Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170912

Euro stocks have the longest winning streak. Old, flat on the day. The brent spread, could that blowout . There are rumors of a deal extension for more than three months. The morning brief, Goldman Sachs is going to lay out its plan to turn around the performance in its core bond trading unit. We get data for the month of july. At 1 00, the u. S. Treasury will sell 10 year notes. At 1 00, apple will launch a new iphone. That is coming up. The United Nations Security Council imposed sanctions on north korea as part of an effort to get the nation to stop its quests to develop Nuclear Weapons. Joining us now, marty shanker. The sanctions, but they watered them down. It is significant china and russia went along, but there are implications russia is helping china smuggled goods into north korea. There is no sign the sanctions are effective. Is there anybody who believes these sanctions will stop north korea . No. I dont think anyone is naive enough to think north korea will say we have had enough, we are going to stop our nuclear ambitions. Things get tight enough they seek a back Channel Communication as a prelude to talks. David in the meantime, it is tax reform. Tohe has planned a campaign promote tax reform. There is no tax plan. Getting them to support the broad themes will be helpful, but it is not clear what will be in the plan. Alix who is he talking to . He is trying to talk to disenchanted voters. Reality, who is he talking to . Democratic senators up for reelection who may feel threatened by republican challengers and who they think trump might help if they go with tax reform. Not part ofo are the tax reform process in congress will not go along with a republican plan unless they are part of the process. David is he going to try to go bipartisan or do it through the reconciliation process . He decided, in order to get something done, he was going to cut a deal with democrats. It is up to the gop to come up with a plan he can support. Jon a great to see you. Risk extended to a second day. The s p 500 index coming off the biggest jump. The yield on 10 year treasuries climbed past 2. 15. Eddie perkins. Are we back to the goldilocks kind of situation where we are stable and ok . It feels that way. Irma is a little better than people feared. The absence of bad news is enough to take stocks higher. Everyone is waiting for the proverbial pullback and it does not want to come. Korea, the risk has faded for about five minutes. Wait for north korea to respond. Is this something we have to live with . In the absence of something horrible happening, the passage of time, the lack of news being as bad as one might fear coming out of that part of the world is enough to keep the market grinding along. Fear is not enough to take the market down. You need a specific event and we have not had that. What point do they start to roll over where we need tax reform to have an these move higher . The Energy Sector is weak. That is the next leg higher. I think tax reform is important. I dont think it is priced in. I do not think tax reform is priced in. You see stocks have underperformed this year. It would take the market higher. In absence of tax reform would not be enough to take the market down. Alix have you been getting the notes . What is your call . Financials are looking more interesting than they did at the beginning of the year. Everyone wanted to own the banks postelection. Rates have come in since then. There is a Egg Financial Services conference going on this week. I have been attending this conference. It is well attended. Investors are sniffing around, looking for stocks to buy. Financials is an area where there is some value. David you talked about the cycle and where we are in it. Record highs, but it is about sentiment and fundamentals. We are late in the cycle. Valuations are generally rich. More domestic facing companies, they are a place to look for value. When you are into a bull market, it is hard to make the case things are cheap. We need the tax reform. We need the economy to show signs of health. At some point, we well have pullback. To, it is could point already priced in. With aons combined negative event would be the thing to worry about. Jon where the biggest opportunity . Ultimately, if you did not put a risk on the table, you lost out big time this year. In the u. S. And europe, you want to be more domestically oriented. With a strong euro, that will weigh on earnings for export Oriented Companies in europe. You want to move away from those stocks. Domestically oriented. In the u. S. , you want to be domestically oriented. Some of the more smaller cap comp and these that benefit from the u. S. Economy. You want to bet on Domestic Companies in the u. S. And europe. Alix coming up, i will be speaking with Harvey Schwartz. Running from his presentation to our office. This is bloomberg. Alix it is finally here, apples Product Launches a few hours away. Temp could will unveil three new models today. Today, one a Premium Model. Expected toes are include 3d facial recognition, and improved camera and a virtual home button. Joining us with more, tom giles. Talk to us about what we dont know. Thanks to mark and alex webb, there is not a lot we dont already know. The premium one is the one to keep an eye on. You will see a new design, they do away with those bezels around the edges. You will see facial recognition. Touchre doing away with id, the home button. There will be a virtual bar to navigate around. Of the most important things, the screen will be crisper. Textingding, more without having to scroll through it. A crisper display. Alix the replacement cycle will go long. People will not buy a new iphone for the home screen. The decision to market and likely comesice from necessity. Apple needs to continue showing growth in order to maintain its lofty valuation. Increasing prices is the only way to do that. With cooksed mastery is increasingly boring and harder to buy into. X. Hence the name iphone will they call it x or 10 . Who knows . We will find out. Price is a psychological barrier for a lot of consumers. When you go buy a phone, they never tell you it will cost you 800, 900, 1050. To the average consumer, you are thinking of it as a monthly installment plan. You would never buy a lab top pewter and think of it as an installment plan. Brilliant ine marketing this, never telling you what the exact price is. John says they are leaving money on the table. They are expensive phones. Not a lot ofis money for those who value their smart phones. When you pay that monthly bill, you are also paying for the line, the data, which seems to creep up every month. I am paying multiple hundreds of dollars for my family plan. Applestwo thirds of revenue. They have been trying to diversify away from the phone. The dependence remains. The most valuable company in the world oils down to one device. David you wont have to have the iphone with the watch. Ed. D. , look at this chart. It shows apple versus s p tech set her versus the broad index. Apple outperforms. Launch andnt is this the apple stock reaction . We have seen apple do very well. A lot of the good news is in the price. We dont know the particulars about the phone yet. We see this every time apple has a new phone launch. There is a strong reaction to the stock price. Is not a stock i would be looking to put fresh money into. The tech there, particularly the multinationals are a rich part of the market, a place where i would be taking profits to less exoticose into business. David the iphone 6, the stock price went down. Within two months, it went up 11 . Longterm, it returned a lot of value to the company. I dont recall what the starting point was a year prior, up youre is 40 plus today. It may be a different experience this time around. Dependent on the phone, they have to constantly reinvent themselves. It is not a place i would put fresh money. David i wonder about the strategic decision. We are talking about developed countries, people with money. Is this a strategic decision for them to say we are not going to compete on price . They are tilting towards there. A lower and phone coming out. It is not all four above 1000. Competition in china has been intense. You are seeing new competition in the market putting heat on them in their potentially secondbiggest market. David thank you for joining us. Eddie will be staying with us. Live from new york, this is bloomberg. John says can head over to the frankfurt auto show. By withler is standing a special guest. Matt i am here with klaus zellmer. It has been a fascinating show. Everyone wants to make hybrids of their products. You have two hybrids. How important is this to you in the u. S. Market . Klaus when we have battery electric vehicles, we started with that some time ago. Cayenne, we sell about 13 hybrid version of the car. It is a strong selling model. Matt do you notice places with more infrastructure get more hybrid vehicles sold . Urban environments, we sell more hybrids. They have the ability to plug the car in, more so at home. The hybrids, if you take our , wet hybrid cayenne doubled sales. We see a Strong Demand for that. Matt you introduced the turbo here today. What are your expectations for sales . Klaus we are working on it. Launched hereg will premiere in frankfurt. We expect that, that part of our brand people love the most. It is powerful, lighter than its predecessor, lower, faster, a bit wider. That is what we need to do with the cayenne. We want to develop to deliver a sports car in every segment. Sales the muck on the macon sales eating away the cayenne sales . They coexist. They work well together. We dont see many people change from macan and cayenne, and we like that. Matt i have to ask you about the hurricane. How are your dealerships faring and what do you expect it to what kind of impact do you expected it to have on your sales . With our dealers, most of them are ok. I have not touched base with the one in tampa. Morning in the states. I am going to do that after the interview and let cross our fingers they are ok. Matt one of the cars they are , the to sell is the gt3 blue one behind you. Asking toof customers go back to the purity of stick shift . Yes, people are going back to being more engaged with the car. Yourself,the shifting it is slower, less efficient, but more engaging. Gt3 is in the back, the a bit like a wolf in a sheepskin. It has 500 horsepower that takes you quite far. By 20 30, all of the models under the volkswagen umbrella will have some kind of electrification. That must include the 911. Are there plans for an electric 911 . Boxster, cayman, they qualify for a lecture tatian as well. We are working on potential product they qualify for electrification as well. We are working on potential products. Matt thank you for your time. Porsche,lmer, head of north america. Bloombergs matt miller, good to see you. Thank you. Up, discussing apples biggest event in years. Stay with bloomberg for live coverage of the event. That is at 1 00 p. M. Eastern time. We are up about one third of 1 . Futures on the s p 500, five point. You are watching bloomberg tv. Jonathan from new york, for art viewers worldwide, futures positive up on the doubt on the dow. The story elsewhere as follows downu get to the fx market 1. 