tv Bloomberg Daybreak Americas Bloomberg February 15, 2018 7:00am-9:00am EST
dollar under siege. higher yield stonethrowing lifeline to the u.s. currency. the yen surges. selloff, bonds continues with the ten-year yields to the highest level since 2014. is 3% a negative catalyst for stock? south african stocks pop, but for how long? david: welcome to "bloomberg daybreak: europe go -- welcome to bloomberg daybreak. up yesterday, look what happened. we see those higher bond yields. 2.5 hours to the cash open in the u.s.. future looking to a positive open by about 13 points. weaker dollar, weaker dollar. 1.24 heading up to some kind of resistance. the selloff in the bond market continues.
yield --he 10 year 2.93% on the 10 year yield. pivotrt of the morning to of the weaker dollar has to be dollar-yen continuing its move below of critical support levels. nonetheless, the question of the stronger yen, is it a safe haven play? is it the hedging? a lot of question marks to what it's doing. companies aren't so fine with it. it does not do well for equities. taylor riggs is here with first word news. taylor: in south florida, a 19-year-old former student has been charged with 17 counts of premeditated murder after the deadliest school shooting in the u.s. in five years. cruz open nikolas fire with a semiautomatic weapon. he had been kicked out of the school last year.
15 wounded survivors have been hospitalized. president trump plans to meet with mexico's president in the coming weeks. relations between the countries are strained. president trump as insisted that mexico pay for the wall on the border. he has demanded mexico agree to changes in the north american free trade agreement. , -- will become acting president today and the national assembly is likely to elect him in a permanent capacity on friday. he is replacing jacob lew finally gave in to demands that he resign. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. david: it is time now for our first take on the top story of the day. u.s. dollar under steege around -- under siege around
the world and what's causing it. the tenure working its way towards the 3% number. the change of the guard in south africa as jacob zuma steps out -- steps down. alix: joining us is kevin christ's -- kreiss. cameron, at one point of the dollar start tracking higher? cameron: when the bear market is over. end of fed the tightening. there is an old saying that history may not repeat, but it rhymes. this irma -- rhymes quite a bit with the 1994 fed cycle where the fed put rates up reasonably aggressively. the dollar got clattered and 94 to the first half of 95. ,ven in the prior fed cycle 2004 2 2006, it got hit badly,
had a respite in 2005 things to repatriation of foreign earnings and then got hit again in 2006. >> the dollar smiles here really come into play. when cameron is talking about how fed tightening began, it could be a dot -- good indicator of the dollar appreciating great at times when safe havens are better because the world is falling apart. one thing i'm keeping and i ing came up with an interesting note saying there is a trump trilema. said that kind of describes 2003 and 2004. it is walking this fine line between money going to more attractive locales outside the
u.s. versus getting the kind of bubble activity and financial markets we saw pick up after 2003, 2004. david: we have a chart the tracks yen strength compared to treasury. the blue line keeps going up, the dollar keeps going down against the yen. is it a safe haven? is the rest of the world growing better than we are so that money is going out of the united states into other assets? >> in one part it is that more growth convergence story. on the other hand we have cross convergence for traders who want to buy u.s. treasury's and hedge it for the currency risk. appealre to reduce the for japanese investors. they are playing the role in the kind of divorce you are seeing greater alix: we are looking at -- seeing. alix: this is the correlation
between the s&p and 10 year yield. ,t was near 1%, so positive meaning the yields and equities can go higher. is almost getting into negative territory. what does that tell you? cameron: you are morphing into a late cycle environment which isn't breathtaking -- a breathtaking revelation. we saw the correlation with bonds and stocks for several years in the late 1990's, which was the last time you had the euphoric debt euphoria in terms of business confidence. -- euphoria in terms of business confidence. ,s plenty of people have said there has been a demonstrable shift in bond yields, but relative to bond yields, bond yields are still quite low. very low by historical standards.
they don't pose a threat as an absolute level two equity valuation. if you go back and see during periods when bond yields moved sharply higher, equity performance is kind of blah. on a subsequent basis, equities do well. the bond yields are rising for a reason, that is strength and confidence. those are normally good qualities to have. david: are we late in the cycle or not? i think people are taking both sides of the argument. you are not getting the big imbalances you normally see in that situation. what you look at to figure out where we are? >> in the case of the u.s., it is tracking whether balances are developing. not a lot of signs they are. the state of the u.s. consumer is something we will track going forward. forget about 3%, there is another number and tracking. the real yield on where the 10
year real yield of september 2013. we are talking about the yields being a potential threat to equities. i would think a breach of that, any move higher is could -- could potentially cause a shift. alix: cameron, what is your call? give me something. cameron: my favorite indicator for equity valuation is the real earnings yield. as long as the real earnings , as long as that is above 1.5%, equities have done well. below 1.5% and you are not really rewarded for taking equity risk. we are now in the low twos, so certainly the backdrop isn't as positive as three or four years ago. yield,e real earnings canary in the
cage and put it next to the coal mine and when that canary keels over, you know you are in trouble. david: south africa. there is one indicator for equities in south africa and that is who is running the country. jacob zuma steps down. ago to thew a moment extent to which the wind has strengthened against the dollar. has been a lot of underperformance in that economy for some time. >> that would be the case. if werly take would be are going by the currency market barometer, we seem to think so. td is updating and continuing to see the -- 21130. 1130.
