Bill Gross Says We're Stuck in a 2% Real GDP Environment

of course on the Bloomberg Francie Lequai in London. David Gura off David sentence Francine a photo of his seats at the Super Bowl. It's unreally, he's like literally a kid, you not at the forty seven yard line. It's just I don't know which side he's on, like Patriots or falcons um. This is beyond well timed. We take it as a great privilege of Alan Krueger with us in

Jobs Day. But Professor Krueger, I think there can never be a better time to speak to you now about the raging academic debate that we've seen within Trump presidential politics and that has led by Brad de Longa, Berkeley, Danny Roderick of Harvard. Jared Bernstein weighing in as well on the effects of NEFTA on jobs in America. And it comes down to what you and card did years ago, which is a distribution on low wage people. Let's start with uh, the obvious first question, has neft been good

or bad for the American worker? Has been very positive for the US, including for the vast majority of American workers. You could give longer answers than that. Yeah, Um, I think first of all, having a stable, prosperous Mexico on our border is very much to our interest. Uh. Secondly, there are synergies between US in Mexico. UM. I believe

that globalization and trade have had distributional effects. I think China has A much has had a much more profound effect on the wages of less skilled American workers than trade with Mexico has um so Uh, I think the research suggests that NAFTA has had a beneficial effect in terms of lowering prices for consumers, which have been particularly beneficial for low income Americans. So, professor, are we confusing

globalization inequality, innovation and actually just wealth distribution. Well, we've had profound changes over the last thirty years and inequality and wealth distribution in the US and in many countries around the world. I think the driving force has been technology. Uh. Manufacturing has been losing jobs around the world because of increased productivity UM. At the same time, I think that trade does create winners and losers, and we haven't done

enough to help those who were dislocated by trade. The what this were distributional to labor economists like yourself is a big deal. Defined distributional Professor Roderick Cuppett as a school in Cambridge called Harvard. Distributional for Danny Roderick is really front and center. Where Brad DeLong at Berkeley diminishes that what is distributional effects little. Distribution is very simple to define. It's who gets what, how we split up the pie, and growth has to do with the size

of the pie. And I think one of the things we've seen over the last thirty years is that growth is necessary but not sufficient. You now, if you look at this fascinating new study by Rods Chatting and his co authors on the chances that children have higher income than their parents, we've seen a massive shift over the last forty years in the US, where we've gone from over nine children earning more than their parents at age thirty when you compare their comparable ages to about half

for the most recent cohort. That's driven by distributional changes, not by slimmer growth in fantsy, this could jump into your frenzy. With one more question, we'll have Professor kruckerback. But Fretsy, that's the heart of the Mackenzie analysis of this year is our children and the effect on them. Right, But I mean, I guess that the question is even if you know, could you not suppose that you want

to create a smaller pie? Right, But if you have protectionist measures, then you actually directly, uh, we distribute wealth as you make it. I think it's a very blunt instrument. If we want to redistribute wealth, I think there are far more efficient tools, more direct tools, particularly targeted to those who struggled the most, which are those at the very bottom of the wage distribution um, earned income, tax credit,

minimum wage. I think are much more targeted tools to help that group, as opposed to trade, which is a very blunt instrument. Professor Krueger, he's a former chairman of the President's Council of Economic Advisers for President Obama, of course at Princeton University, and it's done particularly recent work among his many interests on the gig economy as well. Francie la Quad London and Tom Keane in your Francine Healthy here, you've done a lot of analysis falcons or

patriots falcons. I go with whatever Alarion says, there you go. I'm sorry, Tom Okay, are you sure she gets one question in the next one hour? Robert dahlw us here and Bob, this is fabulous to have you here within American corporations and your optimism on the bull market. Are they the kind of jobs being formed that corporate agents

used to do for us? Or is this a different job economy than what we think from Monsanto or DuPont or Eastman Kodak of another time they improved as the because of the cycle has going on early on remembers all that criticism all low paying jobs. That's not the case anymore. It's a wide swath across sectors and types of jobs and quality of jobs. So I think we're in a much better jobs picture than we were early in the cycle, and we couldn't get the jobs thing going?

