tv Bloomberg Markets Americas Bloomberg September 20, 2018 10:00am-11:00am EDT
julie: the dow and the s&p 500 hitting intraday records, the first time the dow has done it since earlier this year and we are also monitoring the breaking news on existing home sales, in at 5.3 million, so we saw no change in the existing home sales. a half percent to gain is what was estimated there. the recent housing data has been uneven at best. choppy, so i this particular weakening shows the and not as strong as some analysts had been estimating. we take a look at the major averages and indeed, we have records for the dow and the s&p basis, thentraday
nasdaq not quite there. tech is strong and today's session. take a look at the dow and the year to date, cousin among the three major averages, this was the one to do not go on to make major highs in august. you can see clearly at the end of january is the last time we saw a record for the dow. there has been perhaps a little bit of pressure on the back and s, buton tariff obviously, the rhetoric is continuing and has not slowed down. take a look at some of the outperformer's we are watching and today's session. micron reporting numbers ahead of the close -- at the close tonight, and the stock is trading higher. it was positive going into earnings. the folks over at bank of america did meetings with sams and announcing,
it is going to cut another 3% of its workforce at around 400 jobs with the adjusted earnings per share which is 16 to $.19 as a resul;t. ofden giving up a little bit its again earlier with the owner of olive garden coming out with comparable sales that beat estimates last quarter. oil prices, oil falling after president trump tweeted to the ec cartel saying they are artificially boosting prices here. ec againsting op high prices. there is a report that opec is comfortable with brent above $30. vonnie: now 12 bloomberg exclusive, -- now though a bloomberg exclusive. exploring a takeover.
bloomberg's transportation reporter is in london with more. ben, how to this idea to take over developing germany? ben: this is something that has been putting for a few months. -- abuased in abi dhabi. it would lose billions in profits and has kind of "essential for emirates and the join as thehad to biggest airline in the world. julie: this is still at a preliminary stage. what would need to happen for the deal to go through? ben: you are absolutely right. it is very preliminary at this stage and the no bankers have been included into any formal discussions.
this is something that is happening as we understand it at a political level. you need to remember that emi etihad are operating in separate emirates. till now, it has been competitive but competing for hub traffic through their own network. what that means, we need the political go ahead as well as the commercial -- it would have to make sense commercially for it to move ahead, but we are hearing that pick up pace. vonnie: ben, what would have to be divested interms of anything might have in terms of regulatory concerns? and also how the western airlines might be impacted? western airlines, it gives much more force.
has already shaken up air travel across the globe and that means increased competition, lower fares, there is potential for this to put pressure on pricing with a new giants really taking over. emirates is already the world's longest long haul. it is probably too early to say although we understand thate -- s is particularly interested in taking etihad operations. --nie: ben katz, think thank you. joining us now is one of the big voices on wall street and he has been sending go warning signs on stocks. the chief global strategist on , miss thinkk
expectations and i am not sure that is your current view, is it, binky? bankim: the way i our september call is the risk reward did not look that great, but we have been in the same note the second part of it was that we remain very constructive throughout two-year end. vonnie: i want to get your reaction to what china is doing in now, but looking to other asian nations for imports as opposed to outside. that was going to happen anyway it seems like because the chinese leader was taking over the safest globalization champion. binky: sure. in terms of the strategic game that is being played out over the trade war, if you want to call it that, actually lowering tariffs to anybody is a move in
the right direction and very positive. what we see in stocks and u.s. thety markets, with event of the last few days have clearly revealed is how the market is basically positioned y,rt of starting in late ma what we have had despite the fact that if you look at the market, it looks like it is going up every day and pretty have had inside the market since late may which to the tradeibute policy issues, it is a massive defensive rotation. what we see over the last week versal ofdays is a re this great defensive rotation. i would argue, it has a long ways to go. vonnie: there has been some defensive rotation. julie: cyclicals have performed