heading into 2017, s&p said we don't know we can distinguish between emerging in advancing economies based on the state of their institutions and the democracy and framework. was episode with how bad it in getting the transition of power does solidify their is a reason they pay a premium for advanced economy assets. david: if we do really clean up corruption down there, there could be investment opportunities. >> there could. i tend to think it may be a case in the short run of sort of buy the rumor and sell the fact. there is a lot of good news in the price. votednot forget the anc on a platform a couple months saarc.nationalize the to land expropriation
without compensation. you could have -- get some negative headlines if these policies are enacted. regardless of how equitable they may be. adjustment doesn't come without complaint. alix: especially when you have em in other areas being very attractive with the weaker dollar. case thatertainly the rand was very cheap especially after zuma recalled the finance minister from a roadshow in london. we have corrected that now, we are making new highs and the momentum is waning. luke and cameron, thanks very much. coming up, the 10 year yield resuming its march toward 3% worried we will have more on the
♪ taylor: i'm taylor riggs with your bloomberg business flash. the company is booking a $1.6 billion charge against the military transport. airbus says meeting its target would depend on overcoming engine problems. warren buffett has given a vote of confidence to teva pharmaceuticals. berkshire hathaway invested $350 million in one of the world biggest generic drugmakers. has been her by the recent
slump in u.s. generic prices. hedge fund billionaire ray dalio has amassed an $18 billion bet against the biggest companies in europe. conditions on the continent of your to meet his requirements for selling stocks. a strong economy, close to full employment at rising interest rates. ,mong the companies, siemens airbus and vivendi. alix: the 10 year yield continuing to march to 3%. the equity market route brought into question at what point do the yields impact equities negatively. >> i think really the reappraisal of value in the stock market has mostly been led by sections of inflation. i don't think we've seen the top yet. >> the 10 year at 3% makes sense here. it is a lot better than six months ago. i'm comfortable having exposure
to the bond market at these levels. >> 3% right now is looking at quite a threshold. >> i think in the interim, the prospect for and overshoot of real yields approaching that level and possibly moving higher are increasing, given the level of policy accommodation combined with the risk -- recent fiscal news we received. >> i would say we will need a higher number than that. 3.25 is between the midpoint of where a number of analyst on the street have moved their forecast. question isortant the pace at which that happens. alix: joining us is capricorn manager cosi i/o. good to see -- co-cio. >> i think it's around that 3% mark. and i thinknumbers
so many people are prepared for it that we could see a nice pullback on that. how high can you get on the 10 year? it is about as high as you can really go. alix: what we haven't seen is buyers come in and yields grind higher. a 3.4% doubleave eventually come in. why haven't we seen that yet? emad: why would you long duration while everyone's pointing towards hikes? everyone is plain you wait and see game, especially with the recent market volatility. you could get a short sharp selloff in equities. you will not see that appreciation in bonds from here. if the fed maintains its path. economy remains strong and if that happens, the equities will go again. everyone looks around like an the last weekend says things aren't that bad and then we are
off to the races. david: two questions for me. what do you think will happen and what will it mean? if it goes to three or three and a quarter on the 10 year, does that put pressure on equities? what is the consequence, if any? emad: there is that short-term pressure because everyone expects pressure. we have been conditioned to low yields for so long. if you look, what does that mean for companies and their ability to borrow? what does that mean for the government? does it mean that much? we have been conditioned to yell -- low yield for so long. everyone was saying yields would go up and they have. alix: help me understand how you would rerate stocks? steve had a great quote yesterday, he said activity and fed hikes can coexist peacefully, but you may -- may want to apply a discounted future equity earnings. how do you need to rethink? emad: just as we have heard,
there might be an overshoot. there'll be an overshoot in expectations on discount rates. you can see volatility in stocks from here. that is all settled down and everyone goes back to fundamentals, you realize growth is coming through. i think we could see the s&p go up 20%, 40% of the next year. there is nothing else to invest in if you're looking for the high nominal return and bonds are static at that point. david: coming up, you are looking right now at live pictures of south african parliament meeting after jacob -- zuma stepped down.
♪ david: south africa is changing leadership after jacob zuma announced he had resigned immediately. here is part of his announcement last night. >> no life should be lost in my name. should never be divided in my name. come to thefore decision to resign as president of the republic with immediate effect. david: parliament's meeting at this hour to elect cyril ramaphosa interim president. amu, give us a sense of what caused this change is looked like jacob zuma would hold on.
what difference will it make for the country if ramaphosa is president? >> there was mounting pressure on former president zuma to resign. this coming from well within the ranks of the after the national conference. many members of the congress stated that they want a new president. we know former president zuma was marred with allegations of corruption and scandal and it seems the country wanted to regain some support it has lost well ahead of the 2019 elections, which the party will contest. in asosa will be sworn the new interim president of the republic of south africa. alix: thank you so much.
take a look of the market reaction. traumatic selloff in dollars -- dollar zar. do you chase about can accept -- assets here? emad: i think it will rerate immensely from here. we have had an incredibly long position on these assets. the confidence you can see palpably returning to the investor community where you have seen it from a corporate governance side. now as an overall country, the direction is positive. what about the idea where you want to buy the rumor and sell the fact situation. this is not going to be easy fix. at thef you look currency market, the currency market will appreciate it. on the bond side, europe and 8.3%. equities have lagged for a long time.
the markets ripped from a lower valuation level incredibly in the last few years. emerging market funds and developed market funds are on their way and that is changing. would south africa be one of your top picks or is there less risk elsewhere? emad: it is our top pick at the moment. it's where we have most of our exposure. we are positive and bullish on the potential from here. especially domestic stocks compared to brands that a been taken overseas. alix: you want to plate amassed a glee. are there industries you want to get in? emad: definitely. we are bullish on education. the consumer is going to start growing. there are structural issues, cape town is running out of water. you are seeing issues with electricity. positivity from the investment community and a willingness to get things started -- sort of. -- sorted.
alix: in terms of the next thing you are looking at, what is the thing that will give you more confidence? tod: we saw the election kind of bring in this new regime. you saw half of zuma's faction and rama's faction. the introduction of people who are more positive to a pro-free-market policy. alix: great to hear your perspective. higher inflation, weaker retail sales. we will break down what's happening underneath the headlines of the economy as we beat the drum in our away from producer price index. this is bloomberg. ♪
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and then spread over in europe with the dax up .6%. here are the other asset classes and what you need to watch. stone's the 10 year, a throw away from the 3% level. very closely watched. if we breach that, what winds up happening? 18 a bit of steepening but yesterday the inflammation -- the inflation rate is steady as she goes. by .2%.ar-yen is down david: for what is making headlines outside the market, we turn to taylor riggs. taylor: he is described as a teenager with a troubled past. schoolttack on his high in south florida. 15 other people are hospitalized. he was armed with a semiautomatic rifle and a smoke
and eight. he set off a fire alarm to draw students out of their classroom. he was arrested one mile from the school. the senate is headed towards a showdown on immigration. today there will be procedural vote on proposals to protect dreamers, young undocumented immigrants to face application. the bipartisan plan would give them a path to citizenship. this has those provisions but it would impose stricter limits on immigration. and steve mnuchin says the irs will close a loophole that has fund managers using to cut taxes. a bloomberg news story outlined how hedge funds created companies to carry out -- profit. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. david: ever since u.s. jobs
numbers showed an uptick in wages, investors have fixated on the process of inflation. yesterday cpi numbers did little to assuage those concerns. got overine actually -- on the right side -- 2.1. .e welcome kevin logan kevin, how concerned should we be with inflation? it is january and we always have quirks in january. seasonal quirks. a lot of companies put forward price increases to start the year. -- and they have been roughly up flat and down a little bit. it is an odd development which lifted for the month.
