Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170918

Assembly general tomorrow. Throughout the week we will bring you interviews with newsmakers throughout new york with the Bloomberg Global business forum. Lets start with President Trumps visit to the United Nations. Lets start with kevin cirilli. What does the president need to do here . During campaigning, he said the United Nations was no friend to the United States. President trump is going to have to walk a political tightrope as he criticized the United Nations during the campaign and tried to rally support in the International Community to address north korea. North korea will be sitting in the front row. This comes at a time when nikki haley has sought to work with the chinese and russians in building a coalition to pressure north korea to dismantle nuclear ambitions. David is there anything specific he is asking for on sanctions . Kevin i think in terms of where this goes, it is in the energy sector. Further isolating north korea from International Trade partners, china being the top trade partner for north korea, but also the economic web north koreans have woven with folks like the russians in industries from restaurant to energy and business, financial, banking. As this comes further down the line with the Winter Olympics in south korea around the corner, you will an effort on behalf of the administration to further isolate them and with Steve Mnuchin perhaps putting more pressure on china and russia financial institutions. Financial markets will be looking at this to determine can the president of the United States get along with the rest of the world. What might he do that could encourage them . Kevin first and foremost, we all remember on his Previous International trips, he had a mixed grade. Sometimes he was able to get along with folks. Other times it was not. Im what to expect, what this on what toto expect, what this comes down to is the president is looking for a dramatic shift in International Trade agreements in relation to the United Nations. Whereality is settling in john kelly is urging the president to use the yuan to further International Ambitions when it comes to north korea. David thank you. Jonathan we begin with record highs on the aspen on the s p 500. A Federal Reserve decision coming this wednesday. Joining me is Stephen Parker, jpmorgan head of dynamic equity solutions. This is a risk event. Stephen it has been a while. There have been new incidents going on over the last month or so politically. I think they have been able to look beyond geopolitical headlines. What were focused on is growth, and expectations have come down to the point where if we see something a little more balanced, that could be positive. Jonathan is it something you should consider or define as a risk event for markets . Stephen i dont think it will change the dynamics in markets. It will cause a temporary dislocation either positively or negatively. We are focused on the earnings picture, Global Growth. We will look past nearterm politics and look at fundamentals. Jonathan at what point do you look back at geopolitics . When does that escalate . Stephen we dont think that is a big part of our investment process. There is a clear pattern when you see big geopolitical events with dislocations, and if you get a market selloff it is rather big and recovers quickly. The only time this is different if it leads to a recession with higher Interest Rates and commodity prices. We dont think were close to that. David looking back to pearl harbor, a lot of the growth we have seen is because of International Relations entree. To what extent does the United Nations and u. S. Read against that . Stephen it is clear we want to have a good global relationship. One of the things that is positive now is the First Time Since the crisis we are seeing coordinated Global Growth. While trade may be an issue on headlines, multinational corporations here and globally are continuing to generate profit. David can we have coordinated Global Growth at the same time we have an America First president . Stephen the question is how much of it is the message versus how much is transpiring. We are not seeing policy disrupting that coordinated Global Growth story. The Global Economy continues to push along. It would be a concern if we got more aggressive policy action to disrupt that. I dont think were looking for that anytime soon. Geopoliticse way matters is how the trade picture fixes with currency. Stephen china and the u. S. Realize we are critical to each others economies. If you look at after the election, you saw a selloff in china and emerging markets because of concerns around trade and protectionism. That has not played out. Markets are swinging back in the other direction. China has been among the best performers in the Global Equity market this year. Some of these concerns around trade agreements have not played out. Jonathan if i told you 12 months ago we would come into a week where the Federal Reserve would be winding down its Balance Sheet and President Trump in the white house with a speech on north korea, which is said to be a nuclear power, would you be telling me stocks would be sitting at an alltime high . Stephen that was certainly be a surprise from a at the rally we are seeing began in the middle part of last year. We began to see the growth story begin to accelerate. If you told me we were going to see the highest proportion of countries around the world in expansionary territory, europe, em, china would all be growing at an expansionary rates, i would have said that is a surprise. Markets highs in equity are being accompanied by alltime highs in profits. David it not just that china is growing, but they are asserting global leadership. There was a day when the u. N. Al wasly gener typically a u. S. Centric events, but they had cut way back on meetings. Is it china leads the world or the United States leads the world . Stephen what youre seeing given increased uncertainty in the u. S. Is other regions are finding ways to Work Together in ways they had not in the past. China taking over leadership in the asia area, and increased relationships between europe and japan and china. World markets and Companies Continue to adapt. Uncertainty on the political side in the u. S. Is certainly a headwind, but we are seeing other leaders stepping up. That is a good story. David Stephen Parker of jpmorgan will stay with us. Coming up, we have alan krueger of Princeton University with a new study on the effects of opioids on the u. S. Workforce. This is bloomberg. David this is bloomberg. Last week, u. S. Consumer price index gave a stronger indication of inflation. This morning we got the final read for august cpi in europe confirming that 1. 5 inflation rate in europe. Joining me now is Mike Schumacher, wells fargo head of global rates security. I want to show you where inflation is across the world. Is lacking aw little bit, the u. S. Is turning up a bit, and read his china, blue is the eurozone. Lets talk about what this means for Central Banks and rates. It tells me inflation is not that low. It seems to me that we are seeing inflation. It is a little below 2 in the u. S. , but it is not terrible. It could be higher. Wage growth is pretty weak. That is close to the target point, which should make the central bank comfortable this week announcing Balance Sheets cuts. There has been too much fuss made about inflation being solo for so long. Granted, ive straight misses in cpi would scare people, but it is getting back to normal. David the Balance Sheet seems to be a freebie. Whether right or wrong, this is not going to be making much difference one way or the other. Ist is really interesting the rate hike. They think they are steady on course for december. Do you agree . We think they will hike in december. We think the market is wrong. We think the inflation profile is close to 2 . The fed target is 2 inflation, unemployment is a home run. What stands out is the Feds Fund Rate. If you look at longterm funds, the actual rate is half of that. What is off is the rate. Pointan we have one data that there was another inflation miss. The trend is five months. One month is not back on track yet, surely. You have to look at it as a bit of a catch up. If you think of why inflation has been so weak for so long, what is the fed target . It is 2 . It has not been below 2 for that long. 1. 8 is not 1. 7 , that big of a deal in terms of the Feds Fund Rate been so low for so long. If you frame the discussion differently, if the fed were to look back over the last couple of years and see which policy was off, it would have to be the funds rate. Jonathan what interests me is how Central Banks are responding to inflation data. The bank of canada is just getting on with it. The bank of england is talking about it. The bank of england has this model that suggests unemployment falls, labor becomes scarce, and market power goes to the employees, moving wages up on the back of that. Will that happen in the United States . Will wage growth, as unemployment goes lower . Is hard to say that. The fed leaders believe in the phillips curve. Janet yellen believes in the phillips curve. Will she have that job in five months . It is hard to say. If you listen to the comments by senior fed officials in the last few months, they have been misses as inflation being transient. I dont think anyone is going to tell you which growth is going to be 4 anytime soon. With a like to see 3 . Sure. Do they think that is going to happen, i think they do. Yields are so much lower compared to where many people thought they would be. The Federal Reserve seems to have this faith in models that dont seem to be working anymore. Frankly it is all about the Central Banks. If you were to look at treasury yields, your favorite g10 yield, compared to the economic surprise index, there is a must know relationship. Wth,an talk about wage gro and they are important, but it is really the Central Bank Decisions that have been driving markets. That is why everyone focuses on janet yellen, mario draghi, mark carney. We have not talked about the weather. There were a couple of hurricanes. We have more on the way. Could that delay what the fed might otherwise plan to do because it will take something out of the economy for a time . He gives them another excuse to delay if they want to. We are assuming they want to. It will probably lead to more of a balanced statement this week and time to watch for more data points in the months to come. There have parted and decision points related to the hurricanes, but that shortterm blip tends to be paid back down the road. David where are you in december . I think there is a good chance they will go in december. Markets until recently have been under appreciating the potential for that to be on track. That may create an opportunity. Jonathan it strikes me as odd is how the relevant the Balance Sheet conversation has become. This is the s p 500 versus the Federal Reserve Balance Sheet. I am guilty of cutting that turn off after 2015 and asking what happens next . Most people see that as a loaded question. Most people assumed if qe ended, that white line would not be moving higher, it would be rolling over. A lot of people were wrong, including myself at the time. Were you guilty of it . We thought you were going to finally see the impact of that huge move by Central Banks around the globe translate into better growth outlooks. Thats why markets continue to move higher. It really was a single engine Global Growth, the u. S. Now we are seeing other parts of the world participate. Even if that line flattens, and to be clear this will not be a reversal, this will be a slow turn. People arem sure shouting at the tv screen if you put the ecb Balance Sheet in there as well, the chart will look the same as before. I think it is important that global Central Banks realize they need to be gradual and the way they unwind. This is unprecedented the fed begin hiking rates 18 months ago. We have seen markets continue