Speaker 1: Brought you by Bank of America Mary Lynch. Investing in
Speaker 1: local communities, economies and a sustainable future. That's the power
Speaker 1: of global connections, Mary Lynch, Pierce Fenner and Smith Incorporated
Speaker 1: Member s I p C. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best of economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg. Joining us now in
Speaker 1: Paris is Jean flu Crich. He doesn't really need much
Speaker 1: of an introduction. Former ECP President and honorary chairman of
Speaker 1: the Group of Thirty. Also with us in New York
Speaker 1: is Villain Bout, Chief Economist of City, Mr Triche, Well,
Speaker 1: come to the program. Thank you so much for coming on.
Speaker 1: Let's assume that the polls are right. Let's assume that
Speaker 1: so we get something like six for President mccron on Sunday.
Speaker 1: What happened next? What kind of message does the President
Speaker 1: mccorn give to France and Europe. I think, first of all,
Speaker 1: we have to wait for the election. As Mr mccorn
Speaker 1: said himself. Of course it's never done in advance. It's
Speaker 1: not a dumb deal. The polls are very positive and
Speaker 1: I think really that Macon will have probably a very
Speaker 1: powerful mandate to reform the country because it was his own,
Speaker 1: you know view, since he started to engage in politics.
Speaker 1: But fancy that it's a man who was not known
Speaker 1: by the French only two years and a half ago
Speaker 1: and is perhaps the next future president and perhaps we'll
Speaker 1: have a majority according to certain survey and poles that
Speaker 1: we have on the parliamentary election. It is absolutely clear
Speaker 1: that if he has this togument date, he will have
Speaker 1: a majority in the parliament in my view, and then
Speaker 1: of course all kinds of reforms that are overdue in
Speaker 1: France could start. So we'll talk about deficits and budget
Speaker 1: fiscal rules in a second. But why do the French
Speaker 1: not recognize themselves anymore in the old parties in the
Speaker 1: classic right versus left, or they have they become too centrists.
Speaker 1: Well again, the damage that a large deal of public
Speaker 1: spendings on top of the average of the G seven countries,
Speaker 1: on top of the average of the European countries, is
Speaker 1: something which is not considered by a lot of of
Speaker 1: political parties as absolutely negative for friends and for job creation.
Speaker 1: So the debate which we had but between mc and
Speaker 1: marian lpen showed very clearly that Macron was attached to
Speaker 1: sound policies, was attached to finance everything that would be spent,
Speaker 1: and was certainly with the intention of respecting the rules.
Speaker 1: And I trust that it is something which is very important.
Speaker 1: Mr Uche, good morning from New York. As we look
Speaker 1: at this sea change and the culture, the generational change
Speaker 1: in France, can we get a France that's a little
Speaker 1: more fiscally responsible? You and Mr Deutsenberg and ECB had
Speaker 1: to worry about a France that would spend too much money,
Speaker 1: where the government was too big, too big for all
Speaker 1: of France. Can they get more responsible with the President mccron,
Speaker 1: I think so. Frankly speaking, it's a pleasure, of course
Speaker 1: to it to talk to you, I really think so.
Speaker 1: I think that the message that Macon gave was that
Speaker 1: we have to respect the rules. Of course, he's Cody
Speaker 1: Molso for reform, and I think he's right. It's link
Speaker 1: for a Ministo of finance of the AU area. I
Speaker 1: myself and in full agreement with that is coding for
Speaker 1: new reforms as regards also the budget of the euro
Speaker 1: Area that would be created. But respecting the rule, we
Speaker 1: have the stability and both back and it is important
Speaker 1: of course that France applies in his own interests. It
Speaker 1: is not a question of you know, pleasing partners. It's
Speaker 1: a question of being sure that we do all what
Speaker 1: we can to create jobs and and grow. And I
Speaker 1: think that we can be reasonably confident that there has
Speaker 1: been a change in the overall position of public opinion
Speaker 1: in France. But we will see, and nothing is done yet.
Speaker 1: What can we do about a better trade policy for France,
Speaker 1: not only trade with the rest of the continent, but
Speaker 1: trade with the rest of the world, and even I
Speaker 1: may suggest trade with the United in Kingdom. What can
Speaker 1: be a new trade policy for France? Well, as you know,
Speaker 1: the trade policy is influenced by each particular government, of course,
Speaker 1: but is done at the level of the Single Market
Speaker 1: and of the Area and of course the European Union
Speaker 1: as a whole. So from that standpoint, I expect France
Speaker 1: to be open, of course, as was said very very clearly,
Speaker 1: to global trade, and of course you open trade that
Speaker 1: being said, of course, with the appropriate influence for the
Speaker 1: deals to be fair. And it is clearly what what
Speaker 1: has been said. It seems to me very very openly
Speaker 1: and frankly in particular in the debate but also in
Speaker 1: the various declaration of the candidate paper. Right, the reforms
Speaker 1: are strong. But what has changed since alone promised the
Speaker 1: same fiscal rule changes back in is you're really ready
Speaker 1: to sit down at the table and say, you know,
Speaker 1: let's start from scratch and think exactly what we want
Speaker 1: to do on fiscal Well again, we will see exactly
Speaker 1: what is the policy of the new president and of
Speaker 1: the new government, because we will leve also a government,
Speaker 1: so a lot of things have to be done. What
Speaker 1: is clear is that there is a very very powerful
Speaker 1: will on the side of the new possible French government
Speaker 1: and president, and on the side of the German partners
Speaker 1: also and the other partners in Europe to discuss and
Speaker 1: not to discuss our need to settle the present, but
Speaker 1: also to have a view of the future and of
Speaker 1: the reform that are at stake and of the new
Speaker 1: course of action for Europe as a whole. So from
Speaker 1: that standpoint, I think that we are in circumstances that
Speaker 1: are probably the best since quite a long period of time,
Speaker 1: because you remember at the very beginning of the Alarmed
Speaker 1: Mandate there was not not such a close relationship potentially
Speaker 1: close relationship beween Germany and France and the other partners. Well,
Speaker 1: let me bring in our partner from the Netherlands with
Speaker 1: us Jan Clauche today, Folks is Villain Pouder. He is
Speaker 1: professor of the London School of Economics and the course
Speaker 1: head of all economics at City Group. Professor. Question from
Speaker 1: Mr Trichet, Please yes, Tricia, France still spends well over
Speaker 1: fifty GDP in the public sector. With all the talk
Speaker 1: about pension former Raby market reform, that number has to
Speaker 1: get much closer to for France to become a dynamic economy.
Speaker 1: Do you see any chance that there will be a
Speaker 1: coalition in France that will not be frustrated by the
Speaker 1: losers of such a drastic reduction desized the public sector.
Speaker 1: Is there any hope that the France will not look
Speaker 1: like Scandinavia and the public spending but more like the
Speaker 1: Euro Area average. Well, we again, I think that you're
Speaker 1: absolutely right. This is one of the dimension of reform
Speaker 1: which is very important. Diminished the public spendings and the
Speaker 1: proportion of GDP, which are much higher than the average.
Speaker 1: And second we have also these structural reforms and the
Speaker 1: liberal market appropriate reform, and we also have the cost
Speaker 1: competitiveness of the country, of course, of the economy. But
Speaker 1: on the first point, I think that this idea that
Speaker 1: it is of course a progressive march in the direction
Speaker 1: of diminishing public spendings and the proportion of GDP, as Sweden,
Speaker 1: for instance, did a number of countries proved that it
Speaker 1: was possible. Of course, it cannot be done overnight. But
Speaker 1: the winners in such an orientation are the unemployed, because
Speaker 1: it's absolutely clear that the weight of this uh public
Speaker 1: spendings is much too high and hamper the appropriate competitiveness
Speaker 1: of the economy. So the winners will be the unemployed,
Speaker 1: young people and also all the unemployed in France. Thank
Speaker 1: you so much for now the former recently Prince angel
Speaker 1: and Bowker, Bloomberg, Surveillance, David Gerr and Tom Keene. Of course,
Speaker 1: much to talk about here. Jim Glassman and Bill gross
Speaker 1: will join us, and always Alan Krueger joins us from
Speaker 1: Princeton University, and Alan, we must take a moment on
Speaker 1: the passing UH in the last day. The death of
Speaker 1: William Bauma of Princeton University absolutely definitive, the giant of
Speaker 1: what I would call entrepreneurial economics. His book, his textbook
Speaker 1: with Alan Blinder, is truly classic. Uh. What did he
Speaker 1: mean for the students of Princeton University. I was mesmerized
Speaker 1: at how gentle and yet how distinct in assertive his
Speaker 1: lecturing was well. Obama was a giant in the field
Speaker 1: of economics, and he was truly a renaissance man. He
Speaker 1: was five years old. He moved at the end of
Speaker 1: his career from Princeton to n y U. So it's
Speaker 1: more a loss for the Yuan. That's true for n
Speaker 1: y U. But he is forever associated with your in.
