Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170828

Market impact on Hurricane Harvey. 5 , the futures up highest level in two years. Texas is the largest cotton producer in the u. S. The next two indexes are interesting as far as what is being mortgagebacked, products or production. The higher this goes, the tighter we see the Product Market. The second is the vti versus signifying more production in the u. S. , meaning lower as it comes down. In texas, floodwaters overwhelm houston as Tropical Storm harvey inundatess texas, southeastern texas. Us is our commodities managing editor. In terms of the houston damage, this is unprecedented. If you are familiar with houston, this is a place that tends not to take water terribly well. In terms of the industry itself, we are starting to see refineries shut down as the storm moves west to east. Alix as far as the refineries shutting down and crude reduction, that is well known in the market. What is not talked about as much is how important crude exports are two men support. To mexico. They have said quite clearly they will get supply from somewhere. When you talk about the global integration that has happened is the u. S. Began to export oil and mexico to export products into the region, we are seeing europe and india sending some of their products to the u. S. Jonathan have we seen the worst of this yet . No. This is a slowmotion disaster. In the next few days we will see two feet of rain in addition to the two feet they have already seen. We will see the storm coming offshore and hitting houston again in the coming days. It depends on how much water they take on. Generally saltwater and equipment dont do well together. If there is a great deal of water that pours into these refineries, you will see shutdowns for several weeks. George,after hurricane we had it take a while to fix. Jonathan thank you. We are joined by Michael Cohen, barclays head of oil markets research. Michael, lets begin with you. Do not underestimate the impacts of the circuit. Walk us through it. Reasons for many of the tina already mentioned. We have production, demand, and Refined Products impacted. We have yet to see the full impact on refineries, especially the ball mark Houston Ship Channel beaumont Houston Ship Channel area. It does not get much more important than the houston Corpus Christi corridor. We are seeing not only an impact to the infrastructure, but simply getting people to where they need to go. Also for the First Time Since the shale boom, we are seeing for impact a key export hub products and crude. Companies have suspended drilling and completion activities. We have seen about hundred thousand barrels a day of crude output stopped. You have the offshore impact as well. Jonathan where is the capacity to make up for what is lost . Eric michael there is some inventory of product and crude. You have government inventories that are ready and willing to be released in the u. S. And by member countries. You have what is going on with the opec cuts, we have brought up one Million Barrels a day of crude production. We could see some of the production quotas being reconfigured for the balance of the year if those production impacts are longlasting. Videos areof these stunning. When you see a car underwater up to a street sign, it shows you how long you will take to fix that. Versus houston gasoline conventional gasoline spread. Potentialow tight the gasoline market could be. Who is going to be buying gasoline in the houston area . Michael this is a good question. Over the last 10 years in the aftermath of katrina and ike, demand was laughed for the first six or seven months of the year, but once those hurricanes hit the louisiana and houston areas, we saw demand cut between one million and 1. 2 Million Barrels a day in the immediate aftermath. 12 aftert down 10 to that flooding. It will have an impact. The important thing to keep in mind the refineries is that there is Spare Capacity for east coast refineries and european refiners, but there will still be a cut to demand afterwards. Alix you still have to get it there at the end of the day. The normal rhetoric is a Natural Disaster is a shortterm stumble for the economy but longer term it will be ok with rebuilding efforts. Some say this could be different because it is such a big export market and import market that it will slow down the supply chain in a deeper way. At the moment i favor the former argument. What we have seen with katrina and sandy, we see the demand hit in the beginning, but there is this tolerance. Output ande loss of shop recuperated, but there is extra activity generated from the fixing of the problem. Think about the damage to the entire electricity infrastructure and relief effort that will create extra economic activity. As of now, i know we have plenty of uncertainty as you highlighted the coming days of rainfall and further disruptions, but we believe this event will remain localized. You see the daily reaction of the s p 500 or treasury markets, it is pretty much a negligible reaction besides the Energy Markets. Jonathan with the tragedy like this unfolding, it is hard to talk about something as raw as rice, but we have to. Bullishs put the sentiment back into the market . In some cases it does. The impacts are underappreciated by the market. Quickly theyar how can get running back to full speed. The other thing to keep in mind is over the course of the next month, the market has been keenly attuned to what has been happening to weekly inventories over the summer. All we will get over the next two to three weeks is a lot of noise. There will be preliminary indications of what the overall market balance is in the u. S. , but there will be a lot of noise as the market tries to figure out the true impact from this hurricane. Alix i was in oklahoma talking to producers. They were really calm about this storm on credit. They were kind of no big deal. , isquestion really being this spread correct pricing or overdone to the downside. Michael i dont think it is overdone, i think it is justified by this impact of Hurricane Harvey. It is signaling there is a lot crudes that are not as worth as much as brent. Which is what you would expect. There is a north sea element as you have offshore maintenance going on in that region. That is keeping the broadpoint crude brent linked crude higher. Disruptions inr syria, and nigeria is what. Flat. I think this is likely to widen more as we figure out what is going on. Alix we appreciate your time, Michael Cohen of barclays. All of our thoughts go out to those affected by Hurricane Harvey. We have breaking news in the pharmaceutical industry. Paying 11 billion for a farmer manufacturing pharm manufacturing company. The deal should close in the fourth quarter. Kite is halted on the news. Gilead going up 3 . Thoughts on the debt ceiling and potential tax reform. This is bloomberg. Alix the fed and the ecb may be slowly heading towards exiting accommodative monetary policies. The bank of japan is not going to follow. Governor kuroda saying inflation is so far below targets that they must maintain their policy for time to come. He spoke to bloomberg tv. Europe,e u. S. And in inflation rates are actually close to their target. Close to 2 . In japan, inflation is still 0. 5 , far away from our 2 target. There is some difference between the u. S. And europe on one hand and japan on the other. Prices are not lagging. Ofe there is some kind differentiation in mindset, strong among Business Leaders and other leaders. Cautious in be raising prices so what companies are doing is they are heavily investing. They are saving equipment and so on and so forth. Modelre changing business so as to reduce labor content. By so doing, despite some wage costs are rising. They are doing well. Gdp growth is up exporters in a row. You are succeeding on growth. Maybe something has changed to a degree. Does inflation matter so much . Growth isngs, 4 good, but i dont think it can be sustained. Probably around 2 growth neekend attain we can attai this earlier, and maybe in the next fiscal year close to 2 can be obtained. Unusual. Is somewhat 1. 5 to 2 sure this growth can be sustained in the coming years. Jonathan that was bank of japan governor kuroda in jackson hole. Joining us now is Michael Mckee from jackson hole. Still with us alessio de longis of oppenheimerfunds. Inflation must mean Central Banks should do more. Japan has specific problems, and you wonder if this is going far enough. There was a discussion about japan during the sessions. On a per capita basis, japans gdp is doing just fine. They have a shrinking labor force, so their potential growth rate will be lower, the same problem we have but on a much greater scale. Immigration tow any great extent. Their overall growth rate is not good. When you divide the per capita people to output, theyre doing ok. People wonder how can they have survived all this time with inflation so low, that is why. Jonathan i wonder why we are having such a narrow conversation around Monetary Policy. We used to go to this was National Bank and interview him and talk about inflation so low and currency so strong, and then he would come outside and look around zero, switzerland is doing ok. Japan is doing ok. Why are we still having the same conversations for so long . I think it is the inflation targeting framework. We are accustomed to over 20 years of this Global Concept of inflation targeting, and more or less all targeting the same number. Between 1 and 2 . The difference between japan and switzerland goes to the question of, inflation targeting, we can accept that concept, but why do countries need to target a different level of inflation . The question should be do these countries should these countries lead with a lower inflation target . What is the right inflation target for japan because of the labor force and aggregate demand, is the equilibrium 1 . Is the equilibrium in switzerland 0 . I dont know the answer to that question. The answer to your question is this is the result of that 20 year debate. That was the beginnings of a debate in jackson hole. What should inflation targets be . They tend to force centralbank officials into action. I spoke to read ms are there. She is still on track because of the inflation target. Monetary policy is still accommodative. Of gradual path normalization is a gradual path. My argument on why we should stay on that gradual path is because we are in a more normal economy. Inflation is not yet 2 , but we have to move policy before we get to the goals because otherwise we will be behind. She is putting got in the framework of an inflation target of 2 in a world where no one is at that level. Alix what is the headline out of jackson hole . I could not figure it out. This was a different jackson hole. They talk about external fx, things that will impact the central economy but not things that the central bank does. No real pain but we have to keep doing what were doing because we cannot control what goes around us. In a normal environment you would say yes, basically here is who i am and what i believe. If youre going to pick me, this is what youre going to get, somebody that believes regulation has been good for the overall economy. The question is did that make him angry . Gary cohn some controversial remarks send it. Alix wrapping it up with mario draghi. Is the fact that he did not talk about the euro caused a rally in the euro . He had to have known that was going to happen. Clearly how much Market Participants were expecting him to follow previous statements about financial conditions, and we are going to step back, that did not happen. Thatemed to be by design not here, not now, this is not about the euro. Jonathan even if you dont talk about it, you still have a message about it. These guys cannot hide anymore. The Monetary Policy has become the pr exercise. He has become the master of that. Draghi, i ammario going to do what im going to do. I kind of day that. Thank you, Michael Mckee of bloomberg and alessio de longis of oppenheimerfunds. You are sticking with us. An interview with warren buffett. Jonathan he bought the lunch. Alix interesting. Reading the tea leaves. This is bloomberg. Alix we have breaking news for you. There is a fema briefing right now. That is the acting director of femaand security and a administrator speaking right now, updating us on what is happening in texas. Mr. Brock saying the next objective is to stabilize storm survivors, the 50 counties in texas that have been affected. Safetylooking at a life mission at this point. Talking about the fact that they need to restore power and they need citizens to be involved. It feels like this is not over. We cannot lose sight of that. The hurricane is over, but the trickledown effects are very dire. Jonathan it will not press until later this week. It is slow playing out this crisis in texas. Alix in the market, we are looking at individual stocks. M a action, gilead buying kite pharmaceutical for 11 billion in cash. Taking a look at kite, that stock is still halted in the free market. Premarket. You have gilead up 2. 