Gary Cohn Says to Expect More Deregulation

Let's start with the broad question here. What you're looking for in in today's neber? Has this report different from the last one? Probably not too different. And I think I, like you guys have been saying, I don't think it's the entreil of these reports anymore. That matter. It's the message that is telling us about the economy. And I think what is telling us is we're doing pretty good.

We still that the fact that we can have these kind of this kind of job growth with an economy that in theory is close to full employment tells you where these people coming from. It must be that we're still not really at our full capacity. So to me, the most important message that we're getting from the job market is that we still got a room to run here. And that's a very positive story for the equity market

and even for the FED. I mean, it tells you, it tells you the pet needs to slowly normalized interest rates. But thanksly, there's no big rush. Where are we in the business cycle as you see it when you when you look at the economic data, when you look at the markets, where do you think we are? I think we're probably at the top of the ninth inning. But and I say that because I think I think we need another year or so this kind of growth to

pull everybody back into the job market. That has is still a lot of young people, are still about a million and a half people that dropped out that are coming back, and all those part timers. But I think the more important point is the game is not over it at the ninth inning. I think this is going

to go extra innings. And the reason I say that is we don't the inflation problems like we didn't normally make you think about end the cycle, and we don't see financial accesses that make you think about new problems brewing. So I think we've got a very good chance of going extra innings. I don't think there's anything many of us could look at and say this is a problem, and this is gonna throw us off course. Do let me ask you about those young people you you mentioned here.

When you look at wage growth which is still lagging, what's the role that those young people are playing. Do you think that they're principally responsible here for dragging down wage growth? You know, I don't, but I think the I think the sense you get about what's true unemployment is kind of an approximate idea about how far the economy is from full capacity. I think maybe at the part time the involuntary part time guys probably put more

pressure on wages. But I think the problem is everybody has is we're taking the official unoplumber rate at face value, and we're assuming four and a half percent, and we're assuming full employment is four and a half to five. I think that's maybe what's off course. I think personally, when you look at a metric of unemployment that's on an apple to apple similar to what we're used to looking at, we made me more like five and a half percent, and we're beginning to argue, we're beginning to

debate is the full employment level closer to four percent. Well, if that were true, you you would say, Okay, the labor market is doing fine, but I wouldn't describe it as overly tight. So honestly, I think wages are doing a little better. They're running a little above inflation. Uh, that's a little bit of than the band. But I

wouldn't describe I doesn't, it doesn't. I don't find this to be a mystery yet that despite the good sense of tone of the job market, we're not seeing big acceleration and wain wages because businesses have to manage things, you know why, they keep them competitive. They're not going to go crazy. Jim last one with us from JP Morgan as we begin our job day coverage, David Gern, Tom Keith thrilled your with us, uh nationwide, Jim blast And why are there twenty thou people lined up to

work at Amazon? I've gotten tons of mail on this. I get the whole economist full employed idea. But then why are twenty thou people lined up to pack cardboard box is for Amazon? Yeah? I think it's I'm be telling you we're not really as tight as people might think. And uh, you know, part of the problem is there's a lot of disruption going on because of the Amazon phenomenon.

So maybe people are saying this is the future. I'm you know, they're they're trying to shift gears a little bit and take advantage of what they think is coming. But it probably is a testimony to the disruption that's coming to the whole retail sector also from what you see going on with Amazon. Let me ask you just on a sector by sector basis what you're watching. Looking at your note here about auto sales, what we saw auto sales here, a little bit of disappointment over these

last couple of days. How's that playing out in terms of what sectors are hiring at this point? Jim, You know, I think the auto industry was the first one out because credit tight credit really made it. It was a nightmare for the auto industry. When the economy opened up and credit began to flow, the auto industry was the

first one out. And so I think what we're what we're seeing is that we're sort of the fact that car sales are kind of stay mobilizing now and we don't know how much of the uber phenomenon was driving sales last year, but I think, uh, it's telling you that the economy is becoming more mature. We're starting to see It's it's really hard when you look around. We're saying, a lot of every industry is picking up jobs. So we're still looking at a picture of a tide that's

rising and it's helping everybody. Obviously the tech sector where everybody wants to be young kids anyway. Uh, that's the hardest. But the truth is healthcare, tech, financial services, information, business services, those are all the areas. And it doesn't look to me yet yet, like anyone who's dominating, just looks to me like the kind of thing you normally see when we're in a generally recovering economy. So it still looks

a lot like a recovery story. Is there consensus about how many jobs we need to be adding month after month to keep that unemployment rate from from rising. Is that something that's a more art than science. Uh, it's a little bit of both. The fact is, if you look at the working age population, that's the easiest thing you can do. Look at the population between sixteen years of age and let's call it seventy or sixty or six, Well,

it's real clear. The growth of the working age population has slowed down from about two per per per month about a decade ago to about seventy five per months. So that that's why all of us say we think the steady state growth and jobs needs to be about. Anything about that will tend to bring unemployment down. The problem is there's still a lot of guys that dropped out, so that there's a lot of guys who got pushed

out during the recession. So they're slowly coming back, and so you can have a period here with a labor force can grow faster than that seventy five tho just because we're still recovery from the damage from the recession.

