Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust in independent registered investment advisors to the tune
Speaker 1: of four trillion dollars. Why learn more and find your
Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring
Speaker 1: you insight from the best in economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course, on the Bloomberg Michael. I know it's
Speaker 1: job today. I believe we have a few guests qualified
Speaker 1: to talk about the unemployment rate, labor participation, maybe even
Speaker 1: someone qualified to talk about wage growth. That would be
Speaker 1: Alan Cruer from Princeton University, who is the former Chief
Speaker 1: Economists at the Labor Department of the Treasury Department and
Speaker 1: the Chairman of the Council of Economic Advisors. I just
Speaker 1: can't hold a job. I don't know what his problem is,
Speaker 1: but all is with this as always on Job's Day.
Speaker 1: Let me just mention Tom before we get started with Alan,
Speaker 1: that the consensus forecasts are for one and seventy two
Speaker 1: thousand jobs to have been created in the month of September,
Speaker 1: and interestingly enough, that is bang on the six month
Speaker 1: average three thousand, So a number today that meets consensus
Speaker 1: would probably uh not lead to a whole lot of
Speaker 1: additional trading. Four nine is the forecast for unemployment. But Alan,
Speaker 1: as Tom touched on, the one change that you do
Speaker 1: see in the forecast is a significant increase in average
Speaker 1: hourly earnings. Uh. The question is is this going to
Speaker 1: be a statistical fluke or are we really seeing wages
Speaker 1: rise because we're running out of workers the old Phillips curve.
Speaker 1: I think we are seeing the Phillips curve. I think
Speaker 1: it's a gradually sloped Philip's curve. But over the past year,
Speaker 1: we have seen wages pick up both nominal and after
Speaker 1: adjusting for inflation UM, which is encouraging. I chose that
Speaker 1: we're continuing to dig our way out of the deep
Speaker 1: problems from the recession. The deep problems of the recession
Speaker 1: UM left us sort of flat and left us with
Speaker 1: this populist anger. We see rage wages rising fast enough
Speaker 1: that it will affect people's view of the world. That's
Speaker 1: a very good question, Mike, and you look at the
Speaker 1: data that came out on we had the fastest growth
Speaker 1: in real median household income since the sense of Spiro
Speaker 1: started collecting the data. So I think it's clear that
Speaker 1: households are doing better, but they went through such a
Speaker 1: traumatic experience that I think it's going to take a
Speaker 1: while before people are feeling good about their economic situation.
Speaker 1: And when I look at the unimp ployment rate, people
Speaker 1: drive low. Is it a constructive lower unemployment rate or
Speaker 1: is it a bad thing If the unemployment rate drops, well,
Speaker 1: I think it's a good thing. On on that, I
Speaker 1: think a tighter labor market will help to support wages.
Speaker 1: We saw inequality decline in mainly because of more job
Speaker 1: growth that year and higher wage growth, particularly for lower
Speaker 1: income families. UM. I think this recovery is not going
Speaker 1: to be the strongest one we've had, but it could
Speaker 1: well be the longest. Alan Krueger is with this Princeton
Speaker 1: University economics professor, former chief economist at various government agencies,
Speaker 1: including the Labor Department. So here's a man who knows
Speaker 1: the labor economy. One of the issues in the presidential
Speaker 1: race has been the declining rate of labor force participation
Speaker 1: and why people are not in the labor force You've
Speaker 1: just done some new work on it, UM and oddly
Speaker 1: titled it, We'll have all the workers God? What have
Speaker 1: you found? First of all, labor force participation has been
Speaker 1: declining since two thousands, so I find it somewhat curious
Speaker 1: that a lot of the people who are complaining about
Speaker 1: it now didn't start complaining about it until after President
Speaker 1: Obama was elected. UM. The main driver over the last
Speaker 1: decade of the decline in labor force participation has been
Speaker 1: the baby boom reaching retirement age, and the increase in
Speaker 1: retirements just about equals decline in the participation rate. That said,
Speaker 1: there are some other trends that have been taking place
Speaker 1: for a long period of time. Prime age men have
Speaker 1: been reducing their labor force participation for the last fifty years,
Speaker 1: and one of the things I found is that if
Speaker 1: you look at that twelve percent of men fifty four
Speaker 1: who are not working, about half of them have a
Speaker 1: serious health condition. And I think if we are too
Speaker 1: uh look for ways to increase the participation right, we
Speaker 1: need to deal with the health issues that are barrier
Speaker 1: to work for many many workers. I look at on
Speaker 1: Krueger on a job's day that I guess is a
Speaker 1: dead Job's Day because I'm told the November meeting is
Speaker 1: a dead meeting of the f O. M C is
Speaker 1: a media animal. I refuse to succumb to that. Does
Speaker 1: a grizzled pro like you look at this as a
Speaker 1: dead report, you know, I think people tend to uh
Speaker 1: amplify the reports and other months, and in this month
Speaker 1: they're probably underplaying it. You know. The Job's report gives
Speaker 1: us the best picture of how the economy is doing
Speaker 1: in the short run, and at the same time, it's
Speaker 1: a volatile statistic. Like all of the statistics we get.