5 in the premarket. Lowes up. The Tractor Supply rose 3. 5 . About 9 of home depots 2000 stores are in texas. About 25 of the texas population was in the way of that storm. We will be discussing the trickledown in terms of retail and other products later on. Jonathan coming up later on, alice rivlin, the former Federal Reserve vice chair joins us. We will talk about the future of the Federal Reserve. We are about two hours away from the cash open. Futures are unchanged after a decent week for the s p 500. From new york, youre watching bloomberg tv. Jonathan from new york, this is bloomberg daybreak. I am jonathan ferro. In london, on holiday, the ftse 100 is closed. 19 history groups on the stoxx 600 in negative territory. We talked just before the commercial break that we had a decent week of gains for the s p 500, the biggest since the middle of july. Futures are stable and unchanged. Cross the board you bills and notes coming from the market the treasury onto the market today. The story in the fx market, dollar weakness, eurodollar pushing higher. Still very close to january 2015 highs. Euro strength story on the back of jackson hole and dollar weakness. Lets bring you up to speed on headlines outside the business world. Taylor houston has never seen a storm like this one, and it may get worse. Tropical storm Party Continues to pound southeastern parts of texas. Record flooding has turned highways to rivers. Harvey has crippled houstons Energy Industry. Federal emergency Officials Say they will be in the region for years to come. President trump is renewing his pledge to make mexico pay for a border wall, days after threatening to shut down the u. S. Government if congress does not come up with the money to build the barrier. Mexicoys it will not says it will not pay for the wall in any way. In an interview with number, bank of japan governor kuroda said 4 growth is excellent, but 2 is more likely. He plans to push on with his accommodative Monetary Policy. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Alix it is the news that broke last night, an attempt by bloomberg to make their road less bumpy. Road less make their bumpy. Their former chief executive forced to resign after pressure from shareholders. Khosrowshahilist who got the gig. Who is dark khosrowshahi . He built expedia into the Largest Online travel agent, 70 billion in bookings annually. He has a playbook. Look at uber. There is a lot of similarities between uber and expedia. They focus on price conscious customers, work on scale, overcome regulatory hurdles. He could do the same thing again. Alix what is interesting is expedia had to fend off smaller rivals. He managed that by buying them. Will that be the strategy for uber . Uber as the scale and brand. You think about competitors, lyft, others regionally in different cities, they need to deal with the pr issue. Fix the culture, fix the antitrust. They need to calm things down. They need to focus on the cash burn. Jonathan lets just deal with the personalities. The ceo surge highlighted the immense tension between benchmark and travis kalanick. It is not going away anytime soon. Is it less significant now or will it continue to be just as significant . Is athink that is why dara great pick because he knows how to work with a complicated vote structure. There are issues when it comes to the board. It is still not sorted out. There are people who look upon the founder as someone who should be at the company, but it can be addressed. Jonathan there is a culture problem. How quickly can you change a culture problem . I think he needs to start with a management team. He needs to fix the management team, start fresh with a clean slate. Alix here is what i find interesting, benchmark light meg whitman, kalanick like someone else. Is this guy a truce . How effective can you be if you are a truce . I think it is his experience. There are so many similarities. Uber is where expedia was 10 years ago. It is burning cash, not profitable, the perfect playbook he has been there. Jonathan burning cash. They dont make much money. Investorsestion for looking around for a big ipo is when does uber go public . Does he have a timeline in mind for how long it will take to clean things up . My guess is it will take at least a year. They have a lot of issues to deal with. They tried to expand in china. They failed miserably in that. There is a lot of experimentation going on. That needs to be addressed. Alix you mentioned culture and morale. I assume when he was ceo of expedia and had to absorb all these companies, he had to deal with culture and get workers on board. What tools did he use, and how can that why to the employees at uber . It is about making changes globally. You have to look at it region by region, address the regional issues, like i said its the pr antitrustich is the on driverless cars. That needs to be addressed. Alix does he have the personality and energy to be a happy guy . You need to feel good about the ceo you are working for. Does he have that . I think he does. Expedia,ntioned with he did a phenomenal job when it comes to just taking care of those kind of cultural issues and scaling a company, which is no mean feat. Jonathan are you surprised this did not leak . We knew about everything else. I think the board did a good job in keeping that secret. He was the least offensive guy. They were all happy with it. It did not get leaked. Coming up, republican congressman is collins, member of the house energy and Commerce Committee on the impact of Hurricane Harvey. From new york city, youre watching bloomberg. K alix taylor this is bloomberg daybreak. Coming up later, an interview with john rogers. That is at 11 30 a. M. Eastern. Trump kicks off his tax reform to her this week. Tour this week. The timetable for that legislation, and the next three to four weeks the tax bill will be written in the ways and means committee. That is key. Ing us now is is any of this realistic . We are expecting the tax bill to maybe get past by the end of this year, at least if you believe what congress is saying. The big difference is what President Trump has said. He is going to watch this. After next week, his main focus will be tax reform. With the health care bill, we did not see the president out there explaining why we needed this health care bill, why americans should support the health care bill. We saw the effects of that. It was under 20 Approval Rating the entire time it was considered. It cannot pass the senate on republican votes. President is saying he that ng to let alix funding for a boardwalk. They still need to not shut down the government. How does his rhetoric conflict with the reality of what needs to happen in congress. Saying im going to support you guys. On the debt issue he is blaming paul ryan. Said to tie this to the veterans bill. We have seen reports that he is feuding with senator mcconnell. He and ryan have had a very tumultuous relationship. Right now the question is how can paul ryan and Mitch Mcconnell stick their neck out when he issident blasting them on twitter and saying it is their fault. Jonathan it was another weekend in the u. S. Dominated by alice injury. An interesting conversation happened with the overall office. They are saying the president wants terrorists. Arrifs. Saying wants t they are saying the tension between the globalist and nationalist is gone. He is out. Stephen miller is still there. That tension will still be there because President Trump believed , gorkanning, miller strain of thinking. Has mnuchin there. That tension will always be there as long as the president is there. Statean the secretary of Rex Tillerson was asked about American Values and was asked about the thoughts of the president and said the president thinks for himself. A lot of people picked up on that line. They are exploring the tension between the secretary of state and the present. What are your thoughts on that . That is an amazing thing to say, the president of the united ace speaks for himself. Members of congress are happy they have been on resource recess this month. As members come back, they will try to avoid that. Avoid thegood way to issue. The president speaks for himself. Instead of saying the present is a representative of the United States and when he says something inappropriate, that reflects badly on the country. Alix thank you for joining us. Joining us is Chris Collins of new york, the first congressman to endorse then candidate President Trump. Is this the correct way that we need to start looking at a white house relationship with Diverse Congress . Happy monday. It is a nuance of sorts. Clearly policy comes out of the white house, but the legislation is passed in congress. I would not read too much into that. We are a team. We have a Republican House and senate. The policy is what finally ends up either coming out of the cabinet carries to roll making secretaries to rulemaking and is passed into law and signed by the president. We have the policy issues around obamacare and did not get it done. That is still the law of the land. I just think that is a nuance. But potentially an important nuance. When you have President Trump pardoning sheriff arpaio, the border wall tension continued, alienating paul ryan and Mitch Mcconnell, how does congress raise the debt ceiling and pass the budget . Those things are not related. We are going to raise the debt ceiling. As a republican that has always voted to raise the debt ceiling because we cannot default, it will have to be a clean debt ceiling with no policy writers. Some republicans dont like this, but with 180 democrats and 35 republicans are so, that is the way it is always done. Caucus that of our wants all sorts of policy writers the democrats will never vote for. We have republicans will never vote to raise the debt ceiling in any case. The last three