Showing claims fell. It is pretty good. Getting better. But the Employment Situation remains pretty insistent. Pemco continuing to see huge outflows. Founder bill gross says a bond war is at hand and his firm will be the winner. He lays out the battle strategy exclusively. Lays it out as war strategy. Plus Richard Fisher is with us. He says it is time to taper. But he has been saying this for a while. He is not a Voting Member but he will tell you what he expects his colleagues to do beginning next month. He is a september taperer. It is amazing. And it shows you the debate going on within the Federal Reserve right now. Absolutely. Lets approach this final hour. Near the highs of the day here, not so far from it. Up about 40 points. 15,511. Nasdaq also positive here with the gains doubledigit, up 18. 5 points. 1. 5 of 1 . S p 500 showing a begin here of bet are than will points, bill. Down s p about an hour and a half away from snapping a threeday losing streak. What was the turn around about earlier today . What was the decline about, is the question. I will try to explain what i think happened. Let me show you markets today of what is going on. Main story is china. Very good exported, inport date why from china and yes it moves the whole world. It moved commodities and market stocks and kmosity countries. Everything is moving on that. There is still money moving. We are seeing inflows and that is also helping. I think this is why we have this weird pattern is the yen rally we saw. Take a look at s p 500. Maria just showed you the charts. Have you this weird ushape here today where the data on the u. S. Was good but we went straight down. A lot of this has to do with the yen. I know it is a little bit difficult. Take a look here on the top thats s p 500. White line, thats the dollar line and as that green line went up, that means the yen is weakening. As green light goes down, that mean the yen is strengthening. Market goes down. And it has been going on for a long time. Very obvious today. I dont want to pin it all on that but a i think a lot is going on with this yen trade and japan. Look at the strength here today. When is the last time copper was up . Commodities have been terrible. Good news stories in china. Commodities go up. Commodity producing countries go up too. Countries like australia. New zealand. Some other big names in that area. South africa and peru. Put up etfs in the commodity group. All of them moved to the upside as well. Can you buy these different countries. All up because of china. Finally, note european banks are strong. Money flowing into europe, even though the data is still choppy. Guys, back to you. When you get a chance stop bit anchor desk because maria has a special going on on raspberries. Oh boy. They are almost kbgone, thou. She is munching away. This is me, about an hour from the close. Markets rebounded from lows into positive territory right now. Yeah, lets break it all down on closing bell exchange. Jim mccamp with us. James loul. Steven reece from j. P. Morgan. Also joining the conversation, lets kick this off with you. What do you tell client with a look at doubledigit gains today and we are approaching the tapering. We are very positive in the u. S. U. S. Has been overweight with portfolios. With the earning season, it was good but not great. But good enough. Where we are changing our view is europe. More constructed on europe. Adding more there. We are encouraged by what we see on the economic front in europe. Earnings are coming in bet are than expected in europe right now. I love this, bill. We have been talk a lot about europe. You are seeing people put money to work there. What is it that you are feeling has changed in europe. Fundamentals are bet are. Perhaps less bad. Sentiment is terrible. Fund managers are very underweight in europe. If you listen to what the u. S. Company said during earnings season, everyone where exposure in europe, most people said things are better. An valuations look pretty good versus the u. S. Jim lowell, you think we are overthinking this tapering thing, dont you . I absolutely do. I think what we will find is that you will be able to have to manage the bonds side your portfolio, not abandon it. Right about now, i think everybody assumes that tapering somehow means some significant shift in the gradualist fed. And i just dont see that in the card. In fact we think the fed could wait until the transition occurs in january from one fed head to another before we really see the execution after plan to begin to win over what has been a very successful recovery strategy. But the fear isnt so much about the tapering process itself, it is about the marketing response. And we got a taste of that perhaps in may when we saw the skyrocketinging of long yields on even just the talk of a timetable for tapering. So isnt it possible everyone will rush to the exit at the same time, once we know for sure they have begun. It certainly is possible. That will be a buying opportunity, especially for our bonds manager who can go in and bond buying, fix nice yields. The reality on the ground is we did get a test. We saw overall aggregate market selloff by 3 . In terms of total return. I will take 3 down side panic sell to find opportunities any day of the week. So jim la camp, what about you . Would you put new money to work here . We are putting some money to work here. But i have to be more cautious in the short term. As we approach the back to school season, i think september could bring market schooling for investors. September has been historically our worst month. Now we have this ham let moment to taper or not taper. And nobody knows for sure what they are going to do. Where i think the risk lie says that the data could come in worse economically. Consumers are hampered here. We have seen consumer Savings Rates go way down. We have seen consumer incomes, real incomes, go way down. Parttime jobs are replacing fulltime jobs. This will show up in Economic Data at some point, probably in the third and Fourth Quarter and if the fed