tv Bloomberg Daybreak Americas Bloomberg October 25, 2017 7:00am-10:00am EDT
from tax cuts as senators flake and corker deliver blistering criticism of the president. republicans gave a show of hands about potential fed chair nominees. and bond shares, the moment of truth has arrived for the market should for our audiences worldwide, this is julie: -- this is "bloomberg daybreak. " we close at another all-time high after yesterday's session. the selloff in treasury higher by the yields three basis points. in the fx market, high-yield supporting a stronger dollar, and the german confidence index comes in at a record high.
david: we have some breaking news coming out of washington. with a majorroup announcement about leadership succession. it was led by david rubenstein who also hosts the david rubenstein show right here on bloomberg television. jason kelly joins us now to talk about carlisle and the private equity industry which he has covered for many years. >> this is a big year. this is a moment we have been waiting for for a long time and private equity. the three founders are handing nwe ceo'sover to two -- two new ceos. these are both men who have spent some years at the company, and now we know who will be running one of the world's largest equity firms effective
january 1. a little bit of runway. this is really only the second time that we have heard a clear sense of who will run the big private equity firm. alix: who is left that we need to hear from for secession? >> wonder once i want to make sure we do not miss is that kkr to tee twowee -- guys up, but they said they were not going anywhere right now. this is a step even further. who that leaves? blackstone. blackstone is the big fish in this market. they have made some hints in the press. schwarzman, who is the cofounder and ceo and chairman at this moment, is still very
much in charge. in fact, erik schatzker spoke with steve this morning in saudi arabia. let's hear what he has to say about where they are going in the near term. internal targets planned, aspirations to basically double where we are which would take us to about $800 billion total in about five years. plans, not finished our so we will see if we can accomplish that, but that would be a very substantial increase in terms of what we are doing. david: jason, he sounds pretty relaxed. the senior people inside like stone seem to say that that inside blackstone -- the senior people inside blackstone seem to be very relaxed and not worried.
they seem to know where this is going. >> early on in the interview, he said it is not out of the possibility that they could get to $1 trillion. alix: that does not sound like something someone would say if they are going to retire and go play on the golf course. >> when you look at carlisle and blackstone, all of them, over the past 20 or 30 years, they , massivee truly global firms which are not just in the business of private equity. it is hedge funds, real estate, going in and doing different sorts of deals. blackstone and carlisle had invested in infrastructure. these are firms which really rival, in many ways, both graphically psycho some of the traditional managers here. alix: when ip -- when i speak
about people -- when i speak with people in the energy space they consider blackstone just way too big in their space. david: where are they going to find their yields? approach has always been to be very geographically diverse. they go into a variety of markets. david rubenstein does not seen to be going anywhere, and he has really made his bones, so to speak, going everywhere in the world looking for deals and finding talent. we are seeing evidence of that right now. who is going to do this in the future? these two guys are in their early 50's, so they have a lot of runway ahead. it is really on them to find the next generation of dealmakers. yields are getting harder and harder to find around the world. david: thank you so much, jason.
jonathan: the gop appears to be at war with itself as party leadership is tried to put the emphasis on tax reform. senator corker had this to say about the president. sen. corker: i've had private meetings with him, dinners with him, played golf with him, i have had multiple opportunities where staff has asked me to intervene as things were going off the tracks. look, i have seen no evolution in an upwards way. it appears to me that he is almost devolving. jonathan: and then, senator jeff flake double down on the push back i saying that he would not run for reelection, and then he said this. >> when a leader identifies real hard in our country and, instead of addressing it, looks for someone to blame, there is perhaps some -- there is perhaps
nothing else more devastating. jonathan: so what does this mean? ian joining us now. is this noise or news? >> i think we are looking at a situation where the republican party needs to get their act together to get this tax cut. that, there is some opportunism -- there is some optimism in the markets, but the uncertainty is there and that creates further weakness in the markets. we keep grinding out record highs in the united states in the equities market. >> you just look at the markets, the cyclically adjusted items, we are getting more nervous.
unless you get a very substantial bill that pushes the growth, thanto 3% we think you are going to have to sell global markets and not just the u.s. market. alix: a tax bill was the wording i heard. no longer tax cuts, but a tax bill. the extent to which markets rate and economic performance are predicated on successful and limitation of tax cuts. it cannot be -- are predicated on successful implementation of tax cuts. it cannot be overstated. your thoughts? >> we -- most of the tech companies are looking towards repatriation. administration started this much better organized than
previous attempts at policy. i think people are playing their games and trying to steer the administration in the direction they want. i think the markets were right not to panic yesterday. jonathan: where do you see the theest miss price in markets if they are not able to deliver in d.c.? >> we think the bigger mess price is taking place in the equity market rather than the bond market. if you do get some pickup in the u.s. dollar while limiting pricing power some of the bonds could sell off it little bit, but they are not going to sell off that much. the equity market is at more risk to it. at the same time, you have global growth slowing down. it is not just the u.s., but it is also some of the asian markets will be under pressure as well. sounds like you really agree with secretary mnuchin.
that if they do not get taxes it will be a big hit on the equities market. they have to have 52 mark -- votes. they already have two senators going after the president. >> it is noise, and it is distracting noise. i think if you do not get some sort of fiscal deal coming through, then there is a real pressure on these markets. the yields in the equities market are close to where the u.s. treasury yields is. if you get that u.s. yield backing up at all, then that will take one of the supports away from u.s. equities as well. this is absolutely essential. we are still only talking about 2.25% growth this year for the u.s. economy, and back down to 2% on the basis you do not get a deal here on the fiscal side. so, they really need that support. they also need it quickly. in particular if we want to see any kind of monetary timing. ian will beter and
it was all the issue of how to keep writing research for active managers working in europe once the new rules take effect. in italy, shares of the world oldest bank fell after the government bailout. they received a $6.4 billion lifeline from the italian government over the summer should trading in the shares have been suspended since last december. regal cinemas will test out new monetizing four films which films which could ticket pricesres' s will while flop film have cheaper seats. david: gop members were asked to show -- to give a show of hands about who they would like to see as the new fed chair. still joining us are peter and
ian. ian, as far as we know, we do not know everything. he did not ask about janet yellen. could she be something of a dark course candidate here? >> there are a couple of points here. first, you have typically seen the first term carry through even after a change of administration, but janet yellen remains the most dovish of potential candidates on the short list. when you think about president trump's ambitions to get gdp growth around 3%, you will want a hawk like john taylor. hawkish will any of these candidates be once they get into the chair? >> i think it is very easy to talk about being hawkish, but once you are the one pulling the
levers and putting the economy at risk, i think everyone becomes a little more dovish in that seat. even john taylor has been stating that he would possibly need to change his role. i do not think we will see a huge shift. apparentlyome are reluctant to even participate in the vote. hawks have gone missing, but the monetary hawks are still in the party in a big way. if you are looking for a winner, said one senator, it would probably be john taylor. we are sitting here talking about monetary policy, and the monetary hawks are still in the party in a big way, but someone needs to pay for this, and low yields should be a good thing. >> i think people are just tired
of 10 years of extraordinary policy. they want to see the balance sheet reduced and normalized rates. overriding concern that as long as the fed is intervening, we do not have that much control of the economy. i think they would like to see something that looks a little more normal so that we can go back to functioning we used to pre-crisis. rhetoric outs there that taylor would be dovish in the short term. he believes the administration can get the 3% growth with some sort of fiscal policy. do you think we need taylor in there to let the economy run? >> while there might be that supply-side side to john taylor, there is also the rules-based function. when you look at the traditional taylor rule, you come up with a number that is closer to 2.5%. tore is a willingness
normalize interest rates around thatorld, and in the u.s. will lead to 2.5% interest rates. we are not convinced that companies taking on corporate debt, we are not sure they are going to be able to cope with that. if taylor gets the nod, the rates will go up to 2.5% in the short order, and you will need fiscal stimulus to offset that monetary timing. alix: a raise of hands if you think it is going to be taylor or not? covert. more we are going to get much more on yields and your call peter after the break. ian joining us here. coming up, a warning for jeffrey dunlap. he tweeted yesterday that the moment of truth has arrived for
jonathan: i want to bring your attention to a big move in the fx market. gdp coming out of the u.k. just a little bit better. essentially opening the door for a rate hike. unreliablele boyfriend and go to images, governor carney does come up in about nine out of 10 pictures. true story. if you google unreliable boyfriend and go to images, that is what is there. pictures of governor carney. pretty amazing. looking at what is happening in the bond market, 10 year yields are hiding -- heading to their highest level since march. we have done this before, we
have budded up against that line but have not been able to sustain above it. down ondunlap doubles his offering. he says that bull markets need to rally immediately or obituaries need to be written. peter are still with us. peter, what is your call? >> i think we get 2.6% on the tenure. -- the 10 year. i think we will get there. we finally broke their overnight. i do not think we will get much above that. i hate to argue with dunlap, but i think he is a little too pessimistic. i think we will be in the 2.4% to 2.7% range. alix: so you ride this out and then by the dip?
