tv Bloomberg Daybreak Americas Bloomberg September 27, 2017 7:00am-10:00am EDT
the dollardrop and rallies. president trump is expected to unveil his tax plan later today. the administration is said to be planning a 20% corporate tax rate. fending off the high-speed rail challenge coming out of asia. from new york city, good morning, a warm welcome to our viewers worldwide, i am jonathan david westin and alix. as we count down, let's get you set up for the trading day. futures are positive on the s&p 500. the dollar stronger against putting much everything in g10 and treasury yields keep popping higher, popping higher by five basis points, six on 229 on a tenure rally. >> and really looking at the break out there, take a look at yields in europe, the big .nderperforming german bund
looking at the spread, the two tens, you would thought it would be flatter, it is steeper. up 82 basis points and getting a by .2 percent, longest losing streak for the index since may of 2016, the dollar regains strength. david: yesterday federal reserve chair janet yellen spoke out saying although she still thought inflation was on its way, the model the fed has been using may be off. shortfall and inflation is a mystery. as of february of this year, inflation was running just under 2%. core inflation and then we have had a string of several months in which inflation was unexpectedly low. dan turuollo has
worked alongside janet yellen. great to have you here. daniel: thank you, david. it has been clear for some time that there is not a working model that on a meeting to meeting basis can give any sort of the size guidance to the fed as to where inflation is headed. people understand directionally that removal of slack from the labor market and the economy more generally will stop pushing inflation, but how quickly and when is something that no one has really been able to pin down. hasn't last years it been that much of an issue, because there were obvious reasons why inflation wasn't moving up, now i think as the chair indicated yesterday, it is more to revive the alan greenspan quote of more than a decade ago, a bit of a conundrum .
and one of importance going forward, because this is obviously more of a moment where you have to make decisions about increases on a meeting to meeting basis. david: if you are a member of the fed, which you were until recently, how do you manage crisis the ability if you don't have a gps, if you don't have radar you can trust to tell you where inflation is going? actual inflation is observable. as the chair said yesterday, because monetary policy operates with a lag, you cannot wait for things to develop into will you react, but i think you can watch to see what is happening with actual inflation as opposed to just assuming that it is going to a moving 3, 6, 9 months in advance, and i think what you have seen in the last weeks or so is the different predispositions of some different members of the fomc. it is a most like a default vision that each of them has. i think in some respects the most important thing that the
chair did yesterday was try to explain as clearly as she could she has the predisposition she does. the real answer to your question, david, i think, the world in which the models are not reliable enough to tell you on a meeting to beating -- a meeting to meeting basis what to do, you have to be clear about how you're thinking of inflation and communicate that to the market. is waiting for numbers to come through, is there a risk in that, that the proverbial horse may be out of the barn, you'll be on a run before you can react to it? daniel: sure. i think that is what the chair was saying yesterday. i think her observation over the last couple of years, her expectation now is that there will be a gradual return to the 2% target. so, i don't think anybody believes you can just wait to two.o 208 to get above
i think the difference comes in how much evidence of movement ebola like to see before they react rather. and president of the chicago fed made that point as well. jonathan: some people have argued that the fed has abandoned its reaction function, what you say to that argument? i think it's harder to have a reaction function when you're not able to say we have now reached the point by some metric where we now think we need to move. so, when there is not a formulaic reaction function of available, think what then people need to do is try to -- as i said a moment ago, communicate as clearly as they can so that markets have something else to rely on. i think with the chair did yesterday was basically reaffirm that the gradual path of increase is that she has been indicating for some time, something they're going to continue to do unless there is some significant reason not to. jonathan: this argument got more fuel because the fed or casted
inflation, but maintained a rate cap. i'm wondering if the rate cap is now be critical guide, maybe more so in a way in the last few years the market has sat there and looked at the rate path and said no, you're not following through on that. is that path thing we should pay more attention to? it was always useful to pay attention to it, because it was a direct way to infer the perceptions of the members of the fomc. the markets disagreed with the median expectations over the last couple of years. the markets were proved correct, i think, there was not as much movement and inflation. now, you want to continue to look at that, but again there is no particular reason why you can expect the fed to adhere to that and the fed does change when the incoming data changes. , what did you see,
continued expectation of short-term increases and expectations that the medium-term neutral rate is once again lower. struck me is yellen has not caved to the market as many thought would happen six months ago, does that imply we are headed to a more typical tightening cycle, where we height -- we hike once a quarter and they're going to go nice and slow? daniel: i'm not sure one supporter, but i think what has happened is a shift in the approach the fed was taking for a number of years, which was wanting to be convinced that it was time to begin to tighten. obviously, individual members differ. i think as the consensus was, we want to be convinced of time to tighten. it's one of the reasons why when things would happen, it would knock off expectations will maybe the tightening will occur now, but now i think were in a mode where the fed is a sickly saying, yeah we are on this
gradual path and it will take something to knock us off the path. what i heard the chair say yesterday, as of now there is nothing knocking her in the fed off of the path. we have a question from a viewer on financial stability. their suggestion there should tolerance and put more weight on financial stability, what do you make of that argument? daniel: financial stability is obviously an important argument all of the time. it has not been lost on central bankers. there has been a long-standing debate how to incorporate an angel stability into monetary policymaking. i think there are a lot of those for monetaryts policy specialty who would say that monetary policy is an excessively blunt instrument to use to try to tame financial
stability issues and perhaps more importantly, it would, at the expense of the achievement two statutory mandates that the fed has. there the instinct would be to say let's use other mechanisms, let's use regulation supervision, whatever they may be. the question will become twofold, does the fed or some other agency have the authority to use those kinds of measures and secondly, if they do, will that work? my own sense for what it's worth is when you're talking about residential mortgages, it is such a unique -- it is a unique kind of debt in, with a unique targetedollateral measures there are probably substantially more expectations than monetary policy -- more affectations than monetary policy.
some -- search for yield, you're saying too much --erage with too much historically high and asset price increases, then you at least need to think about the monetary policy move might be supported in part by those considerations. we are not in that circumstance right now, i want to emphasize, but that has really been the debate. david: what is on the -- -- the dashboard for you in the fed, i'm going to put up a chart, growth of credit overall, which has been substantial over the last several years. you can see it has grown in all phases, really. yield,ent grade or high or loans, corporate credit has grown substantially. what are the things the fed will be looking at to say we need to be concerned. dan: there is a range of things, but two are worth mention, one is the sheer amount of credit,
and more importantly, the growth rate. secondly is the amount of leverage in the internet can -- interconnection of that leverage. as we sit here, the large and medium-sized banks in the united states are well capitalized. they do not have excessive exposures. credit cards are starting to get a little bit worrying some, but in corporate lending they are not overreached. there is a little bit of a reassuring factor. when you begin to see, as was 11, 12 years ago, the leverages within the banking system and outside of the banking system, and asset rices are at the high-end end of a historical range, that's when i think -- asset prices are at the high-end of the historically range, that's when i think it started to change from yellow to red.
i think there is now some sense of yet, things have moved up a little bit, and particularly as your chart indicates with corporate credit. i want to make another point, this is not just about a financial crisis. this stability of the banking some measure of protection against a financial crisis, but if you have an off a lot of debt, which will not be able to be serviced in and economic downturn or if interest rates go up, then you do face the prospect of more bankruptcies and a bigger hit and a mild recession that could turn into a moderate recession, because of a loss of that production. there are multiple reasons to be concerned about the growth of debt. jonathan: the presidents of the united states would like deregulation. chair yellen's future is up for debate. i'll ask you to be prudently honest, where there you started to feel political pressure, and
whether you think political independence in the federal reserve is now at risk? nothing to seen suggest they political independence of the fed is at risk. each president has the prerogative with the advice and consent of the senate to a point members of the federal reserve board, most importantly the chair. so, we shouldn't be surprised when the president selects someone they believe who has a view roughly constant with the policy they would like to proceed. the independence of the fed would be more a function of how -- what is the relationship political branch,
and that acceleration could be quite dramatic. i do not think the country is prepared to cope with it. jonathan: i want to get the -- dan tarullo. a deal that brings together our troubles from germany and france aimed at countering competition from china. i am pleased to say that joining is -- joe, let's begin with you, talk about the moods movement in the political realm of europe. a move, politically speaking that wouldn't have allowed the deal to happen a couple of years ago, how positive is that per euro? all, we aref
excited about the deal. the is what is the best for company, customers, shareholders, employees, likewise. and that is why we are in a good mood today. we did it because -- we agreed to it because we thought this was the best industrial move in a sector, but not about the european spring of spirit, but we happily support that by putting growth or actions together -- henri, you have to have made commitments, what other commitments have you made to them? nri: absolutely. i think the first thing we need aimed that this deal is at creating values for our sector including of course for employees.
if we took some commitment, it is because we know this kind of a model of anxiety for employees, so i think it was taking some jobs -- and france and germany, no difference between the commitment between france and germany and about the closehat we will not insight in the next four years. beyond that, i think it's important to see this will companies,- boost and therefore we provide more opportunity rather than less opportunity. alix: we will still have to see some capacity taken out, joe, where will it be taken out in germany? henri, said, this is a merger out of a position of strength. also, of course, contributing to
a very balanced approach. of course there will be -- there will be redundancies supporting the sector, there is to be two companies now there two accounting, department's, now one department. that is the biggest challenge in terms of redundancies. on the other side would we go to market in engineering, innovation, also manufacturing, our factories are full. actuallyowing both above the market. so, we have been coming together a situationork in that actually we are doing pretty well, but we want to keep it that way. and thathe future -- is why have been proactively looking, at results. we are very excited about it. also the stock
market look at where we are said itlso the union could secure the future, they politicians, governments have responded very well to it, so it seems all stars are aligned for now and that is a good start for the next test we have ahead of us. stock is up,r granted. i will put you on the spot, joe, for the german government, have you had a conversation with the -- joe: it's a lot of money. jonathan: on the differences with jobs in germany, have you spoken to the chancellery, and what have they said? is: as i said before, this an defensive play. play.-- an offensive
spend look at how we can -- our footprint with our resources. carefully andy responsibly look at that, and other than that all signs are on growth. that is the notion of this merger. of course we have been .onsulting with governments it is important to have all of this aligned to make it a -- nothing to do with the spirit of making europe a better place. jonathan: you did come out with a statement on the fd, i wonder why you did that and if you have concerns about political stability at the moment in germany? honestly, we didn't really look at election day, we looked
at what we could do for theeholders, customers, timing is what the timing is. balcom is chancellor merkel will continue with leadership. jonathan: i believe we just had a look at the share prices, as joe pushed us towards, of course, siemens up a couple of percentage points. we're going to whip through the market action for you, just to reset and hopefully re-establish that connection with siemens in austin in just a moment. futures are positive, up .2 on the s&p 500. a decent tone to risk. i've got to say, alix steele, despite rate hike expectations for december, really starting to charge higher. that story is really captured by the bond market. yields high air cross the board, treasury yields higher as well, up six basis points on the u.s. 10-year.
