Surveillance: Unemployment Can Go Lower, Kudlow Says

are you looking for? Well, I think we're gonna have a good number, and I know I can't tell you whether it's going to be or two fifty, but probably is going to be in there somewhere. And it just would point out that, you know, we have to hold back from putting too much weight on any one month's numbers. You need to look at the trend line, three month average, and not only that, but remember that these numbers tend to get revised once or twice and so the headline

number we get today may not last well. The average number through the years I've found is north of two k. It's pretty stunning. How would we you set up. Did you think the economy would go out to this highest sort of high trajectory that it's reached over the last complementso suck UH, I would tell you yes, because we're having a terrific year. So we must have been doing something right UH in our in our growth fund, which is up about year to date and nine present plus

over the last twelve months. But that's been with a focus on what I'm going to describe as defensive growth stocks, which means zero weights to underweights in energy, UH, industrials, producer durables. And we also don't happen to own any consumer staples which are not experiencing much of any growth. So we've been positioned properly for the market that we've had, and I think that's really the way to go, because the economy is starting to slow now, even though it's

doing very well. It's gonna slow from the four point two percent pace in the second quarter to finish the year probably with around a three percent growth UH in the back half of the year between Q three and Q four, and then it's probably gonna slow a little bit below that for next year. So your argument at the moment, the argument that you're pushing is stay invested, but get a little bit more defensive. Yes, I think defensive growth is the place to be as long as

the FEDS tightening rates are rising. When the Fed titans pas go down, it happens virtually every single time, and it's happened so far this year. We started the year with an eighteen pe on four earnings. Now we're down to sixteen. Uh. If the Fed were to stop tightening, I would be a little bit more aggressive in terms of unwinding my more defensive growth posture. And I think that's the argument right now. It's home that with high ye, it's in high rights. It's going to weigh on any

potential multiple expansion. Can the earnings deliver? I mean to me, Howard, what's so important here within your linkage of the economy into equities and your huge double digit success and how performance of alpha. We could talk all day about the under performance of the smart people acid allocating and such.

Our the bottom line is the linkage of animal spirit phenomenal GDP over the revenue growth and it's had it's at a tangible pop. What happens if the economy not you know, gloom and doom, but if the economy ebbs. Does the revenue growth EBB. Well, the revenue growth has been surprisingly stable for the overall SMP five DRED anyway, it tends to come in right around five and I think that's going to continue. One thing that's I think key for thinking about next year, because we do have

some headwinds. You know. I mentioned that rising rates, rising dollar is there as well. That's the headwind, and rising oil is all headwinds. But what I don't think is fully appreciated is that there's another round of fiscal stimulus that will hit the economy next year, not so much in the form of the tax cut, but in the form of increased government spending and so and and even with some friction on the trade front, the fiscal boost that that we get next year is going to overwhelm that.

So the economy is in pretty good shape. And I don't see on the horizon a situation where you'd say, let's worry about a receiption. John, I think this is critical from Howard wards. Optimism is huge odd performance over five even ten years. But the gloom that's out there and we're all steeled for Friday doom and gloom equity letters. Is not only that, but in the jobs report today

it hasn't slowed down much. I mean, the gloom story is going to be sort of presented to straight off than the numbers drop when you get better wage growth at some point of the next several months. The one you see the cost Prussia, the cost inflation is that Howard, I want to get to this argument that actually we could get EPs acceleration through as well. That's not can happen. It's not gonna You don't think that can happen. No, because you had the big boost this year from the

tax reform. Without the tax reform, we would have had maybe twelve percent growth and earnings this year, and with it it's over. And so the expectations for next year is that we'll have and I'm talking SMP well, have SMP five earnings growth of approximately ten next year, and maybe just a hair less than that in two thousand twenty, even though it's a little bit early to be focused

