Interview: Wells Capital Management
>> the monthly anticipation of the jobs report comes out at 8:30 new york time. economists surveyed by bloomberg anticipate 200,000 jobs wered a last month. however, our next guest dishave a different forecast. tkpweury schlossberg with wells capital management joins us from san francisco. gary, good to have you on the show.
>> thank you. good to be here.
>> before we get to that jobs report, we have to start with today’s attacks in london. when you look at landscape, how long do you think it will be before we see what kind of economic fallout, if any, this will have given the fact that you had that initial reaction this morning where people were really concerned. that seemed to really abate by the end of the day.
>> hopefully it will be short lived. certainly we won’t know until out over the next several weeks or over the next couple of months as the data comes through. if this is similar to the attack in madrid, the hope is that the economic fallout will be limited.
>> what sign also you look for in the coming weeks? which pockets of the economy, for example?
>> we had the weekly consumer confidence polls of consumer sentiment, consumer confidence. weekly same store sales. it’s the weekly economic data in the u.s. that should provide clues to the fallout. the hope is that that fallout will be fairly limited for an economy that seems to be on the up swing now. we had a limited soft patch in the second quarter. things seem to improve now as we head into the second half of the year. hopefully we can maintain that.
>> what are signs of improvement that are most important right now?
>> beginning with today’s same store sales report, of course, the improved weather certainly helped. the backdrop i think is supportive as well. we had the strong egs gain in chain store sales from last year. auto sales are holding up quite well. aggressive incentives attributed to that a.purchasing managers survey on manufacturing and non- manufacturing came in a bit better than expected. it looks like we are regaining some momentum despite a rise in oil prices.
>> let’s tie this into the jobs report that comes out tomorrow. your forecast is not as optimistic as the consensus as the retail sales. what are you forecasting for tomorrow?
>> bg hraor for an increase of 185,000 in non-farm payrolls. the difference with consensus is more degree certainly than tone. it’s a clear cut improvement over what we saw in may, a 78,000 increase according to the preliminary data. early returns are encouraging. perhaps the most hopeful sign is the employment component to that non-manufacturing purchasing survey. it is consistent with a good- sized increase. jobless claims numbers were fairly steady during early june. that may limit the rise. more generally i think in june. even now as things are improving there is a certain amount of caution among business amid that rise in oil prices. i would temper the forecast but still a good number for tomorrow i hope.
>> why do you think you’re below the consensus? do you think people are too optimistic?
>> we are coming off a weak report in may. it’s really more a question of degree than anything else. 200,000 increase would probably put us closer to an underlying trend that is more consistent with growth of 3.5%. i think we’re moving in that direction. i don’t know we’ll be there with tomorrow’s number. i think that the move back up toward a more acceptable employment number on average, the underlying trend, will be a little more extended. but, again, i’d say that i’m still looking for a good spin to that employment number tomorrow despite all the hurdles with a strong dollar, fed tightening and rising oil prices.
>> do you think consumers -- let’s tie this to the jobs report and your expectations -- do you think consumer also keep spending given where oil levels are and given the job creation we have?
>> i think the encouraging part of it is that job creation i think is positioned to support the kind of growth and consumer spending we have seen as of late. more importantly unlike the previous oil price spikes back in the 1970’s and early 1980’s, the backdrop is more conducive to spending. specifically interest rates are low. they have been declining until recently. that provides support to housing. consumer spending indirectly through increase in household wealth. refi activity is up. subdued inflation contributing to the low level of interest rates is providing support to purchasing power as well. fundamentals driving consumer spending i think are quite good and should remain so over the next couple of months. a lot of the strength centered on consumer spending and housing. a slower rotation than expected toward business investment i think.
>> so very briefly what do you see on the wage increase front?
>> we are looking for a .2% rise in average hourly earnings tomorrow which translates to a fairly restrained increase. i believe it’s 2.5% or so year over year. we’re not looking for wage inflation really getting out of control at this point.
>> gary, thank you for joining us.
>> thank you. good to be here.
>> gary schlossberg of wells capital management. well, the london bombings did sipped the u.s. treasury market surging earlier today. we take a closer look at market reaction. we’ll have our “chart of the day.” we will be joined by bloomberg editor-at-large tom keene for a closer look.
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Listen Market briefing --- Ellen (slow)
Media entertainment --- Greg (slow)
Finance industry --- Margaret (slow)
>> welcome back to “ after the bell.” media entertainment moguls are meeting in sun valley, idaho for their annual gathering. that overshadowed by events today in london. greg miles from sun valley with some perspective from there. greg?