Speaker 1: He was Uh. He was at Princeton forty two years.
Speaker 1: I interviewed him tom in two thousand one UM in
Speaker 1: the Journal of Economic Perspectives, which I tweeted out yesterday
Speaker 1: in case people wanted to read. He was truly a
Speaker 1: remarkable man, remarkable career, made lasting contributions to economics. I
Speaker 1: was inspired by his words. A humility was wonderful. He
Speaker 1: was a master student at LSC and Lionel Robbins. I
Speaker 1: believe I may be wrong in this, but I believe
Speaker 1: the story is Robbins, the giant of Elisi, personally intervened
Speaker 1: to make him a PhD candidate. He was so good
Speaker 1: at speaking well. In this interview he told that story
Speaker 1: where he first applied and they had never heard of
Speaker 1: City College. So he was turned down, and he applied
Speaker 1: a second time and Ladle Robbins intervened. He said, this
Speaker 1: man really wants to come here, and the end of
Speaker 1: three weeks they had him joined the faculty. Yeah. I
Speaker 1: mean that was the giant sense of it. His spirit
Speaker 1: to me, and there's so many things, but almost cost
Speaker 1: disease and the rest of it, and works Tobin and others.
Speaker 1: To me, it was his fearlessness about don't forget the entrepreneur,
Speaker 1: which dovetails into your work on labor economics. How did
Speaker 1: he describe where the entrepreneur fits in to price and firm? Well,
Speaker 1: his contributions and industrial organization, I think we're quite significant.
Speaker 1: The work he did on contestable markets where you have
Speaker 1: a natural monopoly, yet you still want government regulation so
Speaker 1: that you have the degree of competition that's optimal um
Speaker 1: and that enabled I think many many firms to develop
Speaker 1: new technology because often the technology was the barrier to entry.
Speaker 1: He worked on ways for firms to collaborate on R
Speaker 1: and D without colluding, uh to um monopolize the market. UM. So,
Speaker 1: I think every American is benefiting from the work that
Speaker 1: he did. The work he did on cost disease, which
Speaker 1: you mentioned is relevant today for healthcare reform. You know
Speaker 1: he was involved in in the mid nineties and the
Speaker 1: Clinton health care effort, and he explained that the reason
Speaker 1: why healthcare costs are growing so quickly is that there's
Speaker 1: been faster productivity growth outside of healthcare. UH. And when
Speaker 1: impact of his model or implication of his model is
Speaker 1: that the government services that are provided, which tend to
Speaker 1: have slower productivity growth, are going to become more costly
Speaker 1: over time. William Bauma did, of course speak soon to
Speaker 1: Alan Blinder of Princeton, who was so associated with a
Speaker 1: professor Obama's effort and education Alan Krueger very quickly here
Speaker 1: Obamacare trump Care. Does it matter to our listeners? Well,
Speaker 1: I think it matters to all Americans. Certainly matters to
Speaker 1: the twenty four million Americans who would lose their health
Speaker 1: insurance under the bill that passed the House yesterday. But
Speaker 1: it matters, uh to everyone else, because it will affect
Speaker 1: our costs um And you know, the estimates are for
Speaker 1: a large number of Americans the net cost of health
Speaker 1: insurance would be situately higher under this bill. Do you
Speaker 1: presume on first blush that the CBO scoring will be
Speaker 1: remarkably like the previous CBO scoring. I don't see how
Speaker 1: it could be all that different, and what I understand
Speaker 1: that the bill they're quite similar. Yeah, let's come back
Speaker 1: Alan Krueger with us. Thank you so much for those
Speaker 1: comments on Professor Bama. That's one of those special things
Speaker 1: about surveillance, folks, is our guest quality is so good
Speaker 1: that when someone dies within the realm of economics, financial investment,
Speaker 1: it's amazing the perspective we hope to deliver to you
Speaker 1: when we hear uh this news. If you have kids,
Speaker 1: this is the most important conversation of the day. Alan
Speaker 1: Krueger is at Princeton University and he has been eclectic
Speaker 1: writing on terrorism, has acclaim with David Carter on the
Speaker 1: minimum wage, and Professor Krueger. Here's a single sentence. I
Speaker 1: take it from Jeff go over to the Washington Poe
Speaker 1: Professor Krueger finds of male prime age labor force dropouts
Speaker 1: say they took pain medication the day prior. Your work
Speaker 1: on opioid is not a lot of political broather. It
Speaker 1: is careful and accurate analysis of the drugs and dropouts
Speaker 1: in America. What's the policy prescription to get us away
Speaker 1: from heroin and the opioids that are destroying so much,
Speaker 1: particularly of the Midwest. First of all, I think I
Speaker 1: might use that as a title for a paper that
Speaker 1: I'm writing, Dropouts. We'll take the surveillance royalty from that place.
Speaker 1: Brookings will hand that right over to you. Um. You know,
Speaker 1: there's not an easy answer. There are I think many
Speaker 1: components the answer. The first is to prevent the problem
Speaker 1: in the first place. And if we could keep people
Speaker 1: in the labor force, that we can keep them engaged.
Speaker 1: If we can keep the unemployed searching for a job,
Speaker 1: If we can help those who are on the margins
Speaker 1: of the labor market to even volunteer so that they
Speaker 1: are learning new skills and staying engaged than networking, I
Speaker 1: think that's one important step to prevent the problem from
Speaker 1: growing where the problem exists, especially for those who are
Speaker 1: on disability insurance and receiving medicare. Something like forty of
Speaker 1: them receive opioid prescriptions during the course of the year.
Speaker 1: I think we need to use rehabilitation, we need to
Speaker 1: use treatment, We need physical therapy. But the jobs do
Speaker 1: you have in your history going to Lynden, Lyndon, Maines, Johnson,
Speaker 1: frank and Dolor, Roosevelt and others. Is there a incentive
Speaker 1: prescription to create investment for lower education goods producing jobs
Speaker 1: in America. They're not going to go to Princeton. They're
Speaker 1: not gonna work for pick your accounting firm or legal firm.
Speaker 1: They're not going to do radio here in New York.
Speaker 1: Where does that policy prescription come to help people in
Speaker 1: West Virginia, Ohio, Kentucky and westward. This is why it's
Speaker 1: a tragedy. We weren't able to invest more in infrastructure
Speaker 1: in America. We need to rebuild our roads and our
Speaker 1: highways bridges. President Obama tried for eight years to ramp
Speaker 1: up in and I wish him luck and succeeding in
Speaker 1: that because I think that will help our country and
Speaker 1: I think it will improve our competitiveness in the future.
Speaker 1: And just as importantly, help this demographic that you're discussing.
Speaker 1: When you when you look at the field of economics
Speaker 1: and the field of policy today, make a Venn diagram
Speaker 1: of politics and policy, how much crossover is there? Having
Speaker 1: gone through this fight recently here over healthcare reform, you
Speaker 1: talked to doctors, you talk to people in health insurance,
Speaker 1: talk to people at health companies, healthcare companies. There's a
Speaker 1: sense that policy isn't driving it. How do you get
Speaker 1: back to a point where the conversation in Washington is
Speaker 1: less focused on the politics and more on the policy.