to grind higher. I dont think raising rates are unwinding Balance Sheets is going to derail markets. Not if it is happening because of better Global Growth. David it is not just the u. S. , we have the ecb in japan. We have negative rates and a lot of the world, and that. The price of money holds down the price of money in the u. S. I think it is all contributing in a big way. I spent the last couple days in tokyo. There is no doubt low rates is stimulating growth. It is not great growth in japan, but European Growth has been good, and it all helps. Jonathans chart, right around the time someone got elected president of the u. S. I think you need to blend in the of these Central Banks, which are 14 trillion, and the like that, i think they are all helping growth. David this is interesting. Do you think there is anything less to the trump trade . That . Thing left to an interesting thing about the socalled trump trade is we saw a huge boost of optimism last year following the election. All about momentum basically unwound. If you look at the companys most exposed to deregulation and tax reform, they outperformed the market by 10 following the election, and they had given all of that back. Now that expectations have come down, might modest policy change be a modest upside surprise. Seeing sectors that have been leading all year moving to a traditional cyclical playbook, and we could see banks and Energy Taking leadership. Stephen parker of jpmorgan and Mike Schumacher of wells fargo staying with us. We will have the latest analysis and reaction trump janet yellen and Jeff Rosenberg of blackrock will be joining us as well. We will have full coverage of her remarks following the fed decision at 2 30 eastern time wednesday. This is bloomberg daybreak. I am taylor riggs. A big acquisition today in the defense contracting industry, Northrop Grumman has agreed to buy orbital in a deal worth 7. 8 billion. Weaponsmakes advanced and space systems. The worlds Central Banks cannot ignore the bitcoin boom. At some point Central Banks may have to consider whether they should issue their own digital currencies. That is your Bloomberg Business flash. Jonathan thank you. Jamie dimon turned the conversation up on this last week. Take a look at what the ceo of jpmorgan had to say. If we were to trade at 6. 5 in the second [laughter] morals, andinst our it is stupid. Jonathan joining me is Stephen Parker and Mike Schumacher. What are people who trade bitcoin like . I have no upside to agreeing with jamie on this one. Focusing on Global Equity markets is important, and the technology around bitcoins is fascinating, but as an investment, i have little to no value. Jonathan here is what Mohamed Elerian had to say today. He wrote about bitcoin, we should expect continued price volatility as loud differences continue over the longterm. It will supplement but not replace the traditional system managed by Central Banks. That is where the value is to enthusiasts, that it replaces, but it is not supplementing the traditional system. How does that play out . I am trying to think of the bitcoin yield curve, that doesnt exist. Jonathan people are struggling with this from a Central Bank Position as well. ,weden, largely cashless negative Interest Rates may work there better than elsewhere. Is this some thing Central Banks will work with . It might. Anything that sounds like currency or were looks like orcy, they have to looks like currency, they have to work with. You. Han thank from new york, youre watching bloomberg. 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. Jonathan two hours away from the start of the new trading week. Futures are firmer. Week ofer the biggest gains on the s p since early january of this year. We come into the day at an alltime high. Broadbased on sectors. Yieldsd market story is continue to grind higher into today. We are up about a single basis point. The fx market, eurodollar at 1. 1961. Up to speed on headlines outside the business world. Taylor there was a show of border withhe north korea. President ned after trump said he wants a peaceful resolution to the standoff with north korea. Officials say the u. S. Will use force if necessary. The trump says it has not changed its position on the paris climate accord. The secretary of state says the u. S. Will remain in the agreement if they can reach a compromise that is fair and balanced. In the u k, lawmakers are calling for foreign secretary Boris Johnson to be fired. He put himself back into the Brexit Debate with a newspaper article that would seem to undercut theresa may. The occasion not have to pay for access to the Single Market after brexit. 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. Jonathan imagine George Osborne hired Boris Johnson to be economist at the evening. We are joined by Simon Kennedy in london. Im sure he would love to read those pieces. Boris johnson has done it again, he is in the headlines. How is this going to play out between the Prime Minister and her foreign secretary . In may take some action in new york tomorrow where they are headed. For now the message from downing street is that he remains she maintains confidence in him. Weakness. Sign of her certainly johnson trying to rally his base and trying to provide a buffer to may and to regardr on what he would as the straight and narrow of the brexit result. Jonathan are we going to deal with the content of what the foreign secretary has had to say . Walkway through this 359 pound number 350 Million Pound number. Plastered the side of a bus with 350 million claimedthe number they was sent to brussels every week and could be spent on the National Health service. This was controversial because britain does not actually send that much to the eu. It is about half of that when you take into account rebates and the money that comes back to the u. K. A lot of people picked up on that. They did not get into the details. They thought that is too much to send to brussels and the Health Service would be a good recipient of it. In the campaign to stay in the eu, when anyone criticized that number, he just repeated it , and everyone got excited about it. Theresa may denied she was going to bring that money back to the nhs. Now Boris Johnson reviving talk of it. Whether he knew what he was doing, perhaps he did not anticipate the fight over the weekend with a statistics watchdog who challenges calculation, but it gets hard to those who wanted to leave the European Union and felt too much money goes to brussels. David how does this really affect brexit . Was it really thought this would influence the Prime Ministers position as she goes forward friday, or is this actually a plea to Boris Johnson, please fire me so i can get out of this . Certainly a lot of this is known only to the mind of Boris Johnson, but there is a risk he could be fired now more down the road. Weak theresa may is after that election result. Aeresa mays team was almost president ial campaign. The majority have felt they can come out and try to shape her agenda and her vision. Fastforward a couple years from now, say brexit has gone bad, Boris Johnson outlining a peoplee manifesto, and did not listen to me, perhaps when youre considering who should be the next leader of the conservative party, you might want to look at this. Marginalized felt by the theresa may government and was perhaps looking to have his say. He planned a speech and was asked not to deliver a speech and over the weekend decided to publish that speech. Jonathan i can see why Boris Johnson felt marginalized. He was made foreign secretary. This distracts from the essence of his message, which is he does not want the Prime Minister to engage with the eu and come up with a deal that means paying for access to the Single Market. No one is discussing that ahead of the speech on friday. Where does the Prime Minister sit on that debate, the issue of paying for access to the Single Market once the u. K. Severs ties with the eu . If you want to push your way through the 4000 words of Boris Johnson prose, that is the interesting line because it brexit, a challenge to the chancellor of the exchequer saying they would be willing to pay into the eu coffers for a transitional. A transitional period. The eu is going to ask for this payment. If you are going to try to maintain a relationship, youre going to have to chip in some money. That could run into the billions of pounds. It might be the price worth paying for a smooth brexit, what Philip Hammond would argue. Boris johnson would suggest it doesnt really mean britain has severed ties. Johnsonage from boris is dont pay anything. It reminds us how weak theresa may is politically. Jonathan sterling falling for the first time in three days, coming off its high. Mark carney speaks this afternoon, listening for any clues about when the central bank might hike Interest Rates. The outlook for the u. K. Economy has been upgraded by century Business Research amid a pickup in consumer manufacturing and business spending. Still with us around the table, Mike Schumacher of wells fargo jpmorgan. N parker of lets talk about governor carney, a man that has talked of the prospect of an Interest Rate increase over the years. It does not make sense given how uncertain things are over the next several years, does Interest Rate hike make sense . It is a little odd to me with brexit staring it in the face they are getting keen to hike rates. The Committee Said they would probably go faster than the market is pricing. It seems off base to me. David it might be off base, but it was not settle. They are saying listen to us, he will come faster than you think. Clearly that caught markets uoff guard. They had taken a different position than the u. S. Where the fed has been moving gradually. We dont expect that to change. David why did they do that then . The big change after a weaker pound postbrexit, there is a lot of inflationary impetus from that. It makes an upgrade from the growth perspective, your traditional model of a weaker currency making you more competitive and boosting inflation and growth, that is what they are trying to get ahead of. Isathan the difference now where we are now with inflation just below 3 , why dont they look through the 3 , that is because morghan king have a seven handle. We are now at four. These guys nothing wage growth is going to take off and they will have a problem. That could be. They i into the gold scarf. With brexit so near, it seems you should give it more latitude. Tack on another 50 basis points, 100 basis points. They seem concerned about the labor market being tightened. David Stephen Parker of jpmorgan and Mike Schumacher of wells fargo will stay with us. You can listen to our colleague tom and david gura on bloomberg radio. That can be listened to across the United States on sirius xm radio. Live from new york, this is bloomberg. Taylor this is bloomberg daybreak. Im taylor riggs. Later today, an interview with the president of columbia at 11 30 a. M. Eastern. Taylor not to your business flash. Now to your business flash. Walgreens is ready to buy individual stores. It is a move designed to resolve antitrust concerns. In china, the central bank drafting reforms that would give investors more access to the economy. They may include allowing foreign institutions control over joint ventures. The owner of Rolling Stone may sell the publication. They have hired an advisor to explore strategic options. Rolling stone was founded 50 years ago. In recent years it has been steadily losing readers and advertising. That is your business flash. Chancellor Angela Merkel is fighting for her fourth term in power against Democratic Party later martin schulz. That could have an impact on the European Union. Still this is Stephen Parker of jpmorgan and Mike Schumacher of wells fargo. It probably wont have an impact, and most likely chancellor merkel is likely to win. Are you surprised at how little attention everyone is paying to germany right now . Askedont think anyone one question about european politics, not about