Transcripts For BLOOMBERG Market Makers 20150918

Well. This is being reflected to a huge extent in the bond market. The 10year note yield drops from yesterday, two. 16 . It was almost 2. 3 yesterday. The fiveyear, 1. 4 four and six basis points for the twoyear note. The dollar. Ing your best proxy for immediately figuring out the Market Impact of the fed. The most traded currencies diving. Implications for emerging markets, particularly europe and japan. The greeks go to the polls this weekend. They will answer the big question, who cares anymore . Voter apathy is high for the third election this year. Polls show that alexis tsipras, the syriza party, and the conservative new Democracy Party running neck and neck. The president ial race is now the carly show. An impressive performance has crowned Carly Fiorina the media darling of the moment. The question is, can she translate that into real voter support . Chuck todd, you can hear that here on Bloomberg Radio on sundays at 11 00 and 3 00. He is with us on the tmobile phone line. Tswitch switch your carrier to the un today. Everyone is writing about her. Can she translate that into broad voter support . Chuck the first test will be the next fundraiser support. One thing about her campaign is that she has gone nowhere. Able tobarely been raise enough money to put together a fledgling campaign. Even her super pac has not raised much money. To be that will be test number one. Im curious, now that she is no longer in the bottom of the pack, will she see a surge of attention that translate into Financial Support . She has not really put out any plans. Has essentially been campaigning to be taken more seriously in the campaign. Ok, now you are here. Fundraising is the next. An energya tax plan, plan, a plan to deal with isis. What was interesting about listening to Carly Fiorina during the debate was, i had a long interview with her three weeks ago, the exact same way even freezing her answers the same way with me as she did with the debate. She has the first part down. She has answers down and is good at it. Her prepared lines are delivered in a way that does not sound canned. Lets see what is next. She ever getshow out from under the business. Let alone the easy as attack ads she laid off lots of people. She will do to america what she balh. Hp, bah, couldl nerds like us talk about this forever, and we will, but i have to ask you we are the financial nerds, about your appearance with the jamie dimon at the detroit economic club. As a political got it working in washington, which is not always focused on wall street, what is your take away . Interesting that jamie dimon is the ceo of the largest bank in america, what he says about the economy means something. Whatthe fed chair thinks, jamie dimon thinks. A separate conversation with him that you will see on sunday. He has opinions on how washington he thinks is getting in the way of the economy. His message in detroit was interesting. Emphasizing,e was was not bringing money and credit to help the city recover, but the message was look at what is going on. A democratic mayor and a republican governor are trying to fix a problem. Why cant washington do this . Be nice. Here is a guy who was very political. He was raising money for the clintons. I asked him, you have not done any of that this time . He said i dont know but going to get involved. He seems to be a little burned by washington. He does not say it that way, but you get the sense that he feels burned. We will have everyone listen to it. Meet the press sunday, 11 00 and 3 00. The host of nbcs meet the press. Being here. R he brought a tremendous plus one to this party . Tom we were one day on and we have great guests. Bloomberg Television Radio worldwide, bloomberg surveillance. Down 181 tells you where the markets are. Brought to you by cohen resnick, to minimize risk. Equity, forward thinking creates results. Find out how at cohen resnick. Com. Youou are in the door were in the door of Martin Van Buren high school a few weeks ago. Lets bring our highpowered conversation to the people of Martin Van Buren high school. What does Janet Yellens statement mean for the average american . Cohen she answered directly. She was asked about what is in the economy, and she said we are focused on the labor market. One thing we have to keep in mind is the discrepancy between the rate of unemployment and the. 6 when you look at the broader measures of unemployment, you see many people are working parttime that would like more hours. The Participation Rate is not where it should be. Many people have dropped out of the labor market. This is a fed that is focused on making sure that the average american is feeling better than they are now. Interesting structure at Goldman Sachs about changing equity calls and deference. Did Goldman Sachs adjust your Equity Perspective yesterday after the announcement and press conference . Ms. Cohen the answer is that we have not made adjustments. Views on our global the economy or markets. The reason is that our chief economist has nailed this quite well. Tom let me interrupt. And Carl Riccadonna nailed to this call, didnt they . In 2 ways. They did what was the fed going to do . They have been of the point of view that it was not going to be september. Maybe sometime in 2016 or december of 2015 was more likely. What is more important is the view on the Global Economy. The United States, which we would all like to be more robust, is one of the strongest of the strongest economies in the world. We are the largest economy in the world. What happens here matters a great deal. The other large economies, china is the worlds secondlargest, there is a clear deceleration. Europe is a mixed bag. Germany is performing better. Economic growth is 1 to 1. 5 higher than other countries in europe. When we look at what is the central bank likely to do, the idea is that they are better off waiting longer. Perhaps the risk of waiting too long is less of a concern then moving too quickly. How long is too long . When are they going to move . There is confusion. Abby joseph cohen from Goldman Sachs. Tmobile, switch your business to the uncarrier today. Futures are down after the fed. Tom good morning. Bloomberg surveillance. We are from new york. Brendan we have been talking unemployment. Barry schwartz, the professor of psychology is here to help unemploymentfrom to the nature of work. Help us understand. We see labor as an abstract quality to be measured. What do economist get wrong about work . almost everything. We all assume people work for pay. The mistake is that we assume people work only for pay. Thate care about more than. They want control over their work. Feel like they accomplished something. Respect from supervisors. They want to feel like what they do is meaningful. No one ever rights or talks rites any of that ever w or talks about that. Brendan it is a 20th century invention that you should love what you should do . Did not say love. I said you should feel empowered. Over laborterm turnovers are significant. They are out there. Is that a crucial factor . Mr. Swartz it depends on why you are jumping around. If youre jumping around to get. Higher paycheck, probably not that is a sign that people are resigned to Work Opportunities that offer nothing but a paycheck. If you jump around to find something you will be engaged with, and feel like you will make a difference, that is another story. Are not a wage and utility optimizing machines. We are more complex. What is a policy change that would help us adapt to your persuasively argued idea that we are more than just wages . Mr. Swartz i do not think there is a National Policy change. If employers appreciate that by creating satisfying workplaces they will not only make workers more engaged and happy, they will make them more productive they will get more profits out of creating satisfying workplaces. People have known this for half a century, but somehow is gets ignored across the board in actual workplaces. Joiningthank you for us. Barry schwartz, the author of why we work. The next hour, we are joined by bill gross of Janus Capital. This is bloomberg surveillance. Tom good morning. Bloomberg surveillance. Are on Bloomberg Television, and Bloomberg Radio. I see deterioration in the lower yields this morning. That means we need to go to the first word breaking news desk. What a week. Tom. Od morning, it is shaping up to be a tough open for the u. S. Stocks. Many european markets are down 2 led by our kids in france and germany. That is hitting u. S. Futures. To 1965, 10 yield at 2. 