on that. So we can't we can't do better, uh in two thousand and nineteen because we don't have the big tax cut to hit earnings the way it has this last year. And one thing that that tax cut has done. In addition to having the good, good economy, with the change in the repatriation of foreign cash, the US companies have been able to not only continue to buy back stock at a record rate about seven billion dollars this on a trailing twelve month basis, that's almost

well what it was in the previous year. But they're also able to boost capital spending by about eight percent. Uh So we've got about about eight hundred billion dollars of capital spending. Now that's that's projected for the next twelve months. This is a big change, so you get the fiscal stimulus for next year. And I should have mentioned also a nice increase in capital spending that we've been waiting for for a long time, you know. I I look Howard at at what to buy, and we've

hardly touched on the financials today. Every conversation John and I have is thumb up, thumb down on the financials. Do they have the cash generation that's required for Gabelli? Yes,

they do. Tom. The financial sector, of course, has a variety of names in it depending on which indices you look at, because it can include the the visas and the master cards and the pay pals and a number of non bank financial service companies, but it also obviously includes the bank, but the banks, but I would say across the board. While of these companies are are in a position where they're generating handsome free cash flowers, and

the banks, the banks are beneficiaries of higher rates. But of course if the yield curve continues to flatten, that's not going to help them so much. And of course loan demands a factor. But generally speaking, this should be a very good period for the bank's printing money, free cash flow, buying backstock and increasing dividends. Howard, Um, this is really important, and that that I've got to be inflicted upon me weekend English football here in the next

coming three hours with John and his other pets. We were about John, did you see the twenty four page New York Post is sound the fold out Yankees? And this is the fold out for those of you worldwide and coast to coast Boston Monster. Yes, And Howard, would you as a as a die in the world New Yorker explain to Mr Farrell's specialists is to seven zip codes. Doesn't get any better than Yankees, Red Sox come to fall and it's layoffs. It is absolutely the the best

drama that baseball can produce. So I'm looking forward to what's the equivalent in English football. I'm gonna send Manchester United Liverpool as a league game. That would probably be a big big league game traditionally speaking, but they don't tie in baseball. And I should say, Mario, if you're listening, uh, you can go ahead and invite me to come to one of these games. Does does Mary I have a box? What do you mean? Does Mary I'll have a box? Is the Pope Catholic? Because you got a box? That

not one of those he has seat? You know, your nice seats. It's not how many seats around the table. Just that's why I'm asking hap. It's not one of those. It's not one of those expensive sas that Mario Gabelli just wants to be like the wonderful Michael Pricing the Yankees rock on his finger. You know, when Michael Price would show up, he'd always wear his Yankees ring just to aggravate me. It's like, yeah's sick, it's blended. I don't think it's too difficult to antrovate you. No, that's true.

That's day morning, to be honest with you worldwide, This Yankees red sox, this is Bloomberg. We want to go over now to the policy of driving the American labor economy forward. We can do that with Betsy Stevenson at Michigan, former chief economists for Department of Labor, among other things, and one of our most thoughtful thinkers on the idea of policy, on the idea of the broad spectrum of the American labor economy, Betsy I mentioned earlier with Jim Blastman,

it is a gilded age. There is an inequality. Is this better job economy is an Eisenhower like three point seven unemployment rate bringing our inequalities to a lesser point um So clear respect, it is because take a look at um the unemployment rate to see that unemployment has come down sharply for people with less education UM, and that's created a reduction in inequality. There is a reduction

in inequality. But I'm getting so much mail arguing when market economists, people like Dr Glassman say that we're a fully employed America, there's a huge body of people that don't agree with that, including there would suggest a lot of people that support President Trump as well, we've got wage growth, and let's say it's three round, But is it a barbell wage growth where some are getting large

grade growth and many others are getting less than large. Yeah, so that may be clear when I say that this is helping with inequality and helping him one dimension, which is that we're seeing people across the spectrum being able to find work. Now, the the quality of that work, the desirability of that work, and how much it pays it's still varying enormously. Um, we're seeing wage gates that continue to go primarily to the top end of the

