[closing bell] alix: s&p at its highest level in a month. is what'dhe question you miss? an exclusive sitdown with bill gross. erik schatzker joins them add a panel in los angeles later this month. alix: and why china once the fed to raise rates in july, not june. 10%.o stock has fallen we have the charts that you cannot miss. with our market minute. the s&p 500 at a one-month high. the risk on like rally heard around the world. emerging markets.

the most in six weeks. day closed above the 200 moving average. brazil was killing it. european stocks also rallied. a lot of follow-through that we saw which can be constructive. outlier, downe the most since january. all of these folks bidding for you and your stock is down. it hurts. scarlet: it does hurt. but it is a tracker stock for alibaba. the weakness. let's get to those stocks you mentioned. the rally followed gains overseas. that is the biggest back to back advance since february. it also is above the trendline with 19 industry groups up over the today.

a concentrated broad-based advance. 13.8, 13.9. the average is 18. clearly we are far below the average. amazing. in terms of the bond market a big story had to do with greece. 10 year yield falling below 7% , last july thes yield was 19%. here in the u.s. the story is the yield curve continues to flatten. it has flattened around the lows of the year. the fed will hike in the short term. long-term investors are worried about growth. the two year yield has rallied 20%.

just shows the difference in market expectations. scarlet: such a huge move. in terms of what it means for 3%,currency market, gaining that has prompted china to take action. you can see beijing weekend to the lowest march of 2011. according to people for money with the situation they plan to press counterparts next month on the u.s. rate hike in june. they would prefer a rate hike in july. alix: a commodities the story was about oil. a monster rally as well. stockpiles dropped a big but also it was weird to me because you have these french refiners who are still on strike. let's take a deep dive into the bloomberg. you can find all the following charts at the bottom of the screen. result'm looking at the

of the canadian wildfires in the u.s.. this is the balkan wti spread. oil in the midwest versus the generic u.s.. a few months ago around january and february that spread was three dollars. you have so much oil lost in cushing. now that is $.30. that goes to show the tightening in the market due to the canadian wildfire. watching the spread as an indication of how tight the market is. alix: it's pretty consistent. meantime i am taking a look at tiffany's read a rough go. foreign-exchange changes left spending from overseas tourists. one bright spot is lower product costs.

it has been down over the last couple of months. what will see is that has translated into higher profitability. gross margins are in wife. it was about 61%. atres closing up four cents 6389. you can see those charts and more on twitter. all ofoining us now, her, stocks had a nice follow-through from yesterday and that is a bullet sign in three months. investors saying the economy is maybe not so bad. >> pretty solid move. perhaps that is why they have a more sustainable. the question since we started talking about higher rates, don't let the fired -- the fed go at the wrong time. this time last year we were in a similar predicament. people were saying here is a

solid window. then the fed did not go. markets gottfried doubt and they didn't go until december. if we have learned one thing is that markets are ok with the fed going if the data cooperates their own views. you've had some solid stuff with home sales. solid numbers with pmi above 50. that's important. that gives you a picture about the average american consumer. if the data is there and it is solid maybe we are ready to do this thing. quick notes. this is the hardware division of the company. we have second-quarter adjusted earnings beating the consensus of $.38. revenue was down 10%. double-digit declines. in the printing side following year over year. when it comes to the outlook hp

is looking for profit of 37 to $.40 a share. , theps on the high end average analyst estimate. for the full year they're looking for a bit of 159 to 165. at least a dollar 59 on average. alix: a different story from yesterday. about stocksng versus actual economic data. you would look for the homebuilders. a huge jeff yesterday. homebuilders had a huge rally since 2012. if the data continues to support the what happens to the homebuilders? scarlet: homebuilders yield -- >> it is getting a large bump here but as you point out this is been a positive part of the economy where the past three years there has been strength in homebuilding, in-home sales.

if you have mortgage applications you have the numbers on the home sales doing good. pretty substantial part of the market. just solid group of stocks people look through with the economy. these are the things people are looking at when you have these economic focus groups doing well. if you want a positive. scarlet: as we look for the federal reserve to raise rates, you focused on the differentiation by investors between mid-cap and big banks. >> this is interesting because you have had a strong outperformance. if you just look so far this , s&p the orange line mid-cap, it has taken off.

part of that, two things are going on. , thatt interest story represents a big part of their business. previously when we thought we were going to have a dovish fed, that is not going to be for those companies. upt language pushes stocks and then at the same time, if you take the worst returners it is the big banks. , allan, morgan stanley these companies having issues in terms of capital markets business. that is not as big of a factor. alix: part of the trend has been the rotation from growth to value stocks. this is the year we see that take full effect. and banks trading below their book value. quite sure. valuations play a big part.