But in defense of a president job bowing in the last hour about three g d P Carl Ricka Donna covered with that with US surveillance, Jim Glass and seventy five thousand per month non farm payrolls is totally unacceptable to both Democrats, both Republicans are the governor of West Virginia who's both because our benchmarks are coming from the

old days. Those those those benchmarks we used to have are obsolete, and I think politicians haven't yet figured this out because they keep talking about getting America back to work. But the truth is most of US economists think America is getting back to work, and we're pretty much back to work. Here's the problem. There's like, in the last ten years, twenty million people that the people who were fifty five years of age and older, that population has

increased like twenty million. The young people millennials are up two and a half a million, forty year olds down about a million and a half. So really what's going on here is the population because we're aging, We got more and more people going into retirement. So we have to change our idea. This is not the same labor market that we've been living with for the last several decades. Jim Lastman with us that Jim Glassman, the head economists for commercial banking at JP Morgan Chase, on this job

to day here in the US. Just take you through what we expect for the rest of the day. Of course, those numbers come out from the Labor Department eight thirty Wall Street time. Alan Krueger is going to join us as well this morning of Princeton University. We're also going to speak with Bill gross of course, if Janice Henderson once those numbers come out, get his reaction to those, and then we're gonna hear from Gary Khne, Gary Coon, the head of the National Economic Council, so tremendous, a

great perspective throughout the morning on Jobs Day. And then of course, as I mentioned, we're following this story out of Washington as well, centering on Robert Mueller, the Special Council going to a grand jury in Washington, d C. For help with his investigation. Squarely though our focused on the job's number, can we say, Sherman, let's see. We'll see how our colleagues address up this boarding. But a lot of speculation, as you allude to there, about who

might be the next chairman. Muhammad Hillarian is in Paris. Dr Hillarian, good morning. In the back of your wonderful book, the only game in town. You have the power of scenario analysis. What are the scenarios cheer Yelling has to come up with? Is she and Governor Kearney and others

battle the hard data of disinflation? What Connie and Yelling have very different issues, and thank you Tom for having me on for Yelling, is the flattening of the Phillips curve in other In other words, why is it that wages and inflation have not responded to what has been very impressive job creation. Connie is in a different position. He's worried about something else. He's worried about stag inflation.

That is a slow economy, but high inflation. So both central banks are facing pretty unprecedented situations and their instruments are simply not giving them enough information right now to provide them with the confidence they need on the policy front. What more could could policymakers be doing in Washington? Right? No, I'm curious what you're gonna be looking for the day, of course, But beyond that, what would you like to

see Washington doing more of? So what I'd like to see, and I'm not the only one, is a handoff, handoff from excessive reliance on central brank to a more comprehensive policy response that acts on demand, supply, and debt. The longer we wait for his handoff, the greater the risk of collateral damage from relying just on moncrey policy. And that's true not just for the US, is also true for the ECB, the Bank of Japan. Both of them

also faced the same dilemma. What happens there? Did somebody drop the baton halfway down Pennsylvania that was supposed to have happened, wasn't it? So two thousand and ten happened the tea party. Then you've got the polarization of Congress, and then you've got a certain amount of all hazard reliance on central banks. You saw that in Europe as well. DJ Larian Richard Claire has sent me along a paper

Pedrodocostic Business Inside has written it up as well. Yasir Abdi and Steven Deneger over at the i M F you Health Court at the i MM for years, they have a fabulous paper on technology and the effect of labor and they go into routinization, they go into how technology has changed everything we do and also offshoring is Cherry Yell and Governor Karney is all of our angst

about jobs. Are we being overwhelmed by the new technology? Yes, but partly so let me explain there certainly is a structural and secular component to it, and that is understanding that technology is changing the way we do things. How is changing because of technology, and we don't yet fully understand that. But that is a structural and seculation. That's also a good or cyclical issue, which is we've had deficient aggregate demand and we've let potential output come down

through policy in action. And it's important to make that distinction because you can do a lot on the second one, but it requires that other policy makers get into the game and get off the sideline. The President has been opinion a recently, but he's in West Virginia, his territory, last night talking about infrastructure. With those kind of programs, move the needle on potential g d P or do we just give up and get used to two point whatever percent run rate? There would be a tragedy if

we gave up. We can move the needle. We can certainly move it towards three percent through the trifecta of infrastructure, pro growth, tax reform, and the regulations. So these are three things that the President has spoken about, and that let's not forget. President Obama also had infrastructure program. President