income distribution. We have seen nominal wage growth pick up slightly, but we've also seen inflation pick up slightly, and so we're not really seeing any pickups in real wage growth. And real wage growth is what matters for the bottom line. We can't care about not how many dollars in your pocket, but what you can fly with those dollars. Betsy Stevenson, we'd like a longer conversation here in the coming days

and weeks at the University of Michigan. There are any number of things to speak of with Timothy O'Brien of Bloomberg Opinion, including his definitive work on the finances of the president. Maybe we'll touch on that here in a moment. What he is is a student of history, and Mr O'Brien and I would agree given the belt Way up or over Judge Kavana on all somehow of the number of people, Tim that don't know their history, it's just breathtaking.

Noah Feldman with that fabulous Bloomberg opinion article today, going back to the scorpions and going back to the court of another time. In a resume, Tim, you always see this the first in his family to attend college. His father was a metal lather buried in the factories of Pittsburgh, and Orange Hatch made it through academics, growing up in poverty out to Utah and to be a force of a Senate. The son of a metal latherer is going after the guy living above Gucci on Fifth Avenue. What's

Orange Hatch want from President Trump? Well, this is interesting, tom Or. This week, after New York Times dropped this huge story on the Trump families tax maneuvers over decades, Hatch said that he thought that the president should release his tax returns, which is is an interesting thing given that Hatch has largely been support sort of of most of the president's policies. And as we know, the president

doesn't want to release his tax returns. So one wonders why now, And perhaps it's that, uh, there's damage being done by uh, this lack of disclosure around the president finances. I've asked you this before. Let's get an update. What's in the tax returns. The tax returns would show how robust his businesses really are. He doesn't run a fortune empire. It's a boutique family business that's largely about marketing. Um. It would show what kind of money he's getting overseas.

That's obviously relevant in the context of the Muller investigation. It's relevant in the context of just good government. I think we should know what possible influences are coming to bear on the person in the Oval office. George Worst, Senor and maybe George Bush Jr. You know, they had oil interests. I mean, they were transactional and they and they release their taxes, and they created effective trusts to insulate them from any decisions around those holdings once they

became president. President Trump has done neither of those, I mean within that is, and I think it's a big deal that four year old orange hatches saying, come on now is the time or any interest in that? I think there's gonna be ample interests after the midterms. Okay, what happens in the mid terms, Let's say to two things. Democrats take the House and just percolating now with Greg Vla and Mike Allen and Axials and others. Democrats take

the Senate. Those are two different things, aren't there they are? And if um, on the tax front, if if Democrats don't have both houses, it would be hard for the Congress to compel the return. But if they do, they can literally, in conjunction with the I R S, force a release of the president. Could that be the I R S as an executive branch, isn't it? But the the I R S has to be beholden to certain mandates coming out of the Congress in certain situations, and

this is one of them. Just because of time. Let's switch gears here the New York Times article and the president's finances. Um, everyone agreed, whatever their party it was, it was a profound investigative peace. What was the thing in there that made Tim O'Brien sit up and read um? I think the the the extensive detail they had on the use of tax shelters by the Trump family over decades to shelter everybody did it, but everybody did it, and I think a big portion of what they did

was perfectly legal. There is a portion in there that smells, that looks dubious, but it's a long time ago and it's a debate. I I don't think there's gonna be any criminal charges coming out of this. There may be

some civil fines. The one thing that really pops to me the whole piece was that Donald Trump, while his father slipped into Alzheimer's, attached to coddstle to his father's will in order to try to get executive authority and to become the executor over his father's entire business empire. And Fred noticed this even though he was getting cloudy, and he asked his daughter, the judge, to look at it.

She also thought it smelled. So they took the whole process out of Donald's hands and hired a new state attorney for themselves so they could redraft Fred's will so his son couldn't get control of the empire. Is that a state attorney of elible for various investigations now, uhily, but again these are you know that there substantial limitations here.