when you look at the big gains we have, you can see a close .orrelation between valuations .hat is a factor taking a front if you look at a group of stocks and you have these metrics valuation plays a big part of it. are still high for the start of the year. scarlet: you talk to investors, short-term traders, people focused on near-term. for -- whateaking are they looking for? they bracing for volatility this summer? >> you would think so by their actions. funds haveatility covered a lot of that. people do want to get in that. an interesting question is what kind of investors buy into

those? are those people that want to buy a low volatility etf or are they doing it as a hedge? it is hard to know. we have also seen steep containment which would contain volatility farther out. will get a better gauge on what is going on. then the presidential election. right now there are questions about that but june is definitely big. it seems the fed is set on going but the market now is still not 50%. the market is taking advantage of the past couple of years. the fed is not going to go. i could -- it could be a very rude awakening. scarlet: looking at the work function, the probability of a rate increase is 34% for july.

it has crept up to 55%. alix: that dovetails. this is the next curve -- six vix curve. >> and the big part of it, the fact that there is a sharp move up in the futures talking to the fed funds futures, it is only 34, 30 8% of what it was the other day. two thirds of the market is going to be taken aback if the fed does. we are seeing positive moves this week. you have to think after so long, of the fed crying wolf for lack of a better term, except that one last year, you have to think that is going to surprise quite a bit of people. they are still banging on the

fact that stocks are below highs. the fed is not going to go. >> still too skeptical there. thank you. torlet: china turns from foe friend in the quest to raise interest rates. and where the fed will move on rates. a quick check on hb q. they are either down 13% after reporting a loss that was bigger than what was estimated. ♪

>> i'm mark crumpton. let's get to first word news. the agency will add 768 new screeners by mid-june to deal with the long airport security lines. several factors had contributed to added wait times including more passengers and a shortage of applicants for the applicator did -- expedited screening program. hillary clinton is blamed for poorly managing e-mail and other computer information. it cites long-standing systemic weaknesses. the started before mrs. clinton's tenure but her failures were singled out as more serious. the romanian hacker who accessed the computer accounts of the bush family and others has pleaded guilty to identity theft

in federal court. he admitted to unauthorized access of a protected computer. he is best known for hacks that reveal bush family photos and tointings connected george h w bush. the hacking led to the revelations about mrs. clinton prim private e-mail account. at a news conference with prime minister shinzo abe the president discussed a scheduled visit friday to hiroshima which was leveled by a u.s. atomic bomb during world war ii. >> our visit will honor all of those who were lost in world war ii and reaffirm our shared vision of a world without nuclear weapons and highlight the extraordinary alliance that we have been able to forge over many decades.

>> he will become the first sitting u.s. president to visit her wrote him a. he has no plans to visit pearl harbor which was destroyed by a japanese air assault during the war. i'm mark crumpton. back to you. alix: china trying to avoid a fed driven market tantrum. officials are trying to deduce when they will raise rates. the best case scenario would be for july. the chief global economist joins us now. what kind of consideration should the fed give china when it comes to the timing of the rate increase? >> to be brutally honest, not very much at all. the fed job is to set monetary policy. that is what they will do.

china is in the boat of all the others trying to figure out when the fed is going to move. globalfed has alluded to developments however they couched in previous statements. clearly they are mindful of the ramifications of what they do. >> that is the way to think of the international implications. is there some feedback loop that would come back into the night it states? that is a pretty indirect mechanism. for a central bank to be able to divide that with any confidence and make that the basis of moving the policy decisions, that is a big move. alix: they have to be concerned with not repeating what happened at the beginning of the year. take a look. this is the dollar versus the yuan. you had a lot of money coming in. you had a big evaluation.

a similar story happened in august. we saw china start to take some steps today to lower their ban. what steps can china take to smooth whatever transition comes their way? isthe irony is that china moving towards a more flexible mechanism. the want to free up. the volatility we have seen, though people make a big deal about it is not that big. have probably move that a 5%, which in the grand scheme of things is not a huge move. chinese have to stick to their knitting. sure the domestic markets are developing in such a way they can absorb the consequences of freeing up the rmb. good communication would help but i don't think that china is

going to get through this process without time to time, and stirring up the international markets. >> that was the topic of conversation with the u.s. officials saying they don't see a problem while japanese officials have made clear too much volatility would be damaging. move -- doe you'll you feel like that will be our threshold? finance minister broke one of the golden rules but don't put numbers on these. the position has been for many years that they do not target a u.n. ic level of the they would be concerned that volatile and abrupt movement that were out of line were fundamental.