in the f.x. market, what you see front and center is euro-dollar on the back at 1.1741. the cable rate at 1.3415. as i say, hopefully we will re-establish that connection with siemens in just a moment and bring that back to you. before we do that, let's get headlines outside the business world. here's emma chandra. emma: first word news -- the candidate backed by president trump has lost the republican primary in alabama. incumbent senator luther strange was beaten by judge roy moore, a former chief justice of the alabama supreme court. moore's victory is a blow to trump and senate majority leader mitch mcconnell, who's efforts to boost his campaign failed. the trump administration says it's sending a flot i will aof ships and thousands more military personnel to puerto rico to address the growing human marijuana crisis caused by hurricane maria. large sections of the territory are still without adequate food, water, and fuel. meanwhile, the president helped raise an estimated $5 million for republicans last night.
he attended a private dinner in new york with some of the biggest names in u.s. finance and real estate. there are about 150 people at the event. tickets cost a minimum of $35,000, a quarter of a million dollars brought one couple access to a roundtable with the president. as the u.k. and european union officials haggle over the size of britain's divorce settlement, documents show higher european pension costs will add to the total. they grew by 5% last year. higher pension costs are already a controversial part of negotiations over the final bill and risk injecting additional tension into already fraught talks. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm emma chandra, this is bloomberg. jonathan: thank you very much. were you there at the restaurant last night? david westin got us a table. he didn't invite you? alix: no, i didn't get invited. i was home with my 3-year-old. jonathan: unbelievable.
let's turn back, i'm very pleased to say we have re-established that connection with austin. guys, great to be back with you. hopefully you can hear many. we're going to talk about the industrial lick for the deal now, and i want to begin with you and go back to that. do you believe that siemens actually had sufficient size now to compete with those competitors in the way that you'd like to? >> well, i think they did. there's a compelling logic to this deal. obally it's in what is digital technology. we're around the world in terms of stock as well. so i think it's a neat combination of both strengths. so, yes, we could for a while now, but i think long term, and also a product to do it now, because long term, we've had
great challenges, so i think we decide today, and when you look at it globally or whether at it country by country, product by product, they want each other. alix: also you collaborate on contracts. how do you expect some of those perations to now play out? >> well, i think large projects is a matter of risk sharing, a matter of productivity. we've been, you know, bidding together, but also bombardier i'm sure has similar matters. and we expect that to continue if it makes sense. i'm pretty sure all our partners see it the same way. jonathan: joe, would you be open to expanding this deal to include bombardier? the finance minister said he'd
be open to it. is it something the two of you ould be open to as well? >> i heard that earlier, that statement. sometimes that's the difference between politics and entrepreneurship. you need to make it work in the long term and not just four or five years of tenure. look, i mean, we have just around a memorandum of understanding, so now we need to get to the closing and make the sinner jis and all the benefits work, which excite us so much. and it is going to be a year or year and a quarter, something like that. and then we're going to acquire synergies, which i believe are very compelling. so once you're done with that, come back to me on the question and i'd be happy to answer that a bit more precisely. alix: what about some dissynergies? like rolling rock, where are the issues that you're really oing to have in combining?
>> first of all, as you said, there's an argument for the synergiesful they will be mostly in terms of the platforming, some start-up products, which will enhance our supply capabilities. we're also synergies in terms of structure and structural costs, and we have synergies in terms of r&d to develop new platforms and be more innovative in the future. of course, we'll have a great challenge, as many companies are going together, always great challenges to organize a company, to plan the company. i don't think that any specific dissynergies. we have very few overlaps, and in terms of commercial access, we can also use the other one's strength to channel some of the products that was not existing, so i think it's quite balanced. so, yes, it will be challenges for the operation of that
nature. but i don't see any particular challenges in that respect beyond what is classical for any merger. jonathan: i want to fit one final question in. i'm sure your p.r. is shouting for us to wrap and you guys to go. but we've had the % move, and it's about two billion euros worth in market cap for you, so i ticked that box. the other box i want to tick is this -- look quickly on the bloomberg, 28% of your revenue is coming from the americas. i wonder how much time you spend looking at the f.x. market and what your thoughts are on that euro strength that has come through in a significant way this year and what it means for you. >> well, in a business environment, typically to hedge our businesses by the time we get there is 100 billion back log, you can't imagine the currency hardly comes through in the next several quarters. secondly, long time ago, we
started with a massive capitalization into the countries. what that actually means is we have somewhat a natural hedge against currency fluctuations. so therefore, as far as outcome is concerned, we are reasonably relaxed about the euro environment. i think we need to look at the broader perspective. jonathan: guys, appreciate the time. congratulations on the deal. you both look very happy. look forward to catching up with you very, very soon, and we apologize for the technical difficulties. >> thank you. >> thank you. david: thanks, jonathan. we are turn from are yous to taxes. today is the day. after months of waiting, we are going to get to look at president trump's tax plan as the president travels to indiana for a major speech. but we think we know a fair amount about what's coming. they're take us through it all is our chief washington correspondent, kevin.
kevin, i mean, there's an awful lot in here, so let's try to boil it down. what is the most important thing both in terms of what it would do to the economy and business, but also in terms of the politics? kevin: first and foremost, the tax plan is set to lower the top individual rate to 35%. what it's also going to do is lower the corporate rate to 20% . and more broadly speaking, it's going to limit the tax bracket from about six or seven to three tax brackets as a whole. now, what does that mean for top income holders and top income shares? essentially what the president is going to do is leave that decision up to congress. so while the framework that is set to be released today is going to provide greater clarity and details, in the weeds specifics is still going to be a congressional battle fight that is sure to draw some political fire, a lot of political fire from democrats. david: take me through the politics a little bit, because
they have to pay for this. everybody likes tax cuts, but somebody's got to pay for it at some point. what they're proposing is the so-called salt, the state and local tax deduction being eliminated. that's going to disproportionately affect some people, particularly in the northeast. there's a bloomberg story today that says there are 52 republican congressmen who basically come from states, from districts where people take more than the normal number of deductions. how is that going to work for them? they're dead set against this. kevin: yeah, get ready for a major tax fight here on capitol hill that will be kick started today later, of course, when the president gives that outlining address. but how they pay for it, we have seen this become the top political issue with the tax reform debate. first, of course, as you mentioned, the issues, but also we've seen this with the border adjustment tax, which has since been left out of this plan, and on other issues, like revenue neutrality. so while the president has an ambitious plan, how they pay for it remains to be seen. david: ok, many thanks, kevin. and stay with bloomberg to
watch president trump deliver those remarks on tax reform. that's coming up this afternoon at 3:20 p.m. eastern time. alix: thank you so much, david. the reaction in the market was pretty stark. take a look at what happened with the dollar. dollar index breaking above its 50-day moving average, finally getting that break about .8% over the last two days. you really see it also in treasuries. the 10-year yield making a big jump, up seven basis points in two days. in some ways, the two-year yield is outpacing the rally we're seeing in the dollar. joining us now is bob michael, j.p. morgan asset management global c.i.o. and head of global fixed income. again, every time he comes on -- jonathan: i'd like to send a message to j.p. morgan. david: change the title. here's your title. who is out today with his new bloomberg column. there are no bad securities, only bad correlations, which we will get to. thank you very much, guys, for joining us. bob, explain to me the dollar
breakout and the breakout in yields. do you attribute that to tax reform? bob: i think attribute it for to yellen. we saw the equivalent of her telling everyone the punch bowl was being taken away, that all these unconventional tools, the policy distortions, they're no longer needed. there's a very long junior a head for normalization. and, of course, you are hearing out of washington that there may be something developing on the fiscal side. wliths tax reform or whatever. so let's figure out what normal is. the markets better wake up and realize that. alix: why are we seeing more action in treasuries than the dollar? bob: well, treasuries are the one that are most distorted by the central banks. alix: you would think a flatten if anything. bob: you've also got to blnd a couple of things in there. one, they're going to raise the front end of the curve a lot more than the market anticipated a month ago.