Speaker 1: Well today, the overlap in the Venn diagrams is an
Speaker 1: old set. And I once went back and I went
Speaker 1: through all of the issues I worked on when I
Speaker 1: worked for President Obama, and I reviewed what evidence did
Speaker 1: we look at, what type of evidence was it relevant?
Speaker 1: And it was quite an impressive list. The current administration
Speaker 1: seems to be intimidated by experts. Experts aren't always right,
Speaker 1: but I think we do have something to add. I
Speaker 1: think it's unfortunate the way that President Trump has criticized
Speaker 1: federal statistics. The impartial civil servants who toil away earned
Speaker 1: too little. In my view, they're overworked. In my view,
Speaker 1: they do the best job they can. Yet attacking the
Speaker 1: unemployment rate, um other economic measures I think is very
Speaker 1: counterproductive and I think it's uh symbolic of the disdain
Speaker 1: for using evidence and policy development. Thomas a very important
Speaker 1: question about young people and drug addiction. How about just
Speaker 1: stepping back from that more broadly, Uh, you teach you
Speaker 1: to college, you you interact with a lot of young people.
Speaker 1: How does the labor market look for the young men
Speaker 1: and women who will be graduating school here over these
Speaker 1: next few weeks. I think the job market has clearly
Speaker 1: picked up over the last seven years, and I think
Speaker 1: we're seeing many manifestations of that. One is that more
Speaker 1: students are going directly to work instead of on too
Speaker 1: graduate school. Uh. First. For older workers, however, I think
Speaker 1: they're still struggling. And where we're seeing I think, uh
Speaker 1: tremendous difficulty are workers in their fifties early sixties who
Speaker 1: lose a job and they're finding a lot of difficulty
Speaker 1: getting a W two traditional job. And many of them
Speaker 1: are hanging up their own shingle, which can have some benefits,
Speaker 1: but they're not necessarily prepared for being their own boss.
Speaker 1: In hindsight, when you look at tax revenue as a
Speaker 1: percentage GDP. And let's not get carried away. It's the
Speaker 1: chart is clear, folks, it's elevated, but not that much.
Speaker 1: We're taxes raised too much within the era of Obama.
Speaker 1: Could they tweak it a little bit lower? Well, you know,
Speaker 1: I think taxes should be as low as possible, but
Speaker 1: high enough to pay for the services that the public demands.
Speaker 1: And the public demands a lot of services. But trend.
Speaker 1: If I'm a Republican sitting here like the two congressmen
Speaker 1: I interviewed in Washington, the fact of the matter is, Professor,
Speaker 1: we're off trend. We're We're right, we're elevan needed were
Speaker 1: We're certainly not in an outlier position to create to
Speaker 1: our history. And Tom, the proof of the pudding is
Speaker 1: in the economic recovery. You know, people said that the
Speaker 1: tax increases, that Obamacare would destroy jobs. Well what about
Speaker 1: those fifteen and a half million jobs that were created
Speaker 1: over the last taxes to create more jobs? Saying I
Speaker 1: get get Mike, can you get Mike red Hat please
Speaker 1: bring it in here, you know. But by the way, Tom,
Speaker 1: I fought for years for corporate tax reform. I think
Speaker 1: our corporate tax system is very uh inefficient. So can
Speaker 1: we say that Krueger and Trump are on common ground here? Well,
Speaker 1: I think we're in common around and that we say
Speaker 1: that we should have corporate tax reform. Now, the nature
Speaker 1: of the reform is a bit different, and I think
Speaker 1: we can reform our system and remain revenue neutral. What
Speaker 1: did you make of the one pager, as it's called,
Speaker 1: the White House handed out after a hundred days in office,
Speaker 1: the plan the principles for tax reform. Uh. You know,
Speaker 1: you say there's this commonality of you and the administration
Speaker 1: being in favor of corporate taxes from did you see
Speaker 1: anything in the detail? I'm not gonna say it with
Speaker 1: granular detail in the detail that sheet where you think
Speaker 1: that the administration has head in the right direction? Look,
Speaker 1: that was rushed out, and I felt sorry for the
Speaker 1: professional career employees at the Treasury Department. Um, it's not
Speaker 1: the type of work product they're accustomed to producing. UM.
Speaker 1: I think, Uh, the idea of lowering the corporate tax
Speaker 1: rate and getting rid of some of the preferences that
Speaker 1: we have to pay for that, I think that makes
Speaker 1: a lot of sense. Tax rate for past through companies
Speaker 1: I think would be extremely abused. So I had a
Speaker 1: lot of concerns. Um, there were no budget numbers that
Speaker 1: came along with the proposal, which is which is kind
Speaker 1: of remarkable. Um, how is one supposed to consider a
Speaker 1: proposal which would probably, you know, add trillions and trillions
Speaker 1: of dollars to the deficit without having the administration do
Speaker 1: that type of analysis. I don't know how they could
Speaker 1: in good faith say that this is their proposal, that
Speaker 1: they haven't done that type of analysis. And if they
Speaker 1: did that type of an elsis, why wouldn't they share
Speaker 1: it with the American people so we could evaluate it.
Speaker 1: Let me get back here to job stay in the
Speaker 1: last couple of minutes we have with you. I spoke
Speaker 1: with the Secretary of Commerce Earliver this week, and he
Speaker 1: was very proud to talk about the efforts the administration
Speaker 1: is working on when it comes to training. Going back
Speaker 1: to that meeting with Chancellor Lamerko when she was at
Speaker 1: the White House, the trip that Devanka Trump, daughter and
Speaker 1: advisor to the President, took to Germany to meet with
Speaker 1: German executives to see how they train workers and keep
Speaker 1: workers at those companies. Is that a step in the
Speaker 1: right direction? Do you think what's been the biggest hurdle
Speaker 1: to getting training programs built into our corporate structures here
Speaker 1: in the U s. As they are in Germany. I
Speaker 1: think it is a step in the right direction, But
Speaker 1: Germany also mandates that companies spend a certain share of
Speaker 1: their budget on training, and I don't see the current
Speaker 1: administration interested in that type of an idea. Also, in
Speaker 1: the president's budget outline wasn't really a budget proposal. He
Speaker 1: cuts job training. So I think there are many things
Speaker 1: we can do. I would like to see a much
Speaker 1: better school to work training program where students who are
Speaker 1: not at the time college bound they might be college
Speaker 1: bound later on, can apprentice with companies, can learn skills
Speaker 1: while they're going to school. I think that strengthens both
Speaker 1: their school work and their ability to navigate the job market.
Speaker 1: Alan Krueger, thank you so much, particularly for those kind
Speaker 1: comments on his colleague at Princeton, William BAUMO now at
Speaker 1: New York University. Uh uh. This day brought you by
Speaker 1: Bank of America Mary Lynch, dedicated to bringing our clients
Speaker 1: insights and solutions to meet the challenges of a transforming world.
Speaker 1: That's the power of global connections. Mary Lynch Pierce Federan
Speaker 1: Smith Incorporated Member s I p C. There's something new
Speaker 1: from Bloomberg. It's called Lens. Starting right now, you can
Speaker 1: use the Bloomberg iosa off your iPhone or iPad or
Speaker 1: our new Google Chrome extension to read any news story
Speaker 1: on any website, scan it, and then instantly see the
Speaker 1: news stories relevant market data from Bloomberg. In addition, see
Speaker 1: all the bios of the key people mentioned in the story.
Speaker 1: It's called Lens, and it is just that, a lens
Speaker 1: into the people and the data of any story you
Speaker 1: may be reading. Again, Lens brings you the power of
Speaker 1: Bloomberg's news and data. Download or io s app or
Speaker 1: search for the Bloomberg extension at the Chrome Store to
Speaker 1: try lens out. Learn more at Bloomberg dot com, slash lens,
Speaker 1: Chip Lastsman of Northwestern and JP Morgan with us today.