or four debt ceilings have been done with a clean debt ceiling with most of the democrats voting for it and 35 or 40 of us on the republican side who know it is too important not to default on the nations debt. Jonathan i want to pick up on something you said. You said one team, Republican Party in the house and senate and the white house. It is not one team for a lot of people. What are your thoughts on that . The house care issue showed there was not one team. We can be one team and have disagreements. I am a new york republican. Apublican new jersey is not mississippi republican. Our state issues are so different. We are one team. We believe in Smaller Government constitutional government, our debt is too high. Buthilosophically agree, when you get down into the weeds, which happens on the Medicaid Expansion that derailed our Obamacare Repeal and replace, we will have some of those issues on tax form. We are all individually elected. We answer to our constituents. We are one team. When we get into the weeds, there are differences statebystate. That is not easy. Jonathan lets explore that. The difference between a new york republican in texas republican. When you are trying to pass emergency funding for sandy, many Texas Republicans did not want to pass that. Now we have a significant Natural Disaster in texas, how difficult will it be for the federal level to respond to that . I dont believe it will be a problem at all. There are nine of us new york republicans, and we have somewhat been pointing to that that ted cruz and company did not support us on Superstorm Sandy relief. We did get it done. We would never in the case of us new yorkers not support fema help for taxes. It has been devastating four texas. It has been devastating. We remember what they did, but they ar there will not be any retaliation. We are going to support this is all americans should. Jonathan what are your thoughts on the following, what is unfolding in houston, texas, many people in the government calling for more infrastructure. Thiss are saying the Road Administration is about to go down on deregulation is not a good one, specifically on things like Building Permits. Houston has been rapidly over the last decade. Is the message we need more infrastructure or that ultimately regulation is there for a reason and deregulation is something we should try carefully . Certainly what we saw happen in houston is a once in 200 year, if that, event. We believe in states rights. Each state does it differently. Houston has had Flooding Issues forever and ever. Important,des are but those are a statebystate, community by community, we cannot have federal government telling every city what to be getting. The nuances are different. I would not read too much into that other than our thoughts and prayers are with everyone in houston. Jonathan thank you for your time. For more on how the markets have reacted, we turn to alessio de longis of oppenheimerfunds. Treasury issuing 100 billion worth of funds today. Tomorrow we get the onemonth bill. It matters a little more now because of what happens when it matures in one month. How do you think the issuance is going to go . We think it is going to go fine. We think the debt ceiling will be raised and we will come to our senses and avoid this silly situation. There is a lot of issuance for the treasury market, but we have been on the bullish side of duration, treasuries for quite some time. When i was on your show some time ago, we were discussing how these setbacks in the current have occurred many times. Also because of the inability of congress to pass tax reform, so the unwinding of the election trade, that was a bearish rates trade, the morale of the market with the rest of the ability of congress to pass. We expect that to continue. In other words, the answer to your question on treasuries, we see plenty of demand. Inflation is low and rolling over. With Hurricane Harvey is not translating into a positive shock. It is difficult to see an environment where the treasury market will not be sustained by also theand, given lack of impetus from the Federal Reserve. We are talking one rate hike at best. We are not concerned about treasuries. Jonathan very little reporting. I love markets because the judgment of markets is so pure away from partisan politics. You have a congressman who says we have one team in government. Is it a market that believes that . I sympathize with your statement on that. We have the luxury of looking at the market and filtering information. The market is telling us there is nothing here. Nothing is going to happen. Even if we talk about health care, even if we are able to fix that, lets remember we have talked about this for the last year without border adjustment tax. That is clearly off the table. There is no way of funding any corporate or personal tax report. 20 ,e talking 15 , then down 27 , even if we were able to pass something, it seems to be an order of magnitude less and less material, less relevant. That is what the market seems to be telling us. Alix i was struck by an article on the bloomberg that finlands fund,t private pension you want that it is finland, but they are huge, they are reducing their equity 5 in the u. S. Part of that is because of President Trump. They said it seems as if there is no president in the u. S. If i look at what is the moral and practical power, there is no longer a traditional president. We learned in 2008 that what happens in the u. S. Matters in the rest of the world. In that respect there is not that on the markets. There is. That perspective is important. Equity bull market was this fiscal policy and Corporate Tax reform expectation. A lot of those trades have fallen out of bed. The treasury, the dollar, small capss large caps, that is all gone. Market globally has continued to rise, but in our view it is lifted by global growth, the rally and positive momentum in your he europe. We agree with the statement from finland. We are underweight u. S. Equities. We favor european equities. Our entire equity overrate overweight is coming from your. Europe. Jonathan i wonder if the message is to fade the faith in politicians, not just in the u. S. , but in france, too. Look at the polls in france. 80 of those polled believe there will be mass protest in france. That the government passing reform is a bad idea. 61 are against capping. He is going to find it hard to do anything in france. We just talked about the present of the u. S. Finding it hard to do anything here. If you are basing your trade on political reforms on either the United States or france, are you going to be disappointed . That is an excellent question. There is the additional example with abenomics. This is why we always focus on fundamentals. You have to focus on the private sector. Maybe i am biased by my entire career to a time where the role of people spending has been limited. Political really these political potential reforms create certain market shocks where you have to be aware of them. Think about abenomics. Equitiescted japanese dramatically for years. Eventually the private sector will be right. Jonathan always appreciate your time. Coming up on the program, former Federal Reserve vice chair will be here. From new york, you are watching bloomberg. [captioning made possible by Bloomberg Television] jonathan Hurricane Harvey hammers houston. Floodwaters overwhelms americas fourth largest city. Closing Refining Capacity. Chair yellen sidestep Monetary Policy in jackson hole. They have a message for politicians, defend inflation. Nd uber has picked a boss. From new york city good morning, good morning, youre watching bloomberg daybreak. David westin away today. To get you set up for the Market Action this monday morning and week ahead, futures little bit firmer, up almost. 1 after a solid week of gain. Theureo dead flat against the dollar. Did kiss a high we have not seen since january, 2015. In the treasury market today, bills and notes, did kiss a 13 worth coming into the market. Alix if we made it 131. 6, would it have made a difference . Alix i doubt it. Jonathan it gives you an idea how ridiculous the conversation s 132 today and he wants an extra 1. 6. Alix to pay off the interest for look at the empact on hurricane harvoin the markets. Heres what im looking at. Gatt lean futures up 5 . At one point it had its biggest rally ever. That contract sitting at a twoyear hy. Cotton getting a pofment texas is the largest u. S. Cotton producer. The last two are the spreads you want to pay attention. To the first of the crack spread, oil prices versus product prices. Thats up 15 . The higher it goes the tighter the Product Market could get. The last one will be w. T. I. Now off by about 5. If you wind up seeing more production versus the man thats going to weigh on wti a spread that could blow out more. An update on making headlines outside the business word. Taylor rigs is here. Taylor its being called a of epic proportion. Tropical storm harvey continues to better texas with records amounts of of rain. Areas could get 350 inches. Floodwaters continue to rise in parts of houston. Authorities told residents of the city it was safer to stay in place, now thousands are asking to be rescued. Harvey has crippled the core of the u. S. Energy industry. The storm has halted about 1 4 of oil and natural Gas Production in the gulf of mexico and more than 10 of the countrys Refining Capacity. The houston area produces 40 of u. S. Gasoline supply splies. The Texas Governor says Oil Companies were ready for the storm and will restart production when floodwaters recede. Meanwhile harvey has turned into an Economic Disaster for texas. Damages are likely to rise to the tense of billions of dollars. Literal estimates are that an unusually large share of victims dont have enough insurance. Less than 1 6 of the homes in houston area had federal flood coverage. That would leave more than one million homes in the area unprotected. And the federal Emergency Management agency expects to be in houston area for years. Fema administrator says there are about 5,000 federal government employ yooseo on site in texas and louisiana. Now there is pressure on congress to act quickly. The total of federal Disaster Relief budget is likely to fall short of what is needed for harvey alone. Global news 24 hours a day wered by more than 2,700 journalists and analysts in more than 120 countries, im taylor, this is bloomberg. Alix look at those pictures. With a life vest and almost drowning in the water . Its incredible. Jonathan slow burning crisis. It will continue. Absolute tragedy. Alix not over yet for them as well. The storm potentially picks up more speed. The fed and the e. C. B. May be heading towards the exits from their Monetary Policy, but the bank of japan is not going to follow. The governor says inflation there says is so far below the target the Central Bank Must maintain its policy for some time to come. He spoke to Bloomberg Television from jackson hole wyoming. In the u. S. And in europe, inflation rate actually close to their target. But in japan, inflation rate is sill 0. 