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Speaker 1: This is Bloomberg surveillance. If we put people back to

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Speaker 1: work and drive the unemployment rate down, at some point

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Speaker 1: that has to lead to wage growth. That's just first

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Speaker 1: principles of economics. If wage growth continues to pick up,

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Speaker 1: as I expect it will, that's going to be increasingly

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Speaker 1: uncomfortable having raps close to zero. As long as the

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Speaker 1: American company continue to hire and Aerial's continue to expand,

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Speaker 1: will be fine, and every indication is that they will.

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Speaker 1: Bloomberg Surveillance your link to the world of economics, finance

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Speaker 1: and investment on Bloomberg Radio. Good Morning, Everyone's job today.

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Speaker 1: Michael McKee and Tom Keane. You heard from Robert Gordon,

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Speaker 1: Alan Krueger, Michael Darda. Next, Mickey Levy of Barenberg Capital Markets.

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Speaker 1: We are not Europe, we are not Japan. His optimism

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Speaker 1: on our ability to move forward within this American economy.

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Speaker 1: A very important program. Note one thirty this afternoon, Governor

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Speaker 1: Romney will be interviewed by our Mark Helper and this

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Speaker 1: is what question the important political interview of the day.

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Speaker 1: Helper in Romney worldwide radio and television. Look for that

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Speaker 1: at one thirty this afternoon. I did watch Governor Romney's

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Speaker 1: remarks yesterday and Mr Trump's reaction to them, and UH,

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Speaker 1: one told the truth and one to not. We never

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Speaker 1: give our opinion here is Michael McKey just skirted the

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Speaker 1: UH issues of the moment, Bloomberg surveillance. We're brought to

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Speaker 1: you by Cone Resnick Accounting Tax Advisory. Cone RESIDEC will

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Speaker 1: provide your business with the industry inside it needs to

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Speaker 1: succeed in the dynamic dynamic economy. Sign up for insight

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Speaker 1: and find out how at cone Resnick dot com c

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Speaker 1: O h N R easy n I c K cone

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Speaker 1: Resnick dot com and we thank them for their support.

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Speaker 1: This is wonderfully time. Mickey Leavey is one of our

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Speaker 1: great students. He's not a FED critic because he has

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Speaker 1: too much respect for the institution, but he has always

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Speaker 1: questioned the linkage of our theory to our actions away

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Speaker 1: from theory. As we've seen for the last seven or

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Speaker 1: eight years. He is with Barrenberg Capital Marcus Robert Gordon

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Speaker 1: sitting in the chair you're in UH. Dr Levy UH

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Speaker 1: within the hour, and he is adamant about his optimism

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Speaker 1: on America even without technological progress. Carry this further to

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Speaker 1: the fear that America could become like Europe or worse,

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Speaker 1: become like Japan. You push against that. Well, the way

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Speaker 1: I push against it is, you know, the potential growth

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Speaker 1: is endogenous. I mean, if you put in place the

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Speaker 1: right policies, which include put the fet aside, When you

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Speaker 1: put in place the right policies tax and spending policies,

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Speaker 1: how you allocate national resources, regulatory environment, you can you

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Speaker 1: can have very healthy potential growth and very healthy sustained

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Speaker 1: job creation. If you put in place uh lousy policies

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Speaker 1: that er future planning and future investment, um, you know,

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Speaker 1: then you're gonna have very weak growth. So it's up

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Speaker 1: to our policy makers. And I think that's the beginning

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Speaker 1: and end of it. I think I wish, I wish

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Speaker 1: the policy makers would really talk about the policies, but

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Speaker 1: they don't and they won't and they aren't. So what

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Speaker 1: can the FED or anyone else do in the absence

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Speaker 1: of that. Not much? Okay. So, so the bottom line is,

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Speaker 1: you know, monetary policy cannot by stimulating create permanent jobs,

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Speaker 1: and it can't lift long run potential growth. The e

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Speaker 1: c B is obviously a financial backstop for Europe, but

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Speaker 1: Europe has put in place some countries are put in

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Speaker 1: place performance in the United States. Um, all of the

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Speaker 1: you know, disappointment about the you know, the moderate rate

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Speaker 1: of growth in the last six years has nothing to

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Speaker 1: do with FED policy. It has to do with other

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Speaker 1: policies that are you know, coming up the credit channels

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Speaker 1: and constraining you know, business and investment and planning for

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Speaker 1: the future. Well, what would you say to the argument

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Speaker 1: that some people make that the FED is in a

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Speaker 1: way complicit with this situation because their extraordinary policies have

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Speaker 1: enabled Congress and policymakers on the fiscal side to avoid

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Speaker 1: doing anything. Mike, I think that's I think that's a

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Speaker 1: very valid point. Um. We all know that the quantitative

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Speaker 1: easing and and and um, they're all their efforts to

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Speaker 1: keep bon yields low has kind of gotten Congress off

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Speaker 1: the hook, so they haven't Congress hasn't been forced to reform. Also,

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Speaker 1: I think there's this this broader problem that everybody, including policymakers,

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Speaker 1: financial markets, and the economic and financial media look to

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Speaker 1: the FED to solve all the problems, and they're not

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Speaker 1: able to. If you look at the last six years,

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Speaker 1: the FED has not been able to stimulate aggregate demand.

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Speaker 1: Any helped me with the idea that we move from

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Speaker 1: ten percent to five percent unemployment. Dean Mackie at point

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Speaker 1: seven two, suggesting we get to the vicinity of four

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Speaker 1: point zero. I saw one person quota three nine out

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Speaker 1: into the distance. My I should feel better, DR leave you.

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Speaker 1: Why don't we feel better if the vectors in a

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Speaker 1: wonderful direction? Well, I think that's a very valid question,

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Speaker 1: and I and I have a hard time answering it because,

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Speaker 1: as you know, the unemployment rate has come down, you six,

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Speaker 1: has has come way way down UM adjusted for inflation.

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Speaker 1: Of course, real wages UM have been you know, increasing UM. Now,

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Speaker 1: the one of the questions is UM, who gets credit

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Speaker 1: for this? And I would argue that we're just distancing

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Speaker 1: ourselves from the financial crisis. UM. And if you look

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Speaker 1: at UM aggregate demand or nominal GDP growth, it hasn't

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Speaker 1: been the FED that that that that that could rightly

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Speaker 1: take credit for all this. It's just the economy's growing modestly.

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Speaker 1: But yours is a good question. UM. The US economy,

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Speaker 1: we would like it to be growing faster, and I

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Speaker 1: can think of some policies that would would really lift

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Speaker 1: its rate of growth. But we're doing just a lot

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Speaker 1: better than than than we have been. Okay, will bite

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Speaker 1: give me a couple of policies. Oh boy, I I

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Speaker 1: would love to see the next president, regardless of of

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Speaker 1: UM who who that is? UM, sit down and say, okay,

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Speaker 1: my first objective is corporate tax reform, and let's um

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Speaker 1: and let's get people from both sides of the political

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Speaker 1: aisle and talk about and build a base on what

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Speaker 1: we agree on rather than focusing on the polemics. UM.

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Speaker 1: And I think that would that would really lift a

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Speaker 1: gray a gray cloud. And I think it would be

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Speaker 1: pretty easy, cebes. I think reasonable people on both sides

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Speaker 1: of the political aisle, you know, agree on large portions

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Speaker 1: of what needs to be done on corporate taxes. And

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Speaker 1: that's that's just the beginning. Another concern I have, uh

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Speaker 1: lurking beneath the surface that I think has definitely had

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Speaker 1: a negative impact on on the pace of economic growth,

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Speaker 1: particularly capital spending, is the growing web of the regulations.

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Speaker 1: And it's not the things we see in the headlines.

