tv Bloomberg Daybreak Americas Bloomberg September 14, 2018 7:00am-9:00am EDT
rates on a note brexit deal. turkey raises rates along with russia, giving the ruble some much-needed help. florence, the worst is yet to come. hurricane florence downgraded to category 1, the landfall is imminent. david: welcome to bloomberg daybreak. we have hurricane florence hitting about cape fear in the southern part of north carolina. it has not made landfall yet. once it drop more rain hits land. millions of people without power. we are speaking with the president of duke energy coming up. we will see how they are dealing with the storm. in the markets, you have a
weaker dollar. global equities take that. euro-dollar is flat. it is a broadly stronger dollar store. -- story. commodities are getting a little relief on the weaker dollar. it does not hurt that the boe said that the budget deficit blowout in the last few months. that is a short-term good thing, long-term bad thing. david: the problem is sooner or later, you have to pay it back. they don't care until they do care. then it is a problem. now to bloomberg first take. we are being joined by carl riccadonna and gina martin adams. we want to turn to england and the pound getting some support. it is not just the ruble. mark carney has written an
editorial where he says the bank of england thinks about what could go wrong and prepares our banks so they can keep doing our job in case it does. that is what we have been doing the past two years in preparation for brexit, some of you may disagree, but our job is to care for the worst, not hope for the best. if there is a hard brexit, they may well be raising interest rates more than markets expect. carl: colossal mistake. david: it would be. carl: this is a negative development for the economy. the premise is you would see weakening in the pound, each with have an inflationary impulse on the economy. central bankers should treat it one time currency move no different than they would any other one-time shock on the economy. you proceed accordingly after the fact. hiking in response to such a negative shop as hard brexit
would be a huge mistake and probably cause a recession in the u.k. video we have a little from dublin at the moment it i think part of what he is saying -- dublin. i think part of what he is saying is rates would go up, and that could undermine the economy. carl: brexit slams the brakes on the economy, and raising rates does that even more. alix: that sounds like an emerging economy. if you look at the u.k. indices, they have outperformed europe because of currency, but valuations in those markets are very low. british market valuations are at a three-year low at the same time earnings are breaking out on currency alone.
it will be interesting to see how the markets navigate this because the valuation signal is very consistent with what carl is suggesting. the stocks continue to outperform much of the rest of europe because the currency has depreciated. if the currency turns around, that adds to the existing pressure on the multiple, which may create a lot of volatility. alix: our second topic, emerging markets. half an hour ago, we got a surprise rate hike from the central bank in russia. they raised their key rate to 7.5%. the ruble strengthened. we saw the same thing in turkey yesterday. what is the fallout that? peaks, arear we going to play better among emerging markets? gina: that is a big if.
the longer trend, it is still higher. you still need to get the dollar to turn over. that is a really strong signal for emerging market stocks. you need to have confirmation on the earnings strength. not only are the dollar in rates signaling that emerging markets are experiencing extraordinary risk, but emerging-market earnings forecasts have come down. that continues the story that these economies are deteriorating. you probably need to see a turned out in earnings turn down in -- turne earnings expectations bit david: there is this other side of the cross, the u.s. dollar. is there any relief in sight for emerging markets from the u.s. dollar? carl: i don't think there is. interest rate differentials favor stronger dollar.
expectation around that, even hearing from more moderate policy makers like governor leo brainard yesterday continue the maybeotting along, pausing at neutral, but they will continue with roughly one hike per quarter. you will see a stronger currency. when the fed tightens, there are often problems with e.m. market expectations are about 82% for the december meeting. that pressure is going to remain. david: our first story is hurricane florence. we are going to come to that now. this is the path as projected now. it is taking a little longer to hit land. it will come at the southernmost part of north carolina and then move northeast. what we know now, the strength of the storm has slackened, but
it has slowed down. that could mean more rain. carl: a huge amount of rain and flooding. even though it weekend as it got to the coast, there was this big push of category 3 or category 4 of storm surge going into the carolinas, so maybe less wind damage, but flooding will disrupt the economy and destroyed real estate. it is probably not doing more than 0.1% of gdp on the quarter. carolinaing these hurricanes, we lowered our payroll projection for september from 190,000 to 175,000. that is a fluid situation. we will see how the data evolves. alix: that dovetails with connor send, he said in houston, when
the rebuild happens in a tight labor market him and you pull construction workers away from other industries, that creates a short-term issue in the economy even if it means long-term more productivity. gina: hurricanes have historically led to some volatility in certain segments of the market. it depends on how big they are, how much damage, and how much replacement we have to do. it is a fluid situation. we are dependent on how bad this is and how much prices move in the interim. i think it is pretty narrow. 500, it is s&p unlikely to have a material event on margins for earnings. david: it is one data point. it is one hurricane. is there a larger issue with climate change over time? we cannot contribute any particular hurricane to climate change, but over time scientists
say we will have more extreme weather. carl: it means there is greater risk among real estate stock. posemer climate seems to that type of risk. rising orels are storms are becoming more frequent, that poses greater risk for capital and housing stock in these coastal areas, which tends to be valuable real estate. that damage to the capital and housing stock tends to have a stimulative impact on the economy. you often see payrolls, gdp, industrial production stronger shortly after the storm even though there is a negative consequence. example, insurance sector with climate change, what might be affected adversely or positively? gina: i think you can extend
from volatility and earnings over time, so far the cycle of volatility has been limited because earnings have been predictable despite climate change. i think you need to see this exploded as a general factor before it becomes meaningful. you can have an impact on the auto sector. last year, we had a massive replacement cycle for autos. you see it in financials. you see it across the commodity complex. that impacts materials, consumer staples, industrials. you can extend across much of the s&p 500, but it depends on how vast it gets. minimal on impact is the overall earnings stream. david: thank you to carl riccadonna and gina martin adams. you can find all the charts we just used on your terminal. you can save them by running gtv .