it isn't likely to continue. medical prices jump .4%. again, probably just a temporary blip. having said that, inflation is going up and everyone's forecast has rising inflation but how much? david: we have not seen the effect yet of the tax cuts that was enacted in december. doesn't that give us some concern that we are pumping more money into the economy? it should be a concern. but if we've learned anything about inflation over the last four years, it doesn't react much to the strength in the economy or weakness in the economy. the core inflation rate is 1.8 are sent for 20 years. we are seeing it go up and down and up again and down. doesn'tmic activity need to be the major factor. alix: south africa's rim oppose
it is now declared resident of the country. you can see what is happening in parliament. take a look at what is happening in the currency market. .own by .4% to pivot off of this conversation, what was your interpretation of the curve and why it flattened? i think that the volatility we saw in the previous week meant that so many people were looking for, what is the next big number? what is the key number and they were focused on the cpi number. mentioned,ious guest we have been in that range for 20 years. wherenothing to extreme it is now. it is in the boundaries of acceptable norms and it is historically in line with the fed hikes. so the market has realized it's not that big of a deal.
compared to if it was properly breaking out. retail was a surprise to the downside. this chart shows that over time, going back, the numbers of times that retailers have been disappointed by expectations and the one on the right was yesterday, a big disappointment. was this the weather? kevin: it was the weather and people are shocked out. go out a couple of months and you see the big jump on the upside. and spending through the economy was strong in november. all of the pre-christmas sales and the making of of spending from the hurricanes in august and september. so people spend a lot of money early in the holiday season so by the time they got to january they were shocked out. -- co david: we see savings going down.
undernsumer seems to be more pressure so what will happen to the consumer going forward in 2018? but sowages have gone up has inflation. gasoline rose quite a bit in 2017 and real wage gains were paltry. not much of it. people maintained their spending by going into their savings. -- youou just upgraded rate is goingat to matter the most to investors? what said funds rate will matter the most? kevin: it is likely to go up by 325 basis points. it would be 2.25 five the end of the year and that is an increase . and of to tilt the economy to a higher level of savings.
people get paid more to say. and interest costs. automobiles and other purchases go up so that will temper spending even as people get tax cuts. so we are likely to see moderate gains in spending. so what is the number? we have to see everything tilted towards more spending. thethat would press against economy too much, against the economy's resources. it looks to me that the mix is such that we will get a pickup in savings, absorbing some of the tax cuts and the fed is on a course, particularly after the budget deal we saw in congress, for three rate cuts. alix: come inside the bloomberg, this is the fed fund futures spread. 2018, 2019, 2020. the white line is the rate hike projection. this year, looking up three.
the gala line, seeing one next year. but all have been raising higher. how would you trade at the higher rates? >> it is a question as to what is priced in the market and what isn't. we are heading to four rate hikes been priced in here. as we see the real wage growth, that particular pathway could be really disruptive. for me, the key trade is equities because i think bonds will not amount. equities is where the real action is. because now there is a little bit more firepower back with the fed if anything does go wrong. evil will start plotting it out and say there is a disparity here and the normalization of bonds. and if this continues to weaken then that is a different story. uncertaintyegree of
about what the fed will do, we have had a regime change with janet yellen and we don't accrue the vice chair will be and we also don't know how they will react to a fed chair. be moresident tends to active, at least on the twitter account. how confident are the markets hardware the fed will go and how it will react? kevin: the markets are sure there will be a rate hike in march. there is enough momentum in the economy with momentum picking up a little bit. then we get to june, the next milestone. and given the momentum in the economy at the moment, it appears fairly certain. in 2016, the fed was on course for three but the gdp growth slowed down and the global economy slowed down -- things can happen that will prevent the fed from moving down this path. that is one thing that janet yellen try to remind us. this is what we think is the right past but something may
happen and it isn't a guaranteed by any means. for the next few months we do have some clarity. we know what jerome powell thinks. picking up the baton from janet yellen and it is clear what he wants to do. and given what we know about the economy, it is clear what he wants to do but will the consumer continue to spend? will this is his respond to the tax cuts or not? they are, welarity will have a better picture of what the fed will do. david: you have to come back to tell us about it. kevin logan and emad mostaque. recap, in a cape town, the parliament is meeting in south africa, the parliament has formally elected the interim president. he will hold the position until elections in 2019 and one of his jobs will be to pull together , which, the ruling party
has been fractured in the pushing out of jacob zuma. ofnow, the interim president south africa. we are seeing live pictures. alix: the currency market, the dollars are is off the lows of the session but today with the lowest we have seen since 2015. one of the rating agencies, what will they be doing? elections inoring south africa within the change of leadership so do we get some kind of upgrade or better outlook for the country? what does that wind up doing? david: and he has been perceived as being more pro-business and he was ironically the choice of nelson mandela. wanted him to run the country and it didn't come to that. clean upally, he will corruption and be more pro-business and more pro-economic growth. alix: i have to wonder at what
point how long investors give they say,ca before wait a second, this is a bigger issue than getting jacob zuma out of office. david: how may times have we thought if you replace one person, it will replace everything. it doesn't work. coming up, steven mnuchin and the irs are trying to close a loophole that hedge funds were trying to exploit. we explore that next. tune into tom keene and jonathan ferro from 7:00-9:00 on bloomberg radio. "bloomberg surveillance" can be heard all across the united states in sirius xm radio. this is bloomberg. ♪
taylor: this is a bloomberg daybreak. coming up in the next hour, stephen schwarzman. ♪ alix: we turn to the wall street read where we cover three things the wall street is buzzing about. warren buffett sold the majority of his stake at ibm and added to the apple holdings while hedge funds exposed holdings to tech names. and a bloomberg story prompts steve mnuchin -- a loophole and chipping away at a deal. back to the drawing board. the next step to take the offer. david: i.b. gone. is great.