>> we are in an environment where you would see the bond yields scaling towards that level, but i am pessimistic we would see anything above that. whered a change in regime the central bank will be willing to accept higher inflation and let that rip rather than tampering it down every time. think it will continue to stay in the 2.6 percent in 2.7% area as long as they continue to tamper down. isit it appears that it trading shorter, people will have to cover, and i would probably want to get long. i am a little bit skeptical about that. i think people have been buying equities on one hand and treasuries on the other as they hedge. if you look at some of the big on eds, they have had nothing
but inflows month after month. i think we could spike to 3% very quickly. david: i have put up a chart on my terminal which has the 10 year over 30 years, and you take a lot of courage to bus this. graveyard ofn the investment strategies for the past two or three years. until you can get much stronger growth coming out of the global economy -- remember, it is not just the u.s. economy and u.s. tax cuts that will be important. it will be what happens to the ecb and boj. it has been the gravitational pull that has been holding down those treasury yields. until you get the sigrid nice move up globally, it is very difficult to break that bull market. we would say that you should
watch out and do not get too excited about the breakdown of that 30 year trend. thethose investors making moves that peter was talking about, out of the bond etf's and into equity etf's. alix: moore issuance from the treasury, and the fed pulling back from their investment program, there is an investment here which could affect yields. >> the problem is that as soon as you get the dollar picking up , then you start to get downward pressure on prices. the lack of pricing power -- you have to get the inflation coming through. you have to get the wage numbers motoring more aggressively. you need unemployment down to about 3.5% before driving up the inflation rate which will motivate the higher bond yields. a willingnesse from policymakers to let things go much more aggressively than
what we are hearing about at the moment. we are hearing about the willingness to hit those 2% inflation targets. looking at that, it will be difficult to drive the yield 2.75%urther than 2.5% or unless we see a sharp reversal in the european and japanese yields. jonathan: you are both going to be sticking with us. big week fora berkeley's and deutsche bank. , a big week for berkeley's and deutsche bank. we will sit down with bob diamond. from new york, for our viewers worldwide, this is bloomberg. ♪
is the bond market. treasury yields keep rising higher right three basis points today. that is the highest since march of this year for the u.s. 10 year. cable outperforms sterling higher after some pretty decent gop -- gdp results. there is higher confidence on the back of a ecb decision tomorrow. let's get to some headlines outside the business world with emma chandra. emma: in china, president xi jinping is opening the possibility he could be in office past 2022. he has no obvious successors, yet there are a few who could be promoted at any time. a big win for financial firms on capitol hill. the senate has voted to overturn the consumer financial
protection's rule which makes it easier for customers to sue banks. republicans have fought against this measure since it was created after the financial crisis. in spain, some are concerned that he may be going too far in trying to crush catalonian separatists. they are bulking at his focus on try to take control of the administration in barcelona. they would rather provide catalonian's with a dignified retreat. global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. jonathan: i want to bring back in ian and peter still with us. we have retired higher on the session so far after gdp comes in better than expected. all of this is just a week away
from a bank of england rate decision. is the door open, for the first time in over a decade, over on needle street? >> going into that meeting back in june, mark carney was talking about holding off a rate hike, but he came out of that meeting saying that there could be a rate rise later on this year. i think they will try to take the opportunity here from this that are number coming out of the gdp. i think this will still be a dangerous strategy for them, because the sterling should still be lower if we are going to survive the disaster that is a chaotic brexit process. a few years ago, mark carney was called an unreliable boyfriend i one
disgruntled parliamentary member. >> i think we are seeing a shift in those policymakers over the past couple of months towards a willingness towards monetary tightening and monetary normalization. i think there is a recognition that in the aftermath of the brexit decision, there was a need for immediate and substantial financial action to support u.k. economy. now, some easing and normalizing seems right. the u.k. economy is still very fragile. we are seeing that in the housing market. if you tighten to rapidly too you will see some weakness on the investment side and on the housing side of the u.k.. jonathan: we see two very different things happening. the conversation for a rate of himnd then a picture taking questions from other officials.
whether you are progressive or politics you are at, is a mess. what with the bank of england think about raising interest rates? >> i think they are just talking about normalizing. they have put in place a lot of easing post-brexit. now, i think they just want to normalize it. almost tacit is an agreement globally to let the u.s. dollar weaken. it has the advantage that you do not have to enact policy. you can just mess around, and it will go lower. so, i think the dollar will go weaker, and i think the euro and the yen will bear the brunt of that. affectwhat will inflation and gdp growth? >> i think that is the point i would race to jonathan. inflation is going higher in the u.k..
rpi has been running over 4% if you exclude mortgage payments. these are rather high numbers. i think the bank of england is trying to get those inflation numbers back under control. i think that is the option that they are aiming for here. the danger is that, at the same time as you put the currency up, you drive down the exports which have been a source of support for the u.k. economy. that will expose the accounts larger than at the end of world war i. we spoke about the unreliable boyfriend in mark carney, but the u.k. depended on the kindness of strangers at the time, and if you let that growth slowed too far, the net will get exposed horribly. we still have a target for sterling against the dollar which is closer to parity than 140. next 24 hours, we
will have the ecb. i want to drill down on that a little bit. oni would prefer to be short the french government wants more than the german -- french government bonds more than the german bund. the french bonds and blend would be my trade -- and the bund would be my trade right now. the problemhat is in the reason i am nervous about being too on the bund. we think the ecb will be moving to a more aggressive tapering, and we believe that core inflation is accelerating faster than the market recognizes. so, you are not going to see those european yields running higher. bondsld be short european
relative to u.s. treasuries at the current time. ian, does politics still matter in europe? apparently, in spain, it does not. would bek what we saying is that now the bulk of the political risk is in the spanish assets, both the bond market and the equity market, but it is the italian bonds which have seen big rallies the past month. italian equities have outperformed spanish equities nicely. a switch nowaking back into some of those spanish assets and watching out for the political risk which is italy coming through in the next six months. towe move from one crisis the next, that is still the story of the eurozone which is why it can really only be neutral at best in the global portfolio from our perspective.
david: you think the ecb will move more aggressive on tapering -- that is one question, and the second is will they be more clear about what they are doing? how explicit will they be tomorrow? >> our consensus is that they will try to keep some optionality. they will try to extend it longer. will they cut from 60 down to 30 perhapsps 24 longer? -- 20 for longer? our guess is that they will go to 20 to keep it lower for longer. inflation does, start to moderate again, then they want to have some optionality again. i think mario draghi will still move slowly in this direction rather than being pushed to have a very hard number and a hard time frame. they have that in the economic forecasting.
do not do both. that, ifpivot off of you take a look at morgan stanley, they are saying that if you should buy less for longer, that is dovish. jp morgan is looking at the same information, and they say that is hawkish because there is more tapering. how do you interpret what we see tomorrow? >> i think the reality will be that we have a real shift in policy for the first time, and that will start sinking in. alix: well, second time. they started lowering to begin with. >> that is true, but i think this will be more dramatic, and you will start to see more of that selling off down the road. i think it takes a little bit of time for the reality to sink in, and that is what we will push towards higher yields. not genetically higher yields, but higher yields. jonathan: did you say cable parity about five minutes ago?
>> we do not know when it is wouldto happen, but we still say that you have much greater probability of getting to parity rather than breaking through the 140 or 142 area where we think pvp for sterling daughter -- we think where ppp for sterling is. peter, thank and you both for joining us. we want to get you up to speed on some of the earnings. boeing has been a big outperform or this year, performing at about 7%. we are negative about 1.5% ahead of the opening well. the estimate is 265. they boosted their year's forecast as well and a reinforced the revenue forecast. up over 70%mance
would have to show how much each company stands on advertising, who paid, and what demographic was targeted in the political ad. they forecasted profit in it toe, and they expect increase next year into the high end of the middle teens. they have been investing in digital technologies as consumers shift to card over cash and check. they are executing a strategic plan to invest in those with higher returns of their order assets. that is your bloomberg business flash. david: overnight, president xi appeared with his standing committee members who will lead china for the next five years. what struck most observers was that it was not apparent that
mr. xi had included a successor among that group. pur,ing us now is ajay ka one of the most highly regarded asian equity strategists. welcome to the program. glad to have you here. xi maybe telegraphing is that he is intending to stay for a while. is that what you are reading, and what does that mean for china and emerging markets in asia? >> that is the way that we read it and investment strategists in hong kong read it. we think that his part in the new era will be around for much longer. we think that means that xi angpeng wants china to be more dominant power which means more centralization and control of the pen, sword, and wallet.
we think we need to think about more involvement of the communist party in all areas of life including the private sector. we also need to focus on defense, security, and on one belt, one road. i think those are the things which will be the focus over the next few years. sayd: what might his vision about growth in china? to really have the party take more and more of a role in the private sector? >> one thing he spoke about was not the rate of growth, but the quality of growth. he also talked a little bit about income inequality, and i think the focus is not so much on maintaining strong growth numbers but making it a better quality of life. having said that, i think china's growth rate is probably
going to be revised higher for the next two years. i think it is fashionable to have a more lower number, and i think you have gone from about 12% to about 5% or 6% right now. i think people are underestimating how much -- how powerful the new economy is. back in 2006, it only accounted 1.5% -- at about 15%. was 50%, and next year it could be as much as 20%. that is a huge -- as much as 70 percent. that is a huge increase. i think most of economists are going to surprise themselves three years or four years later by saying they need to write the numbers up. david: why is that enough to
offset the old economy and supply-side reforms? >> think about it this way, back in 2005, 3 sectors come in energy, materials, industrials, were at about 3% of the industry, and now it is about 11%. the old economy is just smaller. reforms some supply-side which means cutting capacity which i also think is a good thing. given his thought, the idea is to have larger space monopolies like consolidation. if you are a shareholder, you might get a little bit of improvement, but it is primarily for the people and the employees. david: what about property? >> china has many property cycles. it is humongous. $40 trillion in u.s. as well. aging population which tends not to demand
property. so, i think the role of property as a growth driver has peaked out. i think there will be some replacement demand, but this is very important for us in financial markets, because there is going to be a huge asset reallocation shippe -- shift. a shift to move into financial efforts in china. david: -- jonathan: there was the illusion of stability in the past couple of weeks. some china companies are delaying posting bad results which makes it difficult to believe that something good is happening in china. overtaking any size of instability was one of the biggest doubts against president xi. what did you think when he said those things? >> i was surprised. i think central bank owners typically do not talk about a minsky moment which is when
things collapse and there is just too much debt. i was a bit surprised when i heard about it. i think china is quite far from a minsky moment, and i think people worry too much about this. the debt is high at 280%. 180% of that is corporate debt. it is very difficult for you to default on yourself. a lot of of this corporate debt is owned by the chinese government and is owned to the chineseed to the government or central bank. my daughter is not going to be in debt to my son when it has the bank of dad in the middle. jonathan: still, it feels a lot of misallocation of capital for a long time. dad retires and there is no much -- no more capital.