earnings revision this year. it is slightly down. that kind of explains the outperformance we have seen in the u.s. alix: how long does that have to continue? the question is has the dollar peaked? you can make a long-term or short-term case. what is your call going forward/ >? >> there will be a convergence next year. the tax break only happens once. we cut corporate taxes in the u.s., not so in the rest of the world. we think u.s. earnings will probably still be higher compared to the rest of the world next year, but by a smaller margin. we are hoping to see a more positive catch up from emerging markets and europe. talkedichard schiller
about market sentiment a lot. that is his thing. here is what here to say. >> the stock market did get a lot higher before it comes down. it is highly prized. that is what impresses me. it can get even more highly priced. i think it is a risky market. i would not overexpose myself to it. it is very high. alix: what do you think? >> i look at his own measure for price-to-earnings every day. it has the potential to go higher. it is only been higher than this once in 2000 to 2001. that measure tells you not so much with the u.s. stock market is going to do over the next year, but over five to 10 years. investors looking back since the financial crisis, probably not what we would expect, we are probably looking at 5% to 6% or
7%. elsewhere in the world, prices look more attractive. david: does that mean you take some risk off the table in the u.s.? hedge funds seem to be going away from risky assets. are you seeing people position away from u.s. risk? >> i think the move has been away from emerging-market risk. there has been a selloff. in the u.s., we are not taking risk off yet, but we are trying to finally do get defensive in the market. we are not late in the cycle for ultra-defensive yet. there are places in tech that are overvalued. health care has not had that same kind of run. prude trying to be ent. david: health care gives you growth, safe growth.
>> defensive growth. if there is a defensive area within tech, also consumer discretionary. we don't think the global economy is slowing down a lot. not just amazon, but elsewhere that is susceptible to rising and falling consumer demand. alix: if you look at options, putsmore and more versus for the s&p and the russell. selloff, how does that affect other sectors? isit depends on if it hitting international companies, ffecting small numbers of companies. there can be a broad-based slowdown in tech. given what the valuations look
like, that has the potential to pull back. david: what does an investor do about trade? there is a wide range that is almost binary. how do you protect against that? what are the secondary effects? >> we don't have the counterfactual where the s&p is much higher because we did not have any trade risk it all this year. the valuation on the s&p has come down. the stock market has not done a lot is january. earnings have been much stronger. the market looks less expensive. in that sense, you are being paid for that risk. not in very specific ways. if you talk about how much worse could the situation with china get, technology names in the u.s. if this escalates further and we see taxation on consumer goods from china. itid: are you seeing
reflected in so-called animal spirits? >> sentiment is strong. especially in the last 10 years. david: the last 10 years have been a little rough period. >> it is not the worst year to have a trade war. there is no good year to have a trade war. because the environment is relatively strong, sentiment is affected less than it would be. alix: credit, risk off or risk on? >> we are still risk on. we are much more selective. emerging markets, certainly looks from a value perspective, better. emerging-market sentiment is so weak, often you can get into a government name that is giving you hire spreads for treasuries
>> this is bloomberg daybreak. a little more than a week ago, people were talking about boycotting nike because of that controversial ad featuring colin kaepernick. now shares have hit an all-time high. and maybe months before the business impact of the ad can be measured. sales are still tracking well above last year. it is the end of an era at volkswagen. they are ending production of their iconic beetle. demand for the beetle and cars
like the vw golf have fallen. investment bankers at goldman sachs have completed their takeover of the firm. john solomon has named david waldron to the company. goldman's outgoing ceo lloyd blankfein steps down at the end of the month. that is your business flash. alix: this is no surprise. we all knew it was coming. eat or be eaten. at the end of the day, it is the end of an era for goldman sachs. david: there were reports that david solomon would be elevated. now we have to investment bankers at the top of this bank that is known for trading. is that a shift in strategic direction? alix: in some ways, lloyd blankfein did not hold any
grudges on that. -- punches on that. you want to lead them over to the training unit. that is kind of a red flag. they have been letting people go. they have been trying to revamp it. in the case, they have already been going in that direction. david: lloyd blankfein made no secret of the fact that you needed to get trading fixed. it will be interesting to see if they have the same commitment or if they double down on what they do pretty well, which is investment banking. alix: in the broader scheme of things, what does it mean when goldman sachs pulls back from trading? how does that change their financial system in the u.s.? >> it has been such an interesting 10 years. i was at lehman brothers 10 years ago. things have gotten better since then, not saying much. if you look at where are the
upsides coming from, the low interest rate environment has been the overarching theme. volatility from quarter to quarter has been around investment banking, what is the environment like. hopefully we are escaping from this low interest rate environment. hopefully we can see more of a net positive in an environment where the bank is having an easier time operating. alix: are people just trading less in general? is there a total shift, less liquidity, less turnover, less volume? what part of that is the story on related to 2008? brian: on the asset manager said, we don't feel that as much. emerging market traders are feeling a lot of outward pressure. they think there is a lot of activity happening with money flowing cross-country, cross
currency. to us, is still feels like there's a lot of activity going on. coming from the asset management side is probably a different perspective. nick stays with his great it will be interesting to see what the first big conference call under solomon will look like. the whole thing. david: in all likelihood, this new regime will have to deal with a downturn. alix: exactly. great points. coming up, hurricane florence unleashing on the carolinas. -- her wrath on the carolinas. this is bloomberg. ♪
in other asset classes, this is what we see. it is the weaker dollar world. but 1.16 isis flat, how we print. i wonder how much of that is the cbo sayshow much -- how much the budget deficit blowout. oil had a no good day yesterday. it was a horrible selloff. calm.gaining some david: let's turn to those. the national hurricane service said 30 minutes ago, florence is about to come ashore in north carolina. the intensity has reduced somewhat, but it has slowed down. they are concerned about the rain. we had some pictures from
reporters down there that make you worry about their safety. it is right there in the cape north carolina. that is a tourist area. alix: i find it interesting how this winds up playing out in terms of how long the storm stays there. many wide-ranging things, peanuts to sweet soybeans, hogs. david: emily, can you me. can you hear me? emily? emily: i can hear you. it is a bit windy. david: we hear that. take care of your safety first and foremost. give us a sense as it hits sure. emily: we are in downtown
wilmington, north carolina. deterioratedve over the last hour. the eyewall is close to where we are now. it is a sustained wind. those gusts of wind are concerning. that is knocking out a lot of power. i am here able to hang onto something if i need to win those gusts,. gustsof -- when those come up. we have a long way to go. me?has theyou hear storm slowed down? is it likely to stall? emily: yes. the storm has been moving slowly. that is a big concern from officials. part of why they are worried about all this water is it is
dumping water. we knew up to 40 inches of rain or so. think about the countertop in your kitchen, that is 36 inches. add four more to that. we are really feeling it. a big gust of wind here. hundreds of thousands without power. we only expect that number to grow. david: mainly take care of your safety. think you very much. alix: in the next hour, we will talk to david fountain, duke energy north carolina president. 230,000 dukeow, energy customers in the carolinas have been affected by power outages. in the broader commodity market, it has been an interesting week for oil. you saw some hurricane risk premium price did earlier in the week.