>> this business meeting is supposed to include a little relaxation, white water rafting and bicycling. more than 300 moguls and c.e.o.’s and their families. the bombings in london caused many to dramatically change their schedules and even agendas at least for today. for example, dick parsons, c.e.o. of time warner, number one entertainment company in the world, spent one hour on the phone touching base to make sure his employees were safe in london. touching base with his executives worldwide. also talking to his top security executive abroad. he called him back to new york city because of the bombings. at the same time you have bob iger, incoming c.e.o. of walt disney company, now the president. he told me he was on the phone at 5:30 a.m. this morning talking with his executives all the way from china to london. he said he received about 50 emails. he made 20 personal phone calls to check to see if everything was ok. you have the host of this conference here in sun valley at last minute adding a new panel late this morning for the business executives and c.e.o.’s. the final topic was terrorism. one of the lead members on the panel was a guest here at sun valley at the conference. he is george tenet, former director of the c.i.a. talking about the problems imposed by the continuing spread of terrorism. also john malone, chairman of liberty media, was at that panel. let’s listen to what john malone had to say about that.
>> everybody knows we’re vulnerable from these kind of attacks. i think if anyone suffers this they’re probably as well policed because of their prior history with the i.r.a. as anyone in the world.
>> at the same time, a new c.e.o. i talked to said they planed to increase their level of security as a result of the attacks. that’s because they say their security levels already are very high. in fact, the chairman of gameco said c.e.o.’s and investors have to learn to live with continuing terrorist attacks. let’s listen to what he had to say about that. >> the market has an ability to support surprises because of the underlying resilience of earnings and the outlook for earnings and so that’s what you focus on short term. at some point in time they may not. right now you have a marginal safety in the market . >> the prime minister of turkey also a guest at the conference. he held a long-scheduled press conference this morning. he came in late because he said he had been trying to get to london to find out what was going on thrfplt he told me he was not planing to increase the level of security across turkey. he says since the istanbul attacks about 18 months ago, security was already very high. back to you.
>> ok. thanks so much. greg will keep us apprised of developments out of sun valley. in terms of market reaction today, certainly insurance stocks were one pocket of weakness. attacks in london, however, may not cost very much for the industry. most of the damage to public subways that may be ensured by the u.k. government. all this happening as the insurance industry in the u.s. is embattled with treasury secretary john snow over government subsidized terrorism insurance. last week recall the treasury issued a report saying terrorism risk insurance acts should not be renewed in december. let’s get perspective on this and how it is playing out. margaret poper covering the story. in terms of laying the groundwork, give us a sense how the terrorism insurance works in the u.k. so we understand the context here.
>> there are two forms of insurance at work here. one is london transport has set up its own captive insurance subsidiary which is what larger companies do to make sure they’re covered as a cheaper way of getting coverage. there is pulre which is in reaction to terrorism by the i.r in 1993. that covers buildings destroyed by terrorism in london.
>> in terms of how it plays out in the u.s., what is the speculation in terms of whether or not this helped the effort here, the case for renewing the subsidy in the u.s.?
>> i think for u.s. insurers in some ways helps make their case because it keeps fresh that terrorism is very real and has to be dealt with. bob hartwig, the economist for the insurance lobby, said to me that the only way to have an efficient dealing with claims after an act of terrorism is to have an act like tria in place.
>> this could be a boom to the insurance industry here.
>> it bolsters the case for passing the law which would be good for them t.would limit their liability and give them backup from the government. in addition, it probably raises premiums because people will look at this and say the threat of terrorism is higher or perceived to be higher so they’ll be able to charge more. it hasn’t cost them anything in paying out claims.
>> which could be historical precedence we have seen in the past which is stocks fall and people are concerned about the cost but you see the premiums go up in terms of what the companies can charge.
>> that’s right. i think you saw the stocks drop suddenly and recover most of the drop by the afternoon as the market sort of figured out well, the damage in terms of actual cost to the insurance companies is not going to be that great.
>> thank you for joining us.
>> good to be here.
>> margaret poper covering the finance industry at bloomberg. a quick break. when we come back, certainly a lot of questions for investors today. one is will the terrorist attacks in london have a major impact on economic growth. also investors looking ahead on the economic calendar. tomorrow we have the june jobs report. what is anticipated? coming up, we’ll talk to gary schlossberg, chief economist with wells capital management. he joins us straight ahead.