merkel, brexit, the french reforms. I think it is a miss. I think people are too complacent about this. Jonathan chancellor merkel is set to win. We have had surprises in the past, but most people dont think this will be a surprise. The French Election passed. Existed for many market participants. What are we missing . I think brexit challenges the structure of the eu. Can you really get that done in 18 months . I thinkt happens there is almost no chance that happens. David this would require a coalition. What difference might it make for who is in that coalition and for germany and Angela Merkel Going Forward . We will have to Pay Attention as to what it means for the finance minister and the ecb. Any disruption in the ecb, they are viewed as a critical stabilizer for the eurozone. If you look at europe and germany more broadly, youre talking at consumer and Business Confidence at 15 year highs and markets meeting new highs and earnings growth, all of those things lead you to a more stable political environment. Everybody is happy when you are feeling good about the economy. Youre not as worried about these fringe parties we saw early in the year. David michael, your point about brexit, what role could Angela Merkel play, as she is the senior statesman for europe, could she bring abroad a more constructive brexit . I think she could. She is the face of europe, the political establishment. She will eat. Think about who really drives that process. It is going to be merkel and macron. She could make things take a turn much more mild than what you are hearing out of brussels. Jonathan tell me why it matters to markets. Kidnappers matters the markets because we have had such a quiet market environment for so long. Volatility is down in almost every market. People on the investment side have been so strapped to pick up awry, if brexit does go that could drive volatility up dramatically globally. That is a big contributor. That is why it is important. Jonathan people will be watching this trying to figure out how the dominoes play out. I am trying to work it out. The brexit story has been isolated through the fx channel on sterling, and nowhere else. How will this bleed out . Didook at what guilt yields last year. They plummeted. Extraordinary volatility in the bond market. That will have a big impact as well. To the have a big bill u. K. , that could hurt the u. K. Stock market as well. David given the uncertainty, with the markets move up given the results as long as they know what the result will be . At the beginning of this year, a lot of the clients conversations we had around europe acknowledged growth and earnings getting better, but nobody wanted to invest ahead of the elections. Now that we are moving through that calendar, uncertainty is being lifted, and that is getting people interested and paying attention to the fundamental story, and we are seeing money coming back into the european markets. David Stephen Parker and Mike Schumacher will stay with us now. If you have a bloomberg terminal, youll want to check out jpmorgan. You can watch is online and interact with us directly. Live from new york, this is bloomberg. David this is bloomberg. Im david westin. One of the few hedge funds to actually make money during the 2000 and crisis says those responsible for Monetary Policy did a remarkable job. He is sharing his story and the ideas behind his success in a new book. Schatzkerto erik ahead of the publication. Andhere is fiscal policy Monetary Policy. If i take Monetary Policy, i think they have done a remarkable job. We have had what ipo a significant what i call a significant deleveraging. I mean our debt burdens and debt service burdens have gone down whilehe economy has the economy has grown. We have not had an inflation problem. They did that by understanding the mechanics and engineering. I think they have done a beautiful job. If you look at the economy right now for where we are in the shorter term, we have a situation where we dont have too much inflation or too little inflation. We dont have too much growth or too little growth. We dont have a debt bubble. We have something that is reasonable in terms of conditions. This is very different from 2008. We have a political situation which is difficult. We have a wealth cap and opportunity gap and opportunity gap. We have very big obligations coming forward, pension, health care that are going to be a burden. That is going to be a gradual problem. The way that those are running monetary policies have done, they are doing well. Well. Policy, reasonably it is a much more politicized area. That is a much more favorable characterization that a lot of people would give fiscal policy. Most people would give fiscal policy two thumbs down. You hear hesitancy in terms of me giving it confidence relative to the other, but i think the political environment itself is such a difficult environment, so politics itself is dysfunctional. We have to talk about how to deal with meritocratic decisionmaking. Nonetheless, if you take individuals and put them in their jobs and ask how do they do in those jobs all things problem,d, that is the those are things we have to consider. They have done you know. David that was Erik Schatzker with ray dalio. Still with us, Stephen Parker of jpmorgan, Mike Schumacher of wells fargo. Do you agree it was a beautiful deleveraging . Very nice term. I will have to use that at some point. I do agree. Andou look at Central Banks wherever, they were on their game in 2008 2009. That is fair. Deleveraging did not happen everywhere. Ordid not happen in the eu u. K. Or canada. Jonathan where did it happen in the United States . You have seen it in corporate levels. Jonathan it was such a nice story until the you think about that. They have done really well until the year two ago. David what about this shift of leverage from private to corporate and to the fed Balance Sheet . Central banks have taken on a lot of that leverage. David we have not do leveraged that part. That is correct. In terms of who can manage deleveraging better, it is easier for the Federal Reserve to manage that easier than consumers. Jonathan im pretty sure they own 30 of rbf. This is good of all from a consumer standpoint, but nowhere else. Thank you. It has been great to catch up. Coming up, Steve Rattner will be joining us. Countdown to a new trading week, ures slightly positive futures slightly positive. Record highs as we begin a new trading week in the equity market. This is bloomberg. Jonathan laura later to send on new york for the u. N. General assembly. Theident trump leans on floppy he once derided to accomplish his foreignpolicy agenda. Bridgewaters ray dalio tells bloomberg he is ready to give away his management secrets, just not the funds. Good morning. This is bloomberg daybreak. Im jonathan ferro. Lets get you set up with the market action. Utures are up. 2 stocks coming off of the back of one of the biggest weekly games of the year. Eurodollar unchanged. Yields higher through last week and today, up by a basis point. David here is what is coming up this week. President trump will make his appearance at the uns General Assembly, housing data, the fed and the bank of japan will come out with a new round of Monetary Policy, and we will bring you Bloomberg Business forum. Jonathan it is a busy calendar. The feds two day policy meeting concludes wednesday afternoon. Economist consensus was that they would stay the course and reduce the Balance Sheet in october. Joining me now is Steve Rattner. His career has spanned wall street and washington, starting out as a journalist as well. Lisa is here as well. The Balance Sheet unwind. I cannot think of a story that a couple of years ago would have sounded so big, then when you is so the actual event small. Lisa i read an article over the weekend that was compelling, about why the fed matters more so than in modern history. Other banks are taking the helm, including the ecb. As geopolitical events take center stage, this is the Current Police in the markets. Is the unwind having a greater impact on markets and turmoil than people are expecting . Jonathan what do you think, steve . A couple years ago, you may have thought it was a big deal, not so much. Are in a period of an almost unprecedented time of lack of volatility. You almost thought looking at your screen for a while because nothing is happening. So the markets are in the right frame of mind to see this unwind. As lisa said, its been telegraphed for so long. They are mindful of the things happening in 1994, they are determined not to surprise the markets again. A bit of a tail risk that the markets get twisted up about it. Quietudew much of the is because of the large Balance Sheet . That has caused the volatility to go down . Why is it not going to be as consequential on the way down . Certainly, liquidity has contributed to the quietude. It is not unusual after a long run in the stock market volatility goes down and people cease to lose their fear. A lot of people will say the fed may have pulled back a bit, but you have the ecb, whose Balance Sheet has surpassed the fed, the bank of japan, who owns pretty much everything under the sun in that hemisphere of the world. You have a lot of liquidity getting pumped into the market. That is why people are saying that that is not the only game in town. Our people underestimating how important the fed is . This has never happened before, so how can we know how this will play out . Lisa we dont. Jonathan steve, it is interesting that you touch on 1994. The Federal Reserve has been conditioned by the past so much, looking at the route of 1994, lack of transparency under greenspan, that they miss what is coming because they have remained on hold so long . Steve you have a dramatic difference in approach than in the past. Im not sure, it is unprecedented, like we have said. If you would ask me to bet, i would bet that the market will take this in stride. Jonathan chair yellen, her future, how do you think about that . Steve to be honest, i have no idea. Most people have no idea, that must be significant. Be a few people in the white house who know, and it may be a few months away. I would love to see her reappointed. I think the interesting question hasyou have a president who historically been dovish in favoring low Interest Rates as a of theer, but the ethos Republican Party is toward harder money. That will really be the interesting decision. Does he pick somebody who is capable . I think he will. Will that person change the fundamental direction of the fed . David we have four openings. To what extent is it like the you donturt, in that know what they will be like in the job, until they have the job . Lisa thats a great question. You also talk about the type of people that great mention her, President Trump may nominate, like a gary cohn, does not have an economic background. In practice, will he be able to sit through these boring meetings and absorb everything and keep a very specific path . This is a question for a lot of economists. Steve gary cohn has sat through a lot of boring meetings at Goldman Sachs. Kevin worsham is not a trained economist but he was on the board for a while. You have different skills. Jonathan you mentioned the supreme court, political allegiance, how important will that be to the next nominee to the Federal Reserve, and are we about to see an erosion of the political independence of the reserve . Steve i think we have a recent history of the president doing the right thing. Barack obama reappointed ben bernanke, bill clinton reappointed greenspan. We are in Uncharted Waters with this president. I would think he would pick somebody of the republican mindset but not with any idea of reducing the feds independence. Jonathan you are an investor. David how do you take into account this incredibly quiet period of slow growth but steady growth, asset valuation . Do you hedge against the black swan that none of us can figure out right now . How do you approach that as an investor . At 9 00, we will be discussing this at the office. Lets start with the fact that nobody good is good at market timing. Warren buffett would be the first to say. That said, you have to be mindful of the fact that on a valuation basis, the stock market today is in the upper decile of markets in the past few years. These tail risk issues, taking money off the table. We are cautious about the market but we have not done anything dramatic to position ourselves. David are there sensible hedges, is it just going to cash . Steve if you think the market is simply going to go down 2 a year, you would go to cash. If you think the market would have a 20 event or more, there are till risk tail risk hedges that essentially cost you isbasis point here, it like las vegas, it pays up multiple times. Jonathan you are sticking around. Coming up on wednesday, the Federal Reserve decision. We will have reaction from bill ss, alice rivlin, and then the remarks from janet yellen. York, for our audience worldwide, this is bloomberg. This is bloomberg daybreak. It is a big acquisition today in the defense contracting industry. Northrop grumman has agreed to buy orbital a tk and abl worth 9. 