9 . Sterling pushing to a oneyear high, the treasury market yields high by two basis points ahead of some supply and who saw the and ing stan the prospectus a map of where tajikistan, if you need a map to know where the country is, dont buy the debt. You dont know where the money is going . Alix you call me a nerd when it comes to oil and copper, come on now. All is well in the bond market . Are tooels like yields low and people have been saying that for a long time, we will see what rings it to an end jonathan here is taylor riggs. Taylor florida assessing the damage caused by earning a caused by irma. Record flooding in jacksonville. The people who rode out the storm there may have to be evacuated. The storm wasnt as devastated as feared and governor rick scott said there would be a lot more destruction. More sanctions on north korea, the new penalties dont go as far as the u. S. Wanted. Dropped whicho is cleared the way for russia and china to back the new sanctions. North korea says it rejects the sanctions and the u. S. Will suffer. Consumer inflation rose more than expected last month to a fouryear high. Biggest rise in clothing prices in decades. The bank of england is grappling with price growth above its 2 target. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Jonathan thank you. Those Inflation Numbers and boosting sterling to a eurosterling dropping below 90 pence. What does it mean for bank of england . Well hear from the bank this thursday. Is rich andive around the table is eddie a kind of get it, but i dont. Handle. N has a are they going to say we need to think about rates and Interest Rates . In the past the bank of england has looked to high inflation and all indications are for the time being they will continue to do so. It is getting to the level where if the at inflation gets to 3 mark carney has to ride a letter dust has to write a letter to the chancellor. It may be something psychologically that market which is offense are looking at, but realistic we you have a negative real wage growth in the u. K. And until that dynamic shifts, i dont think we will see the bank of england hiking rates, because they are concerned about the inflation rising but not for the right reasons. Jonathan a twopart story this week, the second act comes from the labor market. Defining 2017 for the ok . Richard i dont think it will change imminently. A reading on wages below inflation, inflationadjusted wages are contracting in the u. K. There are expectations that this might change over time, bart right now it is not looking likely in the near term. Alix ive been reading about the fact we will have more dissenters now, if you dont they will have to amp up turkish rhetoric, talk about the details. Richard i think we will get a seventwo boat this time. We may get an extra dissenter, a 63 vote, but i think youre right the bank might want to push back on pricing expectations, because there is so much priced into the Interest Rate curve they talk hawkish lay without voting for a rate hike this round. David is there anything going on in parliament that is helping or hurting . Richard i think Political Uncertainty in general is something that is a drag on the u. K. Economy. It depends on brexit negotiations and how they unfold, but so far there hasnt been a lot to give the economy a boost your it unlesss change i think it will be a lingering issue and sideline the bank as they look ahead and see uncertainty. David right after brexit was voted on they stepped up and try to help the economy in an important way, do they still feel that responsibility . Is this Atlas Holding up the sky . Richard im not sure id put it that way, but i do think the bank feels a certain responsibility. Makinglation picture is their job a lot more complicated, but i think in the title analysis the bank is looking at negative real wages in the u. K. , the weakness of sterling as a defective as a defect of tax on consumers. I think they will take a conservative approach. Jonathan i would expect that from an emergency market centralbank to firm up the fx market, but youre worried about growth at the same time. Is this an emerging Market Central Bank now . It is certainly youre not the first person who has said that. It is exhibiting some of those characteristics, but realistically brexit is a big game changer and the macroeconomic backdrop will change necessarily because of brexit. I dont think any economist, any forecaster and say what they think will happen. I think it makes the banks job considerably more difficult and it is really difficult for a centralbank to do something to negate its currencys weakness. The bank of england will fight that battle as well. If i told you 12 months ago that actually for the markets to be rude used to sterling crosses and print much nothing else, what would you have said to me . I wouldve been surprised. We think of something we think of the inflation is something that goes with a strong a economy. You have a weaker currency, it ashes up prices and its simple as that. Alix how do you invest in europe right now . Into i think you focused the domestic economy of europe, and the u. K. You focus on export oriented that can benefit from the weaker story link weaker sterling. On the not a play economy, i think you can safely invest in those companies without necessarily making a bet on the u. K. Economy. Alix when you start caring about the headlines about brexit . Eddie i care now. Lyix when will it material matter to market . Eddie i think it should matter now. Nevers something we have experienced before. Many banks are moving people out of the u. K. Is london andmy london is a Financial Services economy. It is going to have an impact on the economy eventually and you have to be position for now. David do u. K. Needs to attract investment because they have a balance of trade issue, what could they do to attract investment from people like you . Resolve and put trade deals in place so they know we get to interact with the rest of the global economy. They could do things on the regulatory front, make the Business Environment more friendly than it has been and that would attract investment as well. David thank you so much to Richard Jones and Eddie Perkins of eaton vance will be staying with us. As you tune in today you can listen to bloomberg surveillance on the radio on sirius xm channel 119. Live from new york. This is bloomberg. Taylor from the hewlettpackard enterprise greenroom, coming up, sender pat toomey. This is bloomberg. Goldman sachs cochief operating officer has just begun speaking at the barclays conference in new york city. Is monitoringent that car, julie, what have you learned so far . Lie not much so far, but apparently it has identified earnings over the next three years. A are looking at increased lending and working with Asset Managers in the trading business. They have been struggling to after weakness in the commodities business. Cfo,opresident was the now the copresident , and he says predictwth plans do not an improved operating environment. He is expected to speak for the next 20 to 30 minutes or so. The ceo has talked about changing the mix to some extent to improve the fixed income business. Goldman sachs had the worst performancerading of blankfeins 10year. So now the bank is focused on improving that. David the pretax is overall for Goldman Sachs rather than fixed income . Julie that is correct. That is overall not just in fixed income. David did you get a number for xed income specifically . Alix compared to the other banks there is no other way to describe it, you get the drift. Joining us with financials, we perkin. A chen and eddie it doesnt seem to me like its a huge boost for that business. Tina i have been digging into the slides for the presentation they have beens dependent on active managers. They have a high concentration. F a Hedge Fund Clients this is led to a decline there, also the emphasis how Market Making is central to their entire fixed income business. They are being able to use their own money to facilitate trades as well as generate volume. That is central to their business at a time when they know trading volumes have gone down quite a bit. There is a question of whether this is the new normal especially with yields so low and a lack of uncertainty where monetary all of the is. Live at the change their current model or do they have to change . Have we established that they have to change . They have to change, but does that mean more Algorithmic Trading . They have had different experiments with electronic bond trading, but you have to have a Critical Mass to make that reliable. If they feel like they are getting the best deal, that means Goldman Sachs isnt getting that much in terms of profits, a chicken and egg dance. Alix this chart on my bloomberg is the problem, is this structural or cyclical. Is vixte is fx, the blue and the purple is treasury. The whole Business Model goes out the window because hiring more people, getting more corporates, that is a bandaid to wait for the vix to pick up. Lisa the idea of the vix staying at this level for the rest of attendant to is not realistic. Arguably, the longer it stays this low, it does pick up it will be armageddon in markets. I dont know if i would leap to that level. I do think Goldman Sachs is struggling. You can see in the slides there has been a juniorfication of staff. A 13 decline in management and increase and associates. There are a lot of questions this raises. Jonathan other than weathering the storm because they have a different customer mix, a bigger corporate client base as well and we have seen that in the investment bakers ultimate across wall street. Does goldman have to go after other banks customers on wall street clients . And they made their bread butter in mergers, acquisitions, trading, making market, and dealing with hedge funds. Jpmorgan or bank of america has a huge lending clientele. They have done well on the backs of Investment Grade bond issue, they have gotten International Bond deals. Goldman sachs has a good position in till volatility picks at, until then they have to deal with exit until angst. They have tried to establish themselves as a tech leader. Alix in Consumer Lending. David how much is cyclical, how much is differentiating among banks . Eddie i think the debate amongst investors is has the franchise deteriorated in some way, even though we all know that the volatility levels are low him about why is goldman underperforming other banks . That is the key question to market evanuse flow, ebbs and flows. Historically the best on wall street. I will be asking that question for Harvey Schwartz, i will be speaking with him at oo of goldmanc sachs. Im going to ask about risk hear it you have a bloomberg terminal you can check out tv , click on our charts and graphics, interact with us directly. This is bloomberg. David bloomberg reporting this morning that President Trump will travel to 13 states to sell the