Speaker 1: This is Bloomberg surveillance. If we put people back to
Speaker 1: work and drive the unemployment rate down, at some point
Speaker 1: that has to lead to wage growth. That's just first
Speaker 1: principles of economics. If wage growth continues to pick up,
Speaker 1: as I expect it will, that's going to be increasingly
Speaker 1: uncomfortable having raps close to zero. As long as the
Speaker 1: American company continue to hire and Aerial's continue to expand,
Speaker 1: will be fine, and every indication is that they will.
Speaker 1: Bloomberg Surveillance your link to the world of economics, finance
Speaker 1: and investment on Bloomberg Radio. Good Morning, Everyone's job today.
Speaker 1: Michael McKee and Tom Keane. You heard from Robert Gordon,
Speaker 1: Alan Krueger, Michael Darda. Next, Mickey Levy of Barenberg Capital Markets.
Speaker 1: We are not Europe, we are not Japan. His optimism
Speaker 1: on our ability to move forward within this American economy.
Speaker 1: A very important program. Note one thirty this afternoon, Governor
Speaker 1: Romney will be interviewed by our Mark Helper and this
Speaker 1: is what question the important political interview of the day.
Speaker 1: Helper in Romney worldwide radio and television. Look for that
Speaker 1: at one thirty this afternoon. I did watch Governor Romney's
Speaker 1: remarks yesterday and Mr Trump's reaction to them, and UH,
Speaker 1: one told the truth and one to not. We never
Speaker 1: give our opinion here is Michael McKey just skirted the
Speaker 1: UH issues of the moment, Bloomberg surveillance. We're brought to
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Speaker 1: This is wonderfully time. Mickey Leavey is one of our
Speaker 1: great students. He's not a FED critic because he has
Speaker 1: too much respect for the institution, but he has always
Speaker 1: questioned the linkage of our theory to our actions away
Speaker 1: from theory. As we've seen for the last seven or
Speaker 1: eight years. He is with Barrenberg Capital Marcus Robert Gordon
Speaker 1: sitting in the chair you're in UH. Dr Levy UH
Speaker 1: within the hour, and he is adamant about his optimism
Speaker 1: on America even without technological progress. Carry this further to
Speaker 1: the fear that America could become like Europe or worse,
Speaker 1: become like Japan. You push against that. Well, the way
Speaker 1: I push against it is, you know, the potential growth
Speaker 1: is endogenous. I mean, if you put in place the
Speaker 1: right policies, which include put the fet aside, When you
Speaker 1: put in place the right policies tax and spending policies,
Speaker 1: how you allocate national resources, regulatory environment, you can you
Speaker 1: can have very healthy potential growth and very healthy sustained
Speaker 1: job creation. If you put in place uh lousy policies
Speaker 1: that er future planning and future investment, um, you know,
Speaker 1: then you're gonna have very weak growth. So it's up
Speaker 1: to our policy makers. And I think that's the beginning
Speaker 1: and end of it. I think I wish, I wish
Speaker 1: the policy makers would really talk about the policies, but
Speaker 1: they don't and they won't and they aren't. So what
Speaker 1: can the FED or anyone else do in the absence
Speaker 1: of that. Not much? Okay. So, so the bottom line is,
Speaker 1: you know, monetary policy cannot by stimulating create permanent jobs,
Speaker 1: and it can't lift long run potential growth. The e
Speaker 1: c B is obviously a financial backstop for Europe, but
Speaker 1: Europe has put in place some countries are put in
Speaker 1: place performance in the United States. Um, all of the
Speaker 1: you know, disappointment about the you know, the moderate rate
Speaker 1: of growth in the last six years has nothing to
Speaker 1: do with FED policy. It has to do with other
Speaker 1: policies that are you know, coming up the credit channels
Speaker 1: and constraining you know, business and investment and planning for
Speaker 1: the future. Well, what would you say to the argument
Speaker 1: that some people make that the FED is in a
Speaker 1: way complicit with this situation because their extraordinary policies have
Speaker 1: enabled Congress and policymakers on the fiscal side to avoid
Speaker 1: doing anything. Mike, I think that's I think that's a
Speaker 1: very valid point. Um. We all know that the quantitative
Speaker 1: easing and and and um, they're all their efforts to
Speaker 1: keep bon yields low has kind of gotten Congress off
Speaker 1: the hook, so they haven't Congress hasn't been forced to reform. Also,
Speaker 1: I think there's this this broader problem that everybody, including policymakers,
Speaker 1: financial markets, and the economic and financial media look to
Speaker 1: the FED to solve all the problems, and they're not
Speaker 1: able to. If you look at the last six years,
Speaker 1: the FED has not been able to stimulate aggregate demand.
Speaker 1: Any helped me with the idea that we move from
Speaker 1: ten percent to five percent unemployment. Dean Mackie at point
Speaker 1: seven two, suggesting we get to the vicinity of four
Speaker 1: point zero. I saw one person quota three nine out
Speaker 1: into the distance. My I should feel better, DR leave you.
Speaker 1: Why don't we feel better if the vectors in a
Speaker 1: wonderful direction? Well, I think that's a very valid question,
Speaker 1: and I and I have a hard time answering it because,
Speaker 1: as you know, the unemployment rate has come down, you six,
Speaker 1: has has come way way down UM adjusted for inflation.
Speaker 1: Of course, real wages UM have been you know, increasing UM. Now,
Speaker 1: the one of the questions is UM, who gets credit
Speaker 1: for this? And I would argue that we're just distancing
Speaker 1: ourselves from the financial crisis. UM. And if you look
Speaker 1: at UM aggregate demand or nominal GDP growth, it hasn't
Speaker 1: been the FED that that that that that could rightly
Speaker 1: take credit for all this. It's just the economy's growing modestly.