2 billion, including 1. 4 billion in debt. The price represents a 24 premium to orbitals close on friday. Is ready Food Alliance to tweak its agreement to buy individual right eight stores, according to people familiar with the matter. Its a move designed to resolve antitrust concerns and to persuade the u. S. To approve the deal. Bank is, the central drafting reforms that would give Foreign Investors more access to the nations Financial Service industry. According to people familiar with the matter, the reforms may include allowing foreign institutions to control joint ventures. Tomorrow morning, President Trump will take the podium at the United Nations General Assembly, addressing for the first time an organization he said during his campaign was no friend to the United States. For a preview of what to expect, we have Steve Rattner and Lisa Abramowicz. Steve, i dont believe you have an advanced text. Somebody in our morning meeting said this may be the most consequential president ial address for investors in history, yes or no . Steve in general, markets have become fairly injured to the trump coming and goings. Markets simply do not get rattled anymore by what he says on his tweets. The markets seem to take it in stride. Could he Say Something that moves the market one way or the other . It is possible. I would probably say in the current frame of mind, unlikely. David when he was first elected, there was anxiety with how he would have individual trade disputes but disrupt the entire post world war ii structure. To what extent could he give signals, affirming what has happened since bretton woods, for example, or on the other hand, going his own way . The focus on trade is with china right now because of the north korea connection. Mcmasters was pressed hard on this idea, would you seriously cut off trade with china . He didnt really answer the question but i think they are blacklistingt certain chinese organizations that do business with north korea. I dont think anybody is serious about cutting off trade with china. Is the practical leverage they have over china to bring them to the table, in a way that can bring about a solution with north korea . Steve if you want to talk about north korea, i think they have a limited number of options. If you take trump and his tweets out of the equation, you look at nikki haley and all of their appearances on the sunday shows, they have handled this well. We are not trying to have regime change, reunite korea. Haley is saying, if i cannot get anything done with you guys, i will turn it over to mattis, which is a good cop, bad cop kind of approach. Lisa the markets have been remarkably calm. At what point do markets have to Pay Attention . At what point are markets being a little too anguine . Me give you an example. Steve mnuchin said, in discussions about the debt ceiling, that the markets would crater if they did not get action. The markets arent all that interested in what certain people in this administration say. Probably, rexsay, tillerson, nikki haley are playing this the best they can. Right now, it looks like the end game will be a Nuclear North Korea and we will have to get over it. What happens when we have a nuclear japan, Nuclear South korea, various antimissile defenses what does that do to trading patterns, markets . Steve you are above my pay grade. I think we will have to do with a nuclear korea, it will be the containment strategy in one form or another. I dont really see why that would necessarily change anything else. China would like to see north korea standdown. They also dont want regime change. In terms of how much pressure they are willing to put on north korea, they are trying to thread a needle between trying them to be cooperative and not causing instability. Jonathan they are ignoring the likelihood, the risk of an increase in protectionism as well. Afteresident step back geopolitics stepped up. He realized that he needed china to find a Foreign Policy solution with the threat in north korea. If this gets sorted out, does he then step back into the rhetoric that he was discussing earlier this year around engaging with china in a much more negative way . Steve who knows. It is possible. Wilbur ross put forward some proposals for steel that have not yet gone through. By nature. St downside of conducting a trade war with china is clear. As these guys get to understand that, there are probably some products that deserve some an all on them, but for trade war, i would be optimistic. Jonathan interesting that you would say the president would be the one pushing back on those tariffs. There was a report saying that he was the one asking for them and there were those around him stopping it from getting. I believe im correct in saying wilbur ross showed up with a couple of ideas for tariffs on steel but somebody said we are not going to do that. David as the danger for trade come out of equities . After trump was elected, they got hammered. Have the markets become complacent about the trade situation with respect to donald trump . Lisa yes, they have, in a word. If you look across the world, look at the north korea situation, there is the threat of war, which you dont know how to trade around. Then you have a thread of the u. S. And china in a trade war. That is the more likely in larger economic consequence. That would break up supply chains, have a disruptive effect on the economy. Many thanks to lisa abramovitz. Steve rattner will be staying with us. Coming up, alan krueger has a new report on opioids and the labor market. Live from new york, this is bloomberg. David this is bloomberg. Im david westin. Ray dalio is one of the most successful investors of his generation. He is now coming out with a new book summarizing what he says is his success called principles, and lays out the unique way in which bridgwater operates. He sat down with Erik Schatzker. They talked about what they believe makes bridgwater so special. We are going to take our algorithm tools and give them to others. We are figuring out how to make number of other companies, to pass it along. I would love these tools to be used by anybody who cares to use them. Erik you have intrigued me, are we talking about Big Companies . Yes, companies that are eager to use them. If you were to use those tools, you would have an idea of meritocracy. Erik it is difficult to talk about in abstract terms, are we talking about a ge company . We are talking Silicon Valley type companies. Big Silicon Valley companies, but beyond Silicon Valley. Particularly, though, in Silicon Valley, there is more of that inion that there is a power crowdsourcing, decisionmaking, merit. Is an idea of then we use those tools. There is a lot of that kind of desire. Traditional organizations are more challenged by that. I am still seeing it in other traditional organizations. Drop specific companies because it would not be fair to them, but in many traditional organizations you are seeing them become less traditional. You are certainly seeing them use tools and data to understand and to help those people Work Together. Now the question is do they do that radically transparently and honestly . That is the test. David that was Erik Schatzker with ray dalio. Still with us is Steve Rattner. It is a little hard to make out exactly what he is talking about, but from what we have heard about, they have is radical transparency, where they rate one another, including ray dalio, all the time. The even have recording devices, not to snoop, but to review things. Where is the line between being transparent debt which everyone agrees with to being destructive . E every leader has his own way of leaving. Whats interesting is you want to take his way of leaving it to other companies. I have a hard time imagining that, leading a small organization, could implement the strategies and have it work. It will be interesting to see if others can do that. And its at bridgewater, is also a complicated place to work, i have heard. Some say it is great, others do not get it and move on. It is an interesting laboratory experiment. Jonathan something you may tolerate for a bridgwater paycheck . Steve there are other big firms that have a paycheck out there. Jonathan as somebody who runs a firm, would really be the what would be the biggest difficulty . Steve from all of this transparency, do you get a better culture that is moving forward, more in unity, or do you get commotion . He told me i didnt do a good job, they have meltdowns, career crises, the rest of that. Shockk it would be a huge to the system. Sometimes, shocks to the system can produce for emotion, sometimes they can send you into disarray. Jonathan Steve Rattner, always great to have you. Coming up, jane harman will be joining us. From new york, a brandnew trading week. Equities at alltime highs. This is bloomberg. 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 16 minutes away from the casual in, the opening bell around the corner. Futures are firmer. The biggest weekly gain since early january of this year. We come into this week with a firmer sentiment still. Futures are positive. Up. 4 . E, the ftse 100 sterling weaker. Cable lower by 1 . The euro it touch firmer. Agosuries, yields two weeks at 82017 low, just north of 2 . We are now north of 2. 