Pressures. This is a goldilocks report. Goldilocks job report. We are threading the needle. Businesses have not lost confidence. Chairman powells famous words, he is not sure if it is debt or fake but it is resting. People said, watch the phillips curve. We will be talking about that every month. It will not happen. Very little risk of Wage Inflation. Huge growth when you look at education, leisure. That shift is a big deal because that means less inflation, more stable inflation. All of that points to the fact that things are looking good for the u. S. Labor market at the moment. Jonathan continuing the conversation, we have robert mcteer. Scott kim vaughan joins us from bmo. Krishna mamani and he joins us from oppenheimer funds. Do you agree with all of that, is this a goldilocks job report . Krishna absolutely, its been a goldilocks environment for quite a bit. The driver of that is relatively straightforward. Lack of inflation. As long as we have no inflation, whether Wage Inflation or other sources, that is how things will be. Jonathan robert . Robert inflation is moderate, pce has been coming in solidly below 2, 1. 67 the last few months. The job number is strong but there is no wage acceleration. Unemployment has been stable for six months. Many people coming into the workforce. That means maybe it can go faster. I think this is a signal to the fed that may be the president was right, which has to be really galling. When you are doing your best to do your job, and then suddenly slams you, and they are right. We were growing at over 200,000 last year. We were not reflate in the economy. Maybe if they had that hiked rates so much, we would be growing at a rapid rate and have inflation at target. Jonathan a couple of assumptions underlined in this conversation. Lets pick up on one of them. A number of years ago, the idea that we must begin to the point where payroll decelerates, going back to 100,000. Still a healthy labor market, just a mature one. Why have we not gotten to that point, why is it taking longer . One of the things that is frustrating investors and the fed likewise is the traditional models would tell you that from a timeline perspective we should see those things where payrolls start matriculating toward the lower run average. The particular element of this recovery, which is different, is all the rules have been broken. You had a lot of engineering of financial systems, low cost of weighted averages, capital is requiring the internal rate of return for projects. There is still a lot of positive carry to making investments. That is probably one of the big drivers of what is keeping the payroll numbers a bit more buoyant than you would expect. Krishna i think payroll numbers are buoyant because there is still a large amount of labor force available that can come in. The number that we should not focus on is he unemployment rate. That is what is probably conditioned people to think perhaps in a misguided way. At the end of the day, the u. S. Economy is still growing at trend rate of 2 . As long as we have a trend growth rate of 2 and there is still a large pool of available labor force that can come into the market, if the markets are going to remain resilient, and the economy will be ok. Jonathan robert says we can run this economy harder and faster. You have told me multiple times, five more years. That is your argument. Does this play into that . Krishna this certainly plays into that. I hope robert tries to stress the economy. That is how we were in 2018. The fed, working off of old formulas, was on the verge of making a policy mistake. Its the inflation pressure builds up the risk is that the fed goes back to its old playbook and slams too hard. I would rather have the current stress it too hard. That is why i am wary of the fed surrendering in the january and february of this year. Effectively, they didnt have to give to the market all that they gave. They couldve stopped tightening, and would have been ok. Jonathan they did, and you look happier every time i see you. Krishna i am happy because they stopped tightening even on not happy that they basically put everything on the table. Jonathan the president is calling for a whole lot more. Take a listen to what President Trump had to see about what he thinks the feds next move should be. The fed should drop rates. I think they really slowed us down. There is no inflation. I would say in terms of quantitative tightening, it should now be quantitative easing. Jonathan so many different ways we could go with all of this. Robert, the feds next move and how the president s calls play into it. That was quite expansive call on his part, quantitative easing. To the point that the job growth has been strong, that is to the feds credit. They have been more cautious than any fed in terms of raising rates, and thats been spectacular for the length of this expansion. The Financial Institutions are really wellcapitalized here compared to past cycles. People are scarred by the past cycles, worried we will have a balloon if we get faster growth. I dont think thats true. To krishnas point, your population ratio is very low. There are a lot of people on the sidelines that really need to come into the workforce. Given the demographics, savings levels in this economy. I think it has quite a way to go here. I think they could easily im not saying they would do this, but they did put everything on the table. They took those dots to flat, and i think powell is not an economist, and he may be open to cutting rates. Jonathan do you think he will, if they think they can run it harder, faster, will they cut rates, even without the typical conditions we associate with a cutting cycle at the Federal Reserve . Robert this kind of report and the data we have, inflation falling away from target, that would signal to me, in my mind, that they should be cutting. Krishna they have demonstrated that given the opportunity they could. They didnt have to do all the things that they did, but they did. However, if they do that, that would be a mistake. Much in the way that tightening in 2018 as aggressively as they did was a mistake. Cutting rates today, when things are turning up, when things