Is it part time America? No, it's not. Um. Yeah, are there a lot of part time jobs? Sure, I won't deny that, But a lot of these jobs are full time jobs. Companies are struggling to find good skilled workers, and so that's why the amount of time it's taken to fill an open position has doubled since the end of the Great Recession. That's why we're seeing wages slowly move higher. Uh. There the companies are hand up to get good skilled workers. It's a it's a much healthier place, Bob,

who's hiring. If you look at the industry groups and we're talking a little bit about small businesses compared to bigger businesses earlier on on TV, it feels like a million years ago. But is there a wave in the business cycle that means they're hiring a lot more than everyone else? I know, I don't. I don't think so. Um. Look, we all know that over the long term, all the net job growth takes place in small companies, big businesses or net net approximately zero. So small companies are coming

back around. They're still slow because they still have the healthcare concerns. They haven't had the tax relief that they're hoping to get. So uh, it's it's it's healthcare, it's technology, um, selected consumer areas, it's it's broadening out. In my view, I look at how it's broadening out, and it just assumes wage increase. Do you observe that? What do you hear from corporations and the analysts at moving about actual wage pressure companies? I don't see it yet. It's moderate,

but it's improving. I think we boughtened out at about one and a half percent annual year over year wage growth. Now we're running two point nine, and my guess is that is heading into the threes. It's it's a slow creep um you know, four, sort of a flash point. I hope we don't get there anytime soon because that begins to pressure corporate profit margins. So more and more people are getting wage right gains, and that's a healthy thing for the consumer and therefore for the economy. So, Bob,

you follow equities, and so you follow CEOs companies. Talk to me about about the behavior of a CEO. When does a cr a company decide to increase wages? Is it because they're in a shortage of supply? Because it's you know, extra skilled workers. Talk me through it. Yeah, they look at lots of things. They look at how hard is it to find the new incremental worker. They look intensively at people who leave. When nobody's leaving, they don't raise wages. But when the leavers increase, uh, wage

rates have to move up. They look around them to see what other companies are doing. You know, the things you and I would do to pay attention to the environment. That's what they're doing, and that's leading to a slow but steady increase in wage rates. Do you see investment? I believe. I learned in school that investment creates jobs, which creates consumption. It's something like that. Is that rule still affect It's America. It's a good rule. We have

not seen the pick up an investment. It's been absent um a significant degree this cycle for a whole bunch of reasons. Corporations just don't have a lot of confidence uh and conviction about the long term. Maybe the fiscal policy and tax reform that is on the agenda will cause them to begin to do more investment, more cash back home if we get repatriation, But so far we're

not there. No, I mean, Bob, this is important, and one of the high points for Bloomberg this week was our conversation John Nichols Waite's UH a conversation with Mr mL of General Electric Take GE is an industrial proxy. I guess I could take U t X or you name the company. But the answer is, can Bob Doll

be long GE like stocks? Yeah? You know GE in particular if they just can't get out their own way and the restructurings been late and the earnings games have been so so and the revenue growth, so yeah, we're pretty lukewarm one GE. But let's take an inger soul rand. You know related businesses that companies growing, uh, it has need for for for more workers and they're hiring some people. UM, So you've got to still be selective in these industrial areas.

Our technology companies Bob hiring American yes, yes, and and also hiring foreigners. They're hiring both. UM. I think that um, when you look at the graduates from the big technology schools, their the ability of those folks to get jobs has moved up in in the last couple of years, but they're still hiring workers outside the U s Indian for the usual UM businesses that you see happening there. So it's it is more geography than just the US. For sure.

Mr Trump may stop that, but for now, right, I was going to know, but I was going through That's exactly where I was going about. But if you have immigration bands and if this goes into like working visas, and if we see a lot of this UM you know, going in and being expanded, does it mean that it will actually create jobs in America or not necessarily because it could hurt profit at the same time. Yeah, I I think that once the more restrictions you put on,

the less efficient the economy is going to be. And so uh, I'd love Mr Trump to make it it's so attractive for UM businesses to hire workers here through tax reform and economic growth that they do it naturally rather than putting up barriers that you can't. Yeah. But

one more question. I want to go to Francine on the greater picture on this job stay getting folks about twenty minutes away from that report, Bob Doll with us with Uvin and then Bill Gross will be with this Neuvine as a bond house, that's your heritage out of Chicago. You do the coupon at what point, did the bonds become a competition for your equity world? To me, we're nowhere near that. I agree, um so, so we've seen the tenure treasury move from one thirties seven up to

two fifty. Um, you know, without a three handle, I don't get worried, and even a three handle is not a big deal part of its pace. Tom If we get the three tomorrow morning, bonds will be competitive, but if it's a gradual thing, stocks will be fine. Bob, we're talking earlier about the equity market and when the bond coupon begins to compete. Let's combine in your work with the work of Bill gross over at Janis and this idea of equities and bonds. From where you sit,

