tv Bloomberg Markets Americas Bloomberg October 6, 2017 10:00am-11:00am EDT
vonnie: a jobs report stoner. 2010.rst drop since the hurricanes take their tolls. average earnings are the highest level since the great recession. we break it down and have a look at the budget. president trump sounds a cryptic warning as he gathers at the white house. he says it might be the calm before the storm. we look into the context of his remarks. at the bottom of the hour and exclusive interview with kyle bass. what he says about bitcoin, china and more.
that is on location in texas. 30 minutes into the trading day, abigail doolittle is here. abigail: we are looking at various bond declines after what that -- after that jobs report. the first decline since 2010. investors seem to be looking past that. much of that had to do with uncertainty around the hurricanes. what stands out, the declines may be small but we don't have any record highs at least so far. and the fact that hourly earnings rates rose in the big way. that is putting a big reaction into the 10 year yield. it is up five basis points. the 10 year yield now having its best weekly winning streak of the year.
we see that coming after the jobs report. thinking hourly earnings rise is enough to put the fed on course to hike rates in december. there is good reason to think that could be the case. btv 6588.look at this goes back to 2008. in yellow we have the market participation rate. blue, we have the hourly earnings growth. in white we have the 10 year yield. at the great recession they treated in tandem. it took time to happen. there was this recovery as they trade in tandem. the 10 year yield is against the top of that. let's take a look at the influence of the 10 year yield on the dollar. it is up three tens of 1% pressuring commodity index on
paper, the worst day in a month. the 10 year yield is helping the financial sector. let's take a look. we have some of the brokers and regional banks trading higher to a greater degree. >> we are up for the week for the fourth consecutive week. insurers auto only the two industries rising. this is the gauge of the week. one of 9% lower today. headed for a weekly drop off. the biggest falls, you can see midweek we were sitting on losses of 4%. liv-ex, lenders to keep an eye on this week.
catalonia's largest lender may follow in abandoning the region. the board meets today to reassure investors and depositors as they sink their unscented -- uncertainty. rejected as illegal by the central government in spain. at theesday they were white line on a three-day loss of 10%. loss wednesday, almost 8%. the most since september. they will move headquarters further down the coast to the spanish city of alec kann today. this is the difference between the spanish and the german ten-year. the yield difference comes down in little bit today. 1.22 percent.
since july 12. catalonia's president requesting to address lawmakers. monday, it was suspended by the spanish constitutional court. by wednesday the spread widened by as much as 19 basis points. the biggest rise since february. as you can see the spread is narrowing today. jobs the september u.s. report. u.s. losing 33,000 jobs according to the establishment data. this after hurricane harvey and irma hit southeastern states. the jobless rate down to a 16 year low. paperworkers moved
to put 9%. the stageto google was set for a rate hike. >> we are to have a rate hike in december as long as markets remain firm. they certainly are. as long as they rise to 3%. they certainly are. i think the fed is a slamdunk in terms of raising rates in december. ofjoining us now, the head the official cataloger of u.s. recessions. he was the chief economic advisor for ronald reagan. he joins us from cambridge. so much to talk about. has janet yellen called it perfectly? time forer the tightening? what's the perfect time for a rate hike was three years ago.
they had been dragging their feet on it but i they will move again in december. >> tell us how healthy the u.s. economy is. it seems like we are only now beginning to see more sign of inflation. >> the economy is healthy. i don't worry about whether the 2%.ation rate is 1.6% or the about things like that? we don't want to see inflation running wild like the early 1980's but the economy is in because as that crisis have soared and gotten really out of line with historic experience. the 10 year yield after this jobs report is 2.39%. what if anything has the economy suffered because the fed did not raise rates as you say they should have? what can we expect next time if
we are already too late? >> i think the real problem is asset prices, equity prices, bond prices, commercial real estate prices have gotten to be out of line with historic experience. even with rising earnings, the ratio is 60%. 60%case earnings ratio is higher than its historic average. has it done any harm? not yet. the danger is that as that unwinds, it could bring down consumer spending. it could bring down economic activity in the economy as a whole. to the fedit comes normalizing its balance sheet, yousmooth a process do think it is going to be for
asset prices? >> it is going to be raising long-term interest rates. they have been good about telegraphing what they are going to do starting slowly, picking up speed as they go along. but it is going to have the effect of raising long-term interest rates putting more bonds into the market. mark: we talk about the subject of the month, the next fed chair. whose listen to bill gross aired his view. >> i have known him for three years. he has ideas that are different than other central bankers. he looks at the market different from a structural standpoint as opposed to a taylor model type of role. he is young. he has only been there for a year but he would be my choice. but he is not going to be the choice.