61 . Watch the 200 Day Moving Average around 2. 12 . He economic front, using trailed estimates. Texas instruments boosted dividends by 12 . They are buying back 7. 5 billion in stocks. Key upgrades and downgrades. Rays to overweight in jp morgan with a price target of 83. Goldman sachs outperformed Raymond James in a race to buy with a price target of 140. Over at ubs. L from the breaking news desk, bill maloney. Through the day, you can check live breaking news on the bloomberg terminal. Michael . Michael there are very few people left on wall street who know what a fed tightening cycle is about. Abby joseph cohen joined Goldman Sachs in 1990, so she has been through a couple. She is with us on the tmobile phone line. Switch your business to the uncarrier today. The typical trade on wall street is to front run what the fed is going to do. If we do not know when, white, or why they are going to do what they are going to do, what is an investor to make of the october or december meeting . Ms. Cohen i would say many investors have been making too much of it, frankly. This increase would have already been widely telegraphed. What we need to think about is where are the better longterm opportunities in the Financial Markets . With Interest Rates near 0 , it is hard to argue that bond prices will rise notably. And Interest Rates to rise honestly is not good for bond prices. When Interest Rates do rise they will go from being very, very very low. Y those Interest Rates are unlikely to have a impact on the economy. ,here might be a contrary read which Interest Rates go up because we do not need Interest Rates so low anymore. It could be a boost to confidence, an indication the fed believes the extra stimulus is not needed. Michael in terms of how you discount the future stream of earnings you will get, it is what we are talking about over the next 18 months from the fed, hoping it does not affect your investment decisions. Sensitivitye do a analysis to see what equity valuations would look like at various rates of Interest Rates. Interest rates would have to ase notably higher to make concerned about equities. Far more important is the outlook for Economic Growth and Earnings Growth. Our expectations are moderate. A big difference between the United States and the rest of the world. Our gdp is running at 2. 5 annual rates. If you strip out the deceleration in exports, domestic demand in the United States is in excess of 3 . We are looking at companies with good exposure to the United States, or are selective in terms of where they do business overseas. Listeners andour viewers worldwide do not know that youical articles right where you have been a foundational board of trustee, in particular moving forward out of the financial crisis. The meat ask you a quite let me ask you a question. There is a financial Interest Rate everything is penned off of. Do we know where the riskfree rate is now . Ms. Cohen no, we do not really know. What we have told into our models is the assumption the discount rate is higher than the current rate in the market. The reason is to be conservative. All things being equal, the arithmetic says if the discount rate, which is typically related to Interest Rate, inflation, and premium, if you are plugging in a higher discount rate you are more conservative. That is what we are doing. We have concluded that equity valuation is ok. Tom do have to bring the riskfree rate in . It is also what weve heard from the fed yesterday. Many of the members of the fomc were indicating that they think that we are going to have Interest Rates running somewhat lower than may have been in the history. That is related to low global inflation. The thing we know about inflation is that the current levels are probably transitory. Those inflation rates are being held down by lower commodity prices, basically it or she is half of what it was. For us in the dollar is some and that makes imports cheaper. How abbys amazing us today. Channeling we will be back with Abby Joseph Cohen at a look at what everyone is talking about, currency dynamics within the drama that we saw yesterday at the press conference. Didnt Michael Mckee look good in the front row of that press conference . Brendan this is bloomberg surveillance. I am brendan greeley. In pakistan, it is the deadliest attack by the taliban since last year. Gunmen stormed air force base and killed at least 43. Pakistani forces say they have killed at least 13 of the forces. Degrees, the Second National election in greece, the Second National election. Alexis tsipras is in a tight race with the new Democracy Party defeated in january. Vonnie the parties could end up in a coalition government. Will cut asrols many 3000 jobs in the next two years, that is less than 3 of its workforce. The Company Hopes to save 250 million a year. Brendan the former c. E. O. Lehman brothers has sold his estate in sun valley for at least 20 million. It is a record. For houses sold at auction. It has 11 bedrooms, 10. 5 bathrooms, enough for all of your children. Vonnie if youre going to have 10 bedrooms, 11 bedrooms, why a half bath, why not 11 baths . Brendan that is a great point. We will bring that up to the agent. Vonnie we have futures pointing lower. S p futures down 21 points. The twoyear yield down 14 points at 6. 69 . Mike get back to tom and in the studio. Economic indicators are brought to you by commonwealth financial network. When it is time to change the conversation, talked with broker ready to listen. Call or visit commonwealth. Com to learn more. Note 8 30 indicators this morning. Only one number out, the leading. 2ber, the forecast is for a gain after a. 2 drop in july. Tom we are humbled by our guest earlier. Bill guest scheduled to join bill gross scheduled to join later. We speak with Abby Joseph Cohen. Did your mother have a Pressure Cooker on the stove with steam coming off . An cohen she was outstanding cook but did not have a Pressure Cooker. Tom my mother did have a Pressure Cooker. I am the only one that went to college in the food got better because my mother was such a lousy cook. The currency market is that pressure for the global system, whether it is lagardes new mediocre or the strong dollar. Pressure is released in this time of woe . Cohen we have to keep in mind the safety valve is not working as smooth as it could. One thing we know is with the advent of the eurozone, this sort of currency adjustment that you would have seen previously when there was a differential in growth between germany and another country does not happen anymore because they are linked by the currency. It is one of the reasons germany is doing better than other economies. Theres something us we have not talked about. It is this. With all the focus on the Federal Reserve, there has been practically no discussion about u. S. Fiscal policy. We have to keep in mind since 2011, u. S. Fiscal policy, government spending, has been a net drag on u. S. G. D. P. It looks like we may be headed for another Government Shutdown at the end of this month because of this battle between the republican straigs. Tom are you predicting a Government Shutdown . Ms. Cohen that is not my area of expertise. Clearly, what we are seeing in the papers and public dialogue is a great pretty