that has slowly drained out. now, ian nieboer and brian nick is still with us. what is the energy market ahead of florence? todayhe interesting story on the context we look at is upstream oil and gas, production. the path of the storm is not likely to affect that much. of the pipeline, this is what you are going to be watching over the next 72 hours. this is the colonial pipeline. barrelses 2.3 million of oil per day to the northeast. how quickly can something like this be fixed if there is a shortage? it really just depends on the severity of the storm, flooding, and other activity. it is hard to say. alix: fair.
the other part of the oil price movement has been confusing signals from major energy agencies. opec calling out risks like emerging markets, trade wars, the fed raising rates as a reason why emerging market demand might slow down. how do you view that? ian: i think it has been very topical. on the demand side, it has been strong over the last few years. emerging markets are the driver of the crude demand growth we have seen. any concern on the economic front is a big deal. if you look at the absolute numbers like argentina, brazil, turkey, it is not that much compared to the overall demand of emerging markets. what is your forecast? eventhe forecast for the
is in the 1.4 or 1.3 range. we have a little more conservative view of demand. an, is this a conversation that needs to be taken more seriously in terms of an emerging markets let out? brian: we are seeing more of the risk around e.m. that is the risk of capital flows leaving. as winston churchill said, you can count on people to do the right thing after all other options are exhausted. raising interest rates, people are not so worried about demand or domestic activity, but currency volatility and risk capital flight. david: is that right? or is enforced to make a really difficult choice? russia raised interest rates today, arguably not because the market is doing so great.
hike here or there is not going to break the economy. russia and brazil have been cutting aggressively. russia hiking today is a signal to the markets, we get it. we want currency stability. david: i know you don't want to call the bottom. are we approaching the bottom? is there a turnaround in em? .rian: we like the value in em if we look at countries that have been indiscriminately swept away by this and countries that are not that tied to the crisis points, we are already looking for the points where we can at risk to the portfolio and emerging markets. needs a weakerhe dollar, that would be the perfect scenario, how does the weaker dollar coming to the commodity market? ian: there is a lot of different things going on right now.
weaker dollar implies a little higher crude prices. more broadly, the issues that we concern ourselves with our opec behavior, u.s. supply, an theresting balance in market today. our numbers show that it requires opec to have some accommodation. even their own numbers don't show that. alix: is that a supply or demand issue? i thought the report yesterday was interesting because they saw a short-term supply gap because the saudi's and russians are not going to be able to offset what we are losing from iran and venezuela. ian: we think through next year is pretty balanced. on iranalmost relying and venezuela to take some barrels of the market to keep the market balanced. david: let's come back to trade. affected intrade is a couple ways, one is the
dollar. also a lot of those emerging markets depend on trade flow, which is turning down. bellwether for trade risk has been the renminbi against the u.s. dollar. you could see devaluation in the chinese currency, and that is an environment where we would not expect to see the answer improving. sentimenttiment -- em improving. we are looking at countries like india, which should be next trade.iaries of as the rupee has been weakening, the types of things they have imported into the country have not been going up in rupees because of false in the dollar. -- falls in the dollar. alix: with the exception of industrial output, these are all
rolling over. the last eight months is the weakest since 1999. infrastructure investment is rolling over. if this is not a trade issue, what are the other options? how does this play out? >> i think it plays out through fiscal stimulus. alix: is this enough? >> if the trade war becomes more ofthe need for this becomes depressing. david: when you say fiscal said we, president xi are to get the leverage down. brian: that is part of what has caused a slowdown. economy to bereal working in growing, but they don't want the financial leverage that is supporting that to grow into a crisis. the trade war is a problem, but not their major problem. they would be having these issues anyway. alix: do you feel like oil lng
gets wrapped up in the trade war with the u.s. and china? ian: i would separated a little bit. china is a logical place for it to end up. as we see a shift in the energy mix, some aspect of that should happen. alix: the bullish case for oil when it comes to iran is that india and china are going to buy what they are going to buy. do you view that as a china specific story? they are oversupply the little bit, or do you feel like this is an actual pivot? behaviorhink china's and our anticipation today is that the cuts to the imports from iran will be lower. just a little better discipline in the market with respect to those particular sanctions. that is our base case you. alix: real quick, favorite e.m.?
brian: india. david: i was going to guess that. alix: worst one? brian: easy answer, turkey. david: that doesn't mean it's not right. and ian nieboer, thank you for being with us. kailey leinz is here with first word news. good morning. kailey: good morning. hurricane florence has just made landfall. the category one storm is expected to bring a title search of up to 11 feet in some places in north carolina. hundreds of thousands have evacuated. tighten of theul year is threatening asia. it is slamming into the philippines market it has prompted officials -- tomorrow. it has prompted officials to evacuate areas. on sunday.hong kong
boston, explosions damaged homes in lawrence and north andover massachusetts. last spring, the utility asked for a rate hike to replace aging infrastructure. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am kailey leinz. this is bloomberg. david: thank you. coming up, therefore site leading to the financial crisis helped them make a fortune. the bull market is not treating them so well these days. we are talking about how crisis winners are becoming losers. this is bloomberg. ♪ bloomberg. ♪
kailey: this is bloomberg daybreak. i'm kailey leinz. hour, jimin the next neustadt, former treasury chief restructuring officer. [laughter] alix: it is friday. david: it is. thank goodness. fromrn now to three things bloomberg news week. 10 years after the financial crisis, please don't see the lord of public markets anymore -- allure of public markets anymore. the bull market has not been so kind to them. after revitalizing miami, cities across the globe are on the search for their own. alix: joining us is the cohost of bloomberg businessweek.