do you need to own both? Well, you know, diversification says the answer that question is yes. So I think it's a matter of proportion. And my view is whatever for normal is for you, risk reward, time, horizon, income, neis, etcetera. Just be you know, ten fifteen higher than normal in stocks than the fifteen lower in bonds because interest rates are probably gonna creep higher, which means we have a better economy, which we had better earnings. Therefore, I like

stock sober bonds. We have a joke that we do here, which is with John Tucker the opening of the four oh one k envelope, which is we sedate him and he opens his four oh. Okay, they don't do that with me, folks, because I'm in the double leverage all cash fund. But but that's a new being product. But but Bob, how do I catch up if I'm behind. I've got a guy listening right now in New York. He's in his fancy maserati. He's a hedge fund guy who did four percent last year and he's scared, you

know what. Or I got a retiree out in Iowa listening right now. Talk to them both about how you catch up. So, if you have three hundred dollars on the sidelines earmark for the stock market, and you don't know when to get in, put a hundred in now, take a hundred and dollar cost average over the next six months, and if we get a dip like we always do, take the last hundred and put in. Have the guts of your conviction at the hardest time when your stomach doesn't feel so good. Last year, that was

January February is different, and should we worry about dollar strength? Bob? Every year is different. Obviously, dollar strength to the extent it continues, will provide a head win for a multinational companies here in the US. And so my view is overweight domestic companies, underweight the multinationals. Why fight the strength of the dollar plus weaker economic growth elsewhere? I want those domestic companies right, But what is the one thing? Is there a level on the dollar that which at

which you start worrying. I think it's more about pace than it is level. If it's slow and steady increase, we can live with it. But it's these big gaps that we see from time to time that that that create problems. Um, look, we've already we've already been through and earnings recession over the last couple of years, and half the reason with the strengthen the dollar, that could come again, Let's hope not. Bob. I want to talk about a mystery stock, Bob doll us. When I do this,

Bob can't talk about individual securities. That's part of the game, folks. How about a mystery stock trading at three time sales twenty seven times cash flow with a total enterprise value to eat but uh A forty four point seven three. All you need to know about that goofy ratio, folks, is this is a richly prized beast. I'll give you a hint. They're out in Seattle. How do you own an Amazon, Bob when you're when you're read Graham, Dodd and Coddle. Yeah, I'm with you. I you know, great

business model. They've been doing great things. But my goodness is a price per per perfection. My view is it is every time I look there, you know, I buy something else where I can touch um the earnings and the cash flow and and and sleep at night over the valuation. It's an expensive stock and you know all they have to do is, you know, not quite come ruin revenues like they did last night, and they take the stock down some Bob, I need to push back a little bit on the the optimism that we see,

for especially from equity folk like yourself. What's good out there in the world? Is there? There seems to be much more upside risk than there was only six months ago. Yeah, So, making no mistake about it, I'm I'm only looking for five for the stock market to from dividends that gives me a seven percent year. Stock selection is going to be necessary to get me to ten if I'm going to get there. So the long term return on stocks is tanna. I'm looking for half that, so it count

me in the cautiously optimistic view. The tailwind is earnings. Earnings growth is pacing at eight percent for the fourth quarter. That's great news. That's great news. I mean, that's but that's what we expect, right, It's like three d beats above nominal GDP. But we haven't had eight percent for many quarters. That's that's that's the issue. And now we

have that bit of a tailwind. Look if interest rates and inflation creep a bit higher at some point, we'll have a head wind called pressure on multiples, pressure on valuations to a company, the tailwind and that's why i'm five ish rather than ten or fifteen is ish, right. I'm writing down to your folks off the terminal where we are as we go to the job's report, Bob doll very quickly here, just in a matter of seconds, you can stay long equities given a two thousand statistics.

I agree, better than expected job growth and uh, the fact is we're getting jobs and not having to pay workers more, at least in this report. Remember last month the number was wages up zero point four. You take the two uh and you get three year every year number, and that's kind of where we are. Bob Doland, Nuvine, thank you so much. Brought you by Bank of America, Mary Lynch. Dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the

power of global connections. Merrily Pierce Federan Smith Incorporated Member s I p C. Bill Gross joins us now with Jane's Capital Bill. This is the final jobs report for President Obama. I would suggest you want to step forward that this is a constructive jobs report for President Trump as well. Yes, and I think a little schizophrenic, as you just pointed out in the last minute or so. You know, jobs grow grow strong, but wages revised down by point two percent and instead of two point seven

percent annual, now two point five. I suppose that's good for corporate profits to keep wages down, but ultimately we know that it's consumers and consumption that drives the economy, and if they don't earn enough money or if their money is only growing at two point five and that's a slow growth economy. So so scopheric report. And I can say how markets might interpret it one way or the other. I want to bring this right over building

the bigger picture. This morning again futures advanced down, futures up near the twenty tho level. But I like what Bill said there about a schizophrenic tape bill. If we get a reflation from where you sit, is it a reflation that gives us an inflation boost or can we actually hope that the real economy will boost with the