hiseel kashkari would be choice. who would be yours? wantdon't have a person i to advocate but i would say that the short list is good. i think the president has good choices available to him. furtherlet me push that . obviously if it was john taylor we would see rate increases depending on where he sees the natural rate of unemployment. the other candidates not so much. moreould want somebody inclined to raise sooner, no? vonnie: i think that they have to keep raising rates. having missed the boat, not done a few years ago they can't suddenly say it now we are going to take the rate up dramatically. that would be too destabilizing for the asset markets.
they have to move the rate up gradually but they have to keep doing it. we have a negative fed funds rate. it will hardly turn positive by the end of 2018. that is too low. it got to keep moving until we have a positive fed funds rate and the longer end of the curve moves up with it. vonnie: what is our gdp run rate right now do you think? what is the natural rate of unemployment? 3%. would say it is at gdp growth rate as officially measured. i think the official measurement understate what is really happening in the economy because the government method of dealing with quality change and new product doesn't capture what is going on. on the official numbers we are seeing real gdp growth of 3%.
to the government data we are going to see better gdp growth and that will pay for tax reforms. we got a budget beginning yesterday. what do you see in the budget process? for increased military spending for some of those times. >> i would say that what has happened in the last 10 years in terms of the deficit and the national debt has been awful. we have seen the debt to gdp ratio go from where it has been historically for a long time in midhigh 30% debt to gdp to 70%. according to the congressional budget office, even with no changes in taxes in defense, it is going to head to 91% during the coming decade. it is unfortunate.
proposals the tax that have been talked about and look at the senate limit on increasing the deficit, the cumulative deficit over the next 10 years by $1.5 trillion that would add five percentage points to the debt to gdp ratio at the end of the decade. .e go from 91% to 96% i don't like it but i would rather have that happen than stop the important tax reforms on the table. do be you bully -- do you believe these tax reforms go far enough? >> i think they will force it to fit in that 1.5% trillion dollar envelope and then after the 10
years, because of the rules that you need for reconciliation, we won't see further increases in the deficit over what is theently projected beyond 10 year window. but i think it is important we get the corporate tax reforms, the profits ofnd foreign subsidiaries so we get in line with the practices of every other industrial country. vonnie: thank you. we have to leave it there. let's check in now on first word news. the group was honored for its work on the first treaty that prohibits use of those weapons rish in july at the united nations.
meanwhile president trump is strategy.g a new ae plan has been released for tax for now but he would ask congress to tighten the accord your u.s. allies say that it is effective. president trump aids and allies are floating the idea of replacing rex tillerson. according to the political website, the cia director would take over. after reports that tillerson call the president a more on. hase minister theresa may said she has supported her cabinet despite attempts to oust
her. the boomer conservative party chair says he has a list of former cabinet members who support his call for her to go. global news 24 hours a day powered by 2700 journalists and analysts in 120 countries. vonnie: thank you. coming up, futures in focus. we're talking jobs reports. this is bloomberg.