--yes, i think jonathan: i am really liking this analogy. >> the problem is probably debt servicing. the nominal gdp growth is about 14%. corporate bond is about 3% or 4% , so it is very easy to service your debt in that case. the problem was if you use ago when you had deflation. that is a problem, but they successfully reflate in this. -- reflated this. fromnk we are quite far that right now. kapur, great to see you. you also said that shares to grow over the next year which is an incredible call. >> i have looked at their cycles which run for about four or 4.5 years. about 60%. are up
emerging markets have great fundamentals and free cash flow. they will grow earnings 5% this year and maybe 20% next year. i think it looks pretty good. my job is to convince people to get in. alix: well, come back. we love having you. if you are watching bloomberg online, you can tune in on the bloomberg terminal and interact with us directly. this is bloomberg. ♪
bigthan: following the performing stock of the year. they have delivered a rally. the forecast for this year is at her. the stock outperforms -- this year is better should the stock outperforms the premarket. the price weighted index that we all know and love, their futures are pretty much unchanged.
around the table, brooke is going to wait in. -- to weigh in. what is driving the stock this year? the big concern was boeing -- x the big concern was boeing as they shifted to these bigger just that they have been producing. whenever you launch a new plane, that requires a significant amount of upfront investment. that is not happening, and boeing has shown better cash flow than what investors were expecting which i think is really giving people optimism. they have really increased production for their newest jet. i think that is also making people more comfortable with the fact that this very strong cycle we have been seeing will continue to be strong. jonathan: >> very quickly, looking at the numbers, a lot of
people are scrambling. is this material? >> i do not think it is hugely material. the other thing weighing on the stock is that they just released their guidance which was less than what analysts were expecting. this is a stock that has been priced for perfection, so every little thing will make the bold nervous. big, big yearas a for boeing in 2017. coming up next on the program, morgan stanley's senior fixed income management program will -- portfolio manager will join us. this is bloomberg tv. ♪
escalates as temps shifts away flake corker as deliver blistering attacks against the president. hands up if you like jon taylor. the president asking for a show of hands for potential fed nominees. are bond heads rejoicing? the moment of truth has arrived for the bull market. from new york city to our viewers worldwide, good morning. this is "bloomberg daybreak." i'm jonathan ferro alongside david westin and alix steel. after closing on a record high and s&p 500, futures softer. in the fx market, german business confidence gets back on record and the euro gets ahead in front of an ecb decision tomorrow. a story that keeps continuing -- yields higher on ten-year treasuries come up by two basis points at 2.44, the highest since march this year. alix: i'm taking a look at the currencyr in the market and that's the pound. grew more than expected
third-quarter and we are preparing for a rate hike in december. that is adding juice to sterling's rally. 48 basis point is where we print. the spread here in the u.s. is modestly steeper as we put up some hands for jon taylor and gold is a little softer. david: lets get an update for what is making headlines outside the business world. we turn to emma chandra with first word news. emma: in china, the president's asian is leaving open the ingpinglity that -- xi j is leaving open the possibility of staying. anyone could be promoted at any time. it's a big win for financial firms on capitol hill. the senate has voted to overturn a consumer financial protection bureau rule that makes it easier for customers to t
siou sue banks. some of prime minister rojo's allies think he may be going too far to try to crush catalonia separatists. the focus of taking control of the catalonian mr. trump and globalna is 10th street news 20 for hours a day powered by 2700 journalists and analysts in more than 120 countries, i'm emma chandra. this is bloomberg. david: yesterday was supposed to be all about tax reform, but some nasty fights broke out between president trump and two republican senators, jeff flake of arizona and bob corker of tennessee. neither had any particular nice things to say about the president. >> i've had private meetings with him, dinners with him. i've played golf with him. incidentstiple
where the staff asked me to intervene when it was getting off the tracks. i see no evolution. he is -- i would say it appears to me that it is almost devolving. >> when a leader correctly identifies real hurt in our country and instead of addressing it goes to look for somebody to blame, there's perhaps nothing so devastating to a pluralistic society. sense on how this might affect the president's agenda on capitol hill, we turn to kevin cirilli coul. our president is irrepressible and he said as he tweeted this morning that it was a love fest. it appears the present is feeling good about things. that said, where it gets interesting is that these two theylican senators, while
are not running for reelection, they are still in the senate for the next several months. riskcould post some policy should other senators within the majority, that's where it could post some type of political risk. senate majority leader mitch mcconnell spoke to reporters gathered outside. what he told us is that he does not believe that someone like senator corker or senator flake would vote against something as wide sweeping as tax reform. that someoneo note like senator flake according to conservative think tanks has voted with the president's agenda 90% of the time. when you get down to the policy specifics, these two individuals will likely vote for any type of conservative or republican agenda. that is really falling on the majority leader. jonathan: talk to me about steve bannon and the role he has got potentially here with these
senators that are warring against president trump and ultimately retiring. kevin: it's quite remarkable to see how steve bannon since leaving the white house has andched this outside group working to launch other conservatives. i reached out to him yesterday for his response to the fallout of senator corker and senator flake. he told me what he thought of yesterday was "epic." the senior adviser told me they feel this is a win for them to see folks who were never in favor of the president to begin impact actually have an with these lawmakers not running for reelection. from an establishment perspective, people like senate majority leader mitch mcconnell and folks connected to him are a bit skeptical as an understatement about losing people like senator corker and senator flake. jonathan: great reporting is
always. joining us now is the jpmorgan global asset management strategist. and we also have a senior fixed income portfolio manager. last hour by saying, is this noise or is it actually news? does it have real substance, something that can mean something for tax reform? >> we are not seeing a lot of action in the financial markets in response to this. they're focused on whether or not tax reform can get past. we think some tax reform can get through this congress. it will not be as much as people originally anticipated going back to the end of the presidential election last year. however, a little bit of tax reform is enough to boost earnings and help the u.s. equity market in the fourth quarter into 2018. that is the big market take away from this. david: how important is it whether we get tax reform or not and how important is it that the president and this administration negotiate with senators? jim: it's extremely important to
negotiate with members of their own party to get past because it's a thin margin to do that. i always look back at these things and i think about the political schisms that take place and i think of it mainly as noise in many senses. a lot of this is politicking for politics purpose. ultimately the economic fundamentals are going to matter. if you have good growth, you'll get good earnings. if you have good earnings, you will have higher equity prices. i don't know how much the markets have priced in a tonificant tax cut or reform such a degree that it can explain all that's going on right now. what explains what happening in the markets today is decent growth and low inflation. earnings are growing. three q earnings are decent. alix: are we going to continue to see tax reform to cpe continue to climb? alex: you don't need tax reform alone for earnings to continue to grow. for a much we are looking at the international improvement we are seeing.