Speaker 1: We're just speaking with Alan Krueger about the death of
Speaker 1: William Boma of Princeton University in New York University and
Speaker 1: his professor. Krueger. Of course, Riley mentioned his work is
Speaker 1: front and center in your work and Frankie, the work
Speaker 1: of every politician in Washington on healthcare. It's called bombs,
Speaker 1: cost disease, and it's where you you raise wages because
Speaker 1: you've got to raise wages, but there's no productivity gain
Speaker 1: and bad things happen. Is there where we are right now?
Speaker 1: I don't think so. I think that's where we were
Speaker 1: in the nineteen seventies and early nineteen eighties. But I
Speaker 1: think people we live in a more competitive world, so
Speaker 1: companies aren't as quick to grant wage increases that they
Speaker 1: can't be matched by productivity improvement. So I don't really
Speaker 1: think that's our problem today, but it is a problem
Speaker 1: for the worker because it is productivity that really lifts
Speaker 1: our living standards. And I talked to Ben Bernanke, and
Speaker 1: let me ask you the same question. Which part of
Speaker 1: productivity are we most challenged by? Is a capital dynamics,
Speaker 1: labor dynamics, or is it something unknowable like all this
Speaker 1: technology we're dealing with each and every day. I think
Speaker 1: it's unknowable because here here we have a massive amount
Speaker 1: of innovation going on in the technology sector, and in fact,
Speaker 1: we all think that they're not really measuring that properly.
Speaker 1: But then on the other hand, we're not seeing the
Speaker 1: productivity gains that you expect from innovation. I have a
Speaker 1: feeling it's just really volatile and random and it takes
Speaker 1: time for us to sort of milk the benefits of
Speaker 1: all this innovation, and there's so much going on. Maybe
Speaker 1: that's that's part of the issue. But um, I wouldn't
Speaker 1: be writing oh bits yet for productivity because I think
Speaker 1: looking around it just feels like we're living at a
Speaker 1: time of rapid innovation and it just know whether that
Speaker 1: show you know, how long does that take to show up?
Speaker 1: I don't know. It could be a decade. Chris Rupie
Speaker 1: writing yesterday that the productivity read was a big ouch
Speaker 1: for the economic right, big ouch for the economy plainly
Speaker 1: sputtering in the first quarters we we start the year.
Speaker 1: Uh yeah, but that's all because of the bizarre not
Speaker 1: to be believed GDP estimate that the things slow down
Speaker 1: practical Transtorp, I don't even think it's transitory. Frankly, I
Speaker 1: think it's fake slowdown, because the truth is, if there's
Speaker 1: a seasonal distortion, as the b e A and everybody things,
Speaker 1: including the FED, then it's not really transitory. It's mismeasurement
Speaker 1: of the quarterly GDP figures. And I think that's what's
Speaker 1: so useful about the labor market data. You sort of
Speaker 1: have two different perspectives on the economy. And interestingly, the
Speaker 1: labor market data suggested that things accelerated at least through February.
Speaker 1: We had a soft March paywall figure. But the employment
Speaker 1: picture looks quite good. The GDP figure figure is not
Speaker 1: and this is, by the way, probably going to be corrected.
Speaker 1: When you look at the second quarter or third quarter GDP,
Speaker 1: we'll see everything kind of line up again in the
Speaker 1: in the panoply of economic data, giving you some indication
Speaker 1: of growth in this economy. How much does GDP matter
Speaker 1: to you? Given that, uh, it can beast to volo.
Speaker 1: It doesn't matter at all to me. Quarterly figures I
Speaker 1: don't really pay attention to. The one thing I pay
Speaker 1: most attention to is jobless claims because they are the
Speaker 1: most accurate indicator we have of the pulse of the economy.
Speaker 1: It only tells you what's going on with the businesses
Speaker 1: that are operating and what we've seen so far in
Speaker 1: the first quarter. Uh, the trends. You know, it's a
Speaker 1: steady economy and in fact, if anything, it feels like
Speaker 1: the economy is still growing a little faster than trend,
Speaker 1: thank god, because we still have some populations of people
Speaker 1: out there who dropped out, there were discouraged, and they're
Speaker 1: coming back in. We need we need a little bit
Speaker 1: more above trend growth to get everybody back to work.
Speaker 1: What you're talking with the professor Kruger just a moment
Speaker 1: ago about job opportunity for new graduates of colleges and universities,
Speaker 1: a lot of them facing that crude reality. And just
Speaker 1: a couple of weeks here, let me go beyond the
Speaker 1: headline numbers just a little bit here as well. You
Speaker 1: look at employment among African Americans, say, it's still you
Speaker 1: know what, upwards of eight percent. Why have we not
Speaker 1: been able to target smaller sectors or parts of the economy,
Speaker 1: different demographic groups. Now that this recovery has continued for
Speaker 1: as long as it has been, where where is that
Speaker 1: deficit come from? Well, it always happens, right if you
Speaker 1: look at unemployment by level of education or um ethnic background,
Speaker 1: what you always see that pattern. And I think that
Speaker 1: that's why the best thing that we can do, I mean,
Speaker 1: the only thing that we can really do is make
Speaker 1: sure that the macro economy continue is to recover and
Speaker 1: I think a lot of those problems start to get fixed.
Speaker 1: But but the truth is looking deeper, it's really about
Speaker 1: education and lack of education, lack of skills UM and
Speaker 1: a lot of those jobs are not in the urban
Speaker 1: areas where people need the jobs. Is the problem. It's
Speaker 1: tough to it's tough to commute to the jobs. So
Speaker 1: I think this is a chronic problem and a problem
Speaker 1: that we always have uh in every cycle wait for uce.
Speaker 1: This goes back to Laurence Summer's idea of secular stagnation,
Speaker 1: which is a secular view versus a cyclical view. Are
Speaker 1: we conflating the two ideas too much? Probably because the yeah,
Speaker 1: because the demographics. You know, the problem is the very
Speaker 1: negative view that everybody had about the economy comes from
Speaker 1: this slow growth. We're doing getting well. The slow growth
Speaker 1: didn't prevent us from getting back on our feet, and
Speaker 1: it hasn't prevented the US living standard from rising. We're
Speaker 1: now a record levels. The problem is, um, the slow
Speaker 1: growth is not really it's about demographics a lot of it,
Speaker 1: and so it's very easy to can use the cycle
Speaker 1: strains with all the other stuff that's going on, the
Speaker 1: disruption from innovation the globalization, the demographic shift, and I
Speaker 1: think that's the problem that we were still thinking, well,
Speaker 1: this is about the cycle. Truth is, we're pretty much recovered.
Speaker 1: We're not fully recovered, but we're pretty much there. Most
Speaker 1: people have a job for a half percent unemployment is
Speaker 1: not bad. There's still our pockets of unemployed. But the
Speaker 1: truth is the cycle is behind us, and now we're
Speaker 1: The stresses that we're feeling are more related to these
Speaker 1: things I've been going on long before the downturn in
Speaker 1: two thousand eight. Let's ask about the economic promise here
Speaker 1: after the election, and we're talking with them about at
Speaker 1: the top of the show about trumponomics and what we
Speaker 1: can read into trumponomics from what we saw on Capitol
Speaker 1: Hill this week the vote on another iteration of of
Speaker 1: healthcare reform. Uh. You note in a recent recent note
Speaker 1: that equity investors have been patient. Why do you think
Speaker 1: they've been so patient here? And how long do you
Speaker 1: do you do you expect they will be? Yeah? You know,
Speaker 1: if that's interesting because I I think what we're learning
Speaker 1: in the markets is that the this is not so
Speaker 1: easy coming up with all these grand ideas tax reform
Speaker 1: and infrastructure spending, healthcare reform. We could barely get it
Speaker 1: out of the House. I think what's going on the
Speaker 1: empty market, though, is it's not that they're counting so
Speaker 1: much on something specific to the legislided process. It's more
Speaker 1: of that they feel that the mindset in Washington is
Speaker 1: turning more pro growth. I imagine that must be what's
Speaker 1: going on, and so if that's the case, I think
Speaker 1: their patients it's probably longer than we think. I don't know,
Speaker 1: you know, I think after a year or so, if
Speaker 1: you don't see any more progress, maybe that's an issue.