the headline story is the most boring bull market ever. i love how they broke down the anatomy. >> look at this cover. it is wonderful. the longest bull market we have ever seen. $20 trillion in value created over the last decade. $12 billion going into the stock market every month. yet it is a snoozer. it is not like the tech boom. it is very different. david: it is going to be over sooner or later. now what will we say about it in retrospect? what will be the historical norms of this bull market? >> it has been the rise of passive investing. computer technology is playing a much bigger role. you also have less companies going public. we have seen ipo's come down. we have seen a pullback.
, know you have talked about all the money is out there for firms, startups, private offices, family equity, a lot of opportunity for venture capital. they have about half $1 trillion sitting there to be invested. that is about all the money that came public in the last decade. had that notn about the liquidity crisis. we have all this money that has never been through a crisis. that flood out. who knows what happens. the second story is about hedge funds. we have three people who did really well at a bad time. david einhorn and john carlson and alan howard. they have not done so well lately. is this a one hit wonder? >> there is a great quote from a
professor at the diversity of pennsylvania who has studied folks to make investment calls. the problem with a business based on geniuses who can spot future trends is few remain geniuses forever. making calls in a world with unprecedented moves by global central banks has skewed the market. alan howard is a macro trader. he makes big bets on volatility. we have not seen a lot of volatility over the last decade. david: you also wonder if it is a different time. you are a genius for a time. the entire world changes, whether it is technology and algorithms or passive and global liquidity. >> that is a good point. going back to the most boring bull market, technology playing a much bigger role. social the rise of media. there is the rise of activist investors. that has impacted the stock
prices, executives making moves, it is all happening quickly. david: or you have a ceo who tweets. alix: all of a sudden the stock changes. elon musk. we talk a lot about how the world cup is going to change an economy, but not really. it is kind of art boggled. >> it is quite an event. all of the high-profile art collectors are there. there are lots of parties. it is quite an event. for the miami area, where this has been going on for several decades, it has helped turn around some of the troubled areas there. that?what is david: i am sure it is inexpensive. >> put it in your living room. it will be great. just like we talk about the liv-ex, it is good to be great for my economy, the folks at art
toel are trying to bring art similar cities at a smaller scale, trying to create a cultural identity. david: it costs a lot of money to create like the bill about or something. this is like a pop up museum. you are getting incredibly wealthy people flying in and paying a lot of money. effect, it really revitalized the spanish city's economy. not every museum project has really paid off for their areas. there is one more story for you. we did not hold up.
david: in the break. wonderful designer. amazing designer. >> they are coming out with a small group of cars. david: beautiful. many thanks to carol massar, and be sure to capture on bloomberg businessweek and on tv all weekend long. coming up, governor andrew cuomo defeats cindy nixon that some nixon in thenthia new york primary. this is bloomberg. ♪ new york primary. this is bloomberg. ♪
david: i am watching, governor cuomo the cynthia nixon, handily. reald that, we have a regression going into centrist year. the senate. until now it has been a battle of the house and how close it is in the house. it is now getting closer in the senate according to most pollsters. the problem is democrats have
more seats to defend, but the polls have really shifted in places like tennessee and texas. they are literally talking about maybe the senate can switch. ,lix: notice when we got back the backlash from president obama, the tea party, that midterm election, if we will see something on the left side. david: we don't have a chart right now, but it is actually the highest number of candidates for a party running in the primaries since the tea party. the democrats are right up where the tea party was. it is interesting. alix: he did not play out as much for the tea party. it did not feel like a unified party. david: there was passion. alix: and it changed. we will see if there is something along those lines. the governor's race here in new york is not a sign of that, although. david: people thought it would
go to the bernie sanders wayne, wing, andight -- that might discourage people from voting. today on balance of power, i will be speaking with california governor jerry brown about climate change. later, i will have an interview with former secretary of state john kerry. he has a new book out. alix: it is fascinating. present inng for 2020? david: coming up, the cars are of 2009. what he has learned over the last decade. this is bloomberg. ♪ s is bloomberg. ♪ this isn't just any moving day.
this is moving day with the best in-home wifi experience and millions of wifi hotspots to help you stay connected. and this is moving day with reliable service appointments in a two-hour window so you're up and running in no time. show me decorating shows. this is staying connected with xfinity to make moving...