going back to the s&p 500 revenues and where they come from, 43% of revenues comes from overseas. seeingre, what we're which is starting to reach multiyear's highs will filter into the earnings with a weaker u.s. dollar that should continue to weaken into late 2018. it also adds a boost to u.s. earnings could you don'. you don't need tax reform just to move that the the needle. jonathan: a big week for european bank earnings. as an eventing by and react with a special guest. it has been a big week here and riyadh and we have been hearing a lot of conversations from movers and shakers as the king rewrites the robots for a lot of asset classes. vote toout the latest allow women to drive for the
at an saudixt year aramco, the ipo there, there are so much to get through. bob diamond as a towel. bob diamond is in town. what brings you to r iyadh? >> the kingdom is an important economy. it is the 20th largest gdp economy in the world. if you look at gdp per capita, it is 12. before these recent reforms and announcements, this is an important country and important economy. yousef: does it concern you that they are moving at such high speed? what was one of the most conservative countries in the world from a capital perspective and societal value perspective suddenly completely turning around. bob: there's the rub of me being here personally for a few days and being able to see his excellency, the conference, make the announcement that he has made. seeing the reaction of the
people and just kind of being on the ground gives me tremendous confidence that this is not sudden and that there's a lot of thinking that has gone through this. visita chance today to the city being built and the center outside riyadh. of work see the amount going into these things for months and months, it's not quite as sudden as it feels. yousef: $500 billion of new commitments. where's the opportunity from where you are standing? bob: i think it's really two things. i think saudi arabia, the kingdom, has become a more important destination for international investors. when i think about it from our point of view, we invest in financial services, particularly the capital-intensive businesses. i think now this is an important opportunity for us to look at opportunities to partner with some of the financial
institutions here, many of which have some large percentage of ownership from the tif. equally what the kingdom has said is that we are going to diversify and sophisticate are investing around the world and increase the amount. as an international investor in financial services, we left to look at opportunities to partner with the pif in that way as well. yousef: we are seeing that with the public investment fund as that bolsters and redefines the way it approaches investments abroad investments like softbank and over. let's look at europe and the risks there. you have been increasing some of your business activity there. where do you see europe going as a whole given the recent difficulties it has had? vote and thele to u.k. as well as the u.s. and i voted to remain. i want to be very clear that i was supportive of remaining in europe, but one of the things
i've seen in the last three to six months is one of the unintended consequences -- and it was completely unintended -- it has given core europe a chance to really pull together. we are seeing the impact of that exhibit itself mostly in the periphery. we have acquired 100% of a bank and greece. we are working with some people in italy on a somewhat opportunity. the sarah is someone we have worked closely with their. both of us think that isortunity across europe excellent. now i have not been positive on europe as an economy for probably 10 or 12 years and i think one of the unintended consequences here is that many of us as investors are becoming quite positive on europe. yousef: the latest shockwaves around calls for autonomy in places like spain, catalonia, do
you see that trend intensifying? these are periphery issues as well. bob: we have seen these types of issues across many countries. we will see how this one plays out. the opportunity to the investing and not just core europe -- i think from the beginning people were invested in germany and france. greece was the first to really take the pain and the first to start implementing reforms. i think today the risk reward is very much in favor of betting on greece. yousef: let's cross the atlantic to the u.s. where we are looking ahead to a decision on who might become the next fed chair. names are being thrown around from taylor to powell to yellow. who would you pick out of the three? bob: there's no way i'm going to get involved. [laughter] i will give you the answer that they are all good candidates and i have seen all the letter mentioned. the truth is that they are all good candidates. yousef: could you think is most
likely to take the job? bob: i will give you the same answer on that. i will not giv get into that. the truth is that i've not spent a lot of time thinking about it because it's going to be when it's going to be. yousef: whatever happens, there will be a gradual normalization of monetary policy. do you see the fed ahead of the game, ahead of the curve? bob: i think that's a fair characterization. i was surprised early on of how long it took them to begin to equalize. i think they have been a little bit ahead of the curve now and i think that's a positive. u.s.nk the economy in the continues to the surprise us with its resiliency and its strength. i feel pretty comfortable that the fed is acting in a very appropriate way. one of the consequences of that is that we are seeing more and more interest in the u.s. investing outside of the u.s.. did a $200 just
million capital raise for one of our ventures in africa. most of that fun race was from canada and the u.s., fully underwritten by fairfax in canada. it gives me a clear window on the fact that the investors in the u.s. and canada are really looking at the opportunities in the emerging economies. yousef: let's pick up on some of the african opportunities where the bulk of your business is being done. what will happen next? what will be the next catalyst because it has been a rough year for africa as a whole but the commodity prices that have not rebounded to the levels we have seen before? what is going to be the next key unlock of growth? bob: it is closer to 2.5 years. i think the commodity cycle reversed led by oil prices. it had a huge impact on economy is like nigeria. i think currencies were we relative to the u.s. dollar. one of the things that was happening that probably did not get as much notoriety as the
pullback from many of the baselan banks where three were pulling back capital to the home markets and pursued overturn -- a return on equity. that has created an enormous opportunity in africa. when you look at the demographics, when you look at the population, when you look at what is happening in urbanization, and most importantly the opportunity for technology to help many of these economies leapfrogged, i think the investment opportunity today is better than it has been in quite a while. we have recently doubled down on our investment in nigeria as a good example. relative to two or three years ago, equity prices in the areas we are looking at and financials are down 50%. the currencies are significantly weaker. yousef: when you look at some of the bond yields and africa, arguably they are trading at levels very close to some of the developed markets.
there clear demand for some of that paper. what are you telling clients in terms of getting exposure to the african story that you are saying has a lot of opportunity? bob: if you are a long-term investor and our investments in africa are all permanent capital, we have listed equity on the london stock exchange. the recently underwritten deal that we did with fairfax was also permanent equity. if you are an investor with a three to five-year view or better or a five to seven your view, this is absolutely the time to be investing. yousef: i want to bring it back to the global economy given your experience and i want to get your thoughts as to what concerns you most when you look at the world the way it is shaping up to be today. bob: i think there are a lot of positives. as ink the u.s. economy, mentioned earlier, has been incredibly resilient. i think trade is encouraging. i think most of us here when
asked what are the things we worry about, it's really the leadership vacuum around the world. yousef: ok, bob diamond, thank you very much for joining us. he is the ceo of atlas merchant capital with the story unfolding here as a lot of the leaders deliver a different scenarios on how the kingdom will go forward with economic reforms. they are allowing foreign investors to take on strategic stakes and publicly listed companies. another historic step possibly. and the emerging-market inclusion by the next year as it is currently on the watchlist. plenty to discuss. that is all from here. jonathan: thank you. that is usyiousef. michael purves rates his year and s&p 500 forecast. from himet that story ahead of a big week of tech earnings in the united states.
alix: the move in the bond market with a 10 year hitting 2.4% and now topping at its highest level since about march of last year. the level that bill gross says will start the bear market. jeffrey gunn lot doubling down to bonded, warning investors, saying the moment of truth has arrived for the secular bond bull market. it needs to start rally effectively immediately or obituaries into be written. still with us is jim and alex. both of them are laughing on that. is it obituary time? jim: the bond market has been in
a 30 year bull trend. that has bailed out a lot upon investors. yields keep going down and returns are good. our yields going to start suddenly rising considerably? i think they are going up. how high do they go? if i look at the 10 year yield, it's difficult for the 10 year yield to get above three percent and stay above 3% unless the fed false behind the curve and allows inflation pressures to build and restores premium in the curve and we get significant growth. a lot of things have to go right in my opinion for yields to sustainably move higher. does that mean that we have seen the lows for a long time? yeah, i think that's the case. as long as the data stays reasonably good and inflation starts to pick up like the fed is saying that it should, i think that will create a little bit of an upsurge in yields. it's a question of case and path. how fast is that going to happen? it will not happen extremely fast. i do not think it will be overly destructive in that sense. alix: i remember a year and a
half ago we were talking about the same thing. what level in the 10 year will disrupt equities? people were saying 2% and it's off. now we are at 2.4% and everything thing seems to be fi. alex: we are well off the threshold triggers. where that typically comes in historically is around 5% on the u.s. 10 year. that is usually the mark where you start seeing a negative relationship starting in between bond movers and equities. do we think in this new perio of very low interest rates that that 5% threshold still stands? probably not. it will be around the high threes or low fours. we are just coming halfway to the threshold so we do not think we are anywhere close to bond markets disturbing the equity bull run at this stage. jonathan: what does this balance sheet unwind? jim: i think of does only marginally.
one of the things we have to recognize here is that we have to think about risk parity. with it about bonds and equities and we think in terms of risk parity. effectively what we are saying is that if yields rise and the rise of the very slow pace and do not rise all that much, effectively equity yield looks a lot higher and looks a lot more interesting. if a look at the flows in the markets and i looked last week, we had $590 billion in two global bonds and equities. this is a global record. levels of cash are 7% off their averages. another 490e billion dollars of cash that could come up to the market just for people to have average cash holdings. if that were the case, you would see money come into bonds and equity. maybe more toward equity in this case, but i still think at certain levels of yield, probably closer to that 3% mark it starts to look attractive. jonathan: where are you a buyer? jim: around the 3% mark.
i think right around that yielded i think we can get there. so far spreads have been narrowing in bonds. jonathan: this 3% greeted? y? is 3% greed jim: it could be somewhere around 75-80 so it's not too far away. alix: that's quite a move for bones. jim: the middle of next year. if you give me a couple of fiscal stimulus in the u.s. and coupled with some prints to beat over the next six month or so, all that could start to look good. that weto be concerned were getting on in the cycle and it might slow the pace. alix: any of this rely on the fed? jim: the fed is -- alix: who needs it? jim: somewhat. i don't think if howell or taylor, the front runners right now, will do anything material
different the next six to nine months. it's up a jackson hole symposium in august but they come out with new plans for things. they keep yellen's policies in place. jonathan: did you put your hand up to for jon taylor? jim: if i were voting, i would powell. say it howel and banksput rates together and he would one have a conversation with these guys -- mike mayo and mike shoemaker. we're getting the wells fargo you on those things blended together. for from new york, this is bloomberg. ♪
look at tech earnings here the united states and bank earnings over in europe. the biggest waiting on the stoxx 600 is banks. the biggest waiting on the s&p 500 is tech. the highest yield on the 10 year treasury since march of this year at 2.46. up another four basis points on the day so far. the dollar struggling to catch a 76 on the euro. as far as the data is concerned in the u.s., coming out at 2.2%. the capital goods order comes in at 1.3%. the estimate is a solid 0.3 relative to that. 0.3 is the estimate. some decent upward revisions coming through as well. that backup and treasury yields getting a little more fuel from some solid data here the united states. alix: and it was really broad-based. you had gains in metals,
electronics, can vacation equipment, aircraft. durable goods coming in very solid and inventories climbed as well. that is the most since june 2015. we're looking to rebuild as factories get back to work. to europe,s. european markets preparing for the ecb's one step. european central bank meeting is tomorrow and it seems to be les by less bonds per month. this is where the asset classes are trading. the euro-dollar is 1.17. european stocks are slightly higher. jim sees that at 75 or 80 next year. andl with us is jim caron alex dryden. what is your base case? alex: for us we are thinking the ecb drops the asset purchase program and they go for nine more months. however this is likely to be a dovish taper.
there will be great emphasis from mario draghi placed on one interest rate hikes are going to come into effect. right now the market is pricing in a 40% chance of a rate hike next year. the european economy has come along way and is looking a lot healthier, but we are still some way off removal of those negative deposit rates in europe. remembering that the u.s. took over a year once it reduced its asset purchase program to zero before hike interest rates . that will mean we will see the euro come down slightly, which is what mario draghi and company will be aiming for. they do not want to choke off this fragile eurozone recovery at this stage. alix: the question is the trickle down to yields. you look at this chart on the bloomberg here and it shows the narrow range that we have been and when it comes to german ten-year bund yields and now we are at 50 basis points. i know you see at higher on the back half of next year, but what will be the response tomorrow? how is the market going to interpret if we see a dovish taper? jim: i think the market is very
much expecting that and i agree with my colleague in terms of the pace. italy really a question of having the optionality to do more later. they don't want to disrupt markets too soon. 50 basis points on the bond is still a really low yield could i. it is still accommodative. what breaks the cycle? looking for these economic fundamental about whether its growth or inflation and we throw these terms around. what has been moving the markets the most the most essential bank activity and how it's been manipulating risk premium in the market. what we have to look at is what breaks the cycle is when one asset value gets to cheap relative to another. parityck to the risk context here. rates are low and that's why these other asset classes are doing so well whether it's spread product or equity or anything else. only one rates start to move a lot higher does that really start to affect things.