Speaker 1: What are you gonna look for today? I mean, we're
Speaker 1: supposed to do this in the next section. We've got
Speaker 1: so many distractions going What do you look for? Yeah,
Speaker 1: somewhere between a hundred seenty five and two hundred thousand.
Speaker 1: The last month was weird, and particularly in contrast to
Speaker 1: a dB I don't get I don't really I don't
Speaker 1: really know what's going on. People think it's whether I
Speaker 1: don't know, is it? Because and we're back to forty
Speaker 1: five dollars a barrel, the oil hunk of the American
Speaker 1: economy gets in the way of all the smoothness, the vectors,
Speaker 1: the gradients, that you want to deal with. You know,
Speaker 1: it could down the road. It's only very recently that
Speaker 1: oils pulled back, and that's sort of leaving a cloud
Speaker 1: over the market. But the truth is the oil sectors
Speaker 1: still has been picking up quite a bit and until
Speaker 1: very recently. I think if oil prices don't sort of
Speaker 1: get back to like that fifty dollar range, maybe this
Speaker 1: is gonna be a drag. The odd thing about oil, though,
Speaker 1: is we all tend to react to it like this
Speaker 1: is a bad thing for the US economy. When oil
Speaker 1: prices go down, it's a bad thing for the energy sector,
Speaker 1: it's a good thing for Americans, and in fact, we
Speaker 1: as a country still used twice as much oil as
Speaker 1: we produce. So the problem is it's hard to see
Speaker 1: what consumers are doing, how they're spending their windfall. And
Speaker 1: I think that's why equity investors, when they see oil
Speaker 1: prices go down, they think negative because they can't quite
Speaker 1: see where the beef offsetting benefits are. Jim Lastman was
Speaker 1: this year on Jobs Day. We're just a few minutes
Speaker 1: away from getting that data from the Labor Department, and
Speaker 1: always value the perspective of Professor Krueger. Jim Glassman. Bill
Speaker 1: Gross will join us in just a little while. Are
Speaker 1: really lucky here? What very lucky? I come off the
Speaker 1: TV set this morning to the top of the shows,
Speaker 1: the usual suspects, but we are very honored to have
Speaker 1: each and every one of them here with us. I
Speaker 1: come off the TV. So just to give you a vignette, folks,
Speaker 1: it's uh, you know, they take me down and they
Speaker 1: give me my walker to get you over the radio.
Speaker 1: There's Philip but he's standing with Edward Morris, and I go,
Speaker 1: how good is this? We get to talk to the
Speaker 1: smart people from JP Morgan as we get to talk
Speaker 1: to John Tucker. I mean, you know, there's no there's
Speaker 1: no he's bringing the for the he's the downer with
Speaker 1: the traffic flow. Yeah, well he's we're working on it. Uh.
Speaker 1: This morning, we're joined by James Glassman here in our
Speaker 1: studios at head Economists for Commercial Banking at JP Morgan Chase.
Speaker 1: We talked a lot about uncertainty and the degree to
Speaker 1: which that's weighing on investors, how it's weighing on the
Speaker 1: economy generally. How about the labor market. Are there are
Speaker 1: there people reluctant to hire because they don't know what's
Speaker 1: going to happen with regulation or with taxes, said, I
Speaker 1: don't think so, you know, uh, I frankly, we're always
Speaker 1: doing anything with uncertainty. I don't know a time that
Speaker 1: we weren't dealing with uncertainty. And I think what's happening
Speaker 1: is when work, when employers see what's going on in
Speaker 1: the job market. Everybody has noticed we're getting job growth
Speaker 1: a pretty decent up sixteen million in the last several years,
Speaker 1: the last eight years. So what that's doing is this
Speaker 1: making people realize they need to get ahead of their
Speaker 1: staff needs. And so I think regardless of the uncertainty,
Speaker 1: they realize that it's getting gonna get harder and harder
Speaker 1: to find people, and so it makes people want to
Speaker 1: look harder for folks. So I think that's really been
Speaker 1: a real change in attitude about hiring. And maybe and
Speaker 1: maybe we're that maybe that's one reason why we're getting
Speaker 1: a little more hiring than you might expect. What the
Speaker 1: kind of growth we get. What can you tell from
Speaker 1: looking at layoffs? Average number of layoffs? What does that
Speaker 1: figure tell you about the economy. They're just about as
Speaker 1: low as I've ever seen them, and relative to the
Speaker 1: size of the labor force. UH nothing going on the
Speaker 1: jobless claims trend. UH is telling you that there's nothing
Speaker 1: bad going on in the economy. Then, in fact, if anything,
Speaker 1: we're still probably growing fastive in our trend. If there
Speaker 1: was a problem somewhere, you would see layoffs picking up
Speaker 1: a little bit. And you know, we're we're it's a
Speaker 1: it's a really spectacular view of a very flattering view
Speaker 1: of the economy. What you see from the from the
Speaker 1: layoff story. When you look at this labor market as
Speaker 1: a whole, what are the pockets are the corners of
Speaker 1: it that are still lagging? Be that demographic, be that
Speaker 1: in terms of educational timent, what still needs improvement? Well,
Speaker 1: there's two things. Really, There still are just a few
Speaker 1: folks who are working, a few folks more of a
Speaker 1: normal who are working part time involuntarily. That problem is
Speaker 1: rapidly disappearing, though. I think that's a story about family
Speaker 1: owned businesses. And then and then the young people from
Speaker 1: five year old people in their prime working years. A
Speaker 1: lot of folks got discouraged during the recession. About three
Speaker 1: million dropped out. That number has now come down to
Speaker 1: about one and a half million. So people are coming
Speaker 1: back in. But I would say we still have a
Speaker 1: year's worth of good job growth. We need to get
Speaker 1: all those people back in. About a million and a
Speaker 1: half young people still to come back and living with
Speaker 1: family against still in school. Maybe yeah, but they claimed
Speaker 1: James Glassman power point which is treasured and captain Mr.
Speaker 1: My favorite notes is the invisible unemployment. What do you
Speaker 1: mean by invisible unemployment? The folks who just gave up,
Speaker 1: dropped out and did something else. The smart ones went
Speaker 1: back to school for special job skills. They don't show
Speaker 1: up as unemployed because if I give up looking for
Speaker 1: a job, I'm not gonna show up. So if a
Speaker 1: Trump and Goose of nominal GDP of fifty basis points
Speaker 1: half a percentage point, does that mean anything that you're
Speaker 1: invisible helps to pull them back? You think? So? Yeah.
Speaker 1: They wake up in the morning and I go, jeez,
Speaker 1: I feel better. I just well, I got a tweet.
Speaker 1: Their friends are telling him, hey, there's a job here, um,
Speaker 1: And I think that's how it happens. The kids find
Speaker 1: out that there's opportunities. And you're starting to see that happen.
Speaker 1: The participation of young people now because coming back in
Speaker 1: the farthest west tenth Avenue. You actually traveled, do you
Speaker 1: see a lot of you see a lot of help want?
Speaker 1: They do? Actually? Uh? And in places that I always wondering,
Speaker 1: how do you how would you find somebody here? Uh?
Speaker 1: That there? You know, And the fact that you're posting
Speaker 1: help wanted means it must be you must be desperate,
Speaker 1: because there's many ways of finding job. Is desperation translating
Speaker 1: to higher wages? In other words, of this an employees
Speaker 1: market in technology In some markets that there there are stories,
Speaker 1: but overall not yet, not on tenth Avenue, not in
Speaker 1: the bodeg on tenth Avenue. You've been to tenth Avenue
Speaker 1: till twice. Let me ask you how manufacturing. There is
Speaker 1: this clarion from this administration about bringing manufacturing jobs back.