ugly. There is a group of republicans challenging the Republican Leadership in the congress. Fiscal policy is an oxymoron these days. The dollar is a safety valve but also a problem for the United States. It is one of the things down janet yellen is worried about because it is importing deflation into the country and hurting our exports. It is one of those factors that will hit the economy. By how much . That is the question. Is it going to be a major drag, such that it keeps the fed on the sidelines . Ms. Cohen lets put this in perspective. Looking at exports versus imports, youre asking a good question. Exportconomy, we tend to in general things that are highvalue added goods and services, items that dont compete directly on relative price. From that standpoint, our economy tends to be less sensitive to a rise in our currency than would be the case for any number of other countries. The other thing that is fascinating is this is one of the few times in history where a strong currency is viewed negatively because of what it is doing to inflation. Normally, that is viewed as a positive. Normally, Central Banks and investors are concerned about inflation being out of control on the at sign. On the upside. Now the concern is there is not enough inflation as opposed to too much. Mike did janet yellen stick it to mario draghi . Is the euro going to get stronger . Ms. Cohen it is a function not just of currency but also fiscal policy within each of these countries. The United States is not alone in following austere policy when he economies are growing below potential. That has been the situation injure. What we have seen in europe and other countries is economic reform has not taken place. That is one of the issues in china. As an emerging economy, they could focus on a lot of public spending infrastructure and keeping costs down so they could export a lot. Now they are trying to make the transition to a more robust domestic economy and running into trouble. It is not just currency. It is the combination of other policies that governments need to be looking at. Tom what is your enthusiasm for a portfolio of quality american bluechip stocks and multinationals . Ms. Cohen our appetite is high. We think that is the way to be positioned. Analysts also believe if you want to on fixed income, it should be on the higherquality side. Tom Dividend Growth a proxy for yield . Ms. Cohen it is not just Dividend Growth. I would be looking a cash flow growth because you want to be investing in companies that generate cash and reinvest it in their own companies and have a strong early r. O. E. Companies that generate a lot of cash and have nothing to do but pay dividends, that is usually not where the best opportunities are. Tom thank you so much, Abby Joseph Cohen. Mike, how do you get a seat in the front row at the press conference . Do you have to pay somebody . Mike it took the maltre d. Tom is there a rush . Mike the fed assigns the seats. Tom they assign the seats. Mike i went to bob uecker and got this. Tom most impressive. How do you know who gets the next question . Mike the feds chief of staff, michelle smith, chooses. You put your hand up, and she says your next. Tom she has had a real tour of duty at the fed. Mike she came from the treasury. She has been through the wars. Tom Michael Mckee in the front row giving you surveillance perspective at a press conference. Dow futures 200. 23 on features. Vonnie i am vonnie quinn. You are watching bloomberg surveillance. I am choosing this one from the New York Times and david brooks. Making the point republicans used to be split between economic and social conservatives. This year, the fight is tactical. People who want to disrupt the party like Carly Fiorina or the other option are people who try to work within what is realistic and possible. He writes so far fiorina has looked like the most best candidate. Example of if you want to stop a democrat, asked him to name an accomplishment of mrs. Clinton. Brendan if the Republican Party insisted of just david brooks, that would be an excellent option. Hes wishing this were not true. Traditionallyout democrats fall in love, republicans fall in line. That is the opposite of what is happening now. You clearly would like them to fall in line. David brooks is a serious man who thinks about policy. The rest of the Republican Party is not david brooks. That is the thing making his head explode. You can see it in print. Vonnie democratic voters have become responsible. Middleaged want those who can work with the system whereas republicans are embracing their inner adolescent. Speakingwe will be with jim caron, Senior Member of the Morgan Stanley Investment Management. This is bloomberg surveillance. Good morning. Tom good morning, everyone bloomberg surveillance on television and worldwide. An important week for washington, philadelphia, and new york next week. Heres vonnie quinn. Vonnie next week, pope francis visits the u. S. He is not happy with the guest list at the white house. Phil mattingly joins us from washington. Colorful characters on the invitation list to the white house. Apparently, the vatican is not pleased. I think there are concerns about the affiliations of song, particularly prochoice individuals. People that dont necessarily work in lockstep with the vaticans perspective. When you talk to white house officials, there are going to be 15,000 people on the white house lawn for the popes arrival ceremony on the 23rd. As a large group of people. They are not controlling everybody. They are saying there is no intended slight to the vatican with this move. But i think there has been recognition of it at the vatican. There is some concern because one of the biggest problems with this visit, potential problems, is this becomes. Political i think this is what is everybody is trying to avoid. As we have gotten closer to the trip, those are starting to arise. Brendan as you know, everything is political. The scope is definitely a democrat. What does the white house want politically out of this visit . You are convinced 100 this pope is a democrat. I will have to check the vatican for comment. White house officials are excited. In march of 2014, the president had a oneonone with pope francis. It was when he referenced over and over again in press conferences and public remarks the next six months. It had a real impact on him. I think he sees pope francis as somebody who can help push initiatives for the white house. You talk about things getting political, the pope speaking out on Climate Change and inequality. Those are things the white house wants to move forward with. There are issues the white house makes with. When it comes to abortion, the pope has called out the entire International Community on syria, which has been a weakness for the white house. White house is cautious because they know he cannot control what he will say. You may say things they dont agree with, but they will try to take the things they agree with and move forward on their agenda. Did the white house invite 15,000 . Is that the number that is going to turn up . It works a couple of ways. There is a chief of protocol i feel so bad for having to plan for this over the last couple of months. They have reached out to organizations prominent in the arena across the religious spectrum, from hindu, muslim, other christian organizations. That has been the driving force behind the visit. One interesting thing about this lawmakershe toptier and Administration Officials that are catholic. President Vice President joe biden, catholic. Nancy pelosi, catholic. Speaker john boehner, catholic. A lot of catholics very excited about this visit. Mattingly in washington following this trip. Tune intoith phil, with all due respect. You will be cohosting from washington tonight. Tom good morning. Bloomberg surveillance on Bloomberg Television. We are thrilled youre with us. This morning, bloomberg surveillance