gold and oil are in focus today. joining us, the senior markets at rj futures. strengthens,dex are they trading on different stories? >> they are correlated. job growth should rebound quite quickly. businesses should return to more normal levels. they should raise rates in december. if you look at the crude oil back below levels. the reviews are back in control. they are ramping up over the next few weeks. opec, some of the country is out really rampedve
up their exports and production as well. vonnie: what does it mean for oil? >> background that 47 level, below that you will see opec extending kites. the dollar index, i don't think we have too much more room to run. maybe 96. the euro current -- euro currency should weekend. they have to boost that growth. if we see in the reversal, maybe the dollar is flowing. mark: coming up, and exclusive bath.view with kyle
vonnie: this is bloomberg markets. it is etf friday. yesterday bloomberg hosted the first annual london etf invest conference in london to find eric, we are going to look at a couple of quotes. draper, in etfan industry, there is a low barrier for entry. a high barrier for success. >> this is in a panel called welcome to the etf
jungle. investors demand cheap. it is hard because everybody wants chief products. vanguard and blackrock are so dominant especially in the u.s.. it is very much an institutional market but it is going to turn more towards the rico -- the retail. what investors start to lay out with their paying, that is going to help etf's as a whole. seeing some of that welcome to the jungle making europe a new battleground. mark: guns and roses. >> do investor expectations and the reality of the products matchup? >> this is a crystal clean view of a regulator and a good question to as. i think that is what he is talking about. are you getting the price you think you were supposed to get?
are the products during what they should do. part of this is etf's wrap up everything. some of those are not as simple as a mutual fund. part of what we're doing, a rating system that allows people to get advanced information. investors know what they are getting. that is the ultimate challenge, to make sure consumers understand what they are buying. this is a guy in the how did that go down? >> he asked who could define smart beta? he left. it is deadly a marketing term. -- it means a lower-based cost index. good productsrate from true factor products, from gimmicks is difficult.
so new touch screens... and biometrics. in 574 branches. all done by... yesterday. ♪ ♪ banks aren't just undergoing a face lift. they're undergoing a transformation. a data fueled, security driven shift in applications and customer experience. which is why comcast business delivers consistent network performance and speed across all your locations. hello, mr. deets. every branch running like headquarters.
that's how you outmaneuver. whentertaining us,es getting us back on track,hing? every branch running like headquarters. and finding us dates. phones really have changed. so why hasn't the way we pay for them? introducing xfinity mobile. you only pay for data and can easily switch between pay per gig and unlimited. no one else lets you do that. see how much you can save. choose by the gig or unlimited. xfinity mobile. a new kind of network designed to save you money. call, visit or go to xfinitymobile.com. mark: live from bloomberg world headquarters in new york and london, this is bloomberg markets.
let's get to a bloomberg exclusive. we are going to larry texas . ofi'm here with kyle bass, capital.pital -- heman we are here as your guest here in central texas. we are used to talking about china. a few weeks ago you wrote an op-ed in bloomberg view of all places titled the imf needs to stop torturing greece. you acknowledged your position looked for things to improve. why greece, why you? kyle: i can answer the other two. greece has gone through a great depression. peak to trough gdp decline.
greek people. the great government has suffered mightily because they don't have a currency of their own to make the adjustments that needed to be made post financial crisis. so, greece has been at the mercy -- the european union and imf together lends a lot of money to greece. now, basically what i was saying is i think the imf is being too punitive with the requirements or demands on greece. a muchded up coming to better mutual conclusion post. erik: so why now? the reason i ask, some would look at the greek trade and say it has played out nicely for those who are in greek government bonds.