Speaker 1: But yours is a good question. UM. The US economy,
Speaker 1: we would like it to be growing faster, and I
Speaker 1: can think of some policies that would would really lift
Speaker 1: its rate of growth. But we're doing just a lot
Speaker 1: better than than than we have been. Okay, will bite
Speaker 1: give me a couple of policies. Oh boy, I I
Speaker 1: would love to see the next president, regardless of of
Speaker 1: UM who who that is? UM, sit down and say, okay,
Speaker 1: my first objective is corporate tax reform, and let's um
Speaker 1: and let's get people from both sides of the political
Speaker 1: aisle and talk about and build a base on what
Speaker 1: we agree on rather than focusing on the polemics. UM.
Speaker 1: And I think that would that would really lift a
Speaker 1: gray a gray cloud. And I think it would be
Speaker 1: pretty easy, cebes. I think reasonable people on both sides
Speaker 1: of the political aisle, you know, agree on large portions
Speaker 1: of what needs to be done on corporate taxes. And
Speaker 1: that's that's just the beginning. Another concern I have, uh
Speaker 1: lurking beneath the surface that I think has definitely had
Speaker 1: a negative impact on on the pace of economic growth,
Speaker 1: particularly capital spending, is the growing web of the regulations.
Speaker 1: And it's not the things we see in the headlines.
Speaker 1: It's the fine print and the implementation of a lot
Speaker 1: of regulations, not in the financial sector, but in the
Speaker 1: non financial sector that is on the margin leading businesses
Speaker 1: in a number of industries to temper back their expectations.
Speaker 1: Just published moments ago, Thomas had sold the Great Liberal,
Speaker 1: an essay in The New York Times on Mr Trump
Speaker 1: and all Mark Mike, Mike McKinnon and Mickey Lee. There's
Speaker 1: a wonderful statistic in here from Lucas Caravan Unas of
Speaker 1: Booth Schools Chicago. Mike, you just attended their wonderful panel.
Speaker 1: Labor share of our economy is down twelve percent from
Speaker 1: six to I mean, that's that's a structural change. With
Speaker 1: Larry Summers talks about secular stagnation, that's a definition labor
Speaker 1: is getting a smaller pie. Why is that, Dr Levy?
Speaker 1: Why is it? Is it that we've innovated ourselves out
Speaker 1: of jobs formation sixty nine to over a generation. I
Speaker 1: think part of the reason is the change in the
Speaker 1: composition of GDP higher higher portion is in service producing industries.
Speaker 1: Some of what your high productivity, high paying jobs, but
Speaker 1: but a large number are in lower productivity jobs that
Speaker 1: command or or are associated with lower wages. And I
Speaker 1: think that's that's clearly one of the factors. The other
Speaker 1: is the measurement issue. Okay, um, there is a growing
Speaker 1: wedge between business costs of employing people and those workers
Speaker 1: take home pay. And so if that decline in the
Speaker 1: labor share of g d p M reflects just take
Speaker 1: home pay the paps of unit, right, And I think
Speaker 1: I think that's important and and and and so this
Speaker 1: is one of the areas where um, I would love
Speaker 1: to see higher productivity and higher compensation for for skilled workers.
Speaker 1: We're going to do that, Bicky leader. We're gonna come
Speaker 1: back on what has been the theme through the morning,
Speaker 1: which is the efficiency of the economy. The productivity of
Speaker 1: the economy. As you all know, it's flat on its
Speaker 1: Like Mica has said, Okay, you and I don't have
Speaker 1: real jobs. We know that. We go from Greenspan, Vin Weber,
Speaker 1: the Senator for New Answer, Judd Gregg, Robert Gordon, Alan Krueger,
Speaker 1: Michael Darda Levy onto a guy named Gross. I mean
Speaker 1: this is pretty good. I'm like, this is pretty good.
Speaker 1: And the great thing is we get to share it
Speaker 1: with all of you listening. And yeah, stay tuned, because
Speaker 1: what a great children And it's out on our podcast.
Speaker 1: We're pleased to announce again free and you can subscribe iTunes.
Speaker 1: Mickey Levy not only the entire show for those that
Speaker 1: desire that, but individual podcasts is well. We've got a
Speaker 1: huge jump start to this and hope to roll it
Speaker 1: out over the next coming days. Again, an important interview
Speaker 1: one thirty this afternoon, Mark Helpred in conversation with a
Speaker 1: former governor of the Commonwealth of Massachusetts, Mitt Romney. Look
Speaker 1: for that at one thirty uh this afternoon. Without question,
Speaker 1: the interview of the day. Time out to check with
Speaker 1: blacam bar and get the latest world and national headlines. Miael,
Speaker 1: Mike Tom, thank you very much. Donald Trump's Republican presidential
Speaker 1: rivals aim out swinging at last night's debate. The echoed
Speaker 1: party establishment figures that Trump is a phony, but Trump,
Speaker 1: Marco Rubio, Ted Cruz, and John Kasik all said at
Speaker 1: the end of the debate that they would support the Dominique.
Speaker 1: Brazilian police are questioning former President Louis Ignatio Lula da
Speaker 1: Silva in a corruption case. Police are also searching his home.
Speaker 1: Diamond smuggling has caused Zimbabwe's economy more than thirteen billion dollars.
Speaker 1: That's according to Zimbabwe President Robert Mgabe. The state has
Speaker 1: created a new company to take control of the controlling mining.