i do not think we are near those levels. 10-year bunds can go up to 90 basis points. i do not think it is hugely disruptive in this context. i agree that i don't think the central bank, which is at -40 basis points, heights interest rates until 2019. jonathan: the chart i just threw together inspired by lisa abramowicz is a two-year spread. treasuries versus bunds -- it is 231 basis points right now. this is the five-year chart. to give you afield how far you have to go back coming have to go all the way back to the 1990's for when we had a spread like this. do you want to take the other side of that momentum at this point? jim: no, not at this point. i think that the fed is well entrenched in hiking interest rates at this point. they're telling us they're going to 2.75% by sometime 2019.
let's say they only get to 2.25% or 2.50%. 2-year note will be on top of that. within that timeframe, i do not see the ecb hiking rates all that much. the two-year german bonds making much of a push higher. jonathan: with that minds, who want to get long euro-dollar at this point? the direction of travel that jim is talking about -- he doesn't want to get on the other side appeared alex of. questionse's a lot of on whether we will see fiscal policy stimulus in the u.s.. i do not think we will see much action from the euro side of things. a bit of action from the fed in terms of pushing up a bit of fiscal policy and a little bit of action from the federal reserve and may a more hawkish fomc member. we will likely see the dollar strengthened into the early part of 2018 before begins to weaken again. at the end of the day, we have to go back to the fundamentals. the story of the last decade has been global economic beverages,
the u.s. pulling away from the rest of the pack. that trend is beginning to change. the rest of the world are starting to accelerate. as the economic divergence begins to turn into economic convergence we do believe that the long-term trajectory of the dollar is down from here. david: we talked a lot about term premium and various ways of counting the yield. one thing we have not talked about a supply and demand. whatever you say, the ecb will be buying less bonds that they were. the fed is rolling down their balance sheet and at the same time quite possibly the united states congress says let's go borrow another $1.5 trillion. don't those dynamics potentially lead to higher yields? jim: potentially they do and it's really a question of how investors see the current economic climate. yes we can create higher yields based on it. based on everything you say, it's almost a certainty that yields should move higher except for the fact that there's a significant amount of liquidity that has yet been deployed that
still needs to come to invest in the markets. it's a question of how fast we get to the high rates and how fast economic growth gets to come. does it scare investors? sit here and say yields have risen a bit and maybe this is a good opportunity to start putting some money to work? i guess my point is that there is still a lot of cash out there that has just been manufactured through quantitative easing. it needs to be invested. it probably still comes into the bond markets. i think that there is going to be some support at levels higher than we are right u now. alix: i just did a chart of the spread at these levels. the bottom was 84. that's for perspective. who wants to go along at that point? how do you want to play in europe then? is it domestic companies or foreign companies? alex: for us, we want to get exposure to the domestic cyclical upswing happening in the eurozone. the pmi numbers across the border looking strong.
therefore, we want to get the companies that are most exposed to that recovery, so domestic orientated companies. we are feeling a little more comfortable with taking risks in areas such as european financials as well, although i would not sell that to my grandmother. do start to take on a little bit of risk in the european economy because we are still seeing support of monetary policy conditions and the economic recovery is looking fairly solid at this stage. that is where i want to be one of playing eurozone equities. jonathan: 32nd guy going into tomorrow, what is it? talks think mario draghi the tapering talk we expected him to do. it's probably more of a dovish commentary. he wants to leave his options open. i do not think he wants to over commit to tightening policy or removing too much excess accommodation as a better way to say it all at once. david: alex dryden and jim caron, thank you very much for being with us.
the company 737 max jetliner propels to new quarterly record. investors are saying boeing didn't deliver. the tanker cost for the program rose $329 million in the quarter. bank of america is set to be breaking with rival u.s. banks before the overhaul of european market rules in january. the financial times, be of a has filed to become a registered investment advisor. that would solve the issue of how to keep providing research to asset managers working in europe once the new rules take effect. american movie theater chain legal cinemas -- regal cinemas will charge demand prices. they plan to test the idea early next year. the goal is to increase revenue and get more seats at nonpeak times. jonathan: i could see alix steel in the empty theater.
[laughter] david: nobody wants to watch the movie that she wants to watch. alix: that is literally 100% true. [laughter] jonathan: watching a movie no one else wants to see. alix steel would be a happy, happy lady. i will tell you who is a happy man -- jamie dimon. record high yesterday for the first time ever. i would highlight on this chart going back to early 2015 when the stock was in the 50's and a lot of people thought the world was going to end in the global economy was cratering and jamie dimon bought over $.5 billion worth of stock -- $25 million worth of stock. he has got some massive returns from that. the stock has effectively doubled since then. at the j.p. morgan more broadly, u.s. financials leading the way through yesterday. banks abroad are looking for volatility as global central
banks from the fed to the ecb are poised to high-grade in the your future. joining us is mike mayo. of globalchumacher rate strategy. let's begin with mike mayo. how important is it that we got through $100 a share and where do we go next for. ? from here? global banksl exceeded expectations in the third quarter. citigroup goldman sachs, and morgan stanley. it's more about history banking than wall street. traditional bank lending and traditional bank revenues did quite well. and that's with better efficiency. banks and capital markets were down year-over-year. especially fixed income trading. the reason there is more to go is that there are several call options with the banks. maybe capital markets get
better. that disproportionately benefits the u.s. banks. maybe there is some deregulation. all the while, you still have balance sheets that are the strongest in a generation. jonathan: what is the lesson? let's reflect on it briefly. what is the lesson when people got bearish very quickly and the chief executive jpmorgan stepped in and a big way? mike m.: the lesson for investors is that i was saying this was an opportunity. do the math. it is night and day. the balance sheets of banks now versus a decade ago. if you do the math, banks could absorb not one financial crisis but to financial crises. you have the strongest level of capital and liquidity in a generation. bring it on. you can have all sorts of scenarios. back then, it was the oil situation and the aftermath of some of the european problems. if you did the math, you could say take a charge of move on. that was not the case a decade ago. to recognizere is
that banks have the strongest balance sheet in a generation and that the revenues have been subdued and that there is a lot of catalyst to so go further in the upside. david: things are safer than the have been for a long time. what about the opportunity for growth? specifically talk about the main street. what about mortgages, housing? is there a little bit of a cloud on the horizon that housing is not moving up the way we would like? mike s.: probably a little bit of concern. look at the housing market across the u.s., not as strong as people would like. you make get some disruption as a function of the tax bill. all forms of permutations may pan out over the next six to 12 months. if housing were stronger, people might feel better, but i do not think housing is necessarily in a bad spot. i'm sure we will talk about the rise in interest rates, but they are not high. 246 and it245 or should not hurt the housing market too much. jonathan: take an asset class
and display volatility and it will be doing this over the last few years that there was fx or fixed income where equities . when mike mayo gives you the call and says where's my ball, what do you said? y?ke m. mike s.: just be more patient. i think the ecb will probably taper. like about the fed. people say the qe is baked in. qe has been going on in the u.s. for eight years. how long has the fed been reducing the balance sheet? 25 versus 3000. i think that is they've all booster. that will boost vol over the next three to six months and the text that this section -- tax cut discussion will also contribute. alix: really what was the star performer in all the banks this quarter happen to be lending, particularly with goldman sachs.
that was the conversation. then you have these a and discover and capital one, they had solid quarters. you're shaking your head at me. you know where i'm going with this. mike m.: the bank industry today is not about being the next great growth stock. revenues are not targeted for double digits. we are low to mid single-digit revenue growth. less revenue growth but more sustainable. as it relates to loan losses, what can industry absorbed? you are still well below historical loss level loan loss. banks have de-risk significantly. you do not have the same level of subprime loans and these other issues. loan losses are not going higher. that is to be expected, but we are not going back to the levels we were in the times past. as it relates to mike schumacher, i do call mike schumacher.
you always want to prop on the show. alix: you brought your actual prop. how sweet. [laughter] jonathan: i don't know if mike schumacher sees himself as the prop. alix: i brought my m.i.t. trained industry strategy. [laughter] mike.: when i brought schumacher and we collaborate frequently, he said volatility should go up by one third by the end of next year. whether that is the exact number or not, extensive volatility goes up and that could be good for the wall street banking. you do not be the wall street thinks as much to advise you because you have historically low volatility. fixed income trading was down 20% year-over-year. you get additional volatility around the trends. all volatility is not graded equal, but to the extent we get good volatility, then you have more need for some of the capital market businesses and he could see a pickup over the next few years. alix: thank you very much mike mayo and mike schumacher.