brought to you by invesco. Walter davis is available to answer your questions on alternative investing. Submit your questions to invesco. Com asktheexpert. Michael mckee and tom keene. Lets talk to the bond person. Lets talk to somebody with experience. Abby joseph cohen made the wrong call. Stocks go the other way. Jim caron has done that in the bond market. Jim caron with us, with Morgan Stanley, with real money at risk. On a friday, lets have a cocktail look. What did janet yellen not say yesterday . She talked for ever. What did she not say . She understated the health of the u. S. Economy, some of the good points. Tom she touched it did not say this is the way it is. Jim when she came out and was dovish, i think that is the right action for the fed. They made the decision and kept rates on hold. For themmake no sense to say we are dovish but let me give you a hawkish message. That is what the markets were looking for but not what they coulgot. I think what she did was correct. The market is trying to figure out what the feds reaction function is, meaning how they are going to respond to economic data. And what we at, Morgan Stanley Investment Management do, is we break it down into one of our models we call the Financial Conditions Index. I think there is a reaction to this and output. The output is her optimal control. That is the way she is going to move fed. The input is what she is telling us, that there are a lot of other factors. The domestic economy seems ok, but there are international factors that have tightened financial conditions. You going to be sure decision on what she is going to do based on where the Financial Conditions Index is . Or are you operating under the assumption they are going to tell us when they are ready to move . Jim i think we need to look at this through the lens of financial conditions. This is something she brought up and repeated many times in her conference. Effectively what has happened to the u. S. Economy is we know what the feedback loop is to china. Ok, the currency devalues by about 3 . Does that justify that monday where the dow was down 1000 points . Does that justify the widening in high yields and Investment Grade spreads . It does not make sense . The fed is trying to figure this out. I dont know if theres something more sinister beneath the surface. Tom i dont know if you had a chance to see if the other day. Mr. Dalio nailed the fed call. It is basically what we learned in eighth grade or ninth grade. b. X algebra on a friday, how can you go wrong . Within bernankes textbook, it is nongreek english. The bottom line is the fed is working in a model. There is a lot of noise outside the model. Do those reaction functions work in 2018 . Jim i think that is 100 correct. This is the way we have to think about it, what model is the fed working with. That is how we try to anticipate their reaction function. Do we know if it works out of sample in 2018 . The answer is we dont fully know. The but what we do know is we have a set of conditions that. Ave tightened significantly equities have come down. It is going to affect the wealth Going Forward. We dont know how much this tightening of financial conditions will impact the consumer, the economy in the next quarter. Tom you may not know who jim caron is, but he is a rock star in the treasury Business Strategy business because he has had to go through a cycle where you are a little off the mark, a little on the mark. The battles of the fixed income more. Mike props to our bookers because they found people who have done this before. People who have been through this before. Tom not just pontificating about it. Tell me how the inflationistas field today. You are not on that side of the equation, the bond market vigilantes. We spoke to ron paul yesterday. I collegiately took his hat off. What do the inflationistas say to what we observed yesterday . Jim i think they will say it is easy policy for longer. This will stoke the flames of inflation. We have to understand this through optimal control. Essentially, they are saying if they keep Interest Rates lower for longer, they will allow the economy to run hot, stoke the flames of inflation more, but when it is time, they will probably tighten. Tom will they overshoot . Somebody channeled the late rudy dornbusch. Stas haveflation hi a point that we get high yields . Jim we should be solving for when the fed falls behind the curve. Look at their projections, they will not for years. Fallste for unemployment but inflation falls, too. Formula. S a monetary i dont see where inflation might come, but it could surprise us. This is what inflationistas will be worried about. Mike do you raise rates because you might be wrong or because you have evidence you are right . Jim i would argue you raise rates because you have evidence you are right. You are never going to have a perfect picture, and i get that, but we have to recognize there are some uncertainties. Tom we digress on the friday after a hellacious week on bloomberg surveillance. I am sipping some of our quality coffee. Mike that is good a patriots fan brings it to me. How did a patriots fan get into our studio . Deliver. Oncos fan to continue with jim caron. Mike that takes us to the question posed by gina smil ich. You were her in turn. She asked if youre ever going to get out of zero bound. It looks ridiculous to ask, but you look at other Central Banks who have tried and been forced to retreat to with an investor as an investor with longterm horizons, when are they going to be able to . Jim when is the key question. The thing the fed understands is there is a costbenefit analysis to staying at zero for too long. The first costbenefit analysis is it does more harm than good, in the sense that what corporations do is they act to issue debt, buy back stock, capex. Nvest in that and ire is dont think it is a good thing. The second cost is the longer you stay at zero, the faster you will have to hike rates later. And that can be more disruptive at a later time. I think that is a very important point. Tom you came out of investment institutes. What was it like your first day at fuel tech . You go from new bedford to really tough folks. You go to caltech. What was the first day like . Jim it was culture shock. Some of the smartest people ive been around at caltech, some of the hardest work i have done. A place i was taught how to learn. It was an amazing spirits. It was an amazing experience. Tom jim caron, thank you. We continue to give you on investment and International Relations on what we observed yesterday. We have any number of good guests coming up. Is it true on the calendar when William Gross will come up . Mike i think he is still in california, getting up early today. Gross hasgest bill been better than good about the feds reticence to raise. There is something in the oxygen, in the air, at the minnesota, minneapolis, fed. Former minneapolis fed president gary stern will join us. It is bloomberg surveillance. This is bloomberg surveillance. Tom good morning. What a week it has been, history made yesterday at 2 00. Michael mckee and tom keene welcome you into our radio studio at the corner of lexington and 59th in new york city. Withto talk about today two esteemed guests in this hour. Michael will tell you about one of them in a moment. We need to do a Foreign Exchange brief. This is with other markets on the move. And yields in85 further than they were after the move yesterday in the 2 00 hour. Our forex brief brought to you by Interactive Brokers. Trade up to Interactive Brokers where our lower cost can help you maximize returns. Visit for more information. The euro churns higher over the last 24 hours. The yen back and forth. Yen. Now, stronger i need to note brazilian real idly over the ugly over the last two days. A troubled brazilian real this morning. It pays to speak to people with an interesting perspective. That would be our next