need for tax reform, although, we have not seen the details of what the reform might look like. And terrye Mnuchin Cohen will be on capitol hill will discuss the need for a budget to be put in place as part of a move for tax reform. Joining us now senator pat toomey of pennsylvania, thank you for being here. Pat thank you for having me. David weve a sense that this is becoming a priority for the administration. We have Steve Mnuchin on the case and there is a special dinner tonight with President Trump, you want to confirm or deny it . Havingam going to be dinner with the president and several colleagues tonight. Going to beis discussed with gary cohn and President Trump in terms of how we can get tax reform moving . Have been extensive conversations going on since the beginning of the administration, i have to give them a lot of credit for a lot of outreach to the Senate Budget committee and the finance committee and i know it is happening in the house as well. I think we are gradually coalescing toward a consensus about what this tax reform is going to look like and then the world will see a series of milestones along the way legislatively to determine whether or not we are getting the job done. I am optimistic, i think we will get a progrowth tax reform bill done. David do you need to get a budget resolution bill in place before tax reform . Yes. Almost certainly it takes a budget resolution to pass first properly done in order to get the tax reform to votesy the majority, 51 as opposed to the ordinary legislation which takes 60 votes. We have all of the reason in the world to believe that there will us in democrats joining the kind of tax reform we need to do, that makes exd votes out of reach that makes 60 votes out of reach. David and you get there with republicans only . There are some republicans that you may call fiscal hawks. Is that doable within the timeframe youre suggesting . E will think it is, but w find out. The house is going to vote on a budget resolution. They already passed it by committee. It is going to be on the house floor. Meanwhile in the senate we have been meeting, i think we are very close. We will see very soon, but i am optimistic we can get it done. David from your point of view, what are the essential ingredients of true tax reform . Fix whatink we should is most egregiously flawed. The world has the good sense not to tax business at the rate of 35 . We have to fix the international p is where we are the only country in the world that taxes are companies on Global Income rather than income they earn here. Encourage companies to bring back money from overseas and finally we should streamline rates for working families. All three elements are very much in the mix and i think they will all be part of the reform. On what thea sense right number is for the first of those three . What is a realistic number . Pat the president has said he wants 15 . I think many of us think why percent would still make us at least as competitive with other countries around the world which american firms have to compete with. As far as revenue goes, i think there is a tremendous surge in Economic Growth if we get tax reform right and then the federal government gets to tax a bigger economy. In the past when we have done constructive progrowth tax reform, the federal government ends up taking more money in, not less. I can happen again. David nice to have you, sir. Coming up next the head of quantitative strategy. 30 minutes away from the open, futures are positive. Positive five points on s p 500. You are watching bloomberg tv. Jonathan the un Security Council approves of water down sanctions aimed at punishing north korea and securing the support of china. The president of the United States plans travel to 13 states to sell tax reform and on the iphones 10th anniversary, apple plans to reveal three new smartphones at todays Product Launch. Daybreakloomberg futures are positive, stocks come in at an alltime high. Up five points on s p 500, little softer on the euro down. 2 and yields continue to drive higher in the face of supply in the treasury market, yields are at 2. 15 on apoints 10 year. Alix a oneyear high against the dollar after getting the better than expected u. K. Inflation number. You are looking at euro stoxx at the longest winning streak in five months your the spread i am watching is getting wider as we speak. Opec is considering extending their cuts past three months past march of 2018, that supporting the price. David time now for the morning brief. At 10 00 this morning eastern time we are getting killed for gettingh of did july jolt for the month of july. And apple is getting a new iphone, or several. What happened to markets as they reacted, Hurricane Irma has fallen short of the cataclysmic warm predicted. We are joined now by colleague Erik Schatzker reporting from florida on the aftermath of irma. In joining us in new york is daniel tenenbaum. Give us a sense what you know in surveying the damage in the aftermath of irma. Erik florida wants to get back to work, but it will need both fuel and electricity, both are short supply. 42 of the gas stations had no gasoline, and even those that do have only the low octane friday, many including one that we ran into yesterday demanded cash only and would only give you 20 of hassle lane. The situation is getting sorted out, but it is very slow. The Port Authority was planning to resume deliveries of gasoline by tanker late yesterday and here closer to miami Port Everglades near Fort Lauderdale is going to start taking tankers as soon as today. They account for several thousand barrels a day of gasoline. There is also jet fuel coming in supplying miami and Fort Lauderdale airport reopening with limited service today. That is the goal situation. The power situation is even worse, there are trees down all of 6 00 thisas morning the Florida Division of Emergency Management said 5. 5 million accounts, more or less households, still lacked power. Million heref 1. 1 in miamidade county. It is a situation that is going to be very slow in resolution, because there is so much work hard to get lord of back in his back in business. David thank you so much. Obviously there is a lot of work left to be done, but it is that are than expected or feared. Lets talk about north korea. Yesterday,was a vote more sanctions, less than originally talked about. Certainly the upside is a multilateral package. This was approved yesterday, the ninth resolution on imposing sanctions on north korea. It did fall short on some of the full energy bands that were proposed. Secondarytalk about sections on chinese banks, but the upside is there were no vetoes. The u. N. Resolution had russias and chinas support, but a future energy band is probably the headline of this. Approved it was because it was watered down, that is the bottom line. When i think about upside, i think upside for who . Is it china that winds out, what is their ultimate objective . Dan no one is done on the sanctions want yet. Follow. Doesnt always directly in line with u. N. Resolutions. It is a fair question in terms of who the upside is for, any sort of multilateral approach keeps us were there from nuclear war, but it does fall short of completely embargoing north korea. Jonathan in many ways there is a power game going on here, north korea is the pond. I want to know how it resolves itself. Dan as we have talked about, it is unclear what the end game is. Keeping them away from a Nuclear Weapon is the goal, they balancing act is with china and russia to keep them as part of these negotiations. The end game is unclear. This is different from wanted to beran part of the global economy. North korea has a different objective. Keep is the endgame to north korea away from icbms or putting a brave face on getting to accept a Nuclear North Korea . Think we are slowly moving toward that acceptance. But ultimately we will have to come to realize that they are a nuclear power. I dont think sanctions today have done enough to pull that back and again until we see what the u. S. Has up its sleeve for the next round of secondary sanctions, time will only tell. Is no evidence it is working. J if anything jonathan if anything it is incentive to become a nuclear power. In the markets, risk on trade extending into a second day. U. S. Stocks sitting at an alltime high. Futures up across the board as well. Treasury yields are higher as well, 2. 15 on a u. S. 10 year after testing lows last week of 2. 01 percent. Gold giving up gains as well. Ning us is the davita sub savita subramanian. We keep talking about sentiment, it has been a dominant conversation, sentiment around Hurricane Irma, north korea, why are we obsessed with sentiment . Savita sentiment drives multiples. The last eight or nine years, we have been climbing this wall. Sentiment has been bearish in fullyarket, it is not euphoric on risk assets. There is still a lot to worry about on geopolitics here at i personally am more worried about manmade of events like geopolitics and central bankers than i am about ask of god like the hurricane. But i do think sentiment is a retrench our stock best model for predicting equities is a pure sentiment model. Jonathan what are the inputs . Gauge how bullish wall street strategists are on stocks and we take the average of equity allocation to equities in a balanced portfolio. We have found the lower the allocation is, the higher the market moves. The higher the allocation, the lower the market moves. Use wall street strategists as a contrary into court contrary indicator what you should do with your money. Alix it was called the teflon market he said the stock market seemingly versus off bad news, undoubtedly it will decline at some point, but most likely only when it underlying economic fundamentals falter savita i think fundamentals are. He key to the underpinnings earnings, i feel like predicting factor game. S a two you have to predict the earnings and the multiple, and they dont move in the same direction. The last couple of years of a bull market typically are not earnings different, they are sentiment driven. It is that your for all inflows into equities where everybody at cocktail parties is talking about stocks and that is the death knell on the market. Jonathan how do you read sentiment right now, bob . Is aroundthere the market economy, and i think markets are coming to grips with how strong the coordinated Global Expansion has become and i think that is filtering through into earnings and filtering through into stability of growth as we go forward. Mentioned in the cocktail party, it used to be they shoeshine boy. Uber driver asked me about bitcoin. Everybody will say wait for a retail to get involved in a big way, then we have topped out. When we see that again . At bankwe track flows of america and Merrill Lynch and we find that retail has been buying over the last year. They have been more inclined to buy bonds for the last seven or eight years, they are now buying equities. I see we are seeing that level of all in exposure to equities that you typically see at the late stages of a bull market. David bob, go back to your growth