are you guys my prop? [laughter] david: i'm sure you think of is that way. alix: no, you're more than that. jonathan: i think of you guys is my props. alix: we are all in this together. schumacher,d mike i'm going to go before we get trouble. watch tv online and interact with us directly. go to tv on your terminal. if you miss anything, scroll through and rewatch. this is bloomberg. ♪
david: this is bloomberg. carlisle has announced a succession plan. when young can will become co-ceo and founder david rubenstein, who host the david rubenstein show on bloomberg television, will become coexecutive chairman. he said what he saw the key is to carlisle success. >> the key is what do you do
with the company's when you invest in them? the capabilities of firms to actually add value and create that premium, there's a very wide dispersion between top performers and bottom performers and private equity. there's not that they go dispersion and public equity markets. it's that dispersion that people are after. one of the great things that is happening in our businesses, by the way, is if you don't perform, you're not getting refunded. if you do perform, everybody wants to be in your funds. david: jason kelly joins us and personnel. that was last june when you're talking to glenn. tell us about these two gentlemen. what do we know about them and what will this mean for carlisle? jason: what's interesting is that you have this pair of guys, one of whom has just been that the firm almost his entire adult life. he joined in the mid-1990's and has really seen the growth of carlisle since its inception. it only started the late 1980's.
lee is a bit of a rare bird because he did most of his private equity career at another firm. he was there for 20 years before he joined carlyle just a few years ago. having the sort of inside, outside balance is really interesting. david: as we were talking in the break with alex, it was unusual to move from one private equity to another private equity. jason: it is. these guys are so inextricably tied to their firms financially in a lot of ways because these are partnerships. i think sometimes we forget that they are publicly traded firms. these are very lucrative partnerships. it's hard to get yourself out of that. we have seen this over the history of carlisle and blackstone is that these are cult of personality and a lot of ways. that's one of the big questions that comes up when you think about the succession plans. can the next generation maintain the ethos of the founders? alix: what is the culture at
carlisle versus others when we wind up having the new president come in? jason: carlisle started back in 1987 and it was the brainchild of these three guys of david conway, and dan daniella. they were kind of introduced to each other. they didn't know each other that well. they had this idea about this burgeoning leveraged buyout business. they're based in washington and outside of the wall street journal you. they saw early opportunities to carve out small segments of the company and operate them as independent companies. what they really did over the course of the subsequent 30 years is to really go throughout the world to install their own people and hire local people and to really get engaged in these local markets. jonathan: does the new
generation have a harder job than the previous generation to generate returns? jason: i think they absolutely do. it's a much more competitive space. when these guys got to the business and founded the firm, there was a lot to play without the world, especially as they were going into the emerging markets. they were early in china and japan. they were among the first to raise money from the middle east. rubirubenstein spence all his time raising money and go after deals. jonathan: it might be time to step down. [laughter] alix: great, see you later. jonathan: jason kelly, great to have you with us on the program. counting you down to the opening bell, this is bloomberg tv. ♪ who knew that phones would start doing everything?
cut as a senator delivered a blistering attack against the president. and john taylor tromso senator -- trumps up senate republicans. and just collects as the moment for the has arrived bond market. from new york city for our viewers worldwide, good morning. this is bloomberg: daybreak. i'm jonathan ferro alongside david westin and alex steele. 30 minutes away from the opening bell, futures a little bit softer. we pretreat -- retreat by a little over a 10th of 1%. we are down by four basis points at 2.46. euro confidence comes out strong in a record high about that acb decision tomorrow. .e trade at 1.1778 let's get some stock moving. alix: bowing down by 5/10 of 1%.
the quarter was pretty solid. it also raised its earnings guidance to as much as $10 and $.10 -- $10.10 a share. negative isntial that fuel tankers were supposed to be delivered in august but they are still in the construction hangar. this is a short-term issue potentially for boeing, and their backlog is 488 lien dollars. -- $458 billion. abt down by almost 2%, adding 170,000 wireless subscribers. t-mobile, 817,000. talk about the competition there. watch with that tie up with time warner. that is due at the end of the year, and that is critical as fund level falls. and to pull a, a very wide earnings miss. here is the list. they blame herman cain -- hurricanes, different food
rollouts, rats in the ceiling incidents, and a laundry list of issues that chipotle will be talking about later on in the hour. whythan: i see theoretically, because if i saw a press release, i would be hitting the sale that an pretty hard. we can get into that in just a moment. the gop leadership attempts to .ut up spotlight on tax reform senator booker had this to say about the president. meetings had private with him, dinners with him, played golf with him, multiple occasions where the staff has asked me to please intervene, he is getting ready to do something that would go off the tracks. look. seen no evolution in that way. it isears to me that almost evolving. jonathan: republican senator
jeff flake doubled down the push back, saying he will not run for reelection. when a leader identifies real hurt and insecurity in our country and instead of addressing it, goes for someone to plan, there is no a thing -- nothing more depressing for a pluralistic society. jonathan: kevin cirilli is with us now. is it rough, rough, rough? or is it a love fest? referringsident trump to it as a love fest, but also tweeting out more criticism andnst senators corker flake. he says the reason they dropped out of the senate race is very simple -- they had zero chance of being elected. they now act so hurt and wounded. mcconnell arriving and talking to reporters yesterday after the president was in the senate, having lunch with republican lawmakers, and saying that he does not believe that this controversy and
disagreement among the republicans will have any impact on something like tax reform, and we have to know that someone like senator flake, according to one conservative think tank, has actually voted with president's agenda more than 90% of the time. in terms of tax reform, tomorrow, that house of representatives will vote on the budget. that is the next step in terms of getting tax reform by the end of the year, and we are hearing on november 1, the house will unveil a tax plan. things are moving along, but this shied show -- sideshow, according to aides on either side of the debate, tell me it is a distraction that is unhelpful, to say the least. jonathan: it is amazing what happens when people get retired. senator corker says he will not vote for a tax reform package that adds to the deficit. how many senator corker's are
there in the republican party? >> there are quite a few, and that is where this gets interesting, especially when we start talking about geopolitical and international issues such as iran. we have seen the president take criticism from people like senator mccain and lindsey .raham senator graham has been a bit more receptive lately, it would appear, to the administration. but as this continues on into next calendar year, ahead of the midterms, you have four lawmakers in the republican party -- graham, mccain, flake, openly criticizing the president's agenda -- that is where the math becomes tricky. on the flipside of that, the response from people like the of the parties say they want to "drain the swamp," you are hearing a lot of that. that tension will have long-lasting applications on the future of the republican party for quite some time to come. cirilli, great
to catch up with you. is there a state of affairs where you have to retire and not be up for a special election to really stand on where you are with the view of things? kevin: steve bannon is after the establishment republicans and they are feeling the heat in the primaries. jonathan: did flake retire because he felt some of the heat? david: absolutely. he was going to have a terrible time with the reelection in arizona, and it was the far right. jonathan: let's get on to the markets. michael purves joining us around the table as well. bear capitulates. should we start their? -- there? [laughter] yes, they did upgrade the year-end price target. can we talk about real rates? jonathan: go on. mr. purves: for the last several
years, i have been among the highest on price and the lowest on earnings. i saw a regime change after trump was elected to a change dominated by monetary stimulus versus this will stimulus. my changes for the year were right in line with the consensus, slightly below. was $23.50,get expecting that this was fiscal agenda would be implemented and that would weigh on pe multiples. so earnings would be robust, but multiples would contract for various reasons. in june, i took my earnings down 1.16. i'm low on the street on earnings, but what i saw is that this regime shift basically failed, or thus far has failed. sense, isve, in a obama's third term, with a lot of political noise out of d.c.. but it is really noise and a gridlock, a variant of gridlock.
but we have global synchronized growth, which is helpful. we have a weak dollar, until very recently, and rates that, until recently, have been behaving themselves. right now, my real call is that i am bullish on pe expansion. just as i have been in the past two years. that decent gdp in some ways is healthier for the market than a surgeon gdp. jonathan: you stand by your view on earnings? light.ves: 1.16 is it is probably more like one point 20. we have a surgeon nominal gdp in q4 out of the blue, that means the bond market and wealth markets could be well past 3%, and margins will also be compressed. --pressed a lot across of the industry groups. q3 is coming in, a percent year-over-year -- 8% year-over-year.
the bottom is 20%? i do not know how you get to 20%. maybe 1.20, 1.21, 1.22. alix: you were talking on a radio show the other day about earnings, and how you do not start worry about earnings and then you start talking about margins. i think that is a sticky point, the margin line. for a lot of sectors, what analysts are expecting is that earnings will continue to grow, but they will not accelerate a lot. ishink that some of this what is happening with inflation getting embedded into expectations. we have had this rise over the last couple of months in inflation expectations -- not necessarily backed up by the actual inflation data. i think we are going to go through some time for the next six months at least where we have a lot of friction on the margin line. can we sustain these
expectations becomes a big question. i think that is a question right now during this earnings season and will be a bigger question the first and second quarter of next year. alix: why is this one going to be different? ms. adams: i do not know if it is margins, frankly. in timeit is a moment where we are focusing on margins 6-12fically for the next months. if you look at margins overall, there is a sign a became a bit over the-- toppish past couple of quarters. over the long term, it is still in a long-term uptrend. there is just not a lot to be said about that. we have talked about pete markets for five years mining -- running. i do not think that is the case. i think in the short run, it is a sticky subject. where do you get your inclination to have a higher p/e ratio? we are not at the top, we are not at the bottom. is it from margins, and where to
those come from? mr. purves: let's zoom out to the macro factors underlying this pe expansion over the past several years that has been relentless. a key part of the equity return. it is roughly half earnings growth and half pe expansion. to me, it comes down to ultimately rates, and particularly, inflation. if inflation is low and stable, that will keep the central banks with their foot on the gas. dovish when it needed, even if the fed is going into qt and draghi announces a taper tomorrow. but if inflation is perceived to notow and stable, and we do see a recession on the horizon, that means investors respectively have to lever this low stable rate environment, and that means pe expansion. pe, ifbeen bullish on this condition continues. i call it the 222 framework. 2% on the real, 2% on the treasury network, 2% inflation.