guest. Mike you want to know what is going on at the fed, you talk to somebody who has been in the room. Gary stern was president of the minneapolis fed for many years. He joins us now in studio. Thanks for coming in. Fascinating meeting yesterday. The decision, you could say, was expected. But the reasoning behind it may be surprised people maybe surprised people. I realize the personnel has turned over. But try to put in perspective what they are thinking. Statement i think the in the press conference gives you a good indication. Having attended a lot of these things, the place to start in thinking about the Federal Reserve, or at least one place to start, is it is fundamentally a very conservative institution. It is not going to do anything terribly surprising or radical if it can avoid it. If you looked at the ingredients of the policy decision, prior to the meeting, i was not surprised. They cited the things i expected. The domestic economy is doing well. But the Global Economy is struggling. Markets have been volatile for a variety of reasons. Inflation has been below the feds target. Youdd those things up add those things up, and it seemed like a reasonably high probability they would choose to take no action at yesterdays meeting. In fact, that is what they did. Myuess is they spent guess is they spent a lot of time back and forth on pros and cons of what to do because you could make a case they should have increased the target rate yesterday. But like i said, it is a conservative organization. Mike the decision is understandable. You can look at the same thing and say i get it. But what is the reaction function now . That is what everybody walked away scratching their heads. What are they looking for to do what they want to do . Mr. Stern that is an interesting question. There are two concerns i have. Allis if they wait until indicators say go, they will wait forever. The reason is the incoming evidence on the economy is always going to be contradictory to some extent. You get positive evidence, mediocre evidence, once in a while you get negative evidence. It will be sometime, in my judgment, before inflation picks up or they can say with a straight face 2 is in the cards. That is one concern. The second concern, and i think people are making more of this and they need to, there was more emphasis on international or Global Situation informally. For the fed has always paid a lot of attention beyond the u. S. Borders. Not because we are trying to influence that, although given the size of the was economy there will be some influence, but because what happens abroad is going to affect our economic performance. And more so as the Global Economy has developed. On a scale basis, what happens in china, india, brazil, and so forth, is going to matter with us. We trade with those countries. They are very large. Tom what i love about your work as you have one of the best resumes in the history of modern economics. Did you study under hyman minsky . Hyman minsky defined crisis and panic . You were in the classroom with a guy that helped us think about working through crises. What did you apply that you learned from hyman minsky . Has some hyman unusual insights with regard to financial instability. Jobuld say he did a good identifying vulnerabilities. In terms of application, airman bernanke he gets the because he was a student of the depression, as you know, and took the lessons, positive and negative, from the depression and applied those. I will say, and you probably know this, i coauthored a book called too big to fail. The message of the book published in 2004 was the too big to fail problem had not been addressed. It was that the too big to fail problem had not been addressed. That was going to lead to problems, serious issues Going Forward. We did not try to say when, but it would. The book is full of policy recommendations. Tom gary stern with us on television and radio worldwide, a former president of the minneapolis fed. Dr. Stern, you took your phd at rice university, one of our great games there universities. It got Great Respect for thinking through games and systems. Janet yellen did yesterday became very of avoiding maximum loss . Is that what she did yesterday . Dr. Stern that is an interesting way to think about it. Grander terme a than appropriate. But i can think of it as loss minimization. I think that is right. There is no urgency for the fed to act now. The other side of the queen is if they wait until there is really urgency, they will have the other side of the coin is if they wait until there is real urgency, they will have waited too long. The other thing is it is always difficult anytime you want to change the direction of policy, the timing is always a challenging issue. I worked for the fed in excess of 30 years. And i can tell you that timing question is always a challenge. Fortunately, the fed does not have to get it precisely correct. The fed has to avoid big errors. It does not have to get it precisely correct because we have a large, complex, sophisticated, flexible economy. It does not matter where the fed y, is itonth x or waits until things are really urgent, it will be too long. Tom mike there is some truth to that. If you are talking about a faster rate hike, but only going up to 1 , it is not as big a deal either. It was asked at the conference. They talked about china and problems overseas. They never said concerned about what the fed is going to do is one of the reasons for the volatility. They asked janet yellen and she was maybe. Is that part of the problem . What would be the argument in room against let against saying lets get it over with because it is not a big deal . Dr. Stern i agree with what you said. If it had been me, i would have done two things. I think yesterday given the anticipation would have been a good day to act. Just acting would not have reduced uncertainty much. With a to accompany it statement that encompassed the next six months. Along the lines of, we have now acted. We are obviously data dependent. Put our best judgment is Going Forward over the next for seeable future foreseeable future, we probably will not be doing much. And try to take some uncertainty out of it. I think that would be healthy. I think you are right. About the fed is part of what is happening in global currency markets. There was a chance to perhaps reduce uncertainty yesterday. Now we will replay this in december and thereafter. Mike if you like september and august, youre going to love december. Tom that carries through to this former president of the Minneapolis Federal reserve. We have a nice set up for our conversation with no gross of Janus Capital futures bill gross of Janus Capital futures. Important headline is yields come in further. This morning, the twoyear yield is in 13 basis points from where it was 48 hours ago. That is quite a move. Not quite back to crisis moves, but there has been an adjustment in the yield curve. Michael mckee and tom keene with you. Stay with us. Tom good morning, everyone. Bloomberg surveillance. We welcome all of you around the world. What an eventful week it has been. Markets on the move. Brendan features down after the fed decides not to raise rate. Did you know that i decided not to raise rates yesterday . There are individual movers to watch. We are talking to julie hyman. What is going on . Julie im glad you let everyone know the fed decided not to raise rates. I may have picked up on that. This is one of the stocks we are watching. The company has completed a share sale. When you have these share sales, the dilutes the value for existing shareholders. Nose and her has a completed one when it says it is going to sell more shares, another 1 billion worth of shares. It is going to use the proceeds for general corporate purposes. It probably needs it because brendan it has been offloading assets in the shale patch. It made the decision not to focus on debt but