Obama also was looking for tax reform. Um in a in a perfect world, you'd go beyond that and you deal with labor retooling and re training, you would deal with the education system, you would deal elements that talk to productivity. But no, Tom, we shouldn't just sit there we we can get it back towards three percent, but it requires Congress to step up to its economic governance.

We're talking to you from Paris. Let me ask you just the degree to which excitement in the global economy has shifted to Europe from from the U S. What are we seeing in the context of the global economy in Europe today? How has that changed? A lot? More optimism. I'm very struck by the optimism that one hears here. Um, euro gloom has given way to your optimism. It helped by the latest GDP number. It's helped by the election

of Marcon So there's a sense here of optimism. Um. I think that the economics tells you that it's not enough to move the soft data. With sort of soft data move in the US in a major way a few months ago, but that didn't translate to the heart data. So it's important that more be done. But the big difference, David is there's a lot more optimism. Are you coming to us from the cafe have la ground cafe? I know,

but I'm talking to you. I'm talking to you from the Bloomberg offices, and as usual, they are beautiful offices in a wonderful locations. My first time here, and I think I'll try to visit more often. I know you should visit moreover, In fact, we should visit with you. I would suggest calling all the twins that we David Goer and I do a road trip with Dr Hillary

into the Paris office. I'm thinking the last week of a Nosspember because it's across the street from the opera and the opera season stomps Um in September, so lets it would in September. We'll get that. We'll do that in September and you can pick the opera and well I'll attend. Dr Larin, thank you so much from my offices and studios in Paris. Friends greatly appreciated this morning. Of course writing for bloom Review and Dr Larian affiliated

with Alan others. Really can't say enough about his book. It was my book of the summer. I don't know when it was the only game in town. Central Banks instability as well, really really precious chapter on game theory from Doctor Larium as well. For our cover to jobs. Stay continues now with Alan Kruegers, Professor of Public Polace and Economics at Princeton, former Chairman of the Council of Economic Advisors under President Obama here with us in our

Bloomberg eleven three of studios in New York. Great to see again. As always, let's start just by a going macro if we could that we had the latest read on GDP a few days ago. Can we draw a line between that and what you think we're going to see today. I think they are part of the same picture. You know, it looks to me like the economy is continuing at the same pace it has for the last few years. Uh, there's been no change in policy, so I'm not sure why we would expect to see much

change in economic performance. UM. So I think we're still at about two underlying growth. Job growth is faster than labor force growth. That should pull down the unemployment. UM. I've been a little bit disappointed that we haven't seen more wage growth. Uh. Inflation is but a little bit surprising, but I suspect that those are sort of short term phenomenon and we'll get back on track closer to percent inflation.

When when you look at all that this this administration could be doing, that this Congress could be doing if its prioritization is is the watchword in Washington. I think is as we've seen the debate over healthcare unfold, and now there's a question of what we're going to see when it comes to tax from when it comes to the labor economy, and what policies they could implement there, what would be most effective. What if you were still in the White House counseling the president, would you advise

him to do. My advice would be to tear up the proposal that they endorsed on immigration reform a couple

of days earlier. Um that would be number one. And if you just look at the Congressional Budget Office report on the bipartisan bill that passed the Senate that would have increased immigration to the US legal immigration, that concluded GDP growth would be faster, income growth would be faster, productivity growth would be higher, We'd have more innovation, we create more companies if we reformed our immigration system in that direction. So that would be point number one on

the labor market. Uh. I like their plans on infrastructure. I'd like to see them spell them out more detail. I'd like to see them have a strategy to congress past them. But I think that's an area where there is widespread agreement that the US needs more investment that will help labor, that will help businesses, that will help

the economy down the road. Alan, you're cited in my paper to jour, I've I've been quoted folks already saying Olivia Blanchard's effort in Naples, Italy this summer was just brilliant and out of the I m f we get a working paper where you're sited. David Carter, I believe cited is well, which basically says routinization and offshoring have changed the American labor economy. Is technology the killer? Is