20. Lets get you some headlines outside of the business world. There was a show of force over the skies in south korea. U. S. And south korean warplanes performed a wardrobe. President trump says he wants a peaceful resolution to the stand up with north korea. They will use force if necessary. In st. Louis, a third night of protest after the acquittal of a white officer shot and killed a black man. Police made dozens of arrests after midnight when crowds ignored orders to disperse. In the u. K. , some lawmakers are calling for Boris Johnson to be fired. He put himself back into the debate with a newspaper article that would seem to undercut Prime Minister theresa may. Johnson argued that they should not have to pay to have access to the single goods market. Global news 24 hours a day powered by more than 2700 journalists and analysts in ove david President Trump will go to the United Nations in new york city. Joining us for what to expect is kevin cirilli. This is not the big speech which is tomorrow. What is on the agenda today . He will have a series of meetings, first and foremost, but he will also begin walking the political tightrope in terms of being critical of the United Nations, as he was on the campaign trail, while also trying to rally the International Community on the issue on north korea. In particular, look at how he works with u. N. Ambassador nikki haley, as well as rex tillerson, who has been receiving growing criticism here inside the beltway and within Different International circles about what he has been up to, or has not been up to. Look at these moving chess pieces. Trumps once president favorite whipping boy, will now have to help him in his dealings with north korea. Hand he ishe one saying i want you to reform, and by the way, i pay 25 of your budget. On the other hand, i need your help with north korea. Will he leave the reform behind when he addresses the assembly . According to folks i have he has made some decisions on trade agreements, the paris agreement, which are now some suggestions that he has walked that back. That type of style is what im hearing is what President Trump brings to the table in his u. N. Address, where he is critical in terms of the budget allocations, to much the United States is paying for it, but on the flip side, at the end of the day, try to Work Together. There is this growing threat of north korea on the international stage, something that impacts everyone. Council the security has provided a much more useful tool then im sure the president even expected. I wonder who the audience is this week. There are some significant absentees. Who is he speaking to this week . Kevin first and foremost, north korea. That dynamic they are essentially seated in the front row will be fascinating to watch. In the broader context of what happened in previous administrations, how clear is president s, like president obama, have use their speech at the United Nations to talk about a host of issues like syria, israel. I have to be frank here. I have spoken with several sources who have been wondering how little preparation this white house has put into these series of meetings, compared to previous administrations. In a sense, really, no one knows what they will get tomorrow when the president gives his address. Report that he is taking only a fraction of the staff that normally people do. Thank you. Trump and nikki haley have a packed agenda for the next four days at the United Nations, with a particular focus on the Un Security Council as tensions with north korea continue to escalate. Jane harman. S she was the ranking democrat on the Homeland Security intelligence committee. Lets talk about what the president can realistically accomplish over these next four days. He has a tough assignment. Allming he does it beautifully, what help katie get from the United Nations on north korea . Jane the leaders of china and russia, i think, will not be here, but leaders of other countries which we should have close ties to will be. South korea and japan, he is having lunch with them, having lunch with a number of european leaders, other leaders in parts of the world. I think they can be a lot of help. Are not a Foreign Policy, especially toward north korea, calling the leader a rocket man, maybe amusing, but is not policy. There have been three policy failures starting with clintons agreement in 1994, bush repudiated it, and obama looked elsewhere. This is the fourth administration, he is paying attention. Nikki haley has also been an impressive ambassador. What can he do . He can make the case quietly that we want to contain. That is our best hope. Contain this capability in north korea. We dont want regime change. That is something jim mattis has said. That is what provokes the leadership in north korea. And that we will work with the world on a way, using coercive sanctions, to make sure north korea gets the message. China wants this, too. David thus far, it has been the world negotiating with itself without north korea. I dont see any way they have modify their behavior, so why do we believe anything more we do may change their behavior . We are doing these exercises in south korea, we are increasing our capabilities. We will not only find their signature but also respond. The experts at the Wilson Center think, in a strange way, the kim family is rational, they want survival. It will be the end of their regime if they attack us or their allies. They know this. What they are doing is trying to keep us from attacking them. It is a strange game with lots of room for miscalculation. We are not talking to them, at least publicly. Dont assume there are not talks going on that are not public. Is Trump Administration putting this at the top of the agenda, and i commend them for it. Jonathan lets take the Woodrow Wilson framework. If it is about survival, to what extent is the Un Security Council damaging the situation, as opposed to helping . Wee regime survival means will not decapitate the regime, it doesnt mean that we approve of their behavior. This is a mix of actions. What you would do with a not a Family Member lets try that to get that person to change their behavior. It is not working well. But im saying, compared to what . A limited military strike, which many are talking about, and i think we should review our military options. But a limited military strike would be misperceived in north korea as a major decapitation effort. The response will be to harm seoul and lash out elsewhere. Jonathan what can the yuan actually do . They passed more sanctions last week, what is next . Jane they blinked on the oil embargo, which was more serious. Speaking with one voice would be very helpful. I think that is a test of donald trump. He has to join that voice. I think he has to modify the tweeting and be part of a more sober minded foreignpolicy agenda. Defense secretary mattis, Ambassador Haley are the ones who are delivering the right message. David should we read anything into the fact that the leaders of china and russia are not showing up . Jane i think that is a bigger message. A has his Party Congress in week or so, so i can understand why. Putin, he has come in the past. But this gives trump room to move if they are not here. This is his first big test in this arena as president. I really hope he passes it. Jonathan the veto holding Commission Matter because they are the ones that are most likely to say no thanks. Noe i agree, but there is vote this week and they have their representatives here. It is not like they cannot act in unity if there is a program they support. Jonathan i agree, but to what extent has china done what they are willing to do . Jane i think xi is being cautious until he gets through his congress. I think he is when to see what happens later in the month. I think our policy will have to wait, too. Harman, woodrow Wilson Center president and ceo. As you commute in today, you can tune into tom keene and de rigueur on the radio. Gura on the radio. Live from new york, this is bloomberg. Is is bloomberg daybreak. Coming up today on Bloomberg Markets, an interview with the president of colombia at 11 30 eastern. Now to your Bloomberg Business flash. Chat Service Operators has closed a funding how the union at 5. 1 billion. Slack has expanded its service to work in german, french, spanish, and japanese. The world centralbank cannot avoid the bitcoin boom. The abi ss at some point Central Banks may have to consider whether they should issue their own digital currencies. The owner of Rolling Stone may sell some of the publication. Hired someone to explore strategic options. In recent years, it has been steadily losing readers and advertising. Jonathan thank you. Still what does is jane harman. For investors, if they were worried about a couple of things this year, it may be Federal Reserve Monetary Policy, or paralysis that democrats or republicans cannot Work Together. Have the last couple of weeks been encouraging to you . Jane very much so. That was a temporary deal to extend the existing budget for three months, but it was a deal. Donald trump working with the democratic leaders. Y, congress and trump or doing that. Is it a harbinger for the future . It is unclear. What i would love is to see action in two dimensions. Top down, trump with democrats. The other is bottomup. There is something that i know about that a group called no labels has created, which is a Problem Solver caucus. 42 members working together on an agenda. Forerday i was at an event something called the new center, an idea factory that bill kristol and bill calls to and bill gholston have to produce policy ideas in the center that they can embrace and people outside could embrace. Shoots comingen up from the scorchedearth, and it is called bipartisanship. Jonathan to some extent, it was a Natural Disaster that brought the country together. I wonder how long this will last. Jane several devastating hurricanes, and i was mentioning to you i had a conversation with one of the leaders of the Freedom Caucus a few weeks ago who said harvey could be the beginning of bipartisanship. This is the Freedom Caucus we are about, so thats good. The other thing to point out, hurricanes and terror attacks dont distinguish us by party registration. We are one america in that sense. If we start thinking about what is good for the country rather than how do i get reelected, it would change a lot. David the you think donald trump may have done us all a favor by shaking up the lines . Everything was so set on the right and left. Change,ngress should not just the fact that there is this toxic partisanship, but we have a Committee Structure from the 19th century, a big ag committee and Homeland Security committee with no jurisdiction. Now,at what the country is look at the absence of technology in congress. If we want to get ahead of these threats, the economic trends, we have to understand them better. The president has shaken things up, far beyond what we typically see in d. C. The Republican Party, we no longer really understand what it stands for. Likewise with Bernie Sanders and the democrat party. How do those things get sorted out . Jane at this new center congress, conversation about homeless people, and the center of the Republican Party and Democratic Party. I dont know that the best option is a thirdparty, but an agenda of the future where people can move to in both parties. Has alson center foreignpolicy school for hill staff on fridays, bipartisan, and we see them coming together. Maybe from the bottomup we can change this. David thank you so much for being with us, jane. If you have a bloomberg terminal, check out tv. Check out our charts and graphics and interact with us directly. Live from new york, this is bloomberg. David this is bloomberg. U. S. Labor force participation problem may be linked to another crisis, the opioid epidemic. Economists have begun to turn their attention to the spread of prescription painkillers and their link to the lower portion of prime age people working. Alan krueger took a closer look at the connection in a report. He joins us now with this dramatic report. Welcome back. I want to start out with the relationship between prime age men, defined as 25 to 54 in your study, and the extent to which they report pain and Labor Force Participation. You can see the purple line labor forcede the altogether, unemployed in yellow, blue, employed. Oing up see this g dramatically. We have had a quadrupling in the amount of medications prescribed in the past two years but no increase in the amount of pain people reporting. Agest half of prime working men are taking pain medication every day. Two thirds of that group are taking prescription medication. Has run intoisis problems of low Labor Force Participation and they make both problems much more difficult to solve, because it is difficult for men who are abusing opioid medication to get jobs, pass drug tests. Just put up a chart to emphasize what you are saying. This is the total number of prime age men not in the labor force. But 47 no medication are taking pain medication. Of those, a substantial portion are taking prescription medications. Alan this is just on the previous day. Some of that 53 you may pick up during the week, and there is a tendency to underreport on the surveys. David put this in the context more broadly of Labor Participation numbers. You have been here on jobs day talking about the Labor Force Participation. Older andetting retiring, that is part of the story, but not all of it. Part of it is aging, but if we look at prime working age men we have seen a decline in working force participation. A little bit of a recovery with