rather new equity. Julie yes. This is in line with that decision. It also has been doing restructuring outside shale assets, trying to do an overall review of its business to figure out what to do given the drop we have seen in prices of underlying commodities. Brendan im looking at something they said on july 27 on bloomberg intelligence. They need china to remain a consistent significance consumer of copper. It was a month ago and almost seems quite. Quaint. Julie i want to look at how the stock has done. It is down over the past year by 65 . I want to look at how it has bounced from the low. The increase is small but more than 50 the stock has bounced off the low. But when the stock is down more than 50 over the past year, that 50 bounce vonnie is a major deal. Speaking of bouncing, gold futures are up 90 . Julie we have seen the first weekly advance in about a month for gold. This goes back to the Federal Reserve as well. If youre not going to see an increase in rates, that tends to be good for gold prices. If you are worried about the economy, youre looking for something you perceive as safe. There is that perception that gold is safer. Vonnie la quinta, the c. E. O. . Julie the hotel chain is cutting its forecast. But says it is seeing weaker than expected hotel demand in august and september. Demand will be weaker for the rest of the year. The c. E. O. Had been with the company for 15 years. He announced he was leaving and will work on an interim basis. Vonnie julie hyman, thank you so much. Mike and tom will be joined by bill gross of Janus Capital. This is bloomberg surveillance. Tom good morning, everyone. Bloomberg surveillance again. What a week it has been. Michael mckee and tom keene from our World Headquarters trying to make you smarter. The real controversy at Deutsche Bank. We get through the week to say the least. Part is the equity markets, not 31. S p and dow futures 259. Within that are some market stories. Here is david wilson. Im going to say your markets are a bit of a surprise. David given the magnitude of declines, perhaps. Put the idea that the fed is concerned about the pace of Global Growth has gotten peoples attention. Barclays cut their estimate for Standard Poors Earnings Growth to know growth, the rep no growth, zero, that is what they are now anticipating. Tom what have you got . David bank stocks were the s p 500s worst performers yesterday among 24 Industry Groups as the fed left rates unchanged and expressed concern about the Global Economy. Bank of america down 1. 5 . Citigroup and j. P. Morgan chase both 2 lower. Goldmining stocks higher on the other hand, along with the price of a metal. Notablemcmoran a exception down 6. 5 . The copper, gold, and Energy Producer sold 1 billion in shares and planned to sell another 1 billion in stock. Dolby system down 2. 5 . The forecast trailed average estimates. 5 eventruments down though they raised the Quarterly Dividend by 12 and added 7. 5 billion to the stock buyback program. Arg energy up 3 , considering the sale of plants and buying back shares. The oil and gas producer selling 13 million shares. La Quinta Holdings down 6. 5 . The chief executive unexpected we resigned yesterday. Tom david wilson, thank you. 270 on dow futures. Mike it is a fascinating time in politics as well as finance. Threadbare gets to watch all of it from his position as the host atchrett baier gets to w all of it from his position as host on fox news. Hoped to makeo this a donald trumpfree day. The guy gets up yesterday and says barack obama is a muslim, and we have got to get rid of all muslims in america. Donald trump goes, right. Who is the guy that used to say john mcenroe you cannot be serious . I was at a town hall in new hampshire. Town halls are unpredictable. This one was as well. A lot of folks are saying he could have said something different. John mccain had a couple of cyclesopup two election ago and handle that much differently. Chris christie and others criticizing trump for how he answered or did not answer. Trump campaign put out a blanket statement that he is concerned about christians persecuted around the world. Mike now that the media has gotten bored with donald to an extent and crowned Carly Fiorina the darling of the moment [indiscernible] bret you would think over all of these Different Things that donald trump would be sinking, but he has defied it up until now. I think it would be dangerous to say his numbers will go down. How come everybody is writing Carly Fiorina has to show she can put together an impressive political organization, and nobody ever said that about donald trump . Bret that is true. I think fiorina will see a bump. There is no way she will not. She had success at the first debate in cleveland. Across the board, people said she did well. I think now the question is whether she can get the momentum and continue to get over her past at hp. Acclaim received total for your debate on fox. You are such a class act he will not take shots at anyone. And the one debate we saw a few days ago with c. N. N. Then we go to boulder. What does bret baier want to see in the third debate . i would like to see fewer candidates. Jake tapper is a friend of mine. They went in with the express wish to mix it up. That gets unwieldy with 11 people. I think fewer people would make it easier. What is the solution . I dont know, unless people are dropping out or they raise the bar. Mike very quickly, Carly Fiorina running for Vice President . Bret i dont think so. After that debate, i think she is going for number one and has been since the beginning. I think it would be truly ironic if it ends up being the republicans are the ones who put forward a female candidate. Tom greg bear, thank you so much bret baier, thank you so much. Fox news sunday morning you can hear it on Bloomberg Radio sunday afternoon. Weve got to bring you up to speed on the markets. 252 are the features on the doubt. S p futures down 29 points. Yields have come in in the last 10 minutes break speaking of yields, next bill gross on Bloomberg Television and radio. Stay with us. Bloomberg surveillance. Sure, tv has evolved over the years. Its gotten squarer. Brighter. Bigger. Its gotten thinner. Even curvier. But whats next . For all binge watchers. Movie geeks. Sports freaks. X1 from xfinity will change the way you experience tv. Brendan this is bloomberg surveillance. I am brendan greeley. Here are your top headlines. On capitol hill, there is more fighting over abortion in both chambers. The house has advanced legislation that would end government funding for planned parenthood. Budgetuld come looking cuts and lead to a Government Shutdown. Croatia has closed a most all order crossings with serbia. Refugees 13,000 have entered croatia after hungary used force to push them away. Brush is willing to send troops in syria that would mark a sharp escalation in syrias civil war. Russia has given tanks and personal to syria in recent weeks. In greece, the Second National election in six months on sunday. Greeks will decide whether to stay with Prime Minister alexis tsipras. He is in a tight race with the conservative new Democracy Party he defeated in generally. The parties could end up in a coalition government. Those are your headlines. Vonnie it looks like we are going to open lower. S p futures down 27 points. The twoyear yield at. 600 present. Lets get back to tom and mike in the radio studio. Tom good morning, everyone. Bloomberg surveillance. We welcome all of you on Bloomberg Television and radio worldwide. Bill gross in moments. Let me look at the opening markets. The opening bell brought to you by sci. Feic. Com imagine. Read on the screen. On the screen. That decade average of 19 points. Yields are lower. 2. 16 . Michael mckee, thats enough of a data check because bill gross has leveraged fivewant to see the yield go to eight gary. Hilling 1. 