technology a job's killer? Or can we say it's still adds vailue or is there just two America's Well, I think it's more in the too America vein. It's not a job's killer in the sense we've seen UH reasonable job growth over the last twenty five years. The problem is the nature of the jobs. The problem is that jobs in the middle have been disappearing while they've been

growing at the top and the bottom. Uh. The problem is that we're seeing fewer long term employment relationships for seeing more workers move into self employment, more gig employment, workers left without a safety net or labor laws are not really set up for big independent workforce. UM. But technology has brought lots of benefits to the US economy and to consumers as well. UM. And ultimately we need technology to raise productivity, growth, raised living standards, improve life expectancy,

and so on. So I think we need a better strategy for adjusting in the face of the computer information technology that's been developing. We'll come back here with you in just just a minute, but let me ask you a quick question about immigration. And you mentioned the speech to the President gave, the legislation he embraced this week. What does it seem like a conversation about him ration? It's gotten harder and harder to have in this country. Well,

it's very polarizing, and UM. I was um disappointed by the White House's position on um immigration this week because to inject immigration reform in the middle of tax reform, infrastructure and just doing the basics of government. In fact, I think the Trump administration would be well served and I think they'll discover pretty soon they should just focus on getting Congress to do the basics, pass a budget,

raised a debt limit, do so without drama. That's in the best interest of the American people and injecting um an immigration bilt which is not going to pass, really just done for political reasons. I think it's quite unfortunate because all it does in the end is divided the American people. David Greer right now, four minutes, thirty eight seconds, precious time with Alan Hooder. Alan great, too great to see once again we were chatting during the break here.

But work you're doing on on music now, I think this is this is fascinating and your your interests are very to as we know, what are you doing exactly when it comes to the music industry, what are you looking at? Well? A long time ago I was invited to be the keynote speaker at the poll Star Concert convention and that got me involved in studying the music industry. So, together with a group of other economists, I've started the

Music Industry Research Association. We're holding a conference at u c l A next week on Thursday and Friday, August tenth and eleven, UH and we have a really interesting program where people are presenting papers on copyright protection and our our copyright laws appropriate given the change in technology that we've seen on how streaming is changing the music industry on live live events. UM, I'm giving a paper on the backgrounds of musicians. We were talking before about inequality.

Music historically has been a route for people who came from underprivileged backgrounds to be able to move up. Is that still the case, um? And the short answers, yes, it doesn't look like it's changed all that much. If I compare the backgrounds of UH superstar musicians and c e O s that musicians come from more disadvantaged backgrounds. Um. But interestingly, if you look at who's successful over time in the music industry, it tends to be those who

are more middle class or more upper middle class. Even so, there's something about staying power which seems to be connected to the background. Have the technologists figured out the people have to get paid that. Granted, there's a revolution and we all have to sort out contracts and both sides of a contract, but have they figured out over ten difficult years that just as an example, through as CAP B, M I and c SEC, it's songwriters just possibly may

have to pay the rent um. Slowly they're figuring this out, and I think this is an existential threat to the music industry as we know it, and it's not just the technologists, it's also our laws which were developed for a time of Stephen Stephen Foster. So uh, we are seeing, uh, for the first time in several years, revenue rise for recorded music because of streaming. More and more people are signing up for the subscription services, not only in the

US but around the world. China's rapidly seeing growth and starting to protect intellectual property for music, which I think is a very positive development. But we're a long way from having a sustainable, stable business model in the music industry, and that's part of the reason for forming this association. What does does economic mobility and mobility generally within music tell you more broadly about economic mobility in the US today, Well, it's awfully hard to make it to um. Yeah, I'll

tell you something. David I gave a speech at the Rock and Roll Hall of Fame about how the whole economy is becoming like the music industry winner take all superstar economy, and in music, the top one percent are responsible for about half of the income. In the economy as a whole, the top one percent makes of the income um and the rest of the economy has kind of been mirroring the music industry in terms of the UH, the incomes UH and the rewards from the economy going

so much to the top. So I think that's that's a danger, and I think we can learn from the music industry about why that's been happening. And I think it is related to the technology that there's been kind of a flight to quality and you and that topper are generating much more attention than everyone else. And Professor Kruge, thank you so much. You've been I'm Professor of Economics and Public Affairs, Priston University. Just a real pleasure, to an honor to have them with us on this Job's Day.

We welcome on Bloomberg Radio, Bloomberg Television worldwide. We wait for the Gary Khne interview. Certainly will get positive spin from Mr Crone to David Weston and John Farrell. Will look for that later, but right now joining us William Gross of Janice Anderson, as we look at it better than good job's report, Bill a little bit of enthusisa as in wage growth, is it a wage growth that is enough to change chair Yellings dialogue into the September meeting?