they have been rowling. kyle: there is a difference between the bonds and the banks. banks,u look at the collectively they have $10 billion of market cap. it is the lowest in the world. when you think about an economy that is just now starting to ,how green shoots everywhere tourism, new vehicle for thetions, gdp, first time in eight years the indicators are starting to start flashing green. theyou have an interesting thetical situation from current government to a more economically independent new government. i think you are starting to see
green shoots. you are starting to see banks do the right things. i think that you are going to , he was going to hand the reins off to someone who was businesssed on economics. i think you are going to see something similar in greece for you have a leadership today that might not be like the government in waiting. i think are going to see something great happened. erik: hand the reins makes it sound nicer than that typically is. you would welcome the opportunity to what you enjoyed and others enjoyed in argentina. kyle: i would. clearly there is a great parallel of the draw other than i think foreign direct investment in word is not really
happening on a large scale because the political situation is what it is. global investors need more economically friendly leadership. before you see true you willtions happen, see true privatizations happen. people needs what to understand. when you spot an opportunity you are talking in terms of what? kyle: when you look at the greek banks they trade at a third of book value. even when you look at the countries of europe going through painful restructurings. to 50,hings traded down 60%. many of them trade north of book value. i think you have the opportunity to make several turns on your
money in the next few years if things work as planned. now byhy make this case arguing against austerity? you are just helping the government. >> i'm not arguing against austerity. greece has hit targets they have been asked to hit by their creditors. some targets -- we don't want to get deep into them but what they have done to create the surplus was agreed to an economic contraction. a new government might be able to negotiate those points for spending if they are willing to adhere to a more strict framework and where they will spend the money. they are not just going to give it to the people in a christmas bonus, which generated less than two points of favorable polling. that is just burning money.
we need to structurally perform greece. in greece there are two things they do for sports, one is tax evasion, and one is selectively defaulting on loans. those things are going to change for a number of organizational regions. they're all kinds of structural change going on. erik: given the new democracy is polling so far ahead, what happens to great financial markets? happen, weat were to don't think it is going to happen anytime soon but sometime , in the next 12 months calledl see elections and the market will go up 20-30%. vonnie: in a single day -- erik: in a single day? kyle: in a week. immediatee will be an
revaluation. kyle: sure. we need to touch on china. we need to touch on china. your view on china, do you believe as strongly as you believe that the chinese banking structure is going to suffer a crisis? >> it is simple. you can't grow a thousand percent in 10 years and not have a loss cycle. called china's credit build up a dangerous and said it all of the instances they have almost every single time there has been a banking crisis. you are seeing warning signs from someone who is not good at calling negative events. they are going to have a loss cycle. it is happening now. the government needs to hold on
to get through the national party congress happening in the next month and then you start to see real financial reforms happen. erik: we are going to see that when they hold the national party conference you are certain? kyle: i'm not certain. my guess is they're laserlike focus on exchange rates in dealing with the trump administration is going to be relaxed once these consolidates his power. xi jinping for this is the end of his first term. the going to reconstitute standing committee. we think he has consolidated power. he's that -- he's becoming the most powerful chinese leaders since mao. morenk he is going to see
natural economic forces acting on their banking system. erik: those listening to the case you have been making since the middle of 2015 might ask themselves, why isn't the trade working yet? kyle: since the middle of 15 it worked beautifully. year the chinese currency has appreciated first the dollar. i think there have been many political reasons why. the chinese wanting to save face and not admit their system is as weak as it is. the chinese resurgence globally economically and militarily is rooted in their believe they are a strong economic power and they as farlonger a backwater as the developed world is concerned. it is that argument based on a foundation of say and. as they restructure their banks they will prove to be weaker than they are.
erik: how painful has that been for you? kyle: it has been terrible this year. of the time continuums of these macro events. it doesn't fit into a nice envelope that works every year. you just have to -- you have to stick with it as long as you can. i think in the next nine months you will see the rubber hits the road. erik: nine months. if you need to can you stick with it for longer than that? kyle: for sure. erik: your capital is patient enough. kyle: a lot of it is my capital. i would say hopefully we have a long time ahead. erik: are you as all in on china as you had been before? have you taken any of it off of the table? we attenuate our positions based on our views of politics.
i would say today we are as strong as we have ever been but it may be in the last few quarters we have not been. so, it depends. we move it around a little bit where wepolitics but are today is almost full strength. erik: another situation is puerto rico. are you positioned in puerto rico? kyle: no. erik: help me understand why you looked at puerto rico and did not find anything attractive where so many others did. now they are stuck. kyle: you and i have talked about the soft line. puerto rico is simple math. has $70 billion worth of debt. they have off-balance-sheet pension liabilities that are acute. they have $100 billion worth of debt.