4 heard wearing ad youre not 49ers red and gold tie today. Im not betting on the steelers. Youre off to a good start. The you are the manager of constraint bond fund. You could go anywhere and do anything. You can invest in all those countries janet yellen is worried about. Will be too little too late when they finally get around to moving. The janet yellen make a mistake yesterday . Bill well, no. At the moment, financial conditions are the key priority and a strong dollar that was wreaking havoc on emerging market economies, so i think they did the right thing. They did the wrong thing way back they went below 2 in terms of the shortterm. They did not have to go to zero. Now, getting back up there will wreak havoc on asset markets. We have a finance based, capitalistic based marketbased economy. If you raise the rate by a plunge,and asset prices we have a problem. Tom the 10th anniversary of in theclaimed article financial analyst journal. Article thatassic all of our listeners and viewers are living. When does the great distortion and . It did not end yesterday . Michael mckees questions will be it will not end for years. Can you tell me when retirees get a fair shake . Bill i cant. Such thatuld indicate seven years that shape we had 25 economy, weanding will have to pay the price for another five or another 10. You need at low Interest Rates in order to recapitalize. The financial sector, corporate sector is doing well. Savers and 0 in terms of their shortterm are getting the short end of the stick. There has to be a rebalance. Point whereat the we are addicted to accommodation . We are addicted to the point of the alcoholic with a punch bowl to full . Bill i think so. That is a mild understatement. Every asset price or almost every asset price is artificially elevated. When you see negative Interest Rates in germany after five years, when you see zero bound in the United States, you know as radel you indicated two days ago that all asset prices are basically hinging on that rate. At one point, they have to be higher. The investor must be very careful in terms of buying something as an artificial price. Mike when do we get real prices . What is the feds reaction function . I will you know what they are going to do after yesterday . Wants real growth and inflation. Inflation, 2 growth, 4 nominal gdp, which is not historically normal, but close enough that profits can still increase, Capital Structures can interest can be paid. Up until this point, for the last five or six years after weve had real growth of two and nominal of 3. 5. Thats not far from those levels. Thats the United States and the only country able to produce them. Central banks and Monetary Policy is exhausted in terms of producing real growth and even inflation. At some point, governments should begin to recognize that fiscal policy is the second piece of the lake that has to take place in order to get back to where we want to go. My thats what rate alea was lio was us ray da telling us. Should Central Banks step back now . Bill let me comment on dalios credit influence template. It should be the one the fed uses. Instead, the use the taylor rule , the phillips curve and any other outdated model that the staff has used to note success in the 21st century. A short in the Long Term Debt cycle accompanied hbductivity growth caught in the graduate school is or even in the high schools. Tom what you are saying is so critically important. Within modern economics is a weic mathematics need to go back to a more static social analysis within the longterm debt analysis. Is that what we need to see . A defeat of the modern massiveness in every central bank. Bill almost all Central Banks are fixated on the past 35 years, 40 years since we went off the Gold Standard and credit began to expand like gangbusters. They view the debt cycle in terms of the shortterm cycle. They have no sense about longerterm debt expansion and the ultimate cap or ultimate limit on that debt. When you inject educational limits, thats a tough one for a fed, a tough one for phds coming out of graduate school. Curve,ely, the phillips the taylor rule, no. Nobody knows what the new neutral rate should be. They should be looking at cycles. We hear much of this from gary stern out of Washington University and rice university. A totally different take. Mike what do you do now . Do you look to those troubled countries that janet yellen was talking about as opportunities or concerns . Bill a few of them. I have had a favorite in mexico. Mexico is on the cover of the economist this week. A union yang in terms of good and bad. Rate, goinginterest forward, 2. 5 years forward, mexico has a curve expectation of 6 as opposed to three. We have a forward expectation in the United States of 1. 5. The fed its help indicated that they think its going to be 2. 5. If the curve is right, assets are reasonably priced and that is the way to go. I like mexico because the expectations are so high in terms of what the central bank has to do and it is inflationary role. Tom you see the u. S. Dollar being so strong that we see euro 120 . Y, yen is it constructive for janet yellen and all americans . Bill no, its not. The reason why manufacturing has been negative for many of the months in 2015 has been because of a strong dollar. Manufacturing has been eroded in terms of competitive advantage. Janet yellen wants a strong dollar because that has been the policy for the past 30 years. The competitive advantage roads. One of the reasons she did not go was to keep the dollar relatively weak. Tom she will never admit that. Thank you for spending time with us. Absolutely fascinating about phillips curve dynamics. Dalio should be taught in high school. Doubt 226. Bloomberg surveillance, good morning. Several fantastic podcasts over the weekend. That is just one of them. Bill gross with tom keene and mike mckee. The fed did the right thing Monetary Policy is exhausted in reaching real growth. Brendan she is worried about a strong dollar. They are watching this trade weighted dollar. A lot of Farmers Market trading partners, which is critically stronger than the dollar we think of. Vonnie exactly. Bill gross sang every asset price is artificially elevated. Space some investors trying to sell their etfs during the august when he fourth market route. August 24 market route. Here to discuss is eric. Inc. You for joining us. Where do we stand on this . Eric it was a bad day. There were some small Retail Investors who got burned. This is august 24. 18 trillion worth of etf shares were traded the past 12 months. That is more than the u. S. Gdp. , the first 45y minutes, due to some Circuit Breaker issues, some people got bad prices. 40 below in retrospect. We dont want small investors to get burned. A lot of regular investors are using uts. Come i give them credit, taking a leadership role. There are thousands of etfs out there. Respectedargest, most and popular etfs eric and with some vanguard etfs. That one had issues. When you have vanguard and ishares these exotic products, its not going to be as big of a deal because those are traitors and hedge funds. When vanguard is trading 34 below, thats an issue. 300 products were affected on that day. It was a side effect of the last Market Makers were unable to make tight spreads because they were unable to figure out a fair value. Some of the stocks in the basket were halted. They got cautious, widened the spread out. Thats where the price looks really bad. Brendan it is a plumbing issue. Not that long ago, there were not that many indices to trade. Now, you have the proliferation of indices and strategies and the underlying architecture is not ready for it. Eric thats a good point. Back in 1993, the etf was invented to serve institutions. They were not thinking retail at all. The late 1990s, they started pushing this to retail. Cap the assets are retail money advisers. Half the assets. Mutual funds dont trade. You just get the price at the end of the day. Retail investors are having a crash course in how to trade. Brendan they are also relying on services putting another layer on top of it, the algorithm moving assets among etfs. Middlemen should work with the issuers to make sure that the regulators know. Theres a lot of factors here. Everyone has a little bit to blame. When you take a step back, we are talking about. 