point, how much is because people are generating more goods and services that are desired . How much is it that people need to put their money somewhere . Is itself was filling . Bob i think weve gotten to the point where Financial Assets are so ill leave valued that people like they may as well spend a bit of that money. In addition, what has been a big help is you go back two years ago and you had some of the emergency market economies in a recession. Were in a brazil recession. They are growing again and some of the big drags for emerging markets have gone away. There growth is improving, the euro has surprised to the upside here it i think we are in a sweet spot right now, and the question is are there any policymakers that are going to put an end to this. Looks like the fed will do more in our view, but policy movements are so slow there is no reason why this gradual momentum cannot keep feeding on itself. And i think the emerging markets are a big part of this Global Expansion. Alix thank you for much for being here. Both of you are sticking with us. Coming up water piecyk with his take on apples reveal of the new iphone. Gabby david this is bloomberg. I am david westin. Harvey schwartz has just wrapped up remarks at the berkeley conference where he has laid out ands to revamp next income commodities business. Julie hyman has been listening in. What did we learn . Julie as we said earlier, 5 billion is the revenue opportunity the company has been targeting saying it is not a target, it is just the plan and opportunity they see. You asked me earlier what part of that is in fixed income currency and commodities specifically, schwartz said it would be 1 billion of that and could betunity more than that if the market improves. However, and a response to a question, he also said that the Third Quarter has felt a lot like the first and second. In other words, Challenging Market conditions. If things are going to improve, they have not yet improved as of now. The company is also talking about opportunities in other businesses, Consumer Lending, Asset Management as well. They talked about some hiring would be necessary in order to push these new initiatives. An enormous give amount of detail on initiatives aside from talking about hiring and restructuring that they are doing. They talked about overall that the what they are calling the hasstry wallet in ficc declined over the last couple of years, but they still see an opportunity to get market share. David thank you. I appreciate it. Alix . Is the wallet how much are spending . David is it total revenue . Has been pot of ficc declining, i see. Savita, do you like banks . Savita i like financials a lot. Second only to health care, here is the story. I think what the market is getting wrong right now is that financials are trading in lock step with the 10 year. The correlation between financials and the 10 year i dont know if you can pull the chart up, it is insane like 99. 9 . I think its a big mistake the market is making because there are so many reasons to buy financials other than Interest Rates. Here are six reasons you want to buy financials that have nothing to do with it savita oh, boy. Top the top 2 the reason is the cash return story, really profound for the financial sector. If you think about the last eight years, financials have had almost the blowout payout ratio in the history of trading data. All of a sudden banks were allowed to pay a bigger dividend, more caps on Balance Sheets than they needed this point and youre seeing Dividend Growth and buybacks accelerate as they are slowing down for every other sector of the s p 500 here at what is not to love about a sector that is cheap and returning cash . I think buybacks make it one of cents for the financials right now. They are giving earnings multiples, why not recapitalize stock at low valuation . Reason number two is the cost structure. If you think about the cost financialof companies, particularly Financial Institutions, have been spending a significant proportion of their cost on compliance and regulatory. I am not saying that overhang goes away, but a lot of that spend was one time to put programs in place to pay consultants to navigate new regulations. And if anything, the costs decrease over time rather than increase. I think if you are at peak Regulatory Risk and stocks are cheap, it seems like a really compelling story. Jonathan those things are connected back to d. C. In some way, deregulation push. Are those things dependent on a soccer hand from d. C. . Savita i dont think you need significant deregulation, you just needed to cannot get any tighter from here. If it flat lines, there are a lot of cost saves you can see from the bank. Alix i actually did get the correlation chart, drifting toward 625 , which begs the question, how low can yields go . Simplistic is question. Weve to talk about valuing companies at peak earnings, we are deluging banks that trough yields. Very close to trough yields, i think that is the kicker in terms of Balance Sheets and income flows. In addition we talked often andt where our investors retirees going to get income flow. One of those places is from the banks. They give the banks all of the money they have paid out ,ver the last 10 years in fines i imagine if they can pay that out to shareholders. It is an enormous flow of capital in a world that is looking for yield. Jonathan we have just had a , it is from the viewers the turn in the credit cycle and if the credit cycle takes a turn for the worse, share buybacks will end. Savita the credit cycle is obviously important for the bank , the credit cycle looks ok at this point outside of autos consumer Balance Sheets are fairly healthy. If you look at the financial obligations ratio, its a Pretty Healthy level. Maybe the risk is in the corporate sector, corporate have extended leverage ratios to rather high thresholds, but they are not borrowing from banks. They are basically raising capital in the capital markets. They have done ipos, secondaries, i think the credit cycle is important, but i dont see real risk in the consumer sector. Thank you. You both will be staying with us. And coming up we will talk with tina chen, live from new york, this is bloomberg. Taylor this is bloomberg daybreak, wolf wiggin has announced plans to hold electric versions of all 300 models and its lineup. The ceo plans to spend before billion dollars in development. Vw is trying to move jan the scandal that iraq did two years ago. Opec extends Oil Production cutbacks to curb are scheduled to end next march. According to people familiar, the cartel is discussing an extension of more than three months. They have already extended once timd dry up of global cook will unveil three new Iphone Models today, one is a Premium Model, the first smartphone to cost more than 1000. Apple relies on the iphone 4 two thirds of its revenue. That is your Bloomberg Business flash. Jonathan is there anything we dont know about this iphone . The legit price . David bill shock us all, a new car, apple car. Savita that would be a material surprise. Jonathan they are going to have to whats that going to be in sterling . Savita do i have to give you an answer . Brian whiteming up, will be joining us with special coverage of the apple event live from cupertino coming up later on liberty be. Joanathan the soap opera continues. It is being absolutely hammered today. It is down by 5 , the offer price from 21st century fox is 1075. We trend right now at 920. David this has been a snake bit deal from the beginning. They got into the tabloid scandal in london. Then they got into the roger ailes problems here. I dont know if its because of the deal itself for some of these ancillary problems. Joanathan inadequate compliance decisions, this allows representation. This is going to continue. We have been down as much as 5 . This is way off the offer price the 21st century box came in with sky. Futures are positive for the United States. The dow is down one quarter of 1 . There is another asset class. In the bond market, yields are higher. Supplyface of some later, the euro is weak or at 11939. Cable is up. 8 . U. K. Inflation is higher as well. That is the cross asset picture. This is taylor riggs. Taylor it could have been a lot worse. Florida is assessing the damage caused by Hurricane Irma. Half of the states population was left without power. There was record putting in jacksonville. Residents in the upper keys are being allowed to return home. As storm surge is not devastating as feared. The un Security Council has voted to impose more sanctions on north korea. The new penalties dont was far as the u. S. Wanted. The administration dropped demands for a freeze on assets. That cleared the way for russia and china to back the new sanctions. North korea rejects the sanctions and says the u. S. Will suffer. In norway, the countrys first conservative party leader one reelection for the first time in 30 years. Will she will have to form a coalition government. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. I am taylor riggs. Joanathan thank you very much. Thee shares are approaching alltime high in anticipation of the event today. They are expected to unveil three new iphones, including a Premium Model expected to cost its aan 1000 area reminder of how much 1000. Join us on the phone is the Telecom Media analyst. Its great to have you with us on the program. What are you looking for from the event . Walter we are going to focus on the iphone and where it is going to be priced. Is reliant onnue an increase in the average sale price, the average sale price of the audit overall is over 700. Over 700. Overall is joanathan what could that mean for apple Going Forward question me . Its been up 2 in recent quarters. Walter no one wouldve thought sticking price at this level. Model,ar, with the plus user thed 30 and the product. They made it cheaper for customers, not cheaper but instead of pain 700 up front, you pay 40 in payment land. That will be critical for apple to execute on the consensus. It may can see exceed the consensus. Alix do they need a higher price . Walter there should he some growth. Even within the service, the are expecting you a moderate increase, that would imply an increase. You have an interesting product for the consumer set. Maybe you go through some of the growth we saw three years ago. Those are very big Growth Numbers for the iphone 6. Its a little difficult to see that kind of unit growth. Without that unit growth, you will have to see increase other areas. David when we first got the first iphone, it was nothing very special. The thing i did not see worthy apps. That transformed the experience. Is there anything that could have that potential, augmented reality . Walter that is the hope of investors, that there is new functionality or it let alone functionality, let alone the service of the phone. There have been recent reports about this. Customers have not been as active with new app downloads. Developers a big conference, you could add additional functionality and get the customer more and i did. Connected. They hope to see that continue at a rate