come, downgraded to a category 1, but thousands of already lost power as it makes landfall. hedge funds turn kostas -- turn amid u.s. equity outperformance. and the next financial bailout, 10 years after lehman, we speak to the people responsible for the biggest bailout in u.s. history. czar, steve--car rattner. david: we just told you about hurricane florence florence, we just watched it come onshore on wrightsville beach, you can see it has slowed down. it is reported to dump as much as 40 inches of rain. i can't even understand 40 inches of rain, that's the size of my daughter. david: and there will be damaged houses and infrastructure. particularly, hundreds of
thousands are already without power and we will speak with one man responsible to help turn the switch back on, that's david fountain, from duke energy, that's one of the biggest utility operatives. in other stories, the dollar is weaker and global equity is it's flat getting a break, the worst week for a dollar in about seven months. up by 5/10 of 1%, helped by the weaker dollar. david: we are about to get retail numbers in about 29 minutes, which will be fascinating giving what we had seen from the numbers of where consumers really are. alix: are they spending more but paying lower prices? there will be variables. david: and let's get an update on what's making headlines outside of the world, we turn to kailey leinz. discussing,
hurricane florence has made landfall in north carolina and is expected to stick around with destructive course. it may landfall near wrightsville beach and it has been downgraded to a category 1 was top wind of 90 miles per hour. the big problem is likely to be deadly storm surges and a wall of water up to 11 feet high, and florence is expected to dump up to 40 inches of rain on the carolinas. and the most powerful typhoon this year is threatening asia and it is a threatening the philippines tomorrow morning. it has prompted officials to evacuate as many as 824,000 filipinos. on sunday.hong kong near boston, more than three dozen natural gas explosions killed one person and injured at least 10, the explosions damaged homes and the natural gas network -- there may be a rate
hike to replace aging infrastructure, we will continue to update you on developments. global news, 24 hours a day on air and on tictoc on twitter, powered by more than 2700 journalists in more than 120 ,ountries. i'm kailey leinz this is bloomberg. thank you. the u.s. equity markets ,ontinued their long bull run they outperform marks around the world, the blue line is ms csu .ou ia here to talk about how much further they have to run is tony despirito, the black rock head of u.s. fundamental act with -- active equity. welcome back. >> good morning. david: can this keep going? vista versions we keep seeing when it comes to equities? doubt, the u.s. market is the strongest because underlying fundamentals are strong, look at the u.s.
economy, unemployment, earnings growth. all of those factors keep us positive on u.s. markets, that being said, we are finding pockets of opportunity in europe , in green energy we favor european energy over u.s. energy, and stable stocks as well. alix: why? >> take integrated energy, historically there's a quality gap between u.s. and your grain in the great -- european integrated companies. more recently europeans have gaps but valuations have not followed suit. alix: i am a bit of an energy nerd, and part of the inversation in the market energy equities is there is a huge shift in the climate change conversation and how you have to revaluations for what these stocks are. is that factoring in free leeco or will this be -- factoring in
a for you? >> it something to think about is an inductor -- as an investor, but it's a long way off, cars last 10 to 20 years and it will take a long time, we have not seen a lot of options and it will take a long time to work that into the car fleet. 20 30's, 20 40's is one that will be a problem. near-term the problem is after companiesnk of 2014, underspending capital. we are seeing constrained supply from opec, venezuela and iran are struggling, and we will fax from not investing in energy. so the supply picture will grow over the few years -- over the next few years. probably, for the medassets and where we are going, how much of a run do we
have? bob shiller thinks the stoxx could move up quite a bit. the stock market will get a lot higher before it comes down, it's highly prized, which is what impresses me. but it could get much more highly prized. i think it's a risky market, i would not overexpose myself to it. but it is very high. what i'm hearing from money managers is on one hand there are more upsides but they are being very concerned about the downturns, it is coming but they don't know when and they are getting more cautious. is that where you are? >> it has been a long bowl and we--bull market, are emphasizing cautious optimism. we are still optimistic and we see a lot of earnings growth and we don't see the end of the cycle yet, probably in the seventh inning out of the nine inning ballgame.
maintaining prudence, an emphasis on quality, in terms of the company's, operations, and balance sheets. in the next downturn, strong balance sheets will protect you. and we have an abnormally high level of cash, about 5%, and we are to deploy it opportunistically. alix: sochi will you're looking morgan -- so if you are looking at s&p leverage, where else can you had? do you need to buy treasuries? >> i don't think you need to hedge, and i don't know that head -- treasuries will be a good hedge. we are seeing rising inflation pressures, the cpi number was not strong but if you look at wage growth from august, they are very strong numbers. that will continue and put pressures on inflation. it's not clear to me that bonds
bank said the central it was spurred by external conditions. people were talking about boycotting nike because of the controversial new ad featuring colin kaepernick. shares of now hit an all-time high. it may be months of were impacts can be measured, but sales are tracking well above last year. giant leap towards commercialized space travel. elon musk has signed up for its -- has assigned up its first passenger for a trip around the moon. no word on how much the ticket has cost. alix: -- hurricane florence is bearing down on cape fear, making landfall near wilmington, north carolina about half an hour ago. we go to chuck watson, enki
research, disaster modeler. you give us some great charts, termsre we looking at in of dollar value in damage that could be done? >> good morning, it looks like this will be a 10 to $12 billion expense, that's for traditional hurricane impact, you think of things like waves, storm surge, wind, damage from trees blowing down and hitting buildings. the big question mark is the see from the can wind prediction, 30 inches of goodin places is not a thing. and because it is so slow moving, it is more reminiscent storm than a landfall hurricane. so flood damage numbers are uncertain.
normally with a $12 billion $3rm, you would predict billion in flood damage, but if it stalls, we could see $15 billion of additional flood damage. which is catastrophic and creates a lot of insurance implications. david: chuck, thank you. we have a breaking news report, but this is very helpful. breaking news right now, volkswagen is said to plan a trucks ipo, spinning off its business, it depends on the marketplace but they are having hanover, butin they are talking about spinning off their heavy trucks operation. is considering this as well. alix: why? what part of that is management, what part is prudence? or systemic change?