Speaker 1: How does the manufacturing sector look in this country at
Speaker 1: this point in terms of it's it's relative health. Well,
Speaker 1: it's been hit by the all that was going on
Speaker 1: the energy sector. When energy prices came down, all the
Speaker 1: activity related to energy kind of died and CAPEX slowed
Speaker 1: down industrial production. That began to change late last year
Speaker 1: as activity picked up again. So we'll see, you know,
Speaker 1: But but the big, but the big wind hitting manufacturing
Speaker 1: is all about innovation and technology. And all you gotta
Speaker 1: do is go to an autopoint in Electington, Kentucky, UH
Speaker 1: just to see what's going on. You don't see too
Speaker 1: many human beings. It's a huge issue and sustains through
Speaker 1: this generational shift. We have a generation constancy on Jobs Day.
Speaker 1: The perspective of James Glassman of JP Morgan, we do
Speaker 1: that now. He will stay with us through the statistics
Speaker 1: will see in five and a half minutes, and then
Speaker 1: perspective from Jana's Capital and Bill Gross. He has been
Speaker 1: most generous to talk to us about the Central Bank
Speaker 1: of this nation and of course the impact on fixed
Speaker 1: income Jobs Day. Let's get straight to the numbers here.
Speaker 1: The April numbers from the Labor Department, starting with the
Speaker 1: change in non farm payrolls survey was a d and
Speaker 1: the actual read two hundred eleven thousand. But catching my
Speaker 1: I here is the revision for the March numbers, revised
Speaker 1: down from what was a disappointing number thousand revised down
Speaker 1: to seventy nine thousand. Looking at the unemployment rate here
Speaker 1: four point six percent. The survey was four point rather sorry,
Speaker 1: survey was four point six percent. The actual four point
Speaker 1: four percent. Uh, what do you make of that March revision?
Speaker 1: Down of a churn here yields moving a little bit.
Speaker 1: I don't see that much of a market movement. I mean,
Speaker 1: still focused on oil. But wage growth isn't all that good.
Speaker 1: I mean, let's start with the unemployment rate. Jim Glassmow
Speaker 1: with JP Morgan with US four point six per was
Speaker 1: to survey a lovely four point four percent. But you
Speaker 1: know that's not for good reasons, right, yeah, not with
Speaker 1: not people are disappearing, um, but still we're kind of
Speaker 1: in that zone of um, what the fat things of
Speaker 1: its full employment? So I think they'll be encouraged by
Speaker 1: the report it you know, it tells you we're not
Speaker 1: quite there yet, but I think it keeps them on
Speaker 1: board with the idea of getting their funds right back up.
Speaker 1: That revision negative six is certainly not what you want
Speaker 1: to see, almost like a second derivative of pop up
Speaker 1: and in wage growth. Uh, you know, it's it's just
Speaker 1: a mixed store here. Every year hourly earnings two point
Speaker 1: five with a bad revision is the average hourly earnings number?
Speaker 1: Jim Glassman, is it a blue collar statistic, or does
Speaker 1: it capture all of America? Well, it doesn't capture all
Speaker 1: of America and it doesn't capture all of pay. So
Speaker 1: there's a lot of benefits and healthcare insurance premiums and
Speaker 1: things like that that are not in there. But remember
Speaker 1: this thing was stuck at two sent forever, so it's
Speaker 1: come up a little bit. Look at the labor force change,
Speaker 1: which goes right into that unemployment rate next to nothing
Speaker 1: three thousand than a hundred and forty five thousand. Those
Speaker 1: are buoyant numbers in a terrible twelve. Yeah, so we
Speaker 1: had you know, these numbers are very volatile on the
Speaker 1: monthly basis, had a surge of labor force earlier in
Speaker 1: the year, so it's hard to tell. Sometimes you need
Speaker 1: about six months behind you to see what's really going
Speaker 1: on with these numbers. They get very volatile. How do
Speaker 1: you link this into the productivity reports that we saw
Speaker 1: the other way quickly here? Please? Well, you know slop
Speaker 1: aarctivity means that's what's the restraint on pay. So if
Speaker 1: parctivity were booming, we would be seeing stronger gains and
Speaker 1: average oly earn. He's probably okay, Jim Glassman with this
Speaker 1: JP Morgan, and we say thank you for that. And
Speaker 1: now joining us Bill Gross, he is with Janice Capital.
Speaker 1: We welcome all on Bloomberg Television into our cozy aboard
Speaker 1: our radio studios here David Gura and Tom Keane to
Speaker 1: speak to Mr Gross. Bill. Wonderful to speak to you again,
Speaker 1: and we really value your being with us each and
Speaker 1: every job's day. I'm going to suggest, even though there's
Speaker 1: not much market action, when you look at last month's
Speaker 1: multi report, this is certainly not the bang up report
Speaker 1: the job optimists would have wanted to see. Well, that's
Speaker 1: certainly not in terms of wages, in terms of the
Speaker 1: potential for the FED to be a little stronger and
Speaker 1: a little more hawkish. Uh. You know, the job's number,
Speaker 1: I think is a good number. And the U six,
Speaker 1: the underployment number came down from eight six to from
Speaker 1: eight nine eight six, which is a pretty substantial change.
Speaker 1: So there's something in there for everybody. To me. It's
Speaker 1: simply suggests that the FED continues on its course of
Speaker 1: gradual increases, and that, of course is the the primary question.
Speaker 1: What does gradual mean to the market. Gradual means like
Speaker 1: forty basis points for the year and to the FED
Speaker 1: in terms of the dots, that means fifty to seventy five.
Speaker 1: And there's the conundrum, as you know, cher Yelling does
Speaker 1: focus on this labor report. Does she need to focus
Speaker 1: on in her usual months to month and quarter to
Speaker 1: quarter away or does she really need to focus away
Speaker 1: from the jobs report on at a lot of other
Speaker 1: themes within our American economy. Well, I think she needs
Speaker 1: to focus away. There's been a number of reports, supportive
Speaker 1: reports that suggests that low and negative interest rates do
Speaker 1: strange things as they approach or punched through the zero bound.
Speaker 1: I've been talking about that for several years, and I
Speaker 1: don't think the FIT or other central banks really focus
Speaker 1: on enough the fact that low low interest rates keep
Speaker 1: zombie corporations alive. And that feeds into your question for productivity,
Speaker 1: the fact that low interest rates destroy you know, very
Speaker 1: productive business models like insurance companies and pension funds and
Speaker 1: savings in general. And so the FED, to my way
Speaker 1: of thinking, is a model driven type of institution, and
Speaker 1: their models are outdated. So they need to get into
Speaker 1: the future as opposed to come back from the past. Bill,
Speaker 1: We've got to go to the market dynamics right now
Speaker 1: from this important jobs report, and I want to go
Speaker 1: right to the research chase that's going on in the
Speaker 1: last forty eight hours. Would you presume commodity dynamics that
Speaker 1: we've seen and the worries about China, which are always
Speaker 1: their link to commodities fold right back to a central
Speaker 1: bank discussion of the United States of America, Or maybe
Speaker 1: it's not a taper tantrum, but it's an oil tantrum.
Speaker 1: Is that what we're seeing if we presume a more
Speaker 1: restrictive fed Well, you mentioned China, and China is a
Speaker 1: tough one. Uh, certainly in terms of their policies and
Speaker 1: their credit creation. Uh. You know, China, to my way thinking,
Speaker 1: a year ago, UH jumped up credit to a type
Speaker 1: of annual rate and created global growth more than expected.
Speaker 1: Now they tend to be tightening the reins, so to speak.
