Speaker 1: more gridlock whoever gets in there. So I think there's

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Speaker 1: more important things to worry about, like does world growth

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Speaker 1: pick up? You know, like does the FETE have to

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Speaker 1: quicken a space of tightening rather than who wins the

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Speaker 1: White House. Jim Paulson with us as we get from

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Speaker 1: Monday started after that bang up jobs report. Uh, there

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Speaker 1: definitely some adj in tone. I thought the most telling

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Speaker 1: thing Mike McKee was Robert Gordon. I don't think he

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Speaker 1: was on Mike. I think it's as he was leaving

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Speaker 1: the studio emphasizing labor participation and we got a Robert

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Speaker 1: Gordon report, participation went up. Yeah, he suggested, is that's

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Speaker 1: the most important thing for the long term. Thank you

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Speaker 1: for your many comments on Professor Gordon um meeting with

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Speaker 1: us his acclaim book, Mike McKee's book of the year,

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Speaker 1: The Rise and Fall of American Economic Growth, and uh,

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Speaker 1: he really pushed against that, showing some optimism about where

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Speaker 1: we're going versus what we saw on the previous center.

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Speaker 1: Jeff Carton will be with us on globalization later. From

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Speaker 1: Silk to Silicon. Is this new book Futures negative eight

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Speaker 1: Dow Futures megat three this morning. Now, let's checking with

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Speaker 1: Michael barn and get the latest world and national headlines.

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Speaker 1: Mike Tom, thank you very much. Texas Senator Ted Cruz

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Speaker 1: warned of him ifest uprising of a bunch of Washington

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Speaker 1: dealmakers attempt to steal the nomination from a candidate in

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Speaker 1: a brokered Republican convention. Cruise one Saturday's caucuses in Kansas

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Speaker 1: and Maine. But Trump has the overall delegate lead with

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Speaker 1: three hundred eighty four. It got a bit testy or

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Speaker 1: during last night's Democratic presidential debate between Hillary Clinton and

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Speaker 1: Bernie Sanders. Clinton accused Sanders of turning his back on

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Speaker 1: the auto industry. Sanders said Clinton's friends on Wall Street

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Speaker 1: had destroyed this economy. North Korea has issued its latest

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Speaker 1: belligerent threat, warning of a preemptive nuclear strike of justice

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Speaker 1: on Washington and Seoul. The threat from North Korea is

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Speaker 1: in reaction to the start of huge US South Korean

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Speaker 1: military drills. Global News twenty four hours a day, powered

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Speaker 1: by our two hundred journalists in more than a hundred

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Speaker 1: fifty news bureaus from around the world. Michaelabar, Time and Macha,

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Speaker 1: thanks so much. Oil at forty We're not there yet.

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Speaker 1: Thirty nine on Brent up sixty seven cents. It's one

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Speaker 1: day stay with us. Bloomberg Surveillance. Bloomberg Surveillance is brought

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