it is great. joining us now is jason kelly, 13 -- is out. jason: always the most exciting. said he was going to sell ibm but he's old a lot of ibm. jason: he is pretty much gone. it was always a little bit puzzling to people because he has admitted over time that he has missed tech but he did go .nto ibm bridge in retrospect david: he stuck with the for so long, saying it would be fine. jason: it was not fine. the shorts did not like that at all.
jason: there is no bigger names and warren buffett in this regard in terms of who investors, large and small, look to. it is worth noting that while he has largely avoided tech, starting in 2016, warren buffett and berkshire hathaway have started to go into apple a bit. so he has enjoyed a pretty nice appreciation there. at a time when investors and hedge funds have .ot been as enthusiastic alix: some bought apple but a lot about things like apple -- like netflix and facebook and alphabet. and this is backwards looking. a strategic profit taking into the end of the year? or is this actual commentary on supporting amazon and apple but netflix got too hot? jason: it does beef to the
larger sentiment, as it were, about big tech -- people are not worrying about adjust on wall street but also down on as it comes out as to what will they are playing and you bringing in the political piece of meddling through political -- meddling through political elections. david: some of the value has to be a regulatory arbitrage. regulators have not caught up with them yet and that has to take some of them. the second story. shameless self-promotion? bloomberg news has a piece saying the hedge fund ties are going to get away with murder -- a lot of money -- by using a loophole law and the secretary treasury came out to say, no. jason: it is classic bloomberg reporting. makes me proud. document came -- i worked with him years ago and what he was able to ascertain is
that hedge funds in reaction to some of the tax reform started setting up llcs in delaware because the loophole was that if you are treated as a company, you can essentially skirt the treatment of carried interest because they won't tax the company the same as a person. steven wasout and testifying on capitol hill yesterday and it was said, what are we doing about this and steven said, i am already on it. thatwas interesting is from an accountant, we didn't think it wouldn't work but nobody wanted to be the one not doing it in case it did work. alix: they did it but if they actually did do it, they would wind up getting hurt even more so they wound up getting wind of it before there was real damage. jason: one might say they hedged it a bit. alix: oh, yes.
in the news. saying, no way, know-how, we don't want you to buy us. are they really thinking about this? jason: they have seduced year. good reporting from ian king who has resources inside both these companies. it indicates that the meeting was a lot of listening. qualcommto imagine the director was sitting back as they made the case. shareholder a big meeting coming up where qualcomm to investors.ward people in the room who were listening to this are old-school qualcomm saying we have a plan and we will stick to it. to at leasthave listen to what broadcom has to say. radcom is saying that they
are so much more than what they are giving value to. i wonder if this complicates the water? here is thessue regulatory framework and the uncertainty as to whether a deal would go through if qualcomm would say ok. an xpqualcomm has two by and you have broadcom saying you couldn't a more than this. it is like the brady bunch of tech. david: this is the big event. here to talkl be about some of the latest philanthropy. and we will talk about what is happening in markets and big news out of blackstone this week when he named john gray the president and ceo oh. coo.d
david: peers what i am watching. cbs announces earnings after the bell and there was a report on the bloomberg that says now they will have serious talks about merging the two of them. they originally split up but now it looks like they actually will put these two back together. alix: what would it take for cbs and fire, to get back together? the turning moment? saying,herrie redstone put them together, she owns both of them. but les moonves has had
and viacom has been on the downslope. so persuading les moonves there is something in it for him, so he is not getting something that is diluted for his shareholders. there are cable franchises that are somewhat in decline. nickelodeon, people like that. and i have a movie studio and les moonves always wanted a movie studio. if you are in hollywood, you are not the big kahuna unless you are producing movies. alix: so his role would continue under the merger? assumption.is the alix: because there is no real succession. david: there is not. and it has been so much a matter ut.les moonves' g
he knows creative really well. alix: i can't wait to see how that unfolds. i have the media expert next to me at all times. up next, stephen schwarzman joining us on market volatility. what is next for him and blackstone? taking a look at the markets. equities, is stronger bonds selloffs. take a look at what is happening in the tenure market. put it up on the board. 2.93%. only wind up reaching that as the curve continues to flatten? and the dollar continues to weaken. this is bloomberg. ♪ we use our phones and computers the same way these days.
>> higher yields don't throw a lifeline to u.s. currency. a third of prices on deck. 3% watch. the bond selloff continues, pushing 10 year yields to surprise levels. it is 3%, plus, volatility, dealmaking. welcome to "bloomberg daybreak." producer price index, a surge in inflation, equity prices down. david: we see what it is for producers. alix: let's look at the market --minutes before the producer f the bond selloff is pre-much all across the board in europe as well as here. oil is a little softer.
happening with dollar-yen. .4%.heless, we're down we want to shore the yen after the big move, or is this a sign of risk off mentality or a japan fundamental story? david: you spotted this early on and you were right. it is a big story i do not fully understand. what isant to hear going on outside the business world with taylor riggs first word news. taylor: in south florida, a 19-year-old student has been charged with the -- with murder for the deadliest school shooting in years. was arrested miles away from the school p or he was kicked out of the school last year. 15 wounded survivors have been hospitalized. the u.s. senate is headed for a showdown on immigration.