Speaker 1: What does it say about small business percolating? Is a yeah?
Speaker 1: But which is everything's great? Yeah, but small business isn't there?
Speaker 1: What do you see there after a financial crisis. I
Speaker 1: think it's typically the case that small business struggles. That's
Speaker 1: who's dependent on bank financing. They have difficulty getting credit
Speaker 1: there homes are often under water, which is a source
Speaker 1: of credit. So the longer that this recovery goes on,
Speaker 1: the likelier I think it is that small businesses will
Speaker 1: start to be able to get credit, that their credit
Speaker 1: records will improve, and that will be one reason why
Speaker 1: I think we can see this recovery go on for
Speaker 1: some time if we don't make policy mistakes. How how
Speaker 1: would you define a policy mistake? UM? When you have
Speaker 1: interest rates as low as they are, and when you
Speaker 1: have the FED promising to be as slow and cautious
Speaker 1: as they have UM. The traditionally we think of a
Speaker 1: policy make mistake is the FED raising interest rates too quickly. Well,
Speaker 1: that has been a cause of most of our recessions. UM.
Speaker 1: On the other hand, you also have to worry about
Speaker 1: bubbles building up, which is a risk to the recovery.
Speaker 1: And you have to worry about the potential election of
Speaker 1: a candidate who says he'll slap a forty five pers
Speaker 1: and tariff on China, potentially reneg on the full faith
Speaker 1: and credit of the US dollar, h deport millions of
Speaker 1: UH immigrants, all of those things I think would devastate
Speaker 1: the economy. I look at all and it's a terrific
Speaker 1: set of guests that we've got lined up. And there's
Speaker 1: an international feel to this report. I mean, fold in
Speaker 1: here the better American economy? How much better is it
Speaker 1: than some of the other challenges around the world. The
Speaker 1: answers it gets wider and wider, doesn't it. Well, we
Speaker 1: certainly have a lot of problems, but I wouldn't trade
Speaker 1: all our problems for any other country's problems. I was
Speaker 1: just in Korea, actually flew back late last night, and Uh,
Speaker 1: they have a demographics tsunami that's about to hit them.
Speaker 1: They're going to go from the fourth youngest country in
Speaker 1: the O e c D to the oldest in the
Speaker 1: matter of twenty five years. You look at the problems
Speaker 1: in Japan, which has never recovered from the recession in
Speaker 1: the early nineties. China has enormous challenge at ahead of it. Uh. Europe, Uh,
Speaker 1: the UK just go on and on, and our problems
Speaker 1: are solvable. If we have the political will to address them.
Speaker 1: Well that will be uh the question. Come January, when
Speaker 1: we have a new Congress and a new president. We
Speaker 1: shall see Alan Krueger, thanks for Hobsdalen Krueger sitting in
Speaker 1: my chair in New York without a bow tie on.
Speaker 1: Actually he actually was not wearing a tie point and
Speaker 1: we moved him. He couldn't sit there. I knew I
Speaker 1: shouldn't have tweeted that picture. Tom Alan Krueger and Tom Kane. Um,
Speaker 1: this is a real pleasure and honor, folks. Peter Fisher
Speaker 1: is uh, someone who has served the nation at treasury.
Speaker 1: He has served a nation in academics, and he actually
Speaker 1: served a nation doing finance in a small shop called Blackstone. Uh.
Speaker 1: He is right now, I would say, associated more with
Speaker 1: Tuck and Dartmouth uh than the other eight places he works. Peter,
Speaker 1: good morning. Um. I guess I could start up by
Speaker 1: saying have you ever seen anything like this? But let
Speaker 1: me get to the what Jack lewis looking at this morning,
Speaker 1: the Secretary of the Treasury. I just did a fancy
Speaker 1: pants log extrapolation of sterling to one point to zero,
Speaker 1: and somewhere in the vicinity of the middle of November,
Speaker 1: we're going to enjoy a good old G seven currency depreciation.
Speaker 1: Can the United Kingdom work in a vacuum or there
Speaker 1: are there present in near future knock on effects of
Speaker 1: weaker sterling? Um, well, that they're they're bound to be.