they are putting some numbers on that. there has been a bit of a gap open up around the exchange rate. it was: your sense, there a big deal when it first came out, do investors in japan believe in it? >> you have to divide it into two elements. deflation,bid to end and that is going reasonably well. there is still some work to do. the second aspect is structural reform. .easures that can be taken the second aspect of that is structural reform, measures that can be taken to arrest the steady decline in japan potential growth rate.

i think on the monetary side, things are going relatively well. alix: so maybe they trusted. thank you very much. scarlet: coming up costco will report earnings later this evening. we dig into numbers and look at why some are slow to follow the shift to e-commerce. ♪

scarlet: breaking news concerning there are no's. the company being sued in a class-action suit claiming fraud. it is accusing the company of false advertising and negligence in the lawsuit. the company had devoid two years of testing and now they are being sued in a class-action

fraud suit. scarlet: let's talk about kospi pursuing a different strategy than other retailers. the industry focus is on putting the brakes on store growth. sales depend on adding physical stores. let's dig into the numbers. costco stock has fallen 10% this year. when you compare it to the broader market, they outperformed in the fourth quarter before running out of steam and meeting up with the s&p 500. the reasons are stronger u.s. dollar and falling gasoline and food prices. growth is the white line there. when you back out there is a clear performance there. impact in plans to raise minimum wage for the first time in nine years. they plan to add 20 new stores a year. you can see the company's

capital spending at its highest in more than two decades. the concern is costco could be vulnerable and fall behind in e-commerce efforts. where would they expand? costco is big on the west coast and has room to expand in other regions compared to its rival. bj's dominant in the northeast. costco is about its members. they aim to keep renewal rate above 80%. two thirds of all sales. they added 18,000 executive cardholders per week. cosco will be reporting results later on this evening. alix: we are in a much -- we have much for coming up on what'd you miss?. we have an exclusive interview with bill gross. ong firesider li chat brought you live.

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get america's fastest internet. only from xfinity. news. house speaker paul ryan has said he is not comfortable with his decision on the endorsement of bottled -- of donald trump. those people said ryan may endorsed trump for president this week. this figure was said to be concerned about the split that was developing in the republican party. more troubles for the embattled department of veterans affairs. the agency mistakenly declared --usands of that's that that's dead. -- of vets dead.

obama and first lady -- president obama and the first lady have reportedly selected their home for their post-white house -- built in 1928. according to a new united -- just overt 200,000 people trapped by war in syria. be report says more needs to done to help 13 million people in need. global news 24 hours per day powered by our 2400 journalists in more than 150 news bureaus around the world back to you. alix: it was risk on, not just in equities but across the asset classes. adding 145 points. of 1%. up by 7/10

the nasdaq at a one-month high. we saw energy materials leading the way. alix: it was the rally heard around the world. we had solace over and emerging-market, the most in six weeks. aboverket index closing its 200 day moving average. that rallies -- that rally spilled over to european stocks. that upside follow-through when you have a monster rally and can build on the next day, it definitely makes it a short-term feel good for the rally they are seeing. that did not do so well is yahoo!. since january 7. people are eating for you and your stock is down.

scarlet: it has become a tracking stock for alibaba, and people are wondering how it positions itself. alix: alibaba was put out earlier. with thelet's stay u.s. stocks seen. i'm looking at cyclical versus defenses. cyclicals still track to be the defensive company. 18%. gained about the blue line, defensive, has gained about 9%. if you look at the past year, a very different story, the defensive has outperformed. a according to richard bernstein, the ceo and cio there, he says all it takes for cyclicals to outperform is to not repeat what we saw in 2015, which was a stronger dollar and more oil prices. alix: fed raises rates, the dollar goes higher, and boom. i'm looking at what is going on

in venezuela. they are selling a serious amount of gold. they cut reserves by 16% in the first quarter. that was the biggest gold sale in eight years. this is a quarter by quarter look. you can see the biggest four out of the last five gold sellers actually came from venezuela. to repay we are going our debts, it is no problem. this is what they are doing, we gold.o sell we talked earlier with the director of the eurasia was talking about whether production would falter. yes it will, but probably not to the zero level, which some people said could be the

scenario in a worse case situation. it raises the question of how much social unrest this generates, because venezuela has cut off to save on cash. >> it is that blood testing startup company over technology. --t company is being sued of sued over claims of false advertising, unfair business practices, and -- by resident in arizona who is doing a class action suit. >> meantime we are taking you to beverly hills california, where erik schatzker has a sit down with bill gross. bill: if i told you the truth i erik: --l you again, tell you again.