those numbers have been coal inflating and coagulating for the past few years. i think that extends the credit cycle and reinforces conservatism at the ceo and board level within corporations, and probably reinforces lending conservatives. if those factors are in play, there is no reason to think that pe's cannot grow into the mid even further. of that framework of the way, because we have a surge in inflation and a decidedly banks, message from the we will be in a different place. jonathan: michael purves, you are a good sport. next, represent a day of progress, and -- . we counted out to the opening bell for another record high close. 1%are about negative 1/10 of
♪ this is bloomberg. i'm david westin. president trump's announcement on the next fed chair is inspected any minute now. meantime, the 10 year treasury yield has moved above 2.4, causing double lines to tweak that "the moment of truth has arrived for the secular bond bull market." are lisas now abramowicz and still with us is michael purves.
mr. purvis: i think growth with at 2%. when i look at my chart, i am on a good luck down from a technical point of view, but we have had a surgeon yield today today,search in yield and when the 10 year hit two point said -- toget from 2.42 2.45 up three, you need a lot of regime shifts to occur. david: let's get a breakdown of it. what if the fed chair says we will do these three hikes next year, despite what the market thinks. where does it go? where to the yields go? go purves: it will certainly up, but in my context, the short and is governed by u.s. economics and u.s. monetary policy really -- policy. isg and is covered --end
covered by mario draghi. if he comes down to 40 or brings yieldn to 20 and the bund goes up, that is how we get to three and maybe past that. what is interesting is for the u.s. economy and u.s. corporate earnings, that rise in yields will because of european upsides, not because of u.s. upsides. are three factors here. number one, a question about ecb policy. they will make an announcement tomorrow. make it more -- they might give more of an outline about their tapering plant. the second question is from the regulatory and fiscal policy standpoint in the u.s., and that is where you have the fed chair race and all the questions around who might deregulate banks faster, keep rates lower, or raise them faster. and there is a third point, which is actual economic data and economic inflation, which
does not seem to be going anywhere. these are the three factors that people are playing with, and if mean higherverge to yield, it could move it very quickly. but it would have to be a convergence of policy as well as data coming in. jonathan: that is the interesting thing here we are talking about, unwinding the fed's balance sheet and the reduction of qe at the ecb -- we can have a debate about whether inflation numbers are inflation and what is happening, but ultimately, the headline numbers are not there. mr. purves: they are wrestling through this right now in their models, the phillips curve is distorted, some people with suggested is broken. we are at record unemployment, but you are not eating any surge. -- seeing any surge. you are seeing a decade of lower highs and lower lows. what that is meaning is that the inflation they're going forward with rapid technological change, globalization, and demographics is sort of suggesting that
inflation will be lower longer. gets let's say john taylor the fed chair nomination and steve regulates banks. how much more could rates rise? craig: you -- mr. purves: you probably want to double down on my call because rates will go up. hawkinly, he would be the of the three or four choices. who knows, but i would guess powell. david: the president knows. mr. purves: but all of us are guessing. [laughter] david: gadflies lisa abramowicz, thank you for being with us, and michael purves will be staying with us. coming up next, european banks will be in obese. we have a guide for you about when investors will be watching -- in focus. we have a guide for you about what investors will be watching.
alix: we got a peek of european bank earnings tomorrow, and this several other banks will be reporting. what will we be watching for iago joining us is jonathan have michaeltill purves of wheaton. if the market share gains are going to be sustainable, he said yes. for me, that does not mean good things for deutsche bank and barclays. with deutsche bank, this was a big issue. they talked about it over the past couple of quarters. they had a lot of liquidity, and they pointed to the fact that there has been a bit of recovery over the past couple of quarters, which i think is fair. industry isnd emerging from a time of pain. there is probably a bit more
business to go around. certainly, that was, the prime brokerage was an issue for deutsche bank. lesser and extent around barclays. alix: where are we about you might have fixed her house, but you have to grow conversation wind comes to european banks? jonathan: berkeley is an interesting one, because they put their hands up where they said they had capital in the wrong part of the civ, and there is a lot on what they will articulate going forward, articulating the risk erred -- risk curve, structure derivatives, etc.. fall.r does it what sort of story can they tell about why we should buy into the fact that they still have an investment banks? jonathan: michael purves, and the start of some numbers over this week, there were some reports around commerzbank in the potential for a tie up with a big european lender. is that a sign that we might get that elusive consolidation in the european banking sector? mr. purves: i had a conversation
with a friend of mine who was speaking to the spanish banking system, and i said is there any prospect for cross-border mergers in europe? he was saying yes, it is coming. that does not mean it will come, but inevitably, it european banks have been put on their back foot for some time right now. if we do get real deregulation that may drive not just consolidation, but the europeans to deregulate, lighten up their regulation. in a way, trump might have been exporting deregulation to europe. i think it will be something to watch for, but there is no question that in the near term, the u.s. banks, the global banks -- it is not just prime brokerage. there is an opportunity in investment banking and sales across the board. is the rationale for
consolidation in europe getting stronger or weaker? jonathan: that comes back to a special case. the finance industry insisting they need to divest. i would not pay much credence to most banks suggesting possible deals, but in this case we are thinking a --. they have:. deutsche bank needs to get some credit through it gets through some of it's hard work. there are a lot of ways you can extract some value uncertainties. this is about cost savings and germany.ith cos it needs a lot of work. cases,sly, and in other -- in this case, i can see where the market is going with their line of thinking. you can look at bmp. they could do with another domestic market. we have poland, germany, and they are all credible. not yet, but certainly over the next 12 months would not be surprising to see something.
jonathan tice, thank you, and michael purves from wheaton. the cfo antonio garcia. he will be joining us as well as they deliver earnings in. on top of that, we will bring you the deutsche bank numbers. all of those highlights handful -- and full coverage on bloomberg tv. are a little bit soft on the s&p 500, negative about 1/10 of 1%. this is bloomberg.
500, the dow dead flat. slowing, delivering on the top and bottom line with a decent forecast as well. let's get to the bond market, where the real action has been. follows higher, about three basis points to 2.45. the story of the dollar is that it cannot build any strength on the back of those high-yield, softer by about 1/10 of 1%. the euro driving ahead of the ecb tomorrow, fueled by a better-than-expected german business conference number, record high. the dates out of europe looking pretty good. we crossed that picture about 30 seconds to the cash open, alix steel. we are treading right around those record levels. the dow jones is flat, the s&p off by 1/10 of 1%, and a stupor funds that for you -- it has
you,-- super fun stat for we have had no corrections. that is a record. if on status as we look at some of the movers underneath the surface here. let's take a look at visa. reported earnings this morning on nasdaq up about 8/10 of 1%, card growth about 29%, but the company did beat estimates on sales as well as profits. a strong quarter for all of the credit card companies. , advanced micro devices, off by almost 10% here, experiencing its first sequential fall in revenue here in two years next quarter. and northrop grumman up by 2%, almost 3%. blowing away earnings estimates and raises its outlook once again. the third time this year. radar systems provided a big boost for this company in earnings. tomorrow, it will all of the -- all the about european earnings
and tech after the bell. microsoft, google, amazon -- i wanted to take a look at earnings forecast for some of these big companies heading into big tech earnings. this is the change in 2017 forecasts forate the companies. the white line is amazon, blue, microsoft, and the yellow line is google. they have all seen some kind of downward revision in estimates by the end of july, beginning of august. amazon has not recovered from that, but they have stabilized. so what is baked into these stocks, and what is not when it comes to earnings? overially this weakening the last six or seven trading days. what number do we need to see to boost those equity prices? jonathan: let's bring in the team, michael purves and gina adams. what do you make of that, gina? the downgrade from tech going into earnings? ms. adams: it is pretty customary, frankly. tech is across the board the best sector at managing the
earnings. so you tend to see tech estimates come down the most cutting into earnings, and then they tend to be the greatest degree among sectors throughout the earnings season. it is not a tremendous surprise. what is going on in tech in the third quarter specifically is related to the iphone, and that apple split the iphone with the iphone 8 and the pending ax. we do not know when we will get iphone sales. they reduced estimates for the third quarter and are pushing them into the fourth quarter, because fourth quarter estimates were sales are going higher. i think a lot of this is related to the iphone. some of it is also just general sales gross is pretty consistent, but expectations are very, very high. this is the sector where you are expected to see the fastest earnings growth as well as the second fastest sales growth in the index over the next several quarters. jonathan: we will be talking about apple supply chain problems in just a moment.
michael purves, where do you stand on tech? mr. purves: at the beginning of the year, i expected it to outperform. i think right now, it has done so much heavy lifting on the earnings front and lifting the gina'shigher that earlier discussion about margins -- i would say this. if you look at the price to sales ratio, we are in nosebleed territory here. on the ndx, it is about 3.25 forward price to sales -- you go a little higher than that, the history of aftermarket performance is pretty weak. surprised tonot the upside on revenues and margins and earnings in this season, you will start to see some weakness there. david: are you saying you do not think there is much more room for growth? it was such a leader throughout the year. saying to: i am expect further evaluation expansion in that sector as an aggressive ask right now. they have to grow into their own earnings trajectory.