5 . Far away from our 2 target. Theres some difference , europe and japan on the other hand. Rates are not rising so fast, that is true. Ut, prices are not rising re there is some kind of deflation in mindset. Others among leaders. In tend to be cautious raises prices. So what companies are doing is they are it heavy investing equipment and so on and so forth, also they are to ging the model so as reduce labor concept. By so doing this wage increase, it has not been rising. So they are not require to they are doing well. G. D. P. Growth up six quarters in a row. That hasnt happened in japan in years. Are you succeeding on growth. Maybe something has changed to the degree that does inflation matter so much . Japanese household if you got the growth . Two things. 4 growth is good. But i dont think 4 growth can be sustained. Globely around 2 growth we can attain this area. And even in the next fiscal year close to 2 . But 2 growth is somewhat unusual 4 growth is somewhat unusual i quite sure this 1. 5 to 2 growth can be sustained in coming years. Jonathan that was bapping of japan governor at jackson hole. This debate in japan you have a declining population, working age group that is diminishing, getting smaller, yet were talking about printing more money and buying more bonds. To e if you told that story a child in a classroom, what would they say back to you . Alix why . How will that help the population . Jonathan maybe he would say back that would help us escape this deplays flagse. Maybe his mindset maybe we could print people. Alix or open your borders to get more people in. Jonathan why a discussion about japan and never talk about immigration . Why is it such a taboo subject for japan . Its a population problem. Joining us from washington for more is alice rivlin. And alice, great to have you with us. Begin with you. Friday we were expecting some speeches. Maybe touch on Monetary Policy. We didnt get them. What we did get was a message for politicians potentially, a efense of post crisis from janet yellen. With that she has effectively signed her Resignation Letter because it puts her at odds with the president of the United States. What are your thoughts . My thoughts were that it was a really good speech and a really appropriate speech because nothing about Monetary Policy is really controversial at the moment. Both the fed and the e. C. B. Would like to get back to normal and theyll do it cautiously. But the question that janet yellen focused on is Financial Stability, which is the biggest threat, i think, biggest potential threat to u. S. Economy as we move forward. And mario drag hi did sort of the same thing draghi did sort of the same thing. He talked about other threats to a stable, growing World Economy, namely trade war. And breakdown of cooperation on regulatory affairs. Thought we had the two Major Central Bank authorities focusing on the right subjects. Jonathan its interesting you said there is nothing controversial happening in Monetary Policy. I think congress would point to an e. C. B. A Balance Sheet in the Federal Reserve of 4 trillion. I the Financial Stability gate debate, its a message if you start to deregulate the post crisis regulation, considering whats happening with Monetary Policy right now, were in for trouble. Dont they have a role to play here as well . I think they have a role to play. But i think they are right in emphasizing that deregulation, real threat in the United States, would be a big mistake. That doesnt mean we couldnt regulate more real threat in th United States, efficiently and maybe take some of the burden off small and little sized banks, but a wholesale rollback. Protections that we put in place would be crash of 2008 a terrible mistavenlgt i thought chairman yellen was really right n giving a thoughtful and well researched speech to support that. Ben . Did gary cohens goal of being the fed chair get brighter . Markets are just very focused on the lack of spess physicality on policy. Last week was a boost to markets. Ke a step back here, the surprise this year and wait you have made money in equities is not kernings have done anything. They have delivered on where expectations were. The surprise is the multiples have kept expanding. You have to go back to the 1980s to find a similar example of that. Very high ns are ere by historical standards. Alix when should Financial Stability trump low inflation . I dont think inflation is going to be a big threat for a long time. Its low but the United States, as the japanese governor pointed out, its respectably near the target antieconomy is growing well enough so that we can afford to get Interest Rates moving slowly back toward normal, which will also help with the Financial Stability problem. Jonathan talk about the Financial Stability problem. Out there s a resume and tick the two boxes that the president of the United States uld like from the future fed chair, you have to particular the following, i like low rates. Next one would be i like deregulation. Hair, you have to particular chair yellen only checks one of those two. For a lot of people shes out. Running for the next chair. The next case the next fed chair likes deregulation and starts to deconstruct the post crisis regulation, you say that will be a bad thing k we get specific what that will mean and how the dominos will fall . I dont know how the dominos are going to fall. I hope that we dont deregulate in a stupid way. Yellen was right to remind the Financial Community that we had a terrible catastrophe in 2008 nearly brought the World Economy to its knees very, very costly. We cant afford to take the risk of that again. And she was trying to counter, and i would agree with her, the voices that say, oh, that was a long time ago. And things are back to normal. And we can afford to deregulate and forget what happened in 2008. We cant. Jonathan there was also a message in there potentially not just for the president of the United States, but also for the c. E. O. Of jp morgan, she wrote in that speech she doesnt think the current Regulatory Regime has harmed lending. Other people disagree. Where do you stand on that . I think lendings held up quite well. As she pointed out mortgage standards are higher than they used to be. They should be. We dont need to go down a path of looser and looser lending standards. And we do have some pieces of the economy, auto loans, commercial lending, commercial property lending, that look rather as though they might be problematic. Alix to wrap up the conversation, bring it back to the markets, talking about deregulation, if you were buying financials and one of the katja lists was deregulation, can you still buy the banks with the catalyst in mind . I think you need to be cautious on financials. We also argued that deregular trade is not as much behind it as maybe people would like. And the rate curve. We think bond yields arent going very far from here. Financials have cleared it cheap. Those two katja lists are not going to come through as much as some people may think. Alix both of you are sticking with us. Coming up on wednesday, david estin will make a cameo. Jonathan david defendantin. What a way to spend your vacation. Alix david would totally do that. This is bloomberg. Im 100 confident leader mcconnell said the same thing last week. I think there is no scenario wrt be paying its bills. Alix treasury secretary mnuchin saying they will raise the debt ceiling. About about u the same the debt ceiling . I hope hes right. It would be really stupid to have another crisis with the debt ceiling. I think people know that. But its a little bit risky because we have this Freedom Caucus in the house of representatives that would like to use the debt ceiling as a weapon to cut spending and to do other things. I hope they think better of that ecause its unthinkable, i we should be even talking about possibly defaulting on the debt. Grown up countries dont do that. Alix the quote of the day, grown up countries dont do that. Ben, at the margin were seeing some concerns in the treasury market. You look at one month tbills, they are starting to rise. They would mature around the debt ceiling. Whats your base case . This is not just the debt ceiling. We also have to fund the company. All coming up in the next six weeks or so. You have some pretty major events which the market will have to digest. Naturally they are nervous and given where markets have got to, all this correction talk, i dont think we subscribe to that. We have a lot of events to get through. Jonathan the top of the program the treasury issued 132 billion in notes and bills today. Why are we having this argument down in d. C. About 1. 6 billion for a border wall . Its like a dip in the ocean. It is nothing. If that number today went from 132 to 133. 6 nobody would blink. Why has this conversation taken hold . If were talking about shutting down a government, suspending the debt, not having a debt ceiling, all that stuff, why is that happening over 1. 6 billion . I guess this is why im not a political strategist. The elements brinksmanship going on. We have a very heavy legislative agenda. A lot of moving parts here. We have been here before, of course. This is not a unique event. We have been here in previous administrations as well. Again, i go back to beating my drum here. Whats different this time is ere sitting on 19 times earnings. The reason is multiples are expanded. This clearly things to be worried. Alix alice . I would say we have not been never hade because we a president who was so unpredictable and so committed to a few promises that he made in the campaign, one of them was to build this border wall, which is very expensive and has a lot of other downsides and wouldnt do much good in my opinion, but he is very unpredictable. I wouldnt entirely rule out his closing down the government over border wall. Jonathan why is this unpredictable . This is very predictable. You make a Campaign Promise. You win. Then you try to push through the Campaign Promise. Why is that border wall. Jonathan unpredictable . Because sensible president s experienced president s know when to retreat on a promise. And we dont know that donald trump will retreat on promises that are very important to his small base. Jonathan its not just a small base. The election. Hes the president of the United States. Were seven months in. I guess whether you think its right or wrong thing to do, why is now the time to pull back on a Campaign Promise that ultimately helped get him elected . Because it was a Campaign Promise that made very little sense for the economy or for immigration. Building a very expensive wall there is not a sensible thing to do. Its an expenditure of money on a border that could be much better controlled electronically and other bayways and with less damage to the environment. There is very little enthusiasm in the congress, even the Republican Party, for building this wall. Jonathan alice rivlin, thank you very much for joining us. Ben, of hsbc you are sticking with us. Headlines from whole foods. I went to the supermarket on saturday, wont shame the store. Avocados, 4. 50. Alix there is an avocado shortage. Mexico thing. Jonathan whole foods issue. 4. 