the economy getting stronger but it is small. We need to tackle the Opioid Crisis if we are going to have a significant effect on Labor Force Participation. If you look at the decline in participation, how much is attributable to demographics, how much to opioids . Alan if you look at prime working age men, their participation rates fell by a little over three percentage points. Point, i a percentage estimate is possibly due to the spread of opioid medication. I look county by county. Where we have seen the most amount of medications prescribed, we see a larger drop in the labor force. Be due to thed crisis. David on this map, the darker the color, the more people per capita. There is a county in virginia that has more than five prescriptions per person in the county. What is going on here . Alan some of these numbers are dramatic, and it is separate from the problem we see with manufacturing. Some overlap with the rust belt and decline in manufacturing but not all that much, if you look at western nevada, northern california, these are not manufacturing strongholds. I think our medical profession has gone overboard in prescribing opioids. The u. S. Makes up 5 of the population and we consume 80 of the opioids. David when you see behavior like that, there must be economic reasons driving that. Had anhe New York Times article today about how Insurance Companies are more likely to prescribe, pay for opioid medication than cheaper pain medications. David there has been a disincentive to use less addictive forms of painkillers, rather than the opioids. Alan thats driven by the cost but we have to fully look at the cost. The solution is clear. You able to quantify to what degree Labor Force Participation reduction means for the economy overall, how material is it . Significant but even more so, 30,000 people a year are dying from overdose. Certainly an economic loss. Werere prime working age in the labor force, we would have a stronger economy, but first and foremost, this is a human tragedy. The scale of it is affecting the economy. David what has been the reaction to your report, likely to make any change in policy . Alan i would appreciate if governor christie, who is chairing this issue, or the Trump Administration would participate, but i have not heard from them yet. Jonathan coming up next, Jeffrey Kleintop will be joining us. As we come into the week at record highs, closing at a high on friday. The biggest weekly gains in the s p since january. Market,y in the bond yields continue to grind higher up. 2. 21 on the u. S. 10year. For our audience worldwide, this is bloomberg daybreak. Jonathan World Leaders descend on a new york for the uns General Assembly. President trump leans on the club he wants to ride it to help his foreignpolicy agenda. Releaseral reserve will a plan to undermine its Balance Sheet but according to a report, a rate hike will not, until the end of the year. And ray dalio says he is ready to give away his management secrets. This is bloomberg daybreak. Im jonathan ferro. The opening bell is 30 minutes away in new york. Tutors are positive after closing at a high on friday. We are up about three in the session so far. 1961. Dollar 1. 1 that is your cross asset set up. Lets get you to some movers with abigail doolittle. Happy monday to all of our viewers, lets look at the premarket viewers movers. Orbital soaring on the news that Northrop Grumman is buying the company for 7. 8 billion. Orbital makes Rocket Propulsion parts, among other segments in the defense area here this will put Northrop Grumman more firmly into the space and missile business. Shares of orbital are already up 25 year to date. Another stock trading higher in the premarket, caterpillar, up 1. 5 . As upgraded shares from a neutral to a buy. Finally, we have at least one a laggard here in the premarket, shares of serous, the apple supplier down 3 after bank of America Merrill lynch initiated with a new underperform. One analyst saying the growth expectations are somewhat muted. 80 of their revenue comes from apple. Right now, there is not a negative real through. Apple up in the premarket, but as investors digest the details in this call, it will be interesting to see if there is an influence on apple. Jonathan great work, abigail, thank you. The s p on pace for its best annual gain in four years. The markets have shrugged off nearly everything thrown in its way. A Bloomberg Survey of economists is no rate hike until december but a reduction could raise the floor for global yields and shape up markets potentially. Joining us at the table is beside from of its and the Jeffrey Kleintop, and alan krueger. Jeff, lets begin with you. If we had ars ago, debate about the prospects of this Balance Sheet being unwound, we would see action in the markets. Why is that not the case, what are we expecting now from wednesday . Jeffrey something profound has happened in the last year. From the end of the financial crisis to a year ago, the size of the feds Balance Sheet and the stock market move in lockstep with each other. The two lines were the same. That ended a year ago as the out as sheet flattened stocks continued to march higher. The disconnected they disconnected from each other. Stocks are tracking earnings, not so much that the fed is doing. Lisa i think people are coming up with restored to come up with the incredible amount of cash in the system, finding places to go. I am struck by a story that i read about how chief Financial Officers in europe are struggling with their cash because they are losing money on it. This highlights the issue for so many investors. They have to put it somewhere. Unless there is an imminent crash coming, and it does not seem like there is, stocks are not so bad. Have a chart, the s p 500 versus the s p Balance Sheet. A lot of people were guilty asking what will happen next . Many people thought it would just roll over. Wonder, theut i argument may be, you have to add in the ecb as well. With the ecb and the stoxx 600, there has been no relationship. I dont think there is some global liquidity that will dry out the bull markets. I think there was a false relationship that we all believed would have some dire consequences down the road. Earnings is what we need to focus on here, and they continue higher. David allen, tell me, how do we know whether what we are watching now is simply the fact that the markets have weaned themselves off of cash and centralbank to our we have other Central Banks driving down the yield rate, so the cost remains low . I think it is some of those but dont lose sight of the fact that we are seeing a synchronized recovery. Europe is growing, asia is growing. I think the World Economy is in a stronger position now for the fed to start to unwind their Monetary Policy. They are making money at historically low rates of interest. The cost of capital is very low historically. Alan even when the fed unwinds, when they raise rates, it will still be very accommodative policy around the world. Lisa i have to wonder, given we are seeing synchronize growth, why arent we seeing inflation . Inflation,rt seeing does that mean that the lead into stock returns as well because companies will have to start paying higher salaries . Then they will have a higher cost of borrowing. Alan if we see inflation, it is because they are raising prices. That will maintain profits but i expect to see stronger wage growth over the next year or two. That will lead to more of a rebalance in terms of labor share of national income. That could eat into profits. Jonathan this story of synchronize Global Growth, the Federal Reserve unwinding its Balance Sheet. I wonder why i dont see any of this in the bond market, why yields are not higher on bunds. Why . Jeffrey there is a lot of cash. For a long time, the Central Banks are the only ones doing buying. Now corporations and individuals have a lot of cash and they are looking for safe assets. I i travel around the world, hear from individual investors some concern. They have started to come back to buy some stocks that they are holding above average balances on average across the industry. Is holding down yield increasing demand for safe haven assets. Jonathan tell me why on 2year in germany are where they are at, and why bonds out of austria are at 2. 1 with significant Duration Risk is also a safe asset . Jeffrey you are right, everything is tied together. It certainly looks Like Companies like germany and japan are holding down Interest Rates, and other countries like the u. S. , you mentioned austria, that demand is keeping a lid on other countries. We are not seeing much yield anywhere. No assets are really cheap. As a result, investors have a desire to have some safe assets in their portfolio, keeping yields low. Going to be bad decisions made in allocating capital. When you are searching for yield that desperately, making investments and another one would be irrational. To what extent do we need to be concerned that these will turn south . That thet is a risk fed is aware of, that is part of the motivation for normalizing policy. I think we are in an environment like we were with greenspan, where we have a savings glut which is depressing returns. Jonathan lisa, over to you. Lisa i think right now there is a lot of concern about some of the assets people are buying, australias 100year bond makes no sense. The problem is, nothing in an urgent that would reverse it. Im looking at the tech companies, antitrust issues, and that could be it till risk that people are not considering that because the markets to selloff. Barring Something Like that, it is hard to see what would do it. We had a taper tantrum in 2013, and it was the mere mention of ending qe. The ecb is talking about wanting things down because there is not much left to buy. The bank of japan as well do not hit their monthly target anymore. They have to target the yield because the volume is not there for them to purchase. Is that what is happening here . Are so big, the actual impact of the stock, not the flow, is what is pinning things to the floor . Jeffrey perhaps. Certainly, their Balance Sheets are enormous. Somere still seeing steepness to the yield curve. A little bit flat but even though rates are low on the long end, they are even lower on the short end. Tocannot just Pay Attention the Balance Sheet, we have to Pay Attention to monetary policies. Normalized, its only natural they will look at the long end as well and perhaps take action to raise longerterm rates as well, keeping a yield curve from inverting, suggesting inflation is coming. You are a chief Global Investment strategist. Not all investment are created equally. Some must be more sensible. How do you sort those out in a world where it looks like you can go anywhere and do well . Wefrey its interesting, have seen correlations among countries fall to follow was level in 20 years, despite the fact that all markets seem to be performing well. There are some that are not, others that are havenots. The key is to focus on cyclicals, areas Like Technology , which are doing well, and will likely do well in a globally synchronized recovery, which is intact this year, likely to be intact next year. The oecd forecast all 45 of the largest economies growing this year and next year. We have not seen this kind of synchronized growth in a decade. Jonathan you guys are sticking with us. Premarket, cisco Ceo Chuck Robbins will serve as chairman. Notbers saying that he will stand for reelection. Continuation of the Succession Plan they have had in place. On wednesday, join us for our fed special. Reaction from bill gross, alice rivlin, and Jeff Rosenberg. Yellensill have janet remarks following the fed decision. Live from new york, this is bloomberg. David President Trump is repetitive get his first address to the United Nations tomorrow. Investors are walking or impacts on markets. For a look at potential disruption from the u. N. , we have lisa abramovitz, alan krueger, and Jeff Kleintop. Jeff is with us from boston. Jeff, you are an investment strategist. To