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bill goes kind of you to join us this afternoon bill gross I want to talk about the dollar and you and I remember the days where we were tried 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 manufacturing to be more competitive but a place into the hands of the Federal Reserve the Fed Tom wants 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 you know they want a 2% target they want it to be hit as quickly as possible and a weaker dollar plays right into their hands you know they're been estimations that a five to ten percent decline in the dollar and we've seen a seven percent decline since the top you know reduce our increases inflation by 0.1 or 0.2 percent 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 policymakers I want to emphasize bill if I went down to Duke University right now and had to do chart 101 for the students to do what I'd be talking about is a perfect dollar chart bring it up Tonya 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 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 their currency levels you know the Fed basically ranks it fourth or fifth down their list but I know that they're looking at the currencies I just mentioned and that the ECB with Draghi you know they specifically look at it in terms a strong or a weak euro you mentioned a strong euro in the last 10-15 minutes you know that's really not in the favor of the ECB and the stimulation that they want to see in terms of reaching their own inflationary target of 2% and so do we have a war going on you know I wouldn't call it a war but it's certainly a skirmish and the BOJ as well as is in the fight so to speak because they've kept their policy firm at the zero percent in terms of the 10 year interest rate and they don't seem to be moving off of it at all so yeah because 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 a recession would actually do this economy some good it would help clear out some of the Deadwood that's out there in which asset classes do see signs of Deadwood well you don't see it yet you know so you saw for a while Scarlett in the oil patch when oil was down near 40 bucks and some of the oil related companies in the US you know were highly levered and were beginning to to look a little bit more risky I I would say though that the US corporate market is more highly levered than it was you know during the the layman recession and that should higher interest rates you know come in to to view that you know a recession if only based upon you know corporate profitability and the potential for weak corporate defaults you know come into play so it's not there yet but certainly the the Fed wants to keep the economy at a 2% level my remark a week ago Scarlett was basically saying that there's a lot of you know Deadwood in the marketplace there's a lot of zombie corporations that you know we didn't in terms of Schumpeter and so on creative destruction there's been lots of creation in terms of credit but not much destruction of of inefficient credit got it you also urged though 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 a 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 beginning to take the correct approach let's look at it this way short-term Fed Funds at one and a quarter percent now incredibly in my view are approaching a new normal level according to federal zero percent real rates over long-term maybe something a little bit less what the Fed is more concerned about now is the steepness of the Yoker they want to promote higher bank profit margins with a steep curve and avoid recessionary or dangers of keeping the to ten years spread around 90 basis points or so they don't want it flat which is produce 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 ten-year Treasuries that they mentioned Ana statement by reducing the balance sheet over time and that means to me slightly higher ten-year rates perhaps to two and a half percent 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 donates here Africa Mercy Hospital mission in Africa you made headlines would be worldwide not so long ago about our president and 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 well let me speak to that comment I mean when I spoke about the potential the flavor of fascism I basically met you know the standard definition which is basically government basically controlling corporations and when Trump early on you know spoke about controlling corporations and having them do this or that in terms of Mexico or staying in Detroit yeah basically it was in a more intense type of movement towards telling corporation what to do I don't think that that's that that's gone to more extreme levels but the the unrest and Washington certainly is a situation that is unusual is it not and that you know bears watching in terms of risk spreads and in terms of stock prices right bill 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 I do I obviously that hasn't happened yet it hasn't happened in the stock market it seems to yeah you know 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 is a geopolitical risk I think that that risk spreads are so low the VIX is so low the tea why VIX for as a measure of bond volatility is so low that there's really not a geopolitical risk measured into that we're at historically low levels and what would the risk be you know we can't say can we North Korea China Syria the Middle East Russia but something might happen geopolitically that would stir this market well one way or the other and produce higher risk as opposed to lower risk which as I mentioned is a historically low levels Bill Gross thank you so much generous of you to be with us on this fed there he is with Janice Anderson
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