50 for an avocado. Alix you have definite issues at the regular groshe you are. If they cut the prices today, i went shopping for 300 for a week of groceries. When you have a kid, do you know how much those organic fruit bars are . Jonathan whole foods then . Coming up in the program. Charles schwab, global chief strategist will be joining us. Alix a new potential c. E. O. For er, expedia c. E. O. Khosrowshahi. Host this guy . What did he do at exspeeda . What can he do at uber . He was the c. E. O. At expedia for 12 years. Really catapulted them into the biggest travel company. I look at uber there are a lot of parallels. The same network effect. You are dealing with price conscious consumers. That skill aspect. There are a lot of parallels. Alix what will be the role . Hes still on the board. And the board has eight members. I think the first thing he may want to do is expand the board and bring in a little bit more diversity, add more people who have experience Running Companies over 1 billion in revenue and diversify. Jonathan in our research it did highlight the tension once again between the big man himself, travis, and benchmark. Can this guy resolve it . Is that tension going anywhere . Hes somebody who has navigated that at expedia. The whole parent structure with liberty. He definitely has that experience. Whether hes able to do it, time will tell. Alix the least offensive guy. Ill take you. Jonathan the make might justify thank you very much. Coming up, the banc of America Merrill lynch head of u. S. Short race strategy will join us later. In the markets, about one hour, four minutes away from the open. Futures are going pretty much nowhere. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. Jonathan from new york, youre watching bloomberg daybreak. Were about an hour away from the cash open. Futures are that little bit firmer. About. 1 and on the s p 500. After the biggest weekly gain on the s p since the middle of july last week. Decent gains. In europe a little softer on the stocks. Volume lighter given that london is on holiday today. That means the ftse 100 is closed. 132 billion worth of treasuries, bills, notes coming into the market today. Yields a little bit high other the 10year. 217. Story in the f. X. Market, a bit of dollar weakness eurodollar 119. 25. Hing high at headlines outside the business world. Taylor houston has never seen a storm like this and it may get worse. Continues orm harvey to pound southeastern texas. Some areas may get more than four feet of rain before the rain ends this week. Record flooding has turned highways into rivers. Harvey has crippled houstons Energy Industry which refines 40 of the nations gas leefpblet federal emergency Officials Say theyll be in the region for years to come. And the bodies of all 10 sailors missing in the u. S. S. John mccain accident have been recovered. They were found inside the destroyer which collided with an oil tanker off singapore last week. In london, british Prime Minister is under pressure on two fronts as brexit talks resume. E. U. Negotiators made her reveal her hand. Lay bour is pushing may to keep the u. K. In the e. U. Single market during the long ransition. This is bloomberg. Alix for more on that crippling storm in texas, were joined by bena. A Bloomberg New energy finance. Good to see you. Is the worst over . No. There is still a little bit more for houston which is the scary part of this. The way harvey is stalling over the gulf coast right now. Another 20 to 30 inches of rain potentially for houston today. As far as the Energy Markets are concerned, i know thats what everybody is asking about, about 36 of the gulf coast Refining Capacity, were talking about 1. 8 Million Barrels of oil per day being affected. As far as natural gas, about a quarter of the capacity down there being impacted. Jonathan we spoke earlier discussing the impact, it was separated into three different things, production, supply, the other was demand and what would happen to it in the next few months in the other was trade. What this would mean ultimately for trade. What does it mean currently . As far as trade goes, a lot of those ports along the gulf coast just completely locked in right now. Inaccessible. Completely inaccessible because of the flooding. Not only are we talking about oil and gas, but also agriculture, a lot of the grain exports that ship out of the Houston Ship Channel, that will be tough to get that out. Alix energy is different. Exports has been a key valve for natural gas and crude. Without that valve the build up in terms of supply could be tremendous. When do we start to see that taking place . Probably going to start around the end of this week. Then its going to be quite a few weeks while we see those effects. Alix part of the story is, the production is not going to come online as quickly as we thought s that true . Onshore production we start fairly quickly. The off shore is the problem. Is the narrative of the oversupply on the crude production side a little overdone . Thats true. The onshore stuff, i talked about this before, a lot of that infrastructure has been beefed up prior. The longterm sustained damage may not be so much t should be relatively quick to come back online. As far as the offshore assets jonathan whats the take away for the industry. We spoke to a congressman earlier about planning, deregulation. This is an area, city of houston, fourth biggest in the United States, that has grown so, so quickly over the last decade. When you think about the energy down there and the infrastructure, that has been built up rapidly. Shale over the last decade as well. Are they going to have to look at some of the Building Permits . The regulatory story down in texas after an event like this . Do they just consider it an event that only happens once in a generation, something you cant plan for . Its tough. The way the storm built itself up to a category four. Its not something you get every single day. Alix to your point, how can they . L. N. G. Is critical, and ferc, the Government Agency thats going to regulate it, is supposedly much more flexible in issuing the permits. Jonathan you know this as well as anybody. If they are going to carry on building things up down there, deregulatory story in d. C. , how much of a grip will that have on the story it involves in texas . Alix it depends how deep it winds up being. If you see a Material Impact in houston and texas because of it, that might be a game changer. Jonathan new energy finance. Meteorologist and guess analyst, appreciate the time. Thank you very much. For more were joined by bloombergs International Economics and policy correspondent michael mckey. Just walk us through the potential here for demand side story. What we have learned historically with events like this. The interesting thing is we dont want to minimize the impact on people. The interesting thing, we had a discussion in jackson hole with the bankers. This will be larger scale but the same thing that has happened in previous Natural Disasters. You have a shortterm dip. Then you end up with higher g. D. P. Than before because of the rebuilding acktifment i took a look at houston g. D. P. Pier. Here. You go back to Tropical Storm alice, the comparison everybody makes. It lingered over houston for a long period of time. They did have a bit of decline. Look at receipt aa and katrina rita and katrina in 2005 t grew maybe because a loft people moved from new orleans to houston. Hurricane iraq, very hard to separate that out from what happened rita and elsewhere aro country in 2008. The trend for houston has been higher and you cant seat hurricane impacts except for that back in 2001 of alslyson. This is some data from the dallas Federal Reserve about houston that might be a little bit of good news. A lot of rebuilding. You take a look at what has happened to construction in the huferte area. It has declined significantly over the last couple of years as oil prices have come back. This chart here shows construction employment all falling. There are construction workers available. That will be a bit of good news. In templets speed with which they are going to be able to rebuild. In general, its not something thats going to derail the fed or national economy. Alix do you agree, ben . Yes. Clearly going to be some disruption there. Talking texas. 10ish percent of u. S. Economy, theres some relevance t will probably push back some of this gdp recovery. Well get the second reading this week. That will validate this fairly robust macroexpansion we have coming through. The other point i wanted to pick up on, i think the broader point of whats going on in texas, just how vulnerable these commodities are on the supply side. Receive seen prices soaring. Were getting a reminder on the gasoline side how dramatic some of these supply disruptions can be. Some these markets are very tight and susceptible to these events. Alix my concern is this time it will be different f you look at the ports and what ports you have access to and which ones are shut. Two of the biggest ports in the u. S. Are shut after that. You can see how much is in houston. 250 ports. Thats a global trade issue, beb. Ben. If you have plastic that will be houston to asia thattomake your iphone that cant come back to the u. S. , how long does that need to be shut for . Well see what the impact s i would make a couple points. The global trade psych has rebounded here. Thats been a surprise to lot of people. Having been flat for five years the other thing is remember the panal canal got expanded slifplgt a lot of east coast ports spent a lot extra to expand them. Well see what difference thats made when we see how damage houston has been. Alix emailing back and forth on friday, its getting so big. Its going to be worse. Really bad. Thanks very much. And ben, hsbc, sticking with us. Coming up this week, ever core c. E. O. Mike swell and sold Goldman Sacks asset management. C. E. O. Mike theyll join us. Lots to get through this is bloomberg. Alix this is bloomberg daybreak, im taylor riggs. An interview with john rogers. And c. E. O. At 11 30 a. M. Eastern. This is bloomberg. Taylor this is your Bloomberg Business splash. South korea samsungs jay riley has appealed his prison term for bribery. He was convicted of bribing his way to greater control of the empire his family founded. It riley has brought down somethin koreas president. Amazon is quickly putting its stamp on whole foods. Hey spent its first day as wner of a brick and mortar prices. Ashing and thats your Bloomberg Business splash. Jonathan for more on the price cut at whole fooleds we bring p and in retail reporter matthew. Great to have you with us. Put it up on screen. The thing people care about. How much and how big. And i go to avocados that have gone from 2. The 79, to 1. 99. Lets name and shame them. I went to Morton Williams saturday, 4. 50 for an avocado. It gives you a sense of how crushed some of these guys are going to get when this goes and starts spreading. Im happy because my daughter goes through avocados like nobodys business. Its no surprise the cuts started in the produce aisle. Its the most important aisle for loot of retailers. Its the first thing you see when you walk in. People who buy produce spend as much as 50 more. Its no surprise you are seeing avocados, fuji apples as well, bananas down 38 . Not just in produce. Row terroristry chicken, if you are wondering what are we going to do for dinner, thats a good staple. Jonathan besides the rotisserie chicken, this shouldnt be a surprise. For some reason for the market last week not just the market. Jonathan it was taken as a surprise. Even media observers were friday amazon has started a price war. They didnt start a price war. They through an organic smart bomb into a price war. Now friday amazon has started a price its spending po whole foods where they should have been. Organic milk at 6. 