what extent do you Pay Attention to any president ial address to the u. N. , particularly this one tomorrow . This is a performance. I dont expect it to win an emmy, but i expect investors to pay close attention. Security council just approved tougher sections on north korea, which will be a subtext to all of this. About thisncerns climate agreement, the yuan is concerned about climate issues. Then you have all of these issues on trade. The u. S. Has been tougher on a lot of nations lately. More in terms of rhetoric than actual actions. We will see what comes out of the administration. When it comes to the u. S. Role in the world and what he thinks the u. S. ,r deal for with things like budget, defense, north korea, and trade. All of these issues important to businesses, especially the trade aspect. David if investors are paying the close attention to what is a clear win for investors, what would they love to hear . Jeffrey a president who is looking to not back away from trade deals that craft them in a way that makes more sense for morebusinesses, expanding opportunity for the u. S. , especially with china, as opposed to closing off borders. This is about more exports rather than cutting off. That is what they want to hear the most. Saythan what does this about the Current Situation that investors have the General Assembly in the diary this week at all, what does this say about where we are at . Jeffrey they are looking for a more long for discussion about what the president s view is. We get them in the form of andts, which are pissy sporadic, but this is the opportunity for a more complete picture on the president s views. We have heard him talk out of both sides of his mouth on issues like trade. This is an opportunity to clarify some of that. Must Say Something about the fractured policy of Global Policy that investors are focused on the General Assembly. Alan i think the bar is pretty low for the president here. He needs to show he can get along with our Strategic Global partners. The reason there is so much attention on this meeting is that we have gone away from our post world war ii playbook, and people are concerned about it. The same time, we have had a fair amount of geoPolitical Risk, particularly with north korea. It seemed like the markets have recovered quickly. We spoke to Steve Rattner on the program. He suggested maybe markets are getting used to this, not reacting much. Markets simply do not get rattled anymore by what he tweets, rocket man this and that. Markets seem to take it in stride. Could he Say Something today that moves the market one way or the other . It is possible. I would say in its current frame of mind, relatively unlikely. Is right, is that a good thing or a bad thing, is it possible the markets are not paying enough attention to geopolitical politics . In some sense, it is a bad thing. Markets are ignoring them. Assuming that we continue to have good trade relations, for example. But i think it is right, markets have been resilient to some of the bluster coming from washington, and that will be the case until it is not. Some this action could cause a big reaction. Lisa i would love to get your sense on how much the u. S. Economy could be slowed down by ,ome kind of negative trade war specifically with china, seems that because that seems to be the most likely and harmful. Alan it would be hard to do real the u. S. Recovery with the trade channel. We are big enough, we are close enough of an economy when you do the math, even suppose we have a reduction in change with china, it will be unpleasant, will hurt some sectors, but not big enough to cause a recession, in my view. What it takes to do around the recovery is some kind of financial shock amalek we had in 2008, or it takes some geopolitical event like the iraq war. Case,if that is the markets should not Pay Attention. None of this barring a nuclear war would not matter. That is the difference between the stock market and the economy. Stock markets are much more sensitive to trade, in the way it gets its revenue than the way the economy is put together. If you look at who is leading the stock market, the tech sector. Vast majority of sales are overseas, critically dependent on trade. You could see a big hit to the stock market even if they actually hit to u. S. Gdp is not all that significant. Jonathan Jeff Kleintop, great to have you with us. You are sticking with us. Lisa and from of its, alan krueger. Coming up tomorrow, the Morgan Stanley head of global Interest Rate strategies. We saw lows on the 10year a couple weeks ago north of 2 . Have we seen the low for 2017 . A few that answered yes weeks ago were dead wrong. I wonder what they say this time around. This is bloomberg. Bitcoin rallied for a second day, rebounding from a onemonth low after suffering backtoback weekly losses that cut 20 off of its value. Mohamed elerian weighed in on the selloff today and doesnt think the volatility will be ending anytime soon. We should expect high price volatility in the can in the context of opinion. In the longer term, a more stable and regulated platform will emerge. Supplement the not replace the traditional system managed by Central Banks. Joining us still are Jeff Kleintop and the setting from of its. Jamie on, the ceo of jpmorgan turn the volume all the way up on this. Where do you stand . I get asked about this everywhere i go to people are worried about the economic backdrop surrounding the market, worried about a bubble and they point to it coin. If it does, would it take down stocks broadly and economy . You can look back to the. Com bubble where they were 40 of the market in the late 1990s. 1000 over 10 years. When they blew up, took down the economy with it. This is separate from the Global Financial system. It will have 1000 , but in a year and a half, not 10. Has not become embedded in the markets and Financial System enough that if a crash were to occur would take down the markets and economy. Its an interesting thing to keep an eye on but not something the average investor needs to worry about. David it may not be a bubble but there is growing dissent about whether it is here to stay , a fraud, what it will be. We will play what jamie dimon said last week. He is not a fan of it. The biggest challenge is figuring out, with new technology, which one is going to work . This is not just about bitcoin or nothing. There are over 100 to currencies. There are many others. Which one will be successful . If you are into crypto currencies, you have to get your mind around the idea that no Central Bank Reports it, challenges around taxing. If you can wrap your brain around that, then you still have to think about which is the technology that will emerge as the victor in all of this . Still early to tell. Lisa you raise the key issue in my point. In my view. The technology is here to stay, people are looking for a solution to not only this feeling that Central Banks have perhaps too much control, but also from a settlement perspective, all the backoffice work, it goes away when you have a block chain type of transactions. Are you oncerned how important is it to watch these cycles of bitcoin, the ecosystem there, how likely it is that bitcoin could become the gold standard, so to speak . Jeffrey certainly fascinating to watch. You talk about the boring side of the processing. What is most interesting to businesses, to the extent this could take over our health care records, so many things, is really the future for the block chain. Bitcoin is the test of that. Pervasivery technology, but ultimately, who wins out from a coin perspective, early to say. Bitcoin had 90 of the cryptocurrency market, barely half now. My favorite story of the day. Jonathan you will have to wait for it. Jeffrey kleintop, Lisa Abramowicz sticking with us. The president of the United States will dress the u. N. General assembly. A plan to unwind the Balance Sheet and the fed on wednesday. Futures are firmer, up 44. The dow seeing an alltime high. S p 500 futures seeing a high after one of its biggest weekly gains since january 2017. The story in the bond market, we are at 2017 lows. Today, we trade at 222. Pointsare up two basis to 2. 22 on the tenure. The dollar almost at 2. 1 . At 0. 1 . But get over to abigail doolittle. Abigail we are looking at some for thetime highs nasdaq and s p 500. It is on pace for a new record close. We will see if this bullish activity continues. We believe the s p 500 needs otherore time, but experts believe that the round numbers represent a pause. We could see some sideways trading. Time will tell. Lets take a look at some of the big tech movers. Bitcoinrading higher as is rebounding. Create thenies do chips that go into the cryptocurrencies. Merrill lynch also raising the prices and giving the stock a bullish tone. Netflix is higher up 1 after piper has reiterated its outperformance rating. Finally, Cisco Systems are down about 0. 4 after John Chambers is stepping down from the board. It is expected that the board will approach will appoint the ceo chuck to take his place. Take a look at this chart in the bloomberg. We have these record highs that continue to go higher and higher. In blue, we had the s p 500 on the long term. White, the probability that most americans think the stock will continue to go higher. And 2008, it004 was very high at about 55 to 60 . Then, we have the recession. It starts to climb higher and recover. 65 of American Consumers continue to believe that stocks will climb higher. It doesnt look like we do see a bit of a sideways range forming in terms of that expectation. Jonathan traditionally, you would think so. Jeffrey and lisa are still with me. Jeffrey, lets start by talking about that sentiment, and how important it is that you break through 2500 points. Walk me through it. Sentiment is critically important. September will mark the 11th straight month of gains for the global stock market. It is a record only seen one other time coming out of the financial crisis in 2003 and 2004. The market is seeing a steady pace of gains. We are entering the preannouncement. Earnings have been the drivers for stocks. It could set the market up for a bit of a pullback. Markets are about as vulnerable as we have been in september, a month known for its challenging environment for the stock market. Jonathan do the fundamentals validate the runup over 11 months . I think this is in extorting a strong economic backdrop. The economies are growing for the first time in a decade. They are all accelerating in their growth as well. Sales are rising for the first time in four years for global companies. That, i believe, does justify a very fundamental backdrop for stocks. The run will have to continue, and as we head into preannouncement, i think some doubts will emerge from some investors around some of these sectors. Technology in health care have been a clear leaders. We will see of that continues. David Goldman Sachs is out with a call this morning saying that once they start rolling out the Balance Sheet, it will drive up the yields and hurt the Balance Sheet. So, they are driving back rejections. I think they are in the minority right now, to be honest. There was a survey that bank of america does with Fund Managers just came out. It shows that investors are moving away from Investment Grade bonds and going for overweight yields. So, they are switching to the more risky bonds that lend themselves to consider it growth. So, people are concerned, but the concerns have been around for some time. David what do the equity markets need out of the fed to maintain this momentum forward . I think they need a said committed to a slow and city path and that the Economic Data supports that. In 2014, the European Central bank began to trim its Balance Sheet, but because the economic environment in europe was improving, the stocks rose. Dislocation ofhe the Economic Data due to some of the storms, it could cloud the picture a little bit in preannouncement season. Any of the concerns that the economy or that earnings profits are not