their earnings have to shape up -- not his actual, but expected earnings have to be confident this year to see that this year. david: are you talking about the broad tech sector or the mega tech companies? mr. purves: i looking at the ndx, but that ways for the large-cap tech. and that includes stalwarts like cisco, and companies with more dynamic earning such as apple. twitter is on that board reporting tomorrow. when it comes to that stocks, will we be in a situation where we have to start looking at them differently, and what order will that be -- quarter will that be? ms. adams: from a broad market perspective, a lot of investors takingthe safe stocks, momentum. that has died over the last couple of months, so now it is a question of the fundamentals, and can the fundamentals protect and continue to support valuation for the sector at
large? when we look at the sector as a whole, the valuation premiums are actually largely in the smaller names, not necessarily faang fang stock f -- stock. i think there is a lot of disconnect in tech. the leadership in tech over the year has actually been in some of the smaller names, like semiconductors and gaming stock, and some of the names in the different part of the tech cycle. but i think the vast majority of our attention generally is drawn aang stocks because they drive such a big part of the market. there are a lot of moving parts. we can think about the earnings trajectory, but realistically positioning is a huge part of this story. david: there is one other feature that relates to tech as well between now and the end of the year, which is that there has been a correlation with longer-term treasury yields. if there is a more bearish view
of the economy, people need to find or granik -- organic growth . if the 10 year goes up, it will help drive sector rotation into other sectors that will benefit or be associated with higher yields. david: tina martin adams, bloomberg intelligence area they can for being with us. michael purves will be staying with us, and we talked about it weekly moments ago. major production problems involved with apple's iphone x, just ahead of the phones scheduled release next week. alexlcome our colleague webb from san francisco, where he covers tech for us. how real are these problems we hear about with production? drip ofey have been a news over the past few months. we have heard about the first the displayh technology about one year ago, but we have dug into a story now about the 3-d sensor. that is the biggest problem right now, they cannot get enough components.
same time at our story went out, they had people making the modules that go into the phone and admitted it will cause a supply constrained on launch day. we can tell, as the eight has not been a huge success. they are depending on the 10. what does this mean for what will hit them in the third quarter, this calendar year, as opposed to the next? thinka lot of people people are waiting to buy the eight until they can compare the two side by side. they might look at the 10 and think do i want to spend an extra $200 on face id, better emoji -- anim oji, or do they want to the eight still? jonathan: i feel like i have seen this movie before with apple? worried about its supply chain, having enough supply to meet demand, and bang, they deliver. any reason why this move is different? mr. purves: i do not have any
specific views on apple, but i apple does get-- into points where it is at a major discount at the market, done it 12, 13 times with cash adjusted earnings. when it gets too close to the market multiple, where it has been right now, it is often a good time to exit. i do not have any edge on the quarter, that is not really my job, but i would just say this -- you have to look at apple's valuation in context with the .arket are can you compare that to previous numbers after launches? mr. purves: some analysis out of asia is pretty close to what is going on in taiwan and the supply chain. they expect on the opening weekend, there will be 2-3,000,000 iphone x's. ethically on opening weekends, apple can expect to sell up to 20 million of the new iphone. they have seen 25 to 30 million over the christmas quarter just for the iphone x.
add on top of that things like the iphone 8 and earlier models, and you expect a far bigger number. however, a year ago, they sold 78 million iphones. so they might be able to plug it, but it is probably going to be in the older models rather than the new, top of the range ones. jonathan: alex webb in san francisco, great story. i actually read that story this morning. and you are not a buyer. jonathan: i am not. for $100, they came to the apartment building and fixed it. they put the screen on and everything. we are done. david: you are special. nlix: i have to make a appointment at the apple story. jonathan: no, they come to you. michael purves told me about it. record highs yesterday, the close is slightly frustrating. moving into about 10 minutes, the s&p 500 down by about 1/10
of 1%. the dow is steady. the bond market is the big story. treasury yields pushing high, 2.46 is where we trade today in march 2017, the high was 2.46. treasury and yields resting, the dollar not catching a break. the euro is stronger going into the ecb as we push back toward 1.18. this is bloomberg.
means committee member and cochair. this is bloomberg. chipotle having its worst day since december 2012, trading at lowest levels since january 2013. let's take a look at all the description as to why the quarter was rough. nora virus, rodents falling from the ceiling, hurricanes closing restaurants, and a bill for a hacker. when you have a laundry list like that, that is rough. joining us now is idea mona, -- still with us,-- michael purves of wheaton. what is interesting, craig, because this was very much a management execution and also strategy issue. walk us through the problem. craig: it is an issue where they cannot catch a break in some sense. they had started to recover from the food safety crisis, which hit in 2015, and then this nora irus thingorov
popped up in the summer with the rats. their execution has been a problem. they are not running the restaurants as well as they should be. alix: rodents happen, but you are not going to have video of them. jonathan: we never saw anything like that. , on. alix: even in new york. nick, you have a neutral rating on the stock. what would be a catalyst for the company to fix this? it would be interesting to see national advertising drive sales higher than it has, that product innovation, a little bit more of a step up in sales, for example, the case though. price increases. we have only taken about 1.3% since q3, and now there is talk about taking another price
increase in q4. hopefully the rest of the system will catch up in the first half. that will be about a 5% price increase that could potentially help protect margins, but the way things have been now, i think the outlook as such that margins can go much, much lower, even with where they have settled today after all the lowered numbers have been published. quick hbsi did a function on chipotle on bloomberg. there we are at the top of the screen, pershing square with 10% of the stock. what do you think about this this morning? is probably very unhappy, but i think his longer-term somebodyve is look, if can do 20% restaurant level margins, just going up and million,% profit, 1.2 1.3 million sales, why can't you pull a make a similar profit, even if sales stabilize
at $1.9 million or 2 million dollars? it is higher than where competitive sales levels are, even after the step down post food crisis. this is where execution comes in. why have they not been able to execute those types of margins, $2even with sales at million? they do buy their food differently than others, and some of it is actually execution, whether it comes to other aspects.or the question over the next couple of quarters will be what kind of margin trajectory do we once the market accepts finally that there is no chance we will get back to pre-food crisis types of sale levels? purves, this is clearly execution issues, but likea broader perspective, consumer staples, where does this sit? mr. purves: they had the right
strategy early, and this is blocking tactics. it sounds like trade today for activists or a deal at some point if they cannot fix the tacklingd issue. they are not in the same issues s is, where they are battling how retail is constructed with the amazonification of everything. when you talk about consumer discretionary stables, it becomes a more nuanced discussion about who has the right strategy, like aaa, -- chipotle, and presumably they could --. oneshen you make it to the that might have the best manager in the world, but if your business model is so vulnerable to something like amazon, that is really where that discussion goes, i think. alix: i love it.
jonathan: the ecb solid defense when it began to outline bonds, but taking a different route out of qe. unlike the fed, the ecb will begin with withdrawing stimulus. to preview the main event from frankfurt tomorrow is reporters, and with us is michael purves of wheaton. the base case is that you crossover to frankfurt -- what are you looking for? >> we are looking for the ecb to cut their monthly bond purchases by half.
from $60 billion a month to $30 billion a month. that is the consensus here. they will extend their purchases from the end of the current session to nine months into next year. we are not sure, and i do not expect mario draghi to be so forceful about saying it will end here and now, and it will be done forever. he really has to -- bloomberg put it really well. he has to step away from the house of cards without letting it collapsed. . unlike the fed, the ecb is doing the tapering situation where inflation is still not expected to meet its target for years. they have to do it in a delicate way. there is noi think question. when i look at what i call the big four central bank balance sheet, they are at $15 trillion and climbing. that rate of growth in the collective balance sheets of these big 4 -- the bank of england, united states, bank of
japan, and the ecb -- that rate of growth to my mind is what is going to impact the markets. when you think about $70 billion going down to $30 billion or $40 billion -- that is euros, not dollars -- and announcing the qe going from zero to 10 to ultimately 50 in 12 months time, i think it is clear that draghi is driving the long end of the treasury curve here, and if you look at the bund treasury correlations, they have been written -- very robust. one of the dimensions and factors that draghi has to deal with is that after macron's victory in april, we all thought populism was dead and reforms would be put in, but his honeymoon is over. we have seen the rise of the afd. there are tons of issues in catalonia and all that. unlike the united states, or at
least in a different way, draghi's going to have to keep one eye on whether this euro existential threat is completely gone or is it going to resurface their? matt's point,, -- i think it will be more delicate and janet will be. talk aboutted to tapering, and he was like no, no, no. it does not look like he can dent anymore. what is the next question everyone will want to know? use thees not like to word tapering. he will probably say "recalibration," which is the phrase he prefers. you will not talk about moving rates either. getting the idea that after they are done with the taber and buying they will go to move rates up. another thing we will get tomorrow -- look at my terminal. i have 2029 up. you can get this on your bloomberg. this is the ecb balance sheet.
almost $5 trillion. it is at $4.5 trillion and will hit near enough to $5 trillion by the end of the next qe wave here, and they are running out of bonds to buy is the problem. we will probably hear someone talk about changing the for the kind and amount of bonds they are allowed to bison they can continue to get some supply. makes a brilliant point. deutsche bank came out with a note, 17 times net issuance. does this have a little bit more to do with technical constraints and they are letting on? mr. purves: this is running out of things to buy -- it has been an issue in the background of the ecb program for as long as the program has been in existence. i think it is a very real factor and raises the question that ok in a fewers a bit, but years we have a deflationary
shock. what does he then do if he has not exited and any substantial way? what is the next extreme policy move that the ecb will do? it is a big question. the fed is not burdened, quite so much. michael purves, great to have you. and bloomberg's matt miller, a lot of strain to go across from berlin to frankfurt. we'll catch up with him tomorrow, a full day of coverage tomorrow on the european central bank decision. and full coverage of that news conference with president draghi, the one that follows. from new york, 26 minutes into the session, that doesn't for us after a record high yesterday. a little weaker on u.s. equities. from new york, this is number tv. -- bloomberg tv.
♪ vonnie: we will cover oil inventories and much more but first, breaking data on the u.s. economy. >> new-home sales rose at a faster than estimated pace in september. 600 67,000 was annual pace, a surge of 18.9%, the highest we in some time. some of this is adjustment and delay following hurricanes in august. it was not entirely unexpected here but nonetheless, the search bigger than estimated 18.9%. the highest since 2007 i am seeing now for new home sales.