Speaker 1: I think we can see the Brexit is hard to
Speaker 1: price other than in the exchange rate that we think
Speaker 1: it slows the UK economy down. We think it makes
Speaker 1: the Bank of England tend towards the easier side of
Speaker 1: whatever they can pull off. And that's everything else is
Speaker 1: so uncertain about Brexit. We see the sort of anomaly
Speaker 1: driving Sterling lower and lower. Um Uh. Clearly they're gonna
Speaker 1: be knock on effects. Given the size of the UK economy,
Speaker 1: it still matters to us all and and it may
Speaker 1: pick up the terms of trade. This may be what's
Speaker 1: annoying European leaders, even if they're not saying it that
Speaker 1: Sterling is benefiting from the depreciation they hoped the euro
Speaker 1: would get over the exactly years um. So it's about
Speaker 1: to have those consequences. A little hard to see how
Speaker 1: it all shakes out, but yeah, and yakulm Fell's moments ago,
Speaker 1: folks on surveillance talking about eurostability or even strength flows
Speaker 1: Peter Fisher, Uh, this redounds back onto a United States
Speaker 1: and clearly day two here, folks of the I m
Speaker 1: F meetings, the idea is the US, evermore, is stronger
Speaker 1: and better and in good shape compared to so many
Speaker 1: other nations and regional systems. Do you agree, Peter, Yes,
Speaker 1: I mean it's we wish we'd had more of an
Speaker 1: acceleration in this recovery. We wish we were doing better
Speaker 1: in some terms, but we're going pretty well, especially compared
Speaker 1: with the rest of the world. Just looking at UM
Speaker 1: the level of our unemployment, level of GDP both it's disappointing,
Speaker 1: but it's better than the neighborhood. Absolutely, Peter, when we
Speaker 1: look at job's day coming up, and I guess we'll
Speaker 1: focus on that within the hour. And this is something
Speaker 1: you're quite good at. There's a macro economic system of
Speaker 1: one view of a nation. John Edwards among others started
Speaker 1: talking about two America's do you is I'm going to
Speaker 1: call you a non macro expert, but yet with great
Speaker 1: micro realities. Do you look at America is a two
Speaker 1: system job economy or can you really blend it all
Speaker 1: in as we did for decades and decades? No, I
Speaker 1: I think we know UM our labor market is fractured,
Speaker 1: or we have a decline in the participation rate. We've
Speaker 1: got the discouraged UH, middle age and working age. I
Speaker 1: should a men who aren't participating in the labor force,
Speaker 1: UM that we should all scratch our heads about that
Speaker 1: and think that that's that's a big challenge for us. UM.
Speaker 1: I think it's such a disappointment that this campaign has
Speaker 1: not focused on what we should be doing to really
Speaker 1: invigorate our our labor market structural reforms we should be undertaking.
Speaker 1: We've been too much focused on the negative, if you will,
Speaker 1: of Secretary Clinton coined years ago, Years ago, folks, Senator
Speaker 1: Clinton coined an idea of fair trade. What is fair trade?
Speaker 1: To Peter Fisher, um well, I think fair trade says
Speaker 1: we think we should get our fair access to other
Speaker 1: markets and only give people fair access to our markets.
Speaker 1: I think that's putting the shoe on the wrong foot,
Speaker 1: if you will, I think we should be doing more
Speaker 1: for people who are displaced by free trade. I think
Speaker 1: we should doing much much more to retrain those who
Speaker 1: lose their jobs, to provide adjustment assistance to those counties
Speaker 1: where we see the job lost from the benefits of trade.
Speaker 1: We know the benefits to trade flow to all of
Speaker 1: us but are hard to measure, and the costs of
Speaker 1: free trade are easy to identify. People who have lost
Speaker 1: their jobs feel it we should do much more for that.
Speaker 1: I don't think we should hold back on trade because
Speaker 1: someone else isn't being fair to us. I think we
Speaker 1: should be fair to our own people. We should be
Speaker 1: fair to our workers and do much much more on
Speaker 1: the trade adjustment assistant side. Peter Fisher with his time
Speaker 1: for surveillance correction. I'm good at those. There will be
Speaker 1: many today. I believe I identified Mr Fisher with Blackstone,
Speaker 1: and I should have migrated over to black Rock. Is
Speaker 1: thank the place of former employment. Let's go to what
Speaker 1: you used to do at black Rock. You'd wander in
Speaker 1: the door your leisurely day starting at nine am you'd
Speaker 1: wander over to the liquidity desk and say are we liquid?
Speaker 1: You rarely said are we solving? Peter? For sure, I've
Speaker 1: been linking the word trust into liquidity and there's some
Speaker 1: real questions about that within the banking system. How liquid
Speaker 1: are the European banks right now? Uh? Well, I I'm
Speaker 1: not close to the European banks or the trading market
Speaker 1: system as I used to be when I did it
Speaker 1: full time. Um, I think they are liquid. I think
Speaker 1: they're running out of income. The constraint I think has
Speaker 1: coming on the other side. UM So, I don't think
Speaker 1: people are worried about You know that they can't pay
Speaker 1: their bills when they're due. But where they're worried about
Speaker 1: is the margin compression UM and and earnings power. And
Speaker 1: I think you see the rumblings out of the e
Speaker 1: c B about Uh, the system being over banks, Well,
Speaker 1: that's been true in Europe for thirty years. They're overbanked.
Speaker 1: They've got too many banks. They should have once they've
Speaker 1: invented the euro they should have worked much harder on
Speaker 1: a rationalization consolidation of the banking system. So this is overdue,
Speaker 1: and that would be one way to try to deal
Speaker 1: with the earnings compression of the European banking system. I
Speaker 1: think that's where the constraint is. And this has been
Speaker 1: a theme folks of the meetings. Pure Moscovici was just
Speaker 1: wonderful yesterday on this profitability conundrum. Let me bring in
Speaker 1: Michael McKee in New York with Peter Fisher. Michael, Peter,
Speaker 1: I guess a lot of the question that revolves around
Speaker 1: all of this is, uh, confidence, do we have confidence
Speaker 1: in the European banking system? But here as we see
Speaker 1: people come in and out of the labor forces, we
Speaker 1: see wages start to rise, do we have enough confidence
Speaker 1: to whether any kind of FED rate move, small FED
Speaker 1: rate move? Will people keep borrowing? Will people keep spending?
Speaker 1: If the FED does something that that would seem to
Speaker 1: be the key question that surrounds all this. I don't
Speaker 1: think the Fed funds rate twenty five basic points higher.
Speaker 1: Is it really going to constrain anyone? UM, That's not
Speaker 1: what I think is is uh. I think the Fed
Speaker 1: is likely to confront pick up an inflation. I'm not
Speaker 1: very fussed about inflation, but most of the measures of
Speaker 1: inflation have already accelerated to two and higher. The Fed's
Speaker 1: preferred PCE measure is lacking. I think there's gonna be
Speaker 1: a catch up here, and I think that's gonna give
Speaker 1: a little pressure to the long end of the yield curve. UM.
Speaker 1: I think today's employment report fits on the stronger side,
Speaker 1: will add to that pressure that well, yeah, if that's
Speaker 1: going to have to do something. But it's not about
Speaker 1: the next twenty five basis points. It's about whether the
Speaker 1: Fed will do one next year or three or four
Speaker 1: moves next year. That's what is going to hang in
Speaker 1: the balance over the next few months of economic data.
Speaker 1: Peter Fisher is with us right now lecture at the
Speaker 1: Toch School of Business at Dartmouth College. Formerly the man
Speaker 1: who ran the open market operations for the Federal Reserve,
Speaker 1: worked at the Treasury Department, is under Secretary for Domestic Finance.
Speaker 1: And then I had a career at black Rock in
Speaker 1: the markets, and I want to go to the markets
Speaker 1: and their relationship to the FED. There's been, Peter a
Speaker 1: big question raised recently about whether or not the FED
Speaker 1: is and its policies are distorting anything in the markets.
Speaker 1: How do you see it? If you were going to
Speaker 1: be producing for the next FED meeting, the market report
Speaker 1: that goes into the meeting, what would you be telling them? Uh, Well,
Speaker 1: they might be shocked to hear what I'll tell them. Um,
Speaker 1: we know the yield curve has been dragged down by
Speaker 1: the qui le policies in Japan and Europe. That is
Speaker 1: our long end. You can see it. It was coming
Speaker 1: down when the FED really wasn't doing anything over the
Speaker 1: last year. As the two attend spread tightened, that was
Speaker 1: more of a tightening than the FED expected. That's one anomaly.
Speaker 1: But I think what I'd be telling the committee they
Speaker 1: might not want to hear is they've been targeting low
Speaker 1: level of volatility as if it is a third policy goal. Um.
Speaker 1: And so they've been that they are uncomfortable when asset
Speaker 1: prices jump around too much. Uh, it's it's like a
Speaker 1: third in addition to inflation and employment. UM. They get
Speaker 1: squeamish about volatility. UM. I think that's a big mistake.
Speaker 1: I think it's a natural consequence of monetary policy doing
Speaker 1: its thing. UM. But you can see this very low
Speaker 1: level of all that that we've had UM that I
Speaker 1: think is creating the distortions. That's the most important one
Speaker 1: to improve, Mr Fisher a negative rates strategy. Do we
Speaker 1: need to disperse the effect of negative rates to a
Speaker 1: broader public nation to nation? Do we need to stop
Speaker 1: using negative rates and migrate back to the zero bound?
Speaker 1: What's the Peter Fisher calculus there? Well, I think negative
Speaker 1: rates were a mistake. I think it UM. I think
Speaker 1: the Bank of Japan has not quite admitted it, but
Speaker 1: they're working their way out of them so that they've
Speaker 1: come up with an exit strategy from negative rates, and
Speaker 1: that's to manage their yield curve um negative rates. There
Speaker 1: are lots of fallacies that go into thinking that negative
Speaker 1: rates would work. One is that the human reaction function
Speaker 1: is linear, that if we lower rates from four to
Speaker 1: three percent, that all courage consumption. So if we lower
Speaker 1: them from zero to minus one, that will encourage consumption. No,
Speaker 1: it looks like it encourages savings. Uh, we can see
Speaker 1: why negative rate might help you weaken your currency if
Speaker 1: you're trying to steal demand from your trading partners, um.
Speaker 1: But it doesn't look like it's going to encourage consumption,
Speaker 1: in part because banks aren't willing to pass it on.
Speaker 1: And so banks really face in Japan and Europe and
Speaker 1: in very deal curve already they have trouble passing on
Speaker 1: the negative rates. So it's zero at the short end
Speaker 1: and then it's negative at the long end. That's terrible
Speaker 1: for the credit channel. So pretty much the Bank of
Speaker 1: Japan and ECB have acknowledged that it didn't help the
Speaker 1: credit channel. UM, so it really doesn't. It hasn't helped.
Speaker 1: So this is I think the most embarrassing thing for
Speaker 1: the central bankers is for the last eight years they've
Speaker 1: said they had to experiment, the economy was in difficult
Speaker 1: circumstances and it was up to them to be bold
Speaker 1: and experiment. But they never can admit when their experiments
Speaker 1: don't work, the experimental method or choires that people acknowledge
Speaker 1: what the results were, and they've had a hard time
Speaker 1: doing that. Well, I can't I can't say enough Michael,
Speaker 1: the importance of this non linearity. This is a huge deal.
Speaker 1: We Uh, we do see evidence of what you're talking about,
Speaker 1: Peter here in the headlines. Just crossing now. Mario Draggy
Speaker 1: in Washington for the I m F meetings, giving a
Speaker 1: speech behind closed doors, but the text released. Uh. Droggy
Speaker 1: saying that they will let que continue to run and
Speaker 1: he sees rates at current or lower levels for an
Speaker 1: extended period, repeats that they will use all instruments within
Speaker 1: their mandate if needed. Uh. And he at the same
Speaker 1: time says that low rates are hurting banks relying on
Speaker 1: maturity transformation. Um, so, yes, we're causing harm, but no,
Speaker 1: we're not going to stop. Yeah. Well he I mean,
Speaker 1: at least in Japan, the Bank of Japan by by
Speaker 1: committing to try to manage their yield curve, they're going
Speaker 1: to try to have a great will exit. I think
Speaker 1: it's a very wise thing to do if you've made
Speaker 1: the mistake of negative rates, now you're trying to undo
Speaker 1: the damage. They want to control how fast the curve steepens.
Speaker 1: And that's one way of passing the football over to
Speaker 1: the Abbe government and fiscal policy. But Droggy doesn't have
Speaker 1: that option. He doesn't have anyone to pass the football
Speaker 1: to Um on the fiscal side, and so he he's
Speaker 1: left Um, you know, spinning his wheels. I'm afraid it's
Speaker 1: it's very awkward for him. Peter Fisher. Let's leave it there.
Speaker 1: Thank you so much, very generous for you to be
Speaker 1: with us today with Tuck at Dartmouth College. Uh and
Speaker 1: of course with the service to the Treasury, the Treasury
Speaker 1: Department number of years ago. The who you put your
Speaker 1: trust in matters. Investors have put their trust in independent
Speaker 1: registered investment advisors to the tune of four trillion dollars.
Speaker 1: Why they see their role is to serve, not sell.
Speaker 1: That's why Charles Schwab is committed to the success of
Speaker 1: a seven thousand independent financial advisors who passionately dedicate themselves
Speaker 1: to helping people achieve their financial goals. Learn more and
Speaker 1: find your independent advisor dot com. The question now is
Speaker 1: how the treasury market trades all of this. We'd like
Speaker 1: to welcome to Bloomberg Radio and Television, Bill Gross of
Speaker 1: Janice Capital and Bill, you've seen the numbers at one
Speaker 1: commentator already out with the phrase, mech but does it matter?
Speaker 1: The question I put to Peter Fisher a minute ago
Speaker 1: does it matter to anybody except short term treasury traders
Speaker 1: at this point? Yeah, I know. Thanks, So I don't
Speaker 1: know how you spell or but in any case, you know,
Speaker 1: pretty milk toast, you can you can spell that, and
Speaker 1: and pretty on the number in terms of what we're
Speaker 1: expecting the work week was, I guess, And as you mentioned,
Speaker 1: wage is a point two percent. So there's nothing much
Speaker 1: there to keep the FED from raising interest rates. And
Speaker 1: whether it's November or December, I'm not sure, but I
Speaker 1: think at some point they have to. I mean, the
Speaker 1: central banks tend to be a little weak need at
Speaker 1: the moment, including the FED. They've talked tough and stressed
Speaker 1: data dependence and here we are. But you know, they've
Speaker 1: only been three Hawks willing to back up their words
Speaker 1: with the dissension at the last month's vote. And so
Speaker 1: I I think that there's the important thing. I think, like,
Speaker 1: I think the growing outcry from financial institutions about negative
Speaker 1: interest rates are starting to have some effect. Boston's Rosen
Speaker 1: Grin as the most recent example, he's sort of done.
Speaker 1: And in addition to b O G and the ECB
Speaker 1: maybe running out of bonds, Dubai, so their policies might
Speaker 1: shift to a little less devilish and a little more
Speaker 1: price bullish. Bill Gross, good morning from Washington and the
Speaker 1: meetings of the International's on Terry fun You're terribly missed here.
Speaker 1: Everybody wants to know what you're gonna do with the marginal?
Speaker 1: Janis uh move? What I would note, Bill, and I've
Speaker 1: never seen this the conflation of non farm payrolls moving averages,
Speaker 1: the three months off the Bloomberg a hundred and ninety
Speaker 1: two thousand, the one year non farm payrolls average two
Speaker 1: hundred four thousand, and Bill, for the first time I
Speaker 1: took a presidential moving average of non farm payrolls, what
Speaker 1: a success, two hundred twelve thousand. I've never seen the
Speaker 1: conflation in of the trend in job formation. Why are
Speaker 1: we so miserable if we're generating a good number of
Speaker 1: jobs every month? Well, that that's the the old question.
Speaker 1: I think they are coming down. I've got my moving
Speaker 1: averages to just like you, and they're they're right on
Speaker 1: the money in terms of what you just mentioned. So um,
Speaker 1: you know, they gradually coming down. That's what happens to
Speaker 1: during your recovery. I think the unhappiness comes from from
Speaker 1: wages I think the unhappiness comes from the real nature
Speaker 1: of wages over fifteen year period of time. And I
Speaker 1: think ultimately that labor, uh, you know, it's beginning to
Speaker 1: to feel some Oh it's not necessarily some you know,
Speaker 1: a big porridge bowl full, but uh, you know, they're
Speaker 1: they're starting to feel that it's their turn and and
Speaker 1: so um. Yeah. It's it's been this long term trend
Speaker 1: of of capital versus labor and stock market versus wages.
Speaker 1: And I think maybe not over the next election, but
Speaker 1: certainly over the next few years, we're going to see
Speaker 1: some type of shift in fiscal policy that advantages labor
Speaker 1: as opposed to business and capital. I don't want to
Speaker 1: make too much of this, of course, because it's it's
Speaker 1: one day trading, but when you look at the market reaction,
Speaker 1: not just to this number, but over the last couple
Speaker 1: of days, we do seem to be seeing people sell
Speaker 1: treasuries around the world. The bond market in the U
Speaker 1: S tenure note yield one point having six and the
Speaker 1: two year at eighty five basis points. They've moved up
Speaker 1: since this may job support as we said, and Germany
Speaker 1: now three basis points. They've moved back into positive for
Speaker 1: their tenure. The Japanese tenure yield is higher. Is they're
Speaker 1: starting to be a change in bond market psychology about
Speaker 1: the inflation and other risk risks going forward. Well, and
Speaker 1: I don't think inflation Mike. Perhaps you know, we're seeing
Speaker 1: inflation take up a little bit UH in the PC
Speaker 1: in the United States and certainly above the line elsewhere
Speaker 1: with the exception of Japan. But I do think that
Speaker 1: you know, Japan has changed the nature of the game
Speaker 1: to some extent quantitati vising they continue, but they have
Speaker 1: this fixed tenure, as you've mentioned, at zero percent, and
Speaker 1: I think when that happened, that's sort of put all
Speaker 1: of the other bond markets in play. It It basically
Speaker 1: meant that, you know, the US treasury and guilt market
Speaker 1: and bund market didn't have to track jgbs one for one,
Speaker 1: but it it you know, push produced some type of
Speaker 1: marginal UH increase or possibility of increase um. You know
Speaker 1: that that allowed inflation to have some type of an effect,
Speaker 1: and that allowed the Fed to you know, to be
Speaker 1: able to go ahead in December and to raise rates.
Speaker 1: So I think an analysis of what's going on with
Speaker 1: this fixed rate policy in one country which may spread
Speaker 1: to other countries. I think it's important and I think
Speaker 1: that's what did it in terms of the the two
Speaker 1: day taper tantrum and in Germany being that's that's another story.
Speaker 1: But yeah, central banks are starting to sort of move
Speaker 1: in another direction, and I think investors since it is
Speaker 1: that other direction. Bill Gross, the idea of a stronger dollar,
Speaker 1: and will it be a brutal move? I mean, we
Speaker 1: can go any number of ways here. Yakham Fells was
Speaker 1: just on talking about a euro that is stabled. It
Speaker 1: won't strengthen. We've got the soare in Britain, in the
Speaker 1: United Kingdom. But Bill Gross, do you look for stronger dollars?
Speaker 1: And how you work day to day at Janice, Well,
Speaker 1: that's what I'm seeing, you know. I would say a
Speaker 1: longer term and that's that's where I hang out tom As,
Speaker 1: you know, But I would say longer term that the
Speaker 1: you know, the recent trend in the dollar d x
Speaker 1: Y put them all or most of them together and
Speaker 1: look at the trend um. You know, it's certainly upward,
Speaker 1: not to its peak or its cyclical peak, but it's upward.
Speaker 1: And I would say that the world needs a weaker dollar,
Speaker 1: not a stronger dollar. Um. You know, the dollar is
Speaker 1: the world's reserve currency, and when you think about it,
Speaker 1: to the extent that the world's reserve currency strengthens and
Speaker 1: uh and other countries currencies weekends, then you know that
Speaker 1: to me is a tightening type of effect. And it
Speaker 1: supposedly reflects it tightening in terms of higher yields in
Speaker 1: the US relative to to the ural Land, or to
Speaker 1: Japan or the UK, and some extent that's happened. Um,
Speaker 1: but I think it's a negative trend as certainly negative
Speaker 1: trend for emerging markets. We're seeing in the Mexican pay
Speaker 1: so you know, down today again and and that's the
Speaker 1: leading emerging market currency. So to me, it's a tightening
Speaker 1: that the FED hasn't really initiated yet. They've only moved
Speaker 1: up once. But I don't think it are goes well
Speaker 1: for global economic growth. I think the world needs a
Speaker 1: weaker dollar. The story of the moment. The payrolls report
Speaker 1: for the month of September one or fifty six thousand
Speaker 1: jobs were created, five unemployment. We are back now with
Speaker 1: Bill Gross of Janice Capital here on Bloomberg Radio, and
Speaker 1: we welcome everybody joining us on Bloomberg Television. Built before
Speaker 1: the break, you suggested that this number is enough to
Speaker 1: keep the FED in play. I don't know whether it
Speaker 1: was because you did your yoga or maybe you didn't
Speaker 1: watch the forty Niners game last night, but you seem
Speaker 1: very you seem very relaxed about that. Um, you don't
Speaker 1: seem upset at all that we're going to see an
Speaker 1: interest rate rise. Well though, I think we will in
Speaker 1: December for sure, and maybe even in November. They've promised
Speaker 1: so much that at that at some point they've they've
Speaker 1: got to come out and do something or else there
Speaker 1: credibility is is really going to sink to a low point.