the only 1.4 million of them have a job. 60, 70% of those people work for the government. made worse by hurricane maria. tragedy, a a disaster pretty trump administration and the united states should do everything we can to help them. should we help with the hurricane, absolutely. on the debt question, i just think you have to be crazy to think that when hundred billion dollars worth of debt is worth anything with 1.4 million workers. kyle: if you were holding general -- if you were holding debt, what would you be marking them down to? ?yle: didn't they trade down i just got back from greece. they traded lower. 20% lower in a day or so. an even lower since the
president talked about wiping out debt. kyle: when you look at the history of sovereign defaults, they are 10-20% on the dollar. that is what people are going to end up with. each situation is different. in the big picture their $70 billion worth of debt. we understand these things. you're not going have a sovereign sell all the its assets to pay external creditors. they're going to default. that is what they are doing. erik: doesn't make any sense that many piled in? kyle: a lot of special situation funds, many i know well that love working on things like this. they are the people that are those that saw -- hold sovereigns hostage. they drag people through the courts. in the end what is the value?
i saw a bloomberg piece that day that trump spoke that said he is calling into question the market? he's being pragmatic and saying they can't repay this debt. wipe itgoing to have to out. i think it is going to get wiped out. erik: what are your thoughts on bitcoin? kyle: you are hitting me with hard questions here. bitcoin, early on i dismissed bitcoin and i should not have. i didn't understand -- i don't understand the depth of the algorithms and technology. the fundamental foundation. i spent time trying to understand it in the last six months. i believe the digital asset class of cryptocurrency is a real asset last but in terms of how the world views digital currencies, when you look at
global cash positions, they are north of 110% of local gd the. almost $100 trillion worth of cash in the world. that has never happened before in world history. when i think about inflation you are seeing wages move and the price of all goods and services move. the thing that has been deflationary has been technology. i think that has played out. now i think you're going to start to see inflation and wages move. this gets into cryptocurrency. cash, 80 trillion, $100 trillion. what is $100 billion? what is it worth? anyn't think there is through institutional investor that has any money. some have a little bit.
i think it will be an asset class that will work overtime. i'm not sure how to evaluate yet. erik: do you own it? kyle: i don't. think there'sut i a digital cold rush that has gone on. people are going to lose a lot of money. you're going to see them go completely broke. a bunch of them are frauds. that is going to be problematic. mania at thea moment but in the long-term it is a viable asset class. erik: at what do i -- do you get in? kyle: i will let you know when i do. erik: there is something you wanted to say. in connection with the shooting in vegas and guns, the whole debate over gun registration in regulation. tommy what you want to say.
-- tell me what you want to say. erik: the tragedy in vegas is something we can all empathize with. it is one of -- the were shooting in u.s. history. for those people, as we get into this debate, there should not be a debate. collects guns, you think about -- erik: how many do you own? kyle: truthfully i don't know. dozens. my family and i are close to the military and veterans who have fought for us to fall for our freedoms. some have paid the ultimate price. we try to help integrate them into society. those people are friends. my son and i have this place we enjoyed. when i think about this debate should guns be registered, absolutely? sell toeople allowed to
one another? this is a no-brainer. that is a pragmatist. the nra fights that tooth and nail. the easy given the situation, we will eliminate bum stocks. that is what turns the semiautomatic gun into the automatic gun. i don't know anyone who has one. that is a throw away. the real debate, we should start registering guns. none of this would have stopped the shooting in vegas. mental health exams, registration pay this guy could have passed all these things. it wouldn't solve that situation but i think republicans need to give here and really start registering guns. ability ofnating the the general public to buy crazy weapons you can buy today.