starts to taper with weak data coming in, i think the markets going to have more volatility in september. Longterm, we are so bullish. But in short term, i think investors have to be cautious. I think if you feel the economy continues to grow, you go with the cyclicals. If you are worried about what tapering is going to do to the economy, maybe you go with the defensive. You actually have both on your list here. We have more cyclical bias. You look at valuations for the cyclicals. Look very cheap versus fences and we want to buy sectors and stocks with the premium data we expect in the back half of the year. It is not like we dont like the defenses. We still like the dividend themes but we are more effective in the stocks we are buying so looking for companies with Growth Opportunities where payout rash yes, stios are low higher. Do you think we tapener september . I think we will see gradual tapering in september. But it is important to remember pt reasoning is not that the economy is getting better. Which is positive. Exactly. Jim lowell, best idea, what is it. Consumer stationenerry, consumer staples. Biggest move lately is to dip back into europe. Fidelity active growth. You know, i wonder if given the fact we are up as much as we are, and we know that we will have events come september, possible tapering, which i actually think is unlikely, actually, but at some point we know itll happen in the second half. Plus youve got the political issues. Debt ceiling debate. Is it time to take money off the table as general practice because we know we are headed into a more volatile area . Jim, i will let you answer that as we go out. I think it does. If you look at it historically, the market doesnt go straight up like it has the last three years. It has done that because the Federal Reserve had our back at every selloff and Everybody Knows that. But if you look at when the fed took money off the table after qe1 and qe2, there was a violent reaction. Bond markets already had a violent reaction. If trade yields get above 3 , could you have a lot of volatile knit this market. I guess you echo that, steven . Definitely. Thank you, gentlemen. Appreciate it. We have about 50 minutes before the closing bell sounds for the day. The mark set higher here. Up next, declaring pemco will win, the war in the bond markets. If you werent aware one was happening, then we do now and listen up. We will share his battle plan up next. And Federal ReserveRichard Fisher in the house. He has a message for policy makers. Baton the hatches. He says it is time to taper. And he will show us how it is done. We have more earnings after the bell tonight. If you are listen awning satellite, it is lions gate and price line. Com. More with closing bell after this. On their 401 k s . go to etrade and roll over your old 401 k s to a new etrade retirement account. None of them charge annual fees and all of them offer low cost investments. Etrade. Less for us. More for you. Time to have new experiences with a familiar keyboard. To update our status without opening an app. To have all our messages in one place. To browse. And share. Faster than ever. Its time to do everything better than before. The new blackberry q10. Its time. [ male announcer ] come to the golden opportunity sales event to experience the precision handling of the lexus performance vehicles, including the gs and allnew is. This is the pursuit of perfection. Its war in the bond market. P pimcos bill gross made that statement. In a note to client, he outlines his plan of action. This is after investors already pulled more than 18 billion out of pimcos total run fund the last three months. What will it take to get that money back into the fund . Bill, good to have you back on the program. Welcome back, william. I love to hear you say, this is a war and were going to win. Talk about the new war you see in the bond world out there. All right, lets speak it that maria. You know, it isnt like the cuban missile crisis or nuclear war, it is more like grenada in terms of what we have gone through. The average bond fund is down about 2 this year. Pimco a little less. We are doing better than the market. What does that mean in per spekt sniff put it in terms of the dow. If the dow were down to 15,000 then thats the excuse to take out tens and tens and 30 billions of dollars on the basis of a minor correction . No. Stock investors would say, use that as a buying opportunity. Pimco is saying the same thing. Hey, the bond market sold off in terms of price. But listen, this is a minor skirmish as opposed to a major war. Bill, you said in your note to clients to get ready for this era of lower fixed income returns. You make it sound like this is a new event. With all due respect, and you know i respect the heck out of you, weve been in a lower return environment for quite a while. I mean, shouldnt people have been prepared for this a long time ago . Well, they should have. And with due respect to you, as well, bill, we have been preparing them for the last 6, 12, 18 months and talking about a lower return world. Where pimco made a mistake is that we suggested that equities as well as bonds based on 3, 4, 5 future returning world. Certainly that hasnt been the case for stocks. But for the bond market, pimco has been on record for the past several years of talking about 2 to 3 to 4 returns. I think thats where we are. So whats the strategy to win those investors back . Youre talking about the third consecutive month of outflows in july. Over the last three months in terms of investors pulling out more than 18 billion from the fund. Whats your strategy to get those folks once again invested . The fund . Well, lets look at it this way, maria. The war is between Money Market Funds and bond funds and bond fund and equity funds, basically. Those three in the case of the triangle. What is the potential for bond fund to be defensive like Money Market Fund but still provide adequate return relative to inflation. Close to what stocks can do. You know, what we have suggested in this particular outlook and in terms of strategy Going Forward is that bonds are composed of a number of component that produce a yield and we call them carry. Now most investors associate yield or carry with maturity extension. For instance, threemonth treasury yields 1 and three year treasury bond yields 1. 