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Speaker 1: It's the fine print and the implementation of a lot

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Speaker 1: of regulations, not in the financial sector, but in the

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Speaker 1: non financial sector that is on the margin leading businesses

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Speaker 1: in a number of industries to temper back their expectations.

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Speaker 1: Just published moments ago, Thomas had sold the Great Liberal,

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Speaker 1: an essay in The New York Times on Mr Trump

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Speaker 1: and all Mark Mike, Mike McKinnon and Mickey Lee. There's

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Speaker 1: a wonderful statistic in here from Lucas Caravan Unas of

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Speaker 1: Booth Schools Chicago. Mike, you just attended their wonderful panel.

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Speaker 1: Labor share of our economy is down twelve percent from

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Speaker 1: six to I mean, that's that's a structural change. With

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Speaker 1: Larry Summers talks about secular stagnation, that's a definition labor

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Speaker 1: is getting a smaller pie. Why is that, Dr Levy?

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Speaker 1: Why is it? Is it that we've innovated ourselves out

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Speaker 1: of jobs formation sixty nine to over a generation. I

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Speaker 1: think part of the reason is the change in the

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Speaker 1: composition of GDP higher higher portion is in service producing industries.

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Speaker 1: Some of what your high productivity, high paying jobs, but

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Speaker 1: but a large number are in lower productivity jobs that

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Speaker 1: command or or are associated with lower wages. And I

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Speaker 1: think that's that's clearly one of the factors. The other

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Speaker 1: is the measurement issue. Okay, um, there is a growing

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Speaker 1: wedge between business costs of employing people and those workers

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Speaker 1: take home pay. And so if that decline in the

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Speaker 1: labor share of g d p M reflects just take

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Speaker 1: home pay the paps of unit, right, And I think

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Speaker 1: I think that's important and and and and so this

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Speaker 1: is one of the areas where um, I would love

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Speaker 1: to see higher productivity and higher compensation for for skilled workers.

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Speaker 1: We're going to do that, Bicky leader. We're gonna come

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Speaker 1: back on what has been the theme through the morning,

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Speaker 1: which is the efficiency of the economy. The productivity of

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Speaker 1: the economy. As you all know, it's flat on its

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Speaker 1: Like Mica has said, Okay, you and I don't have

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Speaker 1: real jobs. We know that. We go from Greenspan, Vin Weber,

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Speaker 1: the Senator for New Answer, Judd Gregg, Robert Gordon, Alan Krueger,

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Speaker 1: Michael Darda Levy onto a guy named Gross. I mean

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Speaker 1: this is pretty good. I'm like, this is pretty good.

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Speaker 1: And the great thing is we get to share it

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Speaker 1: with all of you listening. And yeah, stay tuned, because

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Speaker 1: what a great children And it's out on our podcast.

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Speaker 1: We're pleased to announce again free and you can subscribe iTunes.

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Speaker 1: Mickey Levy not only the entire show for those that

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Speaker 1: desire that, but individual podcasts is well. We've got a

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Speaker 1: huge jump start to this and hope to roll it

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Speaker 1: out over the next coming days. Again, an important interview

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Speaker 1: one thirty this afternoon, Mark Helpred in conversation with a

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Speaker 1: former governor of the Commonwealth of Massachusetts, Mitt Romney. Look

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Speaker 1: for that at one thirty uh this afternoon. Without question,

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Speaker 1: the interview of the day. Time out to check with

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Speaker 1: blacam bar and get the latest world and national headlines. Miael,

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Speaker 1: Mike Tom, thank you very much. Donald Trump's Republican presidential

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Speaker 1: rivals aim out swinging at last night's debate. The echoed

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Speaker 1: party establishment figures that Trump is a phony, but Trump,

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Speaker 1: Marco Rubio, Ted Cruz, and John Kasik all said at

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Speaker 1: the end of the debate that they would support the Dominique.

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Speaker 1: Brazilian police are questioning former President Louis Ignatio Lula da

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Speaker 1: Silva in a corruption case. Police are also searching his home.

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Speaker 1: Diamond smuggling has caused Zimbabwe's economy more than thirteen billion dollars.

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Speaker 1: That's according to Zimbabwe President Robert Mgabe. The state has

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Speaker 1: created a new company to take control of the controlling mining.

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Speaker 1: Global news twenty four hours a day, powered by our

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Speaker 1: journalists more than a hundred fifty news bureaus from around

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Speaker 1: the world. Michael Barr, Tom and Michael, thanks so much.

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Speaker 1: We are fifteen making nineteen minutes away from the jobs

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Speaker 1: report again beneath the headline data with Mickey Leany Barrenberg

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Speaker 1: Capital Markets, and then Bill Gross of Janice at Capital

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Speaker 1: coming up next. This is what we want to talk about,

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Speaker 1: the lack of amy productivity. This is Bloomberg's surveillance. This

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Speaker 1: news update brought to you by the New York Community Trust,

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Speaker 1: This is a Bloomberg Business Flash and I'm Karen Moscow.

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Speaker 1: Futures are higher. Let's go to the first Bird breaking

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Speaker 1: news desk for today's morning call. Here's Bill Maloney. Good

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Speaker 1: morning Bill, Good morning Karen. U s you just have

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Speaker 1: added to their games since the last time we spoke down.

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Speaker 1: Future is currently hired by thirty six point scipes Game

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Speaker 1: four and as a features rise by fifteen The US

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Speaker 1: ten yield at one point eight three percent. Main up

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Speaker 1: of markets except Italy are trading higher. Germany gains one percent,

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Speaker 1: while in South America Brazil jumps three per cent. On

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Speaker 1: the US Economic Friday thirty job numbers, changing Non Farm

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Speaker 1: Peril's estimate a hundred and ninety five thousand, and after

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Speaker 1: the Las Night HP Enterprise EPs beat, Broadcom quch revenue

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Speaker 1: was in line, and Smith and Wesson boost the rps

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Speaker 1: and revenue views. In deal news, Sampson Night is buying

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Speaker 1: Toomey for seventy five a share at AMC Theaters to

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Speaker 1: buy Carmikey Cinemas for thirty hours a share. Finally, some

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Speaker 1: of your key walshot upgrades and downgrades brought inform and

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Speaker 1: cut the neutral over at Bank of America. Hewitt Packard

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Speaker 1: Enterprise raised out performer Bernstein h and R Block cut

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Speaker 1: to market perform at BMO. Barkley's cut the whole versus

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Speaker 1: by a Deutsche Bank JS Penny raised to buy it. Ever,

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Speaker 1: courts I s I Qualcom cut to perform at Oppenheimer,

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Speaker 1: and finally Goldman Sachs Xcel Group cut to neutral and

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Speaker 1: monts Santo cut the cell live from the first breaking

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Speaker 1: news desk gone, Bill Maloney, care, all right, thanks Villa

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Speaker 1: to hear live breaking news over your Bloomberg type squawk

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Speaker 1: a goo on your terminal, that's squ you a w

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Speaker 1: u k go, that's a Bloomberg? Is this flash? Tom

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Speaker 1: and Mike, Karen and thanks so much. This Job's Day

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Speaker 1: Bloomberg surveillance brought to by Investco. Investco believes it's trying

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Speaker 1: to bench the benchmarks and to consider active management and

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Speaker 1: factor based strategies. Find out more at investco dot com.