proposals to protect reamers, young document -- undocumented immigrants who face deportation. $25 billion for border security. the second half, structural limits on legal immigration. in south africa, elected president. unopposedtion was although members of one opposition party walked out, saying early elections should be called. replacing jacob duma, and finally gave in to demands from the national congress to resign. he was marred by scandal. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. thanks. a spike in volatility has not just effective stocks and bonds but also the deal he made and how they come together. we turned to jacob kelly, globalve editor for
television joined by stephen schwarzman, blackstone group chairman and ceo. jason? jason: set his right. i'm here was steve schwarzman are. great to be with you. .ig personal news for you $25 million to your high school and what is notable is it is a public high school and you have given a lot of money and over the years. an expansion of your philanthropy and education. why now? what profit you to do this? steve: i was asked to do it. it is like a lot of things in life. than you think about what .omeone asks you i had a great experience at high school. jason: track star, i believe. steve: yes, apparently. hard to imagine now but that was the case. had a great experience.
the reason i am doing it is high school was relatively new when i it is now being upgraded. they are adding a wing for science and technology. the state of public education varies all over the country but is havinge problem enough money to do everything they wanted to do. they did a bond deal and had a variety of needs and can to the high school but they really wanted to do a friday of things that cost 100 here they can to me to fill the difference. the issues on my mind were not necessarily 100% the issues on their mind, though most, i was interested in making sure any graduate of my high school, and frankly, every high school in they should is that
be computer literate, that each student should be exposed to coding so they can be successful , not just in two-day passes world, but tomorrow's world. we have a mismatch of skills in terms of what we pretty is for high school graduates and what is needed to get a great job and grow with the global economy. to give the money, i want to be sure each one of the students is really prepared for the future. they said that is great and we will do that. the next thing for me was, ok, but is fine for my school, we could have an enhanced model for public school education. is swifthe problem
income inequality, half of people in america live patek -- paycheck-to-paycheck. that is not enough of an economic base to get enough tax revenue to basically have great schools. basically schools from one i went when we were number one in the world to currently, in the sciences, from one i went when we were number one in the we are in the 30's overall, down around 27. it is not sustainable for the united states. if we can get people around the to basically satisfy needs that the people who run schools have for additional programs for things each student having a computer device, some kind of computer science so we can start bending up the curve, it's schools cannot
provide, somebody has got to. we can change the way people think about public schools and get the people who run them to go out into the community and get those financial resources. that is important. >> you are headed from here to .ennessee about 3000 school superintendents, -- attendance, you will talk about dealmaking on their own behalf. what are the hurdles they have to raise this sort of money? yours is the largest ever for a single public school. what you have to change in terms of their thinking and their attitude? there are successful people pretty much in almost every community in america. car dealers and people who own real estate in people who own fast food businesses, or athletes and other entertainers.
we have a variety of successful types of americans financially. they just have to be reached. the people who need to contact them are the people who run the school. they have to set up what is called a 501(c)(3) to make it tax repeat -- tax deductible. the second thing is they have to identify these alumni and then contact by calling them whyg and telling they want to see them and what is on their mind, to see if there is an overlap and then they have to go give a presentation. them why they want to see them and what is on theirfor those of us in ts community, particularly finance, we started with no assets today and we have got 435 -- 434 billion. that is what i call begging and groveling. that is part of the american way, but it is not what people expect to have happen with
public schools. him -- they give to private schools and charter schools and universities and graduate schools and people expect that and they do it generously. public schools have not in on the page. i want to help engineer a paradigm shift. what was fascinating for me was i got an email yesterday after this donation was online in the wall street journal. in some person emailed me and said you know, i never thought of giving them a dime but now i will do that. if we can change the way people think, change the social fabric to permit this and have extra money to on -- to a comp which unusual and important goals, that is good.
jason: i have to imagine they will ask you about the market over the last couple of weeks. ?oes this volatility normal how do you look at it? steve: i think it is pretty normal. , theu look at the world developed world will probably grow around 3% this year. could be three and a quarter, could be less. market was up about 7.5% in one month here and andiply it for 12 months you get stock market performance, if you just annualized that, somewhere in the 80's to 90%, with 3% growth. that is ridiculous. stop that kind of compounding or else you have almost a whole year's performance in one month. what is going to happen in this scenario? it has got to go down, then it
will go up and down. it will be a more volatile world. the what should happen at the end of the day, not our two hours away television works, or how traders work or day to day or week to week. with the economy looking so good around the world, we will have an up year and it can't be hugely up because we are he did huge last year. it will find its way. >> more dealmaking this year or less in terms of private equities? question is generally, usually have more deals when markets feel good and people are confident in prospects for their own business. else'som by someone business if your business is having trouble.
as business confidence remains high, you will probably see more activity. jason: one area i know you are personally and professionally interested in is china. when it comes to dealmaking, there is a lot of interest rate now especially between age and a appearance some real estate assets potentially coming on the market. are you a buyer? steve: we're always a buyer of things at a price and not a buyer at another price. so, there may be from those companies, more activity just because they bought a lot. we sold both -- both of those companies at what we thought ife very good properties and they want to sell them, we will take a look. jason: one of the chief architects of the business is
john, who you named to be your president and coo, long-awaited and much anticipated. him how does this change your role now that you have three guys at the top? how do you split this there? >> we spent a lot of time talking about what everyone should do. when you are new, at a role, there is a learning curve. in a complex as this, we interface with the regulators, the political process, with the media. this is a bit of a learned behavior. for john as the chief operator taking over from tony, you have got to she has got types of focusing onties, some businesses.
you cannot do everything in the first year and you shouldn't. on all of theinue investment committees where he is phenomenal and a great he will be working with new businesses because we are always doing things in that world. he will be externally visible because he will have time. tony has got his roles and john has got his roles. my role is just to be happy. friends of working with and some of the best talent in the world on a broader basis is, for me, a privilege. i love thinking about new things we should be doing, marshaling , which you will
experience at some point when you become a coach. when people need internal advice, and sometimes we are in the crisis management is nice and sometimes we cause those to resolve them. sometimes, things just sort of happened from the outside world. i love doing that stuff. sitting around and strategizing weh our managing committee, are in six major business lines and everybody in charge of every one of those businesses is a superstar. for me, making sure in a general ,ense that things stay on track meeting with groups every week, it is fascinating. some of us have something to from, i daresay, and
i know this sounds miserable, but it is just about 50 years that i have been doing this. every day is a new day and nothing ever repeats. they rhyme but it is not the same. jason: you said you could get to $800 billion at blackstone asset management. almost double where you are now. do you need to buy something and start an aggressive business? >> we like starting things. when you keep your own culture, that is always the best. it is hard to find things to buy commitment tosame be the best in the world type excellence, openness, cooperation, and commitment tra. not everybody operates like that. we do not compromise on core principles.