secondly, they are very committed to the balance sheet runoff, so all the price-insensitive buying of the long end of the curve, where they've been reinvesting, the bank of japan q.e. has been coming in, european central bank q.e. has been coming in. all of that is going to disappear. thought she was very clear. jonathan: we broke out afterwards, and we've been in this down trend through spring. dollar weakness throughout much of the year as well. now we're out of it. e've broken out to the upside. how are you thinking about the dollar index at the moment? bob: i'm thinking the dollar index has a pretty long way to go from here. we're thinking that post-election, there was a lot of optimism. clearly a lot of cold water got thrown on the markets from the administration, their failure to gain any traction. beneath the surface, the
economy did fine. and throughout all of that, i thought the fed was pretty committed to normalizing rates, but somehow the market kept pushing back against that, and looking at europe, europe was doing great, by the way. japan was doing great. so money was being rotated into some of the far markets. i think a lot of that is going o come back to the dollar now. bob: you have to think about the currency against which it's measured. the european story is one where, of course, they've got a long way to go as well, but they continue to print above trend inflation, better growth, and the long list of worries that you had about the eurozone is seemingly, at least for now, dissipated. so i think the dollar weakness story, at least against the euro, is one of euro strength. so, yeah, i'd say that -- i don't see much from the dollar. i think the rate side, again, just to underscore what was said here earlier on the janet yellen side, she is telling the
market what's coming a little bit more. but rates are exceptionally low relative to the stock price. jonathan: janet yellen might not be there next year. shernl change expectations around december. i wonder what it means for 018. bob: we'll see about next year. . david: janet bob: yellen is not just by herself. to what extent is the bank of japan actually going to constrain yields back here? bob: i think to some extent, but they're actually not the dominant player in all of this. i think it's the size of the balance sheet. i think it's the amount of q.e. coming in. when the fed goes in to run off and the e.c.b. gets to tapering to zero, the bank of japan is going to be going it on its own. that will help cushion some of the rise in yields, so we're not going to see these dramatic spikes to, i don't know, 4%,
5%. but are you going to steadily rise to 3% higher? we think so. alix: let's talk about the rotation we've seen in the market, energy, industrials, financials, out of real estate, out of utilities, out of tech. is that a permanent rotation, or do you look at that as end of quarter balancing? dean: some of it's rates. if you look at, for example, the relative performance of the financials versus technology, it turns out it's incredibly correlated to the direction of interest rates. so higher rates, the post-trump win was higher rates at quite good performance and some of the more defensive type sectors underperformed, and so the last, you know, couple of weeks of higher rates have been a little bit better for the relative performance of financials versus technology. and then, of course, the technology sector has an open question around the stocks itself, and i think that this is important. this is a very important
question for the markets, which is, are the fangs overvalued? has there been a mass amount of capital, some of it just passive investing? passive invest sag momentum strategy. you're buying the previous winners because it's market cap-weighted, just the massive surge of capital being put to vanguard, which puts it directly to the market without any research. t's passive. i think that's an important open question for the markets. alix: the story was, if tech falls out of bed, we're all going hell. the market is going to freak out, v.i.x. is going to jump, be a big selloff, and that didn't happen. so if you take a look at the v.i.x. seasonality chart, take a look at the volume there, the moving average, 20-day for volume. we've seen this pick up a little bit, but seasonally, it's really had a nice jump. i mean, the low there, you can see between 2008 and 2016, and this is where we are now, and the average is that blue line.
we haven't seen the vol on the rotation. will we and why? dean: first, the rotation has een pretty modest. for all the talk on monday, it was a 1% move, not that much. so you're going to need to see much more than that. the market is right now, at least the v.i.x., is a function of what has been one of the most range-bound markets in the history of markets. so all the talk of the v.i.x. at 9.9, it is actually four times the realized volatility over the last 10 days, which registers 2.4%. so these are epically quiet markets right now. coip there's so much money sloshing around, and at what point will it change that volatility? dean: i think 99% is from central bank money printing. there's 11% which says the macro economy is fine.
growth and inflation are ok, put them to the side, could be a little stronger, glad it's not a little lower. but that's fine. the markets are drowning in money. look at august. people took profits. they sat there, probably felt good for a week. the next population of $150 billion in new cash was printed , and that's coming into the market. you now have raised cash, sitting on that. what do you do? it's a frustrating environment. everybody's asset class looks expensive by traditional measures. the rotation is nothing more than relative value gains within very expensive asset classes. alix: just wait till monday, fourth quarter. let's see what happens. dean and bob, both of you are sticking with us. if you have a bloomberg terminal, check out tv go. watch us online, click on our charts and graphics, interact with us directly. check out charts you may have missed. this is bloomberg. ♪
jonathan: the only country in the world to have such restrictions, it's the most dramatic move so far in the government's bid to open up saudi society. joining us now from dubai is the bloomberg managing editor for government in emerging markets europe and asia. great to catch up with you. talk to us about how significant this move is and how sufficient it will be to actually allow women to get that license. >> well, i got maybe two ways of looking at that. in one sense, it's not significant, in the sense that, you know, giving these rights to women that everybody else around the world has is really very incremental and is really something that while it's good news, we shouldn't get overly ecstatic about something like that. having said that, to your question, it is certainly, from a societal point of view, a massive shock, and we saw that
last night in the streets. we have a great story out on color. it's going to completely turn transportation on its head in saudi arabia and society. but as far as we can tell, that's it. they said it's going happen, and they're going to take 10 months to implement it, and we don't have all the details, but certainly from what they've told us, you know, 10 months from now, a woman will be able to go, purchase a car, get in it and drive it off the lot. jonathan: there are skeptical individuals that say it will be very difficult to get that license. how will they be taught, given the traditional female-male relationship in public spaces and the limitations around them, how will they get access to those licenses? is it something that's going to be easy or difficult? >> i mean, that's a good question. saudi arabia still has curbs on women's rights. there's still a guardianship in
place. could you drive across the border to dubai and come to the u.a.e.? these things will have to be walked out. and to the tension, this isn't necessarily, you know, young versus old. it's not a situation where the young in saudi arabia have been, you know, screaming for this and the olds have been resisting. you have aloft saudi youth who are very conservative, that showed up in our story last night, and you have a lot of, you know, older saudi men that take their daughters into the desert and teach them to drive secretly. so the government is going to have to navigate through the scenario of, ok, where are the conservative pockets, where are the people that we can tap? but it's all part of this saudi vision 2030. it's rebooting the economy and all, and this is probably all, and this is probably the key piece. jonathan: you touched on it, you guys find the economic dimension, and there is an
economic piece in this particular puzzle. walk us through how important this is. >> well, we're looking at that, it's obviously going to mean a lot for car sales. it's going to mean a lot for insurance. it's going to mean a lot for financing. i mean, it is going to affect every segment of the transportation industry at a back of the envelope, quick glance, it will be positive for g.d.p. sued vabe in the market today -- saudi arabia is in the market today. they need to attract foreign investment and bring companies in. all of that will help them. they have a very high unemployment rate, especially for youth, so hopefully this helps more on that front as well. jonathan: great to catch up with you, as always. they're going to be in the market later with a big bond offering. >> i think it will go well. i think there's a lot of money out there. everyone is looking to diversify. emerging markets are hot. it's going to be well placed. jonathan: does this milwaukee a difference, change the p.r. around saudi arabia, or is it all about money? alix: you got to like the timing, right? bob: i like it. there's nothing i don't like about that announcement.
jonathan: great to catch up with you, bob and dean, thank you very much. come up next -- the outspoken b.m.o. capital markets chief investment strategist will be joining us in just a moment. from new york, you're watching bloomberg. let's get you up to speed on the market action. futures are positive. the story in the bond market as follows, it is the yellen selloff. yields are up five basis points at 229, and it's the dollar bid fueled by chair yellen that she changes those rate hike expectations for december. dollar strength against the euro, the pound. this is bloomberg. ♪ what did we do before phones?
treasuries dropped. the dollar rallies. president trump is expected to unveil his tax plan later today. the administration is said to be planning a 20% corporate tax rate. european rivals stevens and alstom team off. we'll bring you sound from our interview with the executives. from new york city, good morning, good morning. a warm welcome to bloomberg daybreak. i'm jonathan farrow alongside david westin and alix steele. futures are positive, a resilient equity market in the face of rising rate hike expectations. we're up .2% on futures, reclaiming the 2,500 handle. euro-dollar, 1.1746, a stronger dollar story, spur bid chair yellen. treasuries are lower, yields are higher by five basis points. 2.29 is your yield. alix: taking a lock at the breakout in the dollar index, and now it's up by 4%. but above the 50-day moving average, it had a couple of breakouts over the last few months. is it going to be sustainable? the selloff in sovereigns
really taking place in europe as well. and the spread getting steeper. you would have thought flatter, but steeper as she goes. they're on the longest losing streak, thank you, dollar strength. david: we're going to hear from the kansas city fed president, followed by st. louis fed president james bullard, federal reserve governor, and boston fed president. coming up later today. and finally, president trump will outline his tax reform plan at 3:20 this afternoon. we're going to bring you that live right here on bloomberg tv. alix: thank you so much, david. a 70% chance of a
rate hike in december. that's after fed chair janet yellen struck a hawkish tone, saying she doesn't want to wait for inflation to hit the 2% target before tightening. >> for these reasons, and given that it affects inflation with a substantial lag, it would be combruent to keep monetary policy on hold until inflation is back to 2%. alix: joining us now is michael mckee, bloomberg international economics and policy correspondent. it was interesting to see. we may be wrong on inflation, ut we're going to hike anyway. michael: it was really we may be wrong. it could be, yes, there may be something we aren't understanding. but this is really a defense of the reason the fed is on a tightening path, even though a lot of people are saying you're not getting the inflation that you want. she went through the arguments, and talked about where the fed could be wrong, but basically said we think we've got it right in the long run. alix: does this mean they're going to be more predictable, hike every quarter unless the bottom falls out? michael: she was asked about that and said no, we're not going to be predictable at all. you look at the fed hike sog farment i actually brought a
chart that shows where they're going. you can see, the first hike in 2015, then one more hike in 2016, it's only been this year that they have had a series of rate moves, and we don't know what's going to happen next year. but yellen says, no, we're want going to go on a predictable cycle. you see why they feel they can move. the fed funds rate is going up, and financial conditions are looser. they have more room, more scope to move and get the rate to a -- to what they would consider a more normal level. alix: did i find it interesting to look at the assumptions that he laid out of what the what the fed might be misinterprets about inflation. we have the strength of the labor marketed, that you might have more, the curve is giving you the actual right signal, inflation expectations, inflation dynamics, walk me through what she said about these three and how the fed is thinking about them now. michael: they're thinking the curve still works, just has to be a lower employment rate to push inflation higher. when you look at the inflation
rate over the last year, we did see it start to go up. it went down for a couple of months in a row, and now we're going to wait to see what happens over the next couple of months. but basically the fed still believes in that model. she said inflation expectations are relatively well anchored. the people, the survey of the american people, they are still expecting inflation. it's the markets that are not. and she said parted of that is a term premium issue. then finally, this is where they don't know for sure. is there a change in inflation dynamics, the fact that we all shop online and we're always looking for the greater bargain, is that sort of thing changing the way inflation dynamics work? they're waiting for more evidence on that. jonathan: i want to bring in the chief investment strategist. i can picture the scene at b.m.o. yesterday. yellen's comments come up, he picks up phones and tells them to sell aggressively. that's not what happened, is it? >> wait, he's kidding.