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Speaker 1: Slash high conviction. We moved to Job's Day. First of all,

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Speaker 1: I do want to mention the series of headlines out

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Speaker 1: of Brazil are simply stunning. We're not gonna dwell on

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Speaker 1: this a lot here today, but markets explode higher, Petro

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Speaker 1: bruss rises eighteen percent. Is President Lula Mike? Is it

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Speaker 1: unfair to say under house arrest? Uh, it's hard to

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Speaker 1: know his exact status. He has been detained by the

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Speaker 1: police for questioning. They took him to the airport for

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Speaker 1: security reasons, so question. It isn't exactly clear what he

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Speaker 1: is doing or the status. Brazilian real is stronger. We've

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Speaker 1: had a wonderful morning looking at our economic history that

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Speaker 1: broader themes and make you leave you a baringer capital

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Speaker 1: markets with us. Mickey, let's fold into this immediate jobs

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Speaker 1: report that we see in exactly ten minutes. It's about productivity, capital, labor,

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Speaker 1: and technological progress. Give us the y. We're flat on

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Speaker 1: our back with productivity. I think part of it is

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Speaker 1: a missmeasurement problem. I see everywhere anecdotal evidence of technological innovations,

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Speaker 1: not only new products, but but but but improved production

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Speaker 1: facilities and capabilities. I see record breaking near record breaking

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Speaker 1: corporate profits, and then the productivity data are so weak.

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Speaker 1: I think there is a mismeasurement problem that the US

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Speaker 1: Department of Commerce will eventually get to. But it's a

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Speaker 1: very technical issue. Let me just bring out an example. Um,

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Speaker 1: all of you who are looking at your iPhones now, UM,

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Speaker 1: when you buy an iPhone because it's because it's produced

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Speaker 1: in China nets out to close to zero in g

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Speaker 1: d P. Are you telling me that over the last

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Speaker 1: seven eight years this has had zero impact. Mr McKinney,

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Speaker 1: the sainted one needed a new iPhone yesterday. Uh it

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Speaker 1: did not. It directly affected the GDP of the American economy.

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Speaker 1: I could assure you, Mr Levy, you did your pat

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Speaker 1: I did my patriotic duty and dropped a large amount

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Speaker 1: of money on an iPhone for but it netted out

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Speaker 1: to the close to zero in GDP and did not

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Speaker 1: push the productivity dial as measured. And I think there's

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Speaker 1: a measurement problem. And it's not just Apple, it's just

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Speaker 1: almost in every industry. You see technological advances and it's

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Speaker 1: just we're just not capturing it in the data. What

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Speaker 1: do we uh, what do you think February is going

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Speaker 1: to show? You have to follow a day to day

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Speaker 1: basis and with a with a disclaimer that of course

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Speaker 1: one month is not enough to uh, you know, really

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Speaker 1: get a trend. But what do we think? Think it's

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Speaker 1: gonna be a healthy number? Um, In fact, it could be.

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Speaker 1: I think it's gonna be a little over two hundred thousand.

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Speaker 1: On jobs. I think actually job gains have been a

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Speaker 1: little too fast relative to g d P. But what

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Speaker 1: I'm really looking at for in today's number is in

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Speaker 1: January we had a nice increase in wages. If there's

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Speaker 1: a second month in a row of healthy wage gains

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Speaker 1: um on top of the recent nice news on consumer

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Speaker 1: spending in real terms and the increase in the core

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Speaker 1: PC deflated to one point seven. I'm wondering if we

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Speaker 1: get that that wage increase, it's not only very good

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Speaker 1: for the economy, but it really puts the FED into

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Speaker 1: a box. Are they really data dependent? We're on the

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Speaker 1: front doorstep of them achieving their long run dual mandate.

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Speaker 1: What will they do well? What will be the effect

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Speaker 1: if they do raise rights? Why the what? What is

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Speaker 1: the I S curve real economy of fact, not to

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Speaker 1: get to restrictive, not to get to accommodative, but to

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Speaker 1: get off stand Fisher's ultra accommodative. Given the data, theoretically

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Speaker 1: and historically, it should have close to zero impact on

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Speaker 1: economic performance. The FEDS concern is um having gone through

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Speaker 1: several queuei's forward guidance, All of that was geared toward

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Speaker 1: UH keeping rates low, encouraging portfolio managers globally to take

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Speaker 1: more risks, and now one of the FED one of

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Speaker 1: the Fed's largest concerns is the reversal of that portfolio

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Speaker 1: balance effect that they so touted for several years. MCKI Levis,

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Speaker 1: Thank you so much, Dr Levias with Barrenburg Capital Markets.

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Speaker 1: As we get ready for the jobs report, we'll see

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Speaker 1: that here in six minutes. So we should note a

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Speaker 1: thousand jobs forecast, four point nine percent unemployment in a

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Speaker 1: two tense gaining wages. Those are the headline numbers. Will

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Speaker 1: be watching. I will look at the revisions, and you

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Speaker 1: girl always important, Robert Gordon said, he is, uh, he

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Speaker 1: is going to be looking at the labor force participation rate.

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Speaker 1: He said, that's the key number for the economy going forward.

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Speaker 1: It's gotten better prospects for the economy. Of course, he's

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Speaker 1: looking at it from the academic tower of Northwestern University,

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Speaker 1: where market economists are trying to figure out what the

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Speaker 1: tenure yield will do to four digits UH at eight

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Speaker 1: thirty two. We will do that with Bill gross one

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Speaker 1: point eight to eight six one on the tenure yield

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Speaker 1: right now. Curve flattening over the last couple of days.

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Speaker 1: Don't want to make too much about it. It's been

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Speaker 1: range bounds. Is a lot of other data. The dollar

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Speaker 1: fractionally weaker after a few good days. Opposite warning in

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Speaker 1: Michael McKey mentioned gold elevated here an hour ago twelve

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Speaker 1: sixty one. The ounce right now, Michael McKee and Tom Keane,

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Speaker 1: please stay with us for this Job's Report in five minutes,

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Speaker 1: the Report on the American Aber Economy. This is Bloomberg

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Speaker 1: Surveillance coming up there, with all due respect, highlight brought

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Speaker 1: you by land Rover. If it's in your nature to

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Speaker 1: Adventure Sales event. Land Rover above and b L broadcasting

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Speaker 1: live to New York, Bloomberg eleventh, Ryo to Washington, d C,

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Speaker 1: Bloomberg to Boston, Bloomberg twelve hundreds to San Francisco, Bloomberg

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00:20:35,359 --> 00:20:38,960
Speaker 1: to the Country series Exam Channel one nine and around

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Speaker 1: the globe the Bloomberg Radio plus Aben Bloomberg dot Com.

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Speaker 1: This is Bloomberg Surveillance. Good morning. It is a thirty

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Speaker 1: on Wall Street of surprise. In the Jobs or Port,

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Speaker 1: Vinny del Judas is at the first Word desk with

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Speaker 1: the numbers. Michael assizeable gain almost a quarter million new

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Speaker 1: jobs added in February, up two hundred and forty two thousand.

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Speaker 1: Going in to the report, economists have been looking for

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Speaker 1: a game of just one hundred nine thousand. Also payrolls

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Speaker 1: the prior month revised up to one hundred seventy two thousand,

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Speaker 1: so a big number. Almost a quarter million non farm

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Speaker 1: jobs added last month. We see the unemployment rate holding

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Speaker 1: four point nine percent, eight year low, so the four

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Speaker 1: point nine percent on the unemployment rate. Average hourly earning

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Speaker 1: is a bit of a sore spot this month down

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Speaker 1: point one percent. They had surged the prior month, registering

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Speaker 1: the biggest increase in the year. Again to recap, non

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Speaker 1: farm payrolls up two hundred forty two thousand in February

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Speaker 1: more than forecast. January revised higher. We see a four

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Speaker 1: point nine percent unemployment rate, tying an eight year low,

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Speaker 1: average hourly earnings down point one percent, and the trade

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Speaker 1: deficit also when that widened to forty five point six

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Speaker 1: eight billion dollars in January. At the Bloomberg First Word Desk,

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Speaker 1: I'm fity del judice. Let's go back to New York.