Speaker 1: But no one really knows about the shadow banking system
Speaker 1: in China, little on the shadow banking system in the
Speaker 1: United States. I have a sense though, that that credit
Speaker 1: is being restricted, that their short term rate has moved
Speaker 1: up by two to three basis points, and the ultimately
Speaker 1: that makes a difference on a global basis and that's
Speaker 1: why you're seeing oil prices and that's why you're seeing
Speaker 1: other commodity prices come down by five ten in in
Speaker 1: some cases of simply because China, as the growth creator
Speaker 1: and the credit creator, is simply slowing down. So we
Speaker 1: were talking with Villain Batter a little earlier today from
Speaker 1: City Group, and he said he does not think that
Speaker 1: Trump and omics, as it's come to be called his
Speaker 1: run its course. When when you look at that still
Speaker 1: nascent brand of economics, where do you think we are? Well,
Speaker 1: I think it, uh, it's still running its course in
Speaker 1: terms of mark gets and and that's where you have to, uh,
Speaker 1: that's where you have to discriminate between markets and the
Speaker 1: real economy. Obviously, the real economy is only three or
Speaker 1: four months old in terms of Trump and the administration,
Speaker 1: and the policies haven't had a chance to work yet,
Speaker 1: let alone to be put into law. But I think
Speaker 1: the potential of course for lower corporate tax rates whatever
Speaker 1: that is, the potential for reregulate deregulation in terms of
Speaker 1: significant industries, the potential for um uh you know globalization. Uh,
Speaker 1: you know, there's there's lots there that have affected markets
Speaker 1: and affected currencies as you and Tom follow but the
Speaker 1: real economy is yet to punch in. I think I'm
Speaker 1: a skeptic. I think that the real economy in the
Speaker 1: US and in globally, but the US economy is a
Speaker 1: two percent number going forward, and that it's a function
Speaker 1: of productivity, and the productivity you really can't be affected
Speaker 1: by corporate tax rates. Just look at it this way.
Speaker 1: Let me finish the thought, and I'll let to ask
Speaker 1: another question. Um, you know, productivity is a function of
Speaker 1: investment and and corporations have had lots of money they
Speaker 1: can borrow money at the cheapest rate possible in in decades,
Speaker 1: but yet they failed to do that. And so cutting
Speaker 1: corporate taxes, giving them cash flow, letting them repatriate money
Speaker 1: from outside the United States, will that do a lot
Speaker 1: of good in terms of investment? I don't think so.
Speaker 1: I don't think I'll make much of a difference. And
Speaker 1: so two percent real growth, I think is where we're heading. Yeah,
Speaker 1: I think that the saying goes if if if ands
Speaker 1: and butts were candies and nuts, every day would be
Speaker 1: would be Christmas. I'm increasingly interested in in patients, how
Speaker 1: long someone like you is willing to give Washington willing
Speaker 1: to give this administration to do something like tax reform
Speaker 1: or healthcare reform or regulatory reform. Well, I think it
Speaker 1: gets down to David to the to the number, to
Speaker 1: the real growth number. If it's three percent, if they
Speaker 1: can really recreate three percent type of economy, then investors
Speaker 1: can be patient and they need to see that as
Speaker 1: we move along. We didn't see that in the first quarter.
Speaker 1: We're seeing a potential four percent second quarters, so still
Speaker 1: up in the air. But three percent is the number
Speaker 1: that risk markets, that equities, that pe ratios, that HI
Speaker 1: yield spreads in terms of their compression are all based on.
Speaker 1: And so I think there's some disappointment ahead of it's
Speaker 1: two and there's some optimistic uh movement in terms of
Speaker 1: prices if it's three. Bill girls very quickly her How
Speaker 1: correlated are the markets right now? Is over at New
Speaker 1: Burger Birming yesterday talking with their good folks, and there
Speaker 1: was a real statement of the new genus of the markets,
Speaker 1: the lack of correlation. How would lock step are the
Speaker 1: different asset classes right now? Well, I think they're in
Speaker 1: pretty lockstep. I mean, you can talk about the last
Speaker 1: three months in terms of the correlation, but to my
Speaker 1: way of thinking, I always go back to the most
Speaker 1: asset prices, and almost all asset prices are correlated to
Speaker 1: the neutral FED funds rate, to the existing Fed funds rate,
Speaker 1: the forward Fed funds rate, and from there, uh, we
Speaker 1: derived the you know, the Gordon discount model, the dividend
Speaker 1: discound model, and others. And so I think the correlation
Speaker 1: is really in terms of interest rates. And as long
Speaker 1: as we stay stable and relatively low, then markets can
Speaker 1: stay stable and relatively low. But there's risk there, and
Speaker 1: perhaps we can talk about that, and let's do that.
Speaker 1: We'll talk to you. It's like Uncle Wiggily. He's telling
Speaker 1: us what's gonna happen in the next chapter as well,
Speaker 1: Bill Gross with us the janis at Capital and Bloomberg
Speaker 1: Television and Bloomberg Radio worldwide built. We're talking about the
Speaker 1: correlations within the market, and you were linking them to
Speaker 1: the anchor of central bank action. And yet the commodities
Speaker 1: are in free fall. How do you how do you
Speaker 1: use commodity dynamics within your work? Are they an opportunity
Speaker 1: when they plunge like this to make alpha down the road?
Speaker 1: Do you go long and oil? Do you go along Canada.
Speaker 1: Do you go along Looney rather, how do you play
Speaker 1: a commodity plunge? Yeah? Uh? In two ways. Tom first,
Speaker 1: in terms of car and says, you look for a
Speaker 1: very undervalued currency. I like the Mexican pay so so.
Speaker 1: I recognize their obvious problems in terms of Trumpian policies
Speaker 1: going forward, but I think it's a very attractive situation
Speaker 1: and very volatile, which which makes it possible to you know,
Speaker 1: to basically to sell puts on the Mexican pay so so.
Speaker 1: In terms of commodities, what I look for, and I'm
Speaker 1: a volatility seller at relatively high volatilities, I look for
Speaker 1: those commodities that have been most recently volatile. Let's take
Speaker 1: gold for the last two or three days. You know,
Speaker 1: a pretty dramatic decline in terms of gold following on
Speaker 1: a pretty dramatic decline in real interest rates. UM are
Speaker 1: arising in real interest rates which produced that, and so
Speaker 1: UM gold, to my way thinking, has a relatively high volatility.
Speaker 1: UM oil is creeping up there with US downdraft in
Speaker 1: the past few days, and so i'd rather than look
Speaker 1: for price distortions to go long or short, I look
Speaker 1: for higher volatility to sell on the wings and to
Speaker 1: take advantage of uh, you know, of the premiums as
Speaker 1: opposed to the potential price drop or price increase. Tom
Speaker 1: touched upon this a few minutes ago briefly, But when
Speaker 1: you look at oil right now, what do you think
Speaker 1: is is driving the price lower? We were talking with
Speaker 1: Steven Short yesterday and he suggested that this had nothing
Speaker 1: to do with with OPEC. It was a different story
Speaker 1: than that. What's your sense of what's motivating this downturn
Speaker 1: that we're seeing. Well, you looked at oil both in
Speaker 1: terms of supply and demands. Sometimes that the supply is
Speaker 1: a mystery, especially with the shale in the United States
Speaker 1: and the marginal price for production. But you also looked
Speaker 1: at demand, and to my way of thinking, global demand
Speaker 1: for oil is a reflection of global growth and a
Speaker 1: reflection of potential Chinese growth. And we've talked about this
Speaker 1: ten minutes ago. But I think the Chinese economy is
Speaker 1: in the process of slowing raising credit, and that in
Speaker 1: turn reflects in terms of a lower oil price down
Speaker 1: the road. So um, both of those things. I don't
Speaker 1: think oil has a lot further to go. Um, you know,
Speaker 1: it's a close to forty five can go down to
Speaker 1: forty I suppose, But I think we're in a zone
Speaker 1: here where where oil can be sold in terms of
Speaker 1: its volatility, both at levels of fifty plus and at
Speaker 1: levels of forty minus. It's it's a it's a pleasure
Speaker 1: to privilege to talk with you on jobs Day. And
Speaker 1: I wonder, aside from that being a good peg, how
Speaker 1: you how you rate the importance of data on the
Speaker 1: labor economy when you look at the health of the
Speaker 1: U S economy overall, in other words, when you're looking
Speaker 1: at all of this data, this panoply of data, how
Speaker 1: important is that is the labor market at this point? Well,
Speaker 1: I think it is uh. And ultimately to my way
Speaker 1: of thinking, David, I I moved from jobs to retail sales.