well. on some cases, you are having industrials rise and that is what happened to me had the actual announcement of the tariffs. binky: i think the broad brush getsclicals and defensives obligated when you get into all the details, but industrials is one of our recommended overweights. julie: even in the case of tariffs? binky: basically as of two to three weeks ago, they bounced an absolute terms but if you look at where they are relative to the market, so relative performance of the industrials through the last 10 years -- it is been pretty close, and about two weeks ago, i would argue that they were pricing in the u.s. manufacturing in the vicinity of 50 and below that. the lowst sprint is in
50's. there is a huge disconnect and huge catch-up that remains to take place. it is important to look at things in relative terms. the 10 year treasuries and seem quite balanced. we have even higher. utilities have not taken a punch, so why is the market ignoring the jump? would emphasize to take a look at it in relative terms and i would say that cyclical rotation, which has a long ways to go, is just beginning and should continue out to year end. we have is obligated year in terms of phases is the way i would put it, but once trade it is aecame central, very defensive rotation where did very wellties on a relative basis, markets , and the to climb
cyclicals continued to lag. what we are likely to see and continuing to see is a reroa tation. today'sndeed, in session, tech financials are -reversal it is the re we are talking about. binky chadha, chief strategist at deutsche bank. meantime, let's check in on first word news. korea's kimh jong-un wants a second summit with president trump soon. that is according to south korean president moon jae-in. un wants to take faster steps towards denuclearization. president trump is demanding pricepec reduced the
of oil. the president tweeted, "we protect the countries of middle east. they would not be safe for very long without us. and yet they continue to push higher and higher oil prices. the opec monopoly must get prices down now." applications were unemployment benefits unexpectedly fell at the third week in a row to a 48 year low. jobless claims dropped, and that the client suggested -- that anddecline suggested -- european union president said he is more optimistic than he was about a brexit deal. he said that leaders will decide in october of whether they'll be enough move in brexit talks for a summit in november. theresa may has been speaking
and said she is ready for any eventuality. global news, 24 hours a day on air and on tiktok on twitter powered by more than 2,700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg. vonnie: thank you. how equity market street the runoff to the midterms. this is bloomberg. ♪
what people should know is that historically, there have been to very, very strong, very, very clear irregularities around the midterm elections. one, very strong, negative incumbent bias and the incumbent president's party. 18 out of 21, almost 85 years back, the president's party has lost a significant number of seats in the house and the senate. the average loss in the house and be 20-60, and that implies in the current context that the house would change majority. a little more idiosyncratic of this time because of the distribution of democrats and republicans in the senate. simple,argue a is more perspective, it
strongly correlated than looking at the average of 26. but they argue given more strongly that the republicans are likely to lose the house, and i dold argue -- think the midterm elections are the biggest catalyst out there of it asnd, i do think a slightly mushy catalyst and it is diffused -- but i would argue that u.s. growth is extremely good for its own reasons. sore is very little evidence far that any of the policy changes have had an impact yet. we're talking about 4% to gdp manufacturingm running 58 to 60 for about a year which is unusual by itself let alone in the 10th year of so, itc recovery, and
changing majorities in the house and the senate does not necessarily going to change that growth outlook. at the same time, the administration's focus on the while policy issues and most of us agree on many of the issues that are involved, in terms of the strategy that has been adopted and the risk it creates, i would argue that a check on the current administration's power on trade policies is likely to reduce the downside risk to growth. it really creates upside risks to the equity market. julie: two questions. one, the democrats take control and they will initiate some type of impeachment proceedings which could be disruptive to the markets. two, they would try and roll back the tax cuts. do think that either of those is
a realistic scenario that would hurt the market? binky: yes. but if you take a look at grows and what it has done for the last nine years since recovery, we have fluctuated between half a percent at 4% gdp growth. first time that we have been at the top of the range with 4%. getn average basis, if we the 4% every couple of years, it is not really tied to anything that happened. any sort of discussion on whether or not it has been one of the other gets pretty technical quickly. you need control the trends that were already in place. julie: we have got to leave, i'm sorry. binky chadha, chu global strategist at those bank. ♪