Trump stimulus? Well, sure, and that's the hope that real GDP which is now around two percent and actually for the quarter with Atlanta fed above three percent, but the hope is that they we're in a three to four percent real GDP economy. That was the promise from the Trump administration. That's the hope in terms of fiscal policy and stimulation, deregulation and so on that we look forward to. I remain skeptacle. I guess I remain You know the of the camp that the productivity is the key to

real GDP growth. We know labor force growth is less than one percent, so it's all productivity and what produces productivity investment and investment hasn't been there, as you've discussed for the past thirty minutes. And to the extent that it remains an amic, then productivity will remain an emic. And I think we're stuck in a two percent real GDP world, no matter what the fiscal stimulation and no

matter what the deregulation. One of the exogity shocks and folks, we have to remind ourselves that Mr Gross for decades has had an international perspective where dollar dynamics really are there. A key conversation bill this week was with Barry iken Green of the Universe University California at Berkeley, and Professor iken Green was adamant that Mr Trump will lead us towards dollar strength. Do you show up at every day

at Janice just assuming dollar strength? No. I mean the dollar has had a good rally, and certainly against some emerging countries like the Mexican pays a significant one. So I don't assume continuing continuing dollar strength unless you know the FED stays ahead of the e c B or the FED stays ahead of the b O J, and

you know at the moment that's not the case. Both those central banks are still uh, you know, stuck on quantitatives in significant proportions, and that's led to the dollar rally, and that's led to stronger growth in the United States. But you know, I think there's some ketchup coming into the equation from Japan and from Eural Land. Their growth rates are close to two percent as well. And so yeah, a dollar growth and dollar appreciation is certainly not assumed.

I don't think we have a new Plaza Court ahead of us in which the dollar, the strong dollar, threatens the global economy and we have to take some significant measures. I don't see that. Bill Gross. Let me frame what keeps surveillance going, which is two perspectives. We've got your caution with a two percent GDP. Peter Hooper, the esteemed economist at Deutsche Bank Securities, will suggest a more optimistic attack.

What is missing from the optimists? What are they missing about their belief that we do get good, if not great, economic growth and by definition a higher interest rate regime. How will that not happen? Well, I think they have a point. You know, if if you have a strong fiscal program, we don't know what it is but if it's a trillion to two trillion over ten years, you know that that's a plus a half a percent over the next several years. There's there's no doubt about that.

And with the corporate taxes being cut, there's the potential for a near term stimulus. I'm I'm talking about real GDP over a relatively longer prevent time three to five to ten years. And I think we're stuck in this two zone. But yeah, the short term optimists, uh, you know, I'll grant them three perhaps over the next year or two. And that's a that's a positive for equity markets. But and and that's a positive as well for higher inflation and a positive for higher bond yields. And I can

talk about that in a second. Well we'll talk about that, but you know, the inflation, the idea of of a higher bond yields. But critically here, I know, Bill, in your office at Janie, you've got a Bloomberg terminal. It's a vanity terminal. You barely look at it. You're still wedded to your Monroe trader. The fact is you're still back looking at the most basic calculator out there. Does your Monroe trader tell you you can buy bonds right now,

whether full faith and credit or foreign or corporate. Yeah, I think to a certain extent. And the and the reason is tom is that other central banks are buying bonds. You know, the the U S went off the habit, so to speak to qui habit about two years ago. But the E C B, the b O J, the you know, the Bank of England are still in their plug into a hundred and fifty billion a month. That's a that's a lot of money. That's basically uh, you know, one to two trillion dollars a year going into the

bond market. And that provides tremendous support. For instance, in terms of arbitrage, you can move into the treasuries at two forty five, you know, from buns at forty five basis points and pick up two hundred currency adjusted. You can even pick up you know, fifty to sixty basis points for buns to treasury. Same thing with j G B is at the basically tend the fifteen basis points. Huge arbitrage there are even currency adjusted so to the accentag you've got a hundred and fifty billion coming in