50. That should be regrowing my hair. They have lowered that a buck. Regular milk is still the same at whole foods. They are not lowering the prices on everything. T t the stuff that will ge noticed. Alix their 365 brapped was already lower to begin with. Im looking at kroegert noticed. And premarket down 1 . Talk about the potential consolidation. We think consolidation will happen in grocery the same way it happened for the mall based retailers, apparel retailers, the ones that have been closing shops and going out of business. This is one of the first shots across the bough here. There are a lot of grocers who are perhaps getting by on margins that are unrealistic. We should see these are ones you you might not have heard of, in new york. Independent, mid prized ones around the country there will have to be consolidation. Were overstored in food retail just like apparel. Jonathan your margins my opportunity. Quite clearly there is a big margin at whole foods to drive down and get those cost cuts through. When we look at the story, what struck me, you and i have stalked about it before, how globally this story has spread t hasnt just hit the Retail Stocks here in the United States t hit the Retail Stocks over in europe. In the united kingdom. Why . You think why . Whole foods only has eight stores in the u. K. This is happening on a global sense here. Were talking about shops like marksman spencer. The u. K. Is on a bank who day. They are not working. Everyone is having a nice lunch avocado toast. The dutch retailer, most of their sales are in the u. S. With stop and shop and food lion. Alix bring in ben of hsbc. We talked about the Amazon Effect in retail. If you have adone effect in other industries, is this the disinflation, deflationary environment we have to deinto . So. Think rates are going to stay low for a very long time. And that has real implications for what you are antiway you own loan duration sectors which will benefit. The 10years down so far. Who would have thought that . Thats where were. Ose sectors who benefit from these low bond yields are the most jonathan i want to bring in banc of america, mark. Food prices in this country have been declining for about a year and a half. But a Federal Reserve, why does that necessarily have to be a bad thing . Why is that not a good thing . The they want to see inflation pick up. The fed cares the most about core inflation measures. They are comfortable looking through volatility and food and Energy Prices. So theyll probably initiative see news as you were describing about whole foods and amazon as being something they would probably look to ignore to some extent. But it cant be terribly reassuring when we already have five consecutive c. P. I. Misses. The fed is looking for any signs of continued price pressure to allow them to continue to try to raise Interest Rates. Alix if im going to save 100 at whole foods every week. Where am i spending it . Well, you should ideally be spending it on other services or other types of goods that would improve your daytoday life. We have not really seen as much passthrough in the past to actual consumption when you think about things like Oil Prices Moving lower and gas price declines that we saw last year. And i think thats a little bit of a puzzle for the fed. If youre not spending as much at whole foods or groceries, you should be consuming it elsewhere, but the fed needs to see that consumption materialize before they are going to have confidence that the economy is going to be resilient to this type of disruption on inflation. Jonathan im going to save even more because rates will stay low for so much longer, im going to save more. Isnt that a problem . Are they going to figure out, maybe, just maybe, low rates might be the problem and high rates could provide a solution . I think that argument cuts bothways. Certainly the fed is thinking about low rates. They are quite concerned about some type of financial imbalances that could be build interesting that. We know from the most recent fed minutes that there were a number of staffers who felt like valuations had moved from neutral to a bit high. Thats going to be a bit of a concern for the fed. They need low rates to stimulate the economy, but they are worried about financial imbalances. I do think that they would like to raise rates further if they could. But these low inflation misses and other amazonification of the economy has to give them pause. Alix talk about bubbles. Clearly were looking at avocados. Thats the takeway from todays show. Bloombergs matt boil, good to see you. Ben, hsbc. Mark cabana, both you guys are sticking with us f you have a bloomberg terminal, check out tv go. Click on our charts and graphics. Interact with us directly. Go on your terminal, check something out if you missed it. This is bloomberg. Jonathan no matter who is leading the Federal Reserve come february, policymakers wont stray from the path they have been laying out for months. They are putting money on that view with positions at least neutral if not bullish on the 14. 1 trillion treasury market. The interpretation of the future fed chair isnt necessarily always right, mark. We all thought that Larry Summers might be a bit of a hawk. Found out he might have been even more would it be correct exactly ple expect what they expect from yellen . If you are thinking about a potential chairon or chair yellen from a Monetary Policy perspective, the market view is similar. They think their natural bias dedevish. Bit more that the actual economy is making progress and not overly reliant on rules based Monetary Policy setting or some outdated rules which may not necessarily have the best predictive power. I think that the biggest difference between a potential chair cohen and continued chair yellen on the regulatory front. Gary has indicated his support for financial deregulation. And chair yellen is a bit more reticent to embrace that. Her jackson hole speech last week indicates she thinks only modest changes are necessary on the financial regulatory side. This is a bit at odds with one of President Trumps really strongest points in terms of what he wants to see out of the Financial Sector from his administration. A jonathan the conversation around deregulation in this country remind of conversations in europe around reforms. People said reforms and not say what ultimately needs to be done in these individual countries. The same with regulation in this contry. People say yes, deregulate. Or no, dont. Can the cifics, what Federal Reserve and chair cone o . Chair cohn do . What are the things they can tweak . We believe there is a fair amount the fed can ultimately do. Needs to be done in combination with the o. C. C. And fdic, still there is a lot of leeway that doddfrank gave to agencies, including those i just mentioned, to interpret things like the leverage ratio, the liquidity ratio, other stress testing regimes. And on that front, there is a fair amount that can be done without any type of congressionally mandated adjustments. So we think that that has the scope to really materially increase potential lending capacity and Balance Sheet in the u. S. And its there where we think that a potential chair cohn would be more supportive and likely try and work with other trump appointees at those other regulatory agencies to materially advance changes in capital and liquidity requirements. Alix earlier in the show you made a case against that. You cant bank on deregulation. Respond to mark. One, if you look at what the fed has been concerned about, increasingly concerned about valuation levels in equities. And the policy response to that is build buffers to any increasingly r sell off concerned about valuation levels in in the future. That would clearly be the in th future. That would clearly be the opposite to that. The fed doesnt have an awful lot of policy tools to deal with valuation levels at these levels if they really are around about t the other point i would make more broadly on regulation, its very difficult, the apregatt to see how that drives equity performance. Can you seat macrolevel, stock market level, its surprisingly difficult. More hawkish mario draghi survive if youre bullish on the european equities and it keeps growing higher . No. Think those two you cant do both. European corporates are the most globalized out there. We have argued for a long time its a bit of an overdone story a bogus story. I think you are seeing that right now. Also european corporates carry a lot of leverage. High bond yields is another head winner. Onathan maybe it wont be a counter chesapeake bay. Maybe theyll do an uber. Alix random person we never heard of. Schaap, next, charles chief global strategist will join this program. From new york as we counting down to the afternoon bell, you are watching bloomberg tv. Futures up about. 1 on the dow. And. 2 on the s p 500. Jon Hurricane Harvey hammers houston. President draghi and janet yellen they have a strong message for politicians. Defend postcrisis regulations. Heer is set to take has quite a few challenges, including persistent losses, a tarnished brand, and low employee morale. From new york city, good morning. Youre watching bloomberg daybreak. David westin is off today. Lets get you up to speed. Her, and 2 rom after a solid weekly gain last week. Story ofrket is the the year so far. It is a weaker dollar, currencies stronger against the greenback, including the euro, up by 1 at 1. 1935. Trading near a january high. Creeping higher by a single basis point at 2. 17 on the 10year. Lets get you some movers ahead of the open with alix steel. Alix you had gasoline at a two your high. And you have debbie t i plans widening. In the equity market, the effect is much more muted. Valero, up 1 premarket. Overall, about 15 of Refining Capacity shut down at goldman sachs. That is 3 Million Barrels of Refining Capacity per day. Valero has been shutting a lot of refineries as well. The question percolating is, sure, your product might get a lot of money for it, but will there be demand, not only from domestic, but will they be able to export to International Demand gag of the big question mark for these refiners. Magellan midstream, candor morgan, this is a oneweek chart. They all got a pop last week. Some pipelines are shut, and there are questions of what are the longterm repairs looking like for the pipeline operators . If you have more oil and natural gas, you cannot get them out to the post, what happens . Could the differentials also continue to widen . It is not just oil and natural gas you have to watch out for. It is also chemical prices. This is a oneweek chart of chemical suppliers. You have eastman, dow chemical those got a nice pop last week. Of u. S. Ethylene capacity. That is the stuff that makes lasting. That is shut down from houston. There are questions of restart up costs. You also have chlorine, caustic soda. That has been hit. That makes vinyl. It is then made into an iphone and shipped back to the u. S. A lot of interesting supply chains, not just about oil and gas. Jonathan southern texas floodwaters, overwhelming as Tropical Storm harvey leaves unprecedented levels of rainfall, crippling the core of the u. S. Energy industry. Vincent piazza is in new york. And roger reed, wells fargo senior analyst. Lets begin with you, roger. I want to talk about two things production and the trading of some of these products given what is happening with support and the infrastructure in texas. Talk to us on the ground as to what you are seeing with the likely shut down and the potential for serious supply reduction going forward. Roger thanks, jon. Real quick, if you think about houston, the flooding is very extensive. Most of a is