are probably going to get closer to 2 in the second half of the year, that wl be a policy mistake. They would hurt their own credibility. The fed cannot afford that. Jonathan lets talk about the perception of independence. Operationally, the fed is independent. By definition, the administration and as previous administrations have done you can nominate who you like for the Federal Reserve. You can see if they get confirmed by the senate ultimately. I dont think we should be hypocrites about this. Once upon a time, barack obama wanted to nominate larry summers, who was once the treasury secretary. This feels different, though. Herman cain, stephen moore. Not quite from the same mold as larry summers. Does this complicate compromise the perception of the Federal Reserve independence . Krishna if you want the fed to say 999, you nominate herman cain. As we dont want to do that, to some extent it is basically demeaning the fed. It doesnt mean that you should not take input from the business community. The fed has very detailed processes to incorporate those points. But nominating herman cain to the fed, or for that matter, stephen moore, where he has said so many bad things, i dont think is the right move. Jonathan i dont want to judge the intent of the administration. Ultimately, the perception of this matters. You guys define it. If these guys are confirmed to the Federal Reserve, in your mind, has this Federal Reserve lost some form of independence . Scott i dont know if i would go there from a policy perspective. I think you are starting to see a transition in the type of a cycle analysis that the fed is doing. Typically you have people studying economic cycles. You look at 2004, 2006, gauge the reaction function from the Monetary Policy side. I think what this administration is doing is putting people in play that have a Business Cycle viewpoint. I think that ties into what the president is doing by commenting on policy and quantitative easing and calling for rate cycles to decline after they just accelerated. Jonathan great to have you with us. You are going to stick with us. Coming up on the program, further distortions in fixed income. Credit with subzero yields into continuing to pile up. We head to europe next. That conversation is around the corner. This is bloomberg real yield. A yield of 1. 12 . I want to stay with europe. Blackrocks rick rieder looking for a big move from ecb president mario draghi. We looked at companiess weighted average cost of capital. The cost to get in europe is much lower. Cost of equity is too expensive. I think the ecb will buy their equities. If i want to do, improve sentiment, look at the right part of the Capital Stack that , is where the companies are having a tough time. Jonathan still with me to discuss is robert tipp, scott kimball, and krishna memani. Krishna, your view on that suggestion . Krishna in this cycle you cannot rule out anything. Having said that, if the ecb is buying stocks, we are basically at the end of the rope. That is what it would signal more than anything else. Because everyone would have tried everything and basically even the germans are acquiescing to buying stocks at the central bank level. That would be something. Jonathan to someone with exposure to european markets, that would push you into derisking . Krishna absolutely. That would signal to me that we are at the number world rather than things getting better. I think it would be a very big mistake on the part of the ecb. There are lots of things they can do in the interim before they get to that step. Jonathan what can i do in the interim . Scott as we are learning the u. S. , policy signal can be equally important to policy implementation. A long story on that will be in that were to be put on play, the ecb coming in and playing with tlr oh tlro structures on putting more capital into the banking system, there is a limited total rate of return from the ecbs perspective, the transmission mechanism will not be fantastic. They have to extend that facility, have to do it sooner than june. Robert i think thats right. We have a lot of experience with qe. When you look at japan, they have been doing this since the 1990s. When you think about the end game, you strangle your Government Bond market, basically make it unrewarding and almost unsafe for investors. Then they move on to equities. What can happen in the long run is you make the equities unsafe. You make them less attractive, performance vehicle, more dangerous. I think thats the wrong way to go, lending is the right channel. Once you hit the zero lower bound, you have to make the lending attractive enough. Jonathan what strikes me as insane, 10 years ago, you wouldve called us conspiracy theorists for mentioning a Central Bank Buying equity. Have we started to normalize the absurd, particularly in europe . When you look at the european price action and when you look at where these markets are priced at the moment. Krishna we are getting used to the absurd, i guess. As i mentioned, in this cycle, everything is possible. Even there, there are shades of possible. The germans buying stocks would be something. Having said that, what is the purpose of the central bank . The purpose of the central bank is not to support asset prices. The purpose of the central bank is to facilitate credit growth. The credit driven economic growth. Buying stocks does not really help much. Jonathan the central bank believes that as a means to an end, i believe. That is ultimately what the ecb is doing, supporting assets. Krishna they are not supporting assets. The purpose of quantitative easing is not to support asset prices. That is what the outcome is. The purpose of quantitative easing is to support credit growth. There are lots of things that the ecb can and will do to support credit growth. Jonathan the result is financial repression, and you have to deal with it. We hear a lot of people ask questions like, what is the bond market telling me, what can i infer from price . What is the signal at the moment . Can you take any signal from European Assets given where the price is right now . Scott European Assets are experiencing an elongated playbook from what we see in the