that: you typically do because you have two parts of your business with different valuations, the market gives you credit on one but not the other by splitting them you unlock some of the value. traditionally around the world, cars are not having as much of a margin as trucks. i would have to study it but from general extremes, trucks have higher markets. alix: is this a european car issue verse the u.s.? david: ford motor essentially says they are going out of the car business, they are going to make almost no cars in the next two years. companies different are going in different directions, toyota is deeply devoted to cars. but there may be some division where some company specializing cars and others in trucks. alix: we will keep an eye on the stories. back to hurricane florence, it is wreaking havoc in the carolinas and lights are going
out. duke energy is responsible for turning them back on. currently 80,000 customers are already out of power and more outages could be on the way. the forecast suggests as many as 3 million people will lose power before the storm is over. the president is of duke energy, north carolina. david fountain. we appreciate you coming on, tell us how bad it is. >> i at the hurricane command , hurricanealeigh florence made landfall in the past hour and it has articles extensive damage from significant storm surge, heavy rainfall, high wind. we have nearly 300,000 outages that have occurred already, and the storm has just made landfall. these numbers will increase and we expect that the storm is going to have a slow track across the carolinas, we expect
many customers to be impacted by this storm. as you reference, we are projecting anywhere from one to 3 million outages of the 4 million homes and businesses we serve in the carolinas. alix: walk us through how you can get power up and running, and what you think the hardest part of the storm will be to do that? >> as we have seen, this is a massive, powerful storm with destructive force which is being amplified by the slow-moving nature of the storm. we have more than 20,000 people who are positioned and ready to attack restoration as soon as it is safe to do so. that's duke energy cruise in the carolinas, as well as indiana, florida, ohio, kentucky, a number of other states and as far away as canada. this is a record number of mobilization in carolina, but we
cannot begin the work until the storm has passed and workers cannot safely access impacted communities. is a real issue, it will take time for the storm to pass through, and the flooding has to reseed before we can do to the areas and assessed damages. we have identified potential flood zones and trained workers on how to access alternate travel routes to reach the areas. alix: the other part of your business is nuclear plants, you nuclear plants there. are they at risk? >> they are not at risk. we follow procedures to determine if a plant site will experience hurricane force wind. aso operators begin shutdown two hours prior to any spec it impact. operators -- any expected impact , operators downside to monitor
conditions. and we have multiple protections. stay in close contact with the nuclear regulatory commission and state and federal officials. alix: david fountain, we appreciate the update, and we will check in over the next couple of days. still with us is tony despirito, u.s.lackrock head of fundamental active equity. how do you value natural disasters? at what is going on with florence, it's a human issue first and foremost, our thoughts and prayers for the folks there. this is business issue, a temporary short-term issue, not a long-term change in business alleys. if you look at the two industries impacted it will mostly be building materials, ,nd it may be positive for them and insurance companies. it's important to keep in mind
on the insurance side, wind versus flood. wind is covered by insurance typically, flood is not, it's covered by the national government. it has been downgraded from a wind issue and that is good for insurance companies, floods will be handled by the u.s. government. david: is this a market event? >> is not a big one, a percent or two. alix: and you mentioned all the government issued, this happened in houston as well. the budget deficit blowing out in the last 11 investor texas, as an how do you factor in government spending and tax cuts? it's interesting, the government spending involved is actually positive for gdp. there will be a lot of rebuilding and it's actually positive for the economy.
in the longer-term we have the u.s. government debt which is an issue we need to keep an eye on. has been a, there lot of deleveraging, consumers and corporations have deleverage, the federal government has not. david: at what point does the bond market punish them? >> that is something we will have to think about. the u.s. government has aaa credit and it continues to be with a diversified economy, so i think we are fine, but further down the road we will have a generational issue to look at. alix: -- david: thank you so much. actually, you are staying with -- breakinging us volkswagen is-- considering spinning off its truck business. this is something that daimler has been thinking about as well. craig, you are there and you understand this is this because they are making more money on one than the other? >> i think it's a case in both of these companies, and it's
also a matter of simplicity. car business and the big truck business is being two very different businesses. and sometimes they are on different business cycles. right now, we are seeing a time and place where the heavy truck business is incredibly strong in north america. volkswagening wanting a bigger piece of that market, one they have not had a presence in. a bit ofalso quite speculation that this could awarding withtter multiple and more credit from the market when you split this business off from the car business. we are seeing a lot of splits within the auto industry, cases like daimler and vw with truck units, or big part conglomerates thinking about the lights of continental,
that theselysis companies are not known for big multiples and they would like to change that. david: i know chrysler is in , is there different margin for trucks and cars? >> it is hard to say and i think the is one of the things companies would like to be able to tell the story of the relative strength of this business, versus the car business. and have the ability to price more firmly for commercial customers, as opposed to the end consumer. i also think it's a case that rolectivity could play a in the motivation for this deal. you have a situation with gold flag and where they have a big , a company intar
the u.s. that has gone through a lot of ups and downs in the last decade. carl icahn has a big stake in that company. volkswagen would like to use the vast stake as an inroad into the market, and there is speculation that there would be a combination between volkswagen and navistar. david: what about beyond germany act out because ford says they don't want to make cars anymore in the united states, they want to be a truck company, could we look at other big carmakers, nissan, toyota, to actually trucks andating out cars? >> i would be interested to see if this is something we see toyota look into. , buthave a truck division to this point it has been a story that has been specific to
big german carmakers and their truck units. to this point, we have not seen getjapanese companies also in on this story. have not even heard hints of that at this point. certainly, you would have to assume they are watching this closely and taking a look at whether it pays dividends. tony despirito from blackrock is still with us, how do you play the auto sector? >> we have mostly been out of it, we talked about the long bull market, auto is one that looks peaky to us. in terms of volume and profitability. automakers have been having peak profits, and there is risk is that cycle rolls over. we have been looking at this as a value trap. alix: and talking about peak profits, that has to do with
pricing, what sector has pricing power and what does not yet go -- not? >> we are seeing strong demand with trucks, one area in the economy with a lack of let -- pricing power is consumer staples sectors. they have been packed on the low-end privately, and on the high end with health and wellness trends, and there has been market share fragmentation's in this sector. you look forid value at this point and you talk about the balance sheet, does disruption, transformation, undermine the quality of a company? no matter how good you are the auto company will be a different business. >> we are quality value investors and we think of quality dividends, there are companies that can grow the dividend but disruption is something that is critical to
watch out for. we have seen consumer staples, you are correct, autonomous driving is a disruptive force and you have to keep an i out to make sure the companies -- an eye out to make sure the companies you invest in are quality. alix: volkswagen is preparing the next step for a truck unit ipo, they might be doing something similar as the dynamic transition in the industry. coming up, august retail sales are expected to have a temporary reversal after a strong july. this is bloomberg. ♪
weekend, it is the dollar story, and the worst week for the dollar in about seven months, the dollar is now flat, the ruble is still climbing, the central bank saying they may cut base at the beginning to fight -- the beginning of 2020 to fight the rate hike. retail sales back out, gas looks like a big miss, up by 2/10 of 1%, but july was revised higher. overall, a 10th of a percent is less than 4/10 of a percent. it's a miss across the board. and if you look at some of the export export price indexes, export prices are not up as much before, and import prices are not as much, so they are creeping through. david: these have all been
softer than we thought, they are less than what we thought the last three days. alix: in terms of retail sales, you have autos and apparel which are the areas that missed. which is surprising with the back-to-school shopping season. david: they are softening without a doubt. ,let's head to the phone sales fell 1.7 percent and closing stores have followed, that's the biggest drop since february 2017, what do you attribute that to? >> month over month or year-over-year? >> year, bimonthly basis. >> all like an attributed to is crazy weather, fires, and audit extraneous conditions, or a bounce back from prime day. an artificial day that boosts sales in one month at the
expense of profits. alix: does that reverse? >> it should. the truth is, people only need so much stuff, and they may have a small impact on the holiday season. but ultimately i expect a strong holiday. absent too many tariffs. get there, but what area of retail do you think will bounce back and what will get a breather from spending? >> i think apparel will bounce back, home improvement and everything to do with home will be strong. the millennials, who everyone said was only into experiences, are reaching an age when they needed things because they are having families. we will have a home depot doing will be chasing them but they will be doing well.
