WEBVTT - Neel Kashkari Would Be Bill Gross's Choice for Fed Chair 0:00:09.720 --> 0:00:12.880 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 0:00:13.600 --> 0:00:16.520 David Gura. Daily we bring you insight from the best 0:00:16.560 --> 0:00:22.239 of economics, finance, investment, and international relations. Find Bloomberg Surveillance 0:00:22.320 --> 0:00:27.000 on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 0:00:27.320 --> 0:00:33.199 on the Bloomberg Five Things That Need to Know. We're 0:00:33.200 --> 0:00:35.360 gonna a guest fight things and talk about just two 0:00:35.400 --> 0:00:38.840 things here with Alan Krueger. It's Professor Krueger Princeton. Let's 0:00:38.880 --> 0:00:41.800 just do two things here within the time we've got 0:00:41.960 --> 0:00:47.280 how's the minimum wage experiment going in Seattle? I think 0:00:47.320 --> 0:00:50.279 the evidence is quite mixed for Seattle. The way I 0:00:50.320 --> 0:00:53.640 read it, it looks like experience with the minimum wage 0:00:53.640 --> 0:00:58.320 elsewhere has not had an adverse effect on um minimum 0:00:58.320 --> 0:01:00.520 wage employers. You know, if you look at the Seattle 0:01:00.600 --> 0:01:02.920 labor market, it's booming, and I think that makes it 0:01:02.960 --> 0:01:04.880 a little bit harder to tease out effects of the 0:01:04.880 --> 0:01:08.600 minimum wage. But uh, certainly in the aggregate, there's no 0:01:08.760 --> 0:01:12.640 sign that Seattle's high minimum wage has had a negative effect. 0:01:13.560 --> 0:01:17.200 Within this is the crushing reality that wait, if you 0:01:17.280 --> 0:01:20.240 raise the minimum wage, the wages go up above it, 0:01:20.360 --> 0:01:24.800 not way above it. But there's a sequential, almost bucket 0:01:24.800 --> 0:01:28.559 brigade effect. Is that still true? There's a spillover effect 0:01:28.560 --> 0:01:31.360 of the minimum wage there, there's no question about that. 0:01:31.400 --> 0:01:33.560 And that's one of the challenges for one of the studies, 0:01:33.560 --> 0:01:36.959 which cuts off. You know, if people got a raised 0:01:36.959 --> 0:01:40.280 and got promoted and that was a result of the 0:01:40.280 --> 0:01:42.360 minimum wage, it makes it look like it was job loss. 0:01:42.360 --> 0:01:43.920 So I think that's a problem with one of the 0:01:44.000 --> 0:01:46.120 studies that's gotten a lot of attention. The other two 0:01:46.120 --> 0:01:47.840 things we need to know Freenzy and I'm gonna bring 0:01:47.840 --> 0:01:50.080 this in, but jump into your fancy please. I love it. 0:01:51.480 --> 0:01:54.480 Seventy thousand dollars a year, going up to eighty thousand 0:01:54.600 --> 0:01:57.000 next year. Prinston, Hi, dad, what are you doing? Oh? 0:01:57.080 --> 0:02:00.520 I'm taking the economics of rock music? Are you kid me? 0:02:00.720 --> 0:02:03.320 Have you got any hate notes from parents about the 0:02:03.360 --> 0:02:08.320 economics rock music? This is uh the UH. I have 0:02:08.400 --> 0:02:11.799 to say, the best class I've ever taught. The students 0:02:11.840 --> 0:02:14.640 are learning so much, they're so engaged. What better way 0:02:14.680 --> 0:02:19.359 of teaching supply and demand uh than talking about iPods 0:02:19.440 --> 0:02:24.600 and streaming and um, it's a great way of teaching economics. 0:02:24.600 --> 0:02:26.920 I have to say, Yeah, And actually This is a 0:02:26.919 --> 0:02:29.120 serious point. It wasn't Jay Z the first one to 0:02:29.160 --> 0:02:31.680 kind of cut the middleman and going straight to Apple music, right? 0:02:31.720 --> 0:02:36.120 I think it was on surveillance it's Z. Does this 0:02:36.320 --> 0:02:42.280 help explain inflation dynamics? That's actually question? You know what 0:02:42.320 --> 0:02:44.160 are the questions I got from the students is what's 0:02:44.200 --> 0:02:48.320 going on with inflation? Um? And Uh. It's it's a 0:02:48.320 --> 0:02:52.639 freshman course, Tom and um. It a mussel lot of writing, 0:02:52.960 --> 0:02:55.200 which was the goal of the course. And I have 0:02:55.520 --> 0:02:58.960 been talking about disruption and technological change of productivity growth, 0:02:59.000 --> 0:03:02.359 and I think you know, what's going on with being 0:03:02.400 --> 0:03:04.480 able to buy products on the internet had put some 0:03:04.600 --> 0:03:06.920 doward pressure on inflation. I was in a meeting yesterday 0:03:07.000 --> 0:03:10.440 with General worst Span and she turned to me and said, well, 0:03:10.480 --> 0:03:12.720 so what do you think Krueger and Davos? And I said, 0:03:12.760 --> 0:03:15.720 you have to go to Davos precisely because of this. 0:03:16.280 --> 0:03:21.120 The answer is technology is an overlay is evident large 0:03:21.400 --> 0:03:24.360 and it's a mystery, isn't it? It is? And there's 0:03:24.360 --> 0:03:27.000 really no better place to study it than the music industry. 0:03:27.040 --> 0:03:29.720 Think of all the technology that was, including the medium 0:03:29.760 --> 0:03:32.200 what we're using right now, radio and the role radio 0:03:32.240 --> 0:03:35.400 played in music. But go back to uh the gramophone 0:03:35.480 --> 0:03:38.840 and um, Francy can't do that. You and I can 0:03:38.920 --> 0:03:42.760 do that. I only listen well the students. The students 0:03:42.800 --> 0:03:44.440 didn't know what I meant when I said eight track. 0:03:44.680 --> 0:03:49.520 So in the economics world, in Francine's world across the Atlantic, 0:03:49.520 --> 0:03:53.320 their short term, medium term, long term. In American economics, 0:03:53.480 --> 0:03:58.560 with maybe a historic simplicity, there's cheke out, medium term, 0:03:58.600 --> 0:04:01.640 there's a short term, and long term. In Chicago is 0:04:01.720 --> 0:04:04.240 just do more microeconomics, and in Princeton it's like do 0:04:04.360 --> 0:04:08.200 more history. Okay, I get all that. What does transitory mean? 0:04:08.600 --> 0:04:11.840 Transitory isn't in any of the textbooks I would suggest 0:04:12.240 --> 0:04:16.760 Transitory is in Chicago, transitory is in uh Princeton. When 0:04:16.960 --> 0:04:21.719 Cherry Yellen says transitory inflation, what does that mean? Well, 0:04:21.920 --> 0:04:24.760 the way I interpret it is that we're not on 0:04:25.480 --> 0:04:28.400 the path that we think we're on, that the transitory detour, 0:04:28.480 --> 0:04:30.320 but we're gonna get back to the path that we 0:04:30.440 --> 0:04:33.880 think we're on. Is the X axis normal? Is it? 0:04:33.920 --> 0:04:36.920 Is it? Is she thinking short term? Is she's thinking 0:04:37.040 --> 0:04:39.480 long term? Or is it a new invention on the 0:04:39.600 --> 0:04:43.120 X axis. I think it's a short term you know, Uh, 0:04:43.320 --> 0:04:47.159 my interpretation to transitory, which uh the term I probably 0:04:47.240 --> 0:04:49.039 used in some of my papers, is that we have 0:04:49.120 --> 0:04:51.719 shocks which we think are going to fade, and because 0:04:51.760 --> 0:04:54.040 we think the short term shocks, we can consider it 0:04:54.040 --> 0:04:56.839 as transitory. In Francy, that would be the two back 0:04:56.920 --> 0:05:01.320 to back press conferences mentioning wireless cell phone right, and 0:05:01.560 --> 0:05:05.760 I understand that it's transitory unless it isn't anymore, professor. 0:05:06.000 --> 0:05:07.880 In the UK, we had a shock, and of course 0:05:07.920 --> 0:05:10.240 it's pound so you can argue that we have transitory 0:05:10.279 --> 0:05:12.719 inflation here. But in the US, how do we know 0:05:12.800 --> 0:05:15.200 that these phone bills will actually won't stay at the 0:05:15.240 --> 0:05:17.279 same level. I mean, it's it's kind of it could 0:05:17.320 --> 0:05:20.280 be more structural. Well, it could stay at the same level, 0:05:20.320 --> 0:05:22.600 but what's important is the rate of change. So we 0:05:22.760 --> 0:05:25.839 kind of absorbed the transitory shock from from prices dropping 0:05:27.960 --> 0:05:31.000 that that that's I think the argument that one could 0:05:31.160 --> 0:05:34.120 quite plausibly make. Also, you know, the U S economy 0:05:34.160 --> 0:05:38.800 is pretty diverse, and as much as the Phillips curve 0:05:38.880 --> 0:05:41.880 gets criticized, it is the cases the economy gets tighter. 0:05:42.000 --> 0:05:45.960 Traditionally we see wage growth and we see inflation that's 0:05:45.960 --> 0:05:48.960 been more sluggish in this recovery, but I think the 0:05:49.040 --> 0:05:52.440 underlying dynamics are probably there. I think they've probably been 0:05:52.480 --> 0:05:55.760 blunted by changes in the labor market, by weakness of 0:05:56.120 --> 0:06:00.680 labor unions in the US, for example. UM But to 0:06:00.800 --> 0:06:02.600 my mind, that looks like we're seeing some signs of 0:06:02.680 --> 0:06:07.800 that dynamics still still operating. If we see the tax 0:06:07.880 --> 0:06:10.640 overhaul that's been promised to come into something concrete. So 0:06:10.640 --> 0:06:12.359 I don't know whether we see the details, But what 0:06:12.440 --> 0:06:15.480 would that actually change. Does it change dynamics and GDP 0:06:15.600 --> 0:06:22.240 significantly or would that also be transitory. It's a good question. Um. 0:06:22.279 --> 0:06:26.360 I think it could have lasting impacts. Um. Of course, 0:06:26.360 --> 0:06:29.799 it depends upon the shape of the tax changes what's 0:06:29.800 --> 0:06:33.599 been proposed. You know, if the state local tax deduction 0:06:33.640 --> 0:06:36.960 is eliminated, that's going to dramatically affects state local investment 0:06:36.960 --> 0:06:42.479 in infrastructure, hiring of of UM first responders, things like that. 0:06:43.880 --> 0:06:47.520 Other sectors which we'll get tax cut could potentially expand. 0:06:48.520 --> 0:06:52.120 Uh So I think the tax proposal and the broad 0:06:52.120 --> 0:06:57.039 outlines could have substantial effects on the US economy. Also, 0:06:57.680 --> 0:06:59.080 I think we need to take into account in the 0:06:59.120 --> 0:07:03.839 long run, the impact than the deficit. If The proposal 0:07:03.880 --> 0:07:06.320 from the Trump administration adds two and a half trillion 0:07:06.360 --> 0:07:10.240 dollars to US debt over over the next decade. I 0:07:10.240 --> 0:07:12.480 think that's going to affect our borrowing costs. I think 0:07:12.480 --> 0:07:16.200 it's going to crowd out private sector investment. When we 0:07:16.200 --> 0:07:19.640 get to Jobs Day today, obviously it's hurricane adjusted, hurricane 0:07:19.680 --> 0:07:23.480 aberration and the answers smooth out the moving averages? Do 0:07:23.600 --> 0:07:26.640 you do that? Do you take three months and divided 0:07:26.680 --> 0:07:28.800 by three? I believe it's a little too much math 0:07:28.920 --> 0:07:31.640 for me this morning. How do you adjust to a 0:07:31.760 --> 0:07:34.960 one off of hurricane data change? How do you How 0:07:34.960 --> 0:07:37.400 does it pro do that? Well, first of all, I 0:07:37.440 --> 0:07:39.920 think the first thing to look for is going to 0:07:40.040 --> 0:07:43.440 be signs of the hurricane. Um Hurricane Katrina had a 0:07:43.480 --> 0:07:47.800 major impact on employment. Uh, the tropical storm Sandy did 0:07:47.800 --> 0:07:50.680 not have much of an impact unemployment. Surprisingly, So I 0:07:50.680 --> 0:07:53.160 think you look at certain industries that are more weather affected, 0:07:53.200 --> 0:07:54.960 and you look at regions in the country. But on 0:07:55.000 --> 0:07:57.960 a Matthew basis, Professor Krueger that I think the trip 0:07:58.000 --> 0:08:01.200 of the media is to take three months at averaging together. 0:08:01.800 --> 0:08:03.960 And I'm going to suggest a pro like uses no 0:08:04.840 --> 0:08:08.080 wait and get more data and then regress it out 0:08:08.120 --> 0:08:10.320 to see where we are. So a guy like you 0:08:10.360 --> 0:08:12.640 can't go out one or two months, you gotta go 0:08:12.680 --> 0:08:15.760 out six months or twelve months of data and then 0:08:15.880 --> 0:08:17.720 see where the trend is. A. I right on that. Well, 0:08:17.800 --> 0:08:20.480 thanks for giving my answer that that's absolutely right, and 0:08:20.520 --> 0:08:24.680 I think that was an A. That's amazing. I went 0:08:24.720 --> 0:08:27.120 from a C minus up to a quality C plus. 0:08:27.160 --> 0:08:28.560 But you know what, I what I would say is, 0:08:28.760 --> 0:08:30.600 rather than averaging it, I would look for an ad 0:08:30.640 --> 0:08:32.599 factor and say, for this month, what is it that 0:08:32.640 --> 0:08:37.520 we think we need to add to exactly? Yeah, And 0:08:37.559 --> 0:08:39.640 I guess if if you're in the markets, right, which 0:08:39.679 --> 0:08:41.680 is the difference between the markets and maybe the pros 0:08:41.760 --> 0:08:43.600 is that you need to take a shorter term bet 0:08:43.720 --> 0:08:46.400 because otherwise you're gonna lose money, right, professor, Whereas if 0:08:46.440 --> 0:08:49.000 you're an academic you can you can take the longer view. 0:08:49.040 --> 0:08:51.120 Do you believe that the way the markets are working 0:08:51.120 --> 0:08:54.079 are are kind of distorting our economic views? Well, I 0:08:54.120 --> 0:08:55.960 think that's true to some extent, But the markets are 0:08:55.960 --> 0:08:57.840 also trying to figure out how the fetes going to 0:08:57.880 --> 0:09:01.400 interpret the job's report. And I think you know, many 0:09:01.480 --> 0:09:03.640 investors recognized that the fed is going to take a 0:09:03.679 --> 0:09:06.520 longer run view and try to see through the effects 0:09:06.520 --> 0:09:09.920 of the hurricanes. I have done this before with you, 0:09:10.320 --> 0:09:12.599 and I don't like doing it. Professor. Ku're going to 0:09:12.679 --> 0:09:17.000 rip up the script and go to an exceptionally important 0:09:17.080 --> 0:09:21.280 monograph you put out years ago called What Makes a Terrorist? 0:09:21.400 --> 0:09:24.240 I read every word of it, every footnote. I was 0:09:24.600 --> 0:09:28.120 thunderstruck at the time of how you wrote about the 0:09:28.240 --> 0:09:33.160 people that do these terrible things. Can you take your 0:09:33.240 --> 0:09:37.559 historic work who becomes a terrorist? Where does terror emerge? 0:09:37.880 --> 0:09:41.960 What does terrorism accomplish? Can you take that monograph and 0:09:42.040 --> 0:09:45.760 bring it over to domestic terrorism like what we saw 0:09:45.800 --> 0:09:49.720 in Las Vegas? Uh? Well, thank for bringing up the book, 0:09:49.760 --> 0:09:52.760 and you have good timing because the tenth anniversary edition 0:09:52.800 --> 0:09:54.160 is going to come out by the end of the year, 0:09:54.600 --> 0:09:58.240 and I wrote a new quite long introduction asking exactly 0:09:58.280 --> 0:10:01.520 the question you asked me. How the results hold up 0:10:01.559 --> 0:10:04.920 over the last ten years. Does this apply to domestic terrorism? 0:10:05.160 --> 0:10:08.640 I would be hesitant to describe Las Vegas in the 0:10:08.720 --> 0:10:11.720 same language as we talk about other acts of terrorism, 0:10:11.760 --> 0:10:13.959 since we don't know the motives yet of this individual 0:10:14.000 --> 0:10:19.240 and this disturbed individual. Um looking at other incidents of 0:10:19.280 --> 0:10:22.680 domestic terrorism, both in the US and abroad. The domestic 0:10:22.760 --> 0:10:25.439 terrorists look like they're more drawn from the middle rather 0:10:25.480 --> 0:10:29.240 than the elites. They're not the most impoverished, the least educated. 0:10:29.240 --> 0:10:32.160 They look like people who were on a path towards 0:10:32.320 --> 0:10:35.800 middle class, towards college education in many cases, and then 0:10:35.800 --> 0:10:39.240 they fell off that path and became radicalized. UM. So 0:10:39.320 --> 0:10:42.040 it's more pushed to the middle when it comes to 0:10:42.120 --> 0:10:45.880 domestic terrorism. Professor, how has social media changed terrorism in 0:10:45.880 --> 0:10:50.160 the lost enderts? Uh, it has had a profound effect. 0:10:50.160 --> 0:10:55.199 It's made it much easier for terrorist organizations to outsourced terrorism, 0:10:55.320 --> 0:11:00.400 to recruit, uh, to basically franchise terrorism U. UM. I 0:11:00.400 --> 0:11:04.240 think that's changed the nature of terrorist attacks. H. They're 0:11:04.320 --> 0:11:08.520 less catastrophic in their scale um, and they're a little 0:11:08.520 --> 0:11:11.760 bit more sporadic. So I think it's had I think 0:11:11.760 --> 0:11:14.679 it has had a major impact. All right, how will 0:11:14.679 --> 0:11:16.360 it change in the next ten years? Is it actually 0:11:16.400 --> 0:11:20.079 impossible to study this, as you know, with hard data 0:11:20.120 --> 0:11:22.880 like economics, because it has more to do with emotions 0:11:22.920 --> 0:11:26.240 and allegiances. Well, that's a good question. It also has 0:11:26.280 --> 0:11:30.959 to do with counter terrorism activities. UM. You know, I 0:11:31.000 --> 0:11:35.520 think fundamentally terrorist organizations are trying to pursue some type 0:11:35.559 --> 0:11:37.800 of a goal, and they're using the means that they 0:11:37.800 --> 0:11:40.040 think are going to be most effective for them in 0:11:40.120 --> 0:11:42.880 pursuing that goal. I don't think that will change, but 0:11:42.960 --> 0:11:45.079 I think the means that they have at their disposal 0:11:45.120 --> 0:11:49.840 could change as technology changes going forward. This has been wonderful. 0:11:50.080 --> 0:11:52.560 It's so nice to see you. Not after you sat 0:11:52.679 --> 0:11:56.200 having coffee. Coffee in Venice, which was the last time 0:11:56.640 --> 0:12:01.000 You're finally back teaching. I was at a conference. Okay, well, 0:12:01.000 --> 0:12:04.160 we're never gonna forget coffee with Alan Krueger in Venice 0:12:04.160 --> 0:12:07.760 while we're in the sweaty confines of Manhattan. Allen Krueger, 0:12:07.800 --> 0:12:11.160 thank you on this job. Stay always in particularly important 0:12:11.200 --> 0:12:16.160 perspective on the American labor economy. He is with Princeton 0:12:16.520 --> 0:12:20.240 University and look for the new UH addition. I guess 0:12:20.280 --> 0:12:35.800 I should say what makes a terrorist? Now? In Bloomberg 0:12:35.880 --> 0:12:40.160 Radio Bloomberg Television Worldwide, William Gross joins us. He is 0:12:40.160 --> 0:12:43.240 with Janice Henderson as we look at markets on the move. 0:12:43.320 --> 0:12:46.080 I know that on television, John Fare on the team 0:12:46.120 --> 0:12:50.440 have been doing the market movement today, but yields higher dollar, 0:12:50.880 --> 0:12:54.120 stronger Bill gross just simply is at morning in America, 0:12:56.520 --> 0:12:59.360 well at the early morning, the beginning to be morning 0:12:59.360 --> 0:13:02.679 here in Newport Age. I think to the extent that 0:13:03.120 --> 0:13:07.160 your question implies wages are moving higher and that you know, 0:13:07.240 --> 0:13:10.679 the average wage journal will make more and spend more. Um, 0:13:10.880 --> 0:13:14.280 I think that's probably a positive. I note that the 0:13:14.320 --> 0:13:17.640 wages tom were revised higher in terms of the last month, 0:13:17.640 --> 0:13:20.440 as though we have a two point seven percent y 0:13:20.440 --> 0:13:23.280 o Y and perhaps had it higher. So I think 0:13:23.320 --> 0:13:28.880 that's good for American workers. Within this is a pretty 0:13:28.880 --> 0:13:31.880 good revisions. I mean we revised up I guess pre 0:13:32.040 --> 0:13:36.040 hurricane and that how does Janice Henderson and adapt and 0:13:36.160 --> 0:13:42.560 adjust to the hurricane distraction? Well, you basically try and 0:13:43.160 --> 0:13:45.200 throw it out for a month in terms of the 0:13:45.200 --> 0:13:48.800 employment numbers. You know, we're negative asion mentioned in terms 0:13:48.800 --> 0:13:51.360 of the the job growth. So you throw that out. 0:13:51.720 --> 0:13:54.160 You look at the wages and you wonder whether or 0:13:54.200 --> 0:13:58.520 not that to some extent was affected by distortions. Probably 0:13:58.880 --> 0:14:02.079 not as much. And and so uh, this is definitely 0:14:02.280 --> 0:14:07.200 a situation here at Janice with analysis of the Fed. 0:14:07.400 --> 0:14:11.040 Looking at the FED rate hike in December. You know, 0:14:11.080 --> 0:14:13.880 as long as financial markets ring firm, they certainly are 0:14:14.559 --> 0:14:17.520 as long as wages begin to rise towards uh you know, 0:14:17.600 --> 0:14:22.240 three percent, they certainly are. And I think the Fed 0:14:22.320 --> 0:14:25.400 is slam dunk in terms of raising rates in December. 0:14:25.520 --> 0:14:27.920 You know, John H. David Weston has given me great 0:14:27.960 --> 0:14:31.520 charts on Bloomberg Daybreak on television. Folks of weaker Japanese. Yeah, 0:14:31.560 --> 0:14:34.400 you've really got a jump condition to a weaker Japanese 0:14:34.680 --> 0:14:38.200 uh yen. And the idea here of a regime change 0:14:38.280 --> 0:14:40.720 bill gross not. You know what you're gonna do on 0:14:40.800 --> 0:14:43.800 this Friday morning in Newport Beach, But is there going 0:14:43.840 --> 0:14:47.520 to be a regime change within your janus unconstrained fund 0:14:47.840 --> 0:14:50.080 because you're starting to get a little more lift and 0:14:50.120 --> 0:14:54.320 you're starting to get a little more wage growth. Yeah, 0:14:54.320 --> 0:14:57.520 I think, you know, unconstrained basically means that you're not 0:14:57.560 --> 0:15:00.200 constrained in terms of duration. You can do other things 0:15:00.000 --> 0:15:02.440 things as well. Um, you know the beauty of the 0:15:02.480 --> 0:15:05.240 unconstrained fundness that can go negative in terms of duration. 0:15:05.320 --> 0:15:08.320 That is basically looking for higher rates and making money 0:15:08.320 --> 0:15:10.560 off of higher rates as opposed to vice versa. And 0:15:10.600 --> 0:15:13.200 that's what you know we've done over the past few weeks. 0:15:13.200 --> 0:15:16.880 Certainly in Germany, UM and now in the US. You 0:15:16.880 --> 0:15:19.640 know we're approaching critical levels. I think Tom on that 0:15:19.880 --> 0:15:22.680 tenure for instance, now probably at two forty, I haven't 0:15:22.680 --> 0:15:25.240 seen it in the last minute, but now at to forty, 0:15:25.360 --> 0:15:29.200 that we're at a two forty critical level, a long 0:15:29.600 --> 0:15:34.320 term down trend line. Uh since the early nineteen eighties 0:15:34.360 --> 0:15:36.840 were interest rates have formed by twenty basis points on 0:15:36.880 --> 0:15:40.600 average per year, and we're there at two point four percent. 0:15:40.720 --> 0:15:43.080 It basically means to me that, you know, if the 0:15:43.080 --> 0:15:45.880 economy is strong, if wages are intern up moved, then 0:15:46.160 --> 0:15:48.840 you know, perhaps we can break that trend line and 0:15:48.880 --> 0:15:51.280 move above to forty. But for the moment to me, 0:15:51.600 --> 0:15:54.760 technically that's where we stop, at least for this day. 0:15:54.880 --> 0:15:56.920 And this is so critical, folks. The idea of Bill 0:15:56.960 --> 0:16:01.640 Grows previously telling is two point even major of HSBC 0:16:01.880 --> 0:16:04.600 on this morning looking for Yeah, rates could go up, 0:16:04.640 --> 0:16:07.720 but then a damper. Let's take the word transitory. Bill 0:16:07.760 --> 0:16:12.280 grows over from yelling and inflation over to William Gross 0:16:12.320 --> 0:16:16.120 and you gotta run a bond portfolio. Will these higher 0:16:16.200 --> 0:16:20.640 yields be transitory? And is it lower for longer? Whatever? 0:16:20.680 --> 0:16:25.160 That wherever that band maybe? Well, I think we are 0:16:25.240 --> 0:16:27.640 lower for longer. There's no doubt about that, and that 0:16:27.720 --> 0:16:30.360 is what the Fed another Central Banks described as the 0:16:30.400 --> 0:16:36.000 neutral real The FED funds rate supposedly now around zero 0:16:36.160 --> 0:16:39.720 with inflation, you know, somewhere around one point five or 0:16:39.840 --> 0:16:43.560 so um. But but I think it won't be transitory. 0:16:43.600 --> 0:16:47.360 I think if in fact, we move above to forty 0:16:47.400 --> 0:16:50.320 instead of to six. They remember I said that interest 0:16:50.400 --> 0:16:52.440 rates are following by twenty basis points a year, and 0:16:52.480 --> 0:16:54.760 at to sixty was about a year ago. But if 0:16:54.880 --> 0:16:57.240 if we move above two point four, oh, then I 0:16:57.280 --> 0:17:00.760 think there is a chance that this law term bull 0:17:00.840 --> 0:17:05.760 market in bonds is broken and that the bond investors 0:17:05.760 --> 0:17:07.960 should be on the defensive as opposed to the offensive. 0:17:08.119 --> 0:17:11.160 That's an exceptionally important statement you've heard there from Mr 0:17:11.200 --> 0:17:13.359 Gross in the over decade that we've spoken to us. 0:17:13.400 --> 0:17:15.879 Let's dive into that deeper now, where I'm gonna quote 0:17:15.880 --> 0:17:19.479 the four digits two point three eight bill with that 0:17:19.600 --> 0:17:24.000 important statement of a regime change with a two forty print, 0:17:24.480 --> 0:17:27.280 how do we adapt and adjust? Let's start with the 0:17:27.359 --> 0:17:32.280 equity market correlated into bonds. Is the stock market linked 0:17:32.400 --> 0:17:37.800 into your two point four zero percent yield world we'll share. 0:17:37.800 --> 0:17:42.399 They're all linked. And you know, typical questions and responses, um. 0:17:42.720 --> 0:17:44.800 You know, to those types of questions will say, well, 0:17:44.800 --> 0:17:46.680 we're okay on the stock market until we get to 0:17:46.760 --> 0:17:49.199 three percent on the tenure or four percent on the tenure. 0:17:49.600 --> 0:17:54.440 I think we're inexorably linked on a much shorter term basis. Um. 0:17:54.480 --> 0:17:56.760 You know, it's not to say that five basis points 0:17:56.760 --> 0:17:59.399 on the tenure will mean a hundred negative points on 0:17:59.440 --> 0:18:03.960 the Dow. But those things are connected. It's all connected. Um. 0:18:04.000 --> 0:18:07.400 You know, a recent last night article from The Economist 0:18:07.480 --> 0:18:10.679 in terms of the overvaluation of all assets. You know, 0:18:10.720 --> 0:18:12.879 to my way of thinking is true. You know, the 0:18:12.920 --> 0:18:16.000 low interest rates everywhere, and they're negative in many parts 0:18:16.080 --> 0:18:20.280 of the world, still basically have distorted prices in terms 0:18:20.280 --> 0:18:22.600 of equity, in terms of commercial real estate, in terms 0:18:22.600 --> 0:18:26.119 of spreads on high yield bonds, etcetera, etcetera. And so yes, 0:18:26.160 --> 0:18:29.920 this is critically important on the tenure to define other 0:18:30.000 --> 0:18:34.040 asset prices. And if we move significantly higher to forty 0:18:34.080 --> 0:18:37.480 to fifty to sixty, investors have got to understand that 0:18:37.520 --> 0:18:43.320 the connection is a negative influence on their asset holdings. 0:18:43.440 --> 0:18:45.920 Bill Then then one final question. You're when I want 0:18:45.920 --> 0:18:48.520 to come back and really address this important statement for 0:18:48.680 --> 0:18:51.080 Mr Gross folks on the idea of a regime, a 0:18:51.240 --> 0:18:54.520 regime change at two point four zero percent. When we 0:18:54.600 --> 0:18:57.560 do that, will we do it with light paths of 0:18:57.680 --> 0:19:01.399 stability or will it be a lot more volatility in 0:19:01.440 --> 0:19:04.200 those old jump conditions it made you gray years ago. 0:19:04.480 --> 0:19:08.520 Which is it going to be? Bill? I think stability, 0:19:08.560 --> 0:19:10.760 because not many people will believe me in terms of 0:19:10.800 --> 0:19:13.760 the long term downtrend. They look at other things. They'll 0:19:13.800 --> 0:19:16.359 look at the Bollinger band, and they'll look at the 0:19:16.520 --> 0:19:20.040 you know, the near term STA tests, stochastics and so um, 0:19:20.080 --> 0:19:22.440 and the FED will come in and try and talk 0:19:22.600 --> 0:19:24.919 markets down. So you know, I think it will be 0:19:25.119 --> 0:19:28.080 a gradual up move. But to my way of thinking, 0:19:28.840 --> 0:19:32.360 if to forty to forty five, don't let me hedge 0:19:32.400 --> 0:19:35.520 it here. But if five is broken, to me, that's 0:19:35.520 --> 0:19:39.240 a significant sign that the long term bull market is over. 0:19:39.400 --> 0:19:41.440 We're gonna come back with Bill Gross. You just heard 0:19:41.480 --> 0:19:44.199 one of the most important statements I've heard from Mr Growth, 0:19:44.760 --> 0:19:48.119 Mr Gross and well over ten years, the idea of 0:19:48.160 --> 0:19:51.720 a regime change and the great moderation if we go 0:19:51.800 --> 0:19:53.919 above a two forty. I'm a ten year you know, 0:19:54.000 --> 0:19:56.040 give some wiggle room there. I don't want to nail 0:19:56.080 --> 0:19:57.919 him right down to that. But two point three eight 0:19:58.600 --> 0:20:01.919 up three basis points the tenure right now with the 0:20:02.400 --> 0:20:05.600 two year yield up again another three basis points as well. 0:20:05.640 --> 0:20:09.919 This is absolutely critical the idea of a regime change 0:20:10.040 --> 0:20:13.080 off of a twenty year great moderation. We will do 0:20:13.119 --> 0:20:16.720 that with Bill Gross from New York from London this morning. 0:20:16.880 --> 0:20:22.320 This is Bloomberg with us William Gross of Janice Henderson. Bill, 0:20:22.560 --> 0:20:25.080 what you said in our last section is so important 0:20:25.840 --> 0:20:29.120 over this crisis and even before the crisis, it would 0:20:29.160 --> 0:20:33.159 be irresponsible if I didn't have you recapitulated. Let me 0:20:33.200 --> 0:20:35.600 be clear here, Bill. You go from a two sixty 0:20:35.640 --> 0:20:38.760 and if we get to sustain to forty yield, you 0:20:38.800 --> 0:20:44.760 would suggest that breaks the Great moderation. Yeah, above two 0:20:44.880 --> 0:20:47.000 forty time. And let me explain that because it seems 0:20:47.119 --> 0:20:50.199 like a lot of hocus focus. Um. You know that 0:20:50.320 --> 0:20:54.280 the tenures started out at its peak and early eighties 0:20:54.320 --> 0:20:59.120 with the Vulcar around, And the fact is we can 0:20:59.160 --> 0:21:02.320 analyze this, look at it that has come down by 0:21:02.400 --> 0:21:05.080 twenty basis points a year to this point. It got 0:21:05.119 --> 0:21:07.720 a little bit lower a few years ago, of course, 0:21:07.760 --> 0:21:09.800 but that was below trend line. But the trend line 0:21:09.840 --> 0:21:11.679 was moving down at twenty basis points a year. And 0:21:11.680 --> 0:21:14.639 why is that important. It's important because it allowed for 0:21:14.680 --> 0:21:19.479 refinancing of mortgages, allowed for uh more attractive purchases of homes, 0:21:19.480 --> 0:21:23.119 that allowed for corporate interest expense to go lower and 0:21:23.160 --> 0:21:25.919 profits to go higher. It was what the economy needed 0:21:26.280 --> 0:21:30.120 to sustain a four to five percent nominal GDP rate, 0:21:30.200 --> 0:21:32.840 which is really what the FEDS targeting. So that was 0:21:32.920 --> 0:21:36.480 the magic number per year. The FED didn't mandate twenty 0:21:36.480 --> 0:21:39.119 basis points per year, but that um, you know, based 0:21:39.160 --> 0:21:44.600 upon their their FED fund decreases and their quantitative easy purchases, 0:21:44.840 --> 0:21:46.840 you know, is what it produced. Now they were down 0:21:46.840 --> 0:21:50.359 to two point four percent and two point three It 0:21:50.440 --> 0:21:53.520 seems to me that the question is can the economy 0:21:53.800 --> 0:21:58.119 sustain itself without lower and lower interest rates? And that 0:21:58.200 --> 0:22:02.080 will be the question if it breaks two, for investors 0:22:02.080 --> 0:22:05.080 will be at the assumption that perhaps the economy can 0:22:05.080 --> 0:22:08.600 survive on its own with without lower and lower interest ry. 0:22:08.720 --> 0:22:10.840 I know Francine Lakwen London wants to get and really 0:22:10.880 --> 0:22:12.720 take this globally. He wants to get into your bill. 0:22:12.760 --> 0:22:14.960 But one more question for me, and then an ample 0:22:15.040 --> 0:22:19.360 time for miss Laka. This is profoundly important what you're 0:22:19.400 --> 0:22:21.840 saying for the FED. And all I can think of, 0:22:21.840 --> 0:22:24.040 Bill is what you study to do in years and 0:22:24.119 --> 0:22:27.240 years and years, be careful what you wish for. If 0:22:27.320 --> 0:22:31.040 Janet Yellen gets a higher yield structure in a little 0:22:31.080 --> 0:22:35.840 bit higher inflation, what's the outcome that could mess up 0:22:35.920 --> 0:22:41.360 the central bank cart Well, the outcome is that they 0:22:41.520 --> 0:22:43.719 go too far in terms of FED funds. And this 0:22:43.760 --> 0:22:46.320 is where I joined with the Neil kush carry. It's 0:22:46.320 --> 0:22:49.840 probably not the next FED chairman, but he has been 0:22:49.880 --> 0:22:52.400