more freshwater than a saltwater issue. So youre looking at longterm damage for most of the facilities. The area around Corpus Christi came through without too much extensive damage. But people cannot access much of anything around town. Today and likely through tomorrow. That caused some of the shutdowns and curtailments, and how quickly the industry can recover from that is still a question mark. We do not know if core facilities, including the ship channel, had any damage to them. Until the water precedes, you will not know what damage they receive. I think that is really what we will have to watch in terms of other than the immediate implications in terms of shutdowns. Jon you are looking at the shutdown story, versus the medium to longterm story. Walk us through it. Events like this usually promote a kneejerk reaction. It is fortuitous, when this storm hit we are past the peak summer demand. We are approaching seasonal maintenance for the refineries in september and in october. Demand would have been lower going into this period. Across the Petroleum Value chain, we are fairly well supplied. I do not think that the longerterm impacts will be as profound. We still need to see the damage to the infrastructure. Crude oil levels along the gulf are 24 above the fiveyear normal. Gasoline is approaching 11 above the fiveyear norm. We are fairly well surprised fairly well supplied if we have ofong toe a long periodd outages. If you look back historically, it has been a wild since the last major hurricane hit the gulf coast. But the prior times, outages were a week to multiple weeks, and then you get a positive result or response from the refining equities. We saw some of that occurring at , and weof last week think with the crack spreads having reacted so strongly, we will see more of that in the first part of this week. I would not say i mostly agree. It is more of a shortterm than a longterm change, but it is a significant earnings in terms of cash flow impact with most of the refiners, and that should not be ignored. Alix which ones are most exposed . What do you want to look at more closely . Roger the historical record does not give you much differentiation, but the companies that avoid the worst of the Immediate Impact you would want to think midcon refiners. That is like endeavor. You would also want to consider companies that have gulf coast exposure but have avoided the direct impact. Impact isr another example of that. And then valero is pretty wellpositioned. Alix thanks for giving that perspective. Incent piazza and roger read thank you for joining us. The question is, what is the impact on the broader economy. Typically the rhetoric is, yes, it is a shortterm issue. However, the fact that there are so many ports in houston could make a difference. 250 ports are now shut. Jeff one child joins us. Jeff, is this Jeff Weintraub joins us. Willis making eggs will this make a Significant Impact on the economy . Seen lingeringot economic impact. Sure, a Monthly Economic data point might be impacted. Everybody will be watching that. End of theat the Hurricane Season yet. There could be more to come. It is still expected to be an above average atlantic Hurricane Season, and i could mean prolonged shutdowns of ports not just along the gulf but along the east coast, too. At this point,ly even given the devastating impact to those to those parts of texas. Unlike the lingering impact in terms of infrastructure economically. Jonathan lets talk more specifically about the energy sector. Conversation about supply disruption. Lets talk about demand disruption. What does this mean for the demand side of the picture, in the short term at least . Jeff there could be an impact in the areas affected. But the longerterm story is about asia, not so much u. S. Demand and we are seeing an incredible growth in demand, particularly out of china. The auto sales pace in china is double that of the u. S. I do not mean the growth rate. That is really the longerterm demand story. What is not going away that is one of the reasons the international Energy Industry is it is all about asian demand. Alix in terms of domestic demand, Consumer Spending has held up the economy here. When you see a record jump in gasoline prices earlier today, how does that impact what consumers will buy . Big decline inat Energy Prices in late 2014, and everyone thought watch out for an amazing Holiday Shopping season. And it did not happen. People simply did not spend the savings they saw in the pump. They did not turn the savings into sweaters and anything else. We have not seen the flipside of oil prices as they came back, the spending pullback either. Shoppers need to look at these transitory prices in a way they did not in the past. Jon jeff kleintop, you are sticking with us. Thank you very much. Coming up this week, what a lineup of guests. A huge lineup. Mike will be talking about global fixed income. Ceo of jpmorgan asset management. Alix an attempt by uber to make the road a little less bumpy. Expedia past derek will be succeeding the previous chief executive. Battles have persisted following him leaving in june after investor benchmarks escalated tensions last week. The suit was designed by approximately 40 of the voting power of uber. This is according to benchmarks filing. A Bloomberg Technology reporter joins us. What is the state of uber that we have the new ceo potentially walking into . The new ceo comes from apedia, walks in at tumultuous time, also a time of great opportunity. Their new frontier is open to it as well. Not only people moving around cities, but it wants to do that, has started to do that. This is a company lets not forget, a 70 billion valuation. They are working on new areas like self driving, self driving taxis seeming to be an inevitability. They have to get out of their own way. Alix fair. They also bleed cash. What can the new ceo due to potentially fix that . Shortage of been no reports, no shortage of unfolding drama at this company. Eclipsing two of the candidates taking over before meg whitman, who had divisive, another tumultuous company. Problemsbeen riven by for the better part of the last year. There are lawsuits between its ceo,ous investor and its accusations of sexual harassment, which led to a fullfledged report. They have all kinds of problems still around the world with Regulatory Regimes and their drivers. To then before we get ipo, you have to do with that. Many people have said one of the huge pieces of these companies with massive valuations it is going to go public. What timeline can we expect from when uber will it eventually . Inevitable is when will it eventually become public . with the caveat that i am not an expert on ubers pipeline plans, i do have good insight into the way that autonomous driving, the way the technology and the smartphones are remaking, overhauling the automotive industry, uber is set to play a role there. This is a company it has this massive valuation already. They do not need the money, but they are raising more money for strategic reasons. Bloomberg news has reported uber is considering raising as much as 12 billion. That could bring in new investors like softbank and china city. Interests in Southeast Asia and india. Those would be new frontiers. There is a lot of opportunity here, but the lord and the company has but the board and the company has been famously divisive. Jonathan thank you very much joining us from boston is jeff kleintop. Jeff, we had a brief conversation about uber and how much money they bleed. Something you have looked at is the expectation that the s p 500 company they will be making more and more money at least in terms of estimates. We are looking at the earnings estimates. Told in rise for previous times . Why is this time different . Jeff 30 has been a Glass Ceiling for earnings in global companies. They hit it back in 2008. It fell in 2011, then three years later in 2014, and again in 2017 hurting hitting that 30 threshold. This time i think we are going to break through. We have seen the strongest Global Economic growth in the early decades of this margin. Emerging markets are turning around from the lows over the last 10 years. Finally, a breakthrough with this 30 level. More important than ever, even though valuations are at a 15year high. Where are the earnings going to come from, and when will we see topline growth . Jeff global trade is picking up at the fastest pace in a decade. This is important since protectionism this year, so many thought it would crush the projections. So much is tied to global trade. Of profitsn 2 3 driven by crossborder sales, so it is really important. That trend remains intact. I am encouraged by what i have seen. It is stronger in the developed and the developing worlds as well. Are not going to shoot the lights out. It is not a big doubledigit earnings scheme, but modest, steady improvement is going to get us there. You on the downside come could argue that corporate profits have turned negative. Those companies that beat out earnings did not get rewarded the way they have in the past, and there is less correlation that broader drivers are being shrugged off. What do you say to that . Jeff not all of that is necessarily bad news. In the longer term, earnings viability is kind of an environment that generally is of more positive global growth, but it is still below average. In the u. S. Profit margins in the u. S. , Profit Margins are at cycle highs. That is not true in europe. They are at lows. Take a look at what spain has been doing. That is coming back in a significant way. It could be a leadership area as we see profits moving above the 30 threshold. Alix jeff, you are fired up. Coming up, what coming up, david westin will be back with an interview with warren buffett, talking about how fired up he may be. This is bloomberg. Alix fed officials are grappling with a recent state of inflation readings from an economy that other lies that otherwise looks healthy. Joining us for more, Michael Mckee, Bloomberg News international and economics policy correspondent. And charles schwab, chief global strategist mike, what was the headline . Mike the headline is there are a lot of columns in the world the Central Banks cannot deal with. On their policies, they have done as much as they can and it is time to back off. Alix so is that ponting to fiscal yet so is that punting to fiscal . Mike it is. We still face problems with protectionism, with people trying to roll back regulations. Jonathan is that the symbolism here that we had at jackson hole that was not about Monetary Policy . Chair yellen and mario draghi, their work is done . Jeff it means they have a struggle getting back to normal. Thellenge sure challenge for chair yellen, inflation is not putting any pressure on them to move quickly. At the same time, Economic Growth is suggesting the u. S. Economy needs a degree of stimulus. So they have the ability to normalize things and watch where it goes. Same thing in europe. Mario draghi has the ability to taper beginning next year and sees what happens. This allows normalization of rates ahead of the next global recession, which is probably two or three years away. They need ammunition. Of post the suspense regulation i wonder whether they know. They have created such a big distortion in financial markets. For them, to really unwind things in what they might consider a safe, practical way, you need to make sure the regulations are in place. Otherwise this could get out of