your it is made, 2016, global bond fund is up 2%. he is outperforming pimco total total lineperforming return, looks like you still got it. bill: thank you. it was a short period of time, to prove you've got it i think as you all know, it takes more than a year or two. satisfied with the results, it doesn't sound like a lot of money. we will talk about in the next few minutes, there are reasons why. i'm proud of the returns and hope to do better. >> are you having fun?

bill: it is always fun in a tension filled way. i'm sure professional basketball players and nba playoffs have fun -- players in nba playoffs have fun. me because it is me toitive and it allows try to outperform the competition and hopefully succeed. that is important to me. >> you described your competitiveness as borderline unhealthy. what point will you have proven to yourself that you have still got it? how long does it take? let's remind everybody, you are 72. 71, still? >>.

-- whoops. you are clearly not prepared to hang up the high tops i just want to know, what is the period of time in which you need to prove it to yourself? i think it almost takes forever, which is not a good explanation. it takes a long time, as we were discussing backstage. in the business for 40 years or so, but spent a timed in time -- period of -- in which financial is asians of the economy -- financial eyes ization, ial would like the opportunity to adapt depth to a different environment.

that is a real test of the investor to change directions to take another road, the road not taken at the right time. >> let's talk about the point you just made. a lot had happened since 2008. had to adapt to changes in market structure, changes in the regulatory environment but it affects you indirectly. >> at the end significant levering has changed of ireland's -- changed the environment substantially. it is elevated asset prices.

regulatorycted a tome to markets and diminished potential for liquidity going forward. lots of things have changed. that's one of the things i hope to adapt to going forward. erik: this is something you are dealing with an something everyone else's dealing with right now. the challenges you confront as an investor in a world of limited returns, certainly for the assets you are buying and minimal nonexistent carrie, let's talk about that. building i could convince all of

hope over a drink at the bar over here, that an -24 basis points does not provide a sufficient return. as a matter of fact you wind up paying them. that would be a twist or turn of the tables relevant to what they had in the past. a similar type of case of u.s. interest rates. is an artificial interest rate. assume that the globalization of financial work, that bond markets themselves are , yield depressed,

s, whether it be high yield or equities with p/e ratios. asrent prices are elevated well and future returns are not lower than historically expected. yet we know from our days in , that thechool interest rate discounts, future of all assets, what we don't know is what the proper risk premium should be. a 450 basis point spread on a high yield is debatable. i would simply suggest that if

in fact they are tied to the in developed countries, which we know are ,rtificially in the negative then it is a fairly good assumption that other asset prices are artificial as well. we must be careful. , care clearly something else you need to take. how else do you approach the challenge of investing in an environment like that? how do you think about it that is different from what you are accustomed to doing in the past 40 years? >> the investment manager charges a fee. and her clients, whether they be a pension fun or insurance company, they have expectations and some cases legal requirements to earn a certain , and in manyn

cases that seems to be very difficult. has an 8%n fun estimated return on assets. taxes must go up or payouts must and diminish. something happens when investors can't return what they hope or expect. if the pass was an expectation of 10% return, now it is much lower of things changing. my first obligation is to alert and to say ifact

constrain for historical returns, but for an environment of high risk that is something i probably shouldn't be doing. i will measure risk and return and provide the highest return to the lowest risk possible. they have changes to make as well. youhe problem, perhaps for and for others is they don't want to accept the reality that that's 7% to 8% is going to be difficult to achieve, so they are reaching for returns. is helping asset price it's at unrealistic levels. how much longer can that go on for? that is the eternal question, that everybody is listening or wrestling with?

>> prices can stay elevated along with the private market and the efficacy of central-bank toicy, allowing markets maintain at least a status quo. it is a wizard of oz type of thing. we are traveling down the yellow brick road and have gone in front of the wizards stage now and hope that the wizard, whether their last name be , that they have some authentic magic behind the curtain. increasingly it is obvious something else is needed besides monetary policy. aware thathould be

if andcan be supported when their magic fails to produce economic growth or the magic 2% inflation. they began to move markets on the other way. erik: everyone knows your monthly musings are a must read. the main outlook, i'm making the assumption that lots of you have read it, for those of you that haven't, the main investment outlook, bill talks about the revolution underway in automation and robotics citation roboticization, and how machine needs to respond

to the dawning era. he goes as far as to argue for the universal basic income. lie? -- why? bill: i didn't argue for it, i just suggests -- just suggested it was coming. with tax policies, they provide assistance to those that have been displaced. erik: wise it an inevitability? society pays a price for civilization. taxis are the price we pay for a , it is theociety price we pay in order to keep things in order and calm. suggesting and

corruption in the united states, but we see it frequently and other parts of the world. boundedy needs to be together to keep it civilized. at some point the displaced workers, we have 150 million andicans that are working 100 million that aren't working. than 15.are less the political argument can be argued either way. but the political argument as to why people aren't working, some should be working.