hurdles and its turnaround plan. declining mall traffic, we spoke with the ceo. >> we have been fairly forthright in saying the importance of old navy in our portfolio today. if you look at size and profitability, it is surpassed gap brand. still very relevant to our consumers. but it is 50 years old. brands morph and evolve and we are doing work to position gap brand back to its core. with theeen forthright investment community and saying that we are going to be of theible managers portfolio and our job is to create value for our shareholders. what about the banana
republic, you are in the middle of a turnaround. what are you doing differently and what is working? >> what we are doing differently is what we had done when banana was at its best. we had a moment lori went through a tortured fashion phase and banana, at its core, and its is from banana at neutrals, amazing fabrics, incredible hand feel, and features at a slightly higher price point for his and hers wardrobe. it is not a work brand. it is a life brand. as we have put on trend but not tortured fashion, we have seen the customer responded to it overnight. >> when do you see banana being back at its best, two years, three years? is always something you are aiming towards, but i expect to see a longer run a
banana continuing to grow and continuing to grow market share. and whatly excited, banana is at its best as an extraordinarily high quality, well made, alternative to contemporary brand or he it when banana is trotting -- well made, alternative to contemporary brands. >> i am all about trotting along. suit have a banana flight right now. another bright spot, how big get?athleta does -- >> eventually, we will break it all out. we want people to understand the powerhouse that we have in that brand. i see nothing that will slow the brand down, quite honestly. it continues to be 50-50 in stores and online. our customers shop seamlessly
across the online, the catalog, and the online stores. i'm not to call an end in sight because there is no end in sight. we have very sick of it and growth potential in front of us. >> part of what your been struggling through is inventory issues. how is that working out and when will those be completed behind you? >> inventory has been completely aligned across the entire company with the exception of taking some out of the gap brand. we took the product out, we have been forthright with the street about it, and is one of the reasons that the stores feel cleaner and itg -- tighter. what we are missing is the color and the pop inside the brand. quarter over quarter improvement , i am looking for to win holiday comes, and we have a new president and that is where you see his fingerprints. >> what is the parent company
look like to you and how does it appeal to today's customer? >> of the whole company. we are going to continue to grow our digital business at an accelerated pace. we have an excellent performance and we are going to continue to grow that business and that is across the portfolio. we are adding a new brand with the announcement with hill city , and we're looking at other places where there are opportunities for us to participate. i do believe we have an opportunity to add new brands under the platform either organically or through acquisition. >> what is gap look like in five years? >>. looks like in five years -- gap looks like in five years. we have additional brands and our portfolio. we have amazing digital business, maybe that is 50% of the company are 60% of the company. we probably have the same number
of stores, but different. stores that-- are not as big and may be stores that have more technology in them. digitala full suite of that our customers use for shopping, buying, and the film it experience. ent experience. news, new jersey transit is planning temporary cuts to fares but also cutting runs to and from penn station. this is bloomberg.
complete emergency braking installations. they will become 10% for november, december and january, according to the executive director. cuttingey transit, fares 10% november through january as a cancels runs to and from penn station in new york. already a congested system. there will be interesting to see how this will affect things. kailey leinz is here. kailey: there are hints of optimism for a nafta deal including canada as the latest deadline approaches. robert lighthizer and the canadian foreign minister met twice yesterday, and have another meeting today. a trade deal is probably within meeting a deadline that will allow it to be signed by mexico's outgoing president. the trade war with the u.s. escalates.
beijing plans to cut average tariff rates from majority of trading partners as soon as next month. china is raising duties on american goods to retaliate. it is a symbolic win over iran for the trump administration. the u.s. has persuaded volkswagen to comply with sanctions on iran. that undercuts european union efforts to keep the 2015 nuclear deal a live. a lawyer for the woman who accuses brett kavanaugh of sexual republican, says that of sexual assault -- of sexual assault, says that republican lawmakers are treating her unfairly. , 24 hours a day on air and at tictoc on twitter. i'm kailey leinz, this is bloomberg.. vonnie: thank you. funds under fire.