001 of the trading, mostly is fine. Later, it isng up a special with all due respect tonight. Featuring president ial candidate Bernie Sanders. Feel the bern. Phil mattingly will be filling in. What it is people really want in a candidate. There is something authentic about Bernie Sanders he would not have anticipated would make them popular. A man who calls himself a socialist. Phil mattingly will get to the bottom of it. Tom good morning, everyone. Bloomberg surveillance. On Bloomberg Radio and Bloomberg Television worldwide. Forward into the weekend. We need to say thank you for your many notes on this experiment we are doing. The mixedmedia of radio and television. The immediacy of what we are doing for some of the smartest people we can find. Bloomberg surveillance this morning. Much about fidelity. Learn how innovation and business can create future market trends. All happening at fidelitys traitor summit traders summit. An endless guess can you explain who our next guest is . Mike we are ending on one of the best. Thats the great thing about bloomberg surveillance. We are not getting any old person to comment on the fed. We are getting people who know where peter cooper was at the fed for more than 25 years. He knows. Tom this is a guy who bill whenans forward peter cooper and Deutsche Bank right, bill gross reads. Mike he is cohead of Deutsche Bank Global Economic team. He has been watching the fed cycles come and go. Going into this meeting, you said they should raise rates. Same question i put to bill, did they make a mistake yesterday . Peter yes, think they did make a mistake. Probably not a big one. The difference between september and december in the overall scheme of things will not be a major problem. There are two mistakes. The casementioned, could be made based on the domestic economy that its time to raise rates now. Not going was a mistake from a domestic standpoint. The other one was putting more negative attention on the Global Economy then warranted. Weve seen stress in emerging markets, weve seen uncertainty in china, but overall, china is looking to be on pretty even keel. We expect 7 growth this year and we have not advised down our Global Growth forecast. The fed is being cautious. The art using more time. It will come around december and things will be ok. Further down the road, staying at these emergency floor levels for Monetary Policy does create some risk for both inflation and financial stability. Mike you dont think the impact of china slowing down or the stronger dollar is going to turn out to be a significant as significant as the fed fears. Part as janet mentioned, of the concern is what if there is a sharp slowdown in china. The risks have risen. We see the risk of that thing pretty small. , riskas Risk Management on the inflation side, not yet evident. Go down the road, they will become. Actually the chart on Bloomberg Radio worldwide. I want to put that chart out. Peter huber, the brazilian real goes down to new weakness as we speak. The imf goes to peru in a few weeks. Dovetail in the immediacy of the challenges medical a guard Christine Lagarde faces. Peter whats going on abroad matters because it does potentially affect u. S. Economy. But, janet yellen and the fed are not the central bank of the world. They are the central bank of the u. S. Economy. Brazil has to get act together. If it delays and we get inflation rising, it will be much more painful for brazil down the road. Some nearterm pain and more focus on brazil getting its own house in order very much should be the theme of the day. Mike part of the question i put there is anlen argument for raising rates here in the United States because the economy is doing better. Can you make the argument for us given the Global Situation . Peter the mystic demand has been growing above 3 for the last five years. Domestic demand. Is this spending is coming back on track. Housing has a long ways to go. The Housing Market continues to titans. The one drag has been net exports. That is not to slow growth from above three two may be a little but to. Above two. Productivity growing at. 5 . Weve had 2 growth in the labor market has continued to improve for the last five years. The Unemployment Rate has come down a percentage point each year. That will continue even at 2 growth. Rates ahead of inflation and there is no inflation insight right now. Defense forecast does not see any until 2017 or 2018. Eater there is none yet. Peter there is none yet. It is running about two Percentage Points above productivity for gdp. Inflating workers wages by two Percentage Points more than their productivity is rising each year. That is not yet a significant inflation problem. Given the lags and Monetary Policy, it becomes one. Tom i want you to defend a tradition of modern economics. Supported strongly the belief that phillips curve relationships, dynamics and correlations within a modern economy and all the challenges of forecasting are not so much flawed, but just models from another time. You are getting upset. I can tell sitting here. Peter the phillips curve is flat. The sensitivity of inflation to the and of women cap has declined. Unemployment gap has declined. It has not changed so much that its gone away. Firms are having trouble finding workers. Ot of beautiful shards charts showing how low the stock is falling. They will have to start paying them more to get them. Humility eight years in, do we amend our modern a s or move to peter we had been amending our models. Hasphillips curve effect not gone away totally. I go back to the 1960s when the phillips curve was steeper. In the mid1960s come inflation had been low for several years around 1. 5 . Unemployment rate came down to 4 . People kept revising down. Within a yearandahalf come inflation rate had jumped to 4 . It may not jump to 4 this time, but its going up. Peter cooper is so steamed up over here. It is a scalding me. Mike we know what you think they should do. What do you think they will do . Peter i think they will raise rates in december. There is a case for october, but it will take good news between now and then. We dont have a lot of news coming out. Replay your colleagues wrote a nice piece today about the replay of the taper. Inys in september and when december. People argue they should not. Joe is worried about the liquidity situation in december. I think that is overplayed. If the fed gives a clear signal this is happening, it will not be an issue. It was not an issue with the taper in december. Tom thank you so much. Not only the different opinions, but when you have someone like Morgan Stanley and dojo bank Deutsche Bank, the collegiate , bouncing ideas off of each other, it helps us get to the weekend. The dow 264. We will continue this conversation monday. Adam from here with the peterson institute. Thank you to rachel, richard and all of our team for a fabulous week. Bloomberg surveillance. Matt welcome to the bloomberg market day. The fed has spoken. No rate hike for now. What happens next . Let the discussion begin. There is a new plot twist every day in the Media Business as well. Our star analyst on hand to help us follow that story. A major name in Online Shopping opens its first brickandmortar location. Is this the wave of the future . Good morning. Lets get right to a market check this morning. The day after fed day. Stocks down across the board. We saw the same thing in europe. Continuing to trade down. The s p 500 down 1. 25 . Dow jones off 262 points and the nasdaq down 1 . Take a look at the moves and treasuries. You m