Speaker 1: So I think the Fed will raise interest rates, you know, Mike,
Speaker 1: I've I've been thinking that the Fed should raise interest
Speaker 1: rates for a long time, if only to provide for
Speaker 1: a more attractive savings rate in terms of not only
Speaker 1: short term yields, but longer term yields. I think insurance
Speaker 1: companies and banks and pension funds are rather desperate for income,
Speaker 1: and the only way to do it really is to
Speaker 1: extend out in terms of risk, which probably isn't a
Speaker 1: good idea, or to extend out in duration, but duration
Speaker 1: provides nothing. So I think the FED will move. They're
Speaker 1: they're limited, they're cautious. They'll move perhaps once every nine
Speaker 1: to twelve months, unless circum stance has changed significantly. But
Speaker 1: I think an upward move, a renormalization is at least
Speaker 1: appropriate at this time. Bill Gross, you made worldwide headlines
Speaker 1: a number of years ago by talking about ten years
Speaker 1: of financial repression. Stephen Major at HSBC really reaffirmed the
Speaker 1: Gross call the other day at one point three five
Speaker 1: ten year yield end of seventeen and particularly lower yields
Speaker 1: for longer out to two thousand twenty one. Do you
Speaker 1: assume even if the FED brings up the short term
Speaker 1: of the curve, flat curve forever and the idea of
Speaker 1: financial repression for our viewers and listeners forever, Well, not
Speaker 1: forever is a long term, And you're baiting me with
Speaker 1: that one time, but yes, for a long time. And
Speaker 1: I think ro Golf and Reinhardt with their either ten
Speaker 1: years or twenty years or the biblical equivalent of seven
Speaker 1: years of you know, feast and seven years of famine,
Speaker 1: which would be financial repression. Uh. In terms of the
Speaker 1: lad um you know is something that has to be
Speaker 1: with us. I mean when you build up leverage, and
Speaker 1: the world built up leverage until two thousand and eight.
Speaker 1: And by the way, where you are Tom in Washington,
Speaker 1: the I m F has come out very strongly, you know,
Speaker 1: with not with the suggestion, but with the statistics that
Speaker 1: emerging markets and developed markets in the both in the
Speaker 1: sovereign and the private sector have increased their leverage significantly
Speaker 1: since then. And so you know, because of that, because
Speaker 1: of this highly leveled world which I don't think we've
Speaker 1: ever experienced in this era of financialization, which could go
Speaker 1: back as far as fifty sixty seventy years, I don't
Speaker 1: think the central banks can afford to raise interest rich
Speaker 1: because a quarter or a half or one hundred basis
Speaker 1: points might might just break break the system. Bill, this
Speaker 1: is critical you run an unconstrained fund. Buried in the
Speaker 1: green book of the I m F is a terse
Speaker 1: sentence about the damn it just the great distortion is
Speaker 1: doing to insurance companies. Two pensions to long term investible assets.
Speaker 1: Help us right now? Where is Bill Gross's actual real
Speaker 1: assumption on a blended sixty forty portfolio? Are you below
Speaker 1: a four percent actuarial assumption. Well, you know that's hard. Um,
Speaker 1: you know, I've been around four four to five, and
Speaker 1: that would assume equities at the six to seven and
Speaker 1: bonds at two to three, and you mix them in
Speaker 1: some proportion. Let's just say fifty fifty, and that's where
Speaker 1: you get. But most pensrum funds, as you know, are
Speaker 1: at seven or seven plus. And uh, insurance companies you
Speaker 1: can't measure it that way, but their liabilities are significant
Speaker 1: relative to what they've promised. And and ultimately tom uh
Speaker 1: you know mom and pop on Main Street. Uh, you know,
Speaker 1: we talk about companies and you know, the foundational support
Speaker 1: of capitalism, but actually, you know, mom and pop has
Speaker 1: savers are the the support of capitalism going forward. And
Speaker 1: unless they can get something on their savings, they either
Speaker 1: save more, which sends the system into a mild reverse,
Speaker 1: or they you know, they take their money out of
Speaker 1: the bank and and not literally but figured it will
Speaker 1: be stuff in a mattress and that itself breaks down financialization.