erik: what do you say to those people who listen to the point you just made and say that is infringement upon my basic rights as a u.s. citizen? granted to me by the constitution? into now you're getting where do you draw the line? arms theight to bear right for you and i to buy a battleship and put in this lake back issued shoot a projectile 50 miles? or is it your right to have a shotgun and a dear arrival and do what you want on your property. maybe you should have machine gun unless you really go through all of the hoops with the government and mental health authorities. maybe you should have a gun that can take a plane down at the end of a runway. i'm not suggesting i know where to draw the line. i know personally where i would draw it. you have this right to bear
arms. i agree with that right but there are common sense things that need to be done with the gun lobby and gun registration and the way guns are sold back-and-forth that could help. it won't solve the whole problem but it could help our country. this is something that should be easy. when you buy and sell a car everyone has a title. everyone registers their cars sale with local authorities. why shouldn't you have to do that with a gun? erik: good to see you. that is kyle bass, a gun owner, talking about gun rights and gun registration. we talked about greece and china and bitcoin. back to you. mark: you covered the world. fantastic interview. absolutely compelling. a fantastic exclusive interview. vonnie: that is going to give us
a lot of fodder for debate for a long time. we're sticking with politics. donald trump offered cryptic remarks yesterday while posing for photos suggesting the u.s. might be on the brink of hostility in the world. >> this represents -- everything. the calm before the storm. vonnie: joining us to help us from washington dc, bloomberg's national security editor. let me start with you. there was a report the cia director may be in line to be secretary of state if tillerson goes. it is that -- is that more trial ballooning? >> this administration has shown on many occasions, reporting on
what is being said is just talk. and a lotlot of talk of circles. there are factions in this white house. until it reaches the president it is just talk. i'm sure there are a lot of names. it is true mike pompeo enjoys a special relationship with the president. removednald trump has the secretary of state that is all that it is. vonnie: before the awful tragic events of this week and the hurricane aftermath we were dealing with things like north korea and afghanistan. perhaps decertifying iran. he has to decide whether to recertify. where does the attention turn now given those comments? >> the president's comments could have applied to a bunch of crisis issues on his plate. i do think his foreign-policy
beus is probably going to toward iran. he has an october 15 deadline for congress will have to certify or decertify iran's compliance. we think he is made that decision and going to make an announcement before the deadline. can we just talk about the week that was. it was a week where the president as we know went to vegas, puerto rico. there was criticism that in times of a crisis the president had not quite fulfilled his office. now we have an opportunity to look back over the week. how do you think he did? he did as well as this president can do. the one word that keeps coming
up in discussions on the news networks is empathy and ability to connect on a personal level with victims. i do think he has trouble conveying that. this is who donald trump is. when he tries to go out of that comfort zone it comes off as not genuine. thatlance many would say donald trump could have done better. this is the best he can do. can we talk about those words, the calm before the storm. what did he mean? realistically what could the storm be? >> obviously we are not inside the president's mind. it could be anything from afghanistan to north korea plans. we really don't know. it could just be the whim of donald trump saying i've got a
bunch of top military advisers here, let me throw something out to the press. what we do know is the media was not expecting to hear from the president last night. they had basically called a lid, nothing else is coming tonight. in the press were rushed up there for an opportunity to see him. he made that comment deliberately but in terms of what part of the world he is talking about, we have no idea. u.s.s a week in which the lost three special forces troops in niger. beyond the hotspots there are u.s. forces in parts of the world that aren't necessarily at the top of the news. vonnie: north korea has been percolating in the background, congress would have 60 days to reimpose sanctions on iran.
do you see either of these things happening? reimpositionor a of sanctions? >> i have a hard time getting in the might of the north korean leader. .t has been remarkably quiet i would suspect congress will try to figure out a way to stay within the limits of the accord while affording donald trump some political cover. this cake and eat it strategy will probably be what happens. vonnie: we will speak to you later in the day. he is our chief content officer. up, the european coast. ♪
this is the european close on "bloomberg markets." ♪ mark: top stories we are covering from the bloomberg at around the world. in markets, european stocks always attend the week on a down note with the euro reversing higher. traders position themselves with uncertainty gripping western europe. we are covering two major european political stories today. prime minister theresa may insist she has cameras support to continue. more prominent tories call for her to step aside. in spain, the government is pushing the financial squeeze on catalonia. the speculations that catalonia might declare independence. we're live in barcelona. in the u.s., we hear