over the past couple decades there has been a significant to active passive among money managers, failing to come under pressure. hoping to change that, joining us now is former alliance ceo, now investors, peter krause. welcome. so excited to have you in studio. this is your new venture after ab. you raised $4 million from generali and plan to launch products. tell us about the products. >> over time we will have a range of investment strategies. those it strategies will be designed to be interesting to all investors. review our firm as a firm that will have investment services,
available to all who want to invest in them, including individuals as well as institutions. >> the thing that is interesting about your firm is something you talked about a longtime. structures embedded within mutual funds. tell us about what is different about your firm and how you are eventually going to be paying your portfolio managers. >> it is a new firm. secondly, the model of the firm is aligned suspiciously -- specifically with the client objective, to have performance. the structure is clients pay a base the, equal to the average etf -- performance fee only if there is performances. it only occurs if the managers deliver the performance that the client wants. >> we've seen fidelity come out with the zero mutual fund. is this the new normal? willingfolio managers to take -- are portfolio
managers willing to take investment fees? >> the industry will shift to revenue structures that are aligned with client incentives. portfolio managers will struggle. if you are a portfolio manager today and you are managing money with fixed fees and you get paid whether or not you perform it is challenging to move to a performance structure. bei am investing, i ought to paying my portfolio manager only when they perform. be paying my portfolio manager only when they perform. the world is filled with people, portfolio managers who want to be paid for their performance and understand that if they do not perform, they may not get paid and that that is something they are willing to do. vonnie: you say the danger is that etf world and that there are too many active funds. you are going to have a --tially inactive instructor structure. >> one of the beauties about the
revenue structure is that it limits capacity. if you are a manager and your incentives under a fixed fee structure is to gather as many assets as you can because that is how your compensation goes up, what happens is when you have more and more assets it is difficult to perform. what we see is a lack of performance in the industry because funds get as large as they can get. institutions build marketing organizations, they spend a lot of time on marketing and the poker ships from -- and the poor performance shifts. at the end of the day, if they do not perform and get paid as when they do perform, the motivation is together assets. our model shifts that. you only get paid if you perform. now as a manager, i think about how many assets can i manage and still perform? if i do not perform, it doesn't matter how many assets i have. >> how do you perform?
if indeed there is the challenge, to attract people to a different kind of model, how do you attract the best people who are then going to get you that performance you are looking for? >> i have interviewed many people now in the last nine months, over 75 people, counting close to 100. i found a number who in the industry today for paid on fixed fee but believe they would rather be paid on performance. most people have said, i like being paid on fixed fee because performance is too risky. risky for them. i do not want that person. >> where you have a set strategy or are you giving broad discretion to your individual portfolio managers? >> the portfolio managers themselves will choose the strategy they are comfortable investing in.
theynt portfolio managers, have to be comfortable with what they are doing. we are searching for talent. at the end of the day it is talent that drives the decision, not that we are trying to build a large cap equity portfolio. >> how do you -- who are your biggest competitors now? you have said there are too many mutual funds in the world now. you are starting a mutual fund firm. why? how are you supposed to win? >> the competitors for us by the industry as it stands. i think that is going to be challenging to get against but i think we have a leg up. the reason -- we are aligned with clients. when clients look at industry the last 10 years, they have been taking money away from active managing. that is been the story. we offer opportunity for clients to invest money with a manager and a firm who is completely aligned with their objectives. if you believe that humans
cannot produce performance and all you want to do is on a passive index, minus fees, that is fine. aperture is not for you. >> you believe humans can still outperform ai? passive strategies? >> i know it. there is no question humans can perform. >> what is wrong with the mutual fund industry today? >> i think that there is too much money being managed by each particular manager. that is not true for every manager but on the whole, capacity is not limited. when you do not limit capacity and makes it difficult to take the best ideas you have and spread it over the money you are investing. mathematical fact. everyone knows it. vonnie: the interest from italy? onlynerali represents not a global insurance company but an innovative management team thinking out-of-the-box.