Speaker 1: That there's definitely a connection, right, not a direct connection,
Speaker 1: but to my way of thinking, that an economy is
Speaker 1: a reflection of demand, consumer demand. That's why we have
Speaker 1: economies to provide consumer products. And so you know, I
Speaker 1: look straight from job creation to its effect on retail sales,
Speaker 1: and of course we've seen some pretty disappointing numbers. That's
Speaker 1: a lot of it. Of course, because of the transition
Speaker 1: to UM you know to the internet as opposed to
Speaker 1: to to hardline stores. But in any case, retail sales
Speaker 1: have been very slow, and so you would have to
Speaker 1: wonder how you know job creation has affected that and
Speaker 1: why it hasn't affected it more positively. But you know,
Speaker 1: to my way thinking, the weak economy in the first
Speaker 1: quarter is a reflection of sales even in the face
Speaker 1: of higher UH employment numbers that we experienced. No, there's
Speaker 1: been no one more than you that is spoken of
Speaker 1: this nation's financial repression. A few visits ago, you made
Speaker 1: very clear to us you look at financial repression in
Speaker 1: seven eight years, and I believe your language was even
Speaker 1: a decade. I spoke to Sherman Bernanke earlier this week.
Speaker 1: I believe I mentioned you about his Dylan South Carolina.
Speaker 1: In the crushing weight on savers and investors? What do
Speaker 1: they do? Let's revisit this again. What do our listeners
Speaker 1: actually do about the dearth of yield in their investments? Well,
Speaker 1: there are number of ways to do it. I don't
Speaker 1: think you do it by taking more risk. Obviously, that's
Speaker 1: one way. By taking high yield bonds as supposed to
Speaker 1: treasuries at the extreme example, um that would not be
Speaker 1: my recommendation simply because of the compression of spreads and
Speaker 1: the inherent risk at these price levels. What do investors do?
Speaker 1: What the savers do? Um? Do they sit it out? Um? Yeah,
Speaker 1: to a certain extent, I think they do, and they
Speaker 1: wait for a central bank, hopefully the Fed. They're on
Speaker 1: the move upwards, although very gradually, they wait for a
Speaker 1: central bank to to renormalize. To some extent, I don't
Speaker 1: think that's ever going to happen relative to ten or
Speaker 1: twenty years ago. We're not going back to a two
Speaker 1: percent real rate of interest simply because there's too much leverage.
Speaker 1: But savers have to be careful as as we move
Speaker 1: higher in terms of interest rates. Uh, simply because there's
Speaker 1: a price declines ahead. If they invest in junk bonds
Speaker 1: and even long treasuries. What a savers doing a long term? Uh?
Speaker 1: They save more? What do they do? They work longer? Um?
Speaker 1: What do they do? They lower their standard of living?
Speaker 1: And those are the repercussions basically of a low interest
Speaker 1: rate that is a reflection of central bank policies that
Speaker 1: have kept interest rates down. That rest interest rates like
Speaker 1: you talked about for the last six or seven years,
Speaker 1: is this generational and that we migrate back to what
Speaker 1: you and I saw our grandparents doing in the twenties
Speaker 1: and the thirties. Do we need to get the use
Speaker 1: to a three percent coupon being a big deal? Yeah,
Speaker 1: I think we do for a long time. I think
Speaker 1: tonk to a certain extent. It's a function of demographics,
Speaker 1: and a demographic wave is something that's hard to resist.
Speaker 1: We know about the boomers and the retirement of the boomers,
Speaker 1: and the fact that all older people spend less and
Speaker 1: therefore the real interest rate should be uh, you nconcomminally lower.
Speaker 1: We know that globally it's the same situation with Japan.
Speaker 1: Is are Petra edition so uh? With demographics alone and
Speaker 1: the high level of debt relative to GDP in most countries,
Speaker 1: you know, it's a situation where you have to get
Speaker 1: used to lower interest rates, if only because if central
Speaker 1: banks raised them too much like they did in two
Speaker 1: thousand and five and six to five and a quarter percent,
Speaker 1: you can break the bank. Milkings to Global conference just
Speaker 1: wrapped up in the Secretary of the Treasury was there
Speaker 1: in conversation with our editor in chief at John Michel.
Speaker 1: Mr Gross was pool side at the Milk conference of course,
Speaker 1: of course, but one of the things they discussed with
Speaker 1: the prospect of their being long bonds of Secretary monution
Speaker 1: issuing bonds of fifty years or longer in duration. And
Speaker 1: he says, there's a working group at Treasury looking into that.
Speaker 1: Right now, what should they be think about, how should
Speaker 1: they be approaching whether or not the Treasury Department shouldn't
Speaker 1: fact issue bonds of longer duration. Well, simply, I mean,
Speaker 1: Warren Buffett would simply say if he was asked, I
Speaker 1: don't know if he's been asked, but he would simply say,
Speaker 1: you should issue debt when interest rates are exceedingly low.
Speaker 1: And from the Treasury standpoint, and you know, they're not
Speaker 1: a profit making institution, but they certainly look towards, you know,
Speaker 1: the attractiveness of either issuing debt at high interest rates
Speaker 1: or low interustrates. It's better to issue with them when
Speaker 1: they're low. And and and yes, it's being opposed by
Speaker 1: the street, by the investment banking world, and to some
Speaker 1: extent by the uh you know, investment institutions like Janice,
Speaker 1: I Guess and Pimpco. But the fact is that the
Speaker 1: Treasure should be loading up on fifty year dead and
Speaker 1: maybe even a hundred you're dead simply because at three
Speaker 1: and a half percent, it's about as attractive as it's
Speaker 1: ever going. Again, if you if you take out a mortgage,
Speaker 1: you want to take it out at three percent as
Speaker 1: opposed to five percent. And so come on, okay, Bill,
Speaker 1: this is really important. Everything we've talked about before is
Speaker 1: absolutely useless. I want you to explain the geniosity that
Speaker 1: the San Francisco forty Niners gave up Mitchell Trobinsky of
Speaker 1: David Gura's North Carolina to the Chicago Bears and yet
Speaker 1: took a motherload of draft excellence. Are your forty Niners
Speaker 1: super Bowl bound? Because he said no to Trabinsky of
Speaker 1: Chapel Hill, Well, certainly there's one or tim more wins
Speaker 1: ahead because of that. That's up ever heard of. You know,
Speaker 1: if I were a Chicago Bear fan, I'd be hanging
Speaker 1: my head and uh in shame because they moved up
Speaker 1: from three to two. They got the same person that
Speaker 1: they were going to get anyway, and they gave away
Speaker 1: draft choice about there you go. We we thank ESPN
Speaker 1: for their wisdom because I had no idea what I
Speaker 1: was talking about. Their nick wagon or over to ESPN
Speaker 1: helping me out there with Bill Gross on how the
Speaker 1: Bears failed on this mission. Mr Gross, thank you so much.
Speaker 1: With Janice Cappel and of course uh an affection for
Speaker 1: what they do they want if they want one or
Speaker 1: two more games, David, they double right double their own
Speaker 1: this year. David Mitchell Trobinski, He's like the real deal. Yeah, well,
Speaker 1: I mean highly touted. Who do you follow it? I
Speaker 1: follow Manchester United? I can't. I mean there's too much
Speaker 1: is everybody knows listening. There's just too much to watch
Speaker 1: right now. I will say I don't follow the NBA,
Speaker 1: and I love watching the busted Celtics. It's just they're
Speaker 1: just they're just fun. I have no idea what I'm
Speaker 1: looking at, but they're fun. I like it a lot.
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 Keene David Gura.
Speaker 1: Is that David Gura? Before the podcast? You can always
Speaker 1: catch us worldwide. I'm Bloomberg Radio, brought you by Bank
Speaker 1: of America Mary Lynch, dedicated to bringing our clients insights
Speaker 1: and solutions to meet the challenges of a transforming world.
Speaker 1: That's the power of global connections. Mary Lynch, Pierce, Fenner
Speaker 1: and Smith Incorporated, Member s i p C