Speaker 1: Global news twenty four hours a day, powered by our
Speaker 1: journalists more than a hundred fifty news bureaus from around
Speaker 1: the world. Michael Barr, Tom and Michael, thanks so much.
Speaker 1: We are fifteen making nineteen minutes away from the jobs
Speaker 1: report again beneath the headline data with Mickey Leany Barrenberg
Speaker 1: Capital Markets, and then Bill Gross of Janice at Capital
Speaker 1: coming up next. This is what we want to talk about,
Speaker 1: the lack of amy productivity. This is Bloomberg's surveillance. This
Speaker 1: news update brought to you by the New York Community Trust,
Speaker 1: where donors like you help them make New York better.
Speaker 1: Global business news twenty four hours a day at Bloomberg
Speaker 1: dot Com, the radio plus mobile lapp and on your radio.
Speaker 1: This is a Bloomberg Business Flash and I'm Karen Moscow.
Speaker 1: Futures are higher. Let's go to the first Bird breaking
Speaker 1: news desk for today's morning call. Here's Bill Maloney. Good
Speaker 1: morning Bill, Good morning Karen. U s you just have
Speaker 1: added to their games since the last time we spoke down.
Speaker 1: Future is currently hired by thirty six point scipes Game
Speaker 1: four and as a features rise by fifteen The US
Speaker 1: ten yield at one point eight three percent. Main up
Speaker 1: of markets except Italy are trading higher. Germany gains one percent,
Speaker 1: while in South America Brazil jumps three per cent. On
Speaker 1: the US Economic Friday thirty job numbers, changing Non Farm
Speaker 1: Peril's estimate a hundred and ninety five thousand, and after
Speaker 1: the Las Night HP Enterprise EPs beat, Broadcom quch revenue
Speaker 1: was in line, and Smith and Wesson boost the rps
Speaker 1: and revenue views. In deal news, Sampson Night is buying
Speaker 1: Toomey for seventy five a share at AMC Theaters to
Speaker 1: buy Carmikey Cinemas for thirty hours a share. Finally, some
Speaker 1: of your key walshot upgrades and downgrades brought inform and
Speaker 1: cut the neutral over at Bank of America. Hewitt Packard
Speaker 1: Enterprise raised out performer Bernstein h and R Block cut
Speaker 1: to market perform at BMO. Barkley's cut the whole versus
Speaker 1: by a Deutsche Bank JS Penny raised to buy it. Ever,
Speaker 1: courts I s I Qualcom cut to perform at Oppenheimer,
Speaker 1: and finally Goldman Sachs Xcel Group cut to neutral and
Speaker 1: monts Santo cut the cell live from the first breaking
Speaker 1: news desk gone, Bill Maloney, care, all right, thanks Villa
Speaker 1: to hear live breaking news over your Bloomberg type squawk
Speaker 1: a goo on your terminal, that's squ you a w
Speaker 1: u k go, that's a Bloomberg? Is this flash? Tom
Speaker 1: and Mike, Karen and thanks so much. This Job's Day
Speaker 1: Bloomberg surveillance brought to by Investco. Investco believes it's trying
Speaker 1: to bench the benchmarks and to consider active management and
Speaker 1: factor based strategies. Find out more at investco dot com.
Speaker 1: Slash high conviction. We moved to Job's Day. First of all,
Speaker 1: I do want to mention the series of headlines out
Speaker 1: of Brazil are simply stunning. We're not gonna dwell on
Speaker 1: this a lot here today, but markets explode higher, Petro
Speaker 1: bruss rises eighteen percent. Is President Lula Mike? Is it
Speaker 1: unfair to say under house arrest? Uh, it's hard to
Speaker 1: know his exact status. He has been detained by the
Speaker 1: police for questioning. They took him to the airport for
Speaker 1: security reasons, so question. It isn't exactly clear what he
Speaker 1: is doing or the status. Brazilian real is stronger. We've
Speaker 1: had a wonderful morning looking at our economic history that
Speaker 1: broader themes and make you leave you a baringer capital
Speaker 1: markets with us. Mickey, let's fold into this immediate jobs
Speaker 1: report that we see in exactly ten minutes. It's about productivity, capital, labor,
Speaker 1: and technological progress. Give us the y. We're flat on
Speaker 1: our back with productivity. I think part of it is
Speaker 1: a missmeasurement problem. I see everywhere anecdotal evidence of technological innovations,
Speaker 1: not only new products, but but but but improved production
Speaker 1: facilities and capabilities. I see record breaking near record breaking
Speaker 1: corporate profits, and then the productivity data are so weak.
Speaker 1: I think there is a mismeasurement problem that the US
Speaker 1: Department of Commerce will eventually get to. But it's a
Speaker 1: very technical issue. Let me just bring out an example. Um,
Speaker 1: all of you who are looking at your iPhones now, UM,
Speaker 1: when you buy an iPhone because it's because it's produced
Speaker 1: in China nets out to close to zero in g
Speaker 1: d P. Are you telling me that over the last
Speaker 1: seven eight years this has had zero impact. Mr McKinney,
Speaker 1: the sainted one needed a new iPhone yesterday. Uh it
Speaker 1: did not. It directly affected the GDP of the American economy.
Speaker 1: I could assure you, Mr Levy, you did your pat
Speaker 1: I did my patriotic duty and dropped a large amount
Speaker 1: of money on an iPhone for but it netted out
Speaker 1: to the close to zero in GDP and did not
Speaker 1: push the productivity dial as measured. And I think there's
Speaker 1: a measurement problem. And it's not just Apple, it's just
Speaker 1: almost in every industry. You see technological advances and it's
Speaker 1: just we're just not capturing it in the data. What
Speaker 1: do we uh, what do you think February is going
Speaker 1: to show? You have to follow a day to day
Speaker 1: basis and with a with a disclaimer that of course
Speaker 1: one month is not enough to uh, you know, really
Speaker 1: get a trend. But what do we think? Think it's
Speaker 1: gonna be a healthy number? Um, In fact, it could be.