living up to that expectation it could raise some doubt. Jonathan two back up this particular issue, you say we are vulnerable going into september and october. What are the attributes of companies you want to own in the final corner of the year quarter of the year . I think you want to own cyclical companies. You want to be more than more cautious of the yield sensitive corners of the market. These are companies tied to maybe the outlook of the recovery and economy. Telecommunications, some of those areas which really rely on dividend yields. Watch out for that. Jonathan so you think the market is vulnerable . For the quarter as a whole, i think the bull market remains intact. We are still vulnerable to a pullback. Jonathan what do you think . Im looking at the current chance for a fed rate hike in september, which has been going up lately. People are pricing in more of a chance for that. The biggest question right now is ecb. Are we going to get tapering talk from them . If we do, the chance for a pullback does seem to be greater. Buythan buy cyclicals, risk, but the yields are going to grind higher. The away from utilities as rates pick up, but we could see that things will be ok as yield climbed back up. Are you confident that will be the case . That is a classic late cycle environment with the stock market. It means that this is a classic environment as rates begin to pick up and earnings begin to accelerate late into the economic cycle. These are the stocks that you want to own, they keep cyclicals tied to that accelerating growth. David when last question one last question, tom came out and said that it is likely the fed will go on hold for the rate hikes due to the hurricanes. Do you agree with that . The fed does historically look at the storms. I do not think it would be the sole reason they would hit the brakes. Instead, look at the number of rate hikes between now and the number now and next year, i think it is way too low. I think that picture is going to change a little bit as people become more confident in the economic backdrop. Jonathan jeffrey and lisa, thank you. Before we go, i want to bring you the story. If i could bring you a quote from the story, it is just phenomenal. Swiss prosecutors are trying to figure out why officials were trying to flesh dollars down a let and a branch in geneva in a branch in geneva. If you days later, bank notes turned up at other toilets and cost thousands of dollars in repairs for plumbing. We talked about people being concerned about what to do with their money. I think this is quite clearly an example. These people do not want to be caught with this money. Jonathan we are about nine minutes into the session. Alltime highs across the board. The s p 500 advances 0. 2 . We begin a new trading week. Good morning to you. This is bloomberg. This is bloomberg daybreak. I am taylor riggs in the green room. Coming up, in annual sound has, the president of columbia. President l sans has, santos, theel president of columbia. That will be coming up today at 11 30 eastern time. David our own Erik Schatzker sat down. He had some advice with president for President Trump. It is important that we understand what the countrys principles are that bring us together rather than divide us. Besty and come up with the collective decisions. To bring the country together in an appropriate way. It very much reminds me because, at that time, it was after the financial crisis. They printed a lot of money, asset prices went up, Interest Rates went to zero, and we had a large wealth gap which created populism. The Central Bank Begins to tighten Monetary Policy, and then we have a populism. Are we again at that precipice . Ofwe cannot have tightening Monetary Policy which is material. Wealth gap. Ry large the top 0. 2 of the populations wealth equals the bottom 90 of the populations wealth. It is not just wealth. There is a polarity. This is a time when we have owed of those things. You cannot have an economic downturn, because, socially and politically, we could not stand an economic downturn. We would be at each others throats. It is a threat to our system. So, it is in many ways analogous. That is fearful to me. Usb what i would recommend the president of the United States to do. I would say try to bring people together, do not make one side battle the other, and tried to have ways to get to the best decisions. That is what i would recommend the president do. David that was Erik Schatzker sitting down with ray dalio. Still joining us is Jeffrey Klein top. A black swan, people being at each others throats during an economic downturn. How concerned should we be about this . We do know there will be an economic downturn at some point. It is interesting. One thing we have seen in 2017 is the fading of populism which seemed to be an insurmountable trend. It went away in 2017. We did not see it in any of the elections in europe. We saw the polls turnaround quite sharply on the issues that drove populism. It might be due to reviving Global Economic growth, or it could be the sign of another trend. I do not know. In the downturn, those issues to become more intense. We did see that in greece as a populist party took power, and then we saw it morphed into something quite a bit more mainstream. I think the concern that we would see a downturn, a rise of wouldsm, and that that lead to an end in the current economic and social policy framework i think is a bit overstated. President s are very constrained in what they can do in office. Ithink most concerned think those most concerned about Political Risk in 2017 will not Pay Attention to it. David well in income as limiting growth wealth and income as limiting growth . We certainly see some evidence about the rise in inequality. Globally, we have seen a decline in that equality across countries. Across within countries, we have seen a rise in inequality. The effects are felt more broadly in the cities of japan. They have certainly seen their income slide relative to other companies. Rket there is a rebalancing of income around the road which is interesting and has led to the revival of emerging markets. Atathan we are looking record highs as we talk about rising populism and the threat of policy paralysis. I wonder how much this causes investors to fear the next crisis. There is some concern about the policy response, if there will be one, and what it will look like the next recession . How much is that Holding People back . You may be right. Concernget a sense of from individual investors which has been in place since 2008 and 2009. I think they do not want to be caught in that next, big downturn. They have seen some declines in the stock market between 2000 and 2003 and then again in 2009. They want to avoid the next one. I think it will be a fairly mild recession given the lack of access in the fundamental act drop, but the impact fundamental act drop, the impact politically fundamental backdrop, but the impact politically could be more significant. What we see coming out of it could be a lot different from what we are used to in the past 15 years. David i wonder if there is a risk in the downturn where, a lot of people right now whether they are managing money or whatever, they have really not seen a downturn. It has been a long cycle at this point. They may not be experienced in how to deal with it. That is an interesting point, because i think businesses have embraced it in a financial sector. There has been no shortage of hoarding cash. For the most part, that levels are much lower than what they were for most of the 2000s and the 1990s. Certainly, Global Economic growth has been more modest, so they might be more used to a backdrop which has been more challenging. Like it has been a robust, booming environment like they had been used to. I think they have been braced for this for some time. Jonathan final question, the vix just rolled over. What does the vix with a nine handle tell you right now . And tells me you should probably not pay too much attention to the vix, because it does not really accurately show the anxiety of investors in the market place. Of theeady showed some surveys of investors becoming more optimistic now. It could be sign that we are due for a little bit of a pullback. David thank you for joining us, jeff. If you have a bloomberg terminal you can watch is online, check out our charts, and interact with us directly. Live from new york, this is bloomberg. David this is bloomberg. I am david westin. President obama has made the transition from washington to wall street. He has made several paid appearances. Last month, he spoke in new york for about 400,000. Next week, he will appear at Kenneth Fitzgerald health care conference. Joining us now is Michael Mckee, our economic policies correspondent. We are also joined by kevin cirilli. Big surprise. We do not know how much is going into his pocket or into his charity. We know that some money is going into his charity. Trodded path,ell the washington speaking circuit. You can go back to Ronald Reagan getting paid 2 million to get a pair of speeches in japan. Actually, gerald ford gave speeches. He was criticized for taking 10,000 for a speech. I think the only president who really has been highly critical of this was harry truman who said that anybody who had the honor of being president should not reset should not accept renumeration points. David in her new book, Hillary Clinton said it was a mistake to accept money from wall street if she was going to run for president. Being president , you do have to pay the bills. You could argue how big his bills might be, but there is not anything necessarily unethical about it. Remember after leaving the fed, he received quite a bit of money for a speech. But 400 thousand dollars for obama . A report that george w. Bush give about 200 speeches that averaged between 250,000 dollars. They do do pretty well. Jonathan do they actually mean it when they try and score political points on wall street with a certain man a certain amount of the electorate . When they leave office, they ultimately do something different. One thing we do not know from the bloomberg story is to whom else has obama spoken . One would presume he has given more than just three speeches. David looking at what is going on with United Nations in washington come up what is going on down there, kevin . They are still going to be talking about tax reform. Later this evening, paul ryan tax give an address on reform back in his home state of wisconsin. Then, the Senate Finance committee tomorrow will have a tax hearing in which they will hear from real estate folks. That is a policy divide and a contentious Sticking Point between the industry. This all comes one week before that date when we are promised to get new details about their tax policy initiative. David do we know if it is on the 25th or is it during the week of the 25th . I am waiting with bated breath for that monday. We have been told it will be the 25th and not after that, but as with anything in trump world, who knows . Bloombergs Michael Mckee and kevin cirilli. Record highs for the markets across the board. , and thethe s p 500 nasdaq all grinding higher. It is a huge week of gains. The best sense early january. From new york city and for our audiences worldwide, thank you. Our coverage continues with Bloomberg Markets up next. Vonnie it is 10 00 a. M. In new york should 10 00 p. M. In hong kong. I am vonnie quinn. Mark live from london, i am mark barton. Welcome to Bloomberg Markets. Vonnie here are the top stories we are covering from the bloomberg and around the world. Today, president makes his first visit to the u. S. As president. He will deliver a speech calling for major reforms at the global organization. Will it fall on deaf ears . Then, in u. K. Politics, a showdown may be growing between Prime Minister theresa may and foreign secretary Boris Johnson. His firing. Lead to and, a conversation with Bridgewater Associates founder to find out what qualities keep things a great leader needs. The unitedtraight to