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Bill Gro kind of you to join us uh this afternoon Bill gross I want to talk about the dollar and you and I remember the days where we would Trot out we need a strong dollar policy here's the immovable fact since the Trump Administration has gotten into trouble we've enjoyed a weak dollar policy what does that weak dollar signal well I think a weak dollar policy plays into the hands not only of the administration in terms of allowing you know manufacturing to be more competitive but it plays into the hands of the Federal Reserve the FED Tom wants uh 2% inflation they mentioned that in their statement today you know very significantly they basically said the committee is monitoring inflation developments closely and so um you know uh they want a 2% Target U they want it to be hit as quickly as possible and a weaker dollar plays right into their hands you know there have been estimations that a 5 to 10% decline in the dollar and we've seen a 7% decline since the top you know redu or increases inflation by 0.1 or 2% a year for the next several years and so you know it's very much of a favorable development for both sides of fed and policy makers I want to emphasize Bill if I went down to Duke University right now and had to do chart 101 for the students at Duke what I'd be talking about is a perfect dollar chart bring it up Tanya if you would this is the gorgeous Bloomberg dollar Index this is actually very good mathematics in terms of a blended dollar rate in all those little circles for those of you on radio it is the mother of all elegant charts and now we crater down even more into weak uh dollar what does that weak dollar mean for other central banks is this a way for the FED to compete with rate increases or at least a discourse of rate increases in other Banks yeah I think it is it's probably a stretch time to say that there's a currency war going on but but certainly central banks are you know well attuned to uh their currency levels you know the FED basically ranks at fourth or fifth down their list but I know that they're looking at the currencies I just mentioned and the ECB with Drogi um you know they specifically look at it in in terms of a strong or a weak Euro you mentioned a strong Euro in the last uh 10 15 minutes you know that's really not in the favor of of the ECB and the stimulation that they uh want to see in terms of reaching their own inflationary Target of 2% and so uh do we have a war going on um you know I wouldn't call it a war but it's certainly a a skirmish and the boj as well is is uh in the fight so to speak because they've kept their policy firm at the 0% in terms of the 10-year interest rate and they don't seem to be moving uh off of it at all so yeah central banks are very much concerned with reaching their own inflationary targets by the basis of a lower currency yeah the FED is of course looking at currency levels it's also looking at making sure it's prepared in the next downturn you told me last week Bill gross that a growth slowdown or recession would actually do this economy some good it would help clear out some of the Dead wood that's out there in which asset classes do you see signs of dead wood well you don't see it yet um you know you saw it for Wild Scarlet in the oil patch when oil was down near 40 bucks and some of the uh the oil related uh companies in the US um you know were highly levered and uh we beginning to to look a a little bit more risky I I would say though uh that the US uh corporate Market is more highly levered than it was you know uh during the the Layman recession and that should higher interest rates you know come into to view um that uh you know a recession uh if only based upon you know corporate profitability and and the potential for weak corporate defaults you know come into play so it it it's not there yet but certainly the the FED uh wants to keep the economy at a 2% level my uh remark a week ago Scarlet was basically saying that there's a lot of you know dead wood in the marketplace there's a lot of zombie corporations that you know in in terms of uh shumer and so on Creative destruction uh there's been lots of Creation in terms of credit but not much destruction of uh of uh inefficient credit got it you also urged uh Bill gross that the FED proceed with caution saying that the yield curve doesn't need to flatten to the extent that it has historically for growth to slow down so is there anything the FED should do differently than what it's doing now or is it taking the correct approach well I think there are uh beginning to take the correct approach let's look at it this way short-term fed funds at one and a qu% now incredibly in my view are approaching a new normal level according to Fed research which posits 0% re rates over long term Maybe something a little bit less what the FED is more concerned about now is the steepness of the yield curve they want to promote higher Bank profit margins with a steep curve and avoid recessionary dangers of keeping the two 10 years spread around uh 90 basis points or so they don't want it flat uh which has produced recessions in the past and so I think the FED therefore will stop raising short-term interest rates maybe 25 basis points maybe not and start disinvesting in 10year treasuries that they mentioned in the statement by reducing the balance sheet over time and that means to me slightly higher 10e rates perhaps to 2 and half% over the balance of the year but not much Bill you've always been a student of our politics with your success over the years you've done things like donate to your Africa Mercy Hospital Mission in Africa you made headlines with me worldwide not so long ago about our president in philosophies of fascism it was really remarkable what you said we need an update today with what you're seeing out of Washington in political economics with what you're seeing out of the discourse of the president do you have a concern about the path forward for Washington we do this with a press briefing waiting all the rumors about the attorney general I need to hear right now an update from Bill gross on the certitude that this president has well let me speak to that comment I mean when I spoke about the potential um flavor of fascism I basically met you know the standard definition which is basically government um basically controlling corporations and when Trump early on you know spoke about uh controlling corporations and having them do this or that in terms of Mexico or uh staying in Detroit you know basically it was an more intense uh type of movement towards uh telling corporations what to do I I don't think that that's U that that's gone to more extreme levels but uh the the unrest in Washington certainly is a situation that is unusual is it not and that uh you know Bears watching in terms of risk spreads and in terms of uh stock prices right bill then then finally here with Janice Henderson's clients and with our listeners and viewers worldwide do you believe that the events of Washington the uncertainties of Washington can fold over into your bond market um I do I obviously that hasn't happened yet it hasn't happened in the stock market it seems to you know um you know just fly over the heads of investors that are in one ear and out the other the biggest risk I see Tom and I don't know how to measure it I'm sure you don't either uh is a geopolitical risk I think that that uh risk spreads are so low the vix is so low uh the Ty vix for uh as a measure of bond volatility is so low uh that there's really not a geopolitical risk measured into that where it historically levels and what would the risk be um you know we can't say can we uh North Korea China Syria the Middle East Russia uh but something might happen geopolitically that would uh stir this Market one way or the other and produce higher risk as opposed to lower risk which as I mentioned is at historically low levels Bill gross thank you so much generous of you to be with us on this fed day he is with Janice Anderson
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