a month from these central banks. Basically, it means that central banks are still supporting a low interest rate in our environment. I don't like that, but you have to recognize it as an investor. And this is very important, folks. What you just heard for Mr Gross there is a classic long short of what you do nation and nation given divergence? Are you picking up dimes in front of a bulldozer? Are you going to get run over by

the Trump administration doing you're cute arbitrage? Well, I think you have to be careful, and that's why janison constraint. We've we've got a zero duration, but we've got the

arbitrage between buns and treasuries. I'm of the persuasion, and I think I've talked about this last month that you know US treasury is at two point six or two point six five is a critical area and that's a technical type of interpretation, but it's a long term trend line, tom, you know, going down from four and it's been hit on the upside by seven, eight, nine times. Two point six is very critical. And if we get higher inflation and higher yields relative to two point six, then we've

got a bear market. It is Job's day and we say good morning everyone. Bill Gross with us with Janice Capital Francine. Uh, let me talk to Mr Gross here about what we're observing in Europe. Bill, there are telltale signs of inflation in Europe in massive divergence. Is it an opportunity for you to see the difference in yield between Italy and Spain, or the difference and yield between Germany and Italy. Is that an opportunity when you're unconstrained

like Bill Gross, Well, sure it's an opportunity. Uh. You know, the difference between Italy and Germany is really a risk spread and dependent to some extent on developments, and in Italy, same thing I suppose in France, although the the spreads are are very tight, but moving out and widening to some extent based upon fears of elections later in the year. So you know, it's a political type of situation in

terms of those particular countries. But they're all, as you know, joined by the the ECB policy rate and the bigger arbitrage to my way of thinking is between buns and U S treasuries. Buns are so overvalued and under yielded at the point four or five percent one of these days. When quantitative easing disappears or at least as reduced, uh, you know what the ECB, then then buns will lose a bid and start to move higher in terms of yields. So I like that spread the best in terms of

a short and along bill. Are you expecting if you look at the European recovery, is it for real? And if it is for real, when will the ECB start scaling back some of this QUEUEI I think it's for real. I mean the euro has gone down and and appreciated,

which provides a push. And in terms of their partcular economy relative to the rest of the world, I think all global are many global economies are stronger simply because the Chinese over twelve eighteen month period of time have been so strong in terms of fiscal spending and debt accumulation and debt growth. You know, ultimately it's a potential disaster. Right for the moment, the Chinese are leading the way.

They're the locomotive in terms of fiscal stimulation. Uh. The e c B is the locomotive in terms of monetary stimulation. So I think it's real temporarily um and and the Eurland can support a two percent growth rate, and therefore, you know, there's a huge arbitrage between as I mentioned, German boons and US treasury. Same thing with j GPS.

It's an enormous spread and provides an opportunity. How are you expecting this ten in seventeen you have very possibly explosive political elections in France and German and Netherlands at a time where also Peter Navarro is accusing Germany of

cheating America by having a surplus. Well, I think they have for a long time, you know, ever since uh, you know, the the the EU was was put together in terms of exchange rates, I think Germany came in at a very favored level and for a long long time now relative to their own neighbors, relative to Italy, relative to Spain, France, uh. And I think there's a common agreement there for for most observers that Germany is, yes,

picking their own neighbors and picking the United States. Uh, you know, in terms of the euro uh, in terms of a significant surplus, what they have a nine percent trade balanced surplus against their own neighbors, and Germany says, well, that's just because we're doing well. I think it's because of how they came into the system itself. I want to remind everyone that Bill Gross was known as a

bond exploiter for years. Uh well, Bill, help me here with something you made worldwide headlines on and surveillance years ago, which is where one day you said, yes, a Procter and Gamble growth of dividend can be a yield proxy. Are we still in the vicinity of a stock dividend and dividend growth being a yield equivalency or is that going to shift with a venge at some point? Well,

I think you can. You can talk about an equivalency as long as the fear of deflation is off the board, and we're beginning to see that time right with the pots central for reflation as opposed to deflation. You know, a yield proxy Procter and Gamble two or two an af percent yield, you know, the high quality company than it is in a period of deflation. You know, provides

or allows for risk to that dividend. And so, you know, yield proxies for stocks become more and more certain and more and more stable as we moved from d fflation to reflation. And so I think that is a consideration that stock investors relative to bonds should should Vader seems ages ago, Bill, and again, thanks for your generosity of joining us here on our fed coverage and our job

stay coverage as well. We greatly appreciate it. But Bill Gross, you've had two weeks to observe Trump politics in the Trump presidency. Do you get a sense of an industrial policy from Mr Trump? Is there a vision yet of what we're going to see for the coming four years? Well, but perhaps in terms of at least proposals for lower corporate tax rates and proposals for less regulation. You know that to a certain extent as as a corporate policy.