Well maybe not, Tom, I mean it's point three as opposed to point to but the y O y as we call it as two point five percent and didn't change. So, UM, you know, obviously that's a positive, but not much. Jobs about two hundred thousand, as you mentioned, is more than expected during this point in time in the cycle. So it's a you know, it's a rather strong economic report, but I don't think it moves markets much. Um. You know, job growth to me doesn't seem to be stimulating economic

growth and consumer spending like it has in prior cycles. Wages, as we talked about, our sort of anemic and the mystery surrounding the participation rate sort of places havoc with that, and UH, I think what seems most important out of policy rates in the US and globally are core inflation rates, which as you know, i've declined for one point five percent in the US UH from one point eight point

three percent over the last few months. Um. You know, I think until we see a lift back to two percent in terms of the core inflation rate to fit, UH probably rgins quantitative tightening but won't raise short term rates this year. And we saw that with Governor Carney in a different calculus yesterday, Bill and the jobs reporting. I know David Gura wants to jump in here with questions on labor is well, I know that if Janice Henderson held a job's fair today, two thousand people would

show up. How can you have a good labor economy and have twenty thousand plus people show up to to uh put stuff in boxes for Amazon? It's almost is if we have two separate labor economies. Well, I think we do. We talked about the participation rate, at least we've mentioned it, and it's significantly lower than what it was. And that's the mystery to all central bankers. Um To my way of thinking, it's the demographically related, it's a

structural problem. It suggests that you know, boomers are getting older and older, and that they're training for new tech jobs is insignificant, and therefore they don't participate in the economy. Doesn't mean they can't come back in, but to my way of thinking, absent significant job training that they come back into those, um, you know, lower pain jobs that perhaps Amazon are providing. Bill, there's a groundhog day, ned Ryerson asked Quality two jobs day. Over these last few months,

the economy seems fine, fairly normal. What's changed since the last jobs report to you? When you look at the U. S economy, UM, not much, you know. We we we've seen inflation stay low and maybe take a little bit lower, which I think is significant. We've seen strong earnings growths in terms of corporations and that's propelled the stock market.

And we see continuing UH participation by central banks, not by the Fed, but by central banks up to a trillion dollars annually by the e c B and the b O J. And so to my way of thinking, yes, the U. S economy is important, but the Eurland economy is more important in terms of their inflation rate, their growth rate, and what the ECB plans to do in terms of timing UH in terms of their quantitative easy procedures.

It's really the money at the checks that are being written and had been written for the past five to six years that are important in terms of financial markets. And once that stops to move in at the same pace, then I think we're going to begin to see some change. But until then, onward and upward. We have seen the US President here a touting the strength of the stock market right and left, commenting on doubt little earlier this week on Twitter and in speeches. How much credit can

he claim for how the market is doing today? Oh, I don't think much. You know. Let's let's talk about regulation and deregulation, and I think there is where he can claim at least some minor progress. It's only been six months, but to the extent that the regulations have

been cut, and they have been cut significantly. I'm not sure exactly where and how they apply in each particular state, but the regulations and deregulations, I think I've been the main boost that hasn't certainly been from many of his policies they have been enacted yet. Bill. I thought your

essay for Janice Henderson recently Curveball was absolutely superb. And you brought up a concept that Stanley Fisher lad with at the Economic Club of New York well over eighteen months ago, and that is we miss proportional change and that short term interest rates are set really, really low, and even if they come up a bit, that's a huge proportional or percentage change in the movement of short rates is at a risk of instability for central bankers

in the coming months ahead. Yeah, I think it is Tom. You know, it's a difficult concept to define, and typically central bankers have looked at changes in FED interest rates or short term interest rates in terms of their absolute magnitude. Um, you know, prior cycles have raised the FED funds by three four racist points in some cases more going back

to eighty one. But proportionately, you know, since you start so low, you know, your double and maybe even quadruple at you know, at a two percent level in terms of FED funds, and that has a significant impact. Why you know, common sense basically says that if you're paying a certain interest rate cover or margin and that margin quadruples over the next few years, then that's a significant problem for interst rate coverage and for corporate profits or

even individual stability. Well, the Governor Karney faced yesterday, and let's fold this right into the Bloomberg New conversation with Alan Greenspan of a few days ago. It's almost not stagflation, as Chairman Greenspan put it, but a new kind of stag in a new kind of flation. What kind are they bill? Gross? Well, I, um, you know, I've listened