alix: let him be funny for a second. >> the whole delivery was just on. it was on. jonathan: i'm looking forward to yours now. >> here's what we would say. i don't like the way you introed this thing, the markets are resilient in the face of rising interest rates. jonathan: you don't think the markets are resilient? >> i think they're awesome, but should be excited. jonathan: walk us through the logic. >> here's the logic. the circle of life of investing is stocks go up, earnings go up, the economy goes up, interest rates go up, the dollar goes up. it's a beautiful thing. long en't seen that for a time. if you've been in an investor in wall street, let's say for the last 10 years, all you know is the dollar goes down, interest rates go down, you buy stocks, monetary policies go
death to america by emerging markets. guess what, we're heading back into a traditional investment cycle where stocks are going to matter again, where fundamentals are going to matter again. if the interest rate cycle is beginning to improve, meaning the fed is seeing some growth and some inflation, that's good. that means the economy is improving and should be good for stocks. we have to kind of retrain how we're looking at that. that's why, when you said, i thought you were going to go with people that yesterday, here's what he was saying, let's go find some financials, because i still think -- and you know i know. >> i know, i'm just teasing you. >> they just don't understand the cycle. jonathan: we're seeing in the market today, banks are the biggest gainers, because yields are very much higher. for treasuries, though, that's been a really, really tough trade to make this year, to fundamentally see treasury yields go much higher and to bid up banks off the back of that. how is that going to change? >> you made a great point. during the summer, it was almost as bond investors were making another run at treasuries, man. they just wanted to get that 10-year below 2%, just one more time. it's really built on the base of america is never going to
grow again, and it was really about growth. i think they had it completely wrong, because at the end of the day, they were really focusing on what was and not what is and what's going to happen going forward. i think that the train is now beginning to really leave the station, and people have to start to believe in that and get on board with the notion that, in terms of asset prices, we're going to see a shift back to equities that we haven't seen in decades. david: the train is leavingt station. the question is who's getting left behind. this may be awesome for markets. is it awesome for the economy? we're seeing an increasing division between the haves and have nots, people getting jobs, people not getting jobs, people making more money and less money. we just had dan trudge i will owe and this is what he had to say, particularly about digital. >> we're talking about poorly paying jobs, but as we watch the development of technology and the potential displacement of people from jobs generally, poorly paying jobs may turn into no jobs at all.
david: brian, at some point, doesn't real economy, the people left behind, affect the markets? >> it does with respect to wages, right, in terms of how much people are going to be making. but nothing in his comments, and i had the opportunity to watch him live talk about this, was what about a job retraining bill, what about bringing back capacity to america. we have not had a cap ex psych nell our country for almost 20 years. david: i haven't heard talk about that. >> listen, we don't -- let's not talk about stuff that could be good. we're so afraid to be wrong, we don't want to be right. all we talk about in corporate america is cutting costs and buying back stock and building a balance sheet, because if we are talking about things that could actually be positive, the negative story is so much easier to sell and to be defensive and sell because people still have an overall mistrust of financials, overall mistrust of corporate america, so if we're going to talk about growing the business again, and oh, my gosh, if it doesn't
happen, oh, see, they lied to us again. they're not going to talk about it until it's actually beginning to happen. so what could happen with to a tax cut or to a tax cut o reform or some sort of a package from washington to kind of drive it, and then really hand it off to the states to kind of drive growth in individual states? we could see a job retraining bill, we could see an infrastructure bill, things like that that would really kind of define the process, or as we say in canada, process of a cap ex recovery, what we haven't seen for almost 20 years. alix: walk me through then, you mentioned you like the financials t. seems like it's a value versus growth trade, if you're going to buy cyclicals. if you take a look at the bloomberg, walk me through this, this is s&p value versus growth stocks. we're seeing some kind of breakout of value stocks. we've seen this play out a couple of times this year, and it hasn't been sustainable. what's your take? >> isn't it exciting? here's why i gave you a weird look, because cyclicals aren't necessarily value, right? if you look at the largest part
of the value index, it's financials, which are traditionally part of the cyclical area, but materials are cyclical, right? energy can be cyclical. technology, parts of technology can be cyclical. here's what we would say. this has legs because we're starting to see growth overall. so what happens in value versus growth, you buy growth when growth is scarce. which growth is scarce, growth outperforms. but when you take a look at how companies we're going to hear about, when third quarter earnings come out, a majority of companies in america are giving you above s&p 500 earnings growth, and the numbers are actually increasing in terms of number of companies. that's where you as an investor apply what we believe is the most fundamentally driven strategy, which is value investing. you buy companies that are growing more and valuations in terms of earnings and less in the market. the biggest component of that is our financials. now, financials, again, i believe are the most underowned asset in the world, but then if you also take a look at things like healthcare, even some industrials, healthcare coming
into this area was a very negatively positioned sector, and it's outperforming, people are still not believing it because investors think we need a healthcare bill. we need great companies that are delivering great products. and so we're seeing that begin to slowly be the believable. now, when you see charts like that start to break out, we are such a momentum and performance-driven investment vehicle now in terms of institutional investing, that's going to get better. people are going to feel like they're missing it and jump on the train. david: thank you so much for being with us, mike. brian belski is going to stay with us. coming up, senator david purdue of georgia, the only former fortune 500 c.e.o. in congress. he's glock hear to talk about the president and his tax plan. live from new york and from washington, this is bloomberg. ♪
david: we heard about why they're raising rates up in canada and what that says about their economy. >> i would say that the interest rate increase is really an expected outcome from a positive economic situation. what we've had is, you know, 225 basis points increase, ich is just taking off the reduction put in place by our central bank governor when we had really a significant decrease in oil prices. david: still with us to discuss this is brian belski. so, brian, you said earlier, it's a good thing raising rates, it's a good thing. you're raising up in canada. why is that a good thing?
brendan: it's a good -- brian: canadian vemplets and consumers were so negatively disposed coming into this year. remember, canada was the best performing developed market last year. and a lot of investors missed it. so outside of canada, investors left canada and chased emerging markets in europe and some in the united states. here's why it's good for canada. in the first quarter of 2016, oil prices bottom and had have been recovering since then, have now found a trading range, ok? coming into 2017, the bank of canada, and our belief, and we wrote about this in november of last year, heading into our forecast for 2017, that we feared the bank of canada was too bearish heading into the year, and they, in fact, were, and now they're playing a bit of a game of catchup. we've seen frain structure spending, provinces like ontario and quebec start to see better housing growth. we've seen housing stabilize in both alberta and british columbia. we've seen a bit of the froth kind of come out of ontario and
toronto housing market so. things are stabilizing in canada. the difference is that we found through our experience having a property canadian strategy product, since we've been at the b.m.o. is that canadian investors are so negative all the time. they're one of the best sentiment-driven investing bases i've ever seen. so for our part, canadians are underexposed in financials and energy they're. they're bitter that oil is not at $80, right? they don't understand the positive notions of a trading range market, which could be very good. between 1992 and 2002, w.t.i. was in a very tight trading range. in calgary, that area, really great companies out there, they did awesome in terms of rebuilding their prand and rebuilding their companies again. i think that's what's going to happen the next few years. canadian investors are kind of behind the eight ball. david: you said investors missed outside last year. they could have really done well. are investors, including non-canadian investors, are they figuring it out, is it fully valued or still a buying
opportunity? brian: great question. three weeks ago, we made a call saying time to wake up, canada, and that was the notion, that was the title of our report. we received zero questions on the morning institutional call, which really meant that the institutional people just aren't getting the feeling. what's interesting is that canada has now outperformed two weeks in a row. you're starting to feel like people are worried about emerging markets, you've heard about it this morning already. europe is kind of rolling over a little bit. there's an opportunity for global portfolio managers to increase their canada positions and have a decent tracking area for performance here. we think there's a nice game of catchups between now and year end. alix: what happens to the corporate bond market as the b.o.c. hikes? brian: we've seen similar to what's happened in america, we've seen this chase for yield.
they've been great yield investors anyway, and it's definitely more focused on america with respect to equity income. bond market in canada we think is not as frothy, let's say, in certain high-yield areas. the issue with respect to corporate bond market had the best opportunity to crack last year during the first quarter, when you started to see the fringes of some of these higher yield instruments in terms of the energy patch. that is now solidified. jonathan: been headline issues in canadian dollars from companies like apple. talk to me about the net supply, what we're seeing coming into the market, and away from just the headlines, what we're actually seeing in the numbers. brian: canadian dollars have had a nice rally in the summer, and part of that was less about what was happening in canada, but more about what was happening in the u.s., which we were trying to drag down the bond market and the dollar, so that relative improvement was a big deal. in terms of the back and forth trade balance, remember, canada's number one trade partner is america. america's number one trade partner is canada. so there is some back and forth that i think can actually be
very good for canada longer term, and i think we make too much of this cross-border dollar arrangement, because canadian investors are awesome watchers of the dollar, but they watch it too close. i always ask people, do you invest for three months or three years? well, three years. then why are you worried about a three-month move on the dollar? alix: fair point. brian belski, you're going stick with us. coming up later today, we will have president donald trump's remarks on tax reform. that's at 3:20 p.m. eastern. definitely tune in. this is bloomberg. ♪
scania says it will appeal. twitter is lifting its 140-character limit on tweets. n an experiment with a small group that may expand to the entire social media platform. the test will let send tweets with 280 characters. the move comes as twitter struggles to invigorate user growth. takeover speculation had investors in the makers of sam adams celebrating yesterday. boston beer rose more than 5.5% after a credit suisse analyst suggested the brewer may be bought if it fails to turn around business in the next year. the brewer has been losing market share as the craft beer industry has grown. that's your bloomberg business flash. alix: if i'd only known twitter's solution was just to i mean, duh.r, jonathan: to actually want it to 280 characters. alix: our president. potentially, more tweets, longer. i'm just saying. david: longer presidential tweets. alix: oh, boy. speaking with beer, potentially more m&a.
the balance sheets of the u.s. best group remains strong enough to keep funding acquisitions, while rewarding shareholders through share repurchases and dividend payments. yet short interest is extraordinarily high for a few issues, like boston beer and national beverage. o with us is brian belski from b.m.o., chief investment strategist. you like the beverages? brian: beer in canada? they're positively correlated. by the way, thank you, because i'm already receiving emails saying thank you for talking about canada. they love it. alix: you canadians, man. it's leak a cult. brian: for the record, i'm an american, but from minnesota, so i'm contained of canadian. david: and i'm from michigan, which is kind of canadian as well. brian: there you go. we like beverages within consumer staples, principally because consumer staples has
been one of the worst performing sectors in the third quarter. we think that a lot of that has to do with the traditional consumer staples like general mills. if you take a look at some of the beverages, not only the alcoholic beverages, but coke and pepsi, coke is a stock that has done a great job with cash flow balance sheet and now with respect to doing dividends and dividend growth, it's screening out to be one of the best growth stocks in the s&p 500. jonathan: the underlying business, coca-cola has been really good at restructuring their business. but it wasn't so much selling more coke, it was really -- brian: selling the lovely powerade zero that i'm drinking right now. david: how much is this is financial engineering or mergers or son doll additions as opposed to the business growing, people are going drink more stuff? brian: i think they're going to drink more stuff. that's what we're hearing. but they're doing a great job managing their overall business organically. they bought a bunch of stuff last five to 10 years.
now they're going to manage that stuff going forward. and they've proven, with their balance sheet and cash flow management, that they're going to do well. now, you think about the composition of staples, right, is that our problem this year, because you've seen the downward spiral of costco stock, and then the wal-mart issues, and so where are you going to put your money in staples? that's why beverages we think can have a bit of a tail wind in terms of performance. alix: consumer discretionary? brian: you've got three stocks really skewing performance overall, right? amazon, netflix, home depot, the rest of the sectors are having problems. in media in particular, they've not done very well. disney has had a lot of problems. comcast has been kind of on the fringe. we like both stocks. i really like comcast longer term in terms of cash flow and the broadband part of it. but media has overtaken retail with respect to the overall market cap, composition of consumer discretionary. and we know that retail, traditional retail, has some secular issues that 2017 i think will go down as the year that really showed all of us that there's too much capacity in retail. we would say media first, and select other areas within
retail. jonathan: coming occupant program, david perdue of georgia weighing in on all things d.c. in just a moment. from new york, this is bloomberg. ♪ here's the market for you, about an hour away from the cash open. what is it? a resilient market. futures are positive. alix: awesome. brian: let's go! jonathan: you're so american, you're not canadian at all. let's get to the bond market. yields are higher. treasuries up five or six basis points. in the f.x. market, a stronger story captured bit euro. a one-month low for the single currency. from new york, this is bloomberg. ♪ is this a phone?
we are on 0.2% on the s&p 500. -- inou see in the job the bond market is yields higher bytreasurers -- treasuries five basis points, and a stronger dollar story. the euro on the back foot. the data out there in the united states, let's whip through it. upside surprise on durable goods orders that comes through at 1.7% on the headline number. 1% was the estimate. if you back up transportation, durables come in at expectation also. capital goods number as well, coming in at 0.9%. the expectation, 0.3%. some upward revisions. at least on the headline numbers, it looks pretty solid. alix: what is interesting is the impact of hurricanes harvey and irma. these are going to get noisy.
it does seem solid demand is continuing in the third quarter as we have u.s. orders for business equipment increasing. david: we are going to turn to taxes. after months of speculation, we are finally going to get the specifics of what president trump is proposing on taxes. we are joined by lauren davidson , bloomberg reporter on taxes. there is a lot that has been reported by bloomberg. it was the principal points we should be looking at when the president gives his announcement this afternoon. toren: tax rates are going come down. the corporate tax rate is going to be at 20%, down from 35%. the top individual tax rate, calling for 35 percent, but giving space for committees to think about it at the top. this is a big political issue between democrats and republicans. they wanted to be seen they are delegating more tax relief to the middle class. what it does not say is how it
is going to all be paid for. that is the next question that lawmakers and congress are going to have to figure out. david: that was my question. you anticipated me. what about support of repealing the deduction for state taxes? lauren: that is an issue already dividing republicans. there are high tax states, california and new york. republicans in those states are trying to figure out how to stop that or mitigate the damage with a credit. the problem is, that does not raise revenue, to cut the rates down to 20% for individuals. that is a problem. whether it is something for oil and gas, insurance -- it is really not a partisan issue. you can really see a lot of potential for lawmakers to be divided just on the republican side. david: laura, good to have you with us. before he became a united states senator on the budget committee,
david perdue ram a fortune 500 company, which makes them unique in congress. he joins us to take us through what to expect from the tax reform package later today. welcome back to bloomberg. great to have you here. first give us a sense -- how much do you know? how much have they taken your advice and let you know what is going on about this package? how much do you know right now? sen. purude: in the senate finance committee, they have been working with the president and white house staff for nine months. we have been informed. we have had differences behind the scenes in our own republican caucus in the senate. any of those have been worked out. i am very excited about this. i am very excited about this. president trump is moving this to his top priority. we need to get this done so the economy can continue to move. david: from the beginning, the president has been in favor of this because of the connection to growth. he wants to be a progrowth
president. that is important to you as well. you former ceo, what would you see that would drive growth, that would cause you to invest more capital and employ more people? sen. purude: you have to look at what is wrong in our economy today. we have over $6 trillion not at work in our economy. we have $2 trillion on the small banks and regional bank balance sheets unnecessarily. almost $3 trillion in just see corporation profits overseas, trapped by this repatriation tax. the president has already moved on regulations. he is moving on energy. now, he wants to move on tax. we get the corporate tax rates from the percent and do away and simplify our individual tax code -- this president knows instinctively this will grow the economy. we want to improve the standard of living for our middle-class in this economic miracle.
we want to solve the debt crisis long-term. david: if you were ceo again and got the tax cut -- assume you are paying 35%. how much of the 15% difference would you use to employ new people? sen. purude: i tell you now i would meet the demand you were talking about in an earlier segment. consumer confidence is at a 16 .ear high and that is reflected we want some impact on holiday season consumption next year. i have lived this. iran a fortune 500 company that had unpaid traded -- i ran a fortune 500 company that had un -repatriated profit overseas. we have capital formation, the ingredients that could cause growth. we have not had an unfettered
way to get out that capital, and we will have that. as a ceo, i would be investing also from export potential. david: you mentioned deficits. how are you going to pay for tax cuts for individuals and corporations? when we talk to you earlier about proposals, you were dead set against the border adjustment tax. now, you are repealing the deduction for state and local taxes. that raises problems with many of the republican compatriots in their states. their constituents are being hurt. what happens to this bill if you cannot repeal it? sen. purude: first, we have to level the playing field. we have many states with higher state tax that have financial problems today to read frankly, in some respects, this is a subsidy for those states. what we have to do is level the playing field and get at the deductions. you mentioned paying for this. this is an investment we are
making. look at what happened back in the 80's, when we did it before. the reagan tax cuts set the tone for the economic miracle some decade later. what we have now is the same opportunity. 1986, when we lowered our corporate tax rate, we were third lowest in the world. the rest of the world caught up. today, we are by far the highest corporate tax rate in the world. this will more than pay for itself. if we were told that a 100 basis point improvement in the gdp is over $3 trillion of corporate revenue over the next decade -- this is very critical that we get this done right now. david: to that point, the president has said you would like to get something through october. in he would like something on his desk. are you going to get there with
only republicans? or do you think realistically you can get any democrats? we saw it and health care. we have a bipartisan committee on health care. ofht now, we could get any this done. this president knows this is a top priority to get this agenda completed. we have other things to move on to. we have got to move on to social security and medicare. -- it isis moving totally realistic to get this done. we only have 43 working days left between now and christmas. what theys will do normally do, which is kick the can down the road and work on it next year. that is not good enough. if you get it done right now, you can affect the back half of
2018. david: senator perdue of the great state of georgia. thank you for joining us. , briann: still with us from bmo capital markets. as you look at elements of the tax plan later, what is critical to you? getting it done is what is critical. everything they are saying, they have me at hello. they need to get things going in terms of growing again. you think about one of the key things that was said at the end. we have to understand that if you bring back growth, you bring back revenue from the corporate side. if you are making more money, you are paying more taxes. revenue.reating more getting this done, you are creating more sustainable outlets long-term. that is what it is all about. you bring back corporate revenue in terms of earnings and revenue growth. growing thel about
base in terms of how much tax dollars you are bringing in. there used to be so much talk about the repatriation story. where do you stand? brian: they could be part of this bill. i think what has happened this year is, as we talked to clients around the world -- if i polled 100 clients, zero would say it would get done. i think what is happening now -- if they can define a bill that can get done, you will have a rally. like, we need to get in. what is going to end up happening is, you will see a massive re-rating in terms of where stocks are, because they are going to grow at faster rates. multiples are not going to be as expected. you are going to see a flattening of the multiple. jonathan: if it gets done, do you have a high conviction that stocks go up or treasuries go down? will probably you start to see that rotation.
i think it is going to be a while before you see the great rotation. product lines need to see those losses in their bond account. we are going to see this trade out of treasuries and into equities. i want to give you an update on what is happening outside the business world. here is emma chandra. backed bycandidate president trump lost in the primary in alabama. incumbent senator luther strange moore,ten by judge roy former justice of the alabama supreme court. more is opposed to senate leader mitch mcconnell. president trump's national security adviser says north korea must accept inspections of its nuclear facilities for negotiations with the u.s. can begin. he also called on north korea to declare it is willing to give up its weapons. global news powered by more than 2700 journalists and analysts in more than 120 countries.
your. it came from german newspaper "bild" a little early on. shovel is interested in taking over as president. working shovel, and -- wolfgang shaeuble is talking about leaving the finance ministry, to leave the bundestag. a big,that will be important, difficult job. think many people wanted a senior politician in that role, and many looked for wolfgang schaeuble to fill that.