i want to think out-of-the-box. it is one of those times when you have the right timing. i was thinking of a strategy, they were, we both were being innovative, it worked. >> thank you for coming in. interesting to hear about this new venture and we look forward to getting update. >> great to be here. >> peter krause. vonnie: breaking news. airlinestatements from that we had said were in talks, in order to merge. both deny the reports. both separately denying. we know from people familiar that there is speculation they are looking at a merger. emirates would take over the unprofitable neighbor. talks are in preliminary stage. this is what we know. the main we could see
♪ time for the bloomberg quick take. background on issues of interest. we are about climate change and hurricanes. climate change making warmer water, the fuel for storms, more abundant. rising sea levels are making storm surge more destructive. governments debate sweeping measures to limit climate change, coastal communities face specific choices about where to fight to keep storm surge at ba
y. more researchers are linking climate change to the severity of specific weather events, some investigating hurricane florence before it hit the carolina coast, said it was lighter and could drop more rain because of a warmer world. last year, five hurricanes battered the caribbean. houston voted to approve projects aimed at preventing a repeat of hurricane harvey flooding. responding by building up but as sea levels rise, storms do not have to hit cities directly to cause damage. pushed the atlantic six the above ground level in florida on the eastern side. deltas have become vulnerable to search, since cities transformed into major metropolitan areas.
here is the argument. should countries respond to the rising threat by fortifying coastal communities or by abandoning them? environmentalists often oppose barriers, arguing that they choke off title flows and push flooding elsewhere. retreat has proved less popular. the federal flood response program has been blamed in the u.s. suggest, researchers natural defenses. for more on global warming, go to ni quick on the bloomberg. julie: looking for growth outside of autos. let's go to matt miller, live in berlin with a key industry voice. reporter: thanks. of here with the ceo schaeffler group usa inc.
let me ask first about the story. where are you looking for growth now as the volatility in the auto industry starts to rise? klaus: thank you. are a global, automotive and industrial supplier. the current trading has shown how important the end industrial supplier is. we have seen better business conditions in the industrial environment and the auto environment. you saw this from the last announcement, we confirmed guidance on group level. we had to decrease guidance on auto level but we were able to increase on the industrial side. that is positive. it shows our business model is robust. on top of the divisions, auto oem and industrial, we have a
third, automotive market division. it is resilient in terms of changes in the environment. we feel good about our guidance, we are clearly concerned about what is happening in the automotive markets at the moment. it looks like this is short-term. we need to adjust in china because they, their sentiment seems to be negative at the moment. reporter: what is your view of the automotive industry? it is going to change. demand is not low, that just seems to maybe have peaked. we're going through a rebirth of an industry as electric cars come to the forefront. is that happening? mi dramatizing it? -- am i dramatizing it? klaus: the transformation comes from the co2 regulation, that becomes tougher and tougher
around the globe. it comes from changing customer behavior. they comes from new types of technology. is automotive division predominantly a powertrain division. very good with traditional powertrain solutions like combustion engines and we have entered into the race for the mobility solutions. side, wemobility distinguish between pure electric vehicles and the hybrid vehicles. we believe that for the for seeable future, there is a trend customersrids because need the hybrids to solve the co2 regulation puzzle. reporter: it makes sense to solve the range of issues as well. klaus: correct. reporter: let me ask you of the broader industry in terms of trade. brexit. they are finishing up in salzburg. thatard from producers,
they will have to close factories for longer than they normally would because of brexit. how do you see that working out? getting your parts across borders? dealing with tariffs? klaus: we are europeans. we like the kingdom and we would like to have them being part of europe. that is my general statement. for us at schaeffler , great britain is not that important. we are not exposed to risk there. we need to follow what our customers think. we see concern, that the final plan is not visible. for a company like ours, we need to adjust and prepare for what is going to come out of this. the uncertainty is a problem. i hope negotiations and talks lead to something we can rely on. reporter: what about the uncertainty of global trade? you are a global company, revenue from all over the planet. with this trade war of president
trump, how is your visibility? klaus: we can only hope the trade war does not further escalate. we like open borders, fair trade, we have a global supply chain. inclearly would hope, particular between china and the u.s., this columns down. -- calms down. once again, at schaeffler with the chinese and u.s. situation we are not that exposed because we are localized in china. more than 80% localization ratio. please serve local chinese customers from our clients in china and that is an exposure that is bearable. reporter: that is great. 80% localization is incredible. that limits exposure. what is your feeling or take on that eu-u.s.? you said the possibility of lowering tariffs would be great -- is that a possibility?