to uh Chairman Greenspan over the last few days. My interpretation you know, he's suggesting that there's a bubble, there's a bubble in interest rates, and the bubble has to do with real interest rates, which are exceedingly low as our nominal rates. But it's real interest rates that are a problem. I would agree with them, um, and I would say that these real interest rates low as they are, you know, ultimately, ultimately, which is the key create inflation,

which is the inflation part of it. Um. The stag has to do with productivity and productivity as we've always been flatlining for the last five years. And unless we can have a higher productivity level and combination with perhaps a higher inflation rate over the next six to twelve months than we have, you know, the stagflation where productivity is low. As a thanks to two or three percent Bill, We're gonna come back with Bill Gross and countin you.

Thank you, Bloomberg Television for being with us. We wait for the day where the President tweets about Bill Gross. Here's the president, excellent jobs number just released, and I've only just begun. I have only just begun. Many jobs stifling that many jobs stifling regulations continue to fall. Movement back to the USA exclamation point. Bill Gross can a president affect the job's economy and the jobs report, well,

you know, perhaps long term. You know, we've talked Tom in the past about what President Trump is trying to do in terms of individual corporations, and we've talked about individual states and trying to bring jobs to those particular states.

So you know, I think a president can affect, uh, those areas to some extent, but really, uh, you know, job growth, to my way of thinking, is a functional longer term structural factors such as demographics and the expected return on capital, and those are things that I don't think Trump ever studied about in uh in his master's thesis. I heard that you heard that you could get that grossying sarcasm there on Bloomberg Radio Worldwide. Bill, we are

ten years on into this financial crisis. It's an honor to have you with us every job's day, and here we are ten years on. You have been the clarion voice on financial repression. Let's revisit that right now. Do you assume that our enjoyment of low yield after any kind of inflation will be called financial repression for years? I think? So, you know, that's we've forgotten about Rogoff and Reinhardt, right, that's about seven or eight years ago

when they sort of reinvented the thesis. But this has been occurring for centuries. That financial repression for a long time, occurred, you know, between the nineteen forties and actually up until Vulgar in nineteen seventy nine, where central banks and the FED repressed short term interest rates relative to inflation. So financial repression has been with us. I think it will

continue to be with us. It has to do with the neutral rate of interest, which is an amazing topic of interest by central bankers everywhere, and to the extent that the neutral rate of interest is far far lower than what it was, and and FED officials think it's below zero percent in real terms by the way, Um, then financial repression will continue to exist. It basically means that savers can't earn anything close to the rate of inflation,

let alone something for productivity growth and real growth. So um, yes, And I think it's a negative. You've mentioned how I talked about how it's a negative for financial institutions, business models like consurance companies, pension funds, and even banks. And one of these days, one of these years, perhaps, uh, the economy is going to pay the price for financial repression as opposed to reaping the rewards. Bill, tell us

what you see when you look at the yield curve? Now, we were speculating yesterday as Governor Carney spoke in London about the degree to which he's paying attention to to the yield curve. There, what do you see when you look at him? Well, I see it, Uh, you know, a fairly normal yield curve. It has been flattening obviously over the past three or four years, depending upon how you measure it, whether it's two tens or two thirties or even bills to UH to ten year treasures, there's

been a significant flattening. Um. The question becomes as a rosen uh, as I wrote in my Investment Outlook of a month ago, as to how flat it can go before recession is threatened. And again, I think because of the leverage inherent in the US economy and globally, that you can't really flatten occurred much more or else the danger for recession increases. Bill, I want to rip up

the script. A lot of people don't know, Bill, that you've written very thoughtful, very matthew articles for the cf A Institute we see another hedge fund today go down in flames. This is the esteemed Andy Hall, with a great track record in oil, oil strategy, oil trading of course, iconic at City Group years ago. And Bill, this goes into again making big bets and getting something wrong. You've had the humility any number of times of being humbled by the markets. What is it about hedge funds and

concentrated bets? When are we going to learn the value of a good level of diversification versus betty knowing at some point you're gonna be wrong, wrong, wrong, big. Well. I think in many cases markets do and individuals do know the value of diversification, and certainly even pension funds in terms of that mix. But hedge funds, almost by

their nature, are leveraged players. And to the extent that leverage is injected into a market, whether it's a bet on gold or whether it's a bet on oil one way or the other, then there's a significant potential I guess for damage and destruction. I used to when I play blackjack, Tom, I used to play black jack, and I used to be a lot called Gambler's Ruin. And yes, you couldn't bet you couldn't bet more than one fiftieth

of the stake of the chips on your table. You know, before you're being threatened by what they call gamblers ruin, which is a restraint of bad luck. Well, this is so important, folks, that we have the honor of Ed Thorpe of Massachusetts Institute of Technology. You in with Barry Les recently, and I've interviewed at Thorpe and Bill you and I've read at Thorpe cover to cover almost as religion to our listeners who don't have the sophistication of