and certainly walmart and target had fabulous quarters. they really did. toboth cases, i attribute it consumer confidence at their the investments those companies have made in technology and a better customer experience. david: what will it do to retail onthe president puts tariffs $200 billion of imports from china? the economy is such a high percentage of consumer goods, walmart has oregon on web -- record -- has already gone on they willing that pass the tariff costs along to consumers. this is a delicate conversation to have, most opinions about what is going to happen with the economy is based on your political preference. my sense is the economy is fragile though it appears a
strong, and the strength is easily broken. initiated tariffs are , and the products have not arrived because retailers have been bringing products in early, if the prices rise you will see the consumer retreat. alix: talk about the tariffs more, we talk about it in terms of autos, but most might not realize how intrinsic it is to what we wear, like undergarments, sunglasses, gloves, watches. can you walk through the impacts? in 1975,t it this way, 95% of the clothing we bought in this country was made in the united states. 2011, andr flipped by the final nail in that coffin was the end of the apparel quotas in 2005. every thing we wear, from metal,
it wasdied, --dyed, made somewhere else, china, vietnam, somewhere in the far east. if you're talking about a 20% tariff that will be passed along. alix: thank you very much. that's paula rosenblum. tomorrow marks 10 years since the fall of lehman brothers in the financial crisis, something we are following on bloomberg, that ofggered larger failures aig, general motors, and chrysler. putting hundreds of millions of dollars and jobs at risk. now someone at the center of putting back the auto industry, we will speak to steve rattner, chairman and ceo of will it advisors. welcome. >> thank you. david: you wrote a book on an
overhaul 10 years ago, i read it. it 10 years ago, and has we get to the terrible situation we were in? storm, thehe perfect economy cratered, companies were overleveraged, oil prices were high before this hit, and you throw up consumer credit, 80% of cars are purchased on credit and this all came together and car companies drove off a cliff. people, its remind was something like $82 billion, and you got back 72 billion so 10 billion in debt, that does not account the taxes that were lost because people lost jobs, or the jobs that were saved. that for $10s billion we saved an industry that essentially had a million. -- a million jobs.
howou want to talk about stimulus money should have been spent, i have no qualm about the 10 billion we did not get back to the treasury. david: who took a haircut? who lost money? bondholders? equity holders? employees? the rules ofd capitalism, the shareholders were wiped out, the bondholders took hair cuts, and the workers were asked to give up wages going forward to make the car companies profitable. our mantra was share and sacrifice and we think we achieved that. david: and give us an update now, general motors seems to be doing reasonably well, for did not have to take the bailout because they borrowed a lot, and they are now struggling. and chrysler's different company. the annual number of cars sold was about 17 million before
the crisis and it dropped to 10 million, you could not make money at that level. the restructuring the oversaw with the company's was to reduce the breakeven point for these a halfes to 10 and million and nine and a half million range. obviously these companies are profitable again. alix: the job you had to do, you're so call now, but that must've been overwhelming. fail, take companies them through and out of bankruptcy at the same time. what was your experience and the biggest take away? >> i woke up every morning. alix: you slept. >> i did, i will cover every morning saying i can't make this worse. i have two basic takeaways. a role for government when markets fail, this was the clear case of a market failure, and for a relatively modest
amount of money we save the huge amount of jobs. related to that i would point out that without the legislation we could not have saved these companies, it would have go to congress, and they never would have acted in time. so having the money was essential. and my lesson learned was that management matters, here you have the company, general motors, a great icon of our country that had the worst financial controls, the worst discipline and decision-making process of almost any company i had ever seen. at that point fourth was doing great and they have the same set of problems but they address them differently. david: what caused that to happen? book, they did not really know what the cash situation was in the company. i spoke with a senior gm official who said exactly the same thing, it was a mass and we did not have the mechanism -- a not have they did
mechanism in place. what force them to get the right mechanism? governance, they did not exercise real fiduciary responsibilities, if they had they did -- they would have asked the questions that we did. was an honorable and smart guy but he cannot run the company. david:'s enough the car situation, let's go to aig -- so that is the car situation, let's go to aig. jim millstein went to the --asury, and you started tell us what you faced? we had a company facing an indoor miss liquidity crisis, and the treasury department -- facing an enormous liquidity crisis.