Speaker 1: I think it's gonna be a little over two hundred thousand.
Speaker 1: On jobs. I think actually job gains have been a
Speaker 1: little too fast relative to g d P. But what
Speaker 1: I'm really looking at for in today's number is in
Speaker 1: January we had a nice increase in wages. If there's
Speaker 1: a second month in a row of healthy wage gains
Speaker 1: um on top of the recent nice news on consumer
Speaker 1: spending in real terms and the increase in the core
Speaker 1: PC deflated to one point seven. I'm wondering if we
Speaker 1: get that that wage increase, it's not only very good
Speaker 1: for the economy, but it really puts the FED into
Speaker 1: a box. Are they really data dependent? We're on the
Speaker 1: front doorstep of them achieving their long run dual mandate.
Speaker 1: What will they do well? What will be the effect
Speaker 1: if they do raise rights? Why the what? What is
Speaker 1: the I S curve real economy of fact, not to
Speaker 1: get to restrictive, not to get to accommodative, but to
Speaker 1: get off stand Fisher's ultra accommodative. Given the data, theoretically
Speaker 1: and historically, it should have close to zero impact on
Speaker 1: economic performance. The FEDS concern is um having gone through
Speaker 1: several queuei's forward guidance, All of that was geared toward
Speaker 1: UH keeping rates low, encouraging portfolio managers globally to take
Speaker 1: more risks, and now one of the FED one of
Speaker 1: the Fed's largest concerns is the reversal of that portfolio
Speaker 1: balance effect that they so touted for several years. MCKI Levis,
Speaker 1: Thank you so much, Dr Levias with Barrenburg Capital Markets.
Speaker 1: As we get ready for the jobs report, we'll see
Speaker 1: that here in six minutes. So we should note a
Speaker 1: thousand jobs forecast, four point nine percent unemployment in a
Speaker 1: two tense gaining wages. Those are the headline numbers. Will
Speaker 1: be watching. I will look at the revisions, and you
Speaker 1: girl always important, Robert Gordon said, he is, uh, he
Speaker 1: is going to be looking at the labor force participation rate.
Speaker 1: He said, that's the key number for the economy going forward.
Speaker 1: It's gotten better prospects for the economy. Of course, he's
Speaker 1: looking at it from the academic tower of Northwestern University,
Speaker 1: where market economists are trying to figure out what the
Speaker 1: tenure yield will do to four digits UH at eight
Speaker 1: thirty two. We will do that with Bill gross one
Speaker 1: point eight to eight six one on the tenure yield
Speaker 1: right now. Curve flattening over the last couple of days.
Speaker 1: Don't want to make too much about it. It's been
Speaker 1: range bounds. Is a lot of other data. The dollar
Speaker 1: fractionally weaker after a few good days. Opposite warning in
Speaker 1: Michael McKey mentioned gold elevated here an hour ago twelve
Speaker 1: sixty one. The ounce right now, Michael McKee and Tom Keane,
Speaker 1: please stay with us for this Job's Report in five minutes,
Speaker 1: the Report on the American Aber Economy. This is Bloomberg
Speaker 1: Surveillance coming up there, with all due respect, highlight brought
Speaker 1: you by land Rover. If it's in your nature to
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Speaker 1: live to New York, Bloomberg eleventh, Ryo to Washington, d C,
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Speaker 1: the globe the Bloomberg Radio plus Aben Bloomberg dot Com.
Speaker 1: This is Bloomberg Surveillance. Good morning. It is a thirty
Speaker 1: on Wall Street of surprise. In the Jobs or Port,
Speaker 1: Vinny del Judas is at the first Word desk with
Speaker 1: the numbers. Michael assizeable gain almost a quarter million new
Speaker 1: jobs added in February, up two hundred and forty two thousand.
Speaker 1: Going in to the report, economists have been looking for
Speaker 1: a game of just one hundred nine thousand. Also payrolls
Speaker 1: the prior month revised up to one hundred seventy two thousand,
Speaker 1: so a big number. Almost a quarter million non farm
Speaker 1: jobs added last month. We see the unemployment rate holding
Speaker 1: four point nine percent, eight year low, so the four
Speaker 1: point nine percent on the unemployment rate. Average hourly earning
Speaker 1: is a bit of a sore spot this month down
Speaker 1: point one percent. They had surged the prior month, registering
Speaker 1: the biggest increase in the year. Again to recap, non
Speaker 1: farm payrolls up two hundred forty two thousand in February
Speaker 1: more than forecast. January revised higher. We see a four
Speaker 1: point nine percent unemployment rate, tying an eight year low,
Speaker 1: average hourly earnings down point one percent, and the trade
Speaker 1: deficit also when that widened to forty five point six
Speaker 1: eight billion dollars in January. At the Bloomberg First Word Desk,
Speaker 1: I'm fity del judice. Let's go back to New York.
Speaker 1: Thank you Anny, and the economic indicators today brought to
Speaker 1: you by Commonwealth Financial Network. When it's time to change
Speaker 1: the conversation with the broker dealer, r I A that's
Speaker 1: ready to listen called six six or six two three,
Speaker 1: six three eight or visit Commonwealth dot com to learn more.
Speaker 1: Tom One important point. Ian Shepherdson Pantheon Economics says there
Speaker 1: is a calendar quirk in February that likely accounted for
Speaker 1: the drop in earnings. So maybe a technical thing and
Speaker 1: that we said we won't know for a month or so,
Speaker 1: but certainly Wilson has to like the job creatures they do.
Speaker 1: The interest rates hied UH, equity futures rise up up
Speaker 1: to now up seven and yields do much nicer higher
Speaker 1: two basis points in the tenure one point eight five percent,
Speaker 1: and the two year yield spikes up. We went through
Speaker 1: zero point eight six right now zero point eight five.
Speaker 1: But nevertheless a lift and curve, a solid curve steepening
Speaker 1: year off of the report. Let me point out Robert
Speaker 1: Gordon told us to look at the participation jumps to
Speaker 1: sixty two point nine percent from sixty two point seven. Yeah,
Speaker 1: absolutely a real lift here. Four point nine were sent
Speaker 1: on the unemployment rate, two hundred seventy two thousand jobs formed.
Speaker 1: And now Bloomberg Radio, Bloomberg Television, we welcome all of
Speaker 1: you worldwide. Bill Gross with us UH this morning. We'll
Speaker 1: get to him in a moment Michael McKee and Tom Keane,
Speaker 1: and uh, you know, I gotta say, Michael, it's an
Speaker 1: extraordinary report this morning with a revision, a positive thirty thousand, yeah,
Speaker 1: two seventy two thousand jobs over the last two months,
Speaker 1: according to the revisions, and that is way ahead of
Speaker 1: where people thought we would be. Bill Gross with Jan's capitol,
Speaker 1: joins us now after a quick digestion and markets lifting
Speaker 1: on the move. Bill, we are creating jobs. I see
Speaker 1: the temporary employment dynamics and all are these good jobs
Speaker 1: were creating? Well, that's the question. Are they good jobs? Um?
Speaker 1: You know, I suspect that some of them are are
Speaker 1: not great jobs. Some of them are at the minimum
Speaker 1: wage and a little bit higher. And um, you know,
Speaker 1: the the average income of American workers is proceeding higher,
Speaker 1: but not at a very rapid pace. I noticed that
Speaker 1: the hours worked in this particular report didn't increase. Yes,
Speaker 1: the participation rate went up, and I think Yelling and
Speaker 1: Company would be heartened by that because the extent that
Speaker 1: it keeps going up, it means more and more people
Speaker 1: are coming back into the workforce and takes pressure off
Speaker 1: of their Phillips curve and off of their tailor models,
Speaker 1: So it's not exactly a a robust model from the
Speaker 1: standpoint of a hike, uh and maybe a robust model
Speaker 1: from the standpoint of increasing economic growth, which I expect
Speaker 1: in this quarter to be about two. How far away
Speaker 1: from normal is Janet Yellen's Fed? I think they're at
Speaker 1: least um a hundred two hunter basis points higher in
Speaker 1: their dots than normal, and the the normal is really
Speaker 1: being fought out and academic circles. Most of the research
Speaker 1: is come from the San Francisco Fed. UM. They say
Speaker 1: that at the moment that a zero percent real uh
Speaker 1: you know, FED funds rate might be the appropriate rate,
Speaker 1: which would put it about it one and a half percent.
Speaker 1: The blue dots are significantly higher in the out years,
Speaker 1: and so um you know, I think the FED still
Speaker 1: has some rethinking to do, but let me mention a
Speaker 1: point at that time. I think the Fed basically they're
Speaker 1: not faking in numbers, but they want the market to
Speaker 1: um to believe that that hikes might come sooner and
Speaker 1: faster than expected, and that means a positive yelkre Uh.
Speaker 1: This economy, that finance industry, banks, insurance companies all need
Speaker 1: a positive yelkur to uh, to make substantial profits. And
Speaker 1: so to the extent that those blue dots are higher
Speaker 1: than what they might really think if they really thought
Speaker 1: about it, then uh, you know that favors bank margins,
Speaker 1: and I think what they're really shooting for as a
Speaker 1: positive ocreve as opposed to being practical and where the
Speaker 1: real interest rate is going. Well, the question, Bill is,
Speaker 1: if you look at the projections that FED made in
Speaker 1: December for the economy in two thousand sixteen, we've basically
Speaker 1: hit all those benchmarks. So are they data dependent or not?
Speaker 1: How is the markets supposed to divine where the FED
Speaker 1: is going if they tell you we're going to raise
Speaker 1: rates based on these forecasts, and then they don't, Well,
Speaker 1: they're global data dependent, and they don't want to admit that.
Speaker 1: They want to pretend that they're the central banker for
Speaker 1: the United States and factor the central banker for the world,
Speaker 1: and they have global responsibilities because the dollar is the
Speaker 1: reserve currency. They won't really put that in print. So
Speaker 1: to the extent that the currencies moved, to the extent
Speaker 1: that the markets have sinkholes on a global basis, to
Speaker 1: the extent that emerging market countries do worse, that they've
Speaker 1: been doing better in the last few weeks. UM. Then
Speaker 1: the FED takes that into consideration, and so data dependency
Speaker 1: extends beyond the US economy, although the Fed doesn't really
Speaker 1: want to admit it. Well, are we still worried about
Speaker 1: the dollar? The dollar has basically not moved over the
Speaker 1: last month and a half. Trade weighted dollar has actually
Speaker 1: gone down the trade weighted dollar index. Even with this
Speaker 1: jobs report, there's barely a move in the dollar index.
Speaker 1: Is that still a real concern? Well, it's a concern
Speaker 1: because of the lags. There's a six to twelve month
Speaker 1: legga you know, Mike, and we're going to be seeing
Speaker 1: the effects of a stronger dollar for you know, at
Speaker 1: least another six months. But yes, the dollar has stopped
Speaker 1: going up, certainly against many of the emerging market countries,
Speaker 1: gosh and Brazil. It's it's down by ten UM. So
Speaker 1: it's getting better from that standpoint. And to the extent
Speaker 1: that the dollar does weaken, you know, that's a benefit
Speaker 1: as well for SMP five global companies that you know,
Speaker 1: have been affected by a strong dollar in the past,
Speaker 1: and now we'll see the tailwind going forward as we
Speaker 1: move into two thousand and sixteen, if you're just joining
Speaker 1: us on Bloomberg Television, Bloomberg Radio worldwide and across the nation.
Speaker 1: After the jobs report, Bill Gross of Jane's Capital, Mr. Gross,
Speaker 1: driving the market's higher, No White, Mike, it was a
Speaker 1: jobs report features up to now up eleven down, futures
Speaker 1: up eighty five, and we've seen some significant yield moves,
Speaker 1: Mike Butcher sing out, I can give you the recent high,
Speaker 1: the reason high off the Bloomberg January and we came
Speaker 1: down down down here, and we come right back up
Speaker 1: and now broken out in the two year yield down
Speaker 1: we go and up up up into a higher Michael McKee,
Speaker 1: and the ten year yield up four basis points one
Speaker 1: seven percent. Well, Bill, what's the proper pricing for bonds
Speaker 1: right now, for the yield curve right now, given the
Speaker 1: fact that the economy seems to be coming back more strongly,
Speaker 1: but the Fed doesn't seem to be ready to do anything. Well,
Speaker 1: let's look at this two ways, Mike. One, from the
Speaker 1: standpoint of what the Fed would do over the next
Speaker 1: twelve months. You know, the market has factored one hike
Speaker 1: and then one hike in the year beyond that. Perhaps
Speaker 1: that's a little light, and so that would suggest perhaps
Speaker 1: that the tenure is at a relatively low level compared
Speaker 1: to where it should be. Let's compare it, though, to
Speaker 1: the global market, and that's a key relative measure. I mean,
Speaker 1: Japanese ten years in Japanese thirty years have gone down
Speaker 1: by thirty or forty or fifty basis points in the
Speaker 1: past four or five weeks. And of course we have
Speaker 1: to compare the U. S. Treasury tenure to the German
Speaker 1: Boon tenure and and take a spread there. And so
Speaker 1: it's not just what the Fed might do, but it's
Speaker 1: the comparison relative to global markets. And global markets, no doubt,
Speaker 1: are pulling down US rates. And to the extent that
Speaker 1: Druggy you know next week, you know, continues to go
Speaker 1: into negative territory, and to the extent that the b
Speaker 1: o J continues to move down into negative territory, then
Speaker 1: the U. S. Treasury is supported to some extent, and
Speaker 1: price and yields are kept to some extent. It will
Speaker 1: help me here with the oddities of the moment. I
Speaker 1: don't mean the San Francisco forty niners or American politics.
Speaker 1: I would suggest Bill Gross, would you explay negative rates
Speaker 1: and what it means for Janic's capital and for your
Speaker 1: unconstrained portfolio. Well, sure, you know, obviously you only want
Speaker 1: to invest the negative rates if you think they're going
Speaker 1: more negative. That would produce a higher price in terms
Speaker 1: of a bond. We don't really do that because we
Speaker 1: think that the move is limited and you can only
Speaker 1: go so negative before domestic economy has become affected by
Speaker 1: it and it becomes destructive. What we're trying to do
Speaker 1: is basically range bound UH central banks. We believe that
Speaker 1: central banks won't move far, that they were fast. Um
Speaker 1: that these uh fifty basis point hikes in the FED
Speaker 1: and even less in terms of the UK and Japan
Speaker 1: and UH the e c P. You know, then it
Speaker 1: produces relative stasis. That doesn't mean that rates don't move
Speaker 1: forward basis points on a morning, and it does mean
Speaker 1: that the ten here is bound within a twenty plus
Speaker 1: or twenty mins French and so we sell voluntility around that,
Speaker 1: and it produces a much higher yield than a Okay,
Speaker 1: we're gonna come back, Bill Gross with this a Janice
Speaker 1: capital on television and radio worldwide, Bill Gross, this job's day.
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Speaker 1: Visits Sector sp d r S dot com or call
Speaker 1: Sector e t F. We Stock index futures are an
Speaker 1: extending and advance as steady job gains added to optimism
Speaker 1: on the economy as it weathers a global slowdown. And
Speaker 1: we checked the markets every fifteen minutes throughout the trading
Speaker 1: day on Bloomberg. Snp emny futures are up seven points,
Speaker 1: dowt EMUNI futures of fifty nine, NAS documny futures up
Speaker 1: twenty one. The DACKS in Germany's up one point one percent,
Speaker 1: CAC in Paris up one point three percent, and the
Speaker 1: FT one hundred is up eight tenths per cent ten,
Speaker 1: your treasury down nine thirty seconds, the yelled one point
Speaker 1: eight six percent yield on the two year point eight
Speaker 1: four percent nine back screwed. Oil up six tents percent
Speaker 1: or twenty cents to thirty four seventy five a barrel
Speaker 1: and co MIxS gold is up a dollar ten. That's
Speaker 1: about a tenth of up percent to twelve fifty nine
Speaker 1: eighty announced the euro and all their oh nine twenty
Speaker 1: two and massa Bloomberg business flash, Tom and Mike Karen,
Speaker 1: thanks so much again. As Karen mentions the lift of
Speaker 1: the market thirty thousand, the revisions, you strapped that out
Speaker 1: of the statistic and you get a I'm gonna say
Speaker 1: near three hundred thousand gain in payrolls now, you know,
Speaker 1: not near, but twun at seventy is something that is
Speaker 1: pretty good. And you see wages as well. Right now.