above what the iphone is growing at. If that grows at a faster rate, you diversified the company. You have high issues. David you were talking about the per unit prices and making up. They went what does that tell us about their strategy when it comes to overseas, india and china, where there is competition with less expensive phones. Have they given up on that market . There was talk about coming out with a lowerpriced iphone. They are bringing out highend products to market and they are counting on existing customers upgrading. There are existing products that they can sell in emerging markets at lower prices. This clears out some of the inventory. Have beenese markets able to discount a legacy product. The Earnings Growth is driven by the highend existing customer continuing to upgrade to the latest and greatest model at a higher price. Joanathan can it get hold of the smartphone. Top to me about the supply constraints. Its going to cost so much because of the screen, it cost so much to make. It cost fortune. Are they going to be able to get their hands on the components to roll the set effectively . Theoretically, this should be what tim cook specializes in, being able to supply and handle the logistics of getting out millions of phones every order. There is invariably a lot of chatter in the media about different types of delays even going to the most recent quarter when analyst talked about the phone would be available. The data suggest otherwise. With all the noise, you have to look at their past performance and they have been able to deliver a number of different times and there has been of arns about constraints variety of different components. Joanathan thank you so much. He is on the phone from san francisco. With us is bob. When are we going to learn about the consumer in the next eight weeks . Bob we are going to learn a lot the low level of inflation men, the improved employment picture is encouraging people to continue to consume on discretionary items. The environment is good for that. The employment market is very strong. Increasingly, phones are becoming a monthly fee item rather than a purchase item. On that basis, people will feel good about being able to step up and take on these commitments as we move forward. Again, i think lower inflation and higher real Income Growth is pretty positive backdrop. Alix they are talking about a one k iphone. It hee are talking about dollars a month if you want to do a purchase plan. Thats pretty reasonable. Alix how do they compare to the tech sector . The performance when it comes to apple. How important it their Stock Performance over the next 48 hours for the more mediumterm . Savita its huge. I think tech is basically everything. It is consumer tech, its not even a sector. Its every sector belongs or has some component or it component. Exactly. Its a market of itself. Its bigger than the gdp of most countries. It certainly is a big driver of the tech sector. Its an interesting sect or. Sector. Is it cyclical . I think the way the sector is going right now, its a secular growth story and its going to displace a lot of traditional Business Models. The question is, how much does the cycle matter what the tech sector . There are semiconductors that are very cyclical. What i worry about is that tech is super crowded. Its been the area of strength, every investor owns the sect or. Its all sector. Its all anybody talks about. We talk about Technology Stocks. We talk about iphones. There is this risk that in a market that has been fairly consistent, we have had low rates, no physical stimulus. Fiscal stimulus. What happens if we get tax reform . We Start Talking about tax reform beneficiaries. Alix a little bit worried a little bit. David bob is going to stay with us. Thank you very much for being with us. Coming up, the former chief of staff to michelle obama. The chicago law office. She is going to talk about Financial Regulation. Live from new york, this is bloomberg. Taylor this is bloomberg daybreak. Coming up, an interview with Harvey Schwartz, Goldman Sachs president and cocoo. Joanathan a u. K. Inflation supply giving the pound of boost against the dollar. The big question for investors, what will it mean to mark carneys bank of england. To mr. Carney. I think he is going to explain the elation rate away and therefore leave current policy. Particularly, i think he wants sterling to rise against the euro as well. We talked about cable. Against the euro, it hasnt really been strong over the past three months. I think its more a case of dollar weakness against sterling. Joanathan are we really find sterling this morning . Will the bank of england raise Interest Rates . Bob somebody is. I am not here it not. There is a mindset out there that inflation is a good thing. Im not sure how that develop in the last decade or so. What we see in the u. K. Is great. Core inflation. Andmes are declining consumers are not spending aggressively. I dont see why this is such a good thing. If expectations have increased and the bank of england is going to move, i think mark carney is going to be slow to adjust policy as we go forward. The economy is slowing down. If you look at real gdp growth over the last year among the g7 economies, the u. K. And japan are at the low end of the scale. Joanathan they face the classic dilemma with back collation . Bob we are still on a to handle. With emerging markets, we are talking about staggering. I dont think that we are in that terrible of a situation. I do think that when i talk about policy flexibility, there is not much policy flexibility in the u. K. Right now. Fitainly on the physical side, there is not discussion of any new initiatives there. Side, the bank of england is going to sit tight for a while. The economy needs to slide to this weakening of the current he that we have had here in had. As we go forward, the pound has a downside and the dollar has some upside. Selling sterling above 132 is a good decision. Alix will they Pay Lip Service to higher inflation . Bob i think they will have about it, talk about it. The question is sustainability. Do they think it is sustainable at these levels . Will they convert back to the global more. My guess is they converge back to the global norm as we go forward. Joanathan can he pretend that he is thinking about it . Alix unless he is going to enjoy the balance ignore the balance. David why do you want to intervene in that . Joanathan there is a job available at the Federal Reserve. That may be in my line. Alix i think thats a question or the break. Thanks, bob. If you have the terminal, you can interact with us directly. Go to tv on the terminal. Ask a question. This is bloomberg. David this is bloomberg. Increased Financial Regulation was an important part of obamas legacy. Now President Trump is trying to undo a fair amount of that. Tina tchen has seen a lot of it. Now, she represents major Financial Institutions subject to those institutions. In financiales institutions, including 17 of the nations largest banks. Welcome to the program. How is that transition . Au saw the regulations as went on in wake of the crisis. Now there is a move to deregulate. You represent clients. Tina i think what banks want to do is the right thing. I think they want to do the right and by their consumers. Level the playing field. They are advising their clients in it time of dramatic change in the way money moves and the way business works. David they must be in favor of what President Trump is trying to do with the regulation. Tina what we need to see is the form of the regulation. I think dax want to know what that is. David do you think it went too far . Financial regulation . He says the fed probably went too far in some respect and they should dialback. Countryery time this has passed and regulatory regime, it takes time for the regulators to figure out how to implement it and for businesses to adjust. We need to tweak the laws as they go along. This is no different. The choice should not be an absolute here or not at all. The real choices to find a balance between does business Good Business and fair regulation. David i want to talk you about the role of women in business world. This is something you were very involved with as the first lady was and Valerie Jarrett was. There is still a phonetic substantial difference. It is true in the sea suite and overall in terms of wages across the board. It is also true in law firms. We have a chart here that shows it. 5050 men and women as associates. Partners, eight team percent to 82 18 to 82 . What has happened . Law schools are often more than 50 women. Tina its like so many industries. Structural there are barriers to women continuing. Talentso allens childcare needs, we lose a lot of women in it comes to raising children. This is not just individual Industries Like the Legal Business or companies, International Competitiveness issue. They have had a tremendous record of promoting women. They have a third of their partners women. They have had 100 of the women who take family leave come back in the practice. Men have had 100 of the who have kids take maternity leave. Its a family issue. They supported. More businesses need to do that. David does the government have to get involved . Should competition take care of this problem as people compete for the most talented. Shouldnt that take care of the problem . Tina its not going to work or everybody. Setting a National Policy really sets the tone. Then competition exist above the floor. Right now we dont have a floor. David once the most important thing that could be done . Tina a National Paid leave program is critical. You train somebody for six or seven years and then they try to balance home and work. We need to address the pay. You can see it in the law business. There is disparity at the highest ranks. We know how to do that. The transparency and we need to measure what its addressed. This is something the Trump Administration wont back. David i noticed that. We will have you back talk about that during thank you some that. Thank you so much for being here. Can you imagine the chaos internally . David we havent in the federal government. All of our salaries are open. Up, then coming Portfolio Manager will be joining this. Futures are positive. You are watching bloomberg tv. Jonathan the un Security Council approves watered down sanctions and punishing north korea. President trumps tax is set. Weeks. Es in seven on the iphone 10th anniversary, apple gears up to unveil three new smartphones. In new york city for our viewers worldwide, good morning, a warm welcome. I am Jonathan Ferro alongside david westin and alix steel. Futures are positive by three points. We come into tuesday at an alltime high on the s p 500. In the fx market, eurodollar down 2 10 of 1 , and yields continue to drive higher on treasuries in the face of some more supply from the treasury today. Yield. Your 10 year lets get you some movers. Alix wanted to focus on Western Digital, up over 2 . There are reports the company led group and were lots of and toshiba was facing a delisting if they could not sell that profitable chip unit. Now it looks like