u. S. You strangle the front end, force investors to extend their duration and take credit risk. They are doing that at an extreme level. The return on investment has become total return driven and less yield driven. Investors are continuing to pilot the credit. The big question is what happens next. Is equities where you go . I dont think so, i have to agree with krishna on that. I think that would be one step too far and you would start blurring the lines of what your actual output of policy is supposed to be. Jonathan lets talk about your exposure to the european credit risk. What is it . Robert positive. The spreads are substantial. The ecb is basically going from thinking they were going to be ending their buy program to raising rates, and now they are trying to sneak the deposit rate up to zero so it does not punish the banks. They are ahead of the curve compared to japan, so they may be stuck here for a long time. Investors are going out on the yield curve, dropping their yield targets, they are going into spread product, and that will be supportive. The fundamentals are Strong Enough that you dont have deteriorating credit quality that would suggest this is going to be a near or intermediate term credit blowout. Jonathan you are very constructive on the global economy, but i dont hear that from you, so what have you been doing in terms of managing your exposure on the continent . Krishna the way we have managed our exposure on the continent is to recognize that owning bunds doesnt do much for you. You may get some price appreciation but that is relatively modest. Our exposure has been really european credit to make up for the negative yield. I think things have worked out well. At various points, when bunds backup from negative to plus 40, we pay the price. Through the cycle, its been a good trade. Jonathan which segment, sector, investment grade, high yield . Krishna primarily high yield is where we are focused. Scott our exposure is a little different. Our more interesting story to play is the brexit story. We found some opportunities , specifically u. K. Based banks. Toward the front end we see , yields in the Fourth Quarter pushed to 6. 5, 7 . That has been more of our opportunity. We have not taken up a lot of exposure in the rest of the european union. Jonathan great to have you with me. You are going to stay with me. Scott kimball, robert tipp, krishna memani. Next i want to get a market check on where the bonds have been. Yields are higher this week by a basis point. 2. 34 on the 2year. Creeping back toward 3 on a 30 year. Still ahead, the final spread, the week ahead featuring fed minutes, and an ecb decision. This is bloomberg real yield. A jonathan im jonathan ferro. This is bloomberg real yield. A time for the final spread. Coming up over the next week, said vice chair Richard Clarida speaking at an event hosted by the minneapolis fed. We get u. S. Cpi data and the fomc releasing the minutes from its march meeting. Plus, and ecb Rate Decision followed by Mario Draghis News Conference in frankfurt. For final thoughts, robert tipp is with me, alongside scott kimball, and krishna memani. Robert, i know you are itching to get in on the european debate. What do you want to say . Robert in addition to the high yield, which i think is attractive, there are definitely opportunities there, as well as investment grade, high quality clos. The contrarian play in europe continues to be sovereigns. They were beat up and people are missing that. At any given point in time, one country will be in the headlines. Italy, for example, now. In the background, the greeks are getting a billion dollars released to them. They are 300plus over. They have a long way to go. Spain, portugal. It is a contrarian play but i dont think this is anywhere near over. Jonathan is there a belief that you think the periphery, which has been treading lately, will start trading like a sovereign again . Robert thats right, i see this is an ongoing trend. Have to watch this and see that it plays out, that the improvement is not cyclical. The numbers on the face of it, for spain, they are comparable in credit to the united states. There will be some political headlines there, but if they say stay with the program, and europe is one of the only places that has a rulebook on the fiscal side. What the will be pressure for i think the spreads will be cut in , half over the next five years. Jonathan that is certainly contrarian. Do you think that we are making that transition slowly . Krishna not at all. Yes, the periphery is a good investment, but thinking that they would start trading like sovereign bonds anytime soon given the state of the economy in some parts of the continent, i dont think thats a realistic outcome in any investment horizon. Scott i would have to agree with krishna. Our position has consistently been that you have to approach the economies and their debt as credit functions. Him jonathan a definition of contrarian. We have to wrap up the program. Rapidfire round, three quick questions and three quick answers. First question, does the ecb cut the depot right before the year is out . Robert no. Scott no. Krishna maybe. Jonathan maybe. Come on. U. S. 10 year yield, 2. 388 . Have we seen the low for the year on the u. S. 10 year yield already in 2019 yes or no . Robert no. Scott why not. Krishna yes. Jonathan does moran kaine get nominated and confirmed by the senate, yes or no . Robert no. Scott no. Krishna i sure hope not. Jonathan there we go. Three big calls from three great guests. Robert tipp, scott kimball, krishna memani, thank you. I wish we had time for more on that. We will see you next at 1 00 new friday york time. This was bloomberg real yield. A this is bloomberg tv. David he grew up in los alamos. His mother, a pediatric nurse, his father, a theoretical physicist who took him to watch john wooden drill the ucla Basketball Team whenever it was in town. Kevin johnson drew upon his love of systems and teamwork as he rose through the ranks at ibm, microsoft, and as ceo of juniper networks, but then a health scare changed everything and eventually brought him to starbucks, where he succeeded the founder Howard Schultz in 2017