control. Jeff it certainly is a huge risk. Getting into this was the easy part. How do you unwind all this recordbreaking stimulus in so many ways . Quantitative easing in much of the world we do not know where the problems are. That is why it is so important they go slow as they wind down the Balance Sheets. But what if they cannot go slow . What if they pull back stimulus more quickly on surprise action on fiscal policy . I am sure where that go. That theytential risk had to unwind this quickly. Alix Financial Stability might outweigh any weaker inflation. Janet yellen did not echo that. But then we go to amazon today, cutting prices at whole foods by 50 . Is that good or bad . How does the fed look at Something Like that. Mike the general feeling is this is kind of what we have been seeing, and it is a small part of the overall price dynamic. But it is going to continue. People are looking for lower prices. His 2 reasonable . Is the inflation dynamic we have looked at for many years still in place . Those are questions central bankers will debate for some time. Jonathan i wonder on the demand side of the equation, we will continue to see low inflation as a demandside problem. Why the acca mike why . Mike what has changed his hidden dynamics, so they will stay what they had they will stay with what they have while they figure out what is going on. When you talk to central bankers, they say we have several explanations for parts of it but cannot come up with a unified theory for why inflation does not respond. Jonathan we know what is happening and we have several explanations for it. Alix but that is all we have got for now. Mike what is really behind it . Alix and that is their job. That is why they get paid the big bucks. Jonathan Michael Mckee, thank you. On bloomberg l daybreak, just around the corner. Weekent session, a decent last week. The biggest weekly gain since the middle of july it will those gains continue . That is next. You are watching bloomberg tv. 27 seconds away from the opening bell. Dow. Down on the following a week of gains and a decent close on friday. A sizable week considering we have not even talked about payrolls yet. I of that, huge amount of sury yields a little bit higher on the tenure. Weaker. Ar about a third of 1 . 5 seconds in equities are little bit firmer. Be and biotech will that is helping their. You have to understand volume is pretty light. Stocks, i want to take a look at what the insurers were doing. Stocks in the red today. Progressive will be the most damage over houston. Remember, these are preliminary estimates. Katrina estimates were 10 billion and the reality was 70 billion. Lets take a look at the underlying earnings. The blue bars are small earnings. You can see what has happened last quarter. For small caps, they were down by over 2 . Have under linda tash how much more downside could we see or forget it, what is the potential upside . Bloomberg us now, stock reporter. Earlier this year, even look at that story and ultimately what we could or cannot get. Ring so. T slightly agenda coming out of fairlymp administration stalled. Theres a big valuation difference and if you look at the sector breakdown, i think it is important if you look between the two. I think overall, that has been the trepidation during the small space. We finally got a reprieve from that. I think that might have been a to someore returned degrees of risk that we saw within the market. One, lenders are financially there are some companies that could get a boost of that as well. However, once again when you think about the stocks if indeed you want to try and leverage the high return, small caps are your return. What do you not what you have that now . It looks like that seems to be soft. Gete were number who might looked at. What about automakers and maybe reconsider that . Agreements are fairly joined now. You can dismiss a lot of those concerns. That has been the big shift here. Most of the other areas seem to be early new. Take a look at potential growth for the u. S. , what do you base it on . At think it is more of the same. This time a little more better support coming from business spending. It is growing at the best case we have seen in a while. Sales declined even as earnings were growing. Businesses arlene best and capacity. This is not a 3 number were talking about. A below average growth, but stable. Up. Want to wrap things we talked about evaluation between big caps and small caps. Ar technology, that is diverse space. What are your thoughts on the next at the moment . The tech sector is above average in terms of valuation, but i dont think it is particularly expensive. Some areas are benefiting from the disruption. Some are not. I think you have to look at the business spending side. It has been about the consumer for so long. I think we are seeing better growth on some of the more attractively valued business side. 12 terms to amazon quickly. Whole foods byat as much as 50 . Tony, bloomberg reporter jenny timeey have not listed any talking about the scale of the price cuts. They have not wasted any time. This is the first day that amazon is officially the owner of whole foods and have cut prices by as much as 42 including organic avocados, lettuce baby kale, baby , all sorts of things that people expect from whole foods and prices are down a significant amount. Prices down a significant amount. Ink many people why has this cop as such a surprise to the industry . The think this pushes Grocery Price wars to a new level. Grocery were industries ever isen fighting and this taking back to the organic space. Typically, organic is more expensive. People will pay more for. Amazon cutting prices on organic bombcts is throwing a new into the grocery war. This is what amazon does. It is not totally out of the picture of what you saw what happened. You look at kroger and it cap killed after a whole foods and amazon deal. It happens when there is such disruptive movement. People have to figure out what prices their products can go towards. Margins have gotten to a point where they are pretty much very rethink if they have to what is going on the top line, maybe it makes more sense to competitors. One is the community saying about where prices will be . Generally, there is a lot of a list in terms of expectations. It makes an interesting case on why you want to pay had evaluation for Companies Like amazon. Amazon reshapes an entire industry. I think a lot of people knew this was an industry ripe for disruption. An example was how much the u. K. Fell last week and some of the big retailers already have had a you value a Company Whose basis crosses over industries . People that look at companies and look at valuations, lets not get ahead of ourselves. Two ounces foreign, you see with the corporate world by his are in work around that. Break to have you with us. Sticking with this. Features were firm and stocks are two. Too. The gains continue in the United States. Good morning. You are watching bloomberg tv. This is bloomberg daybreak. Coming up, and interview with john rogers. This is bloomberg. Preliminary estimates have Hurricane Harvey losses expecting to top 2 million and renal estimates will be front and center. On the flipside, you half hoped is home depots and lows usually visit by hurricanes and you have to rebuild and today is no exception. Talk about home depot and lowes. How much upside can they get from rebuilding . Near 9 to 10 exposure. They prepared in advance. Broader infrastructure, they can also benefit from that as well with industrial companies. In terms of broader retail, alsoems like there is how do you get your product back . Cantship cotton out, you get it through the port. Right come you have that and the situations on the roads. I dont know how long it will take for them to clear that out and make it passable. As you mentioned, it was a key. Acktoschool theas prices go up, how consumer is affected. Obviously, not everyone will be in dire straits. Stores t damage inventory is not something that is perishable. It could be resold. Anything perishable, that is an issue. When you take a look at the retail sector, where the warning . Igns for those stocks we are at full employment in the u. S. Growth it improves job along with rising wages. This curve as implement goes down, ray worried wages go up, we have not seen that yet. Without faster wage growth, it is hard to see more spending on the consumer side. Sword. Is a doubleedged wages are a good thing or bad thing for some of the kinds. On the flipside, if you dont wages to, how political we had july retail inventories down. We got that data today. I feel like it was supposed to come in the Second Quarter and it didnt. Wendy see that cycle happening . Tighter inare being somargins because either they dont run out and lose sales or have to discount. We were downap up something im still grappling with is why many of eitheresults were jefferson for the upside or downside. For the upside, many of those stocks had a high interest. On the other side, when you see the stocks dropping, it is like what is the longterm . Happen. T is going to forward looking. Dillards like 20 down. Thank you very much. If you have a bloomberg terminal, check out tv. You can click through and ask a question. This isber heard bloomberg. This weekend, millions of fans watched Floyd Mayweather fight Conor Mcgregor. 500. Get 250r is slated to million from the fight and Conor Mcgregor 30 million. It and how did mgm do . First off, i think everyone from the tv viewers and partygoers, the sports books were happy. That couldituation have come out of this, nothing really came out. We think mgm and caesar where the biggest. They had a close circuit watching network meaning if you are at another bar, you were not able to watch unless you are at an mgm property. We think they generated 10 and 20between million at had mentioned, it is important in terms of hotel rates, food and beverage revenue. Their exciting event and im sure mgm with was pleased with the outcome. I have to tell you i was watching project runway. I think the two biggest winners were floyd and connor, given the money they earned. Floyd is retired. Who is next . Who is going to be the Star Attraction for the years to come . In the boxing world, that is probably tough to entertain. Theres going to be an nhl hockey team in las vegas , so i thinkoctober that is really the new event. Games. L have 40 home people coming to the city to watch the home team. That should be something that is showcased in addition to sports, and different concerts and festivals are moving towards las vegas mainly because theres 150,000 rooms on the strip for people to stay. And odyssey, i used to box when i was younger some knowledge of said. Thanks so much. Street journal reporting appleber 12 will be when as the new iphone. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. It is 10 00 a. M. In new york, 10 00 p. M. In hong kong. Mark welcome to bloomberg markets. Vonnie here are the top stories we are covering. Massive flooding paralyzes houston. The nations fourthlargest city and heart of the energy sector. How much damage Tropical Storm harvey could do. It shows no signs of leaving. Jackson hole is in the books. The dollar is lower. How low the greenback may fall. The key meeting including the august job data. In company news, uber has a new ceo. The expedia ceo is about to take over. Can he steal steered coming clear of its recent holes . All those answers in the next two