the Western Digital edge group will be that buyer. In dupont, up over 2 as well. Its businesses among two of its three planned spinoffs, here is the new one. Units of about 8 billion and profits will be parts part of former dupont units. It does not affect the agricultural one, it is just moving different parts of the business to different parts of the spinoff. Dan loeb pushed for these changes at how dupont. Giga moniker up 2 . It makes network tech products, basically traffic switches. Reportedly Elliott Management will submit a bid for the company. They own a 15 stake. Any kind of bid would be worth about 55 or 60 in a bidding wars away potential upside for the stock. Right now it is just Elliott Management and the running. Jonathan never heard of it. Do not know how to pronounce it either. David gigamon, that is the character in a game. Alix pokemon. Rallyan monday, risk on led to the s p 500 to an alltime high, to its biggest oneday gain since april, closing at a record high after Hurricane Irma. The records will be tested right at the open with the foes focus shifting to tech. Cook take the stage to unveil three phones. Joining us from apples new campus is mark gurman, bloombergs Technology Reporter and in new york is chad morganlander. Mark, lets begin with you. Yourself, alex webb and others to blame because we are putting everything that is coming in several hours time, i wonder what will surprise us if anything. Mark this is the first time i am here at the new apple campus. You can see the steve jobs theater behind me and driving in, you cannot imagine how big this place is. The work you see architecturally is amazing and that is what is going to surprise a lot of people. You know a lot about the new phones, the apple watch and apple tv, but that is nothing without having your hands on it and seeing as it works how it works as a consumer. When city states built huge new towers, people were beginning to wonder. About the same thing, how do you advance what is happened with apple after 10 years to make sure the cycle can continue and you can get the kind of upgrade cycle that we have had in years gone by with a phone that could cost up to 1000 . Mark right. Every year you see preorder numbers and Sales Numbers over the Opening Weekend really exceeding expectation, and going up yearoveryear. We are at the point where apple does not usually report opening you week sales because the demand outstrips supply, at least for the last few years. Continuing the big super cycle, i think we are in for that, three new phones, three iphonened phones but the x, i think it will be an extraordinary super cycle for the company. David as you suggested, all of the attention has been on the socalled thousand dollar or more iphone that will add all of the big changes. There are a couple of other phones. Will they drive other will they drive sales because they will really not be that different . Good point. S a first of all, i do not think the price will make a huge difference for a lot of consumers because if you look at the price of the current phone, you only have to add 10 a month to upgrade from a seven plus price today. , ase eight and eight plus the name implies, will be significant upgrades in their own right. Better cameras, faster processors, the ar kit and advances coming into ios 11 software update. The price is starting at 650 likely. That is still a compelling price point for a highend phone so i do not see any issues with them selling the eight and eight plus. What about the watch . Is that material . Mark i think it is material in that it is a big advancement for the watch. They will be stripping the device away from the iphone. Apple had a splashy event in cupertino in 2014 where they unveiled the watch, that was supposed to be the next biggest thing but there were some Things Holding it back. There was the consistent need to be connected to an iphone and now it will have its own lte chip so you can use it without consistently being paired with a phone. You can use applications, maps am a stream music on the go and i think it will spur a new round of sales. Alix can you imagine walking down the streets of new york and going like this because someone is talking into their iphone question watch phone . David there was something called dick tracy. Alix what about the wildcards, the apple tv, anything related to a car . Mark apple is always working on these projects and obviously they have been working on a real tv set for a number of years but they shelved that. In terms of what we will see from the apple tv, we will see a new apple tv box called the apple tv four k. A redesigned Remote Control for better gaming and app usage as well as a faster fusion processor and with that faster chip, it will bring more , morecs power highresolution four k video so what if you are someone with one of those expensive tvs from sony, lg, samsung, you will finally be able to get a boxer apple with support for itunes and other apps to stream the content. 4k there is an the u. K. Foodstuff called marmite and you either love it or hate it. Some people hate today in the market and want to mute anything remotely associated with apple. They think it is a huge marketing ploy where companies and broadcasters like ourselves are obsessed with it. For you, how important is the Product Launch today, someone involved in the u. S. Equity markets . Is the reality with apple going into 2018 there will be 20 billion to 30 billion of additional revenue on their top line, and that is why we favor growth overvalue companies. This is not only for apple. This is for google and amazon and other more famous companies. We favor growth overvalue in part because of that. Because of apple, we think it will outperform going into the end of the year. We will not see this slowdown, and then we will be so much more cautious about the valuation. Alix what is the shortterm risk . Obviously if apple has been the biggest contributor to down the s p rally, do we see shortterm softness in the equity market . Mark i do not think apple will sell off after the announcement and i think you will see it rally into the end of the year with all growth companies. And, why we are overweight growth and value. David we do not know what will happen and what the reaction is going to be. How dependent is the equity market on apple continuing to go up . Mark no doubt it is because market cap is 850 billion. It is one of the major leaders. If apple rolls over, the growth sector will roll over and you could see pressure within amazon as well as google alix . Alix when you talk about growth stocks, is at the stocks that are returning to growth, companies are turning to growth or do you favor more the apples who have been in a growth cycle for years . Mark we fade your large cap Old World Technology companies. Cisco, oracle, microsoft, you are seeing all of those type of companies actually grow in a synchronized manner, yet some of them have some issues of one offs. Largecap technology has been the Growth Engine for the s p 500. Mark, i think we have you back. To what extent does this apple iphones it in with their Services Strategy . Is it possible that this new iphone will enhance that Services Capability . You know, the iphone is the hub of all apple products, the spoke in the middle of the wheel where everything is connected to it from the apple. V to the back mac the iphone is the main driver of this. People will watch more video on it, stream or stream or content. All services that really are used on these phones so they sell more phones, you sell more content. There is a correlation. Mark gurmanbergs in cupertino, thank you. Chad morganlander is going to be staying with us and coming up, dan morgan, senior Portfolio Manager will be with us in new york. This is bloomberg. Alix being a contrarian is hard in a momentum world. Part of his trade is he still likes the small caps. Performanceat the of small caps versus the s p. A white line is the russell 2000 and the blue line is the s p, and a number of stocks above their 200 day moving average. Also with us is chad morganlander of Washington Crossing advisers. Do you like growth . Do you like small caps . Chad i like growth and small caps. We think there will be more volatility going into the end of the year hence we would underweight small caps. Intow do you fit that call . Chad it basically neutralizes on the multinationals, meaning the small caps take a great benefit as well as large caps. Large caps can repatriate money back. Perhaps that will be part of the plan. They can buy back stock and optimize the Balance Sheet more, but nonetheless, a tax reduction would be a modest bump overall for Earnings Growth and would be a modest positive. We would not think it would be a great game changer for large caps or small caps. David the effective rate is higher than the large caps. That is factored in the valuation of the companies at this point, but that is the reason why we are saying stick with large caps overall. As an allocator of capital, we think it will be much more volatility and we can see multiple compression going into the end of the year for small caps in general. About regulation . It is generally thought small caps benefit more from deregulation. Is that a possible upside . Chad it is a possible upside. We do not think it is a tremendous game changer for large caps. Ersus we think deregulation would benefit financials, yet some of the small caps in particular, small savings and loan banks as well as thrifts, would benefit from that. ,hen you are picking one sector one style box against the other, you have to think about volatility and what the risk premium is. Thethan how important is 10 dollar dropping from 2017 to 2018 . Chad it is a tailwind for multinational large caps. We think the dollar trade will slowly reverse as Central Banks in the United States become a little bit more hawkish. We think the markets are understating what the fed will do for the next 18 months. Whathan how do you read the Federal Reserve is or is not going to do over the next 18 months when we have got no clue who will be running the Federal Reserve next year . Chad we have to guess, is it going to be someone that is more dovish or just as dovish, or hawkish . For example, is a going to be a janet yellen or will it be john taylor . We believe it will be more of a janet yellen person in that camp. We are expecting two to three rate hikes over the next 18 months. We are not expecting this outrageous cycle of rate hikes. We think they will reduce the Balance Sheet, steady as she goes as you start to see a risk or financial risk run into the market they will slow that down or taper it down or ramp it back up. Chad morganlander of Washington Crossing advisers is going to be sticking with us. A. M. Eastern, an exclusive interview with Harvey Schwartz, Goldman Sachs president and coceo woe, talking about how they are going ficc. Sick david this is bloomberg. I am david westin. Goldman sachs copresident harvey shorts announced a plan to revamp the fixed income business after a disappointing secondquarter. We have identified a 1 million incremental revenue in isc and we