But uh, you know, Trump ran basically on a policy for middle class America for providing jobs, you know, presumably through industrialization, and perhaps those are tied together there. Um. You know, I'm yet to see proposals in terms of middle class America Wisconsin, Ohio, Michigan, the states that put him over the top. Um, So we'll have to wait

and see. I'm fearful that when they lower corporate tax rates that there won't be a quid pro quo in terms of higher revenue um or or balanced type of revenue. I think those types of things always work out to the favor of corporations, and good for corporations in terms of the stock market, but bad for people in terms of you know, their percentage of of GDP. What does the Donald Trump presidency mean for the rest of the world?

Bill This is one thing. You know, all the leaders are gathering today in Malta and the meeting, they're not talking about bregsit. It's all overshadowed about what Trump means for them and for this block. Sure and more uncertainty, not only in terms of fiscal policy and and um you know, government policies relative to taxation and export import you know, those are all important considerations uncertainty in terms

of geopolitical as well. And so you know, I think in the last few weeks you've seen that in terms of markets, a recognition that you know, it's not all hunky dory in terms of the proposals, that the uncertainty that he brings to the presidency almost on a daily basis is uh, you know, has a potential real consequence. And so you know that builds in a risk factor and equity risk premium that's higher, and therefore you know,

puts a damper on stock prices going forward. I think and I guess, and I'm asking you the biggest implication is what for emerging markets or if there is a trade war that actually materializes, what does it mean for these emerging markets involved and therefore for their bonds. Yeah, and certainly for the ones that there are specifically pointed out.

I mean, a strong dollar is a negative concert wins for almost all emerging markets because almost all of them have high debt dollar debt relative to GDP, but from Mexico for others that you know, become targets for Trump, And obviously it's a negative in the short term, at least in terms of investor optimism. Bill. One final question that I've got to get to the important business of the day. The most mail I get on William Gross

is about financial repression. Do you see any end of the financial repression, particularly for conservative savers, in the coming two, three or four years. Yeah, I I don't tell. And the end of the history of financial repression suggests that

it could be thirty forty years. It's basically an attempt on the part of the government to uh to pay its bills and a and a cheaper fashion to reduce that policy rate below neutral for a long long time, and that that favors borrowers but at disadvantages those with long term liabilities and savers like insurance companies, banks, pension funds and the like. And so we see this in balance.

As long as repression continues, we see the potential for imbalance is tipping economies and tipping markets over the long. Bill one final question, if I could I know Tom Brady's gonna end the game and go I'm going to Disneyland. I get all that, But what I want to know from Bill Gross is Kyle Shanahan, the offensive coach for the Atlanta Falcons. Is he gonna walk off the field and say I'm going to San Francisco. Is Shannon An't

gonna coach the gross forty Niners? Well, I thank you. Will, I mean, that's that's the probability, and will he helped the forty Niners. The forty Niners need a quarterback very badly, and uh an offensive coordinator becoming head coach? What can they do without a quarterback? So we'll see. We'll see about that on draft day. Okay, Bill Gross, thank you so much. Moving forward to see how Gross does that John Tucker. He just migrates right past the Super Bowl

to Draft Day. He's such a vision. He doesn't even do you know? He does not care about the Atlanta Falcons and the New England Patriots. Okay, thank you, Francy no Vomer help me here? Do you care about the Super Bowl? I spent all morning reading the seventeen page Super Bowl preview of the New York Post. Thank you New York Post, Thank you Bill Gross. This is Bloomberg.

This is a joy, folks, to go from Alan Krueger to Robert dal to William Gross to one James Grant and his Grants Interest Rate Observer, and and Jim, I love what you wrote here. What card carrying contrarian can resist the invitation to fade the mass consensus of the New York Times, of Financial Times of New York, of The Guardian, the Washington Post, in the Brooklyn Heights Press and Cobble Hill News. The market's got a one way

bet going right, It would seem to um. We propose that if there were a common stock and the ticker would say d j T in that stock, perhaps represented to certain someone in the White House, what you would observe is it seemed to continue to make new highs, or at least two apparently want to go up in the face of almost unanimous negative sentiment from the analytical community, mainly the press. It's a little bit glib, but then again, this is the mass media, right, I mean, yeah, Bill