Speaker 1: Bloomberg Television, Bloomberg Radio worldwide is always this job's day.
Speaker 1: The generous support from Jane's capital is unconstrained. Fund Bill
Speaker 1: Gross with this is well, Michael Jumping, you're on the
Speaker 1: job economy. The research you've seen in the last fifteen
Speaker 1: minutes or so to Mr Gross, what's your key insight? Well,
Speaker 1: I think people are surprised bill by how strong hiring
Speaker 1: continues to be given the fact that we have created
Speaker 1: so many jobs for so long and the unemployment rate
Speaker 1: is so low. The markets are gonna are the markets
Speaker 1: going to have a tough time accepting the fact that
Speaker 1: at some point we're going to slow down. But a
Speaker 1: hundred and fifty thousand jobs would still be a strong month, Well,
Speaker 1: it would be. Let's face, the Fed though, is keen
Speaker 1: and wages. They they focus on labor and labor conditions
Speaker 1: and to them, uh, you know, if if wages get
Speaker 1: out of hand, then in place and we'll get at hand.
Speaker 1: You know, we notice the this month, although there may
Speaker 1: be an aberration, as you've noted the ten to fifteen
Speaker 1: minutes ago that the average hourly earnings went down from
Speaker 1: to five to two point two percent on an annual
Speaker 1: y o Y basis, and so you know, definitely wages
Speaker 1: are uh an hourly earnings are not out of control.
Speaker 1: If you factor in productivity perhaps at one percent, then
Speaker 1: you know you've got inflation in the one percent category.
Speaker 1: It seems to me that the Fed needs to focus
Speaker 1: on on those conditions and know that two percent inflation
Speaker 1: rate is perhaps a long way off. You know, the
Speaker 1: break evens and the tips market almost worldwide, but let's
Speaker 1: tuck about the US. Almost on all maturities from five
Speaker 1: to ten to twenty to thirty years in maturity um,
Speaker 1: the break even inflation rate is about one point four percent,
Speaker 1: which means the market expects inflation for the next thirty
Speaker 1: years to be one point four percent. And so why
Speaker 1: is the Fed so come cerned about inflation when the
Speaker 1: market seem to be telling it that everything's okay. Ordinarily
Speaker 1: you would say go with the market. But if they're
Speaker 1: expecting that kind of inflation for thirty years, somebody's got
Speaker 1: to be wrong somewhere. Well, I think so. Um, you know,
Speaker 1: to my way of thinking, when demographics kick in, when
Speaker 1: the boomer is really good old and demand medical care
Speaker 1: and stop spending money on consumption, and things will change dramatically,
Speaker 1: and that to me means higher inflation. But at the moment,
Speaker 1: the market doesn't see it that way. And certainly, to
Speaker 1: be fair, you know, for the next five years or
Speaker 1: the next two or three or four years, inflation seems
Speaker 1: well under control unless commodities get a bid. Will being
Speaker 1: the best example going to sixty dollars. You know, unless
Speaker 1: that happens, then inflation is contained, as we see by
Speaker 1: you know the wage numbers today, Bill, I want to
Speaker 1: congratulate you on your latest note off Janni's Capital. We
Speaker 1: always read them, we always like them. There's never been
Speaker 1: a bad one. This one, folks, is extraordinary, and it
Speaker 1: leads with the City Group chart, which drives me insane.
Speaker 1: And I'm so glad Bill you did this. Christopher wander
Speaker 1: over here in Bloomberg Television. I'll put it out on
Speaker 1: Bloomberg Radio plus. City Group at forty two dollars a
Speaker 1: share is a fiction that's after a ten to one
Speaker 1: reverse split. Here we go up, we go to five
Speaker 1: hundred dollars a share. Down, we go to forty two
Speaker 1: dollars a share. You make a clear, Bill, you're worried
Speaker 1: about permanent damage in our American banking system. Can you
Speaker 1: support your former employee, Neil cash Kari in reviewing are
Speaker 1: too big to fail banks? Well, my point wasn't exactly
Speaker 1: Neil's point, but Neil has a point. You know, there
Speaker 1: are banks that are too big to fail, and let's
Speaker 1: make sure that we regulate them properly and that they
Speaker 1: have sufficient capital. I think they have been recapitalizing and
Speaker 1: they do have more capital than they had before. My
Speaker 1: point um not by showing city at five now at
Speaker 1: forty two, he'll basically that many banks are are like that,
Speaker 1: not to the same extreme, but certainly in Europe with Crowd,
Speaker 1: Swiss and Deutsche Bank. Their earnings power going forward not that,
Speaker 1: not the fact that they might be vulnerable to bankruptcy
Speaker 1: because they recapitalized, but their earnings power going forward is
Speaker 1: limited because negative interest rates and because the yield curve
Speaker 1: appears to be relatively flat and will continue to be
Speaker 1: flat for a long time. That means their margins, their
Speaker 1: nimbs will be limited. And it simply means to me that, well,
Speaker 1: you know, bank banks are not a bad investment, but
Speaker 1: you know, let's face it, they're in a new age
Speaker 1: with limited ability to increase earnings based upon this yield curve.