Speaker 1: And so yeah, we're at a point where the system
Speaker 1: needs higher interest rates, but central bankers, you know, are
Speaker 1: modeled on lower interest rates. And it will be an
Speaker 1: interesting challenge going forward, not just with monetary policy, but
Speaker 1: of course with fiscal policy and who's elected. Well, building
Speaker 1: on that in your most recent market commentary, you suggest
Speaker 1: that it is in your words, capitalism that's threatened by
Speaker 1: the ongoing strategies of the central banks because we're seeing
Speaker 1: inefficient allocation of capital relative to risk. Well, that's true.
Speaker 1: You know, the lower interest rates do keep a common
Speaker 1: sensically zombie corporations alive. You know, that happened in Japan
Speaker 1: and has happened for twenty years. So that's a decent example.
Speaker 1: And let's just put some common sense into you know,
Speaker 1: some central bankers model to the extent that um risk
Speaker 1: is not proportionate to return, or put it the other way,
Speaker 1: return is not proportionate to risk. Then then investors and
Speaker 1: businesses don't invest. You know, it's it's the margin, it's
Speaker 1: the NYM for banks, and it's the spread as Tom asked,
Speaker 1: in terms of uh, you know, longer term liabilities, and
Speaker 1: so it sort of freezes the system. Dalio talked about
Speaker 1: this week and he's talked about it for a long time,
Speaker 1: about pushing on a string. That's the old metaphor. But
Speaker 1: basically that's the point where we're at, where investors and
Speaker 1: savers basically look at their options and UH and decide
Speaker 1: that they're not so attractive, and and capitalism blast point.
Speaker 1: Capitalism depends upon it depends upon the assumption of risk
Speaker 1: as opposed to UH no risk. And if if investors
Speaker 1: and savers and businesses are not willing to risk it
Speaker 1: a spread and an attractive spread, then capitalism itself starts
Speaker 1: to at the margin, starts to turn inward. You mentioned
Speaker 1: the elections would be were missing asked not asking you
Speaker 1: whether or not the election is actually going to be
Speaker 1: a major investable event before or after November eight. Yeah,
Speaker 1: I think so, but I don't obviously I don't know
Speaker 1: who's going to win. I think there'll be one to
Speaker 1: three day type of reaction. But to be fair, I
Speaker 1: think that all countries, and of course you're talking about
Speaker 1: the United States, but there are elections elsewhere as well,
Speaker 1: and their referendums in Italy and so on. Um, you know,
Speaker 1: everyone begins to speak now to infrastructure, and that's the
Speaker 1: easy word, that's the code word. That's something that you know,
Speaker 1: both parties can get behind. But it's more than infrastructure there.
Speaker 1: What has to happen is a program to take care
Speaker 1: of individuals, displaced individuals in the workforce, and we see
Speaker 1: that obviously in many of the numbers today, and to
Speaker 1: the extent that you can't take care of either through
Speaker 1: increased social security or some type of benefits than the consumer,
Speaker 1: which is the ultimate driving force behind capitalism. That consumer,
Speaker 1: you know, can't simply get started. Bill, help us here
Speaker 1: with the idea of where we will be in our politics.
Speaker 1: I know, you know, we'd love for you to predict
Speaker 1: the election, but we're not going to pin that on
Speaker 1: you right now. These are two candidates against trade. They
Speaker 1: want to wallop the borders in this way or that way.
Speaker 1: There's almost an isolation as tone to the entire election.
Speaker 1: Help us with that. We can't do business and finance
Speaker 1: with an isolation as tone can be. No, I agree
Speaker 1: with you and agree free trade. Free trade is beneficial,
Speaker 1: has been beneficial ever since Adam Smith in the Invisible
Speaker 1: Hand came out with the theory. You know, most most economists,
Speaker 1: most investors, no common sensically that that's that's the case,
Speaker 1: and and and so free trade is a good thing.
Speaker 1: The problem, Tom, is that that society and governments haven't
Speaker 1: recognized the repercussions of free trade because free trade displaces workers.
Speaker 1: You know, it produces imbalances between countries in terms of
Speaker 1: a growing workforce or or stable or shrinking labor force
Speaker 1: as in Japan, and so you know, governments have to
Speaker 1: address the hard work in terms of what do they
Speaker 1: do with displaced workers. Trade is wonderful for economies, and
Speaker 1: trade is wonderful for profits, and trade is wonderful for
Speaker 1: rising wages, But um, lots of people are not working.
Speaker 1: Bill Gross, Janice Capital, thank you very much for joining
Speaker 1: us as always on Jobs Day in the United States,
Speaker 1: a hundred and fifty six thousand jobs creative five unemployment rank.
Speaker 1: This is Bloomberg. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever
Speaker 1: podcast platform you prefer. I'm on Twitter at Tom Keane,
Speaker 1: Michael McKee is at Economy Before the podcast. You can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio. Who you put
Speaker 1: your trust in? Matters Investors have put their trust in
Speaker 1: independent registered investment advisors to the tune of four trillion dollars.
Speaker 1: Why learn more and find your independent advisor dot com