if we find things in an area --t would be of interest is interest, we buy things but you know, it ends up growing like .hree times in three years smaller type of business in a niche, which could profit from distribution or relationships in the world. it has got to be a special thing. the opportunities for us to start things and grow, which is basically what we have done, 60% of the products that we offer to the investment market ago whenxist 10 years we went public. there will also be changes in finance. inevitable that there will be access for the retirement
market to our products. >> the retail market. >> yes. and when that happens, the scale of what we can do, doing the same things, is really limited by our ability to find great investments, not by capital. i never worried about getting capital for our activities. we beys worry about, can the best performers in the world in any -- in everything we do, with absolutely minimal risk. jason: you mentioned where you get all the capital you're getting. if you had to sum up the attitude of the institutional investors right now, what would it be? steve: they love alternative asset area. they need higher returns with and there is only one genre of product where they can go and so they are putting
substantial money in asset classes. jason: great. schwarzman, great to be with you. back to you, alix. interesting to see the conversation around the edges there. david: he has no shortage of capital. the problem is finding good deals, not having the money to invest them. about a few testaments away from the consumer price index, take a look at the terminal here. the correlation between the s&p and a 10 year. we had a positive correlation, which means they can move in tandem, but the correlation is dangerously close to turning negative. joining us now is the citigroup chief u.s. equity strategist calling for 2800 s&p by the end of the year but we could see some overshoot. thanks for being here. what would a negative correlation mean?
>> not much honestly. if you look at the price to , they actually broke apart starting in 2008 and have been disconnected for about 10 years. part of that is fear that we will not get growth and there will be some issues. there have been issues along the way. think about the debt crisis, the end of the commodity super cycle in 2014. there have been to source -- distortions. joe is focusing on a 10 year yield and not thinking about risk premiums and is kind of missing the point. >> at what point does it affect earnings because the cost of app -- capital goes up because it has been notoriously low. >> two different elements. what level should you worry about bond yields is part of the question. the work we have done would save somewhere between three-quarter
percent, somewhat challenging because you have the risk premium factor go away as we offset. in october and november of last year. the second piece is, this goes specifically for the capital -- cap of business. cost capital for business was better than the rate hike cycle because credit spreads have come in so dramatically. it is parked -- partially technical and partially because there has not been a lot of issuance. businesses have really easy access to cheap capital still and we have not had tightening. that is the most amazing element. it is not about giving to private equity where there is not a rate associated with it with a five to eight year time frame with the market.
that is the beauty of some of those products, that you're buying a business and investing for the long-term, not what happens in the next few weeks or days in the markets. alix: another area we tend to look at to support that point is the earnings year -- earnings yield. the bottom panel and the straight up earnings yield versus the 10 year. on, a strategist at bloomberg who said 1.5% in the ratios when you see a rotation. we are right around two. what winds up happening to this if we continue to see the 10 year higher? >> i think over time, and it is a great concept that has been talked about forever, it really means people taking their money out of fixed income and equities. back in 2000, we had the tech bubble burst. monthsst of 2001, 17 later, you start to see growth
front -- growth funds suffer. , if i likeept buying it at $100, i like it more 50 and it is awesome at 25 and i sell it at five at a huge loss. it took 17 months for them to give up after being told for 18 years to be rewarded after the market went up in the bull market. in fixed income, you have had a 35 year bull market. i think it will take a year or two for people to recognize it is not coming back. there is a reinforced behavior. a enough about bonds. you are and equities guy. let's talk about earnings because ultimately, earnings value will be german by earnings. we are three quarters of the way through the season. give us a scorecard of where we are. looked at this last night. 8% revenue growth and 60%
earnings growth. probably back a little bit, some of these companies will not see quite the same jobs. nonetheless, robust earnings growth they can leverage through their businesses and variances. that this will continue. $18 this year from last year. going up to 149. half of that is just tax cuts and the rate at which people are paying taxes. the remaining part is core growth. ithink people are hoping will be even better. it might be but it would require a probably even more robust economy than we are thinking about globally which would probably also incur some sort of response from central banks, that they would become less accommodative. we will probably knock at the full value of earnings growth in the equity market because he will probably lose something with higher rates and higher bond yields here at we think
this will be a rotation away from the hotter tech stocks toward value. if them -- the math, higher do not do as well, than the aggregate comes down. it is simple math. alix: what sectors do you like? tobias: we are broadly based. financials are overweight but we put a downgrade watch on it here and we like energy, which has not been a favorite place in the market year to date. we also think there are opportunities in would -- within industrials but specifically in capital goods and industrial conglomerates. very specific consumer services, leisure, and media. david: how much by the process of inflation and things like that?