others that can't work and can't find the job. care ofiety has to take them. erik: because they'll turned is pitchforks. bill: feel turn is unrest. and in some cases great unrest. erik: is that the reason a lifelong bond investor, somebody as a matter of principle should be terrified, the thought of inflation, is growing for customs to or getting used to this idea that there will be ross stimulus in the form of helicopter money? bill: helicopter money is sort for a combined physical and monetary authority.

it doesn't mean that -- whether they could. i would be looking that up myself. what it does mean is that a central-bank buys treasury bonds and central-bank buys jgb's uses the money from a fiscal authority standpoint to stimulate the economy. and it could be through orrastructure spending through tax cuts. it is a combination of monetary and fiscal policy. some of you may not know this, but the $4 trillion that the fed an interest one

it. the treasury has issued $4 trillion worth of debt for free. that is a rather startling observation. it happens to some extent in the u.k.. it is a little muffled because of the different structure. but fiscal and monetary authority is combining by a necessity in order to provide stimulus to economies. a fiscal standpoint we have differences, republicans and democrats have a different idea to -- different idea on how to spend money. hopefully helicopter money gives that opportunity. erik: let's go back to this on how you deal with

that as an investor. if the world we live in now is a world of asset prices, perhaps somewhat, perhaps largely distorted by a central-bank policy, what would a world like that look like? building a world with distorted -- world ina world -- a which distorted monetary policy are working hand and glove. bill: that is why the fed fights for independence and other central banks. if they are combined in one, it allows the fiscal authorities, the government to asically spend as much money it wants, because it comes for free. we know conceptually it is dangerous, so there is a danger combining the two authorities.

that is independent of the government itself. i don't think as investors we should like that. it is almost happening by necessity. erik: let's we found -- we've politics into the fabric for a moment. how do democrats and republicans get to the same point you are at? which is acknowledging that something like this is going to be necessary, let alone palatable. bill: we are in the aftermath of a great recession. we all read about the aftermath of the great depression. we know it takes time. a long period of time for attitudes to change, and it 2-ds time for economies

lever to a point where they can grow again. erik: can you imagine having this conversation with donald trump? no, or with bernie sanders. even though bernie sanders would lots of spending, i don't think he recognizes the delicate combination of finance and economic growth. all would rather be opt to's when it comes to a obtuseal solution -- be when it comes to potential solution. it's just one opinion.

erik: to give you more credit than perhaps you are giving yourself, so far the new normal has more or less played out as you predict it. and i will use your own words to ask this question, can you save this -- can we save this pumpkin? bill: i think even bernie would agree capitalism is the best system going. it has its flaws, but like democracy it is -- we wanted to be with us. pumpkin,lism is the -- can weonly save it not only save it but give it a good sheen?

i think it is possible, but we need an acknowledgment like your ed, i meanuestion ask monetary policy has been easing and easing and easing and fiscal -- hasn'tn't been done its job. it has been contracting to the a balanced budget, certainly in places like germany. type ofa keynesian idea. think in extremists, when you are trying to save the pumpkin like roosevelt did, some would argue it is the war that really field us out. if the private sector isn't willing to invest money, that

appears to be the case. save in the pumpkin requires a change of attitude -- saving the pumpkin requires a change of attitude. the shape of our roads and bridges and airports and so on. we need both authorities to be pulling in the same direction. we do need to re-normalize interest rates. capitalism cannot survive with the 0% interest rates. requires risks and risk-taking. when sufficient carry isn't available, meaning sufficient -- ld scott a bank you can continue watching that conversation on bloomberg.com.

thank you for watching. we will see you back here tomorrow morning. have a wonderful evening. ♪ hii'm here to tell homeowners that are sixty-two and older about a great way to live a better retirement... it's called a reverse mortgage. call right now to receive your free dvd and booklet with no obligation. it answers questions like... how a reverse mortgage works, how much you qualify for, the ways to receive your money... and more. plus, when you call now, you'll get this magnifier with led light absolutely free! when you call the experts at one reverse mortgage today, you'll learn the benefits of a government-insured reverse mortgage. it will eliminate your monthly mortgage payments and give you tax-free cash from the equity in your home and here's the best part... you still own your home. take control of your retirement today!

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