Andy Hall or Bill Grocer, John Tucker. The basic idea here of diversification, How do you do that ten years on from this financial crisis, with the odd fixed income market that we have, How does Bill Gross diversify? Well, you diversified carefully, and you diversified Tom with a sense of trades. Carried trades, trades that supposedly yield um. You know, a positive number, whether it be a spread, or whether it be an interest rate tenure treasury at two point

two five or whatever. You do it very carefully because all carried trades, all interest rates, spreads and risk premiums are compressed and so you have to take that into consideration, and too, pality. You can't just talk about stocks and bonds because stocks and bonds are both artificially elevated. And so what you do the the essence of the short answer to your question, Thomas, you you begin to raise much more cash because gat cash is the ultimate cushion.

I guess in terms of the risk of market. Is your Mexican trade tired? You've been arbitraging Mexican yields here and there and everywhere. Have we've seen enough of an e m in a Mexico move where you've got to go find something else to do with your marginal cash? Yeah? I think so. I was in uh, you know, Mexican linkers so to speak, tips, Mexican tips, and you know they yield three and a half percent real. Um, you know,

I got out of those about a month ago. But um, you know, Mexico still is a very undervalued pay so especially in real terms, and especially when you compare to the you know, the Big MAC index which the economist runs. Um, you know, their big max are very very cheap, like two and a half bucks versus states, and so ultimately the pace at the pace, so the Mexican Paso has a way to go in terms of strengthening relative to the dollar. And that's the biggest bet I've met in Mexico.

What would be your counsel for Republicans in Washington to jump start after what they've been through. What's your advice to senators to representatives up for re election in two thousand eighteen. They got a rebuild, they got a restructure. What's the bill grows prescription to get Washington to assist America. Well, my prescription is more of a populist as opposed to corporate type of prescription. That's not the Republican mantra, unfortunately.

But my wave of the future Tom and that's five or ten years out, and it depends on the next president, of course, But my wave of the future continues to believe that populism and that universal income, uh, universal benefits are really the wave of the future because, uh, you know, people are being replaced by technology and by robotization, and to the extent that they can't find jobs, they need help.

And I think one of the biggest problems with government is that, yes they've embraced technology, and yes corporations have run that way, but but governments have failed to take care of people that have been displaced by them. And so that's what I would say to Republicans, get a little more democratic. Bill Gross, thank you so much, and may you speak to David Gura for a lengthy time. It's times. It's a conversation, ly, Bill Gross. He's an agent for Colin Kaepernick because he tries to find the

job in the NFL as well. Right now to our David Weston and John Ferry. Here's David. No one in the country were focused on than Gary Khane, director of the President's National Economic Council. Gary joins us now from the White House. Welcome back to the program. Thanks David, thanks for having me. Okay, So Gary gives us as we've already heard from the President in a tweet. He thinks there's are really good numbers, although there's more to come.

Give us your sense and the presidents for that matter, about how you look at these numbers, and specifically the number of jobs added, the participation rate, and the wage growth. So look, David, the President's completely right. These are good numbers. Two nine thousand non farm payroll jobs, unemployment rate down to four point three percent, down to a sixteen year low. We're bringing Americans back into the workforce, and that's what the presidents set out to do, and that's what the

President is doing. That is our objective, and we've done that without our major policy initiatives being able to take place. Number one policy initiative to deregulate the US environment. We still haven't gotten most of our nominees through the regulatory process. We out a couple through yesterday in a big package of nominees that went through. We got some of our CFTC members through. We didn't get our firm members through.

We didn't get other members through. When we get those members through, we're gonna be able to continue deregulating markets and the environment so we can can continue to invest capital in the United States and can continue to create great, high paying jobs in America. This is all about not only growing the economy, but growing the economy so we can create great, high paying jobs for Americans and bring more and more people back to the workforce. That's what

the President's committed to do. That's what I'm committed to do. So let's talk about those high paying jobs. Because wage growth is up about two and a half percent year over year. A lot of commons still find that rather tepid, and it's good, but it's not good enough. How do you explain this phenomenon where we have really a robust employment, some people think full employment, and yet we're not seeing

the wage growth. So it is on the twelve month or two and a half, the one month was three tents of a percent, So the one month is annualizing high higer than the twelve months, which is which is interesting news to us. We spend time this morning discussing what that means. If that's a new trend, we would obviously like to see some wage inflation in the system. Wage inflation means that we're putting more income in consumers pockets.