sit there andnot predict volatility. you can be deadly -- dead wrong. most people were saying we would see a pickup and it just did not happen. lead indicators told you it should have happened earlier. so we leave that out. of inflation, models capture inflation, a whole bunch of different things. alix: you will be staying with us. futures are trading higher ahead of the number. the bond selloff continues with yields at 3%. this is bloomberg. ♪
europe and is now spreading to the west of the bond market sells bonds well off the lows of the session and a little bit of buying on the margin in the 30 year here. you're looking at the u.s. 10 year. 2%, that spread continuing to flatten. continuing to be weaker. the numbers are out as we speak. if you back out energy and you back out food year on year coming in, it is higher than estimated, two point 2% for the month of january. .4%, double what was estimated and much higher sequentially. manufacturing coming in a little light and jobless claims coming bang in line with estimates. foodnumber, backing out and energy year on year, coming at 2.2%. bond market, not in a norma's reaction to what we saw. still having selling by about
one basis point, kind of where we were ahead of the number. you have a little bit of eyeing coming into the curve, so the flattening continued. we saw that trend yesterday as well. you would think you would have a steeper curve but that is not what we're seeing. we continue to see a flattening trend in david: the total numbers right on what the estimate was. it is when you back out food and energy that it really goes up. that is interesting. is what theyd that delivered on the nose, but it was energy up, the core number, that made a big difference. alix: 2.7% as well. the 210 spread continuing to rise flatter on the day here looking at the equity market, we are holding up and not seeing dramatic reaction we saw yesterday in the asset. -- asset class. economist, still
with us. what do the numbers tell you? steve: they're adding fuel to the fire that there is a certain amount in inflation that is building the system. comments this morning will be more important than the ppi numbers because depending on what he does with regard to the currency, there is a linkage dollar on aith the dxy basis. the further the dollar drifts, goesore the 10 year yield up and this has to do with good tradable prices and commodity prices projected going forward. it is a weaker dollar pushing the inflation story that is coming into the fray a little bit and i think that is driving the curve. repeating the comments that came out, watch the dollar breaking through the level it hit and then take off. that is interesting. it has not been clear to us what the policy has been on the dollar these days.
it seems somewhat cosh victory. normally they say they love a strong dollar. but now they are saying, it is sort of ok, particularly on trade, which the president seems to be fixated on. which way will it go? >> it is an american first policy. i think the currency was part of it and i think it was deliberative it i do not think steve mnuchin made a mistake and i do not think he will back away from it. i think he will talk about it and i think that will be an important determinant as to where we trade the rest of the day and i think it is setting us up to be around 3% on the 10-year note -- by the time we end up with jerome speaking at the end of the month with the policy report to congress. alix: do you feel like it is the -- equity market? i'm talking about the weaker
dollar. dollar-yen at 106. the dollar will have benign decline. some softness, nothing dramatic. i try not to impose on anybody's statements as it -- as to what they are thinking or suggesting. i do not believe administration is trying to destroy the dollar. a reserve currency, we need to fund our deficits, etc.. sense bute makes some as europe games strength as well , we are seeing synchronized global recovery. it is hard to imagine we are the only central bank that will move in the direction of tightening and that will cause some changes. what happens in a week or two with currency is not what i focus on. >> to what extent do you take into account a weaker dollar when you make projections on earnings? a lot of u.s. companies are making their earnings overseas and if the dollar is weaker, it is worth more in dollars.
>> right. from a simple translation effect, a 1% move is about 25% of earnings, a lot smaller than people think it is. weakertive dynamics of a dollar, it takes a lot longer to work its way through the system. companies usually set up at least a year-long supply chain in terms of their setups. so they cannot really do it. ins, this is not the 1970's 1980 anymore. source through europe or from countries that have fixed exchange rates with us. they are very clever about it today. they do not do much hedging. people have lost their jobs for bad hedges on currencies. >> fairpoint. stronger ppif a number, take a look at the fed funds futures. you have the spread between
2018, 2019, and 2020. for this year, it is the white line, almost three hikes. the yellow line, just one hike is the difference. we have had a rewriting since september and a strong one in the last couple weeks. steve, do we need to rerate more? steve: you are going to before all is said and done. by the time you get to the march fomc meeting, that will be priced into it here at what jerome powell says at the testimony is critical. whether he sets himself up against the administration or pro-the administration. one reason this is a push to sell long-term treasuries is there is a belief out there that jerome powell will be in line with the administration, as thesed to being counter to ministration and running independently. i think the office will weigh on him and he will be independent and that is what will cost a transition to what will be a bear flatten or that will dominate the balance and get us
to a spread that is almost flat. pro-administration, does that mean it is not diversion to janet yellen? -- there is a perception that the ministration like lower, not hire. >> again, the dynamic he has to face, a weakening currency, is testing the fed's resolve to control inflation. the thing that came out most interestingly in the cpi yesterday was the breakdown between flexible and sticky components. is tradable goods and commodities. that has been running well below and it is starting to drift up and it is matching the dollar completely. if that flexible component heads back toward 1%, the fed achieves its inflation target and a risk becomes that they could overshoot their inflation
target, not a big deal but it is a question of how they respond to it. alix: it happens, how would you have to reposition stocks? >> i would not worry about it this minute. whenwas a big discussion we were almost at 50 basis points. pointsgets to 70 basis and no one wants to talk about it. i spent a lot of time worrying about -- a little time worrying about what people switch their thoughts on week to week. i think even if you got to a flat curve, you're still a year away from a recession. it is not immediately going to impact the world. an importantment, point about the inflationary aspects of the potential weaker dollar on commodities. look at breakevens on the 10 year and you layer against things like metals or oil prices, unbelievably correlated
phenomenon. inflation expectations, bond market base, not mine or anyone at this -- this table's, collective people in the market, worry about this. if you see oil prices go up, you and i see an airplane ticket surcharge get added to it right away. david: you are overweight and positive on the financial -- financials. what is going into it? >> a lot of things. valuation, cap overturned. i think people will be wildly surprise in the next months about lending activity. lage is a nine-month between changes and commercial lending standards and economic activity. a six quarter lag, twice normal, when it comes to lending activity. people thinks banks are not important to the lending sector. but they are hugely important.
>> i think the point getting long up is in every business cycle, and this will be the longest in america's history, the curve does not signal the end of the business cycle. continues for another two plus will behich is why this the longest in america's history. turnies do not tend to over until earnings turnover. earnings don't until after the curve flattens and only when it flattens into a real inflationary environment. turn over until earnings turnover. earnings don'tthis is more thany fear environment them in inflation reality environment. the view that the curve can go to zero and equities stay find his current desperately consistent with my view. it is what is happening with the bond market versus the equity market. the difference is that. that is why mnuchin at 10:00 is very important. for being here. great to catch up with you guys. numbers, producer
price index, backing out energy a 2.5%. coming in at 2.7%. bleeding to the market but not the dramatic reaction that we saw, david. little continued selling flattening over the curve, but not the kind of carnage in the bar -- in the bond market we saw 24 hours ago is very different than now. will -- we will with peter, who is a ceo and a lot of other things. you can tune in to our colleagues, tom keene. bloomberg surveillance on the radio, you can hear them in new dc, livewashington from new york, this is bloomberg. ♪
>> coming up, head of global macro and asset allocation. ♪ if out and of youth, what men have sought since early on. now a group of leaders in tech and health care are seeking to find it or a modern-day version. cutting-edge biotechnology. leading this is a serial entrepreneur, including chairman and ceo and we welcome him to bloomberg. welcome. take us through this announcement. it is very exciting. a new biotech approach.