Francine laquoans to jump in here very quickly. Is this a gilded age? Can we just finally say, as you've written about for years, that it is a plutocracy and that everybody has gold knobs in their bathroom, you know, cotton cold knobs. Well, um, uh, there's not enough goal that seems to me. For one thing, in view of the evident tail risk, you know, Donald Trump, it seems to me is the is the avatar or the personification of what they call in the trade tail risk, meaning

me um, the possibility of extreme outcomes, both good and bad. Um. Trump is uh will seemingly say anything. I don't think you'll actually do anything. But he is a most unpredictable entity. You know. The characteristic of this age with respect to money is that it is lighter than air. Indeed, it is the lacks any substance at all. It's you know, it's just a digital thing, it's an X or an OH,

it's a piece of paper, and it's most tangible. And in the central banks, we have institutions that that manipulate interest rates the most critical prices in capitalism. So it's it's we have a unique presence, it seems to me in the White House, and we have an unusual, if not unique set of monetary institutions, all of which I think points to the again the likely hood of really really surprising outcomes. And I think it's really good for

the journalism trades. I know we're in the journalism business with the scum of the earth. I think I read that some authority, but I think it's I think it's going to be wonderful. What twelve years he has or sixteen years? Jump in here, James, I guess the you know, my confusion in some points is that people say he's really unpredictable, But so far he's just implemented what his campaign was, right, It's just people didn't want to see

it or believe it. Perhaps, although you'll know that he wants the dollar to go up and to go down. He thinks that the CIA is akin to the um, the old Nazi Party, and then it's the most beautiful thing in Washington. Um So, I think there is a great deal of tension between what he professes to believe in what he says. Um. I think that there that his better angel, for example, a better angels would be pointing to something in the way of a freer trade, um,

that is to say, less bureaucratized trade. But then you wonder when he does such things as threatened to cut off whole countries because they seem to pique him. Um So I root for him, I've I've voted for I will actually voted for Mike Pence. Donald Trump happened to

be on that same ticket, you know. But even for people who voted for him, I think every other day as a freak out on Tuesday, Thursday and Saturday or frind but Monday, Wednesday and Friday or just you know, you wonder, all right, what do you wonder about foreign policy? And when will the market starts take notice? Because for the moment it's largely discounted. Right. Uh, I'm not sure it's discounting because I'm not sure what people know what

they ought to discount. Um, there's something um, as a friend of mine remarket is something charming about a a secretary of state Texas oil man named Rex. This promises something fresh and wholesome in America with regard to foreign policy. But that that's the secretary of state. Above him is his boss, the president, who seemingly Uh, I think the problem with respect to foreign policies, I don't know what the what the theory is. I know what the tweets are,

but I'm not sure the overarching theory is. Jim Grant very quickly here. Uh, it's a huge event, folks, March fifteenth. It's a closed event, Grants Spring two thousand and seventeen conference with Chuck Royce, Robert Not and Peter Fisher. You're gonna have it at the Plaza in Manhattan? Are you timing that perfectly for another plaza accord? Are we going to see dollars strength, Jim Grant to perfectly coincide with

your March fifteenth conference. I think if we see dollar strength, it will be against the will of the sitting president. I think Donald Trump is a low interest rate guy, and he's a he's a he's a weak dollar person, and what he wants is a profusion of bank credit at at easily accessible rates of interest. So I think that the surprise would regard to monetary policy, and the trouble administration will be um not a rigorous or an

orthodox monetary policy of some of us hoped. I think it will be a reversion of something much more akin to what we had in the seventies, a central bank doing the president's bidding and doing it at low interest rates and with lots and lots of dollar bills. Interesting, Jim Grant, not enough time, We'll do this again, Mr Grant's Grant's interest rate Observer is truly I must read on Wall Street. Jim Grant, of course, looking for higher rates within the cacophony of where we are right now,

joining yourself, this has become a real joy. Scott Mather is with PIMCO, and it's wonderful to talk to Mr Mather here an hour on from the Job's report that Dala up hundred and fourteen. We're about ready to print twenty again. It's a new Pimco rule. We can only talk to Scott when we print twenty. Scott, you are the torture of writing a joint memo with one Libby Cantroll about the new administration and investment, And the buried sentence is Scott Mather is more defensive. Why are you

more defensive given President Trump? Well, that's uh, it's really because of the uncertainty that that we think is out there. I mean, the market right now is is really romancing all the all the sugar that can come from increased economic activity. But with respect to uncertainty, both on the political front, with respect of trade policy, with respect to some of the adjustment problems that that may that may occur in the next several quarters, we think the market's

a little bit complacent. So when we look at pricing today, we're you know, in the corporate market where we're at multi year tights and spreads. When we look at implied volatility and the equity market and other measures of of sort of market complacency, it appears that people are just far too complacent about a sanguine, smooth path to a to a better destination, and we don't think that's likely.