people are going to look at the face ofpeople are going to looke face of fiscal conservatism moving outside of the ministry. that individual will not be with the other european finance ministers. who will replace him? david: big change. jonathan: but hold up. dp are fiscally conservative and i am not sure they want somebody replacing wolfgang schaeuble. the face of fiscal conservatism. it will be a big change for people. as we find out who replaces him, how much changes in germany -- i don't know. alix: he has been in office nine years. we talked about this when angela merkel was reelected. germany is now not in crisis. they have been in crisis after crisis, and now it is about governing without a crisis and how you do that. jonathan: i am not sure conservatism dies with him. david: i just read that will think shovel -- i just think he is a lot of the only german politicians i can identify. he is the one everyone knows. jonathan: we can confirm he is
said to be ready to take another post. we cannot tell you whether that happened yet. another significant move -- saudi arabia announced a plan to lift the ban on women driving. dramatic move so far to open up static society. joining us is a bloomberg news report -- news reporter. will this cause a big change in saudi society? big decision. it is something a lot of women have been waiting for, for a long time. a lot of people were skeptical the government was going to do it because of resistance from conservatives and some religious establishment members. there was quite a lot of surprise and shock and disbelief.
and dozens of messages on my phone, people asking, is this really happening? there was a lot of excitement and congratulations. walking down the street, men would call out to me, congratulations for driving, and you have a driving license. there is a lot of excitement. that is not to say there is not resistance as well. people are going to be wary of criticizing the government openly because there are limitations on that. there are people who did not support this decision and bully women are not ready to drive, or believe this will lead tomorrow moral corruption or is it westernizing agenda or foreign influence. that can be belittled. jonathan: something i want to go through you -- there with you delicately is how difficult it still will be for women to get that license, given they may still need male legal guardians to give them authorization to get that driving license. there are some very traditional relationships in public between
how women interact with men. you wonder who is going to teach them to drive. how are they going to work those things out? a lot of unanswered questions right now. so far, we just had the announcement and an indication they will be announcing perhaps more information next month. the actual drivers license of limitation would not be until summer of next year. would not be until summer of next year. there is still a lot of time and unanswered questions. a lot is, would women only be allowed to drive over a certain age? there is a possibility this could say only women over 30 could drive, which would be disappointing for some of the younger women who are excited. there is a possibility it could require guardian approval. that has been unclear. the saudi ambassador to the u.s. did give a statement yesterday in washington that seemed to indicate women would not require guardian permission to obtain driver's licenses, but it is unclear how that would play out on the ground, given how much influence women's families would
play over them. there are a lot of cultural barriers. we really have to wait and see whether large numbers of women will be driving, or whether they would not. a lot of women do want to drive. there are also women who don't want to drive. i met women on the street who told me they were against women driving. there are some women who have deeply internalized those conservative viewpoints and believe they should not be driving. talk to me about the planning. the saudi's going to be on the market today. what is the p.r. visual and the timing of this? p.r. is great it is a really positive decision and one that has been waited for by a lot of national actors for a while. it is a big goodwill gesture. it is really symbolic. it is a bit easier to do. it is not easy, but it is easier than removing women's guardianship, which is a more complex system of various rules
and regulations and de facto practices. sort of an easy win in a lot of ways. it is something they were happy to announce, which is a reason they clearly arranged a press briefing in the u.s., so they could share this news with the international community. definitely good p.r. jonathan: we appreciate your time. a big move in saudi arabia. there is a lot more than it might look like on the surface. brian, of being a capital markets. bmo capital markets. a lot of tension at the moment. saudi arabia coming to the market with a bond offering today, expected to go very smoothly. payingf people are not attention to the politics of the region. are you? we are focused on oil
prices and the overall country group. in terms of an emerging market perspective, we are going to look to asia or maybe africa for , from a country allocation standpoint. this may be a moot point, the next six to 12 months. u.s. dollar strength would not make a lot of sense. prices.u mentioned oil we see in oil rally, but estimates for emr coming down. the bloomberg in the last seven days -- we have seen estimates start to roll over. here is the price. what do you attribute that to? brian: first off, e.m. had a tougher year last year, and what happened in the u.s. in terms of rotation, and had price reform. now i think the realities of -- it wasowth slowing
emerging markets. we are going to see a strong rotation still back to north america. canada and the u.s. are going to benefit from this weakness. the thing about emerging markets, such as sexy that so manygiven returns come from there. jonathan: we are going to return back to europe and bring in our berlin bureau chief on news german finance minister wolfgang schauble is set to leave the finance minister to lead the bundestag. >> we have learned this in the last fiveto 10 minutes -- five partyminutes from officials. wolfgang schauble is ready to step away from the finance ministry to lead the bundestag. this is happening in part because of the reaction to the getting intod parliament in the elections on sunday. there has been a lot of discussion in germany what that will mean for the operations of
the parliament. there has been the discussion among senior government officials that they wanted someone who was very senior to be in that position, running the show, if you will, in the lower house of parliament, in the bundestag. we are not learning from sources that wolfgang schauble is indicating he is willing to step in and take that role. he is the longest-serving member of the german parliament, and certainly is considered an elder statesman here in politics in europe. the domesticre is perspective, in which of course they want a statesman in that position. he would secure that role. regionally speaking, the german finance ministry -- they are wondering what replaces the face of fiscal conservatism in europe. is that going to change? who takes that spot? >> that really is the question. with wolfgang schauble stepping
aside, that potentially opens the finance ministry for one of the coalition partners chancellor angela merkel is speaking to. we do not know who will get that role. it is a question if they end up going ahead with a coalition that includes the greens and the free democrats. if you have the greens running the finance ministry, that is a very different scenario. what it means for broader europe is really difficult to say at this point, because we do not know who would be stepping into that role. it could be a very different direction depending on who ends up in that direction. it gives chancellor merkel breathing room if this does play out in terms of being able to potentially offer the finance ministry to a coalition partner she is trying to woo. alix: the dollar down by 0.6%. ryan lochte, how do you see europe in light of the election?
, had you see europe in light of the election? brian: we see declining assets appreciating. if you look at europe's global gdp the last 20 years, it has dropped precipitously. they have monetary issues, growth issues from the gdp standpoint. i just think that people need to continue to buy great companies in north america. jonathan: great to have you. always great to catch up with you. coming up, we are joined by the yound c i/o is we can't down to opening bell wednesday, with futures positive.
jonathan: chair yellen cautions against tightening to gradually. treasuries drop and the dollar rallies. president trump is expected to unveil his tax plan. they are planning a 20% corporate tax rate, and investors are running for the exits after the world's largest sports gear maker gave disappointing guidance for a second straight quarter. bloomberg daybreak, counting you down to the opening bell in new york city. futures are positive, of 0.2%. then you have the chair yellen-fueled moves. some solid economic data. capital goods, durable goods orders, pretty decent, taking us to .231. euro-dollar down 0.6%. some movers to complete that picture ahead of the open. nike down over 3% in
premarket, sales growth flat. in north america, revenues fell 3%. the first time we saw it fall into and a half years. -- not aue story looks good sign. user demand not really there. in the tech market, a different up 6%, crushing it in terms of earnings. sales were almost 3% better than estimated. the ceo says it is a healthy industry. fundamentals continue. it is all about demand for those memory chips. we see some kind of shift for tesla.
nvidia is out. intel is in. nvidia is out. intel is in. tesla is going to change to intel chips. this is a nice deal for intel, because it is trying to move away from pc demand into other markets. nvidia is already a leader in graphics chips. a good deal for intel. david: we are finally getting the details of president trump's proposal for tax reform. the framework document is expected to release this morning. the president will deliver marks in indiana at 3:20 eastern. by isaac peten ski of compass point. what are the important things we are expecting? isaac: from 3000 feet, i think the most important thing is any degree of detail, compared to previous releases from the big six. they have done a nice job so far of softening the ground and leaking some of the most pertinent parts of this plan, including a reduction of the corporate rate down to 20%. active owners have passed through an seen rates go down to
about 25%. we have seen some movement. for example, the clearest, i think, is that we are seeing a bit of a shift regarding the thatment of 100% costs will last for at least five years, coupled with only a partial repeal of interest to deked ability, whereas they have been talking about a full repeal of interest deductibility just a few weeks ago. david: the goodies under that christmas tree, they will have to pay for some of this. they're proposing eliminating the deductible for state and local taxes. that will raise problems with that will raise problems with republicans in congress who come from areas of the country where their constituents get a big benefit from those deductions. is this going to work?
>> you are right. today is important as a gauge of where the big six process has been moving towards. but i think it is more important highmeans of gauging how the hurdles are for tax reform. the responses, both from wall street and washington, and main street, are going to be important. i am looking to see -- what are the business interests going to say about a tax plan that has core components that will sunset within five years? what are the realtors and mortgage bankers going to say about a plan that inherently lessens the value of the mortgage interest deduction? what are rank-and-file republicans on the hill going to say, given they have largely been cut out of the process to this point? and still, how do you pay for the whole thing? practical matter, it sounds like they are putting all their eggs in the basket of republicans. we had senator david purdue on earlier, and he said, we do not expect any democrats to go with this. they potentially have to deliver
50 of 52 republicans in the senate. have talked about before, the republican party is not as much a party as it is a loosely defined governing coalition. just yesterday, senator mccain said he wanted a bipartisan process, or else. that else could be him once double thumbs down on the floor of the senate, which would be a negative. i do not think we are going to get any democratic support for this. there are three democratic senators in red states who the president is going to continue to court, but i do not see them crossing party lines. it has to be the republican party coalescing and pushing something across the finish line. double thumbs down on thedavid: we have seen that g before with this administration, and it has not played out well, particularly in the area of health care. they tried three times and did not get that done. is there any prospect for this getting done? isaac: i think there is for --
we call it the three p's, people, process, and politics. the people in the process, from speaker ryan to kevin grady, are more committed ideologically to tax cuts. it is in their dna. the process is a budget reconciliation measure, which gives them a fair amount of latitude for action. the most important is politics. everyone i talked to on the hill believes that if republicans are unable to deliver tax cuts by the end of this congress, they are in trouble for the midterms, and i will always bet on politicians to act in their own self-interest. david: agreed on that point. ofnks to isaac boltansky compass point research. jonathan: the dollar is rising to the highest levels in a month , thanks to interpretive hawkish comments from janet yellen. there is a proposal for
companies to write out capital expenditure for five years. we are joined by a chief investment officer and cofounder. some interesting moves in the market. a stronger dollar. the yield up about seven points. >> it is about time, right? we have all been waiting for this. this is the trade of the year. rates are going up. rates are going up. jonathan: why won't it get more painful? >> we are definitely in a process where the fed has come out very clearly and said, this is what we want to do. i want to reload their cannons. get the balance sheet down and normalize the front end of the curve. we have always felt the change was going to happen. it is going to be a big process. the size of this balance sheet is going to take years and years to start to reload, to get back down. they are talking about's learning very small, $10 billion
a month. that is nothing. that is just a start. you know how long the cycle is, right? jonathan: it has been pain train so far. there were two pillars -- monetary policy and fiscal conversations. short.lars to the now, monetary policy has started to move again. is fiscal policy going to do the same thing? mark: we have talked about this before. i am very comfortable with the regulation. i am comfortable with that dynamic. i am not comfortable with the political process. i think there are some macro challenges. that comes into the market. maybe it is getting started today or the last couple weeks. it is a very difficult process. how do you pay for this? it is problematic. let's face it, the leadership dynamic coming from the executive branch is really what
has to happen. to make this work to get to this place, the president has to lead a process that is very difficult. i think it would be a very positive dynamic for the economy. but it is going to take a lot of work and be more difficult than health care. alix: let's take a look at what happened with arable goods. you had core capital goods and shipments. they have been strong for months. there is some capitalthere is st input to work that matches the corporate sentiment we have seen. if we do get some kind of tax reforms, what is the case for the pent-up investment demand and how it could be released? tie that into how quickly yield can drive. mark: that would be very powerful. we do have a lot of pent up demand for growth. profits up. capital markets have been wide open. valuations are high.
there are plenty of ways to pay for growth. people are waiting to see what this will look like. alix: they are not even waiting. we need to get something, anything. .ark: it would be very positive it would be very impressive for the economy and the credit markets, for a lot of the things we need to do. rates would obviously move pretty substantially in that scenario. david: are we absolutely sure that we want that? we have fairly steady growth. inflation is contained, very moderate. the markets have been doing very well. i do not think there has been a time in history to get the money into an economy that has been on the rise. mark: it is true. i think we have to look at the source of inflation in that sort
of scenario. dynamic,ostly a supply where we are creating capacity, as opposed to a demand dynamic. markhan: investors like okada -- alix: on the 10 year what are you doing? mark: we are a floating rate shop, so most of our stuff is floating off the libor. i do not think that taking a lot of interest rate volatility in the 10 year, in the 30 year, is fairly wise. i would like to sit out of that and see where that goes before making an egg call. we are getting paid for the curve. alix: you are going to be sticking with us. later today, we will have president trump's remarks on tax reform, live at 3:20 p.m. eastern. ♪
some solid dollar strength in the fx market. you will be thinking about the politics after the german election. ,he german finance minister wolfgang schaeuble is said to be ready to leave the bundestag. domestically best to leave the finance ministry to lead the bundestag. at thell mean an opening german finance ministry. the question is, what does the coalition look like? if it involves the greens are fdp, who getse the finance ministry? the greeks will be hoping it is the greens. they are talking about a
possible successor from the fdp which would not change the finance ministries views. merkel may be open to more financial integration. wolfgang schaeuble was not. probably no change to the german position. alix: it is like shuffling your cabinet in the u.s. the euro is moving, around the lows of the session. fed chair janet yellen maintained her view that gradual rate increases are needed, despite weak inflation. is still thinks it temporary, especially if you look at the trimmed mean inflation. this is what she had to say. yellen: for these reasons, and given that monetary policy affects economic activity and inflation with a substantial lag, it will be important to keep monetary policy on hold until inflation is back to 2%. alix: earlier this morning,
daniel cerullo said there is nothing to not suspend off this gradual cap. >> i think we are in a mode in which the fed is basically saying, we are on this gradual path. it is going to take something to knock us off this path. what i heard the chair so yesterday was, as of now, there is nothing that is knocking the fed off the path. alix: saudi arabia is going to raise about $12.5 billion from a theirpart bond sale, second so for this year. it happens to coincide with leading women drive. crazy.ot go is with us.e also, mark o'connor of highland capital management. i love what richard roesler said, in terms of the fed. the conversation is no longer where you are going. it is how you do it. is that true? >> we know where the fed is
going, and they have been telling us. there is one aspect he is skipping over. we do not know who is going to hear in 2018. that could significantly change calculations once we find out who the new fed chair is going to be, and if they make nominations to other and the seats. the 2018 forecast could be a little harder to trade on. do know they are set to december, unless something really goes wrong in the data. you might as well go for the ride. fletcher has been the curve. does it get steeper from here? curve gets much more sensitive when unemployment gets tighter and tighter, right? we are going to go to 3.5 next year on this rate. you are going to start to see wages start to move. that would argue for a flatter curve from the front and.
there is a lot of volatility built into the back end. that is a tough call. my point is that the fed is definitely going to start reacting to a different inflation dynamic. that is a lag to the system. the phillips curve is not a straight curve. it gets more sensitive as you get lower on the unemployment rate. jonathan: let's get to the bonds at 48es -- basis points. mark: if you look at the projections for the last 10 years, they have been off about 60 basis points on the projections, every year. the reason why has been flows into treasuries from foreign sources. you are absolutely right to pick up on this dynamic that it is the relative rate that really can drive this. into the market keeps a cap on that rate. we see a scenario where german rates are low. david: at what point does
financial stability enter in? as you look at the credit markets, at what point do you start to get nervous that we are getting a little long in the tooth when it comes to a credit cycle? mark: i am a credit guy, so i am never not nervous. to that point, we have the we havecredit markets ever seen. we are at almost $7.5 trillion in the u.s. credit market, which is over double what it was in 2007. it is something they are going to be careful about. they have a fantastic economy right now. defaults are very low. i do not think the cycle turns anytime soon. it is something we are very sensitive to. alix: the economy, and awesome stock market -- david: sounds good to me. thank you for joining us again. be staying with us.
david: this is bloomberg. nike continues to sink in the premarket after reported earnings yesterday gave a less than rosy outlook for the first quarter. the weak performance at home is to blame as north american sales fell 3% in the last quarter, forcing nike to rely on overseas growth, especially from china, where it saw a 9% revenue increase. footwear and by a apparel analyst. he done gridded nike from positive to neutral last week and cut his price target after the earnings. why did you change your evaluation last week? getting the reads that the inventory in the u.s. was building, and we were not
really sure what direction things were going, if the positive business in the international markets has been a float towards the u.s. or if the weakness may flow over to the international markets. north american business makes up 45% of their business. that business is tough. it toughat is making now? is it competition from the likes of adidas? is it the lack of innovation? what is the main issue with nike? someey might have overreliance on some core stuff. what happened is, they have built some big franchises amid some of the jordan retro, or other things, where competition has doneas or others some business, and nike has kept the products in the marketplace
the same as they have. the demand for some of that has fallen off, which gives the appearance that the product is not as good as it was. i think the key for nike is, how do they go about sustaining their revenue question mark this is the challenge they are having -- sustaining revenue but keeping the supply of goods on core below the demand. they spoke a lot on the earnings call about developing the paper max, which is a great show. but that is new. when you have established franchises, it does a ton of business. they have to balance it. and i think they have to go back to getting that pull market set up, instead of push. it looks like you are pushing a little bit now. you mentioned adidas, but that downgrade felt a little behind the curve. adidas has been eating nike's lunch for quite a while. i wonder why you are not really
thinking about what adidas is doing and what it means for nike. a winner in this sector in quite a big way, and it looks like they are going to continue to be the winner. and you are thinking about nike, don't you have to think about adidas? becausehink about nike it is about what nike has to do to fix their issues. adidas is out there and doing a good job. however, if we are talking about what somebody is doing to somebody else, it is hard for that individual to fix what they are doing. i am just taking it from nike's point of view. they are not executing as well as they need to. adidas has made inroads. the reason is because nike has not done what they do as well as they need to. nike,k in a sense, through lack of innovation and maybe some over distribution of some product, or putting product
in the marketplace, has opened the door for a adidas, and they have even close to it. while adidas is doing well, i would not say it is because of adidas that nike is doing poorly. it is because of nike that nike is doing poorly. up and about, coming up next. some resiliency. you can call it awesome or whatever you want. positive.0 futures market -- ahe bond bit of a selloff emerging. the open higher. a dollar strength story in the fx market. ♪ who knew that phones would start doing everything?
is selling off. yields are pushing higher on treasuries. that's quite an interesting dynamic that has emerged in the last 24 hours. here the janet yellen fueled selloff. a couple higher began weeks ago. we had 30 basis points in the space of less than a month. the dollar strength story for another day. three straight days of dollar strength. we are up by .6%. across asset picture going into the open. alix: stronger equity market across the board. -- .3%.up .3 points the nasdaq up 34 points. apple is holding up despite a wall street journal report that
it had a production snags with the iphone x. the dow behind his nike. those aspects playing out in the market. you also had s&p 600 closing highs yesterday. it attacks tax hope trade lifting markets today. is steep.curve you can see the 10 year yield. no doubt feeding through to all of the banks of having a nice rally underway. 1.5.roup up interesting to see how this plays out into the 320 announcement from president trump. also want to focus on what's happening with tech and the selloff that we saw. sameng at all of the
stocks it's the difference between the price target from analysts and the price. samewhich one has fallen the mt relative to its price target. that belongs to amazon. the that spread has really been rising. the price has fallen relative to the price target. netflix also seeing a nice spike . apple is the blue line. white line and google is the least of the bunch treading water. has fallen. do analyst estimates come down or do we see the equities start to rebound? we start to drift higher. up by .4%. bank stocks up by 2.4% off the back of that softness in the bond market. lehman to bring in mark of jmp securities. let's begin with the bullishness around amazon that still
remains. justified in your view? >> i think it is. it is one of the most innovative companies. one of the reasons the stock has had such difficulty is a some of the estimates are that much higher. is wherehe revenue it's going to go. the issue is the profitability. some of the other stocks like facebook, the profitability has not questioned how the third quarter will turn out. i still like those stocks and you want to own them into the end of 2017. interesting you bring up facebook. the concerns are around the politics. do you think people should be concerned about the politics? seeing pretty dramatic language used it to describe the company and what will happen if they don't grip on things quick. >> it is a concern.
you see some of the european regulators and the tarnished this company has taken over the last few weeks and months. this is a very formidable management team. they're doing other things with their other products like instagram and messenger that are quite good. i think they will handle the noise and the earnings will come through and you want to be a long-term owner of that stock. is also a chinese issue with facebook where the chinese government is targeting their whatsapp. it's important. whatsapp and messenger have not really come to the monetization front. issue ishe near-term with core facebook and instagram. long-term that is something you want to pay attention to. whatsapp isn't the driver to earnings right now.