believe this attainable even if the market remains challenged like it is today. If we see modest or perhaps more significant improvement in the operating environment, we expect it could deliver significantly more upside. David this comes after citigroup said its trading revenue could drop 15 in the Third Quarter. We are joined by Gerard Cassidy and still with us is chad morganlander. Welcome. The question i have is all the banks have had some difficulty trading because of volatility, but there is the specific issue with goldman. A really fell behind in the second quarter. How much of the problem they have is goldman and how much is the business . Gerard most of it is the business, but goldmans focus in ficc trading has been on the tooe side and were not focused on the corporates like universal banks were focused, so their numbers have been hit harder this year. The volatility in the business has dropped precipitously has affected ficc trading. Blankfein said, recognizing the issue about hedge funds versus other customers and said they will have to really progress on that. How hard is that to do and how long does it take . Gerard it will take some time. They have a great brand. Goldman sachs is a brand that people recognize him a they have talented people, and they will make a very strong attempts at improving that business mix. Alix 1 billion improvement in. Icc does not seem like a lot can you put that into perspective . Gerard that does not count on markets. It takes time. And tackling, heavy lifting and does not happen overnight. Arm, 2eir lending billion, they are focusing on markets and they are going to try to offset their lack of ficc trading revenue by Consumer Lending. We are in a nineyear cycle. Is that a good idea . Gerard the business has changed because of the financial crisis. Morgan stanley had a tremendous change moving into the Wealth Management business and there are lines that they cannot do anymore because of doddfrank, so now goldman is moving more into the Consumer Lending area. It seems it could be a little more dangerous, but they are taking their time, they are not rushing it and they tend to be conservative. Jonathan you have talked about the cycle, but what has been the structural change . You the security business, do not see as much and a financial Asset Backed Securities because subprime lending has gone away. That is clear how much it has dropped precipitously from the peak in 2007 and 2008. Jonathan the amount of Corporate Bond issuance we have had, will that continue and how do they continue to leverage that . Trading leads into ficc which is one of the areas goldman wants to try to exploit a little bit better. Believe the country and World Economy will continue to will always need financing and dcm is one way they do it. David are we seeing a big structural change within the group . For Goldman Sachs, Consumer Lending is not the person who comes to mind. I think all of these companies that you are mentioning will have to go through a transformation of their models. You have volatility that is extremely low, deregulation that will be coming as well as spreads within the lending market that have compressed to such a level that it is very difficult to make a good return on your equity. We believe that this transformation that you are seeing is going to occur over the next three to five years. Until we believe that spread that the Federal Reserve will raise Interest Rates and the yield will normalize, then we will be moderate sleep underweight to neutral on financial organizations. David how much is because of Financial Regulation . Gerard i would say that is a large contributor to the weakness. Certainly the volatility and lack of trading is a big contributor but yes, regulation in the change since the financial crisis has been significant. Jonathan what are the questions for Goldman Sachs . I would say explore upon the execution of these new strategies because 5 billion of new revenue is significant, and just to probe in on how are they going to do it, particularly on the corporate side in penetrating that business. Alix that would be the first question, lets explore. Jonathan great to have you with us, thank you for joining us. Chad morganlander will be sticking with us. We closed monday at an alltime high on the s p 500 at the biggest oneday pop since april of this year. Are morning, futures positive, up 1 10 of 1 on the s p 500, two tents on the dow. Yields running higher on the face of supply. Gradual rise in yields over the last couple of sessions helping banks outperform in europe. Will that be the case in the United States . Foot, thehe front euro on the back foot. From euro, you are watching bloomberg tv. 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 28 seconds away from the cash open in new york, the opening bell just around the corner. Futures up 55 on the dow, positive four points on the s p 500. We come into tuesday at an alltime high, a record high on the s p 500. S p market come on the bond market, yields are pushing higher by three basis points. Lows last week of 2. 01 . Yields higher, the dollar stronger. We reclaim a 92 handle on the dollar index. That is your cross asset picture. Alix another record high for we close at af record high again today it will be the 32nd s p closing high this year. The risk rally continuing across markets, nasdaq up 2 10 of 1 . Comcast and alcoa, we got some upgrades, comcast up 2 . Theanson saying the fall in stock we have seen should attract new buyers. Alcoa up 2 , a similar deal, got an upgrade from deutsche bank. They see higher Aluminum Prices ahead and they raise their stock along with the supply chain. All of that aside from tech helping boost the equity market. Want to check in on what apple is doing, it is been the bulk of the contribution to the rally in the dow and s p that we have seen right around a record high before their announcement later on today. Here are some of the key suppliers in the u. S. Sky and serious1 10 logic up by 7 10 of 1 , it is the rumor mill of does apple end up having enough supply, can they meet demand, can they get the products they need from their suppliers weston mark how that from their suppliers . The s p at record highs for the 32nd time this year. Jonathan it is getting boring. Alix a little bit. Jonathan can david westin play pokemon on the new iphone . Gigamon. Jonathan dan morgan joining us. He owns more than 275,000 shares of apple and joins us on the phone, and still with us, chad morganlander. I want to talk about what we are expecting from apple a little later. Are there any questions that have been unanswered coming into this event launch . Brian this is a very different iphone event. We are at a totally new venue some of the steve jobs Theater Opening this week. We will have more iphones unveiled in one sitting than ever in apple history. They are going to cross over to the biggest iphone ever with the , and we willne x see a lot of new innovations that we have not seen before. I think it is a very different type of iphone event and we think there is a long ways to go in the stock. I think the stock will be well over 200 next year. That is our 208 price target. Jonathan what gives you the read the average selling price will climb . Brian the whole may are to have around apple going the way of blackberry, motorola, nokia, that has been out there for years and todays event, just like we have seen in the last couple of years, apple continues to raise prices. The narrative was, prices will go lower, margins will get crushed, apple will go nowhere. What we are finding is apple continues to raise prices and that is good for margins and good for the stock. We think this is one of the most undervalued companies in the world. David this all sounds awfully good. What are the threats to apple . At what point did they lose market share, the somebody come along with a better iphone or new gadget . To me it seems very difficult for someone to knock off apple. End markets, people who cannot afford an iphone, sure. That has made way for some of the chinese players, but where the middle class around the world is growing, 80 is coming from asia and once they can afford an iphone they will buy it. 15 market share with competitors that cannot invest in new technologies. They do not have the financial backing with the exception of a couple. I think apple is wellpositioned. I want to bring dan morgan into the conversation. When you put apple in your portfolio, what is it therefore . For the yield, the dividend . Is it a growth stock . Dan i think it is a combination of what you just said. It obviously is a company that has a nice dividend for a technology stock. Ticket typically, Technology Stocks do not have high dividends and it is also a growth stock. I agree with the conversation you are having. I think this new release of the iphone eight and the anniversary be the beginning of a new super cycle in terms of unit volume for apple Going Forward. I am looking for about 220 Million Units this year, 270 Million Units next year in terms of apple. The combination of something that cannot only yourate a nice dividend, as all know they have about 250 billion in cash sitting overseas that could be brought back that could create a special dividend. We are also looking for these next legs of growth Going Forward with the release of these new phones, and rising average selling prices accumulating to grow earnings along with the dividend. It is a combination. Alix it sounds like you are buying apple to be a value and a growth stock and some argue you cannot have it both ways. If you have a replacement cycle that gets pushed out because the iphone 8 will not be enough for me to upgrade, you will run into some problems and you need a higher price. Have you square that with your investment thesis . Have 600 Million People who currently use iphones and if they can convert 40 of those you have 40 Million Units in terms of phones 240 Million Units in terms of phones. I am not too concerned that the features of this phone will allow for the upgrade cycle. Past upgrades like we saw with the iphone 7, a lot of people were kind of yawning at some of the new futures, but i think there is enough new futures that people will features that people will upgrade. It is very interesting. Ive a 20 growth rate in earnings next year. There are some very good relationships between growth and value, so i think you can say it is a value growth stock. David at one point does that 250 250 million sitting on book cause a problem . Today have to give it back to shareholders if they do not have a better investment . Dan we hope we see it in the coming years that they can bring that cash back home. There could be more share buybacks. There could be an acquisition. I think it leaves a lot on the table which is why you have to give them credit for that cash. Jonathan a difficult question because you are clearly bullish the stock, but if there is a red flag you would be looking out for in the coming quarters to make you rethink your holdings of apple, what would it be . What are you looking for . I think the big issues Going Forward will be pricing dan