>> to be clear, it is led by an amazing man. steve jobs of the biotech industry. bob and his team have been into bidding a technology in a biotech form a giant and bob found out early, 20 years ago, that the placenta is the richest source of stem cells. i think of it as a 3-d printer that manufactures your baby. for all of human history, we have discarded the placenta. he realized out of the placenta calm these stem cells and neurological cells. he has learned how to use these cells for a number of things. to combat cancer, early data showing incredible efficacy in a number of cancers. number two, fight autoimmune disease. tose stem cells are able
quell autoimmune disease from arthritis to crohn's. regenerative medicine. ultimately, the cells are taken to stored and can be used regrow organs. i have 26-year-old boys. cellse and i stored the with life bank usa, a division of cellularity. i think the original boot disk of my kids so if they ever need something -- that is the vision we are heading toward. david: let's go exactly where you work at weaker about transplants and the body tries to reject those. stem cells your own at up -- as a practical matter? does it work across people? was the pivotal thing. the stem cells coming from the placenta can be used in other individuals or bob tells the story pitifully a surrogate mother caring a child, the surrogate mother is not related to the dna of the child at all, she does not reject the child and the child is not reject her.
so the stem cells have an immunity if you would. those cells, bob and his team have treated hundreds of patients with stem cells coming from the placenta. this is a revolution we have seen in the next decade. these have been administered to people in the real world and there have been real results? jeans invested in over 500 million dollars in this technology before spinning and out into cellularity with investments and assets from therapeutics and human longevity and united therapeutics. done is the cells in phase one and phase two and phase ready clinical trials happen tried in hundreds people without any issues. really making significant strides that will be published in the months and years ahead. here to different areas of tech, you are involved in so many different ones -- >> nothing more excited than
extending the health of human life. for my perspective. alix: that will also be cold. this is an area where bloomberg is doing a lot of work and you are on the board of hyperloop with elon musk. how is that going and where are we with that? >> yes p or a founding board member of hyperloop one. this and conceived of he is sort of the father of the concept and not involved in the company. it is going great. in majorrought investments including from richard branson, not the -- the chairman of the country and out weto buy and out of russia, have built a test track outside of las vegas, with passenger pods hitting 250 miles per hour on our way to 800 miles per hour. hyperloop has the potential to travel faster than a commercial airliner city center to city center. it is like 13 minutes instead of
a 2.5 hour drive. david: how much will this cost? we cannot get these subways in new york. >> from cargo and people, it will be massively competitive and much faster and better. it is a new generation of transport. alix: what about regulation for all of these areas quit --? that. cars and all of when you see -- >> on the biotech side, they already were closely with fda there there are guidelines and the commissioner has been really supportive of these medicines, cellular medicines, very clearly, the team works very carefully with the fda to make sure everything is on par but the other areas, flying cars, you mentioned, we are seeing massive investments in flying cars. we are seeing airbus, number one and number two, helicopters coming in and electric
autonomous flying taxi, if you would. uber, my friend runs a team there. hundreds of millions of dollars to that. i remember peter teel famously said we were promised flying cars and all we got was 140 characters. now we have flying cars too. it is the future. autonomous electric cars changing the entire landscape. all electric, autonomous, not 10 years from now but next year. we will see flying cars this week in dubai. and a chinese flying car company is operating in dubai. we will see in dallas, uber. we lived in the most exciting time ever. hyperloop's, flying cars. really is incredible.
alix: 2.5% of you back out energy and back out food. treasury tip auction is later today. $7 billion in tips are what you do with that trade? joining us now, head of g10 interest-rate strategy. even that will be the tell tale sign of what market is looking at it with inflation? been positive on inflation for some time or finally, they have now moved
upwards in the direction we had been expecting. there are a few differences from was year where the currency appreciated about 10% in 2017, .ontributing to upside the way we would trade would belong breakevens, which is essentially long tips and short treasuries and expected a widening of the inflation differential toward 230 from 215 on a 30 year. >> what we have not seen despite yields, of the rise in kind of pre-much not participated in that in the last week or so. what did you make of that? >> they kind of ran some of the move. if you look at mid december 2 january, 10 year tips, they moved up from about 20 basis points pretty much in line with treasury yields. since then, it has been more of a real yield story. rising quite aggressively and that is sorted through the
broader asset markets. david: i don't trade in these things. it ispossible that crammed into fast in these values? iti think there is a risk of but i do not think we are there yet. on inflation few over the past five years or so and they have not really prove for filling as such. is at least a six-month run of upside inflation just from technical basis specs and through the next few months. beyond that, with growth where it is and fiscal stimulus, high or at top of the cycle compared to the past where you are in a weaker economy, i think it very strong labor market suggests pressures should steep through the prices, especially with a weaker dollar. alix: what is your favorite place on the curve? like the best of the
curve. the five or 10 year should leave yields higher. it is a key idea in strategy for have been inat we fighting investors to look for. alice: you would think it would curve steepen but it has curve flatter. .> to 10 is steeper alix: great stuff. we really appreciate it. thanks very much. coming up, the open. macro risk advisors and garcia financial you take a look of the markets and you continue to see equities higher, 3% on the 10 year is what markets are watching. will we get there? this is bloomberg. ♪
coming up, glow go -- global equities is denny a rebound, shaking up a bond market fueled by higher inflation in the united states. treasury yields do very little to support a dollar under siege. a fresh four-year low. close to 18 billion, the biggest hedge fund that against europe. futures firm up 6/10 of 1% on the s&p 500. treasuries, yields were much higher, approach to 94 into 95 earlier in the session p right now, to 91 on the 10-year. the rebound in global stocks march ahead on slumping treasury yields.