.t will be more of a driver in terms of near-term earnings that's really not the issue with the stock right now. rebalancingind of will we see from portfolio managers into the fourth quarter considering they have been such out performers? and you're going to see some rotation into financials. we have stomach to some of that rotation already. expect that has already taken place and the rest of the to not show a disproportionate hit on those stocks.
i think the stocks have weathered it quite well. alix: take a look at the average price target for analysts. facebook has really seen the most re-rating in terms of its price. rank for me what's on the buy list. rank for me what's on the buy list. >> i like facebook still a lot. huge drivers in instagram. they have exploded. we saw a number yesterday where monthly users go up for facebook. i would put facebook at the top of that list. you also want to take a look at amazon. that stock has gotten a little bit of a hit in the current quarter. i don't think they are done on the acquisition front and you are not going to see any slowdown in amazon web services. apple?ow are you playing the 10 might have a huge super iphone cycle. is going to be a choppy quarter for apple. the fourth quarter will start out with a little bit of slowness. certainly a big 2018 story. i think you are going to see this thing tread water.
of 150chological barrier which was breached a little bit yesterday maybe another test going into the fourth quarter. i think you want to play that stock into 2018 and beyond. comingsee more stuff from them on health care. apple is a stock you want to pay attention to. you don't want to forget that stock. jonathan: here's the picture of the iphone. i saw you shaking your head. think this trade is pretty crowded. type in my equity day job but i do think there is a rotation in the cycles that come into the fourth quarter. i would rather own financials. i would rather own energy stuff. jonathan: tech is going to be the worldt waiting in index. it's going to take over financials. how do you see it involving -- evolving in credit? >> we don't have a ton of tech
in credit. there is some in the software stuff. it's not a big part of what we do in the credit market. more of an equity story and equity risk specifically. they are of huge still this year. i don't know if i would want to have a ton of it this year. david: mark lehman, talk about a different kind of rotation within the tech sector. every time somebody comes along that might be in a position to challenge it they get knocked down. is there any prospect that somebody else breaks into that que? >> let's not ignore software as a service where we have been very positive. companies like workday. those companies have not slowed
down. they have gained a lot of market capital. ofy are using the umbrella some of the install players like ibm to garner more market share. that has not slowed down and that moved to the cloud their benefiting from it is a story we will see through 17 and 18. service and workday are two names that we like a great deal. now you have trump talking about facebook as well. facebook was always anti-trump. the networks were always and the trump. hence a fake news at new york times apologized. collusion? point whenten to the tweets?gnore the trump market or sure the wall street pays attention to donald trump's investment
history. i am not sure you want to follow that. maybe this is becoming the sports illustrated curse. the company is going to look fundamentally at how they do on the earnings front and they report the third order in october. pay attention to those things as opposed to tweets from the president. alix: stock is at the highs of the session. what does repatriation and of doing to the corporate bond market? >> you are going to have a lot of capital that potentially can come back in. maybe they don't need to raise as much debt in the credit market. jonathan: much of the so called is already in corporate debt. the average cash balance. a lot of it is structured in some of these tech companies that have a lot of that cash overseas. is a big positive for capital markets in general.
as a credit investor what you really care about at the end of is getting your money back. if this is positive for the corporate economy, the u.s. economy, that would be a good thing. jonathan: you know what we're going to talk about next. a little bit of toys "r" us. mark lehman, thank you for joining us. mark okada will be staying with us. much on the front. up .4% on the s&p 500. a bullish move in the equity market despite or maybe because of a very bearish move in the bond market. treasury yields are much higher given bank stops. up seven basis points on the 10 year in the united states. this is bloomberg. ♪
>> mrs. bloomberg daybreak: europe i'm emma chandra. -- this is bloomberg daybreak. i'm emma chandra. alix: it has been over a week since toys "r" us filed for bankruptcy. this is what their leverage loan is doing. trading at 65 cents on the dollar. this is what mark okada of highland capital owns. when the news broke we were all like, we have to call mark. how does he feel? how did it play out for you? >> we are still up in our
position. can't talk specifically about what we are doing because we are involved. i think it's a great story and something to look at where it's not just about calling the situation. it's being in the right place. bonds are down 60 point on the day. we didn't think it was going to happen now that trade got spooked. the company is looking to reinvest a lot of the capital that frees up from the filing into making this a better company. we have been involved in toys because we always felt this was a growing concern. you cannot have a toy making company without these guys. they're going to get better from and where we are situated in the cap stack will benefit from all of it. jonathan: this was but a lot of the retail called
version of a bank run. the news came out there was some problem with vendor financing and in the shoe dropped in like two weeks. you must be thinking this can happen elsewhere in a rapid way as well. >> i have seen it happen many times. this is the issue with retailers. if the vendors are not going to ship for you for christmas you have to go get your liquidity and keep them comfortable. they really are the canary in the coal mine when it comes to retailers. here retailn w is do you have to be willing to take equities? it could happen. there are scenarios that would play out that way. comfortable with that valuation. we are comfortable with some of the parts of our collateral. going into do that
these situations. some of this dynamic -- i think active versus passive is something that is very important. jonathan: you came on the fixed income program on bloomberg and you said at the time when you said you were buying toys "r" us, you said you were buying it because it was an opportunity to be active and not passive and take the good stuff. by being active you have actually picked up some of the bad stuff haven't you? >> i'm not going to get it all right. in the long run i think we are going to make a lot of money. more active in these situations it's always winners and losers. that's what we are in the business to do. you can have your advice and if you have all this etf flow and no one cares what is your advice worth? if an event happens and then you are right then people start to
think those guys at the highlander not so bad. alix: you do like floating rate loans. you have seen a lot more you have seen a lot more leverage on issuance than in the high-yield junk bond market and a lot of leverage loans. what is your response to that and what do you think the opportunity is? >> these all have to be taken in the context of things. there's a lot of focus in the short term. isce the crisis high-yield up bigger than loans are. the curve has a little but it. down toly this comes actual credit risk. what kind of risk are companies taking underlying these. issuanceok at other the thing they have is maybe higher leverage. bonds below junk high-yield loans in general.
the credit quality is a little bit higher than cup heavy. we are rational. we are looking at risk and saying where should that be price. it is something that is always on the mind of credit investors. we are always looking at risk and we are not willy-nilly pricing something because there is an etf flow. take a rational view. certainly there has been a flood of money into credit markets and that does compress yields and yields are tight. that's kind of where we are. picking winners and losers is going to be very important. you have a lot of sensitivity to down drafts and it makes you more sensitive to down drafts when you have a problem. alix: you don't want to own heavy because there's risk. chicken and egg. mark okada, thank you very much. if you have a terminal check out
david: this is bloomberg. i'm david westin. college basketball fans are crying foul after criminal charges were filed against four ncaa basketball coaches and an executive for their involvement in a bribery scheme designed to steer nba destined college stars toward certain managers and endorsing the sports apparel company. joining us now are eben novy-williams and joe nocera. you have a strong view on this and you think? >> i think they are ncaa regulations. the fbi is doing the ncaa's dirty work. scandals liken this over the year. money has changed hands of time
and time again and coaches have lost their jobs and players have been declared ineligible and schools have been fined by the ncaa. no one has ever been indicted. when a deed is gives money -- a gives money toas a coach that's called a deal. this is called abroad. >-- a bribe. >> this calls into question a lot of their amateurism. it is players do not get paid and everybody else is making millions of dollars and in the ncaa case billions of dollars you great assistant for this underground economy exists. david: don't we have a construct in our mind that these coaches have some obligation to the students to do what's best for them? for them to take money to get them to do something that otherwise might not be best for them normally would be illegal. no question about
that. the question is whether or not the no question about that. the question is whether or not the ncaa is a victim as the fbi seems to say they are or punch the problem. -- part of the problem. david: if somebody pays you money to violate of fiduciary duty that is a crime. >> and why can they leave after one year? you recruit a kid, they don't have a duty. david: the kid decides to leave. the coach doesn't coach the kid to leave. a legaldo not have fiduciary duty to the athlete. they say they do but legally they don't. they can do whatever they want. my point is simple. these are violations of ncaa rules. these are violations of ncaa rules. the rules don't want players to have any money.
and they don't allow the players to have agents. they create a system where this is almost inevitable. we are at bloomberg. we believe in the market. this is what happens when you try to squelch the market. david: we believe in a transparent market. coach, you can take as much money as you want. you have to tell the player you are taking money to direct them to go. >> if you had a system that made sense the coach could transact himself. the ncaa doesn't allow them to talk to agents so they need somebody. this whole thing is ridiculous. and by the way if this happens this goes through, what you will have done is you will have set a private organization the ncaa, their rules are now going to be the law of the land because you can put people in jail for violating them. david: let's go to the bloomberg analogy. if i was taking my from someone on the outside in order to do something on my job i otherwise do i think bloomberg would have a big problem with that. do i think bloomberg would have a big problem with that. so why isn't that what's going on here? the coach theoretically works
for the university. now we are going to take money from the outside that's going to at least distract him. there's no question there is an assistant coach paying a kid mother either to come to the school or to later wear adidas is a when he is a pro that violation of the rules. joe is saying is whether that something -- that is something that should be illegal. >> if you did that at bloomberg, would you be indicted or would you be fired? you would not be indicted. jonathan: thank you for joining us eben novy-williams and joe nocera. on the s&p 500 and on the dow. it's a yellen fueled selloff in the treasury market. this is bloomberg. ♪
vonnie: we will cover donald trump's big tax beach this hour. we start with breaking news on data just out. julie: pending home sales coming in weaker than estimated with a decline of 2.6% in august on the year-over-year basis. that decline is 3.1%. bigger drop in this forward-looking indicator of pending home sales. the estimate was for a decrease of only half of 1%. ifwill be watching to see there's any reaction in the home builders. to get this somewhat choppy data on the housing market. stocks have been holding up relatively well this morning. we are seeing