A lot of this stuff is ancient. Let us talk about uh Kavana again, Tim O'Brien with his Bloomberg opinion, and and it is very much that in opinion, uh, your team with David Shipley has written a number of editorials about the nuances of this moment. What will you watch today and then end the Saturday vote? Well, I think clearly how um you know the key Republican senators on this particular voter lining up Jeff Lake, Lisa Murkowski, and Susan Collins that you know, we've known that for

a while, that that hasn't changed. I think what's interesting is the debate around Kavanaugh himself has moved um off of uh sexual harassment or sexual assaulted onto issues about his credibility and his rascity. Yeah, but even you know, the people making the argument about his temperament that that's not an issue. They haven't taken on this core thing about the fact that he lied demonstrably during his testimony. I was thunderstruck by his op ed in the Wall

Street Journal today. I mean, I'm sure if he died one, Tim O'Brien, you would have said, sure, we'll run that op ed. I get that, but was that appropriate that a nominee would would what, you're smarter than me on a language? What's the right word? Advocate for himself. He's been for quite a while. He was lobbying on the boats, like in six hours. He's been doing that throughout. I'm saying, I don't, I don't, I think, I don't think he can. He's out of the box as a Supreme Court nominee.

He's doing things no nominee has done before. In that op ed he said that he would hate to see the Supreme Court broken apart by partisanship. But that's that's said by the conductor of the train that has already left the station. He's part and parcel of that problem. Is he setting himself up with whatever events occur where he says, you know, I've been through the process for the good of the country, and Tim O'Brien, I'm gonna

pull my nomination. Is that what we're gonna in the next eighteen I don't think he's going to do that unless you see the Republicans turn against like within where we go from here and you know, obviously we could talk to Professor Felman or others, and and folks, I should say, Bloomberg opinion and Bloomberg in general are legal coverage has been fabulously balanced, I think, with different opinions, whether it's John Coffee on Tesla or it's it's a

Noah Felman of Harvard on the history of the Supreme Court, and some of these these emotional culture work resh preneurs as well. Leading a conservative and a uniquely conservative charge is well, let's go there. When this is done the first Wednesday of November, what will be the new conservative thought? Or is it still Trump? Is um even going into

on the right after the midterm? I I think, Um, Look, I you know, I think all journalists have been chastened about trying to predict where votes are going to go. But if um, the polling is to be relied upon, it looks like the Democrats of a very decisive advantage in the House and the Senate is still up in

the air. I think even if the Democrats get the House, a lot of what Trump has been able to do thus far is going to get complex because committees like Judiciary, Oversight, and Intelligence are going to start launching subpoena bombs at the White House, and it's going to really tie the White House up in knots. Let's talk journalism. Uh, you've been a student of this with your with your work with different vendors over the years. Mark benny Off wants

to buy Time magazine. What would you do with it? Well, you know, I think we're in an era right now where there are wealthy people who see media properties as as entities that they can revive by simply flooding it with resources, and as you know, it's much more complex than that. I think Jeff Bezos taking over the Washington Post was a happy event for journalism, and I hope

for him. Uh he's bringing some innovation to it, but he's also he also got his hands on a legacy newspaper that already had a loyal audience and brought in a horse from Boston. I should point out Baron, and he got the great Mighty Baron. But you know, he he was able to bring resources to something that was already a fairly enterprise. Time is time question, No, because I think there's a different Time is making a contrast. I don't think the Times probably, I don't think that.