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Speaker 1: Thank you Anny, and the economic indicators today brought to

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00:21:56,400 --> 00:21:58,800
Speaker 1: you by Commonwealth Financial Network. When it's time to change

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Speaker 1: the conversation with the broker dealer, r I A that's

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00:22:01,480 --> 00:22:04,200
Speaker 1: ready to listen called six six or six two three,

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00:22:04,280 --> 00:22:07,120
Speaker 1: six three eight or visit Commonwealth dot com to learn more.

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Speaker 1: Tom One important point. Ian Shepherdson Pantheon Economics says there

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Speaker 1: is a calendar quirk in February that likely accounted for

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Speaker 1: the drop in earnings. So maybe a technical thing and

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Speaker 1: that we said we won't know for a month or so,

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Speaker 1: but certainly Wilson has to like the job creatures they do.

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Speaker 1: The interest rates hied UH, equity futures rise up up

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Speaker 1: to now up seven and yields do much nicer higher

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Speaker 1: two basis points in the tenure one point eight five percent,

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Speaker 1: and the two year yield spikes up. We went through

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Speaker 1: zero point eight six right now zero point eight five.

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Speaker 1: But nevertheless a lift and curve, a solid curve steepening

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Speaker 1: year off of the report. Let me point out Robert

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Speaker 1: Gordon told us to look at the participation jumps to

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Speaker 1: sixty two point nine percent from sixty two point seven. Yeah,

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Speaker 1: absolutely a real lift here. Four point nine were sent

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Speaker 1: on the unemployment rate, two hundred seventy two thousand jobs formed.

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Speaker 1: And now Bloomberg Radio, Bloomberg Television, we welcome all of

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Speaker 1: you worldwide. Bill Gross with us UH this morning. We'll

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Speaker 1: get to him in a moment Michael McKee and Tom Keane,

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Speaker 1: and uh, you know, I gotta say, Michael, it's an

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Speaker 1: extraordinary report this morning with a revision, a positive thirty thousand, yeah,

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Speaker 1: two seventy two thousand jobs over the last two months,

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Speaker 1: according to the revisions, and that is way ahead of

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Speaker 1: where people thought we would be. Bill Gross with Jan's capitol,

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Speaker 1: joins us now after a quick digestion and markets lifting

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Speaker 1: on the move. Bill, we are creating jobs. I see

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Speaker 1: the temporary employment dynamics and all are these good jobs

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Speaker 1: were creating? Well, that's the question. Are they good jobs? Um?

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Speaker 1: You know, I suspect that some of them are are

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Speaker 1: not great jobs. Some of them are at the minimum

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Speaker 1: wage and a little bit higher. And um, you know,

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Speaker 1: the the average income of American workers is proceeding higher,

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Speaker 1: but not at a very rapid pace. I noticed that

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Speaker 1: the hours worked in this particular report didn't increase. Yes,

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Speaker 1: the participation rate went up, and I think Yelling and

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Speaker 1: Company would be heartened by that because the extent that

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Speaker 1: it keeps going up, it means more and more people

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Speaker 1: are coming back into the workforce and takes pressure off

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Speaker 1: of their Phillips curve and off of their tailor models,

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Speaker 1: So it's not exactly a a robust model from the

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Speaker 1: standpoint of a hike, uh and maybe a robust model

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Speaker 1: from the standpoint of increasing economic growth, which I expect

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Speaker 1: in this quarter to be about two. How far away

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Speaker 1: from normal is Janet Yellen's Fed? I think they're at

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Speaker 1: least um a hundred two hunter basis points higher in

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Speaker 1: their dots than normal, and the the normal is really

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Speaker 1: being fought out and academic circles. Most of the research

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Speaker 1: is come from the San Francisco Fed. UM. They say

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Speaker 1: that at the moment that a zero percent real uh

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Speaker 1: you know, FED funds rate might be the appropriate rate,

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Speaker 1: which would put it about it one and a half percent.

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Speaker 1: The blue dots are significantly higher in the out years,

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Speaker 1: and so um you know, I think the FED still

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Speaker 1: has some rethinking to do, but let me mention a

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Speaker 1: point at that time. I think the Fed basically they're

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Speaker 1: not faking in numbers, but they want the market to

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Speaker 1: um to believe that that hikes might come sooner and

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Speaker 1: faster than expected, and that means a positive yelkre Uh.

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Speaker 1: This economy, that finance industry, banks, insurance companies all need

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Speaker 1: a positive yelkur to uh, to make substantial profits. And

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Speaker 1: so to the extent that those blue dots are higher

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Speaker 1: than what they might really think if they really thought

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Speaker 1: about it, then uh, you know that favors bank margins,

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Speaker 1: and I think what they're really shooting for as a

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Speaker 1: positive ocreve as opposed to being practical and where the

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Speaker 1: real interest rate is going. Well, the question, Bill is,

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Speaker 1: if you look at the projections that FED made in

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Speaker 1: December for the economy in two thousand sixteen, we've basically

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Speaker 1: hit all those benchmarks. So are they data dependent or not?

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Speaker 1: How is the markets supposed to divine where the FED

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Speaker 1: is going if they tell you we're going to raise

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Speaker 1: rates based on these forecasts, and then they don't, Well,

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Speaker 1: they're global data dependent, and they don't want to admit that.

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Speaker 1: They want to pretend that they're the central banker for

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Speaker 1: the United States and factor the central banker for the world,

429
00:26:37,520 --> 00:26:40,639
Speaker 1: and they have global responsibilities because the dollar is the

430
00:26:40,680 --> 00:26:44,480
Speaker 1: reserve currency. They won't really put that in print. So

431
00:26:45,080 --> 00:26:47,800
Speaker 1: to the extent that the currencies moved, to the extent

432
00:26:47,880 --> 00:26:51,520
Speaker 1: that the markets have sinkholes on a global basis, to

433
00:26:51,560 --> 00:26:55,160
Speaker 1: the extent that emerging market countries do worse, that they've

434
00:26:55,200 --> 00:26:57,720
Speaker 1: been doing better in the last few weeks. UM. Then

435
00:26:57,800 --> 00:27:01,080
Speaker 1: the FED takes that into consideration, and so data dependency

436
00:27:01,119 --> 00:27:04,960
Speaker 1: extends beyond the US economy, although the Fed doesn't really

437
00:27:04,960 --> 00:27:07,520
Speaker 1: want to admit it. Well, are we still worried about

438
00:27:07,560 --> 00:27:09,960
Speaker 1: the dollar? The dollar has basically not moved over the

439
00:27:10,040 --> 00:27:12,880
Speaker 1: last month and a half. Trade weighted dollar has actually

440
00:27:12,920 --> 00:27:15,600
Speaker 1: gone down the trade weighted dollar index. Even with this

441
00:27:15,720 --> 00:27:20,040
Speaker 1: jobs report, there's barely a move in the dollar index.