5 . So in order to get the yield you have to take Maturity Risk or duration risk. We are suggesting, no, thats not the only way to produce high carry or high yield. Can you do that with credit or by volatility or Agency Mortgages and produce 3 to 3. 5 yields with much more defensive price qualities Going Forward. I mean, the war metaphor you use comes from your belief, that as all military school will teach you, youve got to adapt in order to sur rifsurvive. Thats what you are trying to did do here is adapt to conditions. Like you are describing here with keri. When we talk about investment here is they merely shorten their duration. They go with the shorter term interest bearing income producers because thats where less volatility is. Less risk is. But youre not talking about that, are you . No, we are to some extent, bill. The investment speaks to lower durations over a longer period of time. Its true. If Interest Rates go up as opposed to down then prices go down as opposed to up like they have for past 30 years and so pimco is cognizant of that. We are simply suggesting that in the process of lowering durations, it is not necessarily the case where you have to lower your return. So you can supplement those shorter durations, you know, with what we call credit risk, with what we call volatility risk. With what we call currency based risk. So you can still produce 3 to 4 yields in a defensive type of war as opposed to offensive type of war we fought for the past 30 years. Do you expect rates to spike again as they did in may . Is that whats going to happen when we finally know when the fed is going to begin the tapering process . What do you expect the mark tet do with that . You know, h is where i see the tapering going, bill. And you know, qe3, to my way of thinking and to the feds way of thinking in terms of our interpretation just isnt working like its predecessors. And instead of a 3 inflation, it is continuing to have asset prices and in some cases dangerously slow like the two asset bubbles of the past 15 years. In our opinion the fed will taper. And it has access of reinvigorated access of foreign guidance and policy rate, much like the bank of he england. That is positive for short to intermediate bonds and negative longer term assets like 10 and 30 db year treasuries and it is a negative as well. Let me put this out on the table. I think it is negative as well for stocks. Why did you think stocks have gone up by so much . Because of quantitative easing of 1, 2 and 3 and the ability to write checks Going Forward. Even an optimist cant say that stocks are on their own and looking good. What kind of returns would you expect . I mean, what make the total return fund the place it be right here, returns in july came in under 1 . Meanwhile, you know, between april and june, you saw losses and when you look at stocks, you are looking at doubledigit gains for equity. Have you missed much of that move in equity. You are citing history, true, maria. But Going Forward, we are talking about a substantial universe of investors that need fixed income. It is fair to say that boomers require fixed income. Fair to say that pension funds, insurance companies, all with liabilities Going Forward for 10 or 20 or 30 years. They require a fixed income. This isnt a universe that is going to disappear. If anything is t is growing dem graphically. So what can fixed income investors expect . Yes, probably 3 to 4 Going Forward. Is that great . No. But it certainly is something positive relative to inflation and if you can go with pimco and go with our historic alpha generation of maybe a hundred to 150 basis points per year, then you can enhance those returns. So it is not injury fathers or mothers old mobile Going Forward. But the same case for stocks, because stocks rely on the, in terms of discounting mechanism, same Interest Rate producing problems for the bond market. Who would you like to see be the next fed chairman . Oh, i dont think we have our drudgers. Let me just say this, bill. I think there are differences. I think janet yellen, is perceived as more dovish than Larry Summers. Three to six months back Larry Summers was asked to talk about quantitative easing and he said he doesnt think it was a good thing. Will you have to change your investment style based on who is chosen depending on one or the other . We are simply going to observe it. I think Larry Summers would be more positive for lower inflation and the longer curve, i think janet yellen would be more positive for the front end of the curve. This is, she would be a chairman that would keep policy rates lower for longer. And so, you know, well observe. Right now, theres a london vetting market, bill, that has 60 40. 60 for summers and 40 for yellen. It is a tossup at the moment. We will have to wait and see what happens . Let me ask you about richmond, california. Your firm, with blackrock, among other Bond Investors seeking a court order to block richmond and corners llc from seizing mortgagees from imminent domain. You say the initiative would hurt savers and retirees. What can you tell us . Is a concept of imminent domain, maria, attached to mortgages as opposed to the homes themselves. Typically imminent domain with a city or county, basically occurs when you need a freeway and the homes basically have to be torn down and moved out of the way. In this particular case, this is where a city begins attaching or confiscating securities as opposed buildings. And it seems to us that all investors should be concerned about this when a city starts attaching and applying imminent domain to securities as opposed it a physical building. We will ask whats next. Shares of apple or ibm. If so, i think Equity Investors should be worried as well. All ri