Speaker 1: But Bill critically, and Alan Greenspan speaks of this, You
Speaker 1: speak of this our David Weston and Bloomberg God pointed
Speaker 1: it out to me yesterday. Credit growth is ramping up
Speaker 1: a little bit. Can you buy the idea that that's
Speaker 1: a symbol of a recovering America or is that credit
Speaker 1: growth within banking a fiction? No, and I think we
Speaker 1: need it, and I think that's a critical element. You know,
Speaker 1: I'm monitorist, you know, I'm uh, you know, sort of
Speaker 1: stuck on a on a Hyman Minsky type of model work.
Speaker 1: Credit feeds economic growth, that the two are related. Our
Speaker 1: finance based economy depends on the perpetual creation of more
Speaker 1: and more credit. And so, yeah, the rate is three
Speaker 1: to four percent. Now perhaps it goes to five to
Speaker 1: six percent. I think in order to create a nominal
Speaker 1: GDP growth of four to which is what the FED
Speaker 1: wants to do, they need to create credit growth much
Speaker 1: higher than that, because, uh, you know, it's been evident
Speaker 1: in the past ten fifteen years that you need a
Speaker 1: much higher rate of credit growth in order to stimulate
Speaker 1: a certain amount of nominal GDP growth. And so it's
Speaker 1: getting better, but it's still in the four percent area.
Speaker 1: And as long as it stays there, it's underneath you know,
Speaker 1: the cost of capital in the system, which is about
Speaker 1: six percent. And if you can only grow nominal GDP
Speaker 1: by uh four, you can only go credit by four
Speaker 1: percent with the cost of capital and sixth then uh
Speaker 1: you know, nominal GDP suffers and you can't get out
Speaker 1: of the whole. So credit growth is the key. You've
Speaker 1: got to find some way for the private system to
Speaker 1: generate it. The FED has done their duty in terms
Speaker 1: of lowering interest rates and queuing all of that, but
Speaker 1: now the private system needs to take debate. Some of
Speaker 1: it is occurring, but I think they need much more.
Speaker 1: Can it be created? You argue in your latest note
Speaker 1: that we're seeing pushback from savers and regulators to the
Speaker 1: idea of ongoing credit creation. It sounds a lot like
Speaker 1: what Ray Dalio has been saying that officially we're at
Speaker 1: the end of a long term credit cycle. Uh. Are
Speaker 1: you saying you're in agreement with that? Well, I think
Speaker 1: we are, and I think we've been there, Uh in
Speaker 1: marginal terms for the last several years. I look at this,
Speaker 1: give me thirty seconds. I look at this as a
Speaker 1: monopoly game. We know what happens in monopo. You get
Speaker 1: a certain amount of money and you go around the board,
Speaker 1: you buy properties, you get two hundred dollars every time
Speaker 1: to past go. Look at that as credit creation in
Speaker 1: terms of the system. Um, why players go bankrupt is
Speaker 1: that ultimately they have so many properties and not enough cash,
Speaker 1: and they only get two hundred dollars two hundred dollars,
Speaker 1: two hundred dollars as they go around the board. It's
Speaker 1: not enough credit that's being created. Basically, what the fan
Speaker 1: has to do is produced three hundred dollars, four hundred dollars,
Speaker 1: five hundred dollars, six hundred dollars every time you past
Speaker 1: go in order to keep the system solvent and to
Speaker 1: keep players playing the game. And at the moment, you
Speaker 1: know the ideas that have come about in terms of
Speaker 1: negative interest rates and QWI, it's now being advanced in
Speaker 1: terms of helicopter money dropping cash um. You know, there
Speaker 1: are a number of ways to do it, but the
Speaker 1: private system needs more and more money to spend in
Speaker 1: order to generate the same amount of nominal GDP growth.
Speaker 1: You can't go around the board at two hundred dollars
Speaker 1: crack without players going bankrupt. Bill In the final moments
Speaker 1: that we have with you, I think the great respect
Speaker 1: for your heritage within finance investment in your study of economics,
Speaker 1: we must have you comment on how we try to
Speaker 1: get our presidential campaign to two conventions and then on
Speaker 1: to November. What have you observed in the last couple
Speaker 1: of weeks. And how does that affect the markets? Well,
Speaker 1: I think it ultimately will, and it depends on what happens.
Speaker 1: I mean, I was struck last night by case At
Speaker 1: coming out and basically saying it that he wanted a
Speaker 1: coalition to basically to to fight Trump. And and they
Speaker 1: all testified that yes, they'd support the candidate, but no
Speaker 1: one went beyond the point of determining how that candidate
Speaker 1: would be chosen. I think if the Republicans get to
Speaker 1: the convention and and and choose a candidate based upon
Speaker 1: you know, an inner circle as opposed to the population
Speaker 1: a whole, that markets will definitely be affected. In effect,
Speaker 1: it will be a takeover by a small minority of Washington,
Speaker 1: and that is not the way democracy and capitalism worked.
Speaker 1: So I think we better keep a keen eye on
Speaker 1: what happens in at the convention as we go forward.
Speaker 1: Bill Gross, thank you so much your time, Very generous
Speaker 1: of you. Jana's Capital folks, I can't say enough. If
Speaker 1: you're on Global Wall Street, you must read Sunshine Lollipops
Speaker 1: and his essay on the American financial system. Must watch,
Speaker 1: must listen at one thirty PM this afternoon. Our Mark
Speaker 1: Helper and in conversation with Governor Romney, looked for that
Speaker 1: worldwide one thirty this afternoon, with futures up to down.
Speaker 1: Features up sixteen Michael McKee and Tom Keene Bloomberg Surveillance