And then when we look at uh, say core interest rates, you look at tenure rates, we've obviously backed up and yield over a hundred basis points, So there's there's there's a lot more value in high quality fixed income uh than there was a couple of quarters ago. So that, yes, what's unlikely the the better destination or the smooth path. Smooth path is very very unlikely in our opinion, And when we just observe investor behavior so far, it seems like people have been sort of pricing in a very

smooth path. And one of the things that we noted, uh, that Libby and I have been talking about, is that, you know, the markets focused on that destination, but really the easiest things to get done that are on trade policy, and those are some of the things that can cause the most investor consternation and and confusion and an an upset because clearly, you know, industry by industry, company by company,

it creates big differences in winners and losers. And so when you look at the whole agenda, what's likely to get done, it's all those things that cause uh, sort of maximum adjustment problems, maximum pain that are more likely to happen first. And the things that happened from lower taxes, increased fiscal spending, infrastructure spending, and maybe even regulatory reform. You know, those those are things that probably take take

hold later. What's priced in at the moment. Well, if you look at in terms of in terms of interest rates, right, we're looking at the market pricing in just about two hikes this year, two hikes next year. Um. If you look at what's priced in and other parts of the market. Once again, we would say the markets pricing in a return to a higher trajectory of growth, and that that's the only thing that can sort of explain uh, low high equity prices, low implied volatility, and very tight credit

spreads at this point. And that's that's really what we're taking issue with. We're saying that the pricing for that is is probably incorrect. Help me here with a dividend proxy. I did a study Scott Mather of Proctor. I just picked on Procter and Gamble and they're divoting growth over twenty years and basically you've got a coupon this year off your investment of twenty years ago of about because of that dividend growth is dividend growth within the Pimco shop.

Is it a proxy for yield or has there been a shift? Well, Candy a proxy uh for for yield of bed and there and there we would just not you know, it's good to look at the last twenty years, but you know that dividend growth has to be highly associated with nominal GDP growth. And for a big international company, it's not just the U S, it's the rest of

the world. So we would just note that now that dominal GDP growth has been slowing substantially for years, at the same point in time that people have have been looking for fixed income proxies going into equities, counting on as an amount of dividend growth going forward. And and there's probably an intersection of of of of reality that's likely to hit when people see the dividends can't grow at the same rate they've grown in the last twenty years, and unless there's a big uptick in UH in that

global GDP growth. What is the one thing that people are miss pricing when when you look at and Scott you talked a little bit about, you know, readjusting what's priced in. But is there something fundamentally that the markets are ignoring because they're either too afraid of looking at it or because we measure things wrong. Well, a couple of big things that come to mind. I mean, we we've been talking about this one for a while but

we've pretty pretty persistently. We think investors have under priced the possibility of of central banks UH, and not just the FED, but global central banks engineering and return to inflation target and perhaps even an overshoot of inflation. So that's something we think investors are miss pricing, and that

has implications of course, across all asset classes. And the other the other really big miss pricing is even despite recent historical experience where we've seen markets UH jump to very different valuations and volatility increased substantial and we've seen multiple examples of that in the past couple of years, even though real economic activities not jumping around, that's what happens in the financial markets for a host of reasons, and yet markets still UH continue to price volatility going

forward very low, as if they know with certainty what the economic or policy trajectory looks like. And so those are the two big miss pricings were really focused on, Scott One final question, if we could get you onto your busy UH a day. When we look at the equity market, I think a lot of investors want to know the tilt of allocation of a four oh one K right now, is the tilt domestic is the tilt

foreign investment, Well, that's a it's a good question. And our multi asset products where we focused on well, when we're not so far away from what we consider sort of a neutral allocation between fixed income and equities, we think that's the right way to be positioned right now. We do think when you look at valuations around the world, you know, you already had a huge bee pricing and domestically oriented US stocks, so yes, is there more value

in other developed world stocks? Yes, when you look in Europe for instance, is an example. So we have slide overweights there. But it's uh, you know, it's not a time to be all in on for are all in on emerging markets or or any one sector. We're taking much more balanced approach. Scott Mather, thank you so much with PIMCO. Greatly appreciated this morning. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud,

or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio. M brought to you by Bank of America. Mary Lynch dedicated to bringing our clients insights and solutions to meet the challenges of a transforming world. That's the power of global connections. Mary Lynch, Pierce, Fenner and Smith Incorporated, Member s I p C