i think the big issues Going Forward will be pricing. I have 720 in this upcoming quarter for my average selling price. We have the iphone 8 and the anniversary phone coming out in the 1000 dollars, 1200 range and if we do not see people paying up with those phones and we see problems with pricing in getting the upgrade cycle we are looking for, obviously that will be a huge problem because we will not have the average selling price moving up on the unit volume that will help us. That is an issue Going Forward that we have to watch for that people do not adopt the phone as quickly as we hope and we do not get the average selling prices up. The components get more expensive, is it inevitable that at some point margin pressure starts to become a story that lays out quite clearly for apple . Brian obviously, prices go up with the iphone 10, no doubt, but you are also going to price it at a premium. It more than offsets, it will be a margin enhancer. Across the portfolio, because we change the form factor and have not done that since 2014, that does have an impact across the portfolio with the iphone launch this time, not just the iphone 10 at the iphone 10 with that will help smooth out across all three models the impact. You are going to put a glass cover on the back and you will the sides as opposed to aluminum, says there is an impact so there is an impact. I am not worried at all. Sayd i am embarrassed to it has taken me this long to realize it is not an iphone x, it is an iphone 10 in roman. Alix now you say that. David took me that long to figure it out. Jonathan it is too early. With us to intrigued hundred 50 billion cash and brian says maybe there is an acquisition. Is there an acquisition in the universe that would not be dilutive to this . Here you are 100 correct at i know they have 250 billion in cash but they have a tremendous amount of debt they have been leveraging on their Balance Sheet. Hasmentioned that compressed valuation and will keep the multiple lower than the average market. Generally speaking you will get pushback from consumers at at t, verizon come on how much their monthly bill will go higher so we are talking about asp but for a person like myself i am thinking, how much will my bill go higher and why will i spend 4000 for a family of four to play around with the apple iphone that has a marginal benefit from the other apple iphones out there . That is critical for this aspect. Jonathan when i came here they would not give me credit so i had to buy the phone myself. A story about being a foreigner in the United States. Alix you saved money in the long run. Morganlander, brian white, and dan morgan, thank you so much. We are about 11 minutes into the session, the s p 500 grinding to another high. That is the story in the u. S. Equity market. Coverage continues on bloomberg tv. Alix this is bloomberg daybreak taylor this is bloomberg daybreak. Coming up, harvey shorts, z,ldman sachs schwart Goldman Sachs president and cocoo. Is doing a schatzker survey of what is going on, you are in coconut grove. You hear the word hurricane, this is what you expect to see and sadly, irma did not disappoint. We are in coconut grove, on the game day and it took one of the main hits in miami, yachts tossed around like toy boats. Mayor mays 92 feet long and could be headed to the scrap heap. If water got below the waterline and into the engine, that boat would cost 10 million or 20 million to replace, is effectively garbage. That is the same case for several multimillion dollar yachts in this marina. There are probably 100 if not more sailboats washed ashore. The yard to have insurance and many of the sailboats do not. It is a huge rebuilding effort. It will take at least two weeks to rebuild these docs. One of the docks that was wiped out is that an Organization Called the shake a leg organization for mentally and physically disabled children and adults and military veterans, their votes were taken out and who knows whether they will have the money to rebuild. This is just a slice of the impact of irma, and this is the worst we have yet seen between orlando, central florida, palm beach, and miami. David thank you so much. Alix for more on how Hurricane Irmas is impacting the real estate sector, we are here with spencer leavy. You have not been to florida but your staff is doing peripheral damage. What did they notice . Keyword in the real resilience. A lot of the infrastructure has not been impacted and we think the Office Segment of the market will recover rather quickly, as opposed to other segments of the commercial Real Estate Market which would include multifamily, industrial. Office will be more resilient. If you wanted to take a look at harvey as an example, when we did our report on the market as recently as friday, we had about 4 of the market down and that was largely due to electrical and telecommunications. As of yesterday, that was cut in half so even houston is bouncing back quickly and the reason is straightforward. There have been a series of storms, not just in florida but in houston over the last 12 to 20 years with a have continually hardened their infrastructure to prevent major structural damage from storms like that. Alix can the same be said for peoples houses . Spencer it is unfortunately a different story for peoples houses. 100,000 units were affected in houston and im sure the number will be similar in florida. If there is a Silver Lining to the houston story, the multi family or apartment market was quite soft coming into the storm, in large part as a result of the ball up in the Energy Sector. That will go away. We will see a tremendous amount of takeup in the multifamily sector and i would expect to see similar things in florida. David what does that do to prices . They must inevitably rise. Spencer what you will see in initially in the houston market is a diminution of concessions, meaning you move into someones unit and someone will they will give you one to two months for free. Houston story,he the softness in their market will give them a little bit of slack at some of the naples , those are some of our strongest multifamily markets and the country and did not have as much slack so you might see more pressure. Have a lot of you rich homes that are second homes, people with vacation homes rather than a primary residence. How does that affect the tightness scenario . Spencer we look at multifamily apartment buildings different from singlefamily, and the apartment user or occupant, well you are correct there is a large transient population that goes down and if you talk about the highend Condominium Market in miamidade, a Much Different Market altogether. Ultimately we believe the tightness of the florida multifamily market will put more pricing pressure then perhaps we would see in houston. Alix what about hotels . Spencer there is a long history of how hotels have performed poststorm. Engineering houston wasioning houston, fema taking up a lot of units and we expect that market to be very tight for several months. I would note if you take a look at the aftermath of some of the other storms we have seen, we sought excess demand for hotel rooms going on four months down the road. 15 excess demand after the storms four months down the road. David what did you learn from houston or florida . Spencer i can say the importance of a government decisivelykly and was very important from a human perspective. There were some terrible loss of life there. Much of it was prevented a strong government accident, but the lessons of sandy in new york with a Critical Infrastructure of many of these buildings was moved above the waterline were lessons we learned there. But movee unexpected your infrastructure to places where it can be least impacted. Alix thank you so much, spencer leavy. Levy stocks we are watching after the open is Goldman Sachs and apple, apple is in the red, Goldman Sachs up 1 as they reset their applications. I will be speaking to the president and cocoo. Turns as President Trump to tax reform, his family remains very much in the news, particularly his daughter and soninlaw. A group of washington lawyers encouraged Jared Kushners dismissal from the white house role as ivanka met with janet yellen in july after he said the president said she might be remaining as chairman of the fed. Joining us is tim obrien of bloomberg view. You know this man and have reported on him for years. Is this typical of donald trump the father to have his clan around him . Tim it is typical that he anka to beared and iv jacks of all trades and sees them as uniquely qualified to take on all tasks, whether it be sending jerod to the middle east to ascertainanka whether or not janet yellen is fit for the fed chairmanship. That got jaredg kushner in the news yesterday was not dealing with israel or the middle east, it was dealing with the russians. The lawyers were worried this would complicate the investigation of the pressure relationship. Russian relationship. Tim particularly the lawyers the president has hired and at worried jerody would be a legal liability in terms of the broader Mueller Investigation in terms of the election and beyond with russia. And i think it is true, he is going to be a liability. Jonathan it is not clear why ivanka trump met with the fed chair. Janet yellen gave a speech about women in the workplace. Here, trump popping up there, and everywhere and people trying to gauge her role when the president of the United States agreed to suspend the debt limit. What is her role in the administration . At the g7 she took a seat at the table when her father wanted a break. We are in an unusual moment because the president sees his daughter as a surrogate and is willing to deploy her in different circumstances as his proxy. We do not know the subject matter of the meeting with yellen. She has been an advocate of a child care tax credit and has said she is an advocate for women in the work lace but that has not happened on the policy front. David the president is going to go on the stump for tax reform. Will he be effective . That is where he is the most comfortable and he can be very effective at it with his base. The issue is they do not have a tax plan yet. David there is that little detail. Many thanks to tim obrien. Alix details. Jonathan the s p market in the United States, record high on the s p 500. In focus, apples Product Launch, full coverage on bloomberg tv and radio. , 3 00 10 00 in new york p. M. In london and 10 00 p. M. In hong kong. Im vonnie quinn. Zurich, i am mark barton. Welcome to bloomberg markets. Vonnie here are top stories we are covering from the bloomberg and around the world. Goldman sachs outlines a new strategy calling for increased lending and improved cooperation. We have an exclusive interview with resident and cochief operating officer Harvey Schwartz this hour. Coming up, interview with axel davos. How worried is he about geoPolitical Uncertainty . Does he think centralbank policy is on the appropriate path . Just three hours away from the start of apples product events where it is expected to unveil three new iphones. We will talk with Michael Hollins to find out