When consumers have more income, and then we lower their tax rates on top of that, they'll have more money to spend, driving more and more economic growth. So that's really what we want to see. We need to create the jobs. We need to create the jobs by getting rid of the regulation that's bogging down industry. We need to reform the tax code so we can incentivize companies to invest in America. That's what we're trying to do.

We're totally committed to doing it, and we're we feel confident that we can get that done between now and the end of the year. Gary, you've inherited an economy where the headline numbers for the labor market look really quite solid, and they point towards a tight labor market, and we haven't seen the wage growth we thought we would get over the previous few years, and it's starting

to creep in. But I just wonder whether you think there's a lot more specapacity, a lot more slack in the lay up a market than the headline numbers suggest. I think there is some slack in the labor market. I think we can get the participation rate higher. I think we can bring more Americans back to work by creating the jobs and creating incentives and make it easier for small and medium sized businesses to grow, make it easier for businesses to start by making credit available, by

getting rid of regulation. We do think that there is much more potential to bring people back into the labor force. And Gared, do you think those issues You've pointed out some structural issues, but you think really predominantly the issues are quite cyclical. Uh, you know, we argue that that all the time, what we're committed on right now is to create the best possible jobs environment that we can create.

And we know, we really do know that when people think about investing capital, and investing capital is what you need to grow in economy, people look at a couple of fundamental factors. Regulation and taxes are two of the main driving factors they look at, and those are two factors that we are spending an forrmous amount of time and making better for anyone that wants to invest capital in the United States. Garrett, you raised the taxes. We've

talked to you before about the plan. You came out with the Group of Six as it's called, with an outline of a plan. Where are you on that plan? When are we going to see the specific legislative language? So as you're right, the Group of Six continues to meet. We put out a notice last week that shows how well coordinated the six of us are, how we all

agree on the skeleton of the tax plan. We're now working quite actively with the House Ways and Means Committee and the Finance Committee in the Senate to actually get some muscle structure on the skeleton to really drive tax reform to where where we have to drive it. We're gonna continuously meet over August and hopefully be able to deliver a comprehensive tax bill early in the fall. Is that September it's early, and that's early in the fall, but there's a lot of other dates that are early

in the fall as well. And how confident you are you at this point, given all the difficulties that have been occurred ring up in Congress, that you've abibly get this through this year, as you said before, is really your goal. Look, I think the members of Congress understand how important tax reform is. And if we're really going to drive the economy and drive economic growth and get from the muddling two percent to three percent, then we

have to do something structural to the US economy. The structural things we have to do, and I've talked about red reform, so I'll talk about taxes. We really have to change our tax rate. We cannot be substantially higher than the O E c D average tax rate out there at a thirty five percent tax rate against a tree O E c D average tax rate, you know, percent higher taxes than the O E c D average just does not make us competitive. We've got to get in line with the rest of the world. We've got

to entice capital to be invested in the United States. Gary, we caught up with Muhammeddalarian, a man of course that you know well, and he talked about the much needed handoff from monetary policy to to fiscal Do you think we've relied too much on monetery policy in a country a lot of the United States too long? Look, I don't think this is a US issue. I think the globe has been dealing with the whole monetary fiscal policy issue since the two thousand and eight financial crisis. Central

banks did what they were supposed to do. But we do have to transition the economy and in the system to a more normalized system. And does that require a handoff from monetary policy to fiscal Gary, is that way you guys can help? Yeah, we can help. We can help by removing barriers. We can help by making it easier for capital flow into the United States. We can get a more competitive tax system here, we can remove regulation that stops capital from coming into the United States.

That's exactly what we're trying to do. Gary. As you go back to your office there in the White House, behind that behind you right now? What is will be your number one priority? And today are you more confident in achieving that or less than the day you walked in. David, my number one priority for him now to the end of the year is taxes. My second priority is taxes,

and if you're confused, my third priority is taxes. Gary the U s National Economic Council with Director John Pharaoh and David Weston in conversation from the White House Lawn with Mr Kohn of the National Economic Council as well. To summarize here, a great week. Thanks to all of our team for their sport, particularly an exhaustive, exhausted team, I should say in Washington, which has just really done a a great job. For special thanks to Kevin Surreally,

our our chief Washington correspondent. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio s