tv Bloomberg Daybreak Americas Bloomberg October 19, 2017 7:00am-10:00am EDT
yellen heads to the white house. your pm rising in spain. the prime minister plans to take another step. engine keepsh delivering. gdp growth 6.8%, driven by infrastructure spending and exports. from new york city, good morning, good morning. daybreak."oomberg: let's get you up to speed on moves this morning. futures are softer, down one half of 1%, off of a four-day run. another record high close. bit in treasury. eels are lower by some basis points -- he yields are lower. at some euro strength to spike the crisis in spain, 11820 six. >> let's look at spanish acts -- assets. tenets of 1%8 --
-- a slight amount less than 1%. yields up by one basis point. sterling here, weaker you take retail sales, lower on the day. he wants a little risk off bid. gold, the to look at one to watch. david: it's time now for the northern -- morning brief. outeds -- claims will be 8:30 this morning eastern time. 9:30, eu leaders will meet in brussels and discussed illegal immigration and taxing digital companies. president trump will injured -- interview janet yellen, on whether she gets another term. if this resonates -- >> i was thinking the same thing. it would seem like, what -- why do want this job? [laughter] rates?ou like low
do you like deregulation? [laughter] >> are so your most recent speech, i heard you don't. [laughter] >> i think it reps up from there. >> what do you mean, most recent speech? like, forget it, i'm out. >> heading to spend for the latest, the president -- the government has announced they moving forward the process of this -- suspending the government, after the president refused to drop his claims. joining us -- now is maria fidel. hull -- maria, what are we going to be looking at? the president is as defiant as ever. obviously, the reaction from madrid, is article 155. this is an urgent cabinet meeting. we will put this forward and
come up with the number of measures to be floated as part of this article. this measure will suspend the regional government. we can also get an indication of who could replace to mont for how long -- who could replace de mont. to call aent has time recall election. madridteresting -- that will wait on saturday. ,here's hope they can get them though it's unlikely. >> outside of catalonia, how is this playing out? we saw the response across spain after, what many people argued, was excessive use of police force. is this the right step forward for the prime minister of spain -- it seems questionable politically. how does is play out for catalonia -- this plant for catalonia? >> great question. the spanish government is coming -- coming to terms that optics
matter. the referendum was illegal, but the vote we saw was unacceptable. we know that so far, the european union has said this is a domestic matter. we believe they can get it done. we have seen the belgian prime minister saying maybe we need a third party. we know madrid doesn't like this idea, and don't want to mediation. , something they don't want. now?, what happens >> so, the data we are looking at, the government meets on saturday. they will come up with measures they're going to announce. is a two dayt hold, followed by a debate -- to appear before madrid. there could be a lack of about a week between the trigger and the
article, and the actual implementation of the article. it's crucial to keep in mind, while the article might be implemented, it demands -- a lot of resistance we get from the government. you don't want to say look, i'm not leaving this office, you are going to have to pull me out. not so good for optics. thank you so much. here's the reaction in the marquee. look at the ibex. that's a lot more than 1%. fell around the lows of the session. a different kind of reaction in the bond markets. a lot of supply coming online. it was a soft, spanish option -- auction. was by this. it you see that dip right there? that's the headline cross, and that we are back up. joining us now is the director of mac -- global macro, jurrien timmer. what's the trade here?populism
is easier said than >> done. -- thanpulism is easier said done. gdp is running north of 2%, inflation has made a slight comeback. i think, at the end of the day, we have to ask, is this systemic to our outlook, our portfolio? if you have a diversified it makes as much sense today as it did yesterday. >> jeffrey says there's no catalyst, we look at bond auctions today, that was week for the tens and the threes. 30 was a little bit better. is there a regional issue you have to deal with? goassuming that this doesn't much further, and obviously, tricky article 155, strong statement from the spanish government, that they want to stop this in its tracks. >> yeah. i think, at certain levels,
spain is still going to make sense. he still have open trade. >> could you fix point to make a diversified portfolio in europe -- could you explain to me what a diversified portfolio in europe looks like? >> you find a benchmark, then find opportunities around that. >> typically, we consider a diversified portfolio some bonds, some stocks. bonds look as risky as stocks right now. thest wonder where you get difference of vacation from. >> all asset classes -- where the difference in classification from. differ.sset classes you go on the curve, the more that's going to impact it. it doesn't affect the diversification aspect of a of theio, but it's one axis to two questions we are going to be dealing with with years for come -- four years to come.- for years to
what is eventually tightening going to do to the bond market, and how is that going to affect the evaluation of everything? >> you have something on european risk, you want option on the short side. you take it around italy. over the last week or so, we can get pitch rates on the screen for that. some italian energy firms up there. when you look at the risk, we can bring in spain, the 10 year spread. you just show, italy is still elevated above spain by 14-15 basis points. many people out there, italy, are aware of the european risk. do you share that view? >> the whole five-star thing is still out there. it's one of the few things that is still out there. we've had all the other headlines play out. get into theto details of how many basis points should we be trading over spain, but it's core versus periphery. it's europe versus -- or,
non-u.s. developed, or u.s.-developed versus emerging. i tend to think in larger building blocks. certainly, spain versus italy, others are value trades that people will get things out of all the time. >> given the experience of markets getting past all of the political risk in europe, when you are talking about diversifying in equities in europe, is it more important to diversify geographically, or by sector? which is more important in having a lost portfolio? >> sector has become more global. we tend to think more in terms of sectors. with sectors, do you buy check -- tech in china? europe doesn't have a ton of that. driven you are kind of by the sector selection. europe is more financials driven, the u.s. -- is different. you look atsector,
the story. do you buy india, clarity exporters? there are multiple levels to this. i wouldn't think that in europe, it's just this country versus that. but, is at the spanish bank versus the german bank? timmer staying with us. an exclusive interview with the co-chief investment officer -- coming up., two hour 20 minutes away from the cash open in new york. from new york, this is bloomberg. ♪
♪ >> president trump meets today with fed chair janet yellen. as he concludes his interview with candidates for her job. people are telling us what they -- consider is a tailor -- put on u.s. -- first installer exports -- expiring next december. the white horse down the bottom spike up as people by this euro-dollar option. make of this, urea and? -- what do you make of this, jurrien? >> the markets have not priced -- ae odds of a taylor taylor wrists election. all of the other candidates are in the same ballpark, more dovish, and obviously, if this happens, i think it would force markets to reprice a little bit.
the forward curve, fed futures for -- curve, is pricing 2.5 for next -- the next few years, including odds for december. taylor has basically different versions of it. the old-fashioned -- the original suggests a rate of 5%. that's a pretty big disconnect. works up to 5% only if you put certain values in. it's more of an equation than a rule. do we know what professor taylor would put him? >> no. he have the original taylor rule. ,t's an inflation fact inflation versus target, a growth factor, growth versus potential. then, there's the constant, the trick. is a 2, 3, 1, 0 it has to do with? .he natural rate
the fed, had numerous perversions, i believe -- when chair yellen was there back during the financial crisis. it's all about that constant, and how variable it is. it's a matter of, how do you treat the balance sheet? if my memory serves me right, the san francisco fed assumed that every half a trillion of qe was worth 75 basis points. you abedin, that's how the taylor rule could get to a negative value. that's why qe was done at the substitute. now it will go the other way. by our estimates, it's straight by one and a quarter trillion dollars over the next three years, which is quite a bit. you could argue that that adds about 100 basis points above tightening, to already, a medium dog that suggests seven more hikes. it is important, but i think these rules have to get modified
as the reality changes. that's probably a good thing, although i'm sure mr. taylor would argue that's not a good thing. >> let's get to the event of the day. room somehouse, in a where -- somewhere, will be chair yellen. what is the case with her reappointment question mark why should president trump -- with her reappointment? what should president trump give her another term? >> don't fix it when it's not broken. think about where we were 7-8 years ago. most people, myself included, when we were in this qe and other -- era, they probably said we will probably never get out of this, painting themselves in the corner. they are never going to get out of this, and, here they are. hike's a fifth rate potentially coming in december. the market is making new highs. they thought they kenexa lead -- actually normalize policy.
so, why fix that? >> let's talk about the politics. to, theydent nominates confirm, the president sits back. people are mounting a campaign against her reappointment. the president of the united states -- how much attention do you pay to that? -- the statusess be easier done, perhaps, than a radical change. going from an establishment of --to more of a renegade hawk he may get some people in the house to vote for that, but there's going to be a lot of others that probably won't like it. ultimately, the businessman -- seems to work. whether it's her or tao -- i think it really does come down to those two camps.
i don't know the outcome, of course, but i think that's a very important decision. >> presumably, president trump will have a check on whether he wants to go to a normal job interview. which is the most important question that he would be putting on it? he will need someone that can overlook fiscal stimulus. at the end of the day, that's what he needs, right? >> the fed is supposed to be independent, not obviously -- >> and sure, i get lots of vacation, i'm not tired. yeah, yeah, yeah. [laughter] >> the question should be, is this working? if it is, why change it? >> you will be sticking with us. coming up later, republican senator of pennsylvania will be joining us. he is the head of senate budget and finance committee member, lots to discuss with him. this is bloomberg. ♪
♪ taylor: this is bloomberg daybreak. vehiclesof 1.2 million from an automaker, suspending production in its japanese factory for two weeks, due to an uncertified expected. this is likely to cost nissan about $222 million. has given a lackluster profit forecast for the holiday, which dampen enthusiasm for the online -- that the online marketplace would -- have an industry dominated by amazon. it has increased spending on marketing, and is trying to make it easier for shoppers to navigate the sites listings. in the u.k., higher inflation is eroding to consumer spending power. retail sales fell more than expected, intensive 1% for the third quarter. sales rose at an annual rate of 1.5%, the worst performance in four years.
that's your bloomberg business flash. john? >> some ugly data coming out of the u.k.. disappointing retail sales. prime minister theresa may keeps her focus on brussels, where european leaders -- have the two-day summit. frexit divorce talks, may will be hoping for -- hits, this talks consumed again. nejra cehic spoke to the prime minister ahead of today's talks. take a listen. >> the provisions we heard six no datego, about exits, -- no better deal than that deal, our past history. politicians ornd more realistic than they were six months ago. >> never joins us now from brussels. i don't know about the brexit showdown, but i understand that that's what we've got all over again in brussels. that's right.
it's the same thing we've had for quite a while, where britain once the eu to move forward and on to trade talks. they are saying, you are not giving us what we want. theire was referring to actually, was the fact that theresa has made a small concession today. actually said to the 3 million eu citizens living in the u.k., we want you to stay after brexit and will make that protest is a. is it going to be enough? probably not. they will push this talks for trade as soon as possible. we are hearing from an eu diplomat -- talks moving to trade by december is about 16-50. they still want to hear more about the brexit hill. there are three things they want it u.k. to move forward on. the brexit bill and the irish border. it's an issue of the bill proving the most sticky. things you see at the
moment are saying, ok. we will think about maybe coming to a decision in december on whether we move on to trade talks. there is no guarantee. what's more, they will talk about brexit tomorrow. >> it's quite clear to me that they want to play hardball with the prime minister. for europeans who have a decision, they can negotiate with theresa may, or with jeremy corbyn. is that a decision they have to make a calculation about? .> i asked that exact question i said, would you rather negotiate with jeremy arvin or theresa may? he said come -- jeremy corbyn or theresa may? he said, theresa may. now, i imagined most eu leaders hold that same position. what's so interesting about , he went with me
hours before, and decided political theater -- he gave a speech at a socialist meeting, and was announced as the next prime minister of the u.k.. theater from jeremy corbyn, pushing a jobs first , ready to negotiate on behalf of britain. notro-european or pro-european -- >> i think he likes it that way. >> nejra cehic, thank you. little bit earlier for the session, down 2/10 of 1% of 13179. pretty weak -- retail sales. why is the bank of england thinking about this next month? is your politics, the data stuff. let's call it soft -- be meehan and call it what it is. it's quite rubbish right now. they are talking about hiking rates. why?\ >> i'm not sure. ultimately, it's the unwinding of globalization, or investment
against globalization. globalization is higher growth, lower inflation. populism is the reverse. generally, the rest of the world is still relatively calm -- i don't know how much sense that makes. >> sticking with us and markets there. sterling weaker, futures softer. magnusup later, george will be joining us. point five hour speech from president xi jinping yesterday. from new york, that's next. this is bloomberg. ♪
s&p 500 just falling back from an all-time high, and a close yesterday at the benchmark in the united states. mild risk captured in the bond market as well. treasuries lower, three basis points. eurode of this, a stronger , against a stronger yen. that story captured across access throughout the morning this thursday. -- across asset story, let's get some headlines out of the business world now. here's taylor riggs. taylor: catalonia's government being suspended. claimed -- refused to drop claims. leader hasent -- called a special session for saturday. his advisers are a measure he plans to take. a benefit us in deal to prop up obamacare has stalled. president trump sent a big signals, until his press
secretary declared the administration is opposed. congressional leaders are against it. this would restore subsidies to health insurers, and give states more flexibility. china's economy topped up the momentum in the third quarter. 6.8% from a year ago. retail sales were up more than 10% come and factory output was strong. all of this is xi jinping a stronger hand to rein in industrial capacity, curb pollution, and have more sustainable -- a more sustainable growth path. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. of chinaent xi jinping -- is consolidating his power even more in beijing. we welcome george magnus, and economic advisor to the china center, formerly chief economist for ubs. let me start with you.
numbers in china now. he's just on a roll. the global inflation and the fed recovery -- backed off of its hawkish guidance. the dollar had gone up too much. that had put a lot of pressure on the chinese financial system. the yuan is tied to the dollar. it cost over $1 trillion in capital flight in 2015. china went back to this level, pumped a lot of credit into the economy. you actually have an indicator called the china credit impulse. one to 3% of gdp. with that came a consolidation, capital controls. will about state capitalism, it seems to be working right now. the global learning cycle can continue to advance as it has been doing for six quarters now.
>> the rate of increase of credit is coming down somewhat. not dramatically, but somewhat. at the same time, they are borrowing much faster than that they are growing gdp. how long can they sustain that? >> it's the ultimate question. back 10 years ago, the multiplier affect of producing new gdp was almost one to one. they had may be 6 trillion of new credit -- that would generate about five and a half trillion of gdp. today, they are pumping 20 trillion new credit ticket about 7 trillion of new gdp. you wonder, that multiplier will come down, but now with capital controls in place especially, they are keeping this going. this credit impulse want to 30% of gdp. the key is the aftermath of the credit impulse. during cycles, they would over tighten, and the whole thing
would come back down again. seem to be figuring out how to keep this going at a steady level. >> you listened to the three hours. what's be honest here -- george, i wanted to get your take on this year. politics in china over the last decade or more has been a nice tailwind for the economy, and for markets. will be the same going forward? >> give me that? -- once more, i didn't catch the last part. going to bes shifting from a tailwind to a headwind, and why? i think, to the extent that, for most of the last several years, the investment environment for china, i think there will be some hiccups along the way. president xi jinping wasn't mosted on the economy, and of the last five years were about building up control.
think this was a subduction i don't think this was a surprise, but it was corroborated. the direction of controlled the economy is going to be much more significant. it could go for the next 10-5 years. in that respect, politics is a bit of a headwind. it's a $10 trillion market, second-biggest in the world. a lot of investors are going to be in china -- and actually, the whole government system, the way in which politics influences what companies do and how they behave is going to be something that people need to become aware of commemorative of intrusion from inside the companies may be better or worse than it is outside. the kind of situation we are looking at the next few years. >> why do you think so many
people are willing to give china benefit of the doubt? the speech and also the economic forum last year, it's almost laughable. the man -- had probably the most close to thought economy out of everyone there. somehow, people are believing this. i just wondered, george, everyone is giving china the benefit of -- why is everyone giving china the doubt? -- the benefit of the doubt? >> on one level, i can see what's happening to the united dates is wrong and global institutions. governance of the global system, it helped to create and nurture for the last 60 years -- it's quite a shock. power, chinagreat -- it is wishful
thinking. china, is not -- as a leader of globalization in the way we understand it. is a leader of globalization in the way we understand it. people are on social media saying, deleveraging the gdp is. 's there really isn't any. deleveraging going on. >> george, one of the things we heard from president g -- president xi is how he wanted the party to permeate every corner of china's economy. can he achieve that and maintain the growth rate? there a tension between those two things? >> you cut the nail on the head.
can he achieve that?the last couple of weeks , we've seen these items about the chinese state trying to seek states and the bad companies -- by alibaba, big technology companies, so they can actually have a say in how the company is run, the management. they extend their private influence from the state sector to the private sector question mark i think yes. can they have a growth rate while bringing down leverage in the economy? i don't think that's possible. if policy doesn't change, these could roll for a little bit longer.
we are excited to see a much sharper drop in the growth rate. >> thank you so much for your perspective. juirren will stay with us. earnings coming in for the stock $.98 a share. that's in line with estimates. you also have operating revenue coming in. $31.7 billion, a solid beats as well. this was interesting. post-pages below 1%. i just want to point out that a good day for verizon. >> you can tune into our colleagues, tom keene and david gura over on the radio.
the -- senate and finance committees. >> thanks for having me. >> i want to focus on tax reform. that's what our audience is focused on. did up thent we following. quote, republicans are going to budget approval today. the first step towards macs of tax cuts -- i think we have the votes, but who knows. is there a buzz of -- but votes on the budget resolution today? >> i'm very confident that we do. we will fend off many amendments today designed to destroy this process. at the end of the day, i think we are going to pass a budget resolution in the senate. keep in mind, the budget has artie passed their version, which is quite different. we have to reconcile that, then both houses to have to reconcile -- pass a reconcile version.
this is an absolutely necessary condition to tax reform. allowsget resolution subsequent tax reform to pass the senate with a simple majority vote. we have to assume that we will need that 50 vote threshold in order to get this done. big day today. theainly not the end of process, but an important milestone. >> give us an -- a sense of the next step. >> i think that will happen next week. over the course of next week, representatives from the house and the senate will come together, work this out, and hopefully be able to get it resolved, then get it back out on both chambers floors for up or down votes. that could be a bit of a challenge. the two versions are quite different. it's not as though we haven't seen this coming. there's been a lot of
discussion, a lot of work. i'm cautiously optimistic we get that done next week. tax reform is receding on the track. -- or until unless the budget resolution happens. we are in the process of developing legislation so it .ill be ready to go quickly >> not to get too far ahead of ourselves, but let's assume we get all that taking care of, ready to go with tax reform. if you look at the substance of tax reform, what do see is the big two or three hurdles to getting to an agreement on tax reform? >> well, any number of hurdles could come up along the way. here the big features that will make this -- compelling. one, there's absolutely going to income for's lower working families. that's absolutely going to happen. that's a hard thing to vote against.
it's going to be very pro-growth. in thertually highest capital expenditures are very pro-growth. those are the kind of linchpins. thelly, fixing international fees that have left so much subsidiary profits stranded overseas. those are the big things. we do that right, i think it's going to be pretty compelling. >> as you go into this process, will you be watching, will the congress be watching, distribution of taxes? you've mentioned them tax -- middle-class tax cuts. 10% of people in america pay 80% of taxes. is it your goal to maintain that ratio? >> it's a very good point. this is one of the problems we have with her democratic colleagues.
despite the fact that 10% of manye pay 80% of taxes, people don't get anything out of it. i want savings, and the tax code that maximizes growth. if that means that virtually savings -- i'mme fine with that. we will have to look at distributions, but inevitably, very well, people are going to continue to pay a disproportionate burden of the total tax load it that's very likely to remain the case. netimportant thing is, a tax reduction for virtually everyone, i think people should be quite happy with that. address a couple of them, this?they really derail
is immigration on one hand, and subsidies up for the health care, obamacare insurance. can they do this? >> i think so. they are discrete issues. we will do some of those things through process. i tell republican senators, it is important that we get this done. i don't think we will let other things delay and. >> thank you, senator, for joining us today. >> another record, politico has a statement from steven mnuchin. --re is no question
reasonably high expectations, there's no question of my mind that if we don't get it done, you will see a reversal. ?hat did you make of that quote >> i think it's partly correct, but you have to look under the surface. earnings, financial positions, using the spike of that. those are basically global forces. the snp is basically global. u.s. smallok at caps, like the russell 2000, and you look at the ratio to the dutch russell to the snp. flowee clearly the ad and of what is and is not being priced in. with a surge in optimism of tax reform on deregulation, so small caps really outperform large caps, then it went completely the
other way. we are halfway, but i think it's those second relationships where you have to look. we were talking about earnings. the earnings and k-1 world 14%. q3, of about three. maybe this was up to six or so. clearly, a deceleration, mathematically would be a given, coming a year after the earnings cycle, certainly, if we did get tax cuts for corporations, maybe that boost that earnings growth rate -- but my understanding is that this is not priced in by any stretch. it's 50/50. >> is there a strategy of key officials of this administration, saying look at the market. if you don't act, we will have a vicious correction. [laughter] >> i will defer on that.
>> just tell me, your personal perception of the situation. is that what's happening? >> think it's risky to tie everything to the s&p 500 index or the stock market. it's going to do what it's going to do. markets are very rational, they price and the odd on the fed, on taxes. >> they ignore the dollar, ignore 10 year treasury yields. >> you are going to be sticking with us. let's take up -- check out tv . you can watch us online. this is bloomberg. ♪
reported weak sales today, the culprit is the weather. there are several hurricanes in the u.s., rain in europe. nicely down by 5/10 of 1%. the sector was artie struggling. joining us now in london is our bloomberg reporter. what went wrong? let's not blame on whether -- on the weather. seeing here is a long-term trend. people are not that excited about mainstream brands anymore, the way they were for decades. that's a problem for two of the biggest food companies in the world. ways to to find other get consumers, you will see growth slow, share prices slow. keep talking about synchronized global growth. european growth is better, we will want to invest in european equities. that's the micro. they can't get stocks off the
ground. >> that's right. the paradigm has shifted. it used to be keeping up with the joneses, but a big brand is what you wanted, because that's what the joneses had. now, it's about different --ding yourself differentiating yourself from the joneses. they are doing that, but it's really tough, getting tougher to do it. >> is not just the united states. it -- it appears that these big brands are not that strong. everybody wants the local brand, and they're willing to trust that in a way they want trust others for goodness sakes. >> they are doing better emerging markets -- emerging markets than they are other countries. you get to a knowledge that --de weather played a factor you have to know it's that, weather played a factor.
the fact is, he's got to find stuff these days that are organic, vegan, whatever you want to call it. that is where the growth is. these companies are building up portfolios. they are small, they don't move the needle, and the pseudo-whole lot of them. >> great to catch up with you from london. 30 year since black monday. capital chief strategist, from awayork city -- one hour from the open in new york. trading softer after a series of all-time highs. this is bloomberg. ♪ is this a phone?
the white house. an interview with the white house as a concerted campaign against her reappointment builds. the crisis in spain defense. the prime minister will have to take another step towards suspending catalonia's anton amis. gdp rising 6.8% driven by infrastructure spending and exports. good morning, good morning. this is "bloomberg daybreak." davidonathan ferro with westin and alix steel. a mild risk off tone after a record high to close. 12 points on the s&p 500 futures. the treasury market, also racing around the 230 mark. -- 2.30 mark. it is a weakert, dollar stronger euro stronger yen and stronger swissie. alix: reza a lot of buying coming into the bond market in europe, expect -- except for the
spanish 10 year. we saw selling early in the morning, now we are unchanged on the day. spanish equities down 8/10 of 1% . got a highlight sterling, coming in at 1.31. theresa may speaking right now, i think she is begging for some kind of deal, begging the eu on the heels of the weaker retail sales. let's get an update on what is making headlines outside the business world. taylor riggs has first word news. triggering the process to suspend the powers of catalonia's government. they catalonia governor refused to drop independence. rajoy has called a special session for his on saturday. his advisor finalizing the measures he plans to take. in brussels, a showdown over brexit. theresa may will use the european union dinner to demand the eu move brexit talks on to
trade. eu officials see a breakthrough as impossible. they're deadlocked over a financial settlement, citizens rights, and the irish quarter. gdp rose 6.8% from a year ago, matching estimates. retail sales were up 10% and factory output was strong. all of this gives china's president xi jinping a hand to rein in excess industrial pollution, and have a more sustainable growth path. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. david? seems likey day it the president adds something to the congressional to do list. from health care to building a wall. this morning president trump tweeted that his top priority is tax reform saying "republicans are going for the big budget approval, first step towards massive tax reform.
i think we have the votes, but who knows?" do you know if they have the votes? kevin: i thought the senator had they areought that focused like a laser on tax reform. there is no question that they are likely going to pass the budget later today. i was speaking to us before we got off the air and 11:45 is a-rama will kick off. while they are dealing attacks reform and a big legislative to do list, let's pull up some of the things on the to do list, including funding for the u.s.-mexico border security wall along the border as well as health care subsidies as well as supportsdministration alexander and murray's proposal. we don't know. immigration reform, planned parenthood, we could get a vote on additional harvey relief funding later tonight.
in the children's health insurance program which is set to expire this fall. a lot they have to get done. it seems like republicans are trying to create a parallel tax reform.or treasury secretary steve mnuchin saying in washington this week that the stock market to be impacted if they don't get that done. he is all in and predicting it gets done by the end of the year. some folks, including director mick mulvaney of the budget office saying that potentially this might be pushed to next year in january. david: you think they will get the budget out of the senate today, then they have to reconcile. pat toomey from pennsylvania told us they think they can get that done next week. when will they get the tax reform? give me a date. kevin: the hind the scenes, they're working on this all the time around the clock. -- behind the scenes, they're working on this all the time around the clock.
they are lobbying for how when)s are to be taxed someone puts money into their account. that is already going on. that could be another potential controversial k-four. the lobby groups are looking at how they will pay for it. when he gets to the public, that would be the week after next when you see the house ways and means in the various -- the tax committees in the senate and house start to actually get down and have public hearings. they are very much behind the scenes crafting that policy as we speak. jonathan: the world's most important job interview might be taking place between chair yellen and president trump. i want to get to the editorial on bloomberg news. it reads "the u.s. economy has done well since the crash. the gradual recovery continues, inflation is low. none of this can be taken for granted since 2008 and the fed deserves much of the credit.
the central bank is stronger and the best candidate is yellen, trump should appoint her for another term." talk to me about the political argument in d.c. currently. kevin: there are conservatives on capitol hill, the grassroots community, including steve bannon's wing, who do not like janet yellen. they would like to see another pic at the fed. they don't like, from their international regulatory matters have been implemented at the federal reserve. the five things named in addition to yellen people like jonathan taylor, the far right really likes that. they think that would be an eye etc. pick -- an outsider pick. someone safer would be a powell, and the other names that have been floated as well. jonathan: great to catch up with you. kevin cirilli in washington. what the president thinks about
continuity, i'm not sure he agrees with that editorial. alix: that job question you always get, what are your strengths and weaknesses, you wonder what janet yellen would say. jonathan: i'm not sure she gets asked those traditional questions today. but i could be wrong. there are questions you shouldn't ask. he got into trouble with comey. a wonder if there are questions that are not appropriate for the president to ask. some questions you shouldn't be asking. alix: joining us is peter borish. pleasure to see you. you are president trump, do you reappoint yellen? i wouldntellectually appoint janet yellen because of everything that you just said. if i am president trump and president obama did something, i am against it. i would say that he is not going to do it. i think his base very much likes chaos. we have had low volatility, low interest rates, and spain,
you're talking about spain, 1, youwe are at 2.3 could argue we have further to go with the yield curve. if president obama was for it and i am president trump, i am against it. for: president trump is record highs in the stock market and equating success in the administration with record highs. if you get a john taylor you could argue we would see a dip in equities. is this part of the reaction function from the white house we have to consider? peter: my disclosure, i'm a democrat that believes in markets. one of the nice things about the over thrust of the administration is that president trump is living off of the fat of the obama administration as they unwind the policies. one should not expect to have the same results. that has me concerned. jonathan: why are you so concerned about the next fed chair? course ofyou had a every -- a chorus of everyone
saying we had easing monetary policy after the crisis, in the search will go up, dollar will go to hell in a handbasket, that has not happened. aboutional economics says this thing. now instead of admitting that maybe they were incorrect, they just decided to argue a little bit more loudly. have are going to dogmatic policy in a world that is dynamic, that makes me nervous. jonathan: for the president of the united states, the argument that you laid out obama did it so i won't want to make sense to a lot of people. why would the president of the united states should himself in the foot when he told us what he likes, low rates and deregulation. why will he appoint someone of that will not fulfill those goals? peter: i will punt on that answer haven't seen a real concern of intellectual consistency out of the administration.
howd: that may be fair, but big is the over and under. looking at the candidates, none of them -- they are all plausible people, serious individuals. how much variance would be across the group. there will be checks and balances within the fed itself and from the market. have a large number of seats that are available that can be reappointed, not only the chair but other openings on the fed by president trump. they come at the people themselves, think that they are very serious. think that. they i've not so sure that they are rigorously serious about economic history. alix: they will probably oversee the next recession, which brings me to the 30th anniversary of lack monday. you were working and all that, tell us what it was like.
-- black monday you were working and all that, tell us what it was like. peter: the biggest memories are concern about what would happen to people that were less fortunate. we are sitting in the office, we have this model, we have been game planning, screaming at the top of our lungs that we thought something bad was going to happen because of the fundamental technical construction of the market. we had success. greenspan, first time coming in, every new chair is tested. bonds took off. the next day on the 20th, our biggest memory was sitting in the office, taking a deep red going "holy cow, what is going to happen to all those that are less fortunate than us." which corresponds with the robin hood investors conference. that is when we started the robin hood foundation. 30 years later what we come in does, and goes into the philosophy of this
administration, that we don't do as much for others as we should. it has never been so expensive to be poor in this country. my biggest memory is really thinking, what is going to happen to all those people? jonathan: great to have you with us. coming up later, the capital strategistf outspoken as always. from new york city, this is bloomberg. ♪
jonathan: the latest in spain, the government has announced the president's decision to move forward with suspending the powers of the catalan government after they refused to drop claims to independence. a two-day summit in brussels where theresa may will demand the european union move brexit talks on to trade in a face-to-face showdown with european officials. bring me up to speed on the latest out of brussels. cehic: we saw theresa may enter the meeting with other eu leaders. pushpect her to negotiations on to trade. when she came forward and spoke to reporters at the entrance, she said this was about taking stock and mentioned her florence speech suggesting that would be the starting point. that suggests theresa may herself doesn't expect too much progress from the talks, but the
fact that she was referring to florence could be a sticking point. we know that the eu is pushing back on that and is saying the u.k. needs to go further than what theresa may said in florence. whether the talks move on to trade in december, at the moment we are hearing the chances may be 50-50. the eu has conceded they will make the preparations to potentially, in december, make a decision on moving those talks to trade. a lot of steps need to be taken to get there. at the moment the eu does not think theresa may and the u.k. has done enough in terms of the brexit bill. jonathan: i'm not sure who has the hardest job. what is the latest out of spain? that is a good question. who has the tougher job. we know that rajoy said they will need to trigger article 155
over suspending the catalan region. he is traveling to this brussels meeting today and tomorrow. we know catalan he is not on the agenda, but this will be a question mark. to the other prime ministers want to mediate? we know the catalans won the european union to get involved. they didn't back in the day, will they change their tune? rajoy says this needs to be contained within spain, but the catalan government is not showing signs of backtracking. what we will see in brussels if they will get a dissent on the official line we have gotten so far. jonathan: thank you, very much. europe, ifeems in you're worried about it, you don't just sound spain come you sound italy too. still trading above the spanish 10 year yield despite the crisis in spain. people are still worried about italy.
should they be? peter: yes. things are at the margin and the debt to gdp ratio in italy continues to grow. there is political instability. when we look around the world, spain, in the u.k., in italy, then you wonder why the markets continue to do what they are doing. you have got to put the little thing on your shoulder that you have to be concerned. it doesn't mean you need to sell. fundamentals can deteriorate for a long time. there aren't technical indications that say we are going down immediately. when you look at italy and spain, there are concerns. i think that spain is a bit more precarious market. havere at least trying to some leadership, even though there are complex. there are conflicts around the world and i think that is a problem as we break down
international institutions. what happens if and when there is a crisis. we talked about 2008 and how that coordination really helped. without coordination of corporation one has to be a bit concerned as one moves forward. jonathan: what is the smart trade in europe right now? big positions on italian companies in a significant way. is that a smart move? peter: ray is the largest head worlddge fund in the . i wouldn't necessarily go against ray. alix: going long come you have two big names and a lot of money. jonathan: a different time. alix: true. peter: buffett admitted that people don't live forever. that is sort of the same thing with bull markets. is over,n't mean it but every day it is one day closer to being over.
you look for warning signs and weaknesses. if i could talk about baseball because we are in new york and it is exciting, what does a good manager do? the art of managing isn't that complicated. you don't want to keep your pitcher in for one pitch too lo ng. if you are mostly long you will look for vulnerable areas where you can get short. ray is looking at italy as one of them. the execution is hard because you don't know which pitch is one pitch too many. peter: that is the definition of an economist. you see something working in theory and wonder why it isn't working in practice. david: coming up later, an interview with the robin hood investors conference. live from new york, this is bloomberg. ♪
david: bloomberg is doing a series of reports on how technology is transforming wall street and every once jobs. today the report is on how goldman sachs is making coders into traders. how wall street is spending more on tech. the yellow part is they are adding in tech and the blue is what they're taking away from markets in other places. joining us is the co-author of the peace. and still with us is peter borish. taking coders and making them traitors, i would not have anticipated that. from otherreversal firms. wall street is taking traders, trying to bring them into the 21st century. at goldman they are taking engineers and trying to give
them ability to be traders. for long time they have had straps. some of the original data scientists on wall street. next to traders, and through data and designing rhythms. wall street changed and as more technology came in they did more, but they were capped out. david: was this a matter of retaining people because they were losing coders? was a matter of retaining people. top talent was going to tech firms are proprietary trading shops. it got to the point with the flood was too much in they said how do we need to fix this? they have over 2000 strats at goldman. alix: how do they view it? dakin: i haven't gotten angry
phone calls or emails. alix: is it ok they're going in this direction as far as they are concerned? they have to, but the pr, the optics, cutting back trader jobs could lead to jitters. proud at goldman they are of these engineers and how important the engineers are to the firm. they have this set database they survives helped them the financial crisis. that is very tech-focused. they built that 25 years ago. goldman has a lot of pride -- i guess, pride built up around the. david: when are you going to be replaced by a robot? alix: he already is. he is a robot. peter: i am, exactly. i think the great thing about data, and i have been doing this literally my entire career, is that it can predict yesterday
perfectly. at the same time, you have an uncertain future the further you go away. we are at an extraordinarily low volatility period historically. the mistakes one can make looking backwards are much smaller. you need a combination of both. should some jobs be eliminated? absolutely. there are more people. looking forward, i am concerned because there is a lot of uncertainty. jonathan: coming up next, kathy fixed charles schwab income strategist with economic data around the corner. in new york city, this is bloomberg. ♪ retail.
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a potential to snap the four-day winning streak. the story in the bond market capturing the risk off theme. down by four basis points, 231 on the u.s. tenure. a weaker japanese yen. it is a haven bid in the fx market. initial jobless claims drop lower to 222,000 from a revised 244,000 review sleigh, lower than the estimated 240,000. is 222,000. that is good news and a data point that a lot of people say will be noisy for the next few months. initial jobless claims grinding to lows. coming in hot at 27.90. the previous estimate 23.8. across the board, decent numbers. let's bring in kathy jones and
the bloomberg reporter. kathy: we continue to get good numbers on the employment front. that will keep the fed in tightening mode. we have not seen too much slippage besides the hurricanes. there hasn't been too much noise. the economy is cooking away. jonathan: what do you make of the data? we were told leavitt have noisy jobless claims. we got one, then we rolled over again. matthew: it is going faster through the data that any of us expected. there is the expectation that some of the data could be contaminated. we are saying that in inflation data, it didn't hit as soon as we thought it would. we are going to shift through -- sift through. the story has continued flow and steady growth. wages, too it wages in
certain sectors popped. the hurricane affect, like utilities. it is an up and down side. matthew: housing crisis, now we're going to see an up pop in used car prices, some of that is replaced by the storm. the next few months could see upside inflation data, but they will be looking at that in the look alix:e way they at lower inflation data as well. we are seeing solid buying in treasuries. you have dow jones futures off by 100 points. writer for bloomberg said "what is causing this particular setback, if indeed it can be called that, are two things. commentators complaining it is getting boring that stocks have all time highs, and the dawning realization the central bank has the character k to keep these asset bowls in the . in the air.
hence the job interview from yellen and trump today. what are we going to hear? i was thinking of the last time we went through this in 2013. that episode from the outset we knew that ben bernanke was not going to be reappointed. this time it is different. the current sitting fed chair is under consideration for the job. it is a little different. normally, the fed gets blamed when things get bad and gets the credit when things go well. they are seen as the managers of the economy. there is no reason why you wouldn't want to reappoint janet yellen, except for the political considerations. we have a story on the terminal about conservative groups lining up against her reappointment. if you look at what they are saying, they say we can do better than janet yellen. it is a political sort of story.
it is not clear how that will ultimately affect trump's decision, but it is an undercurrent in the negotiations. david: policy plays into every decision. trump'sself and position would what will president trump make of this? he goes into this meeting, the economy is doing well, jobless numbers are pretty good. the stock market is doing quite well. stay with the team, janet yellen, not rock the boat, or say this is a time we can afford to take a little bit of a chance and go the conservative, hawkish route? is tough to get inside president trump's head in making forecasts. i would assume the political considerations may outweigh the current economic situation. a new administration often just want to its own people on board. has been in place for
some time. he might feel it is time to take another step. the groups seem to be pushing for taylor. that could be the most disruptive, the biggest change at the fed in a very long time. we will see how it plays out. david: when someone takes a job like that, they change. the job changes them as much as they change the job. we think we know what professor taylor would do, do we really know what he would do in the job? kathy: no. not aloned chair is in determining policy. there are a number of other openings, that will determine policy. in initial phases, policy will be very similar. in the long run he has a different philosophy towards monetary policy then yellen or bernanke. it will be interesting if he is the appointee how it will turn out.
jonathan: when will we get an answer to who the next fed chair will be? matthew: they are trying to get this out before president leaves for asia on november 3. hopefully by the end of next week, but we will have to see. things have been unpredictable so far. alix: he is wary of pushing the fed rate up, he is not going to do it. how prevalent is that the on the fed on the that view fed. ultimatethat is the destination. this goes back to the debate around john taylor. the debate boils down to what is the neutral interest rate? the market is telling you it is 2.3%. there is not a lot you can do with that when you are up to that level. rob kaplan was alluding to a regardless of what the federal interest rate is, we aren't there yet. when we are closer, it will be
more apparent and that is the world we will have to deal with. david: we don't think as much about the balance sheet. we know they're coming up gradually. there is the question of how quickly it will come up and what the end point is. kathy: i haven't seen him why yen on that topic. we know that bernanke -- wait topic.weigh in on that we know bernanke thinks it should be higher than in the past. in. taylor has not weighed the bottom line is the balance sheet is shrinking. that is important for the market. jonathan: thank you for giving us your time. top stories, here is taylor riggs.
taylor: spain is deploying its ultimate constitutional weapon in the battle over catalonia. spain will move ahead with suspending the powers of the catalan government after the region's president refused to drop claims of independence. parliament catalan may claim independence unless the spanish government agrees to talk. in brussels a showdown over brexit. theresa may will use tonight's union dinner to demand that the to trade. the two sides are deadlocked over a financial settlement, citizens rights, and the irish border. a deal to prop up obamacare has stalled. mixedent trump sent out signals until his press secretary to clear the administration is opposed. the deal would restore subsidies to help insurers and give more flexibility. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. david?
taylor: this is "bloomberg aybreak" in the next hour, an interview with jimmy levin. this is bloomberg. ♪ now to your bloomberg business flash. restructuring will hold back profits this year. he reported its weakest nine-month sales since it began posting -- nestle reported its weakest nine-month sales since it began posting here in nestle it expects additional astructuring costs as big half a billion dollars. the parent of united is feeling the impact of the summer fare wars. drop 3% this will quarter after a third quarter decline of 4%. united has been slow to rebound
after chopping fares in a battle with discount airlines. that is your bloomberg's nest flash. alix: market reaction to the uncertainty over the nafta negotiations. this is what the expectations are. the blue line is dollar max trading at 18.8. the white line is the mexican peso forecast for 2017 in the next quarter. what does that say about potential risk of it doing priced in. joining us is the union group chairman and founder, and kathy jones of charles schwab is still with us. is the market of her prickly pricing in nafta risk? >> it depends what your forecast is it we think the negotiating opening of the u.s. is a posture to say this isn't working to get out of the agreement. this is clearly in line because it is so far apart from anything reasonable.
if you assume that and you think nafta will not be a reality, you can do all sorts of legal consequences of if the president will pull out from the agreement unilaterally if you will go through congress, but it will be where the u.s. and mexico will not have the commercial relationship right now. the big loser of that is mexico. we have a pessimistic view of the mexican peso and economy on the basis that nafta will likely be canceled or seriously challenged. alix: talk to me about where you see the value. are there more areas that are immune from a nafta disintegration? >> we are sold out of anything in mexico almost two years ago. we have not been investing because we see a big risk. thato, the information is if nafta is pulled out, mexico loses one million jobs. mexico is a big part of the
manufacturing economy. it will trickle down. not only sector by sector, it will probably go through a transition and hurt quite a lot. politically, you have elections next year. david: this is very interesting. time is wasting. you have an election in mexico, it is a little like brexit. we don't have forever to get this straightened out. at what point does this affect the next leader of mexico? already affecting now. you have a mixed relationship with the united states. mexicans are not really feeling that the united states is a partner that you can count on. in addition to the public spats, you are starting with a partner, going to an enemy of the united states south of the border. luckily, the canadians are nicer people. the states surrounded by canada,
not a nicea, it is neighborhood that trump is creating around here. you havevestors like gotten out of mexico because of the concerns. if this things comes back around and the united states moves towards mexico and canada, let's say the first quarter of 20 18, would that create an opportunity? >> one of the conditions that negotiationso the is any agreement is only a five-year agreement, then you have to start again. what certainty that will give to you, it will not start to lower again? even this solution is not a great one. it is a complicated situation. ignore it. is that going to change? kathy: things don't usually
change on valuations, but valuations in em are so stressed on the fixed income side, there has to be a correction. maybe people didn't believe nafta would come down to this. maybe they saw a lot of talk but not much action. if we get action it could shake out the em. jonathan: compared to what? kathy: compared to history, everything is stretched right now. that is the problem with the fixed income market. relative to even treasuries, you spreadet enough to justify taking that risk. 10 to 15 basis points and widening the spread, you are better off with a treasury bond. why would you buy em now? you look at brazil, argentina, countries that are big countries coming from 10 years of less regulation and a bad situation.
growth is actually good there. the brazilian market is up 30% to 40% in the last year. things are stabilizing, the games are better, commodities are picking up. emerging markets depend a lot on commodity prices. usually they are high when commodity prices are lower, now. is the case right if political uncertainty is coming, that is good for commodities, most see of emerging markets can be a positive sector. looking at oil, we don't think the opportunity is the supply and demand from an economic point of view, but there is so much uncertainty with russia, andh korea, iraq, brexit, the referendum. political uncertainty is so high . the race for the stock market in
general, a rare opportunity for some sectors that have thriving moments of stability. argentina,il and take those two countries and in mexico out of it, it was on the rise, the place to be. our fundamentals affecting mexico as well as nafta, or is it really president trump? >> the fundamentals of mexico are not bad. growth has been stable and they had a relatively good balance sheet. the problem is specific to the united states. brazil, argentina, they have been looking more towards asia in the last 10 years, exporting commodities there and less reliable on the united states. mexico didn't do that because it was easy to rely on the united states economy next to the border here they will pay for that in the short term. we were looking yesterday at the chinese communist congress
25 years,e to proposing plans, comparing that with the shortsightedness of american decisions on a day-to-day basis, and that america will probably end up biasing more towards asia. alix: and the pipeline can go under the wall. charles schwab, thank you both. watch us online, click on our charts and graphics, interact with us directly on tv on your terminal. this is bloomberg. ♪
deaths from opioid overdoses went up 31% in connecticut while they were growing 16% nationwide. , this is quite a story. this was a successful trader and he was running up during the day to try to score more hits? a life that looks like a lot of my sources on wall street. he lived in connecticut in a fancy community. he was a traitor, a successful , a successful one. at the height he was using 160 milligrams of oxycontin every day. you are supposed to start with 10 milligrams. his story is not out of the ordinary. time speakingnt with people on trading floors, banks, private equity, who are
addicted to opioids like a oxycontin. it is hard to ignore the really upsetting story of addiction plowing through rural america, but it has come to wall street. david: that is one of the striking things. we can think in our ignorance this is something in west virginia or my home state of michigan. it is here on wall street. how do people become addicted initially? they buy illegal drugs or they have a medical procedure and it is prescribed? they tell us consistently when you look at the problem on wall street, it is generally coming from prescriptions. people taking prescription pills to come down from a high on something else, or because they had some sort of injury and they get addicted and i can't get off of it. know: is there anyway to how big of a problem it is? know how bigard to
it is on wall street because we don't break out this data, but we know it is an increasingly large problem in new york city and the northeast. this hit home in the rust belt a while ago, but has been spreading northward. david: we had the fed chair talk about the effect on the workforce. she said i don't know if it is causal or symptomatic of long-running economic maladies that have affected these communities and workers who have seen job opportunities decline. suggestedted -- she it could be affecting job rates. max: the reporting on the opioid i find myself in the us of other reporters' stories. it was partly because of jenna's stories -- i write about wall street culture. my thought was maybe this is here.
the editors asked us to look into it. normally, i like reporting and it is a fun process. an upsetting process. a gentleman in the story talks about being on the american stock exchange, and someone said here, have this, a percocet or a vicodin. we don't know that much about addiction and sometimes people react differently. david: and it is tragic. jonathan? capital: coming up, the investment strategist will be with us as we count down. futures are a little softer. you are watching bloomberg. ♪
campaign. converge in ao partisan clash in december that could result in a u.s. government shutdown. european stocks drop as the spanish crisis deepens. counting you city, down to the opening bell, i'm jonathan ferro, alongside david westin and alix steel. futures are softer this morning, down 10 points on the s&p 500 after a four day winning streak that closed yesterday with another all-time high. the mild risk off team captured by treasuries driving yields lower by three basis points. a weaker dollar, stronger euro, stronger japanese yen. euro trading at 1.1831 against the u.s. dollar. alix: take a look at what's
happened with apple, down by almost 2% in premarket. newspaper reports that signal that suppliers are getting hit because orders have been cut for -- west of the year always get the read through from the suppliers. beone x is supposed to coming out next month. the headline weighing on apple this morning. verizon, different story on the upside, really solid quarter. it beat on revenues and had wireless subscriber growth, 600-3000 regular monthly customers in the third quarter. the second straight quarter of that growth. thehave the video data and on limited data plan from verizon helping to bring users in. nike down 2% after a downgrade at goldman. it's focusing on the inventory challenges that nike has.
a sign of weakness overseas as well in the u.s. inventory as to the retail partners, amazon and ebay. they have to discount to get it out the door. david: we will turn to washington -- every day, it seems like the president adds something to the congressional to do list. from health care to building a wall. this morning, president trump tweeted out that his top priority is still tax reform. they're going through a big budget approval today. first step for tax cuts. there's one senator that thinks they do have the votes. we spoke to pat toomey of pennsylvania. >> i think we do have the votes. i'm pretty confident that we do. we will fend off many amendments today that are designed to destroy this process. at the end of the day come i think we will pass a budget resolution in the senate. david: kevin cirilli has the latest from capitol hill. when will we know if they have
the votes? kevin: i just spoke to a senior member of the banking vote-aee's aide -- this rama is set to begin at 11:00 a.m. today. you could get a budget vote by mid to late afternoon at the earliest, potentially even this evening or tomorrow morning at the latest. by the in of the week, they hope to get a budget vote. that is the latest political hurdle they need to clear to get to tax reform. they have a lot of other things on their legislative to do list. funding of the u.s. mexico border security wall, raising the debt limit, dealing with planned parenthood and additional aid relief to the wildfires and hurricanes and the children's health insurance program. they have a lot to get done.
thatwe are hearing is republicans are really trying to put tax reform on a parallel direct track to get it done by the end of the year. they are all in. david: they are really focused on tax relief -- tax reform. this tax issue could be hitting people in the real world and therefore voters. >> with regards to health care, we are hearing mixed messages on whether or not the white house does have full support for rray'sder and mu bipartisan deal. speaker ryan coming out against this proposal yesterday. conservatives in the house are against it. they're really unsure as to its fate in the senate. the president said obamacare has failed. his critics have criticized him for significantly harming the affordable care act, so health
care is still very much in the background. as of now, no clear path forward for how lawmakers will address it. is scheduled to be at the white house. timing. know the they have not made public any of the other interviews. she is on the shortlist -- conservatives have announced a campaign against her renomination. a lot of folks in the financial services industry would like to see her reappointed. her -- other names on , johnortlist, gary cohn conservativesr seem to like john taylor. jon: kevin cirilli down in d.c. a lot of editorials in the last
24 hours endorsing fed chair janet yellen. one from the new york times, theher from bloomberg -- economy is back at full employment and inflation is low. the fed deserves much of the credit. trump should reappoint her for another term. brian belski joins us now. when new york times called it a trumpist case for janet yellen. should he reappoint her? i wouldn't be surprised if he does. continuity is important. the president has a lot of other things on his mind. clearly with respect to keeping things simple in terms of priorities, there is a bunch of stuff to do and now he's being pointed in terms of
getting this done. think it would not be a surprise for him to reappoint yellen. -- no oneing everyone is talking about, yellen was handed the ball from bernanke, who was a crisis manager. yellen follows that mantra. we've only just begun to come up from these crisis levels. it is still very early. the mechanism of how the fed is working, it is still at a very low for longer crisis type management. she is better equipped than a hawk. at this point, may be hawk would be too aggressive. the fed typically has always been late in terms of raising
interest rates. which people do you want to know -- evil do you want to know? alix: trump wants a hard-core supply-sider. clear both pretty roles are supposed to be mutually exclusive. alix: in theory. brian: presidents in the past, some have worked well with the fed, some have not worked well with the fed. president reagan worked well with them in the 1980's. it is too simple to say we are automatically going to want a supply-sider. jon: is it something you think a lot about? brian: no. at the end of the day, we believe stocks run on fundamentals, period. we've been giving so much credit to politics and policy driving stock prices.
-- theyhought anyone thought trump was a buffoon. guess what? we will potentially see tax cuts. the majorityr that of investors believe nothing was going to happen. the whole notion of the trump trade -- it's not. alix: brian belski sticking with us. coming up, an exclusive interview with jimmy levin, oz co-cio.nt lp this is bloomberg. ♪
in toronto with a special guest. k: good morning from toronto third i'm here with jimmy levin from oz management. good to see you. this is a challenging time for hedge funds. past investing has proven to be the best idea as of late because the markets keep going relentlessly up. how challenging is the future for -- jimmy: if you look around the world today, equities are basically at all-time highs in almost every market. on an absolute basis and evaluation basis. high-yield spreads are tighter than historical averages and the yields are at all-time lows.
rates are at all-time lows. on top of that, you have volatility at all-time lows. none of this is new. we read about this every day. the traditional sources of return which would be taking systematic risk or value risk in all these markets is less exciting. erik: you cannot think thematically anymore? jimmy: it's tougher to do that. after the financial crisis, there was incredible opportunity -- after the european debt crisis, there was an unbelievable opportunity to invest in certain european assets. after the initial energy shock, there was an unbelievable opportunity to deploy capital there. we look for idiosyncratic returns. that is usually found in complexities.
that complexity can be merger arbitrage, liquidation, restructurings, as a transformation, certain relative value opportunities -- asset transformation. there's not that many cheap stocks, bonds and loans out there today. erik: using craddick complex usually don't equal exciting. -- idiosyncratic and complex. jimmy: hopefully they will equal returns. and more forward, ayou look number of factors have to be considered. the time horizon -- it's taking longer than it used to. is it more of a grind? jimmy: it's definitely more of a grind. the goal in those situations is to look for an opportunity where
to be right does not require the markets to go up, the economy to get better or any of those brought things to occur. it's is that to say dangerous thinking macro right now? jimmy: i will say this -- i'm not confident doing it. i don't think we as a firm would be confident doing it. i don't think there's a great history of people predicting macroeconomic outcomes consistently. people do a great job of doing it once or twice or maybe three times, but it's very hard to at every turn predict what the world is going to do next. that is a hard part to set for oneself. bar to set for oneself. assessing the different factors
around whether or not that deal may close or what it takes to be right on a liquidation of assets is to understand what the underlying assets are worth and the time it may take to have those assets liquidated and the cost to liquidate them and whether or not they are liquidating weable. this is usually some sort of entity that used to be one thing and is now being liquidated. it doesn't typically require any real brilliance about predicting the future. erik: that raises two questions -- you have billions of dollars to invest. with the scale at which you need to operate, how many of these things are there? how many attractive, exciting opportunities are out there? how many can you put on at once? jimmy: the key to doing that type of investing is scale. if you had to look at one place in one market in one country and
you had to deploy a large amount of capital and you had to only do it in these idiosyncratic, one-off type of opportunities, that would be a hard thing to do. if you're looking in all the major markets around the world and looking within equities and credit and the structured credit and within commodities and so on, you only need to find one or two here and there and it adds up over time. erik: how about crowding? other people are probably thinking like you. they've been burned making macro bets. they are searching for idiosyncratic opportunities. don't you find other people competing for the same stuff? jimmy: absolutely. we will always have competition. ist said, i think crowding just one of many factors to
consider. we joke about this all the time. if you look back over the last several years and talk about some of the crowded investments that got the most negative media attention and that drew the most investor i are there were situations like valeant which was the poster child for crowded. that didn't work out for investors that had it. you look at people in a credit world like lehman brothers. in the 14 years i've been looking at it, that was the most crowded investment i've ever seen. those that had that specialty generally speaking owned it a little or a lot. things that are crowded are great and some things that are crowded are terrible. crowded it self is not the positive -- dispositive of good or bad. erik: the baseball analogy -- what is more important?
to have a good batting average for a good slugging percentage? youong as you are right, are really right and hitting triples and home runs. jimmy: it is not your batting average. batting average doesn't translate to dollars. what translates to dollars is magnitude, not frequency. if you make more money when you're right then you lose when you are wrong, it doesn't matter how frequently you are correct. we've never achieved that goal to, when you are right, make it matter. when you are wrong, try not to be impaired. erik: let's go back for a moment to market conditions. bull markets don't die of old age.
how long do you think this run continues? jimmy: i can offer little insight on that point. it's hard to predict these types of things. i have all kinds of views and we as a group have all kinds of use. i wouldn't put a lot of money behind our ability to time when those things will happen. erik: let me phrase it differently, then. reasons,n for similar what is more likely to trigger a correction or revaluation at this point? jimmy: the small corrections we see in markets all the time where there's a taper tantrum or an upcoming european election or upcoming bank asset quality review somewhere, those are small items and they have small impacts and the impacts are usually temporary. the things that tend to really matter, the difference between growth and recession. when the world is growing or the
big countries are growing, things are generally good. when they are shrinking, things are generally bad in markets. what may cause a recession? in that regard, we don't see a lot of those ingredients you would normally see. there's not a lot of overheating in parts of the actual economy. a lot ofot seeing irrationally exuberant behavior. erik: the state of the hedge fund industry hasn't quite been the killing fields, but hedge funds as we established at the outset have struggled to generate returns. what are the biggest challenges for the hedge fund industry? "hedge fund"rds means different things to
different people. overall for the industry, like anything come of the industry needs to deliver a good product at a good price. that good product needs to be whatever the thing the investor signed up for. i the investor signed up for would like to beat the market and i'm less sensitive to the risk profile, that's what that investor signed up or -- signed up for. managers need to do the things their clients would like them to do. lately, markets have gone up and to the right. generally speaking, the hedge fund industry tends to be hedged play certain level desk to a certain level -- tends to be hedged to a certain level. over time, these things tend to balance out.
if they can do what their clients signed up for, there is a great feature for the industry. that is jimmy levin, the co-chief investment officer at oz management. jon: joining us in spain after an unprecedented decision to move forward with the process of senior member of the catalan european democratic .arty joining us from madrid many people in the market are waiting for this declaration of unilateral independence. where is it? why does the president keep backing away from it?
>> the economic situation in spain and the consequences in the catalan parliament didn't declare yet the independence because we are potentialing for a agreement with the spanish government. unfortunately come of the spanish government did not accept this kind of deal. we are going to take some decisions in the next week. jon: the boat was illegal. -- the vote was illegal. i wonder what kind of dialogue he's calling for. he refuses to go to the parliament. why? >> we are in front of a political and social reality
that, for seven consecutive dust forarting from for the lastent -- seven consecutive years, catalan streets --ied in the in the election of the catalan parliament, in the election of city halls, in the election of the representative oin the spanish house, 80% of cattl independence -- it's impossible to stop this demand. here we are. we tried to convince the spanish government that it's important
to work out a political agreement. jon: the majority of catalonia wanted a referendum. they did not want independence. looking at the situation now, it has become much more volatile politically. the minister of spain is asking whether he is declared unilateral independence. he has not clarified. rajoy is taking steps toward suspending the autonomy of catalonia. what type of resistance will the spanish government in madrid be met by people like yourself and the people of catalonia? article 155 ofth our constitution, the spanish government has the power to suspend autonomy. happened in these 40 years of democracy in spain.
in my experience at the parliament, i believe this could be extremely counterproductive if the spanish government and prime minister rajoy move forward in this way. for seven years, the catalan government has shown competency it'salth and education -- -- the solution is not to cancel this autonomy. it would become a productive on a daily basis for the people. jon: at the same time, the president will declare his position. you accept its unlikely he's going to do it. -- it is unlikely he's going to do it.
>> what happened in europe in the last 25 years shows there are several different cases about the declaration of independence from the baltic , the agreement about the referendum in montenegrin, the agreement about the referendum in kosovo, each case, it's different. alanus, for the cattl people, the best example is the scottish referendum. this is not possible, so we are in front of a clear mandate of a huge number of people in catalonia, 2.3 million people wishing independence. in light of the democracy, in the name of democracy, the government and the catalan parliament in agreement with the spanish parliament will need to
find a its will and to way out of the situation. we arehree weeks, at the for the time -- end of the day, we should take a decision in the next few days. weeks.n one week or two europe after hearing that conversation? brian: absolutely not. much of our money in north -- the most consistent earners in the world are north american companies, both the u.s. and canada, period. jon: let's get you up to speed on some of the squares ahead of the catch open. futures up a little softer. -- .4% off by 10 points
lower on the s&p 500. that smiledf tones risk off tones at the close yesterday -- wild risk off tones at the close yesterday. ild risk off tones at the close yesterday. the euro is stronger, too. that is the cross asset picture going into the opening bell. alix: weakness spreading over into the market. the dow only off 64 points. the nasdaq off 40. heavy trading after we've had 51 record closes on the dow so far this year. 47 for the s&p. individual names we are looking at -- united airlines off 2%. third quarter profit was hit by
a surge due to all the hurricanes. philip morris down .3%. falling cigarette sales outweighed any reduced risk products last quarter. hba holdings up barely .1%. they did lose business and damage from hurricanes -- the markets taking it in stride. 8% right now. the company had 2018 profit forecasts above estimates. it looks to make $5.50 a share, reaffirming its fourth quarter as well. let's wrap up where we are in earnings season. the last two weeks have been more vigorous. this is estimates for earnings growth year on year for the s&p.
we saw them come in nice and steady at 11% in the second quarter. now, expectation is we had just under 5%. it looks to be temporary. earnings estimates coming in really strong for the fourth quarter come over 10%. see the market participants look through any losing estimates, any sort of put in earnings as a one-time thing and bet on longer-term growth? or, will wee see -- see -- jon: let's bring in jason pride from glenmede investment management. let's talk about the earnings coming through. jason: this is a bit of a one-time item for this quarter. some insurance related
issues coming through on the financial sector. there are pressures on consumer discretionary that are brought -- broader and longer-lasting. estimates come back up in the fourth quarter. we are in a broad come a long extension of this longer-term economic expansion. there doesn't seem to be anything that will drag is to an immediate halt in the near term. it's the hurricane related influences in that number. investors will look through that generally. jon: the data is decent. a note from -- socgen earlier this week said it's the quiet before the quiet. it will just continue. is that what we will get? a continuation of this? jason: when we look through are leading indicators, we look at economic data and does go different ways.
-- in does go different ways. -- in two different ways. we don't see the economic excess . the only spot, the tightness in the labor market. it, the look at economic excess is not there. the reason for this economy to pull back and for-profits to really feel it downward pressure, it's just not there. the odds significantly favor the continuance of this expansion. david: what about the consumer and forward momentum? where are we on the curve in terms of spending. rate of spending and their balance sheet? jason: the consumer balance sheet isn't bad. generally, it's not as bad as it was.
in a 30 year perspective, it is still not perfect. it's not really in bad shape at this point. consumer incomes are the interesting part of the equation. when you dig into the wage data, for continuing earnings, you exclude those pieces, continuing earners are seeing decent sized increases in their wages, which translates to increases in spending based on the way the u.s. consumer works. david: when we say considerable increases come at what rate? jason: 3-4% increases in their incomes. it is not outlandish. that is the sort of number that causes problems from the fed's perspective, it provides a nice underpinning for the consumers. the housingact market is up, they are feeling pretty good as well. alix: apple is down almost 2%. falling the most in a month.
a report said the suppliers of -- apple cut orders for the iphone 8. insight's manager joins us now -- the you believe them -- do you believe them? >> ultimately, iphone x is the super bowl for apple. a knee-jerk reaction, a lot of fears that this could be a regular product cycle. we believe it will be a super cycle. we view this as a near-term blip. it puts more focus on the iphone x. is 20% of the overall
cycle. alix: this is pure cannibalization. x, to see the growth, to see the super cycle take october 27e x is prerelease and november 3 in terms of when you will actually see that come out. jon: why did they bring the iphone 8 out in the first place? >> that is there typical cycle in september. -- their typical cycle in september. you had production issues continuing to the long anend. there is demand for iphone 8, but that is a placeholder for iphone x. , youyou look at the pe
dropped the 10, buy the 20, then sell. jason: iphone ask could be -- iphone x could be the biggest product cycle to date. you continue to buy this into that product cycle. patience is the key here. physical 18, major year for apple. you start to see the turns there. they have more cash than most countries. alix: so, you like apple? i don't spend that much time on the individual securities election. with theion generally underlying management of our strategies has been to have a reasonable allocation to apple. we do tend, admittedly, to overweight these smaller companies generally speaking.
apple is obviously one of the big 10 that have been driving this market. alix: walk me through that. this portion of the market, we would make it about things, using microsoft in that place. you look at those five stocks, generating 24% of they return off the s&p 500 this year and 25% last year. is this something unusual we should be worried about? we stepped back and look at the historical analysis -- typically, the top 10 stocks account for 26% on an annual basis.
this is not that unusual. it may mean you twist on a securities specific basis as some things run to par, but it doesn't mean something is wrong with the underlying market. .- some things run too far jon: brace yourself for the markets picture. we retreat from a record high, negative eight points on the s&p 500, negative 83 on the dow. this is bloomberg. ♪
>> this is "bloomberg daybreak ." live from ther, robin hood investors conference. this is bloomberg. spain, the government is announcing a decision to move forward with the process of so spending -- suspending the powers of the catalan government. in brussels, leaders capital for a today -- two day summit. -- leaders gather for a two-day summit. joining us, jason pride of glenmede investment management. take the trade,
would you be on the ray dalio side of the trade or the other side? jason: this is a mixed story. on the one hand, you have better valuations internationally than you do in the u.s. from a long-term buyer's perspective, there are better options there than domestically. if you look around the international market, the one place that is still causing us some concern has been europe. this political discord and what that can cause. the economic story seems to be decent right now. the numbers are stronger than we would have thought coming into this year. the earnings numbers are stronger than the u.s. numbers. broaderou look a bit and everything else looks better than that. japan looks better, emerging
markets look better. we are placing our international dollars a little more on japan and the asia market area. jon: the likes of kobe steel have a big issue -- the movement around it is ugly. performance has been brilliant. we are pushing to multi-decade highs. i wonder how those two things reconcile. jason: we are talking about company specific issues. if you're investing in an active way, you can get around that. you have a government that is one directional, it is stimulative in nature, trying to reform the economy. in europe, you don't know how it will turn out. you have brexit, things happening in spain, things happening in italy, japan is one directional.
on the other side, you have a big reform effort that's going on. roe's on japanese companies have come off of what a lot of investors including myself got used to. abysmally low returns for japanese businesses. they are doing the things you need to do to become shareholder friendly and profit focused. alix: all the buybacks we will see from japan companies -- you have to have a bullish view on the dollar to have conviction in this. jason: you don't have to have a weaker yen. -- therencies of this currency portion of this story is no longer than needed peace. reform is in place and that's driving the earnings numbers. we are seeing profitability rise not just because of the dollar-yen. david: you have to be bullish on obvious chances of resounding victory. is it important that you really win big? jason: it's important he wins
enough to maintain control. some of these items they are trying to push through are not really popular among corporate leaders. they are trying to change labor situations in the market. somewhat be a conflicted process to make it through. they have been making strides on that. they are making more strides now. that needs to stay in place. without a strong leadership leading the charge, the likelihood of that crossing the line is much lower. china ispan inc. with very integrated at this point. jason: that is a big piece of it. part of it is just the japanese story itself, but there's a big piece of that trade with china.
they are selling into the chinese consumer and the asian consumer broadly. it's not just china, it's the broad emerging asia area. alix: great to get your perspective, jason pride of glenmede investment management. check out tv . you can watch is online, interact with us directly. go to tv on your terminal. this is bloomberg. ♪
putin insident moscow. i think we are all taking cues -- russia hasow been a lead in the restoration of stability of the markets. >> putin has come out in favor of nine more months of cuts. verizon posted its largest subscriber growth for the second quarter in a row. verizon sales also beat estimates. the company is focused on building an online at business through a group of media assets acquired in the purchase of yahoo! and aol. more fallout from nissan's recall of 1.2 million vehicles. the automaker is suspending production at its japanese factories for two weeks.
it has to do with uncertified inspectors approving quality. it's likely to cost nissan $220 million. david: trump will be meeting with janet yellen today to talk about the possibility of hers thing on for another term as chair of the federal reserve. he's interviewed four other candidates. conservatives in congress are pushing against janet yellen as a candidate. the jury is still out on whether or not she will succeed herself. davisg us now is jo from vanguard group inc. what is most likely to happen? a very ae will have cop as the head of the federal reserve for the foreseeable future. whether it's chair yellen remains to be seen. from the list of candidates, the broader question is going to be,
are we going to see a regime the size ofrms of the balance sheet as we head into 2018? that's most in the air. david: you focus on the balance sheet rather than the rates. the fed has been signaling three. do you expect a new fed chair to change that? joseph: potentially. the market is fairly complacent on the gradual reduction in the size of the balance sheet. it had very little if any impact on the market. candidates other that are apparently in contention, they are less comfortable with the size of the balance sheet. the speed of tapering could increase.
that is a wildcard, something i would not expect if chair yellen proceeds into next year. alix: you have to give her credit -- play this game with me. you are janet yellen and you walk in the oval office and president trump says the number one reason why you think you should have this job. what you say? joe: i would say yes. chair yellen, there's a great deal of credit. we saw a change in mindset at the beginning of the year. the unappointed rate was double digits and here we are close to if not at full implement. there's been a head scratcher with regards to low inflation. there are secular forces at work. close to if not at full employment. we will continue to see gradual
improvement in the economy with the risk shifting in 2018. jon: you think she will get reappointed? joe: they are higher than what the market would suggest. a lower growth environment, but we are at full employment. and unitedarket states hasn't been this type 1999 with financial markets reaching all-time highs. there's good indications of health and vigor of the u.s. economy. could be better at the margin, but that's a question -- does one want to disrupt that momentum? had to candidates for fed chair and one of them set my endpoint will be $3 trillion and the others had $1.5 trillion -- joe: if it's the latter, the financial markets would be under pressure for a time.
a smaller balance sheet is welcome, something the fundamentals warrant. there's a point with which it will become restrictive. the size oflieve the balance sheet with stimulative for asset prices, they have to be restrictive at some point. jon: 26 minutes into the session. that does it for "bloomberg daybreak." the market after four days of gains, a retreat from record highs. we are down .4% on the s&p 500. similar mark on the dow. you are watching bloomberg. ♪
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vonnie: here are the top stories we are covering from the bloomberg and around the world. wake up, some overnight declines in asia's making global investors jittery. and apple dialing back its orders, also weighing on u.s. stock. some disappointing earnings. between spain and catalonia takes a turn after prime minister -- the spanish prime minister unleashes wide-ranging powers to suspend catalonia's autonomy. will this end the region's push for independence from spain? and a lesson from black monday 30 years later. our home depot cofounder joins exclusively to weigh in. the dow drops .