klaus: let me finish on sentiment. the problem in china is sentiment. what you saw in august, continuing in september and impacting fourth quarter is there is negative sentiment. the trade war, tariff discussion reveals this. it would be important we get a clear picture there and the trade war,understand what ie expected for the rest of the year. hopeink positively and we responsible politicians and parties will come to terms with something business can rely on. reporter: interesting to get your take. thank you for coming in. klaus rosenfeld, the ceo of schaeffler . vonnie: this is bloomberg. ♪
focus. oil dipping as president trump complains about opec on where else? twitter. bob, it is good to see you. oil had been hanging onto again, now it is getting -- it is giving back. is there pressure brought to bear from the u.s. on opec or is this being seen as rhetoric? >> currently as rhetoric. the most the white house can do to push down crude prices is larger and larger leases. we theoretically don't need that much anymore. it is good to have. there are barrels that the president could release. there is one million barrels do for release -- due for release in november. that is the only pressure he has. the current relationship is between russia and opec and they
have a goal of stability and market control. they want to engage in renewables but they want fossil fuel to be the main you'll and they think -- fuel and they think they can control that and keep it going longer and push away the demand destruction that overtime is probably inevitable. julie: looking at a chart of oil year to date, it is in a range from april with $65 at the bottom and around $74 at the top. do you think we go back to the top of the range? you think we are stuck in a tighter range? >> i wish we were talking next week. most of the time, i have an opinion on the direction of greater, generally a strong 1 -- crude, generally a strong one. fundamentally, there is an equal amount of bearish fundamentals and bullish fundamentals as we sit today. we have this meeting in algeria between opec in russia where they will discuss what they will do about the promised million
barrel increase which russia has almost completely consumed of themselves, getting to post-soviet era highs in production. that was announced this week. it is confusing now. you look at what is going on with iran, sanctions are working. other than that, we don't have directions. julie: i guess we will have to catch back up. bob, thank you. vonnie: ge is the stock of the hour. shares falling more than 3% today, the worst day since july. emma, is here with more. kevin: amid -- emma: j.p. morgan cut the price target to $10, street low, revisions have all been downwards, underweight for stocks since 2016. consensus among analysts, it has been down. we have a chart, you can see, the white line, the stock has
followed analysts lower. jpmorgan is saying this downgrain is prompted by the failure of the eight grain turbine blade, one of the products within the power division. jpmorgan is saying that indicates revenues will be lower than estimates. if you look at the share of operating income, that has been true in terms of the power segment of ge. vonnie: the first thing i look at in the catalog. this is bloomberg. ♪
vonnie: the top stories covering around the world. the battle for control of sky nears a dramatic conclusion. fox and comcast go head-to-head in a one-day auction for the satellite carrier. continues after yesterday. works ahead of congress, making the case for central bank independence, despite criticism from president trump. julie: 90 minutes into the trading day in the u.s. stocks. the dow and the s&p 500 hitting new intraday record highs. strengthening, strength in technology stocks. take a look.