ultimately it needed a significant restructuring, risk management had really failed at aig. wednesday said about the car companies, part of this was a corporate governance crisis, it was a company that was too big to manage. one with the auto companies, and aig was one of the few financial institutions we did a comprehensive restructuring of. by the time we were done, taxpayers were fully repaid for the entire investment, but the company was half the size. david: we just showed the numbers, they returned about $23 billion to the u.s. treasury, but that's a different industry, was that a matter of corporate governance or regulatory oversight? that's a much more regulated business than the car industries? >> this is one of the key lessons we learned in the crisis , the financial system had grown
.utside the regulated sphere aig had a subsidiary called aig financial products which had to an intranet -- to a half trillion -- two and a half trillion dollars with no in supervising it. one of the reforms under dodd-frank was to try to bring assets.n regulatory in this part of the financial system that had grown up outside of it. onlybeing said, dodd-frank got is halfway there. , banks constitute a third of credit mediation. and we have a bank saying trick -- bank centric regulatory structure. two thirds of that is happening outside of the banking system. this is something we have yet to address in a comprehensive
fashion at the federal level. david: we will talk about what comes next, but my question for both of you is did we learn a lesson when it comes to corporate governance? could it happen again? nonsense of the huge downturn, there was a huge downturn triggering both of these -- not in the sense of the huge downturn, there was a huge downturn triggering both of these. other companies out there today but don't have the systems in place to protect themselves? find outk we will only when the tide goes out, who is failing to protect themselves. risk management practices in the financial industry have improved . nothing like a good crisis to scare management and boards into improving their systems. david: let me ask steve, how long does the scare last?
have we forgotten that lesson? >> i don't think with quite forgotten it yet, especially the financial sector, but there is a half-life, or decline curve to memory. and whether it's 10 years or 20 years from now we will have a similar problem. will both be staying with us, and next we will take a look at where the next crisis could be coming from. this is bloomberg. ♪
discussing this week, we are marking 10 years since the financial crisis, speaking to some of the biggest names in economics and finance. we are asking where the next crisis could come from? >> my concern is we will have another crisis, something will trigger it and the question is the death of the crisis. i think the risk is global, and it probably more comes out of china. >> if we get into a trade war with china in will not have a good outcome. >> china is a levered up -- is levered up. >> it would affect countries around the world. >> there does continue to be real risk in europe, and there are risks in emerging markets. >> i'm worried about the fiscal sustainability of the tract that the u.s. is on in terms of budget and debt. the global gdp is a good
indicator that we are in a situation. >> the key factors, things like private debt being out of hand, the ratio private debt to disposable income in the u.k. is back at record levels. >> we have hi deborah -- and piper --bt, private debt is significant. >> a lot of people around the world use dollars, and if something bad happens in the u.s. that will get communicated to the rest of the world. >> i think it will be more of a dollar crisis than a debt crisis. and i think it will be more of a political and social crisis, you can easily have a 30% depreciation in the dollar for that period of time. still with us is steve ratner and jim millstein.
steve, you first, we have a wide panoply of possibilities. debt and leverage kept coming up, where you think the mess -- the next crisis will come from? >> i would add another pace, we are once again close to the tightness of credit spreads we had before the financial crisis. when you look at the loans being made, particularly for private look at where the high-yield market is trading, it's all a little scary. i want to get your thoughts, i had lunch with stephen 2007 and we had this talk and he said it's crazy what's going on. what do you think? >> i will follow on steve's lead. corporate debt to gdp is at an all-time high, so the corporate sector is generally highly levered. it faces significant interest
rate risk, which the fed is trying to engineer. we have a significant move in interest rates and you will see that flow through the corporate sector are in a way -- sector in a way that will limit capital and profits. the same is true for the federal government. the fiscal posture is quite precarious. we are spending almost as much on interest as medicare, iferest rates go back -- interest rates go back to their .ostwar norm, costs will double that will create a political crisis. that would could a political crisis in the united states, putting in norm on congress to raise taxes or cut spending in the face of a potential recession. i think the fiscal crisis is just around the corner. that's a statement.
david: sobering. -- the argument against the tightening is that earnings are going up. what is your counter? >> earnings go up until they stop. if we are simply looking at a margin for error, we are looking at leverage ratios and tightness, and a dependency on meeting a forecast which makes you nervous. david: and we have more reserves in the bank, we are protecting ourselves from the downturn, even if you have people holding, we can see assets under management going up outside of the bank. would that expose us if there is a downturn? >> i'm not that worried about the banks for the reasons that we talked about. capitalization is secure. i'm worried more about investor losses and the effect that could
happen if credit spreads blowout. effectively to a big problem, like the shadow banking system in that so much lending is happening in an unregulated fashion. alix: we have been talking about that. your point on u.s. deficit, that conversation is it is gettingw worse. when will the tipping point be? >> we are in the ninth year of recovery from the recession created by the financial crisis. i don't think the business cycle has been repealed. ordinarily, federal revenue goes down, spending goes up and you have a series of automatic stabilizers that kick in. unemployment insurance, food stamps. a deficit running close to trillion dollars today, and in boom times it could easily be
,,000,000,000,005 1,000,000,000,006. seven or 8% of gdp. effect equal to 8% of gdp, that's a third world country's deficit, not the united states. so in this sense, the real risk is that fiscal irresponsibility on the hill creates a dollar crisis. and that will radiate through the rest of the world. thank you very much, that was steve rattner and jim millstein. look out for a special, life after lehman, that's coming up tonight. alix: coming up, retail sales disappoint. this is bloomberg. ♪
and: we are watching yields the dollar, 10 year yields are right around the 3% level, and i'm curious as to why, because retail sales really disappointed. david: but they have been edging up, in fairness. they have been flirting with three for a while but i don't understand what retail sales have been doing. alix: and willie break it or sustain it? and will we break it or sustain it? withg up, the markets open jonathan ferro and bruce katzman of jp morgan. this is bloomberg. ♪ . ♪ ,
jonathan: coming up, inflation calling, retail sales disappointing and the dollar facing pressure. emerging-market central banks raising interest rates and russia is the latest to hike. momentum in china weakening with investment going in the slowest pace since 1999. futures are positive. 30 minutes away from the opening bell, up three points on the s&p 500. treasuries -- here is your data wrap, u.s. retail sales a little weaker than estimated. the underlying trend is solid with inflation in check. >> the united states and the rest of the world. >> u.s. has been strong.