I don't think the Time Inc. Properties are at the top of their game in the same way the Washington Post. And that matters if you're gonna have a successful media enterprise. Timo Brian, thank you so much. Timothy O'Brien with Bloomberg Opinion writing and I'll be writing or what do you publish it today? I mean your's day starts at what st five m every day? Are on my way to the office. Very good, Timo Brian, thank you so much. And look for his work, particularly on the finances of

the president. Of course, his important book of a few years ago for New York City for our audience worldwide, and please to welcome our listeners on Bloomberg Radio and on Bloomberg TV for the Trump administration's view on what is happening. Let's bring in Larry Carblo, National Economic Council Director, who joins us now. Larry, good morning to you, sir,

Thank you, Jonathan, appreciate it very much. It's good to see and we won't get wrapped up in that one thirty four because the upward revision is pretty decent and the overall picture for the labor markets. So let's start just stick it in let's I just want to make that point. I don't mean to interrupt, but that's a really key point because you, of all people, know how

these numbers bump around. So you got a one thirty something and you've got an eighty thousand plus revision, So this is actually you know, the increase in the level for September is uh what the two thousand? That's awful, good number. I just want to make that point. It's a point well made, Larry. So let's talk about the unemployment rate for the eight year old for the administration. What's your view on how low this can go? Because many economists the same work full employment, this is kind

of it. We can't go much lower than this. You have a different opinion, Lowry, Well, I don't want to give a forecast, per se, but I do think it can go lower. And I think people are moving back into the labor force as wages and incentives increase, you know, lower taxes and so forth, you've got fatter paychecks going. I just did some calculations. I hope I get this right. The average hourly earnings up two point eight percent year on year in the report. But Jonathan, I like to

add the work hours. The increase in work hours for the year is two point six So you put those two together, you've got five point four per six, five point six percent increase in wage income. And I'm gonna take the PC data at two right, the inflation and two, that's a three and a half three point six percent real wage increase. That's huge. And all I'm saying is after taxes, that's gonna bring more people into the workforce.

So we're growing in a capital goods boom. And I think unemployment has some downside to go, but mostly it's a very healthy story. And the days of this week has been pretty style of the IDP report earlier this week give us a pretty good sign of what was happening in the non manufacturing guy Sam, all of this, Larry is driving a pretty sustained bit back into the U. S. Dollar. It was stable for a period of this year, is

starting to runny again. And I just wonder whether the President thinks that what is happening in the FX market is off setting some of the accomplishments. South swear well, no, look that dollars actually been pretty steady. I have it on my sheets from yesterday and three quarters caught. That's pretty much in the mid range. I think in the last ten or twelve years it's gone up and down.

A healthy dollar is a healthy economy. A healthy dollar tracks invest in for all over the world, and we're providing enough incentives and competitiveness again on low taxes and regulations to bring money home. I think it's a terrific positive. Uh, you know, I think it's a great read on the success of the country. Our view, the Treasury view, Stephen, the nutrition's view is we would like a stable, you know, stable, steady, strong dollar as far as the eye can see, looks

like we're getting that. There's a lot of confidence here. Is that the president's view too, Larry, I think generally it is the president's view. President has a lot of opinions. Uh, sometimes up, sometimes down. We're not trying to influence anybody's policy. We're not trying to influence the Fed's policy. We're not trying to influence the dollar policy. It's steady as you go. Actually, um J. Powell, as you know, has made a lot of interesting statements saying that better growth, which is what

we're getting, is not necessarily inflation. And I would say, Jonathan, if you have a steady dollar, you gotta low steady goal price. Uh, that's a big sign. There's no inflation out there. We're just growing. And you were talking about bond rates a few moments ago. I don't know what your quote is this morning, about three two for the ten year. I think that's up about thirty five basis points.