442
00:27:20,400 --> 00:27:25,240
Speaker 1: Is that still a real concern? Well, it's a concern

443
00:27:25,280 --> 00:27:27,520
Speaker 1: because of the lags. There's a six to twelve month

444
00:27:27,640 --> 00:27:30,040
Speaker 1: legga you know, Mike, and we're going to be seeing

445
00:27:30,040 --> 00:27:32,399
Speaker 1: the effects of a stronger dollar for you know, at

446
00:27:32,440 --> 00:27:35,280
Speaker 1: least another six months. But yes, the dollar has stopped

447
00:27:35,320 --> 00:27:38,640
Speaker 1: going up, certainly against many of the emerging market countries,

448
00:27:39,119 --> 00:27:43,560
Speaker 1: gosh and Brazil. It's it's down by ten UM. So

449
00:27:43,880 --> 00:27:46,720
Speaker 1: it's getting better from that standpoint. And to the extent

450
00:27:46,800 --> 00:27:49,240
Speaker 1: that the dollar does weaken, you know, that's a benefit

451
00:27:49,400 --> 00:27:53,919
Speaker 1: as well for SMP five global companies that you know,

452
00:27:53,960 --> 00:27:56,560
Speaker 1: have been affected by a strong dollar in the past,

453
00:27:56,600 --> 00:27:59,440
Speaker 1: and now we'll see the tailwind going forward as we

454
00:27:59,760 --> 00:28:02,160
Speaker 1: move into two thousand and sixteen, if you're just joining

455
00:28:02,240 --> 00:28:05,600
Speaker 1: us on Bloomberg Television, Bloomberg Radio worldwide and across the nation.

456
00:28:06,080 --> 00:28:09,639
Speaker 1: After the jobs report, Bill Gross of Jane's Capital, Mr. Gross,

457
00:28:09,720 --> 00:28:12,080
Speaker 1: driving the market's higher, No White, Mike, it was a

458
00:28:12,160 --> 00:28:16,080
Speaker 1: jobs report features up to now up eleven down, futures

459
00:28:16,119 --> 00:28:19,240
Speaker 1: up eighty five, and we've seen some significant yield moves,

460
00:28:19,359 --> 00:28:22,320
Speaker 1: Mike Butcher sing out, I can give you the recent high,

461
00:28:22,400 --> 00:28:26,480
Speaker 1: the reason high off the Bloomberg January and we came

462
00:28:26,520 --> 00:28:29,159
Speaker 1: down down down here, and we come right back up

463
00:28:29,160 --> 00:28:31,760
Speaker 1: and now broken out in the two year yield down

464
00:28:31,800 --> 00:28:34,760
Speaker 1: we go and up up up into a higher Michael McKee,

465
00:28:34,880 --> 00:28:37,400
Speaker 1: and the ten year yield up four basis points one

466
00:28:37,920 --> 00:28:41,680
Speaker 1: seven percent. Well, Bill, what's the proper pricing for bonds

467
00:28:41,800 --> 00:28:44,720
Speaker 1: right now, for the yield curve right now, given the

468
00:28:44,760 --> 00:28:47,200
Speaker 1: fact that the economy seems to be coming back more strongly,

469
00:28:47,640 --> 00:28:51,959
Speaker 1: but the Fed doesn't seem to be ready to do anything. Well,

470
00:28:52,040 --> 00:28:54,720
Speaker 1: let's look at this two ways, Mike. One, from the

471
00:28:54,760 --> 00:28:57,640
Speaker 1: standpoint of what the Fed would do over the next

472
00:28:57,680 --> 00:29:01,000
Speaker 1: twelve months. You know, the market has factored one hike

473
00:29:01,520 --> 00:29:05,320
Speaker 1: and then one hike in the year beyond that. Perhaps

474
00:29:05,360 --> 00:29:08,720
Speaker 1: that's a little light, and so that would suggest perhaps

475
00:29:08,720 --> 00:29:12,560
Speaker 1: that the tenure is at a relatively low level compared

476
00:29:12,560 --> 00:29:14,760
Speaker 1: to where it should be. Let's compare it, though, to

477
00:29:14,920 --> 00:29:18,720
Speaker 1: the global market, and that's a key relative measure. I mean,

478
00:29:18,960 --> 00:29:22,200
Speaker 1: Japanese ten years in Japanese thirty years have gone down

479
00:29:22,240 --> 00:29:24,960
Speaker 1: by thirty or forty or fifty basis points in the

480
00:29:25,000 --> 00:29:27,520
Speaker 1: past four or five weeks. And of course we have

481
00:29:27,600 --> 00:29:31,000
Speaker 1: to compare the U. S. Treasury tenure to the German

482
00:29:31,040 --> 00:29:33,680
Speaker 1: Boon tenure and and take a spread there. And so

483
00:29:33,760 --> 00:29:36,280
Speaker 1: it's not just what the Fed might do, but it's

484
00:29:36,320 --> 00:29:40,360
Speaker 1: the comparison relative to global markets. And global markets, no doubt,

485
00:29:40,360 --> 00:29:43,560
Speaker 1: are pulling down US rates. And to the extent that

486
00:29:43,720 --> 00:29:47,040
Speaker 1: Druggy you know next week, you know, continues to go

487
00:29:47,120 --> 00:29:50,840
Speaker 1: into negative territory, and to the extent that the b

488
00:29:51,000 --> 00:29:54,200
Speaker 1: o J continues to move down into negative territory, then

489
00:29:54,240 --> 00:29:57,520
Speaker 1: the U. S. Treasury is supported to some extent, and

490
00:29:57,600 --> 00:30:00,800
Speaker 1: price and yields are kept to some extent. It will

491
00:30:00,840 --> 00:30:03,320
Speaker 1: help me here with the oddities of the moment. I

492
00:30:03,320 --> 00:30:06,480
Speaker 1: don't mean the San Francisco forty niners or American politics.

493
00:30:06,720 --> 00:30:10,040
Speaker 1: I would suggest Bill Gross, would you explay negative rates

494
00:30:10,080 --> 00:30:12,600
Speaker 1: and what it means for Janic's capital and for your

495
00:30:12,640 --> 00:30:19,080
Speaker 1: unconstrained portfolio. Well, sure, you know, obviously you only want

496
00:30:19,080 --> 00:30:21,160
Speaker 1: to invest the negative rates if you think they're going

497
00:30:21,200 --> 00:30:24,600
Speaker 1: more negative. That would produce a higher price in terms

498
00:30:24,600 --> 00:30:27,240
Speaker 1: of a bond. We don't really do that because we

499
00:30:27,320 --> 00:30:30,200
Speaker 1: think that the move is limited and you can only

500
00:30:30,240 --> 00:30:35,560
Speaker 1: go so negative before domestic economy has become affected by

501
00:30:35,560 --> 00:30:38,920
Speaker 1: it and it becomes destructive. What we're trying to do

502
00:30:39,040 --> 00:30:42,600
Speaker 1: is basically range bound UH central banks. We believe that

503
00:30:42,680 --> 00:30:46,560
Speaker 1: central banks won't move far, that they were fast. Um

504
00:30:46,760 --> 00:30:50,080
Speaker 1: that these uh fifty basis point hikes in the FED

505
00:30:50,160 --> 00:30:53,320
Speaker 1: and even less in terms of the UK and Japan

506
00:30:53,440 --> 00:30:55,880
Speaker 1: and UH the e c P. You know, then it

507
00:30:55,920 --> 00:30:59,360
Speaker 1: produces relative stasis. That doesn't mean that rates don't move

508
00:30:59,400 --> 00:31:01,960
Speaker 1: forward basis points on a morning, and it does mean

509
00:31:02,000 --> 00:31:04,640
Speaker 1: that the ten here is bound within a twenty plus

510
00:31:04,720 --> 00:31:08,560
Speaker 1: or twenty mins French and so we sell voluntility around that,

511
00:31:08,680 --> 00:31:11,920
Speaker 1: and it produces a much higher yield than a Okay,

512
00:31:11,960 --> 00:31:14,400
Speaker 1: we're gonna come back, Bill Gross with this a Janice

513
00:31:14,440 --> 00:31:19,240
Speaker 1: capital on television and radio worldwide, Bill Gross, this job's day.

514
00:31:21,360 --> 00:31:23,160
Speaker 1: Bloombergs Aveillance is brought to you by c I T.

515
00:31:23,320 --> 00:31:26,280
Speaker 1: From transportation to healthcare to manufacturing. C I T offers

516
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517
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Speaker 1: middle market businesses. Learn more at c I T dot com.

518
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Speaker 1: But knowledge to work Global business news twenty four hours

519
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Speaker 1: a day at Bloomberg dot com, the Radio plus mobile

520
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Speaker 1: app and on your radio. This is a Bloomberg Business

521
00:31:46,320 --> 00:31:49,280
Speaker 1: Flash and I'm KM in Moscow. This updates brought to

522
00:31:49,320 --> 00:31:51,600
Speaker 1: you by Sector Spider E t F. Why buy a

523
00:31:51,640 --> 00:31:54,040
Speaker 1: single stock when you can invest in the entire sector?

524
00:31:54,360 --> 00:31:57,080
Speaker 1: Visits Sector sp d r S dot com or call

525
00:31:57,840 --> 00:32:01,520
Speaker 1: Sector e t F. We Stock index futures are an

526
00:32:01,560 --> 00:32:05,600
Speaker 1: extending and advance as steady job gains added to optimism

527
00:32:05,600 --> 00:32:08,600
Speaker 1: on the economy as it weathers a global slowdown. And

528
00:32:08,640 --> 00:32:11,360
Speaker 1: we checked the markets every fifteen minutes throughout the trading

529
00:32:11,440 --> 00:32:14,880
Speaker 1: day on Bloomberg. Snp emny futures are up seven points,

530
00:32:14,960 --> 00:32:18,360
Speaker 1: dowt EMUNI futures of fifty nine, NAS documny futures up

531
00:32:18,360 --> 00:32:21,040
Speaker 1: twenty one. The DACKS in Germany's up one point one percent,

532
00:32:21,360 --> 00:32:23,360
Speaker 1: CAC in Paris up one point three percent, and the

533
00:32:23,400 --> 00:32:25,880
Speaker 1: FT one hundred is up eight tenths per cent ten,

534
00:32:25,960 --> 00:32:28,600
Speaker 1: your treasury down nine thirty seconds, the yelled one point

535
00:32:28,600 --> 00:32:31,520
Speaker 1: eight six percent yield on the two year point eight

536
00:32:31,520 --> 00:32:34,560
Speaker 1: four percent nine back screwed. Oil up six tents percent

537
00:32:34,600 --> 00:32:37,000
Speaker 1: or twenty cents to thirty four seventy five a barrel

538
00:32:37,160 --> 00:32:39,040
Speaker 1: and co MIxS gold is up a dollar ten. That's

539
00:32:39,040 --> 00:32:41,200
Speaker 1: about a tenth of up percent to twelve fifty nine

540
00:32:41,480 --> 00:32:43,960
Speaker 1: eighty announced the euro and all their oh nine twenty

541
00:32:44,000 --> 00:32:48,000
Speaker 1: two and massa Bloomberg business flash, Tom and Mike Karen,

542
00:32:48,320 --> 00:32:50,480
Speaker 1: thanks so much again. As Karen mentions the lift of

543
00:32:50,520 --> 00:32:54,040
Speaker 1: the market thirty thousand, the revisions, you strapped that out

544
00:32:54,080 --> 00:32:56,440
Speaker 1: of the statistic and you get a I'm gonna say

545
00:32:56,520 --> 00:33:00,400
Speaker 1: near three hundred thousand gain in payrolls now, you know,

546
00:33:00,560 --> 00:33:03,280
Speaker 1: not near, but twun at seventy is something that is

547
00:33:03,320 --> 00:33:07,120
Speaker 1: pretty good. And you see wages as well. Right now.

548
00:33:07,160 --> 00:33:10,560
Speaker 1: Bloomberg Television, Bloomberg Radio worldwide is always this job's day.

549
00:33:10,600 --> 00:33:14,360
Speaker 1: The generous support from Jane's capital is unconstrained. Fund Bill

550
00:33:14,400 --> 00:33:17,080
Speaker 1: Gross with this is well, Michael Jumping, you're on the

551
00:33:17,160 --> 00:33:20,880
Speaker 1: job economy. The research you've seen in the last fifteen

552
00:33:20,920 --> 00:33:24,480
Speaker 1: minutes or so to Mr Gross, what's your key insight? Well,

553
00:33:24,520 --> 00:33:26,960
Speaker 1: I think people are surprised bill by how strong hiring

554
00:33:27,040 --> 00:33:29,840
Speaker 1: continues to be given the fact that we have created

555
00:33:29,880 --> 00:33:32,040
Speaker 1: so many jobs for so long and the unemployment rate

556
00:33:32,160 --> 00:33:36,320
Speaker 1: is so low. The markets are gonna are the markets

557
00:33:36,360 --> 00:33:38,480
Speaker 1: going to have a tough time accepting the fact that

558
00:33:38,560 --> 00:33:40,760
Speaker 1: at some point we're going to slow down. But a

559
00:33:40,800 --> 00:33:45,480
Speaker 1: hundred and fifty thousand jobs would still be a strong month, Well,

560
00:33:45,560 --> 00:33:48,720
Speaker 1: it would be. Let's face, the Fed though, is keen

561
00:33:48,800 --> 00:33:53,560
Speaker 1: and wages. They they focus on labor and labor conditions

562
00:33:53,560 --> 00:33:56,160
Speaker 1: and to them, uh, you know, if if wages get

563
00:33:56,200 --> 00:33:58,520
Speaker 1: out of hand, then in place and we'll get at hand.

564
00:33:58,880 --> 00:34:01,239
Speaker 1: You know, we notice the this month, although there may

565
00:34:01,280 --> 00:34:04,320
Speaker 1: be an aberration, as you've noted the ten to fifteen

566
00:34:04,320 --> 00:34:08,719
Speaker 1: minutes ago that the average hourly earnings went down from

567
00:34:08,880 --> 00:34:12,080
Speaker 1: to five to two point two percent on an annual

568
00:34:12,280 --> 00:34:15,160
Speaker 1: y o Y basis, and so you know, definitely wages

569
00:34:15,200 --> 00:34:18,080
Speaker 1: are uh an hourly earnings are not out of control.

570
00:34:18,120 --> 00:34:22,279
Speaker 1: If you factor in productivity perhaps at one percent, then

571
00:34:22,640 --> 00:34:25,400
Speaker 1: you know you've got inflation in the one percent category.

572
00:34:25,440 --> 00:34:28,760
Speaker 1: It seems to me that the Fed needs to focus

573
00:34:28,880 --> 00:34:34,360
Speaker 1: on on those conditions and know that two percent inflation

574
00:34:34,480 --> 00:34:37,200
Speaker 1: rate is perhaps a long way off. You know, the

575
00:34:37,200 --> 00:34:40,799
Speaker 1: break evens and the tips market almost worldwide, but let's

576
00:34:40,800 --> 00:34:44,840
Speaker 1: tuck about the US. Almost on all maturities from five

577
00:34:44,880 --> 00:34:48,600
Speaker 1: to ten to twenty to thirty years in maturity um,

578
00:34:49,200 --> 00:34:52,320
Speaker 1: the break even inflation rate is about one point four percent,

579
00:34:52,400 --> 00:34:55,640
Speaker 1: which means the market expects inflation for the next thirty

580
00:34:55,719 --> 00:34:58,520
Speaker 1: years to be one point four percent. And so why

581
00:34:58,600 --> 00:35:01,840
Speaker 1: is the Fed so come cerned about inflation when the

582
00:35:01,880 --> 00:35:04,920
Speaker 1: market seem to be telling it that everything's okay. Ordinarily

583
00:35:04,960 --> 00:35:08,279
Speaker 1: you would say go with the market. But if they're

584
00:35:08,280 --> 00:35:12,200
Speaker 1: expecting that kind of inflation for thirty years, somebody's got

585
00:35:12,200 --> 00:35:17,040
Speaker 1: to be wrong somewhere. Well, I think so. Um, you know,

586
00:35:17,120 --> 00:35:21,000
Speaker 1: to my way of thinking, when demographics kick in, when

587
00:35:21,000 --> 00:35:23,879
Speaker 1: the boomer is really good old and demand medical care

588
00:35:23,920 --> 00:35:28,920
Speaker 1: and stop spending money on consumption, and things will change dramatically,

589
00:35:28,920 --> 00:35:31,880
Speaker 1: and that to me means higher inflation. But at the moment,

590
00:35:31,960 --> 00:35:34,319
Speaker 1: the market doesn't see it that way. And certainly, to

591
00:35:34,360 --> 00:35:36,880
Speaker 1: be fair, you know, for the next five years or

592
00:35:36,960 --> 00:35:39,400
Speaker 1: the next two or three or four years, inflation seems

593
00:35:39,880 --> 00:35:43,680
Speaker 1: well under control unless commodities get a bid. Will being

594
00:35:43,719 --> 00:35:47,920
Speaker 1: the best example going to sixty dollars. You know, unless

595
00:35:47,960 --> 00:35:51,000
Speaker 1: that happens, then inflation is contained, as we see by

596
00:35:51,160 --> 00:35:53,920
Speaker 1: you know the wage numbers today, Bill, I want to

597
00:35:53,920 --> 00:35:56,840
Speaker 1: congratulate you on your latest note off Janni's Capital. We

598
00:35:56,880 --> 00:35:59,000
Speaker 1: always read them, we always like them. There's never been

599
00:35:59,040 --> 00:36:02,759
Speaker 1: a bad one. This one, folks, is extraordinary, and it

600
00:36:02,840 --> 00:36:06,160
Speaker 1: leads with the City Group chart, which drives me insane.

601
00:36:06,160 --> 00:36:08,720
Speaker 1: And I'm so glad Bill you did this. Christopher wander

602
00:36:08,719 --> 00:36:10,880
Speaker 1: over here in Bloomberg Television. I'll put it out on

603
00:36:10,920 --> 00:36:14,440
Speaker 1: Bloomberg Radio plus. City Group at forty two dollars a

604
00:36:14,520 --> 00:36:16,640
Speaker 1: share is a fiction that's after a ten to one

605
00:36:16,960 --> 00:36:19,399
Speaker 1: reverse split. Here we go up, we go to five

606
00:36:19,480 --> 00:36:22,040
Speaker 1: hundred dollars a share. Down, we go to forty two

607
00:36:22,080 --> 00:36:24,880
Speaker 1: dollars a share. You make a clear, Bill, you're worried

608
00:36:24,880 --> 00:36:29,319
Speaker 1: about permanent damage in our American banking system. Can you

609
00:36:29,480 --> 00:36:34,440
Speaker 1: support your former employee, Neil cash Kari in reviewing are

610
00:36:34,480 --> 00:36:38,600
Speaker 1: too big to fail banks? Well, my point wasn't exactly

611
00:36:38,719 --> 00:36:41,480
Speaker 1: Neil's point, but Neil has a point. You know, there

612
00:36:41,520 --> 00:36:44,000
Speaker 1: are banks that are too big to fail, and let's

613
00:36:44,440 --> 00:36:47,880
Speaker 1: make sure that we regulate them properly and that they

614
00:36:47,920 --> 00:36:51,960
Speaker 1: have sufficient capital. I think they have been recapitalizing and

615
00:36:52,000 --> 00:36:54,200
Speaker 1: they do have more capital than they had before. My

616
00:36:54,320 --> 00:36:57,640
Speaker 1: point um not by showing city at five now at

617
00:36:58,000 --> 00:37:02,160
Speaker 1: forty two, he'll basically that many banks are are like that,

618
00:37:02,239 --> 00:37:05,880
Speaker 1: not to the same extreme, but certainly in Europe with Crowd,

619
00:37:05,960 --> 00:37:10,200
Speaker 1: Swiss and Deutsche Bank. Their earnings power going forward not that,

620
00:37:10,440 --> 00:37:14,399
Speaker 1: not the fact that they might be vulnerable to bankruptcy

621
00:37:14,480 --> 00:37:17,080
Speaker 1: because they recapitalized, but their earnings power going forward is

622
00:37:17,120 --> 00:37:20,760
Speaker 1: limited because negative interest rates and because the yield curve

623
00:37:20,920 --> 00:37:24,080
Speaker 1: appears to be relatively flat and will continue to be

624
00:37:24,120 --> 00:37:26,919
Speaker 1: flat for a long time. That means their margins, their

625
00:37:27,000 --> 00:37:30,480
Speaker 1: nimbs will be limited. And it simply means to me that, well,

626
00:37:30,640 --> 00:37:33,000
Speaker 1: you know, bank banks are not a bad investment, but

627
00:37:33,160 --> 00:37:35,080
Speaker 1: you know, let's face it, they're in a new age

628
00:37:35,120 --> 00:37:39,560
Speaker 1: with limited ability to increase earnings based upon this yield curve.

629
00:37:39,640 --> 00:37:42,480
Speaker 1: But Bill critically, and Alan Greenspan speaks of this, You

630
00:37:42,600 --> 00:37:45,280
Speaker 1: speak of this our David Weston and Bloomberg God pointed

631
00:37:45,280 --> 00:37:49,279
Speaker 1: it out to me yesterday. Credit growth is ramping up

632
00:37:49,320 --> 00:37:52,319
Speaker 1: a little bit. Can you buy the idea that that's

633
00:37:52,320 --> 00:37:55,600
Speaker 1: a symbol of a recovering America or is that credit

634
00:37:55,640 --> 00:38:00,759
Speaker 1: growth within banking a fiction? No, and I think we

635
00:38:00,800 --> 00:38:03,239
Speaker 1: need it, and I think that's a critical element. You know,

636
00:38:03,280 --> 00:38:06,360
Speaker 1: I'm monitorist, you know, I'm uh, you know, sort of

637
00:38:06,440 --> 00:38:10,320
Speaker 1: stuck on a on a Hyman Minsky type of model work.

638
00:38:10,440 --> 00:38:14,680
Speaker 1: Credit feeds economic growth, that the two are related. Our

639
00:38:14,680 --> 00:38:18,319
Speaker 1: finance based economy depends on the perpetual creation of more

640
00:38:18,320 --> 00:38:22,200
Speaker 1: and more credit. And so, yeah, the rate is three

641
00:38:22,200 --> 00:38:24,520
Speaker 1: to four percent. Now perhaps it goes to five to

642
00:38:24,600 --> 00:38:27,840
Speaker 1: six percent. I think in order to create a nominal

643
00:38:27,920 --> 00:38:30,640
Speaker 1: GDP growth of four to which is what the FED

644
00:38:30,760 --> 00:38:34,399
Speaker 1: wants to do, they need to create credit growth much

645
00:38:34,480 --> 00:38:38,160
Speaker 1: higher than that, because, uh, you know, it's been evident

646
00:38:38,200 --> 00:38:40,520
Speaker 1: in the past ten fifteen years that you need a

647
00:38:40,640 --> 00:38:44,000
Speaker 1: much higher rate of credit growth in order to stimulate

648
00:38:44,040 --> 00:38:46,960
Speaker 1: a certain amount of nominal GDP growth. And so it's

649
00:38:47,000 --> 00:38:49,680
Speaker 1: getting better, but it's still in the four percent area.

650
00:38:49,800 --> 00:38:53,200
Speaker 1: And as long as it stays there, it's underneath you know,

651
00:38:53,239 --> 00:38:56,280
Speaker 1: the cost of capital in the system, which is about

652
00:38:56,320 --> 00:38:59,160
Speaker 1: six percent. And if you can only grow nominal GDP

653
00:38:59,320 --> 00:39:03,520
Speaker 1: by uh four, you can only go credit by four

654
00:39:03,600 --> 00:39:07,200
Speaker 1: percent with the cost of capital and sixth then uh

655
00:39:07,360 --> 00:39:10,879
Speaker 1: you know, nominal GDP suffers and you can't get out

656
00:39:10,920 --> 00:39:13,919
Speaker 1: of the whole. So credit growth is the key. You've

657
00:39:13,920 --> 00:39:16,080
Speaker 1: got to find some way for the private system to

658
00:39:16,320 --> 00:39:19,640
Speaker 1: generate it. The FED has done their duty in terms

659
00:39:19,680 --> 00:39:22,360
Speaker 1: of lowering interest rates and queuing all of that, but

660
00:39:22,440 --> 00:39:25,360
Speaker 1: now the private system needs to take debate. Some of

661
00:39:25,400 --> 00:39:28,879
Speaker 1: it is occurring, but I think they need much more.

662
00:39:29,239 --> 00:39:32,040
Speaker 1: Can it be created? You argue in your latest note

663
00:39:32,360 --> 00:39:36,000
Speaker 1: that we're seeing pushback from savers and regulators to the

664
00:39:36,040 --> 00:39:39,000
Speaker 1: idea of ongoing credit creation. It sounds a lot like

665
00:39:39,080 --> 00:39:41,920
Speaker 1: what Ray Dalio has been saying that officially we're at

666
00:39:41,960 --> 00:39:45,600
Speaker 1: the end of a long term credit cycle. Uh. Are

667
00:39:45,680 --> 00:39:49,239
Speaker 1: you saying you're in agreement with that? Well, I think

668
00:39:49,280 --> 00:39:52,480
Speaker 1: we are, and I think we've been there, Uh in

669
00:39:52,560 --> 00:39:55,839
Speaker 1: marginal terms for the last several years. I look at this,

670
00:39:55,920 --> 00:39:57,600
Speaker 1: give me thirty seconds. I look at this as a

671
00:39:57,680 --> 00:40:00,520
Speaker 1: monopoly game. We know what happens in monopo. You get

672
00:40:00,560 --> 00:40:02,759
Speaker 1: a certain amount of money and you go around the board,

673
00:40:02,800 --> 00:40:05,040
Speaker 1: you buy properties, you get two hundred dollars every time

674
00:40:05,080 --> 00:40:07,520
Speaker 1: to past go. Look at that as credit creation in

675
00:40:07,640 --> 00:40:12,799
Speaker 1: terms of the system. Um, why players go bankrupt is

676
00:40:12,800 --> 00:40:15,399
Speaker 1: that ultimately they have so many properties and not enough cash,

677
00:40:15,400 --> 00:40:17,640
Speaker 1: and they only get two hundred dollars two hundred dollars,

678
00:40:17,640 --> 00:40:19,719
Speaker 1: two hundred dollars as they go around the board. It's

679
00:40:19,760 --> 00:40:23,239
Speaker 1: not enough credit that's being created. Basically, what the fan

680
00:40:23,320 --> 00:40:26,400
Speaker 1: has to do is produced three hundred dollars, four hundred dollars,

681
00:40:26,400 --> 00:40:28,840
Speaker 1: five hundred dollars, six hundred dollars every time you past

682
00:40:28,920 --> 00:40:31,600
Speaker 1: go in order to keep the system solvent and to

683
00:40:31,719 --> 00:40:35,279
Speaker 1: keep players playing the game. And at the moment, you

684
00:40:35,280 --> 00:40:37,480
Speaker 1: know the ideas that have come about in terms of

685
00:40:37,560 --> 00:40:41,200
Speaker 1: negative interest rates and QWI, it's now being advanced in

686
00:40:41,320 --> 00:40:44,799
Speaker 1: terms of helicopter money dropping cash um. You know, there

687
00:40:44,800 --> 00:40:46,400
Speaker 1: are a number of ways to do it, but the

688
00:40:46,680 --> 00:40:50,600
Speaker 1: private system needs more and more money to spend in

689
00:40:50,680 --> 00:40:53,399
Speaker 1: order to generate the same amount of nominal GDP growth.

690
00:40:53,480 --> 00:40:55,720
Speaker 1: You can't go around the board at two hundred dollars

691
00:40:56,040 --> 00:40:59,760
Speaker 1: crack without players going bankrupt. Bill In the final moments

692
00:40:59,840 --> 00:41:03,080
Speaker 1: that we have with you, I think the great respect

693
00:41:03,120 --> 00:41:09,040
Speaker 1: for your heritage within finance investment in your study of economics,

694
00:41:09,480 --> 00:41:12,440
Speaker 1: we must have you comment on how we try to

695
00:41:12,440 --> 00:41:16,160
Speaker 1: get our presidential campaign to two conventions and then on

696
00:41:16,280 --> 00:41:19,280
Speaker 1: to November. What have you observed in the last couple

697
00:41:19,280 --> 00:41:24,600
Speaker 1: of weeks. And how does that affect the markets? Well,

698
00:41:24,640 --> 00:41:27,760
Speaker 1: I think it ultimately will, and it depends on what happens.

699
00:41:27,840 --> 00:41:31,080
Speaker 1: I mean, I was struck last night by case At

700
00:41:31,120 --> 00:41:33,920
Speaker 1: coming out and basically saying it that he wanted a

701
00:41:33,960 --> 00:41:37,879
Speaker 1: coalition to basically to to fight Trump. And and they

702
00:41:37,880 --> 00:41:42,239
Speaker 1: all testified that yes, they'd support the candidate, but no

703
00:41:42,320 --> 00:41:45,480
Speaker 1: one went beyond the point of determining how that candidate

704
00:41:45,520 --> 00:41:48,719
Speaker 1: would be chosen. I think if the Republicans get to

705
00:41:48,760 --> 00:41:53,080
Speaker 1: the convention and and and choose a candidate based upon

706
00:41:53,400 --> 00:41:56,239
Speaker 1: you know, an inner circle as opposed to the population

707
00:41:56,280 --> 00:41:59,840
Speaker 1: a whole, that markets will definitely be affected. In effect,

708
00:42:00,000 --> 00:42:04,440
Speaker 1: it will be a takeover by a small minority of Washington,

709
00:42:04,560 --> 00:42:08,280
Speaker 1: and that is not the way democracy and capitalism worked.

710
00:42:08,320 --> 00:42:10,719
Speaker 1: So I think we better keep a keen eye on

711
00:42:11,280 --> 00:42:15,360
Speaker 1: what happens in at the convention as we go forward.

712
00:42:15,640 --> 00:42:17,920
Speaker 1: Bill Gross, thank you so much your time, Very generous

713
00:42:17,960 --> 00:42:21,440
Speaker 1: of you. Jana's Capital folks, I can't say enough. If

714
00:42:21,480 --> 00:42:25,520
Speaker 1: you're on Global Wall Street, you must read Sunshine Lollipops

715
00:42:25,600 --> 00:42:30,440
Speaker 1: and his essay on the American financial system. Must watch,

716
00:42:30,640 --> 00:42:34,399
Speaker 1: must listen at one thirty PM this afternoon. Our Mark

717
00:42:34,600 --> 00:42:38,319
Speaker 1: Helper and in conversation with Governor Romney, looked for that

718
00:42:38,640 --> 00:42:42,839
Speaker 1: worldwide one thirty this afternoon, with futures up to down.

719
00:42:42,840 --> 00:42:47,000
Speaker 1: Features up sixteen Michael McKee and Tom Keene Bloomberg Surveillance