So it's the long end of the curve. It's not the Fed funds rate, but most of that is the real interest rate, the real tips rate, which is up I think three quarters are you know, almost eight? What does that tell you? I suggest people are expecting higher capital returns and stronger US economic growth the head. That's a very positive sign. Larry. I've got to say your

analysis in the bond market is spot on. It is a pickup in real rates through the last week that's really driven a ten year and a thirty year yield out to highs. You said you don't want to influence anyone's policy, maybe domestically, but internationally we know that's not true. So let's talk about China. I wonder if you saw the Bloomberg reporting over the last twenty four hours that revealed how China used a tiny chip to hack into an infiltrate some of the supply chains of some of

the biggest companies on the planet, including US companies. Larry, have you read that story and is it something the administration is looking into? Well, you know, I read every Bloomberg story. I have no doubt, Larry, and I you know, I look at all your tapes, Jonathan, and I try to memorize all of them, so I'm up to speed. I will only say that I have some uncertainty because a lot of these companies, I believe Apple in the lead,

have denied the story. The story. I'm not smart enough to know the answer to that, but I think it's a good thing to be on guard because our Chinese so called friends have done a lot of mischief in that area, uh not least of which in addition to these chips and stealing of technology cyber hacking. So I don't know the bottom line. Maybe you'll help me clarify it as the day goes on, but i'd sure keep

a watch on it. Well, Larry, they have to add that story, but there's some pretty strong sourcing behind the reporting here at Bloombergers. I'm sure you can imagine that kind of backs it up pretty well, which is why we published and I do think it takes us to a bigger conversation about trade. Larry. Economists typically always talk about trade through the allocation of scarce resources and the most efficient allocation of scarce resources, and where should things

be produced, etcetera, etcetera. They typically ignor national security. Do you think we have got a series of examples which do justify why manufacturing, a lot of manufacturing does need to be domestic? Well, look, um, our policy of President's trade policy, you know, has put the Chinese unnoticed that we cannot accept their unfair trading practices, THEFT DI I P force transfer of technology. You've heard this and you've heard it from me and others. High tariffs on industrial

and agriculture commodities, and non tariff barriers. They won't let American companies own uh fifty one or fifty that's where the tech is stolen. Um. Sometimes they say, yeah, we'll give your ownership, but we won't give your license. So what is that good? Good does that do? So? The President has been on guard. Uh. He believes that the whole trade relationships broken, and we have been, as you know, negotiating on and off, it has been unsatisfactory thus far.

I think Secretary Manutin has said better to talk than not talk. But the talks have to be serious, and maybe I want to underscore, maybe Jonathan, there might be a meeting with the two presidents, she and Trump down in Buenos aireas UH in late November at the G twenty. But that's a maybe. I can't confirm that. So possibly, so far it's been unsatisfactory. We've done very well. We've done very well as you know on the U S m c A. I hope I got that right. I

got learned that new phrase. We're opening up trade discussions with Europe. We're opening up trade discussions with Japan. They'll send a signal to China. We signed a Tripartei Jonathan, EU, USA A Japan against unfair trading practices and other illegal trades that was aimed at China. So the Western allies are very much united here. But so far we just haven't got any results. China, you're making some really good

progress solving some of the trade disputes. Some you can't tease me like that with a meeting of one of salaries, so that talks about doing that right now? You haven't talks about setting that up at the moment. I'm sorry I missed that last one. Are you having talks about setting up a meeting and one of salaries between the two leaders of China at the United States? Are those talks right now? There there is discussion about that. I can't confirm it. I'm just saying there is discussion about

that before then, Jonathan, I don't. I don't think so. I don't hear it. I'd love to be wrong again. Personally, I think it's better to talk than not talk. But the talk has to be serious and significant, no smoke blowing, you know, come with concrete proposals. Say yes, there's something we've offered because the relationship has got to change now. President wants to protect American workers, farmers, ranchers, the whole economy.

We want to be on a level of playing field. Uh, if they open their barriers, we will export sell a million jillion goods and Service says we're the hottest, most competitive economy in the world. And by the way, if China really wants to help its consumers, then let Americans

supply our superior goods. But we just haven't had any satisfaction on that yet, Larry look great to catch up you from the White House already, appreciate your time so as always and always a great sport following Pyrose fraud and some great analysis of the bulkmark of that gens as well. 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

Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio